Updated King III Code and Report On Corporate Governance

Acknowledgments
TheInstituteofDirectorsinSouthernAfricaandtheKingCommitteeongovernanceacknowledgewithappreciation
thefollowingendorsersoftheKingReportonGovernanceforSouthAfrica2009.
LindieEngelbrecht
ChiefExecutive
InstituteofDirectors
thefollowingassociatesandsupportingbodiesoftheKingReportonGovernanceforSouthAfrica2009.
Associates:

Supportingbodies:
1.CharteredSecretariesSouthAfrica
2.CompaniesandIntellectualPropertyRegistrationOffice
3.ComplianceInstituteofSouthAfrica
4.DirectMarketingAssociationofSouthAfrica
5.EthicsInstituteofSouthAfrica
6.IndependentRegulatoryBoardforAuditors
7.InstituteofInternalAuditors(SA)
8.JSELimited
9.SecuritiesRegulationPanel
10.SouthAfricanChamberofCommerceandIndustry
11.SouthAfricanInstituteofCharteredAccountants
12.SouthAfricanInstituteofProfessionalAccountants
13.UniversityofPretoria:CentreforResponsibleLeadership
Copyright
INSTITUTEOFDIRECTORSINSOUTHERNAFRICA
TheInstituteofDirectorsinSouthernAfricaownsthecopyrightinthispublicationtitled'KingReportonGovernance
forSouthAfrica',andthe'KingCodeofGovernancePrinciples'(KingIII).
Apartfromtheextentreasonablynecessaryforresearch,privatestudy,personalorprivateuse,criticism,reviewor
thereportingofcurrenteventsaspermittedintheCopyrightAct(No.98of1978),noportionofthispublicationmay
bereproducedbyanyprocesswithoutwrittenpermissionandacknowledgmentofsource.
ThePracticeNotessupportingtheReportandtheCodeareavailablefromtheInstituteofDirectorsinSouthern
Africa.
thecontributionofSimplifiedforeditingtheKingReportonGovernanceforSouthAfrica2009.
IntroductionandBackground
1.TheneedforKingIII
ThethirdreportoncorporategovernanceinSouthAfricabecamenecessarybecauseofthenewCompaniesActno.
71of2008('theAct')andchangesininternationalgovernancetrends.ThisReport,referredtoasKingIII,was
compiledbytheKingCommitteewiththehelpoftheKingsubcommittees.
Wehaveendeavoured,aswithKingIandKingII,tobeattheforefrontofgovernanceinternationally.Webelieve
thishasbeenachievedbecauseofthefocusontheimportanceofconductingbusinessreportingannuallyinan
integratedmanneri.e.puttingthefinancialresultsinperspectivebyalsoreportingon:
. howacompanyhas,bothpositivelyandnegatively,impactedontheeconomiclifeofthecommunityinwhichit
operatedduringtheyearunderreviewand
. howthecompanyintendstoenhancethosepositiveaspectsanderadicateoramelioratethenegative
aspectsintheyearahead.
2.CompositionoftheKingCommitteeforKingIII
OntheadviceofSirAdrianCadbury,theKingCommitteehasbeenretainedeventhoughonlythreemembersofthe
committee,formedin1992,remainonthepresentKingCommittee.Ingivinghisadvice,SirAdrianCadburypointed
outtheevolutionarynatureofcorporategovernancevariouscommissionswereheldinEnglandunderpeople
otherthanSirAdrianCadburyaftertheCadburyReportwasissued.FollowingtheCadburyReport,theGreenbury,
Hampel,Turnbull,SmithandHiggsReportswereissued.ThesewerecombinedandtheUKgovernancecodeisnow
knownastheCombinedCode.FollowingSirAdrian'sadvice,thecommitteeinSouthAfricacontinuestobeknownas
theKingCommitteeandtheKingCodehasbecomeaninternationallyrecognisedbrand.
ElevensubcommitteeswereestablishedfortheKingIIIprocess,namely:
. boardsanddirectors
. accountingandauditing
. riskmanagement
. internalaudit
. integratedsustainabilityreporting
. complianceandstakeholderrelationships
. businessrescue
. fundamentalandaffectedtransactions
. ITgovernance
. alternativedisputeresolutionand
. editing.
SixresearcherssurveyedinternationalbestpracticesandhelpedtopreparethePracticeNotes.Thesubcommittees
consistedof106people.LindieEngelbrecht,ChiefExecutiveoftheInstituteofDirectorsofSouthernAfrica(IoDSA),
actedastheconvenerofthechairmenofthesubcommittees.MichaelKatzcheckedallthelegalaspectscontained
intheReport.
ThenamesoftheconvenersandthemembersofthesubcommitteesaregiveninanattachmenttothisReport.Of
the123peopleinvolvedinthisReportlessthan20%areservingdirectorsandtheothersareprofessionalsand
expertsinthefieldoftheircommittee.
AswithKingIandII,noneofthemembersreceivedremunerationorreimbursementofexpenses.Theonlyvalue
driverformemberswasserviceinthebestinterestofcorporateSouthAfrica.
3.Thegovernancecomplianceframework
Legislatedbasisforgovernancecompliance
Thegovernanceofcorporationscanbeonastatutorybasis,orasacodeofprinciplesandpractices,ora
combinationofthetwo.TheUnitedStatesofAmericahaschosentocodifyasignificantpartofitsgovernanceinan
actofCongressknownastheSarbanesOxleyAct(SOX).Thisstatutoryregimeisknownas'complyorelse'.In
otherwords,therearelegalsanctionsfornoncompliance.
Thereisanimportantargumentagainstthe'complyorelse'regime:a'onesizefitsall'approachcannotlogicallybe
suitablebecausethetypesofbusinesscarriedoutbycompaniesvarytosuchalargedegree.Thecostof
complianceisburdensome,measuredbothintermsoftimeanddirectcost.Further,thedangeristhattheboard
andmanagementmaybecomefocusedoncomplianceattheexpenseofenterprise.Itisthedutyoftheboardofa
tradingenterprisetoundertakeameasureofriskforrewardandtotrytoimprovetheeconomicvalueofa
company.Iftheboardhasafocusoncompliance,theattentiononitsultimateresponsibility,namelyperformance,
maybediluted.
ThetotalcosttotheAmericaneconomyofcomplyingwithSOXisconsideredtoamounttomorethanthetotalwrite
offofEnron,WorldComandTycocombined.SomearguethatcompaniescompliantwithSOXaremorehighlyvalued
andthatperhapsanotherEnrondebaclehasbeenavoided.ProfRomanoofYaleLawSchoolsaid,"SOX'scorporate
governanceprovisionswereillconceived.Othernations,suchasthemembersoftheEuropeanUnionwhohavebeen
revisingtheircorporationcodes,wouldbewelladvisedtoavoidCongress'policyblunder."ProfRibsteinofIllinoisLaw
Schoolsaid,"Itisunlikelythathasty,crashinducedregulationlikeSOXcanbefarsightedenoughtoprotectagainst
futureproblems,particularlyinlightofthedebatableefficiencyofSOX'sresponsetocurrentmarketproblems.Eventhe
bestregulatorsmighterrandenactregulationthatissostrongthatitstiflesinnovationandentrepreneurialactivity.And
oncesetinmotion,regulationisalmostimpossibletoeliminate.Inshort,thefirstthreeyearsofSOXwas,atbest,an
overreactiontoEnronandrelatedproblemsand,atworst,ineffectiveandunnecessary."
Voluntarybasisforgovernancecompliance
The56countriesintheCommonwealth,includingSouthAfricaandthe27statesintheEUincludingtheUnited
Kingdom,haveoptedforacodeofprinciplesandpracticesona'complyorexplain'basis,inadditiontocertain
governanceissuesthatarelegislated.
AttheUnitedNations,thequestionwhethertheUnitedNationsGovernanceCodeshouldbe'complyorexplain'or
'complyorelse',washotlydebated.Therepresentativesofseveraloftheworldbodieswereopposedtotheword
'comply',becauseitconnotedthattherehadtobeadherenceandtherewasnoroomforflexibility.
FollowingKingII,theJohannesburgStockExchangeLimited(JSE)requiredlistedcompaniestoincludeintheir
annualreportanarrativestatementastohowtheyhadcompliedwiththeprinciplessetoutinKingII,providing
explanationsthatwouldenablestakeholderstoevaluatetheextentofthecompany'scomplianceandstating
whetherthereasonsfornoncompliancewerejustified.ThereareindeedexamplesinSouthAfricaofcompanies
listedontheJSEthathavenotfollowedpracticesrecommendedbuthaveexplainedthepracticeadoptedandhave
prospered.Intheseexamples,theboardensuredthatactinginthebestinterestsofthecompanywasthe
overridingfactor,subjectalwaystoproperconsiderationofthelegitimateinterestsandexpectationsofallthe
company'sstakeholders.
SouthAfricanlistedcompaniesareregardedbyforeigninstitutionalinvestorsasbeingamongthebestgovernedin
theworld'semergingeconomiesandwemuststrivetomaintainthathighranking.SouthAfricahasbenefited
enormouslyfromitslistedcompaniesfollowinggoodgovernanceprinciplesandpractices,aswasevidencedbythe
significantcapitalinflowsintoSouthAfricabeforetheglobalfinancialcrisisof2008.
Forallthesereasons,theKingCommitteecontinuestobelievethatthereshouldbeacodeofprinciplesand
practicesonanonlegislatedbasis.
Variousapproachestovoluntarybasisforgovernancecompliance
Internationally,the'complyorexplain'principlehasalsoevolvedintodifferentapproaches.
AttheUnitedNations,forinstance,itwasultimatelyagreedthattheUNcodeshouldbeonan'adoptorexplain'
basis.
IntheNetherlandCodethe'applyorexplain'approachwasadopted.Webelievethatthislanguagemore
appropriatelyconveystheintentoftheKingCodefrominceptionratherthan'complyorexplain'.The'complyor
explain'approachcoulddenoteamindlessresponsetotheKingCodeanditsrecommendationswhereasthe'apply
orexplain'regimeshowsanappreciationforthefactthatitisoftennotacaseofwhethertocomplyornot,but
rathertoconsiderhowtheprinciplesandrecommendationscanbeapplied.
KingIII,therefore,isonan'applyorexplain'basisanditspracticalexecutionshouldbeaddressedasfollows:
Itisthelegaldutyofdirectorstoactinthebestinterestsofthecompany.Infollowingthe'applyorexplain'
approach,theboardofdirectors,initscollectivedecisionmaking,couldconcludethattofollowarecommendation
wouldnot,intheparticularcircumstances,beinthebestinterestsofthecompany.Theboardcoulddecidetoapply
therecommendationdifferentlyorapplyanotherpracticeandstillachievetheobjectiveoftheoverarchingcorporate
governanceprinciplesoffairness,accountability,responsibilityandtransparency.Explaininghowtheprinciplesand
recommendationswereapplied,orifnotapplied,thereasons,resultsincompliance.Inreality,theultimate
complianceofficerisnotthecompany'scomplianceofficerorabureaucratensuringcompliancewithstatutory
provisions,butthestakeholders.
4.Thelinkbetweengovernanceprinciplesandlaw
Thereisalwaysalinkbetweengoodgovernanceandcompliancewithlaw.Goodgovernanceisnotsomethingthat
existsseparatelyfromthelawanditisentirelyinappropriatetounhingegovernancefromthelaw.
Thestartingpointofanyanalysisonthistopicisthedutyofdirectorsandofficerstodischargetheirlegalduties.
Thesedutiesaregroupedintotwocategories,namely:thedutyofcare,skillanddiligence,andthefiduciaryduties.
Asfarasthebodyoflegislationthatappliestoacompanyisconcerned,corporategovernancemainlyinvolvesthe
establishmentofstructuresandprocesses,withappropriatechecksandbalancesthatenabledirectorstodischarge
theirlegalresponsibilities,andoverseecompliancewithlegislation.
Inadditiontocompliancewithlegislation,thecriteriaofgoodgovernance,governancecodesandguidelineswillbe
relevanttodeterminewhatisregardedasanappropriatestandardofconductfordirectors.Themoreestablished
certaingovernancepracticesbecome,themorelikelyacourtwouldregardconductthatconformswiththese
practicesasmeetingtherequiredstandardofcare.Corporategovernancepractices,codesandguidelinestherefore
liftthebarofwhatareregardedasappropriatestandardsofconduct.Consequently,anyfailuretomeeta
recognisedstandardofgovernance,albeitnotlegislated,mayrenderaboardorindividualdirectorliableatlaw.
Aroundtheworldhybridsystemsaredeveloping.Inotherwords,someoftheprinciplesofgoodgovernanceare
beinglegislatedinadditiontoavoluntarycodeofgoodgovernancepractice.Inan'applyorexplain'approach,
principlesoverridespecificrecommendedpractices.However,someprinciplesandrecommendedpracticeshave
beenlegislatedandtheremustbecompliancewiththeletterofthelaw.Thisdoesnotleaveroomfor
interpretation.Also,whatwascontainedinthecommonlawisbeingrestatedinstatutes.Inthisregard,perhaps
themostimportantchangeisincorporationofthecommonlawdutiesofdirectorsintheAct.Thisisaninternational
trend.
Asaconsequence,inKingIII,wepointtothosemattersthatwererecommendationsinKingII,butarenow
mattersoflawbecausetheyarecontainedintheAct.
BesidestheAct,thereareotherstatutoryprovisionswhichcreatedutiesondirectorsandwedrawsomeofthese
statutestotheattentionofdirectors.TheActlegislatesinrespectofstateownedcompaniesasdefinedinthe
PublicFinanceManagementAct(PFMA)(whichincludesbothnationalgovernmentbusinessenterprisesandnational
publicentities).Thesestateownedcompaniesaredescribedas'SOCLimited'.Privatecompanies(whichhavePty
Ltdattheendofthecompanyname)arecompaniesthathavememorandaofincorporationprohibitingtheofferof
sharestothepublicandrestrictingthetransferabilityoftheirshares.Personalliabilitycompanies(whichhaveIncat
theendofthecompanyname)providethatdirectorsandpastdirectorsarejointlyandseverallyliableforthe
contractualdebtsofthecompany.Apubliccompany(whichhasLtdattheendofthecompanyname)meansaprofit
companythatisnotastateownedcompany,privatecompanyorpersonalliabilitycompany.Anonprofitcompany
carriesthenamingconvention'NPC'.
Apersonwhoholdsabeneficialinterestinthesharesissuedbyacompanyhascertainrightstocompany
informationundertheActandunderthePromotionofAccesstoInformationAct.
Allcompaniesmustprepareannualfinancialstatements,buttherearelimitedexceptionsfromthestatutory
requirementforanexternalauditoftheseannualfinancialstatements.
Acompanyisgenerallypermittedtoprovidefinancialassistanceforthepurchaseorsubscriptionofitssharesand
tomakeloanstodirectors,subjecttocertainconditionssuchassolvencyandliquidity.TheActdescribesthe
standardsofdirectors'dutiesbyreferencetothecommonlawprinciples.Anewstatutorydefencehasbeen
introducedforthebenefitofdirectorswhohaveallegedlybreachedtheirdutyofcare.Thisdefencewillbeavailedof
byadirectorwhoassertsthathehadnofinancialconflict,wasreasonablyinformed,andmadearationalbusiness
decisioninthecircumstances.
Provisionsexistforrelievingdirectorsofliabilityincertaincircumstances,eitherbythecourtsor,ifpermitted,bythe
company'smemorandumofincorporation,butnotinthecaseofgrossnegligence,willfulmisconductorbreachof
trust.
Everypubliccompanyandstateownedcompanymusthaveacompanysecretary,whohasspecificdutiessetoutin
theAct.ThecompanysecretaryisdealtwithinChapter2Principle2.21.
Thedesignatedauditormaynotholdofficeassuchformorethanfiveconsecutiveyearsand,ingeneralterms,
cannotperformanyservicesthatwouldbeimplicatedintheconductoftheexternalauditordeterminedbythe
auditcommittee.
Everypubliccompanyandstateownedcompanymustappointanauditcommittee,thedutiesofwhichare
describedintheActandrepeatedinChapter3Principles3.4to3.10.
Wehavedistinguishedbetweenstatutoryprovisionsandvoluntaryprinciples,andrecommendedpractices.We
havemadeitclearthatitistheboard'sduty,ifitbelievesittobeinthebestinterestsofthecompany,tooverridea
recommendedpractice.However,theboardmustthenexplainwhythechosenpracticewasappliedandgivethe
reasonsfornotapplyingtherecommendedpractice.
Theultimatecomplianceofficeristhecompany'sstakeholderswhowilllettheboardknowbytheircontinued
supportofthecompanyiftheyacceptthedeparturefromarecommendedpracticeandthereasonsfurnishedfor
doingso.
5.Corporategovernanceandthefinancialcrisis
Thecreditcrunch,andtheresultingcrisisamongleadingfinancialinstitutions,isincreasinglypresentedasacrisisof
corporategovernance.However,althoughcurrentproblemsaretoanextentindicativeofshortcomingsintheglobal
financialarchitecture,theyshouldnotbeinterpretedasreflectingdysfunctioninthebroaderSouthAfricanandUK
corporategovernancemodelswherevaluesbasedprinciplesarefollowedandgovernanceisapplied,notonlyin
formbutalsoinsubstance.
Consequently,itisessentialthatSouthAfricanpolicymakersfocustheirresponsetothecrisisontheunderlying
sourcesoftheproblem,includinganydefectsinthefinancialregulatoryframework(bothinSAandglobally).
Populistcallsformoregenerallegislativecorporategovernancereformmustbetreatedwiththeappropriate
caution.
CriticsofSouthAfrica'slightregulatorytouchoftensuggestthatemulationofthemore'robust'USapproachwould
improvecorporategovernancestandards,andtherebyreducetheriskofsystemiceconomiccrisesinthefuture.
However,itisworthrememberingthattheUSistheprimarysourceofthecurrentfinancialcrisis.SOXwithallofits
statutoryrequirementsforrigorousinternalcontrolshasnotpreventedthecollapseofmanyoftheleadingnames
inUSbankingandfinance.
6.Thenewconstitutionofcommerce
AnanalysisoftheregistersofshareholdersofthemajorcompanieslistedontheJSEwillshowthattheyaremostly
comprisedoffinancialinstitutions,bothforeignandlocal.Theseinstitutionsare'trustees'fortheultimate
beneficiaries,whoareindividuals.Theultimatebeneficiariesofpensionfunds,whicharecurrentlyamongthe
largestholdersofequitiesinSouthAfrica,areindividualswhohavebecomethenewownersofcapital.Thisisa
departurefromthesharecapitalbeingheldbyafewwealthyfamilies,whichwasthenormuntiltheendofthefirst
halfofthe20thcentury.Thisisaworldwidetrend.
Thecompanyisintegraltosociety,particularlyasacreatorofwealthandemployment.Intheworldtoday,
companieshavethegreatestpoolsofhumanandmonetarycapital.Theseareappliedenterprisinglyinthe
expectationofareturngreaterthanariskfreeinvestment.
Surveyshaveshownthatwhilethefirstpriorityofstakeholdersofacompanyisthequalityofthecompany's
productsorservices,thesecondpriorityisthetrustandconfidencethatthestakeholdershaveinthecompany.
Althoughtheboardisaccountabletothecompanyitself,theboardshouldnotignorethelegitimateinterestsand
expectationsofitsstakeholders.Intheboard'sdecisionmakingprocess,theinclusiveapproachtogovernance
adoptedinKingIIdictatesthattheboardshouldtakeaccountofthelegitimateinterestsandexpectationsofthe
company'sstakeholdersinmakingdecisionsinthebestinterestsofthecompany.
7.Institutionalinvestors
An'applyorexplain'marketbasedcodeofgoodpracticeinthecontextoflistedcompanies,suchasKingIII,is
strongerifitsimplementationisoverseenbythosewithavestedinterestinthemarketworking,i.e.the
institutionalinvestor.Recentexperienceindicatesthatmarketfailuresinrelationtogovernanceare,atleastinpart,
duetoanabsenceofactiveinstitutionalinvestors.
Institutionalinvestorsshouldbeencouragedtovoteandengagewithcompanies,orrequiretheiragentsthrough
mandatestovoteandengage.Thiswillensurethatgovernancebestpracticeprinciplesaremoreconsistently
applied.
TheKingIIIreportwaswrittenfromtheperspectiveoftheboardasthefocalpointofcorporategovernance.
However,theKingCommitteebelievesthatacodeshouldbedraftedtospecificallysetouttheexpectationson
institutionalinvestorsinensuringcompaniesapplytheprinciplesandrecommendedpracticeseffectively.Thecode
shouldencourageactionthatensuresallroleplayersintheinvestmentchainbecomeawareoftheirduties.Even
thoughmorethan20assetmanagersandownershavesignedthePrinciplesforResponsibleInvestment(PRI),few
arevotinganddisclosingtheirvotes.Institutionalinvestorsshouldattheveryleastfollowtheguidelineslaiddown
bytheInternationalCorporateGovernanceNetwork(ICGN).
TheKingCommitteealsoagreeswiththesuggestionoftheOrganisationforEconomicCooperationand
Development(OECD)thatshareholdersshouldbeallowedtoconsultwitheachotheronissuesconcerningbasic
shareholderrights.Thisissubjecttoexceptionstopreventabusesuchasinamalgamations,schemesof
arrangement,takeovers,mergersandthedisposalofthegreaterpartoftheassetsofacompany.
8.KeyaspectsofthisReport
ThephilosophyoftheReportrevolvesaroundleadership,sustainabilityandcorporatecitizenship.Tofacilitatean
understandingofthethoughtprocess,debateandchangesintheReport,thefollowingkeyaspectsare
highlighted:
1. Goodgovernanceisessentiallyabouteffectiveleadership.Leadersshouldrisetothechallengesofmodern
governance.Suchleadershipischaracterisedbytheethicalvaluesofresponsibility,accountability,fairness
andtransparencyandbasedonmoraldutiesthatfindexpressionintheconceptofUbuntu.Responsible
leadersdirectcompanystrategiesandoperationswithaviewtoachievingsustainableeconomic,socialand
environmentalperformance.
2. Sustainabilityistheprimarymoralandeconomicimperativeofthe21stcentury.Itisoneofthemostimportant
sourcesofbothopportunitiesandrisksforbusinesses.Nature,society,andbusinessareinterconnectedin
complexwaysthatshouldbeunderstoodbydecisionmakers.Mostimportantly,currentincrementalchanges
towardssustainabilityarenotsufficientweneedafundamentalshiftinthewaycompaniesanddirectorsact
andorganisethemselves.
3. Theconceptofcorporatecitizenshipwhichflowsfromthefactthatthecompanyisapersonandshouldoperate
inasustainablemanner.SustainabilityconsiderationsarerootedintheSouthAfricanConstitutionwhichis
thebasicsocialcontractthatSouthAfricanshaveenteredinto.TheConstitutionimposesresponsibilitiesupon
individualsandjuristicpersonsfortherealisationofthemostfundamentalrights.
9.Sustainability
Internationaldevelopments
SustainabilityissueshavegainedinimportanceinternationallysincethepublicationofKingII.TheUnitedNations
haspublishedtheGlobalCompactandthePrinciplesforResponsibleInvestment.Therehavealsobeenthe
EuropeanUnionGreenPaperforCorporateSocialResponsibility(CSR)andtheOECDGuidelinesforMultinational
Companies.
TheSwedishgovernmenthaslaiddownthatitsstateownedenterprisesmusthavesustainabilityreportsfollowing
theGlobalReportingInitiative's(GRI)G3guidelines.
IntheUnitedKingdom,theCSRrelevantpartoftheCompaniesActcameintooperationinOctober2007.Itrequires
thatdirectorsconsiderintheirdecisionmaking,theimpactsofthecompany'soperationsonthecommunityandthe
environment.Ashasbeenpointedoutin'TheReformofUnitedKingdomCompanyLaw',theintentionofcorporate
lawreforminthisareawasto:
. encouragecompaniestotakeanappropriatelongtermperspective
. developproductiverelationshipswithemployeesandthoseinthesupplychain
andtotakeseriouslytheirethical,socialandenvironmentalresponsibilities.
. andtotakeseriouslytheirethical,socialandenvironmentalresponsibilities.
InGermany,intermsoftheGermanCommercialCode,managementreportsmustincludenonfinancialperformance
indicatorsandcompaniesshoulddemonstratethattheirdecisionshavetakenCSRintoaccountinaneffectiveway.
InJanuary2009,theNorwegiangovernmentlaunchedanationalWhitePaperonCSR.ThePaperdealswiththe
responsibilityofcompaniesinNorwaytoreportonsustainabilityperformance.ThePaperexplainshowtheGRIG3
guidelinescanbeusedtofulfilthecompany'sresponsibilitiestomaketransparentdisclosureaboutsustainability
issues.
InDecember2008,theDanishparliamentpassedalawonCSRreportingforitscompanies,mandatingthat
companiesdisclosetheirCSRactivitiesorgivereasonsfornothavingany,followingtheprincipleof'complyor
explain'.DenmarkencouragestheuseofacceptedtoolssuchastheGRIG3guidelinesandtheUNGlobalCompact
CommunicationonProgress.Arecentsurveyshowsthatover80%oftheglobalFortunecompaniesnowhave
sustainabilityperformancereports.
Recently,PresidentObamaoftheUnitedStatesstatedthatsustainabilityissueswouldbecentraltothepoliciesof
hisadministration.
Localdevelopments
Locally,thetopichasalsoburgeoned.TheJSElaunchedtheSRIindexin2004asatoolforinvestorstoidentify
companiesincorporatingsustainabilitypracticesintotheirbusinessactivities.Morerecently,theDepartmentof
EnvironmentalAffairsandTourismofSouthAfricacarriedoutalongtermmitigationscenarioaboutclimatechange.
Planswereputinplace,inthethirdquarterof2008,tofasttracktheprocessoftranslatingstrategicoptionsinto
policydirections.ThethenMinister,MartinusvanSchalkwyk,saidthathewouldeventuallydevelopalegislative,
regulatoryandfiscalpackagetogiveeffecttoSouthAfrica'slongtermclimatepolicy.HeaddedthatifSouthAfrica
continuedwithbusinessasusual,greenhousegasemissionswouldquadrupleby2050and,intheprocess,South
Africawouldbecomeaninternationalpariah.HepointedoutthatSouthAfrica'sactions,inreducingelectricity
demand,wereinlinewiththeDepartmentofEnvironmentalAffairsandTourism'slongtermmitigationscenarioand
havealreadyhadapositiveimpactonthecountry'sfootprint.SouthAfricaplanstohaveafullclimatechangeplan
inplacein2009.
AnincentiveforinvestmentsbyenergyefficientequipmentcompanieswillbeintroducedinSouthAfricaintheform
ofasupplementarydepreciationallowance.Existingexcisedutiesonmotorvehicleswillbeadjustedtotakeinto
accountcarbonemissions.
Integrationofsocial,environmentalandeconomicissues
Theproliferationofinitiatives,toolsandguidelinesonsustainabilityisevidenceofthegrowingawarenessof
sustainabilityissues.Becausethecompanyissointegraltosociety,itisconsideredasmuchacitizenofacountry
asisanaturalpersonwhohascitizenship.Itisexpectedthatthecompanywillbeandwillbeseentobea
responsiblecitizen.Thisinvolvessocial,environmentalandeconomicissuesthetriplecontextinwhichcompanies
infactoperate.Boardsshouldnolongermakedecisionsbasedonlyontheneedsofthepresentbecausethismay
compromisetheabilityoffuturegenerationstomeettheirownneeds.
'Thesuccessofcompaniesinthe21stcenturyisboundupwiththreeinterdependentsubsystemsthenatural
environment,thesocialandpoliticalsystemandtheglobaleconomy.Globalcompaniesplayaroleinallthreeandthey
needallthreetoflourish.'ThisisaccordingtoTomorrow'sCompany,UK.Inshort,planet,peopleandprofitare
inextricablyintertwined.
Akeychallengeforleadershipistomakesustainabilityissuesmainstream.Strategy,risk,performanceand
sustainabilityhavebecomeinseparablehencethephrase'integratedreporting'whichisusedthroughoutthis
Report.
Theachievementofbestpracticeinsustainabilityandintegratedreportingisonlypossibleiftheleadershipofa
companyembracesthenotionofintegratedsustainabilityperformanceandreporting.Therearesomeexamplesof
visionaryleadershipinthisarea.Tomorrow'sCompanyforexample,recognisesthattomorrow'sglobalcompany
should'expanditsviewofsuccessandredefineitintermsoflastingpositiveimpactsforbusiness,societyandthe
environment'.
Sustainabilityis,however,aboutmorethanjustreportingonsustainability.Itisvitalthatcompaniesfocuson
integratedperformance.Theboard'sroleistosetthetoneatthetopsothatthecompanycanachievethis
integratedperformance.
Sustainabilityalsomeansthatmanagementpayschemesmustnotcreateincentivestomaximiserelativelyshort
termresultsattheexpenseoflongertermperformance.
Inclusivestakeholderapproach
ThisReportseekstoemphasisetheinclusiveapproachofgovernance.
Itisrecognisedthatinwhatisreferredtoasthe'enlightenedshareholder'modelaswellasthe'stakeholder
inclusive'modelofcorporategovernance,theboardofdirectorsshouldalsoconsiderthelegitimateinterestsand
expectationsofstakeholdersotherthanshareholders.Thewayinwhichthelegitimateinterestsandexpectations
ofstakeholdersarebeingtreatedinthetwoapproachesis,however,verydifferent.Inthe'enlightened
shareholder'approachthelegitimateinterestsandexpectationsofstakeholdersonlyhaveaninstrumentalvalue.
Stakeholdersareonlyconsideredinasfarasitwouldbeintheinterestsofshareholderstodoso.Inthecaseof
the'stakeholderinclusive'approach,theboardofdirectorsconsidersthelegitimateinterestsandexpectationsof
stakeholdersonthebasisthatthisisinthebestinterestsofthecompany,andnotmerelyasaninstrumentto
servetheinterestsoftheshareholder.
Whatthismeansinpracticeisthatinthe'stakeholderinclusive'model,thelegitimateinterestsandexpectationsof
stakeholdersareconsideredwhendecidinginthebestinterestsofthecompany.Theintegrationandtradeoffs
betweenvariousstakeholdersarethenmadeonacasebycasebasis,toservethebestinterestsofthecompany.
Theshareholder,onthepremiseofthisapproach,doesnothaveapredeterminedplaceofprecedenceoverother
stakeholders.However,theinterestsoftheshareholderoranyotherstakeholdermaybeaffordedprecedence
basedonwhatisbelievedtoservethebestinterestsofthecompanyatthatpoint.Thebestinterestsofthe
companyshouldbeinterpretedwithintheparametersofthecompanyasasustainableenterpriseandthecompany
asaresponsiblecorporatecitizen.Thisapproachgiveseffecttothenotionofredefiningsuccessintermsoflasting
positiveeffectsforallstakeholders,asexplainedabove.
Integratedreporting
ThemarketcapitalisationofanycompanylistedontheJSEequalsitseconomicvalueandnotitsbookvalue.The
financialreportofacompany,asseeninitsbalancesheetandprofitandlossstatement,isaphotographofa
momentintimeofitsfinancialposition.Inbuyingashareonanystockexchange,thepurchasermakesan
assessmentoftheeconomicvalueofacompany.Theassessmentconsidersthevalueofmattersnotaccountedfor,
suchasfutureearnings,brand,goodwill,thequalityofitsboardandmanagement,reputation,strategyandother
sustainabilityaspects.Theinformedinvestorassessesthequalityofthecompany'sriskmanagementandwhether
ithasconsideredthesustainabilityissuespertinenttoitsbusiness.
Individualstodayaretheindirectprovidersofcapital.Theyareconsumersand,ascitizens,theyareconcerned
aboutthesustainabilityofourplanet.Thosewhoprepareintegratedreportsshouldgivethereaderstheforward
lookinginformationtheywant.Today'sstakeholdersalsowantassuranceonthequalityofthisforwardlooking
information.
Byissuingintegratedreports,acompanyincreasesthetrustandconfidenceofitsstakeholdersandthelegitimacy
ofitsoperations.Itcanincreasethecompany'sbusinessopportunitiesandimproveitsriskmanagement.Byissuing
anintegratedreportinternally,acompanyevaluatesitsethics,fundamentalvalues,andgovernance,andexternally
improvesthetrustandconfidencewhichstakeholdershaveinit.
InKingIII,wehavethereforerecommendedintegratedsustainabilityperformanceandintegratedreportingto
enablestakeholderstomakeamoreinformedassessmentoftheeconomicvalueofacompany.
Theintegratedreport,whichisusedthroughouttheReportandisexplainedinChapter9,shouldhavesufficient
informationtorecordhowthecompanyhasbothpositivelyandnegativelyimpactedontheeconomiclifeofthe
communityinwhichitoperatedduringtheyearunderreview,oftencategorisedasenvironmental,socialand
governanceissues(ESG).Further,itshouldreporthowtheboardbelievesthatinthecomingyearitcanimprove
thepositiveaspectsanderadicateoramelioratethenegativeaspects,inthecomingyear.
Insummary
. Inclusivityofstakeholdersisessentialtoachievingsustainabilityandthelegitimateinterestsand
expectationsofstakeholdersmustbetakenintoaccountindecisionmakingandstrategy.
. Innovation,fairness,andcollaborationarekeyaspectsofanytransitiontosustainabilityinnovationprovides
newwaysofdoingthings,includingprofitableresponsestosustainabilityfairnessisvitalbecausesocial
injusticeisunsustainableandcollaborationisoftenaprerequisiteforlargescalechange.Collaboration
shouldnot,however,amounttoanticompetitiveness.
. Socialtransformationandredressfromapartheidareimportantandshouldbeintegratedwithinthebroader
transitiontosustainability.Integratingsustainabilityandsocialtransformationinastrategicandcoherent
mannerwillgiverisetogreateropportunities,efficiencies,andbenefits,forboththecompanyandsociety.
. KingIIexplicitlyrequiredcompaniestoimplementthepracticeofsustainabilityreportingasacoreaspectof
corporategovernance.Since2002,sustainabilityreportinghasbecomeawidelyacceptedpracticeandSouth
Africaisanemergingmarketleaderinthefield(partiallyduetoKingIIandtheemergenceofinitiativessuch
astheJSE'sSociallyResponsibleInvestment(SRI)indexwhichwasthefirstofitskindinanemergingmarket).
KingIIIsupportsthenotionofsustainabilityreporting,butmakesthecasethatwhereasinthepastitwas
doneinadditiontofinancialreportingitnowshouldbeintegratedwithfinancialreporting.
10.Emerginggovernancetrendsincorporatedinthereport
Alternativedisputeresolution(ADR)
Electroniccommunicationhasexpeditedtheprocessofconcludingcontractsanddoingbusinessgenerally.The
worldisflatandborderlessasfarascapitalflowsareconcerned.Capitalcaneasilyflowwiththeclickofamouseto
wherethereisgoodgovernance.InternationalbodiessuchastheInternationalFinanceCorporationhavestarted
torecognisethatalternativedisputeresolution(ADR)clausesareneededincontracts.Mediationisbeingused,not
onlyasadisputeresolutionmechanism,butasamanagementtool.
Forexample,inthebuildingofabridge,amediationexpertiscalledinwhenthecontractsarebeingfinalised
becausetheexpertwillknowthattheformulationofaclauseinacertainwaycouldleadtodisputesor,conversely,
avoiddisputes.Further,asdisputesarise,themediatoriscalledintohelpthepartiestoresolvethem.The
disputantscanarriveatnovelsolutionsquickly,efficientlyandeffectivelywithasavingincosts.Thereisanidentity
ofinteresttocompletethebridgeingoodtime,forexample,toearnbonuses.Ifitisnot,theremaywellbe
penalties.
ItisacceptedaroundtheworldthatADRisnotareflectiononajudicialsystemofanycountry,butthatithas
becomeanimportantelementofgoodgovernance.Directorsshouldpreservebusinessrelationships.Consequently,
whenadisputearises,inexercisingtheirdutyofcare,theyshouldendeavourtoresolveitexpeditiously,efficiently
andeffectively.Also,mediationenablesnovelsolutions,whichacourtmaynotachieve,asitisconstrainedto
enforcelegalrightsandobligations.Inmediation,theparties'needsareconsidered,ratherthantheirrightsand
obligations.ItisinthiscontextthattheInstituteofDirectorsinSouthernAfrica(IoD)advocatesadministered
mediationand,ifitfails,expeditedarbitration.TogetherwiththeArbitrationFoundationofSouthernAfrica,theIoD
hasdevelopedanenforceableADRclauseforinclusionincontracts,theprecedentofwhichistobefoundinthe
PracticeNotestothereport.TheKingCommitteeendorsestheapproachbytheIoD.InChapter8Principle8.6ADR,
isdealtwithinmoredetail.
ADRisalsoinlinewiththeprinciplesofUbuntu.
Riskbasedinternalaudit
Riskinvolvesissuesoverthewholespectrumofconductingbusinessandenterprise.Strategyinitselfinvolvesrisk
becauseoneisdealingwithfutureevents.KingIIandothersuchcodesrequiredirectorstoenquireandthen,if
satisfied,confirmintheannualreporttheadequacyofinternalcontrolsinacompany.
Acompliancebasedapproachtointernalauditaddslittlevaluetothegovernanceofacompanyasitmerely
assessescompliancewithexistingproceduresandprocesseswithoutanevaluationofwhetherornotthe
procedureorprocessisanadequatecontrol.Ariskbasedapproachismoreeffectiveasitallowsinternalauditto
determinewhethercontrolsareeffectiveinmanagingtheriskswhicharisefromthestrategicdirectionthata
company,throughitsboard,hasdecidedtoadopt.
Internalauditshouldberiskbasedandeveryyeartheinternalauditorsshouldfurnishanassessmenttotheboard
generallyonthesystemofinternalcontrolsandtotheauditcommitteespecificallyontheeffectivenessofinternal
financialcontrols.Theauditcommitteemustreportfullytotheboardonitsconclusionsarisingfromtheinternal
auditassessment.Thiswillgivesubstancetotheendorsementbydirectorsoftheeffectivenessofinternalcontrols
inacompanyintheintegratedreport.Internalauditformspartofthecombinedassurancemodelintroducedin
Chapter3Principle3.5ofthisReport.InternalauditisdiscussedinChapter7.
Shareholdersandremuneration
WehavedealtintheReportwiththetrendfortheboardtoputthecompany'spolicyofremunerationtoanon
bindingadvisoryvoteofshareholdersingeneralmeeting.Withintheremunerationpolicytheboardwillstatethe
principlesforfixingindividualremunerationforseniormanagement.Nonexecutivedirectors'remunerationwillbe
fixedfortheyearandmustbeapprovedbyspecialresolutionbyshareholdersinageneralmeeting.Referto
Chapter2Principle2.25.
Evaluationofboardanddirectorperformance
Theevaluationofboards,boardcommitteesandindividualdirectors,includingthechairman,isnowentrenched
internationally.TheReportdealswithevaluationsinChapter2Principle2.22.
11.Newissuesinthereport
Informationtechnologygovernance
Informationsystemswereusedasenablerstobusiness,buthavenowbecomepervasiveinthesensethatthey
arebuiltintothestrategyofthebusiness.ThepervasivenessofITinbusinesstodaymandatesthegovernanceof
ITasacorporateimperative.
Inmostcompanies,IThasbecomeanintegralpartofthebusinessandisfundamentaltosupport,sustainand
growthebusiness.NotonlyisITanoperationalenablerforacompany,itisanimportantstrategicassettocreate
opportunitiesandtogaincompetitiveadvantage.Companieshavemade,andcontinuetomakeasignificant
investmentinIT.Virtuallyallcomponents,aspectsandprocessesofacompanyincludesomeformofautomation.
ThishasresultedincompaniesrelyingenormouslyonITsystems.Further,theemergenceandevolutionofthe
internet,ecommerce,onlinetradingandelectroniccommunicationhavealsoenabledcompaniestoconduct
businesselectronicallyandperformtransactionsinstantly.Thesedevelopmentsbringaboutsignificantrisksand
shouldbewellgovernedandcontrolled.We,therefore,dealwithITgovernanceindetailinKingIIIforthefirsttime.
TheITgovernancechapter(Chapter5)isfocusedonprovidingthemostsalientaspectsofITgovernancefor
directors.DuetothebroadandeverevolvingnatureofthedisciplineofITgovernance,thechapterdoesnottryto
bethedefinitivetextonthissubjectbutrathertocreateagreaterdegreeofawarenessatdirectorlevel.
ThereisnodoubtthatthecomplexityofITsystemsdoescreateoperationalrisksandwhenoneoutsourcesIT
services,forinstance,thishasthepotentialtoincreaseriskbecauseconfidentialinformationisoutsidethe
company.Considerationhastobegiventotheintegrityandavailabilityofthefunctioningofthesystempossession
ofthesystemauthenticityofsysteminformationandassurancethatthesystemisusableanduseful.Concerns
includeunauthorizeduse,access,disclosure,disruptionorchangestotheinformationsystem.
Inexercisingtheirdutyofcare,directorsshouldensurethatprudentandreasonablestepshavebeentakenin
regardtoITgovernance.Toaddressthisbylegislationaloneisnottheanswer.Internationalguidelineshavebeen
developedthroughorganisationssuchasITGIandISACA(COBITandValIT),theISOauthorities(eg:ISO38500)
andvariousotherorganisationssuchasOCEG.Thesemaybeusedasaframeworkorauditfortheadequacyofthe
company'sinformationgovernanceforinstance,butitisnotpossibletohave'onesizefitsall'.However,companies
shouldkeepabreastoftherapidlyexpandingregulatoryrequirementspertainingtoinformation.
Businessrescue
SouthAfricahasbeenuniqueinnothavinghadadequatebusinessrescuelegislation.Thisisnowaddressedinthe
Act.Clearly,theabilitytorescueeconomicallyviablecompaniesexperiencingfinancialdifficultiesisinthebest
interestsofshareholders,creditors,employeesandotherstakeholdersaswellasintheinterestsofthecountryas
awholebecauseofthehighcoststotheeconomyifbusinessesfail.
Businessrescuelegislationneedstobalancetherightsofstakeholderswithoutfacilitatingabuse.Thebusiness
communityhaslongsuggestedthatthereshouldbebusinessrescueprovisions,butforalltypesofentitiesandnot
onlycompanies.Directorsshouldbeawareofthepracticalitiesofbusinessrescue.Businessrescueisaddressedin
thisReportinChapter2Principle2.15andinthePracticeNotes.
Fundamentalandaffectedtransactions
WedidnotconcernourselveswithfundamentalandaffectedtransactionsinKingIorKingII.However,becauseof
thechangesintheAct,wehaveincludedinthePracticeNotesasectiononfundamentalandaffectedtransactions
toensurethatdirectorsareawareoftheirresponsibilitiesanddutiesformergers,acquisitionsandamalgamations.
Also,theexistenceofanactivetakeoverindustrypromotesgoodgovernanceandismorelikelytoensuregood
managerialperformanceanddiscipline.
12.Language,genderandterminology
Althoughtheterms'company','boards'and'directors'areused,KingIIIrefersandappliestothefunctional
responsibilityofthosechargedwithgovernanceinanyentityevenifdifferentterminologyisusedinotherentities,
sectorsandindustries.
WhentheReportrefersto'he'or'his'inthisreportweinclude'she'or'her'.Likewise,whenwereferto'chairman',
weinclude'chairwoman','chairperson'and'chair'.Theuseoftheterm'corporate'(e.g.corporategovernance,
corporatecitizenship,corporateethicsetc.)appliestoallentities.
AscertainaspectsofgovernancearelegislatedintheActandthePFMA,theuseofinstructivelanguageis
importantinreadingandunderstandingtheReportandtheCode.Theword'must'indicatesalegalrequirement.In
aspectswherewebelievetheapplicationoftheCodewillresultingoodgovernance,theword'should'isused.The
word'may'indicatesareaswheretheCommitteerecommendscertainpracticesforconsideration.
TheReportissetoutinninechapterswiththeleadershipandcorporatecitizenshipchapterestablishingthe
foundationforthereportandtheboardsanddirectorschapterastheoverarchingchapter.Thesubsequent
chapterscovercertainaspectsoftheboardsanddirectorschapterinmoredetail.Eachchaptercontainsthekey
principlesofgovernanceandthenexplanationsastohowtocarryouttheprinciplesbymeansofapplicationofbest
practicerecommendations.
13.ApplicationoftheCode
IncontrasttotheKingIandIIcodes,KingIIIappliestoallentitiesregardlessofthemannerandformof
incorporationorestablishmentandwhetherinthepublic,privatesectorsornonprofitsectors.Wehavedraftedthe
principlessothateveryentitycanapplythemand,indoingso,achievegoodgovernance.
AllentitiesshouldapplytheprinciplesintheCodeandconsiderthebestpracticerecommendationsintheReport.All
entitiesshouldbywayofexplanationmakeapositivestatementabouthowtheprincipleshavebeenappliedor
havenotbeenapplied.Thislevelofdisclosurewillallowstakeholderstocommentonandchallengetheboardon
thequalityofitsgovernance.Themannerofapplicationwilldifferforeachentityandislikelytochangeasthe
aspirationalnatureoftheCodeshoulddriveentitiestocontinuallyimprovegovernancepractices.Itisimportantto
understandthatthe'applyorexplain'approachrequiresmoreconsiderationapplicationofthemindand
explanationofwhathasactuallybeendonetoimplementtheprinciplesandbestpracticerecommendationsof
governance.
Eachprincipleisofequalimportanceandtogetherformsaholisticapproachtogovernance.Consequently,
'substantial'applicationofthisCodeandtheReportdoesnotachievecompliance.
TheCodeappliestoentitiesincorporatedinandresidentinSouthAfrica.Foreignsubsidiariesoflocalcompanies
shouldapplytheCodetotheextentprescribedbytheholdingcompanyandsubjecttoentityspecificforeign
legislation.
ThePracticeNotestoKingIII,issuedbytheIoD,providethenecessaryguidancetoallentitiesonimplementingthe
Code.
14.Effectivedate
ItisexpectedthatthenewActwillbecomeoperativeon1July2010.TheKingIIIreportwillbeeffectivefrom1
March2010anduntilthen,KingIIwillapply.
15.Appreciation
IrecordmythanksandappreciationtomyCommitteeandthesubcommitteememberswhodevotedsomuchtime
andeffortintheinterestsofcorporateSouthAfricawithoutremunerationorreimbursementofexpenses.In
particular,IthankLindieEngelbrecht,whotirelesslyconvenedthechairsofthesubcommittees,collected
subcommitteereportsandeditedthembeforepassingthemtomeformyscrutiny.Ialsorecordmythanksto
MichaelKatzforcheckingthelegalaspectscontainedintheReport.
MervynEKing,SC,KingCommitteeChairman
1September2009
Chapter1
Ethicalleadershipandcorporatecitizenship
Principle1.1:
Theboardshouldprovideeffectiveleadershipbasedonanethicalfoundation
Responsibleleadership
1. Goodcorporategovernanceisessentiallyabouteffective,responsibleleadership.Responsibleleadershipis
characterisedbytheethicalvaluesofresponsibility,accountability,fairnessandtransparency.
2. Responsibleleadersbuildsustainablebusinessesbyhavingregardtothecompany'seconomic,socialand
environmentalimpactonthecommunityinwhichitoperates.Theydothisthrougheffectivestrategyand
operations.
3. Responsibleleadersreflectontheroleofbusinessinsociety.Theyconsiderboththeshorttermandlongterm
impactoftheirpersonalandinstitutionaldecisionsontheeconomy,societyandtheenvironment.
4. Responsibleleadersdobusinessethicallyratherthanmerelybeingsatisfiedwithlegalorregulatory
compliance,uncriticallyaligningwithpeerstandards,orlimitingthemselvestocurrentsocialexpectations.
Theyvaluepersonalandinstitutionalethicalfitnessandpractisecorporatestatesmanship.
5. Responsibleleadersdonotcompromisethenaturalenvironmentandthelivelihoodoffuturegenerations.
6. Responsibleleadersembraceasharedfuturewithallthecompany'sstakeholders.Theyaresensitivetothe
impactoftheircompaniesonallitsinternalandexternalstakeholders.Theygivedirectratherthanincidental
considerationtothelegitimateinterestsandexpectationsoftheirstakeholders.
Theboard'sresponsibilities
7. Theboardisresponsibleforcorporategovernanceandhastwomainfunctions:first,itisresponsiblefor
determiningthecompany'sstrategicdirection(and,consequently,itsultimateperformance)andsecond,itis
responsibleforthecontrolofthecompany.Theboardrequiresmanagementtoexecutestrategicdecisions
effectivelyandaccordingtolawsandthelegitimateinterestsandexpectationsofstakeholders.
8. Theboardisresponsibletoensurethatmanagementactivelycultivatesacultureofethicalconductandsets
thevaluestowhichthecompanywilladhere.Thesevaluesshouldbeincorporatedinacodeofconduct.
9. Theboardisresponsibletoensurethatintegritypermeatesallaspectsofthecompanyanditsoperationsand
thatthecompany'svision,missionandobjectivesareethicallysound.Themannerinwhichthecompany
conductsitsinternalandexternalaffairsshouldbebeyondreproach.Anethicalcorporatecultureismorethan
socialphilanthropyorcharitabledonations.Certaincategoriesofcompaniesmayberequiredtoestablisha
socialandethicscommitteeintermsofsection72(4)oftheAct.
10. Theboardisresponsibletoalignitsconductandtheconductofmanagementwiththevaluesthatdrivethe
company'sbusiness.Italsorequiresthatthecompanytakesactivemeasurestoensurethatitscodeof
conductisadheredtoinallaspectsofitsbusiness.
11. Theboardisresponsibleforconsideringthelegitimateinterestsandexpectationsofthecompany'sstakeholders
initsdeliberations,decisionsandactions.Corporategovernancemodelsaroundtheworlddifferonthe
questionoftowhomtheboardisresponsible.ThisReportintentionallyfollowsthetraditionofitstwo
predecessors,namely,theKingIandKingII.Thistraditionoptsforaninclusivestakeholdermodelof
governance,whichconsiders,weighsandpromotestheinterestsofallthecompany'sstakeholders,thus
ensuringthecooperationandsupportofallstakeholdersthecompanydependsonforitssustainable
success.Inthisway,thecompanycreatestrustbetweenitselfanditsinternalandexternalstakeholders,
withoutwhomnocompanycanoperatesustainably.
Ethicalfoundation
12. Ethics(orintegrity)isthefoundationof,andreasonfor,corporategovernance.Theethicsofcorporate
governancerequirestheboardtoensurethatthecompanyisrunethically.Asthisisachieved,thecompany
earnsthenecessaryapprovalitslicencetooperatefromthoseaffectedbyandaffectingitsoperations.
13. Corporategovernanceis,inessence,acompany'spracticalexpressionofethicalstandards.Itfollowsthatall
thetypicalaspectsofcorporategovernance(suchastheroleandresponsibilitiesoftheboardanddirectors,
internalaudit,riskmanagement,stakeholderrelations,andsoon)shouldrestonafoundationofethical
values.
14. Theethicsofcorporategovernancerequiresalldeliberations,decisionsandactionsoftheboardand
executivemanagementtobebasedonthefollowingfourethicalvaluesunderpinninggoodcorporate
governance:
14.1 Responsibility:Theboardshouldassumeresponsibilityfortheassetsandactionsofthecompanyandbe
willingtotakecorrectiveactionstokeepthecompanyonastrategicpath,thatisethicaland
sustainable.
14.2 Accountability:Theboardshouldbeabletojustifyitsdecisionsandactionstoshareholdersandother
stakeholders.
14.3 Fairness:Theboardshouldensurethatitgivesfairconsiderationtothelegitimateinterestsand
expectationsofallstakeholdersofthecompany.
14.4 Transparency:Theboardshoulddiscloseinformationinamannerthatenablesstakeholderstomakean
informedanalysisofthecompany'sperformance,andsustainability.
15. Asastewardofthecompany,eachdirectorshouldalsodischargethefollowingfivemoralduties:
15.1 Conscience:Adirectorshouldactwithintellectualhonestyandindependenceofmindinthebest
interestsofthecompanyandallitsstakeholders,inaccordancewiththeinclusivestakeholderapproach
tocorporategovernance.Conflictsofinterestshouldbeavoided.
15.2 Inclusivityofstakeholdersisessentialtoachievingsustainabilityandthelegitimateinterestsand
expectationsofstakeholdersmustbetakenintoaccountindecisionmakingandstrategy.
15.3 Competence:Adirectorshouldhavetheknowledgeandskillsrequiredforgoverningacompany
effectively.Thiscompetenceshouldbecontinuallydeveloped.
15.4 Commitment:Adirectorshouldbediligentinperforminghisdutiesanddevotesufficienttimeto
companyaffairs.Ensuringcompanyperformanceandcompliancerequiresunwaveringdedicationand
appropriateeffort.
15.5 Courage:Adirectorshouldhavethecouragetotaketherisksassociatedwithdirectingandcontrollinga
successful,sustainableenterprise,andalsothecouragetoactwithintegrityinallboarddecisionsand
activities.
Principle1.2:
Theboardshouldensurethatthecompanyisandisseentobearesponsible
corporatecitizen
16. Acompanyisaneconomicinstitution.Butitisalsoacorporatecitizen.Assuchithassocialandmoralstanding
insociety,withalltheresponsibilitiesattachedtothatstatus.Theboardisnotmerelyresponsibleforthe
company'sfinancialbottomline,butratherforthecompany'sperformancewithinthetriplecontextinwhichit
operates:economic,socialandenvironmental.Itfollowsthattheboardshouldissueanintegratedreporton
itseconomic,socialandenvironmentalperformance.
17. Thistriplecontextapproachenhancesthecompany'spotentialtocreateeconomicvalue.Itensuresthatthe
economic,socialandenvironmentalresourcesthatthecompanyrequirestoremaininbusinessaretreated
responsibly.Bylookingbeyondimmediatefinancialgain,thecompanyprotectsitsreputationitsmost
significantassetandbuildstrust.Thereisagrowingunderstandinginbusinessthatsocialand
environmentalissueshavefinancialconsequences.
18. I t i s unethicalforcompaniestoexpectsocietyandfuturegenerationstocarrytheeconomic,socialand
environmentalcostsandburdensofitsoperations.Thistriplecontextapproachrecognisestheeffectofthe
moderncompanyonsocietyandthenaturalenvironment.Itacknowledgesthatcompaniesshouldactwith
economic,socialandenvironmentalresponsibility.Acompanyitselfshouldensurethatitsimpactonthe
economy,societyandthenaturalenvironmentissustainable.
19. Asaresponsiblecorporatecitizen,thecompanyshouldprotect,enhanceandinvestinthewellbeingofthe
economy,societyandthenaturalenvironment.Responsiblecorporatecitizenshipimpliesanethical
relationshipofresponsibilitybetweenthecompanyandthesocietyinwhichitoperates.
20. Companiesshouldrespectandrealiseuniversallyrecognised,fundamentalhumanrights.Torealisehuman
rightsinanysociety,companies(andotherinstitutions)shouldrespectandrecognisethebasicinterestsof
individualsandcommunitiesbycreatingandsustainingconditionsinwhichhumanpotentialcandevelop.This
entailsliberatingpeoplefromunfairdiscriminationandempoweringthemtotakecontroloftheirownlives
through,forexample,accesstoeducation,healthcareandotherresources.
21. IntheAfricancontextthesemoraldutiesfindexpressionintheconceptofUbuntuwhichiscapturedinthe
expression'uMuntungumuntungabantu','Iambecauseyouareyouarebecauseweare'.Simplyput,
UbuntumeanshumanenessandthephilosophyofUbuntuincludesmutualsupportandrespect,
interdependence,unity,collectiveworkandresponsibility.Itinvolvesacommonpurposeinallhuman
endeavourandisbasedonservicetohumanity(servantleadership).
22. Internationally,thereisanincreasingexpectationthatcompanieswillpursuetheiraimswithinthelimitsofthe
social,politicalandenvironmentalresponsibilitiesoutlinedininternationalconventionsonhumanrights.
23. InSouthAfrica,theBillofRightsasprovidedforintheConstitutionhasbroughtaboutasignificantshiftin
society'smoralperceptionofcompanies.Thenotionofcreatingastructurethatcanpursueprofitatthe
expenseofhumanrightsislegallyuntenableinSouthAfrica.Companiesaresocialentitieswithbothrights
andresponsibilities,andassuch,theBillofRightsappliestotheminamannerthatgoesbeyondmere
financialconsiderations.TheresponsibilitiesoutlinedintheBillofRightsprovidetheframeworkwithinwhich
companiesmustlegallyoperate.Thefoundationalvaluesofdignity,freedomandequalityshouldguidethe
companyinitsinteractionwitheverystakeholder.ThespecificrightscontainedintheBillofRightsprovide
importantguidancetocompaniesforthesustainabilityoftheirstrategiesandoperations.
24. Theexpectationthatbusinesshasanimportantroletoplay,notonlyintheeconomy,butalsoinresponding
toeconomic,socialandenvironmentalchallenges,hasbecomewidelyaccepted.Thedebate,ontheneedfor
eithervoluntarybusinessactionorgovernmentregulation,isbeingsupersededbyanunderstandingthatan
appropriatemixofbothapproachesisdesirable.Governmentsarelearningtoencouragevoluntaryaction
beyondlegalcompliance,whileatthesametimeensuringcompliancewithminimumstandards.TheUnited
NationsGlobalCompact(UNGC)isregardedasthepreeminentvoluntaryinitiativeforaligningcompanies'
strategiesandoperationswithtenuniversallyacceptedprinciplesintheareasofhumanandlabourrights,
environmentalresponsibilityandanticorruption.
25. Companiesshouldalsoensurethattheirconstitutionalresponsibilitytorespectandcontributetothe
realisationofhumanrightsextendstooperationsbeyondSouthAfrica'sborders.Inthisregard,thereare
increasingconcernsabouttheroleofSouthAfricancompaniesintherestofAfrica.Manyofthecountries
characterisedbytheOECDas'weakgovernance'zonesareinsubSaharanAfrica.Companiesoperatingin
thesecountriesfaceuniqueethicalchallenges,suchasbecomingunwittingaccomplicestohumanrights
abuses.Alongwithclimatechange,humanrightsinweakgovernanceareasarearguablyakeycorporate
citizenshipfrontierforthenextdecade.Companiesshouldbeencouragedandsupportedtoapproachtheir
activitiesinsuchweakgovernancezoneswithawareness,circumspection,andsensitivitytolocalcontexts,
drawingfrominternationalbestpractice.
26. Thereisaneedtoestablishmechanismsfordecisionmakerstoengageincollaborativeresponsesto
sustainabilitychallenges.TherehasbeenashiftawayfromanemphasiscommonatthetimeofKingIIon
individualcompanies'sustainabilityrelatedefforts.Althoughinitiativesbyindividualcompaniesareimportant,
itisincreasinglyrecognisedthattherearelimitstowhatsinglecompaniesactingbythemselvescanachieve.
Thisisparticularlytruegiventhesystemiccharacterofmanysocioenvironmentalchallenges,suchasclimate
change,waterdepletion,informalsettlements,andcorruption.
27. Collaborationisoneofthenaturalconsequencesofthenotionofcorporatecitizenship.Thisapproachcanbe
veryeffective,especiallyforethics,asitstrengthenstheimpactandcredibilityofindividualactionandlevels
theplayingfield.Companiesshouldconsidercollaboratingwithoneanothertoraisepracticestandards
andtoreducecorruptionandcompetitiverisksonbothsectoralandprojectlevels.Collaborationcould
taketheformofintegritypacts,collectivecodesofconduct,andcollectivepolicyinitiatives.
28. Corporatecitizenshipandsustainabilityrequirebusinessdecisionmakerstoadoptaholisticapproachto
economic,socialandenvironmentalissuesintheircorebusinessstrategy.Increasingly,companiesview
corporatesocialandenvironmentalresponsibility,corporatesocialinvestmentandothersocialinitiativesas
centraltodoingbusiness.Companiesnolongertreattheseinitiativesasmerelyadhocoranicetohave,but
asintegraltotheirbusinessstrategy.This,inturn,supportsbusinessgrowth.Onlysuchaholisticapproach
willallowforeffectivemanagementofbusinessopportunitiesandrisksassociatedwithcorporatecitizenship.
29. Responsiblecorporatecitizenshipshouldmanifestintangibleandreportableprogrammesandresults.InSouth
Africa,corporatecitizenshipincludes,amongothers,responsibilitiesoutlinedintheBillofRightsofthe
Constitution,andissuesrelatingtotransformation,humancapital,humanrights,theenvironment,social
capital,safetyandhealth.
30. Thereisnouniformoruniversallyapplicableapproachtoresponsiblecitizenshipprogrammes.Preconditions
forsuccessfulprogrammesincludeanunwaveringleadershipcommitmentandbonafidecorporatecitizenship
interventionsratherthanpublicrelationsexercises.Asaresponsiblecorporatecitizen,eachcompanyshould
developitsownpoliciestodefineandguideitsactivities.
31. Strategiesandpolicies,designedtoachieveresponsiblecorporatecitizenship,shouldbeplannedand
coordinatedacrossallsectionsofthecompany.Thenegativeconsequencesoffragmentationincludeduplication
ofeffortandmissedopportunitiesforsynergies.Forexample,acompanymayseektorespondtothe
pressingrequirementsoftheindustry'sBEEcharterandthegovernment'sBEEscorecard,butfailtointegrate
theseeffortseffectivelyintoabroadersustainabilityframework.Thistendstoinculcateashorttermemphasis
on'boxticking'compliance,therebygeneratingacorporateinvestmentwithpoorsocialreturnsand
inefficienciesascorporatepolicies,targets,andlinesofreportingareduplicatedorevencontradictory.
32. Currently,theconnectionbetweensustainabilityandBEEisnotfullyunderstood.Itis,therefore,
underdevelopedwhichleadstoadissociationofthetwo.Thereis,however,asignificantopportunitytoclarify
andinstitutionalisethelinkagebetweensustainabilityandBEE,namely,thegrowingmovementamong
internationalinvestorsincludingmanyofthelargestinstitutionalinvestorsofrecognisingtheroleof
sustainabilityconsiderationsininvestment.Usingthisopportunitywould,inalllikelihood,engendergreater
confidenceamonginvestorsincompanies'socialtransformationeffortsinSouthAfrica.
Principle1.3:
Theboardshouldensurethatthecompany'sethicsaremanagedeffectively
33. Goodcorporategovernancerequiresthattheboardtakesresponsibilityforbuildingandsustaininganethical
corporatecultureinthecompany.Suchacultureconsistsofbothformalandinformalculturalsystems.Selection
andrewardsystems,forexample,areelementsofformalculture,whereas'living'practicesandlanguage
usageareelementsofinformalculture.Aculturalapproachtogoverningandmanagingthecompany'sethics
wouldensurethatethicalstandardsinfuseandalignbothformalandinformalculturalelements.
34. Buildingandsustaininganethicalcorporateculturerequiresethicalleadership.Anethicalleaderisarolemodel
forthecompany'sstakeholdersbymakingethicsexplicit,legitimisingethicsdiscourse,encouragingethical
conductinothers,andholdingothersaccountablefortheethicsoftheirconduct.Itistheresponsibilityofthe
board(andexecutivemanagement)toprovideethicalleadershipinthecompany.Theboardshouldensure
thatthecompany'sethicalstandardsareclearlyarticulatedandshouldbeseentosupportthemactivelyby
takingmeasurestoachieveadherencetotheminallaspectsofthebusiness.Inthisway,theboardwould
ensurethatethicsisanintegralpartofthewayinwhichacompanyconductsitsbusiness.
35. Theboard'scommitmenttobuildingandsustaininganethicalorganisationalcultureshouldbereflectedinthe
company'svision,mission,strategiesandoperationsitsdecisionsandconductandthemannerinwhichit
treatsitsinternalandexternalstakeholders.Theboard'scommitmenttoethicsshouldalsomanifestinthe
company'sresponsibilitytowardsthecommunitiesandnaturalenvironmentinwhichitoperates.Anethical
cultureis,therefore,aboutmorethansocialphilanthropyorcharitabledonations.Internalandexternalethics
performanceshouldbealignedwiththesameethicalstandards.
36. Buildingandsustaininganethicalcorporateculturerequiresactivegovernanceofethics.Theboardassumes
ultimateresponsibilityforthecompany'sethicsperformancebydelegatingtoexecutivemanagementthetask
ofsettingupawelldesignedandproperlyimplementedethicsmanagementprocessorethicsprogramme
consistingofthefollowingfouraspects:
Ethicsriskandopportunityprofile
37. Theboardshouldensurethatthecompany'sethicsrisksandopportunitiesareassessedandthatanethics
riskprofileiscompiled.
38. Riskcanbepositiveornegativeandpositiveriskinrelationtoethicsreferstotheopportunitiesthatastrong
ethicsperformancecanopenupforthecompany.Companiestendtofocusprimarilyonminimisingtheir
negativeethicsrisks,sincetheyunderstandthatunethicalbeliefs,practicesorbehaviourcanexposethemto
financiallossduetotheft,fraud,corruption,sabotage,andsoon.Itisequallyimportantthatcompaniesalso
focusonthebenefitsofastrongethicalculture.Evidenceshowsthat,inthelongerterm,companieswitha
strongethicalculturehaveacompetitiveedgeoverunethicalcompanies.
39. Companieswithastrongethicalculturearemoresuccessfulinattractingandretainingthebesthumantalent
andalsoinmaintainingstrongandlastingrelationshipswiththeirsuppliers,customersandother
stakeholders.Alloftheseenhancethecompany'ssustainability.Moreover,thesecompaniesenjoythe
significantbenefitsandopportunitiesoftrustandagoodreputation.
SeeChapter4onthegovernanceofriskformoreaboutthispoint.
Codeofconduct
40. Theboardshouldensurethattheethicalstandardsguidingthecompany'srelationshipswithinternaland
externalstakeholdersareclearlyidentified.
41. Ethicalstandardsareusuallyarticulatedinacodeofconduct.Iftheprimarypurposeofacodeistocurb
negativeethicsrisks,itsfocustendstobeonrulesandguidelinesthatcanpreventunethicalbehaviour.Butif
acode'sprimarypurposeistotakeadvantageoftheopportunitiesassociatedwithastrongethicalculture,
itsfocustendstobeonpromotingcoreethicalvalues.Ultimately,acodemayseektobalancethesetwo
objectivesbyexplicitlylinkingcoreethicalvaluestorulesandguidelines,illustratingthebehavioural
expectationsofthosevalues.
42. Thecodeofconductshouldbesupplementedbyseveralethicsrelatedpoliciesthatprovidedetailed
guidelinesfordealingwithspecificissuesforexample,givingandreceivinggifts,supplierrelations,and
politicaldonations.Alternatively,thesemaybedrawnintothecodeofconduct,especiallyiftheycanbe
formulatedbriefly.
43. Aproperlyinstitutionalisedcodeofconductisapowerfulinstrumentforguidingthecompany'sethics
performance.
Integratingethics
44. Theboardshouldensurethatthecompany'sethicalstandards(asstatedinthecodeofconductandrelated
policies)areintegratedintoallthecompany'sstrategiesandoperations.
45. Developingthecompany'sethicalstandardsandthensimplyproclaimingthecompany'scommitmenttothem
isnotenough.Ethicalstandardsshouldinformallcompanypractices,procedures,policiesandconduct.
46. Integratingthecompany'sethicalstandardsrequiresthecompanyandallwhoactonitsbehalftoconduct
theirbusinessinamannerconsistentwiththecompany'sethicalstandards.Thecodeofconductshouldbea
materialtermofemploymentandsuppliercontracts.Integratingethicsrequiresacompanytodealwith
suppliersthatsubscribetosimilarstandardsofcorporategovernanceandethics.
47. Strategically,integrationofethicalstandardsshouldbedrivenfromthetopbytheboard,withthechief
executiveofficer(CEO)oradesignatedexecutiveboardmemberbeingthevisiblelinkbetweentheboard
andexecutivemanagement.
48. Operationally,integrationofethicalstandardsconsistsofmanagementpractices(forexample,employment
screening,awarenesscampaigns,training,regularcommunication,andaconsistentdisciplinaryandreward
system)andstructures(suchasanethicscommittee,anethicsfunctionandethicschampions).These
structuresshouldbedistinguishedfrom,butcanbecombinedwith,thecompliancefunction.
Assessment,monitoring,reportinganddisclosure
49. Theboardshouldensurethatthecompany'sethicsperformanceisassessed,monitored,reportedand
disclosed.
50. Specifically,ethicsperformanceassessment,monitoring,reportinganddisclosureshouldbelocatedwithina
generallyacceptedwiderpracticeofassurance.Internationalpracticeforassessment,reportingand
disclosurerequiresindependentverificationagainstspecificethicalcriteriaandstandardsthatmayresultin
providingformalassuranceintheformofanassurancestatement.
51. Internalassessmentofthecompany'sethicsperformanceaswellasinternalreportingonitsethics
performancearenecessarytoprovidetheboardandmanagementwithrelevantandreliableinformation
abouttheachievementofethicsobjectives,theoutcomesofethicsinitiativesandthequalityofthecompany's
ethicsperformance.
52. Externalassessmentanddisclosureofthecompany'sethicsperformancearenecessarytoprovideinternaland
externalstakeholderswithrelevantandreliableinformationaboutthequalityofthecompany'sethics
performance.Theindependentassuranceofthecompany'sethicsperformance,supportedbyanassurance
statement(aspartoftheintegratedreport)enhancesthecredibilityoftheinformationprovidedto
stakeholders.
53. Theultimateobjectiveofassessment,reportinganddisclosureistoimprovethecompany'sethicalcultureby
enhancingitsethicalperformance.Assessing,reportinganddisclosureofethicsperformanceshouldenable
usersofethicsreportstoformopinionsandmakedecisionsbasedondisclosedandverifiedinformation.
Chapter2
Boardsanddirectors
Roleandfunctionoftheboard
Principle2.1:
Theboardshouldactasthefocalpointforandcustodianofcorporate
governance
1. Companiesshouldbeheadedbyaboardthatdirects,governsandisineffectivecontrolofthecompany.
Everyboardshouldhaveachartersettingoutitsresponsibilitiesanditshouldmeetasoftenasisrequiredto
fulfilitsduties,preferablyatleastfourtimesperyear.
2. Theboardshouldcollectivelyprovideeffectivecorporategovernancethatinvolvesmonitoringthe
relationshipsbetweentheboardandmanagementofthecompany,andbetweenthecompanyandits
stakeholders.
3. Theboard'sparamountresponsibilityisthepositiveperformanceofthecompanyincreatingvalue.Indoing
so,itshouldappropriatelyconsiderthelegitimateinterestsandexpectationsofallitsstakeholders.
4. Theboardshouldexerciseleadership,enterprise,integrityandjudgementindirectingthebusinessofthe
companysothatitcansurviveandthrive.
Principle2.2:
Theboardshouldappreciatethatstrategy,risk,performanceand
sustainabilityareinseparable
5. Theboardshouldplayaprominentroleinthestrategydevelopmentprocessandnotbethemererecipientof
strategyasproposedbymanagement.Theboardshouldbalanceitsroleofpromotingtheperformanceofthe
companyandthatofmaintainingprudentcontrolofhowthisperformanceisachieved.
6. Theboardshouldapprovethelongtermandshorttermstrategiesforthebusinessofthecompanyand
monitortheirimplementationbymanagement.
7. Beforeapprovingthestrategy,theboardshouldensurethatthestrategyisalignedwiththepurposeofthe
company,thevaluedriversofthecompany'sbusinessandthelegitimateinterestsandexpectationsofthe
company'sstakeholders.
8. Theboardshouldsatisfyitselfthatthestrategyandbusinessplansarenotbeingencumberedbyrisksthat
managementhasnotthoroughlyexamined.
9. Theboardshouldidentifykeyperformanceandriskareasaswellastheassociatedperformanceandrisk
indicatorsandmeasures.Thiswouldincludeareassuchasfinance,ethics,conduct,complianceand
sustainability.Theobjectivesthataresetaspartofthestrategyshouldbeclear,measurable,profitableand
sustainable.
10. Theboardshouldensurethatitslongtermplanningwillresultinsustainableoutcomes.Strategyinvolvesan
assessmentofrisksandopportunities,andthestrategyshouldestablishaframeworkforactionbytheboard
andmanagement.Thestrategydevelopmentprocessshouldtakeaccountofthedynamicsofthechanging
externalenvironmentandberesponsivetochangingmarketconditions.
11. Theprimaryreasonfortheexistenceofbusinessenterpriseistocreatevalue.Traditionally,thenotionof
valuewasviewednarrowlyasfinancialvalueforshareholders.Thishasevolvedintothenotionofvaluein
termsofthetriplebottomline:social,economicandenvironmentalperformance.Today,commentatorstalkof
thetriplecontextinwhichcompaniesoperateorsimplythe'context',whichembracesallthreeaspects
people,profitandplanet.
12. Sustainablebusinesspracticesrequirethattheneedsofthepresentaremetwithoutcompromisingtheability
offuturegenerationstomeettheirneeds.Thisapproachrecognisesthatabusinesscannotoperateinan
economicallyviablemanneroveraprolongedperiodwithoutdueregardforlongtermsustainabilityissues.
13. Theboardshouldconsidersustainabilityasabusinessopportunity,wherelongtermsustainabilityislinkedto
creatingbusinessopportunities.Inmakingthesedecisions,theboardshouldbeawareoftheimpactthe
companyhasontheeconomiclifeofthecommunityinwhichitoperatesbothpositiveandnegative.Efforts
shouldbemadetoenhancethesepositiveimpactsanderadicateoramelioratethenegativeones.The
opportunitiesthatthecompanyispresentedwith,throughthemanagementofrisk,shouldbeexamined,
understoodandexploitedasaguidingfactorinformulatingstrategy.
Principle2.3:
Theboardshouldprovideeffectiveleadershipbasedonanethicalfoundation
RefertoChapter1Principle1.1formoredetail.
Principle2.4:
Theboardshouldensurethatthecompanyisandisseentobearesponsible
corporatecitizen
Principle2.5:
Theboardshouldensurethatthecompany'sethicsaremanagedeffectively
Principle2.6:
Theboardshouldensurethatthecompanyhasaneffectiveandindependent
auditcommittee
RefertoChapter3formoredetail.
Principle2.7:
Theboardshouldberesponsibleforthegovernanceofrisk
Principle2.8:
Theboardshouldberesponsibleforinformationtechnology(IT)governance
Principle2.9:
Theboardshouldensurethatthecompanycomplieswithapplicablelawsand
considersadherencetononbindingrules,codesandstandards
Principle2.10:
Theboardshouldensurethatthereisaneffectiveriskbasedinternalaudit
Principle2.11:
Theboardshouldappreciatethatstakeholders'perceptionsaffectthe
company'sreputation
Principle2.12:
Theboardshouldensuretheintegrityofthecompany'sintegratedreport
Principle2.13:
Theboardshouldreportontheeffectivenessofthecompany'ssystemof
internalcontrols
RefertoChapters7and9formoredetail.
Principle2.14:
Theboardanditsdirectorsshouldactinthebestinterestsofthecompany
14. Theboardmustalwaysactinthebestinterestsofthecompany.Intermsofourcommonlaw,asdeveloped
throughjurisprudence,thebestinterestsofthecompanyhasbeeninterpretedtoequatetothebest
interestsofthebodyofshareholders.TheActstatesthatitspurposeistopromotecompliancewiththeBillof
RightsasprovidedforintheConstitution.Thispurpose,asstated,constitutesadeparturefromthe
traditionalnarrowinterpretationofthebestinterestsofthecompany.
15. Thefoundationofeachdecisionshouldbeintellectualhonesty,basedonalltherelevantfacts.Objectively
