Tough times often call for tough measures. In the current environment directors are likely to be ‘meeting’ more often than usual to discuss, take and implement significant decisions around their business’s response to the COVID-19 crisis. But with limitations on social contact and gatherings, most boards are being forced to hold these important meetings virtually. It is important (perhaps now more than ever given the scrutiny that decisions made during this crisis may face) that directors are careful to exercise their decision-making powers in line with the company’s constitution, and also, from a practical perspective, that the virtual meetings themselves are well structured and delivered.
The Chartered Governance Institute (ICSA) has published a guidance note on good practice for virtual board and committee meetings, to assist companies in using virtual meetings. We have drawn from this in summarising below some key legal and practical considerations for directors. The ICSA note also includes helpful appendices - Notes for the Chair, Notes for the Company Secretary, Notes for presenters, Suggested “ground rules” for participants and a Comparison of virtual meeting providers.
Must directors’ decisions be taken in meetings?
Directors are required to exercise their powers by taking decisions collectively (unless their functions or powers have been delegated to one particular director or a committee). But the Companies Act 2006 does not require directors to take decisions in a certain way; instead decision-making principles are governed by the company’s articles of association. Usually, articles will set out separate regimes for:
- majority decisions taken at directors' meetings (e.g. Model Article 7 of the Companies Act 2006 Model Articles for private companies limited by shares); and
- unanimous decisions made outside of directors' meetings (e.g. Model Article 8 of the Companies Act 2006 Model Articles for private companies limited by shares).
So if face-to-face meetings are not possible, the technology fails or is not practicable, most articles of association allow board decisions to be taken informally. However, unless specifically provided for in the company's articles, directors cannot act otherwise than unanimously without holding a formal meeting.
It is usually required by articles, and is certainly best practice, to keep minutes of all informal directors’ proceedings (not just meetings). If older style Companies Act 1985 ‘Table A’ articles apply, informal decisions need to be in writing and signed by all directors (each director need not sign the same copy of the resolution). The newer style Model Articles are less restrictive, instead just requiring all directors entitled to vote on the matter to indicate to each other “by any means” that they share a common view. And if using a written resolution, Model Articles do not require that the directors sign it: this is merely one of the means whereby they can indicate their consent. Directors could instead indicate their agreement to a written resolution by email acknowledgment, text message or instant messaging for example. Alternatively, directors can take decisions through telephone conversations or by email correspondence, as long as they all agree. However, decisions taken by way of a series of separate telephone calls, or by more transient forms of communication such as instant messaging, may be more difficult to capture, so should always be followed up with a written minute of the decision.
Can directors hold virtual meetings?
Board meetings can only be held by telephone, video conference or other virtual means to the extent that the company’s articles permit. The Model Articles do allow for virtual board meetings: “directors participate in a directors’ meeting…when...they can each communicate to the others any information or opinions they have on any particular item of the business of the meeting” and “In determining whether directors are participating in a directors’ meeting, it is irrelevant where any director is or how they communicate with each other” (Model Article 10). However, Table A articles do not make it so clear (they simply state that “directors may regulate their proceedings as they think fit”). It is common, therefore, for pre-2006 Act companies to have expressly included permission for telephone meetings in their articles. Typically, such provision requires that all directors are able to hear and communicate effectively with each other throughout the meeting.
Whilst it is common for virtual meetings to be permitted, it is unlikely that a series of emails can constitute a 'meeting' given that participation is sequential, not contemporaneous.
Always check the articles for bespoke requirements.
Delegation to committees
If it is impossible for the board to have a call or virtual meeting, then particular matters could be delegated to a committee of any two or three directors. This delegation can be effected by the written resolution procedure outlined above. It is better not to specify only named individuals as members of the committee, in case they are unable to participate. A safer option is to say (for example) “any two directors” and add in any preferences such as “at least one of whom must be a Non-Executive Director”.
What notice is required for a meeting?
