Cyberspinach – FluidRock Governance Group

Vaccinated Workplaces – A Tourist’s Choice

Added on 22 November, 2021

With the festive season less than a month away, businesses are gearing up for the influx of tourists and locals that will flood to holiday destinations and entertainment establishments. Lately, tourists have added another checkbox to their usual list of holiday requirements for these businesses, and that is whether all or most employees are fully vaccinated and whether these businesses accept unvaccinated patrons. It comes as no shock considering that many establishments and governments in foreign countries have already decided to implement mandatory vaccination policies for employees and patrons alike, whilst prohibiting access to the unvaccinated.

Many tourists across the globe have expressed their concerns about the lackadaisical approach to vaccinations in South Africa and have opted to put their holiday plans on hold until they feel more safe and secure to visit our shores. Other tourists have said that they will only frequent establishments that are fully vaccinated and continue to have strict protocols in place. In July, the private sector was essentially tasked by the South African government to take the necessary measures in the workplace including mandatory vaccination policies where necessary, but the country has seen no enforcement, guidance, clarity or support by government whatsoever.

Following these directions that were issued by the Department of Employment and Labour in July, Health Minister Phaahla had recently indicated that the government does not intend to interfere with internal policies of independent and private institutions, including public health policies. It is no mystery then why employers feel like they are in a state of limbo, and why South Africa is at high risk for another lockdown and further economic hardship.

What is of peculiar interest is why the government is reluctant to exercise leadership in respect of mandatory COVID-19 vaccinations and workplace policies. Nevertheless, South Africa will soon be forced to take drastic measures when the fourth wave hits, similar to those presently seen in Austria and Germany. The Austrian government has issued a mandate imposing lockdown restrictions on unvaccinated people, severely limiting their right of movement to traveling for work, food shopping, or emergencies. Germany is set to follow Austria in this regard, with further measures being implemented such as entry restrictions for unvaccinated people at all private and public establishments such as bars and restaurants.

Despite the consensus by several law professors and experts, including the South African Human Rights Commission, that mandatory vaccination policies in the workplace will pass constitutional muster, the general fear amongst employers are the risks of labour law consequences in taking these measures. With foreign tourists due to be flooding to our shores shortly, it is imperative that the government takes measures to prevent the spread of the infection by tourists and further secure the health and safety of our local citizens and businesses. Currently, this unpopular task of leadership has been left to business owners, and whilst they may be tempted to take action, due consideration should be given to the potential risks or opportunities the business may face in doing so.

If lockdown restrictions have been the greatest risk on your list, then prepare for a paradigm shift. COVID-19 brings to the fore reputational risk as the greatest risk a business faces, alongside the loss of lives. If you push for mandatory vaccination policies in the workplace, you risk severe pushback, backlash and reputational harm to the business, considering the vaccination hesitancy amongst many South Africans.

The flipside of the coin is, not to implement any policy and risk a failure to create a safe and healthy environment, which carries with it severe penalties. Now add foriegn tourists to the mix and your reputational risks will tick up significantly. If your business does not meet vaccination demands, you will be avoided like the literal plague. Whilst some may believe that negative publicity is still publicity, it would hardly bode well if your business is seen by tourists as a COVID-19 risk.

A sophisticated, comprehensive and proactive approach to risk management is the first port of call in tackling this issue and could also be the only step necessary, if done correctly. Moreover, taking the wrong approach in this step could snowball into further issues and also make cooperation impossible going forward.

It’s not all doom and gloom though. Looking at this differently, it could be a prime opportunity for businesses to carpediem and use their vaccinated workplaces as a way to attract customers and beat competition, whilst equally supporting the COVID-19 vaccination campaign and expanding your corporate social responsibility influence. Several businesses in foreign jurisdictions have implemented mandatory vaccination policies and have seen a tremendous increase in business and clientele. But don’t forget the most potent method of them all: word of mouth. If your business ticks every checkbox of foreigners, they are most likely to recommend you as the go-to holiday destination. More than likely you would have noticed a complete change in consumer psychology where there has been a shift in focus to a more health and hygiene conscientious environment and they will be looking to businesses that share such an approach.

The safest route for businesses right now will be to implement voluntary vaccination policies and implement procedures to ensure the safety of its employees, customers and patrons. But steer clear of online hatchet-job policies or those lengthy and overcomplicated policies that are riddled with legal jargon and not fit for purpose.