speaking,thedecisionshouldbearationaloneconsideringallrelevantfactsatthetime.
16. Theboardhasareflectiverolewithcollectiveauthorityanddecisionmakingasaboard,butdirectorscarry
individualresponsibility.
17. DirectorsofcompaniesareappointedintermsoftheconstitutionofthecompanyandintermsoftheAct.Each
directorofacompanyhas:
17.1 adutytoexercisethedegreeofcare,skillanddiligencethatwouldbeexercisedbyareasonably
diligentindividualwhohas:
17.1.1 thegeneralknowledge,skillandexperiencethatmayreasonablybeexpectedofanindividual
carryingoutthesamefunctionsasarecarriedoutbyadirectorinrelationtothecompanyand
17.1.2 thegeneralknowledge,skillandexperienceofthatdirectorand
17.2 afiduciarydutytoactingoodfaithandinamannerthatthedirectorreasonablybelievestobeinthe
bestinterestsofthecompany.
18. Directorsshouldexerciseobjectivejudgementontheaffairsofthecompanyindependentlyfrommanagement,
butwithsufficientmanagementinformationtoenableaproperandobjectiveassessmenttobemade.
19. Tobeabletofulfilltheirlegaldutiesdirectorsshouldhaveunrestrictedaccesstoallthecompany's
information,records,documents,property,managementandstaffsubjecttoaprocessestablishedbythe
board.
20. Theminimumfundamentaldutiesdescribedinparagraph17above,shouldapplytoallentities,regardlessof
theframeworkunderwhichtheseentitieshavebeenestablished,subjecttoanyspecificstandardsrequired.
21. Failuretoperformthesedutiesproperlymayrenderadirectorpersonallyliable.
22. Individualdirectorsortheboardasawholeshouldbeentitled,attheexpenseofthecompany,totake
independentprofessionaladviceinconnectionwiththeirduties,iftheyconsideritnecessary,butonlyafter
followingaprocessagreedbytheboard.
23. Thepersonalinterestsofadirector,orofpeoplecloselyassociatedwiththatdirector,shouldnottake
precedenceovertheinterestsofthecompany.
24. Anydirectorwhoisappointedtotheboardastherepresentativeofapartywithasubstantialinterestinthe
company,suchasamajorshareholderorasubstantialcreditor,shouldrecognisethepotentialforconflict.
However,thatdirectormustunderstandthatthedutytoactinthebestinterestsofthecompanyremains
paramount.
25. Certainconflictsofinterestarefundamentalandshouldbeavoided.Otherconflicts(whetherrealor
perceived)shouldbedisclosedingoodtimeandinfulldetailtotheboardandthenappropriatelymanaged.
26. Everylistedcompanyshouldhaveapolicyofprohibitingdealinginitssecuritiesbydirectors,officersandother
selectedemployeesforaspecifiedperiodbeforetheannouncementofitsfinancialresultsorinanyother
periodconsideredsensitive.ThecompanymustcomplywiththelistingrequirementsoftheJSEondealingsby
directorsoflistedcompanies.
Principle2.15:
Theboardshouldconsiderbusinessrescueproceedingsorotherturnaround
mechanismsassoonasthecompanyisfinanciallydistressedasdefinedinthe
Act
27. Thecompany'sboardmustonacontinuousbasismonitor:
27.1 whetherthecompanyisabletopayallofitsdebtsastheyfalldueandpayable,andissolventand
27.2 whetherthecompanyisfinanciallydistressedi.e.ifitappearstobereasonablyunlikelythatthe
companywillbeabletopayallofitsdebtsastheyfalldueandpayablewithintheimmediatelyensuing
sixmonths,oritappearstobereasonablylikelythatthecompanywillbecomeinsolventwithinthe
immediatelyensuingsixmonths.
28. Theboardshouldwithdueconsiderationoftheirrespectiveadvantagesanddisadvantagesdeterminethe
appropriateactiontobetakenwhichwouldreasonablylikelyavoidorovercomefinancialdistress.Thiscould
includeaworkout,sale,merger,businessrescueorcompromisewithcreditors.
29. Ifthecompanyiscurrentlyinsolventitshouldstoptradinguntilsolventregardlessoftheactiontakenunder
28above.
30. Ifitappearsreasonablylikelythatthecompanyisinfinancialdistressdespitetheactionslistedin28aboveto
avoidorovercomefinancialdistress,theboardmustensurethatthecompanystopstradingandlodgean
applicationtoputthecompanyinliquidation.
31. Inallsituations,havingconsideredpossibleactiontoavoidorovercomefinancialdistress,ifapplicable,ifthe
boardhasreasonablegroundstobelievethatthecompanyisfinanciallydistressed,buttheboardhasnot
placedthecompanyunderbusinessrescue,theboardmustsendawrittennoticetoaffectedpersonssetting
outthenatureoffinancialdistress,andtheboard'sreasonfornotplacingthecompanyundersupervision.
32. Theboardmustensurethatthecompanymaintainsalistofcontactdetailsofalleffectedpersonsfor
purposesofnotifyingaffectedpersonswhenrequired,therebyinteraliaavoidingvoluntarycommencementof
businessrescuetobechallengedonproceduralgrounds.
33. Ifliquidationproceedingshavealreadybeencommencedbyoragainstthecompanyatthetimeanapplication
ismadetocourtbyanaffectedpersonforanorderplacingthecompanyunderbusinessrescueproceedings,
theapplicationforbusinessrescueproceedingswillsuspendtheliquidationproceedings.
34. Theboardmustappointasuitablyqualifiedandindependentbusinessrescuepractitioner.Itisrecommended
thatdirectorsdonotappointabusinessrescuepractitionerthatisseentobe'friendly'totheircauseorto
avoidthecredibilityofthebusinessrescueplanpreparedbythepractitioner.
35. Theboardshouldrequestthepractitionertofurnishsecurityforthevalueoftheassetsofthecompany.
36. Theboardandindividualdirectorsshouldbeawareofandunderstandtheirdutiesduringbusinessrescue
proceedings,aswellasthedutiesandpowersofpractitioner.
Principle2.16:
Theboardshouldelectachairmanoftheboardwhoisanindependentnon
executivedirector.TheCEOofthecompanyshouldnotalsofulfilltheroleof
chairmanoftheboard
37. Theboardshouldelectachairmanwhocanprovidethedirectionnecessaryforaneffectiveboard.The
chairmanshouldbeappointedbytheboardeveryyearaftercarefullymonitoringhisindependenceand
factorsthatmayimpairhisindependenceasdiscussedinthisChapter.Anyfactoraffectingtheindependence
ofthechairmanshouldbeweighedagainstthepositivefactorofcontinuityofthechairman.
38. Thechairmanoftheboardshouldbeindependentandfreeofconflictsofinterestatappointment,failing
which,theboardshouldappointaleadindependentnonexecutivedirector(LID)(refertoAnnex2.1).In
situationswheretheindependenceofthechairmanisquestionableorimpaired,aLIDshouldbeappointedfor
aslongasthesituationexists.
39. Iftheboardappointsachairmanwhoisanonexecutivedirectorbutisnotindependentorisanexecutive
director,thisshouldbedisclosedintheintegratedreport,togetherwiththereasonsandjustificationsforthe
appointment.
40. Thechairman'sroleandfunctionsshouldbeformalised.Thesewillbeinfluencedbymatterssuchasthe
lifecycleorcircumstancesofthecompany,thecomplexityofthecompany'soperations,thequalitiesofthe
CEOandthemanagementteam,aswellastheskillsandexperienceofeachboardmember.Corefunctions
performedbythechairmanshouldincludethefollowing:
40.1 settingtheethicaltonefortheboardandthecompany
40.2 providingoverallleadershiptotheboardwithoutlimitingtheprincipleofcollectiveresponsibilityfor
boarddecisions,whileatthesametimebeingawareoftheindividualdutiesofboardmembers
40.3 identifyingandparticipatinginselectingboardmembers(viaanominationcommittee),andoverseeing
aformalsuccessionplanfortheboard,CEOandcertainseniormanagementappointmentssuchasthe
chieffinancialofficer(CFO)
40.4 formulating(withtheCEOandcompanysecretary)theyearlyworkplanfortheboardagainstagreed
objectives,andplayinganactivepartinsettingtheagendaforboardmeetings
40.5 presidingoverboardmeetingsandensuringthattimeinmeetingsisusedproductively.Thechairman
shouldencouragecollegialityamongboardmemberswithoutinhibitingcandiddebateandcreative
tensionamongboardmembers
40.6 managingconflictsofinterest.Itisnotsufficientmerelytotablearegisterofinterests.Allinternaland
externallegalrequirementsmustbemet.Thechairmanmustaskaffecteddirectorstorecuse
themselvesfromdiscussionsanddecisionsinwhichtheyhaveaconflict,unlesstheyarerequestedto
providespecificinput,inwhicheventtheyshouldnotbepartytothedecision.Seesection75ofthe
Act
40.7 actingasthelinkbetweentheboardandmanagementandparticularlybetweentheboardandthe
CEO
40.8 beingcollegialwithboardmembersandmanagementwhileatthesametimemaintaininganarm's
lengthrelationship
40.9 ensuringthatdirectorsplayafullandconstructiveroleintheaffairsofthecompanyandtakingalead
roleintheprocessforremovingnonperformingorunsuitabledirectorsfromtheboard
40.10 ensuringthatcomplete,timely,relevant,accurate,honestandaccessibleinformationisplacedbefore
theboardtoenabledirectorstoreachaninformeddecision
40.11 monitoringhowtheboardworkstogetherandhowindividualdirectorsperformandinteractat
meetings.Thechairmanshouldmeetwithindividualdirectorsonceayearaboutevaluatingtheir
performance.Thechairmanshouldknowboardmembers'strengthsandweaknesses
40.12 mentoringtodevelopskillandenhancedirectors'confidence(especiallythosenewtotherole)and
encouragingthemtospeakupandmakeanactivecontributionatmeetings.Thementoringroleis
encouragedtomaximisethepotentialoftheboard
40.13 ensuringthatalldirectorsareappropriatelymadeawareoftheirresponsibilitiesthroughatailored
inductionprogramme,andensuringthataformalprogrammeofcontinuingprofessionaleducationis
adoptedatboardlevel
40.14 ensuringthatgoodrelationsaremaintainedwiththecompany'smajorshareholdersanditsstrategic
stakeholders,andpresidingovershareholders'meetings
40.15 buildingandmaintainingstakeholders'trustandconfidenceinthecompany
40.16 upholdingrigorousstandardsofpreparationformeetingsbyforexample,meetingwiththeCEObefore
meetingsandstudyingofthemeetinginformationpacksdistributedand
40.17 ensuringthatdecisionsbytheboardareexecuted.
41. Thechairman'sabilitytoaddvaluetothecompany,andthechairman'sactualperformanceagainstcriteria
developedfromhisformalisedroleandfunctions,shouldformpartofayearlyevaluationbytheboard.
42. TheretiredCEOshouldnotbecomethechairmanoftheboarduntilthreecompleteyearshavepassedsince
theendoftheCEO'stenureasanexecutivedirector.Afterthisperiod,theCEOmaybeconsideredfor
appointmentasanonexecutivechairman,afteranassessmentofhisindependence.
43. Thechairman,togetherwiththeboard,shouldcarefullyconsiderthenumberofoutsidechairmanshipsthathe
holds.Therelativesizeandcomplexityofthecompaniesinquestionshouldbetakenintoaccount.Inthis
regard,chairmenofboardsandboardcommitteesshouldapplytheirminds,inanintellectuallyhonest
manner,andbesatisfiedthattheyhavetheabilityandcapacitytodischargetheirduties.
44. ThechairmanshouldmeetwiththeCEOortheCFOorthecompanysecretaryorallthreebeforeaboard
meetingtodiscussimportantissuesandagreeontheagenda.
45. Withregardtothechairmanservingonothercommittees:
45.1 thechairmanshouldnotbeamemberoftheauditcommittee
45.2 thechairmanshouldnotchairtheremunerationcommittee,butmaybeamemberofit
45.3 thechairmanshouldbeamemberofthenominationcommitteeandmayalsobeitschairmanand
45.4 thechairmanshouldnotchairtheriskcommitteebutmaybeamemberofit.
46. Thereshouldbeasuccessionplanforthepositionofthechairman.
Principle2.17:
Theboardshouldappointthechiefexecutiveofficerandestablisha
frameworkforthedelegationofauthority
47. Theboardshouldappointthechiefexecutiveofficer(CEO)andprovideinputonseniormanagement
appointments,suchasthechieffinancialofficer(CFO)andchiefoperatingofficer(COO).AsfromJune2009,
listedcompaniesarerequiredbytheJSElistingsrequirementstoappointafinancialdirector.
48. ThecollectiveresponsibilitiesofmanagementvestintheCEOandassuchtheCEObearsultimate
responsibilityforallmanagementfunctions.TheboarddelegatestomanagementviatheCEO,whowillinturn
delegatetothosereportingtohim.
49. Theboardmaydelegateauthoritytomanagementbut,indoingso,theboardanditsdirectorsdonot
abdicatetheirdutiesandresponsibilities.Indelegatingauthority,theboardshouldestablishbenchmarksand
performanceindicatorstoholdmanagementaccountablefordecisionsandactionsdelegatedtothem.
50. Theboardshoulddefineitsownlevelsofmateriality,reservingspecificpowerstoitanddelegatingother
matterstomanagement.Suchdelegationbytheboardshouldhaveregardtodirectors'statutoryand
fiduciaryresponsibilitiestothecompany,whileconsideringstrategicandoperationaleffectivenessand
efficiencies.
51. TheCEOplaysacriticalroleintheoperationsandsuccessofthecompany'sbusiness.Theroleandfunctions
oftheCEOshouldbeformalisedandtheboardshouldevaluatetheperformanceoftheCEOagainstcriteria
developedfromthese.
52. TheCEOshouldconsistentlystrivetoachievethecompany'sfinancialandoperatinggoalsandobjectives,and
ensurethatthedaytodaybusinessaffairsofthecompanyareproperlymanagedwithintheapproved
frameworkofdelegatedauthority.
53. TheCEOshouldendeavourtoensurethatalongtermstrategyofthecompanyisdevelopedand
recommendedtotheboardtocreateaddedvalueforandpositiverelationswithstakeholders.
54. TheCEOshouldensurethatapositiveandconstructiveworkclimateconducivetoattracting,retainingand
motivatingemployeesatalllevelsinthecompanyismaintained.
55. TheCEOshouldfosteracorporateculturethatpromotessustainableethicalpractices,encouragesindividual
integrityandfulfilssocialresponsibilityobjectivesandimperatives.
56. TheCEOshouldserveasthechiefrepresentativeofthecompany.
57. TheCEOshouldnotbeamemberoftheremuneration,auditornominationcommittees,butshouldattendby
invitation.CEOsshouldrecusethemselveswhenconflictsofinterestarise,particularlywhentheirperformance
andremunerationarediscussed.
58. TheCEOshouldcarefullyapplyhismind,inconsultationwiththechairmanoftheboardaboutthe
appropriatenessoftakingonnonexecutivedirectorshipsoutsideofthecompanyoritsgroup.Time
constraintsandpotentialconflictsofinterestsshouldbeconsidered.TheCEOshouldnotbecomechairmanof
acompanyoutsideofthegroup.
59. GiventhestrategicandoperationalroleoftheCEO,andtopreventtoomuchpowervestinginoneperson,
thisappointmentshouldbeseparatefromthatofthechairmanoftheboard.
60. ThefunctionsoftheCEOincludes:
60.1 recommendingorappointingtheexecutiveteamandensuringpropersuccessionplanningand
performanceappraisals
60.2 developingthecompany'sstrategyforconsiderationandapprovalbytheboard
60.3 developingandrecommendingtotheboardyearlybusinessplansandbudgetsthatsupportthe
company'slongtermstrategy
60.4 monitoringandreportingtotheboardtheperformanceofthecompanyanditsconformancewith
complianceimperatives
60.5 establishinganorganisationalstructureforthecompanywhichisnecessarytoenableexecutionofits
strategicplanning
60.6 settingthetoneinprovidingethicalleadershipandcreatinganethicalenvironment
60.7 ensuringthatthecompanycomplieswithallrelevantlawsandcorporategovernanceprinciplesand
60.8 ensuringthatthecompanyappliesallrecommendedbestpracticesand,ifnot,thatthefailuretodoso
isjustifiablyexplained.
61. TheboardshouldalsoensurethatasuccessionplanisinplacefortheCEO,andothermembersofexecutive
managementandofficers.
Compositionoftheboard
Principle2.18:
Theboardshouldcompriseabalanceofpower,withamajorityofnon
executivedirectors.Themajorityofnonexecutivedirectorsshouldbe
independent
62. Giventhepositiveinteractionanddiversityofviewsthatoccurbetweenindividualsofdifferentskills,
experienceandbackgrounds,theunitaryboardstructurewithexecutivedirectors(refertoAnnex2.2)and
nonexecutivedirectors(refertoAnnex2.3)interactinginaworkinggroupremainsappropriateforSouth
Africancompanies.TheunitarysystemhasbeenwellestablishedinSouthAfrica.
63. Theboardshouldensurethatthereisanappropriatebalanceofpowerandauthorityontheboard.Noone
individualorblockofindividualsshouldbeabletodominatetheboard'sdecisionmaking.
64. Theboardshouldcompriseamajorityofnonexecutivedirectors.Themajorityofnonexecutivedirectors
shouldbeindependentasthisreducesthepossibilityofconflictsofinterestandpromotesobjectivity.
65. Independentnonexecutivedirectorsshouldbeindependentinfactandintheperceptionofareasonably
informedoutsider.Althoughindependenceofmindisessential,perceptionsofindependenceareimportant.
66. Anindependentdirectorshouldbeindependentincharacterandjudgementandthereshouldbeno
relationshipsorcircumstanceswhicharelikelytoaffect,orcouldappeartoaffectthisindependence.
Independenceistheabsenceofundueinfluenceandbiaswhichcanbeaffectedbytheintensityofthe
relationshipbetweenthedirectorandthecompanyratherthananyparticularfactsuchaslengthofserviceor
age.
67. Anindependentnonexecutivedirectorisanonexecutivedirectorwho:
67.1 isnotarepresentativeofashareholderwhohastheabilitytocontrolorsignificantlyinfluence
managementortheboard
67.2 doesnothaveadirectorindirectinterestinthecompany(includinganyparentorsubsidiaryina
consolidatedgroupwiththecompany)whichexceeds5%ofthegroup'stotalnumberofsharesinissue.
67.3 doesnothaveadirectorindirectinterestinthecompanywhichislessthan5%ofthegroup'stotal
numberofsharesinissue,butismaterialtohispersonalwealth
67.4 hasnotbeenemployedbythecompanyorthegroupofwhichitcurrentlyformspartinanyexecutive
capacity,orappointedasthedesignatedauditororpartnerinthegroup'sexternalauditfirm,orsenior
legaladviserfortheprecedingthreefinancialyears
67.5 isnotamemberoftheimmediatefamilyofanindividualwhois,orhasduringtheprecedingthree
financialyears,beenemployedbythecompanyorthegroupinanexecutivecapacity
67.6 isnotaprofessionaladvisertothecompanyorthegroup,otherthanasadirector
67.7 isfreefromanybusinessorotherrelationship(contractualorstatutory)whichcouldbeseenbyan
objectiveoutsidertointerferemateriallywiththeindividual'scapacitytoactinanindependentmanner,
suchasbeingadirectorofamaterialcustomeroforsuppliertothecompanyor
67.8 doesnotreceiveremunerationcontingentupontheperformanceofthecompany.
68. Whiletheavailabilityorotherwiseofsufficientlyexperienceddirectorswillbeachallenge,shareholdersshould
strivetoconstitutetheirboardswithamajorityofindependentdirectorsamongtheirnonexecutivedirectors.
69. Abalanceshouldbesoughtbetweencontinuityinboardmembership,subjecttoperformanceandeligibility
forreelectionaswellasconsiderationsofindependenceandthesourcingofnewideasthroughintroducing
newboardmembers.
70. Whendeterminingthenumberofdirectorstoserveontheboard,thecollectiveknowledge,skills,experience
andresourcesrequiredforconductingthebusinessoftheboardshouldbeconsidered.Factorsdetermining
thenumberofdirectorstobeappointedare:
70.1 evolvingcircumstances,theneedsofthecompanyandthenatureofitsbusiness
70.2 theneedtoachieveanappropriatemixofexecutiveandindependentnonexecutivedirectors
70.3 theneedtohavesufficientdirectorstostructureboardcommitteesappropriately
70.4 potentialdifficultiesofraisingaquorumwithasmallboard
70.5 regulatoryrequirementsand
70.6 theskillsandknowledgeneededtomakebusinessjudgementcallsonbehalfofthecompany.
71. Everyboardshouldconsiderwhetheritssize,diversityanddemographicsmakeiteffective.Diversityapplies
toacademicqualifications,technicalexpertise,relevantindustryknowledge,experience,nationality,age,race
andgender.
72. Directorsshouldbeindividualsofintegrityandcourage,andhavetherelevantknowledge,skillsand
experiencetobringjudgementtobearonthebusinessofthecompany.Insituationswheredirectorsmay
lackexperience,detailedinductionandformalmentoringandsupportprogrammesshouldbeimplemented.
73. Asaminimum,twoexecutivedirectorsshouldbeappointedtotheboard,beingthechiefexecutiveofficer
(CEO)andthedirectorresponsibleforthefinancefunction.Thiswillensurethatthereismorethanonepoint
ofcontactbetweentheboardandthemanagement.FromJune2009,listedcompaniesmustappointa
financialdirectortotheboard.
74. Aprogrammeensuringastaggeredrotationofnonexecutivedirectorsshouldbeputinplacebytheboardto
theextentthatitisnotalreadyregulatedbythecompany'smemorandumofincorporationorrelevant
regulation.Rotationofboardmembersshouldbestructuredsoastoretainvaluableskills,maintaincontinuity
ofknowledgeandexperienceandintroducepeoplewithnewideasandexpertise.
75. Atleastonethirdofnonexecutivedirectorsshouldretirebyrotationyearly,usuallyatthecompany'sAGMor
othergeneralmeetings,unlessotherwiseprescribedthroughanyapplicablelegislation.Theseretiringboard
membersmaybereelected,providedtheyareeligible.Theboard,throughthenominationcommittee,should
recommendeligibility,consideringpastperformance,contributionandtheobjectivityofbusinessjudgement
calls.
76. Everyyear,nonexecutivedirectorsclassifiedas'independent'shouldundergoanevaluationoftheir
independencebythechairmanandtheboard.Ifthechairmanisnotindependent,theprocessshouldbeled
bytheLID.Independenceshouldbeassessedbyweighingallrelevantfactorsthatmayimpairindependence.
Theclassificationofdirectorsintheintegratedreport,asindependentorotherwise,shouldbedoneonthe
basisofthisassessment.
77. Anytermbeyondnineyears(e.g.threethreeyearterms)foranindependentnonexecutivedirectorshould
besubjecttoaparticularlyrigorousreviewbytheboard,ofnotonlytheperformanceofthedirector,butalso
thefactorsthatmayimpairhisindependenceatthattime.Thereviewshouldalsotakeintoaccounttheneed
forrefreshingtheboard.
78. Independentnonexecutivedirectorsmayservelongerthannineyearsif,afteranindependenceassessment
bytheboard,therearenorelationshipsorcircumstanceslikelytoaffect,orappearingtoaffect,thedirector's
judgement.Theassessmentshouldshowthattheindependentdirector'sindependenceofcharacterand
judgmentisnotinanywayaffectedorimpairedbythelengthofservice.Astatementtothiseffectshouldbe
includedintheintegratedreport.
79. Thememorandumofincorporationofthecompanyshouldallowtheboardtoremoveanydirectorfromthe
board,includingexecutivedirectors.Shareholderapprovalisnotnecessaryforthesedecisions,providedthis
isincludedinthememorandumofincorporation.
Boardappointmentprocesses
Principle2.19:
Directorsshouldbeappointedthroughaformalprocess
80. Shareholdersareultimatelyresponsibleforthecompositionoftheboardanditisintheirownintereststo
ensurethattheboardisproperlyconstitutedfromtheviewpointofskillandrepresentivity.Proceduresfor
appointmentstotheboardshouldbeformalandtransparentandshouldbeamatterfortheboardasa
whole,assistedbythenominationcommittee,subjecttoshareholderapproval.
81. Boardsshouldascertainwhetherpotentialcandidatesarecompetenttobeappointedasdirectorsandcan
contributetothebusinessjudgementcallstobemadebytheboard.Inlookingattheskillsandsuitabilityofa
proposedcandidatedirector,therearethreedimensionsthatrequireconsideration,namely:
81.1 theknowledgeandexperiencerequiredtofillthegapontheboard
81.2 theapparentintegrityoftheindividualand
81.3 theskillsandcapacityoftheindividualtodischargehisdutiestotheboard.
82. Priortotheirappointment,thedirectors'backgroundsshouldbeinvestigatedalongthelinesoftheapproach
requiredforlistedcompaniesbytheJSE.Itisalsoimportanttoensurethatnewdirectorshavenotbeen
declareddelinquentnorareservingprobation(section162oftheAct).Thenominationcommitteeshouldplay
aroleinthisprocess.
83. Nonexecutivedirectorsshouldensurethattheyhave(andtake)thetimerequiredtoattendproperlytotheir
duties.Itisexpectedofthemto:
83.1 attendboardandboardcommitteemeetingsand
83.2 acquireandmaintainabroadknowledgeoftheeconomicenvironment,industryandbusinessofthe
company.
84. Inviewofthetimeanddedicationrequiredtofulfilltheabovedutiesproperly,itisimportantthatnon
executivedirectorsdonotholdanymoredirectorshipsthanisreasonableforthemtoexerciseduecare,skill
anddiligence.Theyshould,therefore,honestlyapplytheirmindstotheirworkloadsandabilitiestodischarge
theirduties.Theboardshouldexaminethenumberofsignificantdirectorshipsheldbyanindividualaspartof
theduediligenceprocess.Thisshouldbebalancedagainsttheadvantagesobtainedfromanindividual
servingonmorethanoneboardoronmorethanonecommitteeofaboardorboth.
85. Anexecutivedirectormaytakeonothernonexecutivedirectorships,providedthesearenotdetrimentalto
theimmediateresponsibilitiesasanexecutivedirectorofthecompanyandareinaccordancewithaboard
approvedpolicy.Anexecutivedirectorshould,therefore,applyhismind,inconsultationwiththechairmanand
CEO,astowhethersuchdirectorshipswouldbeappropriate.
86. Theonusisonindividualdirectorstodeterminewhethertheyhavetherequisiteskillsandcapacitytomakea
meaningfulcontributionandarefreefromapparentoractualconflicts.
87. Theappointmentofanonexecutivedirectorshouldbeformalisedinanagreementbetweenthecompanyand
thedirector.Theagreementshouldincludeadirector'scodeofconducttobecompliedwithandthe
contributionthatisexpectedfromthespecificindividual.Theagreementshouldalsosetouttheremuneration
forholdingofficeasdirectorandthetermsofdirectors'andofficers'liabilityinsurancetobeprovided.
88. Theboardshouldrecognisethathighlevelsoftimelydisclosureandtransparencyenableshareholdersto
maketheirowninformedassessmentofdirectors,beitinregardtoindependence,remunerationorother
issues.Thefollowingaspectsregardingdirectorsshouldbedisclosedintheintegratedreport:
88.1 thereasonsfortheremoval,resignationorretirementofdirectors.Thepurposeofthisistoenable
shareholderstofulfilltheirroleastheultimatearbitersofwhoshouldsitontheboard.Complete,
timely,relevant,accurate,accessibleandhonestdisclosurewillreducespeculationanduncertainty
88.2 thecompositionoftheboardandboardcommitteesandthenumberofmeetingsheld,attendanceat
thosemeetingsandthemannerinwhichtheboardanditscommitteeshavedischargeditsduties
88.3 theeducation,qualificationsandexperienceofthedirectors
88.4 thelengthofserviceandageofthedirectors
88.5 whethersupervisingofnewmanagementisrequiredinwhichcaseretentionofboardexperiencewould
becalledfor
88.6 othersignificantdirectorshipsofeachboardmember
88.7 actualorpotentialpoliticalconnectionsorexposureand
88.8 anyotherrelevantinformation.
Directordevelopment
Principle2.20:
Theinductionofandongoingtraininganddevelopmentofdirectorsshouldbe
conductedthroughformalprocesses
89. Theboardshouldestablishaformalinductionprogrammetofamiliariseincomingdirectorswiththecompany's
operations,itsbusinessenvironment,andthesustainabilityissuesrelevanttoitsbusiness.Itshouldalso
introducethemtomembersofseniormanagementandtheirrespectivedutiesandresponsibilities.
90. Anappropriateinductionprogrammeshouldmeetthespecificneedsofboththecompanyandtheindividual
andshouldenableanynewdirectortomakethemaximumcontributionasquicklyaspossible.
91. Newdirectorswithnoorlimitedboardexperienceshouldbedevelopedandreceiveeducationabouttheir
duties,responsibilities,powersandpotentialliabilities.Mentorshipbyexperienceddirectorsisencouraged.
Thedevelopmentoftheskillsofinexperienceddirectorsisvitalinalleviatingtheshortageinthepoolof
directorsavailableforappointment.
92. Ongoingdirectordevelopmentshouldbeencouragedinthesamemannerascontinuingprofessional
developmentisforcertainotherprofessions.Thiswillhelptoenhancegovernancepracticeswithintheboard
itselfandbeinthebestinterestsofthecompany.
93. Directorsshouldreceiveregularbriefingsonmattersrelevanttothebusinessofthecompany,changesin
risksandlawsapplicabletothebusinessofthecompany,includingaccountingstandardsandpolicies,and
theenvironmentinwhichitoperates.
94. Incompetentorunsuitabledirectorsshouldberemoved,takingrelevantlegalandotherrequirementsinto
consideration.Thechairmanshouldleadtheprocess.
Companysecretary
Principle2.21:
Theboardshouldbeassistedbyacompetent,suitablyqualifiedand
experiencedcompanysecretary
95. Theappointmentofacompanysecretaryinpubliccompaniesandstateownedcompaniesismandatoryunder
theAct.Furthermore,theActcontainsvariousprovisionsregardingtheappointment,removalanddutiesof
thecompanysecretary.Thecompanysecretaryhasapivotalroletoplayinthecorporategovernanceofa
company,anditisadvisablethatcompaniesdelegateoroutsourcethisresponsibilitytoanappropriate
person,ororganisationifacompanysecretaryisnotemployed.
96. Theappointmentandremovalofacompanysecretaryisamatterfortheboard.
97. Theboardshouldbeawareofthecompanysecretary'sdutiesandshouldempowerthecompanysecretaryto
properlyfulfilthoseduties.Asgatekeeperofgoodgovernance,itisimportantforthecompanysecretaryto
maintainanarmslengthrelationshipwiththeboardanditsdirectors,asfarasreasonablypossible.
98. Thecompanysecretaryshouldideallynotbeadirectorofthecompany.
99. Thecompanysecretaryshouldassistthenominationcommitteeandensurethattheprocedureforthe
appointmentofdirectorsisproperlycarriedout.
100. Thecompanysecretaryshouldassistintheproperinduction,orientation,ongoingtrainingandeducationof
directors,includingassessingthespecifictrainingneedsofdirectorsandexecutivemanagementintheir
fiduciaryandothergovernanceresponsibilities.
101. Theindividualdirectors,andtheboardcollectively,shouldlooktothecompanysecretaryforguidanceontheir
responsibilitiesanddutiesandhowsuchresponsibilitiesanddutiesshouldbeproperlydischargedinthebest
interestsofthecompany.
102. Thecompanysecretaryshouldprovideacentralsourceofguidanceandadvicetotheboard,andwithinthe
company,onmattersofgoodgovernanceandofchangesinlegislation.
103. Thecompanysecretaryshouldhaveadirectchannelofcommunicationtothechairmanandshouldbe
availabletoprovidecomprehensivepracticalsupportandguidancetodirectors,withparticularemphasison
supportingthenonexecutivedirectors,thechairmanoftheboardandthechairmanofcommitteesandthe
auditcommittee.
104. Thecompanysecretaryshouldensurethattheboardandboardcommitteechartersandtermsofreference
arekeptuptodate.
105. Thecompanysecretaryshouldberesponsibleforensuringthepropercompilationandtimelycirculationof
boardpapersandforassistingthechairmanoftheboardandcommitteeswithdraftingofyearlyworkplans.
106. Thecompanysecretaryshouldhavethedutytoobtainappropriateresponsesandfeedbacktospecific
agendaitemsandmattersarisingfromearliermeetingsinboardandboardcommitteedeliberations.The
companysecretary'sroleshouldalsobetoraisemattersthatmaywarranttheattentionoftheboard.
107. Thecompanysecretaryshouldensurethattheproceedingsofboardandcommitteemeetingsareproperly
recordedandthatminutesofmeetingsarecirculatedtothedirectorsinatimelymanner,aftertheapprovalof
thechairmanoftheboardorrelevantboardcommittee.
108. Thecompanysecretaryshouldassisttheboardwiththeyearlyevaluationoftheboard,itsindividualdirectors
andseniormanagement.
Performanceassessment
Principle2.22:
Theevaluationoftheboard,itscommitteesandtheindividualdirectors
shouldbeperformedeveryyear
Boardandcommitteeevaluation
109. Improvedboardperformanceandeffectivenesscanbeachievedthroughregularandtimelyappraisalsofthe
board.
110. Effectiveandmeaningfulevaluationisonlypossibleoncetheboardhasdetermineditsownrole,functions,
dutiesandperformancecriteriaaswellasthosefordirectorsontheboardandonboardcommittees.
111. Theboardshouldcarefullyconsiderwhethertheevaluationsofperformanceandindependenceshouldbe
doneinhouseorconductedbyindependentserviceproviders,subjecttolegislativerequirements.Evaluation
proceduresandresultsshouldbereviewedbythenominationcommitteeorsuchsimilarcommitteeofthe
board.
112. Thechairman,throughthenominationscommittee,mayleadtheoverallperformanceevaluationoftheboard
andboardcommitteeswiththeassistanceofthecompanysecretary.However,independentperformance
appraisalsshouldbeconsideredintheinterestofelicitingcandidresponses.Theboardshoulddiscussthe
boardevaluationresultsatleastonceayear.
113. Yearlyperformanceappraisalsofindividualdirectors,theboard,boardcommitteesandthechairman,can
providethebasisforidentifyingfuturetrainingneedsand,wherenecessary,explainwhyareappointment
mayormaynotbeappropriate.
114. Theboardshouldstateintheintegratedreportwhethertheappraisalsoftheboard,itscommitteeshave
beenconducted.Thereportshouldprovideanoverviewoftheresultsoftheperformanceassessmentand
theactionplanstobeimplemented,ifany.
Individualdirectorevaluation
115. Thesameprinciplesadoptedintheevaluationoftheboardshouldbeappliedwhenevaluatingtheboard
committees'chairmenandindividualdirectors.
116. Adirector'scontributiontotheboardshouldbemeasuredagainsthisduties.Thenominationforre
appointmentofadirectorattheAGMshouldnotbeanautomaticprocessandshouldonlyoccurafterthe
properevaluationoftheperformanceandattendanceofthedirectorinquestion.
117. Evaluationsshouldbeledbythechairmanthroughthenominationscommittee,orbyanindependentservice
provider.Thechairmanshouldensurethatdirectorsknowthattheywillbesubjecttoevaluation,and
understandthecriteriausedforevaluation,andtheevaluationproceduresthatwillbefollowed.Aseriesof
evaluationquestionsshouldbedistributedintimefordirectorstocompletebeforeanymeetingwiththe
chairmanortheindependentserviceprovider.
118. Shouldadeficiencyinadirector'sperformancebeidentified,aplanshouldbedevelopedandimplementedfor
thedirectortoacquirethenecessaryskillsortodevelopappropriatebehaviouralpatterns.Thedirector
evaluationshouldbeapproachedinanopen,constructiveandnonconfrontationalmanner.
119. Theactionplanarisingoutoftheevaluationshouldbereportedtoanddiscussedbytheboardanda
consolidatedsummaryofthewholeprocessshouldbereportedtothefullboard.
120. Evaluationquestionsshouldincludecriteriatoevaluatetheperformanceofthechairman.
121. Theboardshouldappointanindependentnonexecutivedirectorfromwithinitsranks,ortheLID,toleadthe
processoftheevaluationofthechairman'sperformanceifanindependentserviceproviderisnotused.
122. Thechairmanshouldnotbepresentwhenhisperformanceisdiscussedbytheboard.Thisdiscussionand
evaluationshouldbeperformedbytheboardasawholeundertheguidanceoftheLID,deputychairman,
anotherindependentnonexecutivedirectorchosenbytheboardoranindependentserviceprovider.
CEOandexecutivedirectorevaluation
123. Thechairman,oracommitteeappointedbytheboard,shouldevaluatetheperformanceoftheCEOandother
executivedirectorsatleastonceayear.
124. TheevaluationshouldassesstheperformanceoftheCEOandotherexecutivedirectors,bothasdirectors
andasexecutives.Theresultsofsuchanevaluationshouldalsobeconsideredbytheremuneration
committeetoguideitindeterminingtheremunerationoftheCEOandotherexecutivedirectors.
Boardcommittees
Principle2.23:
Theboardshoulddelegatecertainfunctionstowellstructuredcommittees
butwithoutabdicatingitsownresponsibilities
125. Boardcommitteesconstituteanimportantelementofthegovernanceprocessandshouldbeestablishedwith
clearlyagreedreportingproceduresandawrittenscopeofauthority.TheActrecognisestherightofaboard
toestablishboardcommitteesbutbydoingso,theboardisnotexoneratedofcomplyingwithitslegal
responsibilities.
126. Thetermsofreferenceofcommitteesshouldbereviewedeveryyearandanychangesshouldbeapprovedby
theboard.
127. Committeesshouldbeappropriatelyconstituted,consideringanyrelevantlegislationandtheobjectivesofthe
company.Thecompositionofboardcommitteesshouldbedisclosedintheintegratedreport,includingany
externaladviserswhoregularlyattendorareinvitedtoattendcommitteemeetings.Theintegratedreport
shoulddisclosethetermsoftermsofreferenceofthecommittee,asapprovedbytheboard.
128. Theshareholdersofpublicandstateownedcompaniesmustappointanauditcommitteecomprisingthree
independentnonexecutivedirectorsofthecompanyattheAGM.(RefertoChapter3formoredetailonthe
auditcommittee).Theauditcommitteeforthesecompaniesisastatutorycommitteeofthecompanywith
statutoryresponsibilitiesregardingtherelationshipbetweenthecompanyandtheexternalauditor.It
operatesasacommitteeoftheboardforallduties,otherthanstatutoryduties,delegatedtoitbytheboard.
129. Theboardsofallothercompaniesshouldestablishanauditcommitteeanddefineitscomposition,purpose
anddutiesinthememorandumofincorporation.
130. Unlesslegislatedotherwise,theboardshouldappointtherisk,remunerationandnominationcommitteesas
standingcommittees.Theboardofapubliclistedcompany,stateownedcompanyandothercompanythat
hasscoredover500pointsintermsofthepublicinterestscorecalculation,mustestablishasocialandethics
committee(section72(4) o f t h e A c t readtogetherwithregulations43and26(2)).Theboardmayalso
considerestablishinggovernance,ITsteeringandsustainabilitycommittees.Smallercompaniesneednot
establishformalcommitteestoperformthesefunctions,butshouldensurethatthesefunctionsare
appropriatelyaddressedbytheboard.
131. Boardcommittees,otherthantheriskcommittee,shouldonlycomprisemembersoftheboardandshould
haveamajorityofnonexecutivedirectors.Themajorityofthenonexecutivedirectorsservingonthese
committeesshouldbeindependent.Committeesshouldbechairedbyindependentnonexecutivedirectors,
otherthantheexecutivecommitteewhichisordinarilychairedbytheCEO.
132. Externalparties,suchaspaidadvisers,maybepresentatcommitteemeetingsbyinvitationbutwillhaveno
voteonthecommittee.Nondirectorsservingasmembersoncommitteesoftheboardshouldbeawareof
section76oftheActwhichplacesthesamestandardsofconductandliabilityonsuchindividualsasifthey
weredirectors.Expertsshouldattendasindependentcontractorsandnotasmembersofthecommittee.
133. Executivedirectorsandseniormanagementmaybeinvitedtoattendcommitteemeetingsifthechairmanof
thecommitteeconsiderstheirinputandcontributiontobeofvaluetothedecisionmakingprocess.
134. Thetermsofreferenceforeachcommitteeshould,asaminimum,cover:
134.1 composition
134.2 objectives,purposeandfunctions
134.3 delegatedauthorities,includingtheextentofpowertomakedecisionsorrecommendationsorboth
134.4 tenureand
134.5 reportingmechanismtotheboard.
135. Wheresubsidiarycompanieswithinagroupestablishtheirownboardcommittees,therelevantboard
committeesoftheholdingcompanyshouldreviewthetermsofreferenceandtheactivitiesofsuch
subsidiary'scommitteestoassessthedegreetowhichtheholdingcompanyboardcommitteescanrelyon
theirwork.
136. Therespectivecommittees'chairmenshouldgiveatleastanoralsummaryoftheircommittees'deliberations
attheboardmeetingfollowingthecommitteemeeting.Theminutesofcommitteemeetingproceedingsshould
beincludedintheboardpackfortheboard'sinformationassoonastheyhavebeenapproved.
137. Theboardshouldcriticallyapplyitscollectivemindtorecommendationsandreportsofallitscommittees
beforeapprovingsuchrecommendations.
138. Boardcommitteesshouldbefreetotakeindependent,outsideprofessionaladvicewithinthescopeoftheir
termsofreference,atthecostofthecompany,subjecttoaproperprocessbeingfollowed.
139. Everydirectorwillnormallybeentitledtoattendcommitteemeetingsforthepurposeofgaininginformation
relatingtothecompanyanditsbusiness.However,unlessthedirectorisamemberofthecommittee,the
directorwillnotbeentitledtoparticipateintheproceedingswithouttheconsentofthechairmanandwillnot
haveavote.Directorswhowishtoattendthemeetingsinthesecircumstancesshouldfollowtheprocess
establishedbytheboard.
Groupboards
Principle2.24:
Agovernanceframeworkshouldbeagreedbetweenthegroupandits
subsidiaryboards
140. Incaseswherethesubsidiarycompanyislisted,specialattentionmustbepaidtotherulesoftherelevant
stockexchangeandtherequirementthatallshareholdersmustbetreatedequally.Thisisofspecific
relevancetothesubsidiarycompanyinestablishingtheflowofinformationbetweenthesubsidiarycompany
andtheholdingcompanyinsofarastheSecuritiesServicesActisconcerned.Particularattentionshouldbe
giventotheneedtocomplywithrelevantrulesinrespectofinsideinformation.
141. Dependingonthejurisdictioninwhichthesubsidiarycompanyoperates,differentlegalandregulatory
requirementsmayapplyfromthosethatapplytotheholdingcompanyandtheholdingcompanyshould
recognisetheserequirements.
142. Theholdingcompanymustrecognisethefiduciarydutiesofthesubsidiarycompany'sdirectorsandparticularly
theirdutytoactinthebestinterestsofthesubsidiarycompanyatalltimeswhetherornotthedirectoris
nominatedtotheboardofthesubsidiarycompanybytheholdingcompany.Inthecaseofaconflictbetween
thedutiesofanomineedirectortoacompanyonwhoseboardhesitsandtheinterestsofhisprincipal,the
dutiesofthedirectortothecompanyofwhichheisadirectormustprevail.
143. Theholdingcompanyshouldconsultthechairmanoftheboardofthesubsidiarycompany,andthe
nominationscommittee,wherethereisone,beforenominatingadirectorordirectorstothesubsidiary
companyboard.Thisistoensurethatanycandidatestobenominatedmeettheminimumrequirementsofthe
boardofthesubsidiarycompanyastoskills,experience,backgroundandotherrelevantattributes.
144. Inmanysituations,thechairmanorCEOofasubsidiarycompanyisappointedasadirectorontheholding
companyboard.Thesesituationsareacceptable.Itis,however,importanttonotethatthefiduciarydutiesof
thedirectoraretothecompanytowhichhehasbeenappointed.
145. Adoptingandimplementingpoliciesandproceduresoftheholdingcompanyintheoperationsofthesubsidiary
companyshouldbeamatterfortheboardofthesubsidiarycompanytoconsiderandapprove,ifthe
subsidiarycompany'sboardconsidersitappropriate.Thesubsidiarycompanyshoulddisclosethisadoption
andimplementationinitsintegratedreport.
146. WheretheholdingcompanyofaSouthAfricansubsidiaryislistedonanotherexchange,theprinciples
containedinthisReportshouldbeappliedbythesubsidiary.
Remunerationofdirectorsandseniorexecutives
Principle2.25:
Companiesshouldremuneratedirectorsandexecutivesfairlyandresponsibly
147. Companiesshouldadoptremunerationpoliciesandpracticesforexecutivesthatcreatevalueforthecompany
overthelongterm.Thepoliciesandpracticesshouldbealignedwiththecompany'sstrategy,shouldbe
reviewedregularlyandshouldbelinkedtotheexecutive'scontributiontocompanyperformance.
148. Factorsaffectingcompanyperformance,butoutsidethecontrolofseniorexecutives,andtowhichtheyhave
madenocontributionshouldonlybeconsideredtoalimitedextent.Atlowerlevelsinthecompanytheeffect
ofoutsidefactorsshouldbeignored.
149. Theboardshouldpromoteaculturethatsupportsenterpriseandinnovationwithappropriateshorttermand
longtermperformancerelatedrewardsthatarefairandachievable.
150. Theremunerationcommitteeshouldassisttheboardinitsresponsibilityforsettingandadministering
remunerationpoliciesinthecompany'slongterminterests.Thecommitteeconsidersandrecommends
remunerationpoliciesforalllevelsinthecompany,butshouldbeespeciallyconcernedwiththeremuneration
ofseniorexecutives,includingexecutivedirectors,andshouldalsoadviseontheremunerationofnon
executivedirectors.
151. Inproposingtheremunerationpolicy,theremunerationcommitteeshouldensurethatthemixoffixedand
variablepay,incash,sharesandotherelements,meetsthecompany'sneedsandstrategicobjectives.
Incentivesshouldbebasedontargetsthatarestretching,verifiableandrelevant.Theremuneration
committeeshouldsatisfyitselfastotheaccuracyofrecordedperformancemeasuresthatgovernvestingof
incentives.Riskbasedmonitoringofbonuspoolsandlongtermincentivesshouldbeexercisedtoensurethat
remunerationpoliciesdonotencouragebehaviourcontrarytothecompany'sriskmanagementstrategy.
152. Theremunerationcommitteeshouldscrutiniseallbenefitsincludingpensions,benefitsinkindandother
financialarrangementstoensuretheyarejustified,correctlyvaluedandsuitablydisclosed.
153. Nonexecutivedirectorfees,includingcommitteefees,shouldrecognisetheresponsibilitiesbornebydirectors
throughouttheyearandnotonlyduringmeetings.Feesshouldcompriseabasefeewhichmayvaryaccording
tofactorsincludingthelevelofexpertiseofeachdirector,aswellasanattendancefeepermeeting.
154. AlthoughpermittedbytheAct,thechairmanandothernonexecutivedirectorsshouldnotreceiveshare
optionsorotherincentiveawardsgearedtosharepriceorcorporateperformance,assuchincentivesalign
theirintereststoocloselywithexecutivesandmaybeseentoimpairtheirobjectivity.
155. Nonexecutivedirectors'feesshouldbeapprovedbyshareholdersinadvance.TheActrequiresaspecial
resolutionatintervalsofnotmorethantwoyearsforthispurpose.
156. Theproceedingsoftheremunerationcommitteeshouldbegovernedbyatermsofreferenceapprovedbythe
board.
Basepayandbonuses
157. Insettingremunerationpolicies,theremunerationcommitteeshouldensurethatremunerationlevelsreflect
thecontributionofseniorexecutivesandexecutivedirectorsandshouldberigorousinselectingan
appropriatecomparativegroupwhencomparingremunerationlevels.Thereshouldbeabalancebetweenthe
fixedcomponentsandthebonuscomponentoftotalremunerationofexecutivessoastoallowforafully
flexiblebonusscheme.
158. Yearlybonusesshouldclearlyrelatetoperformanceagainstyearlyobjectivesconsistentwithlongtermvalue
forshareholders.Individualandcorporateperformancetargets,bothfinancialandsustainabilityrelated,
shouldbetailoredtotheneedsofthebusinessandreviewedregularlytoensuretheyremainappropriate.
159. Dependingonthenatureofthebusinessitmaybeappropriatetohaveoverridingconditionsfortheawardof
bonuses(oftentermed'gatekeepers'),suchasachievingsafetygoalsorminimumlevelsoffinancial
performance.Targetsforthreshold,expectedandstretchtargetsforperformanceshouldberobustlysetand
monitoredandthemainperformanceparametersshouldbedisclosed.
160. Incentivesmaybegivenforbothlongtermandshorttermgoals.However,theperformancedriversshould
notbeduplicated,andabalanceshouldbestruckwiththeneedtorewardsuccessoverthelongterm.
Multipleperformancemeasuresshouldbeusedtoavoidmanipulationofresultsorpoorbusinessdecisions.
Targetsmaybelinkedtobonuses.
Employmentcontracts,severanceandretirementbenefits
161. Contractsshouldnotcommitcompaniestopayonterminationarisingfromtheexecutive'sfailure.
162. Balloonpaymentsonterminationdonotgenerallymeettherequirementsofabalancedandfairremuneration
policy.
163. Forbonuses,thereshouldbeacontractuallinkbetweenvariablepayandperformance.Intheeventofearly
terminationthereshouldbenoautomaticentitlementtobonusesorsharebasedpayments.
164. Contractsshouldmakeitclearthatifadirectorisdismissedbecauseofadisciplinaryprocedure,ashorter
noticeperiodthanthatgiveninthecontractwouldapplywithoutentitlementforcompensationfortheshorter
noticeperiod.
165. Contractsshouldnotcompensateexecutivesforseverancebecauseofchangeofcontrolhoweverthisdoes
notprecludepaymentsforretainingkeyexecutivesduringaperiodofuncertainty.
Sharebasedandotherlongtermincentiveschemes
166. Theremunerationcommitteeshouldregularlyreviewincentiveschemestoensuretheircontinuedcontribution
toshareholdervalue.Thecommitteeshouldguardagainstunjustifiedwindfallsandinappropriategainsfrom
theoperationofsharebasedincentives.
167. Participationinshareincentiveschemesshouldberestrictedtoemployeesandexecutivedirectors,and
shouldhaveappropriatelimitsforindividualparticipation,whichshouldbedisclosed.
168. Allsharebasedincentives,includingoptionsandrestrictedorconditionalshares,whethersettledincashorin
shares,shouldaligntheinterestsofexecutiveswiththoseofshareholdersandshouldlinkrewardto
performanceoverthelongerterm.Vestingofrightsshouldthereforebebasedonperformanceconditions
measuredoveraperiodappropriatetothestrategicobjectivesofthecompany.
169. Highlyleveragedincentiveschemesshouldbeusedwithcareastheymayresultinexcessivecostorriskfor
thecompany.
170. Theregularandconsistentgrantingofshareincentiveawardsandoptions,generallyyearly,isdesirableasit
reducestheriskofunanticipatedoutcomesthatariseoutofsharepricevolatilityandcyclicalfactors,allows
theadoptionofasingleperformancemeasurementperiodandlessensthepossibilityandimpactof
'underwater'optionsorexcessivewindfallgains.
171. Thepriceatwhichsharesareissuedunderaschemeshouldnotbelessthanthemidmarketpriceorvolume
weightedaverageprice(orsimilarformula)immediatelyprecedingthegrantofthesharesunderthescheme.
Thereshouldbenorepricingorsurrenderandregrantofawardson'underwater'shareoptions.
172. Therulesofaschemeshouldprovidethatshareoroptionawardsshouldnotbegrantedwithinaclosed
period.Nobackdatingofawardsshouldbeallowed.
173. Optionsorotherconditionalshareawardsarenormallygrantedfortheyearinquestionandinexpectationof
serviceoveraperformancemeasurementperiodofnotlessthanthreeyears.Accordingly,sharesandoptions
shouldnotvestorbeexercisablewithinthreeyearsfromthedateofgrant.Inaddition,optionsshouldnotbe
exercisablemorethan10yearsfromthedateofgrant.Fornewschemesitisbestpracticetorestrictthe
exerciseperiodtolessthansevenyears.
174. Toalignshareholders'andexecutives'interests,vestingofshareincentiveawardsshouldbeconditionalon
achievingperformanceconditions.Suchperformancemeasuresandthereasonsforselectingthemshouldbe
fullydisclosed.Theyshouldbelinkedtofactorsenhancingshareholdervalue,andrequirestronglevelsof
overallcorporateperformance,measuredagainstanappropriatelydefinedpeergrouporotherrelevant
benchmarkwhereyearlyawardsaremade.Ifperformanceconditionsforsharebasedincentiveschemesare
notmet,theyshouldnotberetestedinsubsequentperiods.Whereperformancemeasuresarebasedona
comparativegroupofcompanies,thereshouldbedisclosureofthenamesofthecompanieschosen.
175. Vestingofawardsshouldbemadeonaslidingscaletoavoidan'allornothing'vestingprofileandshould
startatalevelthatisnotsignificantcomparedwithbasepay.Awardswithhighpotentialvalueshouldbe
linkedtocommensuratelyhighlevelsofperformance.Fullvestingshouldrequiresignificantvaluecreation.
176. Whencompaniesfacetheriskoflosingkeyemployees,remunerationpoliciestoretainthemmaybeadopted.
Incentiveschemestoencourageretentionshouldbeestablishedseparately,orshouldbeclearly
distinguished,fromthoserelatingtorewardperformanceandshouldbedisclosedintheannualremuneration
reportvotedonbyshareholders.
177. Thereshouldbenoautomaticwaivingofperformanceconditionsinanyofthesesituations:
177.1 achangeofcontrol
177.2 a'rollover'ofoptionsandawardsforacapitalreconstructionand
177.3 earlyterminationoftheparticipant'semployment.Dependingonthecircumstances,itmaybe
appropriatetoproratethebenefitbothontimeandperformance,ortocreatenewinstrumentsto
preservethevalueoftheoutstandingawards.Inthecaseofchangeofcontrol,itmaybeappropriate
toallowprorataearlyvesting,totheextentthatperformanceconditionshavebeensatisfied,andthe
timeforvestingperiodshasbeenserved.
178. Whereindividualsleavevoluntarilybeforetheendoftheserviceperiod,oraredismissedforgoodcause,any
unvestedsharebasedawardsshouldlapse.
179. Inothercasesoftheendofemployment,wheretheremunerationcommitteedecidesthatearlyvestingis
appropriate,theextentofvestingshoulddependonperformancecriteriaovertheperiodtodateaswellas
thetimeservedofvestingperiods.
Principle2.26:
Companiesshoulddisclosetheremunerationofeachindividualdirectorand
prescribedofficer
180. Companiesshouldprovidefulldisclosureofeachindividualexecutiveandnonexecutivedirector's
remuneration,givingdetailsasrequiredintheActofbasepay,bonuses,sharebasedpayments,grantingof
optionsorrights,restraintpaymentsandallotherbenefits(includingpresentvaluesofexistingfuture
awards).Similarinformationshouldbeprovidedforpersonsfallingwithinthedefinitionofprescribedofficers
ofthecompanyasdefinedintheAct.
181. Initsannualremunerationreport,tobeincludedintheintegratedreport,thecompanyshouldexplainthe
remunerationpoliciesfollowedthroughoutthecompanywithaspecialfocusonexecutivemanagement,and
thestrategicobjectivesthatitseekstoachieve,andshouldprovidecleardisclosureoftheimplementationof
thosepolicies.
182. Theremunerationreportshouldexplainthepolicyonbasepay,includingtheuseofappropriatebenchmarks.
Apolicytopaysalariesonaverageatabovemedianrequiresspecialjustification.Itshouldalsoexplainand
justifyanymaterialpaymentsthatmaybeviewedasbeingexgratiainnature.
Contractsandseverance
183. Policiesregardingexecutiveemploymentcontractsshouldbesetoutintheannualremunerationreport.
184. Thesepoliciesnormallyincludeatleastthefollowing:
184.1 theperiodofthecontractandtheperiodofnoticeoftermination(aftertheinitialperiod,contracts
shouldnormallyberenewableyearly)and
184.2 thenatureandperiodofanyrestraint.
185. Theannualremunerationreportshoulddisclosethemaximumandtheexpectedpotentialdilutionthatmay
resultfromtheincentiveawardsgrantedinthecurrentyear.
Principle2.27:
Shareholdersshouldapprovethecompany'sremunerationpolicy
186. Everyyear,thecompany'sremunerationpolicyshouldbetabledtoshareholdersforanonbindingadvisory
voteattheannualgeneralmeeting.Thisvoteenablesshareholderstoexpresstheirviewsonthe
remunerationpoliciesadoptedandontheirimplementation.
187. Theboardshouldberesponsiblefordeterminingtheremunerationofexecutivedirectorsinaccordancewith
theremunerationpolicyputtoshareholders'vote.
Annex2.1:Leadindependentnonexecutivedirector(LID)
Acompanymayhavesoundreasonsforappointingachairmanwhodoesnotmeetallthecriteriaforindependence
orbeingnonexecutiveandshouldbepreparedtojustifyitsdecision.AppointinganLIDcanassisttheboardto
dealwithanyactualorperceivedconflictsofinterestthatariseintheseorfuturecircumstances.
ThemainfunctionofaLIDistoprovideleadershipandadvicetotheboard,withoutdetractingfromtheauthorityof
thechairman,whenthechairmanhasaconflictofinterest.Suchassistancemaybeprovided:
. atanyboardmeeting(includingmeetingsofcommitteesoftheboard)oratanyothermeetingofthe
company
. atanymeetingthechairmanmightinitiatewiththeLID
. inanyconsultationsthatanyotherdirectororexecutiveofthecompanymightinitiatewiththeLID
. inanyconsultationthattheLIDmightinitiate.
TheLIDshouldatalltimesbeawarethattheroleisthatofsupporttothechairmanandboardandnotinanyway
tounderminetheauthorityofthechairman.
TheLIDshouldalsochairtheboardmeetingswhichdealwiththesuccessionofthechairmanandthechairman's
performanceappraisal.
ThetermoftheLID'sappointmentwilldependonthecircumstancesofthecompanyandcouldeitherbeanongoing
a ppointmentoroneoflimiteddurationforsolongastheactualorperceivedlackofindependenceorconflictof
interestofthechairmanendures.
TheroleoftheLIDanddeputychairman,ifoneisappointed,maybecombined.
Annex2.2:Executivedirector
Involvementinthedaytodaymanagementofthecompanyorbeinginthefulltimesalariedemploymentofthe
company(oritssubsidiary)orbothdefinesthedirectorasexecutive.
Executivedirectorsshouldcarefullymanagetheconflictbetweentheirmanagementresponsibilitiesandtheir
fiduciarydutiesasdirectorsinthebestinterestsofthecompany.
Annex2.3:Nonexecutivedirector
Thenonexecutivedirectorplaysanimportantroleinprovidingobjectivejudgementindependentofmanagement
onissuesfacingthecompany.
Notbeinginvolvedinthemanagementofthecompanydefinesthedirectorasnonexecutive.
Nonexecutivedirectorsareindependentofmanagementonallissuesincludingstrategy,performance,
sustainability,resources,transformation,diversity,employmentequity,standardsofconductandevaluationof
performance.
Thenonexecutivedirectorsshouldmeetfromtimetotimewithouttheexecutivedirectorstoconsiderthe
performanceandactionsofexecutivemanagement.
Anindividualinthefulltimeemploymentoftheholdingcompanyisalsoconsideredanonexecutivedirectorofa
subsidiarycompanyunlesstheindividual,byconductorexecutiveauthority,isinvolvedinthedaytoday
managementofthesubsidiary.
Chapter3
Auditcommittees
Principle3.1:
Theboardshouldensurethatthecompanyhasaneffectiveandindependent
auditcommittee
1. Anindependentauditcommitteefulfilsavitalroleincorporategovernance.Theauditcommitteeisvitalto,
amongotherthings,ensuretheintegrityofintegratedreportingandinternalfinancialcontrolsandidentify
andmanagefinancialrisks.
2. Therecommendationsinthischapteraresubjecttospecificlegislationandregulationsapplicabletoa
company.
3. Theshareholdersofapubliccompanyandastateownedcompanymustelectthemembersofanaudit
committeeateachAGM.Thisdoesnotapplywhereacompanyisasubsidiarycompanyofanothercompany
thathasanauditcommitteeandtheauditcommitteeoftheholdingorparentcompanywillperformthe
functionsrequiredbySection94oftheActonbehalfofthatsubsidiary.(Section94isincludedintheAnnexto
thischapter.)Thenominationcommittee(orotherboardcommitteetaskedwiththis)shouldpresent
shareholderswithsuitablecandidatesforelectionorreelectionasauditcommitteemembers.
4. Privatecompanies,notforprofitcompaniesandpersonalliabilitycompaniesshouldvoluntarilyappointan
auditcommittee.Thememorandumofincorporationofthesecompaniesshouldbecarefullyconsideredand
draftedsettingoutthecompositionanddutiesoftheauditcommittee.
5. Theboardandmanagementofanycompany,regardlessofsize,shouldbefullycommittedtothegoalof
supportingandmaintaininganeffectiveauditcommittee.
6. Theboardshouldapproveawrittentermsofreferencefortheauditcommitteewhichshouldinformits
agendaandworkplantoensurethatalltheauditcommittee'sresponsibilitiesareaddressedineachfinancial
year.
7. Theauditcommitteechairmanshould,inconsultationwiththecompanysecretary,decidethefrequencyand
timingofitsmeetings.Theauditcommitteeshouldmeetasfrequentlyasisnecessarytoperformitsfunctions,
butshouldmeetatleasttwiceayear.Reasonabletimeshouldbeallocatedforallauditcommitteemeetings.
8. Theauditcommitteeshouldmeetatleastonceayearwiththeexternalandinternalauditorswithout
managementbeingpresent.Thesemaybeseparatemeetingsormeetingsheldbeforeorafterascheduled
auditcommitteemeeting.
Membershipandresourcesoftheauditcommittee
Principle3.2:
Auditcommitteemembersshouldbesuitablyskilledandexperienced
independentnonexecutivedirectors
9. Allmembersoftheauditcommitteeofapubliccompanyandstateownedcompanymustbeindependentnon
executivedirectors(refertoChapter2forthedefinitionofanindependentnonexecutivedirector).Wherean
auditcommitteeisappointedatsubsidiarylevelandtheholdingcompanyhasanauditcommitteethatwill
performthefunctionsrequiredintermsofSection94oftheActonbehalfofthatsubsidiary,executive
directorswithinthegroupmaybeappointedasauditcommitteemembersofthesubsidiary.However,the
directorsmustbenonexecutiveinrelationtothespecificsubsidiary.
10. Theauditcommitteeshouldconsistofatleastthreemembers.
11. Thechairmanoftheboardhasastrategicandcomprehensiveroletoplayinguidingtheboardandcannot
simultaneouslyleadandparticipateobjectivelyintheauditcommittee.Thechairmanoftheboardshould
thereforenotbeeligibleforappointmentasanauditcommitteememberbutmayattendauditcommittee
meetingsbyinvitation.
12. Thereshouldbeabasiclevelofqualificationandexperienceforauditcommitteemembership,eventhough
themembersmayhavebeenappointedbytheshareholders.Thenominationcommittee(orotherboard
committeetaskedwiththis)andtheboardshouldevaluatewhethercollectively(butnotnecessarily
individually)theauditcommitteehasanunderstandingof:
12.1 integratedreporting,whichincludesfinancialreporting
12.2 internalfinancialcontrols
12.3 externalauditprocess
12.4 internalauditprocess
12.5 corporatelaw
12.6 riskmanagement
12.7 sustainabilityissues
12.8 informationtechnologygovernanceasitrelatestointegratedreportingand
12.9 thegovernanceprocesseswithinthecompany.
13. Thecollectiveskillsofthemembersoftheauditcommitteeshouldbeappropriatetothecompany'ssizeand
circumstances,aswellasitsindustry.
14. Becauseoftheauditcommittee'sresponsibilitytooverseeintegratedreporting,thereisaclearneedforthis
committee,collectively,tohaveanunderstandingofInternationalFinancialReportingStandards,SouthAfrican
StatementsofGenerallyAcceptedAccountingPractice,theguidelinesoftheGlobalReportingInitiativeand
anyotherfinancialorsustainabilityreportingstandards,regulationsorguidelinesapplicabletothecompany.
15. Allauditcommitteemembersshouldmeetpredeterminedskills,competencyandexperiencerequirementsto
collectivelybeproficientinaskingprobingquestionsonthetopicslistedinparagraph12.Theauditcommittee
is,however,allowedtoconsultwithspecialistsorconsultantsengagedbytheauditcommitteetoassistit
withtheperformanceofitsfunctions,subjecttoaboardapprovedprocess.Suchspecialistsorconsultants
shouldnotbeconsideredtobemembersofthecommitteeandshouldnotbeentitledtovoteonanymatters.
16. Auditcommitteememberscollectivelyshouldkeepuptodatewithkeydevelopmentsaffectingtheirrequired
skillsset.
17. Theboardmustappointapersontofillavacancyontheauditcommitteeshouldsuchvacancyarise.Suchan
appointmentmustberatifiedbytheshareholdersatthesubsequentAGM.
Principle3.3:
Theauditcommitteeshouldbechairedbyanindependentnonexecutive
director
18. Theboardshouldappointthechairmanoftheauditcommittee.
19. Thechairmanoftheauditcommitteeshouldunderstandthefunctionoftheauditcommitteeandbeableto
leadconstructivedialoguewiththemanagement,theinternalandexternalauditors,otherexternalassurance
providersandtheboard.Thechairmanshouldbeaffordedsufficienttimetoparticipateinandagreeuponthe
auditcommitteeagendabeforemeetingsareconvened.
20. ThechairmanoftheauditcommitteeshouldbepresentattheAGMtoanswerquestions,throughthe
chairmanoftheboard,onthereportontheauditcommittee'sactivitiesandmatterswithinthescopeofthe
auditcommittee'sresponsibilities.
Responsibilitiesoftheauditcommittee
21. TheActhastransformedtheauditcommitteeoflistedcompaniesandstateownedcompaniesfrombeinga
committeeoftheboardtoaseparatestatutorycommitteethatisappointedbytheshareholders.However,
asindicatedbySection94(10)oftheAct,theauditcommitteestillformspartofaunitaryboardeventhoughit
hasspecificstatutoryresponsibilitiesoverandaboveresponsibilitiesassignedtoitbytheboard.
22. Legalopinionindicatesthattheauditcommitteetakesprimaryresponsibilityforandhastheultimatedecision
makingabilityregardingitsstatutoryduties.Ifdifferencesofopinionshouldarisebetweentheboardandthe
auditcommitteewheretheauditcommittee'sstatutoryfunctionsareconcerned,theauditcommittee's
decisionwillprevail.
23. Theauditcommitteeservesasacommitteeoftheboardfordutiesassignedtoitbytheboardoverand
aboveitsstatutoryduties.Theboardretainstheultimatedecisionmakingabilityonsuchmatters.
Principle3.4:
Theauditcommitteeshouldoverseeintegratedreporting
Integratedreports
24. Everyyearallcompaniesshouldprepareanintegratedreportthatconveysadequateinformationaboutthe
social,economicandenvironmentalimpactofthecompanyonthecommunityinwhichitoperates.(Referto
Chapter9formoreinformationonintegratedreporting.)
25. Initsconsiderationoftheintegratedreport,theauditcommitteeshouldconsideranyfactorsthatmay
predisposethemanagementtopresentanincompleteormisleadingpictureofthecompany'sposition,
performanceorsustainability.Suchfactorsmayinclude,forexample,aperceivedneedtocounteradverse
marketsentimentortoreporttheachievementofperformancetargetsonwhichbonuspaymentsdepend.
26. Theauditcommitteeshouldberesponsibleforevaluatingthesignificantjudgmentsandreportingdecisions
affectingtheintegratedreportmadebymanagement,includingchangesinaccountingpolicies,decisions
requiringamajorelementofjudgementandtheclarityandcompletenessoftheproposedfinancialand
sustainabilitydisclosures.Itshouldrequireexplanationsfrommanagementontheaccountingofsignificantor
unusualtransactionsandshouldconsidertheviewsoftheexternalauditor'sintheseinstances.Theaudit
committeeshouldunderstandhowtheboardandtheexternalauditor(andanyotherrelevantexternal
assuranceprovider)evaluatematerialityforintegratedreportingpurposes.
27. Theauditcommitteeshouldbeinformedofanymonitoringorenforcementactionsagainstthecompany,for
examplebyaregulatoryagency,onatimelybasis,toallowtheauditcommitteetobeinvolvedinthe
company'sresponsetosuchmonitoringoractions.
28. Theauditcommitteeshouldconsideranyevidencethatcomestoitsattentionthatbringsintoquestionany
previouslypublishedfinancialorsustainabilityinformation,includingcomplaintsaboutthisinformation.Where
necessary,theauditcommitteeshouldtakestepstorecommendthatthecompanypubliclycorrectthe
previouslypublishedfinancialorsustainabilityinformationifitismateriallyincorrect.
29. Theauditcommitteeshouldcarefullyreviewforwardlookingstatementsoffinancialorsustainability
informationtoensurethattheinformationprovidesaproperappreciationofthekeydriversthatwillenable
thecompanytoachievetheseforwardlookinggoals.
Financial
30. Theauditcommitteehasaspecificresponsibilitytocommentonthefinancialstatements,theaccounting
practicesandtheinternalfinancialcontrolofthecompanyandassuchtheauditcommittee,shouldkeepthe
boardapprisedonthesematters.
31. Theauditcommittee'sreviewoffinancialreportsshouldencompasstheannualfinancialstatements,interim
reports,preliminaryorprovisionalresultannouncements,summarisedintegratedinformation,anyother
intendedreleaseofpricesensitivefinancialinformationandprospectuses,tradingstatements,circularsand
similardocuments.Scrutinybytheauditcommitteeshouldnotbeconfinedtotheprimaryfinancialstatements
andshouldextendtoallrelevantnarrativeinformationwhichshouldpresentabalancedviewofthe
company'sperformance.
32. Theauditcommitteeshouldbeinformedwhenthereisadisagreementonauditingoraccountingmatters
betweenthemanagementandtheexternalauditors.Whereanaccountingopinionhasbeenrequestedfrom
apersonotherthantheexternalauditorofthecompany,thereasoningfortheaccountingtreatmentadopted
shouldbeobtainedandshouldbeapprovedbytheauditcommitteebeforethecommittee'srecommendation
ismadetotheboard.Theauditcommitteeshouldalsobesatisfiedwiththecredentialsoftheperson
providingsuchanopinion.
33. Fortheauditcommitteetoassisttheboardtomakeastatementonthegoingconcernstatusofthecompany,
itshouldreviewadocumentedassessmentpreparedbymanagementofthegoingconcernstatusofthe
company.Toenabletheauditcommitteetoconductathoroughdiscussion,managementshoulddocumentthe
keyassumptionsinreachingtheirconclusions.
Sustainability
34. Theboardisresponsiblefortheintegrityofintegratedreporting.Theauditcommitteeshouldbetaskedby
theboardtoassistbyoverseeingtheintegrityoftheintegratedreport.Aspartofthisassignedresponsibility,
theauditcommitteeshouldrecommendtheannualfinancialstatementsforapprovalbytheboard.The
overseeingofsustainabilityissuesintheintegratedreportshouldbedelegatedtotheauditcommitteebythe
board.
35. Theauditcommitteeshouldassisttheboardinapprovingthedisclosureofsustainabilityissuesinthe
integratedreportbyensuringthattheinformationisreliableandthatnoconflictsordifferencesarisewhen
comparedwiththefinancialresults.
36. Theauditcommitteeshouldrecommendtotheboardtoengageanexternalassuranceprovidertoprovide
assuranceovermaterialelements(suchelementsshouldbedeterminedbytherelevantcommittee
responsibleforoverseeingthesustainabilityreporting)ofthesustainabilitypartoftheintegratedreport.The
auditcommitteeshouldevaluatetheindependenceandcredentialsoftheexternalassuranceprovider.
Interimresults
37. Theboardshouldperiodicallyreviewtheneedsofusersoffinancialinformationofthecompanyand,basedon
thatreview,determinewhetherinteriminformationshouldbeprovidedeverysixmonthsormorefrequently,
forexamplequarterly.
38. Theauditcommitteeshouldconsiderwhethertheexternalauditorshouldperformassuranceprocedureson
interimresultsandshouldmakearecommendationtotheboardinthisregard.Considerationscouldinclude
modifyingtheauditreportonthelastsetofannualfinancialstatementsoridentifyingissuesregardingthe
previouslyissuedinterimresults.
39. Wheretheexternalauditorisengagedtoperformareviewoftheinterimresults,theauditcommitteeshould
reviewtheresultsofsuchengagement.
40. Wheretheexternalauditorisappointedtoperformapubliclyreportedreviewoftheinterimresults,the
reportoftheexternalauditorshouldbemadeavailabletousersoftheinterimresultsandshouldbe
summarisedintheinterimresults.
Summarisedinformation
41. Duetothevolumeandcomplexityofinformationconveyedintheintegratedreport,usersbenefitfroma
summaryoftheintegratedreport.Thecompanyshouldthereforeprepareasummarisedintegratedreportin
additiontothecompleteintegratedreport.
42. Theobjectiveofthesummarisedintegratedreportistogiveaconcisebutbalancedviewofthecompany's
integratedinformation.Inpreparingthesummarisedintegratedreport,companiesshouldgivedue
considerationto:
42.1 providingkeyfinancialinformation.TheInternationalFinancialReportingStandardonInterimReporting
(IAS34)providesusefulguidanceastowhichfinancialinformationandnotesshouldbeincluded
42.2 providingsufficientcommentarybythecompanytoensureanunbiased,succinctoverviewofthe
company'sfinancialinformationand
42.3 providingthecompany'skeyperformancemeasuresregardingsustainabilityinformation.
43. Summarisedintegratedinformationshouldbederivedfromtheunderlyingintegratedreportandshould
includeastatementtothiseffect.
44. Theauditcommitteeshouldengagetheexternalauditorstoprovideanassurancereportonsummarised
financialinformation,confirmingthatthesummarisedfinancialinformationisappropriatelyderivedfromthe
annualfinancialstatements.
45. Boththecompleteandsummarisedintegratedreportsshouldbemadeavailabletostakeholderselectronically
andshouldbeplacedonthecompany'swebsite.Theboardshouldhoweverconsiderthenatureofits
stakeholderbaseindeterminingtheappropriatemethodofdisseminatingthesummarisedintegratedreport.
Wherealargeproportionofstakeholdersdonothaveelectronicaccesstothecompany'sinformation,hard
copiesofthesummarisedintegratedreportshouldbemadeavailabletoallthestakeholdersonwritten
requesttothecompany'ssecretaryordirectedtothecompany'sregisteredoffice.
Principle3.5:
Theauditcommitteeshouldensurethatacombinedassurancemodelis
appliedtoprovideacoordinatedapproachtoallassuranceactivities

