LESSON 1:

The impact of the Constitution and Globalisation on Entrepreneurial Law

1 Introduction

The values and beliefs that govern the running of business operations are based on
constitutional values and principles and often reflect African values that comprises the
concept of ubuntu. Corporate law and the law regulating other forms of business
enterprises, at first glance, is a technical commercial subject based mainly on statute.
However, upon scrutiny, several transformation values are reflected in the module
content.

This lesson consists of examples that illustrate the importance of constitutional

principles and values in the interpretation and application of the law regulating different
types of enterprises. The Constitution of the Republic of South Africa, 1996 (‘the
Constitution’) and its values that also imbue values of ubuntu plays a significant role,
particularly in the interpretation of legislation. Promoting these values in the
development of the common law plays a pivotal role in ensuring that the law adapts to
suit the community it serves. This evolving nature of law is foundational to the principle
of transformative constitutionalism.

After studying this lesson, you should be able to answer the following key questions:

• What are the Ten Principles laid down in the UN Global Compact, and are these
principles relevant to South African business?
• What African values comprise the concept of ubuntu?
• What is meant by transformative constitutionalism?
• What constitutional principles are important for purposes of South
African business?
• What does ’Africanisation’ mean?
• Which stakeholders are recognised as being affected by corporate
behaviour underlying the concept of corporate social responsibility?
• In what ways could corporate social responsibility potentially benefit
companies?
• How is corporate social responsibility reflected in the Companies Act?
• Which companies are required to appoint a Social and Ethics
Committee?
• What are the functions of the Social and Ethics Committee?
• What is globalisation?
• What are the main characteristics of the modern corporate world?
• In what ways may the various business enterprises in South Africa be
regarded as being global?
• In what ways does the Companies Act recognise globalisation?
• What does the audi alteram partem-rule entail?
• Name three cases in which the court has applied principles of ubuntu.
• Provide examples of how the law relating to different business forms is imbued
by values underlying the ubuntu concept.
• What does corporate social responsibility entail?
 • Explain whether it is possible to enforce the principles of ubuntu and the
constitutional principles in a court of law.
• Mention examples of how the court has developed the common law to adapt to
serving the community.
• Explain the test that is used by the court to determine whether it is necessary
to develop the common law.
List the pieces of legislation that have an impact on the various forms of
• business enterprises in South Africa.

2 The Ten Principles of the UN Global Compact

(accessible at https://www.unglobalcompact.org/what-is-gc/mission/principles)

The sustainability of a company is dependent on the value systems that the company
adopts and the principles upon which the company is built. Companies must meet certain
fundamental responsibilities insofar as human rights, labour, environment and anti-
corruption is concerned. The UN adopted the Ten Principles of the UN Global Compact,
which should be incorporated into company strategies, policies and procedures. The idea
is to establish a culture of integrity in companies. Companies must uphold their basic
responsibilities to people and planet in order to set the stage for long-term, sustainable
success.

These Ten Principles are derived from the Universal Declaration of Human Rights, the
International Labour Organization’s Declaration on Fundamental Principles and Rights at
Work, the Rio Declaration on Environment and Development, and the United Nations
Convention against Corruption.

Principle 1 Businesses must support and respect the protection of internationally

proclaimed human rights; and
Principle 2 ensure that they are not complicit in human rights abuses.
Principle 3 Businesses must uphold the right of freedom of association and recognise the
right to collective bargaining;
Principle 4 they must eliminate all forms of forced and compulsory labour;
Principle 5 abolish child labour; and
Principle 6 eliminate discrimination in respect of employment and occupation.
Principle 7 Businesses must be mindful of their potential effects on the environment and
support a precautionary approach to environmental challenges;
Principle 8 undertake initiatives to promote greater environmental responsibility; and
Principle 9 encourage the development and diffusion of environmentally-friendly
technologies;
Principle 10 Businesses should work against corruption in all its forms, excluding
extortion and bribery.
The Ten Principles of the UN Global Compact

(accessible at: https://www.unglobalcompact.org/what-is-gc/mission/principles)

The sustainability of a company is dependent on the value system that the company adopts and
the principles upon which the business is built. Companies must meet certain fundamental

3 The importance of the infusion of African leadership philosophies and Constitutional

responsibilities insofar as human rights, labour, environment and anti-corruption is concerned.
The UN adopted the Ten Principles of the UN Global Compact which should be incorporated
into company strategies, policies and procedures. The idea is to establish a culture of integrity
in companies. Companies must uphold their basic responsibilities to people and planet in order
to set the stage for long-term, sustainable success.