Talk about policies all you want, but they are worth the paper they are written on if you take the wrong approach with your employees. Effective training and raising of awareness by a team of compliance experts and medical professionals that are well-versed on the topic of COVID-19 is key to effectively implementing such policies and procedures and mitigating such risks. Beware of incorrect, incomplete, or out-dated information being relayed, leading to additional problems. These policies should also not break the bank, so to speak. FluidRock encompasses all these values and we actively seek to achieve the betterment of society by creating hands-on fit-for-purpose solutions. It is worthless to just receive a drafted policy without also getting the necessary first-hand expertise to conduct preliminary risk assessments and implement and complete the project. We make sure that you have all the perks without the pain!

While the development of COVID‑19 vaccines has been an extraordinary success, vaccinating most of the global population is an enormous challenge, one for which gaining – and maintaining – public trust in COVID‑19 vaccines and vaccination will be as essential as the effectiveness of the vaccines themselves. Moreover, the experience with COVID‑19 will likely shape confidence in future vaccines making it even more important to build confidence and promote education at this time.

Authors: Rudi Byleveld & Makhosazana Shilubana

Predicament of the company secretary – Fight or Flight

Added on 5 June, 2020

While several boards still see the company secretary as a “glorified minute taker”, there can be no argument that the duties and responsibilities of company secretaries have grown exponentially during the past decade or two. In South Africa this is, amongst other factors, as a result of the impetus given to the position by the various King reports on corporate governance issued since 1994, leading to a statutory provision included in the South African Companies Act making the appointment of a company secretary mandatory for certain companies. In addition, the latest report issued by the King Committee, referred to as the King IV Report on Corporate Governance for South Africa, 2016 (King IV), in line with its predecessors, recommend that the governing bodies of all entities should appoint a company secretary (also referred to as a ‘governance professional’ in the event of the entity not being a company or required by law to appoint a company secretary).

King IV recommends as follows:

“The governing body should ensure that it has access to professional and independent guidance on corporate governance and its legal duties, and also that it has support to coordinate the functioning of the governing body and its committees.”

Other recommendations in King IV relating to the company secretary or governance professional highlight the need for the position to be appropriately and adequately resourced and positioned so as to facilitate a professional, experienced and independent service being provided to the governing body and the organisation as a whole.

Few people are aware that, in terms of the Companies Act of 2008, the company secretary has specific statutory duties and that failure in these duties could result in both criminal and civil action against the company secretary. Some of these duties highlight the “guidance and advisory” role to be played by the company secretary as also noted in King IV. For one, the company secretary is required by law to provide the directors of the company collectively and individually with guidance as to their duties, responsibilities and powers.

Today’s experienced and professional company secretary (or governance professional) is not only aware of the extensive duties and responsibilities that accompany the position, but also appreciates the reliance that members of a governing body, who wish to exercise effective and ethical leadership, place on the guidance to be provided by the company secretary in an ever-growing and complex regulatory and business environment. In addition, such a company secretary often takes great care to act in absolute good faith and to ensure that the best interests of the organisation are always served. A governing body that collectively supports and empowers the company secretary to achieve this goal is the dream of every professional company secretary. In such an environment of trust and respect, the company secretary can be a value adding contributor to the leadership structure.

However, what if that dream turns into a nightmare with members of a governing body and/or executive management being driven by anything but the best interests of the organisation, often well disguised in lip service, window dressing and tick-box mentalities and demeanours. It has always been understood and appreciated that the company secretary is not part of the final decision-making in any organisation and thus must rely on the leadership of the organisation, and in particular the members of the governing body and executive management, to embrace and accept the guidance and advice provided by the company secretary in a constructive and ethical manner and in the best interest of the organisation.

In most instances this destructive behaviour is not true of all members of the governing body, but the reality is that the governing body is only as strong as its weakest link. While, on the one hand, the company secretary is providing guidance and advice from a governance and compliance perspective and the governing body is seemingly behaving appropriately and in line with the said guidance and advice in meetings, dynamics and activities outside of meetings, on the other hand, reveal the true agenda and objective of some of the members. Deliberations and decisions are often carefully and skillfully orchestrated in a manner that gives effect to the clandestine agenda. This is a recipe for a disaster of enormous proportions, as has been recently experienced in both the public and private sectors in South Africa.

