Ignoring the vagueness of the BCBCA and CBCA in regards to directors right now, I think a corporation could be a shadow director (I mean, we just saw in the Huffington Post article that a piece of AI became a director…), but I think that it would lead to a lot of issues as far as liability and for the true best interests of the corporation. Having a corporation as a shadow director could make it really unclear as to who is truly making the decisions when the situation arises that the corporate veil needs to be pierced for someone to be held liable. If the corporation that is acting as a shadow director has multiple directors of its own then should they all held liable if, in the role as shadow director, the corporation has been a part of some wrongdoing? It seems like it would be too hard to pinpoint “where the buck stops” (as our classmate quoted Truman the other day…).
As far as for what is in the best interests of the company, I think that it if a corporation is a shadow director it would be virtually impossible for the corporation to always act in the best interests of the corporation of which they are a shadow director and their own corporation. The directors acting as the decision makers would have their own corporation to consider, and also the corporation that they are acting (as their corporation) as the shadow director for. It seems that for the directors to act in the best interest of their own corporation and then also in the best interest of the corporation of which their corporation is a shadow director, it could sometimes be mutually exclusive. Acting in the best interest for one of those corporations could not be in the best interest of the other, thus, they would be failing in their duties to both corporations as a form of director; to act in the corporation’s best interest at all times. I have a hard time visualizing how the people behing the position titles could keep everything separate and not even sub-consciously act in the best interest of one corporation over the other.
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Great analysis Kristen. I agree with your points and I also think that the concept of shadow directors seems like another way of deflecting liability and responsibility. It looks like another degree of separation between the acts of the corporation and the assumption of consequences. It is also challenging for me to visualize the separation of acts, responsibilities and interests.
Interesting points Kristen! I definitely agree with your argument that it would be difficult for a corporation to act in their best interests and another companies. However, do you think it is possible that a corporation acting as a shadow director does not have to look out for the best interest of the other corporation? We know that directors do have to look out for the best interests of the corporation, but since a shadow director claims not to a director, could they get away with having their own interests in mind?
Great point Steven, I actually had not thought about that. I think I just assumed (not always the best idea…) that despite not having the explicit title of “director” attached to them that the fact that their role/actions would have the character of a director, which would require them to take on the obligations of a director as well. However, now that I am thinking about your points, I do think that they could get away with having their own interests in mind under the technicality of not actually being a director. But it does make me wonder whether, in the case of a dispute, the court would allow that technicality to absolve a shadow director from having to act in the best interests of the corporation, or whether the court would go the equitable route and hold them to the standard of a director.
I enjoyed reading these points, and the discussion got me thinking about the possible application of s 138 of the BCBCA in the context of shadow directors—potential corporate shadow directors included. At first glance it seems like s 138 could bring Shadow Directors within the ambit of the responsibilities and obligations imposed on directors by the Act. While shadow directors do not purport to act as directors, s 138 does not require any profession that a person is assuming the role of director directly or indirectly. It applies if a person “performs the functions of a director of a company”. It seems to me that you could make the argument that by controlling the operations of a corporation through “official directors”, a shadow director is essentially performing the “functions of a director of the company”.
However, s 138(2)(a) states that s138(1) does not apply to a person “who is not a director of a company and who participates in the management of the company if … the person participates in the management under the direction or control of a shareholder, director or senior officer of the company”. Given that an individual would have to be carrying out the function of shadow director on behalf of a corporation (in the context of a corporate shadow director), it seems that where that corporation is a shareholder of the company in question, it would be near impossible to use s 138(1) to attach the responsibilities and obligations of directors to the corporate shadow director, due to the exemption provided by s 138(2)(a). In such a scenario, s 138 seems to create a situation where a individual shadow director could potentially be burdened with the responsibilities of directors under the Act, while a corporate shadow director which is also a shareholder—by nature of the corporate structure—would escape such responsibility by virtue of its need for an agent carry out its purposes. Any directorial function assumed by that agent (direct or indirect) could be framed being carried out under the control or direction of the corporate shareholder, arguably exempting them from the application of s 138(1).