A list of core principles were recently published in the UK to guide the board of directors of a company to allow for greater involvement of stakeholders, other than shareholders, in decision-making. These stakeholders would include employees, suppliers, customers, the community, and the environment.
Two UK governance institutes, with the support of the UK government, published the governance paper with core principles to strengthen the stakeholder voice in board decision-making. Boards should identify key stakeholders and regularly engage with them. Stakeholders’ perspectives should be taken into account in all board decisions, and the board should ultimately report to shareholders on how it has taken them into account when making those decisions.
These core principles aim to guide UK companies to comply with section 172 of the UK Companies Act which regulates the directors’ duty to promote the success of the company. UK directors must act in good faith, and act in a way that would most likely promote the success of the company for the benefit of its members as a whole, and in doing so they must have regard to the interests of stakeholders.
South Africa’s Companies Act has no provision which considers the interests of stakeholders in a similar way.
South Africa’s Companies Act has no provision which considers the interests of stakeholders in a similar way. South African directors must act in good faith and in the best interest of the company. Section 7, which sets out the purpose of the Companies Act, identifies one of the purposes as being to reaffirm the concept of the company as a means of achieving economic and social benefits. This is the closest that the South African Act comes to its UK counterpart in imposing a duty on directors to consider the interests of other stakeholders.
King IV does make provision for stakeholder relationships and promotes a ‘stakeholder-inclusive approach’. King IV is, however, not binding law.
These UK developments point to a continued tendency to move away from the traditional corporate governance model where only the interests of shareholders are considered when managing the company. Instead, boards are directed to also focus on other non-traditional stakeholders such as the immediate community and the environment.