The Decision That Cost Everything — Because No One Had Written Down Who Could Make It
Priya had built a successful events management company over eight years. When the opportunity arose to acquire a smaller competitor, she saw it immediately: the combined client list, the additional team capacity, the market positioning. It made commercial sense.
She moved quickly. She negotiated the deal, signed a heads of agreement, and committed the company to a purchase price of R3.2 million — without calling a board meeting, without a board resolution, and without the knowledge of her two fellow directors.
The acquisition went wrong. The target business had hidden liabilities. The other directors, who had been given no opportunity to conduct due diligence or exercise oversight, raised questions about Priya’s personal liability for a decision made outside her authority.
A board governance policy — specifically a delegation of authority framework — would have prevented the entire situation. Not by stopping Priya from pursuing the acquisition, but by requiring a board resolution before a commitment of that magnitude could be made. (A delegation of authority framework is a recommended policy rather than one included in this template — see below.)
It would have protected the company. And it would have protected Priya.
What Are Board of Directors Governance Policies?
Board governance policies are documented rules and frameworks that govern how the board of directors operates, makes decisions, and exercises oversight of the company.
They sit alongside and complement your company’s Memorandum of Incorporation (MOI) and shareholders agreement. The MOI defines the legal structure — what the company can do, what shareholders can vote on, what decisions require whose approval. Board policies translate that structure into practical day-to-day governance: how meetings are run, what decisions require board sign-off, how conflicts of interest are managed, what financial controls are in place.
Without governance policies, a company’s board operates on assumption, convention, and goodwill. These are not reliable foundations when things go wrong — and they offer no protection to directors when their conduct is later scrutinised.
The Legal Basis: Companies Act 71 of 2008
Under Section 15(3) and (4) of the Companies Act, the directors of a company may make governance rules — documented policies that govern the board’s internal affairs — without an initiating shareholders’ resolution. Such a rule is, however, binding only on an interim basis from when it is made until it is put to shareholders, and becomes permanently binding only if ratified by ordinary resolution at the next shareholders’ meeting; it must also be published to shareholders and filed with the CIPC. These rules must be consistent with the Companies Act and the company’s MOI, and The MOI may restrict or exclude this power, but within those constraints, the board has considerable flexibility to design governance structures suited to its specific context.
This legislative basis matters for two reasons.
First, it confirms that board governance policies are a recognised, formal mechanism under South African company law — not merely a best-practice suggestion.
Second, it means that governance rules adopted by the board are binding on directors. A director who acts contrary to adopted governance policies is not simply acting against convention — they are potentially acting in breach of a formal company governance rule, with the legal consequences that follow.
Director Duties and Personal Liability: What Board Policies Protect Against
Under Sections 76 and 77 of the Companies Act, directors of South African companies have specific statutory duties:
- The duty to act in good faith and in the best interests of the company
- The duty of care, skill, and diligence — a director must act with the care and skill that may reasonably be expected of a person carrying out similar functions
- The duty to avoid conflicts of interest — a director with a personal financial interest (governed principally by section 75 of the Companies Act) in a matter must disclose it and recuse themselves from the decision
A director who breaches these duties can be held personally liable for the loss caused to the company. This is not a theoretical risk — South African courts have held directors personally liable where they failed to exercise proper oversight, approved transactions without adequate information, or acted outside their authority.
Board governance policies directly reduce this risk. When a policy requires a board resolution before significant expenditure, a director who acts without that resolution is clearly outside their authority. When a conflict of interest policy is in place, a director who fails to disclose and recuse themselves has no defence that the obligation was unclear.
Documented governance is, in practical terms, a director’s best protection.
King IV and Its Application to Small South African Businesses
King IV Report on Corporate Governance for South Africa (2016) is the South African corporate governance code. While originally developed with listed companies in mind, King IV explicitly applies to all entities — including private companies, non-profit organisations, and small and medium enterprises.
King IV operates on an apply and explain basis: organisations explain how they apply each governance principle in a way appropriate to their size and context. A small private company does not need a remuneration committee or a formal audit committee — but it does need to apply the underlying governance principles of accountability, transparency, integrity, and ethical decision-making.
The most relevant King IV principles for small businesses are:
- The board is the primary governance structure — it steers strategy and exercises oversight over management
- The board should operate according to documented governance frameworks
- Decision-making should be transparent and subject to appropriate oversight
- Conflicts of interest must be identified, disclosed, and managed
Board governance policies are the mechanism through which small businesses apply King IV principles in a practical, proportionate way.
