The Examination on Election and Removal of Directors
Date Issued
2010
Date
2010
Author(s)
Sun, Yuan-Hsiao
Abstract
Shareholders’ rights to elect and remove directors are absolute rights under both director primacy and shareholder primacy in most corporate laws traditions. In order to solve the agent problem, shareholders are authorized with final supervisory power to elect fit directors and to remove the unfit ones.
Late in 2008, the lucrative salaries and bonuses received by top management in financial institutions were under plenty of criticism during last financial crisis; however, from the author’s view, it is only a short-term solution by cutting down salary packages; a more efficient way shall remove unfit directors and then re-elect other directors. The thesis covers: (1) the legislation, cases and theories in the United States, the United Kingdom and Germany; (2) the current system of directors’ election and removal in Taiwan; (3) the author’s suggestions.
In Chapter 2, the author points out the drawbacks of Taiwan corporate system with several cases, such as the question of the Company Act article 27, only a few public companies adopt the director candidates nomination system, the battle of cumulative voting and straight voting, and the debate of the Company Act article 199 and article 199-1.
Chapter 3 studies directors’ qualifications. The Company Act article 27 paragraph 1 permits corporate shareholders to elect directors; therefore, the director candidates would be either natural persons or corporate shareholders. However, the author suspects that the appropriateness of corporate directors and corporate shareholders’ representative directors.
Chapter 4 discusses the design of director nomination and election system. The author refers to the reform and development of the shareholder nomination right in the United States, especially the 2009 version: the SEC proposed “Facilitating Shareholder Director Nominations,” and then the author reviews Taiwan director candidates nomination system. On the other hand, the process of electing directors differs from nation to nation. The competitive election is the main practice in Taiwan, compared with the non-competitive election in the United States; in addition, the existence of controlling shareholders is the dominant characteristic in most Taiwan corporations; therefore, the main issue of corporate governance in Taiwan is to avoid majority shareholders to expropriate the rights and interests of minority shareholders. The author believes the cumulative voting is suitable to Taiwan corporations.
Chapter 5 talks the design of director removal system. First of all, who has the right of removing directors? Secondly, it is whether shareholders remove one or more directors with cause or not. Thirdly, what resolution of director removals should adopt? Besides, the author considers that the effect of re-election of all directors prior to the expiration of the term is the same to the removal of directors, so both resolutions ought to be consistent and the directors which were removed by the Company Act article 199-1 could address article 199 paragraph 1 to make a claim against the company for any damages. However, it is lack of director’s right to protest removal in Taiwan, so the author refers to the Companies Act 2006, the judicial development of minimum due process in the United States and the Germany laws. On the other hand, the judicial removal of directors is closely related to the preliminary injunction for prohibiting directors from carrying out their duties; therefore, the author refers to the judicial removal of directors and the standard of preliminary injunction in the United States as well as the Company Directors Disqualification Act 1986.
Finally, Chapter 6 is the conclusion and prospect. The author sums up the discussion of each chapter, provides the suggestions of director election and removal systems, and wishes shareholders’ supervisory rights became a more powerful approach to remove and re-elect directors.
Subjects
corporate directors
shareholder nominations
director candidates nomination system
judicial removal of directors
directors disqualification
preliminary injunction for prohibiting directors from carrying out their duties
Type
thesis
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