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Corporate governance |
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Corporate governance is about commitment and achieving
a balance . . . |
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INTRODUCTION |
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Dr Con Fauconnier, Kumba’s chief executive, believes that “corporate
governance is more than just putting in place structures and reporting mechanisms.
Corporate governance is about commitment and achieving a balance between
the demands of conformance governance and performance measurement.”
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The board supports this view and is committed to a sound set of governance
principles tailored in accordance with the application of common law principles,
the detailed rules of the JSE Securities Exchange South Africa (JSE) and
the Companies Act, 61 of 1973 (as amended), as well as the recommendations
of the two King reports on corporate governance. |
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The chief executive and executive management recognise the
need to conduct the business of Kumba and its entities in terms of the spirit
and principles of the Code of Corporate Practices and Conduct (the Code)
by:
- Acknowledging the responsibility towards the community, society and
to the environment in which the group operates
- Continually examining its management structures, culture, policies
and strategies and the ways in which it deals with various stakeholders
to effect best practice
- Implementing systems that will satisfy the requirements relative to
governance demands, ethical behaviour, risk management and performance
stability.
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COMPLIANCE WITH KING II |
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The directors are of the opinion that Kumba complies with, and has applied,
the requirements of King II for the period under review. All entities in
the group are required to subscribe to the spirit and principles of the
Code. In addition, the Code is applied to all operating entities of the
nature and size identified in King II. |
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APPROACH TO CORPORATE GOVERNANCE |
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Kumba’s corporate governance approach provides an integrated strategic
management framework necessary to achieve the performance standards required
to operate in the best interests of its profitability, environment and communities. |
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The relationship between Kumba’s stakeholders and those entrusted
to manage the company’s resources are based on the qualities of leadership,
accountability and the transparency of Kumba’s strategies
and processes. |
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Leadership |
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Role of the board |
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The board subscribes to long-term sustainability of corporate capital,
as well as a triple bottom-line emphasis on financial, environmental and
social capital. Furthermore, the board focuses on maintaining a balance
between the interests of stakeholders and the collective good of the group
in terms of its charter, accepting that it is ultimately responsible and
accountable for the affairs of the company. |
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Key features of the responsibilities of the board include:
- Directing and controlling the business of the company to achieve continuing
prosperity and to act in the best interest of Kumba
- Adopting strategic plans and monitoring budgeting and operational
performance
- Presenting annual financial statements, interim reports and related
disclosure requirements
- Taking responsibility for the preparation and approval of financial
statements
- Delegating authority to board committees and executive management
- Overseeing succession planning and director selection
- Administrating appointments to and removals from the board
- Evaluating the board and individual director performance
- Monitoring, guiding and supervising executive management performance
against approved key performance indicators
- Ensuring that the company manages the business with integrity and
in conformance with best practice standards
- Providing a risk management strategy and policy framework
- Controlling compliance with laws and regulations
- Ensuring effective stakeholder communication.
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Kumba’s non-executive directors are independent of management and
have an understanding of the company’s mission and strategic plan,
a comprehension of Kumba’s business and specialist expertise to add
value to the company. |
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Role of the committees of the board |
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Specific responsibilities have been delegated to the three
committees in support of the functioning of the board:
- Audit committee
- Human resources and remuneration (HR and Rem) committee
- Safety, health and environment (SHE) committee
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The membership and principal functions of these committees are set out
below. |
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These committees serve in accordance with written terms of references
approved by the board, which are reviewed and updated annually. |
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Role of executives and management
Executives’ and managers’ responsibilities include, inter alia,
to lead through developing, implementing and monitoring business strategies
strongly founded on corporate values, ethical conduct and quality service
delivery. Executive action and supervision are directed by a variety of
governance structures. |
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The executive committee is a management advisory forum chaired by the
chief executive and includes the executive directors; general manager corporate
affairs and investor relations; general manager human resources; general
manager transformation and empowerment and the company secretary. The general
managers of Kumba’s iron ore, coal, heavy minerals, base metals, industrial
mineral business operations and the general manager SHE, attend by invitation.
