Appointment and Reappointment of Directors

In one line

Directors are appointed by the members, and in a public company two-thirds of them must be liable to go out by turns, a third of that group retiring at each annual general meeting so the members get a regular say.

In exam wording: section 152(2) provides that, save as otherwise expressly provided, every director shall be appointed by the company in general meeting; and section 152(6) requires that, unless the articles provide for the retirement of all directors at every annual general meeting, not less than two-thirds of the total number of directors of a public company shall be liable to determination by retirement by rotation and be appointed in general meeting, one-third of those liable to retire going out at each annual general meeting.

Why the law has this at all

The members appoint the Board once and then have no further say until something goes wrong. Two obvious solutions both fail.

Appoint the whole Board every year, and no director has any security. A director who knows he may be gone in eleven months will not take an unpopular decision, and the company loses institutional memory annually.

Appoint them for life, and the members' power is a formality. A Board that never faces re-election is accountable to nobody.

Rotation is the compromise. Two-thirds of the Board is exposed to the members, but only a third of that two-thirds in any one year, so roughly a fifth of the Board faces the members annually while the rest carries on. And the rule that the longest-serving go first means the exposure is even over time rather than being aimed at whoever the Board finds inconvenient.

Independent directors are excluded from the count because they have their own tenure regime under section 149(10) and (11), and subjecting them to rotation as well would make their position turn on the majority's goodwill, which is the opposite of independence.

Some words this chapter uses

Liable to determination by retirement by rotation means the office comes to an end by turn. Rotational directors are those so liable; non-rotational directors are the rest. By lot means by drawing lots. A national holiday is one declared as such by the Central Government. Total number of directors, for section 152(6), excludes independent directors.

The first directors: section 152(1)

Where no provision is made in the articles for the appointment of the first director, the subscribers to the memorandum who are individuals shall be deemed to be the first directors until directors are duly appointed; and in a One Person Company, an individual being member shall be deemed to be its first director until directors are duly appointed by the member.