Johannesburg — A NEW regulatory framework to help directors and public companies reach high standards of corporate governance and ethical conduct will be mandatory by next year.

The corporate scandals of the 1990s, financial collapses and misreporting in international markets led to increased regulation by governments and international bodies.

Recently released draft regulations for the new Companies Act provide a new set of standards for public companies and state-owned entities to monitor compliance .

Public companies will be required to appoint a social and ethics committee . Its main function " will be to monitor the company's compliance with legislation; particularly in relation to equality, empowerment, corruption, health, public safety and consumer and labour relations," said Shafeeka Hartley of commercial law firm Deneys Reitz yesterday. The committee would be required to report to shareholders at annual general meetings and advise the board of directors .

Existing companies would be required to comply by next year, while newly formed companies would be required to constitute a social and ethics committee within 40 business days of incorporation.

Hartley said the only exempt companies would be those in a group of which the holding company had already appointed a similar committee. All other companies would be required to apply to the Companies Tribunal for exemption.

Companies able to satisfy the tribunal that an alternative mechanism had the same function as the ethics committee could be exempted.

Where the board failed to constitute a committee, the Companies Commission would convene a shareholders meeting, and call on the shareholders to appoint one. Each director who knowingly failed to make the appointment would be personally liable for the costs incurred by the commission.

Hartley said certain public and state-owned companies might have committees in place which fulfilled a similar function. However, these companies would not automatically be exempted from the obligation to appoint a social and ethics committee . "The board must apply for an exemption and ensure that such application reaches the tribunal timeously if it wishes to avoid personal liability being attributed to the directors."

At least three directors of the company should serve on the committee. The board would also be required to appoint an equivalent number of people to an advisory panel. The panel was to consist of representatives of employees , and the community in which the organisation carried out activities, as well as psychologists, environmental assessors and lawyers.

However, these representatives could not be trade union representatives or directors.