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Corporate governance and risk

Corporate governance review
Corporate governance is the process by which companies are controlled and directed – and this is the ultimate responsibility of a company’s board.

Governance codes and guidelines are extremely valuable in determining an appropriate standard of conduct for directors. The more established these governance practices become, the more likely a court would regard conduct that conforms with these practices as meeting the required standard of care. Corporate governance practices, codes and guidelines therefore set the bar on appropriate standards of conduct.

In the South African context, the King committee and its interpretation of corporate governance best practice has become the established standard and the release of King III in September 2009 cemented South Africa’s commitment to world-class principles and guidelines on corporate governance.

King III (the code) has raised the bar on the appropriate standard for governance practices. In contrast to the King I and II codes, King III applies to all legal entities, regardless of the manner and form of incorporation or establishment and whether in the public, private or non-profit sectors. All entities are also required, by way of explanation, to make a positive statement about how the principles have or have not been applied.

The King committee recognises that the manner of applying the code will differ for each entity. The aspirational nature of the code, however, should drive entities to continually improve governance practices. It is important to understand that the ‘apply or explain’ approach requires more consideration and explanation of what has been done to implement the principles and best-practice recommendations of governance.

In this section of the report, we explain what PPC has achieved in implementing best practices recommended by the code. We regard our efforts as a journey, however, and acknowledge that we are continually moving towards better governance practices.

The code was written from the perspective of the board as the focal point of corporate governance. The group has made good progress during the year to align its board and board committees with the best-practice recommendations of the code. 
 

Compliance with King III and the JSE listings requirements on corporate governance 
The King III code came into effect on 1 March 2010. The JSE, however, will only require full compliance with the code in PPC’s 2011 financial year. For most of the financial year, PPC has been implementing the principles of King III and considering its best-practice recommendations. The company therefore cannot claim to have been fully compliant with the code throughout the review period.

While a substantial application of the code and the report has been achieved in the review period, the aspirational nature of the code will require the company to continually improve its governance practices. In addition to issues raised elsewhere in the report, the following key principles have not been fully implemented to date: 
• The code suggests the board should be responsible for information technology (IT) governance. In this regard, it should be noted that a SAP system was implemented during the period and with the first phase of the SAP system implementation it was management’s intention to simply replace its previous ERP system. There was no stated intention to enhance processes and controls and thus the full functionality of SAP was not implemented. To align the company with best practice, management will define appropriate levels of IT governance for approval by the board, which in turn will be reflected in appropriate levels of SAP controls. 
• Best practice requires that the board should approve the risk management policy and plan and that the risk management policy should be widely distributed throughout the company. While the risk management policy has been approved, the risk management plan as required by the code is still being considered, although significant progress has been made. Management is endeavouring to ensure that PPC’s strategy and objectives are aligned with the risk management process by conducting high-level risk assessment in conjunction with PPC strategic sessions. In addition, bottom-up risk assessments have been facilitated at all PPC business units and most of the functional disciplines. The process of implementing and embedding enterprise-wide risk management is a journey and the objective is to design a risk management framework that is right-sized for the company and industry. 
• While internal audit frequently reports on the effectiveness of internal controls, the audit plan for the year under review did not include a formal report on these controls as prescribed by the code. Such a report will be submitted to the board in the next financial year. 
 

Integrated reporting
The board is responsible for the integrity of the company’s integrated report. As proposed in the code, the board has delegated the responsibility to evaluate sustainability disclosures to the audit committee. At its meeting in May 2010, the board, based on the recommendation of the audit committee, confirmed the appointment of Deloitte & Touche as the external assurance provider for the sustainability report.

The Global Reporting Index (GRI) G3 has been used as the basis for reporting and nine indicators for assurance were identified through the standard risk review process as material risks to PPC. For more detail refer to Independent audit report.

The external assurance report of Deloitte & Touche was tabled at the audit committee meeting in November and was referred to the board for consideration at its November meeting. The board was satisfied with the assurance provided by Deloitte & Touche.

The board’s statement on the company’s status as a going concern is in Certificate by company secretary.
 

Board review

Board governance
The PPC board is the focal point and custodian of corporate governance in the PPC group. More detail on members of the board appears in Directorate. Board members are expected to act in the best interest of the company and the group company secretary maintains a register of directors’ interests as required by law.

In line with its annual meeting plan, the board meets six times a year and has adopted a board charter which includes a statement of governance principles that guide the activities of the board. This charter also details the roles of the chairman of the board and chief executive officer (CEO).

