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Pitfalls of Shareholder-Centric Corporate Law in an Unequal Society: A South African Perspective

Published online by Cambridge University Press:  06 March 2026

Tebello Thabane  and
Justice Mudzamiri
Tebello Thabane*
Affiliation:
University of Cape Town, South Africa
Justice Mudzamiri
Affiliation:
University of Johannesburg, South Africa
*
Corresponding author: Tebello Thabane; Email: tebello.thabane@uct.ac.za
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Abstract

South Africa is the most unequal society in the world, and this is exacerbated by the enduring legacy of apartheid. Policy and statutory interventions have been introduced to address inequality, albeit with minimal success. This article argues that the persistence of inequality necessitates a more profound normative recalibration within corporate law. It proposes incorporating the values of transformative constitutionalism, distributive justice and Ubuntu into corporate law, conceptualized as transformative corporate law. This reorientation enhances the enlightened shareholder value (ESV) model by shifting its emphasis from a predominantly shareholder-centric focus towards a more inclusive stakeholder model. The article situates shareholder primacy as occupying “the right”, stakeholderism “the left” and the ESV model “the centre” of the corporate governance spectrum. South Africa’s extreme inequality demands a paradigm shift that moves decisively towards the centre-left, a position embedded in the African philosophy of Ubuntu and termed the “progressive ESV” model in this article.

Keywords

enlightened shareholder value (ESV)progressive ESVshareholder-centricequitable subordinationtransformative constitutionalismtransformative corporate lawUbuntu-centred corporate law

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Type
Research Article
Information
Journal of African Law , First View , pp. 1 - 19
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© The Author(s), 2026. Published by Cambridge University Press on behalf of SOAS University of London.

The socio-economic milieu

According to a World Bank Report, South Africa is the most unequal country globally.Footnote 1 Studies indicate that colonialism and apartheid created and exacerbated inequality in the distribution of opportunities, resources and wealth among different racial groups.Footnote 2 To date, black South Africans continue to be underrepresented in the middle class, and race remains one of the strongest predictors of poverty.Footnote 3 As a result, South African policymakers have acknowledged that the Government needs to swiftly eliminate the twin challenges of poverty and inequality by 2030 through the National Development Plan.Footnote 4 Inequality has become more apparent since 1994, when South Africa became a democratic state. Specifically, the evidence shows that the top 10 per cent of the population, predominantly white, hold 71 per cent of the wealth, while the bottom 60 per cent, predominantly black, hold only 7 per cent.Footnote 5

To address this anomaly, the South African Government introduced policies such as broad-based black economic empowerment (BBBEE) to accelerate economic transformation and enhance the participation of the black majority in the economy. The Broad-Based Black Economic Empowerment Act 53 of 2003 (the BBBEE Act)Footnote 6 requires certain companies to engage with the socio-economic and political realities of the country, involving them in the reform process and reconciliation.Footnote 7 The overarching objective of the BBBEE Act is to increase black ownership through either individuals or black-owned entities. Key aspects of black ownership include the voting rights of shareholders, the exercisable voting rights of black board members as a percentage of all board members, economic interests through initiatives such as employee share schemes and net value realization. A loophole in the BBBEE Act is that it only applies to all organs of state, public entities and any entities doing business with the State. Therefore, many listed and private companies that do not conduct business with the State can easily sidestep the BBBEE requirements.

Reports indicate that only 35 per cent of the 400 listed companies disclose their compliance with the BBBEE Act. A legitimate question is whether corporations are appropriate vehicles to advance the broader stakeholder interests of the black population, including employees, the environment and the local community, particularly within the context of an emerging economy. In other words, can companies maintain profitability and global competitiveness while striving for social transformation? The answer to this question largely depends on one’s view of the socio-economic role of the corporation. According to Korten’s exposé titled When Corporations Rule the World, modern corporations wield excessive power and dominate every aspect of society.Footnote 8 Corporations effectively rule the world by controlling the media, shaping narratives, manipulating politics, corrupting democracy and determining society’s economic agenda and direction. In light of this context, we believe it is appropriate for corporations to shoulder some responsibility for transforming society, which, in various ways, they have divided and continue to divide economically and otherwise.

This article subscribes to the “progressive corporate law” school of thought, sometimes called a “socio-economic model of corporate law”. This school of thought primarily argues for more comprehensive and mandatory approaches to corporate law to serve the public interest.Footnote 9 According to Testy, progressive corporate law seeks to promote the equitable distribution of wealth in society rather than the increased concentration of wealth in the hands of the few. Progressive corporate law notes and laments the widening gap between the rich and the poor and recognizes corporate power as a significant tool capable of reversing the problem of systemic inequality in society. Progressive corporate law aims to reduce all types of discrimination, such as those based on race, gender and religion. It also seeks to enhance social democracy and promote environmental justice.Footnote 10

To achieve these aims, we submit that the theoretical foundations and corporate law approaches adopted by South African company law should address the following question: In whose interests must a company operating in an equal society be run? Before the current Companies Act 71 of 2008 (the Act) came into force, both the old Companies Act 46 of 1926Footnote 11 and the old Companies Act of 1973Footnote 12 were predominantly focused on the shareholders.Footnote 13 As will be demonstrated later, the position under the current Companies Act is said to be the “enlightened shareholder value” (ESV) model. The questions that fall for investigation are: What informed the adoption of the ESV model in South Africa? Has the ESV model translated into what we term “transformative corporate law”, which we view as an iteration of the “progressive corporate law” explained above? As we will explain later, transformative corporate law centres corporate law and the governance of companies within the economic transformation agenda of the post-apartheid state, grappling with poverty, inequality and economic exclusion, which are just a few of the many ills confronting the State.

This article is structured as follows: after this introduction, we examine the nature and role of corporate law during apartheid and how the context of corporate law then successfully excluded black South Africans and exacerbated inequality in South Africa. This is followed by a critical assessment of whether post-apartheid corporate law policy rationale and regulations adequately foster inclusivity and whether they attempt to address the inequality brought about by apartheid. The article then argues for reconsidering corporate law approaches to address extreme inequality in South Africa. This can be realized by incorporating Ubuntu, transformative constitutionalism and distributive justice, thus creating a workable stakeholder-inclusive model through equitable subordination of stakeholder interests. This reconsideration will result in what we call transformative corporate law in an unequal society.

Apartheid-era corporate law

South African apartheid-era corporate law was based on a strong sense of justice. It incorporated the values of impartiality and natural justice, similar to its colonial sources, Roman-Dutch law and English law.Footnote 14 However, these values were residual. Citizens enjoyed them insofar as an act of parliament did not deny them, since the country operated a system of parliamentary supremacy.Footnote 15 In the case of the black majority, the benefits of company law, such as the right to incorporate a business for economic participation, were negated by segregation laws like the Group Areas Act 40 of 1950. For example, section 5 of the Groups Areas Act prohibited disqualified persons or companies (that is, black South Africans and companies owned by black South Africans) from acquiring immovable property or conducting business in a group area, essentially in towns and business hubs of the time. The black South African majority was restricted to operating largely insignificant businesses in the townships and so-called “homelands”. While the apartheid-era corporate law was theoretically inclusive for all citizens, it was negated by other laws that operated concurrently with it. Consequently, the black majority never truly participated in the mainstream economy before the 1994 democratic transition.

The shareholder primacy model that prevailed during the apartheid era and its related laws favoured the white community because these laws made whites the sole beneficiaries of business ownership in the economic hubs where it mattered most. This structural and systemic differentiation further widened the gap between the white and black communities, exacerbating inequality.Footnote 16

Post-apartheid corporate law

Unlike in the apartheid era, democratic South Africa follows a system of constitutional supremacy, which means that any law or conduct inconsistent with the Constitution is invalid to the extent of the inconsistency.Footnote 17 Chapter 2 of the Constitution of the Republic of South Africa, 1996 (the Constitution) also upholds the democratic values of human dignity, equality, freedom and the relationship among economic citizens; hence, it may have significant implications for company law.Footnote 18 According to Sibanda, the post-apartheid era embraced the concept of transformative constitutionalism, which seeks to have all South African laws aligned with the Constitution, promoting human rights and pursuing substantive justice.Footnote 19 Since the Companies Act of 1973 did not conform to the Constitution because it predated the constitutional era, the Companies Act had to be enacted in alignment with the Constitution. Against this backdrop, company law reform was inevitable.Footnote 20

The Companies Act 71 of 2008, as amended

The Act was drafted to mitigate the social, political and economic woes of the apartheid era. It adopted a model that balances the need to promote economic growth through investment with the necessity of addressing South African ills, specifically inequality.Footnote 21 A closer look at the Companies Act, as amended in 2024, reveals a deliberate effort to reimagine the company law of the 21st century, informed by the South African reality and context.

