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THE IMPORTANCE OF SOCIAL AND ETHICS COMMITTEES AS BOARD COMMITESS IN THE COMPANY.

Posted on 7 Apr 2017

(OPENING ADRESS BY MR MACDONALD NETSHITENZHE, ACTING DEPUTY DIRECTOR GENERAL, CONSUMER AND CORPORATE REGULATION DIVISION, DEPARTMENT OF TRADE AND INDUSTRY IN THE SOCIAL AND ETHICS WORKSHOP ON 09 FEBRUARY 2017)

 

Good morning
Goiemore
Dumelang
Avuxeni
Lo tsha
Sanibonani
Namaste
BotaniMawethu
Shalom

 

I would firstly like to welcome,
Captains and representatives of Commerce and Industry
Labour representatives
Representatives from civil society groups
Academics
Professionals
Companies and Intellectual Property Commission
Government representatives
Honourable members of the public.
All protocols observed

 

I thank you and welcome you to one of the important engagements on one of the crucial and most important topics in company law. This is shown by a lot of trends in local and international news. I would like to highlight the importance of this social and ethics committee topic.
The role of the committee will be to look into compliance on social and ethics issues including triple bottom reporting, economic, social and environmental sustainability as provided for in the United Nations Global Reporting Initiatives, decent work, procurement, transformational goals, human rights, labour standards, anti-corruption and all issues falling within its mandate. They bring these issues to the attention of the board and also report in the shareholders meeting if required.

 

Social and Ethics committees (SECs) are important not only to protect the communities and the environment where companies operate but for the protection of shareholders’ interests. Any negative news relating to social and ethics have a serious economic impact for the company and the country in general.

 

As we may all know, companies required to have SECs are public companies, state owned companies, companies that have in any two or previous five years scored above 500 points in terms of the companies regulations and companies falling under one of the sectors contemplated under section 72(4)(c) of the Companies Act on the basis of the “nature and extent of its activities”. Activities may bearound mining, finance, construction, transport, motor industry, agriculture, manufacturing, wholesale and retail trade.

 

The following are examples of industries where social issues and ethics can be a concern:

  • In mining, communities complain about pollution and contamination of water. When mining activities are conducted, the waterbed is drained from water. Tons of litres of water are drained leaving the communities with no ability to conduct agricultural activities. Such activities are conducted with no consultation with communities. In the Marikana incidents some of the causes of strikes and uprisings were the failure of mining companies to provide decent housing. If SECs were in existence and fully functional a lot of problems and massacres that followed would have been avoided. Local people are not employed by mines.
  • In the iron and steel industry, there is an issue with pollution causing respiratory deceases. There is no treatment or clinics by mining houses. An example is when families of mineworkers who died due to TB/silicosis were marching at Mining Indaba in February 2017 in Cape Town. Presence of SECs may intervene and help with environmental and climatic improvement. This is in line with the United Nations Global Impact Initiatives.
  • In finance industries reckless lending where society credit worthiness can be undermined. There are global cases that led to the 2008 financial crisis leading to the collapse of big home loan companies in the United States. Such incidents are also happening locally. When industries collapse due to such incidents, jobs are lost and shareholders lose. An example is what happened in the United States with Fannie Mae and Freddie Mac. This leads to the impact where there can be a credit downgrade especially in third world countries. Minority shareholders (Activism) are the ones who blew the whistle and revealed the scandal in the United States (ENRON case).
  • In the construction industry there have been incidents locally and internationally. Buildings and structures do collapse due to insufficient building standards with no certificates of municipal approval (Nigerian church collapse). Families lose breadwinners with construction companies not taking responsibilities. This happened on roads constructions where fatalities occurred. Frequent recurrence of such incidents can be minimized if companies are adhering to social and ethical standards.
  • In the transport industry, safety standards can also fall within the area of social and ethical standards (Falling of engines in Nationwide Airlines). Frequent and fatal accidents occur locally and internationally and companies are not easily held accountable if there is no social and ethics framework in the board structures.
  • In the motor industry there has been incidents in foreign jurisdictions like Germany where a company was accused of misrepresenting information in as far as emission standards are concerned. This led to serious impact in as far as consumer relations are concerned. Concerns are also being raised locally about safety standards as well as reluctance of certain companies
    to do investigations where lack of safety standards is suspected. In Germany Volkswagen will pay 1,2 billion Euro to 80,000 US buyers of 3,0 litre diesel engine/ buying back or refitting their vehicles. They will also cap CEO’s salaries. This was reported in Business Day of 8/02/2017 page 11.

 

In agriculture, manufacturing, wholesale and retail, a lot of issues are raised everyday about consumer relations. This involves social and ethical responsibility of internal and external companies when it comes to fair marketing and safety and health concerns relating to products sold. This is sometimes due to the fact that labeling standards are also not adhered to. Most of the concerns can be brought to the attention of boards if SECs are fully functional.

 

Our court system has to be sensitized when it comes to social issues. There are organizations that are instituting civil actions in foreign jurisdictions against companies that financed the apartheid system in violation of ethics. Our courts should also lead by example in entertaining such concerns. Our courts are not leading in such issues. Civil rights groups are also suing in courts in foreign jurisdiction like for example in the asbestos case where workers are faced with strains of tuberculosis. It will be a progress in our legal system if South African courts lead. Results of courts not being actively involved are shown in incidents of families marching at mining indaba. Shareholders in London have to entertain South African activists regarding provision of houses in Lonmin. Why go to London, is this a jurisdictional issue or are we saying that foreign company (Lonmin) does not have a SEC? Foreign companies should not be exempted to establish SECs.

 

The last concern relates to incidents of technical bankruptcy. Companies have a moral standard to ensure that there are checks and balances when it comes to the financial health of the company. If a company is about to be insolvent in the foreseeable six months, there should be an ethical standard for the issue to be brought to the attention of the board for companies to apply for business rescue. Companies should not apply for business rescue when they are already insolvent. If social and ethics committees are functional financial distress can be raised and put to the attention of the board of directors to initiate business rescue proceedings. Business rescue can be a success if SECs are fully functional.

 

It is also my opinion that external companies are not exempt from SECs requirement. This is due to the impact of their activities. More education and awareness has to be done in this area as the CIPC and the Companies Tribunal are receiving a lot of cases relating to application for exemptions from SECs. A lot of applications are motivated by the fact that a lot of companies are not well educated in as far as the role of SECs is concerned. Foreign companies may have bad environmental impact e.g. BP oil spillage in the US, Shell in Nigeria and oil companies in Delta region, Nigeria.

 

The DTI has commenced the process of reviewing and amending the Companies Act. This is to align problematic areas and enhance better interpretation of the provisions. Activism of section 21 companies and minority shareholders must play a major role in demanding compliance. The regulator should also be active in compliance.

 

Conclusion
If there is a good functional SECs, brand will appreciate and profit making will thrive, dividends will increase and the companies’ activities will be sustainable. My view is that with all the above considered, companies are going to be relevant to the communities, immediate stakeholders, the economy of the country and image to investors.

 

Thank you.
Siyabonga
Siyabulela
SiyaThokoza
Ro Livhuwa
Inkomu
Rea Leboga
Shukria
Dankie