According to the charter, the roles and responsibilities of the board are to: 
• Act as the focal point and custodian of corporate governance by conducting its relationship with management, shareholders and other stakeholders of the company according to sound corporate governance principles 
• Appreciate that strategy, risk, performance and sustainability are inseparable and give effect to this by: 
  – contributing to and approving the strategy
  – satisfying itself that the strategy and business plans do not give rise to risks that have not been thoroughly assessed by management 
  – identifying key performance and risk areas
  – ensuring the strategy will result in sustainable outcomes
  – considering sustainability as a business opportunity that guides strategy formulation 
• Provide effective leadership on an ethical foundation
• Ensure the company is, and is seen to be, a responsible corporate citizen by considering not only the financial aspects of its business but also the impact business operations have on the environment and society within which it operates 
• Ensure the company’s ethics are managed effectively
• Ensure the company has an effective and independent audit committee 
• Be accountable for the governance of risk 
• Monitor information technology governance
• Ensure the company complies with applicable laws and considers adherence to non-binding rules and standards 
• Ensure there is an effective risk-based internal audit
• Appreciate that stakeholders’ perceptions affect the company’s reputation 
• Ensure the integrity of the company’s integrated report 
• Act in the best interests of the company by ensuring that individual directors: 
  – adhere to legal standards of conduct
  – are permitted to take independent advice related to their duties following an agreed procedure 
  – disclose real or perceived conflicts to the board and deal with them accordingly 
  – deal in securities only in accordance with the policy adopted by the board 
• Initiate business-rescue proceedings as soon as the company is financially distressed 
• Elect a chairman of the board who is an independent non-executive director 
• Appoint and evaluate the performance of the CEO.
 
In fulfilling its duty, the full board annually selects a chairman at its meeting in February and appoints the CEO.

The current chairman of the board is Bheki Sibiya. At its meeting in November, the nominations committee confirmed his status as an independent non-executive director. The role of the chairman has been formalised in the board charter and requires that he should: 
• Lead the board, not the company
• Safeguard the integrity of corporate governance processes and actions as determined collectively by the board 
• Be the link between the board and management, particularly the CEO 
• Be the main link between the board, shareholders and the public at large. 
 
The duties of the chairman must be viewed in the broadest terms. All the chairman’s specific actions should fall into one of the categories above. Other core functions to be performed by the chairman include: 
• Actively participating in selecting board members and overseeing a formal succession plan for the board and executive directors 
• Ensuring new directors are properly inducted and that board evaluations and director appraisals are carried out 
• Formulating, in conjunction with the board, an annual work plan for the board against agreed objectives and goals 
• Acting as the main informal link between the board and executive directors, particularly between the board and the CEO 
• Ensuring all directors play a full and constructive role in the affairs of the company and taking a lead role in removing non-performing or unsuitable directors from the board 
• Ensuring all relevant information and facts are timeously placed before the board to enable the directors to reach an informed decision. 
 
In line with best practice, the chairman’s ability to add value and his performance against what is expected of his role and function were assessed in the second half of this financial year (see annual board evaluation report).

The CEO and chief financial officer (CFO) are ex officio members of the board.

The current CEO is Paul Stuiver. In the board charter, the board and the chairman recognise that the CEO is the leader of the company and of the management team, is responsible for day-to-day operations and is the principal spokesperson for the company, while the chairman is the leader of the board. The framework for delegating authority is reviewed annually in September. The CEO provides regular reports during board meetings on progress in executing strategy against the formalised company scorecard. The board has set specific targets for management on the CEO succession plan and the CEO is responsible for the execution of this plan. The performance of the CEO and his management team is evaluated annually by the remuneration committee and the outcome of this evaluation is the basis for salary increases, bonus payments and participation in share incentive schemes.

The current CFO is Peter Esterhuysen and his experience and expertise are annually evaluated by the audit committee and the outcome reported to the board.

The ultimate authority and responsibility for the company resides collectively in the full board of directors and not any one individual.

A copy of the board charter can be obtained from the company secretary. 
 

Board composition
The nominations committee annually evaluates whether its size, diversity and demographics make the board effective. At year end, the board comprised a non-executive chairman, five executive and seven non-executive directors. At its meeting in November, the nominations committee evaluated the independence of non-executive directors and concluded that the following directors are independent as defined in the code and the JSE listings requirements: 
• Zibu Kganyago
• André Lamprecht
• Ntombi Langa-Royds
• Tim Ross
• Joe Shibambo
• Bheki Sibiya.
 
André Lamprecht has been a member of the board since November 1997, but after rigorous review of his independence and performance by the board, it was concluded that he has maintained his independence.

The following graphs illustrate the composition and demographics of the board as at 30 September 2010: 
 
Board balance
 
Board race balance
 
Board gender balance
 
Board composition
 
Directors are appointed through a formal process and the nominations committee assists in identifying suitable candidates to be proposed to shareholders.

