Con­sumer com­mit­tees to as­sist act’s ef­fec­tive­ness

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW - Pa­trick Bracher

Na­tional Con­sumer Act com­pli­ance to be en­forced by com­pa­nies’ in-house over­sight com­mit­tees

AYEAR af­ter the in­tro­duc­tion of the Con­sumer Pro­tec­tion Act, three things can be said: the act has not made much im­pact on man­u­fac­tur­ers and sup­pli­ers; the Na­tional Con­sumer Com­mis­sion has stum­bled over its own pro­ce­dures; and the con­sumer has not had full value out of the leg­is­la­tion. The need for larger com­pa­nies to have a so­cial and ethics com­mit­tee should en­cour­age com­pa­nies to make the act work.

From May 1 the Com­pa­nies Act re­quires pre-ex­ist­ing public listed com­pa­nies, state-owned com­pa­nies and com­pa­nies with a public in­ter­est score above 500 points (which will be most com­pa­nies from medium size) to ap­point a so­cial and ethics com­mit­tee. A com­mit­tee of at least three mem­bers in­clud­ing at least one di­rec­tor mon­i­tors the com­pany’s ac­tiv­i­ties re­gard­ing so­cial and eth­i­cal leg­is­la­tion ap­pli­ca­ble to the com­pany. Com­pa­nies es­tab­lished since the Com­pa­nies Act came into force on May 1 need to form a com­mit­tee as soon as this pro­vi­sion ap­plies to them. Ex­emp­tions are pos­si­ble but will be rare save where one com­pany within a group can take re­spon­si­bil­ity for the whole group.

The re­spon­si­bil­i­ties in­clude mon­i­tor­ing com­pli­ance with the Con­sumer Pro­tec­tion Act as well as a wide range of laws and good prac­tice pro­tect­ing labour prac­tices, hu­man rights, en­vi­ron­men­tal re­spon­si­bil­ity, and work­ing against cor­rup­tion.

The com­mit­tee must re­port to the board if mon­i­tor­ing dis­closes that the com­pany falls short of its so­cial and eth­i­cal obli­ga­tions. The di­rec­tors and em­ploy­ees in­volved must act in the best in­ter­ests of the com­pany and with care and skill in car­ry­ing out their func­tions. See­ing that di­rec­tors may be per­son­ally li­able for losses suf­fered by the com­pany as a re­sult of not act­ing in the best in­ter­ests of the com­pany or not act­ing with skill and dili­gence, the board and its so­cial and ethics com­mit­tee must take these re­spon­si­bil­i­ties se­ri­ously.

Any com­pany that is pro­vid­ing goods or ser­vices to the con­sum­ing public must en­sure that the com­pany does so ac­cord­ing to the high stan­dards re­quired by the Con­sumer Pro­tec­tion Act. It is only a mat­ter of time be­fore we fol­low the ex­am­ple of some over­seas ju­ris­dic­tions such as Canada where class ac­tions against com­pa­nies and their di­rec­tors to re­cover losses suf­fered by stake­hold­ers are com­mon. Di­rec­tors of an af­fected com­pany must form the com­mit­tee, see that the com­mit­tee cre­ates a com­plete list of the leg­is­la­tion and prin­ci­ples of good con­duct ap­pli­ca­ble to the com­pany, and sets about list­ing what needs to be done to com­ply. Di­rec­tors can avoid per­sonal li­a­bil­ity by del­e­gat­ing some of their re­spon­si­bil­i­ties to com­pe­tent peo­ple. Li­a­bil­i­ties in­curred de­spite good faith be­hav­iour can be in­sured. Di­rec­tors must get ad­vice and get go­ing.

Taken se­ri­ously, these com­mit­tees will help to bal­ance the rights of sup­pli­ers and con­sumers for the good of the econ­omy.

Pa­trick Bracher is a se­nior part­ner at Nor­ton Rose.

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