The Alternate Director – An Endangered Specie

by | May 20, 2013 2:50 pm



Directors are “persons duly appointed by a Company to direct and manage the business of the Company” and are required to devote sufficient time and resources in furtherance of their duties. Whether they act in executive (involved in day-to-day management) or non-executive capacity, Directors have rights and owe duties and responsibilities to the Company and may be liable for their actions or inactions.

The concept of Alternate Director is informed by the need to have another act in the stead of a Director who is unable to attend or be present at Board meetings, usually owing to prolonged absence. Multinationals and companies with foreign shareholders more often than not have non-resident Directors on the Boards of their local entities. Whilst a shareholder can appoint a proxy to attend a members’ meeting on his behalf, a Director cannot appoint a proxy. The practice is for such a Director to appoint an alternate to act in his stead. The person so appointed could indeed be a substantive Director on the Board to which he is appointed as an Alternate Director.

The Alternate Director is vested with the same powers, rights and responsibilities as the substantive Director.

The Legal Status of Alternate Directors

The legal status of the Alternate Director is not clear as CAMA makes no reference to Alternate Directors. In the absence of a clear provision on the appointment of Alternate Directors under the law, an alternate may only be appointed if the Articles of Association of the company so provide. Indeed, the Alternate essentially derives his legality from the Articles of Association. In practice, many companies have this provision in their Articles.

The appointment of an alternate is effected by a notice in writing signed by the Director making the appointment accompanied by a letter from the proposed alternate consenting to so act. The appointment, by the provisions of the Articles is usually made subject to Board approval. The substantive Director may revoke the appointment at any time by notice in writing to the Board. However, if the substantive Director ceases to hold office for whatever reason, the Alternate Director will automatically cease to hold office, unless he is also a substantive Director.

Although it could be argued that the appointment of Alternate Directors would serve to address the challenge of regular attendance at Board meetings and obviate the difficulties with constituting requisite quorum for meetings, technological advancement appears to have provided a solution. Many companies have amended their Articles and Board Charters to allow participation at Board and Committee meetings by non-resident directors via telephone and video conferencing.

In line with corporate governance best practice, an individual’s ability to commit adequate time to attend Board meetings should be a key consideration in the appointment of Directors. The responsibilities of a Director are enormous and should be taken seriously. A Director who is unable to regularly attend Board meetings (physically or by e-presence), adds no value to the Board and the company. 

 

BISI ADEYEMI 

Adeyemi is Managing Director of Deloitte Corporate Services Limited (badeyemi@deloitte.com)