If a director does fall foul of their duties and responsibilities, it may be necessary to discipline them. It is possible that due to their seniority, the usual disciplinary process that normal employees are bound by (that can usually be found in a staff handbook), would not be appropriate. As such, the director’s service agreement does give an opportunity to state these different processes.
If a director is found to have committed misconduct, the sanctions are largely the same as those that an employee would face. However, in addition to the usual sanctions, there are some additional considerations for directors.
In some situations, a director can have financial liability to a greater scope than an individual may have. This is because a director can occasionally find themselves personally liable for losses incurred. It is necessary to ensure that the relevant provisions, allowing for the recovery of such sums, are included in the contract.
If your chosen sanction is dismissal, or even if the director should leave for any other reason, it is important that the director’s service agreement states that they shall resign from their position as a director. This is a critical element that is sometimes overlooked. Without its inclusion, you could fall into greater difficulties if it becomes necessary to force a director to resign from their statutory position.