Corporate governance

Highlights

• Independent board, individual director performance assessments and peer evaluation of directors
• Roll-out of a comprehensive induction programme for directors, which included:
  – Statutory and regulatory requirements relating to the governance and operations of the
     company
  – The organisation’s operations and business environment
• Implementation of a new framework for delegation of authority in support of the board-approved policy and best-practice principles
• Implementation of reinforced processes for conflict of interest
• Introduction of a bi-annual CEO Safety Summit
• Introduction of an ethical assessment panel
• Independent assessment of compliance to the competition act and implementation of a structured compliance programme to ensure competition law compliance
• Independent King II compliance assessment
• Launching a high-level review of existing governance practices against the compliance requirements of King III.

Sound corporate governance is implicit in our values, culture, processes, organisational structure and operations. To ensure that the tone is set for accountability and transparency, corporate governance practices are driven from our board of directors through to management and all employees. This ensures management remains accountable, not only to shareholders but to all stakeholders. 

Transparency and accountability have never proven more important than during the global financial crisis of the last financial year. Exxaro’s effective embedded governance processes have allowed it to critically evaluate and reevaluate capital projects to create value for the benefit of internal and external stakeholders within existing financial constraints.

The review of capital projects is only one of a number of governance processes within the organisation. Exxaro’s governance processes are guided by the: 

• Memorandum and articles of association
• Board charter
• Board committees’ terms of reference
• Companies Act 61 of 1973, as amended
• Listings Requirements of the JSE Limited
• King codes
• Global Reporting Initiative.

The board

The board is ultimately accountable and responsible to shareholders for the performance and affairs of Exxaro. The board therefore retains full and effective control over Exxaro and gives strategic direction to management. The board is also responsible for ensuring compliance with all relevant laws, regulations and codes. 

The board regularly evaluates economic, political, social and legal issues, as well as any other relevant external matters that may influence or affect the development of the business or the interests of shareholders and, if appropriate, obtains independent expert advice. 

The board has a written charter that governs its powers, functions and responsibilities. There is a clear distinction in Exxaro between the roles of chairman and chief executive officer to ensure unfettered powers of decision making. 

The board selects and appoints the company secretary and recognises the pivotal role to be played by the company secretary in achieving good corporate governance.

The board meets at least five times a year. 

As a truly South African company, we support and actively drive transformation in everything we do and therefore we are proud that the majority of our board members are historically disadvantaged South Africans.

Our board consists of:

• Four independent non-executive directors, unconnected to the organisation
• Six non-executive directors
• Two executive directors.

In assessing the status of directors, the principles of the Listings Requirements of the JSE Limited were used.

The board collectively provides scrutinising, monitoring and strategic functions, and maintains strict confidentiality of all information relating to the business of Exxaro. The board is familiar with issues of concern to shareholders.   

Committees of the board
The committees assist in the execution of board duties, powers and authorities. The board delegates to each of the committees the authority required to enable the committees to fulfil their respective functions through formal board-approved terms of reference. 

Delegating authority to board committees or management does not mitigate or discharge the board and its directors of their duties and responsibilities. This is reflected in the Exxaro delegations of authority framework (the framework) which is managed by the office of the company secretary. The framework has been adopted by all wholly-owned subsidiaries. 

In the spirit of transparency and full disclosure, each committee’s independent chairman reports formally to the board after each meeting on all matters within their duties and responsibilities. This includes recommendations on steps to be taken.

Board committees and members are authorised to obtain independent outside professional advice when considered necessary. The company secretary assists the board committees and members in obtaining any such professional advice. 

Audit, risk and compliance committee 

The committee is responsible for appointing auditors and ensuring the company’s financial reporting is accurate and complete. 

The committee assists in: 

• Ensuring effective internal financial controls are in place
• Overseeing the external audit function
• Reviewing the integrity of risk control systems and risk policies
• Evaluating the qualification and independence of the external auditor*
• Evaluating the scope and effectiveness of the external audit function*
• Evaluating the competency level of the finance director*
• Appointment of the chief audit executive
• Compliance with legal and regulatory requirements.

* Evaluation performed and concluded at the committee’s November 2009 meeting.

The committee, in carrying out its duties, has due regard to the principles of governance and code of best practice as contained in the King reports.

The committee meets at least four times a year.

