Archive for year: 2020

The Companies Act (the Act) gives directors the power to run and manage the company’s business. In return it places responsibilities and personal liabilities on directors who do not fulfil their fiduciary duties.

What is required of directors’ meeting minutes? 

Meetings of directors are to be kept and must contain at least:

• All resolutions passed at meetings (these need to be sequentially numbered and dated), and
• Any declarations of conflicts of interest.

As meetings of directors decide on the strategic direction of the company, the recording of these meetings is critical in reflecting what decisions are taken and how they are arrived at.

The Act also requires that directors understand the issues facing the company and take time to formulate their own, independent views, so they can actively contribute at directors meetings. The minutes should also reflect this.

Adequate control is to be exercised over minutes to ensure they are a fair reflection of the meeting. They should be circulated amongst the directors to prevent any omissions or misleading statements. As illustrated by recent revelations on State Owned Companies, this is a vital point to prevent malfeasance and ensure directors act only in the best interests of the company.

The golden rules of good minutes

Like a good newspaper article, minutes should follow the 5 Ws:

• Who?  The names of the attendees and who sent apologies;
• What?  What actually happened at the meeting, how the agenda was followed, the decisions that were made and significant events that had a bearing on these decisions. As someone said – it should not be a ball by ball commentary but must contain sufficient information to capture the essence of the meeting.
• Where?  The minutes are kept by the company secretary or one of the directors and secured in a safe place.
• When?  Minutes should be done timeously after meetings and circulated amongst the board whilst the meeting is fresh in the minds of the directors.
• Why?  Directors’ minutes go to the heart of the business. They are the most important recordings of how and why decisions were taken. Take due care in recording them.

Finally, there needs to be a balance between confidentiality and transparency in terms of disclosure to staff and stakeholders. As minutes can be used by statutory bodies (such as SARS, the Competition Board etc), it is best to get a legal opinion as to what to record about contentious issues.

In a recent seminar, the President of Microsoft, Brad Smith, gave his thoughts on what is unfolding in business due to COVID-19, plus how he saw the post-pandemic world.

Fasten your seatbelts!

Ransomware and hacking rose to high levels in 2019 and there is no sign this is abating. For example, private patient data is being hacked in U.S. hospitals with demands that unless a ransom is paid, the data will be put in the public domain.

As many people now work from home, so vulnerability to being hacked is rising. People should “strap on their seatbelts” and take precautions – a two-pronged approach is often used now and is effective in containing the vast majority of hackers. For example, using a password and then getting an SMS to use a PIN to activate a PC.

Up your digital skills

Working from home will almost certainly continue to be widely used after the pandemic is over, so it will pay long term dividends for staff to hone their digital skills now.

These two points may seem obvious, yet in the rush to swiftly react to COVID-19, they are often being overlooked.

Keep your company culture alive

Spending most of your day looking at a screen is not conducive to fostering the business’s culture. Frequent news on how people in the company are doing plus the company’s performance and human interest stories such as how the company is helping its staff and communities in alleviating the plight of those adversely affected by the Coronavirus will help to lift the spirits of your staff.

The future of offices

The trend of working from home has been successful and Smith expects some form of hybrid between employees at the office and working from home to emerge in the post-pandemic years. The saving in travel time resulting in increased productivity plus a greener environment from less travel ensure that working from home will be a feature in future business. But there will still always be a need in many businesses for an office. Let’s not forget that man is a social animal and requires human contact.

Upheavals, history and massive changes

Great events have long lasting impacts on future generations. The Second World War transformed air travel from a small elite industry into a mass transport business which led to massive growth in airlines and the tourism sector. It also gave impetus to globalisation.

Another trend from the Second World War that has had a lasting effect was the harnessing of research at universities by governments which led to technological breakthroughs.

With the aftermath of COVID-19, Smith expects that online business will be fully embedded in businesses due to the innovation surge which has followed the emergence of Coronavirus.

Another important feature has been the rapid assimilation of data to help governments quickly understand and fight COVID-19. As the stakes in this pandemic are extremely high, the emphasis has been on providing fact-based information which is transparent and can be interrogated. The search for a vaccine illustrates this – usually it takes up to ten years to find a vaccine but there is hope that this can be reduced to ten months and be ready before the end of the year.

