Corporate Governance: Holding board meetings in a time of social distance

In these difficult times for all businesses, good corporate governance is more important than ever. Company boards are making decisions which may be essential for the survival of the business in a time when the viability of businesses may be under threat, funding streams may be challenged and supply chains disrupted.

Now more than ever, decision-making must be informed by the most accurate and reliable information available, drawing on the diversity of knowledge and expertise across the entire board. This means that directors must balance the requirements of social distancing with the need to meet regularly to ensure effective governance. Covid-19 does not release directors from their statutory obligation to act in the best interests of the Company as a whole and to carry out their duties with due care and diligence. Indeed it is arguable that the responsibility which goes with these duties is heightened in a time of crises such as the one we now find ourselves in.

To address the need for extraordinary general meetings and/or board meetings, companies need new strategies for holding directors and shareholders meetings rather than being tempted to postpone meetings altogether. Virtual board meetings have been the means by which many businesses have struck a balance between these competing needs and there have been some interesting developments on the possibility of holding virtual AGM’s.

In this note, we consider some practical guidelines for directors of Irish companies to limit disruption to board meetings and continue with essential governance during the Covid-19 pandemic. We refer you to our Insight, Covid-19: Planning Your Annual General Meeting for more information on the evolving position on holding virtual AGM’s.

Pre-Board Meeting Check

1. Review constitution – The Companies Act 2014 provides for board meetings to be held by telephone, video or other electronic link. However, a company may dis-apply that position in its constitution. As such, the constitution should be reviewed as a first step to ensure that these provisions apply. The constitution also contains the company’s regulations on practical matters relevant to holding a board meeting such as the quorum, notice requirements and the voting practice and these should also be reviewed at this stage to ensure a directors meeting is validly called and held.
2. Choose a forum – The directors should decide on the technological means by which the board will meet. Ensure that all directors have adequate training in the chosen technology. Directors must ensure their chosen means of communication enables all directors present to speak to and be heard by each of the others. Any difficulties in coverage or internet connection for the duration of a meeting could raise difficult questions as to whether the directors attending the meeting are truly present. The test laid down in Companies Act, 2014 where directors purporting to constitute a meeting by technological means is that each such director is able to speak to each of the others and to be heard by each of the others. If an application has not previously been used, it may be useful to run a short trial meeting to understand how it will work.
3. Determine location - Section 161(6)(b) of Companies Act, 2014 contains default rules as to where a virtual board meeting is deemed to be held. These rules may be dis-applied by a company in its constitution. First, virtual board meetings are deemed to be held at the location of the largest gathering of those participating in the meeting. Secondly, if there is no such largest gathering (e.g. two locations with the same number of directors in each location), the location of the chairperson will be the location of the meeting. Thirdly, in the absence of either of these, the meeting itself will decide the location. Companies should bear this order of priority in mind when convening meetings to avoid any unexpected consequences from meetings deemed to be held outside of Ireland. Where, from a tax perspective, the residence of the Company is important, the board should consult with its tax advisers as to the location and constitution of the meeting.
4. Set virtual meeting etiquette – It is useful for the directors to address virtual meeting etiquette in advance of the meeting. The directors should consider and decide on approaches to taking attendance, voting, how additional attendees will join and leave meetings, muting microphones and camera use. Agreeing these before the meeting will avoid disruption or costly delays when initiating the meeting.
5. Review information security – The directors should consider the security issues around their chosen forum and agree how information such as notice of the meeting, log-in details, board papers, slides and passwords will be shared among the board.
6. Set an agenda – The board should agree the agenda in the usual way and the agenda should be circulated with the notice of the meeting. Virtual meetings lack the flexibility of a physical meeting as more than one speaker cannot voice an opinion effectively and the usual signals such as body language, are missing. In our experience, agreeing structure in advance is key to the success of the virtual meeting.

The following ADAPT Approach will assist boards setting meeting agendas and holding effective meetings on a virtual platform:

Assess your corporate governance model and consider how often you should hold board meetings and key matters to be included on the agenda of each meeting. At the next scheduled meeting, the board of directors should also assess the risks facing the business and review previous financial planning, forecasts or business plans in light of the current and predicted economic climate. Directors should keep financial information under regular review and should any question arise as to the solvency of the company, seek advice from professional advisers.

Discuss your company’s response to Covid-19 and ensure all directors and shareholders are aware of all measures which are being put in place by the company. Companies should communicate regular updates to their board and shareholders and continue to re-visit business needs as the situation develops.