Due to the heavily regulated environment within which Exxaro operates, emphasis has been placed on the need to implement effective compliance processes in line with the standards of the Compliance Institute of South Africa. 

The terms of reference of the audit, risk and compliance committee describe the committee’s oversight responsibility in managing compliance risk. 

The following compliance-related memorandums were submitted to the committee and the board for noting: 

• Directors’ liability in terms of safety and environmental statutes
• Directors’ liability in terms of the Competition Act 1 of 2009 (that seeks to amend the Competition Act 89 of 1998)
• Gap analysis on the draft King III report and actions required by the board and management ahead of King III coming into effect
• The impact of the proposed Companies Act, Act no 71 of 2008.

Exxaro’s compliance policy describes the process and the roles and responsibilities of individuals responsible for implementation of the compliance process.

Transformation, remuneration, human resources and nomination committee 

The purpose of this committee is to:

• Guide, monitor, review and evaluate Exxaro’s progress on transformation, with specific reference to the three primary pillars – employment equity, community involvement and preferential procurement
• Make recommendations on appointments, remuneration policies and practices for the company’s executive directors, senior management and other employees
• Review compliance with all statutory and best-practice requirements for labour and industrial relations management.

Although this is a combined committee, a process is in place to ensure that the following responsibilities for the nomination element are carried out:

• Providing recommendations on the composition of the board and board committees and ensuring that the board of directors consists of individuals who are equipped to fulfil the role of directors of the company
• Annual revision of corporate governance guidelines and related documents and providing recommendations to the board as deemed advisable
• Providing comments and suggestions on committee structures of the board, committee operations, member qualifications and member appointment
• Establishing and maintaining procedures for interested parties to communicate with board members
• Reviewing and recommending to the board its annual training programme
• Maintaining procedures for reviewing board members’ interests.

Although the board chairman is not a member of the committee, a separate agenda is in operation for nomination committee matters and the board chairman chairs this part of the meeting.

The name of this committee was changed from safety, health and environment committee in 2009 to reflect its obligations to the environment, employees and those communities impacted by Exxaro’s operations in support of sustainable development. 

The committee’s purpose is to provide advice to the board and, as necessary, to the audit, risk and compliance committee on S&SD matters, related risks and their management within Exxaro. 

In executing this governance function, the committee will: 

• Assess the effectiveness of management’s approach towards, and activities in, managing S&SD-related risks
• Review significant S&SD incidents, performance indicators and compliance
• Report to the board on developments, trends and/or significant legislation on S&SD matters relevant to Exxaro’s operations, its assets and employees
• Identify those issues and elements arising from national and international protocols applicable to Exxaro’s S&SD
• Ensuring the company reports annually through an integrated sustainability report on S&SD issues.

The committee meets at least three times a year.

Management committees

Executive committee

The executive committee (Exco) is constituted in terms of Exxaro’s articles of association to assist the CEO in managing the group. 

Exco assists the CEO to guide and control the overall direction of the company and acts as a medium of communication and coordination between the business units, corporate service departments and subsidiary companies and the board. 

Collectively and individually, the members of the executive committee must: 

• Oversee the financial, operational and safety performance of Exxaro
• Guide Exxaro in its relations with shareholders and key stakeholders, including employees, regulators, politicians, environmental interest groups and the media
• Develop group strategy for board approval
• Receive and consider regular reports from businesses in Exxaro to monitor and manage financial performance
• Ensure coordination between business units as well as corporate service departments
• Continually review the adequacy of reporting arrangements and effectiveness of internal control and risk management
• Approve or recommend to the board expenditure and other financial commitments as specified in the framework for the delegation of authority
• Acts as a responsible corporate citizen and follow an ethical culture.

Portfolio review committee

The portfolio review committee is constituted as a strategy management committee to assist the CEO with portfolio management. 

The committee ensures that new opportunities fit Exxaro’s portfolio and determines strategic priorities. It oversees strategic initiatives and investigations into the viability of potential investment projects throughout the group. The committee discusses and challenges Exxaro’s portfolio performance as well as intended strategic initiatives and projects. Initiatives aligned with the current strategy are included in proceedings of the investment review committee. Recommendations to terminate initiatives in the current strategy or to proceed with initiatives or projects that are not included in the current strategy are subject to agreed governance procedures. 

Investment review committee

The investment review committee is constituted as a management committee to assist the CEO with the management process of the group. 

