CGF ARTICLES, OPINIONS & EDITORIALS
When your business judgement is off track (2013-10-24)
February 20,
2015 3575 3575 
Article by CGF Research and reviewed by Werksmans Attorneys
It is not surprising that many business leaders are becoming a lot more circumspect about their positions -- including their waning risk appetite -- as yet more draconian legislation enters the market in South Africa.
Laws such as the Protection of Personal Information Act, the Broad-Based Black Economic Empowerment Act, the Consumer Protection Act -- including a host of labour and environmental Acts -- place significant risks upon businesses and directors, especially when their provisions are not met.
Against this background, considering the increased liabilities attached to directors (and prescribed officers) which is laid out in the Companies Act 2008, failures at corporate and personal levels is set to increase even further if business leaders are not confident in ‘calculating’ and executing their business risks correctly.
Most business leaders are a rare breed of individuals who thrive on risk-taking for profit; and not being able to execute, arguably, the most basic duty of risk management whilst maintaining profitability is a cause for major concern. Through their entrepreneurial spirit, these are the people who are the main catalyst for job creation and thriving economies. But, as more business leaders are being stifled by a barrage of burdening legislation with even greater possibilities of personal liabilities attached to their daily functions, they will need to weigh the options of more risk-taking and increased personal liabilities against the future profitability, growth and sustainability factors. At the outset, it certainly appears quite unattractive to occupy any senior level leadership position in the South African business landscape, and more so in an ever-increasing litigious environment which is dogged by numerous poor governance practices and cited in the media on almost a daily basis.
Being hard-headed or choosing to remain ignorant of the increasing risks attached to running a business is foolhardy and even the toughest of these die-hards will eventually bow under the pressure. Allied to these burdens is a very sluggish economy which is exacerbated by uninspiring leadership and years of delayering, outsourcing and rightsizing which has left many a business and its leadership insecure with growing unemployment and uncertainty weighing heavily upon businesses. It’s no wonder that many directors are disillusioned as they try ‘rationalise’ risk-taking for reward in an environment that appears more hostile for business growth opportunities than ever before.
As a result of the increased liabilities and often hazardous business terrain, directors may find some relief within the Business Judgement Rule; a common law doctrine which was introduced in the United States of America in the early 1800s and now also found in the South African Companies Act 2008 (‘the Act’). In broad terms, the Business Judgement Rule -- also known as the ‘indoor management Rule’ -- aims to protect a company’s leadership from misleading allegations regarding the manner in which they conduct business.
