Social and Ethics Committee

The Social and Ethics Committee: A Guide to Conscientious Governance in South Africa

The Social and Ethics Committee (SEC) is a progressive and uniquely South African governance structure that stands as a testament to the country's commitment to responsible and conscientious corporate conduct. It is a statutory Board Committee, formally established by the Companies Act, 71 of 2008, with a broad and powerful mandate to oversee a company's impact on society and the environment, and to monitor its standing as a good corporate citizen.

Born from a recognition that a company's success is inextricably linked to the well-being of the community and environment in which it operates, the SEC is far more than a corporate social responsibility "tick-box." It is a high-level committee of the Board of Directors tasked with holding the organisation to account on a wide range of non-financial matters, from labour practices and B-BBEE to consumer rights and environmental stewardship.

This guide provides a comprehensive exploration of the Social and Ethics Committee, detailing its legal mandate under the Companies Act, its elevated strategic role as envisioned by the King IV Report, and the practical functions that define its crucial place in modern South African Corporate Governance.

The Legal Mandate: A Requirement of the Companies Act

The existence of the SEC is not optional for many South African companies; it is a legal requirement. The mandate stems from Section 72(4) of the Companies Act and is detailed in Regulation 43 of the Companies Regulations, 2011.

Which Companies Are Required to Have a Social and Ethics Committee?

Regulation 43 specifies that the following categories of companies must establish an SEC:

  • All state-owned companies (SOCs).

  • All companies listed on the Johannesburg Stock Exchange (JSE).

  • Any other company that has, in any two of the previous five years, achieved a "Public Interest Score" (PIS) of more than 500 points.

The Public Interest Score is a mechanism used by the Act to gauge a company's public impact. It is calculated at the end of each financial year by allocating points as follows:

  • One point for every R1 million (or portion thereof) in turnover.

  • One point for every employee (average number throughout the year).

  • One point for every R1 million (or portion thereof) in third-party liabilities.

  • One point for every individual who is a shareholder (for a profit company) or a member (for a non-profit company).

Composition of the SEC

The regulations are specific about the committee's composition to ensure its proper functioning within the board structure. The SEC must comprise a minimum of three members. Its membership must include:

  • At least one non-executive director.

  • At least one director who is not involved in the day-to-day management of the business.

This means the committee can be composed of a mix of directors and "prescribed officers" (senior executives who exercise general control over the company), but it must be anchored by at least one non-executive director to ensure a degree of independent oversight.

The Statutory Functions: A Deep Dive into Regulation 43

The core of the SEC's mandate is its monitoring function. Regulation 43(5) provides a detailed and extensive list of the areas the committee must monitor and bring to the attention of the board.

Monitoring Social and Economic Development

This is a broad mandate that directly ties the company's activities to national and international standards and developmental goals. The SEC must monitor the company's standing in terms of:

  • The 10 principles set out in the United Nations Global Compact.

  • The recommendations of the OECD regarding corruption.

  • The Employment Equity Act.

  • The Broad-Based Black Economic Empowerment (B-BBEE) Act.

Monitoring Good Corporate Citizenship

This function requires the committee to oversee the company's character and its contribution to society. This includes monitoring:

  • The company's position on promoting equality, preventing unfair discrimination, and combating corruption.

  • Its contribution to the development of the communities in which its activities are predominantly conducted.

  • Its record of sponsorships, donations, and charitable giving.

  • The effectiveness of its public relations and how it presents itself as a good corporate citizen.

Monitoring Environmental, Health, and Public Safety Impact

This is the core "E" and "S" of ESG (Environmental, Social, and Governance). The committee must monitor the impact of the company's activities and its products or services on the environment, health, and public safety.

Monitoring Consumer Relationships

The SEC has a duty to oversee how the company interacts with its customers, including monitoring:

  • The company's advertising and public relations to ensure they are not misleading.

  • Its compliance with consumer protection laws.

Monitoring Labour and Employment Practices

This function focuses on the company's role as an employer. The SEC must monitor:

  • The company's standing in terms of the International Labour Organization (ILO) Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy.

  • Its employment relationships and its contribution to the educational development of its employees.

The Strategic Role of the SEC under the King IV Report

While the Companies Act sets out the SEC's compliance duties, the King IV Report elevates its role from a compliance body to a strategic committee that is central to the board's purpose.

