Is The Chairman Of The Board A Corporate Officer?

by Allen Matkins
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One of the principal distinctions between corporate officers and directors is that officers have the authority of autonomous action as corporate agents while directors must act collectively.  As discussed in “Worlds In Collision – Agency Law And A Director’s Fiduciary Duties“, a director qua director is generally not an agent of the corporation and neither is the board of directors.   Nonetheless, I have seen many corporate bylaws that include the chairman (or chair) of the board in article governing officers.  When the positions of chairman and chief executive officer are occupied by different individuals, must the chairman be an officer? 

The California Corporations Code remains quite prescriptive when it comes to officers.  A corporation must have a chairman of the board or a president or both.  Cal. Corp. Code § 312(a).  This implies that the legislature considered the title of chairman of the board to be an officer title.  This implication is further reinforced by the fact that the same statute provides if there is no president, then the chairman of the board is the general manager and chief executive officer.  In addition, Corporations Code Section 313 provides that contracts and other instruments are not invalidated as to a corporation due to any lack of authority when signed by the chairman and certain other specified officers.  Nonetheless other duties of the chairman are more ministerial and tied to the administration of the board of directors (i.e., § 305(d) (receipt of director resignations) and § 307 (a)(1) (calling of board meetings)).  

In contrast, Nevada requires only that a corporation have a president, secretary and treasurer or the equivalent of these positions. NRS 78.130(1).  Chapter 78 doesn’t even mention the position of chairman of the board. 

Notably, the Securities and Exchange Commission has not specifically identified the post of chairman of the board as an officer position in either its definition of “executive officer” in Exchange Act Rule 3b-7 or “officer” in Rule 16a-1(f) (although a chairman might, depending on the circumstances, fall within the catch-all for any other person who performs similar policy-making functions). 

Does it really matter whether the bylaws identify the chairman as an officer or is this really just a question of nomenclature?  I believe that it does matter.  Under California’s General Corporation Law, the articles may include a provision exculpating directors, but not officers, from liability.  Corp. Code § 204(a)(10).  (In Nevada, this won’t be an issue because directors and officers are automatically exculpated.  See  ”How Nevada Surpasses Delaware In Limiting The Liability Of Directors And Officers“.)  It may also make a difference in whether the chairman obtains the benefit of the business judgment rule.  See “District Court Refuses To Apply Business Judgment Rule To Claims Against Officers“.   Accordingly, the next time that you review your corporate bylaws, you may want to consider whether the list of officers must, or simply may, include the chairman of the board.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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