July 8, 2025 • 20 mins
Rob Gerberry, Senior Vice President and Chief Legal Officer, Summa Health, speaks with Michael Peregrine, Partner, McDermott Will & Emery, about the concepts of recusal and abstention, including what they mean, how they’re different, and when it is appropriate to use them. They discuss quorum issues related to recusal, whether abstention only applies to conflict of interest scenarios, best practices for effecting recusal and abstention, and the risks involved.
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Episode Transcript
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SPEAKER_00 (00:00):
This episode of AHLA's Speaking of Health Law is
brought to you by AHLA membersand donors like you.
For more information, visitAmericanHealthLaw.org.
SPEAKER_01 (00:18):
Hello, everyone.
This is Rob Gerberry.
I'm the Chief Legal Officer atSumma Health and the
President-Elect Designate ofAHLA.
I'd like to welcome you to thelatest in our continuing series
of podcasts on corporategovernance issues affecting
healthcare organizations.
Today's topic gets us into oneof the areas of law for which us
true governance geeks professtheir love, but which in
(00:38):
actuality is becoming an issueof increasing importance in the
proper conduct of boardoversight and decision-making.
We're talking about the conceptsof recusal and abstention, what
they mean, how they'redifferent, and when it's
appropriate to use them.
It's a technical issue to besure, but one for which my
experience suggests is poppingup more and more for several
(01:00):
reasons.
One, there's an increasingpublic focus on actual and
potential conflicts and on boardmembers having the issues more
on the top of their minds.
Second, we're seeing moredirectors being risk adverse and
being more willing to useabstention recusal than in the
past to potentially shieldthemselves from liability.
(01:20):
Third, some directors are usingabstention recusal to avoid
making a record within thecontext of a highly
controversial or contentiousagenda item.
So it's natural we reach backinto our files, so to speak,
dust off our collective memoriesabout state corporate law and
Robert's Rules of Order, becauseour clients are more likely than
before to seek our advice onthese issues.
(01:42):
And of course, as the governanceadvisor to the board, the
general counsel or chief legalofficer, likely teaming up with
their chief compliance officeror their chief governance
officer, can best brief theboard and its key committees on
these concepts.
So joining me as always to talkover our topics today is my
friend and colleague from AHLA,Michael Peregrine of McDermott,
(02:03):
Lone Emory.
Michael is an HLA fellow and afellow of the American College
of Governance Council.
So Michael, we've got to startthis one off with the obvious
question.
How would you define thedifference between recusal and
abstention?
SPEAKER_02 (02:18):
Rob, I'm glad you asked that question because some
people use the termsinterchangeably, and they're
really not supposed to be usedthat way.
If you strip it down to a basiclevel, recusal refers to the
situation when a board memberremoves himself or herself from
a particular matter comingbefore the board due to concerns
with potential bias or conflict.
(02:39):
You're bailing out of the wholething.
You're removing yourself fromthe entire process related to a
discussion item or a vote.
Abstention is typicallyconsidered as a more narrow
concept, referring to adirector's action in actually
withholding or deciding not tovote.
Again, you're deciding not tovote on a specific matter for
reasons of bias, conflict, orother division of interest.
(03:02):
The emphasis of abstention is onthe final action and the final
vote, while the emphasis ofrecusal is on the entire process
of deliberation.
SPEAKER_01 (03:15):
Michael, as you know, lawyers, we always love to
look for applicable references,definitions, something we can
point to.
Is there something you'd pointour membership to on recusal and
abstention?
SPEAKER_02 (03:24):
You know, I don't usually find these definitions
or treatment in the bylawsthemselves and only rarely in
state corporation laws.
If you're a real Roberts rule oforder fan, and I'm not,
nevertheless, there's a gooddiscussion about recusal and
abstention contained in there.
(03:44):
The question is whether yourbylaws and your processes have
deference to Roberts rules.
But I think, Rob, I'd also lookat case law, federal and state,
State ethical opinions and alsothe opinions of the state
attorney general.
Sometimes in those resources,you'll find a reference in the
context of a corporation.
(04:06):
Sometimes, though, I would saythat when you dig into the
research, you're going to findthe discussion of recusal in the
terms of a context of a judge,so you'll have to extrapolate
from that.
My advice to members is whenthey have some time, spend some
time reviewing what the law oftheir client's primary state of
jurisdiction is to figure outwhat's the most applicable
(04:28):
definition of these terms.
