Chapter 1 - The impact of the Constitution and Globalisation on Entrepreneurial Law

Question 1

What African values comprise the concept of ubuntu?

Answer 1

Ubuntu comprises a set of values that find expression in the Zulu saying “umuntu ngumuntu nga bantu,” 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. The values of Ubuntu are embodied in the following elements that apply in business: 1. The ability to show compassion; 2. Social Justice 3. Harmony and humanity 4. Recognizing the interconnectedness of people and the accompanying responsibilities 5. Integrity and ethical behaviour 6. Open channels of communications and transparency 7. Due process and sensitivity in dealing with one another.

Question 2

What is meant by transformative constitutionalism?

Answer 2

The adaptation of the common law by infusion of constitutional values.

Question 3

What constitutional principles are important for the purposes of South African business?

Answer 3

The Constitution provides that the Bill of rights binds a natural or juristic person (like a company or close corporation)

Question 4

What does Africanisation mean?

Answer 4

Renewing the focus on Africa and ensuring that teaching is adapted to African values, realities and conditions

Question 5

Which stakeholders are recognised as being affected by corporate behaviour underlying the concept of corporate social responsibility?

Answer 5

1. Shareholders
2. Employees, trade unions, and other representatives of employees.
3. Communities surrounding the company’s operations and the communities from which its workforce is drawn.
4. Business partners
5. National and regional governments
6. Regulatory bodies
7. Suppliers
8. Customers
9. Non-government and community-based organizations
10. The public in general
11. The environment

Question 6

In what ways would the concept of corporate social responsibility be potentially beneficial to companies?

Answer 6

1. CSR may improve the company’s capability to generate sustainable value through mutually beneficial relationships with their stake holders.
2. Socially responsible companies may benefit from preferential procurement and government cooperation in terms of the BBBEEE policies in SA.
3. CSR may enhance the company’s reputation and differentiate it from its competitors.
4. A company with a good social record, and which treats its employees with dignity, is likely to attract , motivate and retain a productive workforce.
5. Increasing employee satisfaction leads to better performance by employees, and this will assist the company in increasing production, quality , reliability, and profits.

Question 7

How is CSR reflected in the Companies Act?

Answer 7

1. The extensive corporate law reform process that culminated in the passing of the Companies Act recognized the need for SA company law to be sensitive to social and ethical concerns.
2. Promote the development of the South African economy by encouraging transparency and high standards of corporate governance.
3. Seeks to reaffirm the concept of the company as a means of achieving economic and social benefits.
4. Seeks to promote the development of companies within all sectors of the economy.
5. Seeks to encourage the efficient and responsible management of companies.
6. Provides for non-profit companies that are incorporated for social activities, public benefits, cultural activities, or group interests.
7. Extends locus standi to a broad category of stakeholders to enforce its provisions and seek redress where company directors have abused the position.
8. 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.

Question 8

Which companies are required to appoint a Social and Ethics Committee?

Answer 8

These companies include every SOC’s, listed public companies, and companies with a public interest score above 500 points in any of the two previous 5 years.

Question 9

What are the functions of the Social and Ethics Committee?

Answer 9

To monitor the company’s activities with regard to matters relating to social and economic activities.

Question 10

What is Globalisation?

Answer 10

Globalisation refers to the integration of nations through the flow of goods, information, services, and capital. It is a process by which businesses develop internationally.

Question 11

What are the characteristics of the modern corporate world?

Answer 11

1. There is increased globalisation.
2. There is increased electronic communication.
3. There is increased sensitivity to social concerns, corporate governance, and ethical concerns.
4. The markets are rapidly evolving.
5. There is greater competition for capital, goods and services
6. There is an increase in international trade, foreign investment and the mobility of international capital.

Question 12

In what ways may the various business enterprises in SA be regarded as being global?

Answer 12

1. Business enterprises may raise capital both locally and internationally
2. The membership of the enterprises may be both local and international.
3. There are some foreign businesses that are operating in South Africa.
4. Some SA businesses have operations in foreign jurisdictions.
5. Some of the big listed public companies in SA are also listed on the stock exchanges of other countries.

