When joining a private equity (PE) portfolio company board, you’ll typically sign an agreement—often referred to as a “Board Service Agreement” or “Director Agreement”—that outlines your rights, obligations, and compensation terms. Many sections are standardized, but others may be open to negotiation. Below is an overview of the typical sections you might encounter, along with notes on the range of options and potential negotiation points.
THIS IS NOT LEGAL ADVICE.
We strongly recommend that you consult a labor law attorney to review your contract.
1. Appointment and Term
Purpose and Scope
- What It Covers: Outlines that you’re being appointed as a director and clarifies the start date of your service.
- Potential Variations: Some contracts specify a set term (e.g., one-year term, renewable annually) vs. “at-will” service.
Negotiable Points
- Term Length: You might request clarity on whether it renews automatically or if reappointment is subject to annual board elections.
- Reappointment Process: Some directors negotiate a clause indicating the expectation or preference to continue for a certain number of years, subject to performance and mutual agreement.
Standard Provisions
- Board Approval: Typically includes a statement that your appointment was approved by the relevant stakeholders (PE firm, existing board).
- No Guarantee of Continuance: Many agreements reserve the right for the company or PE sponsor to remove or replace directors if conditions change.
2. Duties and Responsibilities
Core Obligations
- What It Covers: Enumerates your expected roles—attending board meetings, committee service, advising on strategy, monitoring performance, etc.
- Potential Variations: Could specify involvement in certain committees (audit, compensation, governance) or highlight an advisory vs. fiduciary capacity.
Negotiable Points
- Time Commitment: Some contracts detail approximate hours per month or expected meeting frequency. You can request clarifications if you foresee scheduling challenges.
- Committee Assignments: Directors with specialized expertise may want to confirm or avoid certain committees.
Standard Provisions
- Adherence to Bylaws/Policies: Expect language requiring you to follow corporate governance guidelines, confidentiality policies, and any codes of conduct.
3. Compensation and Reimbursement
Cash Fees
- What It Covers: Monthly or quarterly retainer, per-meeting fees, or an annual sum.
- Potential Variations: Some boards only provide an annual retainer, while others pay additional fees for each meeting or committee participation.
Equity or Stock Options
- What It Covers: Shares, stock options, or restricted stock units (RSUs) to align your interests with company performance.
- Potential Variations: Vesting schedules, exercise price, and whether the equity continues to vest after a sale or if it accelerates upon an exit.
Expenses and Reimbursement
- What It Covers: Travel, lodging, and other costs incurred in fulfilling board duties.
- Potential Variations: Companies might impose budgets or require prior approvals for high-cost travel.
Negotiable Points
- Retainer vs. Equity Balance: You can push for more equity if you prefer greater upside, or higher cash if you want guaranteed compensation.
- Vesting Acceleration: If the PE sponsor anticipates an exit within a few years, you might negotiate accelerated vesting upon sale.
- Travel and Expense Caps: Clarify or request more flexible budgets if extensive travel is required.
Standard Provisions
- Payment Schedules: Typically monthly or quarterly.
- Compliance with Tax Laws: You’ll be responsible for personal tax filings on compensation or equity gains.
4. Confidentiality
Scope of Confidentiality
- What It Covers: Prohibits you from disclosing non-public information about the company, its finances, or strategic plans.
- Potential Variations: Minor differences in how broad the definition of “Confidential Information” is, but it’s usually quite standardized.
Negotiable Points
- Limited Exceptions: If you serve on multiple boards in the same sector, you might clarify how to handle potential overlaps.
- Term of Confidentiality: Typically remains in effect even after you leave the board, but you can request clarifications about its duration or permitted disclosures.
Standard Provisions
- Non-Disclosure Obligations: Almost always non-negotiable.
- Company-Supplied Materials: Requires secure handling of board materials, presentations, and meeting notes.
5. Non-Compete or Non-Solicitation
What It Covers
- Restrictions on joining boards of competing companies, soliciting employees to join another venture, or using confidential info to benefit a competitor.
- In some cases, your existing or future roles in similar sectors may prompt a narrower or looser non-compete clause.
Potential Variations
- Scope and Geography: Some non-competes might be broad, covering any competitor in a global market, while others limit it to a specific region.
- Duration: Ranges from the length of your board tenure to an additional one or two years post-service.
Negotiable Points
- Carve-Outs: If you have other board seats or consulting interests, you might need exceptions for pre-existing relationships.
- Industry Breadth: You could narrow the definition of “competitor” if your functional expertise applies widely across industries.
Standard Provisions
- Enforcement Mechanisms: May specify legal remedies or injunctive relief if you breach the non-compete.
- Non-Solicitation: Often covers key employees, customers, or suppliers.
6. Indemnification and Liability
What It Covers
- Protects you against legal claims arising from good-faith board actions, provided you act in accordance with fiduciary duties.
- Typically includes indemnification for legal costs and settlements.
Negotiable Points
- D&O Insurance Coverage: Ensure the agreement states the company’s obligation to maintain Directors & Officers (D&O) insurance and clarifies the policy’s coverage limits.
- Scope of Indemnification: Some directors push for broad language ensuring indemnification for any action taken in good faith, not just narrow scenarios.
Standard Provisions
- Legally Mandated Safeguards: In many jurisdictions, indemnification is partly governed by corporate law. The contract typically restates or expands these protections.
- Exclusions: May not cover gross negligence, fraud, or willful misconduct.
7. Termination and Removal
What It Covers
- Circumstances under which you or the company/PE sponsor can end your board service.
- Could be immediate removal if the sponsor holds majority shares or by majority board vote.
Potential Variations
- Notice Period: Some agreements may require a set notice for voluntary resignation.
- Severance or Equity Handling: If you’re removed without cause, does unvested equity accelerate or forfeit?
Negotiable Points
- Exit Trigger for Equity: Confirm what happens to any outstanding stock or options if you depart.
- Opportunity to Resign: Some directors prefer the contract to specify they can resign with minimal notice if major disagreements arise.
Standard Provisions
- At-Will Removal: In many PE scenarios, the sponsor can replace board members. The agreement often codifies that right.
- Board Re-Election: If the company has formal annual elections, your seat might not be guaranteed unless re-elected.
8. Dispute Resolution and Governing Law
Arbitration vs. Litigation
- Clause might dictate that disputes be settled through arbitration rather than court.
- Arbitration can be faster but may limit certain legal rights.
Governing Law
- Identifies which state or country’s laws apply if issues arise.
- If the company is headquartered or incorporated in Delaware, for example, expect Delaware law references.
Negotiable Points
- Forum: You might prefer arbitration in your locale or neutral territory.
- Choice of Law: Less common to negotiate unless you have strong reasons to prefer a different jurisdiction.
9. Entire Agreement and Boilerplate Sections
Integration Clause
- States that the written contract supersedes any prior verbal or written understandings.
- Typically non-negotiable.
Severability
- If one clause is deemed unenforceable, the rest remains intact.
- Standard language with minimal negotiation scope.
Notices
- Specifies how official communications must be delivered.
- Rarely contested unless you have a unique preference for receiving notifications.
