Your board of directors is, next to the top administrative assistants to the executives, the most important group in your business. You have selected a great team of board members, but things change.
Why You Would Want to Remove a Board Member
You may find yourself in the uncomfortable position of having to remove a director from your board of directors. This circumstance might happen for one of several reasons:
The director has a continuing conflict of interest that cannot be reconciled or is failing in his/her fiduciary responsibilities. For example, let's say Sam is a board member of a company that decorates office has an office furniture company. If Sam's business sells furniture to the decorating business at a higher price than competitors, this could be considered a conflict of interest.
The board member has crossed ethical borders, with potential lawsuits for sexual harassment or fraudulent activities. For example, if Carol is the board treasurer and she has been taking money from the company's treasury, that's a fraud.
The director is ineffective, not able to do the job, not participating appropriately in board discussions or committee assignments. This one is tricky because you have to prove that the board member is not doing his or her job. Having good minutes and documenting instances of non-participation and non-attendance will help you at termination time.
The director is not interacting well with others (the kind way of saying that this person is difficult to deal with). This is the trickiest reason to remove a board member because it's hard to document. The best way to deal with this situation is to set term limits (see below).
Avoiding a Lawsuit in Removing a Board Member
When you form your business and before you set up your board of directors, take the time to create board member job descriptions, for general board members and for board officers. Having specific job descriptions that include reasons for termination (like the ones above) can save you from having to justify your actions in a court case.
Alternatives for Terminating a Board Member
Some ways to terminate board members include:
Term Limits for Board Members
Most corporations set terms for directors, usually rotating terms, in which one or more directors rotate off the board. A typical arrangement might be for an initial three-year term, with two three-year re-appointments. So, at the end of nine years, the individual must step down from the board. If the person is a valuable member of the board, a temporary non-board position might be found for a year. If you want to remove the board member, the end of the term might be a time to do this.
Discuss a Leave of Absence
Sometimes health or other personal concerns can affect a board member's performance. Some time off to deal with these concerns might solve the problem. In some cases, you may find that the board member is ready to leave, or you may be able to persuade him or her not to come back.
Hold a Personal Intervention
The most difficult way to remove a director is to have a personal discussion with that individual and suggest that he or she needs to leave the board. The board chairman and the chief executive, and maybe the board attorney might need to be part of that discussion.
As a Last Resort, Consider Impeachment
Your corporation's bylaws should include a method for formally removing a board member for egregious acts, failure to fulfill duties or conflict of interest. The vote to impeach should be by a 2/3 majority.
Consult Your Attorney
Whatever you decide to do about a board member situation, your attorney should be part of the discussion before the termination takes place. Having your company attorney in the discussion can avoid additional unpleasantness and possible lawsuits. Some more advice:
- Take your time. Rushing the process can cause hurt feelings and more issues later.
- Choose allies carefully. You will need some allies on the board, in case of a vote. Make sure you know which side everyone is on before the vote is taken.
- Afterward, make changes carefully. Do you need to replace this board member? Ask the board to consider what can be done differently to avoid this type of issue in the future.