STUDY UNIT 1

The impact of the constitution and globalisation on

company law

Table of contents
1.1 Introduction
1.2 The importance of the infusion of African leadership philosophies and
constitutional values
1.2.1 Constitutional principles or values
1.2.2 Constitutional interpretation and development of the common law
1.2.3 Corporate social responsibility (‘CSR’)
1.2.3.1 Arguments advanced against CSR
1.2.3.2 Arguments advanced in favour of CSR
1.2.3.3 How CSR is reflected in the Companies Act
1.3 Globalisation
1.4 Company law and the South African legal system
1.5 Reflection
1.6 Self-assessment questions

 Prescribed study material

o Textbook: paras 5.1, 5.4.2, 6.1, 11.5, 11.9.3, 12.12, 12.18.3.2, 13.1,
13.4.1.3, 13.4.5, 14.2, 19.1, 19.2.2, 19.2.3 and 20.1.
o Sections 5, 7, 20(9), 58, 63(2), 72, 76, 162, 164, 165 and 218(2) of the
Companies Act.
o Sections 8, 9, 10 and 39(2) of the Constitution of the Republic of
South Africa, 1996.
o Case law as discussed here and in your prescribed textbook.

1.1 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 comprise the concept of ubuntu. At first glance, company law is a technical,
commercial subject based mainly on statute. However, upon closer scrutiny,
several transformation values are reflected in the module content.

This study unit provides examples to illustrate the importance of constitutional

principles and values in the interpretation and application of the law regulating
companies (i.e. Company Law). The Constitution of the Republic of South
Africa, 1996 (“the Constitution”) and its values that also imbue the values of
ubuntu, play an important 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.

Important terms Meaning

Africanisation Renewing the focus on Africa and ensuring that
teaching is adapted to African values, realities and
conditions
Constitutional values or Human rights based on democratic values and
principles social justice
Corporate social A business approach that contributes to
responsibility 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 and be heard before
a court
Organisation for A group of 34 democratic member countries
Economic Co-operation supporting free-market economies that discuss
and Development and develop economic and social policy
(OECD)
Stakeholders Persons who can affect or may be affected by the
actions, objectives and policies of a business,
including creditors, directors, employees,
government (and its agencies), shareholders,
suppliers, unions, and the community from which
the business draws its resources
Transformative A long-term project of constitutional enactment,
constitutionalism interpretation and enforcement to transform the
country’s political, legal and social institutions and
power relations in a democratic way

You will know that you have understood this study unit if you are able to answer
the following key questions:

• What African values make up the concept of ubuntu?

• Is it possible to enforce the principles of ubuntu and the constitutional
principles in a court of law? Explain why/why not.
• Name three cases in which the court has applied principles of ubuntu.
• What does “Africanisation” mean?
• What does the audi alteram partem rule entail?
• What is meant by transformative constitutionalism?
• What constitutional principles are important for the purposes of South
African businesses?
• Give examples of how the court has developed the common law to serve
the community.
• Explain the test that the court uses to determine whether it is necessary
 to develop the common law.
• What does corporate social responsibility entail?
• How is corporate social responsibility reflected in the Companies Act?
• Which stakeholders are recognised as being affected by corporate
behaviour underlying the concept of corporate social responsibility?
• In what ways would corporate social responsibility be potentially
beneficial to companies?
• 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 which ways does the Companies Act recognise globalisation?

1.2 The importance of infusing African leadership

philosophies and constitutional values
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 on accommodating 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 ubuntu as a concept. A
more horizontal approach is proposed, where not all decisions are made from
the top. Ubuntu means people are people through others. It is an underlying
concept of Africanism, comprising a set of values that find expression in the
Zulu saying umuntu ngumuntu ngabantu, which means that 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), para 38, Harms JA describes ubuntu as a
relationship of mutual respect. In similar vein, in 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 give
reasons for administrative decisions.

The second report issued by the Institute of Directors in Southern 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).

