The Directors’ Duty to Exercise Care and Skill in Contemporary South African Company Law and the Business Judgment Rule

Abstract

Directors have a duty to exercise care and skill in the performance of their activities. They must carry out the functions of their office and exercise the powers bona fide for the benefit of the company. Long ago, courts restrained themselves from assessing the performance of directors in running the company. However, directors are under constant scrutiny. They can be held delictually liable if they failed to properly exercise their duty of care and skill. Courts use the objective and subjective approaches to determine the liability of directors. The Companies Act 71 of 2008 has partially codified the common law directors’ duty of care, skill and diligence. The directors have to display or demonstrate care and skill of the person holding the same position. However, the directors’ knowledge and skill are also considered in determining what they can perform for the company. The Companies Act has introduced the business judgment rule as a defence for directors to avoid liability.

DOI: 10.5901/mjss.2014.v5n20p70