WHO IS DIRECTOR?

Section 2(13) of companys act defines a director may be defined as a person having control over the direction, conduct, management, or superintendence of affairs of a company. Any person in accordance with whose direction or instructions, the board of directors of a company is custom to act is deemed to be a director of a company. Section 2 (6) of the companys act states that the directors are collectively referred to as board of directors are simply the borad.

DIRECTORS AAPOINTMENT
The aoa of a company usually named as first set of directors by their respective names or prescribed the method appointing them. If the first set of dirctors are not named in the articles the number and the names od directors shall be detemmined in writing by the subscribers of memorandum of association or majority of them.the shall hold office until directors are duly appointed in the first general meeting.

Legal position of directors

They are described as agents, trustees, managing partners of the company. The legal position of directors as agents and trustees emanate from the fact that company being an artificial person cannot act in its own person. It can act only through the directors who become their agents in the transactions the company makes with the others.

Qualification and disqualification of directors

A director must be an individual Be compitent to enter in the contract Hold a share qualification if so required by aoa Following persons are disqualified for appointment as director of a company Person of unsound mind An undischarged insolvent Person who has convicted by a court for any offence involving moral purpitude

A person whose calls in respect of share of the company are held for more than 6 months have been in arrears Person who is disqualified for appointment as director by an order of the court on grounds of frauds in relation to the company.

The board of directors

The board of directors of a company includes all directors elected by shareholders to represent their interest vested with the power of management. The board has extensive power to manage a company, delegates its power an authority to executives and carry on all activities to promote the interest on the company and its shareholders, subject to certain restrictions imposed by public authority.

Power of board
Section 292 of the companies act, it is stipulated that a companys board of directors shall exercise following powers A Make calls on shareholders in respect of money unpaid on their shares B Issue debentures C Borrows money otherwise (example public deposit) D Invest the fund of the company E Make loans. F to fill vacancies in the board gTo receive notice of disclosure of shareholding of directors

liabilities of directors
directors of a company may be laible to third party in connection with issue of prospectus, which does not contain particulars required under the companies act directors may also incur personal liability under the act on following conditions 1. On their failure to repay application money if minimum subscription has not been subscribed 2. On an irregular allotment of shares to an allotee if loss or damage is sustained 3. on their failure to repay application money if the application for the security to be delt in on a recognised stock exchange is not made

4. On failure by the company to pay bill of exchange, hundi, promissory note , cheque or order for money or goods where in the name of company is not mentioned.

Role of directors
1. Director should exhibit total commitment to the company and efficient and independent board should be conscious protecting the interest of all stake holders and not concerned too much current price of the stock. 2. Directors should steer discussions properly. Important function of director which is to set priorities and to insure these are acted upon the directors should see that all important issues concerning companies business are taken ant nothing trivial dominates and bogs them down. 3. directors responsibility to insure efficient ceos Directors have grate responsibilities in the matter of employment and dismissal of the ceo 4. board should anticipate business events an efficient board should be able to anticipate business events that would spell success or lead to disaster if proper measures are not adopted in time. 5. Director should have long term focus and stake holders interest Directors have duty to act bona fide for the benefit of a company as a whole The board of directors

The Board is the quintessential vertical corporate governance institution.

Its the board that hires and fires the CEO, makes key business decisions and reviews the work of the firms senior managers. (Because a dominant stockholder typically controls the board, the board is less important as an institution of horizontal governance.) Indeed, one could see the other institutions as primarily interacting with the board. (I.e., the means that coalesce shareholders are means to select a new board. Or, law, in the form of rules regulating proxy contests and takeovers, affect the composition of the board of directors. Or, information distribution and transparency allow outside stockholders to see whats happening inside the board. Or, designing CEO incentive compensation is a tool to align managers with shareholders, but its a tool that can only be as good as the board makes it.) In the abstract, its simple: shareholders elect the board. Distant shareholders lack information and focus; they can neither run the company, nor understand its business in any deep sense, nor select or motivate the CEO. So the board manages the company in

general, hiring managers to do the job day-to-day.

In practice though the boards role hasbeen in flux for decades. It was often seen as captive to senior managers, who suggested people for vacancies and, through their control of information, were thought to dominate the board. Davis (1993); Lorsch & MacIver (1989).

