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AN OUTLINE OF

DIRECTORS’
RESPONSIBILITIES
JANUARY 2003

Endorsed by the
INDEX
Introduction ................................................................................................................................ 2
The changing role of the director.................................................................................................. 2
Executive directors........................................................................................................................ 3
Non-executive directors ................................................................................................................ 3
Independent directors ................................................................................................................... 4
Alternate directors ........................................................................................................................ 4
Nominee directors ........................................................................................................................ 5
Chief executive officer (CEO)/managing director status ................................................................ 5
The Board..................................................................................................................................... 5
Board committees ......................................................................................................................... 6
Disqualification from becoming a director.................................................................................... 6
Formalities on becoming a director............................................................................................... 7
Company stationery ...................................................................................................................... 7
Holding more than one directorship ............................................................................................. 7
Termination of directorship .......................................................................................................... 7
Advice to new directors ................................................................................................................ 7
Number of directors ..................................................................................................................... 8
List of company statute books....................................................................................................... 8
Guidelines for duties of directors .................................................................................................. 8
Duties of care and skill ................................................................................................................. 9
Financial responsibilities............................................................................................................... 10
Taxation........................................................................................................................................ 10
General ......................................................................................................................................... 10
Trading in company shares ........................................................................................................... 10
Material interest in contracts ........................................................................................................ 11
Liabilities of directors under common law and statute .................................................................. 11
Statutory provisions ...................................................................................................................... 11
Protection of directors................................................................................................................... 11
Liability against claims by members/shareholders ......................................................................... 12
Liability against claims by creditors.............................................................................................. 12
Other statutory obligations........................................................................................................... 12
Remuneration of directors ............................................................................................................ 12
Companies Act Requirements (S297)............................................................................................ 13
Loans to directors.......................................................................................................................... 13
Shares ........................................................................................................................................... 14
Contracts ...................................................................................................................................... 14
Bank overdrafts/Personal guarantees ............................................................................................. 15
Signing powers ............................................................................................................................. 15
Board meeting procedures ............................................................................................................ 15
Shareowners meetings ................................................................................................................... 16
Annual general meeting (AGM) ................................................................................................... 16
General meetings.......................................................................................................................... 16
Dividends ..................................................................................................................................... 17
Financial statements and accounting records................................................................................. 17
The internal auditor and audit committees ................................................................................... 18
Listing requirements of the JSE .................................................................................................... 19
Dissention by a director................................................................................................................ 19
Removal of a director.................................................................................................................... 20
Takeovers and mergers .................................................................................................................. 20
The failing company ..................................................................................................................... 20
Penalties and liabilities ................................................................................................................. 21
Useful contact details.................................................................................................................... 22
Annexure A – Additional disclosure in respect of directors’ emoluments .................................... 24
Annexure B – Corporate Governance – King II Report – compliance assessment ....................... 26

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INTRODUCTION

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This publication has been prepared specifically for newly appointed directors, to provide basic knowledge ofS ER
their responsibilities.
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It should also prove useful for long-standing directors, as the responsibilities of directors have become a lot

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more onerous and the legalities – and expectations from stakeholders – in this regard are being changed on an
on-going basis.

While Fisher Hoffman PKF has taken care in the research of this guide, we cannot accept responsibility for any
inaccuracies, especially in the light of the changes mentioned above.

Furthermore, this guide covers only the more important provisions of the various Acts and reports that are
relevant to the subject. It is not intended to be a substitute for competent opinion relating to specific sections
of these Acts and serves only as a broad overview.

This booklet should be used as a guide only and professional advice should be sought before making major decisions.

January 2003.
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THE CHANGING ROLE OF THE DIRECTOR HE
The potential risks of holding the office of a director are numerous and the responsibilities onerous. It is no
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longer a title and position with prestige, extra income and few duties. Today’s director faces daunting duties,
responsibilities, powers and potential liabilities. Some of these include:

• socio-political changes

• new legislation changes

• the JSE Securities Exchange SA (JSE) Rules and Listing requirements

• King Report on Corporate Governance for South Africa – 2002 (King II Report) Code of Corporate
Practices and Conduct, as well as

• South Africa becoming part of the global economy

They are all factors which impact on the role of the director. An added burden are rapid developments in
the IT industry which have accelerated the pace and the emergence of international competitors in both
local and global markets.

A proactive contribution to a company’s needs by directors must be matched by a return to shareowners, and
recognising the interests of stakeholders. At the same time, directors face the challenges of competitive
international markets, new trends and economic pressures. This would require expertise in:

• labour relations

• equity involvement

• occupational health and safety

• environmental controls, and

• foreign exchange volatilities.

On the financial side, there has been an increase in the volume and complexity of legislation and the way that
this impacts on companies. Tax ramifications, stamp duty and VAT, secondary tax on companies, transfer duty
and newly introduced Capital Gains Tax and Residence Based Tax requirements – non-compliance in certain

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circumstances carries with it criminal penalties for companies and their directors. Directors can be held
personally liable for losses incurred and it is vital that the sections in this booklet on such matters are studied
carefully and the implications understood.

In recent months, large corporate failures and the uncovering of major incidents of fraud have brought about
increased pressure for accountability by directors and the lawmakers to introduce legislation to protect the
rights of investors, creditors, employees and consumers.

Greater responsibilities placed on directors have resulted in changes in management style. Directors on a board
are in a position of trust and have a fiduciary duty to ensure that every facet of the business of the company is
in order and to act in its best interests (see Page 7). This requires supplying or receiving information promptly,
viewing it critically, fostering good relations with fellow board members yet also taking a strong stand on
occasions. The structure and procedures of the board must be clearly defined and advice in this regard has
therefore been included in this booklet.

"The law does not recognise the distinction between executive and non-executive directors. Every director has a legal
duty to act independently, in good faith, with due care and skill, and without fetter or instruction”. From a corporate
governance perspective directors are categorised as follows: executive, non-executive and independent non-executive.
(King II Report)

EXECUTIVE DIRECTORS

An executive director is a person in the full-time employment of a company, who supervises and manages a
company and its business and who has been legally appointed as a director.

A person who accepts the appointment must, in terms of the Companies Act, complete, sign and lodge a
prescribed form (Form CM 27) with the Registrar of Companies, within 28 days of his/her appointment.

The period for which the person is appointed is laid down in the Articles of Association of the company and if
a period of time is specified, the director is obliged to retire when the period expires, although the articles
usually provide for re-election.

If no time span is specified, the tenure can last for an indefinite period and during that time, the director can
resign or can be removed from office by the members, in accordance with procedures laid down in the
Companies Act.

Otherwise, the period of service can be laid down in a service contract and the appointment comes to an end
at an agreed time.

NON-E XECUTIVE DIRECTORS

The distinction between an executive director and a non-executive director can be found in the degree of
involvement in the everyday management of the company, with non-executive directors having little or no
involvement in the daily management of the company. Their role is to provide strategic input and support to
the executive team, help to guide it in its policies and decision making and to add value in the form of an
independent and balanced perspective.

The duties of a non-executive director include are no less onerous than those of an executive director.

The contribution that non-executive directors make to Audit and Remuneration Committees is
particularly valuable.

The same legal responsibilities apply to non-executive directors as to executive directors. There is no legal
distinction between executive and non-executive directors.

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INDEPENDENT DIRECTORS

The third category applies to independent directors. As this is a new definition, the full section on independent
directors is quoted below from King II Report.

An independent director is a non-executive director who:

• is not a representative of a shareholder who has the ability to control or significantly influence
management;

• has not been employed by the company, or the group, of which it currently forms part, in any executive
capacity for the preceding three years;

• is not a member of the immediate family of an individual who is, or has been in any of the past three
financial years, employed by the company or the group in an executive capacity;

• is not a professional advisor to the company or the group, other than in a director capacity;

• is not a significant supplier to, or customer of the company or group;

• has no significant contractual relationship with the company or group; and

• is free from any business or other relationship that could be seen to materially interfere with the
individual’s capacity to act in an independent manner.

The board of a company should ensure that there is an appropriate balance of power and authority on the board.
In this way, no individual or block of individuals can dominate a board’s decision making.

Companies should categorise their directors in the annual report according to the above criteria.

ALTERNATE DIRECTORS

Public company
Any director of a public company has the power to nominate (and to remove) a person as an alternate director
for approval by the Board (unless the company is a wholly owned subsidiary).

Private company
Any director of a private company also has the power to nominate (and to remove) a person as an alternate
director, provided the articles allow such appointment, whether or not that person is a shareowner. If the
nominee is not already a director, the board must approve the appointment by resolution.

