Voicing Dissent - 31st Aug 2016

A common issue in board practice concerns disagreement or a dissenting voice at the boardroom table.  The following is the current TBPL view:

Abstention is not really a viable option for a director and collective action was the underlying philosophy behind a board (see for example Section 40 of the Companies Act 1993).

Can a director abstain
In an absolutely literal sense a director can abstain from voting in the sense that nobody can be forced, at least in New Zealand, to vote on anything. Consequently, if a director remains silent he or she is in effect abstaining. Their vote therefore would not be counted in any resolution which was passed or rejected by the board.

There are however some important caveats and some context which needs to be understood in respect of this.

Responsibility cannot be rejected except by resignation
Simply because a director cannot be “physically” forced to vote and in that narrow technical sense they are abstaining, does not in any way absolve them of the responsibilities of a director. The most recent case on this is the James Hardie case in Australia – which New Zealand courts follow – in which the judgment stated that it is always the duty of a director to take responsibility for making a reasoned and reasonable assessment of the issues surrounding any particular resolution. Thus “blame or responsibility” cannot be shifted to management, ignored (for example because you intend to abstain from voting) or otherwise done away with. The director is required to investigate to a reasonable extent and assess, discuss, and form an opinion of some kind.

Note that the validity of the opinion, its popularity, its political implications or indeed any other matter of content is not at issue. What is at issue is the requirement to make some kind of adequate assessment.
Regardless of whether a director abstains or votes “yes” or “no” that director remains a member of the collective which is the board. Consequently they are responsible (and at the limit) liable for decisions made by the board. It is not therefore possible to “walk away” from any particular issue on the grounds that a director wishes to be no part of the decision or that they wish to have “nothing to do with this one” or other like protestations.
It would be difficult if not impossible for example to successfully claim that one was not liable for a decision on the grounds that one had abstained from voting. In that sense it is not possible to abstain from the responsibility. One may walk from physically voting but one may not walk from one’s responsibilities and the liability associated with those.
But I didn’t say “Yes”
This form of argument does not succeed 100% either. It may be that in abstaining or remaining silent or refusing to vote one did not say “yes”. At the same time there was the full opportunity to say “no” and thus the decision not to exercise that opportunity means that the director is in some form of “voting vacuum” but not in any form of vacuum in respect of responsibilities and very likely liability. In other words the responsibility must still be discharged and liabilities accompanying it are likely to survive. Abstention does not remove one.

It would perhaps be easier if there was black and white associated with abstentions and votes. There is not, and the reasons for that are set out above. What is black and white is that as a director one must exercise one’s responsibilities quite regardless of the “awkwardness” of the situation.

Ultimately if there are too many issues on which a director would rather not be a director (for that is effectively what one is saying in attempting to absent oneself through abstention) then the more useful course is to resign or not become appointed in the first place.

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