What does the company secretary do when it becomes evident, or there is a strong suspicion, that one or more of the members of the governing body are driving an agenda contrary to what is in the best interest of the organisation? The expectation of the company secretary is to act in the best interest of the organisation. At the same time, the company secretary must assist and support the governing body and each individual member to the best of his/her abilities. When tension in the board room starts to increase, either as the result of internal conflict or external noise surrounding the organisation, members who are serious about their fiduciary and/or statutory duties to the organisation often turn to the company secretary for guidance.

Unlike other professional service providers, such as auditors, the company secretary does not have a regulatory body and a statutory duty to report incidences of possible irregularities (or even suspicions of irregularities and unethical behaviour) to such regulatory body. Also, having to consider the interests of the organisation and well-meaning members of the governing body, the company secretary does not have the luxury of “jumping ship” when the situation and environment becomes challenging for these reasons. At the same time, however, the company secretary must consider his/her own reputation, which is the most valuable asset of any ethical and professional individual. A complex situation, to say the least. One in which the company secretary must continuously assess which of “fight or flight” is the most appropriate approach under the circumstances, having weighed up all relevant factors and dynamics. One thing is for sure, there is little, if any, “black and white” in these situations, calling for a serious measure of emotional intelligence, tenacity and strong inter-personal and communication skills on the side of the company secretary. To the extent possible, fighting for what is right and just and ethical is what a professional company secretary must do.

Unfortunately, the day may come where flight becomes the only option..

Annamarie van der Merwe – Executive Chair

Will the real responsible corporate citizen please stand up?

Added on 1 April, 2020

The King IV™ Report on Corporate Governance for South Africa, 2016 (King IV ™), as did most of its predecessors, highlighted the need for responsible corporate citizens. In King IV™, responsible corporate citizenship forms part of the exercise of ethical and effective leadership that results in the outcome of an ethical culture in an organisation. In addition to being ethical and effective leaders, the members of the governing body of the organisation are expected to direct and monitor organisational ethics as well as ensuring that the organisation is and is seen to be a responsible corporate citizen.

The term ‘responsible corporate citizen’ has often been misunderstood and or equated to the CSI (corporate social investment) programme of an organisation. Although corporate social investment does form part of being a responsible corporate citizen, it is so much more! A quick glance at the relevant recommendations of King IV™ will reveal that being a responsible corporate citizen actually starts in your own backyard, in the workplace. Looking after the dignity, development, equity opportunities, health and safety of your employees; having responsible remuneration philosophy and practice, etc.

The circle then widens to include the economy and society. As far as the economy is concerned, what is being done by your organisation to assist with economic transformation in our country and to prevent and detect fraud and corruption that hasbeen a soul-destroying and devastating virus all by itself? Is your organisation a responsible tax payer? Forget for a minute the arguments around how wisely our tax is being used, this is a separate debate. The fact remains that as part of having an ethical culture and being a responsible corporate citizen, an organisation has to be a responsible tax payer.

Society also has legitimate expectations of organisations, both in public and private sectors. Again, CSI projects is but a part of fulfilling our responsibilities to society as organisations. There is public health and safety that warrants our utmost attention, consumer protection and protection of human rights, to name but a few. The development of communities in which we operate and doing our part to assist the most vulnerable in society should form an important part of our initiatives as being a responsible corporate citizen.

The fourth area that King IV™ highlights as part of being a responsible corporate citizen is the environment – responsibilities in respect of pollution and waste disposal, protection of biodiversity. Do we really appreciate that there is no ‘Planet B’? That we owe it to our children and their children to look after the resources we are borrowing from them today and that they will need in future to ensure their own livelihood?

Thus, being a responsible corporate citizen is about much more than writing out cheques to support soup kitchens or sponsor
a sporting event for a nearby school. It is about our people, our economy, our society and our environment. In my many years as a corporate governance advisor and operating in various boardrooms in this country, I have often been dismayed at not only the windowdressing but also the limited understanding when it comes to being a responsible corporate citizen.

Let me hasten to say that there are also those organisations and leadership that do in fact understand the art of ‘ethical capitalism’ to borrow a bit of the title of the book by Julian Richer (The Ethical Capitalist: How to make Business work better for Society, 2018). For these, I am eternally grateful! We have recently learned of a handful of individuals and organisations who have donated substantial amounts of money to various initiatives to address the impact of the coronavirus. In my personal experience, however, and forgive my cynicism forged over many years of walking the corporate corridors, there are an equal number, if not more, for whom ‘responsible corporate citizenship’ is nothing more than yet another corporate governance ‘hurdle’ potentially standing in the way of putting money in the pockets of shareholders.

