Archive for month: May, 2020

There are significant obligations placed on directors by the Companies Act and personal and criminal liabilities if they fail to meet these obligations.

As a director you will no doubt be focusing on critical issues like keeping your business afloat and solvent (the CIPC has waived its right to intervene when a company becomes temporarily insolvent due to the lockdown and other restrictions imposed. This concession will be withdrawn 60 days after the lifting of the National Disaster regulations), don’t forget that the Companies Act is still in force.

The coronavirus has created an unprecedented situation which demands swift, decisive action by directors – for example, the President only gave the country 72 hours’ notice before the lockdown came into effect, which gave little time for directors to react to the new reality.

No change in your duties or liabilities

Despite the coronavirus there is no change to the duties or liabilities of directors. They must perform their role:

• “in good faith…,
• in the best interests of the company
• with the degree of care, skill and diligence that may reasonably be expected of a person –
  • carrying out the same functions in relation to the company as those carried out by that director; and
  • having the general knowledge, skill and experience of that director.”

“Good faith”, “best interests” and “care, skill and diligence” are onerous terms. For a director to be protected against falling foul of these provisions that director needs to show that he/she took diligent steps to be informed of the issue and made a rational decision in the best interests of the company. This is known as the Business Judgment Rule and courts look to this when considering a director’s personal liability.

The impact of the King IV Report  

When considering the Business Judgment Rule, the courts have relied on whether a director followed the King IV Code of Good Governance when reaching their decision.

One issue that will arise with the coronavirus is that King IV mandates that a company be a good corporate citizen and part of this is to look after the health and safety of employees (following the requirements of the Occupational Health and Safety Act and now government’s Disaster Management Act Regulations) – for example, were adequate steps taken in terms of the National State of Disaster declared by the President such as social distancing (working from home where feasible) and  ensuring employees had access to masks, hand sanitisers and so on at work?

Failure to comply with King IV in this scenario means directors will not be able to rely on the Business Judgment Rule and can be held personally liable for losses incurred.

Will your indemnity insurance cover you?

Directors can take out indemnity insurance, covering claims awarded, in their personal capacity, when they commit “wrongful acts”. However, the insurance will not apply if there is “wilful misconduct or wilful breach of trust” by the director (check your policy’s exact wording). An example might be the director being convicted under the Occupational Health and Safety Act.

As a director you could find yourself being held personally liable for your decisions and being denied access to your indemnity insurance cover.

Dealing with the pandemic increases the pressure on directors but doesn’t absolve them of their liabilities.

In this brave new world of COVID-19, many people are working from home. Even after there is a cure for the virus, this trend will likely continue.

Researchers at Harvard University have come up with some good ways to ensure you get maximum productivity and loyalty from your employees working remotely.

Key points

1. Both managers and staff miss face to face meetings – managers worry how effectively their people are working and employees miss the support and guidance they get from managers.

   Managers should introduce structure and discipline into their interactions with their staff – setting up a time each day (or whatever is needed) to connect to each other and, possibly, the team the employee is in. This can cover all the employee’s and team’s work requirements, bringing them up to date with events in the company. Not only does this improve productivity but it increases staff morale and loyalty.

2. Access to information can become difficult between staff members – for example, a relatively new employee asks a staff member for information who initially ignores the request until the new staff person starts sending out more aggressive emails.

   Managers need to be aware of this type of conflict and focus on new employees to iron out any potential difficulties.

3. Employees get lonely and can over time feel they’ve been cut adrift which is bad for their stress levels and can lead to a drop in productivity.

   If managers don’t have good listening skills and empathy, then they need to add these to their armoury and be on the lookout for loneliness manifesting in people who report to them. In the initial stages, it may pay to also have Human Resources contact employees working remotely.

4. Home distractions. Working from home can lead to distractions of members of staff by spouses and family.

   The company needs to ensure that the employee has the required technology and IT security in his or her home. Having a separate office in their homes is also important.

5. Staff need time to catch up with their colleagues’ personal lives and the manager should allow time for this when there are video calls. This will reinforce that employees belong to and are part of a team.

There is much to learn in terms of skills and keeping staff morale and productivity at high levels, when employees work from home.