Chapter 11 – 1/3 Rotation – Directors

If I have understood your post correctly, there are two separate questions therein and that’s how I shall respond.

#1 “Could you please explain what you mean by 1/3 rotation.” Every year, at a company’s AGM, the membership of the company has the opportunity to decide the composition of the company’s board of directors. In the first AGM, all the new company’s directors must resign and, if willing, they will offer themselves for re-election.

At second and subsequent AGMs, only one third of the directors shall resign such that, in any three year cycle, the company’s membership has the opportunity to affirm the continuing office of each of the directors.

In the situation where a director is appointed during the period between AGMs, for example appointed by the existing board members, then that director shall resign at the next AGM and, if willing, will offer themselves for re-election.

Another exception to the rotation procedure is the situation of companies that are in the FTSE’s top 250 quoted companies. For these organisations ALL directors shall resign EACH YEAR and, if willing, will offer themselves for re-election.

#2 “I didn’t understand what you meant by short straws.” The situation alluded to here is where, at the second AGM, the existing directors must decide which amongst them is to resign and submit for re-election. Each of them may say that it should not be them to seek the members’ approval.

The expression ‘drawing the short straw’ relates to a position where there has to be made a choice of a smaller number from a larger population. For example, if we have a board of three directors and, at the second AGM, one of the three must resign and offer themselves for re-election, the question arises ‘Which one?’

Take three drinking straws and cut one of them shorter by a small amount. Hold all three straws in one hand such that the protruding ends are all level and the obscured ends are hidden within the fist of the person holding the straws. Each director now draws one of the straws and the one that draws the short straw is the one that shall resign.

Next year, only two straws are offered (one long and one short) to the two directors that survived last year’s excitement and the one that draws the short straw resigns at the company’s third AGM.

At the fourth AGM, no straws are necessary because there is only one director that has not been through the process of resignation and re-election and it’s now that director’s turn.

At subsequent AGMs, the director(s) that have not been re-elected at the two previous AGMs now take their turn again. And so it goes on.

OK now?