This blog was co-authored by Adam Silberman, candidate attorney.

The Companies Amendment Act 16 of 2024 has made important changes in regard to the establishment, composition and reporting of a Social and Ethics Committee (SEC).

Establishment of a SEC

Regulation 43 of the Companies Regulations, 2011 has not been amended and still requires that the following companies appoint a SEC: every state-owned company, every listed public company and any other company that has in any two of the previous five years had a public interest score above 500.

A company may seek an exemption from the Companies Tribunal if it can demonstrate that it already has a mechanism that substantially performs the SEC’s functions or if it is not reasonably necessary in the public interest, considering the company’s structure and activities. Additionally, a company applying for an exemption must publish its intention to do so. Section 72(6A) exempts subsidiaries from having their own SEC if their holding company’s SEC fulfils the required functions on their behalf.

Composition and Appointment of a SEC

All SEC’s must have at least three members. For public companies and SOE’s, this must include a majority of non-executive directors, whilst other companies require at least one non-executive director or prescribed officer. To qualify as a non-executive director, the director must not be involved in the day-to-day management of the business of the company and must not have been so involved within the previous three financial years. This requirement is directed at ensuring that the non-executive directors are independent.

The Board of any existing company required to have an SEC must ensure that a compliant SEC is appointed within 12 months of the amended provision’s effective date, 27 December 2024. Newly incorporated companies must constitute a SEC within 12 months of the date of incorporation, in the case of public and state-owned companies or for any other company, the date the company first meets the criteria requiring it to have an SEC.

The most important change is that after the initial appointment, the members of an SEC must be appointed annually. For public companies and SOE’s, the members of the SEC must now be elected at each annual general meeting. For other companies, the board continues to appoint the members of the SEC. Should a vacancy arise on a SEC, the board must appoint a person within 40 days.

Qualifications and Reporting

Certain provisions have not yet come into force. For example, section 72(6B), which empowers the Minister to prescribe the minimum qualifications, skills, and experience required for members of the SEC.

When the new Section 72(12) comes into effect, it will require the SEC to prepare and present a report for the shareholders, detailing how it performed its functions in accordance with the Companies Act and Regulations. Oddly, the already amended section 60(1) requires this report to be presented at the annual general meeting of public companies.  Other companies must present the report annually at a shareholders’ meeting or it can be presented with a written resolution.

Impact

Companies should review their memorandum of incorporation (MOI) to identify desirable updates to take into account the recent and pending amendments to the Companies Act, 2008, bearing in mind that unalterable provisions of the Companies Act prevail over the provisions of an MOI. Such a review process should consider, amongst other things, whether the provisions of the MOI regulating the composition of the board sufficiently addresses the requirements for independent non-executive directors required to be on the SEC and any of the qualifications that the Minister will prescribe when section 72(6B) comes into effect.

As these changes are already in effect, companies should take steps to ensure compliance. A compliant SEC plays an important role in enhancing corporate governance and social responsibility.