South Africa: Duties Of A Non-Executive Director

Last Updated: 12 July 2002
Article by Matthew Ash

A Non-Executive Director Always Retains The Duty To Direct The Company With Reasonable Skill And Diligence

Since the Myburgh inquiry into the failure of Regal Treasury Private Bank, playing bowls on a hot Sunday afternoon will never be quite the same. The Commissioner was scathing in his criticism of the role (or rather the lack of it) played by the non-executive directors in the discharge of their duties at Regal, seemingly suggesting that their eyes were on a different ball altogether. In view of the recently issued King II report, it is worth taking a closer look at the position of non-executive directors.

All too often in circumstances of corporate failures one hears the plaintive pleading of directors as to lack of culpabibility by reason of the fact that they were "non-executive" - as if to say that the blame for corporate failure must always lie at the feet of the executive team. Indeed, in one such recent highly publicized failure, a non-executive director of the failed company (himself the Chairman of the major shareholder) made it clear on national television that the responsible executive directors were made to assume responsibility and that no blame for the failure could be attributed to non-executive directors. The comment by the interviewer that the non-executive directors nevertheless seemed happy to have accepted directors' fees drew no response.

Unsurprisingly, the Companies Act makes no distinction between executive and non-executive directors insofar as fiduciary duties is concerned. A director is a director, and in taking up such appointment the person concerned accepts responsibilities that cannot be abrogated to others. This echoes the trite principle that a company and its shareholders are entitled to rely on the full measure of experience, training and talents that the board possesses in the successful prosecution of the company's business. If ever there is a process in the conduct of the affairs of a company that must always add value, it is the direction to be given to the corporation by all of the company's directors.

This was confirmed by Judge Goldstone in the Appeal Court judgement of Howard v Herrigel and Another NNO 1991 (2) SA 660 (A). Although in terms of the specific facts of the case the non-executive director Mr Howard was not found to have acted recklessly or fraudulently as a director of the failed company, the Court found it 'unhelpful and even misleading' to distinguish between executive and non-executive directors when trying to determine their duties towards the company or whether some specific or affirmative action is required for them. There is no statutory distinction, and at common law where a person accepts a directorship, that person accepts a fiduciary responsibility in respect of the company.

The Court recognized that the application of this general rule to any particular director must depend on the particular circumstances of each particular case, and one such circumstance that might be taken into account is whether that person is in the full time employment of the company. But the Court reiterated that the mere fact that the person may have been a non-executive director does not mean that the person's duties are less onerous than they would have been had the person been an executive director.

Of cardinal importance is the director's access to information required for the proper directing of the company and its business, and the reliance that the person is entitled to place on reports received from others. This is particularly relevant to those companies where the full board meets every quarter and non-executive directors are mostly reliant on the information contained in the board papers circulated to them shortly before the meeting.

One of the core fiduciary duties any director owes to his or her company is the duty to exercise reasonable skill and diligence. Having regard to recent pronouncements from the Bench, recent comments by Commissioners, and the recommendations of King II, for a director to accept board papers at face value may no longer be sufficiently diligent. Traditionally, non-executive directors enjoy their positions as representatives of the interests of major shareholders or by virtue of their status in the business world (in which case they may also represent the interests of those shareholders who are attracted to invest in the company by virtue of the participation of such luminaries). As such, they play the role of watch-dog, and it would not be sufficient for them to supinely accept what is dished up for them once a quarter.

Sufficient diligence may now entail the proper analysis by every director of the information being furnished. For example, the critical financial information for the previous three months should be available for the full board meeting each quarter (not least from the management accounts that the executive team would use all the time). By applying simple analytical ratios to that information, the directors would very easily be able to see the direction in which their company is going. Indeed, close monitoring of an accounts receivable turnover ratio might have helped to prevent some of the more spectacular corporate failures of late, or at least sound off the warning bells at an early stage.

The ratios to be used would be those that are applied for the analysis of any financial statements - ratios that indicate short term liquidity, capital structure and long term solvency, operating efficiency and profitability, and market ratios. None of these ratios are beyond the understanding or appreciation of any reasonably diligent person. That being so, the onus lies on the non-executive director to familiarize himself or herself with the business and finances of the company, and to start asking the right questions.

The answers to those questions may be discomforting. It is at that point that the mettle of the non-executive director is truly tested. If the company's auditors or executive team are not giving satisfactory answers (remembering that whether the answer is satisfactory or not may be tested later in a court against the benchmark of a reasonable director), the non-executive director must press for an adequate or proper explanation. If that is not forthcoming, it then time to blow the whistle to place the facts on record and bail out.

The prospective liability for non-executive directors lies under the well-known Section 424 of the Companies Act. But the picture has become more somber. Last month a judgment was handed down in the the Witwatersrand Local Division in the so-called 'Cellular Calls' case (Kalinko v Nisbet & Others), where, amongst other things, the traditional Foss v Harbottle rule was dealt a hammer blow, and a shareholder was given leave to sue directors for damages allegedly suffered as a consequence of dimunition in value of shareholding flowing from the directors' alleged wrongful conduct. This opens the possibility of non-executive directors being pursued by aggrieved shareholders for a liability that was previously thought not to exist.

Such directors cannot be so pursued if they are at pains to conduct themselves objectively, reasonably, diligently and openly in all their dealings with their company.

The content of this article is intended to provide a guide to the subject matter.Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.