ETHICAL LEADERSHIP AND GOOD CORPORATE GOVERNANCE
The AECI Board fully subscribes to the statement that “good corporate governance makes good business sense” and consequently, in the year under review, the Board sought to streamline a number of its processes and bring the Company towards full compliance with King III and other best practices.
The Board’s approach to corporate governance is anchored in the Company’s values.
Corporate governance in AECI is managed through three broad, distinct but interconnected pillars:
This overview deals with the three pillars in terms of:
REVIEW OF 2011 KEY FOCUS AREAS
Progress was made in all of the areas identified for attention in 2011, namely:
GOVERNANCE LANDSCAPE REQUIREMENTS
In a changing governance landscape, companies operating in South Africa need to review their compliance structures and processes on an ongoing basis.
The new Companies Act for example, places additional compliance requirements on companies. The King III Report and Code require adherence to their principles with regard to integrated reporting.
The Consumer Protection Act, as another example, requires that consumers be protected in all dealings with institutions. AECI’s efforts to respond appropriately to such changes were sustained in 2011.
The Board firmly believes that effective risk management is key to AECI achieving its strategic goals in a sustainable manner. By understanding and properly managing our risks, we provide greater certainty and security for our employees, customers, shareholders and other stakeholders and are better informed and more decisive in moving with greater confidence towards our goals.
The Board recognises risk management as a key business tool to assess the balance between risk and reward in current and new businesses. Risk management aims to protect the Group against hazards and uncertainties which may prevent the achievement of business goals and strategic objectives.
INTERNAL AND EXTERNAL ASSURANCE
In line with the Companies Act, AECI’s corporate governance and processes are led by the Board supported by six sub-Committees:
THE BOARD OF DIRECTORS
The AECI Board comprises a majority of Independent Non-Executive Directors and it operates with a unitary structure that provides for interaction among all of its members in the decision making process on strategy, planning and performance, allocation of resources, business ethics, risk management and communication with stakeholders. The Board exercises control through a governance framework that includes appropriate reporting to the Board and its Committees. In 2011 the Board approved a delegation matrix that formally sets out the authority limits for itself and Management.BOARD COMPOSITION
The Board is committed to building a diverse and appropriately skilled Board and accordingly it appointed Ms LL Mda in 2011 as an Independent Non-Executive Director. The AECI Board is now comprised of 11 Directors, nine of whom as at the date of this Report are Independent Non-Executives and two are Executives. We believe this represents a balanced Board that is in line with best practice guidelines and has a representative set of skills and experience that will benefit the Board as a whole in its oversight role.
The guidelines in the JSE Listings Requirements were used to determine whether the Directors were Independent. Mr S Engelbrecht met all the criteria for independence from 5 March 2012, when he sold directly beneficial ordinary shares held by him in the Company and exercised his outstanding options as detailed in note 31 . The current Board members are:
Independent Non-Executive Directors
A balance of skills and experience, gender and demographic representation is taken into account in determining an effective composition of the Board. Board appointments are done in accordance with a formal Appointment Policy which includes proper screening of candidates, formal interviews conducted by the Nominations Committee and the completion of a Director’s declaration by successful applicants.SKILLS AND EXPERIENCE OF THE BOARD
The Board is comprised of persons with experience in diverse industries including banking, chemicals, technical and accounting. The Board is of the opinion that having Directors with relevant business and industry experience is beneficial to the Board as a whole, since Directors with such backgrounds can provide a useful perspective on significant risks and competitive advantages as well as an understanding of the challenges facing the business.
The Board monitors the mix of skills and experience of Directors to assess whether the Board is optimally placed to perform its oversight function effectively. The Board will continue to review the skills, knowledge, gender and diversity at Board level to ensure that the mix is appropriate and effective and takes into account succession plans for Non-Executive and Executive Directors.
The expectation of the Board is that, at a minimum, Directors should possess the requisite knowledge and expertise to fulfill an appropriate role within the mix of capabilities the Board deems appropriate and to exercise diligence. This includes attending Board and Committee meetings and coming prepared to provide thoughtful input at such meetings. Directors need to devote an appropriate amount of time and attention to their duties and to develop the broad-based as well as the specific knowledge required to fulfill their obligations in this regard.
