Leadership Deadlock: Deal with It

Who is the leader of the Consumer Financial Protection Bureau? For the moment, that depends on whom you asked. 

The return from the Thanksgiving holiday began awkwardly for the regulatory agency charged with upholding the financial rights of consumers, as two different acting leaders showed up for work—one appointed by the White House; the other named by the agency. But while the process of naming a new CFPB leader became a political issue fraught with, well, politics, the situation has become a tidy reminder to organizations of the importance of establishing procedures to remedy board or leadership deadlocks. (On Tuesday a federal judge backed the White House's choice, but that ruling may be challenged). 

“The potential for a deadlock is much more of a reality today because of activist investors,” says Victor Arias, a Korn Ferry senior client partner with the CEO/Board Services practice. “In the boardroom, it comes down to having open communication and ongoing dialogue among directors about the important issues that could create divisiveness.” Such issues could include choosing a new CEO, responding to a takeover proposal, structuring executive pay packages, and more. 

Though it may seem that having an uneven number of directors is the obvious solution to avoiding a leadership deadlock, it isn’t always that simple. Directors may need to recuse themselves from voting on an issue because of a conflict-of-interest, for instance. 

Arias advises that directors review the organization’s bylaws and address any holes by clearly spelling out procedures to resolve deadlocks or stalemates on issues pertaining to a vote. Different states have different ways to break deadlocks, so where an organization is incorporated could factor into play as well. The court, for instance, could name a provisionary director as a way of mediation. 

According to Dennis Carey, Korn Ferry vice chairman and co-leader of the Board Services practice, the very public leadership drama at the bureau shouldn’t happen at a private organization, in theory, since directors are bound by strict disclosure mandates surrounding company strategy or business decisions. But information has a way of leaking out. When it does, Carey says boards must have a skillful lead director to “moderate, mediate, negotiate, and cajole” everyone to break the deadlock in a way that is mutually satisfying to both sides.

Carey, who co-wrote the book “Boards That Lead,” says that takes a lead director or chairman with a personality geared toward diplomacy, collaboration, empathy, and communication.