The Companies Act of 2008 and King III

The Companies Act of 2008 and King III

Social and Ethics committee

The new Companies Act requires all companies, whether public or private, to establish a “Social and Ethics Committee”. In the light of King III this can have dramatic implications for companies and Good Corporate governance.

The similarities between the requirements of King III and the Companies Act cannot be overlooked. Unfortunately many companies are unaware of the implications of the Act particularly in the area of Social Responsibility and Ethics.

Companies are not only required to establish a “Social and Ethics Committee” they are also required to establish a “Social and Advisory Panel” to assist the committee.

The King III recommendations cannot be legally enforced but the Companies Act is legally binding and must be adhered to.

Section 50 of the regulations related to the Social and Ethics Committee sets out the regulations related to the compilation of the committee and in addition sets out the regulations related to the advisory panel and its composition.

Let’s have a look at what King III has to say

Extract - King III Draft Report

Principle 2.4: The board should actively manage the company's ethics performance
35. Good corporate governance requires that the board takes responsibility for creating and sustaining an ethical corporate culture in the company.
36. The establishment and maintenance of an ethical corporate culture requires the governance of ethics, that is, the board should ensure the company has a well designed and properly implemented ethics management process consisting of the following four aspects:

36.1 Ethics risk and opportunity profile: The board should ensure that an ethics risk profile is compiled, reflecting the company's negative ethics risks (threats) as well as itspositiveethics risk (opportunities). See chapter 4 on risk management.

36.2 Code of ethics: The board should ensure that a company code of ethics is developed, stipulating the ethical values or standards as well as more specific guidelines guiding the company in its internal and external stakeholders.
36.3 Integrating ethics: The board should ensure that the company's ethical standards (code of ethics and related ethics policies) are integrated into the company's strategies and operations. This requires, among others, ethical leadership, management practices, structures and offices, education and training, communication and advice, and prevention and detection of misconduct for example, through whistle-blowing.

36.4 Ethics performance reporting and disclosure: The board should assess the company's ethics performance, and report and disclose findings to internal and external stakeholders. Refer to chapter 5 for internal audit and chapter 6 for integrated sustainability reporting.

Let’s have a look at what the Companies Act regulations say

Section 50 - Social and Ethics Committee Authority

A public or a state owned company must appoint a social and ethics committee (with some exceptions or unless it is exempt)
A company that is required to have a social and ethics committeemust elect the members of the committee at each annual general meeting of the company, commencing with the annual general meeting held during 2011
Constitute a social and ethics committee by appointment at the time of incorporation of the company, or by the board within 40 business days after the incorporation
Elect the members of the committee at each annual general meeting of the company, commencing with the first annual general meeting held after the company is incorporated
A company's social and ethics committee comprises not less than three directors of the company the majority of whom must satisfy the requirements set out in regulation 8.

Advisory Panel

If a company is required to have a social and ethics committee, the Board must appoint a social and ethics advisory panel to assist the committee made up of the following persons who are accountable to their respective professional bodies in terms of ethical standards and rules of professional conduct

Employees of the company
Persons who are registered members of a profession entitled to practice in a field directly related to social and ethical matters including, but not limited to
Anthropology or psychology
Education
Environmental assessment
Health
Sociology or social services, or
Law, theology or ethics
Persons who are neither directors or employees of the company, but who represent the community and public interest

Function of the Social and Ethic committee

A social and ethics committee will have the following functions

To monitor the company's activities, having regard to any relevant legislation, other legal requirements or prevailing codes of best practice related to:
Social and economic development including issues related to EE, BBBEE, EOECD recommendations and the United Nations Global Compact Principles
Good corporate citizenship, including the company'spromotion of equality, prevention of unfair discrimination, and reduction of corruption.
The company’s contribution to development of the communities in which its activities are predominantly conducted to name just a few.

Rights of the committee

A social and ethics committee will be entitled to any information to ensure its performance and smooth running and this information may be requested from Directors or employees of the company.
Members will be entitled to attend general shareholder meetings and/or receive any communication relating to such meetings and be entitled to speak and be heard at such meetings

Failure to comply

Section 84 (6) and (7), read with the changes required by the context, apply with respect to a company that fails to appoint a social and ethics committee, or social and ethics advisory panel, as required by this Regulation.

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