Cohen Grootboom | Associate Attorney | Adams & Adams | mail me |
Is it time to broaden the traditional concept that directors owe a duty to the company only?
There is an interdependency between companies and South African society, which mirrors the African concept of Botho, otherwise known as Ubuntu, which translates to ‘I am because you are; you are because we are’.
Companies are an integral part of South African society, and vice versa. However, a company is dependent on the broader South African society in order to provide it with a conducive operating environment, creating a sustainable customer base and to provide the skills which the company requires to operate, among many others.
This leads us to ask whether directors of a company should be required to run a company solely in the interest of its shareholders, or whether they should take into consideration the interest of other stakeholders within the broader South African society?
Traditional concept of directors’ duties
Prior to the promulgation of the Companies Act 71 of 2008 (the Act), the duties of company directors were governed by the common law and codes of best practice such as the various permutations of the King Report on Corporate Governance for South Africa.
In terms of the common law, directors are required to act in the utmost good faith and in the best interests of the company, which includes exercising care, skill and diligence with a view to promote company success by means of applying independent judgment.
These common law requirements to act in good faith and in the best interest of the company have been applied in judgments such as in the case of the South African Fabrics v Millmann, in which the court held that a company’s ‘interests’ are only those of the company itself as a corporate entity and those of its members. By this it is meant that directors are required to manage the affairs of the company in the interest of the body shareholders as whole and to maximise profits for the benefit of those shareholders.
Although the common law…
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Read the full article by Cohen Grootboom, Associate Attorney, Adams & Adams, as well as a host of other topical management articles written by professionals, consultants and academics in the June/July 2021 edition of BusinessBrief.
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