Veto Rights and Good Governance: Are the Two in Sync?

One of the most contentious issues in CimplyFive’s first survey on secretarial practices, conducted in July 2016, was the practice of obtaining the director’s consent to hold a board meeting in a shorter time frame.

While this is not a legal requirement, our survey found that 81 per cent of respondents indicated that they requested the consent of directors to hold board meetings on a shorter-term basis. Obtaining the consent of all participants, while not binding, seems to be a desirable practice, as it is in line with the fundamental standard of good governance that allows all eligible members to participate in the decision-making process. Controversial question: can a deeper analysis of this practice withstand a good management test?

If you dig deeper, inadvertent participation in this practice results in a veto on each director, since the refusal of one director to consent results in the postponement of the board meeting, even if all other directors wish.

In this context, an interesting commentary on the Robert Rules, first published in 1876 and considered the Bible of Parliamentary Procedures, regarding the consent of members. Options available:
All participants or
All participants are present, or
All participants are present and vote.

The book argues that obtaining the consent of all or all of the members present will result in the abstaining or non-voting for whatever reason, which would be considered a vote against. Given this effect, this framework should be used only if the issue is so important that the positive consent of all members is considered important. In this context, it is worth considering how and why the veto power emerged, and it is a suitable tool for Council meetings.

The veto or negative positive rights are in fact a denial of the right of the majority to make decisions. This is a right that is not usually granted in statutes that uphold the principles of democracy and ratify the decisions of the majority. Rare exceptions when the majority rule is denied by legislation are cases where the rights of a minority group are violated or when the fundamental principle of their association has been changed, modified or substantially altered.

On the other hand, the veto power is a standard feature of agreements with private shareholders, which is mainly used by financial investors who participate in startups to protect their large financial expenses. As for representation on the board of directors, approval and appointment of the CXO financing plan, provisions to prevent dilution and mechanisms for the distribution of shareholder remuneration, such as the right of preferred offer (ROFO), the right of first waiver (ROFR), the right to join and drag the veto have a logical and justified place, because in their absence startups with ideas will be difficult to raise capital when they know that without entrepreneurs capital will remain unused. Thus, the veto power in shareholder agreements is a valuable conduit for the realization of a dream and the transformation of unused money into wealth.

Unlike shareholder meetings where ownership rights are to be protected, the board of directors is more of a set of collective wisdom for business management and conduct, including some important residual powers related to day-to-day business management.” business, for example, the authority to conduct business. to borrow and appoint representatives to represent the interests of the company. Given the nature of the board of directors, it is worth discussing whether to obtain the consent of the directors to hold board meetings in a shorter time frame.

American Non-Participation – An Effective Veto Power?

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