Staff Dismissals: Beware, There’s No Honour Amongst Thieves and No Short Cuts

/0 Comments/in /by

“A plague upon it when thieves cannot be true one to another!” (Falstaff, in Henry IV Part I)

We know how time consuming dismissing staff can be. It leads to loss of productivity and extra legal costs can be incurred. But be careful if you are considering taking short cuts to get the matter out of the way. A recent case illustrates this.
The employer’s quandary
An employee’s position was terminated after the employee resigned (that, at least, was the employer’s version – the employee characterised it as an unfair dismissal/retrenchment in the CCMA). Soon afterwards, said the employer, the employee’s union asked the employer to change the reason for leaving employment to “retrenchment”. The employer was placed in a quandary – to refuse the request meant the employee would almost certainly approach the labour courts for wrongful dismissal. To agree to the union’s request would ‘make’ the problem go away as the employee would then be able to apply for and receive UIF benefits.

The employer agreed to the union’s request. The bad news was only just beginning as the employee promptly went to the CCMA claiming, amongst other things, that she had not been paid her retrenchment package. The CCMA arbitrated the case as a retrenchment dispute – the employer having agreed to present the “resignation” of the employee as a retrenchment during the arbitration – and found in favour of the employee.
Naturally the employer was furious – not only had it ended up in a labour forum but it had also been required to pay a retrenchment package. In essence, to appeal meant exposing the employer to the risk that that the case would be seen as fraudulent all along.

It just gets worse

However, the employer did appeal the case to the Labour Court. In the appeal the employer had to argue that the employee was never retrenched. The Court was understandably angry that a fraudulent claim had been entered and the employer had never raised this in the original hearing.

The appeal was dismissed with some strong wording: “The court turns its face against any fraud, particularly fraud perpetrated in respect of the processes that bear on the administration of justice……It is remarkable that the [employer] has the temerity to seek recourse from a court of law in the light of its admitted fraud. The conduct of the applicant is a perversion of the administration of justice.”

Don’t take the easy way out – there is no honour among thieves. The employer’s business not only spent far more time and money on two cases but also suffered reputational damage as well.

Vet Your Suppliers! Good Stakeholder Relationships Will Boost Your Profits

/0 Comments/in /by

Suppliers play a strategic role in your business because if they fail to deliver on time or with the required quality, they can cause delays in your organisation. These delays will inevitably have a knock-on effect to your customers.

How to ensure you get high quality suppliers

Best practice dictates that vetting procedures are in place that cover, at least:

  • A review of the supplier’s financials to establish that the business has the financial means to remain sustainable and to deliver to its customers.
  • The supplier has sound processes in place and the organisation is well managed.
  • How long has the entity been in business? The longer the better.
  • Get testimonials from the supplier’s current customers.
  • Check for fraud and/or conflicts of interest. This involves establishing that none of your staff have undisclosed relationships with the supplier, that the supplier has no criminal record or any suspicious activities.
  • See how the supplier responds to queries. You could call as “customer” of the supplier and see how they react to a problem.
  • Check their social media platforms to ensure they are consistent with their marketplace persona.
  • Culturally are they a good fit for your business? Do they have the same values as your organisation?
  • Have in place ongoing processes to detect if there are any changes in the supplier’s organisation which could trigger further investigation.

Getting the most out of suppliers

In the new King IV Report there is a section on optimising stakeholder relationships by an “inclusive approach that balances the needs, interests and expectations of material stakeholders in the best interests of the organisation over time”.

This involves understanding what they want and ensuring there is a mutual relationship of trust which will last a long time and from which both parties will get the outcomes they want.

An honest, transparent relationship with your suppliers will bring good long term profit to your business.

Lean Times Ahead: 6 Steps to Help You through Them

/0 Comments/in /by

“We have seen better days” (Shakespeare)

When you read that nearly 75% of the middle class experience financial difficulty and a similar percentage are in debt, it is time to worry.