Unless there are specific requirements in the articles, reasonable notice of a director’s meeting (or committee meeting) should be given to all directors, including those overseas and those known to be unable to attend (unless they have waived their right to notice). What constitutes “reasonable notice” will depend on the company (for example, what length of notice is normally given, what business is to be transacted, and whether the length of notice sufficient to enable all directors to participate). A meeting will not be properly convened and any business transacted will be void (in the absence of a valid waiver of entitlement to notice) unless proper notice is given to all of the directors entitled to receive it.
It is common for articles to require that the proposed method of communication during the meeting (where the directors will not all be together) be specified in the notice (e.g. Model Article 9). Clear instructions about how to access and use the meeting app should also be included in the notice, along with “ground rules” for participants (or at least a reminder of virtual etiquette). The chair should also ensure that board papers are circulated securely ahead of the meeting (password protected or through a secure file sharing platform or company portal) and that any apologies for absence received are noted. If possible, the views of any directors who are unable to attend should be canvassed ahead of the meeting.
Where is a virtual directors' meeting deemed to take place?
The official ‘location’ of a virtual meeting is a matter for the articles of association. Model Articles allow the directors to decide where the meeting is located (being the actual location of any one of the directors). Companies adopting a version of the Model Articles sometimes amend this to state that the meeting shall be deemed to take place where the largest group of those participating is assembled or, if there is no such group, where the chair of the meeting is. Directors should ensure, prior to the meeting, that no undesirable tax or regulatory consequences will arise if the meeting (and therefore the company’s management) is deemed to take place outside of the UK.
Remember, also, to take account of different time zones when scheduling meetings.
What technology should be used to facilitate the meeting?
As the ICSA guidance highlights, choice of technology is key to a successful meeting. If the technology does not work well the meeting will be harder to run, will likely last for longer than is optimal and will be less effective. An audio call or telephone conference may be less risky but a video conference is more engaging if you can get it to work well (but beware of bandwidth limitations where there are lots of video participants). Don’t assume that everyone has become a wizard with video conferencing technologies over the past month – choose a medium that all directors can use and access (offer practice calls if appropriate), that allows for necessary board papers to be accessed and considered during the meeting, and importantly, that the articles permit.
The ICSA guidance includes a helpful comparison of virtual meeting providers (in appendix 5), giving an indication of the services available across a range of virtual meeting applications.
Holding the meeting
Virtual meetings should be carefully managed, and minuted in the usual way (it is not generally advisable to record them). It’s helpful if the chairperson recaps the ground-rules at the outset, as well as the agenda and tips for using the meeting technology (including how to mute / unmute / screen-share / ask questions via chat functions etc). It is also good practice to confirm at the beginning that all directors agreed to the board meeting being held by telephone or other method of communication and, at the end, that all could hear and communicate effectively with each other throughout the meeting.
Take extra care to declare and minute any directors’ interests and to authorise conflicts in accordance with statutory requirements, the articles and any conditions imposed by previous authorities so that the validity of the board meeting is not called into question in the future. Ensure that the quorum requirement (usually prescribed in the articles) is satisfied for each item of business being transacted (and not just at the outset) – check regularly that everyone is still connected. During the meeting the chair should ensure that each director is given a proper opportunity to debate the business and the meeting should be adjourned/resumed as appropriate if telephone or other electronic communication links are lost.
When it comes to decision making, the usual nods or show of hands will need to be replaced by spoken assent (or dissent). Some virtual meeting apps may have a facility for an electronic voting process if a formal vote is needed. At the end of each item, the chair should state clearly what the board has just decided. If there is no consensus, then as with a physical meeting it is up to the chair to determine the best course of action, which might be for the executive to return to the next meeting with more information or an updated proposal or for the item to be deferred for a longer period of time, or dropped entirely.
As always, when taking any action, each director must take into account their duties under the Companies Act 2006; in particular the duty under section 172 to act in the way they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole. Section 172 goes on to clarify that, in doing so, directors should have regard (amongst other matters) to -
- the likely consequences of any decision in the long term,
- the interests of the company's employees,
- the need to foster the company's business relationships with suppliers, customers and others,
- the impact of the company's operations on the community and the environment,
- the desirability of the company maintaining a reputation for high standards of business conduct, and
- the need to act fairly as between members of the company.
These factors will be particularly pertinent at the moment and the directors’ consideration of them should be minuted carefully.