Directors are expected to:
Directors are expected to ensure that they have sufficient time available to properly carry out their duties and responsibilities as Directors of the Company. Non-Executive Directors in particular are required to carefully assess and guard against potential conflicts of interest and involvement with an excessive number of Boards.INFORMATION REQUIREMENTS
It is regarded as critical that Directors have sufficient information to enable them to make informed decisions and therefore the Board continually reviews the information requirements of Directors to enable them to fulfill their duties and responsibilities effectively. Directors are informed timeously of matters that will be discussed at Board meetings and are provided with information relating thereto. Board meetings are structured to encourage participation and dialogue and to ensure effective decision making.
Submissions relevant to the agendas of Board and Committee meetings are sent to Directors and Committee members about a week in advance of meetings. All submissions and matters discussed at meetings are strictly confidential.
The annual strategy session is usually held in May of each year and is designed to facilitate the review of the Company’s medium- and long-term strategic plans and priorities. The Board meets at least quarterly and on other occasions when necessary. There were five Board meetings during the 2011 financial year. Attendance by Directors at Board meetings is set out in the Corporate Governance of this Report.RETIREMENT AND RE-ELECTION OF DIRECTORS
The Company’s Articles of Association require a minimum of six and a maximum of 12 Directors, the majority of whom should be Independent. Between Annual General Meetings the Board may appoint a Director/s to fill casual vacancies or as an additional Director by majority vote to serve until the next Annual General Meeting.
One third of the Directors are subject, by rotation, to retirement and re-election at the Annual General Meeting in terms of the Company’s Articles of Association. The names of Directors submitted for re-election are accompanied by brief biographical details to enable shareholders to make an informed decision in respect of their re-election.
Directors who will present themselves for re-election at the forthcoming Annual General Meeting are:
Executive Directors are employees of the Company and have standard terms and conditions of employment. They do not receive any special remuneration or other benefits for their additional duties as Directors. Neither of the Executive Directors has an employment contract with a notice period longer than one month or special termination benefits and there is no restraint of trade in place. The Board, on the recommendation of the Remuneration Committee, determines the remuneration of Executive Directors and other Senior Managers as underpinned by the remuneration philosophy of the Company. No Non-Executive Director has an employment contract with the Company. Non-Executive Directors’ remuneration is arrived at after an annual benchmarking exercise performed by the Chief Executive and the approval by shareholders of the proposed fees.BOARD ASSESSMENT AND EVALUATION OF DIRECTORS
In terms of the Board charter, Directors must be assessed individually as well as collectively as a Board. The collective assessment of the Board must evaluate the Board’s contribution as a whole and, specifically, it must review areas in which the functions of the Board could be improved.
In 2010 a Board assessment was undertaken by an external party. Such an assessment is performed every three years. In the intervening years, a self-assessment is conducted by the Board. Accordingly, after confirming the corporate strategy with the Chairman and the Chief Executive, arrangements were made for a self-evaluation process to be undertaken assessing 45 key performance indicators. This was aimed at giving Board members the opportunity to express their individual opinions on and assessment of the performance of the Board and its Committees. The Board received feedback at its meeting in February 2012. Based on the areas identified as being of concern to Directors, action plans are being developed to address these appropriately.
The emphasis is always on development, growth and the meeting of future challenges, both for individual Board members and for the Board as a whole.
Key performance indicators used in the assessment process were, inter alia:
The Remuneration Committee, in consultation with the Chairman of the Board, evaluates the Chief Executive on a regular basis. The evaluation is based on objective criteria including business performance, achievement of long-term strategic objectives, the development of Managers and other such issues. The Remuneration Committee provides feedback to the full Board.
Through the Board assessment process, the Board also evaluates the performance of the Chairman of the Board and the Chairmen of the Board Committees on an annual basis.THE BOARD’S ROLE AND RESPONSIBILITIES
The Board operates under an approved Board charter which regulates the way business is conducted. The Board charter provides a clear division of responsibilities and sets out the accountability of Board members collectively and individually to ensure an appropriate balance of power and authority.
In terms of the Board charter the primary responsibilities of the Board are:
The following matters, inter alia, are reserved for decision by the Board on the basis of any recommendation as may be made from time to time by the Executive Committee or other Committees:
To the extent that they may require such access to make informed decisions, Board members have unrestricted access to the Company’s records, information, documents and property. In addition, Board members have unrestricted access to consult Senior Management on any aspect of the Company’s operations. Finally, Board members may collectively or individually, at the expense of the Company, consult external professional advisors on any matter of concern to the Company after having advised the
For the Board to function effectively, the resources necessary for developing and refreshing the knowledge and skills of
Non-Executive Directors must be provided.
