Boards have long been criticized for showing too much deference when it comes to finalizing CEO employment agreements. Typically, “for cause” provisions that would eliminate severance benefits have been narrowly defined and have avoided addressing behavioral risks such as sexual harassment.
- For 2015 – 2020, the percentage of companies including a specific clause in employment agreements for harassment or discrimination increased from 4% to 12%.
- The percentage including a provision regarding violations of company policy increased from 57% to 69%.
- Additionally, boards decreased the use of CEO protective provisions such as the “opportunity to cure” from 71% to 67% and the need for a supermajority board vote to approve a termination for cause from 27% to 18%.
However, the authors also highlight high levels of ongoing risks, such as the fact that narrowing language continues to bind boards. For example, while the contract may include a misconduct provision under “termination for cause,” misconduct may be narrowly defined to require thresholds related to intent, seriousness, or harmfulness that limit the board’s discretionary authority.