Board meetings are essential for any business. However, directors frequently face time constraints. The latest research finds that 40% of managers spend more than 15 hours weekly in meetings, accounting for roughly 40% of their workweek. This represents an enormous increase since 2020 when the average was merely 25%.
Directors of corporations or startups looking to pass vital motions, discuss the business’s current status, or plan for the future, need semi-regular meetings to remain proactive and informed.
However, in these organizations, time-sensitive business opportunities arise on a frequent enough basis that planning a board meeting doesn’t always suffice.
Even relatively ho-hum matters such as granting options can fall by the wayside when board members operate on vastly conflicting schedules.
During the above instances — where it doesn’t make sense to implement a physical meeting — board action via written consent streamlines these actions.
This article explains the informed consent process and the actions of the board of directors require it.
What is a written consent?
A written consent of the board of directors is a formal document that allows the company, such as the board of directors or members of an LLC, to take action without needing a physical meeting.
The document captures the concurrence of all, or a predetermined majority, of board members on a particular resolution. This board resolution outlines the proposed course of action and typically incorporates verbatim wording.
The boards use it for urgent matters where quick action matters. Furthermore, this is particularly the case when it’s hard to get a quorum for board meetings due to scheduling conflicts or travel restrictions.
The functionality of written consent
More often than not, board members live in various different continents, states, provinces, cities, and time zones. As such, meetings require pre-planning and a multitude of logistical considerations.
Written consent allows directors and executives to push forth an action via writing or electronic transmission for informed decisions.
So, in these cases, establishing consent is a matter of using either PDFs, faxes, or emails that indicate executive approvals. For online methods of consent documents, the board or its legally authorized representative can use e-signatures to sign off on motions.
Most corporate laws dictate that for unanimous written consent to be legitimate, all directors’ signatures must appear on the document.
Action by written consent of the board of directors
Written consent of directors might seem like just another bureaucratic step, but it does guide a company’s direction and ensures shared decision-making. Let’s explore the particular cases where obtaining consent makes a difference.
Financial transactions requiring board consent
In financial matters, written consent is crucial, especially when a company is about to make a major financial commitment that exceeds a certain limit. Without the collective approval of the board, such a decision could risk the company’s financial stability and reputation.
Requiring written consent therefore ensures that big financial decisions are thoroughly thought through and agreed upon by all involved.
Bylaws and articles of incorporation amendments
Likewise, when it comes to the basic rules of a company — the bylaws and articles of incorporation — any changes shouldn’t be taken lightly. These documents lay out the core principles of the company’s operations, including its structure and responsibilities.
Making alterations to these documents could have far-reaching effects, requiring signing a consent form.
Mergers, acquisitions, and strategic decisions
Major strategic decisions, like mergers or acquisitions, can either push a company ahead or set it back. These choices involve more than just putting assets together — merging cultures, visions, and risks. So it’s natural that without the board’s full backing, such moves could cost the company dearly.
In turn, requiring unanimous consent makes sure these big decisions are carefully looked at and fit with the company’s long-term plans.
The main steps in the consent process
Written consent in lieu of a meeting speeds things up, but a structured process is key. Most importantly, exercising the board’s right to act by written consent requires thorough documentation. Here are the key stages in this process.
Step 1. Draft the consent document
It all begins with crafting a detailed consent document that covers all bases. Start by clearly laying out the proposed action requiring approval, and provide a broad background to give context. Don’t forget to explore the potential implications of the proposed action to address any related risks.
Plus, ensure you include relevant legal language to handle any potential legal issues.
Step 2. Circulate for review
Once the consent document is finalized, it’s time to share it with board members. Striking a balance is crucial, so provide them with enough time for a thorough review — 5 days should be enough. Finally, verify that the quorum is met, adhering to the legal stipulations outlined in the organization’s bylaws.
Step 3. Secure proper documentation and storing
Once consent has been secured from the necessary board members, document the entire process and its results. It should include the members’ responses, any revisions made to the consent document, and the ultimate decision reached.
Store these consent forms securely for future reference and audit purposes. Consider using top-notch board portal software for this. For example, iDeals Board offers a secure repository and tools for consent agenda and easy meeting minutes creation.
What is the best time to use written consent?
When working with a third party that’s performing due diligence, unanimous written consents provide the optics of a board’s support for any given action.
Furthermore, elementary issues (e.g., course contracts) don’t always require full-on board meetings, particularly when scheduling conflicts arise.
Also, as noted above, some high-priority matters require immediate action. This notion applies to both emergency actions (in the case of recovering from a PR mistake) and business opportunities that won’t wait around for the next scheduled board meeting.
Possible cons of written consent
If even a single board member fails to sign off on an action, it’s necessary to call a meeting to obtain consent. Suddenly, something that might have seemed relatively hassle-free now necessitates the various complexities of meetings. This means, in most cases, that the company must follow the bylaw procedures of providing prior notice, quorum, and the required vote.
Unfortunately, written consents can’t mitigate divisive issues between board members. Any potential controversies require in-depth discussion and thorough discourse that only a meeting can provide.
Plus, written consent is no substitute for the interpersonal connections built and established during meetings.
Of course, in specific situations, it doesn’t make sense to schedule meetings. But, even for rudimentary matters, it doesn’t hurt to have some form of discussion (even on the phone) to ensure no signals get crossed.
Importance of written consent for corporate governance
A clear paper trail of documented consent strengthens the organization’s governance practices in three key ways:
- Documented record. Obtaining board consent facilitates geographical limitations and scheduling conflicts. In other words, all board members can take part in important discussions and share their insights, no matter where they are.
- Equal participation and transparency. The process of obtaining written consent creates a transparent record of decision-making. This way, stakeholders understand all the details about each particular decision.
- Documented consent. This legal shield proves that decisions have proper authorization and full board participation, potentially mitigating future legal challenges.
Key takeaways
- Written consent is a crucial instrument in modern corporate governance, providing solutions to time restrictions and geographical distance among board members.
- Companies that know when and how to utilize written consent to keep operations thriving and flowing with efficiency will reap the benefits of the time-saving method.
- Written consent strengthens corporate governance by acting as a legal safeguard. It demonstrates proper authorization and mitigates potential legal challenges.
Incorporating board software like iDeals Board facilitates seamless meeting management, improving both the security and accessibility of documents through its secure repository and meeting management tools.
In case you want to explore efficient governance and effective decision-making for boards of directors -don’t hesitate to try iDeals Board.