HBR fictionalized case studies present dilemmas faced by leaders in real companies and offer solutions from experts. Finally, Sarah thought. J.P. Offutt, the CEO, had named a time when they could meet. Sarah was a director of the company that J.P. ran, a Florida-based shopping-center-development group, and she was devoted to both him and his firm. But board meetings had been tense recently, and J.P. had grown distant. In Sarah’s opinion, the problem was obvious: Sid Yerby, the CFO. Despite Sarah’s repeated requests for comprehensive financial statements, he continued to come to board meetings with a mere two pages of analysis that lacked any explanation. How could she or any of the other directors provide fiscal oversight without access to details of the company’s operations or accounting? Increasingly, however, hers seemed to be the minority view, and she was starting to feel isolated. Some months back, J.P. had told her privately that he appreciated her persistence with Sid. The young and inexperienced CEO confessed that he often felt uncomfortable asking tough questions of the CFO, an industry veteran who was 10 years his senior. It didn’t help that J.P.’s father, Bill Offutt, who had founded the company and remained its chairman, didn’t seem bothered by the lack of documentation. Sarah, an experienced real estate consultant, had always been happy to help. But the clamor against her from Sid and the other board members was growing uncomfortably strong. In fact, one of her fellow directors had accused her of having a private agenda that included taking the CFO down a couple of pegs. Another said to her face that she talked too much, just like his teenage daughter. Outwardly Sarah balked at this, but inwardly she was intimidated, especially because she was the only woman on the board. Even Bill, who had recruited her as a director and praised her stick-to-itiveness and gumption, had commented that others considered her “pushy.” It was high time, she thought, that J.P. sprang to her defense. The Previous Quarter As Sid clicked through to a liquidity projection slide, Sarah allowed herself a small smile. It was a minor victory, but a victory nonetheless. Two weeks earlier, J.P. had pulled her aside and asked her to stop arguing with the CFO. Initially she was taken aback. Arguing? She was just asking questions. Besides, she’d been under the impression that J.P. wanted her to question and challenge Sid. Nevertheless, she decided to try a new approach: Before the board meeting she had called Sid and suggested that his presentation include certain essential details, such as the liquidity projections. Still, he had to know that the inclusion of a single additional slide wasn’t enough. After he finished, Sarah raised her hand. She could hear the sighs around the table. “Sid,” she said, “I want to commend you for the additional information you’ve provided. But as I mentioned when we spoke a few weeks ago, it would be helpful to have even more information. For example, how do our financial ratios compare with the rest of the industry’s? And what about best-, base-, and worst-case scenario projections?” When Sarah raised her hand, she could hear the sighs around the table. The chairman quieted the room and said, We simply can’t fight over every financial report.” Everyone started talking at once. Sid turned to Bill with a shrug, as if to say, “You see what I have to deal with?” Bill quieted the room by tapping his pen on the table. “We simply can’t fight over every financial report,” he said. “Everyone here is an experienced business leader.” Using the pen as a pointer, he continued, “Avery is the CEO of a trucking company, Louis runs a bank, et cetera. They’re very comfortable reading financial summaries, and they don’t want to waste their time getting into the weeds.” “But it’s our fiduciary duty to get into the weeds,” Sarah said. “Even though we’ve had a steady rise in our stock price, we’ve been relying more and more on buying underperforming assets using floating-rate debt, assuming that the assets will stabilize and we can refinance at lower rates. But that’s a big assumption, and the board deserves more detail about why that’s our strategy.” Rather than address those issues, Bill ended the discussion and moved on. It burned Sarah up. Fine—she would be quiet for now, but that night she wrote J.P. a letter that pulled no punches, for the first time formally documenting her concerns about the company’s strategy and Sid’s reporting standards, which she felt were far too casual for a big real estate investment trust, or REIT. The letter also asked J.P. for a one-on-one meeting in the week after she came back from a vacation with her husband and their four children. Sisterly Advice Before leaving for vacation, Sarah had her monthly dinner with her sister Betsy, a biotech entrepreneur. Although they both juggled work and large families, they remained close and engaged in each other’s lives. It was while Sarah waited for her sister at their favorite restaurant that she received the affirmative response from J.P. She was relieved he’d agreed to meet, but there was a nervous twinge in her gut that wouldn’t go away. J.P.’s e-mail was terse, and she found it unsettling. As Sarah greeted Betsy, she tried but failed to wipe the worry off her face. “What’s wrong?” Betsy asked immediately. “It’s that board I’m on—the real estate company.” Sarah exhaled loudly. “Did you know we’re now the second-biggest REIT in the country? We own hundreds of properties, and we’re making tons of money. But the management team still wants the company to function like the small family business it was years ago. I can’t tolerate that. And I especially can’t tolerate our CFO Sid Yerby’s casual approach to the numbers.” “I know—you’ve talked about him,” Betsy said. “He’s like an overconfident cardsharp who bets high on a pair of deuces. Nobody calls him on it except me. By the way, many times when I’ve grilled Sid over his numbers, it’s been because J.P. asked me to do it. J.P. once told me he couldn’t run the company without me. But now it seems like he’s giving me the cold shoulder and giving Sid free rein.” “What exactly is Sid doing wrong?” Betsy asked. “Well, back in 2011, we made a few big acquisitions that gave us a lot of great properties but also stuck us with billions in debt, most