From CompliNEWS | Financial Services Intelligence Watch

Writing in Business Day, Dr Sibongile Vilakazi makes an important distinction between meeting the legal duties of a director and genuinely exercising good stewardship. Section 76 of the Companies Act requires directors to act in good faith and for a proper purpose, in the best interests of the company and with the appropriate degree of care, skill and diligence. Together with the King governance principles, this provides the foundation for responsible corporate conduct. But Vilakazi argues that difficult governance decisions do not always fit neatly within a legal checklist. Directors may have to challenge powerful individuals, oppose decisions supported by colleagues, insist on independent advice, raise uncomfortable concerns or pursue an issue others would prefer to disappear. Doing the right thing can carry professional, financial and even personal consequences. Her broader point is that while legislation can prescribe standards of conduct, it cannot fully prescribe the courage, independence and integrity sometimes required to protect an organisation.

This is particularly relevant in South Africa, where governance failures, corruption and institutional capture have repeatedly demonstrated what can happen when formal structures exist but those entrusted with them are unwilling or unable to challenge misconduct. Vilakazi asks what should happen when protecting an organisation requires an individual to go beyond what the law strictly demands and accept a significant personal cost. The question matters because governance ultimately depends on human judgement. A board can have charters, committees, policies and carefully documented delegations, but these mechanisms achieve little if directors are reluctant to ask difficult questions or allow personal, political or factional interests to influence decisions. Conversely, directors who are prepared to challenge prevailing thinking and persist with legitimate concerns can provide an important safeguard against problems becoming embedded within an organisation.

Compliance Comment

There is a strong parallel for financial services. Compliance should never become an exercise in establishing the minimum regulatory position and stopping there. Boards, key individuals, senior management and compliance officers need to consider not only whether a proposed course of action is technically permitted, but whether it is consistent with the purpose of the regulatory framework, the interests of clients and the firm’s own risk appetite and governance standards. A transaction, product, distribution arrangement or business practice may conceivably pass a narrow legal test while still creating significant conduct, reputational, financial-crime or client-outcome risk. In those circumstances, saying that there is ‘no rule expressly prohibiting it’ is not necessarily a satisfactory governance answer.

This also speaks directly to the role of the compliance officer. An effective compliance function must sometimes deliver advice that is commercially inconvenient, question an established practice, escalate a weakness that has not been addressed, or challenge a senior decision-maker. Compliance officers should not substitute their judgement for that of the board, nor should they be expected to carry management’s responsibilities. But neither should independence mean standing at a distance and simply recording that a minimum requirement has technically been met. Good compliance involves identifying the underlying risk, explaining the regulatory purpose, documenting concerns and escalating material matters through the appropriate governance structures when necessary.

The lesson for regulated firms is therefore broader than directors’ duties. A compliance culture is tested most severely when doing the right thing is inconvenient. Policies and procedures are relatively easy to follow when regulatory requirements and commercial interests point in the same direction. The real test comes when they diverge — when additional due diligence may delay a valuable client, when a product needs to be reconsidered despite significant investment in its launch, when a control weakness requires uncomfortable disclosure, or when a senior individual needs to be challenged. Those are the moments in which governance culture becomes visible. For boards and compliance teams, the practical question should therefore extend beyond ‘Are we compliant?’ to ‘Can we defend this decision as responsible, fair and consistent with the outcomes the regulatory framework is intended to achieve?’ That distinction is increasingly important as financial-sector supervision becomes more outcomes-focused and regulators place greater emphasis on governance, culture, accountability and demonstrable effectiveness rather than policies existing on paper. The law establishes the floor. Strong governance, independent judgement and ethical leadership determine how an organisation behaves above it.

Read the Full Business Day analysis here