Preface Corporate Governance and Ethics is a practical and comprehensive guide to the basic concepts and principles of corporate governance. This book will be invaluable to those seeking advanced knowledge of the current terminology used and the concepts applied in this subject. The purpose of this book is to expose students to the world of good corporate governance, and to provide them with the necessary knowledge and under- standing of how corporations should be run from an ethical perspective. On completion of this course, students should be able to: + Demonstrate advanced knowledge and understanding of the theories, principles and practices of corporate governance. « — Apply the principles and practices of corporate governance to the work environ- ment. ¢ Evaluate appropriate corporate governance approaches and practices implement- ed within the work environment. ¢ Demonstrate knowledge and understanding of the nature of work ethics and the necessary skills to develop a code of ethics. This book has been compiled to facilitate the achievement of critical and developmental outcomes. Critical outcomes are holistic in nature and envisage learners who are able to: 1. Identify and solve problems and make decisions using critical and creative thinking. 2. Work effectively with others as members of a team, group, organisation and community. 3. Organise and manage themselves and their activities responsibly and effectively. 4. Collect, analyse, organise and critically evaluate information. 5. Communicate effectively using visual, symbolic and/or language skills in various modes. 6. Use science and technology effectively and critically, showing responsibility towards the environment and the health of others. 7. Demonstrate an understanding of the world as a set of related systems by recog- nising that problem-solving contexts do not exist in isolation. Development outcomes envisage learners who are able to: Reflect on and explore a variety of strategies to learn more effectively. : Participate as responsible citizens in social, national and global communities. Be culturally and aesthetically sensitive across a range of social contexts. Explore education and career opportunities. Develop entrepreneurial opportunities. gaereContents Learning Unit 1 The history of South African law Learning Unit 2 The legal framework for business operations in South Africa Learning Unit 3 Business ethics and social responsibility Learning Unit 4 Ethics in the South African public sector Learning Unit 5 Corporate governance Learning Unit 6 Strategic corporate governance and anti-corruption strategies Learning Unit 7 Risk management Learning Unit 8 Labour law and governance Learning Unit 9 Occupational health and safety governance Bibliography Question solutions Page 22 23-51 52-66 67 - 92 93-123 124-146 147 - 161 162 - 197 198 — 222 223 - 224 225-271The history of South African law Introduction .... The nature of law . The ideal characteristics of the law The rule of law ...... The development of South African law 1.5.1 The history of Roman law 1.5.2 The history of Roman-Dutch law ..... 1.5.3 The development of South African law Sources of South African law 1.6.1 The Constitution. 1.6.2 Legislation ...... 1.6.3 Judgements of the courts 1.6.4 Common law ... 1.6.5 Custom ..... 1.6.6 Indigenous law 1.6.7 Foreign and international law 1.6.8 Textbooks and law journals .. Classification of South African law .... Tats) National and international law .. 1.7.2 Substantive law and adjective law .. 1.7.3 Public law and private law 174 Mercantile/commercial law BPBSseeaanesPRosttssavaronnnLearning Unit + 4.5.1 The history of Roman law legal system that was developed by the Romans over a Period of approximately 7300 years, from 753 BC to AD 565, is called Roman law. The principles of Roman law hil form part of the legal systems of many countries in the world. Itis also the basis of e common law in South Africa. ‘ent of the monarchy in Rome in 509 BC, Rome became a consti- futional republic, where rulers were chosen from among the elite. These rulers were known as magistrates (consuls) who enforced legistation which was passed and cre- ted by the popular assembly (assembly of the people). The popular assembly was as- sisted in its legislative duties by the senate, which served as an advisory body. ‘After the abolish Roman law was codified for the first time in The Law of the Twelve Tables, contained jules suitable for a primitive society and was passed by the popular assembly as legislation. During this period Rome became the dominant power in the Western basin of the Medi- terranean, and the centre of international trade. As a result of the flourishing trade, a number of rules for the contract of sale were created. (These rules still apply in present- day South African law.) After about two centuries of rule, the magistrates’ executive power was gradually trans- ferred into the hands of the Roman emperor. The emperors created their own new bureaucracy, which eventually replaced the magistracies. The emperors further assumed the function of the popular assembly and began to promulgate imperial legislation themselves. One of the principle weaknesses of the classical Roman constitutional model, after the rise of the emperors, was the absence of proper regulation regarding the succession of the emperor. The third century AD was characterised by civil wars, which turned the emperors into military dictators. The Roman Empire was divided into the Western Empire (with Rome as its capital) and the Eastern Empire (with Constantinople as the Capital), The empire in the West disintegrated into several Germanic states, which historians refer to as the fall of the Roman Empire. Classical Roman law became watered down and simpli ir a plified, and was infiltrated Germanic law. The law was to be found in the following sources: ks: * Customary law * Legistati F q Enactmenie ariiecon ee eee te Twelve Tables Edicts of the republican magistrates Writing of the jurists Imperial legislation| a TT, nnn, aml ind large, and Well-functioning legal systems exhibit these qualities by and large, South. system is no exception. 