In 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 the leadership
qualities of directors. The court held that the Constitution recognises the
importance of sound governance, 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 that a high standard of professional ethics 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 Others 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 (CC):

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 originated 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, which
ultimately dictates that one must be fair in all one’s relationships, which includes
being quick to listen compassionately to other people’s stories and slow to pass
judgement.
In summary, the values of ubuntu are embodied in several elements that apply
in business, namely

• the ability to show compassion

• a quest for social justice and fairness
• striving for harmony and humanity
• a recognition of the interconnectedness of people and the accompanying
responsibilities
• integrity and ethical behaviour
• open channels of communication and transparency
• due process and sensitivity in dealings with others.

Please note: Other, similar values also form part of the concept of ubuntu. The
above is not an exhaustive list.

1.2.1 Constitutional principles or values

Section 8(2) of the Constitution provides that the Bill of Rights binds a natural
or a juristic person (e.g., a company or close corporation) if, and to the extent
that, it is applicable, taking into account the nature of the right and the nature of
any duty imposed by the right. When applying a provision of the Bill of Rights
to a natural or juristic person, in order 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 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: human dignity; the achievement of equality and the
advancement of human rights and freedoms. (s 1)

Ubuntu underlies the building of our constitutional democracy and developing

African leadership values to be applied in companies. The values or principles
of ubuntu and the constitutional values are infused in the various aspects in the
module content. However, these are subtle underlying values which are
generally not in themselves a course of redress.

Examples of how the values of ubuntu are imbued in the laws regulating
different South African businesses are set out below:

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

• The values of ubuntu must inform the way that directors take corporate
 decisions. 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 (s 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” (s 7 (e)).

• In performing their functions in companies, directors must consider the

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

• Directors of companies can be removed by means of an ordinary

resolution. This, despite any agreement that may have been concluded
to the contrary, and no special resolution is required (s 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 effected.

• 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, collectivism or solidarity is also an element of ubuntu.

• The Companies Act provides for a system of informal dispute resolution

before the Companies and Intellectual Property Commission (“the CIPC”
or the “Commission”), the Takeover Regulation Panel (where
appropriate) and other accredited forums. This is similar to the African
practice where a dispute is referred to a kgoro that 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 humanity is promoted, in

that agreements must be respected and honoured by those who
concluded them. This is evident in various types of contracts: partnership
agreements, contracts concluded for the formation of trusts,
shareholders' agreements, the Memorandum of Incorporation (MoI – the
constitutive document of a company), and association agreements in
close corporations. Fairness also plays an important role in the
 interpretation of shareholders’ agreements.

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

transparency of ubuntu.

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

must disclose any financial interest that they have in any transaction
affecting the company they serve.

• 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
stakeholders in the business. Although companies are recognised as
separate legal persons, it is possible in certain circumstances to
disregard the juristic personality of a company, to hold individuals inside
the company liable (s 20(9) of the Companies Act).

• The remedies provided for in the Companies Act also reflect that, rather
than imposing criminal sanctions, restorative restitution is promoted.

• 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. Additionally, 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 in and affected by the commencement of

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 interests of all relevant
stakeholders (s 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 under the Companies
Act.

Having read the information contained in the paragraphs above, now do activity
1.1:

Activity 1.1

With reference to case law, discuss how the South African courts have
articulated and applied the principles of ubuntu.
Feedback

Refer to paragraph 2 above, which deals with the importance of infusing African
leadership philosophies and constitutional values. You will see how these have
described and applied ubuntu in the South African context.

1.2.2 Constitutional interpretation and development of the common

law

Constitutional values play an important role in how the court interprets and
applies legislation and develops the common law. The guidelines for proper
interpretation, 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 if a constitutional right is at stake (see S v
Makwanyane & another 1995 (3) SA 391 (CC) para 9, S v Zuma 1995 (2) SA
642 (CC) para 17, S v Mhlungu 1995 (3) SA 867 paras 7–9). One of the golden
rules of interpretation is that the section should be interpreted in context (see
Investigating Directorate: Serious Economic Offences & others v Hyundai Motor
Distributors (Pty) Ltd & others; In Re Hyundai Motor Distributors (Pty) Ltd &
others v Smit NO & others 2001 (1) SA 545 (CC), paras 23–24; NEHAWU v
University of Cape Town 2003 (2) BCLR 154 (CC), para 14; Carmichele v
Minister of Safety and Security & another (Centre for Applied Legal Studies
Intervening) 2001 (4) SA 938 (CC), para 33). This requires consideration of the
policy underlying the legislation, and taking cognisance of the purpose of the
particular section in the context of the legislation, that is, where it is placed in
the legislation. Conceivably, the 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 (B-BBEE) would be
considered, for instance in a scenario where the court is required to evaluate
whether or not the board of directors should be held liable for its actions in
certain instances.

