One reason board work is attractive to aging professionals is that for private companies, there is typically no mandatory retirement age. While there are likely to be term limits, as there should be, one can perform board work as long as they serve the needs of the organization. It is not as physically taxing as full-time executive work. Many people pursue board work since it provides significant professional engagement, while still allowing them to “slow down” and enjoy life a little more.
So, what happens when a director may start to mentally decline while still having a fiduciary duty to the corporation?
None of us are immune to the risks of mental decline, or dementia, as we age. Some forms of dementia start as early as your 30s and 40s, although the dominant forms start after age 65 or so.
Dementia means the impairment of memory, thinking and/or a decline in social skills. Here are some indications of dementia:
This is a multi-faceted issue. There are concerns for their well-being. Additionally, there are concerns about the decisions this person is making. Their decline will impact relationships within the organization and their family. One must also consider whether this person holds relationships with customers or suppliers which impact the organization, and how that will affect the person and the company.
When should someone intercede, and how best to handle it?
There is a body of law, elder law, which addresses the legalities of decision-making capacity, and when should society step in to make decisions for someone whose thinking may be impaired. If you have an issue, you should get trusted counsel to understand how the law impacts your choices.
But, as James Toomey, a Lecturer on Law at Harvard Law School who specializes on elder law, emphasizes, good counsel in this context is not just about having the best and smartest lawyers. These delicate, deeply personal situations are best handled by lawyers who have a relationship with the affected individual and the business. They need to have a deep sense of who the individual is and how they see themselves in older age. Elder law works best as an ongoing relationship, not a one-off transaction.
From a governance perspective, here are some of the questions to consider:
A poor decision is not the same as an impaired decision. Disagreeing with a decision is not a reason to judge capabilities. Dementia may demonstrate itself in many ways. There are specific tests to assess a person who may be showing signs of dementia or impaired decision making. Directors can suggest this be looked at, but need to be thoughtful when, and to whom, this question is asked. This is more complicated in family businesses, of course.
Is this person an employee of the firm? An independent director? A family member? What social relationships do they have that will influence how to proceed? How do we keep control of the issue and give the person the best support?
There are no good rules on this, except the rules of common sense. How would you want to be treated if you were in this position?
Dignity often becomes the guiding factor when dealing with mental impairment. Your character will be assessed by the organization and the community based on how you handle the situation.
Societies are often measured by how they treat their least fortunate members, especially when those individuals can’t speak or advocate for themselves.
If at all possible, it is best to keep these matters out of the legal system. Going to court makes everything more complicated. The by-laws should have a mechanism to remove a director for cause. Term limits are another way to deal with this. The risk is that an employee, or an owner, is in question. Their rights as an owner should not be impinged. But if their decision authority is due to ownership, then things get blurry.
In these situations, you will likely benefit from getting advice from more than one point of view. The answers are likely obtuse. With most of these disease processes, there is time to construct and evaluate a decision tree. Use that time wisely.
This is a perfect case of why relationships matter. Getting the best answers in these situations is often a team effort.
Dealing with dementia, in a business context, is likely to be a trial-and-error process. You should expect to make mistakes, but avoid making big ones by having empathy for the affected individual and working closely with your team. To a large extent, how you communicate is equally, if not more, important, than what you communicate.
Being a good director is about fit and judgment. This scenario will test both of those traits.
©2022. DailyDACTM, LLC d/b/a/ Financial PoiseTM. This article is subject to the disclaimers found here.
Bruce Werner is the Managing Director of Kona Advisors LLC, which provides advisory services to owners and investors of private and family-owned companies. With exceptional experience in finance, strategy, M&A, governance, and succession planning, Kona Advisors creates practical solutions to the most challenging corporate problems. Mr. Werner is an experienced Corporate Director, leading businesses through…
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