CORPORATE GOVERNANCE IN SOUTH AFRICA WITH INTERNATIONAL COMPARISONS. Tobie Wiese

Transcription

1 CORPORATE GOVERNANCE IN SOUTH AFRICA WITH INTERNATIONAL COMPARISONS Tobie Wiese BCom LLB LLM LLD (Stellenbosch) Attorney, Notary and Conveyancer of the High Court of South Africa

2 CONTENTS Preface Table ofcases Chapter 1 INTRODUCTION 1.1 DEFINITION OF CORPORATE GOVERNANCE Narrow definition Wider definitions THE OBJECTIVES OF CORPORATE GOVERNANCE THE HISTORYOF CORPORATE GOVERNANCE THE IMPORTANCE OF CORPORATE GOVERNANCE Introduction The reduction of risk Access to capital Shareholder activism Public demand for accountability THE STAKEHOLDERS OF COMPANIES Shareholders Employees Creditors Customers The Community The environment Government THE STAKEHOLDER DEBATE Introduction The shareholder-centric approach The pluralist stakeholder approach INTERNATIONAL RECOGNITION OF STAKEHOLDER INTERESTS Introduction Domestic legislation and codes International codes STAKEHOLDERS AND SUSTAINABILITY 13 Chapter 2 THE SOUTH AFRICAN REGULATORY FRAMEWORK 2.1 INTRODUCTION THE COMMON LAW THE GUIDELINES FOR CORPORATE LAW REFORM Introduction Objective of the review 16 v xv vii

3 viii Corporate Governance in South Africa Stakeholders Corporate governance THE COMPANIES ACT Introduction SomeimportantfeaturesoftheAct THE KING REPORT ON CORPORATE GOVERNANCE FOR SOUTH AFRICA Introduction Key aspectsof King III Application of King III Principles and recommendations THE INTERACTION BETWEEN KING III AND THE ACT THE JOHANNESBURG STOCK EXCHANGE LISTINGS REQUIRE- MENTS Introduction Corporate governance requirements OTHER LEGISLATION 28 Chapter3 COMPARING CORPORATE GOVERNANCE FRAMEWORKS 3.1 INTRODUCTION AUSTRALIA Introduction Principles of good corporate governance and best practice recommendations Conclusion BRAZIL Introduction Code ofbest Practice of Corporate Governance Conclusion CHINA Introduction Code of Corporate Governance for Listed Companies in China Conclusion GERMANY Introduction The German Corporate Governance Code Conclusion THE INTERNATIONAL CORPORATE GOVERNANCE NETWORK Introducton The International Corporate Governance Network Global Governance Principles Conclusion 49

4 Contents ix 3.7 THE ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT Introduction The Organisation for Economic Co operation and Development Principles of Corporate Governance Conclusion THE UNITED KINGDOM Introduction The United Kingdom Corporate Governance Code Conclusion THE UNITED NATIONS GLOBAL COMPACT Introduction Theten principles ofthe United Nations Global Compact Conclusion THE UNITED STATES OF AMERICA Introduction NewYork Stock Exchange Ruleson Corporate Governance Conclusion COMMON INTERNATIONAL CORPORATE GOVERNANCE PRINCIPLES 64 Chapter4 THE ROLE OF SHAREHOLDERS IN CORPORATE GOVERNANCE 4.1 INTRODUCTION DEFINITION OF A 'SHAREHOLDER' FOR CORPORATE GOVER NANCE PURPOSES COMPLIANCE WITH FORMALITIES PROXIES Introduction The United States of America South Africa RECORD DATE FOR DETERMINING SHAREHOLDER RIGHTS SHAREHOLDERS' MEETINGS Introduction Convening a shareholders'meeting NOTICE OF MEETINGS Givingnotice Contents of the notice Defects in the notice CONDUCT OF SHAREHOLDERS' MEETINGS MEETING QUORUM AND ADJOURNMENT Quorum for meetings Postponement or adj oumment without voting Adjournment after a vote 76

5 X Corporate Governance in South Africa 4.10 VOTING AT SHAREHOLDERS' MEETINGS Voting rights The voting process Voting obligations Protection ofminority shareholders SHAREHOLDER RESOLUTIONS Introduction Ordinary resolutions Special resolutions Written resolutions SHAREHOLDERACTIVISM Introduction Arguments for and against shareholder activism Companies' response to shareholder activism THE ROLE OF INSTITUTIONAL SHAREHOLDERS 87 Chapter 5 THE ROLE OF THE BOARD OF DIRECTORS IN CORPORATE GOVERNANCE 5.1 INTRODUCTION BOARD STRUCTURES Introduction The Act RESPONSIBILITIESOF THE BOARD OF DIRECTORS COMPOSITIONOF THE BOARD OF DIRECTORS The Act King III THE ROLE OF INDEPENDENT NON-EXECUTIVE DIRECTORS THECHAIRPERSON OFFICERS OF THE COMPANY The chief executive officer The Company secretary The auditor Prescribed officers VACANCIES ON THE BOARD OF DIRECTORS BOARD MEETINGS Galling a meeting Notice ofboard meeting Quorum at board meeting Voting at board meetings Minutes and resolutions ofboard meetings Written resolutions BOARD COMMITTEES Introduction 103

