On March 26, 2024, the National Council of Provinces approved the Companies Amendment Bill and the Companies Second Amendment Bill, with presidential assent anticipated soon. These amendments introduce crucial changes to the Companies Act of 2008, significantly impacting corporate governance, transparency, and social responsibility across South African companies.
Key Changes and Implications:
Enhanced Corporate Governance
The amendments aim to fortify corporate governance by imposing stricter requirements on the duties and responsibilities of directors and social and ethics committees. This initiative ensures that companies adhere to high ethical standards and maintain accountability.
Transparency in Executive Remuneration
Companies are now required to disclose detailed executive pay structures. This includes the publication of remuneration reports and the inclusion of specific agenda items related to executive compensation in Annual General Meetings (AGMs). By mandating transparency, the amendments aim to prevent excessive executive pay and align compensation with company performance and shareholder interests.
Social and Ethics Committees (SECs)
The amendments mandate that social and ethics committees include broader representation and take on more defined roles in monitoring company activities. SECs must now present an SEC report at AGMs and ensure their composition includes a majority of non-executive directors in public and state-owned companies. This change promotes adherence to social responsibility and ethical practices, fostering sustainability and positive social impact.
Increased Accountability
Penalties for non-compliance have been introduced, including fines and potential legal action against companies and directors who fail to meet the new regulations. This underscores the importance of adhering to the updated governance standards.
Additional AGM Agenda Items
The amendments to Section 61(7) of the Companies Act expand the minimum business to be transacted at AGMs to include the presentation of the company’s remuneration report, the social and ethics committee report, and the appointment of the social and ethics committee. Companies must include these new agenda items in their AGM notices upon the amendments’ enactment.
Duty to Prepare and Present a Company’s Remuneration Policy and Report
A primary goal of the Bill is to promote equity and equality between senior managers and workers by imposing new transparency requirements on executive pay. Public and state-owned companies must now prepare and present their remuneration policies and reports for shareholder approval at AGMs. These reports must include comprehensive details on remuneration, promoting a balance between retaining top talent and addressing shareholder concerns.
Social and Ethics Committee Report and Appointment
Public and state-owned companies’ SECs are now obliged to present an SEC report at AGMs, detailing how they performed their functions per the Companies Act and Regulations. Additionally, the SEC must include a majority of non-executive directors not involved in day-to-day management for the previous three financial years.
SEC Exemption
The Bill also broadens the criteria for SEC exemptions. Companies with existing formal mechanisms that substantially perform SEC functions, or subsidiaries of companies with an SEC, can now apply for exemptions. This amendment will be beneficial for multinationals with centralized social governance structures.
Conclusion
The Companies Amendment Bills represent a substantial shift towards enhanced corporate governance and transparency in South Africa. Companies should familiarize themselves with these changes and prepare to comply with the new regulations. These amendments are designed to foster trust and sustainability in the corporate sector, promoting responsible and ethical business practices. For further assistance with understanding the implications of these developments and ensuring compliance, companies are encouraged to consult legal professionals.
Note: This information is provided for general purposes and does not constitute legal advice. Please consult a lawyer for specific legal issues or concerns.
