6 min read
What the 500-point threshold means for your board
Most boards discover the Social & Ethics Committee requirement from an external auditor, not from their own governance planning. Here's how the Companies Act threshold actually works, and what to do once you've crossed it.
Under the Companies Act and its Regulations, any company scoring above the 500-point public interest score threshold — a calculation based on employee numbers, turnover, third-party liabilities and beneficiaries — is required to establish a Social and Ethics Committee. In our experience, few boards arrive at this requirement through their own planning. Far more often, it surfaces when an external auditor reviews the score during an annual audit and flags that the threshold has been crossed.
That timing matters. A committee stood up in response to an audit finding tends to be built for compliance first and usefulness second: a charter drafted quickly, members appointed for availability rather than fit, and a reporting rhythm that exists to satisfy the auditor rather than to inform the board.
The fix isn't complicated, but it does take deliberate work. It starts with a properly scoped charter and Terms of Reference — not a template, but a document that reflects what your specific committee is actually meant to oversee. It continues with selecting members who bring real capacity for ethics, transformation, and stakeholder oversight, and with a chair who is coached to run the committee as a genuine governance function rather than a quarterly formality.
Boards that treat the threshold as an opportunity rather than an obligation tend to end up with a Social and Ethics Committee that does what King IV actually asks of it: providing independent oversight of the organisation's ethics, social and economic development, and stakeholder relationships — not just a compliance certificate for the auditor's file.