the dissenting director
position paper 1
position paper 1 - page 1 the dissenting director
not be regarded as professional
contents advice or the ofﬁcial opinion of PwC, Issues such as
1 Introduction the IoD or individual members. No the strategic
action should be taken on the strength path that the
2 The essence of dissent of the information without obtaining company takes
professional advice. Although PwC into the future are
3 Characteristics of constructive
and the IoD take all reasonable steps more likely than
to ensure the quality and accuracy others to result in disagreement. We
of the information, accuracy is not set out guidelines and considerations
4 Sensitive issues that may
guaranteed. PwC, the IoD or its for the director when faced with these
members shall not be liable for issues in our sections on “Sensitive
5 Formalities of dissent any damage, loss or liability of any issues that may provoke dissent” and
nature incurred directly or indirectly “Guidelines for dissenting directors”.
6 Guidelines for dissenting directors by whomever and resulting from
any cause in connection with the Companies with boards that do not
7 Possible reasons for an absence information contained herein. entertain disagreement nor engage
of healthy debate
with management, or challenge their
EXECUTIVE SUMMARY decisions, need to consider whether
8 The role of the chairman
Healthy and robust debate and the board culture is conducive to
9 Conclusion discussion between directors is healthy debate. They also need to
an integral component of board consider whether directors with the
10 References functioning. The beginning point appropriate levels of expertise and
of deliberations may involve robust experience have been appointed.
The information contained in this paper discussion and debate around the
published by PricewaterhouseCoopers issue at hand. This may be reﬂected The role of the chairman is also a
(PwC) and the Institute of Directors by differing views or disagreement on pivotal one in this area. We discuss
(IoD) is provided for discussion the matter. this in more detail in our sections
purposes only and is intended to dealing with “Possible reasons for an
provide the reader or his/her entity The word “dissent” is used for the absence of healthy debate” and “The
with general information of interest. purposes of this paper to describe role of the chairman”.
The information is supplied on an “as the situation after these two stages
is” basis and has not been compiled have passed and the director cannot 1. Introduction
to meet the reader’s or his/her reconcile himself to the direction The concept of an effectively
entity’s individual requirements. It is taken by the board as a whole. It is at functioning board is one that brings
the reader’s responsibility to satisfy the stage when disagreement turns to mind optimal decision making in an
him or her that the content meets to dissent that a director needs to atmosphere of mutual respect, trust,
the individual or his/ her entity’s carefully consider his position and the candour and open debate. However,
requirements. The information should available options. it is to be expected that within
the dissenting director position paper 1 - page 2
this atmosphere, disagreements, all times act honestly and in the best of the company,
differences of view, and in some interest of the company. Displaying which should
instances, dissent will arise. dissent when required, and acting already have
with unfettered discretion, forms part been agreed
This paper seeks to highlight the and parcel of this primary ﬁduciary upon by the
importance of raising the dissenting duty. The director therefore has a board.
voice. It also provides practical responsibility to make his voice heard
guidelines for doing so in the best where he disagrees with a certain Another possible cause of
interests of the various stakeholders. course of action. disagreement may be the method of
implementation. This will often arise
The board of directors collectively 2. The essence of dissent from differences in the perceived risks
(and those individuals that constitute The terms “disagreement” and inherent in the proposed approach, as
it) is charged with making decisions “dissent” as used in the paper are compared to alternative options.
on behalf of the company. Directors’ not meant to be synonymous. As Dissent on matters of ethics or
duties arise from the common law, the illustrated below, disagreement does principle are the most difﬁcult to deal
Companies Act and other legislation. not necessarily constitute dissent but with. Personal and religious convictions
The company’s articles of association aside, there are various other ethical
may lead to dissent.
considerations, such as fairness and
may impose further duties upon its
transparency that come into play when
directors. Before directors can be in a position
business transactions are concluded
to decide on a proposal put before
and the board must consider these.
A director acts in a ‘ﬁduciary’ capacity the board, it is essential that they
in relation to the company. This have a proper grasp of the facts and
Disagreement on fundamental issues
ﬁduciary duty entails that directors at assumptions that underpin it. The ﬁrst
such as fraudulent, reckless, grossly
step when differences of opinion arise
negligent or unlawful conduct is most
therefore is for directors to understand
likely to lead to formal dissent.
these facts and assumptions.