A formal induction programme is established for new directors, and inexperienced directors are developed through mentorship programmes. For continuing development, the company encourages directors to attend the professional development programmes of the Institute of Directors.

While no limitations are imposed by the board charter, or otherwise, on the number of other appointments directors can have, approval must be obtained from the chairman prior to accepting additional commitments that may affect the time directors can devote to the group.

The board succession plan was reviewed by the nominations committee at its meeting on 4 November 2010, taking into account the results of the annual board evaluation.

At the annual general meeting in January 2011, at least one-third of non-executive directors will retire by rotation. All these directors are available for re-election and their re-election to the board is supported by the nominations committee after considering their performance and attendance. 
 

The group company secretary
The group company secretary is Jaco Snyman and he provides the board as a whole and directors individually with detailed guidance on discharging their responsibilities. He is a central source of information and advice to the board and within the company on matters of ethics and good governance. He also ensures the proceedings and affairs of the board, its committees, the company itself and, where appropriate, owners of securities in the company are properly administered in accordance with pertinent laws. He is responsible for compliance with the rules and listings requirements of the JSE Limited and the Zimbabwe Stock Exchange on which the company’s securities are listed and administers the statutory requirements of the company and its subsidiaries in South Africa. 
 

Board and committee meeting attendance between 1 October 2009 and 8 November 2010
  Status/position Board AGM Audit BEE and transformation*  Nominations Remuneration Risk and compliance 
                 
                 
Board members                
ZJ Kganyago Independent non-executive 7/7 1/1 3/4        
                 
AJ Lamprecht Independent non-executive 6/7 1/1   2/5 1/3    
                 
NB Langa-Royds Independent non-executive 5/7 1/1   5/5C 3/3 6/6C  
                 
TDA Ross Independent non-executive 7/7 1/1 4/4C       4/4
                 
J Shibambo Independent non-executive 7/7 1/1 4/4 5/5 3/3 5/6 4/4C
                 
BL Sibiya Independent non-executive 6/7C 1/1     2/3C    
                 
MP Malungani Non-executive director 6/7 1/1   3/5      
                 
JS Vilakazi Non-executive director 6/7 1/1       4/6 2/4
                 
Management                
S Abdul Kader MD cement (SA) 6/7 1/1          
                 
RH Dent MD lime, aggregates, Botswana and Zimbabwe  6/7# 1/1          
                 
P Esterhuysen Chief financial officer 7/7 1/1         4/4
                 
SG Helepi Director: organisational performance and transformation  6/7 1/1          
                 
P Stuiver Chief executive officer 7/7 1/1          
C Chairman of committee
# Mr Dent resigned from the board with effect from 1 November 2010
* Reconstituted as the social and ethics committee
 

Annual board evaluation
The code requires annual board performance evaluations by the chairman or an independent service provider and that the results of these evaluations should identify training needs for directors. The code further requires that an overview of the appraisal process, results and action plans should be disclosed in the annual integrated report. 
 

Process
For the review period, the board agreed to the assessment of its effectiveness by an external facilitator to ensure objectivity and independence. The Institute of Directors in Southern Africa (IoDSA) was selected to facilitate the appraisal.

This process was essentially a self-assessment of the performance of the board of PPC with IoDSA playing a facilitating role. This report therefore reflects the opinion of members of the board on its performance. 
 

Results
The evaluation found that the board has significantly more areas that are satisfactory or good than concerns.

The following areas of concern were identified by the board: 
• Reporting on the pension fund was insufficient. More comprehensive reporting is required. 
• There was general acceptance that more needed to be done in terms of succession planning. The board will consider appointing a deputy chairman (to stand in for the chairman if he is unavailable) who can be groomed to succeed the chairman. The CEO will come to the end of his contract in the 2012 financial year and a successor will be identified in good time. 
• IT governance received a low rating, indicating a need for improvement. 
 

Strategic planning
As a key performance area of the board, group strategy is mapped by the board in consultation with the executive committee of the company (exco). The board appreciates the fact that strategy, risk, performance and sustainability are inseparable and annually reviews the strategy at its meeting in August. During the review period, two board meetings were devoted to strategy development. In these meetings, exco members presented the group and individual business units’ strategies to the board. The board has ensured that the strategy is aligned with the purpose of the company, value drivers of the group and legitimate interests and expectations of its stakeholders. In addition, the board has satisfied itself that the strategy and business plans are not encumbered by risks that have not been thoroughly examined by management. The board-approved strategy has been incorporated into the company scorecard against which the performance of management is measured annually.

At its meeting in August, the board approved the reconstitution of the black economic empowerment and transformation committee into the social and ethics committee. As part of its responsibility, this committee will ensure the company’s strategy results in sustainable outcomes taking account of people, planet and profit. 

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