By Atty. Jun de Zuñiga
I discussed in previous columns that corporate business is conducted based on decisions of the company’s board of directors. These decisions are made during board meetings where proposed actions are voted upon by the directors. The unanimous votes or the majority votes, in case there are dissents, then become the basis of the resolutions issued by the corporate secretary and attested by the president.
As a protocol of good governance, every director is expected to take a position and vote on issues presented to the board. This is but part of his duty of accountability. There are recognized exceptions to this protocol, however, as when there is a conflict of interest. In such instance, the director concerned is expected not only to abstain from voting, but also to inhibit altogether from participation in the deliberation. There are already precedents on what constitutes conflict of interest as when, for example, a director has personal pecuniary interest on the item or is engaged in a business which is competitive with or antagonistic to that of the corporation.
Another instance of possible abstention is in case of an item which, although not falling under the category of a conflict of interest, may call for non-participation on account of delicadeza or propriety. This may include, for example, an award of a contract to a friend or relatives-in-law of the director concerned. Other than these circumstances, may a director abstain from voting for any reason whatsoever?
A director, as a member of the board, definitely has a right to vote but he can also abstain since he cannot be compelled to vote. This means that, outside of the circumstances described above, he can also abstain for reasons which he deems sufficient. Whatever his reason, the other members of the board cannot pass judgment thereon so as to compel him to cast his vote. Nonetheless, his conduct in declining to participate, where there are no justifiable grounds therefor, is a measure of his quality of governance. It also creates a situation of unfairness to the other directors who are willing to be accountable and stand for what they approve. As mentioned, being elected to the board entails a duty of accountability and abstention should not be used as a shield to evade that responsibility.
Another topic here, as described in the title, is the changing of votes. This refers to a situation where the board has already voted on an action and, subsequently, a director manifests that he is changing his vote. There are no relevant rules in our corporate law but my thinking is that such, change, if allowable, should be made while the board is in session. This is because the board, as a collegial body, functions only when it is in session. Once the board meeting has adjourned, no corporate powers can be exercised by the directors in their individual capacities. Lifting also from Robert’s Rules of Order, the change can be made only before the resolution is announced and released; after that, the change can be made only upon the unanimous consent of the other members. The reason for this rule, I think, is obvious. After the announcement or release of the resolution, the interests of third parties may have already come in based on the votes originally cast. This would be particularly true in an instance where a majority vote was obtained on an item, but with the changing of a vote or several votes to that of disapproval, a reversal of the board decision would result.
The above comments are the personal views of the writer. His email address is firstname.lastname@example.org