Can my society have “alternate directors” — individuals who exercise the powers of an absent director? Can directors vote by proxy? What are the limits in general corporate law applicable to societies in this situation?
Societies in BC may have alternative directors, provided the bylaws set out the process for appointment/election. Unlike other corporate statutes, there is no restriction in BC in using such directors. Unlike a de facto director, who exercises the powers of a director on his or her own account and is deemed to be a director under corporate / societies legislative provisions, an alternate director is an individual, appointed under a power in articles, to exercise the power of a director when the director is absent.
Director voting by proxy
In general, the stance from English corporate law is that directors cannot vote by proxy as they are unable to delegate their individual fiduciary duty to others. They may delegate their powers as permitted to committees of directors or by way of transfers of power until corporate articles (or bylaws, in the case of a society). They may not, on a meeting by meeting basis, assign those powers to other individuals by way of proxy, which is not contemplated in corporate (or societies) legislation. An attempt to do this was called “absurd” in Re Portuguese Consolidated Copper Mines Co. [1890] 45 Ch 16 (Trial Decision).
Shareholders and members may vote by proxy, subject to articles or bylaws, as they do not owe the corporation a fiduciary duty and may delegate expressly under the Business Corporations Act (BC) or the Societies Act (BC).
What’s the difference between an alternative director and a director voting by proxy?
An alternative director structure is expressly set out in the corporate articles, or in the case of a society, the bylaws. It should allow for appointment/election; acceptance of the position; that notices of meetings must expressly be sent to the alternate; that the alternate may sign a consent resolution; whether the appointment/election can be revoked by the primary director; matters delegated; qualifications; reimbursement of expenses and remuneration; and end of the alternative directors term, whether by resignation, death, disqualification or otherwise. It should also expressly set out whether the alternate director, if also a director in his or her own right, may vote twice at directors’ meetings (typically, yes — once for the absent director and once under his or her own commission).
A director voting by proxy, on the other hand, is a meeting-by-meeting assignment of voting rights. This is prohibited by Re Portuguese Consolidated, absent a provision in the articles permitting it (which seems like a bad idea).
How do we know alternative directors are permitted?
There are few good sources in the societies context that discuss this. We can borrow principles from general corporate law, which assume that alternative directors (unlike proxies) have always been acceptable. For example, the BC Continuing Legal Education Society of BC (CLEBC) model corporate articles include provisions on appointing alternate directors, though the Business Corporations Act (BC) is silent on the ability to do this. Multiple cases also discuss actions taken by alternate directors and their appointment, without challenging the ability of a corporation to actually use such a structure.
The model Articles from CLEBC include a detailed structure and I would recommend these to individuals looking to use alternative directors. CLEBC access is available through most Courthouse Libraries in BC.
Cases which discuss this use of alternative directors are also helpful to understand the structure:
- Walter v Celmanis et al, 2003 BCSC 569: This case did not revolve directly around alternative directors, but included certain articles clauses surrounding their appointment, which may be of use to those drafting their own bylaws or considering an alternative director structure. No issue was taken with these articles by the Court (at para 9):
16.4 A Director may, and the Secretary or an Assistant Secretary upon request of a Director shall, call a meeting of the Board at any time. Reasonable notice of such meeting specifying the place, day and hour of such meeting shall be given by mail, postage prepaid, addressed to each of the Directors and alternate Directors at his address as it appears on the books of the Company or by leaving it at his usual business or residential address or by telephone, telegram, telex, or any method of transmitting legibly recorded messages. It shall not be necessary to give notice of a meeting of Directors to any Director of alternate Director (i) who is at the time not in the Province of British Columbia or (ii) if such meeting is to be held immediately following a general meeting at which such Director shall have been elected or is the meeting of Directors at which such Director is appointed.
