On Monday, April 8, 2019, Carlos Ghosn, former Chairman and CEO of the Renault-Nissan-Mitsubishi Alliance lost hisdirectorship of Nissan.
Already sacked from the presidency since November 2018, the general meeting of shareholders decided to draw a line under the man who had led the company for almost two decades.
In a société anonyme (public limited company), the shareholders' meeting may decide to dismiss the Chairman at any time, without notice or compensation, and without having to give reasons.
Here's everything you need to know about this procedure, which can be ruthless against certain executives.
In a public limited company with a Board of Directors, the General Meeting of shareholders is sovereign, and can decide to terminate the executive's term of office at any time.
The principle of revocability is called "ad nutum", i.e. without delay, discretionary and without compensation.
In this case, the law applies to the letter, and no golden parachute or indemnity can be paid to the executive concerned. Any lump-sum payment or commitment to buy back shares in the event of termination would be null and void.
In concrete terms, it does not give entitlement to any compensation.
The dismissal of a director is decided at an Ordinary or Extraordinary General Meeting. The matter need not be included on the agenda.
Dismissal must not be voted on in an irregular manner, nor must it be precipitated or surrounded by insulting or vexatious circumstances that unjustifiably damage the reputation of the dismissed director.
The freedom to dismiss the Managing Director has the same consequences as for a director of the Board of Directors.
Clauses in the bylaws restricting free revocability are deemed unwritten.
The existence of an agreement entered into by the Chief Executive Officer with the company or a majority shareholder must not be such as to influence the Board's decision.
Carlos Ghosn was removed from his directorship of Nissan this Monday, April 8, and had already been removed in November 2018 from his position as CEO.
Renault and Mitsubishi Motors also decided to dismiss the powerful boss of the world's number one automaker, a few weeks after his arrest.
Shareholders therefore wield considerable power on a company's Board of Directors.
In fact, their vote is sufficient to remove a director from office.
In the case of dismissal ad nutum, as we have already mentioned, the conditions of departure can be brutal: without delay and without any form of compensation.
Disputes sometimes arise when a director is dismissed by a shareholders' meeting that was not called to rule on the dismissal.
To guarantee the defense of the appointed director, French jurisprudence requires that the judge has the power to verify the conditions of formal regularity of the revocation with regard to company law.
A ruling by the French Supreme Court (Cour de Cassation) on April 26, 1994 shows that, without abandoning the requirement to respect the rights of the defense, the Paris Court has given precedence to the principle of dismissal in all circumstances, which is not incompatible with the possibility for executives to make their observations known.
If a director is dismissed without being present and without the matter having been placed on the agenda, he or she may consider that, not having been given the opportunity to present his or her observations, his or her dismissal was "brutal, untimely and vexatious" and claim compensation for the loss suffered.
However, the court considered that, having been convened to the meeting, the dismissed director was entitled to make his observations.
If the revocation is deemed abusive, it entitles the person concerned to damages.
The decision taken against Carlos Ghosn follows his obvious inability to fulfill his role as director and CEO. In any company, the grounds for dismissal can be numerous, ranging from misappropriation of corporate assets to suspicions of embezzlement or mismanagement.
This is an inherent problem for any company, and one for which shareholders need to be prepared.
Written by our expert Paul LASBARRERES-CANDAU
April 17, 2019