I'd want it to be at theirfingertips when they go into
board meetings.
I think it'd be a fascinatingresearch project for summertime.
But, you know, Rob, as you'venot discussed, I'm a Chicago
White Sox fan.
So you need to take what I thinkis fascinating with a little bit
of grain of salt.
I will say in fairness thatRobert's Rules contains a pretty
interesting discussion of all ofthis.
SPEAKER_01 (04:51):
As a White Sox fan, you have been suffering,
Michael.
We apologize.
So when would you think it'sappropriate for a director to
consider recusing him or herselffrom a board-level process?
SPEAKER_02 (05:01):
Well, I think timing is the key when it comes to
recusal, Rob, because it reallyneeds to be addressed before the
discussion of a specific agendaitem on which a director may
have a conflict is to begin.
You know, when we look back atthe goal of recusal, it's to
remove the director from theentire process.
So it becomes important thatdirectors are made aware when
(05:23):
the conflict or other biasactually begins.
That gets us into the weeds ofan effective conflicts
disclosure and resolutionprocess and the ability of the
chief legal officer, maybe thechief governance officer, the
chief compliance officer, toreview future board agenda items
against director disclosures.
You know, it's interesting, Rob,I'm not a big AI person, but
(05:45):
I've understood that this wholequestion of Tracking director
conflicts disclosures againstboard agenda might be one way to
be efficient in theidentification of conflicts as
they pop up on future agendas.
But again, I think it's a reallycritical issue for our board
members to ask this question.
(06:05):
I love recusal because whenproperly applied, it's a
terrific way to shield the boarddecision from sustainability
challenges because theinterested director has removed
himself or herself from theget-go.
There's no possibility that theconflicted director is going to
be injecting himselfinappropriately into the board's
(06:26):
discussion of an issue ortainting the board's discussion
of an issue because he or she isnot there.
So again, I think it's reallyimportant to identify, and this
is usually the CLO's job, what'son the director's disclosure
questionnaire and when is apotential conflict issue coming
up on a board agenda so you canset the timing date for refusal
(06:48):
way in advance.
SPEAKER_01 (06:50):
So Michael, any quorum issues you see associated
with refusal?
We're always looking to makesure we've got the right number
of board members for a vote.
SPEAKER_02 (06:58):
Yeah, I think this is one of the areas where
recusal can really trip you up.
The basic answer is yes, thereare quorum issues.
So when you're considering arecusal situation, the CLO or
CCO or CGO should take a look atstate corporation law and the
bylaws and see what they have tosay about quorum, especially in
(07:18):
the context of a recusal.
My basic understanding hasalways been that the typical
statutory approach with recusalis that All agenda items that
call for a vote following adirector's recusal can go
forward.
as long as a majority of theoriginal quorum remains present.
So you do get into some trickymath here, especially if the
(07:40):
recusing director doesn't evenattend the meeting as opposed to
simply stepping out early.
So again, bottom line, I think,yeah, you've got quorum issues
with respect to recusal.
Check the state law.
Does the quorum, does it relateto a majority of the original
quorum or does it relate tofollowing the director's actual
(08:00):
recusal?
recusal and leaving the meeting.
SPEAKER_01 (08:03):
So Michael, is the always infamous close but not
quite work as an acceptablestandard for recusal in quorums?
SPEAKER_02 (08:10):
That's a real trip wire because I don't think so.
It's one of those governancescenarios where I would call the
Mary Poppins practically perfectin every way rule needs to
apply.
If you're going to recuseyourself in the process, then
just do it.
The CLO is going to be helpfulin identifying the start date.
But if you wait and you decidenot to recuse yourself until the
(08:35):
board discussion has alreadybegun or even the documents are
out, things of that nature, Ithink it's too late.
I'm sorry about the reference toMary Poppins, but Rob, I got to
disclose I had a crush on JulieAndrews when I was 10 years old.
So, you know, that rule sticksin my mind.
SPEAKER_01 (08:50):
Like corporate governance, these podcasts are
all about transparency.
So thank you for the disclosure.
SPEAKER_02 (08:55):
Full disclosure.
SPEAKER_01 (08:56):
Let's talk a little bit about abstention rather than
Mary Poppins.
Is it applicable only inconflict of interest scenarios?
