Election of Directors. Part 1

Election of Directors - Retelling Modern corporate law proposes two positive theses to explain the evolution of participation rights. The first thesis is that the mandatory rights in the law were dictated by the progressive democratic movement, which sought to transfer power into the hands of the many, not the few. This chapter examines in detail how progressive democratic ideology was embodied in the election rules for directors. As far back as the days of Franklin D. Roosevelt, the erosion of the possibility of displacement of directors was identified as a major factor in corporate irresponsibility in the face of the Great Depression. To ensure that the right to choose directors is effective, many laws must be applied in practice. Legislative reforms have continually addressed issues of the corporate electoral process. The second thesis is that where electoral rights are not provided for by law, the bargaining power of economic actors has determined the evolution of market participation. As soon as the laws of Great Britain took on a modern form, they began to provide sufficiently strong protection of directors from the will of the founders of companies. The first modern law on consolidated companies, the Joint Stock Companies Act of 1856, consolidated the position reached by the political quasi-market for corporate charters. The directors could only be removed from office by a special resolution, by a three-fourths majority. Directors enjoyed significant human rights privileges during court disputes over dismissal. In most cases, their dismissal was valid only if it was confirmed by a court. A little later, the time came for a clear separation of control over the company's board of directors from the expectations inherent in the employment contract, although the dismissal of directors was still a difficult issue. At the time, the UK was not yet following the continental European trend towards greater protection against dismissal, unless it was the result of collective bargaining. But if the initiators of the change were correct that directors should only be fired for “good reason,” the questions of what “good reason” really means and who determines whether she was present in any given case remained unanswered. By 1929, the directors might have become a little more accountable to the general meeting, but the super-majority required for removal was still three-quarters of the vote. Prior to 1947, there were virtually no listed companies in Britain with articles of association that allowed for more lenient removal of directors than a three-quarter vote. Company law reform began in the UK in 1945. Since then, investors have gained broader control over boards of directors, and loans to directors have been banned. Parliament was in favor of the resignation of directors over 70 years old. The Companies Act 1947 prescribes the mandatory right of a company to remove any member of the board of directors by ordinary decision. After 1947, four major problems remained. First, was the effect of the law based and did it cover all types of companies? Second, could the law be undermined by factual, financial fetters on director dismissal through enormous breach of contract claims? Third, how were the directors appointed? And fourthly, what would a common law position become if there nothing was stated in the articles of the law? UK company law was a typical textbook on the evolution of good corporate governance, but only up to a certain time point. The development of modern German company law was reversed to English. According to the charters of the companies, the supervisory board was elevated to the status of a control board, which could not be bypassed when making decisions and which was very large. But in 1933 the company legislation was reformed. The constitution of the companies was now an agreement between the participants among themselves, but was expanded to include the state. The election of the executive board by supervisory boards became a mandatory feature of company law, and managers could be removed from office only for “important” reasons and could hold office for up to five years. A 1952 law required that a third of the members of the supervisory board, rather than a certain number that could be crowded out, be elected by employees. In fact, the German labor movement and the German shareholders concluded the Faustian pact. They kept things the way they were because they both wanted to keep the achievements they thought they had gotten. But the Faustian Pact had a price. The CEO became less accountable to anyone else. The experience of the United States differs from that of the UK and Germany, as there is little federal regulation of company election rules, and American laws rarely focus on firing directors. The requirement for a good reason for the dismissal of directors did not appear until the beginning of the 20th century. At the same time, cumulative voting was allowed. By the end of the 20th century, American directors had much more freedom than either English or German.