CORPORATE GOVERNANCE KING III COMPLIANCE REGISTER 2017 This document has been prepared in terms of the JSE Listing Requirements and sets out the application of the 75 corporate governance principles by Adcorp Holding Limited as recommended by the King Report and Code on Corporate Governance for South Africa, 2009 (King III). PRINCIPLE # PRINCIPLE APPLIED / PARTIALLY CHAPTER 1: ETHICAL LEADERSHIP AND CORPORATE CITIZENSHIP 1.1 The Board should provide effective leadership based on an ethical foundation 1.2 The Board should ensure that the company is and is seen to be a responsible corporate citizen Adcorp Holdings has an explicit set of values that plays a key role in shaping the culture of Adcorp and its operating companies. The Board s ethical leadership provides the foundation for the values which are central to the way Adcorp does business. Adcorp s decisions and actions are based on these values and they form the basis of the Adcorp s code of conduct. The Board has appointed Social and Ethics committee to assist in this regard. The terms of reference of the committee as it relates to corporate citizenship requires that the committee should monitor: Promotion of equality, prevention of unfair discrimination, reduction of corruption Contribution to development of the communities via our CSI projects. Corporate Social Investment is a vital part of Adcorp s identity and it is with a great sense of pride that the Group so positively influences the lives of many. With a history of creating, maintaining and supporting development, social and environmental projects distinguishes who we are today. Community upliftment goes hand-in-hand with focused skills development and the provision of opportunities for those looking to enter the employment market. Corporate Governance King III Compliance Register 2017 Page 1 of 18
1.3 The Board should ensure that the company s ethics are managed effectively CHAPTER 2: BOARD AND DIRECTORS 2.1 The Board should act as the focal point for and custodian of corporate governance Adcorp has a Board approved Code of Conduct in place which includes the value statement of the company. The Transformation, Social and Ethics committee s responsibility is to monitor cases reported on the tip-off line, review any statements on ethical standards, review significant cases of employee conflict of interest, misconduct or fraud and any other area where unethical activity by employee or the company is alleged. The Board terms of reference specifies the role of the Board, the chairman, the CEO and the individual members of the Board. The Board is further supported by three sub-committees that have delegated responsibility to assist the Board in specific matters. The sub-committees report to the Board at every Board meeting. 2.2 The Board should appreciated that strategy, risk, performance and sustainability are inseparable 2.3 The Board should provide effective leadership based on an ethical foundation Adcorp understands that sound and robust governance practices are fundamental to earning the trust of stakeholders. The approach to governance standards throughout our organisation requires continuous focus as it is critical to sustaining performance and preserving shareholder value. Adcorp also recognise that strategy, performance, sustainability and risk are inseparable. Adcorp Holdings has an explicit set of values that plays a key role in shaping the culture of Adcorp and its operating companies. The Board s ethical leadership provides the foundation for the values which are central to the way Adcorp does business. Adcorp s decisions and actions are based on these values and they form the basis of the Adcorp s code of conduct. Corporate Governance King III Compliance Register 2017 Page 2 of 18
2.4 The Board should ensure that the company is and is seen to be a responsible corporate citizen 2.5 The Board should ensure that the company s ethics are managed effectively 2.6 The Board should ensure that the company has an effective and independent Audit Committee 2.7 The Board should be responsible for the governance of risk The Board has appointed the Transformation, Social and Ethics committee to assist in this regard. The terms of reference of the committee as it relates to corporate citizenship requires that the committee should monitor: Promotion of equality, prevention of unfair discrimination, reduction of corruption Contribution to development of the communities via our CSI projects. Corporate Social Investment is a vital part of Adcorp s identity and it is with a great sense of pride that the Group so positively influences the lives of many. With a history of creating, maintaining and supporting development, social and environmental projects distinguishes who we are today. Adcorp has a Board approved Code of Conduct in place which includes the value statement of the company. The Transformation, Social and Ethics committee s responsibility is to monitor cases reported on the tip-off line, review any statements on ethical standards, review significant cases of employee conflict of interest, misconduct or fraud and any other area where unethical activity by employee or the company is alleged. The Audit and Risk Committee has terms of reference that have been approved by the Board. The Audit Committee meets quarterly and reports to the Board at every Board meeting. The Audit Committee is properly constituted with independent non-executive directors, one of which is the chairperson of the Committee. The Board is responsible for the governance of risk and determining levels of risk tolerance and is committed to protecting shareholder value by managing risk and opportunities within a predefined framework. The Board had delegated this responsibility to the Adcorp Group Audit and Risk Committee. Corporate Governance King III Compliance Register 2017 Page 3 of 18
