A corporation’s board of directors is supposed to protect the interests of shareholders. If situations arise where that is no longer happening, removing one or more directors may be necessary. Knowing some essential elements of the removal process can help all parties involved anticipate and assess the next steps.
Grounds for removal
Shareholders can remove a director for a range of reasons.
Often, the reasons stem from a director’s failure or inability to oversee corporate activities or assess performance. Some examples of this might include the following:
- Frequent absences from board meetings
- Clashes with other board members
- Confidentiality agreement violations
- Participation in illegal acts involving business investments
- Involvement with competing companies
- Causing frequent disruptions at meetings
- Being disrespectful to other directors
- Serious physical or mental conditions that affect the ability to carry out duties
- Failure to remain informed
- Other reasons specified in agreements
Directors can also be removed per the terms of a business transaction. One high-profile example of this involves Elon Musk and Twitter.
Musk recently acquired the business for $44 billion, and part of the agreement was his ability to dissolve the board of directors, which he did immediately. He now serves as the sole director for the social media platform.
The removal process
Removing a director is not an overly complicated process. Shareholders must call a special meeting for the stated purpose of removing a director. At that point, they only need a majority of shareholders to approve the removal for it to move forward.
Removing directors is not necessarily complicated, nor is it uncommon. However, it is not something to take lightly. Director removal can impact the board, the individual facing removal and the company. Further, complications can arise when parties contest the removal, or there is no clear majority in favour of it.
For these reasons, legal guidance can be crucial for individuals and corporations navigating director removal matters.