To voice an opinion that is different from the one that is generally or officially held is what is meant by the word “dissent.” It is a statement that inherently carries a pejorative meaning and is indicative of a significant degree of discord between two parties.
A “dissent” by a director can be a double-edged sword in board rooms; on the one hand, it can be used as a barrier to prevent a possible misadventure, and on the other, it can be utilised as a “diabolical obstructionist” mechanism that can cause even genuine suggestions to be rejected.
It is very evident that the law provides the foundation for a director to exercise his right to dissent and that this right is one that must be exercised. The questions that need to be answered are when and how to use it.
Appropriate time
A director on the board will face three distinct decision-making scenarios:
One in which a problem or agenda item is crystal clear and is forwarded without much discussion (this is the most common scenario, in which decisions are passed by unanimous resolution);
One in which an issue or agenda item is put up but raises concerns or discomfort for the director; and one in which an issue or agenda item is put up but causes the director to feel uneasy. This is a classic case of the cat being stuck on the wall. It is not possible for him to take a stand and voice his disagreement with the decision; so, he simply conveys his discomfort and allows the majority to make the final decision. At other times, all he does is remain silent and doesn’t even contribute to the conversation that’s going on.
There is also the chance that the director will voice his worry in writing, but he will abstain from voting over the issue. A situation like this one would be considered a “disagreement,” not a dissenting opinion.
The third instance of this kind is one in which a problem or an item on the agenda is brought up. This might be, for example, a contentious transaction involving a related party or an unrelated diversification that does not have sufficient notes or details, and the transactions do not pass any compliance or ethics test. This should be obvious to everyone.
The director needs to make it very clear that he is “dissenting,” or expressing disagreement with, the decision to proceed through with the deal. If the transaction is approved by the board with a majority vote, the director will have a high level of protection in the event that there is a subsequent investigation or examination
Conclusion
In every boardroom, there is bound to be at least some dissent. Dissent are healthy and can improve both the success of an organisation and the efficacy of its board.
Nonetheless, there is always the possibility that they will spiral out of control, causing both injury and complication. And if nothing is done to resolve the issue, it may worsen, which will hinder the board’s capacity to make sound judgements.
Citation
(“Dissent in the Boardroom: How to Create a Culture That Values Dialogue, Inquiry and Debate – Rotman School of Management”)
(INDEPENDENT DIRECTORS’ DISSENT ON BOARDS: EVIDENCE FROM LISTED COMPANIES IN CHINA)