Question 13

In what ways does the Companies Act recognise globalisation

Answer 13

1. Provide for the creation and use of companies, in manner that enhances the economic welfare of SA as a partner within the global economy.
2. The courts are allowed to consider foreign law.
3. The effects of decisions by English courts may be seen in a number of common law principles and statutory provisions.
4. The influence of corporate laws of other modern jurisdictions such as the USA, UK, NZ, Canada and Australia may be seen in a number of concepts.
5. The provisions of relating to the appointment of proxies and electronic communication at shareholders meetings are a manifestation of greater sensitivities to globalisation.
6. Provides for the registration of domesticated companies and external companies.
7. Seeks to provide for increased standards of corporate governance, shareholder and investor protection and the purpose is to encourage both local and foreign investment in order to simulate economic growth in SA.

Question 14

What does audi alteram partem rule entail?

Answer 14

This rule entails that before any judicial functionary takes a decision on a matter, both sides of the story must be heard.

Question 15

Name three cases in which the court has applied the principles of Ubuntu?

Answer 15

1. S v Makwanyane 1995 (6) BCLR 665 (CC)
2. Pharmaceutical Society and Others v Tshabalala-Msimang and Another NNO
3. New Clicks South Africa (Pty) Ltd V Minister of Health and Another 2005 3 SA 238 (SCA)

Question 16

Provide examples of how the law relating to different business forms is imbued by values underlying the Ubunutu concept.

Answer 16

1. Business enterprises should not choose names that are offensive, racist, or impinge negatively on any individual’s right to dignity.
2. Corporate decisions taken by directors must align with the values of Ubuntu.
3. The Companies Act promotes compliance with the Bill of Rights in the application of company law.
4. The Companies Act aims to continue to provide for the creation and use of companies in a manner that enhances the welfare of South Africa as a partner within the global economy.
5. Directors, in performing their functions, must consider other stakeholders, such as the community and the environment in which the company operates.
6. Directors can be removed by ordinary resolution.
7. The Companies Act provides protection to minority shareholders.
8. Principles of majoritarianism feature strongly thought-out legislation.
9. The Companies Act provides for a system of informal dispute resolution.
10. Ubuntu is also evident in light of the fact that humanity is promoted in agreements and must be honored and respected.
11. The disclosure requirements in the Companies Act reflect the value of transparency for Ubuntu.
12. Transparency is imbued with the requirement that directors disclose any financial interests they might have in any transaction affecting the company they serve.
13. The law attaches certain consequences to misconduct committed by different business enterprises.
14. The remedies provided for in the Companies Act also reflects restorative restitution, rather than imposing criminal sanctions.
15. Introduction of BBE to address the level of black ownership in the country.
16. Enactment of Protected Disclosures Act 26 of 2000 to protect all types of businesses from corruption.
17. The Companies Act provides for the efficient rescue and recovery of financially distressed companies.

Question 17

What does CSR entail?

Answer 17

CSR is the system used to regulate and oversee corporate conduct to balance stakeholder’s interests and the interests of others that may be influenced by the conduct, in order to ensure responsible behavior while ensuring maximum level of efficiency and profitability for a company.

Question 18

Explain whether it is possible to enforce the principles of Ubuntu and the constitutional principles in a court of law.

Answer 18

Ubuntu underlies the building of our constitutional democracy and the development of African leadership values to be applied in companies, therefore, it is consistent with the constitutional values. The constitutional values play an important role in how the court interprets and applies the legislation, and develops the common law.

Question 19

Mention examples of how the court has developed the common law to adapt to serve the community

Answer 19

An example of how the court has developed the common law is through clarifying that a company has the following rights: equality, reputation, privacy and identity.

Question 20

List the pieces of legislation that have an impact on the various forms of business enterprises in SA

Answer 20

The Companies Act 71 of 2008
Close Corporations Act 69 of 1984

Question 20

Explain the test that is used by the court to determine whether it is necessary to develop common law.

Answer 20

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 objectives of Section 39(2), and if so, the court must decide what development would appropriately address the shortcomings.