Sound corporate governance structures and processes guide the Grindrod board in the formulation and implementation of company strategy to create sustainable value to the benefit of all stakeholders.
Governance structures, as well as policies and practices, commit the company to high standards of business integrity and ethics in all its activities. These standards are given substance by the six core values of accountability, fairness, integrity, professionalism, respect and transparency. Four sustainability pillars – health and safety, people, the environment and communities – underpin the board’s focus on a responsible and integrated approach to value creation.
The board and its committees regularly review the company’s governance structures and processes to ensure they support effective and ethical leadership, the entrenchment of a values-driven ethical culture, responsible corporate citizenship and sustainable value creation. Where appropriate, governance structures and processes are adapted to best practice developments within the statutory and non-statutory spheres.
The board is of the opinion that, with reference to the following paragraph, Grindrod complies with the Code of Governance Principles in King III. A detailed schedule of compliance with this code is available on the company’s website. The board also resolved that Grindrod complies with the JSE Listings Requirements and all significant requirements incorporated in relevant South African and international legislation, regulations and best practices in all countries in which it operates.
King III and King IV
In its integrated annual report for 2015, Grindrod reported that it met the application requirements for 72 of the 75 principles included in the King Code of Governance Principles for South Africa (King III Code), and explained why three principles were partially applied. This partial application is no longer relevant with the release of the sixteen-plus-one principles-based King IV Code in November 2016.
The board has, in line with its objective to continuously improve corporate governance practices, elected for early adoption of King IV in a phased approach. An evaluation of the compliance requirements applicable to relevant practices included in the King IV Code has been completed and a governance practice improvement framework established to ensure Grindrod’s ability to meet all the application requirements by the end of 2017.
Board responsibility and procedures
Grindrod’s memorandum of incorporation (MOI) and the board charter assign responsibility for strategic direction and control of the company to the board. The board exercises this control by way of the company’s governance framework. This includes a system of assurances on internal controls and detailed reporting to the board and its committees.
The board annually reviews and approves the delegation of authority to management in specified matters and those matters reserved for board decision-making. On the recommendations of the executive committee, the board reviewed, amended and approved the Limits of Authority at its meeting in November 2016.
The board is assisted in its responsibility to identify, oversee and manage economic, environmental and social risk and opportunities by audit, investment, nomination, remuneration, risk and social and ethics sub-committees and the delegated executive management committee.
The board charter sets out the practices and processes the board has adopted to discharge its responsibilities. The charter provides for a clear division of responsibilities at board level to ensure a balance of power and authority, such that no one individual has unfettered powers of decision-making. An assessment of adherence to the board charter was completed in 2016, in terms of which the board was satisfied that the spirit and intent of the board charter were adhered to during the year.
The charter, the terms of reference of all board and statutory committees, and the company’s MOI is available on the Grindrod website.
Board structures, practice and duties
Appointments to the board are based on the corporate leadership skills, experience and expertise required to advance the strategic direction of the company, with diversity in gender and race taken into account. Board members are appointed through a formal process and the nomination committee assists in identifying and reviewing suitable candidates for election by the shareholders. In the board’s assessment, all directors have the relevant knowledge, skills and experience to make a meaningful contribution to and ensure effective leadership of the company.
The board comprised 16 directors at 1 March 2017, of which five are executive directors. The chairman is responsible for the effective leadership of the board. At its meeting held in November 2016 the nomination committee evaluated the independence, inclusive of the nine indicators included in King IV and tenure in excess of nine years, of all serving board members on a substance-over-form basis.
Based on this assessment all non-executive directors were deemed independent and the board, on the recommendation of the nomination committee, passed a resolution confirming the independence of the 11 serving non-executive directors.
One-third of the company’s non-executive directors are required to retire by rotation at the annual general meeting. Retiring directors may offer themselves for reappointment by the shareholders. Directors who join the board during the course of a year are required to have their appointments confirmed by shareholders at the following annual general meeting. The suitability of the directors retiring by rotation was assessed by the nomination committee, and the board resolved to put these directors to shareholders for re-election based on the recommendation of the committee.
