by: Sylvie Lalonde
When people agree to join a board of directors, it is usually because they have an interest in or passion for the work of the organization. Most directors want and are committed to fulfilling their duties and responsibilities, including devoting the time to fully prepare for, regularly attend and participate in board meetings. However, unexpected circumstances may and do arise which can prevent directors from participating on the board for extended periods of time. For example, their day job may require them to take a prolonged, out-of-country, sabbatical, they may become ill or they may need to deal with a personal or family matter. Regardless of the reason, a director might, instead of resigning, request a leave of absence from the board because she or he wants to stay on the board in the long term. So, how should the Board deal with such a request?
The short answer is that the request of a director to take an extended leave of absence from the board should be denied and the director should voluntarily resign. Statutes such as the Canada Not-for-profit Corporations Act and the Corporations Act of Ontario do not contemplate temporary leaves from the board of a non-profit corporation. Under those statutes, directors are elected by the members and cease to hold office when they die, resign or become disqualified. In other words, you are either a director or you are not. But more importantly, a leave of absence is contrary to the rules of fiduciary conduct and might not relieve inactive directors of their fiduciary duties owed to the corporation. A director’s obligation to fulfill her or his fiduciary duties comes into effect immediately upon election to the board and ends only when the director actually ceases to be a director, whether by death, resignation or otherwise.
All directors, in exercising their powers and discharging their duties, must act with a view to the best interests of the corporation, comply with the applicable standard of care and abide by rules of fiduciary conduct. It is difficult to conceive how an absent director can fulfill those obligations while being completely absent from the board for an extended period of time. In addition, individuals are usually recruited and elected because of their particular expertise and skills. Directors are expected to contribute that experience and use those skills to have a positive impact on the organization. A leave of absence means that a skills gap is created within the board that cannot be immediately filled because that director’s seat is being saved for her or him for an extended and perhaps indefinite period of time.
Furthermore, a leave of absence creates other procedural challenges. For example, the absent director is technically still “in office” and therefore should continue to count in determining whether a quorum is present at meetings of the board and any committee of which she or he is a member. That may be particularly problematic for smaller boards and boards that have difficulty achieving quorum in the normal course. Another issue to be considered is the deemed consent provisions provided for in legislation. Under the Canada Not-for-profit Corporations Act and the proposed Not-for-Profit Corporations Act, 2010 (Ontario) a director who is not present at a meeting at which a resolution is passed is deemed to have consented to the resolution unless within seven (7) days after becoming aware of the resolution, the director causes her or his dissent to be placed with the minutes of the meeting, or sends her or his dissent to the corporation. That means that an absent director may face potential liability for board actions taken at a meeting which she or he did not attend, unless the absent director takes proactive steps to communicate her or his dissent within the prescribed period. Depending on the reasons for the leave of absence, it may be difficult or impractical for the absent director to take the time to read the minutes of meetings she or he did not attend and communicate his or her dissent, if any.
Finally, a leave of absence might have an impact on the Directors and Officers insurance policy of the corporation. Boards that allow directors to take a leave of absence should consult with their insurers as to whether formal notice to them of the leave of absence is required and whether coverage of the absent director is affected in any way.
Considering the number of governance challenges created by a director’s long-term leave of absence, a board is entitled (and perhaps obligated) to treat such a request as a voluntary resignation and fill that vacancy with someone who is able to fully participate in board activities. The prohibition on leaves should not be perceived as punitive, but rather as a good governance practice that is not only in the best interest of the corporation, but also protects the director from potential liability. Ideally, the rule against director leaves of absence will be set out in a board policy.