The hits, misses of written resolutions

Decision-making is an integral role in the running of a company. Boards across the globe are usually tasked with making decisions whether in the realm of human resources, finance, strategy or governance.

Essentially, when the board or members of a company make a legally binding decision, then a resolution is said to have been passed.

Such resolutions are traditionally passed at a board or members’ meeting where a motion is tabled, deliberated on and a formal vote is taken. The law however also allows for certain decisions to be passed as written resolutions which usually have the same effect as if passed at a meeting.

They come about as the proverbial ‘Messiah’ and relinquish the need for members or the board to have to sit through meetings so as to make a decision. Moreso, technological advancements further make it easier to have the written resolutions circulated and executed.

We live in a digital age where decision makers can virtually be situated in different countries but make decisions to take effect in another country altogether. To add on, when Covid-19 stormed and travel restrictions struck, corporate decision makers like the rest of the world had to overcome and adapt. Thankfully, technology crept in to aid and rescue.

Online meetings and e-signatures have since become the order of the day. The quality, speed and efficiency of decision making is one of the key measures of board performance. It is therefore not surprising that passing written resolutions has gained so much popularity, especially in this post-Covid-19 era.

From a historical perspective however, technological shifts usually bring positive change alongside a plethora of negative effects. For instance, automotive advancement has made movement from one point to the other quite easy but the same is also responsible for gruesome road accidents, in addition to the sacrifice that the environment has had to take as the price for that benefit.

Likewise, even though written resolutions have always been a legally acceptable mode in which decisions can be made, this new gained popularity may have dire consequences if left unchecked.

The benefits are clear. Speed and efficiency. Written resolutions especially come in handy when the decision in question is not categorically a ‘big-bet’ decision. Albeit, only with the right tools and proper coordination.

The long time taken to read, understand and execute these written resolutions by the recipients is a challenge that not even advanced software has been able to solve. It is not uncommon to have back and forth simply because the recipients do not understand the meaning of the resolution due to the obscure and verbose language that is often the style adopted.

Perhaps I should take this opportunity to beseech company secretaries, corporate lawyers and other players in the corporate governance landscape that: “Simplicity is the ultimate sophistication.” - Leonardo Da Vinci.

Furthermore, the directors often do not receive ample notice that they will be required to vote on a written resolution especially when the push is coming from management.

This leaves directors with little time and extra pressure to execute on decisions that they do not fully understand, taking into account the strict timelines that mostly come with the object of the resolutions.

It would be potentially catastrophic if a ‘big-bet’ decision was to be made purely by a written resolution. Big-bet in this context means decisions with a broad impact and significant value at stake for the organisation.

This is because such decisions require a series of meetings and discussions to draw the conclusion that finally leads up to a well-done resolution. Research also shows that involving the board and the executive team in making decisions is a predictor of a performing board due to the quality of debate that goes in, especially in high-consequence decisions.

Hence, boards should be keen not to vote on high-stake decisions by written resolution only without having deliberations on the subject matter first.

So, how can this feature of decision making be made better? The first step is to ensure that written resolutions are compliant with company law and follow the correct procedure. In the Kenyan context, part 13 of the Companies Act, 2015 elaborates the general provisions on company resolutions and specific provisions on written resolutions, under division one and division two respectively.

The law by design already cures the inefficiencies that practice has created by providing procedural requirements on issues such as requisitioning of written resolutions, signifying agreement and deadline dates.

Corporate lawyers, company secretaries, directors and members of companies must acquaint themselves with these provisions but more importantly, the onus falling on the ones responsible for drafting and advising on a professional scale.

A lot of decisions are made in the running of a company. Some decisions do not require involvement of the board or members of the company. Delegating responsibilities on decision making to management where appropriate, may also be helpful in reducing over proliferation of written resolutions that have to be executed.

However, most private companies operating in Kenya are likely to have adopted the statutory model articles. Therefore, depending on the business model and dynamics of the company, the articles should include an elaborate procedure on written resolutions tailor made to the needs of the company, just as long as they are consistent with the provisions of the Companies Act.

In addition to articulating decision-making responsibilities, other key considerations in such an amendment of articles could be minority protection, whereby a mechanism to object to written resolutions could be incorporated.

It is also prudent to ensure that members/directors required to execute the written resolutions have sufficient notice, especially where the recipients might not have prior knowledge.

It matters not whether the object of the resolution relates to compliance, transactional, operational or third-party issues. Giving notice should give the recipient ample time to mentally prepare for object of the resolution and consequently lead to better decision making.

The upshot? Despite their convenience, written resolutions should not be mere substitutes to resolutions made at meetings. Companies should adopt clear guidance and strategy on which mode best suits specific types of decisions, based on their operations.