Add to this the economic difficulties the country is going to experience flowing from the ratings downgrades and it will not be just the poor who will suffer but many middle class South Africans will also find themselves in a crisis.

The “phony war”

In the Second World War, the winter of 1939-1940 saw no activity but in the spring Nazi Germany blitzkrieged Europe and all hell broke loose – the “phony war” was over. It seems inevitable that our own “junk status phony war” will soon be over.

Don’t be fooled by the fact that the country has successfully weathered the first month or two of the downgrades. Remember that only our US Dollar denominated debt has been downgraded and this amounts to ten percent of South African bonds. The rating agency, Moody’s, has yet to decide whether or not it will also downgrade us to junk status.  Even if we don’t get a downgrade from Moody’s now, it will probably come in the latter part of the year.

There are several rungs in the ladder below junk status. When this happens to a country its economic growth, currency, unemployment and investment show further declines. If South Africa takes no action to improve State Owned Enterprises and corruption, we will face such further downgrades.

6 steps to take and avoid    

Lock down for the lean times with these –

  1. Don’t take on more debt to supplement monthly living. This amounts to postponing a day of reckoning which more debt will only worsen.
  2. Budget carefully and understand your spending patterns. For example, analyse the times when you spend unnecessary money and consciously avoid these occasions. Make a plan to cut spend and be disciplined about it.
  3. Plan to live below your current means. This may sound daunting but will enable you to become frugal. Some simple planning around your habits and strengths (if, for example, you are good with your hands, maintain your own car and home) will help you achieve this.
  4. If you succeed in either breaking even or saving money, think how it will improve your morale – just think of not waking up at 3 a.m. with a knot in your stomach as you worry about money.
  5. Learn to distinguish between a want and a need. Once you have done this, reduce or cut out things you want.
  6. The most important thing is realising your situation will get worse unless you cut costs. Then you must have the willpower to implement living frugally.

Employers:  Help your staff through this

Why not share these ideas with your staff – not only can it help them navigate these choppy waters, but it will improve morale and productivity in your workforce.

You Need Independent Directors, not Herd Mentality

/0 Comments/in /by

“Here’s to the crazy ones. The misfits. The rebels. The troublemakers. The round pegs in the square holes. The ones who see things differently.” (Steve Jobs when he was reinstated as CEO of Apple)

The Companies Act tasks directors to apprise themselves of company activities and make up their own minds as to how decisions should be taken. Strong governance structures should also exist in companies. This spirit of independence and good governance should infuse leadership so that the best interests of the company are safeguarded.

Yet when we look around today, we see State Owned Companies floundering and some multinational heavyweights like KPMG, SAP, McKinsey and Bell Pottinger in serious trouble.

“Surely” you ask “why didn’t some of their directors stop these disasters?”


The herd mentality trap

It is human nature to adopt a herd mentality particularly when there is a forceful and strong CEO. That is precisely why the framers of the Companies Act required independent leadership and good governance.

Good governance and leadership consists of demonstrating accountability, honesty, transparency and respect for all staff and stakeholders. You don’t need committees and red tape if your business is a small one – your leadership should demonstrate these characteristics.

It also pays to be a good listener as this trait curtails “leadership cults”. Encourage your managers and staff to challenge you.

Short term thinking often gets a business into trouble. Listen carefully to your independent thinkers.

Directors and Shareholders: There’s Hope If You Forget Companies Act Compliance Requirements

/0 Comments/in /by

The “new” Companies Act is pitted with clauses requiring that special resolutions be passed. There are also instances where as directors you are required to take certain actions such as recusing yourself if there is a conflict of interest.

It is important to note that transactions can be set aside if the necessary steps are not taken. Should this happen, a costly and time-consuming exercise would follow.

Can “unanimous consent” rectify non-compliance?

