Under the best of circumstances, when it’s necessary for a board director to leave the board, the director will realize it on his or her own and simply resign. Unfortunately, it’s not as simple as that most of the time. According to the 2016 Annual Corporate Directors Survey, PricewaterhouseCoopers (PWC) found that 35 percent of directors believed that someone on their board should be replaced. Boards sometimes find that board directors aren’t prepared for meetings or that they lack the necessary expertise. They might also find that certain board members have aged out of their role, rendering them ineffective, or that they’ve overstepped their boundaries. Whenever it’s necessary to remove a board director from the board, it’s important to do it in writing. A sample letter to remove a board member can be helpful in getting the wording correct.
Board composition is critical to board success. We most often hear about board directors that come onto the board, but we don’t hear about them leaving as often unless there is a crisis of some sort. The survey also indicated that shareholders are more willing to voice their concerns over the effectiveness of sitting board directors. About 61% of executives who served on a board said that they would add a board seat to ensure they had the proper skill set on the board.
The reality is that there are many reasons that board directors leave a board. A director’s term may be up. A director may choose to resign. In other cases, board directors may decide that they need to refresh their board after doing a board self-evaluation or for some other specific reason. Bad behavior or poor functioning are valid reasons to ask someone to leave a board and preparing for them to leave is as important as recruiting them.
Even small adjustments to a board such as one board director being added or deleted can have a big impact on the board’s functioning.
Sample Letter to Remove a Board Director
If your board decides to remove a board director for any reason, it’s crucial to get the letter in writing and attach a sealed copy of the resolution.
Laws regarding board director removal vary from state to state. It’s responsible and wise for board directors to read and understand their state laws before attempting to remove a fellow board director for any reason. To prevent any chance of possible litigation, it’s also advisable to get the proper legal advice on whether you should remove a board director from the board and how the board should proceed. The following is a basic sample only and isn’t intended to serve all circumstances or purposes.
NOTICE TO OFFICER OF REMOVAL BY BOARD
DATE: July 1, 2020
TO: Ms. Jane Smith
You are hereby notified that, in accordance with Section 21 of the Bylaws of the ABC Compan, Inc., the Board of Directors has voted to remove you from your position as board director of said Corporation.
This action of the Board of Directors, taken by means of a resolution voted upon at a meeting held on June 1, 2020, effectively removed you from office as of the time of the vote.
A sealed copy of the resolution is attached to this notice; the original is on file in the principal office of the Corporation whose address is:
123 Main St.
Anytown, USA 12345
Failure to Meet Expectations for Director Behavior
Board directorship comes with the expectation to meet the board’s standards for strong ethics and integrity. In addition to unethical behavior by a board director, several other reasons could cause a board to relieve another director from board duty. Blatant misconduct, poor performance, illness, injury, lack of time, or other extenuating circumstances may prompt an early exit for a board director.
Dealing with Conflicts of Interest
Conflicts of interest can be particularly troubling for boards. Once again, any number of situations could cause a conflict of interest.
It’s common for board directors to hold seats on other boards. If those other seats are for competitors or are companies in the same industry, there could be a clear conflict of interest. Even if the companies are in different industries, a board director could get information about a merger or acquisition through another source that could affect votes. Other conflicts that are related to personal financial interests, family ties, ethics, or conduct could arise.
If there is a conflict of interest, the affected board member should disclose it and refrain from voting on any matters concerning it. When conflicts continue to arise with the same board director, it signals a proper time to release a board director from his or her duty.
Refreshing and Diversifying the Board
It’s rare to read or talk about board composition without bringing the topic of board refreshment and diversity into the conversation. It’s common practice and good governance to bring as much diversity as is practicable into the board. Shareholders and governance experts are keeping tabs on whether boards are increasingly rounding out their boards with women and minorities and also monitoring board composition to see how the changes affect board and company performance.
As regulators and lawmakers in some places begin to mandate requirements for board composition, boards may be forced to revisit their board composition. To refresh the board may mean asking one or more board directors to give up their seats so that the board can come into compliance with mandates for board composition, especially in cases where it’s impractical to merely add another seat.
Regardless of the reason that a board director gets removed from the board, it’s important to ensure that it gets documented properly and that the notice gets stored where it can be accessed if needed. BoardEffect’s board portal system offers secure, unlimited cloud-based document storage for these types of situations. Proper documentation will help boards to properly close the chapter on one board director and begin a new chapter with a new person so that there is as little disruption in board functioning as possible.