The nomination committee also evaluated the suitability of the proposed members of the audit committee. Based on the recommendation of the committee the board propose appointment of the evaluated members to the audit committee.
The duties of the board, performed in accordance with terms of reference and work plans that are reviewed and approved on an annual basis to ensure compliance, include monitoring and reviewing the implementation of the group business plan within the approved budget and with due cognisance of the associated business risks.
The group’s strategy is mapped by the executive committee for approval by the board. The group business plan for the ensuing year, inclusive of the annual budget, is finalised following the review of the strategy by the board at its meeting held each year in November.
The board charter makes provision for the evaluation of the performance and effectiveness of the board and its committees. Evaluations are undertaken annually and provide for the completion of standardised questionnaires that are structured according to the terms of reference and annual work plans of each of the committees and the board charter and annual work plan of the board.
The performance and effectiveness of the chairman of the board is evaluated collectively by its members.
The evaluations undertaken in 2016 indicated satisfactory levels of governance at board and committee levels.
The nomination committee was, based on an evaluation, satisfied with the board composition, inclusive of the skills, experience and qualifications of its members. The board accepted the evaluation of the committee.
The board is responsible for appointing the CEO, an executive director whose role is separate from that of the chairman, and for appointing the group financial director.
The CEO, supported by the executive committee, is responsible for formulating and implementing strategies and policies, day-to-day operational management, establishing best management practices, functional standards, risk management and internal control systems, good governance, legal compliance and the appointment and evaluation of senior management.
The executive committee assists the CEO in managing the business at an operational level. The scope of authority and responsibilities of the executive committee are defined in the executive committee terms of reference, approved during 2013, and reviewed annually.
The executive committee terms of reference make provision for the annual evaluation of its members against KPIs contained in their respective performance scorecards. The evaluation is undertaken by the CEO and reviewed by the remuneration committee.
The group financial director is responsible for the financial management of the group, all aspects of the company’s financial strategy, due and proper preparation of financial statements as per IFRS requirements, due and proper financial reporting and providing financial leadership through financial planning and organisationally aligned strategies. He is also responsible for managing the areas grouped under Grindrod’s shared-services model.
The audit committee considered the expertise and experience of Andrew Geard Waller, the group financial director, and deemed it appropriate. The committee is also satisfied that the expertise, resources and experience of the finance function are appropriate to support the company business.
Group company secretary
Grindrod’s group company secretary does not fulfil an executive management function, and is not a director of the board.
The group company secretary ensures corporate and legal compliance and adherence to the JSE Listings Requirements and to proper corporate governance principles. She is, as a basis for the submission of the annual compliance certificate submitted to the JSE, responsible for an annual detailed JSE Listings Requirements compliance audit. No material breaches of the JSE Listings Requirements were identified in 2016.
The group company secretary is, based on the approved annual work plans, responsible for preparing meeting agendas in advance and in consultation with both the chairman of the board or subcommittee and the CEO, and for recording minutes.
She provides accurate, concise and relevant information to the board in a timeous manner to enable the board to take informed decisions and to monitor the progress and performance of management against the approved business strategy.
The group company secretary also provides guidance to directors on governance, compliance and fiduciary responsibilities.
The group company secretary also fulfils the function of the group ethics officer, is responsible for governance structures appropriate to sustainability reporting, and serves as the principal officer of Grindrod’s major pension and provident funds.
The board considered the interactions between the group company secretary and the board during the past year, and is satisfied that there is an arms-length relationship between the board and the group company secretary.
Based on a formal assessment, which included review of the group company secretary’s qualifications, experience and demonstration of competence in execution of the above mentioned functions, the board is of the opinion that Catherina Isabella Lewis, the group company secretary, possesses the requisite competence, qualifications and experience and has confirmed that she is suitably qualified, competent and experienced to hold the position of group company secretary. She is an admitted attorney and conveyancer with 23 years of legal experience and holds the following degrees: BLC, BProc, BA, LLB, LLM (Law of Contract) and LLM (Corporate Law). The academic and professional qualifications of the group company secretary were externally verified prior to her appointment.