Both our “old” Companies Act and English company law allowed the concept of “unanimous consent” to override statutory non-compliance with certain requirements, such as the requirement for a special resolution to be passed authorising the sale of all (or the greater part) of a company’s assets. Simply put, if all of the shareholders were aware of the implications of a transaction and consented to the transaction, then the “unanimous consent” principle may be available to hold up the transaction despite the required statutory steps not having been taken.

In South Africa following the introduction of the “new” Companies Act in 2011, there was uncertainty whether “unanimous consent” would be accepted here until the Supreme Court of Appeal (SCA) recently pronounced on the subject.

What the SCA said

A company sold the major part of its assets and the directors had a conflict of interest in the sale. Part of the case revolved around setting aside the transaction as no special resolution was passed for the sale of the assets and the directors had not disclosed their interests. The company was owned by a single shareholder – a trust effectively controlled by one person.

The SCA said that the reason for requiring that a special resolution be passed was to “ensure that the interests and views of all shareholders are taken into account”. When reviewing the circumstances of this case the SCA found that the person who controlled the sole shareholder was party to the transaction and thus no special resolution was needed as the shareholder was clearly aware of and had effectively approved the transaction.

It used a similar line of reasoning in resolving the conflict of interest question.

The court specifically accepted the principle of unanimous consent, stating “that principle, long recognised in English company law, from which our courts have received much guidance, was accepted as part of our law relating to companies, under both the 1926 and the 1973 Companies Acts. I can see nothing in the current Act to suggest that the principle no longer finds application”.

The implications are that if a business is owner-managed or the board of directors are a tightly knit group then – even if in error you don’t tie up all the Company law requirements – the “unanimous consent” principle might be available to you.

Be sure however to seek professional advice – every situation will be different.

Directors’ Meeting Minutes: Why Are They So Important?

/0 Comments/in /by

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.

Life Made Easier (and Safer) For Non-eFilers

/0 Comments/in /by

When SARS have requested documentation from taxpayers who do not use eFiling, the taxpayers have had to take these documents into a SARS Branch. Now SARS have launched on online form that taxpayers can complete and upload with the documentation requested by SARS.

The online form can take ten documents which need to be 5MB or less in size.

The process is very simple, and taxpayers merely need to follow the instructions set out.

As a trip to SARS can take a full morning, this is a time saver for taxpayers and is safer as taxpayers are less at risk of catching COVID-19.

Technology, COVID-19 and How the World Will Change

/0 Comments/in /by

“There are decades where nothing happens; and there are weeks where decades happen” (Vladimir Lenin, who would have known!)

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.

Tax Freedom Day: How Many Days Did You Work for The Taxman in 2020?

/0 Comments/in /by

“I Have Bad News and – No, Actually I Just Have Bad News” (Rick Riordan)

In the current year it has taken the average South African 126 days to pay off their taxes and only from the next day did the taxpayer then work for him or herself. This date fell on 6 May this year and is globally known as Tax Freedom Day (TFD).

So, what does this tell us?

This should be good news as last year TFD took 11 days longer to achieve than in 2020. However, this 11 day drop reflects the calamitous fall-off in the economy due to the COVID-19 crisis. Peoples’ incomes are dropping in 2020 which means less tax will be paid – this is the main reason for the 11 day improvement over last year.

This is not good news as the impact of lower taxes on government finances will push South Africa into a worse debt crisis. Some economists are predicting that our budget deficit to GDP will be 17% versus the 6.8% in the Budget presented by the Finance Minister in February – this shows just how fast our economy is tumbling. At least we are in good company – the USA shed 36 million jobs in the first seven weeks of their lockdown. Across the world, virtually every economy has slipped into recession.

The problem is it will take, depending on how long the pandemic lasts, some years for South Africa and the global economy to recover. This will not be good news for TFD, as taxpayers will probably be required to shoulder a higher burden of taxes to pay off the debt incurred due to the pandemic.

COVID-19 and Directors: Your Duties and Liabilities in the Coronavirus Crisis

/0 Comments/in /by

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.