Corporate governance

 

Introduction

Corporate governance is managed and monitored by Distell’s board of directors and several of its committees. The directors are committed to the principles of good governance and consider themselves fully accountable to stakeholders in applying the necessary disciplines to maintain the highest standards of professionalism, integrity, independence, fairness and social responsibility.

Transparency in the management process gives shareholders and other interest groups the assurance that the Group is managed within the boundaries of prudently determined risk parameters and in accordance with ethical norms and international best practice.

The company is subject to the Listings Requirements of the JSE Limited, the guidelines in the 2009 King Code and Report on Corporate Governance for South Africa (King III), as well as legislation applying to publicly listed companies in South Africa.

The Group uses independent external advisers to monitor regulatory developments, locally and internationally, to enable management to make recommendations to the board on matters of corporate governance.

Compliance with both the JSE and King III is monitored by the audit and risk committee of the board. 
 

King III on Corporate Governance

In terms of the Listings Requirements of the JSE, reporting against King III applies to all financial years ending after 1 March 2010. Distell supports the recommendations and principles incorporated in King III. In line with the overriding principle of King III of ‘apply or explain’, the board, to the best of its knowledge, has applied or is embedding processes in support of the relevant principles of King III. 
 

Sustainability

Distell’s ultimate governing objective is to maximise value for shareholders and other key stakeholders, while also contributing to national prosperity. In achieving this objective, Distell is always cognisant of the impact its business activities might have on society and the environment. At the same time the Group follows a formal process to identify and assess the major risks that may threaten the sustainability of its operations.

The annual corporate planning cycle, including strategic planning, target setting, business plans, budgeting and performance management, is conducted through a formal process known as the Distell Management Operating System (DMOS). Key risks facing the Group are identified in these work sessions and risk mitigating responses are formulated as part of the company’s business plans. The formal risk register, a result of this process, is presented to the board for its assessment and approval. During the year continuous monitoring and reporting on risk management follows at appropriate forums.

In line with 2011, the sustainability report has been prepared using the guidelines of the Global Reporting Initiative (GRI) (G3) and the recommendations of King III.

A structured approach has been developed, in terms of which information contained in the sustainability report is audited. In terms of this approach, internal audit further extended the validation of the report. Although not fully validated, internal control systems and processes are in place to ensure that the information contained in the sustainability report does not contradict the financial aspects of the integrated report.

Our material sustainability issues are summarised in the corporate responsibility section of this report and Distell has met the GRI (G3) reporting requirements self-declared at Level C. Our GRI index can be found in the GRI content index section.
 

Compliance with applicable laws and regulations 

The Group company secretary and Group legal counsel are responsible for guiding the board in discharging its regulatory responsibilities. They have established a legal compliance framework which involves preparing and maintaining inventories of material laws and regulations impacting on our business. It also entails the establishment of processes and procedures to supervise and monitor compliance and to mitigate risks.

We make use of external specialists where necessary and we conduct compliance-specific training and education to reinforce ethical behaviour across the Group. Management then accepts the responsibility to implement the suggested controls designed to ensure compliance with both our company’s values and the legal environment. 
 

The Companies Act, Act 71 of 2008 (hereafter referred to as the ‘new Companies Act’): 

The new Companies Act (the Act) came into effect on 1 May 2011. During this financial year, Distell has progressed in its compliance with the Act, focussing on the following: 
The social and ethics committee has been appointed 
The memorandum of incorporation (MOI), including those of its subsidiary companies, has been drafted and will be presented for approval by the shareholders at the next annual general meeting (AGM) to be held in October 2012. 
 

Business ethics and organisational integrity 

Distell is committed to complying fully with the law. We are committed to conduct our business with integrity and with proper regard for ethical business practices. The company expects all directors and employees to comply with these principles and to act in the best interest of the company at all times. In particular, all directors and employees are to avoid conflicts of interest and to refrain from insider trading, illegal anticompetitive activities and bribery and corruption.

Management has formulated policies and procedures that address key ethical risks, such as conflict of interest, accepting inappropriate gifts, and unacceptable business conduct.

Distell’s code of ethics and conduct is designed around a set of values.

The code also covers areas such as compliance with laws and regulations as well as principles for ethical conduct. It also provides for an administrative process for communication and compliance. 
 

Transparency and accountability through the ethics line 

In upholding our company’s values, we encourage all staff members to remain vigilant and blow the whistle on fraud, theft and corruption by reporting it to the toll-free ethics line. The line is operated by an independent third party, 24 hours a day every day, where unethical behaviour and irregularities can be reported anonymously and confidentially. 
 

Board of directors

Board structure and composition

The board is chaired by independent, non-executive director David Nurek and comprises 13 non-executive directors (of whom 10 are independent) and two executive directors, including the managing director. The roles of the chairperson and managing director are separated, with responsibilities divided between them. The chairperson has no executive functions. Board member profiles are set out in the directorate section of this report. 
 

