Wednesday, March 7, 2012
Corporate Directors Cannot Vote by Proxy
Corporate Directors and Proxy Voting –
Don’t Go There
From time to time I review corporate articles/certificates of incorporation and bylaws, often in connection with either general legal compliance audits or the issuance of opinion letters. Something I always enjoy is a provision providing that directors may vote by proxy. The only problem with these provisions is that they are invalid; directors of a corporation, be it for profit or nonprofit, cannot vote by proxy.
In Kentucky we actually have a case reciting this rule. Haldeman v. Haldeman, 197 S.W. 376, 381 (Ky. 1917); “Neither can they [directors] vote by proxy.” This holding is entirely consistent with the commentary, both dated and current.
• WILLIAM W. COOK, COOK ON STOCK AND STOCKHOLDERS AND CORPORATION LAW (2d ed. 1889), § 592 at p. 659: “Directors, of course, cannot act or vote by proxy.” (citation omitted).
• II ARTHUR W. MACHEN, JR., A TREATISE ON THE MODERN LAW OF CORPORATIONS (Little, Brown & Co. 1908) § 1455: “Directors cannot vote by proxy.” (citations omitted). See also id. § 1458: “At a Directors’ meeting, votes by proxy cannot be received or counted, and the Directors have no power by resolution to alter this rule.” (citations omitted).
• 2 WILLIAM MEADE FLETCHER, FLETCHER’S CYCLOPEDIA OF THE LAW OF PRIVATE CORPORATIONS § 427: “The directors of a corporation generally can not vote at directors’ meeting by proxy, but must be personally present and act themselves . . . . Their personal judgment is necessary, and they can not delegate their duties or assign their powers.” (citations omitted).
• HOWARD H. SPELLMAN, A TREATISE ON THE PRINCIPLES OF LAW GOVERNING CORPORATE DIRECTORS (Prentice-Hall 1931) at 344: “It is the personal attention of the directors to the corporate affairs that underlies the purpose of the director’s meetings. It follows that a director may not deprive the stockholders of their right to his judgment by assigning his power to vote to another. Accordingly, it is unanimously held that directors must appear and vote in person and that they cannot give proxies to others, whether or not members of the board, to act in their place.”
• ABA CORPORATE DIRECTOR’S GUIDEBOOK at p. 18: “A director is expected to commit the required time to prepare for, attend regularly and participate (in person when feasible) in board and committee meetings. A director may not participate or vote by proxy; personal participation is required (which may take place by telephone or video when in-person participation is not possible.)”
• MOD. BUS. CORP. ACT § 8.20, comment.
► An exception to this general prohibition on director proxy voting is Louisiana, which permits it in particular corporations that so provide in the articles of incorporation. See LA. CODE 12 § 81(E).