6 Contents xi The audit committee The social and ethics committee Risk committee Remuneration committee Nomination committee 110 Chapter6 INDIVIDUAL DIRECTORS AND CORPORATE GOVERNANCE 6.1 INTRODUCTION DEFINITION OFA'DIRECTOR' CATEGORISATIONOF DIRECTORS In terms of the Act Other classifications of types of director FIRST DIRECTORS ELECTION OF DIRECTORS ELIGIBILITY TO BEA DIRECTOR Ineligibility Disqualification DECLARINGA DIRECTOR DELINQUENT ORON PROBATION Declaration of delinquency Probation order Other terms and conditions of the order of delinquency or probation Settingaside an order of delinquency or probation REMUNERATION OF DIRECTORS International guidelines South Africa RETIREMENTOFA DIRECTOR REMOVAL OF A DIRECTOR Removal by the shareholders Removal by the board of directors Removal by the Companies Tribunal 127 Chapter7 THE DUTIES AND LIABILITIES OF DIRECTORS 7.1 INTRODUCTION THE NATURE OF A DIRECTOR'S FIDUCIARY DUTY Contents of the duty Categorisation of fiduciary duties THE DUTYTO ACT IN GOOD FAITH AND FOR A PROPER PURPOSE Goodfaith Proper purpose THE DUTYTO ACT IN THE BEST INTERESTSOF THE COMPANY Best interests of the Company 133

7 xii Corporate Governance in South Africa Avoiding conflicts of interest THE DUTYTO DISCLOSE A PERSONAL FINANCIAL INTEREST Thedutytodisclose Wherethedutydoesnotapply The position of Single directors Disclosure in advance Disclosing the acquisition of an interest in existing contracts Failure to comply THE DUTYTO ACT WITH CARE, SK3LL AND DILIGENCE THE BUSINESS JUDGMENTRULE The United States of America and Canada The Act THE RIGHT TO RELYONTHIRD PARTIES KING III AND THE DUTIES OF DIRECTORS THE LIABILITYOF DIRECTORS Introduction Breachoffiduciaryduty Breach of the duty of care and skill Otherliabilitiesof directors in terms of the Act Extended standing of claimants Criminalliability CONDONATION AND RELIEF Relief by the court Condonation by the shareholders INDEMNIFICATIONAND DIRECTORS'INSURANCE Indemnification Insurance INSIDER TRADING Introduction The Financial Markets Act Inside Information Insider-trading offences and defences Insider trading and the Act Insider trading and King III Insider trading and the JSE 152 Chapter 8 REPORTING, AUDITORS AND RISK MANAGEMENT 8.1 INTRODUCTION FINANCIAL STATEMENTS Definition Contents offinancial statements Annualfmancial statements 157

8 Contents xiii Access to financial statements Interim reporting Provisionaireports Annual returns ENHANCED ACCOUNTABILITY AND TRANSPARENCY INTEGRATED AND SUSTAINABILITY REPORTING Introduction King III The Global Reporting Initiative The International Integrated Reporting Council EXTERNAL AUDITORS Introduction Audit and independent review Appointment of an auditor Rights and restricted functions of auditors Resignation of auditors and vacancies Rotation of auditors The Auditing Profession Act INTERNAL AUDIT Introduction King III THE AUDIT COMMITTEE Introduction The Act King III THE GOVERNANCE OF RISK Introduction King III and risk management The risk management plan Information technologyrisks Compliance risk 179 Chapter9 CORPORATE SOCIAL RESPONSIBILITY 9.1 INTRODUCTION CORPORATE SOCIAL RESPONSIBILITY Development of the conceptof social responsibility Types of corporate social responsibility The business case for corporate social responsibility International trends Corporate social responsibility in South Africa ETHICAL LEADERSHIP Moral theories 192

9 xiv Corporate Governance in South Africa Theethicaldutiesofcompanies International Codes and Conventions on corporate ethics Corporate ethics in South Africa AFFIRMATIVE ACTION Introduction The Constitution The Act The Broad-Based Black Economic Empowerment Act The Employment EquityAct RESPONSIBLEINVESTING Introduction Investment strategies International responsibleinvestment codes and practices Responsibleinvestment in South Africa 209 Chapter 10 CONCLUSION 10.1 IMPLEMENTATION OF CORPORATE GOVERNANCE PRINCIPLES Introduction Guidelines for Implementation CYCLESOF CORPORATE GOVERNANCE REGULATION CONCLUSION 217 INDEX 219