Legal and regulatory compliance
Legal and regulatory compliance is entrenched across the group through a formalised group legal compliance universe, approved by the social and ethics committee in 2013 on the recommendation of the executive committee. In 2015 the associated legal compliance strategy was implemented and a group legal compliance officer appointed.
Further progress was made in 2016 with formalisation of the regulatory universe and legal registers at a divisional level in conjunction with training and awareness to promote the entrenchment of a culture of compliance and increased group-level legal support.
Compliance with all applicable laws and consideration to non-binding rules, codes and standards is reviewed by the social and ethics committee bi-annually and by the audit committee as it applies to its mandate.
Good progress was made following Grindrod’s voluntary placement in 2015 under Director General Review regarding employment equity (EE). A framework to ensure employment equity compliance across all group companies was established in consultation with the Department of Labour (DOL) and Grindrod management continues to collaborate with the DOL on the substantive implementation of EE plans and tracking of progress against set targets.
Grindrod supports the objectives of economic empowerment and, in compliance with the requirements of the Broad-Based Black Economic Empowerment Amendment Act No 46 of 2013, the Broad-Based Black Economic Empowerment Regulations 2016 and the JSE Listings Requirements, a B-BBEE compliance report is available on the company website.
The Grindrod Limited group recognises its moral and legal responsibilities to fulfil its tax obligations by contributing fairly to the fiscus of the various jurisdictions in which it operates, creating sustainable returns while ensuring that it maximises shareholder value. Its objective is to ensure that it complies fully in a timely, accurate and professional manner with the tax laws and regulations of the countries in which it operates.
The organisation has a tax governance framework to deal with tax compliance and tax risk that is incorporated into the corporate governance framework of the board. The group seeks to achieve greater clarity, certainty and transparency in its tax affairs, thereby ensuring that tax planning is built on a sound commercial business activity. From a board perspective, in order to identify improvement opportunities in a tax efficient manner through proactive collaboration with all group companies, the board has formalised and articulated a group tax compliance and tax risk policy that is compliant and congruent within the organisation.
The principles of ethical leadership, management and behaviour to which the company subscribes, are set out in the Grindrod code of ethics and other relevant policies. The code, which outlines the principles for ethical conduct, based on Grindrod’s six core values, is available on the company website.
Adherence to the code is mandatory for all employees and the code is communicated to all employees as an integral part of their induction. The code is designed to raise ethical awareness, guide day-to-day decision making and provide assurance on the integrity of the group companies to external stakeholders. All South African staff annually acknowledge their adherence to the code of ethics and declare conflicts of interest and substantial gifts received.
In 2016 ethical behaviour was promoted through a focused fraud-awareness campaign facilitated by the internal audit function. Business processes were also improved to reduce the opportunity for fraud.
Following SGMs certification in 2015, Grindrod (South Africa) Proprietary Limited obtained certification from TRACE International, a leading global anti-bribery standards-setting organisation. The certification is internationally recognised and used widely in tender processes.
Unethical behaviour can be reported to the Grindrod ethics officer, who is the custodian of the code. No material transgressions of the code were reported to the Grindrod ethics officer in 2016. All instances reported to the ethics officer have been investigated or are in the process of being investigated and closed out.
Grindrod operates an independent toll-free fraud-reporting hotline through Deloitte & Touche, which provides an impartial and absolutely confidential facility for all stakeholders to anonymously report any fraud-related matter. In 2016, 25 incidents (2015: 27 incidents) were reported by this hotline.
All reported incidents are investigated and listed in a register, although confidentiality is guaranteed if required. Incidents of corruption at management level are investigated internally and, if deemed appropriate, referred to disciplinary proceedings or to law enforcement agencies in more serious cases. No material incidents of corruption were identified in 2016.
Compliance with the code of ethics is also monitored through internal audits to assess the adequacy and effectiveness of the internal control environment, which includes risks related to fraud and corruption.
The executive committee and social and ethics committee are provided with statistics of non-compliance to the code.
Grindrod’s internal audit function, which covers the group’s operations, is central to the company’s governance processes, internal control framework and risk governance.
All internal audit activities are performed in compliance with International Internal Audit Practice and the methodology and standards required by the South African Institute of Internal Auditors.
