Agenda setting in board meetings

The first round of the intracorporate dispute between first-degree cousins Eugenio “Gabby” Lopez III and Federico “Piki” Lopez on the board of directors of Lopez Inc., the extended family’s holding company for various businesses in the country, was won by the latter.

A Mandaluyong City court nullified an earlier resolution of the board of Lopez Inc. in a special meeting that had removed Piki Lopez as its president and elected in his place Rafael Lopez, the younger brother of Gabby Lopez.

According to the reports, the court upheld Piki’s complaint that his removal was invalid because the agenda of that meeting did not include his removal, which allegedly was in violation of the corporate rule that the agenda should specifically state the matters to be discussed in the meeting.

Barring any change of mind by the trial court or a contrary ruling by the Court of Appeals, the company presidency stays with Piki Lopez.

Unlike stockholders’ meetings, where the Revised Corporation Code has a long list of procedural requirements for their conduct, the situation is different for board meetings.

The law leaves it to the stockholders, through the by-laws, to decide when and where regular or special meetings of the board shall be held, which is usually at the corporation’s registered business address.

With regard to the agenda, unless the bylaws spell out the manner by which it should be prepared, its preparation is often left to the discretion of the chairperson after prior consultations with management or other directors.

Once finalized, the agenda is sent by the corporate secretary to the directors and resource persons, if any, through the means of communication provided for in the bylaws.

Ideally, all matters that are scheduled to be discussed in the meeting have to be included in the agenda, but any director is free to take up other issues under the agenda item “other matters” that usually precedes “adjournment.”

Any actions taken by the board on “other matters” are considered valid and binding on the corporation.

However, the law requires the following matters to be included in the agenda of the board meeting for any action on them to be valid, namely: (a) extension or reduction of the corporate term; (b) increase or decrease of capital stock; (c) incur, create or increase bonded indebtedness; and (d) sale or disposition of corporate assets that is not in the regular course of business.

Since those issues are critical to the corporation’s operation, the law further imposes the number of votes needed for the corporation to be able to implement the board’s decision on them.

Considering the stakes involved in the Lopez cousins’ dispute, and barring any amicable settlement between them, the camp of Gaby Lopez is expected to bring the case all the way to the Supreme Court for final resolution.

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Setting aside family issues, central to the case is the power or authority of the board—in its capacity as the statutory governing power of the corporation—to decide on who shall head the company.

Note that the president and key officials of the company are elected or appointed by the vote of the majority of the directors. Corollary to that authority, the board also has the power to remove or replace the officials it had earlier elected or appointed to their positions.

In a long line of decisions, the high court has upheld that in the absence of a showing of grave abuse of discretion, decisions of boards of directors are accorded utmost consideration and respect because its membership represents the interest of the stockholders.

Assuming for the sake of the argument that Piki Lopez’s removal from his position was not included in the agenda of the board meeting, would that omission, if any, constitute sufficient ground to override the power of the board to elect the president or other officials of the corporation?

The business community would be watching closely the developments in this case because of its impact on the well-established rules on the rules of governance of boards of directors.

For comments, please send your email to raul.palabrica@inquirer.net.