Defining the contours of company directors’ duties and authority during shareholder activism in Zimbabwe

Abstract

This dissertation discusses the duties of directors, particularly the duty to act in the best interests of the company and the duty of loyalty in the context of shareholder activism in Zimbabwe. These duties were previously under common law but have now been codified in the Companies and Other Business Entities Act [Chapter 24:31] 4 of 2019 (the COBE Act). This has necessitated an investigation of the duties of directors as provided for in the COBE Act and these duties are discussed primarily in the context of who those duties are owed to during shareholder activism. In order to achieve this objective, an examination of the theories, the shareholder primacy theory, the pluralist theory as well as the enlightened shareholder approach are discussed extensively and juxtaposed with the provisions of the COBE Act on the duties of loyalty and to act in the best interests of the company. It is concluded that the COBE Act seems to take an enlightened shareholder approach in how directors should exercise their duties. Shareholders activism is examined with the initial focus being an investigation why there is shareholder apathy in Zimbabwe notwithstanding the fact that the global trends show that shareholder activism is on the rise. Corporate governance failures like the Enron scandal shocked the world and have been attributed to the need for shareholders activism. Reasons for shareholder apathy are put forward including the prohibitive costs of engaging in shareholders activism, lack of awareness of shareholders rights, to mention but a few. An analysis of the provisions of COBE Act as well as the National Code on Corporate Governance which provide for shareholders activism are discussed to determine the extent to which they support shareholders activism and in so doing, shareholders activism strategies such as AGMs, appraisal remedy, oppression remedy and derivative action are discussed. It is therefore concluded that while the COBE Act makes significant strides to support shareholders activism, more still needs to be done to encourage shareholders activism as the COBE Act places stringent technical requirements for shareholders to exercise their rights and therefore has the adverse effect of shareholder apathy. The discussion then focuses on the interplay of directors’ duties in the face of shareholders activism and describe how shareholders should respond when faced with shareholders activism. It is concluded that shareholders should not simply accede to shareholders activism as they owe duties to act in the best interests of the company and loyalty and should always be guided by those duties. Acceding to shareholder pressure raises fiduciary concerns for directors and they can therefore be held liable especially when they do not reasonably believe that the decision is not in the best interests of the company; in such instances directors cannot rely of the business judgment rule to avoid liability.