Discussion Board Topic: Boards and Conflict Resolution
In the Week 4 reading (Hasson, 2006), the role of the Board of Directors is discussed in the context of assisting the organization resolve disputes quickly and efficiently. In this topic post, ignore the author’s predilection for including a board ombudsman in this process. Rather, what value does the Board of Directors and members of the Board of Directors bring to solving problems and resolving disagreements? You may wish to mention the contrasting functions of the Board and management in your answer.
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FA L L 2 0 0 6
V O L . 4 8 N O. 1
SMR228
Ralph Hasson
How to Resolve Board
Disputes More Effectively
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How to Resolve Board
Disputes More Effectively
I
disposal. In addition,
n 1999, Coca-Cola Co.’s CEO, Douglas Ivester, handpicked successor to
popular Roberto Goizueta, was surprised in a Chicago airport by two
members of the flagging company’s board of directors. According to the directors, Ivester’s hardhanded tactics with local bottlers and European
regulators had alienated business partners and shareholders and left him with
a reputation for not listening to the board. Mistakenly believing that the two
directors spoke for the entire board, Ivester abruptly resigned. Shares of Coke
fell 12% in two days as the board and investors struggled to make sense of
what had happened. The incident would affect the company for years, and
Coca-Cola would have three CEOs from 1997 to 2004.1 Certainly conflict is
inevitable in any organization, but, with the right approach in place, boards
can greatly increase the opportunity to resolve disagreements before they get
a chance to get out of control.
Given the high stakes involved, it is important that boards use a comprehensive approach to specify roles, policies and procedures for resolving the
routine disagreements that arise in the course of providing oversight. Boards
using a systemic approach may find that not only will they resolve disputes
more effectively, but they will also enhance their collaborative problem-solving and decision-making capabilities.2 Most of the time, boards do a pretty
good job of talking things out. However, they can be far more effective if they
establish a broad range of internal and external resources to assist them in
uncovering and resolving problems. Additionally, organizations might want
to consider adopting a new role: the board ombudsman. If the role were implemented, the board ombudsman could become a powerful resource for
senior management and for the board as well, empowered with the capability
to resolve disputes quickly, quietly and efficiently.
they should consider
A Range of Skills Is Needed
Companies have a
number of internal
and external
conflict-resolution
resources at their
creating the new role
of board ombudsman
to mediate
disagreements.
Ralph Hasson
Of course, any effective conflict-management plan must begin with the board
itself. (See “A Comprehensive Board Approach,” p. 78.) Ira Millstein has advised that when boards are selecting new directors they should consider the
capacity of potential board members to respond constructively to trouble and
to help the company prevent it.3 Best practices in conflict management and
corporate governance alike call for directors and boards to take the lead in
Ralph Hasson is a fellow of the Center for Public Policy Dispute Resolution and
a fellow of the IC2 Institute of the University of Texas at Austin. Contact him at
rhasson@utsystem.edu.
This document is authorized for use only by CHIOMA OPARA in Negotiations and Conflict Management, Summer 2023 taught by Rex Hammond, Virginia University – Lynchburg from Apr
2023 to Oct 2023.
