The appointment of a non-executive director is a contract for services and not a contract of employment. The NED or non-executive contract or agreement is referred as a letter of appointment and some key elements should be included. The article highlights some of the terms that incoming non-executive directors should expect when they review the letter of appointment.
The non-executive agreement establishes the role and sets the expectations
Here are the basic elements to the NED agreement:
- Appointment term
- Time commitment
- Fee and expenses
- Conflicts of interest (Non-Compete)
- Data protection
- Intellectual property
- Indemnity and insurance
- Return of property
- Rights of third parties
- Applicable laws
The non-compete provisions may be an important factor if you plan on being on a number of different boards. Make sure you note the country for laws and jurisdiction, it might not be the United Kingdom, notably if you are joining the board of a non-UK based organisations.
You will also need to determine a viable communication policy. While you are not an employee of the organisation, you will be expected to comply with all modifications in policies.
A few word for non-executive directors
We recommend that you carefully plan how you spend your time in directorship roles and you may want to find positions that complement each other. NEDs should work with organisations meeting at different times and not competing in the same industry. You must adhere to the highest ethical standards. If there is a potential conflict of interest with a topic, you must recuse yourself from that discussion by explaining the ethical dilemma.
A template NED letter of appointment is available within the NED Accelerator Programme. You find out more about this training, designed for first-time NEDs, please visit the course webpage.
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