The tenure of the alternate director is dependent upon the nominator remaining a director; should they cease
to be a director, the tenure of the alternate director ceases automatically.

An alternate director is regarded in law as a full director of the company and therefore the position carries the
same responsibilities.

As in the case of a director, an alternate director must complete a Form CM 27 and the Registrar should be advised
(Form CM 29) about the change of director, which will be recorded in the contents of the register of directors.

Details of the alternate director must be included in the company’s annual financial statements and stationery,
together with details of any remuneration, which must be recorded under directors’ emoluments in those
financial statements.

In the absence of the nominating director, the alternate director has the same powers and rights as the director
he is representing but acts independently.

The alternate director may only attend and vote at board meetings when the nominator director is not present.

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NOMINEE DIRECTORS

Nominee directors are those appointed to a board of a company following a request of a shareowner or a party
outside the company.

Circumstances for such an appointment are when a joint venture is entered into by two companies and the
articles of the joint venture company make provision for such an appointment.

The powers and responsibilities of nominee directors are the same as for other directors and all the formalities
for their appointment must be complied with.

CHIEF EXECUTIVE OFFICER (CEO)/MANAGING DIRECTOR STATUS

A CEO/managing director must be formally appointed by the board, the appointment noted in the board
minutes and the powers vested in the appointee must be delegated as specified in the articles of the company.
The CEO’s task is to run the business and implement policies and strategies adopted by the board. Generally
speaking, the CEO/managing director is presumed to have the power, inter alia, to enter into any contracts on
the company’s behalf and to be in charge of the company as a whole and responsible to the board of directors.
The board is responsible for overseeing the succession process.

THE BOARD

A board should comprise executive and non-executive directors. It is preferable for the majority to be non-
executive/independent directors who can provide protection for shareholders’ interests, including minorities.

– The board retains full and effective control over the company and is responsible for monitoring
management to ensure that board plans are implemented and strategic direction given to the company.

– Delegation of authority to any committee or individual does not absolve the board from its ultimate
responsibilities for the affairs of the company.

– Should it be required, directors should be able to seek independent professional advice, at the
company’s expense.

– The board is responsible for

• identifying risk areas and performance indicators

• monitoring and assessing non-financial matters pertaining to the company

• developing a corporate code of conduct which addresses conflicts of interest, particularly relating
to directors and management

– The board should seek to perform in an innovative and entrepreneurial way while simultaneously
conforming to corporate governance constraints.

The Chairperson of the board


The Chairperson of the board is responsible for the effective functioning of the board.

The Chairperson’s primary functions are

– to preside over meetings of directors and ensure the smooth functioning of the board

– to participate in the selection of board members

– to monitor and evaluate board, board committees and directors’ appraisals

– to formulate an annual work plan for the board

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– to act as the main link between the board and management
– to maintain relations with the company’s shareowners.
There should be a clear distinction between the roles of chairperson and that of CEO. However, where these
roles are combined, there should be an independent non-executive director serving as deputy chairperson and
a strong element of non-executive directors on the board.
The Company Secretary
In accordance with section 268A of the Companies Act, the appointment of a company secretary in a public
company is mandatory.
– The board is responsible for the appointment and removal of the company secretary and should ensure
that the company secretary is given the powers to perform relevant duties effectively.
– The company secretary must guide the board in respect of its duties and responsibilities, must keep
up to date with all new and pending legislation and regulations which relate to the operation of the
company.
– The company secretary should assist both the chairperson and CEO in drawing up the annual board
plan and should give guidance in all matters of ethics and good governance.
– It is important that the company secretary becomes involved in the induction of new directors.
– Regular evaluation of the effectiveness of the company secretary is recommended.

BOARD COMMITTEES
Board committees should be established to assist the board by giving attention to specific areas which fall
under the jurisdiction of the board.
– All boards should appoint at least an Audit and Remuneration Committee – others are discretionary.
– The board of directors is solely responsible for the actions and decisions of these committees.
– It is recommended that all board committees should be chaired by an independent non-executive
director, other than when performing a management function.
– The board should give a mandate to board committees to seek independent professional advice when
required, at the company’s expense.
– The composition of committees, in particular the audit, remuneration and nomination committees,
should be detailed in the annual report, outlining the committees’ responsibilities, the number of
meetings held, attendance and other details relevant to shareowners.
– These committees should be evaluated on a regular basis by the board, to ensure that their duties and
responsibilities are being carried out effectively.
– A Nomination Committee should be appointed to assess and review the board, the committees and
individual directors, to monitor their effectiveness and evaluate their performances. This should be
done on an annual basis.

DISQUALIFICATION FROM BECOMING A DIRECTOR


The Companies Act does not prescribe specific qualifications for a person to become a director, but does outline
the following disqualifying factors for being appointed as a director:
• No person under the age of 21 (except those declared by a Court to be majors);
• No persons under legal disability or who have been disqualified by an order of Court;
• No unrehabilitated insolvents;
• No one who has been removed from an office of trust because of misconduct;
• Those who have been sentenced to imprisonment or to fines exceeding R100, having been convicted
anywhere in the world for theft, fraud, forgery, uttering, perjury or corruption, or for

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• Any offence involving dishonesty, or
• Any offence in connection with the formation or management of a company.

FORMALITIES ON BECOMING A DIRECTOR


There are a number of formalities which must be carried out on being appointed a director.
Details of directors must be filled in on a Form CM 27 (as mentioned on page 3), stating
– full name and home address
– business occupation

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– nationality

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– identity number
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– date of appointment
– particulars of other directorships held.
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To indicate acceptance of the directorship, the form must be signed. The form is kept at the registered office
of the company. Late submission of this form carries penalties.
Any changes in the above-mentioned list of particulars must be sent to the Registrar of Companies on a Form
CM 29. This is normally attended to by the company secretary.
The company must also keep its own Register of Directors and Officers with the same details recorded.

COMPANY STATIONERY
All company stationery, circulars, catalogues etc must contain the names (or initials) and surname of each
director and must state the nationality of foreign directors.

HOLDING MORE THAN ONE DIRECTORSHIP


A businessperson may hold as many directorships as he/she wishes, subject to them having sufficient time
available to fully carry out their duties to each company. The responsibilities of an executive director are more
demanding than those of a non-executive director, as the executive director is involved in the day to day
management or running of the business.

TERMINATION OF DIRECTORSHIP
A director will cease to hold office if he/she
• is prohibited by law and, in particular, the Companies Act, from being a director
• holds a salaried office in the company, other than that of managing director or manager, without the
consent of the company in general meeting
• is absent from board meetings without the other directors’ permission for more than a predetermined
period
• is directly or indirectly interested in any contract or proposed contract with the company without
declaring such interest, or
• if he/she resigns by notice.

ADVICE TO NEW DIRECTORS


Promotion
If a senior manager is offered a directorship of the company, it is likely that he/she will already have extensive
knowledge of how the company is run. It would be advisable to ask for a written brief of what the new
appointment will entail and to ask for a copy of the company’s memorandum and articles of association as well
as the latest audited financial statements and other pertinent information.

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Outside appointment
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Experience gleaned in one company may not always be appropriate for another company, so it is vital that
persons who have been offered a directorship to a new company, should be selective and undertake some serious
research about the company before accepting.

There are numerous sources available, such as the Registrar of Companies, the Stock Exchange Official Year
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Book, financial press libraries, the Internet, etc.

In addition, the appointee should request information mentioned in the above paragraph, as well as the
opportunity to examine major contracts and the minutes for the last year. The appointee should check for
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conflict of interests, do research on prospective fellow directors and the board committees and assess whether
the company culture and ethics accord with his/her own. If it is relevant, the requirements for a listing on the
JSE should also be studied.

The terms of the service contract and what the company expects the director to do for the remuneration offered,
should be clarified.
Other research which it would be advisable to carry out includes:
• investigating the qualifications and reputations of prospective fellow directors
• checking the balance on the board of executive and non-executive directors and also noting whether
the chairperson and Chief Executive Officer positions are held by different incumbents
• establishing whether board committees such as audit, remuneration, nomination etc exist and whether
they are running effectively
• studying the JSE listing requirements, if applicable.

NUMBER OF DIRECTORS

A public company must have at least two directors, whilst private companies are required to have at least one.

LIST OF COMPANY STATUTE BOOKS

The following company statute books must be kept by law and be available for inspection:
• Register of members
• Register of debenture holders
• Register of directors and officers
• Register of interests of directors and officers in contracts
• Minute books of proceedings at directors’ and shareowners’ meetings.
• Fixed Assets Register

GUIDELINES FOR DUTIES OF DIRECTORS

According to the King II Report, the primary duty of a board of directors is to act honestly and in the best
interests of the company.
Primarily, a director is a ‘fiduciary’ in relation to the company, the dictionary definition of which is a trustee,
a person who is ‘legally responsible for what belongs to another’.
Some duties of directors are founded in common law and others arise from the Companies Act, other legislation
and regulations. Other duties are contained in the company’s articles of association.
The law imposes three main duties upon directors to their company.