These Ten Principles are derived from: the Universal Declaration of Human Rights, the
International Labour Organization’s Declaration on Fundamental Principles and Rights at Work,
the Rio Declaration on Environment and Development, and the United Nations Convention
Against Corruption.

Principle 1: Businesses must support and respect the protection of internationally proclaimed
human rights; and

Principle 2: ensure that they are not complicit in human rights abuses.

Principle 3: Businesses must uphold the right to freedom of association and recognise the right
to collective bargaining;

Principle 4: they must eliminate all forms of forced and compulsory labour;

Principle 5: abolish child labour; and

Principle 6: eliminate discrimination in respect of employment and occupation.

Principle 7: Businesses must be mindful of their potential effects on the environment and
support a precautionary approach to environmental challenges;

Principle 8: undertake initiatives to promote greater environmental responsibility; and

Principle 9: encourage the development and diffusion of environmentally friendly technologies.

Principle 10: Businesses should work against corruption in all its forms, including extortion and
bribery.

We shall consider how these principles and values are applied in South African business in the
sub-headings that follow.

values

Important terms Meaning

Prescribed study material

Textbook: Chapter 1
Constitution of the Republic of South Africa:
sections 8, 9, 10, 39(2)
Companies Act: sections 5, 7, 20(9), 58,
63(2), 72, 76, 162, 164, 165, 218(2)
Companies Regulations: Reg 43
Close Corporations Act: section 65

Africanisation Renewing the focus on Africa and

ensuring that teaching is adapted to
African values, realities, and conditions.
Constitutional values/principles Human rights based on democratic
values and social justice.
Corporate social responsibility A business approach that contributes to
sustainable development by delivering
economic, social, and environmental
benefits for all
stakeholders.
Globalisation The integration of nations through the flow
of goods, information, services, and capital.
It is a process by which businesses develop
international influence.
Locus standi The right of a party to appear before a
court and be heard.
Organisation for Economic Co-operation and A group of 34 democratic member
Development ‘OECD’ countries supporting free market
economies that discuss and develop
economic and social policy.
Stakeholders Persons who can affect or be affected by a
business’s actions, objectives and policies,
including creditors, directors, employees,
government (and its agencies), owners
(shareholders), suppliers, unions, and the
community from which the business draws
its resources.

Transformative constitutionalism A long-term project of constitutional

enactment, interpretation, and enforcement
to transform the country’s political, legal
and social institutions and power relations
in a democratic way.
Ubuntu Ubuntu is based on the inherent belief that
one is never alone, as expressed in the
African idiom ’Motho ke motho kabatho’
(’I am because you are’).
Africanisation aims to ensure that people in a particular context such as the community
or family, in the case of traditional African societies, maintain sound relationships
tailored to accommodate opposing views and conciliating competing interests. An
inclusive approach of joint decision making in matters that affect the business as a
whole is foundational to the ubuntu concept. A more horizontal approach is propagated
where not all decisions are made from the top. Ubuntu means people are people
through others. Ubuntu is an underlying concept of Africanism. Ubuntu comprises
a set of values that finds expression in the Zulu saying ‘umuntu ngumuntu
ngabantu’, which means a person is a person through other people. Ubuntu was
given explicit application in our jurisprudence in the highest court in S v Makwanyane
1995 (6) BCLR 665 (CC). Madala J noted that ubuntu advocates social justice
and fairness.

In Pharmaceutical Society of South Africa and Others v Tshabalala-Msimang and

Another NNO; New Clicks South Africa (Pty) Ltd v Minister of Health and Another
2005 3 SA 238 (SCA), a t para 38, Harms JA describes ubuntu as a relationship
of mutual respect. In similar vein, the Koyabe and Others v Minister for Home
Affairs and Others (Lawyers for Human Rights as Amicus Curiae) 2010 ( 4) SA
327 (CC), Mokgoro J associated ubuntu with a general obligation to treat people
with respect and dignity, to avoid undue confrontation and to give reasons for
administrative decisions.

