Corporate Governance

INTRODUCTION

The Phumelela Board recognizes the principles of good governance and is committed to ensuring that the Group adheres to the highest standards of good corporate governance in the conduct of its business, as well as compliance with the Listings Requirements of the JSE Limited (“the JSE”) and all other applicable laws. Our Board is responsible for creating and delivering sustainable shareholder value.Integrated reporting not only allows us to apply the recommendations in the King Report, but also to use reporting to inform strategy within the business, to provide stakeholders with a meaningful account of the Company’s performance and to build a reputation of transparency and trust within the investment community. Our code of conduct outlines behaviors which govern our way of working across the business.

ENGAGEMENT WITH STAKEHOLDERS

Phumelela has identified a range of internal and external stakeholders with which it engages regularly. The stakeholders are identified as those parties who have a material interest in or are affected by Phumelela. The Company has assessed its involvement with them, or their potential impact on our business, at a corporate office and operational level. The issues raised by the stakeholders partly inform the selection of the Company’s material issues. We view stakeholder engagement as a necessary tool to ensure transparency and accountability with those entities and individuals that are impacted by or interested in our activities, products and services. The manner in which we engage with these stakeholders is addressed in the stakeholder table set out in the sustainability report found on our website (www.irphumelela.com/sustainability.htm).

ENGAGEMENT WITH SHAREHOLDERS AND INVESTORS

Phumelela endeavors to ensure and justify shareholders’ investment in the Company and to align the interests of management with those of shareholders. The formal mechanisms in place to enable this communication include one-on-one meetings with investors, presentations, the annual general meeting, short form announcements of the interim and year-end results, the Company’s website, its Integrated Report to shareholders, and the form of proxy shareholders use to exercise their voting rights. In addition, our interim and final results presentations were broadcast live on Business Day TV.

ENGAGEMENT WITH EMPLOYEES

All stakeholders, particularly employees, are encouraged to raise concerns and or suggestions through the appropriate Phumelela official. Departmental meetings are held where employee concerns are addressed and open dialogue with senior management is encouraged. Formal meetings are also held with trade union representatives.

COMPLIANCE WITH THE KING IV CODE OF CORPORATE PRACTICES AND CONDUCT

Phumelela’s directors endorse the Code of Corporate Practices and Conduct ("the Code") as set out in the King Report on Corporate Governance ("King IV") and the Board took the necessary steps to ensure its recommendations were applied during the 2017 financial year. The Board analysed the recommendations contained in the Code, and noted where it already applies the Code and where there are opportunities to implement changes that will improve governance standards within Phumelela in the future. Full details of our King IV compliance are available on our website.

ESTABLISHING MATERIALITY

To apply the materiality principle of the Global Reporting Initiative ("GRI") Phumelela determines the relevance and significance of issues to the Company and its stakeholders by assessing their ability to influence the decisions, actions and performance of ourselves and our stakeholders. To identify the material issues to our business we review the:

  • * Results of our business risk assessment process
  • * Code of Corporate Practice and Conduct set out in the King IV report
  • * Phumelela Code of Ethics
  • * Topics and challenges reported by our peers or raised by industry associations
  • * External initiatives and best practice guidelines, including the GRI G3 guidelines.

GOVERNANCE

Phumelela’s Board structure and Board committees were established to divide the responsibilities needed for effective governance of the issues material to the Company. To ensure a balance of power and authority there is a clear division of responsibilities among the Company’s directors. One-third of the non-executive directors retire annually by rotation. The Board meets on a quarterly basis in line with the financial and strategic processes of the Group. The Board also annually reviews the Group’s ability to continue trading as a going concern in the foreseeable future.



RISK GOVERNANCE

The Group aims to ensure business-specific risks are adequately and timeously identified and mitigated, whether they are operational and strategic risks, emerging risks, or risks posed by the external environment. The Board confirms that the Group’s risk management, mitigation and monitoring processes have been effective in limiting the impact of risks on the business during the period. The overall risk profile of the Group has not changed materially in the period under review. For detail on the material issues and related risks facing the Group, and how that informs the Group’s strategy, please refer to page 30 of the 2017 integrated annual report.



INFORMATION TECHNOLOGY (IT) GOVERNANCE

The Board takes responsibility for IT governance. IT governance is monitored by the Audit and Risk Committee, which considers the efficiency of IT controls, policies and processes.



PHUMELELA BOARD

The responsibility for the success of the Company lies with the Board. The Board is expected to act in the best interests of its stakeholders and give strategic direction, identify risks, monitor performance against budgets and industry standards, as well as apply good corporate governance. Through this style of leadership, the Company should achieve sustainable growth. The Board approves the Group budget and monitors overall performance against objectives appropriate to the current stage of the business, providing input and determining strategic focus. The Board appoints the Group Chief Executive and ensures that succession is planned. In the interests of transparency the Board ensures that stakeholders and investors are provided with timeous, accurate and relevant information. The Board is satisfied that it fulfilled all its duties and obligations in the 2017 financial year.

