The DTIC has recently published an explanatory summary of what it refers to as the “Companies First Amendment Bill and Second Amendment Bill”.
These bills are not available for scrutiny at present and will only become available once they are introduced.
Remuneration
Based on the admittedly sparse explanatory summary, the DTIC seeks to address what it perceives as “public concerns regarding high levels of inequalities in society” and to achieve “equity” between Directors on the one hand and “workers” on the other.
The proposed amendments seek to achieve better disclosure of senior executive remuneration and the reasonableness of the remuneration. Based on the explanatory memorandum, these additional reporting requirements will consist of two separate duties, namely: (i) better disclosure of senior executive remuneration; and (ii) the reasonableness of the remuneration.
It appears that the DTIC seeks to increase the ambit of the duties of a Company’s Social and Ethics Committee to deal with these policy requirements. This in turn implies that this increased duty will only apply to companies that are required to have a Social and Ethics committee, vis state-owned, listed and unlisted public companies, and companies with a high public interest score.
Of concern, is the statement by the DTIC that these proposed amendments will provide “an objective benchmark which will assist the public dialogue on this topic”.
The DTIC seems to be seeking to amend the Companies Act not only to provide for increased disclosure but for an ideological purpose and as a stimulus for social influence. If the Bills that are eventually introduced carry this out, we believe that this is a dangerous step in legislative drafting better placed in overarching policy statements and visions, not encapsulated in legislation aimed at regulating business entities.
We also have to question the rationale behind this additional reporting requirement in an already volatile labour environment and a company’s discretion to attract and retain management talent in a widely publicised dearth of skills in South Africa at present.
Insofar as any company elects to disclose executive remuneration, this will not be a problem, but for companies acting outside of regulatory or elective prescripts to disclose executive remuneration, they will now be placed in the invidious position of having to disclose their executives’ remuneration, explain why they believe it is reasonable, do so against what the DTIC refers to as “workers” remuneration and potentially open themselves to an unpleasant labour environment.
One would also have to question whether an executive in this environment will be complacent in having his/her remuneration published for public consumption.
Delinquency
A proposed technical amendment relates to applying to declare a Director delinquent. In the current Companies Act only persons who were Directors 2 years prior to the date of an application could be declared delinquent.
This proposed amendment stems from the recommendations made by the Zondo Commission of Enquiry and are welcomed. The current Companies Act provides for a time bar as to when an application to have a Director declared delinquent may be made. The DTIC suggests extending this period to 5 years but also allowing a Court a discretion to extend this period on application.
This is a positive step to increase accountability of Directors but may have the unintended consequence of adding yet another reason dissuading prospective candidates for directorship from accepting an appointment, due to the perceived increased risk attached thereto. This will likewise in all probability result in the increase of premiums for Directors’ liability insurance premiums and the possibility of Directors insisting on higher remuneration.