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• The first is a duty of care and skill to the company and is concerned with the care, diligence and skill
which a company director is required to exercise.
• The second duty is one of a fiduciary responsibility which is to act bona fide in the interests of the
company.
• Thirdly, a director has a duty to act only within the powers conferred on him/her as a director.
Directors, whether individually or collectively, are responsible to shareowners.
The King II Report sets out the latest guidelines for directors in respect of their duties and obligations. These
are summarised as follows:
– Directors must exercise the utmost good faith, honesty and integrity in all their dealings with or on
behalf of the company.
– Directors should ensure that they have the time to devote to carry out their duties and responsibilities
to the company properly.

DUTIES OF CARE AND SKILL


Directors must exercise the care and skill which can reasonably be expected of a person of their expertise.
Directors must always act in the best interests of the company and not for any self-interest.
Directors have a duty to act within their prescribed powers.
Directors must not permit a conflict of duties or interests.
Directors must disclose potential conflicts of interest at the earliest opportunity.
Directors must act independently of any outside restraint or instruction.
Directors must act with enterprise and always strive to increase shareowner value while having regard for the
interests of all stakeholders.
Directors must be open and honest and ensure that all interested parties are fully informed of any material
matter affecting the company’s business.
Directors must ensure that the company’s strategy and structure have been collectively agreed by the board.
Confidential matters of the company, learned in their capacity as directors, should be treated as such and not
divulged to anyone without the authority of the company.
If authorised by the articles of association, directors may be justified in leaving some duties that can be
delegated, to one or more members of management, and trusting management to perform such duties honestly.
A director may also trust and rely on the judgement, information and advice given by management; however,
the right to query such advice remains. In these circumstances, the director needs to maintain independence of
judgement and a critical stance.
In delegating powers as mentioned above, the directors may impose such conditions, restrictions and time limits
as they deem appropriate for the effective exercise of such delegated powers; they may also revoke or vary this
delegated authority should they deem it necessary to do so. Thus, the scope of management authority is dependent
upon the extent to which the directors had power delegated to them. In the same manner, where powers have been
delegated, the director still remains responsible for the exercise of those powers and his/her duty of care and
skill to the company is not diminished. It is therefore advisable to confirm details of delegated tasks in writing.
A breach of directors’ duties could lead to the director being personally liable to the company for any loss
caused as a result. The director/s may be obliged to restore any property which the company has lost or account
for loss of profits suffered by the company in these circumstances.
Further, a director who has caused the company to suffer losses as a result of wrongful conduct may be liable
to a common law claim by a member.
This is known as members’ “derivative action” and is limited to an action against directors or shareowners who
are in the majority and control the company and who have acted fraudulently or in breach of their duties.

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FINANCIAL RESPONSIBILITIES

Directors should be informed about the financial, social and political environment in which the company
operates.

Directors must ensure that they are in a position to make informed decisions.

Directors must insist that board papers and information are given to them timeously, so that they have time to
study them and make properly informed decisions.

Directors must ensure that procedures and systems are in place to act as checks and balances on the information
being received by the board.

Directors must ensure that the board monitors the performance of executive management against budgets,
business plans, industry norms, prior year’s performance, etc.

Sections 286 to 289 and Schedule Four of the Companies Act provide that the directors are responsible for the
preparation of the annual financial statements to be presented to the shareowners at the annual general meeting.

TAXATION

If a director is also a Public Officer of the company, he/she is solely responsible for ensuring compliance with all
acts and matters laid down by the Income Tax Act; failure to do so will attract penalties.

For example, a director who is the Public Officer, must certify as correct an annual declaration stating that all
benefits received by employees have been declared on the relevant tax certificates. The same applies to any
return submitted to the Receiver of Revenue.

GENERAL

Directors must ensure that the company has an affirmative action plan in place to advance members of
disadvantaged communities in the business of the company. This is now law and in many cases it will be
necessary for the long-term survival of the company.

If a director is in doubt about any aspect of his/her duties, he/she should obtain independent professional advice
at the expense of the company.

TRADING IN COMPANY SHARES

The following provides a brief summary of some of the directors’ statutory duties:

Sections 440E and 440F of the Companies Act restrict any person, including a director, from dealing in any
shares of his/her company and if it is a listed company, if he/she has relevant information before that
information is made public.

The King II Report as well as the JSE requirements state that where directors deal in shares of the company,
whether directly or indirectly, they should notify the company secretary of the deal. The director should provide
full details in writing, including the nature of the transaction, for authorisation by the company.

Directors should also be prevented from dealing in the company’s shares, either directly or indirectly, for a
closed period around the announcement of interim or final results. All dealings by directors have to be
published in at least one of the recognised financial papers.

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MATERIAL INTEREST IN CONTRACTS

Section 234 of the Companies Act provides that if a director has a material interest in a contract which is
significant in relation to the company’s business, such director must declare the nature of the interest at the C
first board meeting when the question of entering into the contract is considered.
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Where interest arises only after a contract has been proposed, the interests should be declared at the next board
meeting, whether or not that contract is to be considered.

LIABILITIES OF DIRECTORS UNDER COMMON LAW AND STATUTE

A company is an artificial legal entity and can only function through human agency. Such agency is in the form
of the company’s board of directors.

The board of directors is described in case law as the ‘directing mind and will’ of the company.

A company may incur liability through the actions of the board of directors.

Directors of a company incur no civil liability for wrongful conduct of the company merely because they are

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directors of the company, unless they have themselves caused or have failed to prevent such wrongful conduct.

A director’s fiduciary duty is owed to the company and not to the individual shareholders, creditors, employees
or other interested parties.

However, a director may be personally liable to a third party in the event of loss, caused by his/her own
wrongful, fraudulent, negligent or reckless conduct.

STATUTORY PROVISIONS

There are a number of sections in the Companies Act dealing with duties and obligations of directors which
could give rise to personal liability.

PROTECTION OF DIRECTORS

• Section 247 of the Companies Act prevents a company from exempting or indemnifying directors from
liability for negligence, default, breach of duty or breach of trust.

• Furthermore, a company cannot compensate its directors for such claims against the directors.

• A company may, however, indemnify such directors for costs incurred in successfully defending such a
claim.

• A company cannot insure to provide indemnity to its directors.

• A company may, however, effect its own insurance to cover any losses which may result from the
actions of its directors.

There is no provision which prohibits directors from insuring themselves against personal claims.

The King II Report has recommended that section 247 be revisited to include a provision to allow insurance
cover at the company’s expense, to protect directors and officers.

In addition to this, the King II Report has recommended that amendments be made to the statutes to reduce a
director’s liability for a breach of duty of care and skill arising where the director has acted in good faith, having
taken an informed and rational decision and where there has been no self-interest on the part of the director.

Under Section 248 of the Companies Act, the courts may allow the director relief. However, such relief will
only be granted if the director can prove he/she acted honestly and reasonably albeit negligently or in breach
of duty or breach of trust.

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LIABILITY AGAINST CLAIMS BY MEMBERS/SHAREHOLDERS

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Section 266 of the Companies Act provides that where a company has suffered damages or loss or has been

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deprived of any benefit as a result of any wrong-doing, breach of faith or breach of trust committed by any
director or officer of that company, and where the company has not instituted proceedings for recovery of such
loss, any member/shareowner may obtain a judgement or court order on behalf of the company compelling the
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director or officer to make good such loss to the company.

LIABILITY AGAINST CLAIMS BY CREDITORS


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Section 424 of the Companies Act provides for a course of action on behalf of the creditors of the company.
The court can declare the directors of a company personally liable for the company’s debts or liabilities if it can
be shown that the directors carried on the business of their company.
• recklessly, or
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• with the intent to defraud its creditors or creditors of any other person, or
• for any fraudulent purpose.
As it is usually difficult for the creditors or other proposed plaintiffs to obtain information and documentation
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necessary to bear the onus of proving fraud, a majority of the actions in terms of Section 424 will deal with
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allegations of recklessness.

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However, where the company has been placed under an order of winding-up, Section 417 provides for the
summoning and examination of any persons who the Master of the Supreme Court deems capable of giving
information concerning trade, dealings, affairs or property of the company (see section on Winding up of
Companies on Page 20).
Under proceedings in terms of Section 417, a director of a company can be exposed to extensive examination
and interrogation regarding the company’s affairs and hence be exposed to personal liability.