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FALL 2006 MIT SLOAN MANAGEMENT REVIEW 77
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addressing their own problems and disagreements related to oversight responsibilities, using the most constructive approaches
possible. To solve the thorny problems that come their way, directors need a range of skills and a clear understanding of when to use
each: individual initiative, negotiation skills, informal mediation
skills, investigative skills and decision-making ability. Specifically,
the value of collaborative problem-solving skills such as negotiation and mediation should not be underestimated. Consider the
struggles of the Walt Disney Co.’s board in March 2004. In the
midst of a shareholder revolt, CEO Michael Eisner received a noconfidence vote of 43%. The board separated the CEO and
chairman roles to quell the uprising. Although the board discussed
other candidates, it named former U.S. Senator George Mitchell as
nonexecutive chairman because of his experience and credibility as
a mediator and negotiator. Mitchell reportedly considered shuttle
diplomacy among investors, directors and Eisner as his chief responsibility.4
In addition to the range of problem-solving skills that directors
need personally, boards need an established set of internal and
external resources to assist them in uncovering and solving problems. In general, directors and boards needing assistance should
first turn to the company’s internal specialists. For example, they
A Comprehensive Board Approach
By Directors:
• Each Director
• Chair, Governance
Committee
• Lead Director/Chair
• Committee Chairs
1
• Committees
By In-House Staff:
• Organizational Ombudsman
• Governance Officer
• Chief Ethics Officer
• General Counsel
• Sr. VP Human Resources
• Security
The Board Ombudsman
2
Internal
Resources
4
• Full Board
Includes:
• Individual action
• Negotiation
• Informal mediation
• Investigation
• Decision making
might seek assistance from the general counsel, chief ethics officers or organizational ombudsmen. For explosive, sensitive or
contentious problems, directors and the board should also have
access to a number of external resources, including the board
ombudsman, for highly confidential, informal problem-solving
assistance. This assistance may take the form of independent investigation for matters requiring a formal inquiry, and external
mediation or arbitration for full-blown disputes involving the
board. Parties likely to come into conflict with individual directors
or the board should also be encouraged to use the resources and
roles available through the system. Finally, all parties retain access
to the courts and to local, state and federal agencies. However,
because the system helps the board to capture and resolve problems early, fewer problems end up in these forums.
The goal is to change the flow of events when a problem or
dispute arises, shifting the focus away from full-blown battles
and after-the-fact damage control toward prevention and early
intervention. Encouraging collaborative methods increases the
opportunity to solve problems quickly among those directly
involved. By making independent and confidential resources
for informal assistance available to every employee and every
director, the board enhances its capacity for ethics oversight.
Formal procedures that can be considerably more
expensive, time-consuming or divisive, such as
investigations or litigation, are needed less often,
and are more efficient when they are used. The
most expensive and destructive approaches of all,
political maneuverings and sabotage, are reduced
to an absolute minimum.
Public
Authority
Boardroom
3
External
Resources
By Professional Providers:
• Board Ombudsman
• Outsourced
hotlines/Web-based
reporting
• Investigative Counsel
• Mediation
• Arbitration
• Courts
• Agencies
Adapted from K.A. Slaikeu and R.H. Hasson, “Controlling the Costs of
Conflict: How to Design a System for Your Organization” (San Francisco:
Jossey-Bass, 1998).
A comprehensive approach may not be enough
without the inclusion of the board ombudsman.
When it comes to solving problems and resolving
disagreements, directors and boards have at least two
related needs not commonly met through existing
resources. One need is for a highly competent, independent and confidential resource that can help
directors and boards to solve problems through effective, informal methods, such as assisted negotiation
or shuttle diplomacy. Second, the board needs assistance from resources that reflect the unique nature of
its relationship to the company and its shareholders.
As trustees of the company, members of the board
may have bosses (shareholders) and subordinates
(the CEO and the senior management team) but
they have no peers.5 Therefore, particularly in highly
sensitive or potentially explosive matters, it may be
extremely difficult, and in some cases even inappropriate, for a director or full board to seek advice or
This document is authorized for use only by CHIOMA OPARA in Negotiations and Conflict Management, Summer 2023 taught by Rex Hammond, Virginia University – Lynchburg from Apr
2023 to Oct 2023.
78 MIT SLOAN MANAGEMENT REVIEW FALL 2006
For the exclusive use of C. OPARA, 2023.
assistance from an internal resource regarding problems with a
fellow director or a senior manager. The board ombudsman
could step into this breach and
become a confidential resource for
informal assistance and an independent and neutral problem
solver and go-between.
The model for a board ombudsman role as described here is
the organizational ombudsman, as
defined in the standards and codes
of the International Ombudsman
Association.6 However, the board
ombudsman and the organizational ombudsman remain separate
and distinct. The power of the
board ombudsman role stems
from the individual’s credibility as
an independent and neutral resource as well as an objective peer.
