Adrienne Mattiuzzo, Technical Manager, CGISA
Introduction
Governance scandals have abounded over recent times with one of the more recent ones highlighting the falsifications of qualifications, and not even lower qualifications, high level post-grad qualifications.
The Companies Act
The Companies Act 71 of 2008, as amended (Companies Act) states in section 66 that the business of the company must be managed by a board of directors. In turn the conduct of directors is governed by section 76 of the Companies Act and notes that directors must perform their duties in good faith, for a proper purpose, in the best interests of the company, and with the degree of care, skill and diligence that may be expected of a person carrying out the same functions and having the general knowledge, skill and experience of that director. Interestingly qualifications are not mentioned.
However, it is highly unlikely that anyone would be able to adequately fulfil the position of a director without some sort of tertiary education. In fact, even though the Companies Act is silent regarding the need to hold a qualification, it does allow the company to impose the need for a minimum qualification through its Memorandum of Incorporation (MoI) and therefore anyone not holding, or falsifying, the required qualifications may be disqualified from being a director.
It is interesting that the Companies Act stipulated that a Company Secretary must hold a requisite qualification, although it does not stipulate what that qualification needs to be.
King IV™ and the JSE Listings Requirements
The IoDSA King IV™ Report of Corporate Governance1 in South Africa 2016 (King IV™), while not prescriptive, offers some guidance regarding the duties of directors, particularly in principle seven. King IV™ also does not state that directors must be qualified, however, it is implied as principle seven recommends that the experience and qualifications of directors should be disclosed.
Similarly, the JSE Listings Requirements do not state that a director must be qualified, but does ask for any qualifications to be disclosed in the appropriate manner.
Governance of Qualifications
It can be seen from the above that while not explicitly required by law or regulation (unless specified in the MoI), in order to perform adequately as a director some form of tertiary qualification is likely.
The position of a director is highly sought after, the benefits include potentially high remuneration, prestige, status, and recognition. These obviously come with the corresponding duties and obligations, but more about that later. Due to the benefits noted above, there is a certain genre of people who are willing to do what it takes to become a director, including falsifying qualifications. Naturally when accepting the post of a director it is taken for granted that the individual concerned complies with the Companies Act and has the characteristics stated in principle one of King IV™. The long-term effects of not actually embodying these characteristics and lying about qualifications may be disastrous for the “director”, and rightly so.
Firstly, as soon as the lie is told, the fiduciary duties, and the duty to act with care, skill and diligence, are blown out the water. This alone is sufficient to have a director removed from a board – a serious event and likely to led to no further senior positions going forward. More serious is that an argument could be made to declare that person delinquent in terms of section 162 (5) (c) (iv) which declaration would be noted at CIPC thereby effectively precluding any future directorships as well as finding employment with such a black mark against his/her name.
Under section 77 (2) (a) of the Companies Act such director may even be found to be personally liable for any losses incurred by the company or third party as a direct result of the director not actually being fit for the position. Section 78 of the Companies Act does allow for directors’ insurance and indemnification in certain circumstances, however it is unlikely that this would be invoked as the company would not like to be seen to be protecting or assisting an untrustworthy person who has directly breached the fiduciary duties owed to the company, and which has more than likely cost the company money.
Conclusion
It is shocking that the level of corruption and entitlement has led to individuals being brazen enough to lie about qualifications in order to achieve their own, albeit short-term, ends. Lies will out, and it will be discovered that the qualifications listed are false. It is very short-sighted to give in to instant gratification to the detriment of the rest of one’s working life.
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