CORPORATE GOVERNANCE
   
  Kumba is committed to conforming to good corporate governance principles and is in compliance with all the key requirements of South Africa’s King II Report on corporate governance, and that of the JSE Securities Exchange South Africa.
   
  The chairman of the King committee on corporate governance states, and Kumba endorses, that good corporate governance rules, however, do not necessarily result in good boards. The board has long recognised that good corporate governance is essentially about leadership. Therefore, corporate governance within Kumba, in effect, consists of the cumulative consequences of a multitude of quality decisions over time on all levels on a large variety of issues affecting companies.
   
  The key principles underpinning this philosophy have been put into practice through the board charter, which provides a framework to discharge its principal duties, namely:
   
  Direction: Formulating the strategic direction for the group’s sustainability in the long term.
   
  In a recent annual self-assessment process, the directors evaluated the board itself to be effective in its consideration and acceptance of strategic plans and direction. To determine that the group’s strategy is well formulated and executed, non-executive directors contribute to the annual process of establishing strategic direction. The board focuses on maintaining a balance between the interests of stakeholders and the collective good of the group.
   
  Accountability: Recognising and balancing the interests of all stakeholders for the collective good of the group.
   
  The board accepts its duty to address matters of significant interest and concern to all stakeholders, taking into account the greater demands for transparency and accountability. It strives to present a balanced and understandable assessment of the group’s position so that all stakeholders with a legitimate interest can obtain a full, fair and honest account of the group’s performance.
   
  Supervision: Monitoring and overseeing management performance to ensure that Kumba’s businesses are managed with integrity and compare with best international practices.
   
  Executive action and its supervision is achieved by a variety of governance structures. The functioning of the board is facilitated through the use of various board committees and by proper assessment of risk and the maintenance of sound internal controls. Appropriate committees, internal and external auditors implement safeguards to ensure that internal systems and controls are well designed and which monitor and report on compliance with the group’s strategies and with the country’s laws. Effective controls, checks and balances are in operation.
   
  Outlined below are the systems and processes through which Kumba’s operative governance is managed.
   
  BOARD POLICIES AND PROCEDURES
  In a recent assessment of its own efficiency, the board determined that it is in full and effective control over the group, and that the group’s compliance record and activities are excellent.
   
  The existing systems of internal control are based on established organisational structures, together with written policies and procedures, including budgeting and forecasting disciplines and the comparison of actual results against these budgets and forecasts. All company policies, procedures and practices and substantive matters are dealt with at board level.
   
  The group has a formal practice and procedure in place to prohibit dealing in its securities by directors, officers and other selected employees, during closed periods as defined in the JSE Securities Exchange Listings Requirements.
   
  In as much as a code consists of a set of rules, policies and principles, the group has, although not codified, various policies and procedures to address conflicts of interests. These cover areas such as share interests and directorships of Kumba directors in companies with which Kumba has contractual relationships and outside interests by managers which could possibly lead to conflicts of interests.
   
  BOARD COMPOSITION
  The board has evaluated its composition as complementary, with a strong contingent of independent non-executive directors. They contribute to an independent view to matters under consideration and add to the breadth and depth of experience of the board, exercising significant influence at board meetings. Kumba has non-executive director representation of two to one executive director. There are six independent non-executive directors.
   
  Existing practices and procedures require the board to engage in selecting its own members and in planning for its own succession and continuity of experience and knowledge.
   
  To ensure efficient staggering of director rotation, the group has a programme in place, giving effect to the arrangement that directors are subject to retirement and may be nominated for re-election every three years.
   
  In its self-assessment, the board has satisfied itself regarding the defining of appropriate levels of materiality and reservation of detailed and specific powers and authorities to itself. Consequently the board takes all key decisions.
   
  Further information in respect of directors appears elsewhere. 
   
  CHAIRMAN AND CHIEF EXECUTIVE
  From inception, Kumba has maintained separation of the operational role of the chief executive and the chairman’s role to facilitate the smooth and efficient functioning of the board.
   
  To maintain a high standard of performance in the chairman’s role, the performance of the chairman is formally appraised from time to time. The board is in the process of developing appropriate performance criteria that can be measured relative to stakeholder performance objectives.
   
  A board policy has been formulated to assist the chairman to formally appraise the performance of the chief executive annually, in consultation with the respective chairmen of the safety, health and environment, human resources and remuneration, and audit committees.
   
