2016 Governance structures

THE AECI BOARD RECOGNISES THAT SOUND GOVERNANCE PRINCIPLES ARE THE FOUNDATION ON WHICH THE TRUST OF STAKEHOLDERS IS BUILT AND HOLDS ITSELF ACCOUNTABLE FOR THE OVERALL STEWARDSHIP OF THE GROUP IN THIS REGARD.

IN 2016 THE BOARD CONTINUED TO BUILD ON ITS STRONG GOVERNANCE FOUNDATION, GEARED AT ENSURING THAT APPROPRIATE DECISION-MAKING AND OVERSIGHT UNDERPIN SUSTAINABLE PERFORMANCE. THE FOCUS WAS ON REVIEWING AECI’S UNDERLYING GOVERNANCE FRAMEWORKS AND REALIGNING ITS DECISION-MAKING AND OVERSIGHT ROLES WHERE SO REQUIRED.

The decision-making role of the Board is exercised through the formulation of fundamental policy and strategic goals in conjunction with management, whereas the oversight role concerns the review of management’s decisions, the adequacy of systems and controls and the implementation of policies. In view of JSE Listings Requirements amendments, other legislative changes and the recommendations of King IV, the Board accepts that the realignment process is likely to be ongoing in pursuit of progressive value-add and efficiencies.

THE BOARD OF DIRECTORS

Structure and composition of the Board

AECI has a unitary Board structure led by an Independent Non-executive Chairman, eight other Independent Non-executive Directors and two Executive Directors. The Board charter as well as the terms of reference of the Nominations Committee detail the procedures for appointments to the Board.

Such appointments are formal and transparent and a matter for the Board as a whole. 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 also 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.

Summarised biographical details of the Directors are provided on the Non-executive directors page and on the Executive committee page. The Board operates in terms of a Board charter which will be due for review in 2018. The role of the Board is to exercise leadership, integrity and sound judgement in the business and to provide strategic direction to the Company, with a keen understanding of key risks, and to continually monitor performance against set objectives.

The Company’s governance framework is defined as “freedom supported by a framework” and the overall intention of this framework is to ensure that there is continual performance improvement by Group businesses while ensuring that at the same time all governance and regulatory obligations are met. There is an ongoing process of confirming that the framework that supports the governance of the Group remains relevant, efficient and clear and aligns the expectations of the Board, management and the general stakeholder community.

Rotation, tenure and succession

There is no set retirement age for Non-executive Directors. Non-executive Directors may generally serve for up to nine years, subject to retirement and re-election by rotation as set out in the Company’s MOI. Extensions of this period may be granted, provided the Nominations Committee remains satisfied that the Director’s independence has not been compromised. The independence assessment is conducted on a case-by-case basis and all Board members participate in the review process. One-third of the Executive and Non-executive Directors must retire by rotation at each AGM.

The succession plan considered in 2015 was implemented in the year under review. This resulted in one retirement at year-end, two other Non-executive Directors indicating their intention to retire in 2017, and the appointment of a related number in replacement. The Board continues to be mindful of issues of diversity at Directorate level and to that end, and pursuant to paragraph 3.84(k) of the JSE Listings Requirements, has approved a Board Gender Diversity policy that articulates its commitment on this aspect and adds further guidance to succession planning in future. At this stage, the Board has committed to having a 30% target for female Non-executive Directors and aspires to achieve this as and when replacement opportunities present themselves.

Terms of employment of Directors

Executive Directors are employees of the Company and have standard terms and conditions of employment. Their notice periods are six months. They do not receive any special remuneration or other benefits for their additional duties as Directors. The Board, through its Nominations Committee, has had ongoing discussions with the two Executive Directors regarding succession planning for all key roles including the Executive Directors. The Board is satisfied that the potential risk associated with the continuity of leadership at this level has been adequately mitigated.

The Board, on the recommendation of the Remuneration Committee, continues to determine the remuneration of Executive Directors, Executives and other Senior Managers as underpinned by the remuneration philosophy of the Company. None of the Non-executive Directors are Company employees. Non-executive Directors’ remuneration is arrived at after an annual benchmarking exercise performed by the Executive Directors and the approval by shareholders of the proposed fees, on the Board’s recommendation.

Directors’ management of conflict of interests

AECI has a Conflict of Interests policy (embedded in the Group’s Code of Ethics and Business Conduct) which provides guidance and procedures for Directors on managing and dealing with potential conflict of interests situations. The same policy applies to all Group employees. The Group Company Secretary is charged with maintaining a comprehensive register of Directors’ declarations of interests and this is submitted for updating by the Directors before each Board meeting. In 2016 all Directors duly completed and updated this register.

No conflict of interests or recusals from Board discussions and deliberations were noted in relation to any proposed transaction other than for matters pertaining to the de-risking of the Company’s post-retirement obligations. The then Chairman and the two Executive Directors, as related parties, continued to recuse themselves from any decision-making in this regard and this project was driven by an ad hoc Committee of non-conflicted Non-executive Directors, with leadership and support from the full Board. This was recorded in the Board minutes, which are available for inspection by the Company’s external auditor.

Induction and ongoing development of Directors

The Company’s Directors have expertise and experience in diverse industries including banking, chemicals, mining, technical, accounting and strategic matters. Upon appointment, all new Directors undergo a Group-specific induction programme which includes one-on-one meetings with Executives, Senior Managers and the Managing Directors of subsidiaries.