OTHER STATUTORY OBLIGATIONS


There are other statutes in addition to the Companies Act which regulate the activities of financial institutions.
These include:
• The Trust Property Control Act No 57 of 1988
• The Financial Institutions Act No 31 of 1984
• The Income Tax Act No 58 of 1962
• The Pensions Funds Act No 24 of 1956
• The Banks Act No 94 of 1990
• The Insolvency Act No 24 of 1936.

REMUNERATION OF DIRECTORS
A company is not bound to pay its directors, unless the articles of association authorise it or unless the
remuneration has been approved by the members in general meeting. In some circumstances, shareowner
authorisation may be required by the articles.
On occasions, a director might enter into a consultancy arrangement, in which case a contract for services will
govern the fees. (This must not be confused with remuneration for services as a director).
Companies are prohibited from deliberately paying directors remuneration on a tax-free basis, regardless of
whether the payment comes from the company or one of its subsidiaries.
The company, in its financial statements, is required by the Act to disclose the aggregate amount of directors’
emoluments, the aggregate amount of directors’ or past directors’ pensions, and the aggregate amount of any
compensation paid to directors or past directors for loss of office.

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In addition, the King II Report and JSE listing requirements require that the company make additional
disclosure in respect of individual directors’ emoluments.
See Annexure A on pages 24/25 in this regard, as well as the following paragraph.

JSE requirements on disclosure of remuneration details


The annual financial statements must contain an analysis in aggregate and by director, of emoluments paid
during the last financial period, or receivable by directors, in their capacity as director, or in any other capacity
whether determined by the articles or not, distinguishing (separately between executive and non-executive
directors) the following:
• fees for services as director
• basic salary
• bonuses and performance-related payments
• sums paid by way of expense allowances
• any other material benefits received
• contribution paid under any pension scheme
• any commission, gain or profit-sharing arrangements
• any share options, including their strike price and period when and at what price options have been
exercised and any other relevant information.

COMPANIES ACT REQUIREMENTS (S297)


Directors’ emoluments are to be reflected in two categories, namely executive and non-executive directors.
Included in directors’ emoluments are the following:
• fees paid for services rendered as directors
• any amounts paid to a person in respect of such person’s acceptance of the office of director
• basic salary
• bonuses and performance-related payments
• sums paid by way of expense allowances
• the estimated monetary value of any other material benefits received
• contributions paid under any pension scheme not otherwise disclosed
• gains made on the exercise of share options
Compensation paid to directors and past directors in respect of loss of office must also be disclosed.
Note 1: The Companies Act does not require disclosure of individual directors remuneration but this is required
by the JSE
Note 2: The individual director disclosure will be incorporated in the Directors’ Report and the other
categories will be included in the notes to the annual financial statements.
For guidance of readers, see Annexure A in respect of Disclosure of Directors’ Emoluments, on Pages 24/25.

LOANS TO DIRECTORS
The Companies Act states that no company shall make a loan, either directly or indirectly, to
• any director or manager of the company, its holding company or any other company which is a
subsidiary of its holding company; or
• any other company or other body corporate controlled by one or more directors/managers of the company
or of its holding company or of any other company which is a subsidiary of its holding company;

13
• nor may it provide security to any person in connection with an obligation of such director, manager,
company or body corporate.
The word ‘loan’ includes the loan of money, shares, debentures or any other property or any credit over and
above normal business credit or the provision of security.
Exceptions to this rule could be made under the following circumstances:
• when a special resolution has been passed relating to a specific transaction or when the consent of all
shareowners or members of the company has been granted;
• when a director requires funds to meet expenditure for the purposes of the company or when such a
loan would enable a director to perform his/her duties as a director more effectively;
• if an advance is made on the understanding that the director will account for all or part of the advance
not refunded – in which case this would not be regarded as a loan, eg travel advances;
• when a company launches a share purchase scheme;
• for housing, provided it has been sanctioned by the company in general meeting;
• if the person is a director of a subsidiary but not also a director of the lending company;
• when the loan is made during the financial year, before the person is appointed as a director.
It is good corporate governance for a loan agreement to be drafted and proper interest and repayment
terms arranged.

SHARES
Directors of both public and private companies may own shares in their companies.
In fact, sometimes the articles of the company state that directors must hold or subscribe for qualification
shares. This ensures that they have a stake in the company’s success and accept the consequences of that
company’s possible failure.
Persons who already own shares prior to being appointed as directors must advise the company of this interest,
even if they are held in a trust.
Legally, it is permissible for directors to buy and sell shares in their companies but to actually engage in dealing
in the company’s shares at particular times is not sanctioned, as directors are privy to information not available
to ordinary shareowners. If a director is found to be trading under these circumstances, he/she could be
imprisoned and/or fined.
If the company is listed on the JSE, a director has to notify the company when buying or selling shares in that
company.
Before the company can issue shares to a director, certain requirements of the Companies Act have to be
complied with:
• authorisation must be obtained by the company in general meeting (this authority may also be revoked
at general meeting). It must also be renewed at each annual general meeting to remain in effect;
• the shares are subject to an underwriting contract;
• the shares are issued in proportion to existing holdings on the same terms and conditions as those
offered to all members or to the general public.

CONTRACTS
If a director has a material interest in a contract which is related to the company’s business, this interest must
be declared to fellow directors unless the interest is included in the notice to convene a general meeting.
Details of such interest must be minuted and recorded in the register, which can be inspected by members of
the public.

14
BANK OVERDRAFTS/PERSONAL GUARANTEES
Many directors of companies, particularly private companies, find that the only way they can raise finance to
set the company up, is to give a personal guarantee.
Should the business fail and the company become insolvent, they will be held liable and in many cases this
could involve losing the family home and other assets, if the guarantee is enforced.
Discussion with the company’s auditor is therefore vital before signing any such guarantees. However, as a
general rule, a director should not give a guarantee unless he/she is a shareowner and even then, it should only
be in proportion to his/her shareowning. In certain circumstances, however, this is unavoidable.

SIGNING POWERS
Contracts
Should a director sign any contract which is in the course of the company’s business, the company will be bound
to honour it even if that director had not been delegated power to enter into such a contract. It is therefore
advisable to get the board to authorise any contracts before signing them.
It is important to note that when signing on a company’s behalf, the director is acting as its agent. It is
therefore important to indicate this on the contract by stating ‘for and on behalf of’, otherwise that director
may be held personally liable for the contract.
Company Cheques
The bank mandate will stipulate who has the power to sign company cheques. Usually, this is reserved only for
directors or certain directors and officers who are specified, depending on the size of the company and the
number of cheques that have to be signed.
The company’s name and registration number should appear on every cheque or order, together with the words
‘(Proprietary) Limited’ if it is a private company, and ‘Limited” for a public company.
If the name is not accurately shown, the director may be held personally liable for the cheque.

BOARD MEETING PROCEDURES


There is no legal requirement for even large public companies to hold board meetings. However, the King II
Report recommends that a board should meet regularly in order to carry out its functions effectively. How
regularly, is for each board to determine according to the needs of that company.
It is recommended that boards meet at least once a quarter although the trend is towards each alternate month
(even small companies should hold regular board meetings, even if they are ad hoc and less formal).
Meeting procedures are as follows:
No particular period of notice has to be given, unless otherwise stated in the articles of association. What is
important is that the directors have a reasonable amount of time to prepare for the meeting.
The notice should give details of date, time and place of the meeting. The agenda should give details of
proposed business to be discussed and back-up papers relating to these discussions, eg management accounts,
budgets, plans, etc. Those items specified in the agenda must be discussed. Other issues may, however, be raised
at the meeting.
A quorum (the minimum number of people present to make a meeting valid) is stipulated in the articles of
association. There must be a quorum at a meeting and the quorum must be maintained throughout, for the
meeting to be valid. If a meeting is held without a proper quorum, resolutions passed at the meeting
are invalid.
There is no legal requirement for the board to have a chairperson, but it is useful for practical reasons. The
chairperson may have a casting vote which is useful when there is an equality of votes – but the exercising of
the second vote is not recommended.

15
Minutes of all meetings of directors must be kept in a minute book, held at the company’s registered office.
The minute book must be a bound book and the pages sequentially numbered. The taking of minutes is the
responsibility of the company secretary. The minutes must be signed by the chairperson confirming they are
a correct record of proceedings. If proper minutes are not kept, there is a fine for every contravention for
directors who were aware of these contraventions.

Each director present at the meeting must sign his/her name under the date of that meeting in the attendance
register. There is also a fine for failing to keep an attendance register.

