Is Your Proxy Policy Up to Date?

Governance Associations Now March 2012 By: George E. Constantine III

Know what your bylaws say about proxy participation at membership meetings—before a contentious issue arises.

Q: My association has a contentious membership meeting coming up, and there is word that a proxy campaign is being mounted in advance. What issues should we consider when it comes to addressing proxies?

A: At the outset, a proxy should not be confused with a ballot. A ballot generally is a vote cast on a particular question or set of questions, such as on whether to vote for a particular director candidate. By contrast, a proxy appointment can be, and often is, a broad assignment of rights, essentially stating that the person named by the appointment has the right to cast all votes and take all other actions that the member could have taken if present at the particular business meeting. That being said, proxy appointments can be "directed," which means limited expressly to one or more particular items that may arise at a membership meeting.

Proxy participation at membership meetings—where members may elect directors, approve changes to bylaws, and more—has its pluses and minuses. Broad proxy participation can be helpful in lessening concerns about meeting quorum requirements and can allow those members who are unable to attend an opportunity to have a voice. Conversely, such broad participation can skew power to one or more dissident members who hold those proxies.

State nonprofit-corporation laws generally permit an association to express, in its bylaws or articles of incorporation, whether it will accept proxy participation. In an ideal world, the association will already have an answer to the threshold question of whether proxies are allowed. In the absence of such an affirmative statement in the articles or bylaws, the association should look to the default provision of the applicable state law. For example, the most recent version of the Model Nonprofit Corporation Act (recently enacted for District of Columbia nonprofit corporations) states that proxies will be accepted if not otherwise provided in an organization's articles of incorporation or bylaws. The state nonprofit-corporation law will generally trump parliamentary-procedure rules adopted by an association.

Assuming that proxies are allowed for your association, the next step is determining how the association administers a proxy-appointment process. Much will depend on the manner in which the applicable state law addresses the issue of proxies. The Model Nonprofit Corporation Act takes a broad view that a member may appoint a proxy to vote by signing an appointment form. Depending on your state of incorporation, that signature may need to be affixed to a paper document or can take an electronic form. The key here is to adopt a set of rules for proxy acceptance that are fair and consistent with applicable law.

For association executives who are facing a contentious proxy campaign, it should be noted that associations are not obligated to give effect to proxy appointments that are not executed according to applicable law or that in good faith appear to not be signed by the applicable member. Further, there is no restriction on an association officer (e.g., the secretary) who is soliciting proxy appointments for a membership meeting.

It is best for an association to address these matters before a contentious battle has begun. Check your bylaws and other corporate documents to see what they say, if anything, about the acceptance of proxies. Chances are they can use some updating. Your association also should consider establishing a proxy policy that is supplemental to any bylaws provision, which could address many of the detailed, process-related issues that are not appropriate for the bylaws.

One final point: The general rule is that boards are not permitted to accept proxy appointments. Generally, participation in a board meeting will count only if the individual is present in person or on a conference telephone where all parties can simultaneously hear one another.

George E. Constantine III

George E. Constantine III is a partner at Venable LLP in Washington, DC.