LEGAL ASPECTS OF CORPORATE GOVERNANCE IN THE REPUBLIC OF SOUTH AFRICA: TOWARDS A POSSIBLE MODEL FOR IMPROVED STAKEHOLDER RELATIONS WITHIN THE CORPORATION

Abstract

Traditionally, company law assumes that the directors’ role is to run the company for the benefit of its shareholders alone and to maximise profits for them. It can be argued, however, that this view is too narrow and outdated; that is, company directors should have regard to the rights and interests of a broader range of corporate stakeholders. Hence, the question is whether we should change our perception of the company or corporation from one run by directors dedicated exclusively to serving the interests of shareholders to that of a corporation whose main purpose is to bring benefit not only to its owners and creditors, but also to its employees, the community and the environment. Given that reforms of directors’ duties in light of the above considerations have found their way into legislation across the globe, this thesis examines how and to what extent legal rules and policies should develop in South Africa to place directors under a positive duty to take account of the interests of bodies other than shareholders. Current South African company law does not contain clear rules regarding corporate governance issues and the duties and liabilities of directors. These matters have been left to the common law and Codes of Corporate Practice. Thus, there is no extensive statutory scheme in South Africa, which covers the duties, obligations and accountability of directors. The focus in this thesis is on the rights and interests of employees and the premise that is defended is that it is valuable to corporations to provide employees with an institutionalised voice at board level. It is argued that there is global evidence that where employees participate in the decision-making processes of the company, performance is generally enhanced. This, in turn, directly impacts upon and improves economic productivity, generating a ‘win-win’ situation. The question of the duties of company directors and managers is attracting much attention in South Africa. With rapidly developing and changing labour legislation in South Africa, it is essential to consider the extent to which the country should reassess its traditional principles of company law and corporate governance policies in order to encourage participatory roles for employees in the workplace. It is argued that if South Africa is to improve corporate productivity levels with its re-entry into international markets, management and labour must find improved ways of dealing with one another. The main purpose of this thesis, therefore, is to propose and formulate a workable corporate governance model for South Africa – one that would be advantageous to all stakeholders, especially the employees. This is achieved by comparing and contrasting international models of corporate governance and by applying the best features of each to the unique South African corporate system of values, structures and traditions. It is suggested that the current unitary board structure operating in South Africa has become outdated and does not provide employees with rights enabling them to engage in the decision-making processes of the corporation with their employees at an adequate level. In its place, a two-tier board system of corporate governance is proposed. The economic success of a company will bring about social benefits to many stakeholder constituencies. This will not happen if the company is a financial failure. The issue of obliging directors to act primarily for the benefit of shareholders alone is questioned. Corporate governance reforms were undertaken in many parts of the world in the late 1980’s and early 1990’s. This reform process questioned whether the interests of the company should be managed for the shareholders alone or for the other corporate stakeholders as well. There are many views that strongly support the idea that corporate governance should be seen as a system by which corporations are to be governed for the benefits of all stakeholders, including shareholders, employees, creditors, suppliers and the community. In this way, companies should be run as communities in partnerships with all their stakeholders. Thus, this thesis proposes that the success of a company is inextricably intertwined with a consideration of the rights and interests of its employees and other stakeholders.