A director has a right to see all minutes and should a director disagree with the contents of the minutes, he/she
must state so at the earliest opportunity and record it in writing. The amendments will appear in the next set
of minutes as matters arising from the previous meeting.

The company’s auditors have a right to see the minutes but shareowners and other outside persons do not.

SHAREOWNERS MEETINGS

A shareowners meeting is held for the shareowners, who are the owners of the company, to discuss and have a
say in the company’s future. The directors are therefore accountable to these shareowners as they are responsible
for the company’s management.

ANNUAL GENERAL MEETING (AGM)

A newly incorporated company must hold the first AGM within 18 months of incorporation.
E S ER
Otherwise, an AGM must be held within nine months of the financial year end in a private company. In a C
public company, it is six months. N
AS S U R A
21 days’ notice must be given for an AGM, unless all shareowners agree to a shorter period.

The AGM should cover all matters laid down in the Companies Act, including:

• the approval of dividends

• the approval of the audit fee

• the adoption of financial statements for the most recent financial year

• the election and retention of directors

• the appointment (or re-appointment) of auditors.

The company secretary usually organises the AGM on behalf of the board but all directors and officers will be
IS
F

fined if they are knowingly party to the failure to hold an AGM.

HE
Shareowners should be encouraged by the board to attend annual general meetings. All directors should attend
the AGM and particularly the chairpersons of the various board committees.
R H
GENERAL MEETINGS

General meetings can be called whenever deemed necessary.

14 days’ notice must be given for general meetings, unless holders of 95% of voting rights agree otherwise.
Notice may be waived altogether if agreed in writing by all shareowners.

‘Special notice’ can be given for certain types of resolution, for example, concerning the removal of an auditor
or a director. No less than 28 days’ notice must be given for this unless a meeting is subsequently called in less
than the required period, whereupon notice is deemed to have been validly given. Shareowners must be advised
of these circumstances or, if this is impractical, a notice must be placed in a newspaper not less than 21 days
prior to the meeting.

16
Ordinary resolutions can be passed by a majority of votes and these resolutions operate from the date of their
adoption. However, many of the more important decisions and changes within a company have to be passed by
special resolution, and these are only effective from the date they are registered with the Registrar
of Companies.
A special resolution has to be passed by 75% of shareholders in a general meeting, for which 21 or more days’
notice was given and where 25% of total votes are present.
Examples of changes where special resolutions are required are:
• change in the company’s name
• any changes in its memorandum and articles of association, share capital or its powers and objectives
• changing from a private to a public company, or vice versa
• authorising payment of interest on shares out of capital, the issue of shares or converting of preference shares
• reduction of share capital
• share buy-backs
All directors should be encouraged to attend general meetings of shareowners.

DIVIDENDS
Dividends may only be paid out of profits available for the purpose and not out of capital. Directors who pay
dividends out of capital will be regarded as having acted fraudulently or negligently. Either way, they may be
liable to repay the distribution to the company.

FINANCIAL STATEMENTS AND ACCOUNTING RECORDS


Financial statements are produced annually to indicate the company’s financial position as a result of a year or
a period’s operations. These statements must be prepared according to the law laid down by the Companies Act
and Generally Accepted Accounting Practice (GAAP). Methods of accounting and disclosure are stated to
ensure that fair presentation of the company’s financial position is in the financial statements.
It is the collective responsibility of the directors to ensure that these methods and rules are adhered to. The
financial statements consist of:
• an auditor’s report
• a director’s report for the financial year
• a balance sheet as at the last date of the company’s financial year end
• an income statement for the year
• a cash flow statement
• notes to the financial statements
• where the company has subsidiary companies, a set of consolidated financial statements must
be prepared
• if it is a public company, the chairperson prepares a report as well.
As the directors will have to approve the final financial statements, the directors must ensure that adequate
accounting records and effective systems of internal control are maintained. These annual financial statements
have to be sent to every shareowner, at least 21 days prior to an AGM. In the case of a public company, a
certified copy must be sent to the Registrar of Companies within the period stipulated in the Companies Act.
Accounting records have to be kept by the company. The main records are as follows:
• records of daily receipts and payments
• record of company assets and liabilities
• register of fixed assets

17
• year-end stock records (if applicable)
• payroll records, PAYE, SITE and other tax records
• general ledger.
These records should be kept at the company’s registered office.
Although there is usually one director responsible for financial records, any director may have access to them.
The financial statements are reviewed by the auditors and, should they discover any material irregularity, this
may be regarded as a criminal offence and every director or officer of the company could be held responsible.
By law, the company records must be kept for a maximum of 15 years from the date of the last entry; VAT
records must be kept for at least five years (see our Fisher Hoffman PKF annual Tax Guide for details on
retention of documents).

THE INTERNAL AUDIT AND AUDIT COMMITTEES


The Internal Audit
To ensure adequate controls, many larger companies are now introducing internal audit departments to review
systems and controls and to monitor key risk areas on a continuous basis. This is not a requirement of the
Companies Act but a recommendation of the King II Report.
Audit Committees
There are no statutory requirements for audit committees but with the greater emphasis on accountability
mentioned at the beginning of this booklet, many of the larger firms are instituting them. The King II Report
also recommends that companies institutionalise audit committees internally.
Fisher Hoffman PKF has prepared separate details on Audit Committees and their Role in Corporate
Governance outlining possible composition, duties and responsibilities. This is available on request.
The Company Auditor
All companies have to have an auditor whose function will be to report to shareowners (who appoint them) on
whether or not the financial statements fairly represent the company’s financial position and that the accounts
have been properly prepared in accordance with the Companies Act.
However, it is important to note that the obligation to prepare accurate financial statements remains the
responsibility of the directors
The auditors submit an engagement letter outlining the extent of their duties and this forms the basis of the
contract between the company and the auditors.
The auditor(s) must be registered with the Public Accountants and Auditors Board. The external audit function
may not be carried out by any director of the company, the company secretary nor any employee of the company.
The external auditor can look into the company’s business in depth and provide the company with objective
advice and expertise which goes way beyond the routine of financial reporting. The auditor has to keep up with
recent trends and new methods in accounting as well as business in general.
Focus on Financial Reporting
Before a director signs off the annual financial statements, a number of vital points must be considered:
General
• that enough time has been given to study the documents fully
• that all the information can be substantiated and has the necessary supporting documentation
• that the requirements of the King II Report Code of Corporate Practice and Conduct have been
complied with
• that the information is complete and accurate and all disclosures have been made in accordance with
GAAP, are clearly stated and can not be misinterpreted

18
Specific
• that internal controls have been instituted and monitored effectively

• that policies and procedures are in place and reviewed regularly

• that the audit committee has examined the reporting procedures, accounting policies and final
statements for any aspects of non-compliance

• that the annual report correlates with the management accounts and board reports

• that the directors have reviewed forecasts and budgets, cash flows and borrowing requirements,
financial risk management and adherence to financial policies

• that the results have been prepared on the same basis as those for the previous period

• that critical financial and operational risks have been identified and relevant plans outlined

• that the ethos of the company is reflected and the code of conduct has been adhered to.

LISTING REQUIREMENTS OF THE JSE


When a company is to be listed on the JSE, the directors must give an undertaking in the form of a resolution,
signed by the Chairman, to guarantee that they will comply with the listing requirements and any
amendments which might be introduced.

Individually, the directors are required to undertake that they:

• have exercised their fiduciary duties in accordance with the provisions of the company’s articles of
association

• will honour their responsibility with regard to company compliance with the listings requirements
and any amendments that may occur.

It is advisable that a copy of the Listings Requirements be obtained from the JSE and studied, as there are many
obligations and duties, involving dividends, financial statements, interim reports, press announcements, liaison
with the JSE and dealings with shareowners, etc.

DISSENTION BY A DIRECTOR
A director must keep in mind that board decisions are taken collectively and it will be accepted that he/she
was party to the decision unless otherwise indicated. Should a director disagree with a decision or course of
action which has been adopted by the board, there are a number of steps that can be taken.

Concerns must be voiced at the meeting, extra information sought, and if the director is still dissatisfied, he/she
must ask that those concerns be recorded formally in the minutes.

A detailed memorandum can be compiled and sent to the other directors and a request for professional advice
can be made.

If the concern arises between meetings, the chairperson can be approached to convene a special meeting to
discuss the issue. If the chairperson is not willing to do so, the articles of the company must be examined to
ascertain if an individual director has the power to call a meeting.

Should the situation be deemed serious enough to warrant it, the director could consider raising the matter
with shareowners at a general meeting, although shareowners do not have the powers to overturn a decision
which has been taken validly at a board meeting. However, the board is likely to take note if the majority of
the shareowners have indicated their support for the action taken.