BOARD CHARTER

The Phumelela Board Charter outlines the manner in which business is to be conducted by the Board. The Charter provides a concise overview of the delineation of the roles, functions, responsibilities and powers of the Board, as well as the committees of the Board. Annual assessment of independence The Board, assisted by the Nominations Committee, reviewed the independence status of all the non-executive directors during the year under review and considered all directors to be independent. King IV recommends that any term beyond nine years, for an independent non-executive director, should be subject to a particularly rigorous review by the Board, of not only the performance of the director, but also the factors that may impair his independence at that time. The Nominations Committee took into account the guiding principles outlined in the King Report to determine the independence of directors. Although the majority of directors have served in excess of 10 years, the Board concluded that directors’ independence of character and judgement were not in any way affected or impaired by their length of service and that their service was of considerable benefit to the Company. The longer serving non-executive directors vigorously exercise their duty to act in the best interests of all stakeholders of the Group. All our non-executive directors are strong-minded individuals of integrity, who are successful and experienced professionals in their respective fields with continuing strong contributions.

BOARD COMPOSITION

In accordance with the recommendations of the Code of Corporate Practices and Conduct, the majority of the members of the Phumelela Board, including the Chairman, are non-executive directors. To ensure a balance of power and authority there is a clear division of responsibilities among the Company’s directors. One-third of the non-executive directors retire annually by rotation in terms of our Memorandum of Incorporation. The roles of the Chairman and Chief Executive are separate and the Chairman has no executive responsibilities. The non-executive directors are diverse in their academic qualifications and business experience, resulting in a balanced Board.

MEMBERSHIP

The procedures for appointing directors to the Board are formal and transparent. At 31 July 2017, five of the Board’s members were black and one of its members was a black woman. The Board adopted a gender diversity policy to guide its future appointments of directors in accordance with the amended JSE Listings Requirements on the promotion of gender diversity (paragraph 3.84(k)). The Board voluntarily set a target of at least 20% of Board membership should comprise women at least by 31 July 2018. The Nominations Committee is tasked to assist the Board in this regard. The committee has commenced the search for suitable female candidate/s to serve on the Board based on merit against objective criteria and with due regard to the benefits of diversity on the Board. At the time of this report, the search was still ongoing. The Board is committed to proactively monitoring the Group’s performance in meeting the requirements outlined in the policy.

CHANGES TO THE BOARD

Mr P Anastassopoulos was appointed to the Board in March 2017. Being eligible, he offered himself for election to shareholders at the AGM held on 12 December 2017 and received the necessary support required from shareholders. Both Messrs ML Ramafalo and BP Finch resigned from the Board effective 30 June 2017 and 25 August 2017 respectively. The Board extends its appreciation for their contribution and wishes them well in their future endeavours. There was no other change to the composition of the Board. Mr MP Malungani notified the Board of his intention to voluntarily retire at the December 2017 AGM. Peter has served the Company and its Board with distinction over the past 20 years. His invaluable contribution as Board member and Chairman will be sorely missed. The Nominations Committee is tasked with finding a suitable candidate to replace the Chairman.

CHAIRMAN - B Kantor - appointed 12 December 2017

The Chairman is an independent non-executive, as per the recommendations of King IV. He is responsible for the effectiveness of the Board and its committees and for ensuring that the Board provides effective leadership, upholds ethical standards, is responsible, accountable, fair, and transparent and develops and implements strategies aimed at achieving sustainable economic, social and environmental

GROUP CHIEF EXECUTIVE - WA du Plessis - appointed 1 August 2008

The role of the Group Chief Executive has been separated from that of the Chairman to ensure a balance of authority and to preclude any one director from exercising unfettered powers of decision making. His role is to provide leadership to the Company, advising the Board on strategy and policy matters, and developing, recommending and implementing the annual business plans and budgets that support the Company’s short and long-term strategies.

DIRECTORS 

The Board’s non-executive directors are individuals of high calibre whose appointments at the highest level in major business and public organisations enable them to bring independent judgement to the Board. Their experience enables them to evaluate strategy, performance, resources, transformation, diversity and employment equity, standards of conduct, as well as to act in the Group’s best interests as a balance to the executive directors. The non-executive directors have no fixed terms of appointment and no employment contracts with Phumelela. The composition of the Board is regularly reviewed and the appointment of non-executive directors is determined after taking into account those attributes and qualifications that are required to supplement the Board’s skills base, and ensure that the composition of the Board has a balance of authority and minimises the possibility of conflicts of interest. Phumelela executives attend the meetings by invitation giving non-executive directors the opportunity to interact directly with them to obtain first-hand information on operational matters. All new Board members are required to sign the Company’s Code of Ethics, are brought up to date on important issues, and are apprised of the business challenges and strategies being implemented.

