Can stronger laws prevent corporate scandals?
Many leading private and state-owned enterprises have been involved in corruption and corporate scandals in the last decade. The Department of Trade, Industry and Competition (dtic) commissioned Genesis Analytics to undertake an independent regulatory impact assessment (RIA) on nine issues relating to the Companies Act, No. 71 of 2008.
The Companies Act was enacted in 2009 and came into effect in 2011. It promotes the national development agenda by regulating the formation and activities of corporate entities. The Act purports to encourage entrepreneurship and enterprise efficiency; creates flexibility and simplicity in the formation and maintenance of companies; and encourages transparency and high standards of corporate governance.
Broadly, the RIA evaluated the following issues:
- How company law should deal with director misconduct or delinquency;
- Whether share buybacks should be allowed and how their transparency could be improved;
- The role and appointment of social and ethics committees;
- Whether the Companies Tribunal should be elevated to a court of first instance;
- How the business rescue regime should be reformed, if at all;
- Which sections of the Companies Act should apply to foreign and external companies;
- How the Public Interest Score should be calculated; and
- How the government can ensure effective implementation of independent reviews.
This study used a mixed-methods analytical approach, including a literature review, consultations with 29 organisations, quantitative assessment where possible, and RIA analysis for each of the provisions identified within the terms of reference. We provided clear recommendations to the dtic on how company law should be reformed, balancing societal needs with the need to maintain corporate competitiveness and investor confidence.
In October 2021, the dtic released the Companies Amendment Bill 2021 for public comment, which could partly have drawn on our recommendations. The Bill can be found here.