While the board ombudsman role
does not currently exist, others have
informally taken on this role in the
past. In tough situations,
boards and CEOs have often benefited from the assistance of outside
advisers. When eight former Morgan Stanley & Co. Inc. executives
launched an effort to unseat CEO Philip Purcell in 2005, the board
turned to lawyer Martin Lipton for assistance.7 In 2001, the Rainforest Action Network, an environmental advocacy group
headquartered in San Francisco, announced plans to target wood
and paper products manufacturer Boise Cascade Corp., now Boise,
over the use of wood from old-growth forests. RAN went after
Boise’s customers, persuading a number of them, such as Kinko’s,
L.L. Bean and Patagonia, to reduce or eliminate their contracts
with Boise. In early 2003, Lowe’s Companies Inc. CEO Robert Tillman, a recent adopter of RAN’s wood-purchasing policies, stepped
in to provide shuttle diplomacy, encouraging Boise’s CEO, George
Harad, to engage in direct talks with RAN. In September 2003, the
parties announced an agreement stating that Boise would agree to
give incentives to suppliers who bought wood from forests that
were certified as well managed.8
Despite the value of the assistance in each of these examples,
neither Tillman nor Lipton could offer truly neutral assistance to
either party, nor could they provide independent and confidential assistance to all the disputing factions. Lipton was fulfilling
multiple roles on behalf of Morgan Stanley, and Tillman’s
The board
ombudsman fills
a need by acting
as a confidential
resource for
informal,
independent
assistance and
as a source for
shuttle diplomacy
on an as-needed
basis.
company, Lowe’s, had already reached an agreement with RAN.
The board ombudsman fills a need by acting as a confidential
resource for informal, independent assistance and as a source for
shuttle diplomacy. This resource must be made available and attractive to any director or committee, to the full board and to the
CEO or other parties with whom the board is likely to come into
conflict. The board ombudsman would be available on an asneeded basis. The parties would decide if and when to seek
assistance from the board ombudsman, rather than being forced
to rely on outside intervention.
Additionally, the board ombudsman could have broader, ongoing responsibilities to the board as a whole — to identify
troubling patterns or trends developing within the board, or
between the board and management, and to advise the full
board of the need for changes in its polices and procedures.
Finally, the board ombudsman could be an even more valuable
resource if made available to other parties likely to come into
conflict with directors, such as large, institutional shareholders,
key customers and business partners. A major benefit could be a
significant increase in the board’s ability to expose and address a
wide variety of problems early. The board ombudsman would
become part of the comprehensive system for providing many
opportunities to catch problems at different stages and through
a variety of channels.
Aligning Resources
Many of these best practices for resolving board conflicts are not
yet in common use, and interested boards must take a number of
steps to ensure that all the necessary resources are in place. First,
the board working with the CEO should commission a team to
develop its plan. One or more members of the governance committee should be included, as developing and implementing the
sort of system described here certainly fits within that committee’s
responsibilities. The team should also include a member of the
audit committee, since one key benefit of such a system is an increased ability to uncover and address allegations of financial
wrongdoing. The lead director, if the board has one, is likely to
play an important role in the system, and should be included as
well. Because internal specialists are critical to the system, the
committee should include the organizational ombudsman and
the leadership of compliance functions, as well as a senior line officer or two. The corporate governance officer, if the organization
has one, should be included, since he or she may play a principal
role in implementing, administering and monitoring the system.
With a team in place, the board can set goals for the system. The
team can then compare existing procedures against the board’s
goals, and consider what changes or additions to existing roles,
policies and procedures might be needed to encourage more productive, low-cost resolutions. Based on its review and comparison,
the team can develop a plan for implementing the new system.
This document is authorized for use only by CHIOMA OPARA in Negotiations and Conflict Management, Summer 2023 taught by Rex Hammond, Virginia University – Lynchburg from Apr
2023 to Oct 2023.
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Looking Outside
Given the broad range of resources
included in this process, boards will
need help from other organizations
to implement these new practices.
Private and nonprofit organizations
that support executives, directors
and boards, or that interact with
them on a routine basis, can play a
key role in the development of the
new systems. One or more of the
professional associations concerned
with governance, perhaps in tandem with one or more leading
academic institutions, could develop a board ombudsman program
as a pooled or shared resource,
available on a contract basis to any
board. In addition to their own internal resources, the organizations
developing the program could draw
on the expertise of private service
providers, insurers and experts in
conflict management, corporate
governance and related disciplines.
