AUE2602 notes
Learning unit 1.2
Director’s duties:
- Must not use position or any information obtained while acting in capacity to gain advantage or
knowingly cause harm.
- Must communicate at earliest opportunity any information that comes to attention unless (a)
reasonably believes (i) it is immaterial or (ii) generally available to public, or (b) bound not to
disclose by legal or ethical obligation of confidentiality.
- Must exercise power and perform functions (a) in good faith and for proper purpose, (b) in best
interest of company, (c) with degree, skill and diligence reasonably expected.
Liability of directors:
Liable for any loss, damages or costs sustained by company as consequence of director:
- Acted in name of company despite knowing they lacked the authority to do so.
- Acquiesced in carrying on of business knowing it was being conducted in manner prohibited.
- Party to act or omission despite knowing was for fraudulent purpose.
- Signed, consented, or authorised publication financial statements that were false or misleading
in material manner, despite knowing.
- Present, participated or failed to vote against (a) issuing of unauthorised shares, (b) issuing of
unauthorised securities, (c) granting of options not authorised, (d) provision of financial
assistance to director or any person which is inconsistent, (e) resolution approving distribution
which is contrary, (f) acquisition of own or holding company shares which is contrary, (g)
allotment which was contrary. (In all the instances director was aware of it being contrary, etc.)
Proceedings to recover, may not be commenced more than three years after act or omission that
gave rise to liability.
Audit committees:
Must compromise of at least three members unless it’s a subsidiary of another company whose
committee will perform required functions.
Duties:
- Nominate for appointment as auditors who in opinion is independent.
- Determine fees and terms of engagement.
- Ensure appointment complies with Act and other legislation.
- Determine nature and extent of any non-audit services.
- Pre-approve any proposed agreement for provision of non-audit services.
- Prepare report (a) describing how it carries out its functions, (b) state whether satisfied that
auditor was independent, (c) commenting in any way considers appropriate on financial
statements, accounting practises and internal financial control.
- Deal appropriately with any concerns or complaints relating to (1) accounting practises and
internal audit, (b) content of auditing, (c) internal financial controls, and (d) any related matters.
- Make submissions on any matter concerning accounting policies, fin control, reports and
reporting.
- Perform other oversight functions determined by the board.
- In considering whether the registered auditor is independent
Ascertain they do not receive any direct or indirect remuneration except as auditor or
rendering services permitted.
, Consider whether independence may have been prejudiced as result of any previous
appointment or having regard to the extent of any consultancy, advisory or other work
undertaken.
Consider compliance with other criteria in APA.
Learning unit 1.3
(I only summarized what was covered by activities.)
Corporate governance is defined as the exercise of ethical and effective leadership by the governing
body towards the achievement of the following governance outcomes: ethical culture, good
performance, effective control and legitimacy.
Effective leadership is results-driven. It is about achieving strategic objectives and positive
outcomes.
Principle 1: The governing body should lead ethically and effectively.
Ethical values which are embodied in ethical leadership:
Integrity, competence, responsibility, accountability, fairness and transparency.
Principle 2: The governing body should govern the ethics of the organisation in a way that supports
the establishment of an ethical culture.
Principle 3: The governing body should ensure that the organisation is and is seen to be a
responsible corporate citizen.
Corporate citizen is about a company’s status in the broader society and a corporate citizen has
rights, but also obligations and responsibilities. The company should protect, enhance and invest in
the well being of the economy, society and the environment (triple context).
Being a responsible corporate citizen means the establishment of an ethical relationship of
responsibility between the company and the society in which it operates. Companies have rights, but
they also have legal and moral obligations. Being a responsible corporate citizen and sustainable
development is inseparable.
Principle 4: The governing body should appreciate that the organisation’s core purpose, its risks and
opportunities, strategy, business model, performance and sustainable development are all
inseparable elements of the value creation process.
Principle 5: The governing body should ensure that reports issued by the organisation enable
stakeholders to make informed assessments of the organisation’s performance, and its short,
medium and long-term prospects.
The governing body should oversee that the organisation issues an integrated report at least
annually. Reporting needs to be far more than the presentation of historical financial information as
a set of annual financial statements. Information pertaining to the economic, social and
environmental aspects must be included (triple context). The six capitals of the company should also
, be reported on: financial, manufactured, intellectual, human, natural and social & relationship
capital.
The Companies Act requires that the business and affairs of a company must be managed by or
under a board of directors and every public and state-owned company must in addition appoint an
audit committee.
The board of directors may appoint any number of committees. King IV and JSE specifying at least a
renumeration committee, and if required, a nomination committee, a risk committee, as well as a
social and ethics committee.
Principle 6: The governing body should serve as the focal point and custodian of corporate
governance in the organisation.
The board should have a charter setting out its role, responsibilities, membership requirements and
procedural conduct.
Functions of the governing body:
- Steering the organisation and setting its strategic direction.
- Approving policy and planning that give effect to the direction provided.
- Overseeing and monitoring of implementation and execution by management.
- Ensuring accountability for organisational performance by means of reporting and disclosure.
Principle 7: The governing body should comprise the appropriate balance of knowledge, skills,
experience, diversity and independence for it to discharge its governance role and responsibilities
objectively and effectively.
Composition of the governing body:
Chairman o Should be an independent non-executive member (7.31).
o CEO of the company should not be the chair (7.34).
o The role of the chair should be formalised (7.32-33).
o Every alternate year the governing body should evaluate the performance of
the chair (9.74).
Membership o Should obtain the appropriate balance of knowledge, skills, experience,
diversity and independence (7).
o Should comprise majority of non-executive members, most whom should be
independent (7.8).
o Nomination of candidates for election should be approved by the governing
body as a whole (7.14-16).
Members o Minimum of two executive members, one should be the CEO and the other
may be the CFO (7.9).
o Periodic, staggered rotation of members should be established (7.12).
Principle 8: The governing body should ensure that its arrangements for delegation within its own
structures promote independent judgement, and assist with balance of power and the effective
discharge of its duties.
Composition of the audit committee:
Chairman o Should be an independent non-executive member (8.57).
