A board member agreement is an internal document that clarifies the obligations, roles and responsibilities of board members, as well as their rights and the company’s expectations of them. It also formalises the agreement of the director to abide by these requirements.
Why is a board member agreement important?
The aim of this document is to encourage effective service across the board, maintain focus on the aims and objectives of the company and protect directors and the organisation in the event of any legal issues.
Having a robust board member agreement for each individual on the board is an important weapon in your arsenal when it comes to encouraging board effectiveness. PwC found that only 29% of C-suite executives rated their board’s overall performance as “good” or “excellent”. By creating a document that sets out expectations and responsibilities, you create a solid base on which to build a strong board.
This guide outlines the steps to creating an effective board member agreement template.
What should a board member agreement contain?
|Introduction to the organisation||An overview of what the business does and the industry in which it works. Include the company’s mission and goals in this section.|
|Business values||This helps board members understand how the business wants to operate and the culture it wants to promote for its employees, clients and suppliers.|
|Current board members||A list of the current board members and the roles that they undertake as part of their duties.|
|Board and board member responsibilities||This section details the responsibilities of the board in general and those relating to the individual board member during their tenure. This could include whether they can serve on other boards, too.|
|Board member term length||The length of time that the board member will stay in post and whether there is an option to extend that at the end of the initial term.|
|Board member remuneration, benefits and reimbursement||The amount of money the company will pay the director as compensation, as well as the expenses to which they are entitled and any bonuses they might receive, including share options and other provisions.|
|Termination and resignation procedures||Details of how the board can terminate the director and what happens in that eventuality, including in terms of payment and use of company materials. This section should also set out the process to be followed if a board member chooses to step down.|
|Confidentiality agreement||The director must agree to maintain confidentiality regarding sensitive information that they access during the course of their time on the board. This section sets out their obligations in this regard.|
|Guidelines for conflicts of interest||You should emphasise that directors should not actively seek out activities that form a conflict of interest with the company and that they should inform the board immediately if they find themselves in that situation unintentionally.|
How to write a board member agreement
1. Define purpose and scope
For the board member agreement to be a useful document, rather than just a tick-box exercise, you should spend time defining the purpose and scope of the contract. The board member should understand why the agreement exists and why it is important in helping them fulfil their role to the best of their ability.
The scope of the agreement should be as specific as possible to ensure that the director in question most effectively focuses on their areas of expertise within the board structure. Diversity of thought, experience and skill is important within a board, and each board member should understand exactly what their role is in contributing to the overall performance of the board.
2. Outline board structure and responsibilities
Once you have established the scope of the agreement, you can dive deeper into how the board structure works, the chain of authority and the role of the committees, amongst other important details about the running of the board.
You should include the general duties of the board member as well as any specific roles or responsibilities that they are required to fulfil. Make it clear where they sit within the structure of the board and inform them of their requirements in terms of attendance, engagement and other aspects of their role.
3. Outline board processes and procedures
In order to allow the director to hit the ground running in their position, you should detail the way that your board works. This means informing them of the procedures relating to meetings — how they receive their board pack, when they can expect to access board papers, how the board makes decisions, procedures for reporting and more.
It is also a good idea to add information on the processes for resolving disputes, reporting misconduct and collaborating between meetings. Understanding the nuts and bolts of life on the board at your particular organisation provides a structure for them and means that they can concentrate on the matters under discussion rather than trying to work out what is happening.
4. Finalise and get approval
You should consult with other stakeholders before finalising the board member agreement. The role of the director is complex, and that can mean you might have forgotten a key element needed to complete a smooth onboarding process.
Ask for input on the agreement and use this feedback to finesse the document before handing it to leaders to approve and distribute to directors.
Who should be involved in drafting the agreement?
The board secretary will usually draft the agreement for board members. However, current directors and the chair should have input on the document in order to ensure that it is as comprehensive and informative as possible.
Collaboration on this document reduces the chances of missing vital information and ensures that it best reflects the role that the director will take on when joining the board. Gaining a variety of feedback from a range of stakeholders is important to make it as informational as possible.
Tips for successful board member agreements
Keep it simple and easy to understand
This should be a handy reference guide to help the director stay on the right track as they fulfil their role on the board. If it is too complicated or full of jargon, it will be less practical and will lose its effectiveness. It should be clear to the reader exactly what it is that they are required to do and how the board works in general.
Incorporate your mission and vision
In order to help maintain consistency in discussions and decision-making, the mission and vision statement of the organisation should be prominent within the agreement. This is what is meant to guide the work of the board. Making it a cornerstone of the agreement helps board members to bear it in mind at all times during their work.
Before issuing the board member agreement, have a lawyer check the details of the contract to ensure that it is compliant with both employment law and other relevant pieces of legislation that apply to your organisation and its industry.
Make it part of onboarding
The agreement covers some of the key points of the onboarding process and can help new directors settle in more quickly when they have a handy guide to the way that your board works. Going into their first meeting, they will have a good idea of what to expect. This can encourage them to be more vocal and active early in their board career.
Make it accessible
Because the agreement can act as a reference guide, it should be easily accessible to directors on an ongoing basis. You can provide access through a shared workspace or board portal to allow them to refer to the agreement at their convenience and refresh their knowledge on any aspect of it.
Update it regularly
The agreement is not set in stone and will change as the company grows and adjusts its focus. It is also possible that the role of the board or that of the individual board members will develop over time. When there are changes to make, update the board member agreement and inform the directors of the adjustment.
Board member agreement template
This comprehensive board member agreement template shows one way of setting out the agreement for your board of directors. It should help you create the outline of your document, using the unique information relating to how your board works.
What happens if a board member does not comply with the agreement?
As the board member agreed to adhere to the agreement, their non-compliance could lead to disciplinary action. You should have in place a procedure for dealing with board members who do not follow the agreement in order to ensure consistency of approach to the board’s work.
Can a board member agreement be changed or amended?
It is important to change or amend the agreement as necessary whenever there is an event that requires it. For example, this could be if the company’s goals are adjusted or if the board feels that there is a more productive way to hold meetings.
How often should a board member agreement be reviewed?
Review your agreement annually to ensure that it is still relevant and continues to facilitate the effective running of your board and its decision-making.
What is a board member agreement?
A board member agreement is a document that outlines the roles, responsibilities and expectations of board members in an organisation.
The board member agreement template above will help you deliver a document that improves the effectiveness of your board and reduces conflicts as all directors understand the necessary direction of travel and their role within that. It aids the sense of working as a team for a common goal and acts as a reference to keep board members on track with the way they approach board work.
Increasing the effectiveness of your board is one key to success. The iBabs board portal helps you track engagement from directors, which is a key driver of effectiveness. In addition, it handles the entire lifecycle of the meeting, from the admin to the collaboration and the decision-making processes. Request a demo of iBabs today for your business.