From Compliance to Conscience

King IV reframes the SEC as the "conscience of the organisation." Its role is not just to tick the boxes of Regulation 43, but to provide integrated oversight of ethics, sustainability, and stakeholder relationships. It helps the board to appreciate that these non-financial issues are, in fact, critical drivers of long-term value and risk.

Custodian of Key Governance Outcomes

The SEC's work is directly linked to achieving the four governance outcomes sought by King IV:

  • Ethical Culture: The SEC is the primary board structure responsible for overseeing and reporting on the organisation's ethical performance and the health of its ethical culture.

  • Legitimacy: By monitoring corporate citizenship and stakeholder relationships, the SEC's work is fundamental to securing and maintaining the company's "social license to operate," which enhances its legitimacy in the eyes of society.

Overseeing Stakeholder Relationships

A core philosophy of King IV is the stakeholder-inclusive approach (Principle 16). The SEC is the board's key mechanism for putting this principle into practice. It is responsible for ensuring that the legitimate and reasonable needs, interests, and expectations of material stakeholders are considered in the company's decision-making.

Reporting to Shareholders

The importance of the SEC is further underscored by the requirement for at least one of its members to attend the Annual General Meeting (AGM). This ensures that the committee is directly accountable to shareholders for its activities and can answer questions on the company's social and ethical performance.

The Social and Ethics Committee in Practice

Given its vast mandate, an effective SEC requires a structured and diligent approach.

  • A Clear Work Plan: The committee must develop a detailed annual work plan to ensure that it systematically addresses all of its statutory and strategic responsibilities.

  • Reliable Information: One of the biggest challenges for the SEC is gathering accurate, relevant, and timely data from across the organisation on a wide range of non-financial metrics.

  • Collaboration: The SEC's work often overlaps with that of other Board Committees. For example, ethical breaches may have financial implications (Audit Committee) or arise from incentive structures (Remuneration Committee). Close collaboration is therefore essential.

How BoardCloud Empowers the Social and Ethics Committee

The broad, data-intensive, and highly visible mandate of the SEC makes it an ideal candidate for support from a modern board portal like BoardCloud.

  • Managing a Complex Mandate: BoardCloud provides a secure, structured, and digital workspace where the SEC can manage its annual work plan, track progress against its objectives, and maintain all its records in one place.

  • Centralising Diverse Information: The platform serves as a single, secure repository for the vast and varied information the SEC needs to perform its functions—from B-BBEE scorecards and environmental compliance reports to employee wellness data and ethics hotline statistics.

  • Creating a Defensible Audit Trail: A board portal creates a clear, auditable record of the committee's activities. The platform securely stores the Meeting Minutes, the reports it considered, and the recommendations it made to the board. This is crucial for demonstrating to regulators and shareholders that the committee has diligently fulfilled its statutory Fiduciary Duties.

Frequently Asked Questions (FAQ)

What is a "Public Interest Score" (PIS)?

The PIS is a points-based system in the Companies Act used to determine the level of public interest in a company, which in turn determines some of its compliance obligations. Points are allocated for turnover, number of employees, third-party liabilities, and number of shareholders. A score above 500 triggers the need for an SEC.

Can the Audit Committee and the Social and Ethics Committee be combined?

The Companies Regulations and governance best practice strongly indicate that they should be separate committees. Their mandates are distinct, extensive, and require different areas of focus and expertise. Combining them would risk diluting the attention given to the critical functions of each.

Who does the Social and Ethics Committee report to?

The SEC is a committee of the board, and as such, it reports directly to the Board of Directors. It is also required by law to report to the company's shareholders at the Annual General Meeting.

Is the SEC's role just about compliance and corporate social responsibility (CSR)?

No. Under the integrated thinking model of the King IV Report, the SEC's role is deeply strategic. It oversees non-financial risks and opportunities (like reputation, regulatory changes, and stakeholder trust) that are critical to the company's long-term sustainability, resilience, and ability to create value.

Conclusion: A Pillar of Sustainable Governance

The Social and Ethics Committee is a powerful and visionary feature of the South African Corporate Governance landscape. It is a direct legislative and governance response to the global understanding that businesses do not operate in a vacuum. By embedding the oversight of social, ethical, and environmental matters at the highest level of the company, the SEC serves a dual role: it is a statutory body that ensures compliance, and a strategic committee that guides the organisation towards becoming a more responsible, resilient, and respected corporate citizen. A well-functioning SEC is an indispensable pillar for any South African company seeking to build a truly sustainable business.