It is important that the board debate
Initial differences of opinion may
should be conducted in such a way
arise over the underlying facts and
that the focus is on the issues involved
assumptions and these need to be and effect that they will have on the
clariﬁed at the outset in order to ensure long-term beneﬁt of the company.
that the debate is conducted from the
correct premise. The extent of disagreement may vary
from a minor difference of opinion over
More serious disagreement may arise an immaterial issue to a fundamental
over the purpose or objectives sought disagreement. The latter, if it is
to be achieved by a proposed course unresolved, may result in the formal
of action. Such proposals should be dissent from a board decision by one
consistent with the strategic direction or more directors.
position paper 1 - page 3 the dissenting director
3. Characteristics of constructive 5. Formalities of dissent favour of his or
dissent Board decisions are taken collectively her view.
Dissent is not the same as disloyalty and it is assumed that each director
but rather an honest expression of was party to a decision, unless • In raising a
a director’s responsibility to act in indicated otherwise. Directors who dissenting
the best interest of the company. disagree with a decision may be voice, the
The knowledge by each director that deemed to have consented unless director should
other members of the board take their they formally dissent. In most always ensure that he or she is
responsibilities seriously, creates a jurisdictions abstaining from voting doing so on an informed basis. To
stronger, more effective monitoring does not constitute dissent. this end the use of an independent
unit. professional may be required.
It is therefore important that corporate King II states that directors “must,
Enterprise involves risk taking in order minutes preserve an accurate and if in doubt about any aspect of
to achieve its objectives. Effective ofﬁcial record of the proceedings of a their duties, obtain independent
decision making entails understanding board or committee meeting. Well- professional advice at the earliest
these risks and assessing whether kept corporate minutes and directors opportunity”. King II also requires that
the company is managing the risks resolutions serve as a record of the “board should have an agreed
appropriately. Dissent is inappropriate if corporate decisions and reﬂect director procedure whereby directors may,
aimed at avoiding risk in its totality. dissent where appropriate.
Dissent should therefore not be used
to stiﬂe innovation and business
initiative. It is the ﬁnal expression 6. Guidelines for dissenting directors
of a director’s personal opinion in Where a director is in disagreement
the process of exercising his or her with a board decision, the following
ﬁduciary duty. guidelines are available to the
4. Sensitive issues that may provoke
dissent • The director should raise
Dissent may arise in relation to major his or her concerns at the
decisions that may include: board meeting and obtain all
• formulation of strategy; information necessary to make
• implementation of strategy; the decision.
• dividend policy;
• unlawful conduct; • If still in disagreement, the
• appointment, retention, retirement director should thereafter
and re-appointment of directors; and engage in robust debate at
• issues relating to company culture, the meeting and put forward
ethics and value systems. facts and arguments in
the dissenting director position paper 1 - page 4
if necessary, take independent convene a special meeting. to result, the
professional advice at the company’s director may
expense.” • The above may include drafting and have no option
distributing a detailed memorandum but to resign
• Upon having obtained this advice, of concerns to the other directors from the board.
the director should arrange for further and to request discussion of
board discussion relating to the this memorandum at the special • A director
matter. meeting. If the chairman is not willing intending to resign should obtain
to convene a special meeting to legal counsel on his or her course of
• If, after receipt of further information discuss the issue, the articles of the action.
and the additional board discussion company should be consulted to
the director is still dissatisﬁed, he determine if an individual director has • At this stage the director should
consider issuing a statement to the
board explaining his or her position
together with his or her resignation.
In this instance the director should
seek legal counsel to ensure
ﬁduciary duties and responsibilities
are not breached.
• The director should discuss and
preferably agree with the board the
nature of the public communication
regarding the resignation bearing in
mind the ﬁne line between the duty
of conﬁdentiality to the company and
the duty to report to shareholders
in an open and transparent manner
so as to enable them to properly
exercise their powers of appointing
or she may request the formal the power to call a meeting.
recording of the dissenting view in
the resolution of the meeting where • Having taken the steps above, if
• If the matter is one that will be
the matter is discussed. the view of the dissenting director is reported to shareholders in a circular
then voted against or overruled on or annual report, the chairman may
• For concerns arising between a matter which he or she regards allow the director the right to require
scheduled meetings, the director as one of fundamental principle, that it be recorded in the circular or
can approach the chairman or and he or she is of the opinion that annual report that the decision of the
company secretary in order to serious harm to the company is likely board was not unanimous.
position paper 1 - page 5 the dissenting director
• A director is bound by the ﬁduciary directors may result in boards being board meeting
duty to maintain conﬁdentiality with over-weighted with inexperienced is inappropriate.