Four Governance Policies Every Small Business Board Should Have
1. Board Charter
The foundational governance document. The board charter defines:
- The board’s role, responsibilities, and authority
- The relationship between the board and executive management
- Meeting frequency, notice, and quorum requirements
- How the board is constituted and how directors are appointed and removed
- The processes for board performance evaluation
Without a board charter, there is no documented framework for how the board operates. Every governance disagreement becomes a first-principles argument.
2. Delegation of Authority Framework
This is Priya’s missing policy. A delegation of authority framework (sometimes called a levels of authority policy) defines:
- Which decisions the CEO or managing director can make alone
- Which decisions require management sign-off (two or more executives)
- Which decisions require board approval
- Financial thresholds for each level (for example: management can approve expenditure up to R500,000; board approval required above that)
The framework prevents both governance failure (decisions made at the wrong level) and operational bottlenecks (board approval required for routine decisions that should be delegated).
3. Conflict of Interest Policy
Directors and senior managers regularly encounter situations where their personal interests may conflict with the company’s interests. A conflict of interest policy:
- Defines what constitutes a conflict of interest (direct financial interest, indirect benefit through a connected party, competing business activities)
- Requires directors to disclose conflicts as they arise
- Sets out the process for recusal — the conflicted director must leave the room before discussion and vote
- Maintains a register of disclosed interests
Under the Companies Act, a director who fails to disclose a material interest in a company transaction can be held personally liable and the transaction may be set aside.
4. Financial Controls and Approvals Policy
The financial governance policy operationalises the delegation of authority framework with specific financial controls:
- Bank account signatories and approval requirements
- Petty cash limits and expense claim procedures
- Capital expenditure approval thresholds
- Procurement requirements (competitive quotes above specified thresholds)
- Expense reimbursement rules for directors and senior staff
This policy is particularly important for small businesses where the same people often make financial decisions and approve their own expenditure. Documenting the controls creates accountability even in a small team.
Under the Companies Act, companies are required to maintain board meeting records. Adequate minutes that document the reasoning behind significant decisions also protect directors if those decisions are later challenged.
A company with a well-drafted MOI, a shareholders agreement, and documented board governance policies has a coherent, integrated governance framework. Each document does its specific job. Together, they protect the company, its shareholders, and its directors.
Get Professionally Drafted Board Governance Policies Today
Our Board of Directors Governance Policies template is drafted by SchoemanLaw Inc. — a South African commercial law firm with more than 20 years’ experience in company law and corporate governance. The template:
- Complies with the Companies Act 71 of 2008 and aligns with King IV principles
- Includes a detailed conflict of interest policy and director duties framework, plus policies on confidentiality, POPIA data protection, competition law, anti-bribery and corruption, personal profit, honest record-keeping, and King IV-aligned decision-making
- Is written in plain, practical language — not dense governance jargon
- Is proportionate to small and medium-sized businesses — rigorous without being bureaucratic
- Is updated in real time as Companies Act requirements and King IV guidance evolve
Download your Board Governance Policies template →
Also need to review your MOI or Shareholders Agreement? Browse our Shareholders Agreement or Memorandum of Incorporation template →
Take our free business risk assessment to find out whether your current governance structure leaves your directors exposed or schedule a 30-minute Free Consultation with our lawfirm partner SchoemanLaw Inc.
Frequently Asked Questions
Are board governance policies legally required for small businesses in South Africa? The Companies Act (Section 15(3)) permits boards to make governance rules — which take effect on an interim basis and must be ratified by ordinary resolution at the next shareholders’ meeting under s 15(4) — it does not expressly require them for private companies. However, the director duty provisions (Sections 76–77) create personal liability risks that governance policies directly mitigate. In practice, any company with more than one director should have documented governance policies.
What is the difference between board policies and the MOI? The MOI is a public document filed with CIPC that defines the legal structure of the company — share classes, voting rights, director appointment mechanisms. Board governance policies are internal documents that govern how the board operates day to day — meeting procedures, delegation of authority, conflict of interest management. Both are necessary; they serve different functions.
Can a director be held personally liable for a decision made without board approval? Yes, in certain circumstances. Under Section 77 of the Companies Act, a director who acts outside their authority or in breach of their duty of care can be held personally liable for the resulting loss. A documented delegation of authority policy makes the boundaries of each director’s authority clear — protecting directors who act within those boundaries and creating accountability for those who do not.
Does King IV apply to small private companies? Yes. King IV explicitly applies on an apply and explain basis to all entities, including private companies. The level of formality required is proportionate to the size and complexity of the business, but the underlying governance principles — accountability, transparency, integrity — apply regardless.
How often should board policies be reviewed? At a minimum, annually, and whenever there is a significant change in the company’s structure, strategy, or risk profile — a new shareholder, a new line of business, a significant change in regulatory requirements, or a change in board composition.
