Principle 1: Set exceptional governance standards at board level

Principle 2: Set high standards for financial performance

Principle 3: Make compliance a core operating principle

Principle 4: Commit to openness and transparency

Principle 5: Create a culture where the company always comes first

Principle 6: Create leaders who are provided with the right incentives for performance and values

Principle 7: Commit to people and develop trust

Principle 8: Make a business out of solving the world’s toughest problems

Principle 9: Give back to the community

Principle 10: Teach people to compete by making them confident

“Corporate governance is the system that maintains the balance of rights, relationships, roles and responsibilities of shareholders, directors and management in the direction, conduct, conformance and control of the sustainable performance of the company with honesty and integrity in the best long-term interests of the company, shareholders and both business and community stakeholders.”
Business governance handbook by John and Leigh Hendrikse

This translates into Kumba’s commitment to corporate governance principles and an independent rating well into the upper half of 52 companies analysed by Deutsche Securities. Kumba’s governance performance was achieved despite having a controlling shareholder for the review period, which is generally considered a constraint on the independence of any board.

The Kumba board is responsible for:

• Directing and controlling the business of the company to achieve sustained levels of prosperity and to act in the best interests of Kumba
• Monitoring, guiding and supervising executive management performance against key performance indicators
• Ensuring the company manages its business with integrity and in line with best-practice standards
• Adopting strategic plans and monitoring budgeting and operational performance
• Providing a risk management strategy and policy framework
• Approval of financial statements
• Presenting annual financial statements, interim reports and related disclosure requirements
• Delegating authority to board committees and executive management
• Administering appointments to and removals from the board
• Overseeing succession planning and director selection
• Evaluating board performance
• Overseeing compliance with laws and regulations
• Ensuring effective stakeholder communication.

Board composition
The board comprises 16 directors, of whom five are independent non-executives and four are executives. The chairman, Mr Allen Morgan, is an independent non-executive director.

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 non-executive directors is 70 years, becoming effective at the annual general meeting after the date on which they turned 70.

The chairman’s committee – comprising the respective chairmen of the safety, health and environment, human resources and remuneration and audit committees – appraises the performance of the chief executive annually. Late in 2005, the committee also assessed the performance of the remaining executive directors which was considered exemplary. The committee met once in 2005. A company policy on attendance by Kumba directors and board committee chairmen at shareholder meetings is in place.

Directors
Kumba’s directors are credible, skilled and experienced and bring appropriate judgement to bear on the main issues. Non-executive directors understand the company’s mission, strategy and business and add specialist expertise to the company.

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.

The company secretary operates well-established practices and procedures 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 acquaint themselves better with business operations.

Board meetings
The board meets at least five times a year. Between 1 January and 31 December 2005, the board met eight times.

Board committees
Specific responsibilities have been delegated to three committees to support the functioning of the board:

• Audit committee
• Human resources and remuneration committee (HR and REM)
• Safety, health and environment committee (SHE).

These committees serve under written, board approved terms of references, which are reviewed and updated annually. The board addresses the performance of the committees as part of an assessment process. The minutes of all board committee meetings are presented to the board for information.

Experienced, knowledgeable, independent non-executive directors chair all Kumba board committees. These committees are free to take independent, professional, external advice.

Audit committee
This committee comprises three independent non-executive directors – Dr D Konar (chairman), Mr TL de Beer and Dr NS Segal.

Composition and proceedings
It is required that the committee meets four times per year, which was the case in 2005. Meetings are attended by the external and internal auditors and, by invitation, the chairman and members of executive management. Internal and external auditors have unrestricted access to the committee. At the interim and year-end meetings, time is reserved for confidential discussions between committee members, and separately with the external and internal auditors.

