Governance structures

In line with the Companies Act, AECI’s corporate governance and processes are led by the Board supported by six sub-Committees:

• Audit Committee
• Risk Committee
• Social and Ethics Committee
• Remuneration Committee
• Nominations Committee
• Executive Committee

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.

AECI has a unitary Board structure with eight Independent Non-executive and three Executive Directors, as at 25 February 2013. The Board operates in terms of a Board charter, a copy of which can be found Iin the governance policy section of this website. Graham Edwards retired from the Board as Chief Executive on 28 February 2013. Non-executive Directors are appointed on the basis of their skills and expertise appropriate to the strategic direction of the Company. Diversity, race and gender are taken into account when appointments are made and the Board, through its Nominations Committee, ensures that it has the right balance of skills, expertise and experience.

In May 2012, the Board appointed Schalk Engelbrecht as its new Chairman to succeed Fani Titi in that role. Mark Dytor was appointed to the Board in an Executive capacity with effect from 2 January 2013 and he succeeded Graham Edwards as Chief Executive on 1 March 2013.

Independence of Board members

The Nominations Committee is charged with continually assessing the independence of Directors and reporting on this to the full Board. In 2012, the Nominations Committee assessed and evaluated the independence of Messrs Engelbrecht and Leeming as the Board’s longest-standing members. The Board was satisfied with their continued independent status based on demonstrable and visible criteria in their roles at Board and Committee level.

Rotation and tenure

Non-executive Directors may serve for up to nine years, subject to retirement and re-election by rotation. Extensions of this period may be granted under specific circumstances. In these cases a formal assessment and evaluation takes place. In terms of the new MOI, Executive Directors are also subject to retirement and re-election by rotation. One-third of the total number of Directors must retire by rotation at each Annual General Meeting.

Terms of employment of Directors

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. No Executive Director 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.

Directors’ management of conflict of interests

If Directors become aware that they have a direct or indirect interest in an existing or proposed transaction with any entity in the Group, they notify the Group Company Secretary who in turn alerts the Chairman of the Board. Furthermore, all Directors have an obligation to update any changes in these interests and this is done before or at each Board meeting. This process was adhered to in 2012 and no Directors recused themselves from any discussions as a result of personal conflict of interests. Any potential professional conflict of interests such as when another company of which a Non-executive Director is also a Director is discussed, is disclosed by the Director concerned and noted in the Board minutes.

Induction and on-going development of Directors

The Company’s Directors have a broad range of expertise and experience in diverse industries including banking, chemicals, technical, accounting and strategic matters. Upon appointment, all new Directors are submitted to a Group-specific induction including a number of one-on-one meetings with Senior Managers and Managing Directors of subsidiaries. This is done with the specific intent of developing Directors’ full appreciation and understanding of the complex nature of the Group’s businesses.

Site visits are also organised where Directors have access to individual businesses and have the opportunity to engage directly with them. In the year under review the Board visited the UIC which is managed by Heartland and where a number of companies in the specialty chemicals cluster have manufacturing operations. The Board also visited AEL’s ISAP plant at Modderfontein as part of its on-going assessment of that investment.

With regards to formal training the Group Company Secretary is charged with sourcing and organising relevant training for Board members, based largely on the specific needs of each Director. In 2012 a programme of relevant courses was circulated to Board members and several Directors availed themselves of training opportunities.

Board effectiveness

In line with the provisions of King III, the Board conducts an annual evaluation of itself and its Committees. Every third year this evaluation is conducted by outside service providers. In the intervening years the evaluation is an in-house process. The interval between the external and internal processes is intended to allow the Board sufficient time to consider, implement and follow up on specific recommendations.

In 2012 the evaluation was conducted in-house and the indicators for testing pertained inter alia to Board meetings, independence, Board and management interaction, remuneration, and Committee size and composition. The assessment confirmed the overall effectiveness of the Board and its Committees but indicated that specific focus should be given to:

These issues and other minor aspects identified as requiring review are being addressed.

The next external evaluation is due in 2013.

Board relationships with staff and external advisors

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 Managers 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 themselves or the Company after having advised the Chief Executive or Chairman.

Board meetings

The Board met seven times in the year, including one special meeting and one session to discuss the development of Company strategy. In addition, the Chief Executive and the Chief Financial Officer kept the Board up-to-date on specific and urgent matters that could not be deferred until the next formal Board meeting. In certain instances and on specific matters, regular reports were tabled to all Board members so as to keep them apprised of developments.

The Non-executive Board members also met without the Executive Directors in order to raise matters of interest and concern. The Chairman of the Board conveyed related discussions to the Executive Directors, as warranted.

The Chairman of the Board, assisted by the Chief Executive and the Group Company Secretary, is responsible for setting the agenda for each Board meeting after having received input from the Board. Board meetings are scheduled well in advance and the Group Company Secretary ensures that all Directors are provided with the information required well in advance to enable them to prepare for meetings and formulate their views on matters.

BOARD COMMITTEES

The Board has established a number of Committees to assist it in fulfilling its duties and objectives. The role and responsibility of each Committee is set out in its formalised and Boardapproved terms of reference. These terms are reviewed periodically and can be found in the governance policy section of this website.

The Audit Committee and the Social and Ethics Committee have additional responsibilities given them by virtue of the Companies Act.

The Board Committees usually meet before each Board meeting and the Chairmen table at the Board meeting a report of their Committees’proceedings. The minutes of each Committee meeting are included in the full Board information pack.

All Committees are satisfied that, in 2012, they carried out their responsibilities in compliance with their mandate and terms of reference.

