Agency conflicts can occur when the incentives of the agent do not align with those of the principal. That is why understanding the relationship between the directors and shareholders is important because one needs to be aware that each party has the right to exercises different powers. Further, the relationship between directors and shareholders often raises questions as to whether the shareholders have the power to override decisions made by directors.
Prior to the enactment of Zambia’s current Companies Act, a series of cases held that shareholders can override decisions of directors. The leading case in this regard was the case of Van Boxtel v Gerardus Adrianus van Boxtel v Rosalyn Mary Kearney (a minor by Charles Kearney her father and next friend). The court held shareholders enjoy, as a matter of right, overriding authority over the company’s affairs. The same point was stressed by the Supreme Court in John Paul Mwila Kasengele and Others v Zambia National Commercial Bank where once again the court held that shareholders enjoy overriding authority over a company’s affairs.
The decisions in the Van Boxtel and Kasengele cases were approved in two further Supreme Court judgments of Bank of Zambia v. Chibote Meat Corporation Limited, and Zambia Consolidated Copper Mines Limited v. Richard Kangwa and Others which held that because shareholders are beneficial owners of a company, they have and enjoy overriding authority over the affairs of the company and can override the wishes or decisions of directors of the company. Interestingly, these four Supreme Court judgments were all written by former Chief justice Matthew Ngulube.
The current Companies Act which came into force in 2017 now clarifies the legal position with regards to the power of management and the ultimate decision-maker on the affairs of the company. Section 86(1) of the Companies Act provides that the business of a company shall be managed by, or under the direction or supervision of, a board of directors who may pay all expenses incurred in promoting and forming the company and exercise all such powers of the company as are not, by this Act or the articles, required to be exercised by the members. Further, section 131 of the Act provides that the shareholders of a company shall, exercise the powers reserved to shareholders as specified in this Act or the articles at a meeting of the shareholders by ordinary resolution or with a written resolution.
Essentially, the view that was previously held in Zambia that shareholders can override the decisions of the directors has been overruled by section 86 of the Act which provides that only directors can manage the affairs of the company and the shareholders must only exercise the powers reserved for them.. The Companies Act explicitly provides that nobody else shall exercise the management of the company apart from the directors of the company– thereby overruling the position that existed in Zambia before. Therefore, the management of the company should only be exercised by the directors of the company, with the shareholders exercising powers reserved for them such as appointing (and removing)directors and auditors of the company.