Corporate governance

Introduction

The Grindrod group has enhanced its good corporate governance standards and continues to review and implement current and emerging trends both locally and internationally.

The board subscribes to the principles and code of conduct incorporated in King III and the JSE Limited (JSE) Listings Requirements and an apply or explain approach has been initiated in this report.

View the King III reference table which records Grindrod’s current status in relation to the new governance code. The board is mindful of the limitations of this approach to achieving the goal of a fully integrated basis of reporting.

Grindrod is committed to the integrated principles of King III and acknowledges the journey towards an appropriate standard of reporting. Plans are in place to develop an integrated strategy to achieve this objective.

Although the implementation of the Companies Act 71 of 2008 has been delayed until 1 April 2011, the group has already considered the effect of changes resulting from the new Act and will incorporate such changes into its corporate governance framework.

Board of directors

The Grindrod board comprised 13 directors at 31 December 2010. Of this complement, seven are non-executive of which five are considered independent. Details of the non-executive and executive directors and their diversity of skills and commercial experience.

The role of the board is regulated in a formal board charter which defines matters reserved for board approval. The responsibilities of the board are set out in the charter and the board is required to annually review its operations against the charter framework. The charter is available on the group’s website.

The quorum for board meetings is eight directors, however, with meetings planned well in advance, full attendance is expected. The board meets a minimum of four times a year and additional meetings are held when considered necessary. In assuming ultimate responsibility for effective control and leadership of the group, the board takes responsibility for the following:

•	Compliance with all relevant laws, regulations and codes of business practice;
•	Definition of levels of materiality, reserving specific powers to itself and delegating other matters to executive management in terms of a limits of authority framework;
•	Giving direction on all strategic matters and annually approves the group business plan;
•	Monitoring the implementation of the business plan by management;
•	Reviewing performance of the various board committees established to assist in the discharge of its duties;
•	Monitoring key risk and performance areas of the group and identifies non-financial issues relevant to the group;
•	Determining the policy and models applied to ensure the integrity of:
	–	risk management and internal controls;
	–	director selection, orientation and evaluation;
	–	executive and general remuneration;
	–	external and internal communications; and
	–	ensures there is appropriate succession planning at senior management level.

The role and function of chairman and chief executive officer are separate in the Grindrod group. The chairman, IAJ Clark is a non-executive director, but is not considered independent due to his shareholding and unexercised share options which were awarded during his term as chief executive officer. The board is of the view that his shipping and logistics experience and overall business skills overwhelmingly outweigh his perceived lack of independence.

The board has not formally appointed a lead independent director.

The board is supplied with all relevant information and has unrestricted access to all group information, records, documents and property, which enables directors to adequately discharge their responsibilities. Information needs are well defined and non-executive directors have full access to management and the company secretary.

An induction programme is in place for new directors, which includes an induction book, consultation with each divisional executive and site visits. The cost of attending appropriate external training courses is paid by the company.

At each annual general meeting at least one-third of the directors retire by rotation from the board. These retiring directors may offer themselves for re-election. Executive directors retire from the board at 60 or 63 years of age depending on their contracts, whilst non-executive directors retire at the annual general meeting following their 70th birthday.

The boards of directors of major local and offshore operating subsidiaries comprise executive directors and senior management. The boards of major offshore operating subsidiaries and Grindrod Bank Limited include independent non-executive directors.

The Grindrod executive committee is responsible for the operational and strategic management of the group. This team is led by the chief executive officer.

Board attendance

The Grindrod Limited board met five times during the year, with a special strategic meeting held on 18 May 2010 and attendance was as follows:

	17 Feb 2010	18 May 2010	19 May 2010	18 Aug 2010	17 Nov 2010
IAJ Clark (chairman)
AK Olivier
H Adams
MR Faku
WD Geach
IM Groves
MJ Hankinson
JG Jones
TJT McClure (retired 31 July 2010)				n/a	n/a
RA Norton (retired 19 May 2010)				n/a	n/a
DA Polkinghorne
DA Rennie
AF Stewart
LR Stuart-Hill
SDM Zungu

Board governance

The board is the focal point and custodian of corporate governance in the group. In fulfilling its duties, the board annually elects a chairman at its meeting in August.