Section 76: directors’ duties

Section 76 of the Act partially codifies directors’ duties. Duties not covered by the section, such as the duty to avoid conflict of interest and the duty not to make secret profits, are governed by the common law. Section 76(3)(b) specifically requires directors to perform their functions in the best interests of the company. Esser and Delport assert that the wording of section 76(3)(b) prima facie retained the shareholder primacy model, except that the definition and scope of the functions of a company have since evolved.Footnote 22 Several provisions reflect the ethos of stakeholder inclusivity in the Act. These include sections 20(4), 157(1), 165(2) and 218(2). Chapter 6 of the Act resembles stakeholder interests. In Maroos and Others v GCC Engineering Pty Ltd and Others,Footnote 23 the court interpreted section 128(1)(b)(iii) of the Act. It held that the secondary goal of business rescue is to ensure higher returns for shareholders and creditors.Footnote 24 The Act and the Companies Regulations of 2011 also protect creditors in amalgamation or merger transactions through notice and the solvency and liquidity test.Footnote 25 These sections suggest that the Act appears inclined towards considering broader stakeholder interests.Footnote 26

Another view is that the Act largely embraces a shareholder-centric approach, which is evident in the directors’ duties towards the company and the definition of a profit company as a vehicle for profit generation for shareholders.Footnote 27 The tension in the Act suggests a corporate law model that is between the ESV and the shareholder primacy model. We shall demonstrate next that certain sections of the Act focus more on stakeholders. Consequently, they merit deeper examination to bolster our argument that the Act straddles shareholder primacy with a stakeholder-inclusive objective, with the former remaining dominant. We aim to assess whether the current formulation of the ESV model is sufficient to position companies as effective vehicles for social and economic transformation in South Africa.

Section 7: the purpose of the Act

Section 1 of the Act defines a profit company as a “company incorporated for financial gain for its shareholders”.Footnote 28 At face value, the definition of a profit company is purely shareholder-centric. However, section 5 of the Act provides that “the Act must be interpreted and applied in a manner that gives effect to the purposes set out in section 7”. Section 7(a) mandates that the application of the Companies Act must align with the Bill of Rights, which includes rights such as non-discrimination, equality and human dignity. It is worth noting that this position makes the 2008 Act different from the Companies Act of 1973.Footnote 29 Section 7(d) also requires directors to manage companies to achieve economic and social benefits. Esser and Delport submit that the approach under section 7(d) of the Companies Act can be considered a stakeholder model.Footnote 30 However, the entirety of section 7 is couched in vague terms such as “to promote” and “to encourage”, suggesting that it does not create a new enforceable duty on directors. Therefore, section 7(d) should be understood to mean that directors must consider stakeholders’ interests; however, this does not create enforceable stakeholders’ rights. In other words, there is no enforceable duty placed on directors to ensure that a company delivers social benefits.

Section 72(4): the social and ethics committee

Section 72(4)(a) of the Act, read together with regulations 43(1) and (5) and 26(2) of the Companies Regulations, 2011, authorizes the minister of trade, industry and competition to prescribe that certain companies must have a social and ethics committee (SEC) to ensure that companies become good corporate citizens.Footnote 31 As Esser and Delport assert, matters of good corporate citizenship are related to, among other things, the promotion of equality, the prevention of unfair discrimination and the reduction of corruption.Footnote 32 To eradicate inequality, the SEC is also tasked with promoting broad-based black economic empowerment.Footnote 33 However, section 72 failed to expressly include stakeholder representatives, such as employees, in the SEC to actively engage with key stakeholders to ensure the adequate protection and promotion of their interests.

Although the Companies Amendment Act 16 of 2024 (the Amendment Act) changes the composition and role of the SEC, it does not go far enough regarding promoting and protecting stakeholder interests. Section 72(7A) provides that the committee must comprise at least three members. For public or state-owned companies, the majority of the members must be non-executive directors. In contrast, for companies that are not public or state-owned, the SEC members must include no fewer than three directors or prescribed officers, with at least one being a non-executive director. This indicates that in the case of the latter companies, it is possible to have a majority of executive directors. The changes in the composition of committee members for public and state-owned companies are ostensibly intended to enhance transparency in the committee’s work.

As previously noted, the role of the SEC is extensive. It involves overseeing the company’s practices regarding employment equity, BBBEE, corporate citizenship, promotion of equality, prevention of unfair discrimination, community development and environmental matters. To enhance diversity and ensure the committee fulfils its mandate, it is submitted that section 72(A) should have altered the composition of the SEC and increased its size to include directors representative of labour, communities and other crucial stakeholders, as well as directors with expertise in corporate social responsibility (CSR), particularly in environmental and social governance. It is submitted that a lack of diversity could undermine efforts to address inequality and use companies as vehicles for achieving economic and social benefits, which are stated objectives in section 7 of the Act.Footnote 34

Section 30(A) and (B): remuneration disclosure

The history of income inequality and discrimination in South Africa’s labour market is a chequered one. It has been noted that, from 1911, racially discriminatory laws excluded black workers from skilled jobs, forcing them into low-paid, unskilled roles and entrenching wage inequality.Footnote 35 Despite no longer being legally sanctioned, income inequality persists in post-apartheid South Africa. A study by Statistics South Africa shows that income distribution reflects apparent racial disparities in the labour market. Black South Africans, making up the majority, face the highest unemployment rates and receive the lowest wages among employed individuals. Conversely, white employees earn substantially more than any other group.Footnote 36

In several ways, excessive executive remuneration adversely impacts societies, particularly those with considerable inequality, such as South Africa. Firstly, it widens the income gap, reinforcing existing systemic disparities. Wealth becomes concentrated among the few, exacerbating the overall wealth gap within society. Reports indicate that the ratio between executive remuneration and employees’ wages in South Africa is exceedingly disproportionate, with top executives earning between 150 and 949 times the average employee’s remuneration.Footnote 37 Furthermore, excessive executive remuneration has dire social ramifications. It fosters social and labour unrest, a phenomenon that characterizes the South African labour market. It also fuels perceptions of economic injustice, which are seen as typical of what is referred to as “white monopoly capital” in South Africa, thereby destabilising an already unequal society. Secondly, excessive executive remuneration diverts resources that could be invested in initiatives such as CSR, employee share schemes and financial assistance to acquire company shares by previously disadvantaged citizens. Ultimately, the effect of excessive executive remuneration is that the social contract and corporate legitimacy are diminished, especially when contrasted with widespread poverty and unemployment in South Africa.Footnote 38

Sections 30(A) and (B) of the Companies Amendment Act of 2024 were inserted to address the adverse effect of executive remuneration. It provides that a remuneration policy must be prepared and approved by ordinary resolution at the Annual General Meeting (AGM). An annual remuneration report must also be prepared and presented at the AGM. The report must contain a background statement and an implementation report, accompanied by an approved remuneration policy. This section is groundbreaking yet contentious in some quarters.Footnote 39 Its introduction was inspired by global developments and informed by the objective reality of extreme inequality in South Africa. Excessive executive remuneration has been correctly viewed as a direct and unintended consequence of maximizing shareholder wealth, with the board and executive management pursuing every legal avenue to generate substantial profits for the company, thereby increasing shareholders’ wealth in exchange for, sometimes, regrettably, excessive remuneration. The change in the law will hopefully contribute towards transparency, accountability, fairness and social equity in South Africa.

Beneficial ownership

The Financial Action Task Force, a global watchdog addressing money laundering and terrorist financing, agitated for a beneficial ownership disclosure regime that was introduced by the General Laws Amendment Act of 2022.Footnote 40 Under the regime, a beneficial owner is an individual or natural person who, directly or indirectly, ultimately owns 5 per cent or more of a company or exercises effective control over it.Footnote 41

While introduced to combat money laundering and the financing of terrorism, a significant benefit of disclosing beneficial ownership is that a clear picture of the structure and patterns of ownership of the South African economy will emerge. It will be apparent that black South Africans remain underrepresented in the ownership of companies, particularly large companies. Consequently, the necessity for a more transformative corporate law, in which the beneficial owners of companies reflect the demographics of the country and where companies serve as vehicles for social transformation, will become increasingly essential and must be actively pursued.

The drafters of the Companies Act and its amendments aimed to accommodate various stakeholder interests. However, the shareholder primacy model stands as the dominant and enforceable approach.Footnote 42 We argue that extreme inequality renders the shareholder primacy model unsuitable in South Africa. While this approach may attract much-needed investment, it is potentially antithetical to the Act’s objectives, which include promoting economic and social benefits.Footnote 43 We further assert that failing to balance the objectives of the Companies Act is undesirable, as South Africa’s need for investment must be fulfilled in a manner that does not exacerbate existing divisions but instead bridges the socio-economic gap.

