The Emergency Powers of a Board of Directors

December 12, 2017

By J. Marc Ward

Empty board roomThere is a little-known provision of the Iowa Business Corporation Act (Iowa Code Section 490.303) which gives a board of directors extraordinary power during an emergency. Other than a brief annotation to the Model Business Corporation Act, there are no cases or scholarly references to this section to be found. Its companion code section Iowa Code Section 490.207 regarding emergency bylaws is referred to only in “Corporate Management during Nuclear Attack,” 17 Bus. Law 249 (1962).

But these sections may be ignored at our peril. The threat of nuclear war has certainly diminished (or has it?), but floods, tornadoes and even terrorist attacks are still threats to the operations of a corporation.

So what do these sections provide and how might we use them? Section 490.207 authorizes a board of directors to adopt bylaws effective during an emergency. An emergency is defined as anytime “a quorum of the corporation’s directors cannot readily be assembled because of a catastrophic event.”

When an emergency occurs, the emergency bylaws can eliminate notice requirements for calling a meeting, reduce the quorum requirements for board meetings to less than a majority and designate temporary directors.

Iowa Code Section 490.303 augments 490.207 and allows an emergency board to modify lines of succession and relocate a company’s offices. Notice of meetings need only be given to those who it is practical to reach and by any practical means. The statutes suggest publication or radio, but email or text messages may be more efficient. Officers may also become emergency directors.

Under both sections, so long as the emergency board acts in good faith, actions taken by the board bind the corporation and cannot be used to impose liability on an emergency director or other representatives of the corporation. Although a corporation must adopt emergency bylaws prior to an emergency, the emergency powers under Section 490.303 are granted to every corporation.

More important, it might make sense to stretch the intent of these sections a bit and apply them to situations where the catastrophe is closer to home, like a plane crash that kills a majority of the board or a serious illness that incapacitates the sole shareholder and director of a family business. Merriam-Webster notes that tragedy is synonymous with catastrophe, and these are certainly tragic events. Corporations should consider adopting emergency bylaws now to facilitate the actions of the board if an emergency occurs.