Directors' Voting and Committees Flashcards
What are the primary responsibilities of the board of directors?
To manage and direct the management of the corporation’s business and affairs, including appointing and overseeing the officers who run the business day-to-day, and making high-level corporate decisions.
How many directors must be on a board?
Only one, though Pennsylvania’s presumption is three.
Who can be a director?
Any natural person.
How long will a director serve?
Typically just one year, EXCEPT on a classified board, in which case each director serves no more than a four-year term.
What is a classified board?
A board with typically three classes, each of which is elected in a different year.
(Imagine how the senate is elected, but elections are yearly instead of every other year.)
How are directors elected?
- A quorum of directors must be present throughout the meeting for any directorial decision to be valid.
- Presumption of 50% in PA, unless otherwise set by the bylaws/articles
- A majority of directors who actually vote support the resolution/nomination/etc.
- Unless otherwise determined by bylaws/articles
- NOTE that cumulative voting is allowed, though.
How are directors removed?
By vote of the board, with or without cause UNLESS
- It is a staggered (classified) board, in which case cause is required.
- The director was elected by a particular class of stock, in which case only that class of stock can vote to remove the director.
- The director was elected by cumulative voting, in which case he cannot be removed if votes sufficient to elect the director are case against removal.
How are directors replaced?
Either through shareholder vote or by director vote if there is a vacancy or the size of the board has increased.
What notice is required for director meetings?
Five days’ notice, which can be waived by appearance or signed waiver.
What is director dissent?
A procedure by which a director can avoid potential liability for a board decision from which she dissented. She must
- Submit a written statement of her reasons for dissent to the secretary during or shortly after the meeting OR
- Ensure her dissent is noted in the meeting minutes.
What are committees?
A group to which directors can delegate some of their responsibilities.
How is a committee created?
By a majority vote of all the directors to
- establish the committee AND
- appoint a director to the committee
What directorial decisions are committees precluded from making?
- Declaring distributions
- Recommending actions to shareholders that require shareholder approval
- But you can recommend that the directors pose the question to the shareholders.
- Creating or filling board vacancies
- Adopting, repealing, or amending bylaws
What does the Sarbanes-Oxley Act require?
- An audit committee for publicly held firms.
- A nominating committee for firmst listed on a stock exchange
- decide which directors the corporation will propose for election
- A compensation committee
- toothless
- Directors on all such committees must be independent (not employed or otherwise compensated by the corporation).
What does the Dodd-Frank Act require?
- Regular shareholder votes on executive compensation
- toothless
- Processes that make it easier for minority shareholders to nominate their own directorial candidates.
