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Shareholder Directors Take Note: Even Bill Gates Can be Removed

Friday, 17 January 2014

Business founders often end up as owner managers but a stake in the company does not guarantee a board or operational position forever.

As businesses grow and ownership diversifies, there is often serious potential for disagreement over who is best suited to hold key positions such as chief executive or chairman of the board of directors.

Even the most highly respected business people can be pressured to bow out, a situation Bill Gates was rumoured to have faced from large Microsoft shareholders towards the end of 2013.

How Could this Happen to Bill Gates?

In late 2013, it was rumoured in the financial press that Microsoft’s board of directors was being lobbied by a number of shareholders to remove Bill Gates as chairman of the board of directors.

Gates, who founded Microsoft nearly four decades ago, had already seen his right-hand man and successor as chief executive, Steve Ballmer, pressured out by shareholders following a decade of lacklustre share price performance.

Although Gates founded Microsoft, his stake has gradually declined over the years from around 39% prior to its flotation in 1986 to around 4.5% in 2013 and will continue to do so under a fixed programme of share sales.

At 4.5% Gates is still the largest individual shareholder in Microsoft but with a shrinking ownership stake to influence the board of directors, even one of the world’s best-known business founders is vulnerable to other active shareholders.

Appointing and Removing Directors from UK Companies

The specific requirements for appointing or removing directors from companies will depend upon a variety of factors such as the percentage shareholdings; the type of company, for example whether public or private; the particular roles held by shareholders, for example executive or employee; and any agreements that are in place between shareholders.

Where the company in question is a privately held SME, generally, there are two main considerations that must be taken into account. If any of the shareholders has a majority stake (over 50%) then usually they will have the ability to appoint or remove directors at a general meeting of the shareholders with an ordinary resolution. If a shareholder is also a director they will have a vote at board meetings, including those held to appoint or remove directors.

Additional considerations may be required in relation to the particular constitutional provisions of the company, the provisions of any shareholders agreements entered in to and the termination clauses contained in any employment contracts that are in place.

For specialist advice contact Peter Gourri today by email or telephone 0207 611 4848.