The title of ‘director’ of a company is well-known and often deemed a prestigious accolade. But what exactly does this title entail or expect of the holder thereof? And what happens when a director falls short of the expected standards, particularly when this holds repercussions for shareholders, employees and other stakeholders? In this article, we look a little more closely at what the role of director entails.

As a point of departure, we first examine how the Companies Act 71 of 2008 (Companies Act) defines the term director and what duties are imposed on directors.

“Director” means a member of the board of a company, as contemplated in section 66, or an alternate director of a company, and includes any person occupying the position of a director or alternate director, by whatever name designated.

The lesson here? Being held to a director's standard does not require you to have the official title of "director." The law may treat you as a director even if you are only carrying out the duties usually performed by one, such as overseeing affairs, influencing choices, or representing yourself as such.

Duties and responsibilities
Directors are required to operate in the best interests of their company rather than prioritising their interests over those of the company. This is termed as a fiduciary duty, which is a duty composed of legal and ethical standards based on loyalty, good faith and honesty.

The Companies Act and specifically also Section 76 provides the standards of conduct expected from directors to:

• Act in good faith and for a proper purpose.
• Always act in the best interests of the company.
• Exercise the care, skill and diligence expected of someone in their position.

The crux is that directors must remain extremely cautious in identifying and managing conflicts of interest and must uphold and maintain their fiduciary duties within the boardroom. Whilst serving on multiple boards or being both a director and shareholder in various companies is quite commonplace, directors must ensure that decisions made for one company are not improperly influenced by the interests they hold in another. This requires a clear awareness of their role at any given moment and ensures that a director knows which "thinking cap" they are wearing, and acts accordingly, rather than applying a one-size-fits-all or self-serving approach.

Breach of duties
The saying ‘with great power comes great responsibility’ is very appropriate for the role of a director who must oversee the operations of a company. The need for accountability is imperative when controlling the powers afforded to a director by legislation.

The Companies Act offers formal resources, and a framework is set out in Section 162 for instances where directors disregard their statutory and fiduciary duties. "Interested persons", comprising shareholders, other directors and creditors, may approach the Court for an order declaring a director delinquent. Amendments to the Companies Act have further established that not only present directors are held to account, but it is also possible to declare a former director delinquent if the application is submitted within 60 months after their departure.

The specific circumstances in which a court must declare a person a delinquent director are decided regarding the circumstances set out in Section 162(5)(c):

• Grossly abuses the position of director.
• Takes personal advantage of information or opportunities that belong to the company.
• Causes harm to the company or a subsidiary, whether intentionally or through gross negligence.
• Acts dishonestly or breaches the trust of their office.

The objective here is not punishment per se but safeguarding companies, stakeholders, and the corporate governance system. The law recognises that those who misuse their directorial power shouldn't be permitted to retain it.

Being a director goes far beyond a title. It is a moral and legal obligation. Directors are expected to act honourably, conscientiously, and in the company's best interests, whether these may occur when managing a small or large corporation.

Directors who willfully ignore these duties risk more than just a slap on the wrist; they could face legal consequences that can prevent them from serving in any directorship role. This could be a major problem when you are the director of more than one company and emphasising the importance of complying with the standards set for a director. In the end, holding the title of 'director' isn't just about prestige, it’s about responsibility, accountability, and knowing when (and how) to wear the right cap.


Disclaimer: This article is the personal opinion/view of the author(s) and does not necessarily present the views of the firm. The content is provided for information only and should not be seen as an exact or complete exposition of the law. Accordingly, no reliance should be placed on the content for any reason whatsoever, and no action should be taken on the basis thereof unless its application and accuracy have been confirmed by a legal advisor. The firm and author(s) cannot be held liable for any prejudice or damage resulting from action taken based on this content without further written confirmation by the author(s).