Insider trading

In line with best practice and JSE Listings Requirements, no group director or employee who has price sensitive inside information on the group may deal directly or indirectly in Grindrod securities.

Directors and all group employees are not permitted to deal directly or indirectly in the shares of the company during:

•	The period from the end of the interim and annual reporting periods to the announcement of the interim and annual results; or
•	Any period when they are aware of any negotiations or details which may affect the share price; or
•	The time declared as a prohibited period in terms of the JSE Listings Requirements.

The company secretary communicates on a regular basis with the board on the status of dealing in the company’s shares.

Directors are required to notify the company secretary in writing immediately following any transaction involving the company’s shares. The trades are timeously disclosed to the JSE and are tabled at the following board meeting.

Succession planning/performance evaluations

The remuneration/nomination committee annually reviews the board’s performance, structure, size and composition and makes recommendations to the board on succession, training and replacement of both members of the board and executive management.

Individual performance evaluations are conducted by the chairman in respect of the non-executive directors. The chief executive officer is not a member of the committee but attends meetings to provide feedback on individual performances of members of the executive and other relevant information.

Directors’ independence

In line with best practice, more than half the non-executive directors are independent. The remuneration/nomination committee reviewed the composition of the board and particularly the composition of non-executive directors and concluded that H Adams, WD Geach, MJ Hankinson, IM Groves and SDM Zungu are independent non-executive directors of Grindrod as contemplated in sub-section 2.4.3 of the King Code of Corporate Practices and Conduct and paragraph 3.84(f) of the JSE Listings Requirements.

MR Faku represents the interests of the B-BBEE partner of Grindrod (South Africa) (Pty) Limited, a major subsidiary company, which interest could be perceived to compromise his independence. Reference is made to the chairman’s status.

View a brief curriculum vitae of each director of the company.

Board committees

The board has an audit committee and a remuneration/nomination committee. Members and the chairmen of the remuneration/nomination committee are appointed by the board. The audit committee members will be appointed for the first time by shareholders at the forthcoming annual general meeting. The board has no separate risk committee, as this function is dealt with by the board as a whole with an annual meeting dedicated to a group risk assessment and quarterly risk updates. During the year the board reconsidered the establishment of a risk committee. It was agreed to continue with the current status and to ensure the full board are regularly kept appraised. A full report on the risk management process.

The full board is responsible for risk management and implementing an effective process to identify risk, measure the potential impacts and to set risk tolerance levels. View a full assessment of risk.

For the purposes of good governance and in compliance with South African Reserve Bank requirements, Grindrod Bank has its own board committees which include:

•	Audit and Compliance;
•	Remuneration;
•	Directors’ Affairs;
•	Risk and Capital Management;
•	Asset Management Investment;
•	Credit Risk; and
•	Asset and Liability.

Executive committee

The executive committee comprises the executive directors, JB McIlmurray, MR Wade and the group secretary.

The board has delegated a wide range of matters relating to the company’s management to the executive committee as directed by the group limits of authority framework, including:

•	Financial, strategic, operational, governance, risk and functional issues;
•	Formulation of the group strategy and policy; and
•	Alignment of group initiatives.

The committee held six meetings during the year, which included a succession planning meeting and a presentation by the Institute for Futures Research. The executive committee also held a two-day strategic planning meeting with key operational management during 2010. The committee assists the chief executive officer in guiding and managing the execution of the overall direction of the business of the company, monitors business performance and acts as a medium of communication and co-ordination between business units, group companies and the board.

Audit committee

The group audit committee performs the role of reviewing internal controls and financial results, recommending the appointment of the external auditor and overseeing the external and internal audit processes. IM Groves, an independent non-executive director of the group, serves as chairman of the committee. The audit committee fulfils its responsibility in line with specific terms of reference and in terms of section 270A (f) of the South African Companies Act, 1973, as amended. View a full audit committee report. The internal and external auditors have full access to the committee.

