The document provides an overview of director roles and responsibilities in South Africa. It defines different types of directors such as executive, non-executive, and independent directors. It outlines appointment procedures for new directors, their duties, and ways directors can leave a board such as retirement, resignation, removal by shareholders, or becoming disqualified. Removal of a director by shareholders requires a special notice and resolution process as defined in the Companies Act.

1. DIRECTORS INDUCTION MODULE 1 BECOMING A DIRECTOR

2. The duties and responsibilities of directors for the effective governance of their companies have never been greater... 'The success of every company depends ultimately on the caliber of its directors and the effectiveness of its board.' Bob Tricker, The Pocket Director

3. 1) WHAT IS A DIRECTOR? THE COMPANY’S ACT DEFINES: “ any person occupying the position of director or alternate director of a company, by whatever name he may be designated”. ‘ board’ is the collective term used to designate the directors when they act together as a group.

4. THE 2002 King Report on Corporate Governance (“King II”): “ Executive Director” ~ is involved in the day to day management of the company and is a fulltime salaried employee of the company. “ Non-executive Director” ~ is not involved in day to day management and is paid a fee. “ Independent director” ~ is not a representative or nominee of a shareowner ~ was not in the employment of the company or its group ~ does not have a contractual relationship with the company or group ~ is not a customer or supplier of the company or group ~ is free from business or other relationships which could materially interfere with the individuals’ capacity to act in an independent manner “ Shadow Director” ~ directs the activities of a company and shall be considered to be an executive director but is not formally appointed. “ Officer” ~ Specifically includes the Chief Executive, the Company Secretary and Managers.

5. 1.2) Board Composition ITO King II: “ the board should comprise a balance of executive and non-executive directors and should be small enough for effective decision-making. Non-executive directors should comprise the majority, i.e. 49% executive, 51% non-executive; A sufficient number of non-executives should be independent directors, who are independent of management.” More non-executive directors ensures better review of the performance of the board and the organization. Note: The above recommendation may not be practicable for smaller companies, in which case the company should align its board to such a structure as it grows.

6. 2) GOING ON BOARD The company's articles usually authorise the shareholders to appoint directors. In practice, the board generally appoints most directors. In terms of the articles and the Companies Act, these appointments must be confirmed at the first Annual General Meeting (AGM) after their appointment.

7. ~ When appointed, a director must sign a Consent to Act as Director. Std Form CM 27 available at CIPRO or from the Act. ~ Non-compliance does not invalidate the appointment, but is an offence under S211(4) of the Act. ~ The director is entitled to a copy of the Memorandum and *Articles of Association of the Company, as well as copies of relevant agreements pertaining to his appointment. ~ Some companies require directors to hold qualification shares to qualify their appointment as directors. Where this is a provision in the *articles, the shares must be taken up within two months of appointment under S213 of the Act.

8. 2.1) Alternate Directors: On approval by the board, Directors can appoint alternate Directors to represent their interests. An alternate acts on behalf of a director when that director cannot personally fulfill his duties. Alternate directors have the same rights, duties and responsibilities as any other director and there is no legal distinction between the principal and his alternate. The termination of the appointment of the principal director will ipso facto terminate the appointment of the alternate director.

9. 2.2) Service Agreements : In addition to the statutory requirements, many executive directors also enter into a fixed term service agreement with their companies, further regulating their relationship with the company. The recommendation ito King II is that the term of these contracts should not exceed three years.

10. 3) COMING OFF THE BOARD 3.1) Persons disqualified from being directors or officers in terms of the Act S218, 219 (as amended): The following persons cannot be directors, or take part directly or indirectly from the management of a company: ~ Body Corporates ~ Minors ~ Persons with no legal capacity (e.g. mental illness) ~ Persons ordered against or removed from office for not being a fit and proper person The following persons cannot be directors unless authorised by the Court: ~ Un-rehabilitated insolvents ~ Persons removed from an Office of Trust due to misconduct ~ Persons convicted of offences such as theft, fraud, forgery, uttering a forged document, perjury, corruption or dishonesty in connection with the formation or management of a company, With effect from 2004 The Registrar of the Court maintains a register of disqualified directors.

11. Articles of Association also impose restrictions on persons who may be appointed as directors. A director must resign if he: ~ is no longer capable of being a director in terms of section 218 of the Companies Act (previous slide) ~ without the consent of the company in a general meeting, holds any other office of profit under the company except that of chief executive or manager ~ is absent without permission of the board for more than six months from meetings of directors held during that period ~ is directly or indirectly interested in any contract or proposed contract with the company and fails to declare this interest and the nature thereof in the manner required by the Act (Article 65) Directorships end if the director becomes disqualified to act as a director for any of the stated reasons.

12. 3.2) Removal of a director The shareholders of a company can also remove directors in terms of Section 220 of the Act. This will be detailed at the end of the presentation. Such a removal is effective even if the director has a service contract with the company. Depending on the circumstances of the removal, the company may be liable to pay compensation to a director who has been removed from office. Some companies amend their articles to allow the board to remove directors from office; however the standard articles do not contain this provision. Articles can be revised by the Company Secretary to provide for this.

13. 3.3) Retirement as a director Most Articles of Association require one third of the board to retire by rotation at each Annual General Meeting. These directors are usually reappointed by the shareholders, but need not be. This gives members the opportunity to accept the retirement of directors they are not satisfied with.

14. 3.4) Resignation as a director Directors may resign by tendering a letter of resignation. A director may resign: ~ for personal reasons, ~ To resolve a conflict of interests, ~ At the request of the chairman, ~ or because of the company’s insolvency (in which case the director should seek professional advice).

15. Companies Act Section 220 – Removal of a Director By Shareholder: A Special Notice *21 days* is sent by the board to the shareholders, proposing the resolution to remove a director, or to appoint someone in the place of a director at the meeting, with reference to this section of the Act. A copy of the resolution to be passed at the meeting is to be sent to the director concerned, who will be entitled to represent himself at the meeting. The director concerned may submit his representation in writing to the board, and, if received within reasonable time, the board will state in the Notice of General Meeting sent to shareholders that the representation has been made, and send a copy of the representation to every shareholder entitled to attend the meeting. If his representation is not sent to the shareholders, the director concerned may request that his representation be read at the meeting. If the director is voted off the board at the Special General Meeting, the director concerned is still entitled to compensation and damages payable.

16. Key issues for Directors to consider: Have you signed a Consent to Act as Director [CM27], and has an annual general meeting confirmed your appointment? Have your reviewed the Articles of Association of the company? Are you required to hold qualification shares in terms of the Articles, if so, have they been transferred into your name within the prescribed time? Do you have adequate training to be a director and are you aware of your legal and fiduciary responsibilities as a director? Have your acquainted yourself with the provisions of the shareholder’s agreement insofar as it contains provisions which affecting your directorship? Is your directorship subject to the terms of another agreement, e.g. a service agreement? Is there any reason why you may be disqualified from being a director? When are you next due to retire by rotation?