The effectiveness of the internal audit function and scope restrictions are monitored and reviewed by the audit committee together with the internal audit manager’s appointment and performance. The internal audit manager reports functionally to the audit committee and administratively to the group financial director and has unrestricted access to the chairman and members of the audit committee.
The audit committee approves the internal audit charter, internal audit plan and the budget of internal audit to ensure it operates independently of management.
The internal audit charter outlines the role of the internal audit function. The function reviews significant business, strategic and control risks to assist management to develop and embed internal financial control frameworks, to identify financial reporting risks and ensure the adequacy of controls to address the risk of material misstatements of financial results and to provide the audit committee with an assessment on the level of assurance that can be placed on governance and control across Grindrod.
The annual audit plan is based on an assessment of identified internal and external risk areas. The annual audit plan is updated as appropriate to ensure it remains responsive to changes in the business. A comprehensive report on material internal audit findings and matters of significance is submitted to the audit committee bi-annually.
The board, supported by the risk committee, is responsible for risk governance to support the setting and achieving of strategic objectives.
More information on risk governance, the group’s risk management framework and process and its mitigation strategies for key identified risks are included in the Risk management section.
Internal control and combined assurance
The directors are ultimately responsible for the company’s system of internal control, which is designed to identify, evaluate, manage and provide reasonable assurance against material misstatement and loss.
The system of internal control is designed to provide assurances on the maintenance of proper accounting records and the reliability of financial information used within the business and for publication. Grindrod’s systems of internal control and governance structures are subject to independent review by internal audit and external assurance providers.
Grindrod’s combined assurance model aims to optimise assurance coverage by management and internal and external assurance providers. Collectively, they provide the board with assurances on the effectiveness of controls that mitigate the risks identified during risk assessments.
The combined assurance model, which is aligned with the principle and supporting practices of King IV, was developed by identifying risks, control measures and assurance providers.
The audit of risks is assigned to appropriate assurance providers and the action plans that were developed and implemented by management to mitigate the risks are continuously monitored.
This model gives the board the assurance, through the audit and risk committees, that all significant risks and associated opportunities are adequately managed.
Information technology (IT)
The board, supported by the audit committee, is responsible for IT governance and the strategic alignment of IT with the performance and sustainability objectives of the company.
IT governance is systematic and based on CoBIT 5 principles, providing a basis for alignment of the IT strategy with that of the company. Additionally, best-practice frameworks have been adopted, including PMBOK and Prince II. A three-year IT governance roadmap, developed in 2015, provides for IT strategy, governance and policies and legal and other compliance as key focus areas. Alignment of this roadmap with the principles and practices of King IV is progressing.
An IT governance charter has been developed and is managed through the Grindrod executive committee and group IT steering committee. The charter ensures that the IT function is focused on the strategic leadership and alignment of IT activities, prioritised IT investment initiatives, internal engagement to promote collaborative IT planning and the promotion of IT effectiveness to capitalise on economies of scale across the group.
The group IT steering committee, responsible for the implementation of business-focused IT strategies, comprises the chief information officer, divisional CFOs and IT managers, and ad-hoc members that are experts in particular business processes or technologies. The committee met five times in 2016 (2015: five times) to drive the implementation of fit-for-purpose IT infrastructure and software.
The project management office (PMO), which also operates in terms of an approved charter, supports the group IT steering committee with the effective establishment and efficient delivery of IT programs and projects.
Decision-making structures are defined and a reporting framework is in place. Based on bi-annual reporting, the audit committee reviews and evaluates audit assessments of IT-related controls performed by the internal and external auditors together with the appropriateness of actions taken by management to address key issues identified.
The board supports stakeholder engagement and communication strategies that facilitate transparent, understandable and reciprocal communication.
The group maintains continual engagement with its identified key stakeholder groups to promote the achievement of business objectives and support economically, socially and environmentally sustainable business practices.
Directors are not permitted to deal directly or indirectly in the shares of the company during:
- any closed period, being from the end of the interim and annual reporting periods to the announcement of the interim and annual results; or
- any prohibited period as defined in the JSE Listings Requirements, of which none were declared by the company during the year.
There were no ordinary share transactions by directors during 2016.
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