Act now to ensure your business can manage events as they arise over the coming months. Directors should take all appropriate measures to mitigate new business risks.

Prioritise the health and safety of all stakeholders – customers, employees, directors and shareholders and adapt business in an appropriate method to accommodate Government social distancing guidance for individuals and workplaces.

Track new directions from the Irish Government which may affect the ongoing management of company matters and keep informed of the latest guidelines, ensuring that the company is in a position to respond to the developing public health guidelines.

Holding Virtual Board Meetings

1. Notice - Directors should receive reasonable notice of upcoming board meetings. The notice requirements in the company’s constitution may specify the means of communication and should be reviewed carefully to ensure a meeting is valid.

2. Attendance - A director taking part in a virtual meeting is deemed to be present in person at the meeting and shall be entitled to vote and be counted in the quorum accordingly, unless the company’s constitution provides otherwise. A roll call should take place as a practical first step if it is not evident from the chosen application which directors have joined the call. A rollcall is also useful to confirm that all directors can hear and communicate with each other, to avoid any issues with the validity of their attendance.

3. Quorum – The quorum of the board will not change for virtual board meetings. The default quorum for most companies is two directors present. In single director companies, the quorum is one. Quorum is usually fixed by the constitution of a company and the directors should review this to ensure that the board meeting is valid. If not stated, the default will apply. It may be useful for a company to ensure they have a quorum before initiating any call. Being aware of a valid quorum is also important in instances where a director drops off unexpectedly. It will dictate whether the meeting can validly proceed or must be halted.

4. Appoint the Chairperson - The directors should also consider who will be appointed chairperson of the meeting in advance of the meeting and appoint them as a first order of business. This will ensure that the meeting will be conducted in an orderly and purposeful way. The board can also determine the period for which he/she is to hold office, with a view to minimising the need for this step at future virtual meetings. The chairperson will be asked to sign the board minutes so should ensure they have access to an electronic signature or can return the signed minutes electronically. Unless a company’s constitution provides otherwise, the chairperson will have a second or casting vote, in the event of an equality of votes on a proposed resolution.

5. Conduct of virtual meeting – Virtual meeting etiquette is just as important for remote board meetings as it is for in-person meetings. The chairperson should aim to keep the meeting moving professionally, inviting full participation and preventing participants from speaking over one another. Directors should be invited to speak, agree, dissent, raise questions and share their views on relevant items on the agenda. This is both good practice from a corporate governance perspective and it ensures all directors remain audible and validly in attendance throughout the meeting. The chairperson should summarise the position at the end of the meeting for clarity.

6. Signing minutes - Minutes of a general meeting can be signed by the chairperson of the meeting using an electronic signature or alternatively can be printed and signed by the chairperson. Draft minutes may also be circulated with the agenda for the next scheduled meeting. They can be tabled for approval at the subsequent meeting, approved and then signed.

7. Regular meetings - In normal trading conditions, we advise companies to continue to hold board meetings quarterly at a minimum. However, in the current economic climate, we would emphasise to directors the importance of holding regular board meetings. Should the performance of the directors during this period be called into question, directors will, at a minimum, need to evidence that they obtained the most up to date information as to the financial condition of the company, deliberated upon same and actively took considered actions based on that information. Regular and meaningful board meetings will be vital in evidencing compliance with that minimum standard.

Directors' Written Resolutions

In the current economic climate, directors may be required to make critical business decisions, for example drawing down new bank facilities, surrendering a lease or terminating the employment of a key employee, in circumstances where it is not logistically possible to convene a virtual board meeting. A practical alternative is the electronic circulation of a written resolution to all directors of a company:

1. A resolution in writing signed by all the directors of a company, who are entitled to receive notice of a meeting of the directors, shall be as valid as if it had been passed at a meeting of the directors. Directors’ decisions which are made by written resolution must be unanimous and all eligible directors must vote on it in the same way.
2. Written directors' resolutions can be signed in counterpart, so the original does not need to be couriered between directors and it takes effect from the time it is signed by the last director.
3. This procedure can be used even if one or more of the directors (not being a majority of all directors) is not permitted to vote on a directors’ resolution (e.g. by reason of a conflict). In such circumstances, the remaining directors should sign the resolution and note the names of the directors who are not entitled to vote and the reason for that position.
4. We recommend that where it is anticipated that a resolution will not be supported unanimously or where it is contentious in nature, a virtual board meeting should be held.