The Company has procedures for the induction and training of Directors to ensure that they are aware of their statutory duties, obligations and potential liabilities. The Company Secretary has compiled Directors’ manuals which are updated on a regular basis and there are site visits arranged to operating companies across the Group.
The Company Secretary further provides Directors with updates on regulations and statutory matters at each Board meeting.DELEGATION OF AUTHORITY
The Board has approved the delegation of authority to the Executive Committee and to other Committees, where appropriate.COMPANY SECRETARY
The appointment and removal of the Company Secretary is a matter for the Board as a whole. The Company Secretary advises the Board on the appropriate procedures for the management of meetings and the 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 legislation and regulatory requirements applicable to the Company. The Company Secretary monitors Directors’ dealings in securities and ensures adherence to “closed periods” for share trading.
On 1 June 2011 the Board appointed Ms EN Rapoo as the Company Secretary to oversee the portfolio of secretariat, legal services, risk and compliance management. Ms Rapoo replaced Mr EA Rea who was acting in this capacity. The Board has access to the Company Secretary who provides guidance on how Directors’ duties and responsibilities should be discharged in the best interests of the Company. In the year under review, the Company Secretary has overseen the induction and ongoing informal training of Board members and assisted the Board and its Committees in the formulation of annual plans, agendas, minutes and terms of reference.
In line with the provisions of the Companies Act the Board reconstituted the Corporate Citizenship Committee as the Social and Ethics Committee in 2011. The Board has established six Committees through which it discharges its mandate. The Committees submit reports to each Board meeting detailing progress on activities undertaken. All members of Board Committees are elected by the Board. Members of the Audit Committee are confirmed by shareholders at the Annual General Meeting.
Each Committee has written terms of reference under which authority is delegated by the Board. The composition and responsibilities of each Committee are summarised here. Attendance at Board and Committee meetings by Directors, during their tenure as Directors in 2011, is disclosed in the Corporate Governance.AUDIT COMMITTEE
The Audit Committee is comprised of four Independent Non-Executive Directors. The Audit Committee’s statutory duties, as set out in the Companies Act, include inter alia, considering the Company’s Annual and Interim Financial Statements, its Accounting Policies as well as its mechanisms for safeguarding Company assets.
The Audit Committee met four times in the year under review. Both the internal and external auditors have unrestricted access to the Chairman of the Audit Committee and may meet privately with the Committee if required. The report of the Audit Committee, including more details on its responsibilities.
Current members of Audit Committee are:
The Risk Committee comprises three Independent Non-Executive Directors, two Executive Directors and five Executive Committee members. In view of the number of portfolios that Mr Dunne held in Board structures, the Board elected Mr Morgan to succeed Mr Dunne as Chairman of the Risk Committee in 2011. Messrs Dunne and Engelbrecht resigned from the Risk Committee at the end of the year. The Company Secretary attends all meetings as secretary.
The Risk Committee’s mandate includes reviewing and assessing risk and compliance management processes, including safety, health and environmental management. For the period under review, the Committee focused on monitoring the entrenchment of the risk management process in the Group and also initiated an integrated process of compliance management across Group companies.
The latter project will continue in 2012. The Risk Committee met four times in 2011. Its members are:
* Member of the Executive Committee.
The Committee’s responsibilities are, inter alia:
The Social and Ethics Committee is comprised of five members, four of whom, including the Chairman, are Independent Non-Executive Directors. The Company Secretary attends all meetings as secretary and the Chief Financial Officer attends by invitation. The Group Technical and Safety, Health and Environment Manager and the Group Human Resources Manager are also in attendance at meetings. Three meetings were held in 2011.
Current members of the Committee are:
In addition to ensuring compliance with relevant legislation, the Committee’s responsibilities are:
The Remuneration Committee comprises three Independent Non-Executive Directors. The Committee meets at least twice per year and additional meetings are scheduled as the Committee deems appropriate. Three meetings were held in 2011. The Chief Executive and Chief Financial Officer attend by invitation when necessary to discuss the remuneration of Executive Directors and Senior Management. The Company Secretary attends all meetings as secretary. The Company’s Remuneration Report, including details on the Remuneration Committee’s responsibilities is published in the Remuneration Report.
