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Leadership 101 – The Role and Responsibility of Directors – Part 1

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Please note that this pertains to South African Legislation, the King Requirements, and Best Practice.

There is a great deal of eye winking and chuckling from the “Gogos” (one of the local native names for Grandmother), around the term CEO (Chief Executive Officer), or even Director, here in South Africa. It seems that everybody that you talk to is either a self- named, self-styled CEO or they aspire to be one!

The fact of the matter is that with the New Companies Act coming into effect, the whole landscape, in terms of business ownership has changed dramatically.

In the good old, bad old days anyone could be a Director of a company and in fact, there were many individuals who made careers out of being Directors of Companies. I have actually heard of a lady who was a Director of something like 37 different Companies. She earned a considerable sum of money from each of the Companies for doing very little work, but she had her name on the Company Letterheads. Other than attending meetings and perhaps voicing an opinion or two there was little to do and of course, there was very little responsibility.

You see before the introduction of the New Company’s Act, responsibility was only really held by very few individuals. Directors like the Financial Directors were obviously responsible for looking after the financial side of the business were not only responsible for the financial aspect of the business, but were usually accountable for the failure of the business too. The Sales Director, for example, was responsible for ensuring that sales targets were met (often by any means possible) but never carried the responsibility for the financial well-being of the Company.

Let me explain – often when a Company found themselves in financial difficulty the Financial Director was made responsible because it was his responsibility to ensure that the ‘numbers’ were correct and that expenses were controlled. In this situation, the Sales Directors would usually absolve themselves from any blame by saying something along the lines of “I brought in the sales and that is what I am responsible for, I am not in charge of the expenses.” Hardly fair I am sure you will agree as in my experience the salespeople have no problem running up huge expenses.

The New Act makes all Directors equally liable and accountable for what happens in the business.

Let me say that again – all the Directors are equally and jointly responsible for what happens in the Company and they are responsible in their personal capacities.

As I am sure you can understand, this is a huge subject and therefore there are 16 parts in total to this particular series, so ‘buckle up Buttercup’ and let’s enjoy the ride.

Next time we will look at some of the risks that Directors should be aware of and also how best to manage them.

 

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