What Qantas Chairman Richard Goyder's retirement teaches investors about board shuffles

The last few weeks have been interesting in corporate governance, for all the wrong reasons. And while shareholders at Qantas (ASX: QAN) might now be happy and/or relieved that accountability has finally won out, it's worth understanding why changing a company's board can be difficult. 

In this wire, I explain a few nuances in the appointment and removal of directors. 

Appointing directors

An individual typically first becomes a director of a listed public company through the board appointing the director. That person then holds office until the next AGM where shareholders vote to reappoint the director to the board. Once appointed they hold office for a term of three years (per the company's constitution), then go through the process of re-election at the appropriate AGM. 

But Endeavour Group (ASX: EDV) is a current example of one other way that this can happen at the AGM, and Bruce Mathieson is throwing his support to the election of William Wavish to the Board, although that is not the sentiment of the Board chair and some of the other directors. - take a look at the 2023 AGM Notice of Meeting for further insight on this. 

To nominate a person for election as a director at the AGM firstly requires that person to satisfy the requirements to be appointed as a director (refer to the company's constitution on this and I note there are some basic requirements to be appointed as a director in the Corporations Act). Companies typically give advanced notice of the date of the AGM and the closing date for nominations from other candidates to be elected to the Board.

It was successfully used by Mike Cannon-Brookes to get four of his preferred directors onto the Board at AGL Energy (ASX: AGL) at its 2022 AGM. 

But sometimes, time is of the essence and shareholders don't want to wait until the AGM but to instead call a general meeting. A recent example is Impedimed (ASX: IPD) where a general meeting was called to appoint four directors to that company's board. You should note these resolutions were put to the general meeting after four of the existing directors were removed. More on that soon. 

This requires two steps:

1. Requisition a meeting of members by being a shareholder or a group of shareholders with at least 5% of the votes that may be cast at the AGM under a Section 249D notice. This meeting has to be called within 21 days after receipt of a valid requisition, with the meeting to be held within two months; and 
2. Rely on powers in the Corporations Act and the company's constitution for members in general meeting to appoint a director

Removing directors 

It's important to remember that shareholders' voting decides who is on the board. Once elected by shareholders in general meeting, directors hold onto their office for a period of three years when they have to go through the shareholder approval process again at the AGM. 

This means that the Board cannot remove another director: only shareholders can do that. It's an interesting quirk in the accountability mechanisms which put the Board at the apex of the company. They are, until it comes time to act against one of their own. 

I leave to one side the issue of an individual being disqualified from managing a corporation by ASIC or a Court as that is not something the company or its shareholders control. 

And how shareholders do this in public companies is to rely upon the rights in Section 203D of the Corporations Act to do so. This requires a few more steps but in essence there are the same two steps as above: 

1. Get the resolution on the meeting agenda and 
2. Rely on powers for shareholders in general meeting to vote to remove the director. 

There are some timing issues and details about the required disclosures, which includes a statement from the director/s as to why they shouldn't be removed. 

If a shareholder doesn't want to hang around to the next AGM, they will need to requisition the Board to call a meeting of members as explained above. That's what happened at Impedimed. 

Sometimes, receipt of a Section 249D requisition notice will be enough to focus the mind of the Board in general and the directors targeted for removal in particular. This can mean a changing of the guard without troubling shareholders. 

For the patient shareholders with enough voting power to requisition a meeting of members, they can sidestep the Board and use 249F to give the company notice that they will requisition (and pay for) a meeting of the company's shareholders. This means the shareholder controls the timing of the meeting (subject to the timing for resolutions to remove a director). 

Why does this matter?

News on board ineffectiveness does have an effect on share price moves. 

Research from Joe, Lewis and Robinson (2009) studied the share price reaction to media reports of board ineffectiveness. As they note:

"The results indicate that media releases of (noisy) information have significant economic consequences. In particular, media exposure of board ineffectiveness forces the targeted agents to take corrective actions and enhances shareholder wealth. Individual investors appear to react negatively to the media exposure, whereas investment firms act as if they anticipate the targeted firms' corrective actions."

In short, no news is good news. And if your company gets dragged through the columns, chances are a fall in share price may not be far behind.