We are now faced with a crisis of enormous proportions, the extent of which we have absolutely no idea of at this point in time. It is crunch time for the world, for South Africa and for every citizen, individual and corporate. It is now, in my respectful opinion, that we will see the true responsible corporate citizens and their leaders arise. When competitors start working together
for the greater good of society, when corporates do everything humanly possible to avoid job losses, when employers reach out a hand to employees where salaries are lost or reduced to soften the impact in whatever practical way possible. There is a myriad of ways in which an organisation can practically live out its commitment to being a responsible corporate citizen and it does not necessarily always mean a negative impact on financial resources. With the right attitude and mindset, creative ways can be found to fulfil one’s responsibilities to your workforce, the economy, society and the environment. Who knows what opportunities this can bring for the business! It is just a matter of perspective!

The million-dollar question therefore – is being a responsible corporate citizen just part of your public relations image to the outside world or will you “put your money where your mouth is”? It is time for the true leaders to stand up and show up!

ANNAMARIE VAN DER MERWE
Executive Chair
FluidRock Governance Group

*Kindly note that The King IV™ Report on Corporate Governance for South Africa 2016, Copyright and trademarks are owned by the Institute of Directors in Southern Africa” and the IoDSA website link is: http://www.iodsa.co.za/?page=AboutKingIV

The building of high-performance boards

Added on 1 April, 2020

Having the right board in place is one of the cornerstones of steering an entity successfully through the sometimes stormy, if not muddy, waters of the corporate world. At the same time, getting board composition right is a challenge no matter the company size or ownership structure. A look at responses from a survey undertaken in 2016 by the KPMG Board Leadership Centre amongst 2 300 directors and executives suggests that board building is an even greater challenge for private companies – both investor-owned and family-owned.1 Only one third of private company directors said that they were satisfied that their boards had the right combination of skills, backgrounds, experiences and perspectives to probe management’s strategic assumptions and help the company navigate the increasingly volatile marketplace.

When asked to rank the most effective mechanisms to achieve the right mix of skills, backgrounds and experiences on the board, some 80 per cent of private company directors cited both robust board evaluations (including individual director evaluations) and formal board succession plans as their top two.

It is fairly obvious from the aforegoing that boards are not completely ignorant to some of the value- adding disciplines and processes, such as performance evaluations and succession plans, required to strengthen and enhance their ability to be effective. However, the scoreboard shows that these disciplines are getting very little, if any, airtime in the boardroom. The reality is that many directors of private companies find their way into the boardroom as representatives of material stakeholders such as shareholders, funders, suppliers, labour and others. Very little interest is taken in appropriately developing these individuals, in effectively evaluating their performance or having an adequate succession plan in place.

In principle, having stakeholder representatives in the boardroom is not in itself to be frowned upon. There are many reasons why this can be of real benefit, not only to the board, but also to the organisation. Personal experience in boardrooms over three decades has however left me fairly despondent and cynical in this particular area. The mindlessness with which directors are often introduced to and welcomed onto a board is but one of the features regularly witnessed in many boardrooms – both in the private and public sector.

In a Forbes article,2 Bryan Stolle writes:

A great board is the result of having great board members. Bad board meetings are the result of ineffective or unqualified board members. So what does make a great board member?

He then lists a number of critical attributes of a great board member such as great judgement, wisdom, understanding the relevant context, motivation and interest, good people skills, courage, and being an effective coach, mentor and sounding board. The King IV™ Report on Corporate Governance for South Africa, 2016 (King IV™) also highlights a number of important characteristics to ensure effective and ethical leadership in our organisations. These include integrity, competence, responsibility, accountability, fairness and transparency. Considering all of this it goes without saying that a healthy dose of emotional intelligence is non-negotiable for an effective and value-adding board member.

It is however not only about character and personality; it is also about bringing the right skills into the board to enable the board to be in effective control, to ask the right questions from management, to timeously identify potential risks, negative trends and the like. Ana Dutra3 argues that ‘to add such strategic value, high-performing boards must be “talent-centric.” At its most basic level, this manifests itself in a board’s composition and diversity level. An enterprise must attract directors who can provide valuable, strategic input, while building a board that can draw on the diversity of its members’ expertise and backgrounds
— across geographies, gender, race, and experience
— to create a whole that’s literally greater than the sum of its parts.’

