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Julie Garland McLellan

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Dilemmas, Dilemmas; practical case studies for company directors
by Julie Garland McLellan   

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Publisher:  CreateSpace ISBN-10:  1449921965


Copyright:  January 20, 2010 ISBN-13:  9781449921965

Julie's web site

These real-life case studies assist directors to develop their judgement using current boardroom issues. Each case study is commented upon by three experts who provide insights into how issues may be addressed. The need for governance responses to suit the organisation context, and the characters on the board, is highlighted by the diversity of views and insights from the authoritative international contributors.

How do company directors develop their judgement?

This book of real life case studies is designed to give directors exposure to issues and dilemmas that have taxed their peers. Each of the 22 case studies is drawn from experience and three expert practitioners provide insights into solutions to the dilemma

The case studies cover government, non-profit and commercial boards. The book is global in scope; the companies, protagonists and experts are international and the similarities and differences between different legal jurisdictions enhance the rich learning experience. This is also a lively and exhilerating read. The studies are practical and there is a refreshing lack of jargon or legalistic bombast.

Any director, aspiring or experienced, in any country from Australia to Zimbabwe will enjoy and benefit from this practical book.

Directors need good judgement. A lack of it can send them to jail, expose them to ridicule, or render them bankrupt.
Good judgement is developed by bad experience; so how can directors develop judgement without suffering the experiences?
This book is an aid to developing good judgement. It will be of interest to aspiring and experienced directors alike. The case studies are drawn from real life situations which have been fictionalised to preserve the anonymity of the protagonist and to clarify the issues. The advice is practical and pragmatic.

Guido had been a senior executive for several years when the CEO left shortly after listing the company. He was promoted to the CEO role. A contract was agreed, announcements were made to the stock exchange and all Guido's contacts, and he started to settle into the role.

After four weeks the Company secretary came to Guido with an invoice for 'services rendered' raised by one of the new major shareholders. The 'service' was purchase of 5 million shares at IPO and the payment requested was $1.25 million dollars or 25c per share. No discount had been disclosed during the IPO and this payment would effectively mean that the shareholder received shares at a lower price than the price paid by other investors.

Guido raised the matter with his chairman who explained that this was why they had fired the former CEO. The board, he said, expected Guido to resolve the matter without any adverse publicity.

What should Guido do?

Mark's Answer

Guido needs to request copies of, and go through, the Board meeting minutes from the meeting at which the Board made the decision to fire the CEO and any other Board meetings where this issue came up, review any other relevant documentation e.g. the IPO due diligence report and IPO legal report and prospectus to ensure that there was indeed no contract for these "services rendered".
I would have thought the Company secretary would have been aware of/provided Guido at least the Board meeting minutes. I would also have thought the Chairman/Board would have advised Guido of this issue prior to his acceptance of the appointment. But, dealing with the facts….
If it is clear that the previous CEO did this without authority and without disclosure to the Due Diligence Committee or Board, or if it is unclear that there is a legal agreement with the shareholder for the purported "services rendered", Guido needs to contest payment of the invoice as there is either no basis for its payment or the CEO was acting inappropriately/without authority (and potentially illegally) in agreeing to the payment and not disclosing it. If indeed there is no underlying agreement, the shareholder would have been applying for shares on the basis of the prospectus, which contains all the terms and conditions of his (and others') investment and the payment of 'services rendered' is not one of them.
Guido should seek legal representation for the event in which the shareholder contests non-payment of the invoice, which Guido, as CEO, needs to ensure that the company defends vigorously. This should not result in adverse publicity.

Mark Baker is Director, Corporate Finance at Linwar Securities and has significant experience in capital raising, corporate finance and new business start-ups.

Julie's answer

Guido has done nothing wrong but he needs good legal advice. He should consult ASIC in Australia, the SEC if in the USA, or his corporate law firm. This action is unfair to the official brokers and underwriters.
The invoice cannot be paid unless the arrangement is confirmed to be legal. It is normal commercial behaviour to delay payment of an invoice whilst clarifying details of the underlying contract.
It would be best if the chairman went with Guido to the authorities; this would distance the board from the former CEO's actions. If the transaction is considered illegal the former CEO is probably in trouble and the company is likely to be mentioned in connection with any action taken against that CEO. Some publicity is unavoidable. If the transaction is considered legal and invoice is paid it should be disclosed as a related party transaction.
If the board did not authorise the arrangement, the company will only be peripherally involved. This should not take much time or effort and will be cheaper than paying that invoice.
If the board sanctioned the arrangement there is trouble ahead. Guido should resist pressure to quietly pay the invoice and conceal an illegality. If he complies with that request what might they ask him to do next?
At the end of the day, Guido needs to feel that he has acted honourably and not done anything amoral.

Attracta's Answer

Guido should inform his Chairman that this transaction is illegal and, as the CEO, he has no choice but to notify the ASIC and the Stock Exchange. Furthermore, the Chairman has an ethical responsibility to set the ethical tone for the organization; such a direction fails to fulfil this role. The question of publicity is out of Guido's' hands however neither he nor the Chairman should put themselves in a position where they can be accused of condoning an illegal activity.
If the chairman brushes him off Guido must notify the other Board members of the chairman's direction and put forward a recommendation that they support Guido in his recommendation to legally rectify the situation or accept his resignation. Guido must remind members of the Board that as an officer of the company, Guido may well be open to prosecution. Over and above the legal accountability, there is also the question of the ethics of concealing an act that is prejudicial to other shareholders. Such actions sets the tone for how an organization's culture will develop into the future CEO and sends a message to other executives that management is prepared to accede to illegal acts in order to avoid public scrutiny. If so, what else is management prepared to do? What do such actions tell employees about "how things are done around here"?

