Concepts unique to companies- other components of companies
Board of Directors
• Elected by shareholders at AGM
• Co-ordinates and creates company policies
• Consists of at least 3 directors
• MOI allows for higher number of directors
• Public companies have between 8 and 12 directors.
• At least 50% of directors must be elected by share holders with voting rights.
• Act allows direct appointment of a director by a specified person in the MOI.
• Directors must act
- in good faith and for a proper purpose
- in the best interest of the company
- with degree of skill, care and diligence that may reasonably be expected of someone with same knowledge and skills
• May be held responsible for any loss, damage or cost sustained by company
as a result of a breach of the directors' fiduciary duty or the duty to act with care, skill and diligence.
*fiduciary = being responsible for property and power entrusted to you.
Types of directors ( according to King III Report) :
• Executive- involved in day-to-day management of company or as a full-time salaried employee.
• Non-executive - are independent of management on all issues including strategy, performance, sustainability resources, transformation, employment equity etc.
• Independent - have not been employed by Company in any way during previous 3 years and should be independent from any business relationship(supplier/customer) with the company. Their role is to bring to the Board independent judgement and broad business experience.
Chairperson and CEO of Board must be separate individuals ⇒ King Ill and JSE listing requirements.
* King III = document that sets out rights, duties and responsibilities of shareholders, directors and others within and in relation to a company.
Roles and Functions of Board
• Provide strategic direction and approve strategic plans
• Retain full and effective control of company
• Ensure that company complies with legislation - Delegate appropriate powers to management and monitor them
• Identify and monitor key risks and ensure Company has effective internal control measures to manage all risks
• Identify and monitor key performance areas for the Board and management.
Management of company
• Day-to-day running of business
• Appointed to meet company objectives
Independent auditors
• Appointed by shareholders at AGM
• Audit committee must verify independence of individual that will be responsible for the audit.
• Must be regularly rotated every 5 years . Express an opinion on financial statements and indicate whether the user can rely on financial statements
Audit and Risk Committee
• Appointed by shareholders at every AGM
• Consist of 3 members who must be directors and:
- not involved in daily management
- not be full time executive employee for the past 3 financial years
- not be a material supplier or customers
- not be related to anybody who fall within above criteria.
Social and Ethics Committee
• Appointed by shareholders at AGM if company has public interest score of at least 750 points.
• Consist of at 3 directors with I director not being part of daily management of company.
• Must consult with social and advisory panel - representatives from employees of company, community, as well as certain professional bodies.
• Reports to shareholders at AGM
• Monitor company's activities with regards to
- social and economic development - good corporate citizenship (promote equality, prevent unfair discriminations reduce corruption
- environment, health and public safety
- Consumer relationships
- labour and employment
Shareholders
• Vote on major issues select directors and fundamental changes
• entitled to dividends
• own portion of company o opportunity to inspect books and records
Separation of ownership from control (corporate governance)
• Separate ownership = owners have delegated part of their control and rights to managers of company
• Can take this away from managers if dissatisfied with how business is managed. • Shareholders elect directors, who appoint managers
• Directors must represent interest of shareholders and determine policies that managers carry out.
• There is a need to independently monitor and control throng King code.
JSE Limited
• Provides market where shares can be traded freely under a regulated procedure.
• Bound by Stock Exchange Control Act 1of 1985.
• Prescribes rules and regulations in form of Listing Requirements.
• Companies must adopt IFRS in financial Statements
* International Financial Reporting Standards