South Africa: The Women Corporate Directors (WCD) Discuss Management Liability

Last Updated: 1 May 2013
Article by Tshidi Mokgabudi

The Women Corporate Directors (WCD) held a breakfast seminar to discuss Management Liability and the consequent protection mechanisms available to directors and officers.

Key Points:

The seminar included female directors and officers from across industries conversing and sharing best practices, and challenges on management liability. The vision of WCD is to be a vehicle to share global and local board experiences, best practices, thought leadership and debate issues faced by directors in a safe supporting environment.

The seminar focussed on an overview of the Companies Act, risk mitigation mechanisms and strategies for directors and prescribed officers and Directors and Officers Liability Insurance (D&O). Tshidi Mokgabudi, Chairman WCD and Chairman of KPMG Advisory, says "Given the risk management issues experienced by boards globally, we chose a Management Liability and protection mechanism for directors, as a topic to be dialogued at this event."

Directors are continuously faced with huge personal risks. External factors such as global economic turmoil, hyper-regulation, undisputed focus on corporate governance, an increase in stakeholder awareness, the explosion of social networking and an increase in regulatory claims impact on the role of directors both locally and abroad.

Keynote speaker Teri Solomon, Management Liability Executive at Marsh Africa says, "As directors, we are expected to know and understand a plethora of legislations and how it affects ourselves and our companies."

"However, the question remains as to how directors can mitigate risks, given the complexity of these legislations and the environment?" says Mokgabudi.

Risk management is the ultimate protection mechanism. Solomon says, "A robust and well documented risk plan, effective risk management practices through recognised frameworks which are regularly monitored and tested will be useful mitigatatory evidence. The board must be able to show how effective the risk management process was and evidence how it may have operated in the specific circumstances."

She goes on to explain that the effectiveness of the risk management process is critical and the way risk is disclosed to stakeholders must receive specific attention.

On another note the Companies Act does provide some important protection mechanisms for directors and officers facing personal lawsuits. The Business Judgement Rule, limited indemnity by the company and the provision for the company to secure D&O insurance for its directors and officers are all welcomed forms of protection. Solomon stressed how D&O insurance remains a critical asset protection for both the directors and officers, and the company.

Solomon says, "It will be essential for boards to set the company's directors and officers strategy, ensuring they are adequately protected both in scope and value of cover."

Dr Moretlo Molefi, a WCD member and a director at Telemedicine Africa (Pty) Ltd, asked how you protect yourself from the subsidiary company risk if you are on the board of directors of the holding company. Other questions raised by the audience were how to structure a policy to mitigate the benefits, as directors are we asking the right questions, and are we addressing risk management at the right level.

Solomon concludes, "Being a director is about weighing up the risk versus the reward. Understanding the consequences and repercussions of your decisions is critical. We must also never be afraid to seek independent advice on matters we are not sure of."

Supporting Solomon's comments, Mokgabudi adds, "The board needs to assess the risks and understand the consequences and repercussions of their decisions and most importantly we need to seek external advice where appropriate."

KPMG under the direction of Tshidi Mokgabudi, chairman of WCD SA, is proud to be a founding sponsor of WCD, building on their legacy of having been instrumental in launching this unique global organisation.

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

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