The reality is that many directors of private companies find their way into the boardroom as representatives of material stakeholders such as shareholders, funders, suppliers, labour and others.

Is having the ‘right people’ then enough to guarantee a highly effective board? Sadly not. It is one of the critical building blocks but not sufficient on its own. If the individuals in the boardroom do not understand their roles as well as the relevant rules of engagement that govern the functioning of the board and if they do not have proper governance processes in place, things can still go terribly wrong. The level of ignorance often displayed in boardrooms as to the fiduciary (and in some instances even statutory) duties of board members to act in the best interest of the organisation, to the exclusion of the interests of their principals, can be mind-blowing at times. Considering that the board acts as the controlling mind of the organisation and that the organisation is completely dependent on the board to not only enhance but also protect its interest, it is not difficult to understand why we witness some of the corporate disasters out there. In a boardroom filled with individuals, a number of whom have their own agenda and interest as first priority, it is only a matter of time before disaster strikes.

It is often found that board members do not have an appropriate understanding of what is expected from them in law but also in being appropriate governors and custodians of the interest of the organisation. Not only this, they lack a basic understanding of the applicable rules and regulations that govern their functioning and as stipulated in relevant laws and regulations as well as the constitutional documents of the organisation. This level of ignorance, sometimes fuelled also by arrogance, can result in even the most qualified, skilled and mature individual finding themselves in the midst of a board that is failing dismally in its stewardship and leadership role.

Once we have the ‘right people’ in the boardroom who all fully understand, appreciate and execute their role vis-à-vis the organisation in an effective and ethical manner, we need proper process management to support them. Facilitating an adequate flow of information to enable informed decisions to be made, both within and outside of formal meetings, is a critical element of a high-performing board.

This requires a substantial number of elements and sub-processes that have to come together in a holistic manner to form a strong foundation from which a board can effectively function. These processes speak not only to the actual functioning of the board but also to those processes alluded to earlier that assist with identifying and addressing weak areas on the composition of the board, such as appropriate performance evaluations and succession plans. Also, these include processes around induction and ongoing development to further strengthen the talent around the boardroom table.

The King IV™ Report on Corporate Governance for South Africa, 2016 (King IV™) also highlights a number of important characteristics to ensure effective and ethical leadership in our organisations.

What is the point? The point is that an effective board is not an informal process. It starts with those having the authority to appoint individuals to boards in the private and public sector understanding the need to have the ‘right people’ in the room. These are individuals with the skills, background, experience and attributes that are appropriate and relevant to
the specific organisation. Thereafter, ensuring that these individuals fully understand the meaning and implications of acting in the best interest of the organisation requires proper induction, performance evaluation and ongoing engagement. Not only that, an appropriate understanding of the rules that govern the functioning of the board is essential in ensuring that actions and decisions taken on behalf of the organisation can withstand any challenge from those who, driven by own agendas and interest, may want to sabotage the work being done.

A lot has recently been said about the spectacular failures of boards of state-owned entities. Lots can also be said of the daily failures of boards in the private sector. The dynamics working against the establishment of high-performing boards are prevalent in both these sectors. It is time for those appointing the members of these boards and the boards themselves to realise that, as a start, it is about having the right people, doing the right things and doing things right!

Annamarie van der Merwe

First published in The Corporate Report, Juta, 2018

About the author:

Annamarie van der Merwe has been a corporate lawyer and company secretary for more than 27 years, acting in both the private and public sectors. She has a B.luris degree, a Bachelor of Laws degree and a Master of Laws degree. She has served as a board member in different institutions over many years. She is a member of the King Committee and was actively involved in writing a number of the King Reports on Corporate Governance. She is also a well- known presenter and facilitator of workshops for directors and company secretaries. She is the Executive Chairman of FluidRock Governance Group (Pty) Ltd.

