The presumption that directors should participate in the daily management of a company’s affairs, and that they enjoy an unfettered right of access to a company’s premises, was successfully challenged recently in the Western Cape High Court.
The court held that in the absence of provisions in the memorandum of incorporation a director’s obligations to perform his functions as contemplated by the Companies Act did not require involvement in daily management operations or meetings, and that a director could be refused access to the company’s premises provided he was not prevented from fulfilling his role as a director.
Drawing on Australian examples the court confirmed that directors are required to take reasonable steps to place themselves in a position to monitor the management of a company by way of a general understanding of the business of the company and the effect which a change in the economy may have on the business of the company, all designed to ensure that the overall management of the company can be properly supervised, this did not include the power to involve themselves in the day to day operations of the company.
The court drew a distinction between the day to day management of a company and the overall supervisory role of the board which the legislation specifically tasked with the management of the company and allowed for the daily management to be delegated. It held that directors duties can be both broad, overarching supervisory duties and contain duties to participate in the daily management of the company – which can be determined on a case-by-case basis with reference to a company’s constitution.
The case highlights the need for consideration to be taken when drafting the company’s constitution, the memorandum of incorporation. It may sometimes be appropriate to ensure directors have access and rights to attend to in management, but in the absence of specific provisions, directors may find otherwise themselves isolated from daily management.
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