In recent years, this situation has changed, with many boards bringing on more independent directors, with many getting active audit committees, and with some having membership committees that took the nomination function away from the CEO (or at least shared it). Useem (1992).

Evidence of the effectiveness of independent directors is mixed. Franks, Mayer & Renneboog (2001); Hermalin & Weisbach (1998); Bhagat & Black (1999).

But the trend is clear: Independent directors have increased as a proportion of the board and dominate important committees, although the level of independence falls short of professional director proposals that would have the directors see themselves as primarily shareholders agents, not managers advisors . Gilson & Kraakman (1991).

The board, board committees, and reporting systems to the board, are central to the Sarbanes-Oxley Act of 2002, a corporate governance measure responding to the Enron and WorldCom scandals in the United States. There are enduring understandings: Organizations are thought to improve their

decision-making when the people who make proposals are separated from those whoapprove them. Fama & Jensen (1983),

And there is an understanding of the value of committees in making decisions. 2 But beyond that theres empiricaluncertainty about the significance of the importance of board size, the degree of independence, and other board characteristics, despite that independence, size, and related issues have been planks in corporate governance reforms. Eisenberg, Sundgren & Wells (1998); Yermack (1996). Corporate Governance and Board of Directors The board of directors of an enterprise has to fulfill a number of responsibilities. 1. Creating conditions for developing a sound business strategy in consonance with national/ plan objectives. 2. Ensuring that the enterprise has a CEO of the highest caliber, and the certain senior managers are being groomed to assume the CEOs positions in future. 3. Creating systems of information, audit and control to oversee whether the enterprise is meeting objectives. 4. Ensuring that the enterprise complies with legal and ethical standards. 5. Ensuring that the enterprise is able to manage crisis and that its actions come in hardly in

the prevention of crisis.

Effectiveness of board of directors Selecting the chief executive and confirming the selection of other executives made by the chief executive Providing advice to the executives on matters like new government legislation , wage policy Confirming management decisions on major changes in objectives , policies that have substantial effect on the success of the company Reviewing the results of the companys current operation

Role of board in ensuring corporate governance If the board is smaller , the directors involvement will be greater Independence is the essence of strategic boards Diversity means that company has access to the best If the board is well informed it will function intelligently and appropriately The board is responsible to long term shareholders value .

Role of the directors Directors should be conscious of protecting the interest of all stakeholders Directors should see all important issues concerning the company business are discussed and decision taken Directors responsibility to ensure efficient CEOs - great boards are those which proactively govern , help avoid the big mistakes , strategies and importantly the best leadership is in place with the resources to lead An efficient board should be able to anticipate business events that would spell success or lead to disaster Directors are required to act in the interest of the shareholders and at the same time consider the interest with the long term focus Challenges posed by decision on the acquisition Promoting overall interests of the company and its stakeholders are of paramount importance

Who is an independent director? An independent director is defined as a non- executive director who is free from any business or other relationship which could materially interfere with the exercise of his independent judgement

Desirability of having independent director The Cadbury report identifies two areas where non- executive directors can make an important contribution to the governance process as a consequence of their independence from executive responsibility Reviewing the performance of the executive management Taking the lead where potential conflicts of interest arise , fixing the CEOs salary and perquisites or dealing with board room succession

The Indian capital market regulator, the SEBI has amended the clause 49 of the listing agreements to ensure that independent director account for at least 50% of BOD of listed companies where an executive chairmen heads the board

Pay as a reward for performamnce Compensation to directors and senior executives reflect their performance and are in relation to their responsibilities and risks involved in carrying out their functions . one of the reason for this pay for performance concept of executive compensation is directly related to an increase in share price the benefits executives receive would be proportional to those of all shareholder . this would encourage executives to make decisions which will maximise shareholder wealth 4.4 Duties of Directors Duties of directors may be divided under two heads: 1. Statutory duties 2. Duties of a general nature 4. 4. 1 Statutory Duties The statutory duties are the duties and obligations imposed by the Companies Act. These have

been discussed at appropriate places. Important among the

To file return of allotments: Section 75 charges a company to file with the registrar, within a period of 30 days, a return of the allotments stating the specified particulars. Failure to file such return shall make directors liable as 'officer in default'.

Not to issue irredeemable preferences shares or shares redeemable after 10 years: Section 80, forbids a company to issue irredeemable preference shares or preference shares redeemable beyond 10 years.

