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Introducing Corporate Governance Structures

Any organisation (see Corporate Structures)  is governed by a governing body, which refers to a person or group of people who directs, controls, and oversees an organisation at the highest level, e.g. the board of directors, partners, members, etc. They represent the interest of shareholders, investors, beneficiaries, or members and are ultimately responsible to adhere to the principles of Good Corporate Governance, shareholders agreements and the Memorandum of Incorporation

Who is responsible for Corporate Governance?

The governing body will from time to time appoint certain committees to assist them in their functions and may even be required by law to form certain committees so as to promote good corporate governance.

Section 72 of the Companies Act stipulates that a company may form any number of committees and may delegate any function or responsibility to such committees. These Committees are voluntary.

The Companies Act, the listing requirements of stock exchanges, and certain codes of good practices, etc may enjoin governing bodies to appoint certain committees and to delegate certain prescribed functions to these committees. These peremptory provisions may in some instances even prescribe the composition of these committees.

Different Corporate Governance committee types and how they are put together

This article provides a brief overview of the most commonplace committees that are required and/or voluntarily utilized to assist governing bodies to promote good corporate governance. It should be noted that the number or composition of committees within the corporate governance environment is unlimited. 

Audit Committee

Obligation 

Only public and state-owned companies and companies which voluntarily included the same in their Memorandum of Incorporation.

Function

Oversees financial reporting, disclosure and identifies and manages financial risks.

Composition

All members must be directors.
Please refer to Section 94 of the Companies Act for further requirements.
Nomination Committee

Obligation 

Voluntary

Function

Review the composition of the Governing Body or Board of Directors and identify measures to supplement the skills and knowledge of the board.

Composition

Suggested that members of the board constitute this committee and that the majority of the board members should be non-executive.
Remuneration Committee
Obligation Voluntary

Function

Consider and recommend the directors’ and senior management’s remuneration.

Composition

Suggested that only members of the board should form part of the committee. The chairman of the committee should be an independent, non-executive director
The Risk Committee
Obligation Voluntary

Function

To oversee the risk management function of an organisation by considering the risk policy and plan, determine the company’s risk appetite and risk tolerance, ensure that risk assessments are performed regularly, monitor the whole risk management process, and receive assurance from internal and external assurance providers

Composition

The King Report recommends that the committee should have at least three members, and may comprise executive and non-executive directors, and even non-directors The chairperson of the committee should be a non-executive director
Social and Ethics Committee
Obligation 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 of at least 500 points.

Function

Monitor the company’s activities with regard to matters relating to social and economic development, Employment Equity and good corporate citizenship.

Composition

The social and ethics committee must comprise not less than three members. These members may be directors or prescribed officers of the company, however, at least one must be a director who is not involved in the day-to-day management of the company’s business, i.e. a non-executive director, and must not have been so involved during the previous three financial years.

Governance structures are not reserved for large corporate entities but can play a vital role in the successful management of new businesses as well.