Boardroom fallouts – failing to prepare risks preparing to fail

Boardroom fallouts are not uncommon, as Superdry founder Julian Dunkerton has lately discovered. His struggle to claw his way back into a management role against resistance from the incumbent directors has played out on front pages. The unexpected resignation of the entire board in response to his return is a reminder that failure to prepare runs the risk of preparing to fail when company executives start playing battleships.

Dunkerton founded Superdry in 2003 but stepped down early in 2018. Dissatisfied with recent profits and Superdry's business direction, Dunkerton attempted to re-join the management team but has been obstructed by the incumbent executives.

This week, Dunkerton leveraged his own shareholding to force his re-election to the board. He has, however, reportedly been wrong-footed by the abrupt resignation of the whole board plus Investec as the company's broker in response. Reports suggest that Dunkerton hadn't expected this reaction as he tried to persuade some of the outgoing team to stay. Dunkerton now faces the unenviable task of recruiting an entirely new board whilst the company's share price already closed 15% down one day after his dramatic return.

Dunkerton's predicament is a reminder that the dynamics of the boardroom are delicate and can spiral out of control quickly. All eventualities should be considered and planned for. 

Steps should always be taken to ensure executives are qualified for their role and compatible with the dynamics of the board. Other more formal steps can be taken to best position a company to weather the storm of a boardroom fallout later down the line. Professionally drafted contracts and shareholder agreements are two particularly valuable tools.

It might sound obvious to advise putting detailed contracts in place.  But, for businesses whose genesis began with a small scale and semi-formal pooling of resources by friends and/or acquaintances, well drafted contracts are sometimes overlooked. Squabbles over your own or others' responsibilities are often a source of frustration between board members. Contracts are the best way to record those responsibilities and can help preserve stability for the business in the long run.

Shareholder agreements should also be implemented where appropriate. They have greatest potential value when a majority, ideally 75%, of shareholders are signed up and, of course, this level of agreement is more likely to be achieved by manager-owned SMEs than public companies or a private companies with broad share ownership. Where a shareholder agreement is an option, agreement is more easily achieved at an early stage when battle lines haven't been drawn and everyone is on good terms. The benefit is that the issues which can be helpful if matters later become contentious, like deadlock situations, exit provisions, restrictive covenants, valuation of shares in various circumstances and other contentious issues can be dealt with in advance. Having these questions answered in a clear and unambiguous way can help to short circuit otherwise public and damaging disputes.

Boardroom fallouts can be draining, stressful and expensive for those involved. In large scale disputes, it is very likely the dispute will be driven into the Court system at extra cost. It is always advisable to plan ahead of time for these events to minimise their repercussions when and if they do arise.