Corporate Governance: real power, Cecil King and Machiavelli

Clauses in company articles giving boards rather than shareholders the power to remove directors, can give either the chairman or chief executive the power to retain their tenure even when performance is less than satisfactory. A power holder can simply remove opposition from a board as soon as it is expressed. When used ruthlessly, such power makes it almost impossible for independent non-executive directors to carry out their most important role of monitoring executive directors and removing non-performers at an early stage. Machiavelli claimed that extension of tenure was a prime cause of Rome’s decline. He argued persuasively for fixed terms, with no variation possible. The prohibition of removal clauses, and the introduction of fixed director terms might well increase corporate performance by preventing continued tenure for those who have failed.