We are a CIC of 2 founding Directors and we would like to appoint some Non-Executive Directors but we want to limit their voting rights to exclude certain things. Is that OK, what sort of rights can you exclude, and how do you do it because the form you fill in for a non-executive director is the same as for a Director?
We would for instance want to limit their ability to vote to sack the founding Directors without an extremely good reason!
Hi Claire – great question!
The CIC Regulator’s Annual Reports confirm that a high number of complaints concern director disputes and a significant number of dissolutions result from director fall-out. What starts as an amicable working relationship can quickly turn sour under the pressures of running a company. It is therefore worth recognising this at the outset and setting in place procedures to deal with this. It is always important to agree an exit strategy.
This is particularly important when CICs consider inviting non-executive directors (NEDs) on the board. There is no legal distinction between executive and non-executive directors and if they are going to vote at board meetings an AP01 has to be filed at Companies House. The role of an NED is to provide an independent perspective and offer strategic overview but they do not get involved in day to day management issues and are not part of the executive team. NEDs however have the same legal duties, responsibilities and potential liabilities of executive directors.
I would not expect NEDs to have the power to appoint or terminate directorships or engage in operational matters which would normally fall to the executive directors. To avoid this, the CIC needs to issue the new NED with a letter of appointment, which is in effect a contract for service and not a contract of employment. This will typically detail the terms and conditions of appointment including length of appointment, duties, access to information etc.
You should take the opportunity to state clearly the areas where the NED will have no role or influence such as your legitimate concern over voting rights and the potential to sack founding directors. You should ensure clear performance and review procedures are in place which will provide you with the conditions to terminate the appointment should you feel it necessary.
Hope this helps
That's really helpful, thank you