The audit committee has also been mandated, in line with King III, responsibility for overseeing of the implementation of integrated reporting and verification procedures. This will also involve the further development of a combined assurance model.

The audit committee met three times during the year and have implemented the practice of meeting with internal and external auditors without management present.

Attendance was as follows:

	15 Feb 2010	31 May 2010	17 Aug 2010
IM Groves (chairman)
WD Geach
MJ Hankinson (appointed 19 May 2010)	n/a
RA Norton (retired 17 May 2010)		n/a	n/a

The committee is now elected by shareholders at the annual general meeting in terms of the requirements of the new Companies Act. Refer to the report of the audit committee.

Remuneration/nomination committee

The board has a remuneration/nomination committee to assist in governance matters related to executive remuneration, succession planning and identification of suitable candidates to serve on the board. During the year MJ Hankinson was appointed chairman in place of RA Norton who retired. The members, who are all non-executive directors, are appointed by the board.

Due to the functions of remuneration and nomination being combined, it is to be noted that the chairman of the board does not chair the nomination function as proposed by King III.

The committee has formal terms of reference approved by the board and is responsible for the assessment and approval of a broad remuneration strategy for the group. In particular, it reviews and agrees key performance indicators and determines the remuneration packages and incentive bonuses of the members of the executive committee, the fees for the non-executive directors and recommends the granting of share options to executive directors and senior employees. These details, together with an overview of remuneration and incentive philosophies, are set out in the remuneration report.

The committee is responsible for identifying and nominating candidates for approval of the board as additional directors or to fill any board vacancies when they arise, taking skills, experience and demographics into account. In addition, the committee recommends directors, who retire in terms of the company’s articles of association, for re-election.

The remuneration/nomination committee met three times during the year and attendance was as follows:

	16 Feb 2010	18 Aug 2010	15 Nov 2010
MJ Hankinson (appointed chairman 19 May 2010)	n/a
IAJ Clark
IM Groves
RA Norton (resigned as chairman 17 May 2010)		n/a	n/a

Relations with stakeholders

The group communicates its strategy, performance and vision through regular presentations to investors, analysts, employees and other stakeholders. In addition, management regularly meet with major institutional investors and analysts. The group’s website, www.grindrod.co.za is also used to inform stakeholders. A full report is set out in Stakeholder engagement.

The 2010 interim results were presented in Johannesburg in August 2010 and the final results were presented to the investment analysts in Johannesburg, Durban and Cape Town during February 2011.

Corporate sponsor

Grindrod Bank Limited acts as the company’s sponsor in compliance with the JSE Listings Requirements. In the case of major corporate actions, the services of an independent sponsor will be engaged.

Company secretary

The board considers the company secretary to be qualified to perform his duties in accordance with applicable legislation and to be fit and proper for the position. All directors have access to the advice and services of the company secretary who ensures compliance with applicable procedures and legislation.

Going concern

The directors are responsible for overseeing the preparation and the final approval of the group interim and annual financial statements. The auditors are responsible for auditing the financial statements and providing their opinion thereon. The directors believe that suitable accounting policies, consistently applied and supported by reasonable and prudent judgements and estimates, have been used in the preparation of the financial statements, which fairly present the state of the group. Appropriate accounting standards have been applied and adequate accounting records maintained. The going concern basis was adopted in preparing the annual financial statements. The directors have no reason to believe that the group will not continue to be a going concern.

Internal controls

The board is responsible for the group’s internal financial and operational control systems. The internal control systems are designed to provide reasonable assurance against material misstatement and loss.

The principal features of the group’s internal financial controls are covered in the financial director’s report.

Internal audit

The group acknowledges the importance of an independent strategically aligned internal audit function to assist the audit committee in discharging its responsibilities.

Internal audit is mandated by and functions in terms of an approved charter which describes its purpose, authority and responsibilities.