The committee meets on a monthly basis to assist the chief executive in
formulating group strategies, monitoring performance, defining Kumba’s
risk-tolerance capacity and acting as a sounding board on issues to be presented
to the board. |
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. . . between conformance, governance and performance
measurement |
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Accountability |
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At Kumba the board accepts its duty to address matters of significant
interest and concern to stakeholders, taking into account greater demands
for accountability, and to ensure maintenance of objectivity in recognising
and balancing the interests of stakeholders for the collective good of the
group. |
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Transparency |
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Kumba recognises the need for full, equal and timeous disclosure of information
to stakeholders as prescribed by various policies governing communication
and conduct with stakeholders. |
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BOARD STRUCTURE AND RELATED MATTERS |
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BOARD COMPOSITION |
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The board comprises 18 directors, with six independent non-executive directors
(as defined by JSE rules) and five executive directors. The chairman, Mrs
Dawn Marole, is an independent non-executive director. |
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To ensure efficient staggering of director rotation, directors are subject
to retirement and may be nominated for re-election every three years. The
retirement age for a non-executive director is 70 years, becoming effective
at the annual general meeting after the date on which he/she turned 70. |
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Existing practices and procedures require the board to engage in selecting
its own members and in planning for its own succession. |
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A performance assessment of both the board and individual directors will
be undertaken to plan for the continuity of experience and knowledge, matching
the configuration of the board with the strategic direction of Kumba. |
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CHAIRMAN AND CHIEF EXECUTIVE |
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From its listing date, Kumba has upheld separation of the operational
role of the chief executive and the chairman’s role to facilitate
the smooth and efficient functioning of the board. Their respective statements
of responsibilities were approved at a board meeting held in February 2004.
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DIRECTORS |
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The directors are credible, skilled and experienced and bring appropriate
judgement to bear on corporate issues. |
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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. Directors can visit operational centres to
better familiarise themselves with business operations. The focus is on
continuous provision of information relating to group performance and industry
activities, facilitated through a dedicated directors’ website. |
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A company policy on attendance by Kumba directors and board committee
chairmen at shareholder meetings is in place. |
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COMPANY SECRETARY |
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The company secretary assumes responsibility for the group company secretarial
administrative business and corporate governance service so that obligations
are met and directors and management are able to make the fullest possible
contributions to the success of an effective and well run organisation.
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The company secretary supports the running of the board, including board
committees, ensuring that the board carries out its business in a professional
and efficient manner, in line with its statutory, legal and other responsibilities.
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BOARD MEETINGS |
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The board meets at least five times a year and, if necessary, more often.
During the period 1 July 2003 to 31 December 2004, the board met ten times.
Information on the attendance of individual directors is provided below.
Where directors are unable to attend a meeting, tele- and video conferencing
facilities are made available to allow them to participate. |
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The information needs of the board are reviewed regularly. The agenda
has been adapted to focus firstly on strategy and performance monitoring
followed by governance-related matters. Efficient and timely procedures
of informing and briefing board members are in place. Management ensures
that board members are provided with relevant information to enable the
board to make informed decisions. Directors are kept appropriately informed
of material developments affecting the group between board meetings. |
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BOARD COMMITTEES |
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All three Kumba board committees have detailed mandates from the board,
fully aligning their duties and responsibilities with those of the board.
Experienced, knowledgeable independent non-executive directors chair these
board committees. |
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Board committees are subject to regular evaluation by the board. The effectiveness
of the audit committee has been evaluated as excellent for the past three
years, whilst an evaluation process in respect of other board-appointed
committees has been introduced. The minutes of each committee meeting are
presented to the board for information. |
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Audit committee |
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Members |
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This committee comprises four non-executive directors – Dr D Konar
(chairman), Mr TL de Beer, Dr NS Segal and Mr PL Zim, of whom the first
three are independent. Mr Zim was appointed on 7 June 2004 and served as
a member until 31 December 2004. |
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Composition and proceedings |
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Meetings are held at least four times a year and are attended by the external
and internal auditors and, on invitation, the chairman and members of the
executive management. |
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The committee has discussions with the company’s internal and independent
auditors on their evaluations of the company’s internal accounting
controls and the overall quality of the company’s financial reporting,
with and without management present. |
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The committee met six times during the period under review. |
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Role of the committee The audit committee assists the board
in relation to its responsibility for the preparation of the financial statements
of Kumba and its subsidiaries and ensures that the interim and annual financial
statements, and other formal announcements relating to the company’s
financial performance, comply with all statutory and JSE requirements. Focus
areas are:
- Integrity of financial reporting judgements and estimates
- Compliance with applicable legislation and regulations
- Matters relating to financial and internal control, accounting policies,
reporting and disclosure
- Reviewing and recommending to the board interim and year-end financial
statements and dividend announcements
- Ensuring that all risks to which the group is exposed are identified
and managed in a well-defined control environment
- Monitoring values and ethics
- Security and fraud controls
- Evaluation of the performance of the external and internal auditors
- Reviewing/approving external/internal audit plans, findings, reports
and fees
- Asset valuations and revaluations
- General and specific provisions
- Basis for the going concern assumption.