46. Acombinedassurancemodelaimstooptimisetheassurancecoverageobtainedfrommanagement,internal
assuranceprovidersandexternalassuranceprovidersontheriskareasaffectingthecompany.
47. Theauditcommitteeshouldberesponsibleformonitoringtheappropriatenessofthecompany'scombined
assurancemodelandensuringthatsignificantrisksfacingthecompanyareadequatelyaddressed.
48. Thecombinedassuranceprovidedbyinternalandexternalassuranceprovidersandmanagementshouldbe
sufficienttosatisfytheauditcommitteethatsignificantriskareaswithinthecompanyhavebeenadequately
addressedandsuitablecontrolsexisttomitigateandreducetheserisks.
49. Externalassuranceprovidersmayincludetheexternalauditor,regulators(inspectorate)oranyotherexternal
assuranceproviderssuchassustainabilityassuranceproviders,actuariesandgeologists.Therelationship
betweentheexternalassuranceprovidersandthecompanyshouldbemonitoredbytheauditcommittee.
50. Byprovidinganeffectivecounterbalancetotheexecutivemanagement,auditcommitteesupholdthe
independenceofinternalandexternalassuranceproviders,thushelpingtoensurethatthesefunctionsare
carriedouteffectively.
Internalassuranceproviders
Principle3.6:
Theauditcommitteeshouldsatisfyitselfoftheexpertise,resourcesand
experienceofthecompany'sfinancefunction
51. Everyyear,theauditcommitteeshouldconsiderandsatisfyitselfoftheappropriatenessoftheexpertiseand
adequacyofresourcesofthefinancefunctionandexperienceoftheseniormembersofmanagement
responsibleforthefinancialfunction.Theresultsofthereviewshouldbedisclosedintheintegratedreport.
52. Listedcompaniesmusthaveafinancedirectorandtheauditcommitteemustevaluatethesuitabilityofthe
expertiseandexperienceofthefinancedirectorandrecommendtotheboardifanychangesarenecessary.
Principle3.7:
Theauditcommitteeshouldberesponsibleforoverseeingofinternalaudit
53. Theauditcommitteeshouldplayakeyroleinensuringthatthecompany'sinternalauditfunctionis
independentandhasthenecessaryresources,budget,standingandauthoritywithinthecompanytoenable
ittodischargeitsfunctions.
54. Theauditcommitteeshouldberesponsiblefortheappointment,performanceassessmentanddismissalof
thechiefauditexecutive(CAE).
55. Theauditcommitteeshouldapprovetheinternalauditplan,aswellasoverseestaffingandobjectivesofthe
internalauditfunction.
56. Theauditcommitteeshouldencouragecooperationbetweenexternalandinternalaudit.Theinternaland
externalauditfunctions,however,havedifferentscopesandpurposes.Theareaofassuranceoverlap
betweeninternalandexternalauditshouldbesuchthatitoptimisesthecombinedassuranceobtainedfrom
theseassuranceproviders.
57. Theauditcommitteeshouldensurethattheinternalauditfunctionissubjectedtoanindependentquality
review,eitherinlinewithIIAstandardsorwhentheauditcommitteedeterminesitappropriate,asameasure
toensurethefunctionremainseffective.
Principle3.8:
Theauditcommitteeshouldbeanintegralcomponentoftheriskmanagement
process
58. Theresponsibilityforacompany'sriskmanagementfunction,specificallyimplementingriskmanagement
processes,isthatofmanagement.
59. Theboardshouldassignoversightofthecompany'sriskmanagementfunctiontoanappropriateboard
committee(forexampleariskcommitteeortheauditcommittee).Smallercompaniesneednotestablishformal
committeestoperformthesefunctionsbutshouldensurethatthesefunctionsareappropriatelyaddressedby
theboard.
60. Theauditcommittee'schartershouldbeclearonthescopeoftheauditcommittee'sresponsibilitiesforrisk
management.
61. Wheretheboardassignstheoversightoftheriskmanagementfunctiontotheauditcommittee,theaudit
committee'sresponsibilityforoverseeingtheriskmanagementfunctionshouldbeidenticaltothatofarisk
committeeinacompanywhereariskcommitteeisseparatelyestablished.
62. Theboardshouldensurethatthereiseffectivecommunicationandcoordinationofitsoversightactivitiesto
ensurethattheauditcommitteeisinformedofallsignificantactualorpotentialfinancialandnonfinancialrisks
(suchasoperational,strategic,regulatoryrisks)thatmayhaveimplicationsontheintegratedreport.
63. Regardlessoftheboard'smethodandframeworkofassignmentofoverseeingtheriskmanagementfunction,
theauditcommitteeshouldhaveanunderstandingof,andhaveanadequatelevelofcomfortregarding,the
company'sprocessforidentifying,managingandreportingonrisk.
64. Theauditcommitteeshouldsatisfyitselfthatthefollowingareashavebeenappropriatelyaddressedbyitself,
failingspecificassignmentbytheboard:
64.1 financialreportingrisks
64.2 internalfinancialcontrols
64.3 fraudriskasitrelatestofinancialreportingand
64.4 ITrisksasitrelatestofinancialreporting.
Financialreportingrisks
65. Theauditcommitteeshouldberesponsibleforoverseeingfinancialriskmanagementandcontrolsand
ensuringthatthecontrols:
65.1 provideguidancethatembedsinternalfinancialcontrolinthebusinessprocessesandevolvestoremain
relevantovertime
65.2 followariskbasedapproachand
65.3 weighupnotonlythelikelihoodoffinancialrisksmaterialisingbutalsothecostsofoperatingcertain
controlsrelativetothebenefitgainedinmanagingtheserelatedfinancialrisksi.e.thecostbenefit
analysis.
Internalfinancialcontrols
66. Theinternalauditfunctionshouldatleastonceayearconductaformaldocumentedreviewofthedesign,
implementationandeffectivenessofthecompany'ssystemofinternalfinancialcontrolsbyconductingsuitable
testingandreportbacktotheauditcommittee.Thisenablestheauditcommitteetoperformits
responsibilitiestomonitortheintegrityofthecompany'sfinancialinformationandcommentonthe
effectivenessofinternalfinancialcontrols.
67. Theauditcommitteeshouldevaluatethenatureandextentoftheformaldocumentedreviewofinternal
financialcontrolstobeperformedbyinternalauditonbehalfoftheboardeveryyear.Internalaudit'sreview
shouldcoverallsignificantareasoffinancialreportingtoenabletheauditcommitteetoperformits
responsibilitiestooverseetheintegrityoftheintegratedreport,specificallyfinancialinformationpublishedby
thecompany.Theauditcommitteeshouldensurethatinternalaudithasadequatecapacitytoperformsuch
formaldocumentedreview.Managementmayassistinternalaudittoperformthereview.
68. Itisnotrequiredthattheinternalauditreportbemadeavailablepublicly.Externalauditorattestationon
internalfinancialcontrolsisnotarequirement.
69. Theauditcommitteemustconcludeandreportyearlytothestakeholdersandtheboardontheeffectiveness
ofthecompany'sinternalfinancialcontrols.Beforetheauditcommitteeconcludesandreportstotheboardon
theeffectivenessofinternalfinancialcontrols,itshouldholisticallyconsiderallinformationbroughttoits
attentionfromallsources,includingcommunicationswith,andreportsfrom,internalaudit,otherassurance
providersandthemanagement,aswellastheexternalauditors.
70. Weaknessesinfinancialcontrol,whetherfromdesign,implementationorexecution,thatareconsidered
material(individuallyorincombinationwithotherweaknesses)andthatresultedinactualmaterialfinancial
loss,fraudormaterialerrors,shouldbereportedtotheboardandthestakeholders.Itisnotintendedthat
thisdisclosurebemadeintheformofanexhaustivelist,butratheranacknowledgementofthenatureand
extentofmaterialweaknessesandthecorrectiveaction,ifany,thathasbeentakentodateofthereport.
Fraudrisks
71. Theauditcommitteeshouldreviewarrangementsmadebythecompanytoenableemployeesandoutside
whistleblowers(includingcustomersandsuppliers)toreportinconfidencetheirconcernsaboutpossible
improprietiesinmattersoffinancialandsustainabilityreporting,ornoncompliancewithlawsandregulations
thatmayhaveadirectorindirecteffectonintegratedreporting.
72. Theauditcommitteeshouldbeawareofandapproveanyamendmentstothecompany'scodeofconductasit
appliestointegratedreportingandshouldsatisfyitselfthatthemanagementmonitorscompliancewiththe
codeofconduct.
73. Theauditcommitteeshouldconsidermattersthatmayresultinmaterialmisstatementsintheintegrated
reportduetofraud.
74. Theauditcommitteemustreceiveanddealappropriatelywithanyconcernsorcomplaints(whetherfrom
withinoroutsidethecompany)oronitsowninitiative,relatingeithertotheaccountingpracticesandinternal
auditofthecompanyortothecontentorauditingofitsfinancialstatements,theinternalfinancialcontrolsof
thecompanyortoanyrelatedmatter.Informationtechnology(IT)risksasitrelatestofinancialreporting.
RefertoChapter5Principle5.7formoredetailontheauditcommittee'sroleinIT.
Externalassuranceproviders
Principle3.9:
Theauditcommitteeisresponsibleforrecommendingtheappointmentofthe
externalauditorandoverseeingtheexternalauditprocess
75. Theauditcommitteemustrecommendtoshareholderstheappointment,reappointmentandremovalofthe
externalauditor.Wheretheauditcommitteerecommendstoshareholdersthattheincumbentauditingfirm
anddesignatedauditor(astatutoryresponsibilityforpubliccompaniesandstateownedcompaniesinterms
oftheAct)shouldbeappointedastheexternalauditor,itsrecommendationshouldbebasedonan
assessmentoftheauditingfirmandtheindividuals'qualifications,expertiseandresources,effectivenessand
independence.Theauditcommitteeshouldensurethattheexternalauditorthatisrecommendedfor
appointmentisapprovedbytheJSE(applicableonlytolistedcompanies).
76. Theauditcommitteemustapprovetheexternalauditor'stermsofengagementandremuneration.Indoing
so,itshouldengagewiththeauditortosatisfyitselfthatthelevelofremunerationisappropriatetoenable
aneffectiveaudittobeconducted.
77. Theauditcommitteemustreview,monitorandreportontheexternalauditor'sindependenceandobjectivity,
andshouldassesstheeffectivenessoftheauditprocesseveryyear.Atleastfiveyearly,rotationatan
individualengagementpartnerordesignatedpartnerlevelenhancesactualandperceivedindependence.
78. Theauditcommitteemustdefineapolicyaddressingthenature,extentandtermsunderwhichtheexternal
auditormayperformnonauditservices.
79. Theannualfinancialstatementsshouldincludeadescriptionofnonauditservicesrenderedbytheexternal
auditor,includingthenatureandquantitythereof.Theauditcommitteecanpreauthoriseservicesproposed
forafuturedatewithinthepolicyframeworksetbytheauditcommittee.
80. Theauditcommitteeshouldreviewconcernsidentifiedasaresultoftheinternalorexternalauditandshould
ensurethattheseareappropriatelydealtwithbymanagement.
81. Theboardshoulddevelopaprocesstoensurethattheauditcommitteereceivesnoticeofreportable
irregularities(asdefinedintheAuditingProfessionAct,2005)thathavebeenreportedbytheexternalauditor
totheIndependentRegulatoryBoardforAuditors.Wheretheauditor'sreportismodifiedasaresultofa
reportableirregularity,theauditcommitteeshouldreviewthecompletenessandaccuracyofthedisclosureof
suchmattersinthefinancialstatements.
82. Attheendofeachannualaudit,theauditcommitteeshouldreviewthequalityandeffectivenessoftheaudit
process.Itshouldassesswhethertheexternalauditorshaveperformedtheauditasplannedandestablish
thereasonsforanychanges,obtainingfeedbackasnecessaryabouttheconductoftheauditfromkey
membersofthecompany'smanagement,includingthefinancedirectorandthechiefauditexecutive.
Reporting
Principle3.10:
Theauditcommitteeshouldreporttotheboardandshareholdersonhowit
hasdischargeditsduties
83. Theauditcommitteeshouldreportinternallytotheboardonhowithasdischargeditsduties,statutoryas
wellasthoseassignedtoitbytheboard,duringthefinancialyear.
84. TheauditcommitteemustalsoreporttotheshareholdersattheAGMonhowithasfulfilleditsdutiesinterms
oftheActduringthefinancialyear.Theauditcommittee'sreportattheAGMmust:
84.1 describehowtheauditcommitteecarriedoutitsfunctionsintermsoftheAct
84.2 statewhethertheauditcommitteeissatisfiedthattheexternalauditorwasindependentofthe
companyand
84.3 containcommentinanywaythecommitteeconsidersappropriateonthefinancialstatements,the
accountingpracticesandtheinternalfinancialcontrolofthecompany.
85. Asaminimum,theauditcommitteeshouldprovidethefollowinginformationintheannualfinancial
statements:
85.1 asummaryoftheroleoftheauditcommittee
85.2 astatementonwhetherornottheauditcommitteehasadoptedaformaltermsofreferencethathave
beenapprovedbytheboardandifso,whetherthecommitteesatisfieditsresponsibilitiesfortheyear
incompliancewithitstermsofreference
85.3 thenamesandqualificationsofallmembersoftheauditcommitteeduringtheperiodunderreview,and
theperiodforwhichtheyservedonthecommittee
85.4 thenumberofauditcommitteemeetingsheldduringtheperiodunderreviewandmembers'attendance
atthesemeetings
85.5 astatementonwhetherornottheauditcommitteeconsideredandrecommendedtheinternalaudit
charterforapprovalbytheboard
85.6 adescriptionoftheworkingrelationshipwiththechiefauditexecutive
85.7 informationaboutanyotherresponsibilitiesassignedtotheauditcommitteebytheboard
85.8 astatementonwhethertheauditcommitteecompliedwithitslegal,regulatoryorotherresponsibilities
and
85.9 astatementonwhetherornottheauditcommitteerecommendedtheintegratedreporttotheboard
forapproval.
Publicsectorperspective
86. Auditcommitteemembersofallgovernmentinstitutions,includingpublicentitiesandstateownedcompanies,
mustcomplywiththeminimumqualificationcriteriaestablishedbytheexecutiveauthority.
87. Therelevantexecutiveauthorityinthepublicsectormustagreewithanyprematureterminationofthe
servicesofapersonservingonanauditcommittee.
88. Forgovernmentinstitutions,includingdepartments,publicentities,municipalities,municipalentitiesand
constitutionalinstitutionsinthepublicsector,thereportoftheauditcommitteemustalsoincludecomments
onthequalityofthemanagementandmonthlyorquarterlyreportssubmittedunderthePFMA,theMFMAand
theDivisionofRevenueAct.
89. Shouldareporttoanauditcommittee,whetherfromtheinternalauditfunctionoranyothersource,implicate
theaccountingofficer,anymemberoftheaccountingauthority,oranyofficialinfinancialmisconduct,including
fraud,corruptionornegligence,thechairmanoftheauditcommitteemustpromptlyreportthistotherelevant
executiveauthorityandtheAuditorGeneralorauthorisedauditor.
90. Theauditcommitteemaycommunicateanyconcernsitconsidersnecessarytotheexecutiveauthority(as
definedintherelevantacts),therelevanttreasury(ifapplicable),theAuditorGeneraland,ifappropriate,to
theauthorisedauditor.
Annex3.1
ExtractfromtheCompaniesActno71of2008
Auditcommittees
94.
(1) Thissection
(a) appliesconcurrentlywithsection64oftheBanksAct,toanycompanythatissubjecttothatsectionof
thatAct,butsubsections(2),(3)and(4)ofthissectiondonotapplytotheappointmentofanaudit
committeebyanysuchcompanyand
(b) doesnotapplytoacompanythathasbeengrantedanexemptionintermsofsection64(4)ofthe
BanksAct.
(2) Ateachannualgeneralmeeting,apubliccompany,stateownedcompanyorothercompanythatisrequired
onlybyitsMemorandumofIncorporationtohaveanauditcommitteeascontemplatedinsections34(2)and
84(l)(c)(ii),mustelectanauditcommitteecomprisingatleastthreemembers,unless
(a) thecompanyisasubsidiaryofanothercompanythathasanauditcommitteeand
(b) theauditcommitteeofthatothercompanywillperformthefunctionsrequiredunderthissectionon
behalfofthatsubsidiarycompany.
(3) Thefirstmembersoftheauditcommitteemaybeappointedby
(a) theincorporatorsofacompanyor
(b) bytheboard,within40businessdaysaftertheincorporationofthecompany.
(4) Eachmemberofanauditcommitteeofacompanymust
(a) beadirectorofthecompany,whosatisfiesanyapplicablerequirementsprescribedintermsof
subsection(5)
(b) notbe
(i) involvedinthedaytodaymanagementofthecompany'sbusinessorhavebeensoinvolvedat
anytimeduringthepreviousfinancialyear
(ii) aprescribedofficer,orfulltimeemployee,ofthecompanyoranotherrelatedorinterrelated
company,orhavebeensuchanofficeroremployeeatanytimeduringthepreviousthreefinancial
yearsor
(iii) amaterialsupplierorcustomerofthecompany,suchthatareasonableandinformedthirdparty
wouldconcludeinthecircumstancesthattheintegrity,impartialityorobjectivityofthatdirectoris
compromisedbythatrelationshipand
(c) notberelatedtoanypersonwhofallswithinanyofthecriteriasetoutinparagraph(b).
(5) TheMinistermayprescribeminimumqualificationrequirementsformembersofanauditcommitteeas
necessarytoensurethatanysuchcommittee,takenasawhole,comprisespersonswithadequaterelevant
knowledgeandexperiencetoequipthecommitteetoperformitsfunctions.
(6) Theboardofacompanycontemplatedinsection84(1)mustappointapersontofillanyvacancyontheaudit
committeewithin40businessdaysafterthevacancyarises.
(7) Anauditcommitteeofacompanyhasthefollowingduties:
(a) tonominate,forappointmentasauditorofthecompanyundersection90,aregisteredauditorwho,in
theopinionoftheauditcommittee,isindependentofthecompany
(b) todeterminethefeestobepaidtotheauditorandtheauditor'stermsofengagement
(c) toensurethattheappointmentoftheauditorcomplieswiththeprovisionsofthisActandanyother
legislationrelatingtotheappointmentofauditors
(d) todetermine,subjecttotheprovisionsofthisChapter,thenatureandextentofanynonauditservices
thattheauditormayprovidetothecompany,orthattheauditormustnotprovidetothecompany,ora
relatedcompany
(e) topreapproveanyproposedagreementwiththeauditorfortheprovisionofnonauditservicestothe
company
(f) toprepareareport,tobeincludedintheannualfinancialstatementsforthatfinancialyear
(i) describinghowtheauditcommitteecarriedoutitsfunctions
(ii) statingwhethertheauditcommitteeissatisfiedthattheauditorwasindependentofthe
companyand
(iii) commentinginanywaythecommitteeconsidersappropriateonthefinancialstatements,the
accountingpracticesandtheinternalfinancialcontrolofthecompany
(g) toreceiveanddealappropriatelywithanyconcernsorcomplaints,whetherfromwithinoroutsidethe
company,oronitsowninitiative,relatingto
(i) theaccountingpracticesandinternalauditofthecompany
(ii) thecontentorauditingofthecompany'sfinancialstatements
(iii) theinternalfinancialcontrolsofthecompanyor
(iv) anyrelatedmatter
(h) tomakesubmissionstotheboardonanymatterconcerningthecompany'saccountingpolicies,financial
control,recordsandreportingand
(i) toperformsuchotheroversightfunctionsasmaybedeterminedbytheboard.
(8) Inconsideringwhether,forthepurposesofthisPart,aregisteredauditorisindependentofacompany,the
auditcommitteeofthatcompanymust
(a) ascertainthattheauditordoesnotreceiveanydirectorindirectremunerationorotherbenefitfromthe
company,except
(i) asauditoror
(ii) forrenderingotherservicestothecompany,totheextentpermittedintermsofsubsection(7)(d)
(b) considerwhethertheauditor'sindependencemayhavebeenprejudiced
(i) asaresultofanypreviousappointmentasauditoror
(ii) havingregardtotheextentofanyconsultancy,advisoryorotherworkundertakenbytheauditor
forthecompanyand
(c) considercompliancewithothercriteriarelatingtoindependenceorconflictofinterestasprescribedby
theIndependentRegulatoryBoardforAuditorsestablishedbytheAuditingProfessionAct,inrelationto
thecompany,andifthecompanyisamemberofagroupofcompanies,anyothercompanywithinthat
group.
(9) Nothinginthissectionprecludestheappointmentbyacompanyatitsannualgeneralmeetingofanauditor
otherthanonenominatedbytheauditcommittee,butifsuchanauditorisappointed,theappointmentis
validonlyiftheauditcommitteeissatisfiedthattheproposedauditorisindependentofthecompany.
(10) Neithertheappointmentnorthedutiesofanauditcommitteereducethefunctionsanddutiesoftheboardor
thedirectorsofthecompany,exceptwithrespecttotheappointment,feesandtermsofengagementofthe
auditor.
(11) Acompanymustpayallexpensesreasonablyincurredbyitsauditcommittee,including,iftheauditcommittee
considersitappropriate,thefeesofanyconsultantorspecialistengagedbytheauditcommitteetoassistitin
theperformanceofitsfunctions.
Chapter4
Thegovernanceofrisk
Theboard'sresponsibilityforriskgovernance
Principle4.1:
Theboardshouldberesponsibleforthegovernanceofrisk
1. Theboardshouldexerciseleadershiptopreventriskmanagementfrombecomingaseriesofactivitiesthat
aredetachedfromtherealitiesofthecompany'sbusiness.
2. Theboardshouldberesponsibleforthegovernanceofriskthroughformalprocesses,whichincludethetotal
systemandprocessofriskmanagement.Theboardshouldshowleadershipinguidingtheeffortsaimedat
meetingriskmanagementexpectationsandrequirements.
3. Theboardshouldbeabletodemonstratethatithasdealtwiththegovernanceofriskcomprehensively.This
shouldincludethedevelopmentandimplementationofapolicyandplanforasystematic,disciplinedapproach
toevaluateandimprovetheeffectivenessofriskmanagement,aswellastherelatedinternalcontrol,
complianceandgovernanceprocesseswithinthecompany.
4. Theboardshouldbeabletodisclosehowithassatisfieditselfthatriskassessments,responsesand
interventionsareeffective.
5. Theboard'sscopeofresponsibilityforriskgovernanceshouldbeexpressedinitsboardcharterand
supportedbyinductionandtrainingprocessesforallboardmembers.Wheretheboardhasdelegatedits
responsibilityforriskmanagementtoaboardcommittee,suchboardcommittee'stermsofreferenceshould
reflectthisresponsibilityandshouldbeapprovedbytheboard.
6. Theboard'sresponsibilityforriskgovernanceshouldmanifestintoadocumentedriskmanagementpolicyand
plan.Managementshoulddevelopboththeriskmanagementpolicyandtheplanforapprovalbytheboard.
7. Theriskmanagementpolicyshouldsetthetoneforriskmanagementinthecompanyandshouldindicatehow
riskmanagementwillsupportthecompany'sstrategy.Theriskmanagementpolicyshouldincludethe
company'sdefinitionsofriskandriskmanagement,theriskmanagementobjectives,theriskapproachand
philosophy,aswellasthevariousresponsibilitiesandownershipforriskmanagementwithinthecompany.
8. Theriskmanagementpolicyshouldbewidelydistributedthroughoutthecompany.
9. Theriskmanagementplanshouldconsiderthematurityoftheriskmanagementofthecompanyandshould
betailoredtothespecificcircumstancesofthecompany.Theriskmanagementplanshouldinclude:
9.1 thecompany'sriskmanagementstructure
9.2 theriskmanagementframeworki.e.theapproachfollowed,forinstance,COSO,ISO,IRMSAERMCode
ofPractice,IRM(UK),etc
9.3 thestandardsandmethodologyadoptedthisreferstothemeasureablemilestonessuchas
tolerances,intervals,frequencies,frequencyrates,etc
9.4 riskmanagementguidelines
9.5 referencetointegrationthrough,forinstance,trainingandawarenessprogrammesand
9.6 detailsoftheassuranceandreviewoftheriskmanagementprocess.
10. Theboardshouldreviewitsriskmanagementplanregularlybutatleastonceayear.Theboardshould
ensurethattheimplementationoftheriskmanagementplanismonitoredcontinually.
Principle4.2:
Theboardshoulddeterminethelevelsofrisktolerance
11. Riskisoftendefinedasthetakingofriskforreward.Atleastonceayear,theboardshouldsetspecificlimits
forthelevelsofriskthecompanyisabletotolerateinthepursuitofitsobjectives.Theboardshouldalso
reviewtheselimitsduringperiodsofincreaseduncertaintyoradversechangesinthebusinessenvironment.
12. Insettingtheserisktolerancelevels,theboardshouldconsiderriskfactorsinboththeexternalandinternal
businessenvironments.Theselevelscouldbemeasuredquantitatively,qualitatively,orboth,andshouldbe
specifictoeachoftherelevantbusinessactivities.Theselevelsshouldalsobeusedtosettheparametersfor
thedevelopmentofthebusinessstrategy.
13. Theboardmaysetlimitsregardingthecompany'sriskappetitei.e.therisklimitsthattheboarddesires,oris
willing,totake.Wheretheriskappetiteexceeds,ordeviatesmateriallyfromthelimitsofthecompany'srisk
tolerance(thecompany'sabilitytotolerate),thisshouldbedisclosedintheintegratedreport.
14. Managementshouldimplementspecificlimitsortolerancelevelsthatarealignedwiththoseoveralllimitsset
bytheboardatdepartmentalorfunctional,activityandoperationalrisklevels.
15. Theboardshouldcontinuallymonitorsignificantrisktakenbymanagement,andshouldsatisfyitselfthat
managementdecisionsbalanceperformancewiththedefinedtolerancelimits.Theboardshouldensurethatit
understandstheimplicationsofriskstakenbymanagementinpursuitofreturns,aswellasthepotential
impactofrisktakingonshareholdersandotherstakeholders.
Principle4.3:
Theriskcommitteeorauditcommitteeshouldassisttheboardincarryingout
itsriskresponsibilities
16. Toassistitinthedischargeofitsdutiesandresponsibilitiesinrespectofriskmanagement,theboardshould
appointariskcommitteetoreviewtheriskmanagementprogressandmaturityofthecompany,the
effectivenessofriskmanagementactivities,thekeyrisksfacingthecompany,andtheresponsestoaddress
thesekeyrisks.
17. Theboardmayassignthisresponsibilitytotheauditcommittee.However,thisshouldbedonewithcareful
considerationtotheresourcesavailabletotheauditcommitteetoadequatelydealwithriskgovernancein
additiontoitsauditresponsibilities.
18. Theriskcommittee's(orauditcommittee's)responsibilityforriskmanagementshouldbeexpressedinits
termsofreference.
19. Theriskcommittee(orauditcommittee)shouldconsidertheriskmanagementpolicyandplan,andshould
monitorthewholeriskmanagementprocess.
20. Membershipoftheriskcommitteeshouldincludeexecutiveandnonexecutivedirectors.Thosemembersof
seniormanagementresponsibleforthevariousareasofriskmanagementshouldattenditsmeetings.
Membersoftheriskcommittee,takenasawhole,shouldcomprisepeoplewithadequateriskmanagement
skillsandexperiencetoequipthecommitteetoperformitsfunctions.Tosupplementitsriskmanagement
skillsandexperience,theriskcommitteemayinviteindependentriskmanagementexpertstoattendits
meetings.
21. Theriskcommitteeshouldhaveaminimumofthreemembers.
22. Theriskcommitteeshouldconveneatleasttwiceperyearandindividualsreportingtothecommitteeshould
provideitwithsufficientinformationtoeffectivelydischargeitsresponsibility.
23. Eachyear,theboardshouldevaluatetheriskcommittee'sperformanceintermsofitscomposition,mandate
andeffectiveness.
Management'sresponsibilityforriskmanagement
Principle4.4:
Theboardshoulddelegatetomanagementtheresponsibilitytodesign,
implementandmonitortheriskmanagementplan
24. Theboard'sriskstrategyshouldbeexecutedbymanagementinaccordancewiththeboardapprovedrisk
managementpolicyandplan.Therolesandresponsibilitiesforriskmanagementinthecompanyshouldbe
addressedinthepolicyandplan.
25. Managementisaccountabletotheboardfordesigning,implementingandmonitoringthesystemandprocess
ofriskmanagementandintegratingitintothedaytodayactivitiesofthecompany.Theboardshouldensure
thatorganisationalstructuresandresourcesprovideforappropriateexecutionofriskmanagement
processes.Theboardshouldalsoprovidemanagementwithothernecessarysupporttoenableittoexecute
itsdutiesandresponsibilitiesasoutlinedintheriskpolicyandplan.
26. Theboard'sdelegationofauthoritytomanagementshouldincorporateriskmanagementrequirements.
Managementshouldgiveeffecttoriskmanagementinoperationsinsubstanceandform.
27. AlthoughtheCEOmayappointachiefriskofficer(CRO)toassistwiththeexecutionoftheriskmanagement
process,theaccountabilitytotheboardremainswiththeCEO.Thereshouldbeanappreciationthat
executionofriskmanagementdoesnotresideinoneindividualbutrequiresaninclusiveteambased
approachforeffectiveapplicationacrossthecompany.
28. TheCROshouldbeasuitablyexperiencedpersonwhoshouldhaveaccessto,andinteractregularlyon,
strategicriskmatterswiththeboardandappropriateboardcommitteeandexecutivemanagement.
29. Theboardshouldsatisfyitselfthatinsurance,indemnificationandremunerationpracticesdonotprejudicerisk
managementdecisionmaking.
30. Riskmanagementshouldbeintrusive:itsmethodologyandtechniquesshouldbeembeddedwithinstrategy
setting,planning,andbusinessprocessestosafeguardperformanceandsustainability.Therigoursofrisk
managementshouldprovideresponsesandinterventionsthatstrivetocreateanappropriatebalance
betweenriskandrewardwithinthecompany.
Riskassessment
Principle4.5:
Theboardshouldensurethatriskassessmentsareperformedonacontinual
basis
31. Theboardshouldensurethatthecompanyhasandmaintainsaneffectiveongoingriskassessmentprocess,
consistingofriskidentification,riskquantificationandriskevaluation.Thisriskassessmentprocess(usinga
generallyrecognisedmethodology)shouldidentifyrisksandopportunities,andmeasuretheirpotentialimpact
andlikelihood.
32. Asystematic,documented,formalriskassessmentshouldbeconductedatleastonceayearandbe
continuallyreviewed,updatedandapplied.Theoutputsofriskassessmentsshouldprovidetheboardand
managementwitharealisticperspectiveofkeyrisksandothermaterialrisksthatthecompanyfaces.
33. Followingtheriskevaluationprocess,risksshouldbeprioritisedandrankedtofocustheresponsesand
interventionsonthoserisksoutsidetheboard'srisktolerancelimits.
34. Riskassessmentsproducetherequiredinformationfortheensuingriskmanagementresponsesand
interventions.Therefore,itiscriticalthattheriskassessmentprocessiscomprehensive,accurate,thorough
andcomplete.Riskassessmentsshouldnotrelyonlyontheperceptionsofagroupofmanagers.Risk
assessmentsshouldincludetheuseofdataanalysis,businessindicators,marketinformation,lossdata,
scenarioplanningandportfolioanalysis.
35. Riskassessmentsshouldnotadoptaconceptualvieworlimititselftoafixedlistofriskcategories.Risk
assessmentismosteffectivewhenitisdirectedtowardsastrategicorbusinessobjective.Inordertoachieve
this,theriskassessmentprocessshouldinvolvetheconsiderationofrisksaffectingthevariousincome
streams,thecriticalbusinessprocesses,criticaldependenciesofthebusiness,thesustainabilitydimensions
ofthebusiness,andthelegitimateinterestsandexpectationsofstakeholders.
36. Riskassessmentsshouldadoptatopdownapproach,butshouldnotbelimitedtostrategicandhighend
risksonly.Operationalriskmanagementshouldbepartoftheriskmanagementplan.Therefore,therisk
assessmentprocessshouldimpactalloperationallevels.
37. Theboardshouldregularlyreceiveandreviewaregisterofthecompany'skeyrisks.Itisimportantthatthe
riskinformationpresentedtotheboardincludesaprofileofaggregatedrisks,correlatedrisksandrisk
concentrations.
38. Theboardshouldensurethatparticularattentionisfocusedonthoserisksthatmaynegativelyimpactthe
longtermsustainabilityofthecompany.
39. Toensuretimelyandadequateresponsestothecompany'ssustainabilityrisks,theboardshouldregularly
receiveandreviewariskregisteronthecompany'ssustainabilityrisks.Thecompany'sintegratedreport
shouldincludekeysustainabilityrisks,andresponsestotheserisksandresidualsustainabilityrisks.
40. Theboardshouldensurethatkeyrisksarequantifiedwherepracticable.
Principle4.6:
Theboardshouldensurethatframeworksandmethodologiesare
implementedtoincreasetheprobabilityofanticipatingunpredictablerisks
41. Failuretoanticipateandreacttoriskscanhaveacatastrophicimpactonthecompany.Thisincludesrisksthat
aresystemic(whetherlocal,regionalorglobal),forexample,theglobalcreditcrunchof2008and2009,as
wellasrisksthatarenormallyconsideredtobeunpredictable,Theboardshouldensurethattheframeworks
andprocessesinplacetoassistinanticipatingtheserisks,havethefollowingcharacteristics:
41.1 Insight:theabilitytoidentifythecauseoftherisk,wheretherearemultiplecausesorrootcausesthat
arenotimmediatelyobvious.
41.2 Information:comprehensiveinformationaboutallaspectsofrisksandrisksources,especiallyoffinancial
risks.
41.3 Incentives:theabilitytoseparateriskoriginationandriskownershipensuringproperduediligenceand
accountability.
41.4 Instinct:theabilitytoavoid'followingtheherd'whentherearesystemicandpervasiverisks.
41.5 Independence:theabilitytoviewthecompanyindependentlyfromitsenvironment.
41.6 Interconnectivity:theabilitytoidentifyandunderstandhowrisksarerelated,especiallywhentheir
relatednessmightexacerbatetherisk.
Riskresponse
Principle4.7:
Theboardshouldensurethatmanagementconsidersandimplements
appropriateriskresponses
42. Managementshouldidentifyandconsiderdifferentwaysthatthecompanycanrespondtotherisksidentified
duringtheriskassessmentprocess.Theseresponsesoptedforshouldbenotedintheriskregister.The
optionsforresponsesshouldinclude:
42.1 avoidingtheriskbynotstartingtheactivitythatcreatesexposuretotherisk
42.2 treating,reducingormitigatingtherisk,throughimprovementstothecontrolenvironmentsuchasthe
developmentofcontingenciesandbusinesscontinuityplans.Risktreatmentmayincludemethods,
procedures,applications,managementssystemsandtheuseofappropriateresourcesthatreducethe
probabilityorpossibleseverityoftherisk
42.3 transferringtheriskexposure,usuallytoathirdpartybetterabletomanagetherisk,forexample,
throughinsuranceoroutsourcing
42.4 toleratingoracceptingtherisk,wherethelevelofexposureisaslowasreasonablypracticableorwhere
thereareexceptionalcircumstances
42.5 exploitingtherisk,wheretheriskexposurerepresentsapotentialmissedorpoorlyrealisedopportunity
42.6 terminatingtheactivitythatgivesrisetotheintolerableriskand
42.7 integratingsomeoralloftheriskresponsesoutlinedabove.
43. Managementshoulddemonstratetotheboardthattheriskmanagementplanprovidesfortheidentification
andexploitationofopportunitiestoimprovetheperformanceofthecompany.
44. Inidentifyingmajorriskevents,managementshouldnotonlyidentifythepotentialnegativeimpact,but
shouldactivelyidentifythepositivebusinessopportunitiesthattheserisksmaygiveriseto.Where
traditionally,riskfocuswasontheperilsideoftheriskandtryingtominimiseit,thefocusshouldalsobeon
theopportunitiesthatareoftenconcealedwithindefensiveriskresponses.
45. Enterpriseisoftendescribedasriskforrewardbutitmaybepossibletoreduceriskwhileimprovingreturns.
Riskandrewardcouldalsohaveaconverserelationshipasopposedtotheviewthatrewardisinproportion
tothemeasureofriskassumed.Toenabletheexploitationoftheupsideofrisks(opportunities),therisk
managementplanshouldnotconcentrateonlyonderiskingresponsesandinterventions.
Riskmonitoring
Principle4.8:
Theboardshouldensurecontinualriskmonitoringbymanagement
46. Theboardshouldensurethatmanagementmonitorstheriskmanagementplaneffectivelyandcontinually.In
fulfillingitsresponsibility,theboardshouldensurethatmanagement,amongothers,performsthefollowing
monitoringmeasures:
46.1 measuringriskmanagementperformanceagainstriskindicatorstheriskindicatorsshouldbe
periodicallyreviewedforappropriateness
46.2 periodicallymeasuringprogressagainst,anddeviationfrom,theriskmanagementplan
46.3 monitoringchangesintheexternalandinternalenvironment
46.4 determiningtheimpactofenvironmentchangesonthestrategicriskprofileofthecompany
46.5 ensuringthatriskresponsesareeffectiveandefficientinbothdesignandoperation
46.6 trackingtheimplementationofriskresponses
46.7 analysingandlearninglessonsfromchanges,trends,successes,failuresandevents(includingnear
misses)and
46.8 identifyingemergingrisks.
47. Responsibilitiesformonitoringshouldbeclearlydefinedintheriskmanagementplan.
Riskassurance
Principle4.9:
Theboardshouldreceiveassuranceregardingtheeffectivenessoftherisk
managementprocess
48. Managementisaccountabletoprovidetheboardwithassurancethatithasimplementedandmonitoredthe
riskmanagementplanandthatitisintegratedinthedaytodayactivitiesofthecompany.
49. Reportsfrommanagementtotheboardshouldprovideabalancedassessmentofthekeyrisksfacingthe
companyandtheeffectivenessoftheensuingriskresponsesandinterventions.Theboardshouldsatisfy
itselfofmanagement'sappropriateapplicationofriskmanagementprocessesandtheircompliancetorisk
managementpoliciesandprocedures.Anysignificantriskresponsefailingsorweaknessesshouldbe
disclosedinmanagement'sreportstotheboard,includingtheimpactthattheymayhavehad,ormayhaveon
thecompany,andtheresultantcorrectiveresponsesandinterventionstaken.
50. Managementreportstotheboardshouldalsodisclosetheprocessesinplacetoimprovetherisk
managementmaturityofthecompany,aswellasthedegreetowhichriskmanagementhasbeenembedded
throughoutthecompany.
51. Theinternalauditfunctionshouldprovideindependentassuranceinrelationtoriskmanagement.Internal
auditdoesnotassumethefunctions,systemsandprocessesofriskmanagement,butprovidesindependent
assurancetotheboardontheintegrityandrobustnessoftheriskmanagementprocess.
52. Eachyear,internalauditshouldprovideawrittenassessmentoftheeffectivenessofthesystemofinternal
controlsandriskmanagementtotheboard.
53. Externalauditmayconsultwiththeboardriskcommittee,internalauditandtheCROforanunderstandingof
thecompany'sriskmanagementactivitiestodeterminetheextentthattheexternalauditprocessmayrelyon
theintegrityofinternalfinancialcontrols.
Riskdisclosure
Principle4.10:
Theboardshouldensurethatthereareprocessesinplaceenablingcomplete,
timely,relevant,accurateandaccessibleriskdisclosuretostakeholders
54. Initsstatementintheintegratedreport,theboardshoulddisclosefortheperiodunderreviewanyundue,
unexpectedorunusualrisksithastakeninthepursuitofrewardaswellasanymateriallossesandthe
causesofthelosses.Thisdisclosureshouldbemadewithdueregardtothecompany'scommercially
privilegedinformation.Indisclosingthemateriallosses,theboardshouldendeavourtoquantifyanddisclose
theimpactthattheselosseshaveonthecompanyandtheresponsesandinterventionsimplementedbythe
boardandmanagementtopreventrecurrenceofthelosses.
55. Theboardshoulddiscloseanycurrent,imminentorenvisagedriskthatmaythreatenthelongterm
sustainabilityofthecompany.
56. Theboardshouldalsodiscloseitsviewsontheeffectivenessofthecompany'sriskmanagementprocessesin
theintegratedreport.
Chapter5
Thegovernanceofinformationtechnology(IT)
Principle5.1:
Theboardshouldberesponsibleforinformationtechnology(IT)governance
1. ITisessentialtomanagethetransactions,informationandknowledgenecessarytoinitiateandsustaina
company.Inmostcompanies,IThasbecomepervasivebecauseitisanintegralpartofthebusinessandis
fundamentaltosupport,sustainandgrowthebusiness.Companiesshouldunderstandandmanagethe
risks,benefitsandconstraintsofIT.Asaconsequence,theboardshouldunderstandthestrategicimportance
ofIT,assumeresponsibilityforthegovernanceofITandplaceITgovernanceontheboardagenda.
2. ITgovernancecanbeconsideredasaframeworkthatsupportseffectiveandefficientmanagementofIT
resourcestofacilitatetheachievementofacompany'sstrategicobjectives.ITgovernanceistheresponsibility
oftheboard.
3. TheITgovernanceframeworkshouldincluderelevantstructures,processesandmechanismstoenableITto
delivervaluetothebusinessandmitigateITrisk.TheITgovernanceframeworkshouldbeappropriateand
applicabletothecompany.Itshouldfacilitateandenhancethecompany'sabilitytoreachitsobjectivesby
makingthemostappropriatedecisionsaboutincorporatingITintoitsoperations,programmesandservices
onasecureandsustainablebasis.
4. AspartoftheITgovernanceframework,theboardshouldensurethatanITgovernancecharterandpolicies
areestablishedandimplemented.Thischarterandpoliciesshouldoutlinethedecisionmakingrightsand
accountabilityframeworkforITgovernancethatwillenablethedesirablecultureintheuseofITwithinthe
company.
5. TheboardshouldoverseethecultivationandpromotionofanethicalITgovernanceandmanagementculture
andawareness(measuredthroughlevelsofgovernanceandmanagementskillsandcompetencies)andofa
commonITlanguage.
6. Theboardshouldprovidetherequiredleadershipanddirectiontoensurethatthecompany'sITachieves,
sustainsandenhancesthecompany'sstrategicobjectives.ITgovernanceisnotanisolateddisciplinebutis
anintegralpartofoverallcorporategovernance.
7. ITgovernanceshouldfocusonthegovernanceoftheinformationaswellasthegovernanceoftechnology.
8. TheboardshouldensurethatanITinternalcontrolframeworkisadoptedandimplementedandthatthe
boardreceivesindependentassuranceontheeffectivenessthereof.
9. Theboardshouldtakethenecessarystepstoensurethatthereareprocessesinplacetoensurecomplete,
timely,relevant,accurateandaccessibleITreporting,firstlyfrommanagementtotheboard,andsecondlyby
theboardintheintegratedreport.
Principle5.2:
ITshouldbealignedwiththeperformanceandsustainabilityobjectivesofthe
company
10. TheboardshouldensurethattheITstrategyisintegratedwiththecompany'sstrategicandbusiness
processes.ITshouldbeseentoaddvaluebyenablingtheimprovementofthecompany'sperformanceand
sustainability.
11. ThealignmentbetweenITandstrategicandbusinessprocessesinvolves:ensuringthatbusinessandIT
plansareintegrateddefining,maintainingandvalidatingtheITvaluepropositionandaligningIToperations
withoverallbusinessoperations.
12. TheITalignmentprocessisessentialduringthedevelopmentofanybusinessplans(whetheratstrategic,
managementoroperationallevels)andplaysakeyroleindeterminingandexecutingthebusiness
arrangementssupportingthecompany'sstrategicobjectives.
13. Ascompaniesshouldviewenvironmentalsustainabilitytobegoodcorporatecitizenship,thenegativeimpact
thatITcouldhaveontheenvironmentshouldbeconsidered.
14. Theboardshouldensurethatthereisarobustprocessinplacetoidentify,andexploitwhereappropriate,
opportunitiestoimprovetheperformanceandsustainabilityofthecompanyinthetriplecontextthrough
effectiveandefficientITuse.
Principle5.3:
Theboardshoulddelegatetomanagementtheresponsibilityforthe
implementationofanITgovernanceframework
15. Managementshouldberesponsiblefortheimplementationofallthestructures,processesandmechanismsto
executetheITgovernanceframework.
16. EffectiveITframeworksandpolicies,aswellastheprocesses,proceduresandstandardsthattheseinvolve,
shouldbeimplementedwiththeviewtominimiseITrisk,delivervalue,ensurebusinesscontinuity,andassist
thecompanytomanageitsITresourcesefficientlyandcosteffectively.
17. Inparticular,managementshouldinformtheboardaboutwhetherthecompany'sITfunctionis:
17.1 ontracktoachieveitsobjectives
17.2 resilientandagileenoughtoadapttostrategicneeds
17.3 adequatelyprotectedfromtherisksitfacesand
17.4 suchthatopportunitiescanbeproactivelyrecognisedandactedon.
18. TheboardmayappointanITsteeringcommitteeorsimilarforumorfunctiontoassistwithitsgovernanceof
IT.ThereshouldberelevantrepresentationfrombusinessandITinthisstructure.
19. Eachcompanyshouldconsiderthesuitablestrategy,structureandsizeofitsITfunction,consideringwhatis
appropriatefortheadequatemanagementoftheITfunctionandassociatedriskoftheparticularcompany
andhavingregardtoanylegislativerequirementsthatapplytotheITfunction.ThestructureoftheIT
function,itsroleanditspositionintermsofreportinglines,shouldreflectthecompany'sdecisiononhowITis
integratedwithitsoperations.
20. TheCEOshouldappointanindividualresponsibleforthemanagementofIT,oftenreferredtoasaChief
InformationOfficer(CIO).
21. TheCIOshouldbeasuitablyqualifiedandexperiencedpersonwhoshouldhaveaccessto,andinteract
regularlyon,ITgovernancematterswiththeboardorappropriateboardcommitteeorboth,aswellaswith
executivemanagement.
22. TheCIOshouldserveasabridgebetweenITandthebusinessandtherefore,should:
22.1 understandtheaccountabilityandresponsibilityforIT
22.2 bebusinessorientated,understandbusinessrequirements,thelongtermstrategyforthebusinessof
thecompanyandtranslatethisintoefficientandeffectiveITsolutions
22.3 haveastrategicapproachandfacilitatetheintegrationofITintobusinessstrategicthinkingand
developmentand
22.4 exercisecareandskilltodesign,develop,implementandmaintainsustainableITsolutionstoenable
theachievementofstrategicobjectives.
Principle5.4:
TheboardshouldmonitorandevaluatesignificantITinvestmentsand
expenditure
23. Thecompanyshouldensurethatitacquiresandusestheappropriatetechnology,processesandpeopleto
supportitsbusinessandgovernancerequirementsinatimelymannerandaccurately.
24. ThelevelofinvestmentinITissignificantandcontinuestoincreaseandfewcompanieswouldsurvivewithout
appropriateIT.WhiletherearemanyexamplesofcompaniesgeneratingvaluefrominvestinginIT,many
executivesarequestioningwhetherthebusinessvalueisinproportiontothelevelofinvestment.
25. TheboardshouldoverseethepropervaluedeliveryofITandshouldensurethattheexpectedreturnon
investmentfromsignificantITinvestmentsandprojectsisdeliveredandthattheinformationandintellectual
propertycontainedintheinformationsystemsareprotected.Thiscanbeachievedby:
25.1 clarifyingbusinessstrategiesandobjectivesandtheroleofITinachievingthem
25.2 measuringandmanagingtheamountspentonandthevaluereceivedfromIT
25.3 assigningaccountabilityfororganisationalchangesrequiredtobenefitITcapabilitiesand
25.4 learningfromeachimplementationandbecomingmoreadeptatsharingandreusingITassets.
26. Goodgovernanceprinciplesshouldapplytoallpartiesinthesupplychainorchannelfortheacquisitionand
disposalofITgoodsorservices.Thisappliesequallytoadivisionwithinacompany,subsidiaryorathird
party.
27. WheretheresponsibilityfortheprovisionofITgoodsorserviceshasbeendelegatedtoanotherparty(or
division),allparties(includingtheboard)remainaccountableforenforcingandmonitoringeffectiveIT
governance.
28. ThecompanyshouldobtainindependentassuranceontheITgovernanceandcontrolssupportingoutsourced
ITservices.Thisassuranceshouldbealignedtothecompany'snormalassuranceactivitiesundertheauspices
oftheauditcommittee.
29. ITmanagementshouldensurethatallthebasicelementsofappropriateprojectmanagementprinciplesare
appliedtoallITprojects.Effectivereviewprocessesbyindependentexpertsarerecommended.
Principle5.5:
ITshouldformanintegralpartofthecompany'sriskmanagement
RefertoChapter4formoredetailonriskmanagement.
30. ITrisksshouldformpartofthecompany'sriskmanagementactivitiesandconsiderationsasdefinedin
Chapter4.
31. Managementshouldregularlydemonstratetotheboardthatthecompanyhasadequatebusinessresilience
arrangementsinplacefordisasterrecovery.
32. ITlegalriskarisesfromthepossession,ownershipandoperationaluseoftechnologythatmayresultinthe
companybecomingapartytolegalproceedings.
33. Whenconsideringthecompany'scompliancewithapplicablelaws,rules,codesandstandards,theboard
shouldensurethatITrelatedlaws,rules,codesandstandardsareconsidered.Companiesmustcomplywith
applicableITlawsandconsideradherencetoapplicableITrules,codesandstandards,guidelinesandleading
practices.
34. TheboardshouldconsiderhowITcouldbeusedtoaidthecompanyinitsmanagingofriskanditscompliance
withlaws,rules,codesandstandards.
Principle5.6:
Theboardshouldensurethatinformationassetsaremanagedeffectively
35. Informationmanagementinitiativesareoftendrivenbyexternalregulations,requirementsandconcerns
aboutdataprivacy,informationsecurityandlegalcompliance.Toachievecompliancewithexternal
regulations,formalprocessesshouldbeinplacetomanageinformation.Informationmanagement
encompasses:
35.1 theprotectionofinformation(informationsecurity)
35.2 themanagementofinformation(informationmanagement)and
35.3 theprotectionofpersonalinformationprocessedbycompanies(informationprivacy).
Informationmanagement
36. Informationrecordsarethemostimportantinformationassetsastheyareevidenceofbusinessactivities.
37. Theboardshouldensurethattherearesystemsinplaceforthemanagementofinformationassetsandthe
performanceofdatafunctionsincludingthefollowing:
37.1 ensuringtheavailabilityofinformationandinformationsystemsinatimelymanner
37.2 implementingasuitableinformationsecuritymanagementprogramme
37.3 ensuringthatallsensitiveinformationisidentified,classifiedandassignedappropriatehandlingcriteria.
Regardinginformation'sensitivity',thereareseverallawsinSouthAfricaandothercountriesthat
imposeobligationsoncompaniestotreatcertaintypesofinformationas'sensitive'.'Sensitivity'includes
allreferencestoinformationwhichispersonal,private,confidential,secretorunabletobedisclosed.
Manyofthelawsprovideforoffencesandpenaltieswheretherehasnotbeencompliancewith
sensitivityrequirements
37.4 themanagementoftherisksassociatedwithinformationandinformationsystems
37.5 establishingprocessestoensurecontinuousmonitoringofalltheaspectsofinformation
37.6 establishingprocessestoensurethemaintenanceandmonitoringofdataqualityand
37.7 establishingabusinesscontinuityprogrammeaddressingthecompany'sinformationandrecovery
requirements,andensuringtheprogrammeisstillalignedwiththesuccessfulexecutionofthebusiness'
activities.
Informationprivacy
38. Theboardshouldensurethattherearesystemsinplaceforpersonalinformationtobetreatedbythe
companyasanimportantbusinessassetandthatall'personalinformation'thatisprocessedbythecompany
isidentified.
39. Personalinformationshouldbeprocessedaccordingtoapplicablelaws.
Informationsecurity
40. TheboardshouldensurethatanInformationSecurityManagementSystem(ISMS)isdeveloped,implemented
andrecordedinanappropriateandapplicableinformationsecurityframework.
41. Theboardshouldoverseetheinformationsecuritystrategyanddelegateandempowermanagementto
implementthestrategy.
42. ITmanagementisresponsiblefortheimplementationoftheISMS.TheISMSshouldincludethefollowinghigh
levelinformationsecurityprinciples:
42.1 ensuringtheconfidentialityofinformation
42.2 ensuringtheintegrityofinformationand
42.3 ensuringtheavailabilityofinformationandinformationsystemsinatimelymanner.
Principle5.7:
Ariskcommitteeandauditcommitteeshouldassisttheboardincarryingout
itsITresponsibilities
43. TheriskcommitteeshouldensurethatITrisksareadequatelyaddressedthroughitsriskmanagement,
monitoringandassuranceprocesses.
44. TheriskcommitteeshouldconsiderITriskasacrucialelementoftheeffectiveoversightofriskmanagement
ofthecompany.Inmanycasestheriskcommitteemayneedtorelyonexpertadvicefromwithinoroutside
thecompany.
45. InunderstandingandmeasuringITrisks,themembersoftheriskcommitteeshouldunderstandthe
company'soverallexposuretoITrisksfromastrategicandbusinessperspective,includingtheareasofthe
businessthataremostdependentonITforeffectiveandcontinualoperation.
46. AreasthatarehighlydependentonITaremoreexposedifITrisksarenotappropriatelygoverned.Therisk
committeeshouldobtainappropriateassurancethatcontrolsinplaceareeffectiveinaddressingtheserisks.
47. ITasitrelatestofinancialreportingandthegoingconcernofthecompanyshouldbetheresponsibilityofthe
auditcommittee.TheriskcommitteehastheresponsibilitytooverseethebroaderriskimplicationsofIT.
48. Theauditcommitteeshouldalsoconsidertheuseoftechnologyandrelatedtechniquestoimproveaudit
coverageandauditefficiency.
Chapter6
Compliancewithlaws,rules,codesandstandards
Principle6.1:
Theboardshouldensurethatthecompanycomplieswithapplicablelawsand
considersadherencetononbindingrules,codesandstandards
1. Companiesmustcomplywithallapplicablelaws.
2. Exceptionspermittedinlawandshortcomingsinthelawthatpresentanopportunityforabusewhichis
contrarytothespirit,intentandpurposeofthelaw,aswellasproposedchangesexpectedinlegislationand
regulation,shouldbehandledinanethicalandresponsiblemanner.
3. Corporategovernanceistheexpressionofethicalvaluesandstandards.Assuch,complianceshouldalsobe
understoodtobeanethicalimperativeforthegovernanceofcompanies.Consequently,insomecountries,as
intheUnitedStates,theofficesofethicsandcompliancearecombined.
4. Compliancewithapplicablelawsshouldbeunderstoodnotonlyintermsoftheobligationsthattheycreate,
butalsofortherightsandprotectionthattheyafford.Companiesshouldalwaysaimtoachieveabalanced
approachintheiroutlookoncompliance.Simplycomplyingwithlaws,withoutconsiderationoftherights
availableinthecircumstances,cannotbedeemedtobeactinginthebestinterestsofthecompany.Theduty
toactinthebestinterestsofthecompanyincludesconsideringtherightsofthecompanywhendealingwith
compliance.
5. Companiesshouldalsounderstandthecontextofthelaw,andhowotherapplicablelawsinteractwithit,as
nolawoperatesinavacuum.
6. Theboardshouldconsideradherencetoapplicablenonbindingrules,codesandstandardsifitwould
constitutegoodgovernanceandpractice.Theboardshoulddiscloseintheintegratedreporttheapplicable
nonbindingrules,codesandstandardstowhichthecompanyadheresonavoluntarybasis.
7. Theboardisresponsibleforthecompany'scompliancewithapplicablelawsandwiththosenonbindingrules,
codesandstandardswithwhichthecompanyelectedtocomply.Oneoftheimportantresponsibilitiesofthe
boardisthereforetomonitorthecompany'scompliancewithallapplicablelaws,rules,codesandstandards.
8. Compliancewithapplicablelaws,rules,codesandstandardsshouldbeproactivelyandsystematically
managedbycompaniesandcomplianceshouldbearegularitemontheagendaoftheboardevenifthis
responsibilityisdelegatedtoaseparatecommitteeorfunctionwithintheorganisationalstructure.
9. Theextentofrelianceplacedbytheboardonthesedelegatedcommitteesorfunctionsdependsonthe
board'sassessmentofknowledge,effectivenessandexperienceofthecommitteeorfunction.
10. Theboardshoulddisclosedetailsintheintegratedreportonhowithasdischargeditsresponsibilitytoensure
theestablishmentofaneffectivecomplianceframeworkandprocesses.
Principle6.2:
Theboardandeachindividualdirectorshouldhaveaworkingunderstanding
oftheeffectoftheapplicablelaws,rules,codesandstandardsonthe
companyanditsbusiness
11. Theboardhasadutytotakethenecessarystepstoensuretheidentificationofthelaws,rules,codesand
standardsapplicabletothecompany.
12. Processesshouldbeinplacetoensurethattheboardiscontinuallyinformedofrelevantlaws,rules,codes
andstandards,includingchangestothem,aspartoftheirinductionandongoingtrainingandeducation
referredtoinChapter2,Principle2.20.
13. Directorsshouldsufficientlyfamiliarisethemselveswiththegeneralcontentofapplicablelaws,rules,codes
andstandardstobeabletoadequatelydischargetheirfiduciarydutiesinthebestinterestsofthecompany
andtheirdutyofcare,skillanddiligence.Includedinthisdutyistomakeuseoftherightsandprotectionthat
thelawpresentsinthebestinterestsofthecompany.
Principle6.3:
Complianceriskshouldformanintegralpartofthecompany'srisk
managementprocess
14. Complianceriskcanbedescribedastheriskofdamage,arisingfromnonadherencetothelawand
regulations,tothecompany'sbusinessmodel,objectives,reputation,goingconcern,stakeholder
relationshipsorsustainability.
15. Therisksofnoncomplianceshouldbeidentified,assessedandrespondedtothroughthecompany'srisk
managementprocessesasdescribedinChapter4.Althoughasystematicriskmanagementapproachto
complianceisadvised,thisdoesnotimplythatcomplianceisoptionaldependingonwhethertherisk
assessmentwarrantsit.ComplianceiscompulsoryinkeepingwithPrinciple6.1,whiletheriskmanagement
frameworkprovidesanappropriatesystemforthemanagement,monitoringandreportingthereof.
16. Aspartofthebroaderriskmanagementstructure,acompliancefunctionprovidesassistancetotheboardand
