The position of director emeritus is a confusing one with no set rules regarding how it is set up or who qualifies. At times, it is a position of honor given to someone who has devoted time and expertise to a company but is no longer in a position to be on the board of directors. Other times, it is a form of mandatory retirement. A director is typically transitioned to an emeritus position so that she can still advise and be part of the company, but the company can also move on and add a new person to the board of directors.
A variety of reasons exist that a company might choose to transition a director on its board to emeritus status. Sometimes the reason is due to age, especially if the director is nearing retirement. Sometimes the reason is because of health or the inability of the director to actively participate in meetings. And other times, the reason is that the director has provided years of distinguished service, but now wants to focus more on other endeavors while still participating to some degree with the company.
No set rules govern what privileges and duties a director emeritus will have. Some directors emeritus are actively involved with the company, and some have the title in name only, without any further involvement. Typically, a director emeritus can still attend board of director meetings but no longer has the right to vote. The length of time a person serves as director emeritus also varies from company to company. Some are given a lifetime tenure while others have a shorter length of time written into a contract.
Sometimes the director emeritus is a mystery position, with the company not openly disclosing the terms of the position or the reasons for its existence. James Kristie, editor of the online and print journal "Directors & Boards," suggests that companies should have explicit written rules regarding directors emeritus, including the requirements for eligibility, such as age and years of service. He says companies should also stipulate beforehand what the term of an emeritus director will be, her required attendance of board meetings, and what benefits she will be given. The "ABA Banking Journal" suggests that a director should be forced to retire and transition to being a director emeritus if she no longer attends board meetings, if she doesn't contribute to the meetings or only treats them as social occasions, if she no longer refers business to the company, or if she clearly does not understand what is going on with the company.
One significant area of controversy surrounding a director emeritus is whether the position will be paid. The amount and type of compensation is determined by the board of directors and varies widely by company. Franklin Resources, a worldwide investment management organization, stated that its director emeritus would receive the same pay as a director who attended every board meeting. In contrast, a Washington state judge ruled in 2011 that the directors emeritus of a credit union were not entitled to business expense reimbursement or compensation. The "ABA Banking Journal" reviewed a number of companies and reported that there was no pattern to how directors emeritus were compensated: some received no pay, some received reduced pay and some received health benefits instead of pay.
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