LEGAL DUTIES OF CORPORATE DIRECTORS


In common law, corporate directors have a twofold responsibility to the company namely fiduciary duties (duty to act in good faith and in the best interests of the company) and duty of care. This is the bedrock of corporate governance. In South Africa, the Companies Act 71 (2008) has codified the legal duties of directors that would draw legal sanction if not complied with. King IV like any other Code of Corporate Governance advocates for members of governing bodies to acquaint themselves fully and comply with the Law.

This section 76 of the Act that makes discusses the responsibilities of directors, is so critical and clear that I will just post its extract here.

“(2) A director of a company must—

(a) not use the position of director, or any information obtained while acting in the capacity of a director—

(i) to gain an advantage for the director, or for another person other than the company or a wholly-owned subsidiary of the company; or

(ii) to knowingly cause harm to the company or a subsidiary of the company; and

(b) communicate to the board at the earliest practicable opportunity any information that comes to the director’s attention, unless the director—

(i) reasonably believes that the information is—

(aa) immaterial to the company; or

(bb) generally available to the public, or known to the other directors; or

(ii) is bound not to disclose that information by a legal or ethical obligation of

confidentiality.

(3) Subject to subsections (4) and (5), a director of a company, when acting in that capacity, must exercise the powers and perform the functions of director—

(a) in good faith and for a proper purpose;

(b) in the best interests of the company; and

(c) with the degree of care, skill and diligence that may reasonably be expected of a person—

(i) carrying out the same functions in relation to the company as those carried out by that director; and

(ii) having the general knowledge, skill and experience of that director.”

In terms of the Act, a director has a duty to act in the best interests of the company, implying that he/she shall not use their position or information to, for example, gain advantage for anyone other than the company and/or cause harm to the company.

The fiduciary duties impose the following subsidiary duties on the director:  

  • A duty not to exceed his powers
  • A duty the exercise his powers for a proper purpose
  • A duty to maintain an unfettered discretion
  • A duty not to compete with the company
  • A duty to avoid a conflict between a director’s interests and the interests of the company


In terms of the duty of care and skill, the Act requires that he/she acts with care, skill and diligence that may reasonably expected from someone

  • Fulfilling his/her functions and
  • Having his/her knowledge, skill and experience

This imposes a requirement for a member of the governing body to continuously improve herself and keep informed about developments in corporate governance space. The Institute of Directors runs a number of corporate governance courses and seminars to help directors in terms of continuous professional development. It is important for directors to upskill themselves and stay current in terms of skill, knowledge.

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