Governance needs overhaul
PROTECTED: NO CAUSE FOR CELEBRATION
Shareholders left with a dog’s breakfast as the law allows useless directors to get off scot-free.
If you were listening carefully last week, you might have heard champagne corks popping in boardrooms all across the corporate landscape.
The celebrations were sparked by the High Court in Johannesburg’s confirmation that directors are, by and large, safe from shareholders seeking recompense for value destruction.
Judge David Unterhalter told lawyers acting for a swathe of Steinhoff shareholders who wanted to hold the directors accountable for the destruction in the value of their shares that there was no point certifying their class action because it would fail in the courts.
Days later, in a completely different case, the Supreme Court of Appeal told the directors of Hlumisa (African Bank’s BEE shareholders) the same story.
Hlumisa was claiming damages against the directors of African Bank for the collapse in the value of their shares on the grounds that the directors acted in bad faith for ulterior purposes and without the requisite degree of care, skill and diligence, in breach of the provisions of the Companies Act.
Hlumisa had failed to persuade the lower court of its case and had appealed to the Supreme Court of Appeal, which last week dismissed the appeal.
Essentially the courts argued the value destruction had been done to the company and not the shareholders and so it is the company that must go after the directors.
This means persuading the very directors accused of not doing their job to allow the company to act against them.
Unless the National Prosecuting Authority gets its act together, there’s little chance of even former Steinhoff chief executive Markus Jooste being called to account.
And it’s not just the Steinhoff and African Bank directors who are off the hook.
The courts have reassured every useless director that they need not worry – the chances of them being held to account are slight.
That wasn’t the end of the blows to any notion that we have a rigorous well-functioning corporate governance regime.
Mid-week the JSE announced it was fining Tongaat R7.5 million (R2.5 million of it suspended) because the accounts it produced between 2011 and 2018 were “incorrect, false and misleading”.
Presumably it fined the company based on the same logic used in the above two court actions. So, there’s a sort of legal consistency. But what a travesty, just as Tongaat was getting back on its feet under new and much-improved management.
As one commentator remarked: “Yay, the cavalry rides into the battlefield and bayonet the wounded.”
And how comforted should we all be that the chair of Tongaat’s audit committee during that period is now ensconced in a powerful oversight position where she is required to pass judgment on the quality of auditors in this country?
The courts’ decisions were based on what the law allows; the JSE’s action was based on the JSE’s regulations. And the beneficial shareholders, the ultimate owners, end up with a dog’s breakfast.