Can a corporation be a “shadow director” of another corporation? First, let’s look at who in general can be a director. CBCA s. 2(1) and BCBCA s. 1(1) are not very helpful in terms of narrowing down the question of who a director can be, but they are helpful in that they both implicitly allow for a company to be a director. The CBCA states that a director is “a person occupying the position of director by whatever name called”. Looking back to unit 3, section 35 of the Federal Interpretation Act states: “In every enactment…’person’, or any word or expression descriptive of a person, includes a corporation’. The latter part of this statute (‘any word or expression descriptive of a person) is inclusive of the BCBCA use of the word “individual” as well. The BCBCA definition, however, also includes the language “…as a result of having been elected or appointed to that position”. In the case of shadow directors, this need not apply. These are not official but rather inherently understood and accepted positions. In the words of Varys the Eunuch (Game of Thrones) – “Power resides where men believe it resides. It’s a trick. A shadow on the wall”.
The modern architecture of society certainly supports the reality of corporations as strongholds of power. So the question remains – how might an aspect of this power be relegated to that of a shadow puppeteer behind another’s silhouetted throne? The article on the AI board member supports the notion that creatively appointing board members for the benefit of the company can be both feasible and pragmatic. So long as our notion of ‘personhood’ remains flexible, the limits to these varied appointments are endless (though I wonder if even PETA would go so far as to put a primate photographer at the table).
As a practical example, my mind is turned towards the relationship between parent and subsidiary companies. As Denning stated in DHN: “These subsidiaries are bound hand and foot to the parent company and must do what the parent company says”. Although these companies share another primary relationship as parent and child, what is there to say that to be a parent company is not also, essentially, to act as at least (de facto) directors? Alexander (2013), in setting out the legal test for a de facto director asks “whether, under the particular circumstances, the alleged director is an integral part of the mind and management of the company”. IMAGIN (2010) offers a similar test in stating it is one “who maintains control over the affairs of the company and exercises the powers of a director and/or officer”. If control exists over one company by another, without an official place at the table, then these de facto definitions are met. But are they as shadows? The relationship between a parent and child company is explicit – but to whom? For everyday consumers like myself, or even for unsophisticated shareholders, the network that ties the few parents to their many children can be surprising, as is discussed in this article titled “10 companies that control almost everything we eat and drink“. To those in the industry or who are learned outside of it, this may not be a shadow relationship because they, through specialized knowledge, can see through the shroud. Many of use, however, cannot necessarily do so and can therefore end up, for example, supporting a multinational that we would otherwise wish not to because of our ignorance. Is it unethical to live in the shadows? I don’t know. But I would say that for certain companies it is not only possible but preferable. Public relations is a great deal easier when your face is shrouded in darkness.
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As a huge Game of Thrones fan, I love the Varys quote and it is definitely very fitting for the topic. I agree with your comments, and also think that the quote applies to what Jon was saying in class the other day about how often CEOs often end up having much more power than their legal title might explicitly say they have; they might effectively appoint the board of directors and their own successors, and there was also examples of directors not wanting to make any decisions without the approval from the CEO (not exactly what s.102(1) of the CBCA states…). I think it is true that the power depends on where people believe it lies, and it many situations I’m sure it could follow a single person no matter what their role is, or at some corporations lie with directors and others officers, where ever people feed it I guess.
The idea of the “puppeteer” parent controlling the actions of the subsidiary, is definitely a reoccurring image when doing these readings— since they are bound by this fiduciary relationship, aren’t they already (as you put it—‘de facto’ directors?) in the shadows?. It’s a great analogy to describe the relationship, and I was thinking that a layperson without knowledge of corporate structure, might assume this was the case—that a parent company is somewhat of a quasi-director anyway. As you put it, they wouldn’t be able to “see through the shroud” as easily. With public perception in mind, maybe it is better to be forthcoming instead of hiding in the ‘shadows,’ but you are definitely correct with the observation that ‘hiding’ makes for better/easier PR… so it will probably remain that way unless the public demands more transparency (and votes with their wallets?).
Jon mentioned yesterday that we, of course, have the freedom to edit our own blog posts. I’ve opted here to add this comment as a corrective instead in order to preserve the integrity of the original post, which I still think has merit. It is, however, critically mistaken in one aspect (being the conclusion). I do not believe it is possible for a corporation to be a TRUE shadow director, if we take CBCA s. 2(1) and BCBCA s. 1(1) and their use of the term ‘individual’ as truly restrictive to that word. Much of this argument is drawn from an email I received from our gracious Mr. Festinger, so I credit him duly for the following points:
1) In the OED, the noun “individual” refers to ‘a single human being as distinct from a group’, but it also refers to a member of any species standing apart from another. It’s a broadly applicable word in this sense, but it does not extend itself to corporate figures at least here. The OED is of course not jurisprudence though, so I make this point by way of introduction only.
2) The statutes I refer to above make no mention of corporations actually being persons, or individuals, but rather saying that they have the rights of individuals/persons. Perhaps this is a distinction without a difference, but when it comes to using the word ‘individual’ as a descriptor rather than an analogy it means that companies do not make the cut. This of course leaves the question open, though, as to whether one of the rights of individuals IS to be a director of a company (again, as per CBCA s. 2(1) and BCBCA s. 1(1)). Which brings me to Irwin Toy…
3) Irwin Toy, in answering the question of the applicability of s. 7 to the corporation draws a sharp distinction between ‘security of the person’ and the corporations economic rights (which they state is the closest analogue to security of the person that a corporation can muster). The court states the following: “…read as a whole, it appears to us that this section was intended to confer protection on a singularly human level. A plain, common sense reading of the phrase “Everyone has the right to life, liberty and security of the person” serves to underline the human element involved; only human beings can enjoy these rights”.
By way of conclusion, here I will quote Jon directly – “So if the SCC can’t even include a corporate person within s. 7 of the Charter, what chance does the formulation of a ‘Corporate Individual’ have?” This is a contextual point which allows room for typically less persuasive arguments (like the OED def’n) to have some impact. If corporations acting as true shadow directors (and not simply strongholds of power with satellites of influence extended to other business organizations) hinges on the word individual, then, I don’t believe they can occupy this role. All in all, point taken Jon. Point taken indeed.