As a last resort, a director can issue a statement to the shareowners explaining his/her position, and resign. This
is a very serious step, and professional advice must be sought to ensure fiduciary duties and responsibilities are
not breached.

19
REMOVAL OF A DIRECTOR
A director may resign at any time and can also be removed at any time by the company, unless he is a life
director of a private company appointed before June 1949.

The procedure to be followed is that the members must lodge a special notice with the company and the
company must send a copy of this notice to the director concerned. He/she is entitled to attend and make
representations at the meeting convened to remove him/her.

TAKEOVERS AND MERGERS


In the event of a takeover or merger, there are very specific responsibilities imposed on directors and
professional advice should be sought in this regard. Accurate information must be presented to shareowners
and minorities must be treated fairly; directors of both parties must ensure that they act independently and do
not have regard to their personal shareownership when advising the shareowners.

Non-compliance will result in penalties as well as the risk of personal liability to any other person who suffers
loss as a result of any contravention of the reporting rules.

THE FAILING COMPANY


Directors have joint and several liability for debts of a company which are incurred from the point that the
company continues trading without reasonable prospects of being able to meet its liabilities. If it can be proved
that the directors were acting recklessly, this is regarded as a criminal offence.

It is important to note that this also applies to non-executive directors, even though they were not involved in
the daily management of the company.

An Appellate Division judgement was delivered on 12 November 1997 which clearly set out the
responsibilities of directors and was particularly relevant to struggling companies and those companies which
are in financial difficulties. The judgement was that the directors of a public listed company be held personally
liable for the debts of a liquidated subsidiary. Minimal differentiation was made between executive and
non-executive directors.

In response to this judgement, Fisher Hoffman PKF has prepared a specific booklet on Section 424 and the
ruling, under the title ‘Caveat Director!’

Directors must therefore be alert to the warning signals that can inform them of an impending or actual
financial crisis in a company.

Often, a well-presented case to the company’s bankers or a visit to creditors to discuss deferred payment of
outstanding accounts, can avert a temporary crisis.

There are many indications that a company is failing and directors are advised to be alert to the signs.

Managerial incompetence is a major cause of corporate insolvency and this can be identified very often when
relations between management and directors deteriorate. Other signs include high staff turnover and low
morale, board information being supplied late and board meetings not taking place; CEO’s taking decisions
unilaterally and all information to the board being received via the CEO; and an inability to make decisions.

Lack of financial controls also contributes to the failure of a company, particularly new businesses. Obvious
signs include settling accounts slowly, negative cash flow, declining turnover, variances from forecast budgets,
overtrading, recent falls in that company’s share price, bad debts and high gearing.

Lack of management controls can usually be picked up when there appears to be an absence of corporate
planning, increased customer complaints, unexpected losses, and insufficient review and analysis of mistakes.

When a company does begin to fail, there are a number of steps which the director, and the board as a whole,
should take to avoid personal liability as mentioned above.

20
Firstly, a statement of the financial position of the company must be prepared without delay so that an
informed decision can be taken about whether or not to continue trading. Professional advice is essential in this
regard as well as the preparation of a plan of action for remedial intervention. These actions may well avert the
crisis and thus reduce the risk of personal liability to the directors.

Should one director’s opinion differ from the rest of the board, he/she may have to resign. Professional advice
is also essential here to ensure that he/she does not violate his/her fiduciary duty to the shareowners by
withholding an explanation.

Voluntary Winding-up of a Company


If the company wishes to liquidate even though it is not in financial difficulties, a voluntary winding-up can
be considered.

This takes place when the shareowners adopt a resolution for the company to be wound up, appoint a liquidator
and this usually means the directors’ powers cease except with regard to protecting the company’s assets.

Compulsory Winding-up
The procedure of winding-up a company usually starts when a creditor presents an application against the
company to the court. A provisional winding-up order is sent to the company’s registered office and a date is
selected for all interested persons to oppose the application. The directors retain the right to apply for the order
to be discharged. The appointment of a provisional liquidator usually nullifies the directors’ other powers as
the liquidator takes control of all the company’s property.

Legally, all directors, officers and employees of the company must give the liquidator any information required;
a director cannot avoid this responsibility by resigning.

If the Court winds up a company, certified copies of the company’s statement of affairs must be submitted to
the Master of the Supreme Court within two weeks of the order of the court.

PENALTIES AND LIABILITIES


E S E RV
C
Any transgressions with regard to the duties and responsibilities of directors in terms of the Companies Act,
attract penalties. Details in this regard are too extensive to cover in this booklet. It is essential to get
professional advice if you are in any doubt about the legality of any issue. N
AS S U R A

“… successful governance in the world in the 21st century requires companies to adopt
an inclusive and not exclusive approach. The company must be open to institutional
IS
F

activism and there must be greater emphasis on the sustainable or non-financial aspects
of its performance. Boards must apply the test of fairness, accountability, responsibility HE
and transparency to all acts or omissions and be accountable to the company but also
responsive and responsible towards the company’s identified stakeholders. The correct
R HO
balance between conformance with governance principles and performance in an
entrepreneurial market economy must be found, but this will be specific to each company.”
King Report on Corporate Governance for South Africa – 2002

21
USEFUL CONTACT DETAILS
The following contact details might be useful to readers of this booklet:

The South African Institute of Chartered Accountants

Johannesburg Tel: (011) 622-6655


Fax: (011) 616-7491
Email: saica@saica.co.za
Address: PO Box 59875, Kenray 2100

Cape Town Tel: (021) 423-3938


Fax: (021) 423-3974
Email: southernregion@saica.co.za
Address: PO Box 4484, Cape Town 8000

Durban Tel: (031) 276-1842


Fax: (031) 267-1845
Email: saicakzn@saica.co.za
Address: PO Box 1098, Westville 3630

Institute of Directors in Southern Africa

Johannesburg Tel: (011) 643-8086


Fax: (011) 484-1416
Email: iodsa@iodsa.co.za
Address: PO Box 908, Parklands 2121

Cape Town Tel: (021) 686-0158


Fax: (021) 685-6538

IC Email: corpcon@global.co.za

E Port Elizabeth
Address: PO Box 44726, Claremont 7735

Tel: (041) 365-1163


S

Fax: (041) 365-2216


Email: soni.inc@iafrica.com
Address: PO Box 7287, Newton Park 6055
PKF

Durban Tel: (031) 566-2352


Fax: (031) 566-5130
Email: iodkzn@iodsa.co.za
Address: PO Box 5561, Durban 4000
AN
M

F F
O

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The South African Institute of Chartered Secretaries

Administrators Tel: (011) 403-2900


Fax: (011) 403-1522
Web: www.icsa.co.za
Address: PO Box 331, Johannesburg 2050

Registrar of Companies Tel: (012) 310-9791


Fax: (012) 328-3051
Web: www3.dti.gov.za/sacro
Address: PO Box 429, Pretoria 0001

JSE Securities Tel: (011) 520-7000


Exchange SA Fax: (011) 520-8583 (secretarial)
(011) 520-8596 (listings)
Web: www.jse.co.za
Address: Private Bag X991174, Sandton 2146

All information contained herein is believed to be correct at the


time of publication, January 2003. The contents should not be used
as a basis for action without further professional advice.

Our signature underlines our reputation

23
ANNEXURE A

ADDITIONAL DISCLOSURE IN RESPECT OF DIRECTORS’ EMOLUMENTS

Directors’ remuneration disclosure in the notes to the Annual Financial statements

Note xx Directors’ remuneration

2002 2001 2002 2001 2002 2001


Executive Executive Non-executive Non-executive Total Total

Aggregate directors’ emoluments* xxx xxx xxx xxx xxx xxx

Pension to directors and past directors for services as directors of the


company or its subsidiaries xxx xxx xxx xxx xxx xxx

Compensation to past directors in respect of loss of office x x x x x x

Less: Paid by subsidiaries and other persons (xx) (xx) (xx) (xx) (xx) (xx)

Total directors’ remuneration xxxx xxxx xxxx xxxx xxxx xxxx

24
*Full details of individual directors’ emoluments are given in the Directors’ Report (page xx).
Details of directors’ service contracts are presented in the Corporate Governance section of the Annual Report (page x).

