In the dynamic world of business, the composition of a company’s board of directors plays a pivotal role in its success. However, ensuring a balance of experience, fresh perspectives, and continuity among board members is crucial. One approach the company uses to manage this dynamic is the rotation of directors. It is a process of systematic replacement of board members over time to keep the boardroom vital and effective.
This rotational policy aligns with regulatory guidelines outlined in Section 91(2) of the Companies Act, 1994, and Regulations 79-81 of Schedule-I. By adhering to these regulations and principles, companies aim to maintain a balanced and effective board that serves the interests of stakeholders.
Process of Directors Rotation
Board member selection and retention follow two distinct procedures: one for the company’s initial general meeting and another for subsequent regular meetings. On the other hand, who retires is determined by a combination of their position’s seniority (at the first meeting) and a random selection process (for subsequent meetings) if necessary.
Initial Board Meeting: All directors, except the Managing Director, will step down at the company’s first annual general meeting (AGM).
Subsequent AGMs: At each subsequent AGM, a portion of the remaining directors will retire based on the following:
- Ideally, one-third (1/3) of the current directors will step down.
- If the total number of directors isn’t divisible by three, the number closest to one-third will retire.
- These retiring directors can be re-elected if nominated.
Determining Who Retires: The directors with the longest tenure since their last election/appointment will typically retire by rotation.
- If multiple directors became directors on the same day, a random selection process (like drawing lots) will determine who retires, unless they mutually agree otherwise.
Finally Insights
Changing board members regularly brings fresh ideas and keeps the company strong. It also follows the law and good business practices, which builds trust with investors. Bangladesh has certain regulations for the rotation of directors; every company must follow the rules. So the company secretary and responsible person must know this law and act accordingly.
