Collectively, the governance principles of major corporations recognize at least three types of what might be called “quasi-directors”: individuals who are not elected by shareholders, but instead are invited by the board itself to participate in—but who can neither vote at nor be counted towards establishing a quorum at—various meetings of the board and its committees.
An “advisory director” might be in line to be nominated for a seat on the board once one becomes available; her service in this capacity could then be considered an advanced form of both auditioning for and grounding in an actual directorship at the company. Alternatively, she might simply have specialized expertise, skills, and insights valued by the board. (Each of these two situations might correspond to the status of a lawyer as “counsel” or as “of counsel,” depending on his law firm’s own definitions of the term(s).)
An “emeritus director” is a (but not necessarily every) director who retired (perhaps after reaching age and/or term limits), resigned from, or was not re-elected to the board.
Qualifications for the role of “honorary director,” and its distinction (if any) from advisory director, are more vague. However, the name suggests an attempt by the corporation to affiliate itself with a person of prominence, particularly one in the company’s actual and/or intended field(s) of operation.
Although boards with advisory directors might be concerned that third parties could misperceive those individuals (or, separately, members of a company’s “advisory board”) as actual directors, honorary directors might anticipate the reverse confusion: that their own title could diminish any perception, expectation, or evaluation of their actual contributions to the board’s work.
Governance principles often don’t clarify critical issues concerning the establishment and definition of, designation of particular individuals for, and their functioning as, quasi-directors.
In fact, the same company might have different answers to the following questions with respect to its advisory, emeritus, and/or honorary directors—and perhaps even with regard to different individuals in the same category:
First, by what processes (majority votes?) does the board decide to create the role(s) of, and to invite particular people to become, quasi-directors? Technically, are such individuals elected, or appointed, by the board—and does that make a practical difference?
Second, is it necessary that a quasi-director qualify as independent (as that term is defined by the company’s governance principles)? (For instance, emeritus directors with a long and recently-concluded tenure on the board might not be considered independent.)
Third, what is a quasi-director’s term of service before possible re-election (or reappointment)? Are there any term and/or age limits; and if so, how do those limits differ from those applicable to the company’s actual directors?
Fourth, although quasi-directors, like actual directors, can resign at any time, are they—unlike actual directors—generally subject to removal by the board itself? If so, must the board furnish a legitimate reason for their removal?
Fifth, are quasi-directors entitled to attend all meetings of the board and its committees, or only those (or portions of those) to which they are invited? If attendance is by invitation, who (the board or committee chair? a majority of the board’s, or of a committee’s, members?) must support the invitation?
Sixth, could a quasi-director’s service be confined to her involvement only with one or more specified committees; subcommittees; or issues to be addressed by the board, a committee, or a subcommittee?
Seventh, how do the fiduciary duties of a quasi-director differ from those of an actual director? Their duty of loyalty (including the obligation of confidentiality, and restrictions against competing with the company and helping others to do so), and their obligation to follow the company’s code of conduct/ethics, might well be the same—but is their duty of care the same? Are quasi-directors subject to the codes of ethics and/or conduct that govern actual directors? (A related question, which cannot be resolved by a company’s governance principles: should quasi-directors expect that courts will extend to them, as to directors and officers, the business judgment rule’s presumption that they have fulfilled their duties of care and loyalty?)
Eighth, are quasi- directors, like actual directors, eligible for indemnification, exculpation, and insurance?
Ninth, does a quasi-director bear the responsibility of an actual director under the company’s governance guidelines to notify the board of significant changes in her health, commitments (including quasi-director positions on other boards), and (for some companies) public reputation?
Tenth, are actual directors and quasi-directors required to obtain a board’s approval before accepting another company’s invitation to be a quasi-director? How does such service count, if at all, towards the numerical limits imposed by some governance principles on the concurrent service of its actual (and, perhaps, quasi-) directors to other companies’ boards?
Eleventh, are quasi-directors, like members of the board, generally encouraged to initiate (usually with notification to the CEO) discussions about relevant matters with company officers? Are they, like members of the board, not discouraged from having (and perhaps even encouraged to have) private conversations with other directors about board business? Are they generally expected, or at least permitted, to contact each other and/or actual directors?
Twelfth, what information will be made available to quasi-directors in connection with their roles, and who on the board or in company management makes this decision? Are quasi-directors, like actual directors, encouraged to request that further material be provided to inform board (and committee) discussions?
Thirteenth, are quasi-directors, like actual directors, encouraged to suggest agenda items for board or committee meetings?
Fourteenth, although quasi-directors cannot vote at meetings, can they initiate motions?
Fifteenth, as a matter of practice, how will the company identify on its Web site, in filings, and/or and in communications with shareholders, the types, functions, and identities of its quasi-directors?
