Corporate governance

 

Introduction 

The principles of good corporate governance recommended in the King Report on Governance and King Code of Governance for South Africa 2009 (“King III”) forms the backbone of Grindrod’s own corporate governance framework. Grindrod applies high ethical standards which are considered essential for the success of any governance framework and the group is committed to complying with the JSE Listings Requirements and all legislation, regulations and best practices relevant to its business in every country it conducts business.

In establishing an effective corporate governance 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. A review of local and international laws impacting group operations was updated in 2011. All divisions are required to provide assurances to the audit committee bi-annually, confirming they have complied with all applicable laws and consideration has been given to non-binding rules, codes and standards.

For the 2011 financial year, with the exception of those items outlined below, the board confirms that the group has complied with King III. In addition, a King III reference table is included in the integrated annual report.  
1. The chairman of the board is not an independent non-executive director. Mr IAJ Clark was appointed non-executive chairman in 2007 and due to his shareholding and unexercised share options, which were awarded during his term as chief executive officer, he is not considered independent. The board is of the view that his experience and business skills far outweigh perceived lack of independence. Mr IM Groves was appointed lead independent director by the board on 17 August 2011. 
2. The company does not have a separate risk management committee. Due to board member experience and knowledge, the responsibility is considered best placed with the full board. A full report on risk management is set out in the integrated annual report. 
3. The company believes that directors should not earn attendance fees in addition to a base fee. Directors add value to the group outside of the formal board and committee meetings, often greater value than within the confines of a formal meeting. In addition, the directors have a record of high attendance at board and committee meetings. 
4. Elements of a combined assurance model have been developed, but requires further attention. It is planned to add more structure and formality to this process during 2012. 
5. The group internal audit manager does not report solely to the audit committee as required by King III. He reports administratively to the financial director, but functionally to the chairman of the audit committee. 
6. The IT governance framework and processes were enhanced in 2011 to ensure further alignment with King III, however, divisional compliance with the IT governance framework is in the process of being implemented (refer to the IT report of the integrated annual report). 
7. An independent assurance on ethics performance has not yet been formally implemented. A process will be established to address this matter. 
 

Board of directors 

The board is the focal point and custodian of corporate governance within the group and provides effective and responsible leadership based on the ethical values of responsibility, accountability, fairness and transparency.

Board members are appointed through a formal process and the remuneration/nomination committee assists in identifying suitable candidates to be proposed to shareholders for approval. 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.

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. 
 

Composition, independence, performance and rotation 

The roles of chairman and group chief executive officer are distinct and the board annually elects a chairman at the next meeting after the annual general meeting.

During the year changes to the board included the retirement of Messrs LR Stuart-Hill and JG Jones and the appointment of Messrs MH Visser, JJ Durand (alternate) and MR Wade. The board comprises five independent non-executive directors, three non-executive directors and six executive-directors. Directors’ details and their diversity of skills and commercial experience are detailed in the directorate section of the integrated annual report.

The remuneration/nomination committee reviewed the independence of Grindrod’s non-executive directors and concluded that Messrs H Adams, WD Geach, MJ Hankinson, IM Groves and SDM Zungu are independent non-executive directors.

Messrs MR Faku, MH Visser and JJ Durand (alternate) were not considered independent for the following reasons: 
Mr MR Faku represents the interests of the B-BBEE partner of Grindrod (South Africa) (Pty) Limited, a major subsidiary company; and 
Messrs MH Visser and JJ Durand (alternate) represent the interests of Remgro, a major shareholder in Grindrod. 
 
Individual performance evaluations are conducted by the chairman annually in respect of the non-executive directors.

In terms of the company’s Memorandum of Incorporation, at each annual general meeting at least one-third of 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.  
 

Responsibilities and charter 

The board’s role is regulated in a formal board charter. 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.

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 group 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 identifying non-financial issues relevant to the group; and 
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 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 principle features of the group’s internal financial controls are covered in the group financial director’s report.

As a key performance area of the board, the group’s 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 ensuing year at its meeting held in November. The executive attend a special two-day strategy session annually to determine the strategic direction of the group. 
 

Board meetings

The Grindrod Limited board met five times during the year, which included a specially convened meeting to review the group’s strategy and to assess various capital raising options. Meetings are planned well in advance and full attendance of the board is expected. The quorum for board meetings is eight directors. Board attendance is set out in this report. 
 

Committees

The audit committee was appointed in terms of the Companies Act for the first time at the annual general meeting held on 25 May 2011.

The board has a remuneration/nomination committee and a social and ethics committee. The social and ethics committee was established in November 2011. Members and the chairmen of these committees are appointed by the board.

