The shortcomings of the common law and the Companies Act 61 of 1973 in regulating executive remuneration in South Africa : is the code of corporate practices and conduct the answer for listed companies?
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Date
2003
Authors
Polaki, Angelina Tlotliso.
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Abstract
King II articulated in an open manner, issues of disclosure, transparency, comparator
ren1lmeration packages and a robust approach to the paYment of con1pensation in relation to
poorly performing directors. While directors owe fiduciary duties to the company
(shareholders present and future), by paying themselves huge packages, they do no longer act
in the best interests of the con1pany because awarding themselves exorbitant packages may
frustrate their duty to maximise shareholder value. The solution is that their interests be linked
to those of shareholders by requiring that their pay be linked to their performance. With the
advent of corporate governance reforms, other stakeholder interests have to be taken
cognisance of by directors in corporate decision Inaking. As such, a huge gap between the
salaries of rank and file employees and those of executive directors is seen as a conscious
move to ignore the interests of legitimate stakeholders when there is no compelling reason to
do so. To try and align the interest of shareholders and directors, it is felt that more emphasis
has to be placed on actively engaging shareholders and employees in the determination of
executive remuneration.
It is subn1itted that pay that is not linked to performance is a breach of fiduciary duties, in
particular, duty to avoid conflict of interest. However, our common law and Companies Act
61 of 1973 fail imn1ensely to address concerns relating to excessive remuneration pay. In
particular, the business judgment nl1e precludes minority shareholders taking action on the
basis of wrongs committed against the company by virtue of pay not being linked to
performance. Neither has the introduction of corporate governance reforms impacted heavily
on setting executive remuneration. They have not proved effective in curbing fat cat pay. It is
acknowledged that these reforms have ~rought about a profound impact on attitudes in the
corporate environment. However, numerous deficiencies, particularly in the context of South
Africa can be identified.
This thesis serves as a means of establishing whether fron1 a legal perspective, following
recent reforms, the negative impact of exorbitant remuneration pay is of such a serious nature
as to warrant more stringent regulation in one form or the other. South Africa should consider
revan1ping and tightening current legislation, which as submitted is lacking in a number of
respects. As a strategy to eradicate exorbitant pay, it is submitted that directors fiduciary
duties have to be revised and legislated in order to successfully establish directors wrongdoing. It is felt that legislative enactment may be made stronger by the fact that it may
have stronger and sharper teeth and hence able to reach where self-regulated codes are weak.
Description
Thesis (LL.M.)-University of Natal, Durban, 2003.
Keywords
South Africa (Republic). Companies Act, 1973., Directors of corporations--Salaries, etc.--Law and legislation--South Africa., Directors of corporations--Salaries, etc.--South Africa., Theses--Law.