SPEAKER_02 (09:03):
That's the primary and most appropriate scenario.
questions as to whether thedirector can participate in the
actual decision preceding thevote on which the director had a
conflict can usually beresolved.
Again, reference the statecorporate law or the bylaw.
But there are other scenarioswith various degrees of
justification when we seeabstention apply, not just to
(09:27):
conflicts.
These include, and I'm justgoing to list them, and there
could be others, but theyinclude the fear of being the
only director to express aparticular opinion on the topic.
In other words, you'reabstaining because you don't
want to look like an idiot.
It could be a situation wherethe director strongly disagrees
with the views of one or moreboard members, but doesn't want
(09:51):
to vote because he wants to keepthe peace within the board.
And then there's a situationwhere there's a basic
disagreement by the directorwith the statement of facts
that's been accepted by amajority of directors.
In other words, the directorwants to abstain because he sees
or she sees the facts in anentirely different way and there
can't be any reconciliation.
(10:14):
And then there's the question,sometimes you'll see an
abstention.
I had this last week where thedirector feels he or she simply
doesn't have enough informationto express a position, whether
due to lack of his or herpreparation or poor staff
support.
It's not a good look in eitherway.
I'm not sure, Rob, if any ofthese additional reasons for
(10:36):
abstention really work for me.
I've always taken the positionthat you're serving on the board
to share your perspectives, yourexperience, and your background.
Using abstention on some ofthese non-conflict-related
issues raises the issue of beinga little bit too chicken for me,
that you duck out when theissues get tough.
(10:57):
So that's going to be achallenging political issue for
the chief legal officer toaddress.
SPEAKER_01 (11:03):
So sticking a little longer out with the abstention,
are there any picky proceduralissues that you see in
employment use?
SPEAKER_02 (11:09):
You handled that alliteration in the question
well, Rob.
There can be some pickyprocedural issues and it depends
on the circumstances.
Yet remember again, the act ofabstention is that of declining
to vote on a matter.
So whether it affects forum willdepend on whether the director
simply didn't attend the meetingor or did and then passed when
(11:31):
the voting is called.
Most boards require, includingin the minutes, the names of
directors abstaining fromvoting.
And sometimes with the rationalefor why they abstain, they also
will include a roll call votewith the number of abstentions.
So, you know, Rob Gurb decidedto abstain from voting on this
issue because he slept throughthe previous meeting.
(11:53):
And we include that in therationale on the roll call vote.
But again, I'm coming back to, Ithink it's always important to
check what the bylaws say andwhat the state corporation code
has to say about this wholequestion of quorum and
abstention, because it's soimportant.
And I think you've got to havethat comfort before you give the
(12:14):
advice as to whether or notthere's a real quorum issue in
an abstention.
SPEAKER_01 (12:19):
It looks like, Michael, there's a lot of moving
parts on this conversation oncertainties with putting in
place refusals and abstentions.
any easy button at all we cangive to our members or to our
directors?
SPEAKER_02 (12:31):
Yeah, I think education on what they mean is
really the critical thing.
What is abstention?
What's recusal?
When it's appropriate to usethem and when it's not.
It won't really make sense ifit's going to be an essential
part of director on boarding andregular conflicts and ethical
education.
I really think you got to pourthe education to the board on
(12:51):
this issue.
Management and board leadershipboth really have an obligation
to make sure that directorstruly and clearly understand the
terms and use them properly.
We don't want to battle overwhether or not a director
properly or improperly recusedhimself or herself or abstained.
But I think the real key, thereal key, Rob, and this is
(13:12):
something you and I've talkedabout before, the real key to
making abstention and or recusalwork is a conflicts
identification, disclosure,review and monitoring process
that works.
so that directors can be surethat they'll be advised well in
advance of a board meeting ofagenda items that could trigger
(13:34):
a reason for them to considereither abstaining or recusing
with respect to a conflict.
So the question would be, in mymind, you've got education and
then you've got this wholeprocess of a conflicts
disclosure and ID process wherethe board leaders are going to
know when these possibleconflicts pop up and then
(13:56):
they're going to let theindividual director know that
what's coming up and there'sgoing to be a potential conflict
at the next board meeting.
And then the director can alsoindependently ask the CLO or his
own counsel what their firstoption should be in terms of of
abstention or recusal.
Some organizations, Rob, in myexperience, will actually pay
(14:18):
for a board member to seekindependent counsel advice on
the question of recusal orabstention.