Role of the committee
The audit committee assists the board with the preparation of Kumba’s financial statements and its subsidiaries and ensures that interim and annual financial statements, and any other formal announcements on the company’s financial performance, comply with all statutory and JSE Listings Requirements. The focus is particularly on:

• Integrity of financial reporting
• Compliance with 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 process
• Monitoring values and ethics
• Security and fraud controls
• Evaluation of the performance of the external and internal auditors
• Reviewing and approving external audit plans, findings, reports and fees
• Asset valuations and revaluations
• General and specific provisions
• Basis for the going-concern assumption.

Meeting proceedings
The executive director: finance and general manager: human resources attend meetings by invitation. Together with the chief executive, they recuse themselves from discussions and decisions regarding their own remuneration and benefits.

Four meetings are scheduled annually, with special meetings called as required. Six meetings were held during 2005.

Role of the committee
The committee has a mandate from the board to:

• Ensure that the group’s chairman, directors and senior executives are rewarded for their individual contributions to overall performance
• Ensure that the group’s remuneration strategies, packages and schemes are related to the achievement of business objectives and the delivery of shareholder value
• Ensure appropriate human resources strategies, policies and practices
• Review executive and non-executive director succession planning and recommend candidates for positions to the board.

• Identifying, analysing and mitigating risks that will prevent achievement of business objectives
• Putting initiatives in place to manage risk throughout the group
• Developing fraud and risk management plans which cover activities such as:
  – reviews of operating performance
  – information technology and management information systems
  – increased competition contestability and contestability
  – contracting out and outsourcing
  – performance management and information
  – professional development
  – staff appraisal including client surveys
  – reconciliations of accounts
  – approvals
  – segregation of duties.

Control activities to mitigate risk are designed and implemented and relevant information regularly collected and communicated, throughout the group. Management monitors performance to ensure objectives are being achieved and control activities are operating effectively. Directors are required to identify business risks, as well as potential opportunities, and ensure that management establishes appropriate processes and practices to manage all risks associated with the company’s operations.

The board is made aware of major trends impacting on the company and its major risks and opportunities at biannual discussions through presentation and discussion of its strategy and business plans.

Kumba is committed to developing and maintaining an integrated, enterprise-wide risk management programme (ERM). A logical, systematic and repetitive methodology that will identify, analyse, assess, treat and monitor all risks, whether they are insurable or not, is applied.

We communicate accurate and timeous information to those employees tasked with minimising losses and maximising opportunities, to assist them in achieving their strategic objectives (See risk management).

The complexity and diversity of risks that face Kumba are recognised and we integrate our efforts to maximise opportunities and minimise exposures to risk and to reduce them, where necessary, to levels commensurate with our risk appetite.

• Acknowledging our responsibility towards the communities and environment and the broader society in which the group operates
• Continually examining our management structures, culture, policies and strategies and the ways in which we deal with stakeholders to effect best practice
• Implementing systems that will meet the requirements relative to governance demands, ethical behaviour, risk management and performance stability.
  
  

Kumba sees good governance as a distinguishing feature of the company, underpinned by a multi-stakeholder approach. Stakeholders include shareholders, employees, customers, the community, government and resource and service providers.

Kumba’s board of directors, employees and unions have endorsed the group’s code of ethics. Compliance with Kumba’s code of ethics is monitored by the general manager: human resources and the company secretary. Awareness of ethical behaviour is encouraged by regular communication with employees. The board accepts its duty to address matters of significant interest and concern to all stakeholders, taking into account greater demands for accountability, and recognising and balancing the interests of all stakeholders for the collective good of the group.

Besides Kumba’s other compliance and enforcement, a fraud prevention policy has been established as a mechanism through which all stakeholders can report suspected fraud or corruption with guaranteed anonymity. During the year, 27 cases of suspected fraud were reported of which eight complaints were received through the toll-free fraud hotline. Two disciplinary cases resulted in dismissals, and one investigation resulted in criminal prosecution.

Kumba recognises the need for full, equal and timeous disclosure to all stakeholders as prescribed by the JSE Listings Requirements and guidelines, and various policies governing communication and conduct with stakeholders.

