Executive and non-executive directors in terms of the new Companies Act

The Companies Act 61 of 1973 (referred to here as the ‘old Act’) distinguished between the rights and duties of executive and non-executive directors. The relationship between the company and its executive directors was regulated by their employment or service agreements and by prevailing corporate laws. Under the old Act, executive directors are employees of the company, while non-executive directors are not.

This distinction created many practical problems. One issue was that directors who have decision-making powers would be responsible for regulating matters that directly influence employment policies and remuneration. This is a clear contradiction because the executive directors are also employees of the company. The conflict could affect the notion of division of power and transparency in company structures. The other issue was that if an executive director was not formally appointed as a director, then they could not be held accountable for their actions.

The new Companies Act 71 of 2008 (the ‘new Act’) makes no distinction between directors, and in the new Act, the concept has been broadened extensively to include executive and non-executive directors, prescribed officers and directors ex officio. The board of directors also has more power in terms of the new Act. If this power is not limited by shareholders in the company’s memorandum of incorporation, there is a real risk that power could potentially be abused. This risk exists despite the amendments to company law.

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