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Corporate Governance
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Introduction
At Edcon (Edcon Holdings (Pty) Ltd and its subsidiaries), we apply sound corporate
governance as a means of ensuring the sustainability of the organisation and its
business. To us, sustainability means that Edcon will continue to survive and thrive
to the benefit of all our stakeholders, always with due cognisance of our integrated
economic, social and environmental performance.
The fact that we are a privately owned enterprise does not detract us from applying
corporate governance principles and practices in line with King III guidance. Furthermore,
Edcon complies with all legislation to which it is subject.
Edcon has a unitary board structure comprising two executive directors and five
non-executive directors.
Our Board of Directors has delegated authority for the day-to-day affairs of each
of our divisions to executive managers. Our executive management team is mandated
to assist in reviewing the operations and performance of Edcon and its subsidiaries,
developing strategy and policy proposals for consideration by our Board of Directors
and implementing the directives of the Board.
Our directors and executive managers are indirect equity investors in Edcon. Our
non-executive directors may be deemed beneficial owners of securities in Edcon (BC)
S.A.R.L, which in turn is a shareholder of Edcon. Our executive managers are beneficiaries
of the Founder Investor Trusts, which in turn are shareholders of Edcon Holdings
(Pty) Limited. In addition, historically disadvantaged employees own, through the
Edcon Staff Empowerment Fund (the I-Share Yethu Trust), a significant portion of
shares in Edcon.
Corporate governance in Edcon is managed and monitored by the Board, in conjunction
with the following committees:
- Audit and Risk Committee
- Remuneration Committee
- Transformation Committee
The roles of the Chairman and the Chief Executive are separate, with a clear division
of responsibilities to ensure a balance of power and authority between them. The
Chairman has no executive functions.
Edcon believes that its Board is sufficient in number and expertise to ensure a
wide range of skills, views and experience, and has the professional and industry
knowledge required to meet Edcon’s strategic objectives.
The Board and the Remuneration Committee, in reviewing the Board’s composition and
structure, take into consideration criteria such as racial and gender diversity.
Succession planning is also considered at every meeting of the Remuneration Committee.
Procedures for appointments to the Board are formal and transparent. The appointment
of directors is conducted in terms of the Articles of Association, with due regard
to the provisions of the Companies Act. On appointment, a new director has
- discussions with the Chairman regarding the company’s expectations
of the director, the potential contribution of the director to Edcon and the maps
of such director’s expertise; and
- the benefit of an induction programme aimed at broadening that
director’s understanding of Edcon as well as the business environment and markets
in which Edcon operates. The induction programme includes meetings with senior management,
visits to Edcon’s major facilities and the provision of information relating to
the business and financial performance of Edcon
Each director receives a director-orientation manual containing the various charters,
Board policies and procedures, details of directors' duties and responsibilities,
including the prohibitions relating to insider trading contained in the Securities
Services Act, evaluation and other forms required to be completed by the directors
on an annual basis, and the company's Memorandum of Incorporation and Articles of
Association.
Roles and Responsibilities of the Board
The Board is ultimately accountable and responsible for Edcon’s performance and
affairs. The directors accept this unconditionally and declare that they -
- regard corporate governance as vitally important to the success
of Edcon’s business;
- are responsible for Edcon achieving the highest standard of
business conduct;
- are unreservedly committed to applying the principles necessary
to ensure that good corporate governance is practised in all of Edcon’s business
dealings; and
- are expected to act with due regard to their fiduciary duties
and responsibilities in a professional manner, thereby upholding Edcon’s core values
of people, integrity, performance and professionalism.
The Board focuses on the key elements of the corporate governance processes underpinning
the operation of Edcon. In particular its role is to –
- consider, and adopt if appropriate, operating budgets and business
plans proposed by management for the achievement of Edcon’s strategic direction;
- delegate authority for capital expenditure and evaluate investment,
capital and funding proposals reserved for Board approval
- provide oversight of performance against targets and objectives;
- provide oversight of reporting to shareowners on the direction,
corporate governance and performance of Edcon; and
- identify, consider and review key risk maps.
