I think that a corporation can be a shadow director of another corporation because of separate legal personhood of corporations and because it is possible that a corporation could claim they are not directors of another corporation, but still act like directing minds of another corporation. But, I think that to show that a corporation is a shadow director of another corporation, for example of a subsidiary, it wouldn’t just need to be shown that the parent/shadow director corporation advised or gave input in decision-making, rather it would need to go beyond that to showing that this corporation effectively made the decisions for the subsidiary because the subsidiary’s directors are accustomed to usually going along with whatever the parent’s input/advice/decision is.
I think it is important to recognize corporations as shadow directors in order to avoid them escaping liability. However, what about the directors of the parent corporation? If the parent corporation is found to be a shadow director of a subsidiary, would the directors of the parent corporation also be found to be shadow directors of the subsidiary as a result? I’m not sure about the answer to this, but I would intuitively say no. I think that you would have to analyze each director of the parent to see if they had the influence to meet the requirements of being a shadow director individually for the subsidiary – especially because the parent corporation is a separate legal person from its directors.
Sania, I agree with you in that in finding a corporation to be a shadow director of its subsidiary, the identity of shadow director would not extend to cover the directors of the parent corporation personally. Finding otherwise would collapse the doctrine corporate personhood. I guess it is these types of shadowy situations that highlight the need for independent directors to serve on the board of a subsidiary corporation.
Thanks for your reply, Erin! I didn’t actually think about relating this to the need for independent directors to serve on the board of a subsidiary corporation, so thanks for adding that! After thinking about it, I agree, having independent directors would definitely help in these “shadowy” situations.
Hi Sania, great post!
In light of today’s discussion around Nevsun, your post triggered me into working through a possible defence in the BC context to any liability claim against “shadow directors” that are Parent Corporations.
Section 138(1) of the BCBCA is what potential claimants will rely upon to attach liability to “shadow directors” as it is the provision that applies statutory obligations to a “person who is not a director of a company [but] performs functions of a director of the company.”
As we learned today, it is common for Directors and/or Senior Officers of Parent Companies to sit on the board of its subsidiaries. Nevsun is an example where it was revealed that the CEO of Nevsun was on the board of the the impugned Bisha Mining Share Company.
For Subsidiary Corporations incorporated here in BC, if one wanted to attach liability on any grounds to the Parent Corporation through the concept of Shadow Director as per s. 138(1), the Parent Corporation would have recourse to the exemption in s. 138(2) which provides that s. 138(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…(a) the person participates in the management under the direction or control of a shareholder, director or senior officer of the company.” “The Company” the provision is referring to is the Subsidiary Company and so given the commonality of Parents sitting on Boards of Subsidiaries, most Parent Companies would appear to be insulated for any liabilities routed in the Shadow Director concept.