To disclose interest [Ss.299-300]: A director who is interested in a transaction of the company must disclose his interest, to the Board. The disclosure must be made at the first meeting of the Board held after he has become interested. This is because a director stands in a fiduciary capacity with the company and therefore, he must not place himself in a position in which his personal interest conflicts with his duty.

To disclose receipt from transferee of property: Section 319 provides that any money received by the directors from the transferee in connection with the transfer of the company's property or undertaking must be disclosed to the members of the company and approved by the company in general meeting. Otherwise the amount shall be held by the directors in trust for the company. This money may be in the name of compensation for loss of office but in essence may be on account of transfer of control of the company. But if it is bona fide payment of damages of the breach of contract, then it is protected by s.321(3).

To disclose receipt of compensation from transferee of shares: If the loss of office results from the transfer (under certain conditions) of all of the shares of the company, its directors would not receive any compensation from the transferee unless the same has been approved by the company in general meeting before the transfer takes place (s.320). If the approval is not sought or the

proposal is not approved, any money received by the directors shall be held in trust for the shareholders who have sold their shares.

General Duties The general duties of directors are as follows: Duty of good faith: The directors must act in the best interest of the company. A director should not make any secret profits. He should also not exploit to his own use the corporate opportunities. In Cook v. Deeks (1916) AC 554, it was observed that "Men who assume complete control of a company's business must remember that they are not at liberty to sacrifice the interest which they are bound to protect and while ostensibly acting for the company, direct in their own favour business which should properly belong to the company they represent." In this case there was an offer of a contract to the company. Directors who were the holders ofshares of 3/4 of the votes resolved that the company had no interest in the contract and later entered the contract by themselves. Held, the benefit of the contract belonged in equity to the company. Duty of care: A director must display care in performance of the work assigned to him. He is, however, not expected to display an extraordinary care but that much care only which an ordinary prudent man would take in his own case Langunas Nitrate Co. v. Lagunas Nitrate Syndicate (1899) 2 Chi. 392, in the following words: "If directors act within their powers, if they act with such care as is to be reasonably expected of them having regard to their knowledge and experience and if they act honestly for the benefit of the company they discharge both their equitable as well as legal duty to the company. Section 201 states that a provision in the company's Articles or in any agreement that excludes

the liability of the directors for negligence, default, misfeasance, breach of duty or breach duty or breach of trust, is void. The company cannot even indemnify the directors against liability. But if a director has been acquitted against such charges, the company may indemnify him against costs incurred in defense. Section 633 further states that where a director may liable in respect of the negligence, default, breach of duty, misfeasance or breach of trust but he has acted honestly and reasonably and having regard to all the circumstances of the case, ought fairly to be excused, the court may relieve him either wholly or partly from his liability on such terms as it may think fit. Duty to attend board meetings: A number of powers of the company are exercised by the Board of Directors in their meetings held from time to time. Although a director is not expected attend all the meetings but if he fails to attend three consecutive meetings or all meetings period of three months, whichever is longer, without permission, his office shall automatically fall vacant. Duty not to delegate: Director being an agent is bound by maxim 'delegatus non protest delegate' which means a delegate cannot further delegate. Thus, a director must perform his functions personally. A director may, however, delegate in the following cases: (a) where permitted the Companies Act or articles of the company; (b) Having regard to the exigencies of business certain functions may be delegated to other officials of the company." Socio-Political-Legal aspects of Boards Responsibility In the more recent context, all over the world, there is a serious debate on the boards role in articulating and maintaining ethical standards. These standards are related with the other aspects of the boards responsibilities. These are not directly related to the financial well being of the company. The board is going to be increasingly judged in terms of ethical criteria. In the UK, consequent upon the Nolan Committee Report, there has been a lot of debate on formulating a code of ethics as a self governance model and the role of the board in maintaining ethical conduct in the business transactions of the company. The ethical conduct denotes the inclusion of socio-cultural and environmental responsibilities. There is one more aspect that has to be addressed by the board is the political implications. The problems of board performance in many a country

