SOUTH AFRICA Law and Practice Contributed by: Professor Michael Katz, Matthew Morrison, Madison Liebmann and Sinovuyo Damane, ENS
3.5 Independence of Directors Position Under the Companies Act Conflicts of interest
experience needed to govern a company (see 3.1 Board Structure for further details). B-BBEE B-BBEE encourages companies to constitute diverse Boards, which impacts a company’s ability to conduct business or conclude contracts with the state or state- owned companies (see 7.1 ESG Requirements ). 3.4 Appointment and Removal of Directors/ Officers Position Under the Companies Act Appointment of directors Directors are generally elected by a majority vote of shareholders. The MOI can allow directors to be appointed directly by any specified party, or allow directors to serve as ex officio directors. At least 50% of the directors of a profit company must be elected by shareholders Removal of directors Directors can resign or be removed by shareholders or the remainder of the Board. Shareholder removal The Companies Act contains an unalterable provision for removal of directors by ordinary resolution at a general meeting. The director(s) must be given proper notice and a reasonable opportunity to make a pres - entation to the shareholders. Board removal If a director becomes incapacitated, ineligible or dis - qualified, or has neglected or been derelict in their duties, the Board may remove the director. The MOI may indicate additional processes. A shareholder, director, prescribed officer or company secretary can also approach the High Court to remove a director by invoking the oppression remedy or having a director declared delinquent for material or gross breach of duties. The Second Amendment Act has extended the time bar to declare a director delinquent from 24 to 60 months and grants the court discretion to extend the period for commencing proceedings to recover loss, damages or costs (currently within three years after the act or omission).
Avoiding a conflict of interest is a central fiduciary duty of a director. A director who has a material personal financial interest in a matter before the board, or who knows that a “related person” has an interest, must disclose it and recuse themselves. Family members within specific degrees of consanguinity or affinity, second entities of which the director is also a director, and organisations under the director’s control are all “related persons”. For the audit committee of a public or state-owned company, the test for independence requires that the director must not be: • involved in day-to-day management (nor have been so during the previous financial year); • a prescribed officer or full-time employee (nor have held such office during the previous three financial years); • a material supplier or customer such that a reason - able third party would conclude their objectivity is compromised; or • related to any person falling within the above cat - egories. Position Under King V Independence and conflicts King V recommends that a majority of non-executive directors should be independent and that the chair of the Board should be independent. Factors to consid - er when determining independence include amongst others whether: • the director holds material securities in the com - pany or group; • the director holds directorships on other group companies; • the director is a material lender or financier; • the director’s remuneration is based on company performance; or • the director stands in a significant relationship to a related party of the organisation. Under King V, exceeding nine years’ tenure is a key factor in evaluating independence, removing the pre - vious flexibility for directors to serve as independent
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