An update on Social and Ethics Committees

Our August 2015 newsletter article posed the question of whether Social and Ethics Committees (SECs) still needed guidance, and answered it in the affirmative with five recommendations that are still relevant. Adding to this are two further contributions - the King IV^TM recommendations and a discussion about proposed changes to the Companies Act Regulations by the Department of Trade and Industry (the dti).

The King IV Code on Corporate Governance^TM advocates that establishing a social and ethics committee represents best practice for all organisations, not just those legally obliged to do so. King IV^TM also acknowledges the importance of this committee moving beyond “mere compliance to contribute to the creation of value”, and recommends that the role of the social and ethics committee should be expanded to encompass oversight and reporting on a range of issues that exceeds those identified in the Companies Act, namely “organisational ethics, responsible corporate citizenship, sustainable development and stakeholder relationships”. The Code further recommends that the composition of the committee should comprise a greater percentage of non-executive members.

On 9 February 2017 the dti convened a national seminar on SECs and I was pleased to be invited to be a panel speaker. Two panels explored the questions, ‘The current state of SEC implementation in South Africa’ and ‘Approaches to enhance SEC implementation in South Africa’, and added valuable insights to the current status of SECs. These insights informed the concluding remarks by Advocate Simmy Lebala SC, the Chairperson of the Companies Tribunal. He shared key take-aways and possible changes to the Companies Act regarding SECs, a summary of which is included below.

• The Act and Regulations should mention ethics more
• All external companies (foreign companies operating in South Africa) should have SECs
• Sustainability should be recognised to a greater extent as core to SECs
• The quality of the members who comprise the SEC should be reviewed. The SEC, like a Board, should have members with the appropriate knowledge and experience
• The phrasing of the SEC functions should be clearer
• The organisation’s strategy should be integrated with ethics
• Consideration to be given to auditing SEC performance and reports
• Attention should be focused on how to deal with companies that do not complying with SEC requirements
• The granting of exemptions may be reviewed
• The benefits of assurance to stakeholders should be emphasised
• Civil society had a role to play in social and ethical issues

Gerrit van der Merwe, an associate who was part of the first panel discussion, also posted a commentary on the outcomes of the seminar: http://www.candorsolutions.co.za/social-ethics-committees-to-change/.

by Cynthia Schoeman

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ⁱOwnership of King IV™ is held by the Institute of Directors in Southern Africa NPC
ⁱⁱInstitute of Directors in Southern Africa (IoDSA). 2016. King IV Report on Corporate Governance for South Africa 2016 (King IV^TM). Johannesburg: IoDSA. p. 29-30.