Warning for South African companies 

Directors have huge influence over an organisation’s oversight and performance, and failing to hold them accountable can severely damage a company, shareholders, and the economy. 

This is according to the Institute of Directors South Africa (IoDSA), which said that failing to hold delinquent directors accountable hurts a company’s governance.

“The King Codes, the Companies Act and the common law all set high standards for directors because of the huge influence directors have over the oversight and performance of an organisation, be it a private, public or non-profit entity,” IoDSA explained.

The Zondo Commission’s report and several high-profile cases have shown that directors who fail to do their jobs properly or who are dishonest or negligent can seriously harm a company and negatively impact all its stakeholders. 

This also includes the damage caused to the South African economy by mismanagement in state-owned companies.

“South African Airways, Eskom, Steinhoff and Tongaat Hulett are just some of the big names scarred by directorial misconduct,” the organisation said.

Therefore, it is essential that directors provide leadership that is both ethical and effective. 

This was emphasised in a recent IoDSA webinar on director delinquency, where governance specialist Richard Foster stressed the importance of accountability.

Foster said that for good leadership to happen, we need solid governance codes, strong legal frameworks, effective regulators, and an independent judiciary – all of which South Africa is fortunate to have.

The main recourse available is to have directors who do not fulfil their fiduciary duties declared delinquent or at least placed on probation. 

Probation can last up to five years, while delinquency can last from seven years to a lifetime, depending on the severity of the misconduct – such as in the case of the late Dudu Myeni, former chair of SAA.

“However, getting a director declared delinquent is a demanding process and can be expensive,” IoDSA said.

As a result, many companies prefer to settle with a rogue director and have them leave the company rather than pursue a delinquency application, Bowmans partner Vanessa Jacklin-Levin explained.

While quickly removing such a director may be an effective route for the company, she warned that it still allows that person to continue holding directorships in other companies and carry on with misconduct or bad behaviour elsewhere.

“As such, the problem persists,” IoDSA explained. 

Advocate Stefanie Fick, the Executive Director of the Accountability and Public Governance Division at the Organisation Undoing Tax Abuse (OUTA), which instituted a delinquent case against the late Dudu Myeni, said that the private and public sectors should step up and take action.

“People must know they cannot get away with failing to discharge their fiduciary duty,” she said. 

Since holding a director accountable can be risky and expensive, NGOs like OUTA are more likely to have to lead this particular fight. 

“In that case, the IoDSA’s paper argues, companies must support organisations like OUTA and the Companies and Intellectual Property Commission (CIPC) to undertake that effort should they not be willing to take on this challenge,” IoDSA said. 

“An important point is that directors and companies themselves must understand what a director’s responsibilities are and what their fiduciary duties entail.”

The courts have increasingly seen the King Codes – an important South African corporate governance code meant to make governance more accessible and relevant to a wider range of organisations – as a yardstick against which directors’ conduct can be measured. 

As such, directors of all organisations in South Africa should understand King IV and its recommended practices in depth.

The IoDSA’s drive to professionalise directorship is more important than ever, as it will ensure that qualified and professional directors know what is expected of them.

IoDSA Executive Director Vikeshni Vandayar said a drive to maintain a license to operate will make it easier to remove a director for misconduct, reducing the need for legal action.

For South Africa to overcome and break the vicious cycle of corruption and maladministration, it is imperative to hold directors accountable and ensure that those found guilty of gross misconduct are not able to serve on any other board.

“The overarching principle of a declaration of delinquency is to safeguard companies, investors, and other stakeholders, including the South African public, from company maladministration and corruption,” Vandayar said. 

Along with professionalising directorship, this promotes effective corporate governance and clearly states that directors will be held accountable for their actions and that anyone wishing to serve as a director must maintain the highest standards concerning their duties.