The section 4 presumption and the risk of facilitating collusion

These conditions respond to a specific statutory risk. Section 4(2) of the Competition Act 89 of 1998 (Competition Act) provides that an agreement to engage in a prohibited horizontal practice (price fixing, market division or collusive tendering) is presumed to exist between two or more firms if they have “at least one director or substantial shareholder in common” and any combination of those firms engages in that practice. The presumption is rebuttable only on proof that the conduct was “a normal commercial response to conditions prevailing in that market”.

While the practical interpretation of this provision is not entirely settled, it has been pleaded by the Competition Commission (Commission) in collusion cases. A director who sits on the boards of two competing firms therefore creates a structural conduit through which competitively sensitive information, on pricing, product development, capacity or strategy could flow, whether intentionally or inadvertently.

This conduit may facilitate co-ordination and exposes both firms to the section 4(2) presumption, with attendant risk of administrative penalties of up to 10% of annual turnover and criminal liability for individuals under section 73A of the Competition Act.

Recent merger conditions restricting directors’ involvement in competing businesses

In recent mergers, the Commission and Competition Tribunal have imposed conditions including: (i) nominee directors may not serve on boards or executive committees of competing firms, or be involved in day-to-day management of competing activities; (ii) nominee directors must sign confidentiality undertakings prohibiting the exchange of competitively sensitive information; and (iii) nominees may not have served on a competing firm’s board or had operational involvement within a period of time.

Fiduciary duties and the case for recusal or resignation

Under section 75 of the Companies Act 71 of 2008 (Companies Act), a director with a personal financial interest in a matter before the board, or whose related person has such an interest, must disclose that interest and recuse themselves from the deliberations and vote. A “personal financial interest” must be a direct, material interest of a financial or monetary nature with an attributable value.

Where a director simultaneously serves on the boards of competing firms, board discussions touching on competitive strategy may trigger such a conflict, depending on the facts. It is not a given that every competitively sensitive decision will have a direct, material financial impact on the competitor. Section 76 of the Companies Act further requires a director to exercise powers and perform functions in good faith, for a proper purpose, in the best interests of the company, and with the degree of care, skill and diligence reasonably expected.

If the director’s role in each company is substantive, such that their conflict of interest is pervasive and unmanageable, it is possible that the only available course, to avoid a breach of the common law duty to avoid conflicts of interest, is resignation from one of the boards. No South African company law case has yet gone that far, but courts in other jurisdictions have suggested that resignation might, on a given set of facts, be legally required. Where the director’s functions are limited to non-executive oversight, common directorships among competitor firms are generally permissible, with conflicts managed on a case-by-case basis.

The restriction of information flow to a director, as imposed pursuant to competition law conditions, raises questions around impeding a director from fulfilling their fiduciary duties. Can a director truly discharge all fiduciary obligations without access to all relevant information? This remains untested from a company law perspective, but the prevailing view is that such restrictions should not be problematic. The exact contours and extent of a director’s fiduciary duties, and their common law right of access to company information are informed and qualified by that director’s particular role and area of responsibility within a company (Pillay v Stokes and Others (2022/22021) [2025] ZAGPJHC 733; Oxford Legal Group Ltd v Sibbasbridge Services Plc [2008] EWCA Civ 387). Furthermore, where a regulator has imposed restrictions by law, this is a relevant factor in assessing a director’s duties. Therefore, careful consideration of the risks will be required.

Practical implications

Boards and shareholders should carefully assess whether common directorships across competing businesses create unacceptable competition risk, and should do so before, rather than during, a Commission investigation. Where a director’s role in both entities is substantive and operational, particularly in pricing, product development or commercial strategy, that director may create significant Competition Act risks for the firms concerned. The question arises whether the director can discharge fiduciary obligations to both companies if such conduct facilitates or triggers the presumption in section 4(2).

In cases where directors retain their seats on both boards, the prudent course is likely to involve a combination of structural and behavioural safeguards, such as:

• recusal from competitively sensitive decisions;
• confidentiality undertakings;
• implementation of an information exchange framework along the lines now being required by the Competition Tribunal; and
• where the conflict is irreducible, resignation from one or both boards may be required.