2.8 The Board should be responsible for information technology governance 2.9 The Board should ensure that the company complies with applicable laws and considers adherence to non-binding rule, codes and standards 2.10 The Board should ensure that there is an effective risk-based internal audit IT governance has been delegated by the board to the Audit and Risk Committee and IT governance is a standing item on the ARC agenda. The Board has ensured that a compliance framework and code of conduct has been implemented. Adcorp has zero tolerance for noncompliance. The Board also reviews and considers all new nonstatutory corporate governance recommendations and implements them if the Board deems them to be in the best interest of Adcorp and its stakeholders. A quarterly report is presented to the Group Risk and Audit Committee updating legal and compliance matters for Adcorp The risk department is separate to the internal audit function. The Board has ensured the establishment of the group internal audit function which complies with the standards as set by the Institute of Internal Auditors for the Professional Practice of Internal Auditing and Code of Ethics. The function has terms of reference which has been approved by the Audit Committee. The internal audit methodology includes a risk-based approach. Corporate Governance King III Compliance Register 2017 Page 4 of 18
2.11 The Board should appreciate that stakeholders perceptions affect the company s reputation 2.12 The Board should ensure the integrity of the company s integrated report 2.13 The Board should report on the effectiveness of the company s system of internal controls Adcorp s stakeholders are defined as any group or individual that can affect the company s operations, or be affected by the company s operations. These stakeholders include but are not limited to customers, employees, shareholders, unions, investors, analysts, government and regulatory bodies. The values bind the brands together and ensure consistency in interactions with all stakeholders. Stakeholders are treated fairly and Adcorp strive to enhance and develop services and communication channels to meet their expectations. In doing this, Adcorp keep up-todate of all developments in markets, labour legislation, improve and update the knowledge and understanding of its industries on an ongoing basis, and applies its unique entrepreneurial skills and industry knowledge to grow and be successful. The Transformation, Social and Ethics Committee regularly identify all the stakeholders and oversee how the Group interacts with these stakeholders. In addition the Chair of the Board, Remco and the CEO interact with shareholders to determine their requirements. The annual integrated report is compiled by an internal team, approved by management and is audited by independent external auditors, with oversight form the Audit and Risk Committee and approved by the Board prior to publication and circulation. Based on the formal review and the report by the Chief Audit Executive covering the Group s system of internal controls and risk management and considering the information responses and explanations given by management, together with discussion with the external auditors. The Board s opinion is supported by the Audit and Risk Committee. Corporate Governance King III Compliance Register 2017 Page 5 of 18
2.14 The Board and its directors should act in the best interest of the company 2.15 The Board should consider business rescue proceedings or other turnaround mechanism as soon as the company is financially distressed as defined in the Act 2.16 The Board should elect a chairman of the Board who is an independent nonexecutive director. The CEO of the company should not also fulfil the role of the chairman of the Board 2.17 The Board should appoint the chief executive officer and establish a framework for the delegation of authority The Board and its committees strictly adhere to its fiduciary duties and duty of care and skill codified in the Companies Act. Policies / procedures have been implemented to ensure that Directors act within the best interests of the Group at all times. This includes: The declaration of all relevant interests at Board meetings; Disclosure of any potential or perceived conflict of interest by individuals; A policy that deals with the dealing in the Group s securities; The taking of legal advice by the Board when deemed necessary to ensure compliance with the relevant legislation and the JSE Listing Requirements. Directors are permitted to obtain independent advice in respect of their duties and liabilities. The Audit and Risk Committee reviews financial information in detail and recommends any special action to the Board if required. In this regard the Group s solvency and liquidity and going concern status are reviewed on a regular basis. Appropriate measures will be taken if the Group suffers financial distress at any stage. An independent non-executive chairman has been appointed. The roles of the chairman and the CEO are separate. The Board appointed the CEO and provided input into senior management appointments. The role and function of the CEO is formalised and the Board evaluates the performance of the CEO annually in combination with the Nomination and Remuneration Committee. A delegation of authority framework, approved by the Board, is in place. Corporate Governance King III Compliance Register 2017 Page 6 of 18