The King Reports of corporate governance

The King Reports are also an essential source for defining the role of companies in South Africa.Footnote 44 In Minister of Water Affairs and Forestry v Stilfontein Gold Mining, the court held that the King Reports had been widely accepted as elucidating the standard of directors’ duties in South Africa, and it applied the principles to test the directors’ conduct.Footnote 45 Indeed, the King regime acknowledges the indirect benefits that may accrue to companies should they consider social factors in their operations, given that most of South Africa’s citizens “remain on the fringes of society’s economic benefits”. The regime also recognizes that exclusion and inequality contradict the traditional African values of co-existence, cooperation, communitarianism and consensus. King V expressly states that stakeholder inclusivity is one of its foundational tenets. Stakeholder inclusivity, as provided for in King V, requires directors to consider the legitimate and reasonable interests of stakeholders in executing their duties in the best interests of the company. Therefore, King V promotes the principles of the interdependent relationship between the organization and its stakeholders by ensuring that stakeholder interests are balanced through prioritizing or trading off these interests on a case-by-case basis.Footnote 46 We contend that the failure to incorporate some of the ethos of King IV concerning stakeholder interests in the recent amendments to the Companies Act signifies a missed opportunity to transition corporate law from a shareholder-centric focus to one that is more stakeholder-friendly. However, King IV was repealed, paving the way for the adoption of King V. King V is effective since 1 January 2026 and we argue that King V prescribes a more nuanced and reinforced stakeholder approach than previous King regimes.Footnote 47

Evaluation of corporate law models from an unequal society perspective

This part of the article considers the general corporate law approaches and norms that attract and retain capital and investment in most jurisdictions.Footnote 48 We evaluate the shareholder primacy, ESV and stakeholder models and consider their relevance, application and effects in an unequal society like South Africa.

Societal implications of shareholder wealth maximization

The shareholder wealth maximization model operates on the premise that shareholders, as the investors and incorporators of the company, are its owners. Thus, prioritizing their interest in wealth maximization should be the primary objective of directors.Footnote 49 The theory is rooted in the agency or trust principle, which asserts that shareholders are principals and directors are agents in a company.Footnote 50 Accordingly, when directors pursue wealth maximization for the exclusive benefit of shareholders, it is assumed that they become responsible agents who fulfil their duties to their principals.Footnote 51

The model has faced spirited criticism for neglecting one of corporate law’s fundamental principles: the doctrine of separate corporate personality. An excessive focus on shareholder wealth maximization often erodes a company’s autonomy by effectively turning the corporation into a vehicle whose sole objective is wealth maximization, even at the company’s expense. This blurs the distinction between the company and its shareholders, contradicting the Salomon principle. It also undermines the idea that the company possesses a distinct identity with obligations independent of shareholders’ interests.Footnote 52 Further, the shareholder primacy model incorrectly assumes that shareholders have identical wealth maximization interests in a company. In practice, evidence shows that shareholders can have substantially diverse interests, especially in public companies where ownership is dispersed.Footnote 53

Focusing primarily on shareholder wealth often overlooks the interests of other stakeholders, including employees, communities and the environment. This profit-driven approach can worsen income and wealth inequality in various ways, particularly in unequal societies like South Africa. First, directors may prioritize cost-cutting through wage suppression, retrenchments or labour outsourcing to maximize shareholder returns.Footnote 54 The issue of labour outsourcing has been prevalent in both the private and public sectors in South Africa, leading to campaigns that compelled employers to insource outsourced services in a 2015 campaign called “#OutsourcingMustFall”. Second, other stakeholders, particularly employees, are disadvantaged vis-à-vis executive managers whose remuneration is often disproportionately excessive as a reward for maximizing shareholder wealth.Footnote 55 Although recent legal amendments aim to tackle this issue, it is too early to determine if they will change the prevailing practices.Footnote 56 Thirdly, in a bid to minimize costs and increase shareholder wealth, companies externalize social and environmental costs, a phenomenon prevalent in South Africa’s mining sector.Footnote 57

It is clear from the foregoing that shareholder wealth maximization reinforces structural disparities and prioritizes financial gains over societal transformation in the context of inequality. This results in injustice and, to some extent, manifests as instability, evident in community protests, labour strikes and widespread disdain for the so-called “white monopoly capital”.

Societal implications of stakeholder inclusivity

The stakeholder inclusivity model recognizes the interests of broader stakeholder groups (pluralism) in a company and treats shareholders as one constituency among many.Footnote 58 This approach assumes that the existence and success of a company are intertwined with the respect that it accords to stakeholders as a whole, for example, creditors, employees, society and the environment, among others.Footnote 59 In determining the company’s success, directors must balance all the competing interests of the stakeholders.Footnote 60 The stakeholder model is operational in India through section 166(2) of the Indian Companies Act of 2013.Footnote 61 It is considered a “radical experiment with corporate purpose” primarily because of its strong focus on stakeholders. According to section 166(2), directors have a fiduciary duty to both shareholders and stakeholders, thereby treating them as equals. This pluralistic approach does not prioritize one group over the other. However, it has been observed that this aspirational focus on stakeholders remains largely theoretical. Review committees for Indian corporate law and subsequent amendments have revealed that the corporate purpose outlined in the Indian Companies Act is predominantly geared towards safeguarding shareholder interests. Consequently, stakeholder interests often go unaddressed in practice.Footnote 62

The stakeholder model potentially promotes the long-term success of the company. For example, it is assumed that if a company fosters good relationships with stakeholders, including employees, suppliers and creditors, it has the potential to build the trust needed to advance the company’s interests, including shareholders’ interests.Footnote 63 However, focusing on shareholders only can result in short-term benefits.Footnote 64 The stakeholder model is also commended for largely accommodating the values of CSR.Footnote 65 In modern company law, corporate objectives are shifting from purely shareholder wealth maximization to accommodating various stakeholder interests.

However, some criticisms are directed at the stakeholder model, notably that it appears incompatible with the primary objective of entrepreneurship: maximizing profits for shareholders.Footnote 66 Furthermore, the stakeholder model is criticized for supposedly lacking legitimacy because it does not delineate whose interests must be balanced,Footnote 67 which may inadvertently result in directors not being accountable to any stakeholder group.Footnote 68 The stakeholder model fails to allocate clear stakeholder rights and remedies that directors must consider in decision-making.Footnote 69 In the Indian context, it has been argued that “the magnanimity of … [section 166(2) of the Indian Companies Act] verbiage and rhetoric in favour of stakeholders merely pays lip service to them and obscures any real teeth or legal ammunition available to non-shareholder constituencies to assert those rights as a matter of law”.Footnote 70

The key takeaway is that the stakeholder model is somewhat rhetorical, as it leaves stakeholders with unenforceable rights. Aside from shareholders, employees and creditors, the other categories of stakeholders, such as the community and the environment, are vague, making it difficult to regard them as injured parties to assert rights. In the absence of a specific and clearly delineated class, it is improbable that a duty, the breach of which attracts damages, can exist toward the general public.Footnote 71 Therefore, an unequal society would not, in reality, benefit much from a pure stakeholder model.

Societal implications of the enlightened shareholder value model

The ESV model requires directors to consider stakeholders’ interests in furthering the long-term interests of shareholder wealth.Footnote 72 Essentially, the stakeholder model posits that the interests of non-shareholder stakeholders do not hold independent value in the directors’ decision-making process, as they would under the pluralist approach.Footnote 73 The stakeholder model is hierarchical. In situations where various interests conflict, directors are required to prioritize the interests of shareholders, which are paramount.Footnote 74 The language of section 172 of the UK Companies Act 2006 mandates that directors “promote the success of the company for the benefit of its members as a whole”. However, in fulfilling this obligation, they must “have regard to” the interests of other stakeholders. In other words, the company’s ultimate goal is to advance shareholder interests, while consideration of stakeholders’ interests serves merely as a means to an end. For this reason, the stakeholder model is viewed as a shareholder primacy model in disguise, as its ultimate aim is to promote shareholder interests. In contrast, non-shareholding stakeholders’ rights remain unenforceable in their own right.Footnote 75 ESV is also viewed as no more than shareholder wealth maximization in a new “responsible” guise or simply “tokenism”.Footnote 76 Conversely, some argue that ESV leans more towards a pluralistic approach.Footnote 77

To reiterate a point made earlier, the Companies Act, as amended, has made significant inroads towards advancing stakeholder interests in the South African context. However, the lack of clarity, certainty and enforceability of some foundational objectives, such as the notion of companies as agents of socio-economic transformation, creates confusion. Even with the generous interpretation of the Act as embracing ESV, the socio-economic reality, evidenced by irrefutable statistics of the worst inequality in the world, demonstrates that the form of ESV adopted in South Africa is ineffective in empowering all stakeholders and reversing the existing inequality.