The Directors appointed in 2016 completed this induction process and also considered all key documentation that is the backbone of the Company’s governance framework (including but not limited to the JSE Listings Requirements, King III and King IV, the MOI and the Code of Ethics and Business Conduct). In addition, they visited key operational sites to enhance their understanding of the Group’s diverse businesses.

With regard 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.

Board and Committee performance evaluation

The Board continued to focus its efforts on building strong and responsive governance structures and, to that end, undertook its annual effectiveness review of all its structures; i.e. Board and Committees. For the year under review, an external consultant was engaged to support the assessment process with guidance from the Chairman of the Board and the Group Company Secretary. The outcomes of this assessment will be implemented in 2017 and will serve to ensure that there is continuous improvement in the way the Group is governed and managed. At a high level, the results of the evaluation highlighted the following areas for improvement:

although the work of the Remuneration and Nominations Committees is satisfactory, emphasis should be placed on continually updating the Board on policy changes affecting both the remuneration structure and the succession plans in the Group;

future-proofing the Company should become a focus of meetings and discussions and the Board should acquaint itself with the political, regulatory and competitive landscapes in all relevant jurisdictions and use these to continually refine the Group’s strategy.

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. They also have unrestricted access to Executives, Senior Managers, the internal auditors and the external auditor to consult on any aspect of the Company’s operations. Furthermore 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 in 2016

The Board met six times in the year. One meeting included a session to discuss the development of Company strategy. Between Board meetings, the Executive Directors kept the Board up-to-date on emerging material matters that could not be deferred until the next formal Board meeting.

The practice by the Non-executive Directors to meet before the start of each Board meeting so as to raise matters of interest and concern, without the Executive Directors being present, has become an entrenched process that contributes to the overall maturity of governance. The Chairman of the Board is charged with the responsibility of conveying any 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. The full Board has the opportunity to provide input. Board meetings are scheduled well in advance and the Group Company Secretary ensures that all Directors are provided with the information required timeously 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. In addition, ad hoc Committees are established from time to time, if circumstances so warrant, to assist the Board with specific material issues or projects.

The restructuring of AECI’s defined-benefit pension funds to a defined-contribution fund is a case in point. The Board formed a sub-Committee of two Independent Non-executive Directors to consider and guide this process, which commenced in 2013 and is expected to be completed in 2017.

The role and responsibility of each Committee is set out in its formalised and Board-approved terms of reference. As already indicated, full copies of these terms are available on the Company’s website and they are summarised below. In view of the coming into effect of King IV, the Board agreed to delay the planned reviews of terms for the Audit, Risk and Social and Ethics Committees until 2017.

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 also included in the full Board information pack.

All Committees are satisfied that in 2016 they carried out their responsibilities in compliance with their mandates and terms of reference.

Audit Committee

Monitor the adequacy of financial controls and reporting.

Review audit plans and adherence to these by assurance providers.

Ascertain the reliability of the internal and external audit processes.

Ensure that financial reporting complies with IFRS, the Companies Act and the JSE Listings Requirements.

Nominate the external auditor.

Both the internal and external auditors have unrestricted access to the Chairman of the Committee and it is standard operating procedure for them to meet privately with the Committee. The Chairman of the Board, the Chief Executive, the Chief Financial Officer and the external and internal auditors attend meetings of the Committee by invitation.

Risk Committee

Oversee the overall management of risk, operational resilience and business continuity.

Monitor Company decisions to ensure alignment with the risk appetite.

Ensure that proper controls and mitigations are in place to prevent risk.

Oversee IT governance and related risks.

Oversee the compliance management processes.

This Committee is comprised of five Independent Non-executive Directors and four Executive Committee members, including the two Executive Directors.

Social and Ethics Committee

Monitor the Company’s compliance with section 72(8) of the Companies Act, read together with regulation 43. Focus is on the following:

recommendations on corruption of the Organisation for Economic Co-operation;

Employment Equity Act, No. 55 of 1998;

Broad-based Black Economic Empowerment Act, No. 53 of 2003;

Labour and employment principles in line with global best practice; and

safety, health and environmental issues and performance.

Remuneration Committee

Establish the remuneration philosophy for the Group.

Determine the remuneration framework for Executives and Senior Managers.

Consider, review and approve Group policy on Executive remuneration and communicate this and the implementation thereof to stakeholders in the Company’s integrated report.

This Committee is comprised solely of Independent Non-executive Directors.

Nominations Committee

Consider suitable nominations for appointment to the Board and Executive succession planning, and make appropriate recommendations based on qualifications and experience.

Oversee the appointment of Board members to serve on various Committees.

Oversee the assessment of the Board and its Committees to ensure continual governance improvement.

This Committee is comprised solely of Independent Non-executive Directors.

Executive Committee

The Board has delegated the day-to-day running of the Company to the Chief Executive who works with an Executive Committee to assist him in this task. The Executive Committee is the highest executive decision-making structure in the Group. 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 and that the business strategy is implemented.

Group Company Secretary

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

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 Company. In 2016 the Group Company Secretary oversaw the ongoing education and training of the Company’s Directors through the inclusion of topical papers, articles and opinions in their information packs and continued to assist the Board and its Committees in preparing annual plans, agendas, minutes, and terms of reference as warranted.

In line with the JSE Listings Requirements, the Board 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 received and guidance provided to the Board and management during the year. All parties were satisfied with the quality of support received as well as the competency and experience demonstrated by the incumbent.

The Group Company Secretary is not a Director of the Company nor of any of its subsidiaries and, accordingly, maintains an arm’s length relationship with the Board and its Directors.

 

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