The Board's primary responsibilities, based on a pre-determined assessment of materiality,
include –
- ensuring ethical behaviour and compliance with relevant laws
and regulations, audit and accounting principles and Edcon's internal governing
documents and codes of conduct;
- acting responsibly towards Edcon's relevant stakeholders;
- being aware of and committing to the underlying principles of
good corporate governance and ensuring that compliance with corporate governance
principles is reviewed regularly; and
- evaluating on a regular basis economic, political, social and
legal issues, as well as any other relevant external matters that may influence
or affect the development of the business or the interests of the shareowners.
The Board regularly reviews its annual Board Agenda with the view to ensure that
sufficient time is expanded towards the review of the corporate strategy, which
involves the analysis and choice of such strategy, followed by the ongoing review
of progress against the approved plans.
Board Meetings
Board meetings are held at least quarterly and whenever circumstances necessitate.
Directors are invited to add items to the agendas for Board meetings. Dates for
the quarterly and any special Board meetings to be held the following year are set
in October each year.
Evaluation of Performance
The directors complete questionnaires on an annual basis to evaluate the effectiveness
of the Board. This mechanism is used to ensure not only that the Board’s chartered
responsibilities are complied with, but also that adequate attention is paid by
the Board to matters of both performance and conformance. The results of the exercise
are collated by the Company Secretary, considered by the Chairman and discussed
with the Board for purposes of performance improvement. A mechanism to evaluate
the performance of individual directors is currently under consideration.
Conflicts of Interest
Directors are required to inform the Board timeously of conflicts or potential conflicts
of interest they may have in relation to particular items of business. Directors
are obliged to recuse themselves from discussions or decisions on matters in which
they have a conflicting interest, unless resolved otherwise by the remaining members
of the Board. Directors are required to disclose other directorships they hold and
their interests in contracts that Edcon may conclude or may already have concluded,
at least annually and as and when changes occur. All directors have agreed to consult
with and obtain the consent of the Chairman (and, in the case of executive directors,
the Chief Executive) in regard to appointments to the Boards of other companies.
Declarations of interest are tabled annually at the Board meeting or whenever a
director has concluded or is about to conclude a contract where he is conflicted.
Insurance
Adequate Directors’ and Officers’ insurance cover has been purchased by the company.
Advice
Directors have unlimited access to the Company Secretary, who acts as an advisor
to the Board and its committees on issues including compliance with rules and procedures,
legislation affecting Edcon and the King Code. Articles dealing with recent developments
in the corporate governance arena are included as a regular feature in the papers
prepared for the quarterly Board meetings. Furthermore, any director may, in appropriate
circumstances and at the expense of Edcon, obtain independent professional advice.
The directors are also entitled, with the prior knowledge of the Chief Executive
Officer, to have access to senior management and to relevant Edcon information.
Board Committees
Edcon's current Board committees are described below. Each of the committees operates
according to terms of reference defined in their respective charters.
The members of the various Board sub-committees and the respective Chairpersons
are elected annually by the Board of Directors.
Audit and Risk Committee
In addition to special meetings to approve the quarterly results and any other special
items, the Committee meets at least twice per annum to enable it to perform its
chartered responsibilities, mainly by considering comprehensive reports from:
- the Chief Financial Officer regarding the financial performance
of Edcon;
- the Risk Governance Committee regarding the output of Edcon's
continuous risk management process;
- the internal auditors regarding the adequacy and effectiveness
of financial and operational control measures; and
- the external auditors regarding the planning and results of
their audit activities.
The Committee is chaired by a non-executive director, who is not the Chairman of
the Board of Directors. The Committee evaluates Edcon's exposure and response to
significant risks, including sustainability issues. The Risk Governance Committee,
chaired by the Deputy Chief Executive Officer, assists the committee in its risk
management function. The Committee also evaluates Edcon's systems of internal financial
and operational control; reviews accounting policies and financial information issued
externally; facilitates effective communication between the Board, management and
the internal and external auditors; reviews the performance of the internal and
external auditors; recommends the appointment of, and determines the fees payable
to, the external auditors; and monitors the level of non-audit services provided
by the external auditors. Before the financial results are submitted to the Board,
the Committee examines, reviews and discusses those results with the auditors. The
results are approved by the Board on the recommendation of the committee. The Board
is provided with regular reports on the Committee's activities.
