This post is about one of my 45-second pitches at my BNI Chapter, BNI City Business. You can read the introduction to this collection here.

13 October, 2023. Friday the 13th, and the day before the polls close in New Zealand’s General Election. With the election outcome looking like a three- or four- way coalition government, I thought this an appropriate meme and topic.

If you make decisions by committee, you can end up with a mess (e.g., see above). Consensus decision making has its place in certain situations, but it is not particularly efficient. Trying to build a solution that keeps everyone happy can be debilitating for a business. I believe it is important to clearly identify accountability to drive outcomes. It shouldn’t be surprising that I am a big fan of Bain & Company’s RAPID decision-making framework for the clarity it provides.

In business, decision making is obviously critical. One area of decision making that needs to work for a business to succeed is in the Boardroom. I worked recently with a local firm with two shareholder/directors. Each held 50% of the shares. This worked well for the first year or so while they were on the same page. They built a great brand and a profitable company. But in the second year, the relationship started to sour. They couldn’t come to agreement on essential issues. The relationship deteriorated to the point they wouldn’t talk to each other. With each holding half the shares, the firm was constantly deadlocked. The business started to falter. They risked falling into a ‘death spiral’ where they end up in liquidation.

The normal mechanism a business uses to ensure the shareholders can step out of a deadlock is having an agreed way to resolve these issues. This is typically documented in a Shareholders’ Agreement. The most common approach is external mediation or arbitration. Both of these approaches are costly and take time. This is no way to run a company.

In extreme circumstances, these matters can end up being litigated in a courtroom. Most people I talk to about this kind of situation believe the courts will deal with a deadlocked 50%/50% shareholding like a divorce. Unlikely. Divorce courts are courts of equity – what is fair. Shareholder disputes are heard in a court of law, rather than a court of equity. When dealing with disputes involving shareholders, the court would need to consider a range of legal matters related to corporate governance, ownership rights, contractual agreements, and corporate law.

Of course, the easiest way of avoiding deadlock in small, closely-held businesses is to ensure it can’t happen: never have a shareholding structure that can result in equal votes. Have an independent, agreed person hold a small number of shares that will tip the balance one way or another. So the shareholding becomes 49.5%/49.5%/1%.

Similarly, ensure you have at least three directors (and an odd number if larger) so that the Board also doesn’t get deadlocked. Another common approach for Boards is to give the chair a casting vote, or a casting vote with a guideline (e.g., they need to vote to maintain the status quo).

Both of these approaches can be introduced after the business starts having issues, but it is a lot easier to put them in place from the outset.

Deadlock-breaking methods should not be used to simply push decisions through. They are no substitute for robust discussion and consideration of important matters in the business. If shareholder/directors can resolve issues in the course of their normal work, the business has a better chance of succeeding.