Mervyn King called companies “incapacitated persons”. Thus, despite being persons in law, they are unable to do anything independent of human control or intervention. Enter the Board, which provides capacity to the company and allows it to act. This applies to all companies in general whether they are private, public, or in between. In this article, I discuss how and why it is imperative for a company to comply with legal dictates.

Legal compliance: Whose duty, is it?

One of the fundamental responsibilities of the Board of Directors is to ensure complete compliance with and respect for all applicable laws and regulations. The Directors have legal, fiduciary, and moral duties to the company and other stakeholders to see that such compliance is done to the letter and spirit of the law.

The framework

The Companies and Other Business Entities Act (Chapter 23:31), the COBE Act, contains the legal framework that is to be followed by the Board in order to ensure that the “incapacitated person” complies with the law. Broadly, the pillars for compliance are in respect of the:

  1. Financial aspects of the Company
  2. Internal Control and Risk Management
  3.  Governance and Human Capital Management

In order to achieve its objectives and mandate, the Board ideally has key actors, that is to say, the Chairman, CEO/MD, Company Secretary and Board Committees

Financial Compliance

The Board has a legal duty to make sure the company meets all its financial obligations to suppliers, employees, shareholders and other stakeholders. This requires entrepreneurial leadership to ensure the liquidity and solvency of the company. To ensure that the financial statements fairly present the state of affairs of the company is a critical duty as well.

The Chairman through his leadership skills would ideally rally all Directors to maintain financial oversight of the company. In other organizations, this is in conjunction with the Financial Director and the Finance Committee. The CEO/MD, as the ultimate authority regarding the day-to-day operations of the company, would whip the employees at all levels to make sure the annual financial work plan and budgets are implemented. Section 69 of the COBE Act places criminal liability on a Director who fraudulently, recklessly or willfully fails to take all reasonable steps to ensure that the Company complies with keeping its financial books or reporting on financial performance in terms of sections 182-184,186 or 189. There are also civil penalties for the same default. This makes it even more onerous for the Board as a unit and Directors as individuals to act with reasonable care and prudence in overseeing the affairs of the company.

Internal Control and risk management

Through the risk committee or internal audit, the Board can monitor and evaluate the systems of internal control. This would give the company reasonable assurance that risks are identified and mitigated. The Board is the one that sets standards for internal control aimed at reducing the risk of error or loss in a cost-effective manner.

These standards include proper delegation of responsibility to the Audit Committee or CEO, effective accounting procedures, risk mapping framework and segregation of duties.

     Governance and Human Capital Aspects

The Board is responsible for the good governance of the company and compliance with legal provisions related to that. The Board discharges its mandate through meetings. This ought to comply with the law as it relates to the notice of meeting whether it’s a Special or AGM, agenda, quorum, motions, voting, or resolutions see sections 204 and 205 of the COBE Act. For proceedings of a Board meeting to be validly conducted, the meeting must be properly convened by the correct person and within the specified time.

The Board through the Company secretary ensures that statutory returns like NSSA, ZIMDEF, VAT, PAYE, Income Tax, and annual returns are filed on time. This ensures legal compliance and minimizes the risk of exposing the company to sanctions, interest, and penalties by various bodies.

  • Tonderai Bhatasara LLB(s), Pro.Dir is a Non-Executive Board Member of City Parking (Private) Limited and Time Bank of Zimbabwe

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