managementincomplyingwithapplicablelaws,rules,codesandstandards.
Principle6.4:
Theboardshoulddelegatetomanagementtheimplementationofaneffective
complianceframeworkandprocesses
17. Managementshoulddevelopthecompliancepolicyandtheboardshouldapproveit.Managementshouldbe
responsibleforimplementingthispolicyandreportingtotheboardregardingcompliancewithit.
18. Managementshouldintegrateandalignthecompliancepolicywithotherbusinesseffortsandobjectivesto
avoidduplicationofeffortandmissedopportunitiesforsynergies.
19. Acompany'sproceduresandcontrolframeworkshouldincorporatecompliancewithrelevantlaws,rules,
codesandstandardsandtheboardshouldreceiveassuranceontheeffectivenessoftheproceduresand
controlframework.
20. Compliancewithlaws,rules,codesandstandardsshouldbeincorporatedinthecodeofconductofthe
companytoentrenchacultureofcompliance.Employeesshouldbeencouragedtounderstandandimplement
thesecodes.
21. Acompliancecultureshouldbeencouragedthroughleadership,establishingtheappropriatestructures,
educationandtraining,communication,andmeasurementofkeyperformanceindicatorsrelevantto
compliance.
22. Acompanyshouldconsiderdisclosinginitsintegratedreportanymaterialorimmaterialbutoftenrepeated
regulatorypenalties,sanctionsandfinesforcontraventionsornoncompliancewithstatutoryobligationsthat
wereimposedonthecompanyoranyofitsdirectorsorofficers.Disclosureshouldbeconsideredhaving
regardtowhetherdivulgingtheinformationthatthedisclosurewillnecessitate,wouldnegativelyaffectthe
company,breachconfidentiality,orbreachanyagreementtowhichitisaparty.
23. AlthoughtheCEOmayappointacomplianceofficertoassistintheexecutionofthecompliancefunction,the
accountabilitytotheboardremainswiththeCEO.Thecomplianceofficershouldbeasuitablyexperienced
personwhoshouldhaveaccessto,andinteractregularlyon,strategiccompliancematterswiththeboardor
appropriateboardcommitteeorboth,aswellaswithexecutivemanagement.
24. Thecompliancefunctionshouldhaveadequateresourcestodischargeitsresponsibilities.
25. Eachcompanyshouldconsiderthesuitablestructureandsizeofitscompliancefunction,consideringwhatis
appropriatefortheadequatemanagementofthecomplianceriskoftheparticularcompanyandhavingregard
tothelegislativerequirementsthatapplytothecompliancefunction.Thestructureofthecompliancefunction,
itsroleanditspositionintermsofreportinglines,shouldreflectthecompany'sdecisiononhowcomplianceis
integratedwithitsethicsandriskmanagement.
26. Wheretheroleofinhouselegaladviserorcounseliscombinedwiththatofcomplianceofficer,company
secretaryorothersimilarposition,companiesshouldexerciseduecarethatthecommonlawrightofprivilege
isnotcompromisedwhentheofficeractsinacapacityotherthanlegaladviser.Thecommonlawrightof
privilegeisavailabletoaclientwhenapproachingalegaladviserforlegaladviceaboutacourtmatter.
Chapter7
Internalaudit
Theneedforandroleofinternalaudit
Principle7.1:
Theboardshouldensurethatthereisaneffectiveriskbasedinternalaudit
1. Continualandrapidchangesaswellasthecomplexityofbusiness,organisationaldynamicsandthe
regulatoryenvironmentrequirecompaniestoestablishandmaintainaneffectiveinternalauditfunctionto
assistwiththeirriskmanagementprocesses.Iftheboard,initsdiscretion,decidesnottoestablishan
internalauditfunction,fullreasonsshouldbedisclosedinthecompany'sintegratedreport,withan
explanationofhowadequateassuranceofaneffectivegovernance,riskmanagementandinternalcontrol
environmenthasbeenmaintained.
2. Thekeyresponsibilityofinternalauditistotheboard,itscommittees,orboth,indischargingitsgovernance
responsibilitiesandasaminimumtoperformthefollowingfunctions:
2.1 evaluatingthecompany'sgovernanceprocessesincludingethics,especiallythe'toneatthetop'
2.2 performinganobjectiveassessmentoftheeffectivenessofriskmanagementandtheinternalcontrol
framework
2.3 systematicallyanalysingandevaluatingbusinessprocessesandassociatedcontrolsand
2.4 providingasourceofinformation,asappropriate,regardinginstancesoffraud,corruption,unethical
behaviourandirregularities.
3. Incaseswheretotaloutsourcingisselectedasthemethodforobtaininginternalauditservices,asenior
executiveordirectorshouldberesponsibleforinternalaudit,withtheresponsibilitytooversee,manage,
informandtakeaccountabilityfortheeffectivefunctioningoftheoutsourcedinternalauditactivity.This
responsibilityextendstoreportingtotheauditcommitteeandcomplyingwiththeindependencerequirements
ofaninhouseinternalauditfunction.
4. Internalaudit'sprocessesshouldbeflexibleanddynamicinaddressingemergingbusiness,organisational,
operationalandassuranceneeds.
5. Aninternalauditchartershouldbeformallydefinedandapprovedbytheboard(generallythroughitsaudit
committee).
6. TheinternalauditfunctionshouldadheretotheInstituteofInternalAuditors'StandardsfortheProfessional
PracticeofInternalAuditingandCodeofEthicsataminimum.
Internalaudit'sapproachandplan
Principle7.2:
Internalauditshouldfollowariskbasedapproachtoitsplan
7. Internalauditshouldpursueariskbasedapproachtoplanningasopposedtoacomplianceapproachthatis
limitedtoevaluationofadherencetoprocedures.Ariskbasedinternalauditapproachhasthebenefitof
assessingwhethertheprocessintendedtoserveasacontrolisanappropriateriskmeasure.
8. Aneffectiveinternalauditfunction'splanningandapproachshouldbeinformedbythestrategyofthe
companyandshouldattempttoalignwithbusinessperformance.Internalaudit,asasignificantroleplayerin
thegovernanceprocess,shouldcontributetotheefforttoachievestrategicobjectivesandshouldprovide
effectivechallengetoallaspectsofthegovernance,riskmanagementandinternalcontrolenvironment.
9. Aninternalauditfunctionshouldbeindependentfrommanagementwhoinstitutedthecontrolsandshouldbe
anobjectiveproviderofassurancethatconsiders:
9.1 therisksthatmaypreventorslowdowntherealisationofstrategicgoals
9.2 whethercontrolsareinplaceandfunctioningeffectivelytomitigatetheseand
9.3 theopportunitiesthatwillpromotetherealisationofstrategicgoalsthatareidentifiedingoodtime,
assessedtimely,adequatelyandmanagedeffectivelybythecompany'smanagementteam.
10. Internalauditshouldensurethattheinternalauditreportingmeetsmanagementandauditcommittee
requirements.
11. Thechiefauditexecutive's(CAE's)internalauditplanningshouldtaketheformofanassessmentofrisksand
opportunitiesfacingthecompanyandshould:
11.1 alignwiththecompany'sriskassessmentprocess(consideringtheriskmaturityofthecompany)
11.2 focusonprovidinganassessmentofthecompany'scontrolenvironment
11.3 considerthecompany'srisksandopportunitiesidentifiedbymanagementandotherkeystakeholders
11.4 takecognisanceofindustryrelevantemergingissuesand
11.5 discusstheadequacyofresourcesandskillsavailabletotheCAEtoexecutetheplanwiththeaudit
committee.
Principle7.3:
Internalauditshouldprovideawrittenassessmentoftheeffectivenessofthe
company'ssystemofinternalcontrolandriskmanagement
12. Internalauditplaysanimportantroleinprovidingassurancetotheboardregardingtheeffectivenessofthe
systemofinternalcontrolsandriskmanagementofthecompany.Theboardshouldreportonthe
effectivenessofthesystemofinternalcontrolsintheintegratedreport.
13. Internalcontrolsshouldbeestablishednotonlyoverfinancialmatters,butalsooperational,complianceand
sustainabilityissuesinordertomanagetherisksfacingthecompany.
14. Acompanyshouldmaintainaneffectiveriskmanagementandinternalcontrolframeworkthatshouldinclude:
14.1 clearaccountabilityandresponsibilitybetweentherolesoftheboard,itsboardcommittees,
managementandinternalauditaswellasotherassuranceproviders
14.2 aclearunderstandingoftheriskmanagementframeworkandriskmanagementprocessesamongall
roleplayers
14.3 themannerinwhichriskmanagementandinternalcontrolscontributetoandimprovebusiness
performanceand
14.4 clarificationregardingthevalueaddedbytherespectiveroleplayersinbusinessperformance.
15. Managementshouldspecifytheelementsofacontrolframeworkaccordingtowhichthecompany'scontrol
environmentcanbemeasured.Suchacontrolframeworkshouldcontainaclearlinkbetweenthecompany's
riskmanagementandindependentassuranceprocesses.
16. Internalauditshouldprovideawrittenassessmentoftheeffectivenessofthesystemofinternalcontrolsand
riskmanagementtotheboard.Theassessmentregardinginternalfinancialcontrolsshouldbereported
specificallytotheauditcommittee.
17. Theinternalauditfunctionshouldpossesstheappropriatecompetenciestoallowittofocusitsattention
acrosstheriskandinternalcontrolspectrum.
Principle7.4:
Theauditcommitteeshouldberesponsibleforoverseeinginternalaudit
18. Ariskbasedinternalauditplanshouldbeagreedwiththeauditcommitteeforitsapproval.
19. Theinternalauditfunctionshouldprovideindependentandobjectiveassurancetotheauditcommitteethat
theriskmanagementandinternalcontrolconsiderationsofthecompanyareadequatelycontemplatedand
respondedtobyrelevantpersonnelandthatthelevelofmanagementoversightandriskmanagementis
appropriate,relevantandreliable.
20. Internalauditshouldplayapivotalroleinthecombinedassurancemodelbyprovidingindependentassurance
onriskmanagementandsystemsofinternalcontrol.Contributorstocombinedassuranceinclude
predominantly:internalaudit,riskmanagement,qualityassurers,environmentalandoccupationalhealthand
safetyauditors,externalaudit,otherexternalassuranceprovidersandmanagement.Thecombined
assuranceframeworkisdescribedinChapter3,Principle3.5.
21. Theinternalauditfunction,generallythroughtheauditcommittee,shouldassuretheboardthatthecombined
assurancemodelembeddedwithinthecompanyiscoordinatedsoastobestoptimisecosts,avoidduplication,
andpreventassuranceoverloadandassessmentfatigue.
22. Theauditcommitteeshouldevaluatetheperformanceoftheinternalauditfunctioneveryyeartoensurethat
internalauditisfulfillingitsresponsibilitytoassistandadvisetheauditcommitteeandtheboard.Toensure
thatinternalauditmaintainsappropriateindependenceitspay,bonusandotherbenefitsshouldbe
determinedseparatelytothatundertakenforthebusiness.
23. Theauditcommitteeshouldensurethattheinternalauditfunctionissubjectedtoanindependentquality
review,eitherinlinewithIIAstandardsorasandwhentheauditcommitteedeterminesitappropriate,asa
measuretoensurethefunctionremainseffective.
24. Internalauditshouldestablishandmaintainastrongworkingrelationshipwiththeauditcommittee.TheCAE
shouldreportfunctionallytotheauditcommitteechairman.
25. Theauditcommitteeshouldbeultimatelyresponsiblefortheappointment,performanceassessmentand
dismissalofaCAEoroutsourcedinternalauditserviceprovider.
26. Theauditcommitteeshouldensurethattheinternalauditfunctionissufficientlyresourcedandhasthe
appropriatebudgettomeetthecompany'sexpectations.
27. TheCAEshoulddevelopasoundworkingrelationshipwiththeauditcommitteeby:
27.1 providinganobjectivesetofeyesandearsacrossthecompany
27.2 providingassuranceandawarenessonrisksandcontrolsspecifictothecompanyanditsindustryand
geographicsector
27.3 positioninginternalauditasatrustedstrategicadvisertotheauditcommittee
27.4 confirmingtotheauditcommittee,atleastonceayear,theindependenceoftheinternalauditfunction
and
27.5 communicatingregularlywiththeauditcommitteechairman.
28. Internalauditshouldreportatallauditcommitteemeetingsandconsidermeetingwiththeauditcommittee
chairmanbeforeandimmediatelyaftereachauditcommitteemeeting.
29. TheCAEshouldattendallauditcommitteemeetingsandprovidethemeetingwithawrittenassessmentof
theeffectivenessofthegovernance,riskandcontrolenvironment.TheCAEshouldreportonhow
managementhasorwillrepairormitigateanydeficiencies.TheCAEshouldassuretheauditcommitteethat
sufficientworkhasbeendone,usingariskbasedapproach,tosupporttheassessment.
30. TheCAE'sassessmentoftheeffectivenessofthegovernance,riskandcontrolenvironmentshouldnot
necessarilyrelatetoaparticularfinancialyearbutshouldbebasedonauditscompletedbytheinternalaudit
functionsincethepreviousreportingperiod.Therefore,therollingofassessmentsisrecommended.However,
thereshouldalsoberecognitionoftherequirementsofintegratedreporting.Theauditcommitteeshould
providecommentonthestateoftheinternalfinancialcontrolenvironmentinthecompany'sintegratedreport.
31. TheCAE'sassessmentshouldconsiderthescope,natureandextentofauditworkperformed,andevaluate
whattheevidencefromtheauditmeansconcerningtheadequacyandeffectivenessofthegovernance,risk
andcontrolenvironment(refertoChapter4).Suchanassessmentshouldexpress:
31.1 theevaluationcriteriaandapproachused
31.2 thescopeandperiodoverwhichtheassessmentapplies
31.3 whohasresponsibilityfortheestablishmentandmaintenanceofinternalcontrolsand
31.4 themeasureofdegreeofassuranceprovided.
32. Thequalityoftheinternalauditteamshouldbeardirectlyonitsabilitytoservicecomplexareasofthe
businessandprovidegreatervaluetothecompanyandauditcommittee.
Internalaudit'sstatusinthecompany
Principle7.5:
Internalauditshouldbestrategicallypositionedtoachieveitsobjectives
33. Companiesshouldhaveaneffectiveinternalauditfunctionthatisindependentandobjective.Internalaudit
shouldreportfunctionallytotheauditcommitteetoassurethisandshouldhavetherespectandcooperation
ofboththeboardandmanagement.
34. TheCAEshouldhaveastandinginvitationtoattendasaninviteeanyoftheexecutivecommitteeorother
committeemeetings.Thepositionas'invitee'istoprotecttheindependenceofinternalaudit.TheCAEshould
beapprisedformallyofthecompany'sstrategyandperformancethroughmeetingswiththechairman,the
CEO,orboth.
35. Withthefocusoncorporategovernance,scrutinyofriskmanagementanddirectauditcommitteeoversightof
internalaudit,thedegreeofinteractionbetweentheauditandriskcommitteeswithinternalauditshould
ensurethatanoptimumlevelofcontroloversightismaintained.
36. Theinternalauditfunctionshouldbeskilledandresourcedtotheextentthattheirtoolsandaudittechniques
keeppacewiththecomplexityandvolumeofriskandassuranceneeds.
37. Internalauditorsshouldhavetheappropriatetechnicalandbusinessskillstoensurethattheyareconnected
totherealitiesofthebusinessandorganisationaldynamicsofthecompanyandareabletoeffectively
challengeissuesrelatingtoallfacetsofacompany.
38. TheCAEshoulddevelopandmaintainaqualityassuranceandimprovementprogrammethatcoversall
aspectsoftheinternalauditfunction.
Chapter8
Governingstakeholderrelationships
Principle8.1:
Theboardshouldappreciatethatstakeholders'perceptionsaffecta
company'sreputation
1. Stakeholders'overallassessments(andthereforeaggregateperceptions)ofcompanies,resultinthe
formationofcorporatereputations.Reputationisbasedonhowwellacompanyperformscomparedwiththe
legitimateinterestsandexpectationsofstakeholders.Thereisgrowingawarenessofhowimportantthe
contributionofreputationistotheeconomicvalueofthecompany.
2. Thegapbetweenstakeholderperceptionsandtheperformanceofthecompanyshouldbemanagedand
measuredtoenhanceorprotectcorporatereputationandtoavoiddamageordestructionbycompany
actions.Whatthecompanydoes,andnotonlywhatitcommunicates,ultimatelyshapestheperceptionsof
stakeholders.However,communicationassistsinbridgingactualandperceivedgapsthatmayoccurandit
facilitatesabalancedassessmentofthecompany.
3. Inlightoftheimpactthatstakeholderperceptionsmayhaveonreputation,companiesshouldrealisethat
stakeholderinterestsandexpectations,evenifnotconsideredwarrantedorlegitimate,shouldbedealtwith
andcannotbeignored.
4. Theboardshouldbetheultimatecustodianofthecorporatereputationandstakeholderrelationships.The
company'sreputationanditslinkagewithstakeholderrelationshipsshouldthereforebearegularboard
agendaitem.Theboardshouldtakeaccountofandrespondtothelegitimateinterestsandexpectationsof
stakeholderslinkedtothecompanyinitsdecisionmaking.
5. Aninterestorexpectationofastakeholderis,consideredtobelegitimateifareasonableandinformed
outsiderwouldconcludeittobevalidandjustifiableonalegal,moralorethicalbasisinthecircumstances.
6. Astakeholderinclusivecorporategovernanceapproachrecognisesthatacompanyhasmanystakeholders
thatcanaffectthecompanyintheachievementofitsstrategyandlongtermsustainedgrowth.Stakeholders
canbeconsideredtobeanygroupthatcanaffectthecompany'soperations,orbeaffectedbythecompany's
operations.Stakeholdersincludeshareholders,institutionalinvestors,creditors,lenders,suppliers,
customers,regulators,employees,unions,themedia,analysts,consumers,societyingeneral,communities,
auditorsandpotentialinvestors.Thislistisnotexhaustive.
7. Theboardshouldfromtimetotimeidentifyimportantstakeholdergroupings,aswellastheirlegitimate
interestsandexpectations,relevanttothecompany'sstrategicobjectivesandlongtermsustainability.
8. Stakeholdersthatcouldmateriallyaffecttheoperationsofthecompanyshouldbeidentified,assessedandbe
dealtwithaspartoftheriskmanagementprocess(refertoChapter4).Thesestakeholdersshouldinclude
notonlystakeholderswhocouldnegativelyimpactonacompany,butalsostakeholderswhocouldaddvalue
tothecompanybyenhancingthewellbeingandsustainabilityofthecompanyorpositivelyimpactonthe
reputationofthecompany.Forinstance,alocalcommunitymaynotaffecttheoperationsofthecompany
itself,butthewayinwhichthecompanyimpactsthecommunitycouldaffectitsreputation.
9. Companiesshouldtakeaccountofthefactthatstakeholders'interestsinthecompanyaredynamicand
subjecttochange.Itisthereforenecessarytoreviewtheprocessforidentificationandrespondingtothe
legitimateinterestsandexpectationsatleastonceayear.
Principle8.2:
Theboardshoulddelegatetomanagementtoproactivelydealwith
stakeholderrelationships
10. Managementshoulddevelopforadoptionbytheboard,astrategyandsuitablepoliciesforthemanagement
ofitsrelationswithallstakeholdergroupings.
11. Theboardshouldconsiderfromtimetotimewhetheritisappropriatetopublishitsstakeholderpolicies.Ifthe
boarddecidesthatitisinitsbestinterestsnottopublishitsstakeholderpolicies,itshouldconsiderwhether,
apartfromanylegalrequirements,itwouldbewillingtodisclosealloranyofthesetoanystakeholderson
request.
12. Theboardshouldconsiderwhetheritisappropriatetopublishalistofitsstakeholdergroupings(notthe
namesofindividualmembersofanystakeholdergrouping)whichitintendstodealwithonaproactivebasis,
andthemethodofengagement.
13. Theboardshouldoverseetheestablishmentofmechanismsandprocessesthatsupportstakeholdersin
constructiveengagementwiththecompanyandtheboard.Thesemechanismsandprocessesshouldbe
incorporatedinthestakeholderpolicies.
14. Constructiveengagementisaimedatultimatelypromotingenhancedlevelsofcorporategovernance.It
enablesthecompanyandthestakeholderstosharetheirperspectivesontheinterestsofthecompany.
Constructiveengagementshouldnotamounttosecondguessingtheboardormanagementofthecompany
orpermittinginterferenceorundueinfluenceintherunningofthecompany.
15. Constructiveengagementwithstakeholderscouldprovidecompanieswithvaluableinformationabout
stakeholders'views,externalevents,marketconditions,technologicaladvances,andtrendsorissues.This
canassistcompaniesanticipate,understand,andrespondtoexternalchangesmoreefficiently,thereby
enablingthecompanytodealwithchallengesmoreeffectively.
16. Theboardshouldguardagainstusinglegalorotherprocessestofrustrateorblockconstructiveengagement
bystakeholders,forinstance,bycontinuallycompellingstakeholderstoresorttocourts.Thisshouldnot
preventtheboardfromresortingtolitigationorotherdisputeresolutionmechanismswhereappropriateto
protectthecompany'slegalinterests.
17. Astructuredprocessofengagementbetweenacompanyanditsstakeholders,cognisantofuniform
disclosureofinformationandinsidertradingrestraintsimposedbylaw,hasmanypotentialbenefits.
Structuredengagementcouldbeparticularlyusefulwhen,forinstance,preparingforanannualgeneral
meeting.Itcouldreducetheriskofconfrontation,couldpreventtheboardhavingtospendunnecessarytime
inconstantinterventionswithstakeholders,andcouldmitigateagainstmischievousactionbycompetitors.
18. TheboardshouldencourageshareholderstoattendAGMsandothercompanymeetings,atwhichallthe
directorsshouldbepresent.ThechairmenofeachoftheboardcommitteesshouldbepresentattheAGM.
19. TheboardshouldconsidernotonlyformalprocessessuchastheAGMforinteractionwithitsstakeholders.It
shouldalsoconsiderinformalprocessessuchasdirectcontact,websites,advertising,orpressreleases.The
formationofstakeholderassociationsshouldbeencouragedwhereappropriate.
20. Stakeholdersshouldconsidertheirresponsibilitiesasstakeholdersinthecompany.Stakeholdersshould,for
instance,becircumspectaboutmakingpublicstatementsthatcandamagetheinterestsofthecompany.
Stakeholdersshouldclearlyandinaconstructivemannercommunicatetotheboardaboutthestepsthey
wouldcontemplateifdialogueisconsideredtohavefailed.Litigationshouldbealastresort.
21. Iftheboardiswillingtoengagedirectlywithanystakeholdergroupings,therepresentativesofthecompany
andstakeholdersmustbecarefulhowtheydealwithinformationthatcouldbesharepricesensitive.Itis
incumbentuponboththecompanyandthestakeholderstofamiliarisethemselveswithinsidertradinglaws.
Eventakingthisintoaccount,stakeholdersshouldencouragethecompanytoshareinformationwithall
stakeholdersassoonaspossible.UseofSENS,theJSEnewsservice,canensurethatinstancesofunequal
disclosureareminimised.Astakeholderliaisonforum,electronicorotherwise,thatallstakeholderscanaccess
withrelativeeasecanpreventorreducetheproblemofonlycertainstakeholdersbeinginpossessionof
insideinformation.
22. Theboardshoulddiscloseinitsintegratedreportthenatureofitsdealingswithitsstakeholdersandthe
outcomesofthesedealings.
Principle8.3:
Theboardshouldstrivetoachievetheappropriatebalancebetweenits
variousstakeholdergroupings,inthebestinterestsofthecompany
23. Thelawdirectstheboardtoactinthebestinterestsofthecompanyandtheboardshould,withinthese
confines,strivetoachieveanappropriatebalancebetweentheinterestsofvariousstakeholders.Indoingso,
theboardshouldtakeaccount,asfaraspossible,ofthelegitimateinterestsandexpectationsofits
stakeholdersinitsdecisionmaking.
24. Boarddecisionsonhowtobalanceinterestsofstakeholdersshouldbeguidedbytheaimofultimately
advancingthebestinterestsofthecompany.Thisappliesequallytotheachievementofthe'triplecontext'
andthenotionofgoodcorporatecitizenshipasdescribedinChapter1.Thisdoesnotmeanthatacompany
shouldandcouldalwaystreatallstakeholdersfairly.Somemaybemoresignificanttothecompanyin
particularcircumstancesanditisnotalwayspossibletopromotetheinterestsofallstakeholdersinall
corporatedecisions.Itisimportant,however,thatstakeholdershaveconfidencethattheboardwillconsider
theirlegitimateinterestsandexpectationsinanappropriatemannerandguidedbywhatisinthebest
interestsofthecompany.
25. Althoughthecompanyhastheprimarygovernancedutyofmanagingtherelationshipswithitsstakeholders,
thestakeholdersshouldalso,wherepossible,accommodatetheprocess.Theboardcannotachieve
successfulinteractionwiththecompany'sstakeholdersunilaterally.Constructiveengagementrequiresthe
cooperationofthestakeholders.
26. Engagementismorelikelytosucceedinachievingasatisfactoryresultwhenstakeholdersactivelysupport
constructiveengagementandtheprinciplesofgoodgovernance(includingthatofgoodcorporatecitizenship),
appreciatethelegaldutiesoftheboard,considerthebestinterestsofthecompany,takealongertermview
andarenotsolelyfocusedonadvancingtheirowninterests.
Principle8.4:
Companiesshouldensuretheequitabletreatmentofshareholders
Thissectionappliesonlytocompaniesandstateownedcompanies
27. Theremustbeequitabletreatmentofallholdersofthesameclassofsharesissuedbythecompanyas
regardsthoseshares,includingminorities,andbetweenholdersofdifferentclassesofsharesinthecompany,
exceptwhereitisnecessarytoprotecttheinterestsoftheshareholdersofthoseclassesthathaveapriority
inranking.
28. Minorityshareholdersshouldbeprotectedfromabusiveactionsbyorintheinterestsofthecontrolling
shareholder.
Principle8.5:
Transparentandeffectivecommunicationwithstakeholdersisessentialfor
buildingandmaintainingtheirtrustandconfidence
29. Thestakeholderinclusiveapproachaims,amongotherthings,tostimulateappropriatedialoguebetweenthe
companyanditsstakeholders.Suchdialoguecanenhanceorrestorestakeholderconfidence,remove
tensions,relievepressureoncompanyreputation,andofferopportunitiestoalignexpectations,ideasand
opinionsonissues.
30. Relationshipswithstakeholderscanonlybebuiltandmaintainedifthecompanyprovidescomplete,timely,
relevant,accurate,honestandaccessibleinformation.
31. Thedegreeofcorporatetransparencyandcommunicationshould,however,beconsideredwithreferenceto
thecompany'sstakeholderpolicies,anyrelevantlegalrequirementsandthemaintenanceofthecompany's
competitiveadvantage.Thedecisiononthelevelofdisclosureofinformationanditstimingisastrategicone.
32. Thecompanyshouldimplementprocessestopromoteappropriatedisclosure.However,theboardshouldtake
accountofitsdutytoprotectthelongtermsustainabilityofthecompanywhenitconsiderscommunications
aboutpotentiallyadversesituationsfacingthecompanythatmayreasonablybecorrectedintheshortterm.
33. Allcommunicationtostakeholdersshoulduseclearandsimplelanguageandshouldsetoutallrelevantfacts,
bothpositiveandnegative.Itshouldbestructuredtoenableitstargetmarkettounderstandtheimplications
ofthecommunication.Companiesshouldusecommunicationchannelsthatareaccessibletoitsstakeholders.
34. Theboardshould,aspartofthecompany'sstakeholderpolicies,adoptcommunicationguidelinesthatsupport
aresponsiblecommunicationprogramme.Theseguidelinesshoulddefinetherespectiveresponsibilitiesofthe
boardandmanagementinregardtostakeholdercommunication.
35. Theboardshouldbeconcernedthatthestakeholdercommunicationprogrammeprovidethat:allwhohavea
righttoknowareproperlyinformedthateffectivefeedbacksystemsexistthattheboardisalertedina
timelyfashiontomattersthatshouldbecommunicatedtostakeholdersandthatprocessesexisttodeal
rapidlyandsensitivelywithanycrisis.
36. Acompanyshouldconsiderdisclosinginitsintegratedreportthenumberandreasonsforrefusalsofrequests
forinformationthatwerelodgedwiththecompanyintermsofthePromotionofAccesstoInformationAct,
2000.Disclosuremustbeconsideredhavingregardtowhetherdivulgingtheinformationthatthedisclosure
willnecessitatewilldetrimentallyaffectthecompanyorbreachconfidentialityoranyagreementtowhichitis
aparty.
Disputeresolution
Principle8.6:
Theboardshouldensuredisputesareresolvedaseffectively,efficientlyand
expeditiouslyaspossible
37. Disputes(orconflict)involvingcompaniesareaninevitablepartofdoingbusinessandprovideanopportunity
notonlytoresolvethedisputeathandbutalsotoaddressandsolvebusinessproblemsandtoavoidtheir
recurrence.
38. Itisincumbentupondirectorsandexecutives,incarryingouttheirdutyofcaretoacompany,toensurethat
disputesareresolvedeffectively,expeditiouslyandefficiently.Thismeansthattheneeds,interestsandrights
ofthedisputantsmustbetakenintoaccount.Further,disputeresolutionshouldbecosteffectiveandnotbe
adrainonthefinancesandresourcesofthecompany.
39. Alternativedisputeresolution(ADR)hasbeenamosteffectiveandefficientmethodologytoaddressthecostly
andtimeconsumingfeaturesassociatedwithmoreformallitigation.Statisticsrelatedtosuccessrangefroma
lowof50%,forthosesituationsinwhichthecourtshavehandeddownacaseforADR,toanaverageof85%
90%wherebothpartiesarewillingparticipants.
40. ADRhasbecometheinterventionofchoiceinmanyinstancesandsoitisappropriateforspecialiststo
improvetheoverallrateofintakeandsuccess.Clearlythebestoutcomewouldbetoincreasetheoverall
satisfactionwiththeprocessandoutcomeofsuccessfulresolution.
41. Disputesmayariseeitherwithinacompany(internaldisputes)orbetweenthecompanyandoutsideentities
orindividuals(externaldisputes).Theboardshouldadoptformaldisputeresolutionprocessesforinternaland
externaldisputes.
42. InternaldisputesmaybeaddressedbyrecoursetotheprovisionsoftheActandbyensuringthatinternal
disputeresolutionsystemsareinplaceandfunctioneffectively.
43. Externaldisputesmaybereferredtoarbitrationoracourt.Howeverthesearenotalwaystheappropriateor
mosteffectivemeansofresolvingsuchdisputes.Mediationisoftenmoreappropriatewhereinterestsofthe
disputingpartiesneedtobeaddressedandwherecommercialrelationshipsneedtobepreservedandeven
enhanced.
44. Adistinctionshouldbedrawnbetweenprocessesofdisputeresolution(litigation,arbitration,mediationand
others)andtheinstitutionsthatprovidedisputeresolutionservices.
45. Inrespectofalldisputeresolutioninstitutionsandregardlessofthedisputeresolutionprocessorprocesses
adoptedbyeach,anindispensablerequirementisitsindependenceandimpartialityinrelationtotheparties
indispute.
46. Thecourts,independentmediationandarbitrationservices(notattachedtoanydisputingparties)andformal
disputeresolutioninstitutionscreatedbystatuteareempoweredtoresolvedisputesbymediationor
conciliationandbyadjudication.Theireffectiveuseshouldbeensuredbycompanies.
47. Successfulresolutionofdisputesentailsselectingadisputeresolutionmethodthatbestservestheinterests
ofthecompany.Thiswould,inturn,entailgivingconsiderationtosuchissuesasthepreservationofbusiness
relationshipsandcosts,bothinmoneyandtime,especiallyexecutivetime.
48. MediationisoftensuggestedasanADRmethodwiththeassumptionthatthepartiesarewillingtoengage
fullyintheprocess.Aprocessofscreeningisundertakenbymanymediators,whichexcludesthosewhofall
shortofthecriteriaofwillandcapacity.
49. Itisalsoimportanttorecognisethattheuseofmediationallowsthepartiestocreateoptionsforresolution
thataregenerallynotavailabletothepartiesinacourtprocessorinarbitration.Further,theActmakes
provisionforalternativedisputeresolutionprocessestobeconductedinprivate.
50. MediationisnotdefinedintheAct.TheconcepthasanacceptedmeaninginpracticeinSouthAfrica.Mediation
maybedefinedasaprocesswherepartiesindisputeinvolvetheservicesofanacceptable,impartialand
neutralthirdpartytoassisttheminnegotiatingaresolutiontotheirdispute,bywayofasettlement
agreement.Themediatorhasnoindependentauthorityanddoesnotrenderadecision.Alldecisionmaking
powersinregardtothedisputeremainwiththeparties.Mediationisavoluntaryprocessbothinitsinitiation,
itscontinuationanditsconclusion.
51. SimilarlyconciliationisnotdefinedintheAct.Conciliationis,likemediation,astructurednegotiationprocess
involvingtheservicesofanimpartialthirdparty.Theconciliatorwill,inadditiontoplayingtheroleofa
mediator,makeaformalrecommendationtothepartiesastohowthedisputecanberesolved.
52. Onceagain,adjudicationisnotdefinedintheActbuttheprocesswillnotdiffersignificantlyfromarbitration.
53. Inselectingadisputeresolutionprocess,thereisnouniversalsetofrulesthatwoulddictatewhichisthe
mostappropriatemethod.Eachcaseshouldbecarefullyconsideredonitsmeritsand,atleast,thefollowing
factorsshouldbetakenintoaccount:
53.1 Timeavailablefortheresolutionofthedispute.Formalproceedings,andinparticularcourtproceedings,
oftenentailprocedureslastingmanyyears.Bycontrast,alternativedisputeresolution(ADR)methods,
andparticularlymediation,canbeconcludedwithinalimitedperiodoftime,sometimeswithinaday.
53.2 Principleandprecedent.Wheretheissueindisputeinvolvesamatterofprincipleandwherethecompany
desiresaresolutionthatwillbebindinginrelationtosimilardisputesinthefuture,ADRmaynotbe
suitable.Insuchcasescourtproceedingsmaybemoreappropriate.
53.3 Businessrelationships.Litigationandprocessesinvolvinganoutcomeimposedonbothpartiescan
destroybusinessrelationships.Bycontrastmediation,wheretheprocessisdesignedtoproducea
solutionmostsatisfactorytobothparties(awinwinresolution),relationshipsmaybepreserved.Where
relationshipsandparticularlycontinuingbusinessrelationshipsareconcerned,therefore,mediationor
conciliationmaybepreferable.
53.4 Expertrecommendation.Wherethepartieswishtonegotiateasettlementtotheirdisputebutlackthe
technicalorotherexpertisenecessarytodeviseasolution,arecommendationfromanexpertwhohas
assistedthepartiesintheirnegotiationsmaybeappropriate.Thisprocesswouldbetermedconciliation.
53.5 Confidentiality.Privatedisputeresolutionproceedingsmaybeconductedinconfidence.Further,theAct
makesprovisionforalternativedisputeresolutionprocessestobeconductedinprivate.
53.6 Rightsandinterests.Itisimportantinselectingadisputeresolutionprocesstounderstanda
fundamentaldifferencetheyhavetoadjudicativemethodsofdisputeresolution(courtproceedings,
arbitrationandadjudication).Theadjudicativeprocessinvolvesthedecisionmakerimposinga
resolutionofthedisputeonthepartiesafterhavingconsideredthepastconductofthepartiesin
relationtothelegalprinciplesandrightsapplicabletothedispute.Thisinevitablyresultsinanarrow
rangeofpossibleoutcomesbasedonfundamentalconsiderationsofrightandwrong.Bycontrast,
mediationandconciliationallowtheparties,infashioningasettlementoftheirdispute,toconsidertheir
respectiveneedsandinterests,bothcurrentandfuture.Accordingly,wherecreativeandforward
lookingsolutionsarerequiredinrelationtoaparticulardisputeandparticularlywherethedispute
involvesacontinuingrelationshipbetweentheparties,mediationandconciliationaretobepreferred.
Forexample,acontractcanbeamendedormateriallyrewritten.
54. Mediationandconciliationrequiretheparticipationandpresenceofpersonsempoweredandmandatedto
resolvethedispute.
55. Theboardshouldselecttheappropriateindividual(s)torepresentthecompanyinalternativedispute
resolution(ADR)processes.
56. TheCourtswillenforceanADRclausetoresolveadisputeprovidingallaresubjecttoanagreedsetofrules
andpracticessuchastheplaceandlanguageoftheprocess.
57. Contractingpartieswhoareattunedtothefactthatadisputewillbeadministeredandresolvedbyathird
partyarenaturallyinclinedtoresolveitthemselves.If,forexample,theADRprocessesaremadesubjectto
therulesoftheArbitrationFoundationofSouthernAfrica(AFSA),itwillbeadministeredbyAFSA.IftheADR
processesarearbitrary,arecalcitrantpartyinbadfaithmaybeabletofrustratetheprocess.
Chapter9
Integratedreportinganddisclosure
Transparencyandaccountability
Principle9.1:
Theboardshouldensuretheintegrityofthecompany'sintegratedreport
1. Integratedreportingmeansaholisticandintegratedrepresentationofthecompany'sperformanceintermsof
bothitsfinancesanditssustainability.Thiscantaketheformofasinglereportordualreports.Theemphasis
isonsubstanceoverformandintegrationshouldnotbereducedmerelytothemanifestationinphysicalterms
ofoneormoredocuments.Whileatrulyintegratedreportshouldbepresentedinonedocument,itcanbe
presentedinmorethanonedocument.Iftheintegratedreportencompassesmorethanonedocument,the
documentsshouldbemadeavailableatthesametimeanddisclosedasanintegratedreport.
2. Acompanyshouldhavecontrolstoenableittoverifyandsafeguardtheintegrityofitsintegratedreport.In
thisregardtheboardshouldensurethatthecompanyhasimplementedastructureofreviewand
authorisationdesignedtoensurethetruthfulandfactualpresentationofthecompany'sfinancialposition.The
structureshouldinclude:
2.1 reviewandconsiderationofthefinancialstatementsbytheauditcommitteeand
2.2 aprocesstoensuretheindependenceandcompetenceofthecompany'sexternalauditor(s).Please
refertoChapter3Principle3.4formoredetailontheauditcommittee'sroleinintegratedreporting.
3. Theauditcommittee'sroleinsustainabilityreportingshouldbetoassisttheboardinapprovingthedisclosure
ofsustainabilityissuesintheintegratedreportbyensuringthattheinformationisreliableandthatno
conflictsordifferencesarisewhencomparedtothefinancialresults.Concerningitsreliability,theaudit
committeeshouldrecommendindependentassuranceoverthesustainabilityreportingtotheboard.
4. Astructureasdescribedabovedoesnotdiminishtheultimateresponsibilityoftheboardtoensurethe
integrityofthecompany'sintegratedreport.
5. Theintegratedreportshouldbepreparedeveryyearandshouldconveyadequateinformationaboutthe
operationsofthecompany,thesustainabilityissuespertinenttoitsbusiness,thefinancialresults,andthe
resultsofitsoperationsandcashflows.
6. Reportingeffectivelyaboutthegoalsandstrategiesofthecompany,aswellasitsperformancewithregardto
economic,socialandenvironmentalissues,alsoservestoalignthecompanywiththelegitimateinterestsand
expectationsofitsstakeholders,andatthesametime,obtainstakeholderbuyinandsupportforthe
objectivesthatthecompanyispursuing.Thissupportcanprovetobeinvaluableduringdifficulttimes,for
instancewhenthecompanyneedscertainapprovalsorauthority,orwhenitneedsandreliesonthe
confidenceandloyaltyofcustomers.
7. Integratedreportingshouldbefocusedonsubstanceoverformandshoulddiscloseinformationthatis
complete,timely,relevant,accurate,honestandaccessibleandcomparablewithpastperformanceofthe
company.Itshouldalsocontainforwardlookinginformation.
Principle9.2:
Sustainabilityreportinganddisclosureshouldbeintegratedwiththe
company'sfinancialreporting
Financialdisclosure
8. Theannualfinancialstatementsshouldbeincludedintheintegratedreport.
9. Theboardshouldincludecommentaryonthecompany'sfinancialresults.Thiscommentaryshouldinclude
informationtoenableastakeholdertomakeaninformedassessmentofthecompany'seconomicvalue,by
allowingstakeholdersinsightintotheprospectsforfuturevaluecreationandtheboard'sassessmentofthe
keyriskswhichmaylimitthoseprospects.
10. Theboardmustdisclosewhetherthecompanyisagoingconcernandwhetheritwillcontinuetobeagoing
concerninthefinancialyearahead.Ifthereisconcernaboutthecompany'sgoingconcernstatus,theboard
shouldgivethereasonsandthestepsitistakingtoremedythesituation.
Sustainabilitydisclosure
11. Theintegratedreportshoulddescribehowthecompanyhasmadeitsmoneyhencetheneedto
contextualisefinancialresultsbyreportingonthepositiveandnegativeimpactthecompany'soperationshad
onitsstakeholders.Itisimportantforsustainabilityreportinganddisclosuretohighlightthecompany'splans
toimprovethepositivesanderadicateormitigatethenegativesinthefinancialyearahead.Thiswillenable
stakeholderstomakeaninformedassessmentoftheeconomicvalueandsustainabilityofthecompany.
12. Reportingshouldbeintegratedacrossallareasofperformance,reflectingthechoicesmadeinthestrategic
decisionsadoptedbytheboard,andshouldincludereportinginthetriplecontextofeconomic,socialand
environmentalissues.
13. Companiesshouldrecognisethattheprincipleoftransparencyinreportingsustainability(commonlybut
incorrectlyreferredtoas'nonfinancial')informationisacriticalelementofeffectivereporting.Thekey
considerationiswhethertheinformationprovidedhasallowedstakeholderstounderstandthekeyissues
affectingthecompanyaswellastheeffectthecompany'soperationhashadontheeconomic,socialand
environmentalwellbeingofthecommunity,bothpositiveandnegative.
14. Sustainabilityreportingisbecomingincreasinglyformalisedandsophisticated,whichisevidentintheGlobal
ReportingInitiativeG3guidelines.Theseguidelinesprovideanumberofimportantinnovationssincethe2002
guidelinesreferredtoinKingII.Theseincludeamuchgreateremphasisontheprincipleofmateriality,which
linkssustainabilityissuesmorecloselytostrategy,aswellastheprincipleofconsideringacompany'sbroader
sustainabilitycontext.Theformalisationofsustainabilityreportingisalsoevidentinthecurrentdevelopment
ofanISOstandard(26000)onsocialresponsibility.
15. Aswithfinancialreporting,thereisaneedforcrediblesustainabilityreportingtobothinternalaswellas
externalstakeholders.Sustainabilityreportingparametersarenotstandardisedasisthecasewithfinancial
reporting,andtheperformanceindicatorsreportedonshouldbeexplainedintermsoftheirimplicationsand
alsohavingregardtoavailablebenchmarks.ExcellentguidanceistobefoundinthethirdgenerationGlobal
ReportingInitiative(GRI)guidelinesof2007(G3guidelines)andmanylistedcompaniesalsousetheJSE
SociallyResponsibleInvestment(SRI)Indexcriteriaasaguidingframework.
16. TheGRIguidelineshavebecometheacceptedinternationalstandardforsustainabilityreporting.Although
havingaglobalstandardinplaceassistsinprovidingcommonparametersandfacilitatingbenchmarkingand
comparabilityacrosscompanies,theseshouldbeincorporatedintothecompany'ssystemsbasedonits
specificpracticalandstrategicneeds,relevantareasofoperationandstakeholderconcerns.Therefore,
sustainabilityreportingcannotbeamatterofcollatinginformationandreportingatyearend,butshouldbe
integratedwithotheraspectsofthebusinessprocessandmanagedthroughouttheyear.
Principle9.3:
Sustainabilityreportinganddisclosureshouldbeindependentlyassured
17. Assuranceoverthefinancialdisclosureintheintegratedreportshouldbeobtained.Aformalprocessof
assurancewithregardtosustainabilityreportingshouldbeestablished.RefertoChapter3,Principle3.4.
18. Providingassuranceisdifferentfromverification.Theprocessofverificationconfirmstheexistenceofstated
factsitconfirmsdata.Assuranceisabroadertermthatreferstotheintegrityofcertainprocessesand
systems.Theverificationofcertaininformationmaythereforebenecessarytoprovideassurance.The
assuranceregardingsustainabilityperformanceandreportingismorecomplexastheinformationisnot
alwayssubjecttoclearstandardsasisthecasewithfinancialreporting.Globally,twocomplementary
standardshaveemergedinsustainabilityassurance:AccountAbility'sAA1000AssuranceStandard
(AA1000AS)andtheInternationalAccountingandAuditingStandardBoard'sInternationalStandardon
AssuranceEngagements(ISAE3000).AllauditingprofessionalsinSouthAfricamustcomplywithISAE3000.
WhileAA1000ASusuallyalignstheassuranceprocesstothematerialconcernsofstakeholdersintermsofthe
reportasawhole,ISAE3000concentratesontheaccuracyandcompletenessofinformationthrougha
processofverificationofdata,systemsperformanceassessmentandevaluatingcompliancewithinthe
company'sdefinedscope.Itisthereforerecommendedthat:
18.1 'sustainability'assuranceisanongoing,integralpartoftheintegratedreportingcycleand
18.2 ISAE3000andAA1000ASmethodologiesareusedincombinationtoensuretheneedsofthe
stakeholdersandthoseofthecompanyaremetinasingleprocess.
19. Thesubjectmatterofanassuranceengagementcantakevariousforms.Forexample,performance
information,internalcontrols,claimsregardingspecificmanagementpractices,extenttowhichthereport
accordswithcertaininternationalstandardssuchastheGRI,andbehaviourintermsofcompliance.Directing
thescopeandrigouroftheassuranceengagement,isthelevelofassuranceagreedupfrontwiththe
company.Thisresultsinanexpressionofeitherareasonabletohighorlimitedtomoderateassurance
conclusion.
20. Inobtainingassurance,thecompanyshouldbeclearonthescopeoftheassurancetobeprovidedandthis
shouldalsobedisclosed.
21. Totheextentthatreportsaresubjecttoassurance,thenameoftheassurershouldbeclearlydisclosed,
togetherwiththeperiodunderreview,thescopeoftheassuranceexercise,andthemethodologyadopted.
22. Generaloversightandreportingdisclosureshouldbedelegatedbytheboardtotheauditcommittee.
23. Theauditcommitteeshouldassisttheboardinreviewingtheintegratedreporttoensurethattheinformation
isreliableandthatitdoesnotcontradictthefinancialaspectsofthereport.Theauditcommitteeshouldalso
overseetheprovisionofassuranceoversustainabilityissuesinthesamewaythatitwoulddowithfinancial
matters.Forexample,itwouldconsiderwhetherappropriatepoliciesandprocessesareinplace,whether
theyareadheredto,andwhethertheinformationaboutperformanceisreliable.Thisroleoftheaudit
committeeisstillnecessarywithregardtosustainabilityperformanceandreporting,evenifthereisa
separatesustainabilitycommittee,orifsustainabilitymattersareaddressedbyanotherboardcommittee.
24. Theboardshouldberesponsiblefortheaccuracyandcompletenessofthesustainabilityreportingand
disclosurebutmayrelyontheopinionofacredible,independentassuranceprovider.
ThePrinciplesataGlance
Principle1.1: Theboardshouldprovideeffectiveleadershipbasedonanethicalfoundation
Principle1.2: Theboardshouldensurethatthecompanyisandisseentobearesponsiblecorporatecitizen
Principle1.3: Theboardshouldensurethatthecompany'sethicsaremanagedeffectively
Principle2.1: Theboardshouldactasthefocalpointforandcustodianofcorporategovernance
Principle2.2: Theboardshouldappreciatethatstrategy,risk,performanceandsustainabilityare
inseparable.
Principle2.3: Theboardshouldprovideeffectiveleadershipbasedonanethicalfoundation
Principle2.4: Theboardshouldensurethatthecompanyisandisseentobearesponsiblecorporatecitizen
Principle2.5: Theboardshouldensurethatthecompany'sethicsaremanagedeffectively
Principle2.6: Theboardshouldensurethatthecompanyhasaneffectiveandindependentauditcommittee
Principle2.7: Theboardshouldberesponsibleforthegovernanceofrisk
Principle2.8: Theboardshouldberesponsibleforinformationtechnology(IT)governance
Principle2.9: Theboardshouldensurethatthecompanycomplieswithapplicablelawsandconsiders
adherencetononbindingrules,codesandstandards
Principle2.10: Theboardshouldensurethatthereisaneffectiveriskbasedinternalaudit
Principle2.11: Theboardshouldappreciatethatstakeholders'perceptionsaffectthecompany'sreputation
Principle2.12: Theboardshouldensuretheintegrityofthecompany'sintegratedreport
Principle2.13: Theboardshouldreportontheeffectivenessofthecompany'ssystemofinternalcontrols
Principle2.14: Theboardanditsdirectorsshouldactinthebestinterestsofthecompany
Principle2.15: Theboardshouldconsiderbusinessrescueproceedingsorotherturnaroundmechanismsas
soonasthecompanyisfinanciallydistressedasdefinedintheAct
Principle2.16: Theboardshouldelectachairmanoftheboardwhoisanindependentnonexecutivedirector.
TheCEOofthecompanyshouldnotalsofulfilltheroleofchairmanoftheboard
Principle2.17: Theboardshouldappointthechiefexecutiveofficerandestablishaframeworkforthe
delegationofauthority
Principle2.18: Theboardshouldcompriseabalanceofpower,withamajorityofnonexecutivedirectors.The
majorityofnonexecutivedirectorsshouldbeindependent
Principle2.19: Directorsshouldbeappointedthroughaformalprocess
Principle2.20: Theinductionofandongoingtraininganddevelopmentofdirectorsshouldbeconducted
throughformalprocesses
Principle2.21: Theboardshouldbeassistedbyacompetent,suitablyqualifiedandexperiencedcompany
secretary
Principle2.22: Theevaluationoftheboard,itscommitteesandtheindividualdirectorsshouldbeperformed
everyyear
Principle2.23: Theboardshoulddelegatecertainfunctionstowellstructuredcommitteesbutwithout
abdicatingitsownresponsibilities
Principle2.24: Agovernanceframeworkshouldbeagreedbetweenthegroupanditssubsidiaryboards
Principle2.25: Companiesshouldremuneratedirectorsandexecutivesfairlyandresponsibly
Principle2.26: Companiesshoulddisclosetheremunerationofeachindividualdirectorandprescribedofficer
Principle2.27: Shareholdersshouldapprovethecompany'sremunerationpolicy
Principle3.1: Theboardshouldensurethatthecompanyhasaneffectiveandindependentauditcommittee
Principle3.2: Auditcommitteemembersshouldbesuitablyskilledandexperiencedindependentnon
executivedirectors
Principle3.3: Theauditcommitteeshouldbechairedbyanindependentnonexecutivedirector
Principle3.4: Theauditcommitteeshouldoverseeintegratedreporting
Principle3.5: Theauditcommitteeshouldensurethatacombinedassurancemodelisappliedtoprovidea
coordinatedapproachtoallassuranceactivities
Principle3.6: Theauditcommitteeshouldsatisfyitselfoftheexpertise,resourcesandexperienceofthe
company'sfinancefunction
Principle3.7: Theauditcommitteeshouldberesponsibleforoverseeingofinternalaudit
Principle3.8: Theauditcommitteeshouldbeanintegralcomponentoftheriskmanagementprocess
Principle3.9: Theauditcommitteeisresponsibleforrecommendingtheappointmentoftheexternalauditor
andoverseeingtheexternalauditprocess
Principle3.10: Theauditcommitteeshouldreporttotheboardandshareholdersonhowithasdischargedits
duties
Principle4.1: Theboardshouldberesponsibleforthegovernanceofrisk
Principle4.2: Theboardshoulddeterminethelevelsofrisktolerance
Principle4.3: Theriskcommitteeorauditcommitteeshouldassisttheboardincarryingoutitsrisk
responsibilities
Principle4.4: Theboardshoulddelegatetomanagementtheresponsibilitytodesign,implementandmonitor
theriskmanagementplan
Principle4.5: Theboardshouldensurethatriskassessmentsareperformedonacontinualbasis
Principle4.6: Theboardshouldensurethatframeworksandmethodologiesareimplementedtoincreasethe
probabilityofanticipatingunpredictablerisks
Principle4.7: Theboardshouldensurethatmanagementconsidersandimplementsappropriaterisk
responses
Principle4.8: Theboardshouldensurecontinualriskmonitoringbymanagement
Principle4.9: Theboardshouldreceiveassuranceregardingtheeffectivenessoftheriskmanagement
process
Principle4.10: Theboardshouldensurethatthereareprocessesinplaceenablingcomplete,timely,relevant,
accurateandaccessibleriskdisclosuretostakeholders
Principle5.1: Theboardshouldberesponsibleforinformationtechnology(IT)governance
Principle5.2: ITshouldbealignedwiththeperformanceandsustainabilityobjectivesofthecompany
Principle5.3: TheboardshoulddelegatetomanagementtheresponsibilityfortheimplementationofanIT
governanceframework
Principle5.4: TheboardshouldmonitorandevaluatesignificantITinvestmentsandexpenditure
Principle5.5: ITshouldformanintegralpartofthecompany'sriskmanagement
Principle5.6: Theboardshouldensurethatinformationassetsaremanagedeffectively
Principle5.7: AriskcommitteeandauditcommitteeshouldassisttheboardincarryingoutitsIT
responsibilities
Principle6.1: Theboardshouldensurethatthecompanycomplieswithapplicablelawsandconsiders
adherencetononbindingrules,codesandstandards
Principle6.2: Theboardandeachindividualdirectorshouldhaveaworkingunderstandingoftheeffectof
theapplicablelaws,rules,codesandstandardsonthecompanyanditsbusiness
Principle6.3: Complianceriskshouldformanintegralpartofthecompany'sriskmanagementprocess
Principle6.4: Theboardshoulddelegatetomanagementtheimplementationofaneffectivecompliance
frameworkandprocesses
Principle7.1: Theboardshouldensurethatthereisaneffectiveriskbasedinternalaudit
Principle7.2: Internalauditshouldfollowariskbasedapproachtoitsplan
Principle7.3: Internalauditshouldprovideawrittenassessmentoftheeffectivenessofthecompany's
systemofinternalcontrolandriskmanagement
Principle7.4: Theauditcommitteeshouldberesponsibleforoverseeinginternalaudit
Principle7.5: Internalauditshouldbestrategicallypositionedtoachieveitsobjectives
Principle8.1: Theboardshouldappreciatethatstakeholders'perceptionsaffectacompany'sreputation
Principle8.2: Theboardshoulddelegatetomanagementtoproactivelydealwithstakeholderrelationships.
Principle8.3: Theboardshouldstrivetoachievetheappropriatebalancebetweenitsvariousstakeholder
groupings,inthebestinterestsofthecompany
Principle8.4: Companiesshouldensuretheequitabletreatmentofshareholders
Principle8.5: Transparentandeffectivecommunicationwithstakeholdersisessentialforbuildingand
maintainingtheirtrustandconfidence
Principle8.6: Theboardshouldensurethatdisputesareresolvedaseffectively,efficientlyandexpeditiously
aspossible
Principle9.1: Theboardshouldensuretheintegrityofthecompany'sintegratedreport
Principle9.2: Sustainabilityreportinganddisclosureshouldbeintegratedwiththecompany'sfinancial
reporting
Principle9.3: Sustainabilityreportinganddisclosureshouldbeindependentlyassured
GlossaryofTerms
ADR AlternativeDisputeResolution
AFSA ArbitrationFoundationofSouthernAfrica
Astructurednegotiationprocessinvolvingthe
servicesofanimpartialthirdparty.
Aconciliator(neutral)will,inadditiontoplaying
Conciliation
theroleofamediator,makeaformal
recommendationtothepartiesastohowthe
disputecanberesolved
Aprocesswherepartiesindisputeinvolvethe
servicesofanacceptable,impartialandneutral
thirdpartytoassisttheminnegotiatinga
resolutiontotheirdispute,bywayofasettlement
Mediation
agreement.Mediatorsdonotmakeformal
recommendationsaboutresolutionofthedispute.
'Conciliation'and'Mediation'areoftenused
interchangeablyandindiscriminately
Theprocessofworkingoutanagreementby
Negotiation
directcommunication
Independentthirdpartywhoactsasmediator,
Neutral
conciliatororchairmaninvariousADRprocedures
Beingresponsibleandabletojustifyandexplain
Accountable
decisionsandactions
AGM AnnualGeneralMeeting
BEE BlackEconomicEmpowerment
CAE ChiefAuditExecutive
CEO ChiefExecutiveOfficer
CFO ChiefFinancialOfficer
CIO ChiefInformationOfficer
Integratingandaligningassuranceprocessesina
companytomaximiseriskandgovernance
Combinedassurance oversightandcontrolefficiencies,andoptimise
overallassurancetotheauditandriskcommittee,
consideringthecompany'sriskappetite
Responsiblecorporatecitizenshipimpliesan
ethicalrelationshipofresponsibilitybetweenthe
companyandthesocietyinwhichitoperates.As
responsiblecorporatecitizensofthesocietiesin
whichtheydobusiness,companieshave,apart
Corporate
fromrights,alsolegalandmoralobligationsin
Citizenship
respectoftheireconomic,socialandnatural
environments.Asaresponsiblecorporatecitizen,
thecompanyshouldprotect,enhanceandinvest
inthewellbeingoftheeconomy,societyandthe
naturalenvironment
Isanimportantandcriticalcomponentofthe
broadernotionofcorporatecitizenship.Oneisa
goodcorporatecitizen,interalia,bybeingsocially
responsible.
Corporateresponsibilityistheresponsibilityofthe
companyfortheimpactsofitsdecisionsand
activitiesonsocietyandtheenvironment,through
transparentandethicalbehaviourthat:
CorporateSocial
contributestosustainabledevelopment,including
Responsibility/
healthandthewelfareofsocietytakesinto
Corporate
accountthelegitimateinterestsandexpectations
Responsibility(CSR)
ofstakeholdersisincompliancewithapplicable
lawandconsistentwithinternationalnormsof
behaviourandisintegratedthroughoutthe
companyandpracticedinitsrelationships.
Activitiesincludeproducts,servicesand
processes
Relationshipsrefertoacompany'sactivities
withinitssphereofinfluence
IsonemanifestationofCorporateResponsibility.
Inthenarrowsenseitreferstodonationsand
otherkindsoffinancialassistance(madeforan
CorporateSocial altruisticpurpose),andinthebroadersense,
Investment/ includesotherkindsofcontributionsbeyondjust

