The “Bad Apple” Director ….. How to step back in line or say your goodbyes

commercial law South AfricaUnfortunately, the “bad apple” director is not as fictitious a person as many companies would like to think.

Let me clarify… A director who fails to comply with certain standards, or fails to honour certain agreements, has, in my view, deviated from what is reasonably expected and therefore, for purposes of this article, may be guilty of misconduct in terms of commercial law in South Africa.

According to the IODSA, “any action by a director that is in breach of his/her role, responsibilities, function, duties or the standard of conduct expected of that director, whether stipulated in terms of legislation, common law or board, company policies, is misconduct. Whether or not the action was wilful, intentional or unintentional will merely affect the degree of sanction required for such misconduct.”

It is thus essential for the board and/or the company to clearly define the standard of conduct (i.e. behaviour) expected of directors, and standards or actions that will and will not be acceptable.

It is true that legislation regulates the standards reasonably expected from directors, but this is not enough, particularly not in isolation.

Companies should bear in mind that directors are usually broadly categorised as either executive or non-executive directors. The first being in essence a combined role where the director concerned is also an employee of the company. This means that executive directors should be held to a higher standard (as opposed to other employees who are not directors) appropriate to their role and responsibilities associated thereto. In the case of non-executive directors, the relationship is synonymous to that of an independent contractor.

As this article illustrates, prevention is always better than cure, so we recommend ensuring that all the contractual, policy and legislative arrangements available are suitably leveraged to avoid director misconduct in the first place.

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