2.18 The Board should comprise a balance of power, with a majority of non-executive directors. The majority of non-executive directors should be independent 2.19 Directors should be appointed through a formal process 2.20 The induction, ongoing training and development of directors should be conducted through a formal process 2.21 The Board should be assisted by a competent, suitably qualified and experience company secretary 2.22 The evaluation of the Board, its committees and the individual directors should be performed every year The Board duly constituted and consists of Directors, Non-Executive Directors and Executive Directors. Some of the Non-Executive Directors are independent. In assessing the status of directors, the principles of King III and the JSE Listing Requirements are considered. The Board has adopted a policy on the procedures for the appointment of directors to ensure that the appointments are formal, transparent and a matter for the Board as a whole. This process is overseen by the Remuneration and Nomination Committee. Newly appointed directors are given formal induction by means of a presentation detailing the Group s business, board matters, their duties and governance responsibilities as directors. This process is overseen by the Company Secretary. Directors are briefed on legal developments and changes in risk and the general business environment. Experts are brought in for training as and when required. As stipulated in the Board s mandate, it is the Board s responsibility to appoint and remove the company secretary. A suitably qualified, competent and experienced company secretary has been appointed. The board and its committees underwent an external evaluation by the Institute of Directors on their effectiveness during the year under review in 2016. The evaluation assessed the appropriateness of the board structure and its effectiveness, as well as its professional development. The Chairman evaluates the independence of the directors classified as independent non-executive directors annually. Corporate Governance King III Compliance Register 2017 Page 7 of 18
2.23 The Board should delegate certain functions to well-structured committees without abdicating its own responsibilities 2.24 A governance framework should be agreed between the group and subsidiary Boards 2.25 Companies should remunerate directors and executives fairly and responsibly The Board committees assist the Board in executing its duties, powers and authorities. The required authority is delegated by the Board to each committee to enable it to fulfil its respective functions through formally approved terms of reference. Delegating authority to Board committees or management, other than the specific matters for which the Audit and Risk committee carries ultimate accountability in terms of the Companies Act, does not mitigate or discharge the Board and its directors of their duties and responsibilities and the Board fully acknowledge this fact. The Board has established the following committees: Audit and Risk Committee; Remuneration and Nomination Committee; Transformation, Social and Ethics Committee. The composition of the committees complies with the relevant provisions of the Companies Act, the JSE Listing Requirements and King III. Refer to the committee reports in the Integrated Report for further details. The activities of the subsidiary Boards are reported to the main Board. All subsidiaries apply the policies and procedures of the holding company. The Remuneration and Nomination Committee considers the remuneration of the Executive and Non-Executive Directors on an annual basis which is benchmarked against peer groups to ensure fair remuneration. Non-Executive Directors fees are approved by shareholders with Executive Directors remuneration being reported to shareholders annually in the Integrated Report. The executive remuneration policy was revised in March 2017 and advised to the Shareholders via a sens announcement. Corporate Governance King III Compliance Register 2017 Page 8 of 18
2.26 Companies should disclose the remuneration of each individual director and certain senior executives 2.27 Shareholders should approve the companies remuneration policy CHAPTER 3: AUDIT COMMITTEE 3.1 The Board should ensure that the company has an effective and independent audit committee 3.2 Audit committee members should be suitably skilled and experienced independent non-executive directors 3.3 The audit committee should be chaired by an independent non-executive director 3.4 The audit committee should oversee integrated reporting Remuneration of the executive and non-executive directors as well as prescribed officers is disclosed in the annual integrated report. The remuneration policy is approved by the shareholders through a non-binding special resolution at the Annual General Meeting of Adcorp Holdings. The Audit Committee has terms of reference that have been approved by the Board. The Audit Committee meets quarterly and reports to the Board at every Board meeting. The Audit Committee is properly constituted with independent non-executive directors, one of which is the chairperson of the Committee. The Audit and Risk Committee members collectively have the required level of qualifications and experience. The committee have a good understanding of integrated reporting, internal financial controls, the external and internal audit process, risk management, sustainability issues, information technology governance and other relevant matters within the group. The chairman of the Audit and Risk Committee is an independent nonexecutive director. The Board has assigned this responsibility to the Audit and Risk Committee which considers the disclosure in the Integrated Annual Report, including sustainability information, the annual financial statements and recommends the approval thereof to the Board. Corporate Governance King III Compliance Register 2017 Page 9 of 18