Responsible financialassistance.WhilstResponsible
Investment(CSI) InvestmentisanimportantaspectofCorporate
Responsibility,itshouldbeanintegralcomponent
ofabroadereconomic,socialandenvironmental
(sustainability)strategy
COO ChiefOperatingOfficer
COSO CommitteeofSponsoringOrganisations
CRO ChiefRiskOfficer
Theauditorwhoisresponsiblefortheauditand
theauditor'sreportandisspecified,inadditionto
Designatedauditor
thenameoftheauditfirmappointedbytheentity
(AuditingProfessionAct,No26of2005)
EnterpriseRiskManagementisdefinedas
comprehensiveriskmanagementthatallows
companiestoidentify,prioritise,andeffectively
ERM
managetheircrucialrisks.AnERMapproach
integratesrisksolutionsintoallaspectsof
businesspracticesanddecisionmakingprocesses
ESG Environmental,socialandgovernanceissues.
'Ethics'and'morality'(thesetermscanbeused
interchangeably)refertothatwhichisgoodor
rightinhumaninteraction.Ethicsinvolvesthree
Ethics key,interlinkedconcepts'self','good',and
'other'.Thus,one'sconductisethicalifitgives
dueconsiderationnotonlytothatwhichisgood
foroneself,butalsogoodforothers.
'Businessethics'referstotheethicalvaluesthat
Businessethics determinetheinteractionbetweenacompanyand
itsstakeholders
Ethicalvaluestranslateintobehavioural
commitments(principles)orbehavioural
directives(standards,norms,andguidelines).For
example,theethicalvalueofhonestygenerates
theprinciple"Weshouldbehonest".Thismeans
thatwehaveanethicaldutynottodeceive,butto
Ethicalvaluesand
tellthetruth.Inspecificcircumstances,the
ethicalprinciples
principleofhonestymayclashwithanother
ethicalprinciple,suchastheprincipleofrespect
"Weshouldrespectthedignityofothers".Aclash
ofethicalprinciplesresultsinanethicaldilemma.
Weneedtoemployethicalreasoningand
deliberationtoresolveethicaldilemmas.
Describingconductas'good'or'right'means
measuringitagainststandards,called'values'.
Ethicalvaluesareconvictionsweholdaboutwhat
Values isimportantinourcharacterandinteractionswith
others.Examplesofethicalvaluesareintegrity,
respect,honesty(truthfulness),responsibility,
accountability,fairness,transparency,andloyalty
Freefromdiscriminationordishonestyandin
Fairness
conformitywithrulesandstandards
GlobalReportingInitiativeanetworkbased
GRI
organisation
G3guidelines GRIguidelinesof2007
ICGN InternationalCorporateGovernanceNetwork
IIA InstituteofInternalAuditors
Independenceistheabsenceofundueinfluence
andbiaswhichcanbeaffectedbytheintensityof
Independence
therelationshipbetweenthedirectorandthe
company
Rawdatathathasbeenverifiedtobeaccurate
andtimely,isspecificandorganisedfora
purpose,ispresentedwithinacontextthatgives
Information
itmeaningandrelevanceandwhichleadsto
increaseinunderstandinganddecreasein
uncertainty
ITgovernancecanbeconsideredasaframework
thatsupportseffectiveandefficientmanagement
ITgovernance
ofITresourcestofacilitatetheachievementofa
company'sstrategicobjectives.
ApplicationService Isabusinessthatprovidescomputerbased
Provider(ASP) servicestocustomersoveranetwork
Thepropertyofbeingaccessibleandusableupon
Availability
demandbyanauthorisedentity
Istheactivityperformedbyacompanytoensure
thatcriticalbusinessfunctionswillbeavailableto
customers,suppliers,regulators,andother
entitiesthatmusthaveaccesstothosefunctions
Preventing,mitigatingandrecoveringfrom
Businesscontinuity
disruption.Theterms'businessresumption
planning','disasterrecoveryplanning'and
'contingencyplanning'alsomaybeusedinthis
contexttheyallconcentrateontherecovery
aspectsofcontinuity
Referstoasystemofpeople,datarecordsand
activitiesthatprocessthedataandinformationin
acompany,anditincludesthecompany'smanual
andautomatedprocesses.Inanarrowsense,the
Classifiedinformation t e r m informationsystem(orcomputerbased
systems informationsystem)referstothespecific
applicationsoftwarethatisusedtostoredata
recordsinacomputersystemandautomates
someoftheinformationprocessingactivitiesof
thecompany
Isastyleofcomputinginwhichdynamically
Cloudcomputing scalableandoftenvirtualizedresourcesare
providedasaserviceovertheInternet
Thepropertythatinformationisnotmade
Confidentiality availableordisclosedtounauthorisedindividuals,
entities,orprocesses
Acontrolframeworkisasetoffundamental
Controlframework controlsthatmustbeinplacetopreventfinancial
orinformationlossinacompany
Datafunctionsareallfunctionsandactivitiesthat
pertaintothecreation,modification,application,
managementandexterminationofdatawithina
company.Thisincludes,butarenotlimitedtothe
following:
Architecturaldesign
Datafunctions
Dataintegrity
Storage
Reporting
Masterdatamanagement
Dataqualityand
Legalcompliance.
Istherelationshipbetweencollectionand
disseminationofdata,technology,thepublic
Dataprivacy
expectationofprivacy,andthelegalandpolitical
issuessurroundingthem
Referstothedegreeofexcellenceexhibitedby
Dataquality thedatainrelationtotheportrayaloftheactual
phenomena
Isanemergingdisciplinewithanevolving
definition.Thedisciplineembodiesaconvergence
Information ofdataquality,datamanagement,business
governance processmanagement,andriskmanagement
surroundingthehandlingofdatainacompany.
Alsodefinedasdatagovernance
Acomprehensiveinformationmanagement
Information programwillimprovetheinformationhandling
managementprogram andadministrativeprocesses,thesecurityof
privateinformation
Informationsecurityistheprotectionof
informationfromawiderangeofthreatsinorder
Informationsecurity toensurebusinesscontinuity,minimisebusiness
risk,andmaximisereturnoninvestmentsand
businessopportunities
Thepartoftheoverallmanagementsystem,
basedonabusinessriskapproach,toestablish,
implement,operate,monitor,review,maintain
Informationsecurity andimproveinformationsecurity.The
managementprogram managementsystemincludesorganisational
structure,policies,planningactivities,
responsibilities,practices,procedures,processes
andresources
Informationsecurityprinciplesarethemeansof
Informationsecurity protectinginformationandinformationsystems
principles fromunauthorisedaccess,use,disclosure,
disruption,modificationordestruction
Thepropertyofsafeguardingtheaccuracyand
Integrity
completenessofassets
Isacomputingandcommunicationsinfrastructure
Ondemandcomputing
thatfacilitatesflexiblebusinessservicedelivery
Isadeviceattachedtoahostcomputerbehind
thechipsetwhoseprimaryfunctionalityis
dependentuponthehost,andcanthereforebe
Peripherals
consideredasexpandingthehost'scapabilities,
whilenotformingpartofthesystem'score
architecture.Theseincludeprinters,faxesetc
Isthedeliveryofacomputingplatformand
solutionstackasaservice.Itfacilitates
deploymentofapplicationswithoutthecostand
complexityofbuyingandmanagingthe
underlyinghardwareandsoftwarelayers
PlatformasaService
providingallofthefacilitiesrequiredtosupport
(PaaS)
thecompletelifecycleofbuildinganddelivering
webapplicationsandservicesentirelyavailable
fromtheInternet,withnosoftwaredownloadsor
installationfordevelopers,ITmanagersorend
users.It'salsoknownascloudware
Isthedisciplineofplanning,organisingand
managingresourcestobringaboutthesuccessful
Projectmanagement completionofspecificprojectgoalsand
objectives.Itisoftencloselyrelatedtoand
sometimesconflatedwithprogrammanagement
Securityincidentmanagementprogramisthe
monitoringanddetectionofsecurityeventsona
computerorcomputernetwork,andtheexecution
Securityincident
ofproperresponsestothoseevents.Itdefines
managementprogram
andimplementsaprocessthatacompanymay
adopttopromoteitsownwelfareandthesecurity
ofthepublic
Isamodelofsoftwaredeploymentwherebya
SoftwareasaService
providerlicensesanapplicationtocustomersfor
(SaaS)
useasaserviceondemand
Isacontractbetweenaproducerandapurchaser
Softwarelicensing ofcomputersoftwarethatisincludedwith
software
ITGI ITGovernanceInstitute
Meansaholisticandintegratedrepresentationof
Integratedreporting thecompany'sperformanceintermsofbothits
financeanditssustainability
IoDSA InstituteofDirectorsinSouthernAfrica
IRMSA InstituteofRiskManagementSouthAfrica
IRM(UK) InstituteofRiskManagementUnitedKingdom
InformationSystemsAuditandControl
ISACA
Association
ISMS InformationSecurityManagementSystem
ISO InternationalStandardsOrganisation
IT Informationtechnology
JSE JohannesburgStockExchangeLimited
KingI ReportonCorporateGovernanceissuedin1994
KingII ReportonCorporateGovernanceissuedin2002
ActspromulgatedbyParliament,regulation,
subordinatelegislation,internationallegislation,
Laws applicablebindingindustrycodesandrulessuch
asJSElistingsrequirementsandcontractual
obligations
Theinterestandexpectationcouldbeconcluded
Legitimateinterests tobevalidandjustifiableonalegal,moralor

