This blog was co-authored by: Zinhle Mdluli, associate designate
Section 75 of the Companies Act states that if a director has a personal financial interest in a matter that has been tabled at a board meeting, that director has a duty to disclose their interest and any known material information relating to the matter and must physically leave the meeting. A personal financial interest is a direct material interest of a financial, monetary or economic nature, or to which a monetary value may be attributed, which affects both the director and any related person of that director.
A director leaving a meeting can be an inconvenience and a way to prevent this inconvenience is to appropriately manage the composition of group company boards so that the overlap in boards is limited for companies that often deal with each other. This may be done either by limiting overlap in main directors, or ensuring that different alternate directors are appointed.
Alternate directors have the full powers of a director when stepping in for their main director, and will therefore be able to participate and vote as a director in meetings when resolutions are passed. A personal financial interest of a director does not attach to their alternate director. This means that an alternate director can step in, even where a main director is required to recuse themselves.
It is important that the distinction between an alternate director and a proxy is understood. An alternate director is not a proxy for the director who has declared a personal financial interest, and therefore does not act on the instructions of the affected director. Instead, the alternate director applies their own mind and exercises their own discretion. They have their own fiduciary duty to act in the best interests of the company.
The inconvenience of personal financial interests of directors, especially in the context of group companies that engage with each other, can be practically managed with advance planning and appropriate board composition.