The Committee comprises three non-executive directors. The Chief Executive Officer,
the Deputy Chief Executive Officer, the Chief Financial Officer, the external auditors,
the Head of Group Internal Audit and the Company Secretary attend all meetings of
the committee as invitees. Committee members have unlimited access to all information,
documents and explanations required in the discharge of their duties, as do the
internal and external auditors.
The Committee oversees the internal and external audit and the internal and external
auditors have unlimited access to the Chairman of the Committee, the Chairman of
the Board and the Chief Executive Officer.
The Committee members and the other attendees at Committee meetings complete questionnaires
on an annual basis to evaluate the effectiveness of the Committee.
Remuneration Committee
The Committee comprises three non-executive directors and is chaired by a non-executive
director who is not the Chairman of the Board of Directors. The Chief Executive
Officer, the General Manager: Human Resources and the Company Secretary attend all
meetings of the Committee as invitees. Regular reports on the Committee's activities
are provided to the Board.
The Committee’s charter requires it to meet at least twice per annum in order to
perform its function of approving a broad remuneration strategy for Edcon and to
ensure that executive directors and senior executives are adequately remunerated.
The Committee also recommends the fees that should be paid to non-executive directors.
In fulfilling its duties, consideration is given to industry and local benchmarks
and international trends. At all times, due attention is paid to succession planning
and the retention of key executives.
The performance of the Chief Executive Officer is evaluated annually by the Chairman
of the Board in consultation with the Chairman of the Committee, based on goals
and criteria agreed in advance. The Committee members complete questionnaires on
an annual basis to evaluate the effectiveness of the committee.
Transformation Committee
The Committee comprises three non-executive directors and is chaired by a non-executive
director who is not the Chairman of the Board of Directors. The Chief Executive
Officer, General Manager Human Resources, the executive Director responsible for
Transformation and the Company Secretary attend all meetings by invitation.
The purpose of the Committee as outlined in its charter is to guide, monitor, review
and evaluate Edcon's progress on transformation, with specific reference to the
seven pillars outlined in the Codes of Good Conduct of the BBBEE Act: employment
equity, skills development, enterprise development, preferential procurement, ownership,
management and corporate social investment. The Committee meets at least twice per
annum and regular reports on the Committee's activities are provided to the Board.
In addition to the above, the members of the Board and senior management meet monthly
to consider various operational matters.
Senior management committees
Edcon’s governance process includes the following senior-management committees:
Central Executive Forum (CEF)
The Chief Executive Officer chairs the CEF, which comprises all the executive Directors
and the heads of key divisions of the business as determined by the Chief Executive
Officer from time to time. The Forum’s purpose is to formulate and submit to the
Board business strategies, policies and objectives directed toward Edcon achieving
its goals, and thereafter to monitor the effectiveness of their implementation.
The Forum also considers the management of Group risks, based on input from the
Risk Governance Committee, prior to these being reported to the Audit and Risk Committee.
Employment Equity Committee
The Employment Equity Committee is chaired by the Chief Executive Officer. The committee's
elected and appointed members meet at least twice per annum with representatives
from management and labour. A constitution guides the committee's activities, which
relate to formulating, reviewing, evaluating and monitoring the implementation of
Edcon's employment equity strategy. The committee also monitors the implementation
of Edcon's employment equity plan, which is regularly updated and submitted to the
relevant authorities. There is ongoing communication of the strategy and plan.
Risk Governance Committee
The Risk Governance Committee is chaired by the Deputy Chief Executive Officer.
