These difficult operating conditions require strong boards with a diverse range of skills and experiences. Under the Companies Act the ultimate power in a company is with the board of directors, and not with the shareholders.
The South African King IV Report on Corporate Governance recommends that the majority of board members be non-executive directors and that most of them should be independent. This promotes objectivity and reduces the possibility of conflicts of interest. Directors have a legal duty to act in good faith and in the company’s best interests. Boards must therefore have a balance between directors with experience and knowledge of the company and directors with specialist expertise. Companies can even appoint experts on their board committees to advise them. The Companies Act allows this as long as they are not disqualified to be directors and do not vote.
These sweeping changes have strengthened the board by introducing a more diverse range of skills and expertise. It is hoped that the shake up will enable the board to find effective solutions to end South Africa’s energy crisis.Boards must evaluate their strengths and weaknesses if they are to govern the company effectively. At least once a year companies must evaluate the performance of the board as a whole, its committees, individual directors and the board chair.
In my view, companies should rather opt to have the evaluation done by external third parties as this increases its objectivity and impartiality.The board must take calculated risks. It must balance risks with potential opportunities, in a way that is responsible and not reckless.