The committee oversees approval processes for investments, designed to ensure that these are aligned to the group’s agreed strategies and values, risks are identified and evaluated, investments are fully optimised to produce the maximum shareholder value within an acceptable risk framework and appropriate risk management strategies are pursued. 

The main purpose of the committee is to review investments in a structured, formal and transparent manner to ensure that: 

• Each project meets the strategic, technical and investment requirements of the company, which includes the identification and management of all project-related risks
• Critical decisions, project parameters and governance processes are followed and addressed prior to committing funds
• Each project enhances the portfolio value of the company.

The offshore review committee fulfils a similar governance function for Exxaro’s offshore subsidiaries, with executive management representing Exxaro’s interests at offshore structures.

Offshore review committee

This committee assists the board to financially co-ordinate Exxaro’s portfolio of offshore investments and interests. 

The primary responsibilities of the committee include: 

• Financial control and governance of Exxaro’s offshore investments and multi-disciplinary interests
• Efficient financial structuring
• Providing for the funding of offshore investments and expenditure
• Ensuring financial reporting, auditing and tax-related issues are properly managed
• Ensuring the company’s overseas offices are effectively staffed, managed and utilised.

The offshore review committee meets quarterly, or more frequently if required.

Sustainability 

The Exxaro brand is built on a strong vision — everything we do and deliver today will allow others to realise their vision tomorrow. At Exxaro, we look beyond the current commodities and operations and see the impact we have on people and the planet. 

Exxaro is committed to good corporate citizenship which requires economic performance while considering the longterm impact of business operations on stakeholders and the environment. 

Sustainability is a cornerstone of the Exxaro group and our approach is embedded in the first of our corporate values: empowered to grow and contribute. Our aim is to encourage entrepreneurship as far as possible to transform this value into reality for as many stakeholders as possible (here). 

Black economic empowerment codes of good practice

While we understand that companies need to verify the BEE status of suppliers in terms of the Codes of Good Practice, Exxaro confines its reporting to the requirements set out in the Mineral and Petroleum Resources Development Act and its associated mining charter scorecard. 

Our approach to transformation and empowerment, however, fits well with the requirements of the BBBEE codes and scorecard. In structuring Exxaro, we ensured that the: 

• Majority of voting rights are exercised by HDSA shareholders without any restrictions
• Majority of profits accrue to black people
• Majority of the board comprises black people
• The employment equity target exceeds the mining charter target for management.

Disclosure policy 

The board has adopted a formal policy of continual disclosure of interests to ensure full and timely disclosure by directors. 

Conflict of interests 

Exxaro has a comprehensive conflict of interests policy that applies to directors, management and employees in regulating conditions that constitute or could constitute a conflict. 

The primary objectives of this policy are to: 

• Promote transparency and avoid business-related conflicts of interest
• Ensure fairness in dealing with the interests of all employees, other affected individuals and the company
• Document the process for disclosure, approval and review of activities that may amount to actual, potential or perceived conflicts of interest
• Provide a mechanism for the objective review of personal outside interests.

By implementing the above, the company is in a position to:

• Allow individuals, where appropriate, to acquire and maintain personal outside interests, provided that these do not interfere with, or have the potential to interfere with, their duties to the company, or improperly influence the judgements expected of them when acting on behalf of the company
• Protect individuals from misplaced charges of any conflict of interest by providing a mechanism for the objective review and approval (including conditional approval) of appropriate personal outside interests held by individuals
• Avoid any unjustified perception of bias or self-interest by individuals acting in situations where the company has approved the holding of personal outside interests by such individuals.

External communications

Briefing analysts, investors and fund managers is an important element of maintaining investor relations. However, we will only provide price-sensitive information after disclosing that information to the market.

Broader stakeholder communication plans have been implemented. The group believes in clear, transparent, concise and timely dissemination of relevant information to all stakeholders. This is achieved through a multitude of channels and media, including written, electronic and verbal presentations. Specifically, there are a number of mechanisms for stakeholders to interact with the board and its sub-committees. These include annual general meetings, representative forums and internal communications across a range of platforms. 

Marketing communication

In line with its corporate values, Exxaro communicates regularly and openly with all stakeholders. At all times, our communications adhere to the laws, standards and voluntary codes of accepted marketing communication in the areas where we operate. During the year, no incidents of non-compliance were recorded.