Attracta Lagan is a Principal of Managing Values and has some 15 years experience working with the Boards and senior managements of many of Australia's 'blue chip' companies and government enterprises. 

Professional Reviews

How do you really add value as a company director?
Dilemmas, Dilemmas: Practical Case Studies for Company Directors, by Julie Garland McLellan, ISBN 9781449921965, published by Great Governance, USA, March 2010.
Reviewed by Ralph Evans

What do boards of directors actually do?
In Anthony Trollope’s Victorian masterpiece The Way we Live Now, they do precious little other than wave through whatever the boss of the company wants.
While this may have sufficed when Trollope was writing, in 1875, rather more is expected of directors in 2010. Yet the way they can really add value remains a mystery to many.
In a new book, Dilemmas, Dilemmas, Julie Garland McLellan sheds fresh light on how boards of directors make a contribution. She sees it as largely a matter of resolving thorny issues that affect a company at its top level.
This is an interesting approach, and a refreshing change from the more conventional recitation of the various functions and duties of directors.
Drawing on the way Harvard has taught MBAs for many years, Ms Garland McLellan presents a series of case studies, 22 in all. She sets out each situation simply, in clear English, free of jargon. In each case, she offers solutions suggested by two or three people who have considered the particular situation and then prompts the reader to think about what he or she would do in the circumstances.
The cases cover a wide range of issues, from doubtful solvency through conflicts of interest to what to do about a director who has stayed on long past the time when he added any value. They are real and practical issues like those companies face at board level every day of the year.
A strength of the book is that Ms Garland McLellan presents more than one solution to each conundrum. It is often the case that there is no one perfect course to follow, although there may be plenty of bad options.
While most of the companies seem to be at the smaller end of the spectrum, some are larger. The range includes listed companies, international companies, joint ventures, private firms, not-for-profit organisations and government enterprises – virtually every kind of organisation that is likely to have a board of directors.
Perhaps for brevity, or perhaps as a touch of political correctness, all the directors in the book only have first names – Brad, Suellen, Raj and so on. It is a folksy touch. However, you should not be misled: there is real substance in the issues the cases explore.
Dilemmas, Dilemmas is not a substitute for a formal course on directors’ duties and responsibilities. Ms Garland McLellan is a regular teacher on such courses with the Australian Institute of Company Directors. It is instead a book that will complement such courses and deepen directors’ understanding of what they should do in the boards on which they serve.
Dilemmas, Dilemmas is a short book and easy to read. It will make a valuable addition to the briefcase of many a company director and is perfect for a quick dip on the flight to an interstate meeting.

Ralph Evans has been a director of several companies, venture funds, not-for profit organisations and government enterprises. He has been CEO of the Australian Institute of Company Directors 2003-7, Managing DIrector of Austrade and a Vice-President of the Boston Consulting Group.

Corporate Governance Dilemmas
Dilemmas, Dilemmas: Practical Case Studies for Company Directors, by Julie Garland McLellan, ISBN 9781449921965, published by Great Governance, USA, March 2010.

Reviewed by Stephen Gageler

There are many problems in life for which there are no uniquely correct resolutions. When the resolution of a problem involves a choice between unattractive alternatives, we call it a dilemma.
Dilemmas are the stuff of corporate governance. Their resolution can be informed by legal principle and accounting practice. But, more often than not, the choice to be made is one of judgment. And the judgment to be formed is one on which reasonable and informed minds can, and often do, differ.
Julie Garland McLellan’s “Dilemmas, Dilemmas” presents us with dilemmas: pithy problems, based on real-life corporate governance scenarios, for which there is no uniquely correct resolution and for which any resolution involves a choice between alternatives revealing themselves with varying degrees of negative attraction. It then presents us with a range of reasonable and informed responses to those problems. It then invites us to form our own judgment.
The problems are attractively presented in an uncluttered and personal way. They are presented as the problems of David, Suzanne, Tim, Jane and others; over twenty in all, never more than a page in length. To each problem there are three similarly short straightforward and personalised responses by acknowledged corporate government experts. The responses are considered, varied and illuminating in their content. The overall result is a book that is at once highly readable and highly thought-provoking. The reader is left ultimately to resolve the dilemmas it illustrates but the reader is better equipped to do so through a sharing of the insights of others.

The final paragraph, by way of disclaimer, explains that the purpose of the book is to educate and entertain. It does both, and to a high degree.

Stephen Gageler SC is the Solicitor General of Australia

Where can you find practical advice for company directors?
Dilemmas, Dilemmas: Practical Case Studies for Company Directors, by Julie Garland McLellan, ISBN 9781449921965, published by Great Governance, USA, March 2010.
Reviewed by Kristian Kaas Mortensen

Having launched a Directors association covering 3 countries in 2009, started a Directors education program, and now in the process of developing guidelines for State owned companies in Latvia, Lithuania and Estonia I’m in need of inspiration. Dilemmas, Dilemmas provides such needed inspiration in an easy to understand way.

We are a young region when it comes to governance and such hands on advice as this book shares are hard to come by here.

Dilemmas, Dilemmas is easy to read and quickly guides the thoughts of the reader towards local examples and problems of a similar nature.

This is a book created with consideration towards providing strong and practical value for the new generation of company directors.

Kristian Kaas Mortensen is President of the Baltic Institute of Corporate Governance. He is based in Vilnius, Lithuania.

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