*Kindly note that The King IVTM Report on Corporate Governance for South Africa 2016, Copyright and trademarks are owned by the Institute of Directors in Southern Africa” and the IoDSA website link is: http://www.iodsa.co.za/?page=AboutKingIV

It is time to take a stand…

Added on 20 March, 2020

In one of my many roles as facilitator for the Institute of Directors, I spend many hours with corporate leadership in both public and private sectors. While addressing the overall topic of the roles and duties of governing bodies and its members, both from a legal as well as a governance perspective, I motivate the need for ethical and effective leaders in our boardrooms. Pointing out that no corporate governance code on its own, no matter how well written or intended, will prevent the corporate failures we have been witnessing in the public and private sectors of our beautiful country. Human intervention is critical for its success and not just any kind of human intervention. Without intellectual honesty (a concept widely advocated by Prof Mervyn King, chairman of the King Committee on Corporate Governance) the so-called application of the principles of good governance will be a mindless tick-box exercise potentially causing more harm than good. Competent people and leaders with integrity are required, those that behave in a fair, responsible and transparent manner in all their dealings and who accept accountability for their decisions and actions or lack thereof.

In my teaching role, I explain the legal notion of the separate existence of any organisation, its utter dependence on the governing body as its controlling mind acting in its best interest and not in the furtherance of own interests. I elaborate in detail on the importance of an organisation being a responsible corporate citizen that considers the impact of its existence and activities on all its stakeholders, as opposed to focusing all its efforts on creating value for one group of stakeholders at the expense of others. All of these important notions I illustrate with real life stories, the good and the bad, from my journey of nearly 30 years through many a boardroom in this country while wearing very different hats – that of corporate lawyer, company secretary, governance advisor, director and many others.

Most of the times my audience responds with nodding heads, silently but seemingly in agreement with my plea for a fundamental change in the way we lead and manage our organisations and even our society. Only for a short while and then the “yes but” starts to raise its well-known negative voice. “Yes, but you don’t understand the pressure we are under from shareholders or from politicians.” “Yes, but you don’t understand how deeply engrained the corruption is in our organisation or our society.” “Yes, but we are too small to make a difference.” “Yes, but we will not secure tenders without paying bribes and facilitation fees.” “Yes but, yes but, yes but……!” Fingers are pointed at others – others must take action, take responsibility, be blamed for governance failures, be accountable. It is never me who needs to take action and responsibility and accountability. Then there is the convenient excuse that the level of corruption in our public
and private sectors is of such magnitude that change is impossible. And so, I listen to all the excuses.

The fact of the matter however is that if each one of us just start in our homes, our communities, our boardrooms, our spheres of influence to raise our voice for honesty and truth and compassion against injustice and lying and greed……it can change this country for the better, for us and for the next generation. It is time to take a stand…

First published in The Corporate Report, Juta, 2019
It is time to take a stand …

“Power corrupts the few while weakness corrupts the many.” – Eric Hoffner

ANNAMARIE VAN DER MERWE
Executive Chairman, FluidRock Governance Group

The Governance of IP Podcast

Added on 10 April, 2019

Listen to our Annamarie van der Merwe and Darren Olivier of Adams & Adams in conversation about the governance of intellectual property.

Director’s Disclosure

Added on 28 June, 2018

Directors have a fiduciary duty to act in the best interest of the Company which includes the duty to prevent conflict of interest and to maintain unfettered discretion. From time to time situations will arise which could pose a conflict of interest and Section 75 deals with the obligations in relation to the disclosure of personal financial interest and the consequences of a failure to disclose appropriately.

Who does it apply to?

Registered directors and alternate directors;
Prescribed officers;
Members of board committees

It is important to note that not bearing the title or official appointment as “director” does not exempt a person from Section 75 and the duty thus extends to positions such as managing director and chief executive officer.

What needs to be disclosed?

The application of section 75 is broad and requires that personal financial interest must be disclosed and there has to be a disclosure if the director knows that a related party has a personal financial interest in any matter to be considered by the board.

The Act defines “know”, “knowingly” or “knows” as follows:

‘‘knowing’’, ‘‘knowingly’’ or ‘‘knows’’, when used with respect to a person, and in relation to a particular matter, means that the person either—

(a) had actual knowledge of that matter;
(b) was in a position in which the person reasonably ought to have—
(i) had actual knowledge;
(ii) investigated the matter to an extent that would have provided the person with actual knowledge; or
(iii) taken other measures which, if taken, would reasonably be expected to have
provided the person with actual knowledge of the matter.

A simplified example demonstrates the effect of the requirements in section 75 – If Company A is negotiating a contract with Company B and Director X’s spouse is a director at Company B, section 75 is triggered

What is personal financial interest?

