Directors’ Mandate Agreements: Key Terms to Negotiate

A director’s mandate agreement is one of the documents through which a company establishes its relationship with the person appointed to a management position. From this perspective, its negotiation should not be reduced to remuneration and benefits.

For the company, the agreement should address a broader question: how are responsibilities, powers, risks and the consequences of termination defined?

The Term of the Mandate Should Be Considered Together with the Revocation Mechanism

A long contractual term does not, in itself, provide stability if the company retains a broad right to revoke the mandate. When negotiating a mandate, these two elements should be considered together.

For the company, it is important for the revocation right to be clearly defined and aligned with any financial consequences arising from the termination of the mandate.

The Director’s Obligations Should Be Sufficiently Precise

Provisions referring to “permanent availability”, general obligations regarding the company’s interests or extended liability for the activities of subordinates may have significant consequences if they are not aligned with the director’s actual responsibilities.

At the same time, from the company’s perspective, the agreement must provide sufficient flexibility for the management role to be effectively performed.

Accordingly, the precision of the obligations serves a dual purpose: it protects the director while also providing the company with an important risk-management tool.

Liability Should Be Aligned with Decision-Making Authority

A director should not be subject to unlimited responsibilities without those responsibilities being assessed against the duties, authority and resources actually available to them.

At the same time, the agreement can be an important tool for protecting the company in cases involving breaches of confidentiality obligations, conflicts of interest or competitive conduct.

Termination of the Mandate Should Be Negotiated from the Outset

One of the aspects most frequently overlooked is what happens when the mandate comes to an end.

The agreement can regulate the consequences of revocation, any applicable compensation, payment of outstanding benefits, handover obligations and, where appropriate, post-contractual restrictions.

These matters are particularly important for executive positions, where termination of the mandate may have significant professional and financial consequences.

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When negotiating a mandate agreement, we start with the actual role and the company’s governance model.

We assess separately the director’s powers, responsibilities, remuneration, termination arrangements, confidentiality obligations and post-contractual restrictions. We then bring all these elements together in an agreement that can be effectively used by the company, including when the relationship between the parties is no longer amicable.

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