Decision-making and leadership during Covid-19
Under section 66 (1) of the Companies Act 71 of 2008 as amended: “The business and affairs of a company must be managed by or under the direction of its board, which has the authority to exercise all of the powers and perform any of the functions of the company, except to the extent that this Act or the company’s Memorandum of Incorporation provides otherwise.”
The term corporate governance is widely defined as: “The framework of rules and practices by which a board of directors ensures accountability, fairness, and transparency in a company's relationship with all its stakeholders (financiers, customers, management, employees, government, and the community)….”
It is also defined as: “…..the structures and processes for the direction and control of companies. Corporate governance concerns the relationships among the management, Board of Directors, controlling shareholders, minority shareholders and other stakeholders. Good corporate governance contributes to sustainable economic development by enhancing the performance of companies and increasing their access to outside capital.”
Duty of care and skill
Section 76 of the Act outlines the director's duty of care and skill towards the company. It now demands a higher standard than its common law equivalent previously did.
A director will act in the best interests of the company and with the necessary care and skill if he/she (business judgement):
- Has no personal/financial interest, or
- Did not reasonably know that any related person had an interest, or
- Disclosed a conflict of interest, and
Made a decision or supported a decision of the board, believing that he/she was acting in the best interests of the company. This would only hold if they relied on the advice or opinion of an employee, member of the board or a committee or a professional consultant:
- Who is believed to be reliable, competent to provide information or merited confidence or
- Where it falls within the professional’s field of expertise.
With Covid-19, directors must exercise care, skill and diligence as is outlined by the Act and governance frameworks now more than ever. Making sound decisions is now vital.
It is vital to ensure that the following are part of the decision-making process:
- Reliable information
- Co-ordinated approach and communication
- Specific Roles, responsibilities and competencies
The fact is that most of the regulations to manage the spread of the virus are new and relatively untested, and we have and will continue to see many changes. In my view, only the most innovative leaders who operate within the regulatory frameworks best will steer their businesses and teams successfully through the maze that is Covid-19.
Nicolene Schoeman-Louw is the managing director at SchoemanLaw In.