of which had to be financed with short-term paper. The company is now highly leveraged—much more so than any of our competitors. Sid says property values have stabilized, the consumer is back in the saddle, and there’s nothing to worry about. But what if we hit another downturn? No one else seems concerned.” She sighed. “All the other directors hate it when I grill him. They think I have some private agenda. But I don’t, except the interests of the company.” “In all your grilling, have you ever uncovered anything nefarious or illegal?” Betsy asked. “No,” Sarah replied. “Incompetent, boneheaded, sloppy?” “No, but—” “Misguided, rash, questionable?” “Well, I do think many of his choices are questionable, especially around our leverage,” Sarah said. “But he did get your company through the mortgage crisis and the recession in good shape, right?” Betsy countered. “Yes.” “Well, rightly or wrongly, that may be one reason why you don’t have a single ally on the board.” In J.P.’s Office Sarah and J.P. sat opposite each other on the short leather sofas in his office. He looked nervous. “Sarah, you know my own capabilities are limited,” he began. “I don’t know everything there is to know about business, and I never will. And as I’ve said to you before, that’s why I can’t run this company without—” he hesitated. Sarah filled in the rest. “Without me. I know. And I appreciate that.” “No—sorry. Without Sid.” She stared at him, unsure what to say. “Sarah, your intellect is very powerful,” he continued. “And your questioning, especially on financial matters, is very informed and insightful. What you have to say is always important.” “But?” “But Sid has expressed his frustration with the situation on the board, and in fact, he’s prepared to tender his resignation.” “Really?” This was exciting news, Sarah thought. “He’ll stay if you, well, as he put it, ‘tone it down and back off.’” Sarah was stunned—so much so that she had to exert considerable effort to bring herself back into the conversation. She realized then that J.P.’s expression showed more resolve than she was used to seeing in him. Was he truly giving her an ultimatum: Shut up or leave the board? What Would You Do? Some advice from the HBR.org community The lack of financial detail is hampering Sarah’s ability to discharge her fiduciary duty. I don’t think it would be prudent for her to back down. If the CFO is unwilling to provide detailed financial information, she must inform the CEO that she will have to resign from the board with a letter to shareholders. Carrie Mantha, CEO, Indira Sarah should immediately stop pursuing financial information in board meetings, promising instead to secure information privately, quietly, and offline. She should apologize to each board member for using a public forum to aid her personal understanding. And she should take ownership of her role in the misunderstanding. This way, Sarah would be both complying with the “tone it down or leave” ultimatum and securing additional information on the organization’s financials. Christine R. Valeriann, marketing consultant and professional faculty member, Johns Hopkins Carey Business School Sarah is in a “moment of power” in which she could agree with the CEO’s request and ask for a concession in return. She might say, “Let’s commission an independent audit from an external auditor, just to have peace of mind, for all of us—you, me, the board, and even Sid.” Alen Gojceta, technical sales manager, IBM Croatia An outlook that would be considered direct or assertive in a man is often seen as pushy or emotional in a woman. That is a problem for Sarah’s fellow directors, but it should not dissuade her from doing the right thing. Liz Mellon, editorial chair, Dialogue, a journal at Duke Corporate Education How should Sarah respond to J.P.? The Experts Respond Ilene S. Gordon is the president, CEO, and chairman of Ingredion, a global supplier of ingredients to numerous industries, including food and pharmaceuticals. She also serves on the boards of International Paper and several nonprofits. Sarah’s relationship with her fellow directors has clearly gone off the rails, but she might be able to retain her position and become more effective in it. She is absolutely right that a board needs more than two pages of summarized financial information at each meeting. In a public company, directors are supposed to represent independent shareholders’ interests and provide a strategic sounding board for management. They shouldn’t rubber-stamp whatever the CEO and the CFO present. They need to understand how the company makes its money and where competitive threats are lurking. They should want—and, in my experience, most do want—to dig into the numbers and understand data such as profitability and financial ratios. So at first blush, Sarah appears to be succeeding admirably in her role as director. In fact, she seems to be the only one who’s treating the job seriously. But take a step back and you can see that she’s failing miserably. She isn’t contributing constructively to the team, so her attempts to represent independent shareholders are ineffective. Sarah might argue that the other directors are the problem. I wonder if many of them are longtime associates of the founding family whose loyalty to Bill and J.P. may outweigh other concerns. Even so, Sarah can become a better team player. She should do her homework and find out about her fellow board members’ backgrounds and viewpoints—who has what expertise, who feels the same way she does about the issues facing the company. I seriously doubt she’s the only one who wants more financial information. It’s a good bet that a few other directors would welcome a conversation with her if she approached them with an open mind. Once she has established common ground, she should use those areas of alignment to build relationships. She should have done more research before officially becoming a director—that’s what I always do—but I don’t think it’s too late. Other directors would welcome a conversation with Sarah if she approached them with an open mind. If, as I suspect, Sarah has a few potential allies around the table, and if she’s able to forge relationships with them, she should make it her priority to build an alliance that can diplomatically yet forcefully insist on getting more-detailed financial