In terms of the new Companies Act (“Act”), all state owned and listed companies as well as any other company that has a public interest score of above 500 points must appoint a Social and Ethics Committee.

A company’s public interest score is calculated as the sum of the following:

(a) a number of points equal to the average number of employees of the company during the financial year;
(b) one point for every R 1 million (or portion thereof) in third party liability of the company, at the financial year end;
(c) one point for every R1 million (or portion thereof) in turnover during the financial year; and
(d) one point for every individual who, at the end of the financial year, is known by the company:

(i) in the case of a profit company, to directly or indirectly have a beneficial interest in any of the company’s issued securities; or
(ii) in the case of a non-profit company, to be a member of the company, or member of an association that is a member of the company.

Accordingly, if in terms of the calculation set out above, a company has a public interest score of above 500 points, that company must appoint a Social and Ethics Committee. All companies who are required to appoint a social and Ethics Committee had until 30 April 2012 to do so.

The functions of a Social Ethics Committee are, amongst others, to monitor the company’s activities having regard to the law, regulations and best practices that apply to such company, to draw matters within its mandate to the attention of the board and to report to the shareholders at the company’s AGM on matters within its mandate.

The Social and Ethics Committee must be comprised of at least 3 (three) directors or prescribed officers, at least one of them must be a non-executive director and must not have acted as an executive director of the company within the previous 3 (three) years.

A company which is required to appoint a Social and Ethics Committee may apply to the Companies Tribunal for an exemption from this requirement and the Tribunal may grant such an exemption if it is satisfied that the company is required in terms of other legislation to have and does have a structure that substantially performs the same functions that would be performed by the Social and Ethics Committee or it is not reasonably necessary in the public’s interest to require the company to have such a committee.

Should a company which is required in terms of the Act to appoint a Social and Ethics Committee fail to appoint one, the Companies and Intellectual Property Commission (“Commission”) may request, by issuing a notice, that that company explain why the Commission should not itself convene a shareholders’ meeting for purposes of appointing such committee and, should the company fail to respond to the notice or should the company’s response fail to satisfy the Commission that the company will make the appointment, the Commission may convene such a meeting or allocate a pro rata share of the costs of convening the general meeting to each of the company’s directors who knowingly permitted the company to fail to appoint the committee.

Accordingly, to the extent your company is required in terms of the criteria above to appoint a Social and Ethics Committee and has not done so as yet, it is important that it does so as a matter of urgency.

Written by Martin Mota, Partner: Commercial Department at Adams & Adams (012) 432 6000 or martin.mota@adamsadams.com