There might be some occasions on the board of directors where more standard roles might not be enough and an advisory board is required to provide advice on the issue in hand. This advisory board usually includes the observers and the ex-officio board members, both of which entail their own unique functions.
Board observers
Board observers as the name suggests are persons who act as the observers in a board meeting and they act or provide advice when they are permitted by the directors of the board. The rights of an observer may be laid down in the company’s constitution or maybe given to them by contract.
They are permitted to attend the meeting of the board of directors and are allowed to receive all information, however are not allowed to formally vote or influence voting.
Basically the rights of the board observer are included in an agreement known as the ‘observer’s Agreement’, which outlines the rights and obligations of a board observer set by the board of directors on their own discretion. The primary right of the board observers is to only comment at a board meeting and from which as well they can be excluded, if necessary, from portions of the meeting to preserve the company’s attorney client privilege, particularly when the board is discussing potential litigation or if there is a potential conflict of interest.
As the board observers are not formal members of the board, they do not owe any fiduciary duties to the company, although are obligated to maintain confidentiality same as that of the members of the board.
Ex Offico members
The ex officio members are members of the board who are not necessarily elected or appointed, rather they agree to serve the position because the company is in need of their expertise and experience. They are usually the senior executive officers such as the chief executive offices of an organisation, the Chief Financial Officer and Chief Operating Officer.
Ex officio board members can also be government officials, corporate representatives, or voting delegates that represent the entity that they work for as part of a collaboration on a particular issue. These board members are only appointed due to their position and are usually automatically succeeded by another member when their employment with their employer is terminated.
Unlike the board observers, the ex officio members generally have the voting rights and are counted in the quorum unless they are constrained by the laws and regulations of the company.
Due to this, they are also subject to the same obligations and duties as a regular director.
Takeaway
Both the company and the members, while appointing the ex officio member and the board observers should be aware of their rights and obligations. Even though the board observers do not have the voting rights, they still constitute as an integral part of the company and the advisory role provided by both the ex officio and the board members help the company in looking at different spheres of an issue and the help in resolving the matter in hand.
Anupam is a legal intern at OpenLegal and has recently completed his Juris Doctor from Macquarie University. His interests are Commercial and Corporate law, Criminal law, and Contracts.
Phil is a director at OpenLegal. He has over 16 years experience working in private practice and in-house counsel in Sydney and London, giving him expertise in employment law, IP, finance, leases, dispute resolution, insurance and contracts.
