The Hindu Business Line : Video-conferenced Board meetings — Face-to-face interaction can make a difference

Apart from legal objections and practical constraints, board meetings through video-conference have other disadvantages, as positive deliberations are possible only at face-to-face meetings where personal interaction and discussion are possible.

S. Balakrishnan

Time was when multinational corporations ruled the roost in India, either through their branches or through wholly/substantially-owned subsidiaries.

A covenant assistant’s post for an Indian in these entities was considered a great achievement. (FERA changed the entire scenario though).

There is now a significant reverse flow. Indian MNCs have made their presence felt in many countries overseas and control their interest either through branches, subsidiaries, or joint ventures.

NRIs and other foreigners are now employees, shareholders or employee-shareholders. I

t is essential that these stakeholders and the authorities in these locations be made aware of the company’s philosophy, performance and potential, and a useful method would be to induct foreign nationals on the board and, more important, hold abroad periodic board meetings of the parent company.

The Companies Act, 1956 (the Act), fortunately, does not stipulate where board meetings should be held.

Recently, some companies have started holding board meetings through video-conference which means, according to the Concise Oxford Dictionary, “an arrangement in which television sets linked to telephone lines are used to enable a group of people to communicate with each other in sound and vision”.

In other words, two or more persons converse with others simultaneously while the image of each is present before the others on the television screen.

We will now examine whether board meetings through video conference is tenable.

Companies are legally bound to maintain a Section 301 register to record details of all contracts, companies and firms in which directors are interested.

This register has to be placed before each meeting of the board and “shall then be signed by all directors present at the meeting”. The details of the place, day, date and time of each board meeting have to be recorded correctly.

Directors could be stationed in different geographic and time zones and, under these circumstances, what will be the time, place, day and date of the meeting, if held through video-conference, that will stand legal scrutiny?

The Act mandates that a director has to vacate his office, inter alia, “if he absents himself from three consecutive meetings of the board, or from all meetings of the board for a continuous period of three months, whichever is longer, without obtaining leave of absence from the board”.

Directors circumvent this by having it recorded that they were given leave of absence, mostly “for unavoidable reasons”. Incidentally, the board’s annual report has to include a section on corporate governance (Clause 49 of the listing agreement), stating the number of meetings held in a particular year and the number attended by each director.

In the case of video conference, if contact could not be made with a particular director due to technical reasons, though he was available and ready to attend the meeting, will the other directors go ahead and meet on the plea that some important matter which could be decided only at board meetings had to be deliberated upon and a decision arrived at?

If the board meeting is indeed held, this will definitely be a great injustice for the director willing to attend but prevented from doing so.

An important function of the board is to approve annual audited accounts and connected papers including its annual report to the members. Declaration of dividend, announcement of bonus or rights issue, buy-back, usually arise from approval accounts.

These vital matters can, with advantage and practicality, be taken up only when directors meet and deliberate face-to-face in the same room. Board meetings through video conference will only be a poor cousin in this respect.

The Act stipulates that certain powers can be exercised only by means of resolutions passed at board meetings.

These include making calls in respect of unpaid money on shares, authorising buy-back, issuing debentures, investing funds of the company, and so on. Although decisions can be taken on these items, at meetings held through video-conference, it would be advisable and definitely more beneficial, if directors meet, deliberate and decide in person on these vital matters.

Board meetings, especially of government companies, run through a whole day or even overflow into the night or next day. Is it technically possible to keep up the video link without failure for long periods?

Apart from legal objections and practical constraints, this writer does not advocate board meetings through video-conference. Positive deliberations are possible only at face-to-face meetings.

(The author is a Chennai-based company secretary.)