The second report issued by the Institute of Directors of South Africa, the King Report
on Corporate Governance, 2002, first canvassed the notion of introducing African
business values to be applied in South Africa, which is now summarised as
‘ubuntu’. Although certain universal principles will always be applied in decision
making in business, ubuntu has become an important principle which also
permeates the latest King Report on Corporate Governance, 2016 (‘King IV’).
The importance of ubuntu in the South African context is recognised where it states
that ‘the common purpose of all human endeavours, individual or corporate, should be
that of service to humanity’ (King IV 24).

South African Broadcasting Corporation Ltd and Another v Mpofu [2009] 4 All SA 169
(GSJ) (‘Mpofu’) Victor J (with Jajbhay J and Horn J concurring), considered the
importance of sound corporate governance, and leadership qualities of directors. The
court held that the Constitution recognises the importance particularly in respect of
state-owned companies that fall within the definition of ""organ of state’" in section 195.
This section deals with basic values and principles governing public administration. It
requires a high standard of professional ethics that must be promoted and maintained
(Mpofu para 55).
The court in Mpofu stressed that African leadership philosophy and values must
be applied so as to ‘emerge from the past of subjugation and exploitation’ that are
remnants of the historical impact of slavery and colonialism, imperialism, and
globalisation on the continent of Africa. Sound leadership is the catalyst for positive
transformation (para 61).
In Dikoko v Mokhatla 2006 (6) SA 235 (CC), Sachs J expressed that ubuntu-botho
is not only window-dressing that should be ‘invoked from time to time to add a gracious
and affirmative gloss to a legal finding already arrived at. It is foundational to our
constitutional culture of reconciliation and bridge-building to overcome and transcend
the devastating remnant effects of past divisions in South Africa’ (See Azanian
People’s Organisation (AZAPO) and o thers v President of the Republic of South
Africa and Others 1996 (4) SA 671 (CC) para 48 for a description of the historic
inequities). Ubuntu represents ‘the element of human solidarity that binds together
liberty and equality’. It supports and adds to the fundamental rights in the Constitution
(Mpofu para 65). That the values of ubuntu should underlie corporate decision making
is bolstered further by the finding of the highest court in Port Elizabeth Municipality v
Various Occupiers 2005 (1) SA 217 (CC); 2004 (12) BCLR 1268:
 The spirit of ubuntu, part of the deep cultural heritage of the majority
of the population suffuses the whole constitutional order. It combines individual
rights with a communitarian philosophy. It is a unifying motif of the Bill of
Rights, which is nothing if not a structured, institutionalised and operational
declaration in our evolving new society of the need for human interdependence,
respect and concern.

One of the rules of natural justice is the audi alteram partem-rule. This
principle is firmly entrenched in our law. It basically means that before any judicial
functionary takes a decision on a matter, both sides of the story must be heard. It
originates from the natural desire of man to be fair to his fellow human beings.
This principle is similar to the principle found in traditional African societies with
their strong emphasis on the due observance of procedure. All members of the
community must be allowed to voice their opinions when their interests are affected.
The audi alteram partem-principle is reflected in ubuntu. Ubuntu ultimately dictates
that one has to be fair in all one’s relationships, which will include being quick to
listen compassionately to other people’s stories and slow to pass judgment.
In summary, the values of ubuntu are embodied in the following elements that apply
in business:

• The ability to show compassion

• Social justice and fairness
• Harmony and humanity
• Recognising the inter-connectedness of people and the accompanying
responsibilities
• Integrity and ethical behaviour
• Open channels of communications and transparency
• Due process and sensitivity in dealings with one another

Please note! Other similar values also form part of the concept of ubuntu. This list is
not a closed list.

3.1 Constitutional principles/values

Section 8(2) of the Constitution provides that the Bill of Rights binds a natural or a juristic
person (like a company or close corporation) to the extent that it is applicable,
considering the nature of the right and the nature of any duty imposed by the right.
When applying a provision of the Bill or Rights to a natural or juristic person, to give
effect to a right in the Bill of Rights, a court must apply, or, if necessary, develop the
common law to the extent that legislation does not give effect to that right
( s e c t i o n 8(3)). A court may develop the rules of the common law to limit the
right, provided that the limitation is in accordance with the limitation clause
contained in section 36(1) of the Constitution.

