Definition of a director in terms of the Companies Act
Section 1 of the Companies Act 71 of 2008 (Companies Act) defines a Director as “a member of the board of a company, as contemplated in section 66, or an alternate director of a company and includes any person occupying the position of director or alternate director, by whatever name designated”.
Powers of directors
Section 66 of the Companies Act determines that the business and affairs of the company must be managed by or under the direction of its board and that the board has the authority to exercise all of the power and perform any of the functions of the company, except to the extent that the Companies Act or the Company’s Memorandum of Incorporation provides otherwise.
The board of directors, for the first time in our current Companies Act has been assigned the legal duty and responsibility and play a very important role in managing the affairs of the company and making vital decisions on behalf of the company.
Number of directors required on a board
In the case of a private company, or a personal liability company, the board must consist of at least one director and the case of a public company, or non-profit company, the board must consist of at least three directors. A JSE listed company requires at least four directors. The company’s Memorandum of Incorporation may however specify a higher number, substituting the minimum number of directors required.
How to distinguish between executive, non-executive and independent directors and their functions
A clear distinction is noticeable between the different types of directors in practice, even though the Act does not distinguish between executive, non-executive and independent directors.
The below table gives a clear understanding of the differences between executive and non-executive directors:
Executive directors | Non-executive directors |
Member of the board of directors with directors’ duties. | |
| Part of the executive team, as an employee of the company and generally under a service contract with the company. | Not an employee of the company. |
| Involved in the day-to-day management of the company. | Not involved in the day-to-day management of the company. |
| In addition to a salary, does not receive directors’ fees. | May receive Directors’ fees, but does not receive a salary. |
| Shareholders are not involved in approving their salary packages. | Shareholders must approve their fees by way of special resolution, in advance. |
| Employee entitlements apply, such as annual and sick leave. | No entitlements apply. |
| Has an intimate knowledge of the workings of the company. | They contribute to the development of management strategies and monitor the activities of the executive directors. |
| They carry an added responsibility. Entrusted with ensuring that the information laid before the board by management is an accurate reflection of their understanding of the affairs of the company. | Plays an important role in providing objective judgement, independent of management on issues the company are facing.
|
Independent, non-executive director
An independent, non-executive director does not have a relationship, directly or indirectly with the company other than his or her directorship. They should be free of any relationship that could materially interfere with the independence process of his or her judgement and they do not represent the shareholders of the company.
An independent, non-executive director should be evaluated on an annual basis to determine if they are still considered independent.
The role of these directors
All directors should apply objective judgment and an independent state of mind, regardless of the classification as an executive, non-executive or independent non-executive director.
Executive directors may be appointed as non-executive directors on other boards if this does not influence their current position and is in accordance with company policy.
Before a director accepts the appointment, they should be familiar with their duties and responsibilities and be provided with the necessary training and advice.
