Directors’ standards of conduct under the South African Companies Act and the possible influence of Delaware law

Authors Tshepo H Mongalo

ISSN: 2521-2575
Affiliations: Associate Professor of Law, University of the Witwatersrand, Johannesburg
Source: Journal of Corporate and Commercial Law & Practice, The, Volume 2 Issue 1, 2016, p. 1 – 16


Fiduciary duties in Delaware and, indeed, in most states of the United States of America, are less burdensome than they are under the South African Companies Act 71 of 2008. To begin with, Delaware’s fiduciary duties consist of only the duty of loyalty and the duty of care. There is no separate duty of skill and diligence in Delaware, which is home to over 51% of all publicly traded companies in the United States (hereafter referred to as the US). Moreover, a Delaware director does not owe a greater degree of the duty of skill if that director happens to possess a heightened set of skills on the board of a Delaware corporation. The law is different in South Africa as the standard of care, skill and diligence expected of a South African director depends to a large extent on the degree of care and skill such a director possesses. This paper will assess whether the re-iteration of the common law duties and standards of liability of directors under the South African Companies Act 71 of 2008 has had the unintended consequence of making corporate directorship more burdensome and less attractive in South Africa than is the case in leading corporate law states, such as Delaware. South Africa is home to far fewer public companies than Delaware, a state within the US which is considered to be the leading corporate law state there. In fact, the corporation law of Delaware is so influential throughout the US that it has been given the status of being the unofficial national corporate law of that country. With such influence, it is not surprising that most corporate law developments throughout the world are increasingly being benchmarked against Delaware corporate law. South Africa’s recent corporate law reform project, which culminated in the enactment of the Companies Act, 2008, has also used Delaware corporate law as a benchmark in a number of respects. However, the policy makers and the legislature in South Africa deviated from Delaware law and practice in the important area of directors’ standards of conduct and liability, choosing, instead, to continue with the legal position which existed prior to the reform, which position was largely inherited from the English corporate law. In doing so, South Africa appears to have adopted a far stricter and seemingly burdensome regulatory regime over directors, in clear contrast to the Delaware position, which still holds sway in the US as the preferred jurisdiction for incorporation of corporations trading publicly in the US stock markets. South Africa appears to have been influenced by the understandable inclination to steer away from being associated with the jurisdiction that has witnessed some of the colossal and spectacular corporate collapses occasioned by the failure of corporate governance requirements. This paper will investigate the wisdom of the position adopted in South Africa, particularly as the country desperately needs economic growth to reduce, among other things, poverty and inequality.