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DIRECTOR’S BRIEFING

VOTING BY PROXY IS NOT FOR DIRECTORS’ MEETINGS

 

By: Hartley R. Nathan, Q.C.  Mr. Nathan is a senior partner of Minden Gross LLP and is Editor-in-Chief of The Directors Manual

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PROXIES

One of the important features of company meetings is that the shareholders do not have to appear at the meeting in person; they may appoint another person (a proxy) to attend and vote on their behalf.  This rule facilitates the expression of the shareholders’ views.

At common law attending and voting had to be in person, but it early became the normal practice to allow these duties to be undertaken by an agent or “proxy”.[1]

Historically, proxies were considered no more than agency agreements whereby a shareholder appointed another person to act on his or her behalf at a shareholders’ meeting.[2]  Now of course there are elaborate rules governing proxies and proxy solicitation for public corporations.[3]

I have been asked recently on more than one occasion whether a director can vote at a directors’ meeting by proxy.  The answer is an emphatic “no”. Directors must be personally present and act themselves.  The function of a director is to direct and a director cannot delegate his or herpowers.  I will elaborate on this.

A director must act in the best interests of a corporation whether it be a business corporation governed by the Canada Business Corporations Act or a not-for-profit corporation governed by the Canada Corporations Act or their respective provincial equivalents.[4]

Directors have a fiduciary duty to act this way.  As such, directors are expected to continue to inform themselves and keep informed and must be present at meetings to do this.  His or her personal judgment is necessary and cannot be transferred to another person. 

 

CASES

Perhaps because most people would have taken it for granted that directors cannot proxy their votes.  There are very few cases directly on the point in Canada or England, or the U.S. all of which turn on the principle that a director is unable to delegate his or her responsibilities.

One U.S. and one Canadian case will illustrate the principles mentioned above.  In David Greenberg v. Harrison,[5] a Connecticut case, the judge had to consider whether a resolution passed unanimously at a directors’ meeting was valid where one director was only present by proxy.  The judge held the resolution was not effective.  He stated:

All the directors were present except Henry S. Harrison who had given his father Dr. Harrison, his proxy to act on his behalf.

 …the vote could not be unanimous because the proxy of Henry S Harrison was ineffective to make it so.  The affairs of a corporation are in the hands of its board of directors, whose duty it is to give deliberative control to the corporate business… This requires the physical presence of a director at directors’ meetings, and he cannot act by proxy.

In the Alberta Court of Appeal case of McGuire & Forester Ltd. v. Cadzow[6], Lunney JA set out certain facts of the case this way:

The minute book shows that at a meeting of directors, Cadzow and Smith being present, on motion made by Smith and seconded by Cadzow the sum of $15,000 being available for dividend, be paid to Cadzow and Smith, in the form of shares of the company’s capital stock.  Mrs. Cadzow, the remaining director, was not present at the meeting. Cadzow had a proxy from Mrs. Cadzow to act on her behalf at any meeting of the directors…It cannot be accepted as authority to Cadzow to act as her proxy at directors’ meetings, as a director cannot delegate his powers (my emphasis).

 

WRITTEN RESOLUTIONS

The corporate statutes provide for written resolutions signed by all directors to be as valid as if passed at a meeting.[7] 

On the same principle a person who holds a power of attorney for a director could sign a written resolution for that director in his or her capacity as a shareholder but not as a director.  A shareholder does not have the same fiduciary duty that a director has (my emphasis).

 

CONFERENCE CALL MEETINGS 

The CBCA and numerous provincial counterparts provide for directors to participate in a board meeting by telephone or other such means as long as all persons participating can hear each other.  This allows participation by a director regardless almost anywhere in the world a director may be.

While proxies are not legal for board meetings there is no reason to consider same with the expedient of the telephone conference calls and written resolutions.