By Parmi Natesan
The proposed amendment to section 162 of the Companies Act (Act 17 of 2008) is one of several amendments proposed by the Department of Trade, Industry and Competition (Dtic) in the Companies Amendment Bills.
It follows on from a recommendation made by the Zondo Commission of Inquiry into State Capture to extend the time period during which application could be made to declare a director delinquent.
The current law states that an application to declare a director delinquent can be made if the person is currently a director of the company, or was one in the preceding 24 months. The latest proposal is to extend this time bar to five years, and further to give the courts discretion to extend it still further if they see cause.
The statute of limitations for directorial misconduct has thus been greatly extended and even, in some cases,eliminated.
The Institute of Directors in South Africa (IoDSA) supports this move. As we made clear in our submission to the Dtic on these proposed amendments, one of the conclusions one can draw from the Zondo Commission is that directors play a critical role in creating and maintaining well-governed organisations — and that if they do not discharge their duties properly, the consequences for the organisation can be catastrophic. Our long-held position, enshrined in the King Reports on Corporate Governance, is that good governance is intimately connected with corporate health and long-term ability to deliver on its goals.
The implosions of our key parastatals and some of our highly respected private corporations over the past years can often be linked back to governance failures and, in large part, to director delinquency.
But, as we all know, the road to hell is paved with good intentions. Delinquency applications consume significant resources in time, money and effort — and, as with any legal process, the outcome is unsure until judgement is handed down. In addition, the Stalingrad defence seems to have become an indispensable tool in the defence team’s armoury, again raising the stakes.
An organisation needs to be very sure of the outcome and possess a strong backbone to stay the course needed to hold a wily, well-resourced and determined director to account. That’s why we probably do not see enough delinquency applications in South Africa — despite the fact that they are so very important. As a result, “delinquent” directors are free to continue spreading mayhem on other boards.
The solution proposed by the IoDSA is to make directorship a professional like any other, requiring a licence to practice and regulated by a professional association like the IoDSA with the authority to revoke the licence. This would make it much easier (and quicker) to hold directors accountable. At present, we operate as a voluntary association, and so can only discipline our members and we cannot prevent any individual from working as a director.
Professionalising directorship would also solve another challenge we have often raised — the lack of individuals with the specialised skills needed to discharge the duties of today’s director. Previous business experience, no matter how illustrious, is sufficient — directors need specialist governance skills as well.
The IoDSA has already created a Director Competency Framework to guide directors in obtaining and maintaining the skills they need and established two professional designations, Certified Director and Chartered Director. Holders of these designations can objectively demonstrate what skills they have, that they are committed to keeping them current through continuous professional development, and submit to the IoDSA’s Code of Conduct.
Giving organisations more time to identify and hold delinquent directors accountable is a step in the right direction, but ensuring that directorship is regulated as a profession cries out to be included in the new bills.
Professor Parmi Natesan is the CEO of the Institute of Directors in South Africa.
BUSINESS REPORT