Current members of the Committee are:
The Nominations Committee comprises three Independent Non-Executive Directors.
The Committee meets at least twice per year and additional meeting are scheduled as the Committee deems appropriate. Three meetings were held in 2011. The Company Secretary attends all meetings as secretary. In accordance with the recommendations of King III, the Chief Executive attends by invitation when necessary to discuss Senior Management appointments and succession plans.
Current members of the Committee are:
Responsibilities of the Committee are, inter alia:
The Executive Committee is constituted to assist the Chief Executive in managing the Group. Subject to matters reserved for decision by the Board, the Chief Executive’s authority in managing the Group is unrestricted. The Board has delegated the day-to-day running of the Company to the Chief Executive who works with other Executive Committee members to assist him in this task. The Executive Committee is the highest executive decision making structure in AECI. Its role is focused on formulating and implementing the Group’s strategy and policies and ensuring that business activities are aligned in this respect.
The operational framework of businesses in the Group is a decentralised one, known in AECI as “Freedom supported by a Framework”. Most operating businesses have their own Boards and management structures and decision making is in line with the provisions of the Group’s delegation matrix.
The AECI Executive Committee comprises all the Executive Directors who hold office from time to time, together with such Senior Managers as the Board may appoint from time to time. The Committee meets once a month and the Company Secretary attends as secretary. Details of the members of the Executive Committee.
The responsibilities of the Chief Executive are, inter alia:
2011 ATTENDANCE: BOARD AND COMMITTEE MEETINGS
CORPORATE GOVERNANCE PROGRESS IN 2011
In the year under review the Company established a compliance function apart from its Legal Department with the specific aim of formalising and integrating the Group’s compliance processes. The objective is to establish a system to facilitate the effectiveness and efficiency of Group operations and assist with general compliance with the regulatory universe in an integrated manner. Work is ongoing in this regard and is aimed at ensuring that AECI is not adversely exposed to legal and compliance risks.
Further progress towards achieving compliance with many of the principles of King III was made and a compliance framework was designed and distributed to the Board for guidance and monitoring.
The Company has conducted a gap analysis on its adherence to King III. The table below provides a detailed analysis of adherence. In future years, only progress in adherence to those principles not fully met in 2011 will be reported.
KING III INDEX
With regard to the new Companies Act, the Board endorsed a plan to achieve full compliance with this Act.
With regard to the JSE Listings Requirements, Management reviewed the changes to the rules and regulations and the implications of these were presented to the Board to confirm common understanding.
An impact analysis of the Consumer Protection Act was conducted and business contracts were realigned with this Act where necessary. Training on the provisions of the Act was conducted for relevant staff.
In the area of stakeholder engagement, which is highly valued by the Board, the formalising of stakeholder identification processes will be pursued in 2012. The objective is to enhance the Company’s understanding of the information needs of key stakeholders in order to address these needs in its reporting processes. To ensure transparency, risk information affecting stakeholders will continue to be shared with stakeholders without compromising commercially privileged information.
Risk management is pivotal to good governance. The Group’s efforts in measuring and managing risks were extensive in the year under review. The output of these efforts was used, inter alia, to determine material issues for inclusion and discussion in this Integrated Report. Accordingly, detailed risk-related commentary is included separately.
ACCOUNTABILITY AND INTERNAL CONTROL
The Directors are required in terms of the Companies Act and the JSE Listings Requirements to prepare Annual Financial Statements which fairly present the state of affairs of the Company and the Group as at the end of the financial year and of the profit or loss for that period in conformity with IFRS. The Company’s external auditors are responsible for examining the Annual Financial Statements of the Company and its subsidiaries and for reporting their opinion on these Statements to shareholders. Furthermore, the external auditors must determine whether the Annual Financial Statements are in accordance with the Act, IFRS and the JSE Listings Requirements.
Following discussions with the external auditors the Directors consider that, in preparing the Financial Statements, the Company has consistently used appropriate Accounting Policies supported by reasonable and prudent judgemeSnt and estimates. All applicable international accounting standards have been followed. The Directors have formally reviewed the budgets and forecasts of the businesses and have concluded that the Group will continue in business for the foreseeable future. Accordingly, the going concern basis of accounting remains appropriate.
The Directors are also responsible for maintaining adequate accounting records and they have general responsibility for ensuring that an effective risk management process is in place to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.