4.5 The development of South African law t to have Knowledge of the stand the law it is importan’ noises i e law have to be looks law. Factors governing the origin and development of th that is, it is not contained in one South African law is not completely codified; ne uthoritative sources hensive piece of legislation. The law is drawn from various at African law today is a product of different sources. South African law is sometimes referred to as Roman-Dutch law. This term s: Roman law and Dutch law. However, these two mixture of two legal system: tems are not the only ones that impacted on the development of law in South ‘As South Africa was under British rule for a long time, English law has also p role in the development of South African law. Furthermore, many people in Soutt live according to their own tribal customs and traditions; this is called indigi Others live according to customs based on religious beliefs. Therefore, indig customary law also play a part in the South African legal system. The development of South African legal history can be depicted as follows: History of South African Law Peay este ee ngLearning Unit 4 It creates order in society and gives certainty. The rules are applied or interpreted by institutions of state. If necessary, they are enforced by employees of the state e.g. the police and prison authorities. The legis- lative authority makes laws; the judicial authority applies these laws and other legal principles; and the executive authority enforces the law as a whole. Enforcement means that some form of sanction will follow upon non-compliance with a legal rule. ‘A sanction is a reaction of disapproval following such non-compliance, and can take the form of punishment (such as a fine or imprisonment), or may be in the form of an order for compensation (such as in the case of breach of contract). jt forced by a powerful should be more than just a series of decrees and tules ent : ae. It should also reflect the shared values of the majority of the population. Under- lying any legal system is a value system which is important to society and acts as a unifying force. The following may be part of this ideology: * Economic values (free market or socialism) * Political values (democracy or dictatorship) * Social values (equality or class differences) * Moral values (conservative or permissive) 1.4 The rule of law Legislation and the law are associated with certain attributes. Legal systems do not Necessarily possess all these attributes, but these must be present to some extent if the law is to have justified authority. These attributes can be thought of as the intrinsic Ideals and virtues of legality. The attributes of the rule of law are as follows: *< Generality: The law must consist of rules rather than ad hoc decisions. * “Promulgation: Laws must be published so that the public may view them. * Non-retroactivity: The law must govern behaviour that takes place after the creation of these laws, not past events. troy Laws must be formulated in such a way that tis possible to understand what require. err contractctogy. Laws must not contradict each other or require inconsistent iviour. Possibility Saas : Laws must not demand the impossible. time: Laws must not be changed so frequently that it impossible to adjust one’s behaviour to the law’s requirements. = between official action and declared rules: The law as administered must coincide with the law as declared. State institutions act Eauany't” Powers conferred on them by law. may act only in accor. Fairmess Reasonableness4.1 Introduction anies complying with laws and is Im One aspect of good governance if Hs company’s code of conduct and s Compliance should be incorporated into a c encouraged through leadership and training. 4.2 The nature of law i ji i ibed as a set of rules aimed at reguj, Law is a social science that can be descril f guia society. The law will ordinarily prescribe how people are required to conduct thems ; within society. The law will also provide sanctions when a person transgresses the |, Law is part of society, is created by society and in turn influences and shapes soci Alarge group of people cannot agree on rules among themselves on a continual b Law should ideally reflect what the shared values of the population are. Therefo need arose for some kind of structure of authority or government that could make ry for society. Geographical, political, religious and other factors contribute to the dey ‘opment of the legal system concerned. This is why different countries have diffe laws, or why they may interpret the same laws