Board Members and Client Agreements: Review vs. Investigation

Board members have significant responsibilities regarding client agreements, especially when such agreements might have a substantial impact on the company's performance. This article explores the role of board members in reviewing and investigating client agreements, the distinction between the two, and the importance of legal and auditing steps.

Review of Client Agreements

The review of client agreements is a crucial aspect of board members' duties. When a client agreement is significant, involving substantial financial commitments or strategic implications, board members must be informed and have the opportunity to review it. This ensures that all risks and benefits are thoroughly assessed before any commitment is made.

Some bylaws stipulate that certain agreements must be reviewed and even authorized by the board. This is part of ensuring that the CEO's actions are in line with the company's long-term goals and fiduciary duties. The CEO is hired by the board to manage the day-to-day operations, but this responsibility comes with a fiduciary obligation.

Investigation of Client Agreements

Investigating a client agreement implies a deeper scrutiny and potential suspicion of impropriety or malpractice. While investigating, board members must ensure that their actions are transparent and based on credible evidence. Investigations are typically triggered by red flags, such as unusual terms in the agreement, inconsistencies in reporting, or allegations of misconduct.

Distinguishing Between Review and Investigation

It is crucial to understand the difference between a review and an investigation. A review is a routine process aimed at assessing the risks and benefits of a client agreement. An investigation, on the other hand, is a more thorough process that may involve further analysis, evidence gathering, and potential legal action if necessary. The board must be cautious to maintain a careful balance, ensuring that investigations are justified and conducted appropriately.

Legal and Auditing Steps

To protect the company and adhere to legal and ethical standards, the following steps are recommended:

Legal Advice: Prior to signing any client agreement, legal counsel should be consulted to ensure that the agreement complies with all relevant laws and regulations. This includes reviewing the terms, conditions, and any potential liabilities. Audit Post-Signoff: After a client agreement is signed, auditors should review the document as part of the annual audit. This ensures that the agreement is being properly managed and that no unethical practices are taking place. Transparency: If an investigation is conducted, it should be done transparently, with clear guidelines and protocols in place. Board members must justify their actions and provide evidence to support any suspicions.

If the allegations are found to be untrue, and there is no intent to investigate, appropriate actions should be taken to ensure that similar issues do not arise in the future. Conversely, if the allegations are found to be true, the company must address the issue promptly and take corrective actions.

Proper procedures, legal advice, and transparency are essential in maintaining trust within the company and protecting the interests of all stakeholders, including shareholders, employees, and the broader community.

Conclusion

Board members play a pivotal role in ensuring that client agreements are reviewed and, when necessary, thoroughly investigated. By following legal and auditing procedures and maintaining transparency, board members can uphold the company's integrity and protect its long-term success.