  BOARD OF DIRECTORS
  Corporate governance, as formulated in the King Report, requires a board to assist in ensuring there is an appropriate balance of power and authority on the board. The directors have judged the balance of power and authority on the board to be very good.
   
  The non-executive directors are sufficiently credible, skilled and experienced and bring appropriate judgement to bear, independent of management, on the main corporate issues. The board has satisfied itself that the group’s procedures and practices in regard to succession planning ensure that the best potential managers are identified, developed and suitably fast-tracked.
   
  Directors have in terms of company policy, free access to the company secretary, and to independent professional advisers, whether in legal, technical or accounting areas, at the group’s expense. All directors have unrestricted access to all company information and records, as well as to management officials.
   
  The company secretary provides a central source of guidance and advice to the board, and within the group, on matters of ethics and good governance. Practices and procedures have been established in liaison with the company secretary to familiarise directors with the group’s operations, senior management, and the business environment and to induct them in their fiduciary duties and responsibilities. To improve the process, directors visit operational centres to better familiarise themselves with business operations.
   
  A company policy on attendance by Kumba directors and board committee chairmen at shareholder meetings has been formulated.
   
  The board recently evaluated the relationship between non-executive directors and the group’s chief executive and executive management as excellent.
   
  BOARD MEETINGS
  The full board meets formally at least five times per year and, if necessary, more frequently. During the 2002/3 financial year, the board met eight times.
   
  Apart from the ongoing process of the board considering information supplied at each meeting, the board in its annual self-assessment process specifically addresses the provision of information. The board has judged and satisfied itself that the operational and financial information it receives regularly is outstanding. As for ad hoc and other information needs, the board fully considers its needs and decides on the additional information it requires, if any.
   
  The board, through the process of annual self-assessment and reviews, identifies issues needing attention and requiring improvement as regards compliance with its duties and responsibilities and its ability to add value to company business.
   
  BOARD COMMITTEES
  Kumba has established four standing board committees, namely the chairman committee, audit committee, human resources and remuneration committee and the safety, health and environment committee. All Kumba board committees have received detailed formal mandates from the board, with their duties and responsibilities fully aligned with those of the board.
   
  The audit committee consists entirely of non-executive directors and the other committees consist of a majority of non-executive directors. Experienced, knowledgeable non-executive directors chair all Kumba board committees.
   
  Arrangements are in place to ensure that board committees are free to take independent, professional, external advice as and when necessary. The purpose of this is to ensure that board committee members are, at all times, comfortable with the pool of specialised knowledge available and accessible to them.
   
  Board committees are subject to regular evaluation by the board. The board specifically addresses the matter of efficiency of the committees as part of the annual board self-assessment process. The minutes of each of the board committee meetings are submitted to the board for information and discussion if necessary. These minutes reflect the proceedings at these meetings and the decisions taken by the committees.
   
  AUDIT COMMITTEE
  This committee comprises three independent non-executive directors, with one director acting as chairman.
   
  Its primary responsibility is to assist the board in discharging its duty relating to the group’s:
 
  • Accounting policies
  • Financial reporting practices
  • Internal control and safeguarding of assets
  • Identification and evaluation of significant risks.
   
  The committee met four times during the year for these purposes. The chief executive, directors of finance, operations and corporate services, the manager of the outsourced audit and advisory services and the external auditors attend meetings by invitation. They have unrestricted access to the chairman and members of the committee.
   
  The committee is satisfied that the external auditors have remained independent throughout the year in completion of their duties.
   
  HUMAN RESOURCES AND REMUNERATION COMMITTEE
  This committee consists of four non-executive directors and the chief executive and is chaired by a non-executive director. Four meetings are scheduled annually, with ad hoc meetings convened when required. The executive director finance and general manager human resources attend meetings by invitation. The committee has a clearly-defined mandate from the board directed at:
 
  • Ensuring the group’s chairman, directors and senior executives are fairly rewarded for their individual contributions to overall performance.
   
  TRANSPARENCY IS ONE OF KUMBA’S KEY PILLARS, DRIVEN BY AN INDEPENDENT BOARD
 
  • Ensuring the group’s remuneration strategies, packages and schemes are related to performance, are suitably competitive and give due regard to the interests of shareholders and the financial and commercial soundness of the group.
  • Ensuring appropriate human resources strategies, policies and practices.
  • Reviewing executive succession and the development plans and recommending candidates for senior positions to the board.
   