The values of ubuntu are reflected in the Constitution:

The Republic of South Africa is one, sovereign, democratic state founded on the
following values:

(a) human dignity; the achievement of equality and the advancement of

human rights and freedoms. (section 1)

Ubuntu underlies the building of our constitutional democracy therefore to develop

African leadership values to be applied in companies, is consistent with the
constitutional values.

The values/principles of ubuntu and the constitutional values are infused in the various
aspects in the module content. However, these values are subtle, underlying values
and generally not in itself a course of redress.

Examples of how the values of ubuntu are imbued in the law regulating different South
African businesses:

• It is a rule in all business enterprises that the chosen name should not be
offensive, racist or impinge negatively on any individual/legal person’s right to
dignity.

• The values of ubuntu must inform the manner in which corporate decisions are
taken by directors. Proper, constructive dialogue requires the infusion of the
culture of ubuntu to promote social cohesion (Mpofu paras 62, 64 and 66).

• One of the purposes of the Companies Act is to promote compliance with the Bill
of Rights in the application of company law. The Bill of Rights is contained in
Chapter 2 of the Constitution (section 7 (a)). It enshrines the rights of all people
and affirms the fundamental democratic values of human dignity, equality and
freedom. In addition, it regulates the relationship between economic citizens and
thus may have fundamental implications for company law.

• The Companies Act also aims to “continue to provide for the creation and use of
companies in a manner that enhances the economic welfare of South Africa as a
partner within the global economy’" (section 7 (e)).

• Directors in performing their functions in companies, must consider the interests

of other stakeholders such as the community and the environment in which the
company that they serve, functions.

• Directors of companies can be removed by means of an ordinary resolution – this

is despite any agreement that may have been concluded to the contrary and
no special resolution is required (section 71 of the Companies Act). This
may appear drastic. However, the law requires that before any such action may
be taken, certain requirements should be met to ensure ubuntu and fairness.
Certain procedural requirements must be adhered to before a removal can be
lawfully affected.

• The Companies Act also provides protection for minority shareholders. This
demonstrates the element of ubuntu and requires parties to be fair to one another.

• Principles of majoritarianism feature strongly throughout the legislation. Notably,

collectivity or solidarity is also an element of ubuntu.

• The Companies Act provides for a system of informal dispute resolution before the
Takeover Regulation Panel where appropriate, or other accredited forums. This is
similar to the African practice where a dispute is referred to a ’Kgoro’ which
will attempt to resolve the matter. During this process, the audi alteram
partem-principle is applied.

• Ubuntu is also evident in light of the fact that humanness is promoted in that
agreements must be respected and honoured by the parties to the contract. This
is evident in distinct types of contracts: partnership agreements, contracts
concluded for the formation of trusts, shareholders agreements, the Memorandum
of Incorporation which is the constitutive document of a company, and association
agreements in close corporations. Fairness also plays a significant role in the
interpretation of shareholders’ agreements.

• The disclosure requirements in the Companies Act reflect the value of

 transparency of ubuntu. This is also reflected in the proposals of the second
amendment Bill. The Bill proposes that a remuneration report be presented
annually to shareholders, containing among others, improved disclosure
requirements for senior company officials as well as the remuneration ratios
between the top earners of a company and the bottom earners.

• The principle of transparency which is imbued in the requirement that directors

must disclose any financial interest that they have in any transaction affecting
the company that they serve is part of the common law and statutory duties
of directors.

• The law attaches certain consequences to misconduct committed in

different business enterprises. This reflects an element of ubuntu and fairness
and supports the principle that ‘one reaps what one sows’. It clearly discourages
conduct which would be to the detriment of outsiders and participants in the
business. Although companies are recognised as separate legal persons, it is
possible to disregard the juristic personality of a company to hold individuals
inside the company liable in certain circumstances (section 20(9) of the
Companies Act). Members of close corporations can also be held personally
liable if their conduct constitutes an ‘unconscionable abuse’ of the close
corporation’s separate juristic personality (section 65 of the Close Corporations
Act).