3.5 The audit committee should ensure that a combined assurance model is applied to provide a coordinated approach to all assurance activities 3.6 The audit committee should satisfy itself of the expertise, resources and experience of the company s finance function 3.7 The audit committee should be responsible for overseeing the internal audit 3.8 The audit committee should be an integral component of the risk management process 3.9 The audit committee is responsible for recommending the appointment of the external auditor and overseeing the external audit process The Audit and Risk Committee reviews the combined assurance approach. The framework considers assurance according to the three lines of defence. A combined assurance framework was approved by the Audit and Risk Committee and a Combined Assurance Committee by management was set up to oversee the implementation of the framework. The Audit and Risk Committee considers and satisfied itself of the sustainability of the expertise and experience of the financial director and the finance function on an annual basis. A new CFO has been appointed with effect from 1 July 2017 and currently the group has an acting CFO. Proposed changes to support the new strategy will strengthen the finance team. The expertise, resources and experience of the Group s internal audit function and the internal audit plan is assessed on a regular basis. The Audit a d Risk Committee approves the annual internal plan and monitors performance against the plan. Quarterly reports are submitted by internal audit at the Audit and Risk Committee meetings. The terms of reference of the Audit and Risk Committee and its matrix of responsibilities include risk management. Annually, the Audit and Risk Committee reviews the independence of the external auditors, including the professional sustainability of the lead auditor, and recommends the appointment to the Board and shareholders for the forthcoming financial year. Corporate Governance King III Compliance Register 2017 Page 10 of 18
3.10 The audit committee should report to the Board and the shareholders on how it has discharged its duties CHAPTER 4: THE GOVERNANCE OF RISK 4.1 The Board should be responsible for the governance of risk 4.2 The Board should determine the levels of risk tolerance 4.3 The risk committee or audit committee should assist the Board in carrying out its risk responsibilities 4.4 The Board should delegate to management the responsibility to design, implement and monitor the risk management plan 4.5 The Board should ensure that risk assessments are performed on a continual basis 4.6 The Board should ensure that frameworks and methodologies are implemented to increase the probability of anticipating unpredicted risks Audit and Board committee meetings are held on a quarterly basis. The Audit and Risk Committee reports to the both on its statutory duties and the duties that the Board assigned to the committee. The Audit and Risk Committee chairman attends the annual general meeting to respond to questions. The governance of risk within the Group is the Board s responsibility. The Audit and Risk Committee reviews the Group s risk assessment and satisfied itself of the adequacy of responses and mitigations. The Board s responsibility for risk governance is expressed in the Board terms of reference. A policy and plan for a system and process of risk management has been developed and the levels of risk tolerance are being defined. The Board has established the Audit and Risk Committee to assist in carrying out its risk responsibilities. This is included in the Audit and Risk Committees terms of reference approved by the Board. Adcorp s Board of directors retains ultimate responsibility for the entirety of processes for risk management. Adcorp s Chief Executive Officer (CEO) is accountable to the Board for the management of risk facing Adcorp and is supported by the management of these risks by the operating managing executives. A Chief Risk Officer has been appointed who is also responsible for managing the Group s risks. Risk assessments are embedded in the daily business activities of the company. An update is provided on a quarterly basis to the Audit and Risk Committee. The Board has appointed a Chief Risk Officer who reports directly to the CEO and has the authority to implement the risk management framework. The framework is supported by a methodology that enables proactive risk management. Corporate Governance King III Compliance Register 2017 Page 11 of 18