  In discharging its responsibilities, the committee consults widely within the group and draws extensively on external surveys and independent advice and information.
   
  SAFETY, HEALTH AND ENVIRONMENT (SHE) COMMITTEE
  This committee, chaired by an independent non-executive director, consists of two other non-executive directors, the chief executive and the executive director of operations. It is responsible for formulating and recommending policies, strategies and programmes in all matters affecting safety, health and environment throughout the group to the board. The general manager SHE and land management attends all meetings by invitation. Members of the executive committee and general managers of the business units attend meetings by invitation.
   
  The committee is responsible for ensuring that these policies and programmes are in line with legislation, are effectively implemented and that SHE performance is regularly measured and evaluated.
   
  CHAIRMAN COMMITTEE
  The committee, consisting of the chairman and the respective chairmen of the audit, human resources and remuneration and SHE committees, was formed in November 2002 to create an effective communication forum between these chairmen. The principal purpose of the committee is to enhance the business of the board by means of:
 
  • Assuming shared leadership to aid and assist the directors in diagnosing issues for comprehensive evaluation by the board.
  • Reviewing the role and function of the chairman and that of the chief executive.
  • Bridging the gap between respective committees in the light of the move from single to triple bottom-line reporting concept.
  • Providing a central source of guidance and advice to the board on matters of ethics and good governance.
   
  The committee will also make recommendations on any potential conflict of interest or questionable situations of a material nature.
   
  The committee is subject to regular review and has not been granted any additional or delegated board powers
   
  ACCOUNTING AND AUDITING
  The board is satisfied that there is an efficient independent internal audit function in the group.
   
  The group has established procedures and practices to facilitate the achievement of objectives in the following categories:
 
  • Effectiveness and efficiency of operations
  • Reliability of financial reporting
  • Compliance with applicable laws, regulations and standards
   
  Close cooperation, consultation and coordination on audits between external and internal auditors support this process.
   
  The board has formulated principles for the execution of non-audit functions and services to avoid conflicts of interest by external auditors.
   
  The board has delegated the responsibility of making recommendations to the board for the appointment of the external auditor to the audit committee.
   
  The board has introduced a procedure for recording, in the board meeting minutes, the facts and assumptions used in the assessment of the going concern status of the group at year end.
   
  FINANCIAL AND OPERATIONAL REPORTING DISCLOSURE
  Kumba utilises a broad range of channels to distribute financial information, such as the Securities Exchange News Service (SENS), the Internet for its interim and annual results, presentations to fund managers and analysts, paid press reports, the annual report and news releases to newspapers and news agencies.
   
  RELATIONS WITH SHAREHOLDERS AND STAKEHOLDERS
  At Kumba, building long-term and mutually-beneficial relationships with our stakeholders is a business imperative. Kumba’s stakeholder charter forms part of an ethics base that encompasses its code of ethics, the Kumba Way and the code of conduct.
   
  The group proactively manages its relations with stakeholders, and maintains the highest standards of integrity and behaviour in all its dealings with stakeholders and society at large. Kumba maintains a position of impartiality and in principle does not support party-political causes.
   
  ORGANISATIONAL INTEGRITY AND ETHICS
  In pursuit of Kumba’s vision to outperform the mining and mineral sector in creating value for all stakeholders through exceptional people and superior processes, the conduct of its businesses and its employees is characterised by the following fundamental values:
 
  • integrity
  • respect
  • accountability
  • fairness
  • caring
   
  These values have been developed for the benefit of the group and its employees to guide the moral way of acceptable and responsible behaviour without which business cannot be sustained.
   
  Kumba’s board of directors, employees and the unions have endorsed the group’s code of ethics.
   
  In addition to Kumba’s other compliance and enforcement activities, a fraud prevention policy has been established as a mechanism through which all stakeholders can report suspected fraud or corruption with guaranteed anonymity.
   
  REMUNERATION POLICIES
  Non-executive directors
  The human resources and remuneration committee considers and submits recommendations to the Kumba board on the fees to be paid to each non-executive director. Any changes to fees are approved by the board and submitted to shareholders at the annual general meeting for approval prior to implementation and payment. The level of fees is, among others, determined according to the median remuneration paid by comparable companies.
   
  Non-executive directors are not bound by service contracts.
   
