Corporate governance

 

Compliance

Grindrod is committed to the highest standards of ethical conduct and compliance, which is entrenched in Grindrod's core values of Respect, Integrity, Professionalism, Fairness and Accountability.
 
Grindrod applies the principles of good corporate governance recommended in the King Report on Governance and King Code of Governance for SA 2009 (King III), which is considered essential for the success of any governance framework. 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.
 
The 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. 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 2012 financial year, with the exception of those items outlined below, the board confirms that the group has complied with King III:
1. The chairman of the board is not an independent nonexecutive director. Mr IAJ Clark was appointed nonexecutive chairman in 2007 and due to his shareholding and unexercised share options, which were awarded during his term as CEO , he is not considered independent. The board is of the view that his experience and business skills far outweigh perceived lack of independence.
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. The board meets annually to solely review and monitor the robustness of the enterprise risk management of the group. In addition, a risk management report is tabled at each board meeting. 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. The group internal audit manager does not report solely to the audit committee as required by King III. He reports administratively to the group financial director, but functionally to the chairman of the audit committee. He has free and direct access to the chairman of the audit committee.
5. An IT governance framework is in place, however, it is still to be evaluated against a recognised framework in terms of King III and will be further enhanced in 2013.

Board leadership

Board members are appointed through a formal process and the remuneration/nomination committee assists in identifying suitable candidates to be proposed to shareholders for election.
 
The boards 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 an authority framework;
  provides guidance on the group strategy, including all strategic matters and annually approves the group business plan;
  monitoring the implementation of the business plan by management and the executive;
  reviewing performance of the various board committees established to assist in the discharge of its duties;
  monitoring key risks, opportunities 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 on the recommendation of the remuneration/nomination committee;
  – external and internal communications;
  – succession planning at senior management level; and
  – shareholder engagement.
 
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 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, stakeholder engagement and sustainability are inseparable. The board 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.
 
The Grindrod board comprises five independent non-executive directors, three non-executive directors and five executive directors. A further two independent non-executive directors were appointed to the board on 1 January 2013. Directors' details and their diversity of skills and commercial experience are detailed in the Directorate of the Integrated Annual Report. Mr IM Groves is the lead independent director.
 
Messrs MR Faku, JJ Durand and PJ Liddiard (alternate) were not considered independent for the following reasons:
  Mr MR Faku represents the interests of the B-BBEE partner of Grindrod (SA) (Pty) Ltd, a major subsidiary company; and
  Messrs JJ Durand and PJ Liddiard (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.
 
During the year, changes to the board included the resignation of Mr AF Stewart and the appointment of Messrs JJ Durand and PJ Liddiard (alternate), following the tragic passing of Mr MH Visser.
 
Messrs AC Brahde and GG Gelink were appointed as independent non-executive directors to the board on 1 January 2013. Mr AC Brahde has many years of international shipping experience and Mr GG Gelink is a chartered accountant. Both appointments will provide for succession planning in their respective areas of expertise.
 
The Grindrod Limited board met five times during the year. Meetings are planned well in advance and full attendance of the board is expected. Board attendance is set in the Corporate governance section.

Committees

The group's committees play an important role in enhancing good corporate governance and each committee acts within the ambit of clearly defined terms of reference approved by the board and which are available on the group's website.
 
For the purposes of sound governance and in compliance with SARB, FSB and relevant legislation, Grindrod Bank has its own board committees which include:
  audit and compliance;
  remuneration;
  directors' affairs;
  risk and capital management;
  credit risk;
  asset and liability; and
  investment banking.

Audit committee

The audit committee is constituted as a statutory committee in respect of its statutory duties in terms of section 94(7) of the Companies Act, 71 of 2008 (the Companies Act) and a committee of the board in respect of all other duties delegated to it by the board.
 
The committee has an independent role with accountability to both the board and shareholders, it does not assume the functions of management, which remains the responsibility of the executive directors, officers and other members of senior management and understands how the board and the external auditor evaluate materiality for integrated reporting purposes.
 
All members are suitably skilled and experienced. The chairman of the committee is elected by the board.
 
The chairman reports to the board on the activities and recommendations made by the committee.
 
The committee's terms of reference defines the responsibilities of this committee, including but not limited to the reviewing of 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 report of the audit committee is set out in the Sustainability section.

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 quality improvement plan and a quality review process are in place and on-going.
 
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 2012 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;
  sustainability reporting validations; and
  pre- and post-implementation reviews of IT 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.

Remuneration/nomination committee

The remuneration/nomination committee is established as a committee of the board.
 
The terms of reference define the responsibilities of this committee, including but not limited to 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 performancebased 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 chairman reports to the board on the activities and recommendations made by the committee.
 
The remuneration report is set out in the Sustainability section.