situations can be traced to the social and professional background of the project promoters, their business antecedents, cultural profile, nature and quality of information flows to the board and degree of openness and transparency in the board processes. These socio-cultural and ethical responsibilities should be taken care of as the business contribution to our sustainable development goals. Essentially it is about how business takes account of its economic, social and environmental impacts in the way it operates maximising the benefits and minimising the downsides. Specifically, these are the voluntary actions that business can take, over and above compliance with minimum legal requirements, to address both its own competitive interests and the interests of wider society. These responsibilities are the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large. If we look at these aspects , then this is the responsibility of the board to assure company s commitment to operating i n an economically, socially and environmentally sustainable manner whilst balancing the interests of diverse stakeholders. The question of social responsibilities and ethics arises in the context of India, in terms of the business practices, long history of regimes of economic controls, business culture, trading and commercial milieu, the social response to these practices, the legal and institutional framework, etc. The boards often distance themselves from the organisation and various stakeholders. The concept of social responsibility came into existence in India, but it took some time for the Indian Companies to understand their role towards society.

For example:-Tata group has helped many underprivileged in India . the board of directors is very much concerned with the reputation of their company and it is their responsibility to enhance the reputation . They often include Corporate social responsibility in their advertising and social marketing activities. Consumer, employees, affected communities and shareholders have right to know about the corporation. . To be effective,

the board must, demonstrate willingness and capacity to narrow down the artificial social distance developed over time, and interact more freely with the organisation and external environment. If they do not do this, how are they going to inspire confidence in the potential groups of would be directors in the future times.

What happens when board members dont understand their role? hen board members are unclear about their responsibilities to the organisation, they typically either become under-involved in governance or attempt to micromanage operational activities. Under-involvement: Without guidance, some board members become unenthusiastic and perform only the minimum requirements of their position. They may miss meetings or fail to participate in discussions. They may also resist engaging in fundraising activities. Micromanagement: Armed with a desire to make a difference and without an understanding of boundaries that separate board members from staff members, some board members will inject themselves into all avenues of operations. Bypassing the executive director, these board members will contact staff directly with requests. They may also seek direct involvement in project development and planning activities. Busy with operational tasks, they may neglect their fundamental board responsibilities

Microsoft Corporation Corporate Governance Guidelines ver the course of Microsofts hi story, the Board has devel oped corporate governance practices to help it fulfill its responsibilities to shareholders to oversee the work of management and the Companys business results. The governance practices are memorialised in these guidelines to assure that the Board will have the necessary authority and practices in place to review and evaluate the Companys

usiness operations as needed and to make decisions that are i ndependent of the Companys management. The guidelines are also intended to align the interests of directors and management with those of Microsofts shareholders. The guidelines are subject to future refinement or changes as the Board may find necessary or advisable for Microsoft in order to achieve these objectives. Board Composition and Selection: Independent Directors 1. Board Size: The Board believes 8 to 10 is an appropriate size based on the Companys present circumstances. The Board periodically evaluates whether a larger or smaller slate of directors would be preferable.

Selection of Board Members: All Board members are elected annually by the Companys shareholders, except as noted below with respect to vacancies. Each year at the Companys annual meeting, the Board recommends a slate of directors for election by shareholder s . The Board s r recommendations a r e based on i t s determination (using advice and information supplied by the Governance and Nominating Committee) as to the suitability of each individual, and the slate as a whole, to serve as Directors of the Company, taking into account the membership criteria discussed below. The Boards recommendations must be approved by a majority of the independent directors. The Board may fill vacancies in existing or new director positions. Such Directors elected by the Board serve only until the next election of Directors unless elected by the shareholders to a further term at that time. Board Membership Criteria: The Governance and Nominating Committee works with the Board on an annual basis to determine the appropriate characteristics, skills and experience for the Board as a whole and its individual members. In evaluating the suitability of individual Board members, the Board takes into account many factors including general understanding of marketing, finance and other