Others won't.
But again, bottom line,education, proper conflicts
process, getting the informationto the implicated director well
in advance of the meeting atwhich the conflict might arise.
SPEAKER_01 (14:37):
So Michael, this really isn't all theory, is it?
this world of recusal andabstention.
You're seeing this practicallytake place a lot in your
practice.
SPEAKER_02 (14:44):
Absolutely.
And again, I think, Rob, it goesback to the point that people
are concerned from the boardleadership side that the
abstentions and recusals need tobe effective in order to help
support the sustainability ofboard decision-making.
You want decisions...
(15:06):
not to be tainted by conflicts.
You want them not to be taintedby ineffective abstentions or
recusals.
And because of this, I'mregularly encouraging my clients
to tighten up their conflictsand related policies to reduce
these, what I again callsustainability risks.
(15:28):
In my mind, kind of in addition,We have right now the need for
an enhanced, what I callstealing a term from the early
2000s, an enhanced tone at thetop in response to events in the
larger business environment thatsuggests an increased
willingness on behalf ofleadership to normalize
conflicts and ethicalviolations.
(15:48):
We see the stories in thebusiness journals all the time.
And when you do that, there aregoing to be attendant risks to
the sustainability of leadershipdecisions and to individual and
corporate reputations.
So, yeah, we're seeing a lotmore.
But what I worry about most allthan anything else is that we're
(16:09):
moving towards the normalizationof certain types of conflicts
and ethical violations, lettingthose fly, and those come back
to bite us in the tail later onwhen someone challenges a board
vote.
SPEAKER_01 (16:26):
So Michael, as directors try to see where those
challenges may come from, wherewould you educate them on where
those risks are most likely tocome from?
SPEAKER_02 (16:34):
Rob, this kind of goes back to a point you made in
your introduction that someboard members use recusal or
abstention to shield them frompersonal liability.
And I'm not sure that works.
And I think there's some caselaw that says if you've affected
a recusal or abstentionimproperly, it don't count on
helping you at all.
I see the groups or theconstituencies that look closely
(16:57):
at conflicts and ethicalviolations and certainly recusal
and abstention are the state andfederal charity officials.
the folks who work in your statecharity divisions of the
Attorney General's Office, aswell as the IRS.
And I do believe the IRS RobLast Eye Checks does still
exist.
I think you're going to getpushback sometimes on abstention
(17:19):
and recusal from dissentingdirectors, directors who are
angry and who are complainingabout board processes.
You're going to get it fromvendors and contractors who had
felt they'd been misused by thecompany in both these situations
when the dissenting director orvendor has a right under state
(17:39):
law to sue the company.
And then we also see these fromchallenges from federal
corporate fraud regulators whoare inclined to associate a
corporate tolerance forconflicts of interest with a
larger organizationalwillingness to kind of push the
edge of the envelope when itcomes to compliance.
(18:00):
But Rob, most especially, I seethe risks to board processes
arising from abstention andrecusal from what you and I have
discussed is called the newmedia, the politicos, the
propublicas, the stats, thesewell-organized and functioning
(18:20):
non-traditional media who reallyknow how to zero in on potential
board controversies.
I think that's the greatest riskthat I see.
SPEAKER_01 (18:30):
So, Michael, with our podcast being full-service
educational content, anymnemonic devices that you would
offer to our members fordistinguishing between recusal
and abstention?
SPEAKER_02 (18:40):
Well, that's a state secret, Rob, but I'll tell you,
if you can spell mnemonic forme, then I'll be happy to share
with the group.
But actually, I don't think Icould have spelled mnemonic
before this podcast.
But actually, here's how Iremember the differences, and
it's kind of a circuitousapproach.
I look at the re beginning ofrecusal and remember that it's
(19:04):
close to pre, which suggestssomething that happens before a
big event.
And as we've talked about today,the process for recusal really
needs to start well before thesubject or a discussion.
So re, pre, before thediscussion.
As for abstention, I go a littleoverboard.
I look at the stain part ofabstain and think that that
(19:27):
suggests the stain on someone'sreputation when they choose to
abstain from voting.
So there you go.
And I'm sorry you
SPEAKER_01 (19:36):
asked.
That is pretty slick.
Appreciate that tip.
So Michael, thanks again foralways sharing the latest
educational thoughts andinsights that you have related
to these topics.
We look forward to being backwith you next month for the next
in our series of governancepodcasts.
