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The Fifth EEC Company Law Directive and
Removal of Directors
LEGAL EUROPE
by J OHN T EMP LE LANG
The draft Fifth EEC Directive on Company Law would
require Irish and British public companies and the
equivalent types of company in the other member
States to adopt a two tier management structure. The
draft Directive specifies that the members of the Manage-
ment Board, normally full-time executives, shall be
appointed by the Supervisory Board. Subject to any
national law under which the appointment or removal
of any member of the Management Board cannot be
carried out against the wishes of the workers' represen-
tatives, or the shareholders representatives, on the
Supervisory Board, it is the function of the Supervisory
Board to remove members of the Management Board
from office (Article 13 of the draft directive).
Assuming for the purposes of argument that the Fifth
Directive was to be adopted in due course in its present
form, the relationship between these provisions and
Section 182 of the Companies Act, 1963 (or the corres-
ponding provisions of the Companies Act (Northern
Ireland) 1960), Section 175), requires consideration.
These sections provide that a company may at any time
by an ordinary resolution approved by 51 per cent of
the shareholders present and voting remove any director
from his office, irrespective of anything in his service
agreement or in the Articles of Association of the
company.
Section 182 of the Companies Act, 1963, is based on
Section 184 of the U.K. Companies Act, 1948, which for
the first time introduced into British company law the
principle that shareholders can remove a director from
office at any time without giving a reason for doing so,
at the risk, at worst, of the company having to pay
compensation. This section resulted from a recommen-
dation of the Cohen Committee (Report of the Com-
mittee on Company Law Amendment, C m d. 6659 of
1945, par. 130). Although these provisions are therefore
not of very long standing of Irish or English Company-
Law, they are justifiably regarded as the basis of share-
holders' democratic control over the directors of their
company, and where there is no provision corresponding
to Regulation 80 of the Irish Table A, it is effectively
the only basis for that control. It may well be that
not many resolutions are passed under these sections,
but the possibility of such resolutions presumably has a
salutary effect in circumstances when it is needed.
It is therefore clear that the proposal in the draft
Fifth Directive is a novel change in Irish and British
company law and that it involves a reduction in share-
holder democracy, because powers which since the 1948
and 1963 Acts had belonged to the shareholders
(whether they exercised them often in practice or not)
are now being given to part-time directors. It is,
course, important to remember that this change would
affect only public companies and would have no applica-
tion at all to Irish private companies, which presumably
would remain subject to the provisions of Section 182-
It should also be remembered that under the Directive
it will become the duty of part-time Directors to meet at
least once every three months to receive reports from
the full-time Executive Directors and to supervise their
activities and to decide on questions of policy. Under
such a regime part-time Directors will have a much
clearer role and more clearly-defined powers and re-
sponsibilities than they have under the existing prac-
tice in most companies, and they can therefore be
expected to be in a better position than they are at
present, and in any case in a better position than the
shareholders, to judge when a full-time Executive Direc-
tor should be removed from office.
The draft Fifth Directive does not expressly say that
powers such as those given under Section 182 could not
continue to be given to the shareholders. However, the
spirit of the Directive is certainly against such powers
being given. The principle behind the idea of worker
representation is that a company is at least in some
sense a partnership between its employees and its share-
holders. Through the principle of worker representation
on a two-tier board of directors, the employees of the
company (the Fifth Directive requires employee repre-
sentation only on companies with over 500 employees)
are given a voice in the management of the company»
or at least in the supervisory and policy-making aspects
of management. It would be inconsistent with this prin-
ciple, which is, of course, totally novel in Irish company
law, that the shareholders should be able, without refer-
ence to the supervisory board or to the workers repre-
sentatives on it, to remove one or all of the full-time
executive directors from office.
An example may illustrate the thinking behind the
Directive. Under the Fifth Directive the Supervisory
Board must designate one member of the Executive
Board to be responsible for personnel and labour rela-
tions. Such a director from the nature of his work
might well tend to be more sympathetic to the views
and the interests of workers than his colleagues on the
executive board. It would quite clearly be contrary to
the policy and spirit of the Fifth Directive that the
shareholders should be free unilaterally to remove the
personnel director from his position, without reference
to the Supervisory Board which appointed him, and
against the wishes of the workers' representatives on
the Supervisory Board.
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