As the green shoots of the Northern Irish economy continue to grow and are reinforced by positive economic data, shareholders are subjecting decisions taken by boards of directors to greater scrutiny and are becoming increasingly active in seeking to address any issues at board level which could restrict a business from taking full advantage of the improving economic environment.

Directors are appointed by shareholders to take responsibility for the daily management and administration of a company. Healthy disagreements in any boardroom are essential to drive a business forward, but a dysfunctional board will seriously impede a company's ability to develop. If fundamental differences of opinion at board level are preventing the effective management of a business then decisive action should be taken by directors and/or shareholders without delay.

There is no 'one approach fits all' when it comes to the strategies being adopted by shareholders to address issues posed by dysfunctional boards as the balance of power will be different for each company. Tactical decisions taken at the outset will likely determine the ultimate success or failure of any strategy and so clear objectives, strategic planning and early consultation with legal advisers are crucial on the part of both shareholders and existing directors in these situations. A company's articles of association and any shareholders' agreement should always be reviewed in detail as initial steps, but strategies recently employed by shareholders have included combinations of the following:

  • Flooding the board though the appointment of additional directors
  • Removing existing directors
  • Appointing an independent chairman to have a casting vote on certain matters
  • Requiring directors to call a general meeting
  • Amending the articles of association to include provisions giving the shareholders a greater say in the operation of the company, including enabling shareholders to direct management, appoint directors, remove directors, introduce limits and restrictions on the numbers of directors and to introduce certain quorum requirements for meetings
  • Applying to court for an order that a company has acted or is acting unfairly
  • As a last alternative, applying to court for an order that a company should be wound up