6 principles to fight fake news

A bugbear for all countries that just seems to keep growing is “fake news” and the growing amount of false information on the internet. Smith says that disinformation spreaders have found it difficult to fight the massive amount of scientific data that has been put out in fighting COVID-19. Microsoft now uses six principles when developing software to support open government, which are:

1. Fairness – all people will be treated fairly.
2. Transparency – the system will be fully documented, and capabilities and limitations will be set out.
3. Accountability – technology can have a significant impact on people and an appropriate level of human control will be exercised to prevent adverse consequences from occurring.
4. Non-discriminatory – no unlawful discrimination will be allowed.
5. Notice and Consent – people subject to the technology must consent to its use.
6. Lawful Surveillance – Microsoft will campaign for people’s rights to not be infringed by use of software.

Smith said if these principles can be accepted as an industry standard, it will promote openness which will reduce the impact of “fake news”.

There has been limited application for Artificial Intelligence (AI) in combating the virus, but it has been useful for example in diagnosing whether a caller needs to come into a clinic or hospital and take a coronavirus test. This allows medical staff to focus on helping the confirmed sick. AI is also being used to predict how severely affected each patient who tests positive will be and it helps tailor the treatment the person should undergo.

Lastly, and very importantly, it has shown how important co-operation is in finding answers to COVID-19. Without multilateral and bilateral approaches, it will take longer to find solutions.

Smith said technology can be used either as a weapon or a helpful tool. It is up to governments and civil societies to ensure that it is used as the latter.

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.

Globally, the COVID-19 coronavirus has spread panic amongst societies and markets. Businesses are suffering their most challenging times since the 2008 Global Financial Crisis.

This is the time for urgently reviewing how events have affected your business and how you can respond to the seeming chaos.

Cash is king

When faced with great uncertainty, conserve cash and shore up all your credit lines. This will give you greater flexibility when strategizing a response to the coronavirus. You may, for example, be able to buy a crucial stock item for a discount from one of your suppliers, thus ensuring that you can continue operating. Apart from strengthening your position with your competitors, this could help the supplier to remain in business – relationships are important, and this supplier will be grateful to you.

Trim costs wherever you can – some of this is being done for you as many companies are cancelling travel, resulting in many meetings and conferences being called off. Capital expenditure is being pruned globally and there may be opportunities to delay some of your current capex.

Keep your staff healthy

Apple has already told staff to work from home to reduce the risk of catching or spreading the coronavirus. Desks are being spaced to reduce the possibility of catching the virus and meetings are being cancelled or are taking place electronically.

Make sure the risk of staff catching the virus is minimised and have a succession plan if some key members are incapacitated by the coronavirus. Take particular care of staff members who have health issues, as they could become seriously ill or die if they catch the virus. As health authorities are advising people to frequently wash their hands, ensure that you have enough hand washing dispensers.

As many of your staff will be working from home using smart phones and their own desktops, have your IT department mitigate the risks of hacking or computer viruses getting into your IT platform.

Perhaps, most importantly, communicate often with your employees and managers. Regularly follow updates from the World Health Organisation and the local Department of Health. This is a time of uncertainty, as there is no definitive knowledge on how the coronavirus will evolve and thus sharing the information you gather on the disease, will improve the health and morale of staff in your business.

The Occupational Health and Safety Act imposes obligations on employers to provide a healthy environment for their staff. Much of the above is in line with ensuring that you comply with that Act’s requirements, but you need to ensure your organisation is compliant with the legislation.

Your supply chain

This is clearly a key area and working out the risks of suppliers and contractors being unable to supply you is a key task. Some of the important areas will be changing your safety stock holdings, reviewing your contracts with stakeholders and assessing the risks and the consequences of default. This is where it really pays to have cash.

As we said above, keep in mind the long term relationships with suppliers.

You also need to review your insurance policies – will they pay out if certain scenarios unfold? Do you need to take out different policies?

Reacting, planning and preparing strategies will ensure you have the agility to ride out this crisis and may even strengthen your position with competitors.