4.7 The Board should ensure that management considers and implements appropriate risk responses 4.8 The Board should ensure continual risk monitoring by management 4.9 The Board should receive assurance regarding the effectiveness of the risk management process 4.10 The Board should ensure that there are processes in place enabling complete, timely, relevant, accurate and accessible risk disclosure to stakeholders CHAPTER 5: THE GOVERNANCE OF INFORMATION TECHNOLOGY The Chief Risk Officer is responsible for implementing the Risk Management Framework. Adcorp s Chief Executive Officer (CEO) is accountable to the Board for the management of risks facing Adcorp and is supported by the management of these risks by operating managing executives. An update is provided on a quarterly basis to the Audit and Risk Committee. Risk management is an integral part of business management. One aspect of the risk management methodology and process includes continuous monitoring. Risk management is embedded in the day-today functions. Regular reports are provided to the Audit and Risk Committee and internal audit perform reviews of the effectiveness of the system of internal controls and risk management. The Board receives these reports on a quarterly basis and annually on the combined assurance and effectiveness of internal controls from internal audit. The Group s Integrated Annual Report provides a comprehensive outline to stakeholders of the risk management process. Corporate Governance King III Compliance Register 2017 Page 12 of 18
5.1 The Board should be responsible for information technology (IT) governance 5.2 IT should be aligned with the performance and sustainability objectives of the company 5.3 The Board should delegate to management the responsibility for the implementation of an IT governance framework 5.4 The Board should monitor and evaluate significant IT investments and expenditure 5.5 IT should form an integral part of the company s risk management 5.6 The Board should ensure that information assets are managed effectively The Board delegated its duties related to Information Technology (IT) governance to the Audit and Risk Committee. The Audit and Risk Committee is responsible to obtain independent assurance on the IT governance and controls supporting outsourced IT services. An IT Steering Committee is run by management and an independent IT specialist is appointed to the Steering Committee and provides independent advice to the Audit and Risk Committee on the governance of IT. IT governance has been delegated by the board to the Audit and Risk Committee and IT governance is a standing item on the Audit and Risk Committee and the Board s agenda. The CIO is responsible for the implementation of all the structures, processes and mechanisms of the IT governance framework. This is reported to the Audit and Risk Committee on a quarterly basis. The Board and the Audit and Risk Committee oversee the value delivery of IT and monitor the return on investment from significant IT projects. This is reported through the IT steering committee to the Audit and Risk Committee. It forms part of the risk management framework. The IT management framework is aligned to the Group s risk management framework, inclusive of disaster recovery measures. The Board ensures that the company identifies all personal information and treats it as an important business asset. Information Technology security policies is in place and Adcorp is in the process of making all relevant stakeholders aware of the POPI act and the implementation thereof. Corporate Governance King III Compliance Register 2017 Page 13 of 18
5.7 A risk committee and audit committee should assist the Board in carrying out its IT responsibilities CHAPTER 6: COMPLIANCE WITH LAWS, RULES, CODES AND STANDARDS 6.1 The Board should ensure the company complies with applicable laws and consider adherence to nonbinding rules, codes and standards 6.2 The Board should ensure that the company complies with applicable laws, rules, codes and standards on the company and its business 6.3 Compliance risk should form an integral part of the company s risk management process 6.4 The Board should delegate to management the implementation of an effective compliance framework and process CHAPTER 7: INTERNAL AUDIT 7.1 The Board should ensure that there is an effective risk based internal audit The Board has delegated its duties related to the Information Technology to the Audit and Risk Committee where one of the duties is to ensure that the IT risks are adequately addressed through the risk management and monitoring process. Please refer to principle 2.9. A formal induction presentation, for new directors, dealing with the Group s strategy and their duties and responsibilities has been put in place. The Audit and Risk Committee ensures that directors receive regular briefings on changes in risk, law and the environment in which the company operates. A Legal and Compliance Officer has been appointed who is responsible to report on any changes in laws and regulations and report it to the Audit and Risk Committee. Compliance with laws and regulations is one of the Group s strategic risks. An appropriate structure to educate, train, communicate and measure compliance is in place. And compliance with applicable law and regulations are monitored on an on-going basis. An effective risk-based internal audit function exists. The purpose, authority and responsibilities of the internal audit function are defined in the approved internal audit charter. The internal audit charter was reviewed during 2015. Corporate Governance King III Compliance Register 2017 Page 14 of 18
