Bank Directors Seminar, Coeur d'Alene, ID, September 15-17, 2019

acceptance or even endorsement of the behavior. If the behavior involves a breach of the Code of Conduct, failure to address it could constitute a waiver of the Code that would trigger a disclosure obligation.

Unintentional Misconduct Methods for responding to unintentional director misconduct may include:

zz Identification. In many instances, the simple act of pointing out the errant behavior to the director may be sufficient, where the conduct was truly inadvertent. This conversation can be undertaken by an independent chair or lead director, or the chair of the governance committee or other respected board member. zz Education . If the unintentional misconduct appears to reflect a lack of understanding about company and board policies or a director’s fiduciary duties, education can be offered on the relevant policies. zz Coaching . For some types of unintentional misconduct that is reflective of a problematic personal style, a combination of education and coaching may be appropriate. Identifying unacceptable conduct and coaching a director on appropriate conduct can be undertaken by an independent chair, lead director, governance committee chair or another strong independent director with whom the errant director has a close relationship. zz Director evaluations . Individual director evaluations can serve as a focal point for providing feedback about more generalized problematic behaviors. zz Reprimand . A board may pass a resolution to reprimand or censure a director. In an instance where a director’s misconduct was inadvertent but of a serious nature, the board can provide a formal but private reprimand. The threat of a formal resolution by the board that a director has breached a board or company policy and reprimand for this conduct may be sufficient to alter behavior, and it removes the concern that the board may have waived its code of conduct and ethics policy. Unless done publicly, however, a formal reprimand does not address the appearance that public misconduct is condoned or authorized by the board. Intentional Misconduct The more difficult situations involve intentional director misconduct, which for purposes of this discussion is defined as misconduct that the director undertakes with knowledge that it is out of keeping with the standards that apply to director conduct or behavior that continues once the director is informed that it is inappropriate. The mechanisms for addressing intentional misconduct outlined below are based on the assumption that the methods described for addressing unintentional misconduct have been used to no avail or an assessment has been made that they would be ineffective: zz Removal. Generally a board is highly constrained in its ability to remove a director. A board should review with counsel whether under state corporate law or the company’s articles and by-laws there are mechanisms for director removal. Many states only allow director removal by a vote of shareholders, and this requires holding a shareholders meeting (or acting by written consent if the company has such a provision). In a number of jurisdictions, a company can petition the courts to remove a director for fraudulent or dishonest acts, gross abuse of authority or a breach of duty. In either instance, the effort to remove the director would be public and

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