Social and Ethics Committees — What Your Clients Don’t Know Could Get Them Into Trouble
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Let’s get straight to it—if your clients fall into certain categories, the Companies Act legally requires them to have a Social and Ethics Committee (SEC). And if they don’t, they’re already non-compliant.
As their Business Accountant in Practice, you’re not just there to keep their books tidy. You’re the first line of defence when it comes to regulatory compliance. You’re the one who gets the late-night WhatsApp when SARS comes knocking, and you’re the one who should be flagging this before CIPC, or a funder asks the question.
So, what’s the deal with SECs—and why should your clients care?
The Law Is Clear: Some Clients Must Have an SEC
The requirement for a Social and Ethics Committee sits in section 72(4) of the Companies Act and is detailed in Regulation 43 of the Companies Regulations. This isn’t new, but many private companies are still getting it wrong—or ignoring it altogether.
If your client ticks any of these boxes, an SEC is not optional:
✅ They are a state-owned company
✅ They are a listed public company
✅ They are any other type of company that has scored 500 or more public interest score points (PIS) in any two of the past five financial years
Let’s break that last one down: a private company with lots of employees, external debt, revenue, or shareholders can easily cross the 500 PIS threshold—without even realising it. That’s where you come in.
Not Sure How to Calculate Public Interest Score?
It’s laid out in Regulation 26(2), and it’s worth brushing up on:
1 point for each average employee over the year
1 point for every R1 million of third-party liabilities
1 point for every R1 million in annual turnover
1 point for every individual with a beneficial interest in shares
If your client has grown significantly, taken on debt, or onboarded new shareholders, they may now be required to have an SEC. You’re best placed to run the PIS calculation and give them a heads-up.
Yes, There Are Exemptions — But They Don’t Apply Automatically
If your client thinks they don’t need an SEC, you’ll need to help them check whether they qualify for an exemption, and if so, apply to the Companies Tribunal.
There are only two grounds for exemption:
The company is a subsidiary of another company with its own SEC that oversees the whole group
The company’s nature and size of activities don’t justify it in the public interest
If an exemption is granted, it’s valid for five years—but it must be renewed before expiry. No exception = non-compliance.
What Does the SEC Actually Do?
This isn’t a vanity committee. The SEC has real responsibilities, which your clients need to understand (and document). As per Regulation 43(5), the committee must monitor:
Social and economic development (including B-BBEE and Employment Equity compliance)
Good corporate citizenship, including the company’s impact on:
The environment
Health and public safety
Employees and communities
Consumers
Ethical behaviour, codes of conduct, and the prevention of corruption
Legal compliance, including adherence to regulations, laws, and codes of good practice
Labour relations and consumer engagement
In other words, the SEC is there to make sure the company isn’t operating in a way that puts its people, clients, community, or reputation at risk.
What Your Clients Get Wrong (And What You Can Fix)
Here’s what we see too often:
🚫 No SEC when one is legally required
🚫 No record of exemption
🚫 No minutes, no charter, no reporting
🚫 SEC members who are all internal execs (no independent input)
🚫 No understanding of what the committee is even meant to do
Your job? Step in early. Flag the risk. Help them either set up an SEC properly—or apply for exemption. And yes, this is a billable service.
What Does a Proper SEC Look Like?
According to Regulation 43(4), an SEC must have:
At least three members who are directors or prescribed officers
At least one non-executive director (i.e. someone not involved in daily operations)
Ideally, the chairperson should be that non-executive. The idea is oversight, not more rubber-stamping.
If your client doesn’t have suitable internal capacity, they can appoint external advisors to help—but there must always be at least one non-executive.
Reporting and Evidence: No Paper Trail = No Committee
If your client holds an AGM, the SEC must report to shareholders at that meeting. If they don’t hold AGMs, they’ll need to report via the directors’ report in the Annual Financial Statements.
Help them keep a clean file with:
The board resolution that appointed the SEC
A term of reference or charter
Agendas and minutes of meetings
Copies of reports presented to the board or shareholders
Any policy updates (e.g. ethics, whistleblowing, environmental)
Remember—CIPC doesn’t need to be notified, but regulators and investors often request evidence of compliance during due diligence.
Turn This into a Service: Practical, Billable Compliance Support
Here’s how you can turn this into a clear offer for your clients:
✔ Run a Public Interest Score check annually
✔ Draft the board resolution to establish the SEC
✔ Help appoint and onboard committee members
✔ Provide a template charter aligned with Regulation 43
✔ Assist with preparing reports and meeting packs
✔ Guide the application for exemption where justified
✔ Review compliance annually and keep documentation audit-ready
For growing clients, this kind of structured compliance advice is not just valuable, it’s necessary. And best of all, they’ll gladly pay for peace of mind.
Final Word: If You Don’t Raise It, Someone Else Will
Whether it’s a funder, regulator, or auditor, someone is going to ask your client about their Social and Ethics Committee. And when they do, your client is going to turn to you.
Make sure you’re ready—with the facts, the templates, and the solutions. This is your moment to prove your value, protect your client’s business, and build trust as a governance partner.
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