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Unequal pay case in South Africa puts spotlight on how boards run their affairs

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Businessman Andile Ngcaba, the former chairperson of South African-based technology company Dimension Data, has brought a lawsuit against the company for over R400 million for unequal remuneration.

The case raises interesting questions about how board committees work, the taking of minutes, and who has access to board minutes.

Ngcaba served as the executive chairperson of the company from 2004 to 2016. He learnt in 2016 that other senior executive directors were earning more than he was and that they were benefiting from a long-term incentive scheme, from which he was excluded.

He discovered this when the company publicly provided details of the salaries of executive directors. South Africa’s Companies Act requires companies to disclose the remuneration of their directors and prescribed officers in the annual financial statements.

This applies to firms that have to have their annual financial statements audited. These include public companies, state-owned companies and companies with a public interest score of 350 or more. This score depends on the company’s turnover, size and activities. Companies can also volunteer to audit their financial statements.

Ngcaba is suing the company for failing to honour its agreement to equal remuneration. He is claiming R261.3 million for unpaid bonuses, R170 million in damages for racial discrimination and R10 million in damages for racial slurs and insults. The company has denied Ngcaba’s allegations.

To assist him in preparing his case, Ngcaba asked to see the minutes of the remuneration committee meetings. He was only given the minutes from 2006 to 2010. The former CEO testified that no minutes were taken from the time the company was delisted from the Johannesburg Stock Exchange in 2010. It was delisted after it was acquired by Japan-based company Nippon Telegraph & Telephone Corporation.

On 23 June 2021 the court accepted this testimony.

The vital question arises: may board committees function without taking minutes?

The role of board committees

The Companies Act and South Africa’s King IV Report on Corporate Governance set out the rules for running company boards in South Africa.

For practical purposes it is sometimes necessary for the board to delegate certain functions to board committees. Most large companies have an audit committee, remuneration committee, nomination committee and risk governance committee. Some companies also form an executive committee (exco) consisting of top management, to manage the company’s day-to-day operations.

The Companies Act makes it clear that a board committee has the full authority of the board in respect of a matter delegated to it. According to the King IV Report a board committee should have at least three members, and a certain number of non-executive directors. The King IV Report recommends that there should be a balanced distribution of power so that one person cannot dominate the decisions.

Board committees help enormously in the running of companies. For example, because they’re small, they can spend more time than the full board going into detail about complicated issues. Another advantage is that they can consult and receive advice from outside parties, such as experts.

A good example is the role of a remuneration committee. Its job is to make sure that directors are appropriately rewarded for their work. It can consult with independent remuneration experts to assist with setting remuneration policies and structuring share incentives. Often the chairman has a standing invitation to board committees.

The ultimate responsibility for the committee’s work rests with the board. The board can’t abdicate legal responsibility for the committee’s conduct. That’s why it’s advisable for the board to put in place a reporting framework to enable board committees to report to it regularly.

Members of board committees must comply with the fiduciary duties of directors, even if they are not board members. For example, they must act in good faith, for a proper purpose and in the company’s best interests.

The importance of board minutes

According to the Companies Act companies must keep minutes of board meetings and board committee meetings. This requirement applies to all companies, whether listed or unlisted.

The minutes confirm the business that was discussed and decided at the meeting. They also record the discussions leading to the decision taken at the meeting. So anyone reading the minutes will know what led to a particular decision being taken.

This could be very important if there is litigation and the minutes are entered in court as evidence.

They should contain an accurate summary of discussions and resolutions taken. It is better to provide a summary of the main points about the discussion at the meeting, instead of a detailed account of everyone’s contribution.

Minutes must be kept for at least seven years from the meeting date. They can be kept in hard copy or electronically, as long as they can be reproduced in hard copy. They must be kept at the company’s registered office but may be kept at another place in South Africa. If so, the company must file a notice with the Companies Office with details of this location.

Board minutes are needed for legal and practical reasons. If directors do not keep meeting minutes they may be in breach of their fiduciary duties to act in good faith and in the company’s best interests, and the duty to act with due care, skill and diligence. They also risk incurring personal liability.

Not taking meeting minutes may cause problems for the company when directors have different recollections of what was agreed at a meeting.

Who can access the board minutes?

Minutes of board meetings and committee meetings are confidential. But not if the company is legally obliged to provide the minutes to court or to regulators like the Johannesburg Stock Exchange. Auditors are usually allowed access to the minutes as part of the audit process.

Directors may inspect the minutes of board meetings and board committee meetings, but shareholders don’t have a legal right to do this, unless the company’s constitution allows it. It is unlikely that companies will allow it because they could suffer harm if their confidential information were to be released to competitors. For example, a shareholder of the company could also be a shareholder of the company’s competitor.

It is a good idea for the minutes to be circulated to the directors soon after the meeting for their comment. In this way changes can be made if necessary. Once the chairperson signs the minutes they are evidence of the proceedings of that meeting and can be used in court matters, unless proved otherwise. This is why it is so important for the minutes to be accurate.

The law is clear that board committees may not function without keeping minutes. It remains to be seen whether the members of the remuneration committee of Dimension Data will face any legal consequences for their failure to keep minutes for the past ten years.

It seems that Ngcaba has no choice but to continue with his unequal pay lawsuit without any record of decisions taken by the remuneration committee since 2010. This will no doubt pose some challenges.