Including institutional shareholder
groups in the design of such services could make them even more
attractive and effective. The same
sort of organization could also provide skills training geared to the needs of individual directors,
committee chairs, lead directors/board chairs and the full board and
senior management, to help directors fulfill their new responsibilities for problem solving and conflict management. There is also a
need for incentives to encourage development of these new approaches. One such incentive could come from the carriers who
insure boards and directors. Boards, and the network of organizations that support them, should be working with insurers to develop
criteria for board conflict-management systems and to integrate
such criteria into the consideration of governance practices in the
underwriting process. The resulting benefits for insurers could include reduced losses and enhanced compliance with legal and
regulatory standards; for directors and boards, reduced premiums
and/or more favorable terms of coverage; and for all, including
shareholders, less costly, more productive problem solving and conflict management as integral components of good governance.
Boards and
organizations
should work
with insurers to
develop criteria
for conflictmanagement
and to integrate
consideration of
such practices into
the underwriting
process.
once the board has assembled its team and external resources
and implemented the system, it can begin cutting the costs of
conflict — in dollars, time and risk to reputation. With individual
directors fulfilling their roles and using the internal and external
resources available to take individual and collaborative action, the
board’s ability to provide oversight improves dramatically.
The goal is for every organization to be able to avoid costly
errors and disagreements, as Medtronic’s CEO William George
was able to do. Several years ago, George won an overwhelming
11–1 approval for a major acquisition. The dissenter engaged
with George constructively and persuasively about potential dangers of the deal. George listened and reconvened the board, and
this time they voted not to go through with the acquisition.9 Direct talk, however, won’t always be enough to solve the problems
facing boards quickly and constructively. Not all boards will have
a CEO willing to listen or a board member skilled enough to win
over 11 fellow directors. The board also needs a comprehensive
array of supporting resources, with clear policies and procedures
for each that reflect best practices in conflict management. Implementing these new systems can not only significantly improve
corporate governance, but it has the potential to greatly increase
insight into operating effectiveness as well.
REFERENCES
1. B. Morris with P. Sellers et. al., “The Real Story: How Did Coca-Cola’s
Management Go From First-Rate to Farcical in Six Short Years? Tommy
the Barber Knows,” Fortune, May 31, 2004, 84-98. See also C.H.
Deutsch, “Coca-Cola Reaches Into Past for New Chief,” The New York
Times, May 5, 2004, sec. C, p. 1.
2. K.A. Slaikeu and R.H. Hasson, “Controlling the Costs of Conflict: How
to Design a System for Your Organization” (San Francisco: Jossey-Bass,
1998).
3. I.M. Millstein, “‘Trouble’— A Factor in Selecting Directors,” Directors
Monthly (June 2000): 1-4.
4. L.M. Holson and C. Hulse, “For a Diplomat, Task Is Quelling Disney’s
Unrest,” The New York Times, March 5, 2004.
5. C. Elson, interview with author, Sept. 28, 2004.
6. The Code of Ethics and the Standards of Practice of the International
Ombudsman Association are available at www.ombuds-toa.org.
7. T. Landon Jr., “Counselor for All Reasons,” The New York Times, July
28, 2005, sec. C, p. 1.
8. M. Gunther, “The Mosquito in the Tent: A Pesky Environmental Group
Called the Rainforest Action Network Is Getting Under the Skin of Corporate America,” Fortune, May 31, 2004, 158-165; Y. Trofimov and H.
Cooper, “Globalization Protestors Plan to Target Companies,” The Wall
Street Journal Online, July 23, 2001; G. Winter, “Timber Company Reduces Cutting of Old-Growth Trees,” The New York Times, March 27,
2002; J. Carlton, “Boise Cascade Turns Green,” The Wall Street Journal
Online, Sept. 3, 2003.
9. C. Hymowitz, “Changing the Rules,” The Wall Street Journal Online,
Feb. 23, 2003; P. Pryzant and V. Caracio, “Overcoming Warren Buffett’s
‘Boardroom Atmosphere,’” Directors Monthly (December 2003): 9.
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