in different ways. Legal systems vary considerably in their complexity and the extent to which they s rate law from critical and social morality. In the complex legal systems of modern state courts are typically staffed by technical legal experts who are procedurally appointe and they operate in settings that are designed to insulate them to some extent fror the Pressures of public opinion. They are complemented by law-making institutio which, in democratic states, are made accountable to society via periodic electio Law-making institutions and legal systems often seek to steer, rather than follow, practices. At the other end of the s t spectrum, the customary law " the application of law to | peril , senior members of the community who are ted by a r i m respect " aes ei aeeoe end social position. These senior members generally operate i acer ive manner, and seek to ascertain and apply social customs There are Many posi Positions between th system ‘ ese two ends of thi a ystem may combine them, as is the case in South ricaon Aaa al 1.3 The ideal characteristics of the law The ideal characteristics of the law are as follows:The history of South African law it hi As far as legal history is concerned, the most ofa — pS 7 a a ern Empire was the reign of Emperor Justinian Tinian to bring order and decided to codify Roman law final tied primary source of law which could be used to solve all legal problems. work came to be the Corpus luris Civilis or ‘Civil Code’. Application, development and spread of Roman law (reception) ‘Reception’ means the process through which Roman law -as embodied in the luris Civilis - was received and merged with Germanic law. At this time, the Catholic Church was the only real authoritative institution and was headed by the who had his seat in Rome. The law school of the glossators was established in Bologna, Northern Italy. The Law of the Twelve Tables and the Corpus luris Civilis were studied by these professors, used the law in these works as the building blocks to create new doctrines that suited the empire's existing needs. At the same time, canon law was regarded as equally important. Canon law was the legal system of the Roman Catholic Church, and was applied in an extended network of ecclesiastical courts. if toe of modern legal concepts which Originated in canon law include the ing: * The doctrine of subjective rights * The notion of a juristic person * Principles of the law of civil and criminal procedures * The principle that a contract between two ies is conc! merely without additional formalities saiaae oe — the lawyers who were responsible for the reception the secular courts in Western Europe were known 9 canon law and Roman iLearning Unit 4 .2 The history of Roman-Dutch law the sixteenth and seventeenth century, the modern nation of Western Europe ed to take shape. The legal systems of the various states started showing a nation- fic character. The eighteenth century saw the countries of Western Europe starting ‘codify their own legal systems. These codes still exist today, but it is the influence Roman law that serves as the common denominator in all these countries’ legal tems. Netherlands forms part of Western Europe and therefore was exposed to the tion of Roman law and canon law. Roman law merged with local Germanic (Dutch) jomary law. This led to the creation of so-called Roman-Dutch law. Notwithstand- the fact that this reception was not equally extensive in all the provinces, Roman served as a unifying factor so that the law in the Netherlands was to a large extent form. man-Dutch law could be found in decisions of the Dutch Court, and in the writings the Roman-Dutch jurists. Question 1.1 {) _ Explain in your own words the meaning of the term ‘law’. qi), Briefly discuss the ideal characteristics of the law. (ii) What is the meaning of ‘rule of law’? Describe the attributes of the rule of law. Explain why it is important to know where the South African law comes from and how its legal history developed. (v) Indicate whether the following statements are ‘True’ or ‘False’. (a) The principles of Roman law still form part of the legal systems of many countries in the world. (o) Pre PN oe comeen eo eatin Bey oem. Oe (c) The separation of powers (the executive, legislative and judici rats a judiciary) was © RIGS eae sictas f the Famer rp ‘ ‘one final and prit ‘source of Si provided primary law known as Corpus4.5.3 The development of South African law Roman-Dutch law i ji i its golden age during the 17th The Republic of the United Netherlands experienced i Beene commercial exchange took place between the Netherlands and the East via the route around the Cape of Good Hope. Jan van Riebeeck, of the Dutch East India Company (voc), planted the seed for Roman-Dutch law in South Africa. According to the legal doctrine of the day, the Cape was a res nullis (thing without owner) and thus became Dutch territory by way of occupation. The initial way-station and later Dutch settlement at the Cape lived according to Roman-Dutch law, since it was the legal system with which they were acquainted. In the next almost 150 years that followed, Roman-Dutch law was further developed and applied by the courts as the legal system. English influence The rule of the VOC was ended in September 1795 by the British conquest of the Cape. After another brief interval of Dutch