Board role and responsibilities

The board has adopted a charter setting out its responsibilities. The board evaluates and reviews the Group’s strategic direction, agrees on key performance indicators, and identifies key risk areas and responses. Executive management is then charged with the detailed planning and implementation of these strategies in accordance with appropriate risk parameters. The board holds management accountable for its activities, monitored and controlled through regular reports and discussions.

The main responsibilities of the board in terms of its charter are to: 
determine the company’s purpose and key objectives; 
provide strategic direction to the company and approve strategic plans; 
appoint directors of the board, including the chairperson of the board, chairpersons of committees and the managing director; 
establish appropriate committees, with clear terms of reference and the delegation of appropriate authority, to address specific matters; 
evaluate annually the performance and effectiveness of directors, the board as a whole and its committees; 
consider and approve the annual business plan and budget as submitted by management, including sustainability initiatives; 
retain full and effective control of the Group, and monitor management’s implementation of approved business plans and budgets; 
consider significant financial matters, including investment proposals; 
monitor the company’s financial performance as well as progress on social and environmental issues; 
evaluate the viability of the company and the Group as a going concern; 
assess the adequacy of risk management systems and processes; 
ensure there is an effective risk-based internal audit which assesses and reports on the effectiveness of the company’s system of internal controls; 
evaluate and approve the integrated annual report (for adoption by the shareholders) as well as interim financial statements and ensure their integrity and fair presentation; 
declare dividends to shareholders;
review annually the charters of committees of the board; 
ensure sound governance, including compliance with key laws and regulations, codes and standards; and 
define levels of materiality, hold certain powers and delegate other matters with the necessary written authority and terms of reference to management or board committees. 
 
Non-executive directors, appointed for their knowledge and experience of a wide range of businesses and business sectors, augment the skills and experience of the executive directors and management and contribute independent viewpoints to matters under consideration.

All directors have the appropriate expertise to fulfil their duties and enjoy significant influence at meetings. This ensures a balance of authority and precludes any one director from exercising excessive power in terms of decision-making. 
 

Appointment, orientation and development

Procedures for appointments to the board are formal and transparent and a matter for the full board’s consideration. The board is always mindful of the need to maintain an infusion of fresh thinking and a relevant mix of skills and experience. The effectiveness of the board composition and the performance of all its directors, including the chairperson, are assessed annually.

It is the role of the Group company secretary to ensure the board remains cognisant of its duties and responsibilities. He oversees the induction programme for new members of the board and key committees, including subsidiary company directors. Directors receive ongoing training and are kept abreast of relevant changes in legislation and governance best practice. All directors may seek the advice and services of the Group company secretary.

Generally, non-executive directors have no fixed term of appointment but retire by rotation. At each annual general meeting of the company, at least a third of the directors (those longest in office since their last election) retire and, if available, are considered for reappointment.
 

Conflict of interest and director share trading

It is incumbent on directors to act in the best interests of the company at all times. All board members are required to disclose the extent of their shareholdings in Distell, other directorships and any potential conflict of interest between their obligations to the company and their personal interests. Where a potential conflict of interest does exist, they must recuse themselves from relevant discussions and decisions. Directors and the company secretary are required to advise the chairperson and obtain his clearance before dealing in Distell shares. Directors of subsidiary companies are required to advise the managing director and obtain his clearance, while other employees require the approval and clearance of the company secretary before dealing in Distell shares. Clearance is withheld during any closed period or where unpublished, price-sensitive information in relation to the company shares exists. 
 

Independent advice

Individual directors may seek independent professional advice, at the expense of the company, in appropriate circumstances, to enable them to discharge their responsibilities as directors. 
 

Board meetings and attendance

The board meets at least every two months to review a formal schedule of matters for which its members are fully briefed in advance. Effective chairing and a formal agenda ensure all issues requiring attention are raised and addressed. This enables directors to discharge their responsibilities by determining whether prescribed functions have been carried out according to set standards within the boundaries of prudent, predetermined risk levels and in line with international best practice.

The company secretary attends all meetings of the board and its committees.

The board held six meetings during the past financial year and details regarding attendance are set out below:
 
Board meetings 6
DM Nurek (Chairperson) 6
FC Bayly 6
PM Bester (retired 30 June 2012) 6
PE Beyers 6
MJ Botha 5
JG Carinus 6
GP Dingaan 4
E de la H Hertzog 5
MJ Madungandaba 5
LM Mojela 5
CA Otto 6
AC Parker 5
JJ Scannell 6
CE Sevillano-Barredo 6
BJ van der Ross 5
MH Visser (deceased 26 April 2012) 4
 

Board committees

While the board remains accountable for the performance and affairs of the company, it delegates specific responsibilities to Committees and management to assist in discharging its duties. Each committee acts within agreed written terms of reference derived from charters, annually approved by the board. Committee charters comply with the requirements of the new Companies Act. All chairs of committees report orally on the proceedings of their committees at the subsequent board meeting and minutes of committee meetings are provided to the board.

The board, its committees, and the internal and external auditors have unlimited access to whatever information they require in discharging their responsibilities effectively.