Next month, we're going to diveinto the business judgment rule,
what it means, what it means toofficers as well as directors.
(19:58):
And we look forward to beingback together next month.
SPEAKER_00 (20:05):
Thank you.
(20:35):
you
This episode of AHLA's Speaking of Health Law is
brought to you by AHLA membersand donors like you.
For more information, visitAmericanHealthLaw.org.
SPEAKER_01 (00:18):
Hello, everyone.
This is Rob Gerberry.
I'm the Chief Legal Officer atSumma Health and the
President-Elect Designate ofAHLA.
I'd like to welcome you to thelatest in our continuing series
of podcasts on corporategovernance issues affecting
healthcare organizations.
Today's topic gets us into oneof the areas of law for which us
true governance geeks professtheir love, but which in
(00:38):
actuality is becoming an issueof increasing importance in the
proper conduct of boardoversight and decision-making.
We're talking about the conceptsof recusal and abstention, what
they mean, how they'redifferent, and when it's
appropriate to use them.
It's a technical issue to besure, but one for which my
experience suggests is poppingup more and more for several
(01:00):
reasons.
One, there's an increasingpublic focus on actual and
potential conflicts and on boardmembers having the issues more
on the top of their minds.
Second, we're seeing moredirectors being risk adverse and
being more willing to useabstention recusal than in the
past to potentially shieldthemselves from liability.
(01:20):
Third, some directors are usingabstention recusal to avoid
making a record within thecontext of a highly
controversial or contentiousagenda item.
So it's natural we reach backinto our files, so to speak,
dust off our collective memoriesabout state corporate law and
Robert's Rules of Order, becauseour clients are more likely than
before to seek our advice onthese issues.
(01:42):
And of course, as the governanceadvisor to the board, the
general counsel or chief legalofficer, likely teaming up with
their chief compliance officeror their chief governance
officer, can best brief theboard and its key committees on
these concepts.
So joining me as always to talkover our topics today is my
friend and colleague from AHLA,Michael Peregrine of McDermott,
(02:03):
Lone Emory.
Michael is an HLA fellow and afellow of the American College
of Governance Council.
So Michael, we've got to startthis one off with the obvious
question.
How would you define thedifference between recusal and
abstention?
SPEAKER_02 (02:18):
Rob, I'm glad you asked that question because some
people use the termsinterchangeably, and they're
really not supposed to be usedthat way.
If you strip it down to a basiclevel, recusal refers to the
situation when a board memberremoves himself or herself from
a particular matter comingbefore the board due to concerns
with potential bias or conflict.
(02:39):
You're bailing out of the wholething.
You're removing yourself fromthe entire process related to a
discussion item or a vote.
Abstention is typicallyconsidered as a more narrow
concept, referring to adirector's action in actually
withholding or deciding not tovote.
Again, you're deciding not tovote on a specific matter for
reasons of bias, conflict, orother division of interest.
(03:02):
The emphasis of abstention is onthe final action and the final
vote, while the emphasis ofrecusal is on the entire process
of deliberation.
SPEAKER_01 (03:15):
Michael, as you know, lawyers, we always love to
look for applicable references,definitions, something we can
point to.
Is there something you'd pointour membership to on recusal and
abstention?
SPEAKER_02 (03:24):
You know, I don't usually find these definitions
or treatment in the bylawsthemselves and only rarely in
state corporation laws.
If you're a real Roberts rule oforder fan, and I'm not,
nevertheless, there's a gooddiscussion about recusal and
abstention contained in there.
(03:44):
The question is whether yourbylaws and your processes have
deference to Roberts rules.
But I think, Rob, I'd also lookat case law, federal and state,
State ethical opinions and alsothe opinions of the state
attorney general.
Sometimes in those resources,you'll find a reference in the
context of a corporation.
(04:06):
Sometimes, though, I would saythat when you dig into the
research, you're going to findthe discussion of recusal in the
terms of a context of a judge,so you'll have to extrapolate
from that.
My advice to members is whenthey have some time, spend some
time reviewing what the law oftheir client's primary state of
jurisdiction is to figure outwhat's the most applicable
(04:28):
definition of these terms.
I'd want it to be at theirfingertips when they go into
board meetings.
I think it'd be a fascinatingresearch project for summertime.
But, you know, Rob, as you'venot discussed, I'm a Chicago
White Sox fan.