  Executive directors and Kumba employees
  The aim of the group’s remuneration policy is to ensure that executive directors and employees who are not in the bargaining unit are rewarded in a way that enables the group to attract and retain employees of the highest quality – people who are motivated to achieve performance superior to competitors, which serves the best interests of shareholders.
   
  Kumba’s performance-driven remuneration policy, governed by the human resources and remuneration committee, is to position the total remuneration of executive directors and employees at or near the median compared to companies with which it is competing for talent. Challenging performance criteria are used, tied to performance and efforts rather than general market fluctuations. A significant part of the remuneration of these employees is linked to company performance. Above-average rewards and career advancement are achieved by employees who accept the challenge of our business objectives and who excel in accomplishing them. Details on remuneration paid to executive directors is published elsewhere.
   
  All employees, including executive directors, are entitled to participate in an annual bonus and gain-share scheme, based on achieving and exceeding performance targets set by the human resources and remuneration committee. Senior management and staff specialists are eligible to participate in the Kumba management share option scheme.
   
  RECOGNISING AND BALANCING THE INTERESTS OF ALL STAKEHOLDERS FOR THE COLLECTIVE GOOD OF THE GROUP
  All executive directors’ normal service contracts are subject to one month’s notice. In terms of a retention arrangement approved by the human resources and remuneration committee, executive directors may become entitled to a severance package of one year’s remuneration if their services are terminated before 1 July 2004. There are no restraints of trade associated with the contracts.
   
  SUSTAINABILITY REPORTING
  Within the group, sustainability issues are considered a vital business element. Kumba has been selected as a participant of the Edward Nathan & Friedland (ENF) Sustainability Index for its achievements in, and ongoing commitment to, good corporate citizenship and sustainability. During the financial year under review, Kumba was ranked number two on the ENF Sustainability Assessment and is number 16 on the ENF Sustainability Index in terms of market capitalisation.
   
  Kumba is committed to the implementation of triple bottom-line reporting in terms of the GRI as it accepts that good governance and social and environment issues are integral to the group’s profitability and creation of long-term sustainability.
   
  BOARD AND BOARD COMMITTEE ATTENDANCE REGISTER
 
         
  
  
  
Safety, health and
Human resources
  
Board/special 
Chairman 
Audit 
   
environment
and remuneration
  
meetings (8#) 
committee (3#) 
committee (4#) 
 
committee (3#)
committee (5#)
Board of directors
Attendance 
Composition 
Attendance 
Composition 
Attendance 
Composition 
Attendance 
Composition 
Attendance 
MLD Marole†
7 
Chairman 
3 
By invitation 
2 
– 
– 
Member 
4 
Dr CJ Fauconnier*
8 
Member 
3 
By invitation 
4 
Member 
2 
Member 
4 
TL de Beer†
7 
Member 
2 
Member 
4 
– 
– 
Chairman 
5 
JJ Geldenhuys†
8 
Member 
3 
– 
– 
Chairman 
3 
Member 
5 
GS Gouws
7 
  
 
– 
– 
– 
– 
– 
– 
MJ Kilbride*
7 
 
 
By invitation 
2 
Member 
2 
– 
– 
Dr D Konar†
8 
Member 
3 
Chairman 
4 
– 
– 
– 
– 
CF Meintjes*
7 
 
 
By invitation 
4 
– 
– 
– 
– 
AJ Morgan†
7 
 
 
– 
– 
Member 
3 
– 
– 
SA Nkosi
7 
 
 
– 
– 
Member 
2 
– 
– 
CML Savage
8 
 
 
– 
– 
– 
– 
– 
– 
Prof NS Segal†
7 
 
 
Member 
4 
– 
– 
– 
– 
F Titi
8 
 
 
– 
– 
– 
– 
Member 
2 
DJ van Staden*
7 
 
 
By invitation 
4 
– 
– 
By invitation 
4 
RG Wadley*
7 
 
 
– 
– 
– 
– 
– 
– 
   
  Ms Marole, Messrs Kilbride, Meintjes, Van Staden and Wadley’s attendance was not required at one of the eight meetings held as the meeting was specifically scheduled to approve the appointment of Ms Marole as chairman.
   
  Messrs Nkosi and Titi were appointed to serve as members on respective committees from 1 May 2003
   
 
#  Number of meetings per annum
†
 Independent non-executive director
*  Executive director
 
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