In addition, the group has an executive committee.

These committees play an important role in enhancing good corporate governance and assisting the board in discharging its responsibilities. Each committee acts within the ambit of clearly defined terms of reference approved by the board and are available on the group’s website.

For the purposes of sound 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;
investment banking;
credit risk; and
asset and liability.
 

Audit committee

The audit committee comprises Messrs IM Groves (chairman), WD Geach and MJ Hankinson, all of whom are independent non-executive directors. The chairman, group chief executive officer, group financial director and representatives from the external and internal auditors attend all meetings by invitation. Mr IM Groves reports to the board on the activities and recommendations made by the committee.

The committee performs the role of reviewing internal controls and financial results, approving the internal audit plan, recommending the appointment of the external auditor and overseeing the external and internal audit processes and is also responsible for overseeing the implementation of the integrated report and verification procedures. The audit committee fulfils its responsibility in line with a specific terms of reference and in terms of section 94(7) of the Companies Act.

The committee met three times during the year and have continued the practice of meeting with internal and external auditors without management present. Committee attendance is set out in this report.

View the report of the audit committee
 

Remuneration/nomination committee 

The remuneration/nomination committee comprises Messrs MJ Hankinson (chairman), IAJ Clark and IM Groves, all of whom are non-executive directors.

The committee is responsible for, inter alia, the assessment and approval of a broad remuneration philosophy and strategy for the group, the review of the structure, size and composition of the board and its committees, evaluation of the leadership requirements of the group and succession planning and approval of the terms of any scheme providing performance-based incentives.

In addition to the above, the committee is responsible for making recommendations to the board on all fees payable to non-executive directors and considers the performance and independence of all non-executive directors.

The group’s remuneration policy will be put to shareholders for the first time for a non-binding advisory vote at the 2012 annual general meeting (view the remuneration policy).

The committee met three times during the year. Committee attendance is set out in this report. 
 

Social and ethics committee

The committee was appointed in November 2011 and comprises Messrs MR Faku, MJ Hankinson (chairman), CAS Robertson and AG Waller.

The role of the committee is to assist the group with overseeing sustainability matters and is responsible for monitoring the group’s activities with regard to social and economic development, good corporate citizenship, environment, health and public safety, consumer relationships and labour and employment practices, as prescribed by the Companies Act. 
 

Executive committee

The executive committee comprises the executive directors, Mr HJ Gray and the company secretary.

The board has delegated a wide range of matters relating to the group’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’s strategy and policy; and 
alignment of group initiatives. 
 
The executive committee held seven meetings during the year, which included a strategic session, 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 2011. Committee attendance is set out below.

The executive committee assists the chief executive officer in guiding and managing the execution of the overall direction of the business of the group, monitors business performance and acts as a medium of communication and co-ordination between business units, group companies and the board.

Board and committee meeting attendance for the year ended 31 December 2011 was as follows: 
 
Directors/members Board Audit Remuneration/
Nomi-
nation
Executive
Non-executive directors
       
IAJ Clark 5/5   3/3  
H Adams 4/5      
MR Faku 4/5      
WD Geach 5/5 3/3    
IM Groves 5/5 3/3 3/3  
MJ Hankinson 4/5 3/3 3/3  
MH Visser Δ 1/5      
SDM Zungu 4/5      
Executive directors
       
HJ Gray ^       5/7
JG Jones ~ 2/5     3/7
JB McIImurray *       3/7
AK Olivier 5/5     7/7
DA Polkinghorne 5/5     7/7
DA Rennie 5/5     7/7
AF Stewart 5/5     7/7
LR Stuart Hill * 2/5     2/7
MR Wade + 1/5     7/7
AG Waller 4/5     7/7
* Retired 30 June 2011
^ Appointed 1 June 2011
~ Retired 31 August 2011
Δ Appointed 31 October 2011
+ Appointed 16 November 2011
 

Company secretary

The board is assisted by a suitably qualified company secretary in accordance with applicable legislation who is considered to be fit and proper for the position. All directors have access to the advice and services of the company secretary. His duties include those stipulated in the Companies Act and King III and he is also responsible for compliance in terms of the rules and the JSE Listings Requirements.

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 requirements are well defined and non-executive directors have full access to management and the company secretary. 
 

Share dealings

No director or employee who is privy and has access to 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 period declared as a prohibited period in terms of the JSE Listings Requirements. 
 

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 are engaged. An example of this occurred in 2011 when the specific share issue transaction was concluded and Deutsche Bank acted as lead independent sponsor. 
 

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 meets with major institutional investors and analysts. The group’s website is also used as a communication tool for stakeholders. View the stakeholder engagement 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 South African Institute of Internal Auditors. A formalised quality improvement plan and a quality review process is in place and is ongoing.

