During the IBASA-EPI webinar on October 3rd, business advisors and other IBASA stakeholders were guided on ways to assist small business directors to be compliant and practice good governance as well as to reduce their business risk relating to the role and obligations of directors. As webinar producer, my job was to make sure that the educational experience is delivered seamlessly to the 78 attendees of the webinar. Below is my summary of what was covered by the panellists and during the discussion with attendees.
We were fortunate to have three expert panellists, all members of the Institute of Directors Southern African (IoDSA), sharing their views on the importance of director training, requirements and guidelines for directors and practical approaches to assist SME directors to comply with the Companies Act and King IV guidelines.
Vinod Kalicharran, the chairperson of the IBASA Gauteng Regional Association, highlighted the importance of corporate governance, directorships and ethics, particularly in the current environment where fraud and mismanagement are accentuated in the media rather frequently. Vinod emphasized the need for IBASA members to be able to guide their clients on corporate governance. He believes that SMEs, by not complying, limit their effectiveness and prejudice themselves regarding access to funding, business opportunities and even membership to a professional body like IBASA.
Vikeshni Vandayar, the legal and governance specialist at the IoDSA, provided a clear overview of director requirements. She emphasized that there are no legal requirements to serve as a director as such, but that Section 69 of the Companies Act provides categories of persons ineligible who are disqualified to serve as directors.
The expectations concerning a director are firstly guided by a standard of conduct, as stated in Sections 75 and 76 of the Companies Act, in Common Law and the IoDSA’s corporate governance report on King IV.
According to Vikeshni – in the absence of any set legal criteria – the knowledge, qualifications, skills and competencies expected from directors should be guided by the specific organisational needs, as well as the guidelines in the IoDSA Director Competency Framework and the King IV Principles 1 and 7, covering characteristics and composition of the governing body of a business. King IV is the fourth of Mervyn King’s widely adopted guidelines for governance in South African companies.
She highlighted the duties of directors in two practical categories, namely fidicary duties and the duty of care.
Fiduciary duties include:
- Act in good faith and proper purpose;
- Act in the best interest of the company;
- Avoid conflict of interest;
- Disclose material information and conflict of interest;
- Do not use position to gain advantage or cause harm;
- Act within powers or capacity; and
- Act with independent discretion and judgement.
The duty of care include:
- Act with the degree of care, skill and diligence that may reasonably be expected from a person;
- Carrying out the same function; and
- Having the general knowledge, skills and experience of a director.
Vikeshni also indicated some aspects that may contribute to becoming an effective director, including the following:
- Understanding their role and responsibilities;
- Understanding what is expected of them in the specific organisation;
- Understanding their liability and personal risk;
- Continuous professional development;
- Lead by example – ethical and effective leadership; and
- Having the necessary competencies, characteristics and level of experience to carry out the role.
Important to note is that the IoDSA is a SAQA-recognised professional body, and while being conveners of the King Committee, produce and own the King Reports. While the IoDSA provides free general governance guidance through various publications, they offer two directorship designations, Certified and Chartered Director, as well as director development training, board appraisals and governance advisory services.
Darryl Clayton, entrepreneurial business advisor and regional sales director at SSA, concluded the panellist presentations by sharing some practical insights for practitioners to assist their clients in a non-threatening way to comply.
Darryl highlighted Mervyn King’s change from the “Apply OR Explain” of King III to “Apply AND Explain” in King IV. To do this at SME level, business advisors need a process to “Measure AND Implement” governance controls found to be lacking in clients/
To lessen the often overwhelming and scary level of information required for good governance, Darryl believes it is essential to simplify the review process for the client. “They are often all about the product and not the process,” he said.
Darryl provided a practical example for business advisors to address different elements of compliance by asking less threatening functional questions involving business risks. He emphasised the importance of having documented due diligence and risk assessment records to prove good intentions, even though wrong decisions might have been made. Executive training, annual declarations, effective board diversity and the need for practical tools to assist business advisors in supporting their clients are all important elements of supporting SMEs with improving their governance.
The webinar was attended by 78 practitioners from eleven professional bodies. The relevance of the topic was supported by the in-webinar poll indicating that 50% of attendees are occasionally or often requested by clients to assist with their director role in the company. Participation through 73 exchanges on the chat forum was well leveraged for networking, while the 95% attention rate and in-depth questions proved the subject and panellists’ expertise to be of great value to the participants.
The question-and-answer session addressed some pertinent issues such as guidance in appointing SME boards, the difference between a director and board member, when professional indemnity applies, liability of directors for prior board mistakes, ideal size of boards, how to address a one-man business, as well as ways for a small entrepreneur to retain control when appointing directors to the board.
The poll on training needs confirmed the need for further support especially the training of directors in their roles (37%) and the need for Training on How to appoint SME directors (26%).
- The next IBASA-EPI Webinar, scheduled for 26 October 2018, will cover the important subject: “What do corporate ESD managers look for when appointing business development service providers?”
- CLICK HERE to register for the next CPD webinar.