The Removal of Directors by the Board of Directors under the Companies Act 71 of 2008: Should it be a Mandatory or an Alterable Provision?

Abstract

The Companies Act 71 of 2008 introduced into South African law a provision which for the first time permits the board of directors to remove another director from office in certain instances. This provision is contained in section 71(3). Compared to the equivalent provision in some leading foreign jurisdictions, section 71(3) of the Companies Act is unique in two important respects. First, the board’s power to remove board members is an unalterable and a mandatory power. Second, a board’s removal rights do not follow appointment rights. Consequently, a board is empowered to remove from office any director, regardless of whether shareholders or any other person had appointed that director to office. This article questions whether the board’s power to remove directors from office under the Companies Act ought, instead, to be an alterable power. With a view to protecting the minority shareholder representatives on the board of directors, it questions whether section 71(3) should distinguish between directors appointed by a board and directors elected by shareholders. The comparable provisions on the removal of directors by a board of directors in corporate legislation in Australia, the United Kingdom, and the United States of America are examined. Some recommendations are made to modify section 71(3) of the Companies Act to improve the new power conferred on boards of directors to remove fellow board members.