South Africa moves to a global model of corporate governance but with important national variations
| Jurisdiction | South Africa |
| Date | 15 August 2019 |
| Author | John F Olson |
| Pages | 219-247 |
| Published date | 15 August 2019 |
South Africa moves to a global model of
corporate governance but with
important national variations
JOHN F OLSON*
South Africa’s path toward sustainable economic development requires a
sound legal structure for governance of its businesses – a structure that
complements and supports the continuing development of a diverse, equitable
political system and respects South Africa’s distinct social needs. With the
Companies Act of 2008, South Africa has established a model of corporate
regulation that can substantially improve its business climate while supporting
essential broader economic and social aims. In this chapter, we compare the
new Companies Act governance provisions to those in comparable statutes in
the United States, the United Kingdom, and Germany. We also compare
Companies Act rules to securities market listing standards, codes applicable to
publicly traded companies, and other statements of corporate governance ‘best
practices’, including those set out in the King Reports. The comparative
analysis addresses protection of stakeholder rights; board duties, governance,
and independence; appointment and removal of directors; director and
management compensation; board supervision of management; and share-
holder rights. Our analysis confirms that, in line with tested standards in other
major economies and current international trends in corporate governance,
the Companies Act sets out a modern, enabling model of regulation. In
providing for flexibility and simplicity of company formation, transparency of
governance, and effective exercise of shareholder rights, the Act creates a
secure environment for entrepreneurship and investment. At the same time, it
establishes standards of corporate responsibility distinctly appropriate to South
Africa.
I NEW COMPANIESACT GOVERNANCE MODEL
The South African CompaniesAct 71 of 2008 (the Companies Act or the
new Act)
1
is one of a number of statutes adopted in recent years in
industrialised nations which follow an enabling rather than a prescriptive
* Mr Olson is a partner at Gibson, Dunn & Crutcher LLP and a Distinguished Visitorfrom
Practice at Georgetown University Law Center. He gratefully acknowledges the substantial
assistance of Dave Wharwood and Grant Book, associates in the Washington DC office of
Gibson, Dunn & Crutcher, in the preparation of this article. Mr Olson is also grateful to James
Barabus and Markus Nauheim, Partners at Gibson, Dunn & Crutcher’s London and Munich
offices, respectively, for their review of references to the laws of the United Kingdom and
Germany.
1
Companies Act 71 of 2008, Gazette No 32121 (Notice No 421).The Companies Bill was
adopted by Parliament on 19 November 2008 and was signed by President Motlanthe on 8
April 2009. The Companies Act appeared in the Government Gazette on 14 April 2009 and is
expected to come into force in 2010.
219
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model. This approach of the new Act, which permits a broad scope of
private ordering by those forming a corporation, applies in the area of
corporate governance, as it does in the other areas such as capital
structure, distributions to investors and the selection and description of
the corporation’s business purposes.
While the Act thus permits greater organisational flexibility than under
current law, it does establish minimum standards for shareholder and
other stakeholder participation in corporate affairs and for the qualifica-
tions of corporate directors, and it mandates audits of corporate financial
statements and directorial oversight of such audits by a board audit
committee, in a manner similar to that required by recent legislation in
other countries, such as the Sarbanes-Oxley Act, 2002 (Sarbanes-Oxley)
in the United States.
2
Over the past twenty years, corporate governance has seen a surge in
interest with regard to corporate responsibilities to society. Often, these
interests have not been embedded in statutes but instead have been
implemented through guidelines and codes. The Companies Act directly
provides a clear framework for the empowerment of stakeholders and
includes a directive that companies operate to enhance not only share-
holder profits but also societal welfare. To ensure that these purposes are
fulfilled, the South African Government is provided greater power in
governance decisions than is typically found in most other general
corporate statutes.
In this chapter, we compare the governance provisions of the new
Companies Act to analogous provisions in comparable company statutes
such as in the United States, the United Kingdom, and Germany, as well
as to extra-statutory securities market listing standards and codes appli-
cable to publicly traded companies, and various other statements of
principle, which require or recommend corporate governance ‘best
practices’. Such standards, codes and principles have been frequently
adopted in recent years, on a global or national market basis, and include
the principles set forth in the governance codes issued by South Africa’s
King Committee on Governance. (The first King code was issued in
1994. King II was issued in 2002. King III has been issued in draft pending
comments).
3
Much of the progress in improving corporate governance
2
Sarbanes-Oxley Act, 2002, Pub L 107–204, 116 Stat 745 (2002) (‘Sarbanes-Oxley’). It
should be noted, however, that the audit and audit committee mandates of the Sarbanes-Oxley
Act apply only to publicly traded companies, which have securities registered with the United
States Securities and Exchange Commission.
3
King Committee on Governance, Draft Code of Governance, Principles for South Africa –
2009 [Hereinafter, King III], 8. Previous editions of the King Code were issued in 2002 (King
II) and in 1994. The Johannesburg Stock Exchange (JSE) has required application of King II to
its listed companies. However, the King Committee has recommended that King III apply on a
‘comply or explain’ basis. Ibid.The Committee noted that some JSE-listed South African
220 MODERN COMPANY LAW FOR A COMPETITIVE SOUTH AFRICAN ECONOMY
© Juta and Company (Pty) Ltd
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