The Dynamics of Corporate Governance in South Africa

The Dynamics of Corporate Governance in South Africa: Broad Based Black Economic Empowerment and the Enhancement of Good Corporate Governance Principles

Key words: Corporate governance, South Africa, broad based black economic empowerment, stakeholders, triple-bottom line approach.



1 Introduction



Directors are expected to manage a company in the best interests of the shareholders collectively. This traditional view is increasingly being questioned. There is pressure on companies and directors to take into account not only the shareholders when they manage a company, but rather the interests of all stakeholders, such as employees, creditors, consumers, suppliers, the environment and the community. This consideration for the interests of other stakeholders is known as corporate social responsibility.1



In the South African legal sphere, there is specific legislation which compels companies to take the interests of certain stakeholders into account. This is, for example evident in the Labour Relations Act 66 of 1995; the Promotion of Access to Information Act 2 of 2000; and the Broad Based Black Economic Empowerment Act 53 of 2003 (hereafter the BBBEE Act). The South African BBBEE Act, not only aims to correct racial imbalances, but also strives to promote social investment and the empowerment of communities. This paper will discuss the impact of Broad Based Black Economic Empowerment (BBBEE) on corporate governance in South Africa.



This paper will illustrate how, through BBBEE legislation, directors are compelled to consider the community as a stakeholder and to manage a company to its benefit as well. The first section of this article defines corporate social responsibility. The discussion of social responsibility is followed by a discussion of directors' duties and specifically addresses the question in whose interests they should manage a company. The traditional position in South Africa concerning the beneficiaries of directors' duties, the King II Report,2 the Policy Document3 on company law reform, as well as the recent Companies Bill are focused on.






In the second part of this article the South African BBBEE Act is considered and it is explained how this Act addresses racial imbalances and promotes social investment. Even though social responsibility traditionally concerns voluntary initiatives by companies, it is indicated that legislation can be used as a tool to enhance corporate governance in companies. It is argued below that law plays an increasing role in enforcing corporate social responsibility policies.4



2. Corporate Social Responsibility


Social, safety, health and environmental factors have been introduced as important factors that company management must have regard to. Since this article deals with the consideration of social aspects when directors manage a company it is important to understand the concept of corporate social responsibility. In essence, it relates to the consideration of the interests of different stakeholders. A company is said to be socially responsible when directors manage it in such a way that the company "voluntarily expends its resources to do something not required by law and without immediate economic benefits".5 According to Parkinson "[E]very large corporation should be thought of as a social enterprise, that is, an entity whose exist...

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