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Resolving Conflict and Disputes at Executive and Senior Management Levels – Part 1

RESOLVING CONFLICT AND DISPUTES AT EXECUTIVE AND SENIOR MANAGEMENT LEVELS:

Great Expectations

Executives and senior managers carry far greater obligations and duties than employees in more junior positions. They’re much praised for their successes and maligned for their failures – and their activities are relentlessly scrutinised and judged by others both inside and outside the organisation.

They wield a lot of power and influence over the greater number employees in the lower ranks. Their actions or inactions can have profoundly positive or negative effects. They’re regarded with a mixture of dread, admiration – and a fair amount of envy. They’re often criticised as overpaid ‘fat cats’ who spend their time in meetings and living high society lifestyles instead of doing real work to justify their fancy salaries.

Leadership

Contrary to these perceptions – an executive’s job is not for sissies! A lot of hard (business) and soft (people) skills plus serious determination, self-confidence and stamina are needed for success. Perhaps most important of all, that special quality of leadership is needed – not just raw toughness to make it happen. There’s a great abundance of literature on what qualities make for a good or a bad leader of a business, government department, political party, social club or similar. It reveals that a good leader creates a voluntary culture in which employees are inspired and motivated to follow their leader willingly to achieve the goals of the organisation. This generates a climate of positive cooperation amongst employees at all levels to achieve the best interests of the business.

A bad leader creates a culture of compulsion in which the leader rules by unilateral decree and the twin weapons of fear and favour. This ill-advised style creates a negative climate of fear, hostility and rebellious compliance with rules and procedures. Executives and senior managers carry great burdens of responsibility and accountability. They can best do this with the organised contribution of others managers and employees rather than on their own. An executive who is a poor leader and is driven instead by self-interest and defensive behaviours exposes him or herself far more to the downside risks of a painful fall from the top and the negative judgement of the public.

Rewards for Risks

Executives are well rewarded for taking on the pressures of the job – but they must produce the desired results to earn their rewards. The guaranteed pay for most executives is only about 34% of their total potential remuneration. Short term incentives, such as bonuses for achieving annual profits targets, account for about 41%. The remaining 25% usually consists of long term benefits in the form of share options for increasing shareholder value over several years.

Legal Restraints

New laws and growing shareholder activism is putting executives under ever increasing scrutiny. The new Company’s Act 2008 gives shareholders, particularly minority shareholders, much more clout to challenge the conduct and behaviours of executives. In the case of listed companies, they are taking a more active role in the determination of executive compensation, especially where equity (either in the form of options or other instruments) is offered. This trend is slowly extending to curbing excessive exit packages or “golden handshakes” whichh are typically paid to executives on termination of employment.

Golden handshakes

In Australia, the Australian legislative reform on termination benefits for executives sets parameters for golden handshakes payable to executives when they exit their organisations. The old regulatory framework allowed for termination benefits to reach up to seven times a director’s total annual remuneration package before shareholder approval is required. A new law now requires shareholder to approve any intended golden handshake in excess of one year’s remuneration. In addition, the range of personnel whose termination benefits can be subject to shareholder approval is expanded from directors to also include senior executives and key management personnel. Similar new legislation is currently being considered in the United Kingdom.

There is no similar legislation in South Africa to limit the extent of golden handshakes to executives when they exit their organisations. However, listed companies must make full disclosure to shareholders of all remuneration and any ex-gratia payments made to directors and executives. The need to go public has the effect of tempering excessive and unreasonably large pay-outs. And it shifts the onus on the board of directors to explain and justify the amounts paid. This provides a measure of comfort to shareholders and the public that the rules of corporate governance will serve to provide an adequate system of checks and balances to control excessive pay-outs and associated abuse.

Calculating Benefits

The formula to calculate the amount of a golden handshake is determined by a combination of the terms of the executive’s employment contract and negotiation between the company and the executive. At the heart of these negotiations is a mixture of contractual entitlements and risk assessment. The legal risks include the executive’s rights to fair labour practices and the parties’ prospects of success in litigation in the CCMA and Labour Court if they fail to agree on the terms of a settlement. The other key element of legal risk relates to the less tangible issue of potential damage to personal and corporate reputations.

Gravity has its downside
Just as gravity has its downside, an executive’s high powered job with its perks has the downside risk of a dramatic fall from grace (and of fortune). This can happen, or if she or he commits a serious act of misconduct, fails to perform the job or simply makes a bad business decision. For the executive who stumbles and falls, the loss of a big pay-packet can be painful enough – but the damage to the business and to his or her reputation and consequent future career prospects can be simply devastating. This is because an executive’s blunder can often be a really big one with severe consequences for the business and for many others associated it. Customers, suppliers, staff, shareholders can suffer the consequences – as can society in general.

Hostile battles
We’ve recently witnessed several hostile high-profile executive battles unfold in disciplinary enquiries, the CCMA and Labour Court cases such as those of Eskom, SAA and the SABC. They’ve invariably smacked of greed, power and hostile vengeance – far from the qualities you’d expect of an executive with good leadership skills. These nasty fallouts and unhappy endings can mostly be prevented by the development of unselfish and quality executive leadership skills.

Relative risks
Conflict and disputes at senior level are bad news for a company. They can generate damaging publicity, divert resources and lead to poor performance. They can scare investors, cause share values to decline and in extreme cases they can paralyse the business. The risk profile of having to deal with conflict and disputes involving executives and senior employees at the top is far greater than the risks of dealing with employee disputes at the lower less-paid levels.

High risk factors at the top end include:
•    high financial risks – salaries, options and share prices
•    reputation management – personal and corporate
•    greater bargaining power
•    scarcity of executive skills
•    complex legal issues and statutory compliance in terms of company, labour and corporate governance
•    overlaps between roles as employee and director
•    difficulty in dealing with measuring poor performance
•    relationship problems – the most common cause of conflicts and disputes.

Lower risk factors at the lower end include:
•    low financial risks – low wages and salaries
•    lower risks to reputation
•    low individual bargaining power
•    high supply of labour in the market
•    cap on compensation for unfair dismissals – maximum of 12 months’ pay.

Directors’ duties and responsibilities
In addition to labour legislation, the conduct and behaviour of executives who are also directors and office bearers of a company are governed by other statutes and governance rules. These are collectively designed to subject them to greater degrees of restraint and legal accountability.


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