The internal audit function is independent of all other organisational functions, reports directly to the audit committee and has free and unrestricted access to all areas within the group, including management, personnel, activities, locations and information.

All internal audit activities are performed in compliance with International Internal Audit practice and the methodology and standards required by the SA Institute of Internal Auditors. A formalised quality improvement plan and an independent quality review process as suggested in King III, is planned.

Systematic and thorough annual internal audit coverage plans are prepared together with management and approved by the audit committee. All businesses within the group receive adequate coverage by following a methodical risk-based audit approach.

External service providers are used for certain specialist reviews including taxation, information technology and any other assignment requiring a particular skill set.

The strategic focus of internal audit is to:

•	Improve risk based alignment in order to provide assurance on key risks that may prevent or effect the realisation of strategic goals; and
•	Assist management in further developing the internal financial control framework to identify financial reporting risks and ensure controls are adequate to address the risk of material misstatements of financial results.

Strategy planning

As a key performance area of the board, group strategy is mapped by the board in consultation with the executive committee of the company. The board appreciates the fact that strategy, risk, performance and sustainability are inseparable and annually reviews the strategy and finalises the group business plan for the next year at its meeting in November. The executive attend a special two-day strategy session annually in September to determine strategic direction.

Information technology (IT) governance

As a result of adopting King III guidelines of governance and compliance, the Grindrod board has approved an IT charter and the appointment of a chief information officer (CIO) who together with the IT steering committee established in 2010, will discharge the duties of the charter.

The IT charter will ensure:

•	The establishment of a sound and secure framework, taking into account internal policies, industry standards and external laws and regulations, within which all IT activities are executed;
•	That the business and IT strategies are aligned and value is achieved from IT investments;
•	IT services and processes are always available and agile to changing business needs; and
•	IT risk is identified and managed.

The IT steering committee comprises senior members of each major operating entity. The committee meets quarterly and provides the Grindrod board with direct feedback on IT governance and strategy.

Compliance

In establishing an effective compliance framework, the Grindrod group has a comprehensive set of policies, regularly updated in line with changes in legislation and business governance requirements, with which all group companies and employees are obliged to comply. It is planned to revise the group legal compliance framework during 2011.

Ethics

The group is committed to providing excellent services to customers and considers a high standard of ethical behaviour to be paramount in achieving this objective. The group’s Code of Ethics is endorsed by the Ethics Institute of South Africa, of which the company is an organisational member. (If any person has any queries, they can contact Ethics SA directly on telephone +27 12 342 2799.) The code is designed to raise ethical awareness, act as a guide in day-to-day decisions and to help assure customers and other stakeholders of the integrity of the group companies with which they deal.

An important element of the induction process is to communicate to new employees the group’s values, standards and compliance procedures. The group’s core values include respect for company assets and the environment, operating with integrity, acting with professionalism in our service delivery to customers, being fair in the way we treat people and accountability, which requires employees to take full ownership of actions taken.

Employees or others can report unethical or risky behaviour to the custodian of the Grindrod Code of Ethics, the Grindrod Ethics Officer:

Postal address:
Telephone:
E-mail:

PO Box 1, Durban, 4000
+27 31 365 9116
craigr@grindrod.co.za

A Deloitte Tip-offs Anonymous® service was introduced in April 2009. The service provides an independent and confidential method for employees or other parties to report unethical behaviour. Such reporting can be submitted to the Grindrod Ethics line:

Free post:

Telephone:
E-mail:
Website:

c/o Tip-offs Anonymous,
Freepost DN298,
Umhlanga Rocks, 4320, South Africa
0800 21 31 18 or +27 31 571 5329
grindrodethics@tip-offs.com
www.tip-offs.com

A report on tip-offs experienced during the year is set out in the risk management section.

Access to information

Grindrod has complied with the requirements of the Promotion of Access to Information Act of 2000. The corporate manual is available on the website www.grindrod.co.za. There were no requests made in terms of this legislation during the year.