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.

Considerable strides were made in 2011 by increasing focus on: 
co-developing and evaluating financial and operational controls frameworks; 
reviewing the reliability and integrity of significant financial, managerial and operational information; and 
implementation of systems. 
 
Going forward, 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; 
assist management in further developing and embedding the internal financial control frameworks to identify financial reporting risks and ensure controls are adequate to address the risk of material misstatements of financial results; and 
improve collaboration with management, other internal assurance providers and the company’s external auditor to ensure optimal coverage of the key risks and minimal duplication of effort. The purpose is further aimed at the development of a meaningful combined assurance model. 
 

Information technology (IT) governance 

IT is implemented in Grindrod, based on the following model: 
each division manages its own unique business applications; 
IT infrastructure (networks, communications, etc.) is delivered as a shared service; and 
an IT steering committee, represented by senior management of each division, oversees IT strategy and its implementation. 
 
Divisional IT is responsible for ensuring that IT is managed within a defined framework that takes into account, inter alia: 
IT standards;
legal requirements such as the Electronic Communications and Transactions Act, the Promotion of Access to Information Act, the Regulation of Interception of Communications Act and the soon to be enacted Protection of Personal Information Act; 
internal policies defining application and use of IT resources; and 
IT risk. 
 
The group is committed to full compliance with King III and the board has delegated the responsibility for IT governance to the group chief information officer (“CIO”) by means of an IT charter. The CIO is in turn supported by senior members of each of the group’s operating divisions to ensure that IT assets are managed and maintained within the defined corporate IT policy framework.

IT risks are assessed for both likelihood and impact and managed appropriately. Risk avoidance tactics are practised on major risks such as data loss, whilst those areas with lower likelihood of risks occurring are largely managed with contingency plans.

Group risk and internal audit annually appraise IT risk categories and perform detailed reviews based on findings and assessments. External audit perform annual reviews on significant systems covering areas such as IT security, applications and control environment.

Business continuity and disaster recovery plans are a key element of IT operations and the group has implemented a new recovery method for IT systems, whereby the systems are now replicated every 24 hours on a standby IT system. In the event of a disaster or major outage at the core computing facility, recovery time to full operation can be achieved in less than one hour with maximum data loss limited to less than one day.

All contracts for service and supplies are scrutinised to ensure legal compliance and assessment of risks associated with multi-year contracts.

Green IT is practised by Grindrod through several initiatives, including: 
best lifecycle result from purchase to disposal:
 
recycling printer cartridges with certified “green” recycle companies; and 
purchasing hardware from companies that utilise best environmental practice during the manufacturing process; 
running core systems on virtual computers to reduce energy requirements for power and cooling; and 
encouraging the use of mobility and video conferencing throughout the group to reduce employee travel. 
 
IT assets are effectively managed and utilised to achieve maximum return on capital expenditure. Packaged software applications are preferred to in-house development for critical applications.

All new project initiatives are approved in principle by the IT steering committee having reviewed full project information.

Implementation of projects are carefully managed to produce expected results. System life-cycles are monitored to ensure that the group’s intellectual capability is sustained. 
 

Business continuity management

Existing business continuity management (“BCM”) practises across the group are currently being enhanced.

The following areas have been addressed: 
 

Commitment

BCM policy development, documentation and application, including commitment of senior management to BCM within the operation; 
 

Risk assessment

Identification, creation and review of risks in the context of BCM; 
 

Business impact analysis

Identification and review of the impact for various risks that were identified; 
 

Develop continuity strategies

Identifying the various recovery strategies available to the organisation, before conducting a cost benefit analysis on these strategies to identify the preferred strategy; 
 

Incident management planning

Development of incident management response plans; and 
 

Business continuity plan development

Development of a recovery plan framework and formalising the recovery plans.

All divisions and business units have completed revised business continuity plans which will be evaluated and tested during 2012. 
 

Ethics

The Grindrod code of ethics was updated and distributed in November 2011 and 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. Every Grindrod stakeholder is obliged to adhere to the code of 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. 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 the group’s service delivery to customers, being fair in the way we treat people and accountability, which requires employees to take full ownership of actions taken.

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.

Employees or others can report unethical or risky behaviour to the custodian of the Grindrod code of ethics, the Grindrod ethics officer. 
 
