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CORPORATEGOVERNANCE CC

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INTRODUCTION

The influence centres for our Corporate Governance are the Companies Act and thevoluntary King Reports

The Board of a company has to:• Lead management• Encourage enterprise• Keep business relevant to the society around us

As Sir Adrian Cadbury said in “ CorporateGovernance Overview 1999: World Bank Report”:“Corporate Governance is concerned with buildingthe balance between:• economic and social goals and• between individual and communal goals”

Companies Act 2008

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Directorate Matters

INTRODUCTION

The aim is to align as nearly as possible the interests of:

• individuals• corporations and• society

The Companies Act which will become effectivein 2010 highlights the importance of the Board inguiding, leading and controlling companies

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Directorate MattersCompanies Act 2008

1 STANDARDS OF DIRECTOR’S CONDUCTDirectors are required: not to use their position or information obtained:

• for their own interest• for the advantage of another person

Directors are required to act:• in good faith• in the best interests of the company• with a degree of care, skill and diligence

Directors are entitled to rely on informationprovided by:• employees of the company• legal council• accountants• other professional persons• Committees of the Board

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BOARD MEETINGS A Board Meeting is obligatory if called for by:

• In the case of a board with 12, or in excess of12 directors: 25% of the Directors• otherwise: 2 Directors

Board meetings may be held with certain, or allthe directors using electronic communication.

If there is a tie in voting and the Chairperson has not previously voted, then the Chairperson maycast a deciding vote. In all other instances, the motion is not carried.

Minutes of meetings are required Resolutions:

• should be dated and numbered sequentially;• are effective, with immediate effect.

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DECLARING A DIRECTOR TO BE DELINQUENTOR UNDER PROBATIONA Court may declare any Director to be delinquentor under probation, after considering an application

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ROUND ROBIN RESOLUTIONS:DIRECTORS ACTING OTHER THAN AT A MEETINGRound Robin resolutions will require written consentby a majority of directors. (Note: the 1973 Act referredto all directors)

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Companies Act 2008

BOARD COMMITTEESNon-directorsBoard Committees may appoint non-directors to a Committee. Such persons shall not have a vote.Note: It is clear from sections 69, 72, 75 and 78 thatthe non-voting person in question does not have a vote (S72). The definition of “director”, in section 69(1),75(1), 77 and 78(1), however, includes a member of a Committee of the Board, or of the Audit Committeefor purposes of those sections which deal withqualification/eligibility, “directors personal financialinterests”, “liability of directors and prescribedofficers” and “ indemnification and director’sinsurance”.

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DIRECTORS INTERESTS IN CONTRACTS

When the only director of a company does nothold all the securities, he/she may only enter into a contract in which he/she or a relatedperson has a personal financial interest, after obtaining an ordinary resolution of shareholders.

A director may disclose their financial interests,to be used until changed or withdrawn. (Note:the 1973 Act provides that a general declarationof interest will only apply until the end of the current financial year).

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DIRECTORS INTERESTS IN CONTRACTS

A director is required to disclose their personalfinancial interest and/or that of an associated person:• before it is considered by a meeting of the Board and recuse themselves by leaving the meeting, without taking part in the discussion.(Note: The 1973 act does not require thedirector to recuse him/herself).

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REMOVAL OF DIRECTORS

A director may be removed by an ordinary resolution at a shareholders meeting

The director must be given the same noticeof the resolution as shareholders

The director should be allowed to make representations to the shareholders meeting,either in person or through a representative.

The Board may remove a director:• whom it has determined is ineligible,disqualified, incapacitated, negligent orguilty of dereliction of duty; or• who has, as the sole South African resident director, become non-resident

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LIABILITY OF DIRECTORS AND PRESCRIBED OFFICERSA director, prescribed officer and a member of aBoard Committee is liable: for a breach of fiduciary duty; for losses, damages or cost resulting from:

• acting without the necessary authority;• agreeing to the company carrying on businessin a situation in which it is insolvent, reckless,grossly negligent or acting fraudulently;

for signing or consenting to the publication ofAnnual Financial Statements or a Prospectus,which contains an untrue statement;

For knowingly consenting to the issue of shares, which had not been authorised;

for granting unauthorised options;

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LIABILITY OF DIRECTORS AND PRESCRIBED OFFICERS for agreeing to the granting of financial

assistance to directors or other parties, whennot in accordance with requirements;

for knowingly failing to vote against a sharepurchase which did not accord with thelegislative requirements;

A director will only be liable for failing to vote againsta distribution if, immediately after so voting, the company failed to satisfy the solvency and liquidity tests and this was reasonably predictable.Liability is joint and several with other parties foundliable for the act.Action to recover loss, damages or costs may notcommence more than 3 years after the act oromission.An application may be submitted to a Court for relief

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DIRECTORS APPOINTED TO FILL A CASUAL VACANCY:APPOINTED ON A TEMPORARY BASIS

The Board may appoint a director on a temporarybasis

The appointment falls away when the shareholders appoint a director to fill the vacancy


EXECUTIVE DIRECTORS: EX-OFFICIO

An “ex-officio” executive director: Has all the powers and duties of any other

directorand

Will cease to hold office as a director whenhis/her employment falls away

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Companies Act 2008

DIRECTORS REMUNERATION

Directors remuneration: To be approved in advance: at AGM

and Passed as a special resolution which requires:

• A quorum of 25% of shareholders• Acceptance of the motion by 75% of thosepresent• Registration with CIPRO


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Companies Act 2008

CONCLUSION

1) The need for independent non-executive directorshas been made evident, with particular relevanceto the Board Committees

2) We will need more professional directors, whoare independent

3) The profession of being a director should becomeestablished

4) The Act provides that shareholders shall appointthe Audit Committee. This contrasts against thecurrent status of the Audit Committee being a Board Committee, which is appointed by the Board

Directorate Matters

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Companies Act 2008

CONCLUSION

5) In summary: A company is an abstract It has no mind or body of its own Companies need a group of highly principled

persons• Who for some purpose are its agent• But who are really the directing mind and

will of the company• Are ultimately answerable to shareholders

During their period of office it can make moneyand spend it

They assume responsibility as the highest level of the companies management

Directorate Matters

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Companies Act 2008

CONCLUSION

5) In summary: Directors act for others and are therefore:

• Subject to audit• Supervised by legislation such as the

Companies Act• Voluntarily accept the discipline of codes

such as the King Reports6) In short – Directors are the trustees of shareholders

Directorate Matters

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Companies Act 2008

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