Does Your Board Have Written Governance Policies? Here’s Why It Should.

A director of a small South African company made a major acquisition decision alone — committed the company to a R3.2 million purchase without a board meeting, a board resolution, or the knowledge of her co-directors. The acquisition went badly. The other directors raised questions about personal liability. A properly documented governance policy would have prevented the entire situation. Board governance policies are not just for large listed companies. They are how any company with a board of directors — even a two-person board — protects itself and the individuals who serve on it. What Are Board of Directors Governance Policies? Board governance policies are documented frameworks that define how the board operates, how decisions are made, and who has authority over what. They translate the legal structure of your Memorandum of Incorporation into practical, day-to-day governance rules. Under Section 15(3) and (4) of the Companies Act, directors may adopt internal governance rules — without a shareholders’ resolution — provided they are consistent with the Act and the company’s MOI. Board governance policies are the formal expression of that right. Why They Matter Director Personal Liability Under Sections 76 and 77 of the Companies Act, directors have specific legal duties — to act in good faith, with care and skill, and to avoid conflicts of interest. A director who breaches these duties can be held personally liable for the resulting loss. Board governance policies define the processes directors are expected to follow. When those processes are followed, directors are protected. When they are not, the breach is documented. King IV It Applies to Your Small Business Too The King IV Report on Corporate Governance applies to all South African entities — including private companies — on an “apply and explain” basis. Board governance policies are how small businesses apply King IV principles proportionately and practically. The Policies Every Small Board Needs Board Charter — defines the board’s role, authority, meeting requirements, and relationship with management. Without it, every governance disagreement starts from first principles. Delegation of Authority Framework — defines which decisions can be made by the CEO alone, which require management sign-off, and which require board approval. This is the policy that protects directors from the situation above. Conflict of Interest Policy — requires directors to disclose personal interests in company decisions and recuse themselves from the vote. A director who fails to disclose can be held personally liable and the transaction set aside. Related Party Transactions Policy — governs transactions between the company and parties connected to its directors or shareholders. Requires independent board approval and arm’s length terms. Risk Management Policy — ensures that business risk is identified, assessed, and managed as a board responsibility, not left entirely to management. Financial Controls Policy — defines bank account signatories, approval thresholds, expense claims, and procurement requirements. Essential for small businesses where the same people often make and approve financial decisions. Board Meeting and Record-Keeping Policy — establishes how meetings are called, how resolutions are passed, and how minutes are recorded. Board minutes are legal records of company decisions. How They Work With Your MOI and Shareholders Agreement Your MOI establishes the legal framework. Your Shareholders Agreement covers shareholder-level rights and obligations. Board governance policies cover the board’s internal operations. Together, they give your company a complete, coherent governance framework — each document doing its specific job. Get Your Board Governance Policies Template The Contracts4Biz Board of Directors Governance Policies template is drafted by SchoemanLaw Inc., complies with the Companies Act 71 of 2008, aligns with King IV principles, and is written in plain, practical language appropriate for small and medium-sized businesses. Learn more about Board of Directors Policies on the Contracts4Biz website. Governance is not bureaucracy — it is how directors protect themselves and the businesses they run. The right policies make good governance straightforward.