Good corporate governance is a process, which has both quantitative and qualitative elements. But legislation will tend to focus on the quantitative aspects - whether a company has a suitable number of non-executive directors, whether directors attend board meetings on a regular basis, whether the company has audit and remuneration committees. These are not the most important tests of good governance, as the Enron case in the United States demonstrates - for Enron scored well on all these criteria. Insofar as legislation tries to capture the qualitative element in good corporate governance, it is likely to undermine established common law rules without adding anything of equal value. Rather, new statutory criteria are likely to create fresh uncertainties in interpretation and a host of other practical problems. Yet the department of trade and industry may introduce such criteria when it updates and revises the present Companies Act over the next two years.

At present, the obligations resting on directors are found in common law rules. Directors must act in good faith, show a duty of care, use their knowledge and skills, and act with due diligence. In particular, they must not take corporate opportunities and use them for personal gain. Often these criteria are difficult to apply in concrete situations. But, at the same time, we already have a rich body of precedent which provides useful guidance and reflects the wisdom accumulated over years. Writing a statute will cut across and upset all that.

The Public Finance Management Act (PFMA) of 1999 demonstrates the dangers. This act, which applies to state-owned enterprises and parastatals, effectively requires them to comply with the King committee's principles of good corporate governance or face criminal sanctions. Already, the statute has generated enormous difficulties. The common law obliges directors to show a 'duty of care'. But the act requires that they demonstrate 'a duty of the utmost care'. What does this mean? The PFMA also imposes a new obligation on directors to 'prevent any prejudice to the financial interests of the state', when their primary duty is to safeguard the interests of the company. In addition, the act makes all directors 'jointly and severally liable' for all decisions of the company - even those in which they played no part or to which they were not expected to contribute.

So pressing are the problems with the PFMA that amendments will soon have to be made. Unfortunately, only a few of the most obvious anomalies will be removed. The government is not rethinking whether corporate governance guidelines should be legislated at all. Hence, it is likely to proceed with legislation for the private sector. But the King committee will oppose any revision to company law along these lines.

It is important to have guidelines in place on good corporate governance: to spell out that directors have a duty to act in the best interests of the company, and that the company in turn has a responsibility towards all its stakeholders in terms of a triple bottom line (financial, social, and environmental). It is important to encourage companies to comply with these guidelines. But it is also vital to acknowledge that enterprise is risky, that the circumstances in which companies operate vary enormously and also change over time, and that too many legal rigidities can get in the way of the success of the enterprise. The best approach is to allow companies the flexibility to decide against complying with certain guidelines - while encouraging them to explain why they have made this choice.

It is a very different matter to introduce laws on corporate governance which are backed by criminal sanctions for non-compliance - including the ultimate penalty of imprisonment. Fit and proper persons will no longer be willing to take up appointment to boards. Non-executive directors will refuse to serve unless they can be guaranteed limited liability.

Business is an ethical enterprise, which creates jobs for men and women, which brings new products to the market, which improves many lives. But companies also operate in risky environments and have to deal with uncertain future events. Inevitably some will fail. But they also offer rewards to their stakeholders to offset the risks. Society needs and wants them. It accepts that directors will make mistakes from time to time. If the directors of a failed enterprise have acted honestly and in keeping with their common law obligations, society is willing to accept that.

Legislators are now wanting to step in for many reasons. One is that the main shareholders in companies are no longer wealthy families. They are institutions such as pension funds, in which most people have a vital stake. We have all become involved in the equity market, if only indirectly. And capital today moves in a borderless electronic world, at the click of a mouse. Enron-type collapses now affect us all: so the politicians have become concerned and want to jump in. But you cannot legislate the key qualitative aspect of good corporate governance. Besides, awareness of the need for good governance has grown exponentially in South Africa since the King committee was appointed in 1992. Hence, South Africa already has good corporate governance among its listed companies - a standard of performance widely recognised as the best in the developing world.

We now need processes to aid directors in discharging their responsibilities. Here, the most useful analogy is that of a close relative or friend struck down by incapacity. The person appointed his curator must act in the best interests of the person incapacitated. He must grow his assets, exercise diligence, bring all his skills to bear in the interests of the one now helpless. A company can be seen as incapacitated too. It is a legal person, but it has no mind or heart of its own. Its directors supply its mind and its personality. And they must act in the best interests of the company at all times.

We do not need new statutory rules. Nor do we need the already common practice of mindless compliance with either voluntary or statutory governance principles by specially appointed compliance officers. The ultimate compliance officer is the market. And good governance does not start and end in a statute but rather in the integrity and intellectual honesty that directors bring to bear.