Open term appointments are not uncommon for executive directors
in private companies, and early non-executive director appointments
were made on a like basis, without a formal letter of appointment.
This could lead to confusion and dispute over terms of notice and
termination.
The Letter of Appointment
The Independent Director Limited has advocated the use of a
formal letter of appointment for all non-executive director
appointments. Not only does this eliminate uncertainty in the
future, it also ensures that both the board and the candidate
formally consider a number of matters before the appointment is
made.
An example letter for
a private company sets out the principal areas to be covered, but
each letter should be tailored to a specific assignment.
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Click here
for a sample letter of appointment for a private company (Microsoft Word).
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To download
the sample letter, right click on the link and select 'Save Target
As...' |
The
Higgs Review contains a sample letter of appointment for a quoted
company at Annex H.
Directors and Officers Insurance
Companies often maintain cover for the entire board, which can be
more cost effective, particularly where there is a history of no
claims.
It is important to have a copy of the entire policy, to review
the level of cover provided and determine whether there are areas of
potential conflict should a dispute arise between the non-executive
director and the rest of the board.
It is good practice to have the company secretary to confirm in
the board minutes each year that cover has been renewed, and report
any changes in cover.
Individuals who hold a portfolio of appointments may prefer to
have an individual policy cover all their personal appointments.
Legal advice
In normal circumstances a non-executive director will not need to
take independent legal advice. Some companies make provision for
their non-executive directors to take independent advice, up to a
monetary limit, without specific board authorisation.
Cranfield's NED Seminar includes a presentation on the legal
duties and responsibilities of directors, and highlights some
problem areas.