So you need to take what I thinkis fascinating with a little bit
of grain of salt.
I will say in fairness thatRobert's Rules contains a pretty
interesting discussion of all ofthis.
SPEAKER_01 (04:51):
As a White Sox fan, you have been suffering,
Michael.
We apologize.
So when would you think it'sappropriate for a director to
consider recusing him or herselffrom a board-level process?
SPEAKER_02 (05:01):
Well, I think timing is the key when it comes to
recusal, Rob, because it reallyneeds to be addressed before the
discussion of a specific agendaitem on which a director may
have a conflict is to begin.
You know, when we look back atthe goal of recusal, it's to
remove the director from theentire process.
So it becomes important thatdirectors are made aware when
(05:23):
the conflict or other biasactually begins.
That gets us into the weeds ofan effective conflicts
disclosure and resolutionprocess and the ability of the
chief legal officer, maybe thechief governance officer, the
chief compliance officer, toreview future board agenda items
against director disclosures.
You know, it's interesting, Rob,I'm not a big AI person, but
(05:45):
I've understood that this wholequestion of Tracking director
conflicts disclosures againstboard agenda might be one way to
be efficient in theidentification of conflicts as
they pop up on future agendas.
But again, I think it's a reallycritical issue for our board
members to ask this question.
(06:05):
I love recusal because whenproperly applied, it's a
terrific way to shield the boarddecision from sustainability
challenges because theinterested director has removed
himself or herself from theget-go.
There's no possibility that theconflicted director is going to
be injecting himselfinappropriately into the board's
(06:26):
discussion of an issue ortainting the board's discussion
of an issue because he or she isnot there.
So again, I think it's reallyimportant to identify, and this
is usually the CLO's job, what'son the director's disclosure
questionnaire and when is apotential conflict issue coming
up on a board agenda so you canset the timing date for refusal
(06:48):
way in advance.
SPEAKER_01 (06:50):
So Michael, any quorum issues you see associated
with refusal?
We're always looking to makesure we've got the right number
of board members for a vote.
SPEAKER_02 (06:58):
Yeah, I think this is one of the areas where
recusal can really trip you up.
The basic answer is yes, thereare quorum issues.
So when you're considering arecusal situation, the CLO or
CCO or CGO should take a look atstate corporation law and the
bylaws and see what they have tosay about quorum, especially in
(07:18):
the context of a recusal.
My basic understanding hasalways been that the typical
statutory approach with recusalis that All agenda items that
call for a vote following adirector's recusal can go
forward.
as long as a majority of theoriginal quorum remains present.
So you do get into some trickymath here, especially if the
(07:40):
recusing director doesn't evenattend the meeting as opposed to
simply stepping out early.
So again, bottom line, I think,yeah, you've got quorum issues
with respect to recusal.
Check the state law.
Does the quorum, does it relateto a majority of the original
quorum or does it relate tofollowing the director's actual
(08:00):
recusal?
recusal and leaving the meeting.
SPEAKER_01 (08:03):
So Michael, is the always infamous close but not
quite work as an acceptablestandard for recusal in quorums?
SPEAKER_02 (08:10):
That's a real trip wire because I don't think so.
It's one of those governancescenarios where I would call the
Mary Poppins practically perfectin every way rule needs to
apply.
If you're going to recuseyourself in the process, then
just do it.
The CLO is going to be helpfulin identifying the start date.
But if you wait and you decidenot to recuse yourself until the
(08:35):
board discussion has alreadybegun or even the documents are
out, things of that nature, Ithink it's too late.
I'm sorry about the reference toMary Poppins, but Rob, I got to
disclose I had a crush on JulieAndrews when I was 10 years old.
So, you know, that rule sticksin my mind.
SPEAKER_01 (08:50):
Like corporate governance, these podcasts are
all about transparency.
So thank you for the disclosure.
SPEAKER_02 (08:55):
Full disclosure.
SPEAKER_01 (08:56):
Let's talk a little bit about abstention rather than
Mary Poppins.
Is it applicable only inconflict of interest scenarios?
SPEAKER_02 (09:03):
That's the primary and most appropriate scenario.
questions as to whether thedirector can participate in the
actual decision preceding thevote on which the director had a
conflict can usually beresolved.
Again, reference the statecorporate law or the bylaw.
But there are other scenarioswith various degrees of
justification when we seeabstention apply, not just to
(09:27):
conflicts.
