Corporate Governance

INTRODUCTION

The Phumelela Board 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 and all other applicable laws. Integrated reporting not only allows us to apply the principles of King III, 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.

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. The manner in which we engage with these stakeholders is addressed in the stakeholder table set out in the sustainability report found on the Phumelela website.

ENGAGEMENT WITH SHAREHOLDERS AND INVESTORS

Phumelela endeavours 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, press 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.

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 III 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 III) and the Board took the necessary steps to ensure its recommendations were applied throughout the company during the 2014-2015 financial year. The Board analysed the recommendations contained in the Code, 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.

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 III 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.

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.

BOARD CHARTER

The Phumelela Board Charter outlines the manner in which business is to be conducted by the Board. The Charter is reviewed annually to ensure compliance to local and international best practice. The Charter provides a concise overview of the delineation of the roles, functions, responsibilities and powers of the Board, and the committees of the Phumelela Board. It also outlines the powers delegated to the Board committees and sets out the policies and practices in respect of matters such as corporate governance, declarations and conflicts of interest, Board meeting documentation and procedures and the nomination, appointment, induction, training and evaluation of the Board and the committees.

BOARD STRUCTURE

The Phumelela Board has a unitary Board structure consisting of eight independent non-executive directors*, one non-executive director and five executive directors. An additional independent non-executive director has been appointed, subject to approval by shareholders. 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 procedures for appointing directors to the Board are formal and transparent. At 31 July 2015, six of the Board’s members were black and one of its members was a black woman.

CHAIRMAN - MP Malungani - appointed 2 October 1997

The Chairman is an independent non-executive, as per the recommendations of King III. 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, transparent and develops and implements strategies aimed at achieving sustainable economic, social and environmental performance.

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, advise the Board on strategy and policy matters, and develop, recommend and implement 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 minimise 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 Board is reviewed for effectiveness. The following areas are assessed:

  • * 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. The Board requires that matters placed before it are properly researched and motivated.

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 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:

  • * Making recommendations to the Board regarding the Company’s remuneration policy
  • * Making recommendations to the Board regarding the remuneration of non-executive directors
  • * Ensuring good governance and oversight of the remuneration policy
  • * Succession planning and the evaluation of share incentive programmes to ensure they motivate sustainably high performance and retention of key executives.

An economic value-added incentive programme and share option scheme are in place for senior management. To achieve its mission and strategic objectives, Phumelela has adopted a remuneration policy which ensures that all staff are remunerated fairly and 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 will be placed before shareholders at the Annual General Meeting for their approval. All members of the Remuneration Committee are non-executive directors, four of whom are independent.

Audit Committee - 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 Committee and its chairman
  • * The Audit Committee, with the auditors present, 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
  • * Considering environmental and social sustainability issues. The Company’s Audit 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 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 - 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, which include the following:

  • * Ethics management
  • * Corporate social investment
  • * Environmental management including health and public safety
  • * Sustainability strategy and framework
  • * Consumer relationships
  • * Labour relationships
  • * Transformation.
  • In performing its duties, the committee maintains effective working relationships with the Board of Directors and management. To perform their roles effectively, committee members obtain an understanding of the company’s business, operations and risks. The Chairman of the social and ethics committee is an independent non-executive director.

    ETHICS

    Phumelela does not tolerate any fraudulent or illegal activities in relation to the running of the Company. This is covered in the Code of Ethics and is managed by the Audit Committee. Employees are encouraged to make use of the confidential crime line (079 890 3002) to report any incidents. Areas identified as high risk for bribery and corruption are the awarding of tenders and procurement practices. All incidents of fraud and robbery are reported to the Audit 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 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 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 a trusted adviser to the Audit 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.

    LEGAL COMPLIANCE

    In order to ensure legal compliance, the Board has formed a Risk Management and Compliance Committee to which it has delegated its responsibilities to establish an effective compliance framework and process in the company. This committee, which comprises senior management and meets at least four times a year, advises and regularly reports to the Audit Committee.

    INVESTOR PROTECTION - DEALING IN PHUMELELA SHARES

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

    CONFLICTS OF INTEREST

    Board members are required to disclose their shareholdings in Phumelela and other directorships so that any potential conflicts of interest can be identified. Directors are required to declare any interests and a register of these interests is maintained to identify any potential conflict of interest.

    INSURANCE

    The company purchases directors and officers’ liability insurance cover