The Act defines “personal financial interest” and it will include any direct material interest of a financial, monetary or economic nature or a direct material interest to which a monetary value may be attributed.

How do declare in terms of Section 75?

Disclose the personal financial interest in writing or verbally before the matter is considered by the Board;
The conflicted director may provide insight or material information to the Board but must then be recused from the meeting and may not participate in any decision making in relation to the matter;
The conflicted director may not vote on the matter. Voting includes signing a written resolution related to the matter.

In simple terms – Disclose and leave the meeting.

What are the consequences of non-compliance?

Non-compliance with section 75 has far-reaching consequences and to remedy the transgression is not a quick exercise. Any board resolution taken without complying with section 75 is invalid.

Proper consideration of personal financial interest and spending sufficient time at every board meeting on disclosure is worth the effort.

How to ratify a decision taken without proper disclosure?

The solution to non-compliance will take more effort than an apology and a few red faces. There are only two avenues of recourse:

The decision/board resolution has to be ratified by an ordinary resolution of the shareholders following disclosure of that interest; or
The decision/board resolution has been declared to be valid by a court.

Recommendations

As a director, it is your duty to be aware of your obligations and duties in terms of the Act. Give your Company Secretary a time slot at your next meeting to give refresher training;
Add “declaration of personal financial interest” as a standing agenda item on every board and committee meeting agenda;
When you deal with declaration of personal financial interest – spend adequate time on the item;
Review your own personal financial interests and make sure that you have disclosed all that is required;
Consider who your “related parties” would be and identify any areas of potential conflict or personal financial interest;
Ensure that the board submit, at least annually, all directorships, direct and indirect shareholding. The disclosure should be readily available to peruse by all directors. Update the Company Secretary if there are any changes;
If in doubt – disclose to the board and engage;
Lastly, remember if a personal financial interest has been disclosed – leave the meeting.

“Trust happens when leaders are transparent” – Jack Welch

[1] Section 75 in the Companies Act 71 of 2008 as amended from time to time

[2] Section 2(1) of the Companies Act 71 of 2008 as amended from time to time

[3] Companies Act 71 of 2008 as amended from time to time

[4] Section 1 of the Companies Act 71 of 2008 as amended from time to time

[5] Section 75(7)(b)(i) and Section 75(8) of the Companies Act 71 of 2008 as amended from time to time

By: Yolandi van Zweel

Governance Professional

www.fluidrock.co.za

5 Tips to escape the Inbox trap

Added on 10 May, 2018

5 Tips to escape the Inbox trap

Do you sometimes feel like a slave to your inbox? Or that no matter how efficient you try to be that your inbox is like a continual never ending flow?

Even through futurists predict that we won’t have emails in future the reality is that email is still one of the main methods of communication, hence answering mails are “real work”. Managing emails can be the make or break factor in your productivity and success. Below a few tips to manage your inbox:

Emails are like boomerangs – they tend to come back – the more you respond the more they come back!
Break the CC culture
Don’t subscribe to anything
Answer all the questions in one mail – if possible group things together sensibly and ensure that the email subject line relates, which will make it much easier to find again in future should you need to refer back to it
Use Inbox for Google or something similar – Snooze it for when you are able to attend to it meaningfully, instead of just responding for the sake of response time

By: Ronelle Kleyn
Director, Chartered Secretary, Attorney, Urban Farmer and Mom
FluidRock

The Robo-Director

Added on 3 May, 2018

Automation causes anxiety.

Artificial intelligence (AI) causes even more discomfort.

If you haven’t heard, we are officially in the fourth industrial revolution and artificial intelligence is already applied all around us. AI will continually become more prevalent in our daily and business lives – apparently to our benefit.

THE FOURTH INDUSTRIAL REVOLUTION

To understand the fourth industrial revolution there is merit in reflecting on the first three industrial revolutions. During the first industrial revolution water and steam power were used to mechanise production. The second used electric power to create mass production and the third used electronics and information technology to automate production. The fourth industrial revolution is a digital revolution that is characterised by a synthesis of technologies that is blurring the lines between the physical, digital, and biological spheres.