Reimagining ESV for an unequal society

In this part, we reimagine an iteration of the ESV model that can meaningfully contribute to reducing inequality and position companies as agents of socio-economic transformation, aligning with the objectives of the Act. This reimagination envisions the deliberate incorporation of the normative values of transformative constitutionalism, Ubuntu and distributive justice into the Act, thereby aligning corporate conduct with the broader constitutional mandate.

Transformative constitutionalism and corporate decision-making

Transformative constitutionalism is a continuous process of interpreting and applying the Constitution to restructure a society’s political, social and economic reality in pursuit of democracy and equality. With South Africa’s unique socio-political context, it seeks to address the effects of historical injustice and inequality.Footnote 78 It offers an essential framework for guiding corporate law reform, ensuring that company law and companies actively support the constitutional vision of a more inclusive, just and equitable society.

Section 39(1) of the Constitution states that when a court, tribunal or forum interprets the Constitution, it must be guided by the democratic principles of human dignity, equality and freedom. Sections 7(a) and 158 of the Act align with this constitutional provision by requiring the promotion of compliance with the Bill of Rights in applying company law.Footnote 79 Based on this, we assert that the Act must fully embrace and infuse the transformative constitutional agenda. We further argue that a company law regime that does not contribute to the emancipation of previously oppressed groups and the creation of an egalitarian society suffers a serious legitimacy crisis.Footnote 80 Inasmuch as the objectives set under section 7 of the Act have some semblance of transformative constitutionalism, we argue that, considering the history and deep-rooted inequality, the said statutory objectives must feature more prominently in the Act, and courts must consciously infuse them in their interpretation of the Act.

Ubuntu-centred corporate decision-making

Ubuntu is an ancient African worldview according to which a person is a person because of other people. In other words, a person exists and thrives because of other people.Footnote 81 It is based on intense humanness, caring, sharing, respect, compassion and the associated values that ensure a happy and high-quality community life in the spirit of family.Footnote 82 Ubuntu is further associated with values such as simunye (we are united / one), reciprocity and hlonipa (respect).Footnote 83 Ubuntu demands a distributive justice system to ensure that the most vulnerable have access to certain primary goods and are afforded social opportunities for a fulfilling life.Footnote 84 In corporate law, infusing Ubuntu into decision-making will likely lead to stakeholder relations based on equity and fairness.Footnote 85 Further, Ubuntu provides guidelines for promoting fair dealing, which is essential, especially in aligning South African company law with constitutional values.

Some criticisms of Ubuntu include the concept not being specific enough. It has also been argued that Ubuntu represents a collectivist orientation, groupthink, uncompromising majoritarianism or extreme sacrifice for society, which is viewed as incompatible with the value of individual freedom.Footnote 86 Despite these criticisms, the concept of Ubuntu remains a critical constitutional value that the judiciary has embraced, although it is not expressly included in the text of the Constitution. The Constitutional Court in S v Makwanyane upheld Ubuntu as a critical value underpinning the fabric of South African society. It held that “it envelops the key values of group solidarity, compassion, respect, human dignity, conformity to basic norms and collective unity, in its fundamental sense it denotes humanity and morality”.Footnote 87 The court further held that the concept emphasizes community and the interdependence of the members of a community.Footnote 88

Ubuntu is also considered to be a vital tool in ensuring the recovery of South Africa from the horrors of apartheid and colonialism.Footnote 89 The fact that the Constitution is informed by the ethos of Ubuntu and the acceptance by the Companies Act that its purposes must be aligned with the Constitution shows that the policymakers acknowledge the influence of Ubuntu in corporate law.Footnote 90 We argue that the influence of Ubuntu in corporate law, particularly regarding directors’ duties, must be considered to ensure that company law serves as an essential tool for addressing inequality. We further argue that incorporating Ubuntu in company law is not misplaced because constitutional supremacy requires the Act to be aligned with the Constitution and constitutional values. Therefore, corporate decisions must be Ubuntu-centred, meaning that a company must consider its existence as possible because of other stakeholders in the broader society. In other words, a company as a legal person exists, operates and thrives because of other people. For that reason, profits must not be prioritized at the expense of society. Decisions made by directors in the best interests of the company should be guided by the principles of humanity, accountability, transparency and collaboration, which characterize the South African society.

Advancing distributive justice through corporations

Distributive justice concerns the equal or fair distribution of resources, public goods, benefits or burdens throughout society. Therefore, it is based on equality, proportionality and fairness.Footnote 91 Notably, distributive justice is concerned with the outcome of distribution rather than the process. Meyersfeld correctly observes that the Bill of Rights, through sections 8(2) and 25 of the Constitution, requires some nuance to achieve a balanced and careful approach to distributive justice to address inequality in South Africa.Footnote 92 When considering that the Act must be aligned with the Constitution, the purposes of the Act cannot escape the influence of the ethos of distributive justice in its application and implementation.Footnote 93

Villiers argues that company law provides a legal basis for formulating a distributive justice approach.Footnote 94 The author states that corporate actors might fulfil their social responsibilities through distributive justice, enabling stakeholders to distribute value according to contributions to the benefits and their adoption of risk.Footnote 95 Company law could adopt various ways to strengthen the implementation of distributive justice, including ensuring that corporate governance is not solely focused on making a profit for shareholders but is influenced by CSR values.

We argue that incorporating the distributive justice ethos is not foreign to South African commercial law. For instance, South African competition law effectively incorporates the policy rationale of distributive justice in the public interest proviso of section 12A(3) of the Competition Act.Footnote 96 The Competition Act regulates anti-competitive conduct that puts employment at risk, compromises small businesses and harms businesses owned by previously disadvantaged individuals. The Competition Act also strives to protect and promote national industries in the international market, thus putting public interest first and ensuring that corporations do not impede economic transformation.Footnote 97

Equitable subordination of stakeholder interests

At this point, we conceptualize a corporate law approach that judiciously balances the policy rationale of promoting investment and ensuring the protection of various stakeholders’ interests on a case-by-case basis. In doing so, we draw insights from the concept of subordination in insolvency law.Footnote 98 Subordination has popularly been applied to shareholder loans vis-à-vis creditors’ loans, where the assumption is that shareholders must accept that their claims be ranked below those of the creditors, should the company, for any reason, become insolvent before repayment.Footnote 99 Since insolvency has dire repercussions for the competing interests of company stakeholders, including shareholders and creditors, the principle of subordination is instrumental in balancing such interests.

Similarly, since corporate decisions could negatively affect company stakeholders, including shareholders, directors, creditors, employees and the community, subordination can effectively be used as a standard or yardstick for balancing the interests of these stakeholders in the decision-making.Footnote 100 For example, the subordination of all shareholder loans ensures that the shareholders adequately participate in their company’s entrepreneurial risks.Footnote 101 Since shareholders enjoy insider status, subordinating their loans could be pivotal to avoid undermining the basic principle of par condictio creditorum [equal treatment of creditors].Footnote 102 For instance, shareholders can either request a repayment of their loans in full or withdraw their loans when they know that the company might be plunged into insolvency, to the detriment of third-party creditors.Footnote 103 Accordingly, this justifies the concept of subordination that imposes certain restrictions on shareholder loans. Simply put, subordination permits shareholders’ interests to be demoted to a position below the supposed lower-rank creditors, but the subordinated claim does not reduce in value.Footnote 104 Confirming this legal position, the Supreme Court of Appeal in Cape Produce Co (PE) (Pty) Ltd v Dal Maso NO and Another Footnote 105 held that subordination could hold subordinated claims in abeyance.

Equitable subordination is a principle primarily rooted in USA bankruptcy law.Footnote 106 Subordination is voluntary and not explicitly codified in South African insolvency law. Its fundamental principles of fairness and transparency are compatible with Ubuntu, distributive justice and transformation. A more viable option that can balance the interests of all stakeholders is mandatory equitable subordination by the company’s directors. Equitable subordination allows for claims of certain creditors to be subordinated in instances of misconduct or inequitable behaviour. The doctrine ensures that creditors cannot exploit their position to the detriment of other stakeholders in insolvency proceedings. We submit that the principle can be adapted so that it is not fault-based and is applied by directors on a case-by-case basis. The process of subordination should place the best interests of the company at the centre while ensuring equity (not equality) among stakeholders.