The court has a duty to develop the common law so that the law keeps up and
remains suitable as the needs of the community it aims to serve, change.
Section 39 of the Constitution determines that the court must, when
developing the common law, 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
determine 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 (par 22). The court
disagreed, noting 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 take into account the values of the vast majority of people
who, after democratisation of the country, can 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 (par 24). Transformative constitutionalism therefore
pertains to the adaptation of the common law through the infusion of
constitutional values.

Although one may be tempted to – on that basis alone – exclude from the
curriculum any legislation promulgated or cases decided before the
democratisation of the Republic of South Africa, the court recently in Mighty
Solutions t/a Orlando Service Station v Engen Petroleum Ltd & another 2016
(1) SA 621 (CC) cautioned that precedents from the pre-democratic era can still
provide important guidance, and that 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).

The courts have recognised in case law that a company, like a natural person,
has several constitutional rights. 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 2011 (2) SA 90 (SCA)
Reputation, a good Dhlomo v Natal Newspapers (Pty) Ltd 1989 (1) SA 495
name and honour (A)
Privacy Financial Mail (Pty) Ltd v Sage Holdings Ltd 1993 (2)
SA 451 (A)
Identity Financial Mail (Pty) Ltd v Sage Holdings Ltd 1993 (2)
SA 451 (A)

1.2.3 Corporate social responsibility

Corporate governance is the system used to regulate and oversee corporate

conduct, with a view to balancing stakeholders’ interests and the interests of
others that may be influenced by the conduct, in order to ensure responsible
behaviour while also 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 refer to
the integration of economic, social and environmental imperatives into the
company’s activities, while at the same time addressing shareholder and
stakeholder expectations. It is premised on the idea that the modern company
has a wide and diverse range of stakeholders (i.e., both business and
socioeconomic stakeholders).

Broadly, CSR means 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 be affected by the company’s

activities. There is therefore a marked 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, while contributing to sustainable development
through cooperation 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 objective of business
is to increase profits. The focus is now clearly wider than maximising short-term
profits.

1.2.3.1 Arguments advanced against CSR

Critics of CSR argue that there is no direct link between the social behaviour of
the company on the one hand, and the company’s competitive advantage and
performance on the other. They argue that since the role of businesses is to
generate profits, societal issues must be addressed by the state – not by
businesses. Some argue that CSR measures tend to be burdensome on
businesses.

1.2.3.2 Arguments advanced in favour of CSR

Proponents of CSR argue that it 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 (e.g., 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 B-BBEE
policies in South Africa.

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

• 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 help the company to increase production,
improve quality, strengthen reliability and boost profits.

Ultimately, it is essential that companies continue to make profit and operate

in an economically competitive manner, but they must do so in a socially
responsible manner.

1.2.3.3 How CSR is reflected in the Companies Act

CSR is illustrated in a number of 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 of these ways are as follows:

• 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 (among 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 (s 7(b)(iii)). This manifests in a realisation that companies play a
vital role not only in the economy, but also in the social life of the country.

• The Companies Act specifically seeks to reaffirm the concept of the

company as a means of achieving economic and social benefits (s 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 (s 7(f)).

• The Companies Act also seeks to encourage the efficient and

responsible management of companies (s 7(j)). Such sound
management may enhance corporate performance, lead to the creation
and retention of jobs, and also help to prevent corporate collapses due
to mismanagement, which may have dire consequences for society.

• The Companies Act provides for non-profit companies that are

incorporated for social activities, public benefits, cultural activities or
group interests. The objectives in registering non-profit companies
include prevention and education about HIV and Aids, assistance to
refugees, protection of the environment and animal welfare, and child
welfare and protection.

