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How To Resolve Business Disputes With Fellow Directors

How To Resolve Business Disputes With Fellow Directors

Business DisputesDisagreements are inevitable in business. When you have more than one person running an enterprise, there are bound to be differences of opinion from time to time, whether on strategy, funding, or pay. But however much directors clash or those in family firms feud, they must find a way to work together for the sake of the company.

In a small organisation, disagreements can be hard to avoid, and acute when they happen. How can owners handle business disputes, and still run a successful company?

What’s the problem?

Before you do anything else, you need to identify exactly what’s causing discord in the first place. There are some common reasons why the shareholders of a business or directors come to blows.

  • Money matters. It may be that one company director expects to be paid dividends as soon as the business is profitable, while another wants to plough money back into the enterprise. Alternatively, there could be a business partner who is a majority shareholder, but with little involvement in the day-to-day running of the firm, who wants more income than others think fair.

SOLUTION: Agree pay structures at the outset with others running the business, and create a written document detailing the calculation of directors’ remuneration. Take professional advice on tax liability before deciding the balance of salary versus dividends. Also, it’s wise to have a shareholder agreement, stating whether the company will retain profits or distribute them, plus expectations of people in terms of performance, retention of shares, and competition clauses should someone leave the organisation.

  • Where next? How to grow the business, the direction in which to take the company, and what opportunities to pursue can be an area that’s ripe for arguments among board members. Disagreements over strategy are inevitable as a business evolves, but it’s a question of how you react when you don’t see eye to eye.

SOLUTION: Have a business plan so that you can refer back to your original intentions for the firm. You also need to revise this document periodically in order to take account of new developments. Again, a shareholder agreement should outline how serious business disputes will be resolved. And always know the legal position to help identify the best course to take.

  • Unreasonable behaviour or misconduct. It could be taking a somewhat flexible view of where company expenses end and personal costs begin, not pulling your weight professionally, or using business property or assets without others’ agreement – there are many reasons why one boss may feel another is taking advantage of their position. It’s a company director’s legal responsibility to work in the business’ best interests, so determine if the person is doing so or if your judgement is being clouded by a poor personal relationship or a struggle for power.

SOLUTION: Have written policies about what qualifies as misconduct, so you have grounds to confront someone who’s out of line. Good corporate governance is essential to ensure that directors know their rights, responsibilities, and genuine powers. If you suspect full-blown fraud, you may need to get outsiders involved, either the police – though this can lead to reputational damage for the business – or external specialist fraud investigators. Again, a written fraud policy will give you a framework to work to should you discover anything’s amiss. The Fraud Advisory Panel has more guidance on this.

It’s a family affair

If yours is a family firm – and two out of three private enterprises in the UK is, according to the Institute for Family Business (IFB) – then it’s easy for the lines between the personal and the professional to get blurred, with irritations from home spilling over into the workplace, and egos getting in the way of day-to-day business. Equally, methods of communication can be indirect and oblique in some families, with some individuals not saying what they really think, while quietly undermining their relatives’ actions.

The IFB recommends a series of steps for family companies to avoid falling out or to settle disagreements quickly if they do occur.

  • Understand how conflict arises. Identify the flash points, such as sibling rivalry or inter-generational conflict, assumptions over money, succession or position in the business. Once you know where potential issues lie, it’s possible to watch for problems flaring up, and to intervene swiftly.
  • Outline the values of the business, your agreed family values, and your common goals. The ideal is to work as a team, so make sure you’ve got a clear idea of what the business is trying to achieve, and every individual’s role within that plan.
  • Encourage communication, honesty, and transparency. Hidden agendas, or grudges can easily creep into professional dealings, so act to keep lines of communication open through regular meetings, which allow people to speak their minds without recrimination.
  • Have written rules about governance and dispute resolution. This takes the personal element out of any handling of an argument, and means that everyone can see that they’ll be treated the same if upsets occur.
  • If all else fails, seek an outside mediator. Some family rows run too deep for the relatives themselves to resolve. Turn to an experienced business adviser, such as an accountant, family solicitor, or even a mediation expert specialising in family companies, to aid the warring parties.

Dealing with a deadlock

Sometimes, it proves absolutely impossible for parties to agree, so a more drastic solution is required. If you want to sack a fellow director, the procedure can be quite complex. Shareholder approval is necessary, with shareholders calling a general meeting to consider a resolution to dismiss a director. He or she can present his or her case, but if more than 50 per cent of the votes go against them, they can be fired. More information on the process is outlined in the relevant legislation, the Companies Act 2006.

Another option may be to try to buy out the person who’s either in the minority in his or her view or who shows the least appetite for carrying on with the enterprise. Again, a well-written shareholder agreement will make provision for this imagined outcome, establishing how other shareholders or the business itself can purchase the shares of an aggrieved party.

Alternatively, it may be possible to persuade a person to resign their post, typically with some compensation on departure. In this instance, it’s usual to draw up a compromise agreement covering any possible future claims, and non-compete clauses to prevent them stealing any business. Taking legal advice is preferable in this instance, but it’s also possible to get further information on such settlements from the mediation organisation Acas.

Whatever else, if any kind of dispute arises in your business, act quickly. The longer things are left to take hold, the worse they get, and the less likely a satisfactory outcome becomes. It’s not possible for everybody to agree all of the time, but resolving arguments amicably is a sign of strength both in personal relationships and between business partners. So, swallow your pride, put the needs of the business before your ego, and get talking to get the job done.

Image courtesy of jesadaphorn /

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