disciplines relevant to the success of a large publicly-traded company in todays business environment; understanding of Microsofts business on a technical level; and educational and professional background. The Board evaluates each individuals in the context of the Board as a whole, with the objective of recommending a group Board Composition: Mix of Management and Independent Directors. The Board believes that, except during periods of temporary vacancies, a majority of its Directors must be independent. In determining the independence of a Director, the Board will apply the definition of independent director in the listing standards of the NASDAQ Stock Market and applicable laws and regulations. Term Limits: The Board does not believe it should limit the number of terms for which an individual may serve as a Director. Directors who have served on the Board for an extended period of time are able to provide valuable insight into the operati ons and future of the Company based on thei r experi ence wi th and understanding of the Companys history, policies and objectives. The Board believes that, as an alternative to term limits, it can ensure that the Board continues to evolve and adopt new viewpoints through the evaluation and nomination process described in these guidelines. Selection of CEO and Chairman: The Board selects the Companys CEO and Chairman in the manner that it determines to be in the best interests of the Companys shareholders. Annual CEO Evaluation: The chair of the Governance and Nominating Committee leads the independent Directors in conducting a review at least annually of the performance of the CEO and communicates the results of the review to the CEO. The independent Directors establish the evaluation process and determine the specific criteria on which the performance of the CEO is evaluated.

Compensation

17. Board Compensation Review: Company management should report to the Board on an annual basis as to how the Companys Director compensation practices compare with those of other large public corporations. The Board should make changes in its Director compensation practices only upon the recommendation of the Governance and Nominating Committee, and following discussion and unanimous concurrence by the Board. 18. Director Stock Ownership: The Board believes that, in order to align the interests of directors and shareholders, directors should have a significant financial stake in the Company. Each director who has served on the Board for at least 3 years should own a minimum of 4,000 shares of common stock. The Board will evaluate whether exceptions should be made for any director on whom this requirement would impose a financial hardship.

The premise of effective corporate governance commences with questioning the effectiveness of the institution of board of directors, etc. In a recent study of corporate governance in US, there has been an evaluati on of CEO, whole board, indi vidual directors. The areas that were investigated in the study ranged from the ability of developing the annual strategic plan, shaping the organizations short-term and long-term objectives, performance of the stock price, lobbying efforts, involvement in trade associations, efforts at internal communication, leadership skills, success in managing labour relations, and succession, among others. In US, a CEO is usually evaluated on five to ten objectives, at three levels of performance (Poor, Acceptable and Outstanding). These levels become the benchmarks for different pay packages. A CEO does his/her own self-assessment and presents it to the board. The self-assessment with regard to different parameters is done in quantitative terms as he is expected to translate the various objectives into a set of personal and performance targets. A committee of the board assesses the performance of the CEO, mostly on quarterly basis, and reports are placed before the full board. A composite evaluation takes place at the end fiscal year. Shifting this discussion to the Indian scenario, one finds that the boards do not normally assess the performance of the CEO. The absence of this practice does not stimulate the CEO to have his/her own mission and vision and by extension, reaching milestones during his/her tenure with the enterprise. This, in turn, results in lack of involvement and commitment on the part of the CEO sending unhealthy signals down the line in the organizational hierarchy.

signals down the line in the organizational hierarchy. Though there have been questions against the practice of self-assessment by CEOs, have not

taken advantage of even this flexibility. This has created problems not only for the CEO but also for the rest of the staff of PE. This could be one of the reasons for the low salaries of the CEOs, managerial and non-managerial staff in their organizations. It also explains, to an extent, the lack of will of the board of directors to hold the CEO responsible for the performance of , and accounts for a reason why are seen as non-performing entities. Nominee Directors WHAT DO WE WANT FROM THE CEO?

The one certainty in business, as in life, is change. If it were possible, we all investors, lenders, communities, employees, and customers

the CEO must adopt changes by virtue of ability, expertise, resources, motivation so that company can get benefit from such changes

The CEO must be accountable to make decisions in the long term interest of the shareholders rather than his own

Shareholders want a compensation plan with maximum variability based on corporate performance, and managements natural tendency is to want a compensation plan with maximum security

All methods of evaluating a companys value and performance are useful for evaluating the CEO. But perhaps one of the clearest indications of CEO quality is the structure of the organization itself. In general, the more diversified and conglomerated the company, the more likely it is to reflect the CEOs empire-building and the less likely it is to demon- strate focus and commitment to shareholder value (see the Sears and American Express case studies). As one management consultant put it, The design trick is to be small where small is beautiful and then be big where big is beautiful. THE BIGGEST CHALLENGE If we look at the most spectacular meltdowns of the last thirty years, all were at one time almost as spectacular successes. The giants of the 1960s Xerox, Kodak, Sears, Waste Management, General Motors, and others became the problems of the 1980s and 1990s. Enron, Tyco, Global Crossing, Qwest, Adelphia, WorldCom, and others that set records in the 1990s saw their names become synonyms for corruption and mismanagement in the early years of the twenty-first century. Failure of IBM , GM , SEARS..