These include, and I'm justgoing to list them, and there
could be others, but theyinclude the fear of being the
only director to express aparticular opinion on the topic.
In other words, you'reabstaining because you don't
want to look like an idiot.
It could be a situation wherethe director strongly disagrees
with the views of one or moreboard members, but doesn't want
(09:51):
to vote because he wants to keepthe peace within the board.
And then there's a situationwhere there's a basic
disagreement by the directorwith the statement of facts
that's been accepted by amajority of directors.
In other words, the directorwants to abstain because he sees
or she sees the facts in anentirely different way and there
can't be any reconciliation.
(10:14):
And then there's the question,sometimes you'll see an
abstention.
I had this last week where thedirector feels he or she simply
doesn't have enough informationto express a position, whether
due to lack of his or herpreparation or poor staff
support.
It's not a good look in eitherway.
I'm not sure, Rob, if any ofthese additional reasons for
(10:36):
abstention really work for me.
I've always taken the positionthat you're serving on the board
to share your perspectives, yourexperience, and your background.
Using abstention on some ofthese non-conflict-related
issues raises the issue of beinga little bit too chicken for me,
that you duck out when theissues get tough.
(10:57):
So that's going to be achallenging political issue for
the chief legal officer toaddress.
SPEAKER_01 (11:03):
So sticking a little longer out with the abstention,
are there any picky proceduralissues that you see in
employment use?
SPEAKER_02 (11:09):
You handled that alliteration in the question
well, Rob.
There can be some pickyprocedural issues and it depends
on the circumstances.
Yet remember again, the act ofabstention is that of declining
to vote on a matter.
So whether it affects forum willdepend on whether the director
simply didn't attend the meetingor or did and then passed when
(11:31):
the voting is called.
Most boards require, includingin the minutes, the names of
directors abstaining fromvoting.
And sometimes with the rationalefor why they abstain, they also
will include a roll call votewith the number of abstentions.
So, you know, Rob Gurb decidedto abstain from voting on this
issue because he slept throughthe previous meeting.
(11:53):
And we include that in therationale on the roll call vote.
But again, I'm coming back to, Ithink it's always important to
check what the bylaws say andwhat the state corporation code
has to say about this wholequestion of quorum and
abstention, because it's soimportant.
And I think you've got to havethat comfort before you give the
(12:14):
advice as to whether or notthere's a real quorum issue in
an abstention.
SPEAKER_01 (12:19):
It looks like, Michael, there's a lot of moving
parts on this conversation oncertainties with putting in
place refusals and abstentions.
any easy button at all we cangive to our members or to our
directors?
SPEAKER_02 (12:31):
Yeah, I think education on what they mean is
really the critical thing.
What is abstention?
What's recusal?
When it's appropriate to usethem and when it's not.
It won't really make sense ifit's going to be an essential
part of director on boarding andregular conflicts and ethical
education.
I really think you got to pourthe education to the board on
(12:51):
this issue.
Management and board leadershipboth really have an obligation
to make sure that directorstruly and clearly understand the
terms and use them properly.
We don't want to battle overwhether or not a director
properly or improperly recusedhimself or herself or abstained.
But I think the real key, thereal key, Rob, and this is
(13:12):
something you and I've talkedabout before, the real key to
making abstention and or recusalwork is a conflicts
identification, disclosure,review and monitoring process
that works.
so that directors can be surethat they'll be advised well in
advance of a board meeting ofagenda items that could trigger
(13:34):
a reason for them to considereither abstaining or recusing
with respect to a conflict.
So the question would be, in mymind, you've got education and
then you've got this wholeprocess of a conflicts
disclosure and ID process wherethe board leaders are going to
know when these possibleconflicts pop up and then
(13:56):
they're going to let theindividual director know that
what's coming up and there'sgoing to be a potential conflict
at the next board meeting.
And then the director can alsoindependently ask the CLO or his
own counsel what their firstoption should be in terms of of
abstention or recusal.
Some organizations, Rob, in myexperience, will actually pay
(14:18):
for a board member to seekindependent counsel advice on
the question of recusal orabstention.
Others won't.
But again, bottom line,education, proper conflicts
process, getting the informationto the implicated director well
in advance of the meeting atwhich the conflict might arise.
SPEAKER_01 (14:37):
So Michael, this really isn't all theory, is it?
this world of recusal andabstention.
