Boardroom Power Shift: How Shareholders Can Reshape Governance and Keep Directors in Check

In the competitive world of corporate governance, South African shareholders have a suite of tools to ensure directors stay on track, align with the company's strategic goals, and ultimately act in the best interests of those who hold the real power—the shareholders. Between the robust Companies Act 71 of 2008, the ability to amend the Memorandum of Incorporation (MOI), and the strategic use of shareholder agreements, shareholders have multiple avenues to assert their authority. Let’s explore how these methods work together to keep directors in check and why June Stacey Marks Attorneys is the best partner for navigating these complex legal waters.

Section 71: The Power Play for Removing Directors

When a director starts going rogue or just isn't cutting it anymore, Section 71(1) of the Companies Act is the shareholders' ultimate trump card. It allows shareholders to remove a director through an ordinary resolution without needing to provide reasons. That’s right—no justifications required. It’s a swift and decisive way to handle underperforming or troublesome directors, ensuring that those at the helm of the company don’t forget their accountability to the shareholders.

However, Section 71(2) does require that the director is given a fair chance to make representations before the decision is finalized. This is a safeguard, ensuring procedural fairness even when shareholders decide that a change in the boardroom is necessary.

In Pretorius v Timcke [2017] JOL 38461 (WCC), the Western Cape High Court highlighted the procedural requirements for removing directors under this section, underscoring the importance of adhering to the proper process even when exercising this power.

Amending the MOI: Redefining the Rules of the Game

If shareholders want more than just the ability to remove directors, they can amend the MOI under Section 16 of the Companies Act to put structural limits on directors' authority. Amending the MOI is like rewriting the company’s constitution, allowing shareholders to dictate the terms on which directors can act. This can include requiring shareholder approval for high-value transactions or strategic decisions that could significantly impact the company.

In the CDH Invest NV v Petrotank South Africa (Pty) Ltd [2019] ZASCA 53 case, the court emphasized the importance of adhering to the MOI's provisions, particularly when it comes to matters like changing share structures. This case demonstrated that shareholders could enforce strict adherence to MOI provisions to maintain control over key company decisions. Through such amendments, shareholders can make sure directors don’t stray too far from the strategic direction they envision for the company.

Shareholder Agreements: A Private Tool for Precision Control

While the MOI sets the public framework, a shareholder agreement is a private contract that allows shareholders to add another layer of control over directors. Unlike the MOI, which is filed with the CIPC, a shareholder agreement can include tailored provisions that directly impact how directors operate.

1. Reserved Matters: Shareholder agreements can specify matters that directors cannot decide without shareholder approval—like entering into substantial financial commitments or altering key business strategies. This ensures that the board doesn’t take actions that could alter the company’s trajectory without getting a green light from shareholders first.
2. Streamlined Removal: Although Section 71 provides a legal mechanism for director removal, a shareholder agreement can outline additional grounds for dismissal, making the process even clearer. This can streamline the removal process and ensure that directors know what’s expected of them right from the start.
3. Performance-Based Clauses: Shareholder agreements can also include performance criteria for directors, allowing for easier removal if those benchmarks aren’t met. This ties directors’ success directly to the company’s performance, creating a culture of accountability and focus.

Combining the Power: A Strategic Blueprint

Using Section 71, MOI amendments, and shareholder agreements in tandem creates a robust framework where shareholders can control the big-picture decisions while still allowing directors enough leeway to manage daily operations. It’s like designing a game where the shareholders set the rules, but the directors play their best within those boundaries.

1. Step One: Director Removal: Use Section 71 to address immediate concerns with underperforming directors. Craft a simple, straightforward resolution, ensuring procedural fairness.
2. Step Two: Amend the MOI: Rein in director autonomy by amending the MOI to require shareholder approval for strategic decisions. Use Section 16 to formalize these changes, ensuring that major transactions and strategic pivots align with shareholder interests(
3. Step Three: Draft a Tailored Shareholder Agreement: Incorporate specific reserved matters, performance metrics, and streamlined removal processes into a shareholder agreement. This creates a private yet enforceable blueprint for keeping directors aligned with shareholder goals.

Why June Stacey Marks Attorneys Is Your Best Bet

Navigating the complexities of company law requires expertise, precision, and a strategic mindset—qualities that June Stacey Marks Attorneys embodies. As a leading firm in company law, June Stacey Marks Attorneys offers unparalleled guidance in drafting shareholder agreements, amending the MOI, and ensuring compliance with the Companies Act 71 of 2008. Their hands-on experience with high-stakes matters, including director removals and MOI amendments, ensures that clients have a partner who understands the balance between shareholder control and corporate agility.

Whether it’s drafting a strategic shareholder agreement that keeps directors in line or navigating the nuances of director removal under Section 71, June Stacey Marks Attorneys is the firm that understands the importance of making every move count in the boardroom. When shareholders need a firm that’s as relentless as they are in pursuing results, June Stacey Marks Attorneys is the go-to choice.

Final Thoughts: Shareholders, Take the Reins

For South African shareholders, the combination of Section 71, MOI amendments, and shareholder agreements provides a powerful toolkit for maintaining control over their companies. By understanding and leveraging these tools, shareholders can ensure that directors act in the best interests of those who hold the true power in a company. So, don’t just watch from the sidelines—step into the boardroom with confidence, knowing that the law is on your side, and that with the right strategy, the game is yours to win.