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Section 1 of the Companies Act 71 of 2008 (Companies Act) defines a Director as “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 director or alternate director, by whatever name designated”.
Section 66 of the Companies Act determines the business and affairs of the company must be managed by or under the direction of its board and that the board has the authority to exercise all of the power and perform any of the functions of the company, except to the extent that the Companies Act or the Company’s Memorandum of Incorporation provides otherwise.
The Act does not distinguish between, executive, non-executive and independent directors, but a clear distinction is noticeable between these types of directors, in practice, including the following:
Executive directors |
Non-executive directors |
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Member of the board of directors with directors’ duties. |
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Part of the executive team, as an employee of the company and generally under a service contract with the company. |
Not an employee of the company. |
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Involved in the day-to-day management of the company. |
Not involved in the day-to-day management of the company. |
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In addition to a salary, does not receive directors’ fees. |
May receive Directors’ fees, but does not receive a salary. |
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Shareholders are not involved in approving their salary packages. |
Shareholders must approve their fees by way of special resolution, in advance. |
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Employee entitlements apply, such as annual and sick leave. |
No entitlements apply. |
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Has an intimate knowledge of the workings of the company. |
They contribute to the development of management strategies and monitor the activities of the executive directors. |
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They carry an added responsibility. Entrusted with ensuring that the information laid before the board by management is an accurate reflection of their understanding of the affairs of the company. |
Plays an important role in providing objective judgement, independent of management on issues the company are facing. |
Independent, non-executive director
This director does not have a relationship, directly or indirectly with the company other than his or her directorship. They should be free of any relationship that could materially interfere with the independence process of his or her judgement and they do not represent the shareholders of the company.
The role of these directors
All directors should apply objective judgment and an independent state of mind, regardless of the classification as an executive, non-executive or independent non-executive director.
Corporate Statutory Department
RSM South Africa