Corporate governance – different types of committees

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Section 72 of the Companies Act No 71 of 2008 (“the Act”) stipulates that a company can elect to appoint any amount of director committees, and the board of directors can delegate any amount of the duties and responsibilities to these committees, except where the Memorandum of Incorporation for the company states otherwise.

KING 111 goes further to state that ‘delegation’ must not be confused with ‘waiving’ of rights. Section 73 (2) of the Act stipulates that the board of directors remain first and foremost responsible to adhere to their various duties and responsibilities and cannot hide behind a director committee.

A committee can include individuals who are not appointed as a director of the company, but section 72(2)(a) stipulates that it cannot be individuals who have been disqualified or who is unfit to act as a director. A director committee can obtain information or advice from any person, and the committee has the full participation from the board of directors regarding any matter that has been delegated to them.

Section 72(4) stipulates that the Minister of Trade and Industry can by law stipulate that a company must appoint a social and ethics committee if it is in the best interest of the wider public with reference to:

  • The annual turnover for the company;
  • The size of its employees; and
  • The nature, size and characteristics of its activities.

Regulations 43(1) and 92 of the Act stipulates that every state-owned company and every listed company must appoint a social and ethics committee. In addition, every company that has a Public Interest Score (“PI-Score”) of more than 500 in the last three financial years, must appoint such a committee. There are some exemptions to the appointment of such a committee, which includes:

  • If company A is a branch of another company B and company B has a social and ethics committee who is fulfilling such a role on behalf of company A, then company A does not have to appoint such a committee; or
  • If the company has been exempt by the Companies Tribunal to appoint such a committee in terms of section 72(5) and (6) of the Act.

It is important to note that the audit committee is not a director committee. Members of the audit committee are appointed by the shareholders and not by the board of directors. The Act regulates the compilation as well as the functions of the audit committee and members of such a committee need to be directors of the company. The audit committee has a list of responsibilities and the committee has the ability to comment on the financial statements of the company.

KING 111 suggests that a director committee needs to be appointed in order to provide assistance to the directors regarding various important matters with regards to the operations of the company.

The director committees can, if they prefer to do so, appoint a nomination, a remuneration as well as risk committee for the company.

The nomination committee provides assistance to the directors when it comes to the process with regards to the appointment of directors as well as the appointment of the company secretary. The committee also provides insights with regards to  how the board of directors are being compiled and the amount of knowledge and insights on the board.

The remuneration committee provides insights on the remuneration package for each executive director as well as non-executive directors. The remuneration committee also evaluates the achievements and accomplishments of individuals in key positions.

The risk committee is primarily responsible for the re-evaluating of the risk management process within the company and the important risks that may affect the company from time to time.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)