Thursday, November 16, 2006

Clause and Effect

I’ve complained in past weeks about theater-of-the-absurd executive employment contracts engineered to keep anyone, no matter how incompetent or sleazy, from being fired for "Cause." I don't know about you, but the subject is starting to depress me. To cheer myself up I embarked on a quest for a contract with a Cause definition that doesn't make me laugh, cry, or develop a strange and terrifying urge to watch "Dancing With the Stars."

The good news is I found one. The bad news is I had to go to all the way to Canada.

Hub International Limited (HBG), an insurance broker incorporated in Ontario and headquartered in Chicago, just hired someone named John P. Graham as VP and CFO. The definition of Cause in Graham’s employment agreement, filed today, bears an astonishing resemblance to something that makes sense. (True, Graham is only a lowly CFO, but the definition used in the contract between Hub and CEO Martin Hughes is almost as good.)

Despite the conventional wisdom in Proxyland that an exec deserves severance pay unless he’s a serial killer or baby-molester, Graham's contract would deprive him of his going-away present if he were to do any of the following things:

1. Commit an act of "fraud, theft, or dishonesty." And he doesn't even have to be convicted of a crime.

2. Commit "negligence, recklessness or willful misconduct." The word "negligence" is key here; it means Hub can fire its CFO just for being more careless than a normal person should be, while most contracts I’ve seen require "gross negligence." Exactly what gross negligence means depends on the area of law you’re dealing with and which of the 50 states you were in when you screwed up, but generally you have to show utter and wanton disregard for the consequences of your behavior. While this happens frequently in Proxyland, it’s more than one should really have to do to get fired.

3. Materially breach the contract or the company’s policies. Since the contract says he’s supposed to do his job "in a conscientious and competent manner and with the utmost integrity," perhaps he could be sent packing merely for falling below that standard. Now that’s a novel idea.

So my compliments to our neighbors in the Great White North for a lovely definition of Cause.

I’m less pleased with the definition of another term in Mr. Graham’s contract, something called "Death." It’s common for employment contracts to tell us what happens to an exec’s options and other goodies upon his death, but lawyers rarely feel the need to define the word. I fear this definition may send Mr. Graham to an early grave:

"Death means a natural death and, in addition, is deemed to include a continuous period of at least one hundred twenty (120) consecutive business days during which time the Executive has not been in the offices of Hub during normal working hours and the Executive’s whereabouts are unknown to Hub."

Poor guy. If he tries to escape from his job and go into hiding, his employer will declare him dead. Boy, that is harsher than a Calgary winter.