• The remedies provided for in the Companies Act also reflect a focus on restorative
restitution rather than t h e imposition of criminal sanctions. This is also reflected
in the amendment bill to be promulgated imminently.

• The result of apartheid was that almost all South African firms were owned
and run by whites. In 1995, it was estimated that less than one per cent of the
market value of the Johannesburg Stock Exchange Limited was owned by
black people. Since the introduction of the Broad-based Black Economic
Empowerment Act 53 of 2003 to address the level of black ownership in the
country, this figure has increased to above 23% (http://
www.fin24.com/BizNews/UPDATED-JSE-says-Blacks-own-at-least-23-of- SA-
equities-not-3-Mr-Zuma-20150223).

• As a strategic attempt to curb corruption, the Protected Disclosures Act 26 of 2000

was enacted. This piece of legislation provides protection in all types of business.
On top of that, section 159 of the Companies Act has introduced protection
against civil, criminal, or administrative liability for making a disclosure or
‘blowing the whistle’ on corruption or illegal conduct in a company.

• Different persons are involved and affected by the commencement of the business
rescue. One of the purposes of the Companies Act is to provide for the efficient
rescue and recovery of financially distressed companies in a manner that
balances the rights and interest of all relevant stakeholders (section 7(k) of the
Companies Act). Business rescue proceedings recognise, among others, the
interests of employees. This is the first time that stakeholders, other than the
shareholder and company creditors, have received direct protection in the
Companies Act.

3.2 Constitutional interpretation and development of the common law

Constitutional values play a vital role in how the court interprets and applies the
legislation and develops the common law. The guidelines for proper interpretation that
have been provided by the Constitutional Court dictate that when a section of the
legislation is capable of more than one construct - one being more restrictive and the other
providing for a wider net of protection - the broader construct be preferred, particularly i f
a constitutional right is at stake. One of the golden rules of i nterpretation dictate that the
section of the legislation should be i nterpreted i n the context of the purpose of the legislation
(See Investigating Directorate: Serious Economic Offences & others v Hyundai Motor
Distributors (Pty) Ltd and others; In Re Hyundai Motor Distributors (Pty) Ltd & others v Smit
NO and others 2001 (1) SA 545 (CC) paras 23 - 24; NEHAWU v University of Cape Town
2003 (2) BCLR 154 (CC) par 14; Carmichele v Minister of Safety and Security and another
(Centre for Applied Legal Studies Intervening) 2001 (4) SA 938 (CC) para 33).

This entails consideration of policy underlying the legislation and taking cognisance of
the purpose of the particular section in context of the legislation, i.e., where it is placed in
the legislation. Conceivably, jurisdictional context is also important: the economic and
social aspects that are unique to the country in which it operates. In the South
African context, it is likely that restitutive practices of employment equity and broad-
based black economic empowerment would be considered, for instance in a scenario where
the court is required to evaluate whether the board of directors should be held
liable for their actions in certain instances.

