The power to remove company directors from office: historical and philosophical roots

Abstract

The Companies Act 71 of 2008 introduced into South African law a provision that, for the first time, empowers the board of directors to remove a director from office. This article contends that the novel power conferred on the board to remove a director from office represents a fundamental shift in the balance of power between shareholders and directors. This article traces the historical division of powers between the board and shareholders in South African law, as well as in the United Kingdom, Australia and the United States of America. It also explores the historical reasons and underpinning philosophy as to why the shareholders acting in a shareholders’ meeting have been conferred the right, by means of an ordinary resolution, to remove directors from office in these jurisdictions. The article further explores the full implications of this new power granted under the Companies Act 71 of 2008. It is further significant that section 66(1) of the Companies Act 71 of 2008 represents the first instance in South Africa’s company law history of statutorily conferring original powers of management on the board. It is argued that, despite the qualifications attached to it, this power of removal conferred on the board of directors has significantly shifted the balance of power and dynamics not only between the board of directors and the shareholders, but also between the shareholders themselves, and even between the directors inter se. Some suggestions are made with regard to containing the shift in the balance of power between directors and shareholders.