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The audit committee approved a policy addressing the services that may
be performed by the external auditors during August 2002, which was updated
in February 2005. Compliance with the policy is reported annually to the
audit committee. |
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HR and Rem committee |
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Members |
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This committee comprises five non-executive directors: Mr TL de Beer (chairman),
Mrs MLD Marole, Messrs JJ Geldenhuys, F Titi and PM Baum, of whom the first
four are independent; and the chief executive, Dr CJ Fauconnier. |
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Composition and proceedings |
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The executive director finance and general manager human resources attend
meetings by invitation. These delegates and the chief executive director
do not participate in discussions and decisions regarding their own remuneration
and benefits. |
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Four meetings are scheduled annually, with special meetings called as
required. The committee met nine times during the period. |
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Role of the committee |
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The committee has a clearly defined mandate from the board
directed at:
- Ensuring the group’s chairman, directors and senior executives
are rewarded for their individual contributions to overall performance
- Ensuring the group’s remuneration strategies, packages and
schemes are related to the achievement of business objectives and the
delivery of shareholder value
- Ensuring appropriate human resources strategies, policies and practices
- Reviewing executive and non-executive director succession planning,
mapped against the objectives of the board and the strategic direction
of the group.
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In accordance with the board charter, the committee, together with the
chairmen of the standing board committees, annually undertakes a performance
assessment of the chief executive. |
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SHE committee |
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Members |
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This committee comprises four non-executive directors – Messrs JJ
Geldenhuys (chairman), AJ Morgan, SA Nkosi and WA Nairn, of whom the first
three are independent; and two executive directors, Dr CJ Fauconnier and
Mr MJ Kilbride. |
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Composition and proceedings |
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The general manager SHE attends all meetings. Members of the executive
committee and general managers of the business units also attend meetings
by invitation. |
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The committee met four times during the period under review. |
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Role of the committee |
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The SHE committee is responsible for formulating and recommending policies,
strategies and programmes to the board in all matters affecting safety,
health and environment throughout the group, ensuring that these policies
and programmes are in line with legislation, effectively implemented and
that SHE performance is regularly measured and evaluated. |
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Integrated strategic management framework creates
wealth for stakeholders |
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DIRECTORS’ SHARE DEALINGS |
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The group has various policies and procedures to address conflicts of
interests. These cover areas such as management share interests and directorships
in companies with which Kumba has contractual relationships. |
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The group has a procedure in place to restrict dealing in
its securities by directors, officers and other selected employees during
closed periods as defined in the JSE Listings Requirements below:
- The date from the expiration of the first six-month period of a financial
year up to the date of publication of the interim results
- The date from the financial year end up to the date of earliest publication
of the year-end financial results
- Any period when an issuer is trading under a cautionary announcement.
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GOING-CONCERN STATEMENT |
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The board has considered and recorded the facts and assumptions on which
it relies to conclude that the group will continue as a going concern in
the financial year ahead. |
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The board is of the opinion that the business will be a going concern
in the year ahead and its statement in this regard is also contained in
the statement on the responsibility of directors for the annual financial
statements. |
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FINANCIAL AND OPERATIONAL REPORTING DISCLOSURE |
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Kumba uses a broad range of channels to communicate financial information,
such as the JSE 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. |
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RISK MANAGEMENT PROCESS |
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At Kumba, the risk management process is not a separate activity within
management but an integral part of good management processes. |
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Risk management entails a process of identifying, analysing and mitigating
risks which could prevent Kumba from achieving critical business objectives.
It includes implementing and monitoring control activities to manage risk
throughout the group by developing risk management plans which cover activities
as diverse as reviews of operating performance, information technology and
management information systems, increased competition and contestability,
outsourcing, performance management and information, professional development,
staff appraisal, including client surveys, reconciliations of accounts,
approvals and segregation of duties. |
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Control activities to mitigate risk are designed and implemented and relevant
information regularly collected and communicated throughout the group. Management
monitors performance to ensure that objectives are being achieved and control
activities are operating effectively. There were no major breaks in internal
control during the period. |
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Effective governance arrangements require directors to ensure the establishment
by management of appropriate protocols to identify potential risks as well
as opportunities and to establish processes and practices to manage all
risks associated with the company’s operations. |
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The board is kept abreast of the major trends impacting on the company,
potential risks and opportunities at bi-annual discussions. The detailed
risk management report appears here.
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REMUNERATION POLICIES |
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Kumba’s performance-driven remuneration policy, governed by the
HR & Rem committee, positions the total remuneration of executive directors
and employees at or near the median compared with companies with which it
is competing for talent. Employees who accept the challenge of our business
objectives and who excel in accomplishing them achieve above-average rewards
and career advancement. A significant part of the remuneration of employees
is linked to personal and company performance. |
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All employees, including executive directors, are entitled to take part
in an annual bonus and gain-share scheme, based on achieving and exceeding
performance targets set by the HR & Rem committee. Senior management
and staff specialists are eligible to participate in the Kumba management
share option scheme. |
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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. |
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The HR and Rem committee considers and submits recommendations to the
board on the fees for each non-executive director. Any changes to fees are
recommended for approval by the board and presented to shareholders at the
annual general meeting for approval before implementation and payment. The
fee is determined according to, among others, the median remuneration paid
by comparable companies. |
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Non-executive directors are not bound by service contracts, and there
are no service contracts exceeding six months relating to the position of
any executive director. |
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There is full disclosure in the remuneration
report of various remuneration matters in respect of the directors.
