New Companies Act demands responsible profit

The launch of the new Companies Act in May last year has raised concerns that South Africa was likely to mirror trends elsewhere in the world, with an increase in litigation against corporations and their senior employees and directors.

This should not be a concern if corporations were diligent in their duties, suggested Ansie Ramalho, CE of the Institute of Directors in Southern Africa (IoDSA).

Ramalho did point out that the new act was expected to usher in a new era of shareholder activism. It makes it possible for minorities to call an annual general meeting with the support of only 10% of the issued shares. “The stakes are higher too. The new Act has partially codified directors’ duties and liabilities and now also provides for directors to be declared delinquent or to be put under probation. In addition, the new Act allows for class actions”.

“Corporate office-bearers and directors may be feeling some anxiety about their increased liability but they should be heartened by our advanced framework of corporate governance, which offers them the best protection against falling foul of shareholder activism,” said Ramalho.

She said South Africa is a pace-setter when it comes to helping companies to see themselves within the full context of society and the environment, and not narrowly as engines of financial profit as captured in King III.

The IoDSA released a Practice Note on Integrated Reporting yesterday saying the document was designed to supplement the Discussion Papers issued by the local Integrated Reporting Committee (IRC) and International Integrated Reporting Council (IIRC).

The practice notes were also designed to bolster the King III codes which views financial and non-financial impacts as inextricably bound together, and requires companies to manage them holistically as a direct risk of doing business, and to report on its strategy and performance in a similarly holistic way: termed the integrated report.

She said King III does not prescribe the format in which integrated reporting should be prepared. It provides the concept of integrated thinking with the outcome being the integrated report. In order to help companies with the practical implementation of this, the IRC was formed in May 2010 and the IIRC shortly thereafter.

“Integrated thinking is a revolutionary concept. The format of the integrated report is an evolutionary process. Reporting influences behaviour and integrated reporting will drive companies towards sustainable capitalism,” said Prof Mervyn King, the chairman of both the IRC the IIRC.

According to Prof King the IIRC will issue further guidance this year that takes into account public feedback and the experience of 65 companies taking part in its international pilot programme. A number of South African companies are participating in the pilot programme. The IRC will also issue further guidance this year taking into account the latest international guidance and the public feedback on its previous guidance.

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