Does my Company require a Social and Ethics Committee?
In today’s operating environment, a key emphasis has been placed on companies to consider their social, economic and environmental impact of their business activities on the societies in which they operate.
As companies become larger, their accountability to society increases and there should be mechanisms in place to ensure that operations are being effectively monitored in this regard.
Companies Act requirements
The Companies Act, No. 71 of 2008, as amended (“the Act”) prescribes that all state owned companies, companies listed on the Johannesburg Stock Exchange (“JSE”) and private companies, with a Public Interest Score (“PIS”) above 500 in any two of the preceding five (5) years, must constitute a Social and Ethics Committee (“the Committee”) in accordance with Regulation 43 of the Companies Regulations.
Responsibilities of the Social and Ethics Committee
The Committee’s responsibilities include monitoring the company’s activities with regards to social and economic development, good corporate citizenship, environment, health and public safety, consumer relationships and labour and employment. In relation to identifying and evaluating corruption risks, the Committee should further ensure that the company implements a Corporate Compliance Programme in accordance with a practice note released by the Companies and Intellectual Property Commission (“CIPC”).
Composition of a Social and Ethics Committee
When constituting the Committee, the membership must comprise of a minimum of three directors and/or prescribed officers of the company. One of these members must be a non-executive director who is not involved in the day-to-day management of the business or has been within the previous three financial years.
The Committee reports matters within its mandate to the Board and to the company’s shareholders at the annual general meeting held each year. In certain instances, companies may apply to the Companies Tribunal for an exemption to constitute this Committee for a period of 5 years or such period as determined by the Tribunal.
CIPC now requires confirmation of the appointment of a Social and Ethics Committee
Given the recent tagging requirement of the PIS in the annual financial statements provided under XBRL, the CIPC has increased its monitoring of the requirements of Regulation 43 of the Company Regulations. This has resulted in the CIPC requesting confirmation that a Company has appointed a Social and Ethics Committee.
Please do not hesitate to contact either of our offices in Cape Town, Durban or Johannesburg should you require assistance with the reporting framework for a Social and Ethics Committee.
Chris Wilson – Managing Director
Direct number: +27 21 417 8734