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Risk management is an integral part of good management
processes |
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ORGANISATIONAL INTEGRITY AND ETHICS |
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Kumba’s code of ethics provides a basis for ethical
behaviour and guidance to the company and its employees to:
- Comply with industry standards and applicable codes of conduct •
Act with honesty in performing duties
- Apply due care in the use of company information, equipment and facilities
- Exercise consideration and sensitivity in dealings with stakeholders.
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This approach is practised at all levels in the group and forms an integral
part of Kumba’s operations. Conduct that violates these ethical principles
may constitute grounds for disciplinary action in terms of Kumba’s
conditions of employment and its disciplinary code. |
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Kumba’s board of directors, employees and the unions have endorsed
the group’s code of ethics, while the general manager, human resources
and the company secretary monitor compliance with the code. Awareness of
ethical behaviour is encouraged by regular communication with employees
of the group. |
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Beside Kumba’s other compliance and enforcement initiatives, a fraud
prevention policy has been developed and widely communicated. A fraud philosophy
statement, signed by the chief executive, encapsulates the fraud prevention
policy and reads as follows: |
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We are committed to the highest standards of honesty, integrity and fairness,
and have a zero tolerance for the commissioning or concealment of fraudulent
acts by employees, contractors and suppliers. The conduct of our employees
must be characterised by the fundamental values of integrity, respect, accountability,
fairness and caring. All employees are responsible for the reporting of
fraud through the available channels. All reporting of such acts will be
investigated and appropriate action will be taken, which includes legal
action where prima facie evidence exists. |
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Kumba’s stakeholder charter forms part of an ethics base that encompasses
its code of ethics, the code of conduct and the Kumba Way as set out on
p5 of this report. |
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As part of the policy, a toll-free hotline has been established as a mechanism
through which all stakeholders can report suspected fraud, corruption or
any unethical conduct, with assured anonymity. Details are as follows: |
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During the year, 20 cases of suspected fraud were reported. Eight of these
complaints were received through the toll-free fraud hotline. Four disciplinary
cases resulted in dismissals, a total of ten investigations resulted in
criminal prosecution and six were found to be unsubstantiated. |
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INTEGRATED SUSTAINABILITY REPORTING |
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Kumba harmonises social and environmental responsibilities
with its business pursuits. These cover trade practices, environmental policies,
energy and waste policies, employee welfare and safety, and community relations.
A selection of these principles includes:
- Ensuring that the business is ecologically sustainable, meeting the
needs of the present without compromising the future
- Aiming for maximum commercial benefit but realising that the livelihood
of employees and intermediaries depends on paying them a fair market
price
- Supporting long-term, sustainable partnership-based relationships
with the communities in which the group’s businesses operate
- Promoting respect for human rights on the part of suppliers
- Contributing to communities through donations, social investment
and partnerships with communities.
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This broad view of responsibility and accountability underpins the concept
of Kumba’s triple bottom-line reporting. |
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Kumba is among the first group of companies listed on the JSE All Share
Index to comply with the requirements of the new JSE Socially Responsible
Investment (SRI) Index, and one of the first 51 of the 160 All Share Index
companies to meet the requirements of the corporate governance, economic,
social and environmental criteria. |
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The data provider for the index, Sustainability Research & Intelligence,
commended Kumba for its disclosure level in terms of quantitative and qualitative
information in respect of the four areas measured. |
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Building long-term relationships with stakeholders
is a business imperative |
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COMMUNICATIONS WITH STAKEHOLDERS AND SHAREHOLDERS
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At Kumba, building long-term and mutually beneficial relationships with
our stakeholders is a business imperative. |
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The group manages relations through the corporate affairs and investor
relations department, which is responsible for ensuring appropriate communication
with the investment community. Contact is maintained with domestic and international
institutional shareholders, fund and asset managers and analysts by means
of investor road shows, presentations to the investment community as well
as liaison with major shareholders. |
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Kumba is committed to providing timely, accurate announcements and circulars
to our shareholders in accordance with the JSE Listings Requirements. |
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RECORD OF ATTENDANCE AT DIRECTORS’ MEETINGS FOR THE PERIOD I JULY
2003 TO 31 DECEMBER 2004 |
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