andexpectations ethicalbasisinthecircumstancesbyareasonable
andinformedparty
LID LeadIndependentDirector
Memorandumof
AsdefinedintheCompaniesAct,no71of2008
Incorporation
MFMA MunicipalFinanceManagementAct,no56of2003
Notforprofit
company
OrganisationforEconomicCooperationand
OECD
Development
PFMA PublicFinanceManagementAct,no1of1999
Apersonappointed,ortwoormorepersons
Practitioner appointedjointly,tooverseeacompanyduring
businessrescueproceedings
PrinciplesforResponsibleInvestment:An
PRI investorinitiativeinpartnershipwithUNEP
FinanceInitiativeandtheUNGlobalCompact
Privatecompany AsdefinedintheCompaniesAct,no71of2008
Publiccompany AsdefinedintheCompaniesAct,no71of2008
Thestateorpositionofhavingcontrolorauthority
Responsibility andbeingaccountableforonesactionsand
decisions
Riskcanbedefinedasuncertainfutureevents
thatcouldinfluence,bothinanegativeanda
positivemanner,theachievementofthe
company'sobjectives
Itisthecombinationoftheprobabilityofanevent
anditsconsequence
Riskisaconditioninwhichthepossibilityofloss
Risk
existsInsomesituationsriskarisesfromthe
possibilityofdeviationfromtheexpected
outcomeorevent
Riskarisesasmuchfromfailingtocapture
businessopportunitieswhenpursuingstrategic
andoperationalobjectivesasitdoesfroma
threatthatsomethingbadwillhappen
Occurrenceofaparticularsetofcircumstances
Theeventcanbecertainoruncertain
Theeventcanbeasingleoccurrenceoraseries
Event
ofoccurrences
Theprobabilityassociatedwiththeeventcanbe
estimatedforagivenperiodoftime
Extenttowhichtheeventislikelytooccur
Frequency(thepropertyofaneventoccurringat
intervals)ratherthanprobability(therelative
likelihoodofaneventhappening)maybeusedin
describingrisk
Probability
Degreesofbelieveaboutprobabilitycanbe
chosenasclassesorranks,suchas
rare/unlikely/moderate/likely/almostcertain,or
incredible/improbable/remote/occasional/
probable/frequent
Riskmanagementistheidentificationand
evaluationofactualandpotentialriskareasas
theypertaintothecompanyasatotalentity,
Riskmanagement followedbyaprocessofeitheravoidance,
termination,transfer,tolerance(acceptance),
exploitation,ormitigation(treatment)ofeachrisk,
oraresponsethatisacombinationorintegration
TheRiskManagementProcessentailsthe
planning,arrangingandcontrollingofactivities
andresourcestominimisethenegativeimpacts
Riskmanagement ofallriskstolevelsthatcanbetoleratedby