The court has a duty to develop the common law so that the law keeps up and remains
appropriate t o a d d r e s s t h e c h a n g i n g needs of the community it serves. Section
39 of the Constitution determines that the court must, when developing common law
principles, promote the spirit, purport, and objects of the Bill of Rights. Our common law has
evolved through centuries of feudalism, colonialism, discrimination, sexism, exploitation,
and apartheid. In Everfresh Market Virginia (Pty) Ltd v Shoprite Checkers (Pty) Ltd
2012 (1) SA 256 (CC) the highest court considered whether the common law should be
developed to require that parties to a contract should be legally required to contract with
each other in good faith and on reasonable terms. Shoprite argued that good faith is
too vague a concept and should not be enforceable (para 22). The court disagreed. The
court noted that the development of our economy and contract law has predominantly
been shaped by colonial legal tradition represented by English law, Roman law, and Roman
Dutch law. The common law of contract regulates the environment within which trade and
commerce take place. Its development must c o n s i d e r the values of the vast
majority of people who can, after democratisation of the country, participate in trade
and commerce. The approach followed by the majority of South Africans places a higher
value on negotiating in good faith than would have prevailed under colonial legal
tradition (para 24). The adaptation of the common law by infusion of constitutional values is
what is meant by transformative constitutionalism.
Although one may be tempted to, on that basis, exclude from the curriculum, any
legislation or case law pre-dating the democratisation of the Republic of South Africa.
However, the court recently in Mighty Solutions t/a Orlando Service Station v Engen
Petroleum Ltd and another 2016 (1) SA 621 (CC) cautioned that precedents from the pre-
democratic era can still provide important guidance and the age of the common law
is not conclusive in deciding whether a reason exists to change the common law. Lessons
learned from human experience are timeless and have passed the logical and moral tests
of time. In deciding whether the common law must be developed, the court must in each case
determine whether the common law fails to give effect to the section 39(2) objectives, and
if so, the court must decide what development would appropriately address the
shortcomings (Everfresh Market Virginia (Pty) Ltd v Shoprite Checkers (Pty) Ltd para 30).
An example of how courts have developed the common law is discussed in Lesson 2. The
court has recognised in case law that a company has several constitutional rights like a natural
person. Through development of the common law, the courts have clarified that a company
has the following rights:
Right Case
Equality Manong & Associates (Pty) Ltd v City
Manager, City of Cape Town & another
Reputation, a good name, and honour Dhlomo v Natal Newspapers (Pty) Ltd
Privacy Financial Mail (Pty) Ltd v Sage Holdings Ltd
Identity University of Pretoria v Tommie Meyer Films

3.3 Corporate social responsibility

Corporate governance is the system used to regulate and oversee corporate conduct
to balance stakeholders’ interests and the interests of others that may be influenced by
the conduct. The aim is to ensure responsible behaviour while ensuring the maximum
level of efficiency and profitability for a company.

Corporate social responsibility seeks to make modern companies responsible

members of the community. The term ‘CSR’ is generally understood to mean integrating
economic, social, and environmental imperatives into the company’s activities while at
the same time addressing shareholder and stakeholder expectations. It is based on the
idea that the modern company has a wide and diverse range of stakeholders, that is,
both business and socio-economic stakeholders. Broadly, corporate social
responsibility means that businesses have a responsibility towards the societies in
which they operate, and that this responsibility needs to be managed. It refers to the
involvement of companies in social projects that help to advance the society and the
community in which they operate.

Stakeholders are those who may affect or may be affected by the company’s activities.
So, there is a greater interdependence between companies and their stakeholders.
Examples of company stakeholders include:

• shareholders
• employees, trade unions or other representatives of employees
• communities surrounding the company’s operations and communities from
which the company’s workforce is drawn
• business partners
• national and regional governments
• regulatory bodies
• suppliers
• customers
• non-governmental and community-based organisations
• the public in general
• the environment

CSR is, therefore, a voluntary commitment by companies to manage their role within
society responsibly and to contribute to sustainable development through co-operation
with their stakeholders: in general, to improve the stakeholders’ quality of life. The
concept of CSR, therefore, marks a departure from the traditional and outdated
perception that the only object of business is to increase profits. The focus is now clearly
wider than maximising short-term profits.

3.4 Arguments advanced against CSR

Critics of CSR argue that there is no direct link between the social behaviour of the
company, on one hand, and the company’s competitive advantage and performance,
on the other. They argue that the role of businesses is to generate profits and
that societal issues must be addressed by the State and not by businesses. It has
been argued in this regard that CSR measures tend to be burdensome on businesses.

3.4.1 Arguments advanced in favour of CSR

Proponents of CSR argue that CSR may benefit companies in a number of

ways, including the following:

• CSR may improve the company’s capability to generate sustainable value

through mutually beneficial relationships with their stakeholders. Various
stakeholders such as community groups, regulators and purchasing bodies will
potentially favour socially responsible companies with business opportunities
and this may enhance the profit potential of such companies.

• Socially responsible companies may benefit from preferential procurement and

government cooperation in terms of the Broad-Based Black Economic
Empowerment policies in South Africa.

• CSR may enhance the company’s reputation and differentiate it from its
competitors. A good reputation is an asset for a company. With the advent of
social media, a company’s reputation may be instantly advanced and promoted
if it engages in corporate social responsibility.