To enable the Directors to meet these responsibilities, management sets standards and implements systems of risk management and internal control aimed at reducing the risk of error or loss in a cost-effective manner. The Company’s Internal Audit function independently appraises the Group companies’ internal control and reports directly to the Audit Committee.
In addition, the Management of each operating business submits an annual Letter of Assurance to the Audit Committee of the Company affirming that the internal control in entities for which they have responsibility is adequate for their operations.
The Directors are of the opinion, based on the information and explanations given by Management, the internal auditors and the external auditors, that during the year there were no material breakdowns of internal controls and that these controls are adequate so that the financial records may be relied on for preparing the Financial Statements and maintaining accountability for assets and liabilities. The Directors believe that assets are insured appropriately and are used as intended with appropriate authorisation.
ETHICSCODE OF ETHICS
The AECI Code of Ethics and Business Conduct (“the Code”) is designed to provide clear guidelines for engaging with all stakeholders associated with AECI and its businesses. The Code sets out five values that drive the ethical and responsible business conduct that is expected of all AECI and related businesses’ employees and other stakeholders. These values are supported by underlying principles and they in turn give rise to specific “do’s” and “don’ts”.
Through the Code, AECI has adopted and upholds the highest ethical standards to be reflected in the way it conducts its business. The Code is supported by, and should be interpreted against the backdrop of all relevant legislation in the countries in which the Group operates, the regulatory environment applicable to the various industries served by Group businesses and AECI’s internal controls and systems, policies, standards and procedures.
A formal review of the Code was completed in 2011 and the redrafted Code was approved by the Board. The Code is available on AECI’s website via the link http://www.aeci.co.za/ pdf/policy_documents/code_of_ethics_3.pdf The Code can only be amended by the Board. It is reviewed every three years, or more often if necessary.WHISTLE BLOWING PROGRAMME
A service known as Tip-offs Anonymous is in place and it was reinvigorated to good effect in 2011. The number of legitimate issues and concerns reported doubled, albeit off a low base, and were dealt with as appropriate by the Financial Director and the Head of Internal Audit.
The service is aimed at enabling employees, customers, suppliers and/or other stakeholders, on a confidential basis, to raise concern in cases where conduct is deemed to be contrary to ethical behaviour and AECI’s Code. The service is administered by Deloitte & Touche. Therefore, it is totally independent of AECI and the anonymity of individuals reporting fraud or dishonest and inappropriate behaviour is protected. Tip-offs Anonymous is a useful component of the Group’s efforts to deal with theft, fraud and other misconduct in a professional manner.CONFLICTS OF INTEREST
The Group has adopted a formal Conflicts of Interest Policy which it updated in 2011 and all employees with the ability to bind the Company (contractually or otherwise) are required to complete and submit a Conflicts of Interest Declaration.FRAUD AND ILLEGAL ACTS
The Group does not engage in or accept or condone engaging in any illegal acts in the conduct of its business. The Group’s policy is to actively pursue and encourage prosecution of perpetrators of fraudulent or other illegal activities should it become aware of any such acts. A zero tolerance approach has been adopted.
In accordance with the JSE Listings Requirements, AECI has adopted a Trading in Securities Policy. In terms of the Policy there is a “closed period” that endures from the end of the financial reporting period until the publication of financial results for this period. Additional closed periods may be declared from time to time if circumstances so warrant.
This Policy has been brought to the attention of all AECI employees and must be adhered to by them.DIRECTORS’ AND OFFICERS’ LIABILITY INSURANCE
The Company has in place Directors’ and Officers’ liability insurance which provides some cover against legal action by third parties.INVESTOR RELATIONS AND SHAREHOLDER COMMUNICATION
The Company’s Chief Executive, Financial Director and members of the Executive Committee conduct timely presentations on the Group’s performance and strategy to analysts, institutional investors and the media in South Africa.
AECI’s Communications function maintains regular contact with the media by disseminating relevant information.
The Board is satisfied that in the 2011 financial year, its decision-making capability and the accuracy of the Company’s reporting and financial results were maintained at a high level at all times with reliance being placed on the internal and external auditors and on the Audit and Risk Committees to raise any issues of finance- and risk-related concerns.
CORPORATE GOVERNANCE KEY FOCUS AREAS FOR 2012
In matters of compliance AECI will:
In matters of risk management the Board and the Executive Committee will:
IN MATTERS OF INTERNAL ASSURANCE THE COMPANY WILL: