Thursday, November 25, 2010

Proxies for Shareholders; Alternates for Directors

A column in today’s Business Line by S. Murlidharan analyzes the appointment of proxies by shareholders to attend general meetings as compared to the appointment of alternate directors on the board. Although the author alludes to the “shareholder’s proxy” and “director’s proxy” (the latter being the alternate director), he highlights the all-important difference between the two: while the proxy for general meeting is appointed by the relevant shareholder, an alternate director is appointed by the board. This gives rise to certain fundamental legal distinctions between the two concepts.

A proxy is created through the concept of agency whereby the proxy is conferred authority by the principal (being the shareholder). Consistent with the principles of agency, the acts of the agent (proxy) will bind the principal (shareholder) as the votes of the proxy on a poll are recognized as votes of the shareholder. A proxy merely gives effect to the intention of the shareholder, except in the case of a discretionary proxy where the proxy can decide which way to vote.

The position of an alternate director is altogether different from a legal perspective. As the column notes, an alternate director is not appointed by the original director but rather by the board. More importantly, the alternate director is not an agent of the original director; the concept of agency does not come into the picture at all. Consequently, the alternate director’s actions are not attributable to the original director. The alternate director will be subject to all the duties, responsibilities and liabilities like any other director. The column, however, raises the interesting question regarding alternates for executive directors, as company law does not prohibit such a possibility. The appointment of such alternates ought to take into account the nature and position of executive directors. Individuals occupying such a position are directors under company law and they, in addition, possess executive powers and functions. While appointing an alternate for an executive director, the board should not only appoint such a person as a director on the board, but should also vest all the executive powers as appropriate. That leaves the question of whether the alternate director does possess all the skill and competence in order to be able to exercise such executive functions.

In all, the column raises some interesting questions about the continued relevance (or obsolescence) of the concepts such as proxy and alternate directors given advances in technology.


Arvind Singh said...

Nice article, When a member of the company has already appointed a proxy to present to participate and vote at the meeting, the proxy authority suspended accordingly. In case of death or insanity of a member, is the authority of the proxy is not revoked until the company learned of the death of members or the state of insanity.

Anonymous said...

will an alternate director be allowed to vote in the board meeting? and more, are they allocated with sort of share option scheme, for the executive functions that they have performed on the principal's behalf?

Anonymous said...

Can the same alternate director be appointed for 2 original directors?