How Can I Force a Board of Directors to Elect a New Director?
Full Question:
Answer:
The answer will depend on the business' bylaws and whether its rules regarding voting by the board of directors were followed. I suggest you consult a local attorney who can review al lthe documents and facts involved. A corporation is governed by a board of individuals known as directors who are elected by the shareholders. Directors may directly manage the corporation's affairs when the corporation is small, but when the corporation is large, directors primarily oversee the corporation's affairs and delegate the management activities to corporate officers. Directors usually receive a salary for their work on the corporate board, and directors have a fiduciary duty to act in the best interests of the corporation. These fiduciary duties require the directors to act with care toward the corporation, to act with loyalty toward the corporation, and to act within the confines of the law. A director who breaches this fiduciary duty may be sued by the shareholders and held personally liable for damages to the corporation.
The articles of incorporation or the corporate bylaws determine how many directors will serve on the board of directors and how long the directors' terms will be. Directors hold meetings at regular intervals as defined in the corporate bylaws and, in addition, may also call special board meetings when needed. At board meetings, directors discuss issues affecting the corporation and make decisions about the corporation. Before the board can make a decision affecting the corporation, however, there must be a quorum, or certain minimum number of directors, present at the meeting. The precise number constituting a quorum may be determined by the bylaws or by statute.
The fiduciary duty held by directors requires them to act with due care, which means that the director must act reasonably to protect the corporation's best interests. Courts will find a breach of the fiduciary duty when a director engages in self-dealing or negligence. Self-dealing occurs when the director makes a decision on behalf of the corporation that simultaneously benefits the director's personal interests. For example, assume a director for a wholesale foods corporation also owns separately a grocery store. At a corporate board meeting, the director votes to reduce by fifty percent the cost of wholesale apples sold by the corporation to independent grocery stores. Such an act would likely benefit the director's grocery store and could hurt the corporation's profitability. A court would likely determine such an act to be a breach of the director's fiduciary duty toward the corporation.
Directors are not in breach of their fiduciary duty merely because a decision they make on behalf of the corporation results in trouble for the corporation. Directors who base their decisions on reasonable information and who act rationally in making their decisions may not be held personally liable even if those decisions turn out to be poor ones. This legal emphasis on protecting a director's decision-making process is known as the business judgment rule.
If a quick decision is necessary to prevent great harm or take advantage of great opportunity, and a quorum of the board cannot be assembled in time, the directors who are available may often make the decision. The business judgment rule is a safe harbor for directors. A director's decision is not subject to review in court so long as it is made in good faith, on an informed basis, and in the best interest of the corporation (i.e. absent a conflict of interest). So long as the director's decision is mere "business judgment," they will not be personally liable for it.
Please see the following WA statutes:
RCW 24.03.105 Any vacancy occurring in the board of directors and any
directorship to....
Any vacancy occurring in the board of directors and any directorship to
be filled by reason of an increase in the number of directors may be filled
by the affirmative vote of a majority of the remaining board of directors
even though less than a quorum is present unless the articles of
incorporation or the bylaws provide that a vacancy or directorship so
created shall be filled in some other manner, in which case such provision
shall control. A director elected or appointed, as the case may be, to fill
a vacancy shall be elected or appointed for the unexpired term of his
predecessor in office.
RCW 24.03.110 A majority of the number of directors fixed by, or in the
manner provided....
A majority of the number of directors fixed by, or in the manner provided
in the bylaws, or in the absence of a bylaw fixing or providing for the
number of directors, then of the number fixed by or in the manner provided
in the articles of incorporation, shall constitute a quorum for the
transaction of business, unless otherwise provided in the articles of
incorporation or the bylaws; but in no event shall a quorum consist of less
than one-third of the number of directors so fixed or stated. The act of
the majority of the directors present at a meeting at which a quorum is
present shall be the act of the board of directors, unless the act of a
greater number is required by this chapter, the articles of incorporation
or the bylaws.