According to Klaus Schwab, Founder and Executive Chairman of the World Economic Forum “The Fourth Industrial Revolution … will change not only what we do but also who we are. It will affect our identity and all the issues associated with it: our sense of privacy, our notions of ownership, our consumption patterns, the time we devote to work and leisure, and how we develop our careers, cultivate our skills, meet people, and nurture relationships.”

AI IN THE BOARDROOM

The fourth resolution with its fusion of technologies will dramatically affect companies, thus, directors on boards need to consider the associated opportunities and risk.

A startling idea is the concept of the AI director or also called the Robo-Director. It is not a new concept as Deep Knowledge, a Japanese venture capital firm, appointed a robot named VITAL (Validating Investment Tool for Advancing Life Sciences) as a director to the board in 2014 with the specific function to assist in analysing financial and scientific data to better inform investment decisions made by partners and the board of directors.

In a survey of 800 delegates at the 2015 World Economic Forum’s Global Agenda Council in Dalian, China it was believed that the AI directors would be a reality around 2025.

Adriaan Louw and Patrick Bacher of Norton Rose Fulbright are of the opinion that AI is rapidly developing and may in the future get a seat at the boardroom table. Their view is that the ability of AI to fulfil data collection and processing tasks at exponentially speeds compared to its human counterparts means that businesses cannot function properly without the use of AI.

James Matcher of EY is of the view that directors would definitely be able to benefit from the support of AI in terms of analytics and speed, but that Robo-Directors would not become a reality in South Africa in the short term. He added that matters to be considered included the ethics thereof and that there were a lot of discomfort about the point at which machines would be deemed to have become sentient.

COMPANIES ACT

The reason VITAL could be appointed as a director on the Deep Knowledge board is that Hong Kong allows juristic persons to be directors. The same is not the case in South Africa as Section 66 of the Companies 71 of 2008 (Companies Act) states that a juristic person is excluded from serving as a director on the board of a company.

This interpretation assumes that a Robo-Director would be classified as a juristic person, but we should note that should it not be the case that there would technically not be a preclusion for such an appointment.

The fact is directors owe a fiduciary duty to the company. Some writers are of the view that the duty of good faith and acting in the best interest of the company therefore excludes the Robo-Director from being appointed. However, in speaking to coders and futurists they are convinced that one could hardcode “good faith” and “best interest” into AI.

Definitely food for thought.

No one sees Robo-Directors replacing warm bodies on boards in totality, but there is consensus in the proposed value that could be added and it is this type of thinking that could influence the amendment to corporate law.

By: Ronelle Kleyn

Director, Chartered Secretary, Attorney, Urban Farmer and Mom

FluidRock

www.fluidrock.co.za

hello@fluidrockgovernance.com

Effective place of business

Added on 26 April, 2018

Effective place of business, board meetings and minutes

The residency of a company is a cardinal component in establishing its tax obligations in South Africa.

According to Shahid Sulaiman and Daniél Hofmeyr a juristic person is regarded as being resident in South Africa under the Income Tax Act 58 of 1962 (the Act) if such juristic person is:

incorporated in South Africa; or
has its place of effective management (the POEM) in South Africa.

The first element of incorporation in South Africa is quite logical and self-explanatory and it is clear unless a company has expatriated to a different country – even then there will be a paper trail. To determine the meaning of “effective management” there are case law and SARS has issued interpretation notes.

In Oceanic Trust Co. Ltd N.O. and the Commissioner for the South African Revenue Service, the High Court rejected the application for a declaratory order on the basis that the applicant was not able to provide SARS with sufficient evidence to prove its claim that key management decisions were made in Mauritius. The High Court accepted the reliance by the applicant on the test applied in the UK case, Smallwood, and amongst other tests that the POEM will ordinarily be the place where the most senior group of persons (such as the board of directors) makes its decisions, and where the actions to be taken by the entity as a whole are determined.

Thus, the place where the board meets is one of the determining factors of the POEM, depending on the role the board has in key management and taking key commercial decisions. The physical location of a board meeting may not be the place where key commercial decisions are in substance made, when considering the advances of technology and video conferencing tools used in business today. Considerations of who joined the conference and who was physically present should be factored in along with the location of such board meetings to determine the POEM of an entity.

Hence, when it comes to the minutes of the board meetings it is important to note where the board meeting is held regardless if members attend electronically as proof of the company’s view of the place where the meeting was held.

By: Ronelle Kleyn

Director, Chartered Secretary, Attorney, Urban Farmer and Mom
FluidRock