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 Committee met four times in the year.

Both the internal and external auditors have unrestricted access to the Chairman of the Committee and may meet privately with the Committee. The report of the Audit Committee is published in the financial statements of the Integrated Report .

The Chief Executive, the Chief Financial Officer and the external and internal auditors attend meetings of the Committee by invitation.

Some of the key issues discussed and reviewed in the year included: interim results and press announcements, reports from the Tip-offs Anonymous line, external audit reports, internal audit reports and the risk-based annual audit plans of the external and internal auditors.

Current members of the Committee are:

RISK COMMITTEE

The Risk Committee is comprised of four Independent Non-executive Directors, three Executive Directors and four Executive Committee members. Mr RMW Dunne was reappointed to the Risk Committee in 2012. The Risk Committee met four times in the year.

The Risk Committee’s mandate includes reviewing and assessing risk and compliance management processes. Safety, health and environmental management are part of this. In 2012 the Committee reviewed the risk register, oversaw the embedding of the Group-wide risk management process, the establishment of IT and Business Continuity Management processes as well as the entrenchment of the integrated compliance management process across the Group.

Some of the key issues discussed and reviewed included an external risk scan, a strategic risk dashboard analysis, finalisation of a Business Continuity Management approach and strategy, a review of the risk management framework and of the Company’s risk appetite and tolerance approach.

Current members of the Committee are:

SOCIAL AND ETHICS COMMITTEE

The Social and Ethics Committee is comprised of five directors, (four of whom are Independent Non-executive Directors), the Chief Executive, the Human Capital Executive and the Group Technical and Safety, Health and Environment Manager. The Chief Financial Officer attends by invitation. The terms of reference of the Social and Ethics Committee were reviewed to bring them in line with the provisions of the Companies Act and were approved by the Board.

In 2012, the Committee maintained its focus on ensuring that AECI has a robust management process for issues pertaining to transformation, Employment Equity, safety, health, the environment, and ethics-related matters. The Committee met four times in 2012.

The Remuneration Committee is comprised of three Independent Non-executive Directors and its mandate is inter alia to ensure that the Company’s remuneration policy and practices are aligned with Group strategy and that remuneration is dependent on the achievement of performance indicators. The Committee also ensures that Human Capital polices are in line with best practice and are adhered to.

The Chief Executive and the Chief Financial Officer attend by invitation when necessary to discuss the remuneration of Executive Directors and Senior Managers. The Committee met five times in 2012.

Some of the key issues addressed were Executive Directors’ KPIs, finalisation of the new Long-term Incentive Plan for approval by shareholders, assessment of Executive and Senior Managers’ performance, and a review of short-term incentives for individuals at these levels.

The Committee also gave attention to the proposal regarding the conversion of the Group’s defined-benefit pension funds to a defined-contribution fund. See the Chief Financial Officer’s report in this regard.

Current members of the Committee are:

NOMINATIONS COMMITTEE

The Nominations Committee is comprised of three Independent Non-executive Directors and is chaired by the Chairman of the Board. The Committee’s mandate includes reviewing recommendations on enhancing the corporate governance framework, the composition and performance of the Board as well as its Committees and individual Directors, the appointment and re-appointment of Executive Directors, and succession planning for the Chairman and the Chief Executive.

The Committee met seven times in 2012.

The succession of the Chief Executive was a key agenda item. In this regard, rigorous and multi-faceted Board-approved criteria and processes were applied to determine the suitability of both internal and external candidates. The input of a third-party consultant was also sought. Other important agenda items were the assessment of the independence of long-serving Board members and capacitation of the Board as a whole.

Current Committee members are:

EXECUTIVE COMMITTEE

The Board has delegated the day-to-day running of the Company to the Chief Executive who works with a group of Executives to assist him in this task. The Executive Committee is the highest executive decision-making structure in the Group and central to its role is the formulation and implementation of the Group’s strategy and policy direction, and ensuring that all business activities are aligned in this respect.

Group businesses operate in a decentralised framework, defined internally as “freedom supported by a framework”. The framework is established for the Group by the parent company and addresses policies, standards and processes in the areas of legal compliance and governance, financial control and risk management, strategic direction and remit, and safety, health and the environment. Within this framework, businesses pursue their individual innovative product and service excellence offering. Most Group businesses have their own Boards of Directors and management structures and decision-making is made in line with the provisions of the Group’s delegation matrix. The latter is approved by AECI’s Board.

GROUP COMPANY STRUCTURE

The Group Company Secretary oversees the portfolio of secretariat, legal services, risk and compliance management, and attends all Board and Committee meetings as secretary.

The Board as a whole and individual Directors have access to the Group Company Secretary who provides guidance on how they should discharge their duties and responsibilities in the best interests of the Group. In 2012, the Group Company Secretary also oversaw the induction and on-going training of Board members and assisted the Board and its Committees in formulating annual plans, agendas, minutes, and terms of reference as warranted.

In line with the JSE Listings Requirements the Board, through the Remuneration Committee and in consultation with both the Chief Executive and the Chief Financial Officer, undertook the annual performance appraisal of the Group Company Secretary. The assessment reviewed the performance of the incumbent, taking into account the quality of support and guidance provided to Board and management for the 2012 financial year. All the parties were satisfied with the quality of support as well as the competency and experience demonstrated by the incumbent. An abridged biography of the Group Company Secretary is published in the overview and strategy section of this report.

The Group Company Secretary is not a Director of the Company or any of its subsidiaries and accordingly maintains an arm’s length relationship with the Board and its Directors.