To mitigate the effects of inequality in corporate decision-making, we submit that the scope and definition of the “best interests of the company” must be reformed and tailored to suit the South African context to accommodate other stakeholder interests. Accordingly, careful consideration is required to incorporate stakeholder interests to promote inclusivity through case-specific subordination.Footnote 107

We suggest that the Act, for example, in the context of fundamental transactions, must promote amalgamations or mergers and also ensure the protection of stakeholder interests through a flexible standard of ranking the pertinent stakeholder interests through the concept of equitable subordination in a case-specific manner and not based on some rigid procedure. In the case of fundamental transactions, stakeholder inclusivity through equitable subordination means that, as a general rule, in the absence of significant adverse effects from a proposed transaction on the stakeholders, the profit maximization goal of the shareholders should be upheld. Conversely, except where the proposed amalgamation or merger negatively affects the other stakeholders, stakeholder inclusivity should be triggered through the principle of equitable subordination. The suggested approach would work as a yardstick to be applied by directors in decision-making, especially in the case of corporate decisions that have the effect of capital reduction and corporate expansion, mainly because these effects have a contentious impact on stakeholders.Footnote 108

Proposed Companies Act Amendments to entrench progressive ESV

We propose three ways to infuse the progressive ESV model. First, in deciding what is in the best interest of the company, directors must have a duty to consider relevant non-shareholder interests, third-party effects and shareholder interests. We consider the view of Robert Austin J, who asserted that “(t)here is a world of difference between legislating to require directors to act in the interests of shareholders having regard to the interests of other stakeholders and legislating to require directors to act in the interests of shareholders and also in the interests of other stakeholders”.Footnote 109 In this context, the South African Companies Act, like the UK Companies Act, must compel directors to consider the interests of designated shareholders meaningfully and genuinely have regard for stakeholder interests in corporate governance decision-making.Footnote 110 An express statutory provision must be inserted into the South African Companies Act to entrench the proposed progressive ESV. In particular, the provision must require directors to act in the best interests of the company by equitable subordination of stakeholder interests informed by the following considerations:Footnote 111

  1. (i) Immediate, medium and long-term consequences of the proposed decision or transaction for the company, its business and its stakeholders;

  2. (ii) The company’s ability to continue as a going concern and to preserve its financial soundness, viability and sustainability;

  3. (iii) Necessity of providing shareholders with a fair and reasonable return on their investment;

  4. (iv) Equitable recognition and treatment of all stakeholder interests, in accordance with their relationship to the company’s success, including the requirement that all stakeholders be treated fairly;

  5. (v) Maintenance and fostering of essential business, credit and employment relationships;

  6. (vi) Compliance with all applicable corporate laws, regulations and codes as a necessary condition for sound corporate governance;

  7. (vii) Integration of stakeholder-sensitive considerations into the company’s ordinary decision-making frameworks, processes and procedures, such as risk management, strategic planning and corporate reporting, particularly in respect of large or publicly listed entities;

  8. (viii) Preservation and enhancement of the company’s reputation for quality, ethical conduct, customer satisfaction, fair pricing and other socially responsible values;

  9. (ix) Mitigation or avoidance of foreseeable adverse impacts of the company’s activities and decisions on local communities, the environment and society at large;

  10. (x) Appropriateness of corporate contributions to societal governance and prosperity, including socio-economic development and environmental protection; and

  11. (xi) Accommodation of the principles and ethos of transformative constitutionalism, Ubuntu and distributive justice in all corporate governance and decision-making.

Section 166(2) of the Indian Companies Act 2013 enshrines a pure stakeholder model, compelling directors to act in good faith to advance the company’s objectives for the benefit of its members as a whole and in the best interests of the company, its employees, shareholders and the wider community. However, this approach gives rise to several practical difficulties. First, directors may be confronted with conflicts between shareholder and stakeholder claims, complicating the prioritization of competing interests. Second, divergent stakeholder constituencies may themselves hold conflicting demands. Third, the interests of shareholders tend to be more tangible and readily quantifiable than those of other stakeholders. Finally, the legal framework, both statutory and judicial, has yet to mature sufficiently to provide effective remedies when directors fail to discharge their duty to consider stakeholder interests.Footnote 112 These difficulties are insurmountable, making the pure stakeholder model unworkable. For this reason, we propose infusing the following proposals into South African company law to bolster the proposed progressive ESV further:Footnote 113

  1. (i) The board must develop, adopt and periodically review a stakeholder-relationship policy, identifying stakeholder engagement as a core corporate policy;

  2. (ii) The board must establish reporting obligations to ensure transparency in the recognition and consideration of stakeholder interests;

  3. (iii) The board, in prescribed circumstances, may require stakeholders to undergo due diligence to verify their interests and claims;

  4. (iv) The board, or an independent committee thereof, shall convene meetings with key stakeholders or their authorized representatives as necessary;

  5. (v) Stakeholder-management matters must be integrated into board deliberations with shareholders, including at annual general meetings; and

  6. (vi) The board must consider the appointment of stakeholder representatives as directors or as non-executive participants in board proceedings.

We further recommend judicial recognition of a broadened director duty, drawing on Delaware’s jurisprudence. Although Delaware corporate law contains no express corporate-constituency statute, its courts have long authorized directors to consider non-shareholder interests in the context of takeovers and other fundamental corporate changes. In Unocal Corp v Mesa Petroleum Co, the Delaware court held that a board may adopt defensive measures against a takeover bid so long as those measures are both reasonable and proportionate to protect the corporation and, by extension, its creditors, customers, employees and the community at large, from foreseeable harm.Footnote 114 This ruling departs from strict shareholder primacy by requiring directors to calibrate profit-sacrificing actions against the rational benefits to investors, the proximity of those actions to the corporation’s business and any long-term, indirect advantages for the market system.Footnote 115 Both proportionality and rationality are subject to objective judicial review.Footnote 116

Delaware reinforced this principle in Paramount Communications v Time Inc, affirming that boards may weigh the impact on constituencies other than shareholders in evaluating a takeover threat.Footnote 117 To safeguard directors who embrace our proposed “progressive ESV” model, South African law should similarly extend the protection of the business-judgment rule to directors’ decisions that duly consider defined non-shareholder interests. Such judicial endorsement would cement the legitimacy of a centre-left corporate governance paradigm that aligns with transformative constitutionalism, Ubuntu and distributive justice while providing clear guidance and certainty to directors.

Concluding remarks

In the South African context, the above discussion illustrates that the current corporate law approaches are inadequate for addressing inequality. While the shareholder model has its merits, considering the history and persistence of inequality in South Africa, it may exacerbate these inequalities. The UK, a largely capitalist-oriented nation with relatively low levels of inequality, has shifted from a purely shareholder-centric model to an ESV model. This shift supports our view that South Africa, the most unequal society, must reconsider the current model. The Indian Companies Act of 2013 has fully embraced the stakeholder model. However, in South Africa, we have hesitated to advocate for a pure stakeholder model due to its impracticality. Instead, we propose reimagining the existing model, suggesting that the values of transformative constitutionalism, Ubuntu and distributive justice should shape it. By incorporating these constitutional values, the current model could evolve from being perceived as a diluted form of the shareholder-centric model to one that is more inclusive of stakeholders. To borrow from political terminology, we view shareholder-centricity as “the right”, the stakeholder model as “the left” and the stakeholder model as “the centre”. Thus, the “progressive ESV model” proposed in this article could be seen as “the centre-left”.

For this proposed model to be practical, directors must be guided by the principle of equitable subordination of stakeholder interests (derived from insolvency law) in their decision-making. We have proposed a move towards what we view as the progressive ESV by amending the Act to insert a provision protecting non-shareholder interests similar to, but also different from, section 172 of the UK Companies Act. The proposed provision should incorporate a distinct and progressive set of factors that directors must consider when equitably balancing and, where appropriate, subordinating stakeholder interests. These factors differ from the more restrained approach adopted in the UK ESV, reflecting South Africa’s unique constitutional and socio-economic context. Furthermore, we call for the courts to endorse and develop jurisprudence supportive of this reimagined progressive ESV model, ensuring that company law meaningfully advances the constitutional imperative of socio-economic transformation.

Competing interests

None

Footnotes

*

LLB (Lesotho); LLM (UFS); LLM (UP); PhD (UCT). Advocate of the High Court of South Africa. Senior law lecturer in the Commercial Law Department, University of Cape Town. Tebello.Thabane@uct.ac.za.

**

LLB (UFH); LLM (UJ); LLD (UFH). Attorney of the High Court of South Africa. Postdoctoral research fellow and temporary lecturer in the Faculty of Law, University of Johannesburg. JMudzamiri@uj.ac.za.

References

1 V Sulla, P Zikhali and FC Pablo “Inequality in Southern Africa: An assessment of the Southern African Customs Union” (2022, World Bank Report) at 1.

2 “National Development Plan 2030: Our Future – Make it Work” (NDP) (National Planning Commission: The Presidency, Republic of South Africa) (2011) at 355.

3 Sulla, Zikhali and Pabdo “Inequality”, above at note 1 at 39.

4 NDP, above at note 2 at 24 and 409.

5 Sulla, Zikhali and Pabdo “Inequality”, above at note 1 at 11.

6 Broad-Based Black Economic Empowerment Act 53 of 2003 (BBBEE Act).

7 I-M Esser and A Dekker “The dynamics in corporate governance in South Africa: Broad-based black economic empowerment and the enhancement of good corporate governance principles” (2008) 3 Journal of International Commercial Law and Technology 157 at 169. A detailed discussion of BBBEE is outside the scope of this article.

8 DG Korten When Corporations Rule the World (1996, Greenleaf Publishing). The author presents a thought-provoking analysis of the negative impacts of economic globalization while also providing potential solutions.

9 G Kent The Failure of Corporate Law: Fundamental Flaws and Progressive Possibilities (2007, The University of Chicago Press). Kent is one of the major proponents of this school of thought. Also see A Sibanda “Shareholder oppression as corporate conduct repugnant to public policy: Infusing the concept of Ubuntu in the interpretation of sec 163 of the Companies Act 73 of 2008” (2021) 4 Potchefstroom Electronic Law Journal 1 at 3 and 5; B Mupangavanhu “Impact of the Constitution’s normative framework on the interpretation of provisions of the Companies Act” (2019) 22 Potchefstroom Electronic Law Journal 1 at 3 and 18. Public interest is also a major consideration in competition law.

10 KY Testy “Linking progressive corporate law with progressive social movements” (2002) 76 Tulane Law Review 1227 at 1244.

11 See Companies Act 46 of 1926, chaps 1, 2 and 3. In particular, chap 1 is titled “Constitution and Incorporation” (secs 4–21), chap 2 is titled “Distribution and Reduction of Share Capital, and Registration of Unlimited Company as Limited” (secs 22–56) and chap 3 is titled “Management and Administration” (secs 57–105).

12 Companies Act 61 of 1973.

13 I-M Esser and PA Delport “The protection of stakeholders: The South African social and ethics committee and the United Kingdom’s enlightened shareholder value approach (Part 1)” (2017) 64/3 De Jure 97 at 108; G Nettle “The changing positions and duties of company directors” (2018) 41/3 Melbourne Law Review 1402 at 1420–21.

14 J Sarkin “The common law in South Africa: Pro-apartheid or pro-democracy” (1999) 23/1 Hastings International and Comparative Law Review 1 at 3.

15 Ibid.

16 Group Areas Act 40 of 1950.

17 Constitution of the Republic of South Africa, 1996, sec 2.

18 “South African company law for the 21st century: Guidelines for corporate law reform” (Government Gazette No 26493 of 23 June 2004, Department of Trade and Industry (now the Department of Trade, Industry and Competition) 1 at 16.

19 Sibanda “Shareholder oppression as corporate conduct repugnant to public policy”, above at note 9 at 6.

20 “South African company law for the 21st century”, above at note 18 at 26.

21 Companies Act, as amended. In addition, other statutes that if applied together with the Companies Act, as amended, seek to redress the economic disparities caused by the past include: Investment Act 22 of 2015, preamble; Consumer Protection Act 68 of 2008, chap 2; Competition Act 89 of 1998, preamble and sec 12A; National Environment Management Act 107 of 1998; secs 28, 29 and 32.

22 Esser and Delport “The protection of stakeholders”, above at note 13 at 108. There is some semblance of stakeholder interests protection since stakeholders can enforce sec 165 (derivative action) of the Companies Act.

23 Maroos and Others v GCC Engineering Pty Ltd and Others [2017] ZAGPPHC 297, para 15; Companies Act, secs 112(3), 113(5), 116(1)(a) and (3); Takeover Regulations of 2011, reg 89.

24 Companies Act, sec 7(k) read together with the definition of affected persons in sec 128(1)(a).

25 Companies Act, secs 112(3), 113(5), 116(1)(a) and (3); Takeover Regulations of 2011, reg 89. See the definition of amalgamation or merger under sec 1 of the Companies Act.

26 S Lombard and T Joubert “The legislative response to the shareholders v stakeholders debate: A comparative overview” (2015) 14/1 Journal for Corporate Law Studies 211 at 221.

27 Companies Act, sec 126 read together with sec 119(1)(c). See also sec 117(1)(c) of the Companies Act which provides that an affected transaction includes in its scope “fundamental transactions” – that is, an amalgamation or merger (sec 113 read with sec 118(3)), the disposal of all or a greater part of the assets (sec 112 read with sec 118(3)) or undertaking of a company and a scheme of arrangement (sec 114 read with sec 118(3)), acquisitions of or an intention to acquire beneficial interests in accordance with sec 122, announced intentions to acquire a beneficial interest in a regulated company, mandatory offers (sec 123) and compulsory acquisitions (sec 124). See also the Companies Regulations, 2011. Also see BPL Jennings “Are shareholders exclusive beneficiaries of fiduciary obligations in South Africa? The role of fiduciary obligations in the 21st century” (2015) 1/2 Journal of Corporate and Commercial Law and Practice 54 at 60. There is also a bias towards the protection of shareholder’s interests in sec 163 (oppression remedy) and sec 164 (appraisal remedy) of the Companies Act, remedies that protects shareholders and directors, which excludes other stakeholders.

28 Sec 1 of the Companies Act reveals that there are four types of profit companies: a public company, a state-owned enterprise, a personal liability company and a private company. These profit companies are defined in sec 1.

29 PA Delport et al Henochsberg on the Companies Act (2019, LexisNexis) at 54.

30 Esser and Delport “The protection of stakeholders”, above at note 13 at 108.

31 Reg 43 of the Companies Regulations, 2011 prescribes that state owned companies and listed companies must have a SEC. See also Companies Act, sec 72(4)(a) read together with Companies Regulations, 2011, reg 44(1) and (5) as well as reg 26(2); Takeover Regulations of 2011, reg 89; Ex Parte Links Golf Club (RF) Limited (2020) [CT00550ADJJ20] COMPTRI 41, para 26.

32 Esser and Delport “The protection of stakeholders”, above at note 13 at 227.

33 Ibid.

34 Companies Act, secs 72 and 7(d), read together with Companies Regulations, 2011, reg 43.

35 J Seekings and N Nattrass Class, Race, and Inequality in South Africa (2005, Yale University Press) at 20.

36 “Inequality trends in South Africa: A multidimensional diagnostic of inequality” (14 November 2019) Statistics South Africa, available at: <https://www.statssa.gov.za/?p=12744> (last accessed 14 December 2024).

37 Ibid. See also I Valodia and A Ewinyu “South Africa’s wage gap is huge: Why companies should report what CEOs and workers earn” (5 November 2023) The Conversation, available at: <https://theconversation.com/south-africas-wage-gap-is-huge-why-companies-should-report-what-ceos-and-workers-earn-216502> (last accessed 14 December 2024).

38 On corporate morality and obligations to society, see generally T Donaldson Corporations and Morality (1982, Prentice-Hall).

39 See secs 30A and 30B of Companies Amendment Act and the analysis of the sections before the amendment was passed in BD Saunders and M Bekink “Disclosure of executive remuneration in terms of the Companies Amendment Bill 2023” (2024) 87 Journal for Contemporary Roman-Dutch Law 327 at 327–54. See also V Chaplin and H Khota “Paycheck politics: Decoding the Companies Amendment Bill and its impact on executive remuneration” (6 March 2024) Corporate & Commercial Alert, available at: <https://www.cliffedekkerhofmeyr.com/en/news/publications/2024/Practice/Corporate/corporate-and-commercial-alert-6-march-paycheck-politics-decoding-the-companies-amendment-bill-and-its-impact-on-executive-remuneration-> (last accessed 14 December 2024). The authors underscore the possible unintended consequences of the remuneration disclosure regime, including a brain drain of executives to jurisdictions with more lenient disclosure requirements. Furthermore, to minimize the remuneration gap within the company, the current disclosure requirements could result in lower-paid employees being outsourced.

40 General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act 22 of 2022 (GLAA).

41 Sec 55 of the GLAA inserts the definitions of “affected company” and “beneficial owner” into the Companies Act.

42 Sec 1 of the Companies Act reveals that there are four types of profit companies: a public company, a state-owned enterprise, a personal liability company and a private company.

43 Companies Act, sec 7(c).

44 “King report on corporate governance” (1994, Institute of Directors Southern Africa) (King I); “King report on corporate governance for South Africa” (2002, Institute of Directors Southern Africa) (King II); “King report on corporate governance for South Africa (2009, Institute of Directors Southern Africa) (King III); “King report on corporate governance for South Africa” (2016, Institute of Directors Southern Africa) (King IV); “King report on corporate governance for South Africa” (2025, Institute of Directors Southern Africa) (King V).