the failure of IBM, GM and Sears was at least partly a failure of governance. It is not surprising, for instance, that the problems at Sears developed when the same person held the jobs of CEO, chairman of the board, CEO of the largest (and worst-performing) operating division, chair- man of the nominating committee of the board, and trustee of the 25 percent of the companys stock that was held on behalf of the employees . The company had circumvented all of the systems set up to ensure that the right questions would be asked by putting the same person in all of the positions that were supposed to monitor each other. It is impossible to identify what Albert O. Hirschman calls repairable lapses13 when the same person is both making the decisions and evaluating them. How to overcome the problem? The best way is to create a structure that aligns the interests of the CEO with the long-term interests of the shareholders as much as possible. Indeed, it is just this alignment that gives managers the expertise and the credibility to do their job effectively.

Although managers are self-interested, this interest can be aligned with that of investors through automatic devices, devices that are useless when those in control are disinter- ested; hence the apparent contradiction that self-interested managers Exective compensation The compensation plan is a clear indic- ator of the companys value as an investment. It reveals what the CEOs incentives are, a shareholder should want to invest in a CEO whose compensation depends on the money the shareholder will receive. Compensation plans also reveal what the companys goals are and how confident the CEO and board are of the companys future. Shareholder initiatives on compensation have special appeal. CEOs get paid a lot for one reason because they take risks. Their compensation should provide the appropriate incentives for those risks. To the extent that a shareholder initiative can better align these incentives, it is an investment with substantial returns.

, pay and performance are closely linked Incentive compensation plans Incentive compensation plans can be divided into short term and long term plans. Short term incentive plans are based on the performance in the current year Long term plans tie compensation to longer term accomplishments and are related to the price of the companys common stock Long term incentive plans

A basic premise of many long term incentive plans is that growth in the value of the company,s common stock reflects the companys long run performance Stock options A stock option is a right to buy a number of shares of stock at, or after , a given date in the future (exercise date ) , at a price agreed upon at the time the option is granted . the major motivational benefit of the stock option plan is that they direct managers energy towards the long term , as well as the short term , performance of the company

To align the interest of the managers with those of the shareholders , ibm announced a new stock option plan for its top 5000 exectives in 2004.

Howard Schultz , the ceo of Starbucks provided stock optionsto every employee and therefore it has lowest turnover of food and beverage company

Howard Schultz (ceo , starbucks),Enterpreneur, November 2003

STOCK OPTIONS

Stock options, of course, are supposed to be the ultimate example of compensation for performance. The company gives the option recipient the right to purchase a block of the companys stock at some specified point in the future at a strike price set at the time of award, often the current trading price. So if the stock rises between the time of award and the time the option is

exercised, the executive will get the benefit of the gain, with- out having had to make the capital expenditure to buy the stock. (For information about the controversy on valuing and expensing stock options, see the discussion in chapter 1.) Phantom shares A phantom stock plan awards the mangers a number of shares for bookkeeping purpose only . at the end of the specified period the executive is entitled to receive an award equal to the appreciation in the market value of stock Stock appreciation A stock appreciation is the right to receive cash payment based on the increase in the stocks value from the type of award until a specified future date Incentive for corporate performance Every corporate officer is responsible in part for the companys overall performance . to stimulate motivation , the chief executive officer usually bases awards on an assessment of each persons performance . some companies use management by objectives in which specific objectives are agreed upon at the beginning of the year and their attainment is assessed by the chief executive officer

CEO COMPENSATION ARE THE CEO PAID TOO MUCH ? Several proposals have been made to ensure that the board of directors act in the interest of the shareholders and does not work at the mercy of the CEO Prevent directors from selling their stock for the duration of their term to encourage them to ask tough questions of CEOs without the fear of adversely impacting short term stock prices Set mandatory limits on the tenure of directors to avoid their becoming too entrenched with management Hold an annual performance review of directors Avoid having the ceo of the corporation act as a chairmen of the board The CEO of the cardinal health was required to hold shares of the company equalling five times his annual salary . in the case of coca cola , its CEO would lose all his shares if he was not with the company for five years