About delinquency - time bar to hold directors accountable extended to 5 years. Is it enough?
|Published
Professor Parmi Natesan
The Companies Amendment Act extends the time bar to hold directors accountable from 24 to 60 months, or even more with good cause. It’s a definite move in the right direction, but I question whether it is enough.
The amendment is a direct result of the Zondo Commission of Enquiry into State Capture’s finding that directors of captured state-owned entities (SOEs) had not been properly held accountable. It called for an amendment of the Companies Act to extend the period in which an application for an order declaring a person delinquent can be brought “as it can take a number of years for the facts of delinquency to be uncovered”.
The Companies Amendment Act amends the Companies Act of 2008 to extend the 24-month time bar to launch proceedings to 60 months – and gives the court the power to extend this period further where good cause is shown.
Directors, along with other prescribed officers in companies, can be held accountable for a considerable period after they have committed the alleged offences. This is something that the IoDSA has long championed. We commend the extension of the time frame but want to emphasise that this is not the whole answer.
Belts and braces needed
The reality is that the cost and length of time it takes to bring an application of director delinquency to court deters companies from making use of this remedy. With no fast or easy means to address delinquency, directors who are guilty of gross misconduct are often simply removed from a board. However, without censure or statutory action, they continue to serve on other boards. So the misconduct, corruption and maladministration continue – and that is very costly for everyone.
In my presentation to the Parliamentary Portfolio Committee, I proffer a comprehensive solution: the establishment of a statutory professional body to which all directors would have to belong in order to have a license to practice.
Such a professional body would govern the office of directorship, guiding the profession, and setting and maintaining standards for ethical and professional practice.
As things now stand, the IoDSA is a voluntary professional body for directors and so its mandate to take disciplinary action is limited to its members. While every effort is made to advocate publicly for good governance and directorship, this is not enough to hold directors accountable.
By contrast, a statutory professional body would require all directors to become members in order to practice. The new body would ensure standards are upheld, that knowledge and skills are vetted and kept up to date, and that directors abide by a code of conduct, failing which their license to practice could be removed. Ultimately this would result in a quicker and less costly way to hold directors accountable.
The IoDSA has established a Director Competency Framework, which identifies 15 technical knowledge and application competencies and 15 personal attributes and behaviour competencies needed to serve as a director. It has also developed two director designations—Chartered Director and Certified Director—both recognised by the South African Qualifications Authority, to enable directors to gain, prove and maintain the necessary competencies.
The Zondo Commission’s findings show just how badly directorial misconduct affects a company, and how important it is to be able to hold rogue directors to account in terms of a rigorous, professional standard.
I believe it is time for South Africa – company stakeholders, owners, boards and professionals – to harness the momentum established by the Zondo Commission and the new Companies Amendment Act to take a stand to professionalise directorship.
Professor Parmi Natesan is the CEO of the Institute of Directors in South Africa.
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