45 Minister of Water Affairs and Forestry v Stilfontein Gold Mining 2006 (5) SA 333 (W), para 16.

46 King IV, above at note 44 at 4, 17 and 23–25. See King V, above at note 44 at 30–32 for a more nuanced approach.

47 King V, ibid.

48 Companies Act, sec 7(c); FHI Cassim et al Contemporary Company Law (3rd ed, 2021, Juta and Company) at 281; MF Cassim and FHI Cassim The Law of Corporate Finance (2021, Juta and Company) at 1–3; L Gullifer and J Payne Corporate Finance Law: Principles and Policy (2020, Hart Publishing) at 15.

49 SJ Padfield “The role of corporate personality theory in opting out of shareholder wealth maximisation” (2017) 19 Transactions: Tennessee Journal of Business Law 416 at 416; VS Baumfield “Stakeholder theory from a management perspective: Bridging the shareholder / stakeholder divide” (2016) 31 Australian Journal for Corporate Law 1 at 17; Jennings “Are shareholders exclusive beneficiaries of fiduciary obligations in South Africa?”, above at note 27 at 60. According to T Mongalo “Supervision of the use of corporate power as the ultimate purpose of the directorial duties and the advisability of corporate law enforcement in the public interest” (2017) 3/1 Journal of Corporate and Commercial Law and Practice 17 at 34, the South African corporate law developments suggest a departure from the strict-shareholder approach. See B Sheehy “Scrooge–The reluctant stakeholder: Theoretical problems in the shareholder-stakeholder debate” (2005) 14/1 University of Miami Business Law 193 at 209.

50 AA Berle and G Means The Modern Corporation and Private Property (1997, Transaction Publishers), quoted by S Anand Essentials of Corporate Governance (2008, Wiley) at 83.

51 A Keay “Tackling the issue of corporate objective: An analysis of the United Kingdom’s ‘enlightened shareholder value approach’” (2007) 29/4 Sydney Law Review 577 at 583.

52 In Salomon v Salomon 1897 AC 22 (HL), it was held that a company is an entity that is distinct from its shareholders. In addition, in Percival v Wright [1902] 2 Ch 421, the corporate separate personality was confirmed, and Eady J ruled that directors owe fiduciary duties to the company and not individual shareholders. Recently, the doctrine of separate legal personality was endorsed in Johnson v Gore 2000 UKHL 65. See ABSA Bank Ltd v Blignaut and Another and Four Similar Cases 1996 (4) SA 100 (O); Dadoo Ltd v Krugersdorp Municipal Council 1920 AD 530; Airport Cold Storage (Pty) Ltd v Ebrahim and Others 2008 (2) SA 303 (C). Sec 19(1)(a) of the Companies Act states: “From the date and time that the incorporation of a company is registered, as stated in the registration certificate, the company … (a) is a juristic person”.

53 LA Stout “The toxic side effects of shareholder primacy” (2013) 161/2003 University of Pennsylvania Law Review 2003 at 2016.

54 T Piketty Capital in the Twenty-First Century (2014, The Belknap Press of Havard University Press) at 382–423 and 424–75. The author links the inequality of income with hyper-concentrated wealth.

55 L Bebchuk and J Fried Pay Without Performance: The Unfulfilled Promise of Executive Compensation (2004, Harvard University Press). The authors provide a detailed account of the power dynamics involved in excessive executive remuneration, which is often a reward for maximizing shareholder wealth. However, in some instances, excessive remuneration is disconnected from performance; V Madlela and PM Lehloenya “The regulation of executive remuneration in South Africa” (2016) 37/1 Obiter 1.

56 See secs 30A and 30B of Companies Amendment Act and the analysis of the secs before the amendment was passed in BD Saunders and M Bekink “Disclosure of executive remuneration in terms of the Companies Amendment Bill 2023”, above at note 39.

57 L Stout The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations, and The Public Societal Implications of the Stakeholder Inclusivity Model (2012, Barrett-Koehler Publishers). The author contends that the fixation on maximizing shareholder value is detrimental to other stakeholders and can unintentionally harm shareholders as well; prioritizing shareholders may, at times, undermine the company, making it counterproductive over time.

58 MT Bodie “The next iteration of progressive corporate law” (2017) 74/2 Washington and Lee Law Review 739 at 748; Esser and Delport “The protection of stakeholders”, above at note 14 at 101. See K Chalaczkiewicz-Ladna “Examples of long-term and short-term decision-making in UK, Delaware and Germany – Gap-filling exercise in the context of shareholder v stakeholder debate and share ownership structure of the company” (2018) 29/2 European Business Law Review 237 at 244; J Zhao “Promoting more socially responsible corporations through corporate law regulatory framework” (2017) 37/1 The Society of Legal Scholars 103 at 116.

59 Esser and Delport “The protection of stakeholders”, above at note 13 at 101.

60 Ibid.

61 Sec 166(2) of the Companies Act of 2013 reads: “A director of a company shall act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and in the best interests of the company, its employees, the shareholders, the community and for the protection of environment”.

62 D Mukhopadhyay and R Mandal “The end of shareholder primacy in Indian corporate governance? Says who?!” (2020) 46 Commonwealth Law Bulletin 595 at 595.

63 Ibid.

64 Ibid.

65 N Amodu “The responsible stakeholder model: An alternative theory in corporate law” (2018) Journal of Comparative Law in Africa 1 at 10.

66 E Sternberg “The stakeholder concept: A mistaken doctrine” (2001) Foundation for Business Responsibilities 1 at 16.

67 Ibid.

68 Id at 20.

69 MT Bodie “The next iteration of progressive corporate law” (2017) 74/2 Washington and Lee Law Review 739 at 753.

70 Mihir Chandrashekhar Naniwadekar and Umakanth Varottil, “The stakeholder approach towards directors’ duties under Indian company law: A comparative analysis” in Mahendra Pal Singh The Indian Yearbook of Comparative Law 2016 (2017, Oxford University Press) at 95–120.

71 Ibid.

72 Keay “Tackling the issue of corporate objective”, above at note 51 at 18; Zhao “Promoting more socially responsible corporations” above at note 59; C Ajibo “A critique of enlightened shareholder value: Revisiting the shareholder primacy theory” (2014) 2/1 Birkbeck Law Review 38 at 51. See also MM Botha “The role and duties of directors in the promotion of corporate governance: A South African perspective” (2009) Obiter 702 at 705; “South African Company Law for the 21st Century”, above at note 18.

73 G Bevivino “Corporate social responsibility and duties of the directors” (2014) 25/6 European Business Law Review 923 at 934.

74 CM Bruner Corporate Governance in the Common-Law World: The Political Foundations of Shareholder Power (2013, Cambridge University Press) at 34 and 44.

75 A Keay “Moving towards stakeholderism: Constituency statutes, enlightened shareholder value, and more: Much ado about little?” (2011) 22/1 European Business Law Review 1 at 33. See Ajibo “A critique of enlightened shareholder value”, above at note 72 at 58.

76 Nettle “The changing position and duties of company directors”, above at note 13 at 1419. See also V Harper Ho “Enlightened shareholder value: Corporate governance beyond the shareholder-stakeholder divide” (2010) 36 Journal of Corporation Law 59 at 96; RC Tate “Sec 172 CA 2006: The ticket to stakeholder value of simply tokenism?” (2012) 3 Aberdeen Student Law Review 112 at 112.

77 Ajibo “A critique of enlightened shareholder value”, above at note 72 at 50. The UK case BTI 2014 v Sequana SA & Others (2022) UKSC 22, paras 94, 112, 238, 239, 261, 264 and 265 per Lord Briggs (Lords Kitchin and Hodge concurring), concluded that the duty of the directors to consider creditor’s interests in insolvency, known as “creditor’s duty”. However, Lord Reed and Lady Arden concurred but gave different reasoning. Lady Arden rejected that sec 172(1) of the UK Companies Act 2006 imposes a duty to have a regard of creditor’s interests as a body.

78 KE Klare “Legal culture and transformative constitutionalism” (1998) 14/1 South African Journal on Human Rights 146 at 150; P Langa “Transformative constitutionalism” (2006) 3 Stellenbosch Law Review 351 at 352; C Albertyn and B Goldblatt “Facing the challenge of transformation: Difficulties in the development of an indigenous jurisprudence of equality” (1998) 14/2 South African Journal on Human Rights 248 at 248; I Kundu “Constitutionalism to transformative constitutionalism: The changing role of judiciary” (2020) 11/2 Indian Journal of Law and Justice 347 at 348 and 365.

79 Constitution of the Republic of South Africa, sec 7(a).

80 E Kibet and C Fombad “Transformative constitutionalism and adjudication of constitutional rights in Africa” (2017) 17 African Human Rights Journal 340 at 350.

81 NL Mahao “O Se Re Ho Morwa Morwa Towe: African jurisprudence exhumed” (2010) 43 Comparative and International Law Journal of Southern Africa 317 at 317.