You're seeing this practicallytake place a lot in your
practice.
SPEAKER_02 (14:44):
Absolutely.
And again, I think, Rob, it goesback to the point that people
are concerned from the boardleadership side that the
abstentions and recusals need tobe effective in order to help
support the sustainability ofboard decision-making.
You want decisions...
(15:06):
not to be tainted by conflicts.
You want them not to be taintedby ineffective abstentions or
recusals.
And because of this, I'mregularly encouraging my clients
to tighten up their conflictsand related policies to reduce
these, what I again callsustainability risks.
(15:28):
In my mind, kind of in addition,We have right now the need for
an enhanced, what I callstealing a term from the early
2000s, an enhanced tone at thetop in response to events in the
larger business environment thatsuggests an increased
willingness on behalf ofleadership to normalize
conflicts and ethicalviolations.
(15:48):
We see the stories in thebusiness journals all the time.
And when you do that, there aregoing to be attendant risks to
the sustainability of leadershipdecisions and to individual and
corporate reputations.
So, yeah, we're seeing a lotmore.
But what I worry about most allthan anything else is that we're
(16:09):
moving towards the normalizationof certain types of conflicts
and ethical violations, lettingthose fly, and those come back
to bite us in the tail later onwhen someone challenges a board
vote.
SPEAKER_01 (16:26):
So Michael, as directors try to see where those
challenges may come from, wherewould you educate them on where
those risks are most likely tocome from?
SPEAKER_02 (16:34):
Rob, this kind of goes back to a point you made in
your introduction that someboard members use recusal or
abstention to shield them frompersonal liability.
And I'm not sure that works.
And I think there's some caselaw that says if you've affected
a recusal or abstentionimproperly, it don't count on
helping you at all.
I see the groups or theconstituencies that look closely
(16:57):
at conflicts and ethicalviolations and certainly recusal
and abstention are the state andfederal charity officials.
the folks who work in your statecharity divisions of the
Attorney General's Office, aswell as the IRS.
And I do believe the IRS RobLast Eye Checks does still
exist.
I think you're going to getpushback sometimes on abstention
(17:19):
and recusal from dissentingdirectors, directors who are
angry and who are complainingabout board processes.
You're going to get it fromvendors and contractors who had
felt they'd been misused by thecompany in both these situations
when the dissenting director orvendor has a right under state
(17:39):
law to sue the company.
And then we also see these fromchallenges from federal
corporate fraud regulators whoare inclined to associate a
corporate tolerance forconflicts of interest with a
larger organizationalwillingness to kind of push the
edge of the envelope when itcomes to compliance.
(18:00):
But Rob, most especially, I seethe risks to board processes
arising from abstention andrecusal from what you and I have
discussed is called the newmedia, the politicos, the
propublicas, the stats, thesewell-organized and functioning
(18:20):
non-traditional media who reallyknow how to zero in on potential
board controversies.
I think that's the greatest riskthat I see.
SPEAKER_01 (18:30):
So, Michael, with our podcast being full-service
educational content, anymnemonic devices that you would
offer to our members fordistinguishing between recusal
and abstention?
SPEAKER_02 (18:40):
Well, that's a state secret, Rob, but I'll tell you,
if you can spell mnemonic forme, then I'll be happy to share
with the group.
But actually, I don't think Icould have spelled mnemonic
before this podcast.
But actually, here's how Iremember the differences, and
it's kind of a circuitousapproach.
I look at the re beginning ofrecusal and remember that it's
(19:04):
close to pre, which suggestssomething that happens before a
big event.
And as we've talked about today,the process for recusal really
needs to start well before thesubject or a discussion.
So re, pre, before thediscussion.
As for abstention, I go a littleoverboard.
I look at the stain part ofabstain and think that that
(19:27):
suggests the stain on someone'sreputation when they choose to
abstain from voting.
So there you go.
And I'm sorry you
SPEAKER_01 (19:36):
asked.
That is pretty slick.
Appreciate that tip.
So Michael, thanks again foralways sharing the latest
educational thoughts andinsights that you have related
to these topics.
We look forward to being backwith you next month for the next
in our series of governancepodcasts.
Next month, we're going to diveinto the business judgment rule,
what it means, what it means toofficers as well as directors.
(19:58):
And we look forward to beingback together next month.
SPEAKER_00 (20:05):
Thank you.
(20:35):
you
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