Section 76 of the Companies Act 71 of 2008 as a mechanism of enforcement for the King IV Code on corporate governance for South Africa.

Abstract

This dissertation examines the severe problems of corporate governance experienced at Steinhoff International Holdings NV (Steinhoff) and ESKOM Holdings SOC Ltd (Eskom).¹ These failings suggest that South African corporate governance standards are ineffective on account of a poor ethical culture in companies; in particular, members of governing boards have shown a conscious disregard for the rules. Steinhoff, a foreign-based company with a secondary listing on the Johannesburg Stock Exchange, has shown a scant concern for the strictures of the Companies Act 71 of 2008 (2008 Act). As an external company with secondary listing, the King IV Code on Corporate Governance for South Africa² (King IV Code) does not apply to Steinhoff. This study recommends a broadening of the definition of ‘company’ in section 1 of the 2008 Act to include external companies to ensure that companies such as Steinhoff are bound by governance legislation and exercise the enhanced accountability and transparency provisions set out in chapter three³. The enforceability of the King Code is also investigated − specifically the use and application of section 76 of the 2008 Act⁴ as a mechanism of enforcement, based on the assumption that the King Code is legally enforceable under and in terms of section 76(4), read with section 76(3), section 5, section 7(b)(iii) and section 158(a) of the 2008 Act⁵. The study recommends the inclusion of selected King IV principles into hard legislation to assist and guide boards of governors to practice good governance.