EFFECTIVENESS OF THE BOARD

The effectiveness review of the Board was conducted in 2016. In terms of the Board Charter, the evaluation of the Board shall be performed at least every two years.

  • * Leadership of the chairman
  • * Directors level of skills and experience to meet the challenges of the future
  • * Quality and quantity of ongoing directors training
  • * The overall performance of the board, the Audit Committee and the Remuneration Committee.

COMPANY SECRETARY

The Company Secretary operates on an arm’s length basis from the Board and is not a director of the Board. All directors have access to the advice and services of the Company Secretary. The appointment and removal of the Company Secretary is approved by the Board. The Company Secretary advises the Board on the appropriate procedures for the management of meetings and implementation of governance procedures, and is further responsible for providing the Board collectively, and each director individually, with guidance on the discharge of their responsibilities in terms of the legislative and regulatory requirements applicable to the Company. All directors have unrestricted access to the Company Secretary. The Company Secretary acts as a secretary to all Board appointed committees. During the year under review the Board declared itself satisfied with the competence, qualifications and experience of the Company Secretary.

BOARD MEETINGS

A minimum of four Board meetings are scheduled each financial year, as well as strategy sessions as appropriate. The meetings follow a formal agenda ensuring that substantive matters are properly addressed, and all relevant information is supplied timeously.

BOARD-APPOINTED COMMITTEES

The Board remains accountable and responsible for the performance and affairs of the Company. However, it delegates to management and Board-appointed committees, certain functions to assist it to discharge its duties properly. Each Board-appointed committee acts within agreed, written terms of reference. The Chairman of each Board-appointed committee reports and provides minutes of committee meetings at the scheduled Board meetings. .

REMUNERATION AND NOMINATIONS COMMITTEE 

Responsible for designing and structuring the salary packages of executive directors and senior executives and agrees remuneration policy for the Group. This includes responsibility for:

  • * The board has the appropriate composition for it to execute its duties effectively;
  • * Directors are appointed through a formal process;
  • * Induction and ongoing training and development of directors;
  • * Formal succession plans for the board, chief executive officer and senior management appointments are in place;
  • * The company remunerates directors, executives, and prescribed officers fairly and responsibly; and
  • * Induction and ongoing training and development of directors;
  • * The disclosure of director and prescribed officer remuneration is accurate, complete and transparent.

To achieve its mission and strategic objectives, Phumelela has adopted a remuneration policy which ensures that all staff are remunerated fairly and are treated consistently throughout the Group. The Chairman and non-executive directors do not receive incentive awards geared to the share price or corporate performance. The remuneration policy was placed before shareholders at the annual general meeting and received necessary support from shareholders. All members of the Remuneration Committee are non-executive directors, four of whom are independent. Strategic focus for the year under review:

  • * Considered board and executive succession planning;
  • * Considered non-executive director independence and rotation as well as members to serve on the audit and risk committee;
  • * Monitored implementation of action plans from the board evaluation process;
  • * Reviewed the remuneration policy;
  • *Approved the proposed changes to a long-term incentive scheme;
  • * Reviewed non-executive directors' fees;
  • *Considered the voluntary early retirement/voluntary retrenchment programme; and
  • * Considered the executive and staff bonuses/increase.

AUDIT AND RISK COMMITTEE 

Role: The Audit and Risk Committee is responsible for the Company’s financial reporting process on behalf of the Board and on achieving the highest level of financial management, accounting and reporting to shareholders. This is accomplished by:

  • * Reviewing the scope of the audit and the accounting policies;
  • * Identifying key risk areas and evaluating exposure to significant risks;
  • * Evaluating the appropriateness of internal controls;
  • * Meeting with external and internal auditors to discuss the scope of the external audit, internal audit and reliance on internal controls. The auditors have unrestricted access to the audit and risk committee and its chairman;
  • * The audit and risk committee, with the auditors presents, examines, reviews and discusses the audited annual financial statements and reports issued to the public before being submitted to the board for approval;
  • * Providing the board with regular reports on the committee’s activities;
  • * Recommending the appointment of external auditors, the level of fees payable and the level of non-audit services; and
  • * Considering environmental and social sustainability issues.
  • * For the year under review the committee is satisfied that it has met its responsibilities in accordance with the approved terms of reference.
  • * The Company’s Audit and Risk Committee is established as a statutory committee in terms of section 94(2) of the Companies Act 71 of 2008, as amended ("Companies Act") and as such shareholders are required to elect the members of this committee at each Phumelela annual general meeting. All members of the Audit and Risk Committee are independent non-executive directors.