Source for Annexures A & B:


Dr Len Konar, B Com, HDipAcc, MAccSci, CertTaxLaw, DCom, CA (SA)
Dr Konar is Chairman: Outsourced Risk and Compliance Assessment (Proprietary) Limited ("ORCA").
He is an independent consultant and professional director and is a member of the King Committee on Corporate Governance.
He is currently a director, inter alia, of the South African Reserve Bank, Old Mutual South Africa, JD Group, Sappi, Illovo Sugar and Kumba Resources.
Prior positions include executive director of Internal Audit Portfolio, Head of Investments at the Independent Development Trust and professor and head of department of accountancy at the University of Durban Westville.
He is a member of several business and professional associations, currently chairs a number of audit and risk management committees and is Patron of the Institute of Internal Auditors, SA.
ADDITIONAL DISCLOSURE IN RESPECT OF DIRECTORS’ EMOLUMENTS
Services as directors Basic package* Bonuses/performance Expenses allowances Other benefits Pension Contributions Total
related payments
Company Subsidiaries Company Subsidiaries Company Subsidiaries Company Subsidiaries Company Subsidiaries Company Subsidiaries Company Subsidiaries
As at 30 June 2002 R’m R’m R’m R’m R’m R’m R’m R’m R’m R’m R’m R’m R’m R’m
1. Directors’
emoluments
Executive
directors x x x x x x x x x x x x x x
Director A x x x x x x x x x x x x x x
Director B x x x x x x x x x x x x x x
Director C x x x x x x x x x x x x x x
Non-executive
directors
Director L x x x x x x x x x x x x x x
Director M x x x x x x x x x x x x x x
Director N x x x x x x x x x x x x x x
Director O x x x x x x x x x x x x x x
Total

25
*Excluding pension contributions

As at 30 June 2002 Number of options Issue date Issue price Exercise date Gain
2. Gains on the exercise
of share options
Director A xx xx xx xx xx
Director B xx xx xx xx xx
Director C xx xx xx xx xx
xx

As at 30 June 2002 Number of options Issue date Issue price Expiry date
3. Options granted
during the year
Director A xx xx xx xx
Director B xx xx xx xx
Note: comparatives will be given in the same format.
ANNEXURE B

CORPORATE GOVERNANCE – KING II REPORT – COMPLIANCE ASSESSMENT


Comments/Response/
Yes No N/A Action Necessary
1. Applicability of King Report on Corporate Governance for South Afirca – 2002 (King II Report)
If your entity is:
• listed on the JSE Securities Exchange
• a bank, financial institution or insurance entity as defined in South African financial services legislation
• a public enterprise qualifying under the Public Finance Management Act or the Local Government
Municipal Finance Management Bill
then the Code of Corporate Practices and Conduct applies to your entity.
2. The Board and Board Composition
2.1 Does the company have a unitary board with a mixture of executive and non-executive directors?
2.2 Does the board have full and effective control over the company, monitoring management and ensuring

26
the implementation of the board’s plans and strategies, as well as ensuring succession is planned?
2.3 Does the board communicate with its shareowners and relevant stakeholders (internal and external) openly
and promptly and with substance prevailing over form?
2.4 Is the company complying with all the relevant laws, regulations and codes of business practice?
2.5 Has the board defined its levels of materiality, reserving specific powers to itself?
2.6 Has the board defined and regularly monitored its information needs and does the board have full and
unrestricted access to all company information, records, documents and property?
2.7 Does the size of the board make it effective?
2.8 Has the board identified key risk areas and key performance indicators of the business enterprise?
2.9 Has the board identified, and does it monitor, the non-financial aspects relevant to the business
of the company?
2.10 Are the facts and assumptions that the board relies on to conclude that the business will continue as a
going concern in the financial year ahead, or why it will not do so, recorded?
2.11 Is the board ensuring effective communication with its internal and external stakeholders?
2.12 Has the board found the balance between conforming with governance constraints and performance?
CORPORATE GOVERNANCE – KING II REPORT – COMPLIANCE ASSESSMENT (continued)
Comments/Response/
Yes No N/A Action Necessary
2.13 Does the board have a balance between executive and non-executive directors, to ensure independence?
2.14 Is there an appropriate balance of power and authority on the board such that no one individual or block
of individuals can dominate the board’s decision taking?
2.15 Are the procedures for appointments to the board formal and transparent?
2.16 Does the board have a rotation programme in place to ensure continuity?
2.17 Does the board ensure that each item of special business is included in the notice of the annual general meeting
or any other shareowner’s meeting, accompanied by full explanations of the effects of any proposed resolutions?
2.18 Does the board encourage attendance at AGMs of its shareowners, directors and chairpersons of its committees?
2.19 Does the notice of the AGM contain a brief CV of each director standing for election or re-election?
2.20 Does the board disclose its charter in the annual report, confirming the board’s responsibility for the adoption
of strategic plans, monitoring of operational performance and management, determination of policy and
processes to ensure the integrity of the company’s risk management and internal controls, communications
policy, and director selection, orientation and evaluations?
2.21 Are the company’s Chairperson and Chief Executive’s roles and duties segregated and defined?

27
2.22 Does the board appraise the performance of both the Chairperson and the Chief Executive at least annually?
2.23 In the annual report, do you differentiate between executive director, non-executive director, and
independent directors? Are there any shadow directors not identified, and if so, why not?
2.24 Do you have a formal orientation programme to familiarise incoming directors with the company’s operations,
and to induct them in their fiduciary duties and responsibilities?
2.25 Are potential new directors assessed to ensure that they are not disqualified from being directors in terms of
the Companies Act?
2.26 Does the board receive regular briefings on relevant new laws and regulations and changing commercial risks?
2.27 Are the non-executive directors individuals of calibre and credibility, who have the necessary skill and
experience to bring judgement to bear, independent of management, on issues of strategy, performance,
resources and standards of conduct, and evaluation of performance?
2.28 Does the board encourage executive directors to hold other non-executive directorships to the extent that these
do not interfere with their immediate management responsibilities?
CORPORATE GOVERNANCE – KING II REPORT – COMPLIANCE ASSESSMENT (continued)
Comments/Response/
Yes No N/A Action Necessary
Remuneration and Remuneration Committee
2.29 Does the company have a Remuneration Committee comprising entirely or mainly independent
non-executive directors?
2.30 Has the company established a formal and transparent procedure for developing a policy on executive
remuneration?
2.31 Does the quantum of the executive remuneration sufficiently reward the director’s performance, and ensure
the company’s ability to attract and retain quality key executives?
2.32 Does the executive remuneration allow for a sensible balance of guaranteed salary, performance element
and shares or share options?
2.33 Is the company providing disclosure of director remuneration on an individual basis, giving details of earnings,
share options and all other benefits?
2.34 Are share options granted to non-executive directors subject to prior shareowner approval at the AGM?
2.35 Is there transparency in relation to the allocation, vesting period, re-pricing or issues of options or shares

28
at a discount?
2.36 Is there full disclosure of the executive director’s fixed service contract and reasons given for contracts
longer than three years?
2.37 Has the company developed a Statement of Remuneration Philosophy for inclusion in the annual report?
2.38 Has the Remuneration Committee addressed succession planning, especially for the Chief Executive Officer
and executive management?
2.39 In determining the level of fees to be paid to the non-executive directors, is consideration taken of the
relative contributions of each non-executive director and his/her participation in the activities of the board
and its committees?
Board Meetings
2.40 Are the board meetings held regularly to review processes and procedures to ensure the effectiveness of its
internal systems of control, so that its decision-making capability and the accuracy of its reporting and
financial results are maintained at high levels at all times?
2.41 Does the annual report disclose the attendance of each director at board and committees of the board meetings?
CORPORATE GOVERNANCE – KING II REPORT – COMPLIANCE ASSESSMENT (continued)
Comments/Response/
Yes No N/A Action Necessary
2.42 Is the board receiving relevant non-financial information that goes beyond assessing the financial and
quantitative performance of the company, looking at performance factors of a qualitative nature, taking into
account broader stakeholder measures?
2.43 Are there arrangements in place to allow non-executive directors to have access to management and even meet
separately with them, without the attendance of executive directors?
Board Committees
2.44 Has the board formally delegated certain functions to committees of the board to discharge its duties and
responsibilities and to effectively fulfil its decision taking process?
2.45 Does the board have formally determined terms of reference for its board committees, with agreed reporting
procedures and written mandates?
2.46 Does the board have as a minimum an Audit and Remuneration Committee?
2.47 Is the composition of board committees and other related information disclosed in the annual report?
2.48 Are the board committees regularly evaluated as to their performance and effectiveness?