16.5 Any Director of the Company may file with the Secretary a document executed by him waiving notice of any past, present or future meeting or meetings of the Directors being, or required to have been, sent to him and may at any time withdraw such waiver with respect to meetings held thereafter. After filing such waiver with respect to future meetings and until such waiver is withdrawn no notice need be given to such Director and, unless the Director otherwise requires in writing to the Secretary, to his alternate Director of any meeting or Directors and all meetings of the Directors so held shall be deemed not to be improperly called or constituted by reason of notice not having been given to such Director or alternate Director.
- Bankruptcy of Associated Colour Laboratories Ltd (Re:), 1970 CanLII 802 (BCSC): This case discusses the requirement for directors to physically meet in person, which was alleviated by an alternative director provision (reproduced at p. 352) which the court relied on to state that the directors did not contemplate telephone meetings. The alternative director provision in that matter read:
77. A director whose permanent place of residence is outside of the Province of British Columbia, or who is about to leave, or is temporarily outside of the said Province, or who is ill, of which fact or facts he alone shall determine, may appoint as an alternate director during his absence or residence outside of British Columbia, or illness, any person whether a member or director of the Company or not, and such appointment shall have effect until revoked and such appointee whilst he holds office as an alternate director shall be entitled to notice of meetings of the directors and to attend and vote thereat accordingly and, he shall, if present, be included in the count for a quorum and, if he be a director, he shall be entitled to two votes, one as a director and another as alternate director, but he shall ipso facto vacate office if and when the appointor vacates office as a director or removes the appointee from office and any appointment and removal under this clause shall be effected by notice, which may be in writing under the hand of the director making the same or may be made by telegram or cable.
78. And notwithstanding anything in these Articles contained relating to resolutions by the directors, a resolution in writing signed by all the directors for the time being in British Columbia, or their appointees as provided in Paragraph 77 hereof, shall be as valid and effectual as if it had been passed at a meeting of the directors duly called and constituted and such resolution shall be entered in the minute book of the Company.
What about the Canada Not-for-Profit Corporations Act (Canada)?
We can also look to other similar corporate legislation, such as the Canada Not-for-Profit Corporations Act. Unlike the Societies Act (BC), the Canada Not-for-Profit Corporations Act, SC 2009, c 23 expressly prohibits alternate directors:
No Alternate Directors
126 (3) No person shall act for an absent director at a meeting of directors.
Suppléance
126 (3) Nul ne peut agir à une réunion du conseil d’administration à la place d’un administrateur absent.
The Societies Act contains no such limitation.
When are alternative directors typically used?
Alternative directors are typically used in special act corporation structures or in local government, where individual appointees or elected officials are anticipated to have many duties and may not be able to attend specific meetings, but have trusted staff or other elected officials they may send instead. They may also be used where an organization (such as a corporation or a partnership) appoints individuals to hold a specific voting mix, and the individuals must split duties due to other commitments.
Are they a good idea?
This depends on how you want your society structured and whether your society wants the alternative director to be appointed or elected. If the members of the society are all corporations or local governments who appoint a director and an alternate director representing their interests, it is likely a good idea to have them; if the membership are individuals (e.g. a sports club), and it is not anticipated directors will often miss meetings, or if director positions come with other responsibilities, then they are likely unnecessary.
How do I change my bylaws to allow for alternative directors?
After deciding on appropriate wording and workshopping the language with directors and members, the society’s board of directors can either schedule an annual or special general meeting of the members and give notice to members, directors, and the auditor (if any) of the revised text of the bylaws, along with the example special resolution to modify the bylaws. On a special resolution vote (a two-third majority, subject to what the society bylaws say) the society may adopt the new language. Note that the language cannot be changed at the meeting itself, the subject of another post on this site.
Alternatively, if the society is closely held (meaning it has a small membership), it may be easiest for the members may unanimously consent in writing to the changes which is acceptable as a special resolution. If the members wish to make the change, they may either make a members’ proposal or ask that it be placed on the agenda of an upcoming annual general meeting.
Image courtesy of Elvind Lindseth, via a Creative Commons license. No alterations were made to this image.