Do we have a quorum?

April 1, 2021

March 17, 2021

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Governance

A frequently asked question - and rightly so.

What is a quorum?

A quorum is the minimum number of voting members required to be present before the board can conduct the business of a properly convened meeting. If the prescribed minimum number of members is not present the board meeting cannot commence, continue, or make lawful decisions. Not only can the meeting not start without a quorum, but it must stop if during the meeting the quorum is lost. It may resume if the required number of members can be called back into the meeting.

The size of a quorum is generally specified in the organisation’s constitution. If no quorum is prescribed, the quorum under common law is a majority (i.e., just over half) of the membership of the board.

For companies in New Zealand a quorum is a simple majority of directors (1). It is common in other organisational settings to find the quorum described as half the number of board members plus one. This takes care of the problem of boards that have an even number of members although a quorum of just half the number of members may also be acceptable in some situations.

Unless an organisation’s constitution provides otherwise, a board member represented by a proxy or who declares an interest (i.e., is disqualified from voting) cannot be counted in the quorum. The same applies in respect of members of the board who hold non-voting positions (e.g., co-opted, or executive members) (2).

Business conducted at a meeting held without a quorum present is invalid. However, if the constitution (or the board’s ‘standing orders’ or similar) allow, the ‘decisions’ of such a meeting may be validated at a subsequent meeting. Otherwise, the business must be dealt with again.

Interestingly, anyone who deliberately withdraws from a meeting to remove the quorum is not entitled to challenge the resulting lack of a quorum! (3)

For board committees the quorum is set by the board as the body establishing and appointing the committee. If no quorum is fixed all committee members must be present. The issue of a quorum is less important for board committees because they are seldom delegated decision making authority. Generally, the function of board committees is to carry out ‘pre-board’ work that informs and helps shape eventual decisions by the board.

Why is having a quorum important?

A quorum is prescribed to protect the integrity of the decision making process. The use of a quorum requirement ensures that decisions cannot be taken without a majority of board members being present.

A quorum requirement is also important because governing boards make decisions collectively with group accountability. Even when members are not present, they may be held accountable for the board decisions made in their absence.

Setting a minimum number of members who must be directly involved manages the risk that a board decision may be made by too few members and, thus, may not reflect what would be acceptable to the board as a whole. It also protects to some extent, particularly in larger boards, against swings in attendance that may result in a different board turning up at each meeting.

It makes sense for the board (and the entity it governs!) to be protected from the risk of board decisions that are not balanced and well-rounded and that are also vulnerable to being overturned by a subsequent meeting when more members are present. It is rare for any board that there is perfect attendance at every meeting throughout the year. The quorum is about ensuring there are enough members present to secure a reasonable vote of the majority.

Of course, there are some decisions a board that lacks a quorum can and must make. For example:

  • on the steps needed to secure a quorum
  • on fixing the time to adjourn

Given the importance of a quorum for a board’s decisions it will be clear that the meeting minutes must carefully record the loss of a quorum and its subsequent recovery if that occurs.

Should the specified quorum be changed when it is constantly in danger of being breached?

A board is constituted to govern, and the assumption is that its members will be diligent in attending its meetings. However, that is not always the case. When it becomes a regular problem that a quorum is difficult to secure, talk often turns to the idea of reducing the quorum requirement. However, even where a reduction may be legally possible, is it a good idea? A lower quorum requirement may provide some immediate relief, but it is an open admission that attendance does not matter.

Board meetings are not convened so that management reports and proposals can receive some sort of reactive blessing from the board. Good governance requires the board to undertake a proactive, deliberative process to think through and make choices between alternatives when, often, none of those is particularly attractive. It is not enough, therefore, to allow a situation to persist with the board being barely able to make a quorum. So, what to do?

  1. Get serious about attendance. For example, adopt a constitutional amendment to the unequivocal effect that any board member who is absent from, say, three consecutive meetings (and/or a specified number or proportion of total meetings in a given year), is considered to have resigned.
  2. Set a higher quorum number. This increases the moral pressure on all members to turn up even when board members are ‘just volunteers’. It is surprising that some boards tolerate levels of absenteeism among their members that they would never accept among staff.
  3. Look for ways to improve your meetings. Find out what is causing low attendance in the first place. Make meetings worth coming to. Common attendance problems relate to, for example, overly large boards that are susceptible to ‘social loafing’; poor selection of board members and a failure to set clear expectations of them; and perhaps most common - that board meetings themselves are tedious and unproductive.

The board’s responsibilities are too important to tolerate anything less than consistent attendance of all members. The quorum plays an vital part but it also has to be reinforced by other initiatives.

Notes:

  1. Companies Act 1993 Schedule 3, cl. 4(1)
  2. Whether non-voting ‘members’ of a board should even be appointed to the board is a moot point, given they are effectively excluded from the board’s decisions, but that is a discussion for another day.
  3. This is a point made by Mark von Dadelszen in his very useful little book, ‘Members Meetings’ (Wellington, LexisNexis, 2004)

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