rule, the Cape was once more occupied by the British, and in January 1806 became a British colony without any changes to the legal system. The British took the Cape government, administration and the judicial organisation and reshaped it along English lines. English civil and criminal procedures replaced outdat- ed forms of procedure, and the Cape Evidence Ordinance 72 of 1830 introduced the British law of evidence. Because the world of trade and commerce was dominated by the British, the consequent application of English commercial customs, documents and contracts led to the introduction of English mercantile law, English judges and advocates looked to English law for inspiration where Dutch law gave no answers. Because the British auth lorities never abolished Roman-Dutch law, it remained the main legal system of the cou syste intry. The influence of English law in the legal system was, how- a inevitable. The organisation of the legal profession into the. pened and ot (etiomeys) is based on the British model. Some South African legislation, such Pen solvency Act 24 of 1936 (as amended), is based on the British equivalent. ‘uence of English constitutional law is especially important. The Constitution of the Uni i : is on of South Africa (the South Africa Act 1909), as well as the Constitutions regulated the organisation and Republic of South Africa i Frense rica in 1961 and 1993, tioning of the state and its institutions according to English law. Over the years, i Dutch civilian mee eeu ave oh aed ang abt the principles from the w to the changed and changing circumst: tances inLearning Unit 1 Isouth Africa, and to fuse this into one single system — the South African common law. Soulchallenge in the future is to incorporate indigenous law and to imbue the whole Inixture with the spirit, purpose and objectives of the Bill of Rights. Indigenous law lat the time of the colonisation of the Cape, indigenous, African tribes were living A cording to their own legal systems. This law is called indigenous or customary law, nd it has the following general characteristics: «itis made up of unwritten customs that are passed orally from generation to genera- tion. . it differs on a tribal and territorial basis. : ; It mainly regulates the relationships between individuals and not the relationships between individuals and the state. oan * |tisacommunal or group-orientated system, in contrast with the more individualisti- cally orientated Western law. During the 1920s, economic development had forced a sizable part of the African popu- lation off the land and into a new role of urban proletariat. Labour unrest and political organisation led to the passing of the Native Administrative Act 38 of 1927. This Act established a new administrative and judicial structure for African people and the ap- plication of indigenous law was laid down. The Bantu Authorities Act 68 of 1951 was promulgated, which established traditional authorities at local government level. Most of these special courts were abolished in the 1980s, Presently indigenous law is applied by ordinary courts and by the remaining special courts, such as the courts of headmen and chiefs. What law is in force today in South Africa? Roman-Dutch law forms only a part of the legal system. Pure Roman-Dutch law was further developed and adapted in South Africa. English law also exercised an influence ‘on South African law, and indigenous law and other forms of customary law are also applied. Where one refers to the South African legal system as a whole, one can sim| Say, ‘South African law’. rm Due to the diversity of legal systems, efforts are continuously made to synthesise and Unify th i ideli ah ie South African concept of law, and the following guidelines have to be kept in All legal developments have to be in line with the Constituti onstitution of the Republic of South Africa, 1996 (‘the Constitution’). For example, all laws have to ee a ennetiut coal values of equality and human dignity. '€ existence of a legal rule should not depend on whether it conflicts with the views generally held in tht i ai eee in the community. Different value systems must be treated withLearning Unit 1 ‘One geographical division of the High Court is not bound by decisions of another low them. ‘ ee nay Cr asta courts are absolutely bound by decisions of the e court of Appeal and the High Courts. Where there Gonsitutional Court the ope the different High Court divisions, a magistrate F a the decision of the High Court which has geographical jurisdiction over oy is aie istrates’ courts do not have the inherent power to develop common Be tolore clear that they are also in constitutional matters absolutely bound law. py the decisions of the higher courts. .e structure of South African courts is discussed in more detail later in this learning it. 6.4 Common law mmon law usually applies when a specific matter is not governed by legislation. uth African common law mainly consists of the 47th and 18th century Roman-Dutch .w that was transplanted to the Cape colony. This forms the basis of modern South rican law and has binding authority. Many of the general legal principles that are own in South Africa today stem from common law. Examples of these principles \clude the following: Murder and robbery are common law crimes. Compensation must be paid for damages caused unlawfully. The