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Board agendas can help protect against liability

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A clear, concise board agenda is one of the most important tools boards can use to comply with their fiduciary duties. According to the The Institute of Directors in Southern Africa (IoDSA), this is of particular importance for business in South Africa as companies get ready for the new Companies Act to kick in on 1 April 2011.

The new Act has been both widely criticised and lauded for having broadened directors’ exposure to liability.
“In view of the fact that board meetings, as the top decision-making forum, happen only about four times a year, it is imperative that the board has a focused and incisive approach to matters at board meetings,” says IoDSA chief executive, Ansie Ramalho. “The board agenda is a key facilitator in this regard.”
According to Ramalho, a first step is to establish a clear linkage between the governance role of the board and the board agenda.
“Failure to establish this linkage could result in directors not adequately covering their duties as contained in the new Companies Act,” she says.
The board’s role is one of providing effective, responsible leadership, strategy and direction to the company in an ethical and sustainable manner.
In doing so, board members should develop and attain an understanding of the latest developments and trends in the industry and setting in which the company operates, as this helps decide what should be included in the board agenda.
“Without this approach, the board may neglect to take into account relevant factors in their deliberations,” adds Ramalho.
“An example of such development to be taken into account is the liquidity and solvency provisions as contained in the new Companies Act that should probably be a standing agenda item to protect directors against personal liability.”
A measure of protection that is afforded in the new Companies Act is the so-called "business judgement rule" that gives directors the opportunity to escape liability where they can prove that they applied their minds adequately, but nevertheless came to the wrong decision. One of the caveats is that the director should have taken “reasonably diligent steps to become informed”.
It is in this context that in preparing the agenda and board pack, consideration must be given to the need for information that is focused, whilst providing a holistic view of the impact of decision-making.
“It’s then up to board members to satisfy themselves regarding the credibility and completeness of the information presented, and request extra information where deemed necessary,” she says.
Another exercise boards may consider is analysing time spent between strategic, operational and compliance related matters, and comparing these to the board duties as set out in legislation and the board charter. “This may provide useful insight into the board’s areas of focus and form a point of comparison to the objectives and the development of future work plans and agendas,” concludes Ramalho.