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

the Companies Act has extended locus standi in respect of a broad
category of stakeholders (not only company shareholders) to enforce its
provisions and seek redress where company directors have abused their
position, for example, in the context of the derivative action (s 165), and
applications to declare a director delinquent or under probation (s 162).
Such stakeholders may include directors, prescribed officers, trade
unions or other representatives of employees, persons who have been
granted leave by the court, the Commission or the Takeover Regulation
panel. Moreover, any person who contravenes any provision of the
Companies Act of 2008 is liable to any other person for any loss or
damage suffered by that person as a result of the contravention (s
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 (which
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 (which includes the
company’s promotion of equality, prevention of unfair discrimination;
reduction of corruption; contribution to the 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 (s 72 and Regulation 43).

The following companies are required by the Companies Act 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 King IV, which emphasises the importance of
stakeholder interests.

Now do activity 1.2 to ensure that you understood the principle of CSR and the
way in which this principle is infused in the Companies Act.

Activity 1.2

What does the principle of CSR entail, and to what extent is this principle
reflected in the Companies Act?

Feedback

Study paragraph 2.3 above, which deals with CSR. You should be able to
provide a comprehensive definition of CSR in your own words, to show that you
have understood the principle. Refer to paragraph 2.3.3 for examples of how
the principle of CSR has been infused in the Companies Act.

1.3 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, business enterprises may raise capital
both domestically and internationally; the membership of the enterprises may
be both local and international; some foreign businesses operate in South
Africa, while 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
• 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, it is necessary for company law in South Africa to be

investor friendly, and to be harmonised with the trend in 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 (s 7(e)). This
manifests in 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
appropriate) when interpreting and applying the provisions of the
Companies Act (s 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 [1897] AC 22 (HL), Royal British Bank v Turquand (1856) 6
E & B 327; 119 ER 886, Attorney-General v Mersey Railway Co [1907]
1 Ch 81 (HL) and Regal Hastings Ltd v Gulliver [1942] 1 All ER 378;
[1967] 2 AC 134 (HL) (see, e.g., the statutory version of the Turquand
rule in section 20(7) of the Companies Act, as well as the common-law
and codified duties of company directors).

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

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

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

electronic communication at shareholders’ meetings (s 63(2)) are a
manifestation of greater sensitivities to globalisation.

• The Companies Act provides for the registration of domesticated

companies and external companies.

• The Companies Act seeks to provide for increased standards of

corporate governance, shareholder and investor protection (s 7). The
purpose is to encourage both local and foreign investment, in order to
stimulate economic growth in South Africa.

1.4 Company law and the South African legal system

Several pieces of legislation affect the regulation of companies and may have
an impact on companies, such as 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 Promotion of Access to Information Act 2 of 2000,
the Competition Act 89 of 1998, the Employment Equity Act 55 of 1998, the
Broad-Based Black Economic Empowerment Act 53 of 2003, and various
pieces of 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 is to promote compliance
with the Bill of Rights in the Constitution, in the application of company law.

1.5 Reflection
In this learning unit, we provided insight into how the law applicable to
companies has been affected by, and is susceptible to, Africanisation,
transformative constitutionalism and globalisation. At first glance, one would
think that law – which is for the most part contained in legislation and subject to
capitalistic values – would not reflect the values of ubuntu. However, the
Constitution has had a significant effect in this area of law, not only because of
the constitutional principles that are applicable to companies directly, but also
because courts must take cognisance of the underlying constitutional values
when interpreting legislation and developing the common law.

1.6 Self-assessment questions

Now that you have read the information contained in this study unit, answer
the following self-assessment questions and complete the activities:

• Discuss the role of constitutional values in the judicial interpretation of

legislation and the development of the common law.

• To what extent has the Companies Act infused the values of ubuntu in
its provisions?

• Critically discuss the application of constitutional rights to companies in

South Africa.

• Access the internet and/or the annual reports of any public listed
companies, and search for the various activities by companies that
would constitute CSR in South Africa. Examine the advantages that
each of the CSR activities you identified, may present to a company and
its stakeholders, as well as the potentially negative impacts that each of
these activities may have on a company and its shareholders.