buyer who takes possession of an item bought must pay the agreed price. ese principles have their origin in the rich tradition of Roman law and its reception in ern Europe, especially in the Netherlands. However, the following points have to kept in mind regarding common law in South Africa: pot all the principles of Roman-Dutch law were transplanted to South Africa. ourts have ruled that some of the 17th and 18th century principles have become porenaieg by disuse. For example, adultery was regarded as a criminal offence in poms me Roman-Dutch rule; South African courts have abolished that rule. ording to current practice, South African common law is a much wid and is not limited to 17th and 18th century law. Sears * South African common law has been influenced by English law through precedent. The modern . interpretation of common law can be f i eS an be found in case law and for Ses can ee a Soules In terms of Section 39(2) of the Goninon rs rea Be sie par P the common law in accordance with the spirit and the objectivesThe history of South African law South African courts are divided into superior and lower courts. The lower co, ts a lower status than the superior courts. Further, the lower courts do not have the p, to adjudicate on all types of legal matters. The judgements of the superior courts are important sources of law. The do, stare decisis means ‘the decision stands’. This doctrine provides that courts are hg, by the decisions of superior courts, and furthermore that a court is also bound by own previous decision unless they are proved to be wrong. For example, a magi court, which is a lower court, will be bound by the decision of the high court (supe, court). This means that previous decisions of superior courts must be followed, serves to enshrine a fundamental principle of justice, namely that like cases should determined alike. It also promotes legal certainty. * The diagram below illustrates the structure of South African courts: Superior Courts « Constitutional Court Supreme Court of Appeal if High Courts Regional Courts Lower Courts ea Figure 1.2: The hierarchy of South African courts The hierarchy of the different Courts in South Africa is as follows: inall matters, ther courts, including the Supreme Court of * The Supreme Court of Appeal is absolutely bound by ecu reeeiees Presumptively by its own decisions and the Supreme (> absolutely bound by decisions of the Constitutional Co ‘ourt of Appeal. Usually every province has its ‘own High CourtLearning Unit 1 supreme and could not be tested for its ‘fairness’. With the new system, all eeeclia the Bill of Rights contained in Chapter two of the Constitution. Anew culture was inaugurated, in which ‘the objective value order’ of the Constitution to be the foundational premise of legal reasoning. ite and provides the legal foundations stitution regulates the structure of the stat Barework for the three main components of the South African legal system: i i ible for law-making legislative authority, which is responsible a : ihe ecutive authority, which is responsible for executing legislation The judicial authority, which is responsible for adjudication Constitution establishes the specific state institutions that are responsible for each these three functions, and it governs their composition, powers, operation and inter- Jationships. It stipulates the mechanisms and procedures by which the sources of w are developed and applied, as well as conditions for the validity of legal norms. (ditionally, the constitution contains the Bill of Rights, which is the cornerstone of democracy and confirms the democratic values of human dignity, equality and om. The Bill of Rights binds all three branches of government and all organs of ate. The state must respect, protect, promote and fulfil the rights in the Bill of Rights. 6.2 Legislation islation is law passed by an organ of state. These laws are embodied in writing d are known as ‘statutes’ or ‘Acts’. The Constitution provides for three spheres of ernment (national, provincial and local government) and vests legislative authority in pect of each of these spheres. South Africa therefore has national legislation passed ‘by parliament, provincial legislation passed by the legislatures of its nine provinces, ‘and local legislation passed by the municipal councils. The legislation produced by ithese bodies is referred to as Acts of parliament, provincial Acts and municipal by-laws, Tespectively, Legislation must be promulgated before it can enter into force, although a later ‘commencement date may be stipulated in the legislation. Promulgation takes place by publication in the Government Gazette in the case of national legislation, and in the relevant Provincial Gazette in the case of provincial and municipal legislation. These re official government publications and they appear frequently. These gazettes also Contain proposals for legislation which are referred to as ‘bills’ or ‘draft bills’. 1.6.3 Judgements of the courts Courts are institutions that inter i i rpret and apply law on a daily basis. When a case ends Up in Court, the court must ascertain the law, apply it to the case and provide judgment. Presiding officer (e.g. the judge or magistrate) finds the law they must apply in legal ees. They look at legislation, rules of Bre aria ash et al salen, common law and custom that may apply to 1