The Committee meets at least twice per annum, prior to each Audit and Risk Committee
meeting, to monitor the efficacy of steps taken to mitigate Group risks and identify
and assesses the significance and impact of emerging risks. The Committee’s reports
to the Audit and Risk Committee provide an important link between Edcon’s operational
and governance processes and ensures that the Board’s appetite for risk is not exceeded.
Internal control
The Board is responsible for Edcon’s systems of financial and operational internal
control and the executive Directors are relied on to ensure that management continues
to maintain accounting records and systems of internal control that are appropriate
to the achievement of Edcon’s business strategies. The systems of internal control
are designed to provide reasonable, and not absolute, assurance as to the –
- reliability of the financial and operational information that
is used internally and for public reporting;
- safeguarding and verification of and accountability for assets;
- detection and minimisation of fraud, potential liability, loss
and material misstatement;
- compliance with applicable laws, regulations and policies; and
- effectiveness and efficiency of operations.
Edcon’s control environment mirrors best practice in that –
- Directors and employees are required to maintain the highest
ethical standards as outlined in Edcon’s Code of Ethics, thereby ensuring that business
matters are conducted in a manner that in all reasonable circumstances is beyond
reproach;
- Edcon’s formal organisational structure incorporates suitable
segregation of authority, duties and reporting lines and promotes effective communication
of information. Defined control activities include documented policies and procedures
as well as budgeting and forecasting disciplines with comparison of actual results
against these budgets and forecasts;
- enterprise risk management is practised as described below;
and
- compliance with applicable laws, regulations and policies; and
- the Directors regularly satisfy themselves that these systems
and procedures are implemented, maintained and monitored by appropriately trained
personnel with and, where appropriate, by the comprehensive use of advanced computer
hardware and software technologies. The effectiveness of the systems of internal
control in operation is monitored through reviews and reports from senior executives
and divisional managers, the internal auditors and the external auditors. Furthermore,
management has various control self-assessment processes to supplement the existing
structures of evaluating the systems of internal control. The processes, which include
the signing of a representation letter by the Chief Executive of each chain, are
designed to assess, maintain and improve controls on an ongoing basis.
Internal Audit
Edcon Group Internal Audit’s function is to provide the Board and management with
an independent, objective consulting and assurance service that reviews matters
relating to control, risk management, corporate governance and operational efficiency.
This is done in terms of a formal Charter, approved by the Audit and Risk Committee.
Group Internal Audit reports directly to the Audit and Risk Committee but is responsible
to the Chief Financial Officer on day-to-day matters, which arrangement does not
impair the function’s independence or objectivity. There is regular two-way communication
between the Chief Executive Officer and the head of Group Internal Audit. The Audit
and Risk Committee approves the function’s yearly plan of audits, which encompasses
all Edcon business operations and support functions. The Internal Audit plan is
based on an annually conducted group-wide risk assessment.
Group Internal Audit further provides a risk management facilitation role, without
assuming responsibility for risk management. The latter remains the responsibility
of relevant line management. The function also conducts independent investigations
into fraud and other acts of dishonesty. Whistleblowers are regularly encouraged
to contact the Edcon Dishonesty Hotline, which assures callers’ confidentiality
and anonymity.
External Audit
The external auditors provide an independent assessment of Edcon’s systems of internal
financial control and express an independent opinion on the Annual Financial Statements.
The external audit function offers reasonable, but not absolute assurance on the
accuracy of financial disclosures. The external auditors’ plan is reviewed by the
Audit and Risk Committee to ensure that significant maps of concern are covered,
without infringing on the external auditors’ independence and right to audit. The
Audit and Risk Committee continuously monitors the ratio between fees paid to the
external auditors for statutory audit purposes versus those paid for other professional
services rendered by the external auditors, which again remained within acceptable
levels. Close cooperation between the internal and external auditors ensures appropriate
combined audit coverage and minimisation of duplicated effort.
Integrated Risk Management
The risk management structure described below allows Edcon to continuously identify
its risks and communicate them multi-dimensionally across the organisation. The
key output of the process is the identification, assessment and management of the
Group’s top risks, which are reported in our Annual Report.
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