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Contracts Part II: Severance clauses aim at protecting both board and CEO

 

By Mark Graham

It’s often repeated in association circles that half of all CEOs are technically terminated, whether from board action or non-renewal of the employment contract. And while it’s hard to prove that percentage, the trail of CEOs departing without explanation or mid-contract is a long one, year after year.

Few job tenures are riskier than that of an association or nonprofit CEO. An exception might be coaching a sports team, many employment attorneys like to say. The major reason cited is the fact that the CEO’s boss—the board of directors, or more specifically, the chair—rotates, proving new fodder for potential conflict on everything from personality to management styles.

And that unpredictability is the driving force behind severance and termination clauses, at least from the CEO perspective. Termination clauses define the circumstances under which a CEO can be fired with cause (and therefore no severance) and how much the CEO can expect in compensation if terminated without cause or even after just completing a contractual term.