It is common in larger and listed companies to have alternate directors.
The main director (for purposes of this article, we will use the example of a shareholder who is also a director) is listed on the relevant government agency (in the case of South Africa, this would be the Companies and Intellectual Property Commission). A second person is then registered as an alternate to that main director. While this second person acts as a proxy in the absence of the main director, they still personally carry the full weight of legal director responsibility for any board decisions that they are involved in making.
The alternate director position is critical when it comes to matters such as when voting takes place and the main director is unable to attend the specific board meeting.
The Risk
It is not unusual that an alternate director attends a board meeting only with the shareholder hat on, as in this case. This means that they do not contribute throughout the entire meeting as a director should. They rather listen for shareholder-specific aspects of the meeting and make their voice heard then. This means that they do not add real value and ultimately degrade the role of the alternate director.
The Route to Real Value
There are number of ways to support the alternate director to be impactful and really provide value:
- Briefing: The main director needs to inform the alternate director of general issues that the board faces, ways of working etc. so that there is no time-wasting during board meetings.
- Meeting preparation: The alternate director must thoroughly read the board papers and raise any queries with the main director before the meeting. Doing so will allow them to attend the meeting with a full understanding of where the board and business finds itself, what will be discussed, and issues to raise.
- Role clarity: The alternate director needs to be trained to understand that their role is that of a director, not exclusively as a representative of the main director (which is secondary role).
- Active and full participation: Ensure that the alternate director commits to thinking through matters discussed in the board meeting as opposed to just sitting quietly until something related to shareholding is raised. The latter is often the case especially when they have not prepared sufficiently.
- Conduct a thorough nomination process: While alternate directors have a vital role to play, if there is too much focus on who has nominated them or placed them on the board, and thinking only from that perspective, the role does not work. Mitigate this by having all directors – including alternates – go through a nominations committee. Doing so helps to ensure that they have the right skills and experience to add value to the board, and that they understand that while they have been nominated by the main director, they attend meetings in their individual capacity.
The Reward
Alternate directors who have the best interests of the entire business at heart – and not just the role of who they are an alternate for – will not only expedite board proceedings, they will support astute decision-making, greater board performance and business growth.
