23 May 2013

Round table discussion on Corporate Governance and the Companies Act

Thina Siwendu, a director specialising in Corporate Governance at Cliffe Dekker Hofmeyr, held the first of a series of Round Table discussions on corporate governance and the Companies Act recently.

Attended by various committee chairmen and company secretaries representing Woolworths, Vodacom, Zurich Insurance, GlaxoSmithKline and Mediclinic, it kicked off with a discussion of the challenges companies faced in defining the structure, scope and effective functioning of the Social and Ethics Committee. It was noted that for today’s company, effective oversight of non- financial aspects is the bedrock of a company’s sustainability and value creation process. 

The  panel discussed  the comparative developments and challenges around the Social and Ethics Committee in various companies, using the Altron Group as a case study.  The opening address was delivered by Andrew Johnston, Group Company Secretary, Altron Group and the honoured guest was Dr Achieng Ojwang, United Nations Global Compact (UNGC) Local Advisory Network, who noted that for the UNGC, creating the right benchmarks for the application of the UN Global Principles was critical.

The Committee was dubbed as “still an orphan in the suite of board committees”, caused by what seems to be drafting errors and contradictions in the provisions of section 72, read with regulation 43 to the Companies Act. It was noted during the discussion that the extent  of the decision making authority of the Committee, as well as the extent to which the Committee assumed a strategic role as opposed to operational role, depended on the  direction company boards were willing to give to the Committee, having regard to the provisions of section 66 (1) read with 15 (2) of the Act.

Andrew Johnston noted that for the Altron Group board, the desire to send out a, “strong governance and ethical tone from the top”, as well as the relationship between the mandate of the Committee and  business risks, meant that the board “carefully selected members” who could contribute to the diversity of issues covered under the mandate.  The Committee appointment was ratified by shareholders at a subsequent AGM. It functions under the leadership of an independent chairman, who also serves as an ex officio member of the risk committee.

The difficulties posed by the “broad sweep of issues” covered by the mandate of the Committee as well as the overlapping regulatory areas were noted. It was noted that companies tend to react to the regulatory and compliance requirements without locating these in the context of the business of each company.

This business context is provided by the business model of a company and its related environment. As this is “no one size fits all”, it was noted that to render the Committee effective companies needed  an oversight framework which jointly addressed  the business and legal review of the matters.

The dispute involving the Democratic Alliance v MTN was raised as a warning of  potential risks involved. A company  could be  legally challenged  to disclose corporate information in terms of the Promotion of Access to Information Act by stakeholders broader than its direct  stakeholders.

Thina Siwendu noted that companies and practitioners are yet to appreciate the full implications of Section 7(a) of the Companies Act. This section provides for the application of the Bill of Rights in the Constitution to Company Law.

“Soon, the direct narrow legal rights as a basis for adjudicating company law disputes will close. Interest and impact of corporate decisions and behaviour is going to play a stronger role, thus entrenching the ever-increasing importance of good corporate governance,” she added.

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