The introduction of The Companies Act No. 71 in 2008 and the subsequent King III Report have left Directors and Officers in a far more onerous position than ever before. The Companies Act in particular has changed the business landscape substantially.
Following suit with international standards of personal liability for directors, there are numerous Sections of the Act which look at directors’ accountability, liability and duties:
- Section 76 codifies the existing common law duties of directors towards the company – increasing awareness of a directors liability amongst potential plaintiffs
- Section 157 introduces the concept of class actions into law - meaning that any class of persons mentioned in the Act or affected by the company will be able to potentially claim against a director
- Section 218 (2) introduces civil remedies - which holds any person who contravenes the Act liable to the person who suffers a loss as a result of the contravention
- Section 76 (4) introduces the Business Judgement Rule for directors who have acted in good faith, or in the best interests of the company, according to their duty of care, skill and diligence, and have avoided conflicts of interest. It is the view of some law academics that if these requirements have been carried out, the director would have complied with the common law duties
In support of the Companies Act, the King III Report was released – advising that a new Corporate Governance Code for South Africa be developed. Applicable to all companies - private and non-profit – a much wider range of directors are now affected by the Code.
Compliance with the Code is on an ‘apply or explain’ basis, which means that corporate governance should not be based only on compliance, but rather on the consideration of the manner in which principles and recommendations can be applied. Therefore directors acting in the best interests of a company should consider whether or not a recommendation in the Report should be applied and to what extent. Compliance would then eventuate in the explication of how the Report was applied or not.
With a clear ‘stakeholder inclusive’ approach, the Report in general, demands that the board of directors consider the interests of the company’s stakeholders and not just its shareholders. When considering contradicting and synergetic interests of stakeholders, the Report advises that this be done on a case by case basis.
New subjects dealt with in the Report cover IT governance and Alternative Dispute Resolution (ADR). Not just about operations, IT is also a tool that can be used to gain a competitive advantage. It’s therefore necessary to implement strategies that safeguard IT platforms from losing confidential information. It is the responsibility of directors, to take reasonable steps to mitigate IT risks, or be held liable at law, if the company suffers a loss.
The Report recommends that ADR’s be inserted into all business contracts, as they allow for fast and cost-efficient settlements, which protect a company’s reputation before matters go to the Courts. The board of directors should therefore ensure that disputes are resolved efficiently, inexpensively and without media attention – as this is in the best interests of the company.
In light of these legislative and governance changes, no company in South Africa should be without Directors and Officers (D&O) Liability. Camargue Underwriting Managers offers a range of D&O Liability products to suit every need. An SME scheme option is now available too. It’s easy to sell and quick to underwrite with a simplified proposal form.
Camargue is an underwriter of niche insurance products and a provider of risk management solutions to a broad spectrum of industries in Southern Africa. Camargue’s unique M3 approach focuses on managing, mitigating and migrating critical business risks.