7.2 Internal audit should follow a risk based approach to its plan 7.3 Internal audit should provide a written assessment of the effectiveness of the company s system of internal controls and risk management 7.4 The audit committee should be responsible for overseeing internal audit 7.5 Internal audit should be strategically positioned to achieve its objectives CHAPTER 8: GOVERNING STAKEHOLDER RELATIONSHIPS The internal audit activities are directed by a risk based annual operational internal audit plan, as approved by the Audit and Risk Committee. The group internal audit function annually provides a written assessment of the effectiveness of the company s system of internal controls and risk management. The Chief Audit Executive (CAE) reports functionally to the Audit and Risk Committee and administratively to the Chief Financial Officer and is present at all meetings of the Committee. The Audit and Risk Committee approves the annual internal operational plan and monitors the performance against the approved work plan. The Chief Audit Executive has a standing invitation to attend executive committee meetings (MANCO). The CAE reports functionally to the Audit and Risk Committee chairman. The CAE also has unrestricted access to members of the Audit and Risk Committee and executives of the Group. Corporate Governance King III Compliance Register 2017 Page 15 of 18
8.1 The Board should appreciate that stakeholders perceptions affect a company s reputation 8.2 The Board should delegate to management to proactively deal with stakeholders relationships 8.3 The Board should strive to achieve the appropriate balance between its various stakeholder groupings, in the best interests of the company 8.4 Companies should ensure the equitable treatment of shareholders Adcorp s stakeholders are defined as any group or individual that can affect the company s operations, or be affected by the company s operations. These stakeholders include but are not limited to customers, employees, shareholders, investors, analysts, government and regulatory bodies. The values bind the brands together and ensure consistency in interactions with all stakeholders. Stakeholders are treated fairly and Adcorp strive to enhance and develop services and communication channels to meet their expectations. In doing this, Adcorp keep up-todate of all developments in markets, labour legislation, improve and update the knowledge and understanding of its industries on an ongoing basis, and applies its unique entrepreneurial skills and industry knowledge to grow and be successful. The key priorities, objectives and opportunities for the group are to build new and strengthen existing stakeholder relationships. The values bind the brands together and ensure consistency in interactions with all stakeholders. Stakeholders are treated fairly and Adcorp strive to enhance and develop services and communication channels to meet their expectations. In doing this, Adcorp keeps wellinformed and up to date of all developments in the markets, improve and update the knowledge and understanding of its industries on an ongoing basis, and applies its own unique industry knowledge to grow and be successful. All shareholders are treated equally. Information is available on the public domain and communicated in the annual sense announcement. Corporate Governance King III Compliance Register 2017 Page 16 of 18
8.5 Transparent and effective communication with stakeholders is essential for building and maintaining their trust and confidence 8.6 The Board should ensure that disputes are resolved as effectively, efficiently and expeditiously as possible CHAPTER 9: INTEGRATED REPORTING AND DISCLOSURE 9.1 The Board should ensure the integrity of the company s integrate report 9.2 Sustainability reporting and disclosure should be integrated with the company s financial reporting All information is available on the public domain and communicated in the annual sense announcement. All these communication tools are required to comply with all legal requirements and legislation. Adcorp also provide its stakeholders with an Annual Integrated Report, manual or electronically available on the Adcorp website, www.adcorp.co.za Internal disputes are resolved by making use of the relevant grievance processes. External disputes are dealt with on a case to case basis and if required expert advice will be obtained. The primary objective being to ensure that disputes are resolved as effectively, efficiently and expeditiously as possible. The Audit and Risk Committee reviews the integrated annual report and recommend approval of the report to the Board. The Board reviews and finally approves the content of the integrated report prior to publication. An Integrated Report is produced which, together with complementary reports, addresses the sustainability of the Group, including financial and non-financial aspects such as risk, environment, social and governance issues. Reporting is prepared in line with recognised guidelines that include International Financial Reporting Standards and King III. The board ensures at all times that the company is, and is seen to be, a responsible corporate citizen. The board not only considers the financial performance of the company, but also strives to enhance and invest in the economic life of the communities in which it operates, society in general and the environment. Corporate Governance King III Compliance Register 2017 Page 17 of 18
9.3 Sustainability reporting and disclosure should be independently assured Adcorp has adopted a strategy to increase sustainability assurance coverage over time. Moderate assurance was obtained that Adcorp has adhered to the AA1000 principles of inclusivity, materiality and responsiveness for the reporting period and that selected KPIs have been prepared in accordance with the defined reporting criteria and are free from material misstatement. Corporate Governance King III Compliance Register 2017 Page 18 of 18