In May 2012 it became mandatory for every listed public company, state-owned company and any other company that has a public interest in terms of Section 72 and Regulation 43 of the Companies Act, to establish and maintain a Social & Ethics Committee (SEC) in accordance with the recommended practices of King IV. This committee is entrusted to oversee, monitor and report on matters that have the best interests of the company in hand and to ensure that companies conduct their business in a responsible manner as well as contribute to the economic and social development of the communities in which they operate.
“In monitoring and responsibly conducting business in the five areas of social responsibility, the SEC should also take into consideration any relevant legislation and other legal requirements,” states PJ Veldhuizen, dispute resolution specialist and MD of commercial law firm Gillan & Veldhuizen Inc.
King IV clearly stipulates that provision be made for dispute resolution mechanisms and associated processes to be adopted and implemented as part of the overall management of stakeholder relationships. “These relationships are fundamental to the success of organisations,” he adds.
One such dispute resolution mechanism would include those enshrined in the Rules of Court such as Rule 41A which specifies that prior to going into any litigation you need to consider whether mediation is not a more appropriate method of resolving a dispute. Mediation is a voluntary process entered into between two parties who agree to employ an independent, impartial mediator to facilitate discussions and assist in negotiations to resolve any disputes. The introduction of Rule 41A of the Uniform Rules of Court, which makes it a mandatory requirement for litigants to consider mediation before litigation, has freed up the courts and produced significant results and successes in short time frames, and at a fraction of the cost of litigation.
The committee, whose responsibility it is to draw matters within its mandate to the attention of the main board as occasion requires, is obligated to invoke Rule 41A should the company be considering any litigation.
“If it really is a question of ethics, then this would be the ethical thing to do, the responsible thing to do, and in the best interests of the Company, social or otherwise,” says Veldhuizen.
Obviously this would be welcomed by the head of Legal Affairs in these companies as they are always under pressure to contain the spend on litigation and associated costs, he adds.
Companies with effective S&E Committees that uphold the purpose of the committee, employ rule of law and who communicate, mediate and negotiate openly stand to benefit on many fronts and ultimately contribute to the overall sustainability and continued success of the business. These benefits could include greater public trust, improved risk, compliance and ethics management and reporting, along with stronger stakeholder relations and robust, sound corporate governance. “And save a fortune in litigation fees that could be best spent elsewhere,” says Veldhuizen.