process stakeholderswhomtheboardhasidentifiedas
relevanttothebusinessofthecompany,aswell
astooptimisetheopportunities,orpositive
impacts,ofallrisks
Costsassociatedwith:
. Insurancepremiums
. Selfretainedlosses(incurredloss)
. Uninsuredlosses
. Riskcontrolexpensesincludingsafety,
security,propertyconservation,andquality
controlprograms,etc.
. Maintenancecosts
Costofrisk . Machinerybreakdowncosts
. Consultingcharges
. Training
. Environmentalcostsand
. Administrativecosts(internalandexternal)
includingriskmanagementdepartment,
internalclaimsstaff,feespaidtobrokers,
riskmanagementconsultants,outsideclaims
andlosscontrolservices
Termsofreferencebywhichthesignificanceof
riskisassessed
Riskcriteriacanincludeassociatedcostand
Criteria benefits,legalandstatutoryrequirements,socio
economicandenvironmentalaspects,theconcern
ofstakeholders,prioritiesandotherinputstothe
assessment
Riskswhichthecompanyperceivestobeitsmost
Keyrisks
significantrisks
Ametricthatcanbemonitoredandthathasa
Keyriskindicators correlationwithoneoftheriskfactorsIndicators
bywhichkeyriskscanbeeasilyidentified
Limitationofanynegativeconsequenceofa
Mitigation
particularevent
Residualrisk ThelevelofRiskremainingafterrisktreatment
Decisiontoacceptarisk
Theverb'toaccept'ischosentoconveytheidea
Riskacceptance
thatacceptancehasitsbasicdictionarymeaning
Riskacceptancedependsonriskcriteria
Systematicuseofinformationtoidentifysources
andtoestimatetherisk
R i s k a n a l y s i s p r o v i d e s a b a s i s f o r risk
evaluation,risktreatmentandrisk
Riskanalysis
acceptance
Informationcanincludehistoricaldata,theoretical
analysis,informedopinions,andtheconcernsof
stakeholders
Thelevelofresidualriskthatthecompanyis
preparedorwillingtoacceptwithoutfurther
mitigationa c t i o n b e i n g p u t i n p l a c e , o r t h e
amountofriskcompanyiswillingtoacceptin
Riskappetite pursuitofvalue
Ancompany'sriskappetitewillvaryfromriskto
risk
Riskappetiteisdifferentfromriskbearing
capacity
Overallprocessofriskidentification,risk
Riskassessment quantificationandriskevaluationinorderto
identifypotentialopportunitiesorminimiseloss
Decisionnottobecomeinvolvedin,oractionto
withdrawfrom,arisksituation
Riskavoidance
Thedecisionmaybetakenbasedontheresultof
riskevaluation
RBCisapredictionofthecompany'sabilityto
endurelossesandtheeffectsuchlossesmay
haveonthecompany'svalueand/oritsabilityto
continuewithitsactivities
Riskbearingcapacity RBCisamonetaryvaluewhichisusedasa
yardstick,measuringthemaximumlossthe
companycanendure,withoutexposingittothe
pointwhereitsexistenceandsurvivalisunder
threat,givenanequivalentloss
Exchangeorsharingofinformationaboutrisk
betweenthedecisionmakerandother
stakeholders
Riskcommunication
Theinformationcanrelatetotheexistence,
nature,form,probability,severity,acceptability,
treatmentorotheraspectsofrisk
A c t i o n s i m p l e m e n t i n g p h y s i c a l r i s k
managementdecisions
Riskcontrol
Riskcontrolmayinvolvemonitoring,re
evaluation,andcompliancewithdecisions
Processusedtoassignvaluestotheprobability
andconsequencesofarisk
Riskestimation Riskestimationcanconsidercost,benefits,the
concernsofstakeholdersandothervariables,
asappropriateforriskevaluation
Processofcomparingtheestimatedriskagainst
givenriskcriteriatodeterminethesignificance
Riskevaluation oftherisk
Riskevaluationmaybeusedtoassistinthe
decisiontoacceptortotreatarisk
Thetechnical,programmaticandsupportability
Riskdriver
facetsofrisk
Provisionoffundstomeetthecostof
implementingrisktreatmentandrelatedcosts
Riskfinancing Insomeinstances,riskfinancingreferstofunding
onlythefinancialconsequencesrelatedtothe
risk
Processtofind,listandcharacteriseelementsof
risk
Elementscanincludesourceorhazard,event,
Riskidentification
consequenceandprobability
Riskidentificationcanalsoreflecttheconcernsof
stakeholders
Anemployeeofwhohastheprimary
responsibilityforadvisingon,formulating,
RiskManager/Group overseeingandmanagingallaspectsofa
RiskManagement/ company'sriskmanagementsystem
RiskChampion ANDmonitorsthecompany'sentireriskprofile,
ensuringthatmajorrisksareidentifiedand
reportedupwards
Thestructureofnumbersoflevelsofprobability
Riskmatrix andconsequenceschosenagainstwhichto
measurerisk
Process,relatedtoar i s k toexploittherisk
opportunities,minimisethenegativeandto
Riskoptimisation
maximisethepositiveconsequencesandtheir
respectiveprobabilities
Wayinwhichastakeholderviewsariskbasedon
asetofvaluesorconcerns
Riskperception Riskperceptiondependsonthestakeholder's
needs,issuesandknowledge
Riskperceptioncandifferfromobjectivedata
Thecompanyanditsregionsandfunctional
areas,hasaninherentandresidualriskprofile.
Thesearealltherisksfacedbythecompany,
Riskprofile rankedaccordingtoariskmatrixandindicated
graphicallyonamatrix.TheRiskScoremaybe
determinedbymultiplyingthefrequencyand
severityoftherisks,wheretheseareindicated
Actionstakentolessentheprobabilitynegative
Riskreduction
consequencesorboth,associatedwitharisk
Aformallistingofrisksidentified,togetherwith
t h e r e s u l t s o f t h e r i s k a n a l y s i s , r i s k
Riskregister evaluationprocedurestogetherwithdetailsof
risktreatment,riskcontrol,riskreduction
plans
Processofselectionandimplementationof
measurestomodifyrisk
Theterm"risktreatment"issometimesusedfor
Riskresponse themeasuresthemselves
Riskresponsemeasurescanincludetreating,
avoiding,optimising,transferring,terminatingor
retainingrisk
Acceptanceoftheburdenofloss,orbenefitof
gain,fromaparticularrisk
Riskretentionincludestheacceptanceofrisks
thathavenotbeenidentified
Riskretention
Riskretentiondoesnotincludetreatments
involvinginsurance,ortransferbyothermeans.
Therecanbevariabilityinthedegreeof
acceptanceanddependenceonriskcriteria
Themonitoringofkeyrisksovertimeto
Risktracking
determinewhetherthelevelofriskischanging
Sharingwithanotherpartytheburdenoflossor
benefitofgain,forarisk
Legalorstatutoryrequirementscanlimit,prohibit
ormandatethetransferofcertainrisk
Risktransfer Risktransfercanbecarriedoutthroughinsurance
orotheragreements
Risktransfercancreatenewrisksormodify
existingrisk
Relocationofthesourceisnotrisktransfer
Processtofind,listandcharacterisesourcesor
rootcauses
Sourceidentification
Inthecontextofsafety,sourceidentificationis
calledhazardidentification
Asharebasedincentiveschemeisaformof
remunerationwhichrewardsemployeesaccording
totheappreciationinvalueofrealornotional
equityholdingsinthecompany.Itmaytakea
Sharebased
varietyofforms,includingthatofanoptionora
incentivescheme
conditionalgrantofsharessubjectto
performanceorotherconditions.Itisgenerally
grantedoveraperiodofthreeormoreyearsand
maybesettledbycashorbytheissueofshares.
SOX SarbanesOxleyAct,2000
SRI SociallyResponsibleInvestments
Anygroupaffectedbyandaffectingthe
Stakeholders
company'soperations
Stateowned
company
Sustainabilityofacompanymeansconducting
operationsinamannerthatmeetsexistingneeds
withoutcompromisingtheabilityoffuture
generationstomeettheirneeds.Itmeanshaving
Sustainability
regardtotheimpactthatthebusinessoperations
haveontheeconomiclifeofthecommunityin
whichitoperates.Sustainabilityincludes
environmental,socialandgovernanceissues.
Easytounderstandorrecogniseobvious
Transparent
candidopenfrank
Thecontextinwhichcompaniesoperatepeople,
Triplecontext
profitandplanet
Aconceptwhichiscapturedintheexpression
'uMuntungumuntungabantu','Iambecauseyou
areyouarebecauseweare'.Ubuntumeans
Ubuntu humanenessandthephilosophyofubuntu
includesmutualsupportandrespect,
interdependence,unity,collectiveworkand
responsibility
UN UnitedNations
UNGC UnitedNationsGlobalCompact
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Kingcommittee
ProfMEKing MrRAndersen MrRConnellan

