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Almost
universally, the management of a corporation is vested
by general statute or charter provision on the board of
directors or trustees. In such case, the powers so
vested on the directors must be exercised by them, and
cannot be exercised by the stockholders (5 Fletcher, Cyc.
Corp., 1976 rev. vol., sec. 2097, at 401). Section 23 of
the Corporation Code provides that unless otherwise
provided in the said Code, the corporate powers of all
corporations formed shall be exercised, all business
conducted and all property of such corporations
controlled and held by the board of directors or
trustees to be elected from among the holders of stocks.
The
management of the affairs of a corporation organized
under the Corporation Code is therefore vested in the
board of directors. In a Securities and Exchange
Commission (SEC) opinion dated March 21,1990, it was
opined that the appointment of an external auditor and a
legal counsel is a corporate function pertaining to the
management of the corporation and as such the authority
to employ them is vested in the board. It is thus,
within the duty and power of the board to administer and
manage the corporate affairs. Accordingly, in the
absence of fraud, bad faith, or negligence, so gross as
to amount to a breach of trust, the stockholders/members
cannot interfere with the exercise of corporate judgment
by the board relating to the management of the
corporation.
There
are, however, numerous exceptions to the conventional
rule that a corporation cannot act except by authority
of the board of directors in a meeting, duly convened in
accordance with the statutes or bylaws at which
directors may consult and counsel each other. (Ballantine
on Corporations, 125). There is some support for the
view that the shareholders may waive the necessity for a
meeting of the board of directors and, without such
meeting, may authorize acts to be done by agents of the
corporation or ratify acts already done and bind the
corporation. The shareholders are the residuary owners
and the rule requiring directors’ meetings to authorize
acts is for their benefit (Merchants’ and Farmers’ Bank
v. Harris Lumber Co., 103 Ark. 283, 146 S.W. 508, Ann,
Cas. 1914 B713; and others, cited in Ballantine, Supra.,
at 125-126). Likewise, where the shareholders, by
acquiescence, invest the executive officers of the
company with powers of the directors as the usual method
of doing business, the Board being inactive, the acts of
such officers will bind the corporation according to
some courts, although not authorized by any vote of
either stockholders or directors (Barkin Const. Co. v.
Goodmen, 221 NY 156, 116 N.E. 770, and others, cited in
Ballantine at 126).
Hence,
under an exceptional situation, stockholders’ agreement
to the contrary, though it provides for the exercise of
management ordinarily delegated to the board, can be
valid and enforceable where no creditors, minority
stockholders or other persons of the public are
affected. However, the mere lack of quorum in the board
alone—where the body is not inactive—cannot justify the
stockholders’ action to take over active management of
the corporation (SEC letter dated December 15, 1987
addressed to Jose Fuentes).
However,
it has to be emphasized that the management powers
conferred upon the board of directors usually refer only
to the ordinary corporate transactions of the
corporation and do not extend beyond the management of
ordinary corporate affairs nor beyond the limits of its
authority. There are some powers which are reserved to
the shareholders/members and which cannot be exercised
solely by the directors until they are approved or
ratified by the stockholders/members. Thus, while the
performance of the corporate functions pertaining to the
management of the corporation is vested upon the board
of directors, the Corporation Code has expressly
restricted such board authority and made certain
corporate actions to rest for their validity upon the
concurrence of the required statutory votes of the
stockholders/members by prior action or subsequent
ratification (SEC Opinion dated October 16, 1995). An
example of this is a sale, lease, exchange, mortgage,
pledge or other disposition of all or substantially all
of the corporate assets as provided for under Section 40
of the said code. |
