OUR APPROACH TO GOVERNANCE
The Phumelela Board recognises 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.
The Phumelela Board recognises 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 Ethics outlines behaviours 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).
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, 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 are broadcast live on Business Day TV.
COMPLIANCE WITH 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 2018 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.
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
• Results of our business risk assessment process;
• Code of Corporate Practices 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; and
• External initiatives and best practice guidelines.
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.
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 28 to 31 of this 2018 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.
THE 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 2018 financial year.
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.
The Board consists of 15 directors, with 12 non-executive directors and three 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.
The procedures for appointing directors to the Board are formal and transparent. Currently, seven of the Board members are black and two of its members are black women.
The Board recognises and embraces the benefits of diversity at Board level, to enhance the quality of deliberations and of directors’ perspectives.
Directors are chosen for their corporate leadership skills, experience and expertise. The Board voluntarily set a target of at least 20% of Board membership to comprise women. The Nominations Committee was tasked to assist the Board in this regard. During the year, the committee sourced additional suitable female candidates 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, regulatory approval was not yet received for Ms Lindiwe Rakharebe.
The Board is committed to proactively monitoring the Group’s performance in meeting the requirements outlined in the policy.
Changes to the Board
During the year, we announced the retirement of Mr MP Malungani, Chairman of the Board. Mr B Kantor was appointed in his stead. We also announced the appointment of Mr SH Müller as director and Chairman of the Audit and Risk Committee. In addition, both Mr SA Mahlalela and Ms FS Magubane were appointed as directors and members of the Audit and Risk Committee, whereas Ms L Rakharebe's appointment as director and member of the Social and Ethics Committee is subject to approval of the relevant regulatory authority. Also announced was the appointment of Mr KC Khampepe as member of the Remuneration and Nominations Committee as well as the appointment of Ms NJ Mboweni as member of the Social and Ethics Committee.
As previously announced, Mr MJ Jooste resigned as director and member of the Remuneration and Nominations Committee in December 2017, while Mr BP Finch resignedas director and member of the Audit and Risk Committee in August 2017.
We are comfortable that, after the latest changes to the Board, we still have the right balance of skills, experience and independence to make a meaningful contribution to the business of the Company. The committees established by the Board play an important role in enhancing standards of governance and effectiveness within the Group.
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, transparent and develops and implements strategies aimed at achieving sustainable economic, social and environmental performance.
GROUP CHIEF EXECUTIVE
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.
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. Given the changes in the Board composition during the year, the Board deemed it prudent to defer the effectiveness review.
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.
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.
Four Board meetings were held during the financial year ended 31 July 2018.
KEY AREAS OF FOCUS DURING THE REPORTING PERIOD
• Reviewed and approved the Group strategy;
• Reviewed and approved the 2019 budget;
• Considered the cost-saving initiatives in the Group;
• Approved the half-year and year-end financial results and the JSE announcements;
• Reviewed and approved the integrated annual report;
• Discussed and considered material issues relating to execution of strategy;
• Reviewed and approved cash flow reports;
• Reviewed and approved capital expenditure budget;
• Adopted the Board diversity policy;
• Approved the non-executive directors’ fees for tabling at the annual general meeting;
• Considered the declaration of directors’ financial interests at each meeting;
• Considered the implications of the King IV report; and
• Reviewed material risks and compliance matters in the Group.
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
Members: CJH van Niekerk (Chairman), B Kantor, KC Khampepe and JB Walters
Role: The role of the committee is to assist the Board to ensure that:
• 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;
• Succession plans for the Board, Chief Executive Officer and senior management appointments are
• The Company remunerates directors, executives and prescribed officers fairly and responsibly;
• The disclosure of director and prescribed officer remuneration is accurate, complete and transparent;
• Director independence is reviewed annually; and
• Board diversity is considered in all appointments;
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 will be placed before shareholders at the annual general meeting for their approval. All members of the Remuneration Committee are independent non-executive directors.
Three meetings were held during the financial year ended 31 July 2018.
Strategic focus for the year under review:
• Considered Board and executive succession planning;
• Approved the Board race and gender diversity policy;
• Reviewed the composition of the Board and its sub-committees;
• Considered and recommended appointment of new directors including that of Lead Independent;
• Considered and recommended appointment of Group CEO;
• Reviewed the CEO's contract;
• Considered non-executive director independence and rotation;
• Reviewed the remuneration policy;
• Reviewed non-executive directors' fees;
• Reviewed proposed changes to the short-term incentive scheme and the long-term share based incentive plans; and
• Considered the executive and staff bonuses/increases.
AUDIT AND RISK COMMITTEE
Members: SH Müller (Chairman), R Cooper, FS Magubane, SA Mahlalela, NJ Mboweni and JB Walters
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 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;
• Providing oversight of the IT governance function; and
• Assessing the compliance environment in which the Group operates
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.
Three meetings were held during the financial year ended 31 July 2018.
SOCIAL AND ETHICS COMMITTEE
Members: R Cooper (Chairman), AW Heide, NJ Mboweni and E Nkosi
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 restructure the committee and appoint Ms NJ Mboweni as a member of the committee. The majority of its members are non-executive.
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 independent ethics hotline;
• 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, racecourses and branches;
• Reviewed measures to implement energy efficiency;
• 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;
• Reviewed compliance with the amended B-BBEE codes and considered action plans to drive transformation and further improve the B-BBEE score card; and
• Considering environmental and social sustainability issues.
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.
Two meetings were held during the financial year ended 31 July 2018.
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.
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 Code was reviewed and adopted by the Board. 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;
• 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 JSE Listings Requirements.
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 Bank Limited, however, all transactions were in the ordinary course of business.
The Company purchases directors' and officers' liability insurance cover. No claims under the policy were made during the year.
The board is responsible for the oversight of IT governance within the Group. The Board has delegated the group’s IT responsibilities to the Audit and Risk Committee. The focus during the year included improving internal efficiencies and refining IT infrastructure and security. Going forward, emphasis will be placed on information security, system integration, automation and simplification of processes.