All necessary information and facilities are made available to shareholders to enable them to:

• Attend annual general meetings
• Submit proxy forms sent along with notices convening meetings of shareholders
• Receive announcements and circulars in accordance with the JSE Listings Requirements.

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.

There is full disclosure of various remuneration matters for executive directors in the remuneration report.

Kumba’s board subscribes to long-term sustainability of corporate capital, as well as a triple bottom-line emphasis on financial, environmental and social performance. The board also focuses on maintaining a balance between the interests of stakeholders and the collective good of the group, accepting that it is ultimately accountable for the affairs of the company.

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 stakeholders, profitability and the environment.

The group has various policies and procedures to address conflicts of interests which cover areas such as shareholdings and directorships of Kumba directors in companies with which Kumba has contractual relationships as well as outside interests by managers which could possibly lead to conflicts of interests. As defined in the JSE Listings Requirements, the group has a procedure in place to restrict dealing in its securities by directors, officers and other selected employees during closed periods.

The relationship between Kumba’s stakeholders and those entrusted to manage the group’s resources is based on the qualities of leadership, accountability and the transparency of Kumba’s strategies and processes.

The responsibilities of executives and managers include leading through developing, implementing and monitoring business strategies based on corporate values, ethical conduct and quality service delivery. Executive action and supervision are directed by a variety of governance structures. The executive committee is chaired by the chief executive and comprises the executive directors, general manager: corporate affairs and investor relations; general manager: human resources and the company secretary. The general managers of Kumba’s iron ore, coal, heavy minerals, base metals and industrial minerals operations as well as the general manager: SHE attend by invitation. Formal meetings are held monthly with weekly informal caucuses.

The aim of the group’s remuneration policy is to ensure that executive directors and employees 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, 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.

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 human resources and remuneration committee. Senior management and staff specialists are eligible to participate in the Kumba management share option scheme, and long-term incentive deferred bonus plans.

In business activities and succession planning, executive skills are mapped against the objectives of the board and the strategic direction of the company. The board is satisfied that the group’s procedures and practices for succession planning ensure the best potential managers are identified, developed and suitably fast-tracked.

Integrity is reflected in Kumba’s decision-making practices and procedures and in the quality and credibility of its reporting. 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.

• Comply with industry standards and 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.
  
  

• 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 and national projects through donations, social investment and partnerships.

At Kumba, building long-term and mutually beneficial relationships with our stakeholders is a business imperative. Within the corporate affairs department, the group manages its relations through its investor relations unit to ensure appropriate communication with the investment community; the sustainable development function is responsible for local economic development, sustainable development principles and stakeholder engagement and is managed through a three-tier approach, namely corporate, regional and mine specific. Contact is maintained with domestic and international institutional shareholders, fund and asset managers and analysts through investor road shows, presentations to the investment community as well as liaison with major shareholders.

At a Kumba business/government dinner held at Richards Bay on 23 May 2005, the chief executive, Dr Fauconnier, expressed the company’s commitment to community involvement when he said: “… we will never lose sight of the expectations of all our stakeholders, from national to provincial to local government, from communities to the environment. At all times, and in all operations, we will strive to maintain the quality of life of future generations by integrating economic development with best practice environmental and social activities.”

• Best new listing on the JSE: 2001
• Best mining company to work for: 2003, 2004, 2005
• Best empowerment company in mining: 2004
• Best annual report: third in RSA: 2004
• JSE Sustainability Index: 2004
• Boss of the Year^®: 2004

Considering these achievements in a highly competitive business arena, Kumba has proudly created a company which is beneficial to all its stakeholders.

As demonstrated in this annual report, good governance permeates Kumba’s businesses. We continually compare our standards against our peers and companies regarded as global leaders in corporate governance to ensure that our business is managed to protect and enhance stakeholder value.