29
2.49 Are there any other committees in existence and do they have specific mandates?
2.50 Do non-executive directors play an important role in board committees?
2.51 Are all board committees chaired by independent non-executive directors?
2.52 Are the board committees free to take independent outside professional advice as and when necessary?
Board and Director Evaluation
2.53 Does the board regularly review its mix of skills and experience and other qualities to ensure effectiveness of
the board as a whole, its committees and the contribution of each individual director?
2.54 Are those evaluations conducted at least annually?
Dealings and Securities
2.55 Are dealings in the company’s securities prohibited for directors, officers and other selected employees for a
designated period prior to the announcement of its financial results, or for any other period considered sensitive?
2.56 Is this prohibition recorded in a formal policy established by the board, and implemented by the Company Secretary?
CORPORATE GOVERNANCE – KING II REPORT – COMPLIANCE ASSESSMENT (continued)
Comments/Response/
Yes No N/A Action Necessary
Company Secretary
2.57 Does the Company Secretary play a pivotal role in ensuring sound corporate governance of the company,
and support the Chairperson in ensuring the effective functioning of the board?
2.58 Does the Company Secretary provide the board and directors individually and collectively with guidance on
the proper discharging of their responsibilities?
2.59 Does the Company Secretary play an important role in the induction of new or inexperienced directors?
2.60 Is the Company Secretary providing a central source of guidance and advice to the board on matters of
business ethics and corporate governance?
3. Risk Management – Responsibility
3.1 Does the board take responsibility for the risk management process and its effectiveness? Is management
fully cognisant of its accountability to the board for designing, implementing and monitoring the process of
risk management and integrating it into the day-to-day activities of the company?
3.2 Does the board set risk policy and strategy with senior management, which is communicated to all

30
employees and incorporated into the culture of the company? Has the board defined the company’s
appetite or tolerance for risk?
3.3 Does the board make use of generally recognised risk management and internal control frameworks in order
to maintain a sound system of risk management and internal control that provides reasonable assurance
regarding the achievement of organisational objectives with respect to:
– effectiveness and efficiency of operations?
– safeguarding of the company’s assets, including information?
– compliance with applicable laws, regulations and supervisory requirements?
– supporting business sustainability under normal as well as adverse trading conditions?
– reliability of reporting?
– behaving responsibly towards all stakeholders?
3.4 Does the board ensure that a formal risk assessment is undertaken annually to support its public statement
on risk management?
CORPORATE GOVERNANCE – KING II REPORT – COMPLIANCE ASSESSMENT (continued)
Comments/Response/
Yes No N/A Action Necessary
3.5 Has the board appointed either a specific committee or one of its other Board committees, to assist in
reviewing the risk management process and the significant risks facing the company?
3.6 Are the risk management and internal control activities of the company known and practised by all?
Risk Management – Application and Reporting
3.7 Has the board established a comprehensive system of control to ensure that risks are mitigated, and that the
company’s objectives are attained? Does the control environment set the tone of the company and cover
ethical values, management’s philosophy and the competence of employees?
3.8 Are the company’s key risks being managed in a way that enhances shareowners’ and relevant
stakeholders’ interests?
3.9 Is the process of risk management and the system of internal control communicated throughout the company?
3.10 Is there an adequate system of internal control in place to mitigate the significant risks faced by the company
to an acceptable level?
3.11 Can the company continue business in the event of a disastrous incident that can have a major impact on

31
its activities?
3.12 Is the board comfortable with the minimum disclosure it needs to make in relation to risk management?
4. Internal Audit – Status and Role
4.1 Does the company have an effective internal audit function that has the respect and co-operation of the
board and management?
4.2 If not, does the board provide in the company’s annual report the full reasons, and also explain how assurances
regarding effective internal processes and systems will be obtained?
4.3 Are the purpose, authority and responsibility of the internal auditing activity formally defined in a charter
and consistent with the Institute of Internal Auditors (IIA) definition of internal auditing?
4.4 Does the internal audit function report at a level within the company that allows it to accomplish its
responsibilities fully? Does the head of internal audit have ready and regular access to the chairperson of the
board and the chairperson of the Audit Committee?
4.5 Does internal audit report at all audit committee meetings?
CORPORATE GOVERNANCE – KING II REPORT – COMPLIANCE ASSESSMENT (continued)
Comments/Response/
Yes No N/A Action Necessary
4.6 Where the external and internal audit functions are being carried out by the same accounting firm, does the
board and the audit committee satisfy itself with the independence of the functions (“Chinese Wall”)?
4.7 Is the company’s internal audit plan based on continuous risk assessment?
Internal Audit – Scope of Internal Audit
4.8 Does the company’s internal audit function operate in accordance with the IIA’s definition of internal audit?
4.9 Does the Audit Committee approve the internal audit work plan?
4.10 Does the internal audit function co-operate with other internal and external providers of assurance to ensure
proper coverage of financial, operational and compliance controls and to minimise duplication of effort?
5. Sustainability Reporting
5.1 Does the company have policies and procedures and systems in place for the management of its commitment
to social, ethical, safety, health and environmental practices, and does the board decide whether these are
appropriately disclosed to shareowners and stakeholders?

32
5.2 Is the board disclosing practices relating to black economic empowerment, including procurement
practices and investment strategies?
5.3 Is the board addressing safety, health and environment related incidents?
5.4 Is the board familiar with the criteria used by investment managers in regard to socially responsible investment?
5.5 Does the company have criteria by which human capital development is measured?
5.6 Do the company’s business practices reflect human capital development requirements with a focus on
demographics, gender, people with disabilities, age, corporate training initiatives, employee development
and financial investment committed?
Organisational Integrity/Competencies
5.7 Has the company engaged its stakeholders in determining the company’s standards of ethical behaviour?
Has the company demonstrated its commitment to organisational integrity by codifying its standards in a
Code of Ethics?
5.8 Does the company demonstrate its commitment to its Code of Ethics through a structured process and
appropriate measurements?
CORPORATE GOVERNANCE – KING II REPORT – COMPLIANCE ASSESSMENT (continued)
Comments/Response/
Yes No N/A Action Necessary
5.9 Does the company disclose the extent of its compliance with its Code of Ethics, and the steps and time-frame
within which the desired end-state will be achieved?
5.10 What action does the company take when dealing with individuals or entities not demonstrating the same
level of commitment to organisational integrity?
6. Auditing Non-audit Services
6.1 Has the Audit Committee drawn up a recommendation to the board for the appointment of the external auditors?
6.2 Do the external auditors observe the highest levels of business and professional ethics, and independence?
6.3 Does the company and its management encourage co-ordination and consultation between external and
internal auditors, to ensure an efficient audit process?
6.4 Have principles been determined for using external auditors for non-audit services? Is separate disclosure
made of the amount paid for non-audit services and the nature thereof?
Reporting of Financial and Non-Financial Information
6.5 Does the Audit Committee determine whether or not the interim report should be subject to an independent

33
review by the auditors?
6.6 If so, is the Audit Committee’s report commenting on the interim report and the auditors’ review, tabled at
a scheduled board meeting to adopt the interim report?
6.7 If not, does the Audit Committee table the reasons why no such review was performed?
6.8 Does the board minute the facts and assumptions used in its assessment of the going concern status of the
company at the year-end and interim reporting stage?
Audit Committees
6.9 Does the Audit Committee comprise a majority of independent non-executive directors, and are the majority
of the members financially literate?
6.10 Is the Chairperson of the Audit Committee an independent non-executive director, and not the Chairperson
of the board?
6.11 Does the Audit Committee have written terms of reference, which deal adequately with its membership,
authority and duties?
CORPORATE GOVERNANCE – KING II REPORT – COMPLIANCE ASSESSMENT (continued)
Comments/Response/
Yes No N/A Action Necessary
6.12 Has the Audit Committee satisfied its responsibilities in compliance with its terms of reference and is disclosure
made in the annual report?
6.13 Is the chairperson of the Audit Committee available at the AGM to answer questions about its work?
7. Relations with Shareowners
7.1 Does the company have a mutual understanding of objectives with its shareowners generally and its
institutional investors particularly?
7.2 Can institutional investors clearly evaluate the company’s corporate governance arrangements and
measurement of performance from the reporting and interaction that the company undertakes?
7.3 Are items of special business included in the notice of annual general meetings, accompanied by full
explanations of the effects of the proposed resolutions?
7.4 Does the company conduct meetings on the basis of a poll in relation to special business?
8. Communication
8.1 Is the board presenting a balanced and understandable assessment of the company’s position in reporting

34
to stakeholders?
8.2 Are the company’s reports and communications transparent?
8.3 Is disclosure made by directors, external auditors, management and internal auditors on the state of disclosure
and internal controls in the annual report?
8.4 Is the company taking accountability for non-financial matters?
8.5 Is the company adhering to the Code of Corporate Practices and Conduct?
9. Implementation of the Code
9.1 Have the board and individual directors accepted their duty and responsibility to ensure that the principles
set out in the Code have been observed?
NOTES

35
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