MsLEngelbrecht ProfMKatz ProfDBurdette
ChairmanEditing Boards& Fundamental
Editing Editing Businessrescue
committee Directors transactions
committee committee Convener
Convener Convener
MsMFeinstein MrSKana
DrRJKhoza MrAvanWyk
MrGCruywagen Compliance& MrMJudin Accounting&
Sustainability Internalaudit
RiskConvener relationships ADRConvener Auditing
Convener Convener
Convener Convener
MrMAdam MrBAghulas MrJBurke MrDCooper MsLdeBeer MrRdeLorenzo

Independent IRBA JSELimited Independent Independent CIPRO
MrADDixon MrMDDunn DrLKonar MrRLoubser DrIMay VastaMhlango

Independent Independent Independent JSELimited Independent FSB
MrFNomvalo
MrEMuller MrNPayne MrSSadie MrVSekese MrBSibiya
National
SAICA Independent ICSA ABASA Independent
Treasury
MsAvander
MrJVilakazi MrLWeil MrWSYeowart
Merwe
BUSA SACCI Independent
Independent
Boardsanddirectors Intergratedreportinganddisclosure
RoyAndersen(convener) DrReuelKhoza(convener)
DerekCooper MohamedAdam
RickCottrell FransBaleni
MartinHopkins SidCassim
PhilipHourquebie ProfDerickdeJongh
NickIceley SaliemFakir
PeterJoubert VuyoJack
MikeLeeming ProfWillemLandman
JoanneMatisonn CorlileRoux
WisemanNkuhlu DrIvanMay
RoyShough ImogenMkhize
EdSouthey AlisonRamsden
AnnemarievanderMerwe ProfDeonRossouw
RichardWilkinson IanSampson
TomWixley JulieStacey
DavidduPlessis(secretary)
Riskmanagement
Accountingandauditing DrGertCruywagen(convener)
SureshKana(convener) DrRiaanBredell
PhillipAustin DrStevenBriers
BlakeBooysen ReginaldHaman
LindadeBeer PhyllisMabasa
DrAnnettedeKlerk JosephMakoro
MalcolmDunn NigelPayne
MichielEngelbrecht
ProfGeoffEveringham Internalaudit
AndrewJohnston AntonvanWyk(convener)
DrLenKonar AlanBrummer
PrakashNarismulu NormanGray
TaniaWimberley JustineKathan
AnneriePretorius(secretary) JoeLesegane
DebbieLoxton
ITGovernance AndreNortier
MariusvandenBerg(convener) PaulStevens
BradleyCoward AndreTheron
LanceMichalson AvendthTilakdari
JohnGiles BernardWessels
EstherPedro LindaYanta
JannieGeldenhuys LieselDennis(secretary)
WinstonHayden
Fundamentalandaffectedtransactions
Complianceandstakeholderrelationships RichardConnellan(convener)
MirandaFeinstein(convener) CyrilJaffe
JohnBurke SeanJagoe
EstelledeBeer KeithRayner
LouisdeKoker Adv.BrianSpilg
RichardFoster
AlisonLee Businessrescue
MmolediMalokane ProfDavidBurdette(convener)
PriyeshkumarManaharDaya PatrickDaly
ProfBenMarx MartinLeigh
DavisMculu ProfAnnelieLoubser
GideonSerfontein LawrenceNgobeni
JohnSymington JanvanderWalt
LesWeil RalphZulman
BillYeowart
DebbieBrown(secretary) Editingcommittee
MervynKing(convener)
Alternativedisputeresolution LindieEngelbrecht
MichaelJudin(convener) MichaelKatz
AmandaBougardt AnsieRamalho
MerleFriedman
PaulPretorius

Updated King III Code and Report On Corporate Governance

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Acknowledgments

ProfMEKing MrRAndersen MrRConnellan

MrMAdam MrBAghulas MrJBurke MrDCooper MsLdeBeer MrRdeLorenzo

MrADDixon MrMDDunn DrLKonar MrRLoubser DrIMay VastaMhlango

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