Postal address:
PO Box 1, Durban, 4000
Telephone:
+27 31 365 9116
E-mail:
craigr@grindrod.co.za
 
A Deloitte Tip-offs Anonymous® service is in place and 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:
c/o Tip-offs Anonymous, Freepost DN298, Umhlanga Rocks, 4320, South Africa 
Telephone:
0800 21 31 18 or +27 31 571 5329 
E-mail:
grindrodethics@tip-offs.com
Website:
www.tip-offs.com
 
During 2011, there were: 
no material transgressions of Grindrod’s ethics policy reported to the Grindrod ethics officer; 
no significant incidents of corruption at management level. When incidents of corruption are identified, these are investigated internally and, where relevant, referred to disciplinary procedures or, in more serious cases, to law enforcement authorities; 
no legal actions against Grindrod for anti-competitive behaviour, anti-trust and monopoly practices; and 
no significant fines or non-monetary sanctions for non-compliance with laws and regulations. 
 
29 incidents were reported by the Tip-offs hotline. Incidents reported were procurement irregularities, misuse of assets, unauthorised expenditure and unacceptable employee behaviours. A major portion of these reports were unsubstantiated, however, perpetrators received appropriate sanctions and where necessary, controls improved. 
 

Access to information

Grindrod has complied with the requirements of the Promotion of Access to Information Act (“PAIA”) of 2000. Grindrod’s PAIA manual was updated in November 2011 and is available on the group’s website. There were no specific requests made in terms of this legislation during the year. 
 

King III reference table

Key
Compliant
Partially compliant
Under review
Non-compliant
 
Ethical leadership and corporate citizenship  
Effective leadership based on an ethical foundation 
Responsible corporate citizen
Effective management on company’s ethics
Assurance statement on ethics in integrated report.
Board and directors  
The board is the focal point for and custodian of corporate governance
Strategy, risk, performance and sustainability are inseparable
Directors act in the best interest of the company
The chairman of the board is not an independent non-executive director. Refer to the introduction of this report
Framework for the delegation of authority has been established
The board comprises a balance of power, with a majority of non-executive independent directors
Directors are appointed through a formal process
Formal induction and ongoing training of directors is conducted
The board is assisted by a competent, suitably qualified and experienced company secretary
Regular performance evaluation of the board, its committees and the individual directors
Appointment of well-structured committees and an oversight of key functions. Refer to the introduction of this report
An agreed governance framework between the group and its subsidiary boards
Directors and executives are remunerated fairly and responsibly. Refer to the remuneration report
Remuneration of directors and certain senior executives is disclosed
The company’s remuneration policy is approved by its shareholders
Audit Committee  
Effective and independent
Suitably skilled and experienced independent, non-executive directors
Chaired by an independent non-executive director
Oversees integrated reporting
A combined assurance model is being developed to improve efficiency in assurance activities. Refer to the introduction of this report
Satisfies itself of the expertise, resources and experience of the company’s finance function
Oversees internal audit. Refer to the audit committee report
Integral to the risk management process
Oversees the external audit process
Reports to the board and shareholders on how it has discharged its duties
The governance of risk  
The board is responsible for the governance of risk and setting levels of risk tolerance
The risk committee assists the board in carrying out its risk responsibilities. Refer to the committee section
The board delegates the risk management plan to management
The board ensures that risk assessments and monitoring is performed on a continual basis
Frameworks and methodologies are implemented to increase the probability of anticipating unpredictable risks
Management implements appropriate risk responses
The board receives assurance on the effectiveness of the risk management process
Sufficient risk disclosure to stakeholders
The governance of information technology  
The board is responsible for IT governance
IT is aligned with the performance and sustainability objectives of the company
Management is responsible for the implementation of an IT governance framework. Refer to IT governance
The board monitors and evaluates significant IT investments and expenditure
IT is an integral part of the company’s risk management
IT assets are managed effectively
The risk committee and audit committee should assist the board in carrying out its IT responsibilities.
Compliance with laws, codes, rules and standards  
The board ensures that the company complies with applicable laws
The board and directors have a working understanding of the relevance and implications of non-compliance
Compliance risk forms an integral part of the company’s risk management process
The board has delegated to management the implementation of an effective compliance framework and processes
Internal audit  
Effective risk-based internal audit
Written assessment of the effectiveness of the company’s system of internal control and risk management
Internal audit is strategically positioned to achieve its objectives
Governing stakeholder relationships  
Appreciate that stakeholders’ perceptions affect a company’s reputation
Management proactively deals with stakeholder relationships
There is an appropriate balance between its various stakeholder groupings
Equitable treatment of shareholders
Transparent and effective communication with stakeholders
Disputes are resolved effectively and timeously
Integrated reporting and disclosure  
The board ensures the integrity of the company’s integrated report
Sustainability reporting and disclosure is integrated with the company’s financial reporting
Sustainability reporting and disclosure is independently assured