The Institute of Directors in South Africa (IoDSA) welcomes the announcement that two former directors of AYO Technologies have been disqualified from serving on the board of any listed company for the next five years. The two directors were members of the company’s Audit and Risk Committee; and the censure results from their failure to fulfil their oversight roles in relation to the 2018 interim results, which contained a number of material errors.
“The JSE’s ruling underlines the fact that directors have a pivotal role to play which is legally defined, and that there are serious consequences for not fulfilling it,” says Parmi Natesan, CEO, IoDSA.
In its communication on this matter, the JSE outlined a number of points that directors should note carefully.
The Companies Act stipulates that a director must exercise his or her powers and perform his or her functions in good faith, for proper purpose and with the degree of care, skill and diligence that may reasonably be expected of a person carrying out the same functions and having the general knowledge, skill and experience of that director.
The two admitted to having scant knowledge of corporate governance or the rules and regulations governing the financial reporting of a JSE-listed company. They further conceded that they were inexperienced directors and so had not fulfilled the duty of ensuring that AYO Technologies had proper financial reporting procedures in place.
The conclusion is clear. Better due diligence by nominations committees and shareholders is necessary before directors are appointed. In addition, the candidates themselves should not accept a board position if they do not have the requisite understanding of their duties, and the skills and experience to discharge them. Once appointed, directors have to participate actively and make a positive contribution.
“This censure is welcome because it emphasises the principle of accountability in corporate life. However, the banning only applies to listed companies, so the two individuals could theoretically still serve on the boards of non-listed companies or other organisations,” Ms Natesan argues. “This serves to highlight the importance of the nomination and appointment process for members of the governing body of all types of organisations: only individuals who have the right qualities and, most important, skills and experience should be eligible to be considered for such an important role.”
Related to this, the IoDSA has introduced two SAQA-registered director designations to assure that individuals meet minimum standards and are assessed against a Director Competency Framework. The designations also require that holders keep their skills updated via continuous professional development, and are bound by a code of conduct.
“We commend the JSE for this bold step and encourage more regulators, nominations committees and shareholders to ensure that a new generation of directors is properly equipped to discharge their important role, both their benefit and ours,” she concludes.
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