respect to information acquired members incapable of dealing with
about the company’s operations complex corporate issues. • Directors do
and affairs in his or her capacity as not adequately
director, as well as any provisions • The chairman may not understand prepare for
contained in his or her service how to manage the board complex issues
contract. This duty continues after deliberation process or lack the discussed at board meetings.
the director has left the board. It necessary skills to do so.
is only in rare circumstances that 8. The role of the chairman
the duty to maintain conﬁdentiality • Directors may lack the expertise, The chairman of the board is primarily
is overridden by the duty to report
conﬁdence and courage to analyse responsible for the effective functioning
to other authorities, for example a
the company’s problems and of the board. This includes inter alia
requirement to report corruption
opportunities. to preside over meetings of directors
under the relevant statutes. Where
and to ensure the smooth operation
there is a legal obligation on the
• Directors may not be groomed in of the board. The chairman therefore
director to report, this would not
board etiquette and may therefore be has the key role in managing debate,
result in a breach of ﬁduciary duty. In
of the view that to ask a question in a disagreement and ultimately dissent.
all instances the director would be
advised to seek legal counsel
It is the duty of the chairman to
encourage healthy and robust
debate over decisions and
7. Possible reasons for an
ultimately strike the correct
absence of healthy debate
A board culture which balance between too little and
discourages robust debate is one too much debate.
of the possible reasons for a lack
of director involvement. Other 9. Conclusion
reasons may be: The role of critical and robust
• The view that directors debate, disagreement and
should be completely loyal dissent at the appropriate
to the chairman and support levels and in the appropriate
management demands creates manner is undeniable in shaping
a culture of conformity and the future of a company and
dampens or eliminates healthy maximising value. To this
discussion and debate. end, directors must act with
courage in the face of possible
• Shortcomings in the selection reprisals and stand ﬁrm in their
process and the training of new conviction to do that which is
the dissenting director position paper 1 - page 6
in the best interests of the company. • Gardner, H.; Fryer, B. (2007). The
This is required not only as it is a legal Ethical Mind. Harvard Business
responsibility of directors but more Review, March 2007.
importantly because ethical standards • King Report on Corporate
demand it. Governance for South Africa, 2002
• Leighton, D.; Thain, D (1994).
10. References Effective director dissent. Business
• Companies Act 61 of 1973, South Quarterly, 22 June 1994.
Africa. • Sonnenfeld, J.A. (2002). What
• Crauford, N. (2006). Three Golden Makes Great Boards Great. Harvard
Rules Put Thinkers on Board. Business Review, September 2002,
Dominion Post, 16 May 2006. 106-114.
• Crauford, N. (2008). Directors
and Board Diversity. Independent
Financial Review, 30 January 2008.
1st Floor, Block B, Grayston Ridge Ofﬁce Park, 144 Katherine Ave, Sandown
Contact Person: Ansie Ramalho; email: firstname.lastname@example.org
Tel: +27 11 430-9900 Fax: +27 11 444-7907
GUIDELINE FOR DISSENTING DIRECTORS
Options Step 1: Step 2: Step 3a: Step 3b: Step 4a: Step 4b:
• Obtain all information Obtain independent Despite initial views, If still do not support Consider appropriate Consider appropriate
necessary to make professional advice based on further facts decision, request further steps and further steps and
decision. and arrange for further and debate, agree to formal recording of obtain professional obtain professional
• Engage in robust board discussion. support decision. dissenting view in advice in this regard. advice in this regard.
debate at meeting resolution.
and put forward facts Resignation and Report to the relevant
and arguments in possible notice/ authorities where
favour of your view. communiqué to required by law.
parties. Must still be
acting in the interest
of the company.
Dissent on a Obligatory Optional depending No action Recommended Optional depending Not applicable
matter of business on the importance of on the importance of
judgement eg. the issue. the issue.
Dissent on matter of Obligatory Recommended No action Obligatory Recommended subject Not applicable
perceived business to legal advice, and
ethics or principle. provided ethical
issue is in relation
to company and not
personal view (for
example on smoking,
Dissent on Obligatory Obligatory Where a fundamental Obligatory Obligatory subject to Obligatory
fundamental matter matter is concerned, legal advice.
that may constitute action is necessary.
grossly negligent or
* Where the personal values and ethics of a director conﬂict with the business of the company but are not generally offensive to the values of that company (for example a
company has an investment in a casino but a director is religious and does not support gambling), this kind of personal conﬂict does not require the actions set out above.
The director should consider resignation if his/her fundamental values and ethics are not reconcilable with the business model of the company.