Beaumont Tashjian Law Blog

Monday, May 7, 2018

Abstention vs. Recusal: What’s the Difference?

By: Jeffrey A. Beaumont, Esq.

Our clients often ask us to provide guidance relative to the terms “abstention” and “recusal.”  In a nut-shell, abstention is “the withholding of a vote [by a director],” whereas recusal is the “[r]emoval of oneself as judge or policy-maker in a particular matter, especially because of a conflict of interest.” (Black’s Law Dictionary (8th ed. 2004). Abstention generally focuses on the final decision, where recusal usually involves withdrawing from the entire proceeding.

Robert’s Rules of Order (i.e. parliamentary procedure) provides:

“[while] it is the duty of every member who has an opinion on a question to express it by his vote, he can abstain, since he cannot be compelled to vote. (Robert's Rules, 11th ed., p 407.) (Emphasis added.)

In the context of corporate governance, the California Attorney General’s Office has provided a meaningful legal analysis relative to board members abstaining from voting, stating, in relevant part:

...board members’ refusal to vote is, in effect, a declaration that they consent that the majority of the quorum may act for the body of which they are members… Such acquiescence cannot, of course, bestow a power on a body that is beyond its legal authority; hence, any action taken by a body must still be supported by the votes of a least a majority of the body’s quorum ...the abstaining member [through silence] may accurately be said to have ‘acquiesced in’ or ‘consented to’ any resolution reached by the body, as long as the number of members voting was at least a majority of the quorum.” (Opinion No. 10-901, December 20, 2011; p. 10, para. 2 and p. 13, para. 2.) (Emphasis added.)

Based on the foregoing, when a director abstains he or she is refraining from voting, meaning that an abstaining director’s vote is not counted in favor of or against the action, but that director’s presence can be counted towards the existence of a quorum. (Friedman, Cal. Practice Guide: Corporations ¶ 6:223.1.) Thus, even though an abstaining director’s vote is not counted in favor of or against the action, as long as a majority of the directors present at the meeting vote in favor of same, it will pass. (Corporations Code Section 7211(a)(8).)

Directors have the duty to serve the interests of all of the members.  What is more, each individual Board member owes a fiduciary duty to the association to act in good faith, in a manner the director believes to be in best interests of the association, and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances.  (Corporations Code Section 7231.) 

At times, board members may be reluctant to get involved with controversial issues and may use an abstention as a way to stay out of the proverbial fire. Of course, if a conflict of interest exists vis-à-vis one or more directors, such use of an abstention is warranted. However, if no such conflict exists, the members expect their elected directors to make a decision that is in the best interests of the corporation, as a whole. If one or more directors abstain simply to avoid making a decision on the record, they are, in my opinion, not fulfilling their fiduciary duty under Corporations Code Section 7231.

In other situations, a director may use an abstention because he/she claims to have insufficient information to make a decision. At times, such abstention is reasonable (i.e., director was hospitalized, on vacation, etc.).  In other cases, it can be construed of as a sign of unpreparedness and/or indifference, especially if all board members were provided with information necessary to make an informed and reasoned decision on such item(s) of business. This may also circumvent Corporations Code Section 7231.

Finally, board of directors owe a duty of undivided loyalty to the association, and may not make decisions that benefit their own interests at the expense of the association and its members (i.e., conflict of interest) (See, Raven's Cove Townhomes, Inc. v. Knuppe Development Co., 114 Cal. App. 3d 783 (1981).).  The duty of loyalty involves not only the duty to avoid conflicts of interest, but requires full disclosure of any interests potentially adverse to the association.

When such a conflict of interest exists, a director must recuse himself/herself from participation in a particular matter. In other words, the director cannot vote on the action (i.e., abstain) and should remove himself/herself from the meeting when his/her issue comes up for discussion. 

In situations where a director recuses himself/herself from a vote, any actions voted on after the departure of that director may still be passed as long as a majority of the initial quorum approves the action.  This is so since “a meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting.” (Corporations Code Section 7211(a)(8).)

For example, if a corporation has 7 directors and 4 are present at the meeting, if one director recuses himself/herself and departs the meeting, the meeting can continue. However, for an action to be adopted in that scenario, it will require 3 votes in favor, which was the majority of the initial quorum of 4 required for the meeting to be held. 

At the end of the day, directors have a duty to serve the best interests of the association and the members as a whole.  What is more, each individual director owes a fiduciary duty to the association to act in good faith, in a manner the director believes to be in best interests of the association, and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances.

With that said, “abstentions” and “recusals” should be limited in scope as outlined above, and abstentions should not be used to avoid controversial/preclusive issues in the community. Otherwise, a breach of duty/loyalty may arise relative to same.


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