• A company with a good social record, and which treats its employees with
dignity, is likely to attract, motivate and retain a productive, stable, and loyal
workforce.

• Increasing employee satisfaction leads to better performance by employees and

this will assist the company to increase production, quality, reliability, and profits.

Ultimately, it is essential that companies should continue to make profit and to operate
in an economically competitive manner, but they must do so in a socially responsible
manner.

3.4.2 How CSR is reflected in the Companies Act

CSR is illustrated in certain sections of the Companies Act as well as in the objectives
of the corporate law reform process that preceded the passing of the Companies Act.
Some examples are:

• The extensive corporate law reform process which culminated in the passing of
the Companies Act recognised the need for South African company law to be
sensitive (amongst other things) to social and ethical concerns.

• One of the purposes of the Companies Act is to promote the development of the
South African economy by encouraging transparency and high standards of
corporate governance, given the significant role of enterprises within the social
and economic life of the nation (section 7(b)(iii)). This manifests a realisation
that companies play a vital role not only in the economy, but in the social life of
the country as well.

• The Companies Act specifically seeks to reaffirm the concept of the company as
a means of achieving economic and social benefits (section 7(d)).

• The Companies Act seeks to promote the development of companies within all
sectors of the economy, and to encourage active participation in economic
organisation, management, and productivity (section 7(f)).
 • The Companies Act also seeks to encourage the efficient and responsible
management of companies (section 7(j)). Sound management of companies may
enhance corporate performance, lead to creation and retention of jobs and
also helps to prevent corporate conduct which may negatively impact society.
It also prevents corporate collapses due to mismanagement which may also have
dire consequences on society.

• The Companies Act provides for non-profit companies that are incorporated for
social activities, public benefits, cultural activities, or group interests. The
objectives for which non-profit companies may be registered may include, for
example: prevention of and education around HIV and AIDS, assistance of
refugees, protection of the environment, and animal welfare or child welfare
and protection.

• Corporate activities may affect a wide circle of stakeholders. As such, the

Companies Act has extended locus standi to a broad category of stakeholders
(not only company shareholders) to enforce its provisions and to seek redress
where company directors have abused their position, for example, in the context
of the derivative action (section 165) and application to declare a director
delinquent or under probation (section 162). Such stakeholders may include
directors, prescribed officers, trade unions or other representatives of
employees, persons who have been granted leave by the court, a n d the
Commission or Takeover Regulation panel. Moreover, any person who
contravenes any provision of the Companies Act is liable to any other
person for any loss or damage suffered by that person as a result of the
contravention (section 218(2)).

• The Companies Act requires certain categories of companies to appoint a Social

and Ethics Committee to monitor the company’s activities with regard to matters
relating to social and economic development (includes the company’s
standing in terms of the goals and purposes of the ten principles set out in the
United Nations Global Compact Principles; the OECD recommendations
regarding corruption, the Employment Equity Act; and the Broad-Based Black
Economic Empowerment Act), good corporate citizenship (includes the
company’s promotion of equality, prevention of unfair discrimination, reduction
of corruption, contribution to development of the communities in which the
company’s activities are predominantly conducted or its products or services are
marketed; and recording of sponsorship, donations and charitable giving), the
environment, health and public safety, consumer relationships, and
labour and employment issues (section 72 and Regulation 43).

The following companies are required by the Companies Regulations to

appoint a Social and Ethics Committee:

• Every state-owned company

• Every listed public company

• Any other company that has had a public interest score above 500 points
in any two of the previous five years.

Note that CSR is also reflected in the King IV report, which emphasises the importance
of stakeholder interests.
3.5 Globalisation

Globalisation refers to the integration of nations through the flow of goods, information,
services, and capital. It is a process by which businesses develop international
influence. The various business enterprises covered in this module are global in many
ways. For example, the businesses enterprises may raise capital both domestically and
internationally, the membership of the enterprises may be both local and international;
there are some foreign businesses that are operating in South Africa, some South
African businesses have operations in foreign jurisdictions, and some of the big listed
public companies in South Africa are also listed on the stock exchanges of other
countries.