82 CI Tshoose “The emerging role of the constitutional value of Ubuntu for informal social security in South Africa” (2009) African Journal of Legal Studies 11 at 13.

83 Ibid.

84 C Kavuro “Refugee rights in South Africa: Addressing social injustices in government financial assistance schemes” (2015) 5/1 Journal of Sustainable Development Law and Policy 176 at 176.

85 Sibanda “Shareholder oppression as corporate conduct repugnant to public policy”, above at note 9 at 3 and 5; Mupangavanhu “Impact of the Constitution’s normative framework”, above at note 9 at 24; TE Coleman “Reflecting on the role and impact of the constitutional value of Ubuntu on the concept of contractual freedom and autonomy in South Africa” (2021) 24 Potchefstroom Electronic Law Journal 1 at 7.

86 M Thaddeus “Ubuntu as a moral theory and human rights in South Africa” (2011) 11 African Human Rights Law Journal 532 at 533.

87 S v Makwanyane 1995 (3) SA 391 (CC); 1996 (6) BCLR (CC), para 207.

88 Id, para 224.

89 SD Kamga “Cultural values as source of law: Emerging trends of Ubuntu jurisprudence in South Africa” (2018) 18/2 African Human Rights Journal 625 at 631; H du Plessis “Legal pluralism, Ubuntu, and the use of open norms in the South African law of contract” (2019) 22 Potchefstroom Electronic Law Journal 1 at 23.

90 Constitution of the Republic of South Africa, secs 5, 7 and 158.

91 J Rawls “Distributive justice: Some addenda” (1968) 138 Natural Law Forum 51 at 51; EE Smith, NE Mazibuko and V Mrebi “Assessing perceptions regarding distributive justice in the South African financial service industry” (2019) 13/1 African Journal of Business Ethics 37 at 41–42; N Ramanujam, N Caivano and A Agnello “Distributive justice and the Sustainable Development Goals: Delivering Agenda 2030 in India” (2019) 12/2 Law and Development Review 495 at 511; B Meyersfeld “The South African Constitution and the human-rights obligations of juristic persons” (2020) 137/3 South African Law Journal 439 at 454.

92 Meyersfeld, id at 454.

93 Constitution of the Republic of South Africa, secs 5, 7 and 158.

94 C Villiers “Controlling executive pay: Institutional investors of distributive justice” (2010) 10/2 Journal for Corporate Law Studies 309 at 337.

95 Ibid.

96 Sec 12A(3) of the Competition Act 89 of 1998, as amended, requires the Competition Commission and Competition Tribunal to consider specific public interest factors when assessing mergers. These include the merger’s impact on employment, the participation and growth of small and medium enterprises and businesses owned by historically disadvantaged persons, and the promotion of broader ownership, particularly by historically disadvantaged persons and workers. See also In the Matter between the Minister of Economic Development and Others v The Competition Tribunal and In the Matter between South African Commercial, Catering and Allied Workers Union (SACCAWU) v Wal-Mart Inc and Massmart Holdings Limited Case Number 110/CAC / Jul 11; 111/CAC / Jun 11, para 11.

97 See Competition Act 89 of 1998, preamble and sec 2; S Omphemetse “Public interest considerations in the South African anti-dumping and competition law, policy, and practice” (2015) 14 International Business and Economics Research Journal 735 at 735. On South African competition law and the background to the public interest provisions generally, see P Sutherland and K Kemp Competition Law of South Africa (2017, LexisNexis Online). See also S Roberts “The role for competition policy in economic development: The South African experience” (2004) 21 Development Southern Africa 227 at 234. See further T Hartzenberg “Competition policy and practice in South Africa: Promoting competition for development” (2006) 26 Northwestern Journal of International Law and Business 667 at 667.

98 According to BA Garner Black’s Law Dictionary (9th ed, 2010, West Group) at 79 and 1563. Subordination is “[t]he act or an instance of moving something (such as a right or claim) to a lower rank, class or position”. Similarly, a subordination agreement is “an agreement by which one who holds an otherwise senior interest agrees to subordinate that interest normally to a lesser interest”. See Cape Produce Co (PE) (Pty) Ltd v Dal Maso NO and Another [2002] JOL 9674 (A), para 13. See also Ex Parte De Villiers and Another NNO: In re Carbon Developments (Pty) Ltd (In liquidation) [1993] 1 All SA 441 (A) 449. For an outline of the concept of subordination in South African law, see KE van der Linde “South Africa” in G Baer and K O’Flynn (eds) Financing Company Group Restructurings (2015, Oxford University Press) at 435.

99 MS Morse “Bootstrap acquisitions: The risk of subordination in bankruptcy” (1968) 48/3 Boston University Law Review 441 at 448; Van der Linde “South Africa”, ibid at 435. H Wainer “The insolvency conundrum in the Companies Act” (2015) 132/3 South African Law Journal 509 at 515 postulates that subordination could be referred to as back ranking.

100 Diener NO v Minister of Justice and Correctional 2019 (4) SA 374 (CC); Cloete Murray NO v Firstrand Bank Ltd t / a Wesbank 2015 (3) SA 438 (SCA), para 12; Oakdene Square Properties (Pty) Ltd v Farm Bothasfontein (Kyalami) (Pty) Ltd 2013 (4) SA 539 (SCA); para 23.

101 DA Verse “Shareholder loans in corporate insolvency – A new approach to an old problem” (2008) 9/9 German Law Journal 1109 at 1115.

102 Id at 1116; B MacDougall “Subordination agreements” (1994) Osgoode Hall Law Journal 225 at 231.

103 Verse “Shareholder loans in corporate insolvency”, above at note 101 at 1116.

104 DG Carlson “The logical structure of fraudulent transfers and equitable subordination” (2003) 45 William and Mary Law Review at 157 at 160; HB Lambe “Enforceability of subordination agreements” (1984) Real Property, Probate and Trust Journal at 632; DM Calligar “Subordination agreement” (1961) 70/376 Yale Law School Journal 376 at 379; AS Herzog and JB Zweibel “The equitable subordination of claims in bankruptcy” (1961) 15/1 Vanderbilt Law Review 83 at 87.

105 Cape Produce Co (PE) (Pty) Ltd v Dal Maso NO and Another [2002] JOL 9674 (A), para 13. See also Ex Parte De Villiers and Another NNO: In re Carbon Developments (Pty) Ltd (In liquidation) [1993] 1 All SA 441 (A) 449.

106 United States Bankruptcy Code, sec 510(c).

107 See Garner Black’s Law Dictionary, above at note 98.

108 Companies Act, sec 4, read together with sec 1. See RS Bradstreet “Should creditors rely on the solvency and liquidity threshold for protection?” (2015) 59/1 Journal of African Law 121 at 133; SM Luiz “Protection of holders of securities in the offeree regulated company during affected transactions: General offers and schemes of arrangement” (2014) 26/3 South African Mercantile Law Journal 560 at 560; P Nkoane “How are the offers for minority securities enforced in corporate law?” (2017) 3/2 Journal of Corporate and Commercial Law and Practice 52 at 56.

109 B Horrigan Corporate Social Responsibility in the 21st Century: Debates, Models, Practices Across Government, Law and Business (2010, Edward Elgar) at 193 and 209.

110 Sec 172 of the United Kingdon Companies Act 2006 provides that “A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole and in doing so have regard (amongst other matter) to – the likely consequences of any decision in the long term, the interests of the company’s employees, the need to foster the company’s business relationships with suppliers, customers and others” (emphasis added).

111 These considerations are derived and adapted from Horrigan, above at note 109 at 208. We, however, added consideration (xi). As far as fair treatment of stakeholders is concerned (see consideration iv), we propose that standing for relief from oppression, unfair prejudice and unfair disregard of interests under sec 163 of the South African Act be broadened to include employees, the community, creditors and any other person the court considers appropriate. This approach would not be unusual. For instance, the Canadian oppression remedy, under sec 241(2) of the Canada Business Corporations Act (RSC, 1985, c C-44), extends the oppression remedy beyond shareholders to include a creditor or officer of the company. The proposed amendment to the South African remedy would simply go further to also include other key stakeholders, thus entrenching the progressiveness of the Act.

112 U Virottil and M Naniwadekar “The shareholder responsibility of corporate boards” (Quarterly Briefing NSE Centre for Excellence in Corporate Governance, January 2018, No 20) 1 at 4.

113 These considerations are adapted from Virottil and Naniwadekar, id at 5.

114 Unocal Corporation v Mesa Petroleum Company 493 A2d 946 (Del Supr 1985), para 956.

115 JF Ritter “Unocal Corp v Mesa Petroleum Co” 1986 Virginia Law Review 869.

116 Unocal Corporation v Mesa Petroleum Company, above at note 114.

117 Paramount Communication, Inc v Time 1989 571 A2d 1140 (Del 1989).