The Audit Committee also identifies risk and compliance issues and makes appropriate recommendations regarding the responsibility of monitoring, developing and communicating the processes of managing risks across the company.

Phumelela defines risk as those material issues that have the potential to impact on shareholder value, regardless of whether their origin is financial, operational, environmental, social or to do with governance.

A risk register is maintained identifying significant risks and defining appropriate risk strategies to mitigate those risks that could impact significantly on the business.

Social and Ethics Committee 

 

Role: The Social and Ethics Committee is responsible for ensuring that the Company is, and remains, a socially responsible corporate citizen. The committee supplements, supports, advises and provides guidance on the effectiveness or otherwise of management’s efforts in respect of sustainable development and social and ethics related matters. The committee is chaired by an independent non-executive director. Having considered the recommendations of King IV as it relates to the composition of the committee, the Board undertook to appoint Dr E Nkosi as member of the committee. For the year under review the committee is satisfied that it has met its responsibilities in accordance with the approved terms of reference. Discharge of responsibilities Key areas of focus during the reporting period

  • * Management of ethics;
  • * Roll-out of the company values;
  • * Reviewed and approved the corporate social investments;
  • * Reviewed the environmental management including the status of occupational health and public safety;
  • * Reviewed security measures in various provinces and branches;
  • * Reviewed measures to implement energy efficient lighting;
  • * Considered the risk associated with the water restrictions and action plans to address the risk;
  • * Reviewed and recommended the sustainability report to the board for approval;
  • * Reviewed relevant stakeholder relations;
  • * Reviewed labour relationships and human resource matters; and
  • * Reviewed compliance with the amended B-BBEE codes and considered action plans to drive transformation and further improve the B-BBEE score card. In performing its duties, the committee maintains effective working relationships with the Board of Directors and management. To perform their roles effectively, each committee member obtains an understanding of the Company’s business, operations and risks.

ETHICS MANAGEMENT

Phumelela does not tolerate any fraudulent or illegal activities in relation to the running of the Company and this is covered in the Code of Ethics. Employees are encouraged to make use of the confidential crime line to report any incidents. All incidents of fraud and robbery are reported to the Social and Ethics Committee, which interacts with management in implementing action whenever corrective action is required. The National Horseracing Authority provides a competent and efficient racehorse and jockey control and monitoring service for the sport of horseracing which ensures that the sport maintains a high standard of ethics.

DONATIONS TO POLITICAL PARTIES

The Phumelela policy states that all donations must be approved by the Board.

CODE OF ETHICS

Phumelela aims to maintain the highest ethical standards and ensures that our business practices are conducted in a manner which is honest and fair and that they are, in all reasonable circumstances, above reproach. The Board and all employees are required to sign Phumelela’s Code of Ethics. All employees are encouraged to comply with both the written word and the spirit of the Code. The Phumelela Code of Ethics sets out Phumelela’s policies regarding fair dealing and integrity in the conduct of its business; compliance with laws and regulations; conflicts of interest; outside activities, employment and directorships; relationships with clients and suppliers; gifts, hospitality and favours; personal investments; remuneration; expenditure; discrimination; environmental responsibility; health and safety; political support; Phumelela assets and records; dealing with people and organisations outside Phumelela; privacy and confidentiality; fraud; and contravention of the Code of Ethics.

ACCOUNTABILITY AND INTERNAL AUDIT

The Board is responsible for the Group’s system of internal control. The Group’s internal controls and systems are designed to provide reasonable and not absolute assurance as to the integrity and reliability of the financial statements. Internal audit is an independent function that evaluates the adequacy and effectiveness of internal controls against specified business risks and is an adviser to the Audit and Risk Committee. The internal auditor reports regularly to the Audit Committee and has unrestricted access to the committee Chairman. An internal audit charter has been approved by the committee.

INVESTOR PROTECTION – DEALING IN SECURITIES

The Board has implemented a trading policy in accordance with the JSE Listings Requirements during which Board members, senior management and staff may not trade in the Company’s securities. Directors and officers may not trade in the Company’s securities without first obtaining the clearance of the Chairman or, if the Chairman is unavailable, a designated non-executive director. The Chairman may not trade in the Company’s securities without first obtaining the clearance of a designated non-executive director. Details of all share dealings by the directors in the Company’s securities are disclosed in accordance with the Listings Requirements of the JSE.

INTEREST OF DIRECTORS IN CONTRACTS

No conflicts of interest exist regarding directors’ interests in contracts. Directors are required to disclose any potential conflicts at the relevant Board meeting. During the year, various banking transactions have been undertaken on the Group’s behalf by Investec Bank Limited. Mr B Kantor (current director) serves as managing director of Investec Limited, however, all transactions were in the ordinary course of business.

INSURANCE

The Company purchases directors' and officers' liability insurance cover. No claims under the policy were made during the year.