Thanks to the greater responsibility that the new Companies Act is going to place on the shoulders of executives and board members, they are going to become increasingly choosy who they work for and on which boards they are prepared to sit.
Neil Maslen, MD of executive recruitment firm Mindcor, says top executives have always been in short supply and the fact they could now be held liable to a much greater degree for what happens within corporates will make them more demanding and a lot more careful in terms of companies that they are prepared to work for.
“We are finding that prospective candidates have in most cases done a thorough due diligence investigation into the company that wants to recruit them. If there is the slightest hint of impropriety attached to the potential employer, they will in most cases decline the offer.”
He says there has also been a swing back to competence away from independence. “In the European banking sector there had been a radical swing to independence of non executive directors – sometimes at the cost of competence. That swing is now being reversed and competence is again being rated as the most highly sought after attribute in non executive directors.”
The current situation is substantially different from what was predicted by a study at the beginning of the year when a study by PricewaterhouseCoopers (PwC) based on data collected from 383 companies listed on the JSE predicted that there would be a salary freeze.
“Both government and the private sector were clamouring for a salary freeze claiming that executive pay was completely out of synch with what these men and women were actually worth.
“We are seeing exactly the opposite happening now as the realisation sets in that they are the generators of wealth and jobs. Added to the fact that they could end up in jail if their companies went bust and it could be proven that they had been negligent in their oversight,” Maslen says.
The oversight issue has also been dealt with at length and this also makes it clear that company executives could be held liable for bad judgement calls and lack of oversight, he adds.
Stephen Kennedy-Good, associate" corporate, mergers & acquisitions of the law firm Deneys Reitz, says the new Companies Act provides that a director may be held liable for losses sustained for a breach of duty.
”Although this sounds familiar to our existing company laws, the devil is in the detail. The new Act includes prescribed officers amongst the company’s employees who may be similarly responsible. The category of prescribed officers will expose persons in management positions who are not directors to new obligations and possible personal liability."
He says a person will be a prescribed officer if that individual:
* Has general executive authority (eg the CEO);
* Has general responsibility for the financial management (eg the CFO);
* Has general responsibility for the legal affairs (eg the chief legal counsel);
* Has general managerial authority over operations (eg the chief operations officer); or
* Directly or indirectly exercises or significantly influences the exercise of control over the management and administration of the company or a major part of it (eg head of a major division), or a person who runs a company from the shadows.
"The result is an extension of responsibilities and liability to individuals who were previously not held to account on the same basis as directors. Executives and legal counsel will be grouped with directors for purposes of duties and liabilities. It is even conceivable that third party funders who sit in the wings and significantly influence decisions taken by the company could fall into the definition,” Kennedy-Good says.
Michelle Bouwman of the Institute of Directors says there is little doubt that directors and, in particular, non-executive directors would be a lot more careful in accepting appointments.
“The wording of the new Companies Act as well as the provisions of King 3 have been duly noted by our members and many more directors will be doing extensive due diligence investigations before they accept new appointments.”
Gerald Seegers, PwC SA director of human resource services, says boards and committees are going to be closely scrutinised and would need to prove their effectiveness to shareholders.
“While I agree that the added responsibility loaded onto the shoulders of especially non executive directors and that there is going to be a tendency to demand higher fees, the issue of affordability remains in play and there remains a limit to what the market will pay.
"The fees, including committee fees, should recognise the responsibilities borne by the directors throughout the year and not only during meetings. They should contain a base fee, which may vary according to factors such as the level of expertise of the director."
Seegers says it might be preferable to reward nonexecutive directors by way of their contribution, whether or not that happens to coincide with their attendance at a meeting.