One of the most contentious questions in CimplyFive’s First Secretarial Practice Survey conducted in July 2016 was about the practice of obtaining the consent of the Director to hold the Board on shorter notice.

While this is not a legal requirement, our survey indicated that 81% of respondents revealed that they obtained consent from directors to hold board meetings on shorter notice. Obtaining the consent of all participants even if it is not mandatory seems to be a desirable practice as it meets the basic criterion of good governance, which is to allow all eligible members to participate in the decision-making process. The moot question is, does deeper scrutiny of this practice pass the good governance test?

When we dig deeper, an unintended implication of this practice has the effect of granting a veto right to any and all directors, as the failure of a single director to consent has the effect of adjourning the board meeting. Board, even if everyone else the director wants to have it.

In this context, it is worth noting an interesting point made by Robert’s Rules of Order, first published in 1876 and considered the bible of parliamentary procedure, about obtaining the consent of members. The available options are:

All members, or

All members present, or

All members present and voting.

The Book reasons that obtaining the consent of all members or of all members present has the effect of treating a vote to abstain, or the inability to vote for any reason, as a negative vote. Given this effect, this basis should not be used unless the matter is of such importance that the positive consent of all members is considered essential. Against this backdrop, it is worth examining how and why the right of veto arose, and whether it is an appropriate instrument for corporate board meetings.

Veto rights or negative affirmative rights are basically the denial of the power of the majority to make decisions. This is a right not normally granted in statutes, which upholds the principles of democracy and supports decisions made by the majority. The rare exceptions where the bylaws negate majority rule are when the rights of a minority group are adversely affected or a basic tenet of their association is modified, altered, or substantially changed.

In stark contrast, veto rights are a standard feature of private Shareholder Agreements that are used primarily by financial investors taking a stake in start-ups to protect the large financial outlay they bring. Cover areas of Board representation, approval of funding plans and CXO appointments, anti-dilution provisions, and shareholder reward mechanisms such as Right of First Offer (ROFO), Right of First Refusal (ROFR), rights of Accompanying rights and drag, veto rights have a logical and justified place, as in their absence it will be difficult for start-ups with ideas to attract capital, despite knowing that capital without entrepreneurs will remain idle cash. Therefore, for dreams to come true and idle money to become rich, the veto built into shareholder agreements is a valuable conduit.

In contrast to shareholder meetings where property rights must be protected, the Corporate Board is more of a body of collective wisdom to guide and manage the company, including some high-level residual powers that involve the day-to-day running of the company, as powers to borrow and complement representatives to present the interest of the company. Given the nature of the Corporate Board, it is worth debating whether the consent of the Directors should be obtained to hold Board meetings on shorter notice.