The established board committees are detailed below: 
 

The audit and risk committee

Function

The audit and risk committee reviews the Group’s financial position and makes recommendations to the board on all financial matters. It regularly evaluates the Group’s exposure and responses to significant business, strategic, statutory and financial risks. The committee also ensures effective communication between directors, management and internal and external auditors.

Audit and risk committee members, as well as the internal and external auditors, have unlimited access to whatever information they require in discharging their responsibilities. Moreover, the internal and external auditors have unlimited access to the chairperson.

The audit and risk committee charter, approved by the board, sets out its responsibilities which are the following:
 
External audit matters
Approve the external auditor’s terms of engagement and remuneration, and evaluate external audit plans and findings. 
Evaluate the external audit partner and present the committee’s conclusions to the board, preceding the annual request to shareholders to approve the appointment of the external auditor. 
Receive all audit reports directly from the external auditor and review annually and report on the quality and effectiveness of the audit process, including an assessment of the external auditor’s independence. 
Receive notice of reportable irregularities, reported by the external auditor to the Independent Regulatory Board for Auditors. 
Develop a policy for the approval of non-audit services performed by the external auditor and pre-approve the provision of such services in accordance therewith. 
 
Internal audit matters
Approve for recommendation to the board the Internal audit charter, to be reviewed annually. 
Confirm the appointment or dismissal of the chief internal auditor and periodically review his/her performance. Ensure the internal audit function is subject to a periodic independent quality review. 
Evaluate the effectiveness of Group internal audit and approve the annual internal audit plan. 
Review internal audit and risk committee reports, submitted to the audit and risk committee. 
Evaluate the annual review of internal financial controls by Group internal audit (on behalf of the board) and ensure that material weaknesses are reported to the board and are disclosed in the integrated annual report. 
 
Combined assurance
Ensure a combined assurance model is applied to provide a coordinated approach on all assurance activities, while monitoring the relationship between internal and external auditors and other assurance providers (internal and external). 
 
Other matters
Report to shareholders at the annual general meeting on fulfilling its duties in terms of the new Companies Act. 
Perform an annual self-assessment on its effectiveness, reporting these findings to the board. 
Annually evaluate the experience, expertise and performance of the financial director and the finance function and disclose the results in the integrated annual report. 
Review compliance with JSE Listings Requirements and King III. 
Review the viability of the company and the Group as a going concern. 
Review and approve the Group’s integrated annual report, annual financial statements, interim reports and other financial press releases, all to be finally approved by the board. 
Satisfy itself that all financial reporting risks, internal financial controls, as well as fraud and IT risks that relate to financial reporting, have been appropriately addressed. 
 

Members and attendance at meetings

The committee is chaired by an independent, non-executive director. The present incumbent is Catharina Sevillano-Barredo. All members are financially literate and have business and financial acumen.

The JSE has granted permission for the chairperson of the board to remain a member of the audit and risk committee in the meantime in order to lend stability to the committee in view of the death of MH Visser and to give sufficient time to find a suitably qualified candidate to replace the chairperson as member of the audit and risk committee.

In accordance with its charter, the committee held four meetings during the past financial year. The internal and external auditors, the managing director, the financial director and the company secretary are in attendance at each meeting, while other members of the management team attend as required. When issues are raised with the external auditors in which executive attendees have a vested interest, the latter are required to recuse themselves.

Both internal and external auditors, who report on their findings to the committee, have unrestricted access to the committee through the chairperson.

Details on attendance are provided below: 
 
Audit and risk committee meetings 4
CE Sevillano-Barredo (Chairperson) 4
GP Dingaan 3
DM Nurek 4
MH Visser (deceased 26 April 2012) 4
 

Independence of external auditor

The Group’s policy on non-audit services provides guidelines on dealing with audit, audit-related tax and other non-audit services that may be provided by its independent auditor. It also sets out services that may not be performed by the independent auditor. The committee pre-approves audit and non-audit services to ensure that neither the independence nor objectivity of the auditors is impaired in the conduct of the audit. The committee monitored compliance with the policy during 2012.

The independence of the auditors and availability of alternative non-audit service providers are key factors in considering approval. The analysis of audit fees and fees for non-audit services is provided in note 19 to the annual financial statements. 
 

Expertise of the financial director and the finance function 

As required by the JSE Listings Requirements, the audit and risk committee has considered and satisfied itself regarding the experience and expertise of the financial director and is satisfied that it is appropriate. In addition, the committee satisfied itself that the composition, experience and skills set of the function met the Group’s requirements. 
 

Discharge of responsibilities

The committee determined that during the financial year under review, it has discharged its legal and other responsibilities in terms of its charter. The board concurs with this assessment. The interim and year-end financial statements and integrated annual report were reviewed and recommended to the board for approval.

The information contained in the sustainability report has been partially validated. In this regard combined assurance has been obtained from external and internal assurance providers. We are committed to develop Group reporting standards and systems further in order to improve accurate measurement and verification. 
 

Going concern

The board bi-annually reviews the Group’s current financial position, budgets and cash flow projections and concludes that it has adequate resources to continue with operations in the foreseeable future. 

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