Does an Exchange of Electronic Communication Constitute a Board Meeting?

In a recent case in California, it was argued that an exchange of e-mails constituted a board meeting in violation of a Californian statute.? It was argued, in that case, that a section of that statute supports the “interpretation that the Legislator in general believes a board meeting capable of being conducted by e-mail”.? The Californian Court of Appeal disagreed and held that a board meeting for purposes of that statute meant an in-person gathering of a quorum of the directors of a homeowner’s association at the same time and in the same physical location for the purpose of talking about and taking action on items of association business.

What would the position be in South Africa?? All matters relating to board meetings in South Africa are to be found in the Company’s Act, the company’s Memorandum of Incorporation (“MOI”) and, if there is one, the Shareholders’ Agreement.? As we all know, neither the MOI nor the Shareholders’ Agreement can be in conflict with the Act.? The Act does not state, as the Californian Court said, that all of the directors must be in the same physical location for the purpose of talking about and taking action on items of the company’s business.? In fact, quite the contrary, because section 73, paragraph 3 of the Act allows companies to conduct board meeting electronically, or through electronic communication, as it is defined in the Electronic Communications and Transactions Act 25 of 2002, as amended.? In my respectful opinion, having a situation where there is a plausible argument that a board meeting did in fact take place through electronic communication (whether it is e-mail, WhatsApp or another platform) creates a dangerous situation and should be avoided. ?I say this particularly in the context of a private company where meetings are more often than not informal, but decisions taken can constitute a resolution of the board unless the MOI specifically states that such resolutions are not binding unless taken at a formally constituted board meeting.?

My advice, therefore is that the MOI should contain a provision that although boards meetings can be conducted electronically, or through electronic communication, an exchange of such electronic communication cannot constitute a board meeting unless occurring during the course of a duly constituted board meeting.

The world has changed.? Not long ago, it would never have crossed the mind of a director or corporate lawyer or advisor that a matter could be decided other than at a duly constituted board meeting and sitting around the table.? As has been written, the digital age is unfolding with unparalleled velocity, reshaping every corner of our existence.? As we navigate the tumultuous seas of digital transformation, it’s intriguing to ponder how the timeless wisdom of “Star Wars” might enlighten our path.? So from that wisdom I conclude that digital transformation is not about technology – it’s about change.