Delegation and Directors' Reliance on the Performance of Others – A Companies Act 2008 Analysis in the Light of International Best Practices

Abstract

South Africa has included in the Companies Act 71 of 2008 (the Act), provisions dealing with directors' delegation and reliance on the performance of others for their (the directors') own performance. In keeping with their role of managing the affairs of the company in terms of section 66(1) of the Act, directors must make decisions in the best interests of the company. Given the company board's strategic role in the company governance, as opposed to the day-to-day management done by the executive management, directors must rely on the performance of others to fulfil their role. These "others" include professional experts and company employees who can either provide guidance/specialist advice or to whom the board may delegate certain powers and authority to perform certain functions geared towards providing the board with a basis for decision-making. This article in the main interrogates the question whether South Africa has now established globally competitive legal standards of directors' delegation and reliance on the performance of others in line with company law reform objectives prior to 2008. One such objective is ensuring compatibility and harmonisation of the new company law with the best practice jurisdictions internationally as a way of promoting the global competitiveness of the South African economy. In this respect this article examines relevant laws in two foreign jurisdictions to provide a comparative aspect to the relevant South African company law aspects. First the article very briefly examines English law, which provides South Africa with its common law heritage of the duty of care, and it is argued that reliance and delegation relate to the irreducible minimum standard of care and the standard to exercise independent judgment. An examination of Australian statutory provisions on reliance and delegation is followed by a critical evaluation of reliance and delegation in section 76(4)(b)-(5) of the Companies Act 2008. It is concluded that South Africa has established globally competitive principles of reliance and delegation. Nonetheless, there are gaps in statutory reliance and delegation provisions under the Act, and lessons can be drawn from the best practices in Australian statutory and case law. Firm suggestions are made on how the gaps can be plugged and how the legal standards can be further tightened to enhance the global competitiveness of South African company law.