c corporate governance cc g web:

CCORPORATEGOVERNANCE CC

Gweb: www.corporategovernance.co.za

INTRODUCTIONINTRODUCTION

The influence centres for our Corporate Governance are the Companies Act and the voluntary 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 “ Corporate Governance Overview 1999: World Bank Report”:

“Corporate Governance is concerned with building the balance between:• economic and social goals and• between individual and communal goals”

Companies Act 2008 Companies Act 2008

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Directorate MattersDirectorate Matters

INTRODUCTIONINTRODUCTION

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

• individuals• corporations and• society

The Companies Act which will become effective in 2010 highlights the importance of the Board in guiding, leading and controlling companies

CGCORPORATE

GOVERNANCE CC

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Directorate MattersDirectorate Matters Companies Act 2008 Companies Act 2008

1 STANDARDS OF DIRECTOR’S CONDUCTSTANDARDS OF DIRECTOR’S CONDUCT

Directors 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 information provided by:

• employees of the company• legal council• accountants• other professional persons• Committees of the Board

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CGCORPORATEGOVERNANCE CC


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

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

Board meetings may be held with certain, or all the directors using electronic communication. If there is a tie in voting and the Chairperson has not previously voted, then the Chairperson may cast 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 DELINQUENTDECLARING A DIRECTOR TO BE DELINQUENTOR UNDER PROBATIONOR UNDER PROBATION

A Court may declare any Director to be delinquentor under probation, after considering an application

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ROUND ROBIN RESOLUTIONS:ROUND ROBIN RESOLUTIONS:DIRECTORS ACTING OTHER THAN AT A MEETINGDIRECTORS ACTING OTHER THAN AT A MEETING

Round Robin resolutions will require written consentby a majority of directors. (Note: the 1973 Act referredto all directors)


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BOARD COMMITTEESBOARD COMMITTEES

Non-directorsNon-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 CONTRACTSDIRECTORS INTERESTS IN CONTRACTS

When the only director of a company does not hold all the securities, he/she may only enter into a contract in which he/she or a related person 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 declaration of interest will only apply until the end of the current financial year).

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DIRECTORS INTERESTS IN CONTRACTSDIRECTORS INTERESTS IN CONTRACTS

A director is required to disclose their personal financial 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 the director to recuse him/herself).

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REMOVAL OF DIRECTORSREMOVAL OF DIRECTORS

A director may be removed by an ordinary resolution at a shareholders meeting The director must be given the same notice of 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 or guilty 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 OFFICERSLIABILITY OF DIRECTORS AND PRESCRIBED OFFICERS

A 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 business in a situation in which it is insolvent, reckless, grossly negligent or acting fraudulently;

for signing or consenting to the publication of Annual 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 OFFICERSLIABILITY OF DIRECTORS AND PRESCRIBED OFFICERS for agreeing to the granting of financial assistance to directors or other parties, when not in accordance with requirements; for knowingly failing to vote against a share purchase which did not accord with the legislative 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:DIRECTORS APPOINTED TO FILL A CASUAL VACANCY:APPOINTED ON A TEMPORARY BASISAPPOINTED ON A TEMPORARY BASIS

The Board may appoint a director on a temporary basis The appointment falls away when the shareholders appoint a director to fill the vacancy

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EXECUTIVE DIRECTORS: EX-OFFICIOEXECUTIVE DIRECTORS: EX-OFFICIO

An “ex-officio” executive director: Has all the powers and duties of any other director and Will cease to hold office as a director when his/her employment falls away

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DIRECTORS REMUNERATIONDIRECTORS 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 those present• Registration with CIPRO

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CONCLUSIONCONCLUSION

1) The need for independent non-executive directors has been made evident, with particular relevance to the Board Committees2) We will need more professional directors, who are independent3) The profession of being a director should become established4) The Act provides that shareholders shall appoint the Audit Committee. This contrasts against the current status of the Audit Committee being a Board Committee, which is appointed by the Board





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 money and spend it They assume responsibility as the highest level of the companies management





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 Reports

6) In short – Directors are the trustees of shareholders




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