A critical analysis of the capacity of South African non-executive directors : a model for best practice in South Africa

Abstract

Abstract: Over the last century, significant events have occurred in commerce that shaped the way in which business is conducted and companies managed. The well-known global scandals of the 21st century reopened the debate about mechanisms of responsibility, accountability and governance in business. Specifically, focus shifted to non-executive directors with an expectation for them to represent the best interest of the stakeholders. Research emphasised that the shareholders and individuals, who are potential investors, look to non-executive directors to restore confidence in a troubled market environment. This is also applicable in the South African context, specifically since the country is in a unique era after introducing majority rule democracy in 1994. South Africa needs strong economic growth to address the imbalance in wealth distribution and alleviate poverty. Economic growth is a prerequisite for political and social stability. A prerequisite for economic growth is improved performance of a strong, healthy and sound business sector. Good business is premised on optimal governance performance of the boards of directors of companies. This study therefore investigates the profile of non-executive directors in South Africa, since the majority of the board of directors is constituted by them. It takes into account the added dimension of BEE policies and the requirements of the King III report on corporate governance. The objective of the study is to develop a model of an ideal non-executive director in South Africa. This was done through a comprehensive literature study of directors and empirical testing at large listed companies in South Africa. The outcome of this study is a model that identifies and quantifies the importance of attributes constituting the ideal non-executive director in South Africa. It also makes recommendations relating to best practice non-executive directorships in South Africa. The findings make a valuable contribution to the existing body of knowledge, since it is the first dedicated analysis of the requirements and attributes of South African non-executive directors. This will allow for a means upon which companies can assess potential candidates for non-executive directorships and identify potential shortcomings of existing non-executive directors, which could be addressed by means of training/orientation programs.

D.Phil. (Auditing)