Social and ethics committee

The social and ethics committee is established as a committee in terms of section 72 of the Companies Act. The chairman of the committee is elected by the board and is responsible for reporting to the board on the activities and recommendations made by the committee.
 
The committee's terms of reference defines the responsibilities of this committee, including but not limited to assisting the group with overseeing sustainability matters and is responsible for monitoring the group's activities with regard to SED , good corporate citizenship, environment, health and public safety, consumer relationships and labour and employment practices, as prescribed by the Companies Act.
 
The report of the social and ethics committee is set out in the Sustainability section.

Executive committee

The committee comprises the executive directors, Messrs HJ G ray, WP Hartmann and Ms B Ntuli. During the year, Mr WP Hartmann and Ms B Ntuli were appointed to the committee.
 
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 but not limited to:
  financial, strategic, operational, governance, risk and functional issues;
  formulation of the group's strategy and policy; and
  alignment of group initiatives.
 
In addition, the committee assists the CEO 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.
 
The committee held eight meetings during the year, which included:
  four executive meetings;
  a succession planning meeting;
  a two-day strategic planning meeting with key operational management;
  a two-day executive strategy planning meeting; and
  a presentation by the Institute of Futures Research.
 
Board and committee meeting attendance for the year ended 31 December 2012 was as follows:
Directors/members
Board
Audit
Remuneration/
nomination
Social and
ethics
Executive
Non-executives          
IAJ Clark 4/5 3/4  
IM Groves 5/5 3/3 4/4  
H Adams 3/5    
JJ Durand 4/5o 2/4~  
MR Faku 3/5   2/2  
WD Geach 5/5 3/3    
MJ Hankinson 5/5 3/3 4/4 2/2  
PJ Liddiard (alternate) 4/5    
MH Visser 1/5^    
SDM Zungu 4/5    
Executives          
AK Olivier 5/5 8/8
HJ Gray 8/8
WP Hartmann 6/8
DA Polkinghorne 5/5 8/8*
DA Rennie 5/5 7/8
AF Stewart 3/5 2/8
MR Wade 5/5# 8/8#
AG Waller 5/5 2/2 7/8
o Appointed 9 May 2012.
# Resigned 31 May 2012.
^ Deceased 26 April 2012.
* Appointed 1 June 2012.
~ Appointed 30 May 2012.

Company secretary

The company secretary is accountable to the board. All directors have access to the advice and services of the company secretary. The company secretary maintains an arm's length relationship with the board and is not a director of the company. The company secretary's duties include, but are not restricted to:
  providing the directors of the company collectively and individually with guidance as to their duties, responsibilities and powers;
  making the directors aware of any law relevant to or affecting the company;
  reporting to the company's board any failure on the part of the company or a director to comply with the Memorandum of Incorporation or rules of the company or this Act;
  ensuring that minutes of all shareholders' meetings, board meetings and the meetings of any committees of the directors, are properly recorded in accordance with this Act;
  certifying in the Integrated Annual Report company's annual financial statements whether the company has filed required returns and notices in terms of this Act, and whether all such returns and notices appear to be true, correct and up to date;
  ensuring that a copy of the company's Integrated Annual Report is sent, in accordance with this Act, to every person who is entitled to it; and
  carrying out the functions of a person designated in terms of section 33(3) of the Companies Act.
 
Subsequent to year end, Mr CAS Robertson resigned from the position of group company secretary and Mrs CI Lewis was appointed with effect from 1 February 2013. During the 2012 financial year, the board considered the competence, experience and expertise of Mr CAS Robertson and found these to be appropriate.
 
The board believes that Mrs CI Lewis is a competent, suitably qualified and experienced company secretary able to provide the board with the requisite support for its efficient function and discharge of its duties as prescribed by the Companies Act, King III and the JSE Listings Requirements. During the next financial year, the board will commence with an annual evaluation of the competence, qualifications and experience of the group company secretary and report on these in future annual reports.

Memorandum of incorporation

The following clauses, relating to the rights, privileges, restrictions and conditions attached to the preference shares, in annexure "A" of the memorandum of incorporation was approved at the annual general meeting held on 30 May 2012:
2.2.2.5.2 aggregating all of the amounts calculated by such multiplication for each day of the dividend period; and
2.2.2.5.3 multiplying the aggregate amount referred to in item 2.2.2.5.2 above by 10% (ten percent).

Because the preference dividend rate is a percentage of the prime rate, the preference dividend rate applicable during any dividend period share vary in accordance with any variations in the prime rate during that dividend period.
 
Shareholders are advised of the following alteration:
Clause 2.2.2.5.3 should read "multiplying the aggregate amount referred to in item 2.2.2.5.2 above by 110% (one hundred and ten percent)".
 
