Chapter 4: Directors Duties and Responsibilities
Corporate scandals overseas including Enron brought directors responsibility
and duties into the spotlight. Corporate governance in South Africa was also closely
scrutinized by the king Reports. The company’s Memorandum of Incorporation (MOI)
previously known as Articles and Memorandum of Associations prescribed the
responsibilities and duties of the directors in the company. Directors who did
not comply with the company’s Memorandum of Incorporation were obliged to explain
their conduct to the company. The Companies Act and King Reports laid the
foundation of directors’ duties and responsibilities in South Africa. It then
depended on each company whether these were sufficient, if these duties and responsibilities
were not enough, each company were to add more directors’ duties and responsibilities
in their MOI.
Every director owes the following duties to the company (Companies
1. Fiduciary duty
2. Duty of skill and care
1. Fiduciary duty
Every director is a fiduciary as they are in a position of trust. Directors
are required to act in best interests and in good faith in their dealings on behalf
of or with the company (King princ.1). Directors must perform their duties and exercise
their powers honestly, beyond compliance with the King Reports, Companies Act or
According to Howard Sher (2005) there are four aspects of fiduciary
1. Acting in good faith
The director should do what she believes is in the company’s best
interest and always act in good faith.
2. To exercise directors’ powers for appropriate purpose
Directors should avoid using their powers for inappropriate purpose,
even if the director believes that she is acting in the company’s best interest.
Directors’ powers must be exercised for the company’s purpose and benefit.
3. Avoiding conflict of interest
Director must avoid actions
that may put her in a position where her duties to the company and her personal
interest are in conflict
4. Avoiding the misappropriation of company’s property
A director must not participate or turn a blind eye in the misappropriation
of company’s property.
of care and skill
Howard Sher (2005) states that directors should always display the
reasonable degree of care and skill when they act in the interest of the
company. A director should always display skill, experience and knowledge that
is reasonably anticipated from an individual performing the same functions as
are performed by the director in relation to the company and have the general
skill, experience and knowledge (Comp Act 76(3)(c)).
Companies Act (2008)
To improve investors confidence and fill up the gaps shown by Enron
in its collapse, Companies Act turned the focused to directors. The following
are the director’s duties and responsibilities as per Companies Act (2008).
personal financial interests (s 75)
The director can not enter into an agreement, given that the director
or director’s related person has some personal financial interest in that
agreement. If the director had disclosed the extent and nature of the interest and
shareholders pass the ordinary resolution to approve agreement, the director
may enter into that agreement.
The director is required to disclose personal interest that she or
the related person have in the matter discussed in the board meeting. The director
is required to:
the interest before the meeting consider the matter,
any material information concerning the matter,
3. After disclosing
the interest, the director is required to leave the meeting, and
4. Be excluded
in the matter considerations
If the director is the only shareholder and the matter affect all
directors in their directors’ capacity the prohibition does not apply.
Enron Scandal showed many executives misappropriating the company’s
property, i.e. the chief financial officer (CFO) built private entity secretly
and then then transferred Enron property to its illegally. Thus, Enron may be
seen as the major contributor of the directors’ duties that had been developed
as Companies Act and King Reports aimed to stop history from repeating itself.