Obviously the board of directors has substantial and broad authority with respect to exercising the powers of a corporation and corporate statutes in the various states generally include a lengthy list of those powers which are then typically interwoven into the charter documents (i.e., articles of incorporation and bylaws) of each corporation. One area that is sometimes neglected is how the affairs of the corporation will be managed during times of "emergency". Corporations have often adopted "emergency bylaws"; however, statutory authority for these rules is not universal. California recently became one of the states that recognized the authority of the board to engage in advance planning for situations that hopefully will never occur.
First of all, new California Corp. Code, Section 212(c)(1) explicitly acknowledges the right of the board to include provisions in the corporate bylaws relating to the management and conduct of the ordinary business affairs of the corporation during an emergency (as defined in Corp. Code, Section 207) including, but not limited to, procedures for calling a board meeting, quorum requirements for a board meeting, and designation of additional or substitute directors.
Second, new California Corp. Code, Section 207(i)(1) grants the board the power, in anticipation of or during an emergency, to take either or both of the following actions necessary to conduct the corporation's ordinary business operations and affairs, unless emergency bylaws provide otherwise pursuant to Corp C § 212(c): (A) modify lines of succession to accommodate the incapacity of any director, officer, employee, or agent resulting from the emergency; and/or (B) relocate the principal office, designate alternative principal offices or regional offices, or authorize the officers to do so.
In addition, Corp. Code, Section 207(i)(2) grants the board the power, during an emergency, to take either or both of the following actions necessary to conduct the corporation's ordinary business operations and affairs, unless emergency bylaws provide otherwise pursuant to Corp C Section 212(c): (A) give notice to a director or directors in any practicable manner under the circumstances, including, but not limited to, by publication and radio, when notice of a meeting of the board cannot be given to that director or directors in the manner prescribed by the bylaws or Corp C Section 307; and/or (B) deem that one or more officers of the corporation present at a board meeting is a director, in order of rank and within the same rank in order of seniority, as necessary to achieve a quorum for that meeting.
For purposes of Corp. Code, Sections 207(i)(1) and (2), "emergency" means any of the following events or circumstances as a result of which, and only so long as, a quorum of the corporation's board of directors cannot be readily convened for action: (A) a natural catastrophe, including, but not limited to, a hurricane, tornado, storm, high water, wind-driven water, tidal wave, tsunami, earthquake, volcanic eruption, landslide, mudslide, snowstorm, or drought, or, regardless of cause, any fire, flood, or explosion; (B) an attack on California or the United States by an enemy of the United States, or upon receipt by California of a warning from the federal government indicating that an enemy attack is probable or imminent; (C) an act of terrorism or other manmade disaster that results in extraordinary levels of casualties or damage or disruption severely affecting the infrastructure, environment, economy, government functions, or population, including, but not limited to, mass evacuations; or (D) a state of emergency proclaimed by the Governor of California or by the President of the United States. [Corp. Code, Section 207(i)(5)]
Those of you representing California corporations should check to see whether any changes should be made in their bylaws. Even if you don’t represent a California corporation you should check to see whether your company is adequately protected against disruptions that may occur as a result of any of the events mentioned in Corp. Code, Section 207(i)(5).
Alan S. Gutterman is the founder and principal of Gutterman Law & Business (http://www.alangutterman.com), a leading provider of timely and practical legal and business information for attorneys, other professionals and executives in the form of books, online content, webinars, videos, podcasts, newsletters and programs that also offers legal and training services to businesses of all sizes around the world. Mr. Gutterman has three decades of experience as a partner and senior counsel with internationally recognized law firms counseling small and large business enterprises in the areas of general corporate and securities matters, venture capital, mergers and acquisitions, international law and transactions, strategic business alliances, technology transfers and intellectual property, and has also held senior management positions with several technology-based businesses including service as the chief legal officer of a leading international distributor of IT products headquartered in Silicon Valley and as the chief operating officer of an emerging broadband media company. All editions of the Business Counselor Advisor are compiled into Business Counselor Update, which is released monthly and available along with other publications by Mr. Gutterman on the Thomson Reuters Legal Solutions site and through Westlaw Next at Business Counselor. Mr. Gutterman can be reached at [email protected]