information and engage management in thoughtful discussions about such things as debt and how expansion should be funded. That’s the way to represent independent shareholders. The chairman and the governance and nominating committees have roles to play, too, of course: They should coach Sarah and the other directors on how to listen and how to present opinions so that the board’s discussions become more fruitful and people’s time isn’t wasted. As the chairman of Ingredion’s board, I often seek out discussions with board members between meetings. I’ve worked with several directors who feel strongly about certain issues, and, yes, sometimes people do bump heads. A chairman shouldn’t try to eliminate conflict—it’s important to have a diversity of opinion on a board, and I like it when people speak up and become change agents. When managed appropriately, conflict can be productive. I try to bring out the best in each director so that he or she is operating effectively, both individually and as a team member. It’s possible, of course, that the chairman and the head of the governance committee wouldn’t want to help Sarah. She also might not find any potential allies or be able to engage more constructively. Under any of those circumstances, Sarah and the board should probably part ways—everyone would be the better for it. But this board faces another, deeper issue. The leadership abilities of the company’s CEO are questionable, to say the least. It’s a big red flag that J.P. has been deputizing Sarah to grill Sid at board meetings. He’s the one who’s supposed to ask the tough questions. If J.P. can’t face up to Sid, this company has a much bigger problem than the conflict around Sarah. Sue Decker is a former president of Yahoo and a former entrepreneur-in-residence at Harvard Business School. She is a member of the boards of directors of Berkshire Hathaway, Intel, and Costco Wholesale. When a board develops a culture as dysfunctional as this, no individual director other than the chairman can alter it without support from other members. So although her concerns are valid and her requests are quite reasonable, Sarah has lost her power to drive change, and she now has to decide whether she can live with this culture. I don’t think she can—I know I couldn’t—so I would advise her to state her concerns publicly and resign. But to avoid finding herself in a similarly polarizing and ineffective position in the future, she must learn as much as she can from this experience. The next time Sarah joins a board, she should think about how she can better use her power. She should adopt a communication style that reflects an appreciation of the roles of her fellow board members, and she should observe important communication boundaries. A well-functioning board has committees that take on specific roles, some of which are required by law. In fact, most of a board’s real work happens in committee meetings and one-on-one interactions, not in the general meetings. The audit committee’s role, for example, is to understand and monitor the company’s financials, including its liabilities, and it is often responsible for risk-management oversight. So the concerns Sarah is raising in the general board meetings should have been raised first with the audit committee and the company’s outside auditors. Had the committee and the auditors shared her concerns, she could have reached a consensus with fellow board members or outside experts. Sarah doesn’t appear to understand the committees’ roles and functions—which brings me to the issue of boundaries. By repeatedly trying to get into detailed discussions of the financials in general board meetings, Sarah transgressed personal boundaries. In effect, she chastised Sid Yerby, the CFO, in front of his peers and his boss. As a result, she and Sid ended up in an attack-and-defend mode, which prevented them from empathizing with or validating each other and from finding common ground. The style of communication hijacked the content of the issue. The board obviously has its own boundary issues: The comment that Sarah is like a director’s teenage daughter was completely inappropriate. Sarah should have immediately addressed that comment with the director to understand what he meant and to communicate that it was inappropriate. If someone had made a remark like that to me, I would have asked him to explain on the spot and put him in a position to retract and apologize. Sarah then should have followed up in a one-on-one meeting with the director. If a director told me that I was like his teenage daughter, I would ask him to explain on the spot. Sarah should have been holding one-on-one meetings with other directors all along, in order to express her views and find out how the others thought about various issues. She should have used those meetings to try to put herself in their shoes. For example, a critical question is why Sid doesn’t want to provide more-detailed financial information. Is it because the chairman and the CEO don’t want him to? Or is he hiding something? Once Sarah had come to understand the others’ viewpoints and motivations, she might have been able to resolve her issues. Or—who knows?—she might have discovered a cover-up that would need to be reported to shareholders and outside auditors. As the only woman on the board, Sarah is in a tough position. The other directors may not be overtly sexist, but their choice of language suggests that at least some of them view her through that lens. This makes her choices about when and how to communicate her concerns even more delicate and sensitive, and her personal style may have gotten in the way of effective communication. She seems quick to go on the offensive and equally quick to get defensive. She may not realize that her personal power could be much greater if she were disarming and nondefensive rather than abrasively forceful. Had she been more successful in gaining information and establishing boundaries in the way she communicated her concerns, Sarah might have been able to win support from her fellow board members for her requests. If the CFO continued to resist, despite board support for Sarah, a decision to resign from the board would have had a powerful impact on shareholders, because it would have raised troubling questions about the top management team’s motivations.
