KIYASHA THAMBI | Failure to take statutory action against corruption, stymies public confidence

The recent court case against former minister of sport, arts and culture Zizi Kodwa on charges of bribery has again shone the spotlight on the state capture scandal that has become an albatross around many politicians’ careers.

The charges relate to a R1.6m bribe allegedly received from a JSE-listed company. Behind most court cases involving the high echelons of power implicated in arguably the biggest scandal in post-liberation SA are executives and directors of private companies and state-owned-enterprises (SOEs) who often facilitate or effect such fraudulent transactions.

In its report released in 2022, the commission of inquiry into state capture found that directors of various state-owned entities had not been properly held accountable for grossly abusing their positions or for their gross negligence, wilful misconduct, or breach of trust.

Except for the late Dudu Myeni, the former chairperson of SA Airways who was declared a delinquent director for the remainder of her lifetime by the high court, many directors remain in their positions despite adverse findings against them.

This is a travesty, especially as the Myeni case underscored the power of using statutory enforcement remedies to maintain good governance and best practice standards. It also demonstrated that SA’s system of governance is legitimate in enforcing and promoting accountability.

Most significantly, the Myeni case extended legal standing (locus standi) to include a person acting in the public interest as per section 157(1)(d) of the Companies Act. Equally, section 162 uniquely confers considerable power on a single shareholder (like the state in the case of SAA) or a single director to institute legal proceedings declaring a director a delinquent and remove him/her from office.

There have been a few subsequent delinquency cases since Myeni highlighting the severity of a breach of a director’s fiduciary duties and the consequences thereof in respect of an order of delinquency.

Furthermore, the flurry of corporate scandals and the history of company law in SA prompted a significant step towards aligning SA company law with broader shifts in the political landscape, economic policy and its corporate governance framework with international standards.

As such, the revised Companies Act of 2008 (the act) ushered comprehensive reform to the SA company law regime. The act, which came into effect in 2011, repealed the Companies Act of 1973 and introduced several groundbreaking provisions. The legal framework governing SA companies was also adapted to ensure stricter enforcement of the act, inordinate accountability of directors, transparency and responsible business conduct.

The concept of corporate governance was first introduced in 1994, with the publication of the first King report.

At the same time, the act bolsters certain corporate governance concepts by its adoption of the same, i.e. its effects on the role of directors in overseeing company operations. Collectively, the act and the common law prescribe high standards of conduct for directors. Directors must therefore exercise their powers and perform their functions in good faith, in the best interest of the company and with the utmost degree of care, skill and diligence that may be reasonably expected of a person in their position.

Worth noting, in the Myeni case, per the Public Finance Management Act 1999, the fiduciary duties of major public entities such as SAA were heightened as compared with those entrenched in the act.

In this regard, Myeni alleged that it was unfair to single her out as she could not be held individually responsible for any wrongdoing, given the fact that all her impugned actions were always taken as part of a “collective”.  

However, in the end she was unable to rely on the defence of collective decision-making to evade her personal liability, nor could she rely on the business judgment rule, a defence or “safe harbour” provision introduced in the act.

Despite its impudence, some argue that there has been limited success with regards to section 162, and that the mechanism contained therein is not being used sufficiently in SA.

Against this backdrop, SA company law continues to play a crucial role in shaping its business environment and promoting sustainable economic growth. However, it is not without challenges such as addressing economic inequalities, combating corruption and climate change, among others.

And, while the regulatory environment continues to evolve, effective intervention and collaboration between legislature, regulators and the state is needed to cross the chasm of lawlessness in the private and public sectors.

Failure to take statutory action against corruption and poor governance of directors stymies public confidence, undermines the tenets of company law and corporate governance.

To transcend this, directors need to be held accountable, be transparent and uphold their fiduciary duties. Therefore, the act and the role of respective regulatory bodies will have to undergo further changes and/or amendments necessary to effect the changes aspired for SA company law.

• Thambi is a lecturer in the department of public business law at the University of Johannesburg. She writes in her personal capacity