The alteration is as a result of an insignificant patent error, which was not identified during the review process.

Share dealings

No director or employee who is privy to 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.

Stakeholder engagement

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. A full report is set out in the Stakeholder engagement.

Combined assurance model

The combined assurance model aims to optimise the assurance coverage obtained from management, internal assurance providers and external assurance providers on the risk areas affecting the group. Within Grindrod, there are a number of assurance providers that either directly or indirectly provide the board and management with certain assurances over the effectiveness of those controls that mitigate the risks as identified during the risk assessment process described in the risk management section of the report. Collectively, the activities of these assurance providers are referred to as the combined assurance model
 
The following basic steps were taken to develop the combined assurance model:
Step 1: Identification of risk and controls
Step 2: Identify the assurance providers
Step 3: Mapping of risks to assurance providers and determining the level of assurance
Step 4: Conclude and develop action plans
Step 5: Monitor progress on action plans
 
Assurance is provided by internal and/or external assurance providers on certain controls around the following risks within the group:
  health, safety and environmental;
  financial;
  fraud;
  project;
  legal/tax; and
  business continuity planning and disaster recovery.
 
Given the nature of the group, separate combined assurance models for each division have been developed using the same principles for each. The combined assurance model provides assurance to the board, through the audit committee that all significant risks are adequately managed.

Information technology governance

Sound governance principles are applied to Grindrod's IT operations across all the group divisional operating entities. IT standards and legal compliance form part of the overall framework within which IT operates ensuring that the group achieves both return on its IT investments and assurance as to the integrity of its IT systems.
 
Risks are well managed and the group has a fully replicated off site back up IT centre that can be activated in the event of a disaster in the internal data centre, supporting full business continuity programmes.
 
A key area of IT management focuses on IT assets and ensures that assets are managed and deployed appropriately ensuring that technology use remains up to date and applicable for use in the era of mobility and smart devices. The group encourages use of mobile devices as a method of improving efficiency of our knowledge force and reducing the need for travel between business centres. Management of mobile devices ensures that data is protected against loss and that integrity can be guaranteed.
 
A full review of the group strategic approach to IT has been completed and one of the results of this will be the creation of a project management office that will improve IT project governance, by, inter alia:
  assessing IT project business case submissions, ensuring that the business case is valid and will provide expected returns;
  assisting with project management to ensure that sound principles are adopted and followed and that on time and in budget delivery is achieved;
  assessing all measures of new projects to reassure business that the value predicted has been achieved; and
  a management IT steering committee which reports to the board, oversees the strategic deployment of IT throughout the Grindrod group and keeps the board updated with major projects and effectiveness of IT in Grindrod.

Business continuity management

Business continuity management practices across the group were enhanced in 2012, through the following activities:
  independent review of Business Continuity Management (BCM) plans; and
  independent external review and testing of the disaster recovery plan.
 
The BCM plans comprise the following key areas:
  BCM policy development, documentation and application, including commitment of senior management to BCM within the operations;
  identification, creation and review of risks in the context of BCM;
  identification and review of the impact of various risks;
  identifying the various recovery strategies available to the organisation, before conducting a cost benefit analysis on these strategies to identify and select the preferred strategy;
  development of incident management response plans;
  development of a recovery plan framework and formalising the recovery plans; and
  review of the recovery plan to ensure robustness.

Ethics

The Grindrod Code of Ethics 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 behavior 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 SA, 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 behavior to the custodian of the Grindrod Code of Ethics, the Grindrod ethics officer, Mrs CI Lewis.
 
Postal address: PO Box 1, Durban, 4000
Telephone: +27 31 365 9116
Email:cathiel@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:
  FreePost: FreePost KZN 138, Umhlanga Rocks, 4320
  elephone – FreeCall:
  – South Africa and Namibia – 0800 213 118
  – Maputo – 800 359 359 (Mozambique)
  – Singapore – 1800 530 5541
  Email: grindrodethics@tip-offs.com
  Free Facsimile: 0800 00 77 88 (only from SA and Namibia)
  International fax: +27 31 560 7395
  Website: www.tip-offs.com
 
During 2012, 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 noncompliance with laws and regulations.
 
During the year 37, (2011: 29) incidents were reported by the Tip-offs Anonymous hotline. Incidents reported were procurement irregularities, misuse of assets, unauthorised expenditure and unacceptable employee behaviours. A portion of these reports were unsubstantiated, however, perpetrators received appropriate sanctions and where necessary, controls improved.
 
The 2012 fraud risk management strategy included various awareness campaigns. Training on fraud risk management was provided at 45 various sites with 764 employees in attendance. The training highlighted to employees what constitutes fraud, identification of fraudulent activity and how to report suspected fraudulent activities to management or Deloitte Tip-offs Anonymous.