Resigning from the board.

• Author: Friedman, Stephen J.
• Position: Corporate board

Here is some guidance for handling the not-always-simple decision to submit one's resignation from a board.

Nothing could be easier than resigning from a corporate board - right? Yes, and no. "How to resign" is simple. A simple written statement of resignation to the chairman, president or corporate secretary will do the job. The resignation need not be accepted in Delaware and most other states of incorporation in order to become effective; it becomes effective whenever the letter of resignation states it is effective - immediately, at the end of the next board meeting, or whenever. If the letter does not specify an effective date, it would be deemed immediately effective. Acceptance is only required if the letter of resignation states, for example, that it is effective "at the pleasure of" the board, or of the CEO.

"When" to resign and "how noisily" to resign are often more complicated questions.

Mandatory Resignation

It is not uncommon for companies to have policies that require a director to tender his or her resignation when a certain age is reached or when there is a material change in the director's job status (for example, the CEO who loses his job). These policies have a practical purpose: they obviate the need for the chairman to request the resignation of directors who no longer carry their weight or no longer represent the industry or offer the evolving fund of experience that led them to be added to the board.

Undated resignations are quite another matter. The SEC took the position in 1980 that Occidental Petroleum's requirement that each director give an undated resignation to the chairman must be disclosed in the proxy statement, since shareholders are entitled to know of anything inconsistent with the assumption that the directors they elect will serve out their terms. And, indeed, at least one court has held that undated resignations violate the public policy of Delaware and are void.

Interestingly, it does not appear to be common for companies to disclose their age or job change-related mandatory resignation policies, although the logic of the SEC's position seems equally applicable if the effect of the policy is to require resignation in the middle of the term.

Voluntary Resignation

Suppose a director fears that the management is walking too close to legal lines - for example, the director has concerns about the adequacy of the company's disclosure practices, breaches of the antitrust laws, failure to comply with...