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What is an alternate director?

by Stephen Conmy on Sep 28, 2021

What-is-an-alternate-director

There will likely come a time when one of a company’s directors will be absent for a certain period, and they may miss important board meetings. During this time, an alternate director may fill in for the absent director.

An alternate director (AD) is a person who is appointed to attend a board meeting in the place of another director who is unable to attend. The AD has the same powers that the principal director would have had if they had attended.

The appointment of the alternate director must be in writing, and the company should keep good records. Such records should cover their name, date of birth, address, date of appointment, the director for who they are an alternative when their appointment ends, and the terms and conditions of their appointment.

The right to appoint an AD can be provided in the company’s articles of association. The scope of the alternate director’s authority is often quite broad, and approval from other members of the board is required before the appointment. An AD may also get a full director’s profile within an annual report.

Reimbursement

An AD can be reimbursed for expenses and receive any remuneration payable to the appointer if they so wish. Such compensation would be agreed between the alternate and the appointer.

Responsibilities

The AD should remain fully up to date with the company’s dealings and should be ready to step in at any time.

They may only act in the absence of the director for whom they are an alternative. If that director is not present, they can attend meetings and vote. The alternate director is a helpful device if, for example, a regular director is absent for an extended period.

Alternate directors should receive all notes from meetings and committee meetings that the principal director would have received, and they should be able to perform all of their duties in their absence.

Alternate directors should be responsible for their actions in the same manner as regular directors and have the same liabilities that regular directors have.

Time period

Once the position of the director the alternate director is covering for ceases, the work of the alternate director will also end. The job is often for a limited and agreed period. Rather than being an agent of another director, like a nominee director, the alternate director will be seen as an officer of the company. However, they may not appoint their own alternate director.

The board should adopt clear guidelines for the appointment of alternate directors, covering how long the alternate director will hold their position and whether there would be any limit on how many directors can have alternates at any given time.

An example of a situation that calls for an alternate director

Alternate directors tend to be appointed when there is some sort of representative element in the directorship. If two or more organisations own majority shares of another company, each might have the right to appoint one or more directors. It is common for these companies to designate alternates to maintain ‘the numbers’ in a voting situation.

A potential negative impact of alternate directors

A director must exercise due diligence. Reading board papers before meetings and attending meetings demonstrate this duty of care.

Participation in board meetings also shows dedication to the role of a director and the organisation. Directors who are incapable of attending board meetings to an extent warranting their replacement may give the impression of not being utterly committed to their roles. This impression may negatively affect dynamics in a boardroom, particularly if all directors are remunerated for their roles.

In short, alternate directors can have a negative impact if the continuity of the board’s decision-making process is disrupted.

A potential negative impact of alternate directors

A director must exercise due diligence. Reading board papers before meetings and attending meetings demonstrate this duty of care.

Participation in board meetings also shows dedication to the role of a director and the organisation. Directors who are incapable of attending board meetings to an extent warranting their replacement may give the impression of not being utterly committed to their roles. This impression may negatively affect dynamics in a boardroom, particularly if all directors are remunerated for their roles.

In short, alternate directors can have a negative impact if the continuity of the board’s decision-making process is disrupted.

In summary

  • With the other directors’ approval, a director of a company can appoint a person as an alternate to exercise some or all of the director’s powers for a specified period.
  • Alternate directors must consent to their appointment in writing.
  • Directors who cannot attend every meeting are sometimes allowed to appoint an alternate director.
  • This is not a common practice in larger companies but is prevalent in smaller businesses and joint ventures.
  • When there is limited representation in joint ventures, alternate directors are expected since board meeting attendance is essential.
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