A life of its own

06 May 2004 Angelo Coppola

Michael Katz, prominent lawyer, tax expert, corporate governance specialist and member of the Nedcor board, looks at corporate governance and warns business people - understand the context.

Katz: “The media is increasingly carrying stories of corporate governance failures. The question of governance has been overdone. More importantly it should be contextualised. It doesn’t exist independent of company law. It has almost developed a life of its own.”

There are some real issues that affect company directors internationally.

“The role of the company in modern society is being re-evaluated, where previously the state and the monarchy and then the church took prominence, today the company is biggest contributor to employment, wealth creation and responsible citizen.”

The company is a fundamental driver of society.

“However company law has always been about resolving the tension between the owners and controllers - the shareholders and the directors.”

Then the creditors were introduced to the equation, followed by staff, families, the communities in which they operate, and the state.

“Directors own their allegiance to whom,” he asks. “The UK approach maintains that directors need to talk to the employees, circa 1970s. The debate continues internationally with the thinking moving to a focus on looking primarily after the company’s shareholders.”

The waters have been muddied however, as asset managers and institutional savers have caused the extended shareholder ownership of the past to be depleted into the hands of a few, and there are identifiable shareholder ownership patterns developing. This gave rise to the nominee director.

“Nominees are in place to ensure that the subsidiaries are properly run to the benefit of all,” maintains Katz.

Raising finance is done most effectively via the company structure. The issues are that there are more and more hybrid instruments coming to the fore, and the legal and voting issues around these are complicating financial situation of a business.

Today creditor protection and capital maintenance is taking it place at the front of the queue. “Capital maintenance rules are being reevaluated everywhere, and South Africa is unique as there is no minimum capital requirement. 

“We have capital maintenance locally and developments in the nature of share buy-backs and buy-ins, payouts and dividends, place SA among the leaders. Dividends can be declared, for instance.”

Katz maintains that the redemption for redeemable preferential shares is simple to resolve. Financial assistance to buy-back shares is more difficult. There is a difference – third party assistance is different to buying back own shares.

“The perpetuation of control is the issue here. It should be subject to shareholder approval.”

Katz says that duty of care and skill for directors is taking preference to the fiduciary responsibilities. “Case law internationally is proof of this. This is the most important skill today.”

Information technology is taking its place in the commercial world as the issue of debating and sounding out ideas is fast disappearing, as the virtual meeting takes prominence.

“Governance can’t be any more dangerous or misdirected, as it becomes a topic in its own right,” says Katz. “Company law is well-developed. This doesn’t need to be replaced.

“Governance should enable owners to comply with their obligations, according to the requirements of the law – nothing more. The problem is that directors are no longer running companies – they are compliance officers – box-tickers as it were.” 

As a closing comment Katz explains that there is no distinction between executive and non executive directors – their duties are identical.

“There is only one small nuance in law, and this is in the area of duties of care and skill, and whether the director is regularly involved or only periodically involved. That is the only distinction.”

Quick Polls


There are countless articles written about South Africa’s poor retirement outcomes. Which of the following would you single out as the biggest contributor to local savers not accumulating enough to buy an adequate and sustainable pension?


Lack of personal accountability
Poor participation in formal retirement funds
Reluctance to seek financial advice early on
SA’s high unemployment rate
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