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Aue 2602 topic 1 summary
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Aue 2602 summary topic 1
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Define good corporate governance and briefly explain in your own words why it is important tosociety that companies operate within a framework of good corporate governance.
Corporate governance is the system or process whereby companies are directed or controlled
It is about companies being good corporate citizens and all that this entails. Companies are an
integral part of modern society and it therefore follows that healthy, honest, open,
competently and responsibly controlled companies will improve the quality of modern
society.
Explain in your own words what the term “apply or explain” means. Do you think that this allows
directors to avoid adhering to principles of good corporate governance?
“Apply or explain” means that King III follows a non-legislated approach allowing for
companies to explain if they choose not to apply the principles of King III if they believe
that it would be in the best interest of the company.
Directors can’t avoid adhering to principles of good corporate governance, because there is
a link between good governance and compliance with the law. The directors themselves
have legal duties stipulated in the Companies Act, No 71 of 2008.
Standards of Directors Conduct:
A director must:
- not use his position to gain advantage for himself/knowingly cause harm to the company.
- communicate information obtained to the board immediately unless it is immaterial,
publicly available, or he is unable to do so due to legal obligations.
- exercise his powers in good faith and in the best interest of the company.
To ensure that a director complies with the above he:
- should take steps to be informed about any matter
- should have a rational basis for making decisions
- is entitled to rely on the performance of employees, accountants, legal council and
board committees.
- is entitled to rely on any information presented by the above.
Liability of directors/prescribed officers
A director may be held liable when:
- failing to disclose personal financial interest
- using his position to gain advantage for himself
- failing to act in good faith
- failing to act in best interest of the company
- a breach in duty to act with degree of care
- breach in any provision of the MOI
- acting for the company while knowingly lacking the knowledge to do so
- agreeing to carry on business recklessly
- being party to a fraudulent act
- consented to any publication of fraudulent documents
- failing to vote against the issuing of unauthorized shares, issuing of shares inconsistent
with the Act, provision of financial assistance inconsistent with the Act, approving a
distribution inconsistent with the Act, acquisition of own shares in contravention to the Act,
allotment of securities inconsistent with the Act.
, Indemnification of Directors
- any provision of agreement is void if it seeks to relieve the director of any duties of
personal financial interest, standards of director's conduct or a liability from above.
- company may not pay any fine imposed on a director
- a company may advance expenses to a director
- a company may protect a director except in circumstances mentioned above (liabilities)
Four ethical values a director's decisions and actions must be based on (RAFT)
- Responsibility
- Accountability
- Fairness
- Transparency
Five moral duties of directors (CICCC)
- Conscience
- Inclusivity
- Competence
- Commitment
- Courage
Requirements of the Audit Committee
A member must:
- be director of the company
- satisfy any minimum qualifications
A member must not be:
- involved in day to day management of the company
- a prescribed officer or full time employee
- a material supplier or customer
- a related person to any person above
Duties of the audit committee
- to nominate a registered auditor for appointment as auditor
- determine fees to be paid to the auditor
- ensure appointment of auditor complies with the provision of the Act
- determine the nature of any non-audit services the auditor will provide
- pre-approve proposed agreement with the auditor
- prepare the audit committee report to be included in the AFS
- receive and deal with concerns and compliments
- make submissions to the board concerning the company's accounting records, controls etc.
- perform other functions determined by the board
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