05 Jun Companies: What is an Alternate Director? A Curious Role…
“‘Alternate director’ means a person elected or appointed to serve, as the occasion requires, as a member of the board of a company in substitution for a particular elected or appointed director of that company” (Companies Act)
Situations can arise where a director becomes ill and takes a leave of absence or travels frequently and has to miss board meetings. The Companies Act provides for the business to appoint an alternate director to fill in for the absent director.
Roles, duties and risks of the alternate director
The Companies Act includes an alternate director in its definition of a “director”. Thus, an alternate director is elected in the same manner as a director and when stepping in for the director, the alternate has the full powers of a director i.e. he or she participates and votes as a director in meetings and/or when resolutions are passed.
The alternate director also has to act in the best interests of the company, independently, with due care and skill, fully apprise himself/herself of the issues to be decided on and not have (or declare) any conflicts of interest.
The liabilities incurred by directors fully apply to alternate directors and as the alternate plays a more limited role than a director, there is a strong case to be made for alternate directors being indemnified by insurance cover. In the event of being sued, the insurance will be paid out as long as the alternate director acts as set out in the above paragraph. The alternate director should also motivate for the company to pay any legal costs incurred as a result of being sued.
When the director for whom the alternate director stands in for resigns, dies or is removed from office, the alternate director position ceases.
Whilst one can see the necessity of the role of the alternate director, it is nevertheless a curious role. In a sense, it is similar to a political vice president who needs to be ready at any time to fulfil the role of the president. Thus, an alternate director needs to be fully up to date in the affairs of the company and to step in whenever the director is absent.