Directors often delegate certain functions and tasks to company employees or rely on the advice of experts. However, under South African common law, while directors can delegate these duties, they cannot abdicate their responsibility (i.e., avoid accountability). Delegation does not absolve directors of their legal responsibility for the proper performance of the delegated tasks.
Sections 76(4)(b) and (5) of the South African Companies Act, 2008, allow directors to rely on the performance of employees, professionals, experts, or board committees, provided they reasonably believe these individuals are reliable and competent or merit confidence. Directors can also rely on the performance of those to whom they have reasonably delegated authority.
The Act emphasizes the need for a reasonable belief in the reliability and competence of those entrusted with specific tasks/duties. Directors must act in good faith and with due diligence, and must not act blindly. If circumstances require, directors must make inquiries to ensure that their reliance is well-placed. For example, relying on an auditor’s report without further verification when red flags are apparent could have serious legal and financial repercussions.
By complying with the requirements of sections 76(4) and (5), directors can avoid liability for the actions of those on whom they rely. However, the responsibility for oversight and ensuring proper performance remains squarely with the directors.
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