The law reform process that led to the passing of the Companies Act emphasised the
following characteristics of the modern corporate world:
• There is increased globalisation.
• There is increased electronic communication.
• There is increased sensitivity to social concerns, corporate governance, and
ethical concerns.
• The markets are rapidly evolving.
• There is greater competition for capital, goods, and services.
• There is an increase in international trade, foreign investment, and
mobility of international capital.

In light of the above factors, it is necessary for South Africa’s company law to be investor
friendly and to be in harmony with the trends in the leading modern jurisdictions. South
African company law, therefore, recognises globalisation in the following ways:

• One of the purposes of the Companies Act is to provide for the creation and use
of companies, in a manner that enhances the economic welfare of South Africa
as a partner within the global economy (section 7(e)). This manifests a
realisation that South Africa is one of the participants in the wider global
economy. The harmonisation of South Africa’s corporate laws with the laws of
other countries is, therefore, essential.

• The courts are allowed to consider foreign company law (to the extent that it is
appropriate) when interpreting and applying the provisions of the Companies Act
(section 5(2)).
• The effects of decisions by English courts may be seen in a number of common
law principles and statutory provisions, for example, Salomon v Salomon, Royal
British Bank v Turquand, Attorney-General v Mersey Railway Company and
Regal Hastings Ltd v Gulliver (see, for example, the statutory version of the
Turquand rule in section 20(7) of the Companies Act as well as the common
law and partially codified duties of company directors).

• The influence of corporate laws of other modern jurisdictions such as the

United States of America, United Kingdom, New Zealand, Canada, and Australia
may be seen in a number of concepts, for example: the appraisal remedy (section
164); an objective duty of care, skill and diligence (section 76(3)(c)). Note that this
test has some subjective elements; the business judgment rule (section 76(4));
and the statutory derivative action in terms of the Companies Act (section 165).

• The provisions relating to the appointment of proxies (section 58) and

electronic communication at shareholder meetings (section 63(2)) are a
manifestation of greater sensitivity to globalisation.
 • The Companies Act provides for the registration of domesticated companies and
external companies (section 13(5) to (11) and section 23).

• The Companies Act seeks to provide for increased standards of corporate

governance, shareholder- and investor protection (section 7). The purpose is to
encourage both local and foreign investment t o stimulate economic growth in
South Africa.

3.6 Entrepreneurial law and the South African legal system

In addition to the common law, the important pieces of legislation that regulate the
business enterprises covered in this module are the Companies Act 71 of 2008 as
amended, Close Corporations Act 69 of 1984 and the Trust Property Control Act 57 of
1988. There are, however, important sections of other pieces of legislation that are
referred to in this module which (although not being the main pieces of legislation
dealing with these enterprises) impact these business enterprises, for example,
the Insolvency Act 24 of 1936, the Income Tax Act 58 of 1962, the Magistrates Courts
Act 32 of 1944 and the Uniform Rules of the High Court. The other important pieces
of legislation that may have an impact on companies include the Promotion of
Access to Information Act 2 of 2000, t h e Competition Act 89 of 1998, the
Labour Relations Act 66 of 1995, t h e Employment Equity Act 55 of 1998, t h e
Broad- Based Black Economic Empowerment 53 of 2003, and environmental legislation.
The legislative framework is to be viewed in the context of the Constitution of the
Republic of South Africa, 1996. For example, one of the purposes of the
Companies Act (which is the main piece of legislation governing South African
company law) is to promote compliance with the Bill of Rights in the Constitution,
in the application of company law.

3.7 Reflection

In this lesson, we have provided some insight into how the law applicable to different
South African business forms have been affected by, and is susceptible to
Africanisation, transformative constitutionalism, and globalisation. At first glance, one
would think that law that is for the most part contained in legislation and subject to
capitalistic values would not reflect values of ubuntu. However, the Constitution has
had a major effect in this area of law, not only because of the constitutional principles
that are applicable to business forms directly, but also because courts must take
cognizance of the underlying constitutional values when interpreting legislation and
when developing the common law. This is evident from the several examples
mentioned, and others that you will discover during the course of the module. In the next
lesson, we introduce the first type of business, namely companies.

Reflect on the way in which African values comprise the concept of ubuntu. Would you
be able to argue convincingly for or against adopting a specific corporate social
responsibility project in a company based on the principles of ubuntu and the
constitutional principles?