2.1 THE BOARD
Is the Board ultimately accountable and responsible for the Companys performance and its affairs?
The Board of Massmart is responsible for directing the Group towards the achievement of the Massmart vision and mission. It is therefore accountable for the development and execution of the Groups strategy, operating performance and financial results, as well as being the custodian of the Groups corporate governance.
Is there a unitary Board structure with executive and non-executive directors interacting in a working group?
There is only one Board, which comprises two executive directors, 11 independent non-executive directors and one non-executive director.
Does the Board provide strategic direction, appoint the CEO and plan succession?
The Board is accountable for the development and execution of the Groups strategy. Annually it formally considers and approves the strategies of the Massmart Divisions and the Group.
The Board is responsible for its own composition, the appointment of the Chairman and the Chief Executive Officer, and for executive succession planning.
Does the Board retain full and effective control over the Company and does it monitor management in implementing board plans and strategies?
The Boards authority and control is devolved sequentially through the Massmart Executive Committee, the Divisional Boards and the Divisional Executive Committees, as formally prescribed by the Massmart governance authorities.
These governance authorities describe the specific levels of authority and required approvals for all major decisions at both Group and Divisional level. It clarifies which executive position, committee or board needs to be consulted prior to taking the decision, which body makes the decision and which bodies should thereafter be informed of the decision.
Does the Board ensure that the Company complies with all relevant laws, regulations and codes of business practice, and does it communicate openly and promptly with its shareowners and relevant stakeholders with substance over form?
The Group is committed to complying with all legislation, regulations and best practices relevant to our business, in every country where we conduct business. This is monitored through both prevention and detection approaches. Through regular interactions with corporate lawyers and key decision-makers in government and civil service, the Group keeps abreast of all intended or promulgated legislation. The Groups internal audit team assesses significant legal risks and the level of compliance as part of its regular procedures. The Group utilises experts in non-South African countries to perform evaluations on relevant applicable legislation and compliance effectiveness.
The Board also ensures that the Company communicates openly and promptly with all relevant stakeholders, and is often lauded for its thorough financial disclosure and for its communication of our sustainability efforts.
Does the Board define levels of materiality, reserving specific powers to itself and delegating other matters with the necessary written authority to management and are these matters monitored and evaluated on a regular basis?
This is achieved through the Massmart governance authorities described in 2.1.4 above. These authorities are evaluated and updated, where necessary, by the Board annually.
Does the Board have unrestricted access to all Company information, records, documents and property?
The Directors have direct, unfettered access to all Company information and to the Groups external auditors, professional advisors and internal auditors and to the advice and services of the Company Secretary.
In addition, all directors are welcome to attend any meeting of the Board Committees, the Group Executive Committee or of the Divisional Boards.
Has the Board developed a Corporate Code of Conduct that addresses conflicts of interests and is this Code of Conduct regularly reviewed and updated?
There is not a specific Code of Conduct that addresses conflicts of interest. At each Board meeting, all signed directors interests disclosures are included in the Board papers for review.
Do directors have the option of taking independent professional advice at the Companys expense?
Directors are encouraged to take independent advice, at the Companys cost, for the proper execution of their duties and responsibilities. No directors availed themselves of this during the 2009 financial year.
Does the Board consider its effectiveness due to its size, diversity and demographics?
The Board assesses its effectiveness annually, taking various factors into account, including the requisite skills and experience required to direct the Group, as well as the Boards size, diversity and demographics.
Does the Board identify key risk areas and key performance indicators of the Company, and are these regularly monitored, giving particular attention to technology and systems?
Together with the Audit Committee, the Risk Committee oversees the maintenance of a sound system of risk management and control with regard to all aspects of the business, including technology and systems.
Annually, the chairman of the Groups Technology, Information and Process (TIP) Forum gives a presentation to the Board of the major Group and Divisional IT initiatives, key service providers and risk areas.
Our external auditor reviews key computer controls and reports its findings to the Audit Committee. Internal Audit includes a team of IT specialists that monitor and review all major IT developments in the Group as well as auditing them periodically providing full reports to the Audit Committee.
Does the Board identify and monitor the non-financial aspects relevant to the business of the Company?
Over time the Board and/or its Committees have developed a schedule of key non-financial indicators for inclusion in the quarterly Board/Committee papers, which includes transformation, executive succession, growth initiatives and governance.
Does the Board record the facts and assumptions on which it relies to conclude that the business will continue as a going concern in the financial year ahead?
The Audit Committee records the key facts and assumptions supporting the Groups going-concern assertion and then makes its recommendation to the Board.
Is each item of special business included in the notice of AGM accompanied by a full explanation of the effects of any proposed resolutions?
The notice for any shareholder meeting includes an explanation of the reason for, and the effects of, any proposed special resolutions.
Does the Board encourage shareowners to attend AGMs and other Company meetings and do all directors and particularly the Chairpersons of each Board Committee attend the AGM?
All directors are encouraged to attend the annual general meeting (AGM) which, to assist practical arrangements, is held in the morning before a quarterly Board meeting. Committee chairpersons are specifically required to attend the AGM.
Does a brief CV of each director standing for election or re-election at the AGM accompany the notice of AGM?
A brief CV of each director is included in the annual report of which the notice of AGM forms part.
Does the Board have a charter setting out its responsibilities and is this charter disclosed in the annual report?
The Board has established a charter setting out its responsibilities and key aspects of the charter are disclosed in the annual report.
Does the Board manage to balance the constraints of corporate governance with entrepreneurship?
The Board does attempt to balance the often conflicting dynamics of encouraging entrepreneurial behaviour against the constraints of corporate governance. This is achieved in several ways: through the composition of the Board which includes self-made businessmen and seasoned corporate executives; by specifically addressing governance annually in November (Committee charters, self-assessments, etc); and through the various remuneration policies developed and applied by the Remuneration and Nominations Committee.
2.2 BOARD COMPOSITION
Does the Board consist of executive and non-executive directors, with a majority of non-executive directors of whom sufficient are independent of management in order to ensure that shareowner interests are protected?
The majority of the Board, and of the non-executive directors, is independent. The Board comprises two executive directors, 11 independent non-executive directors and one non-executive director.
Are the procedures for appointments to the Board formal and transparent and are they a matter for the Board as a whole, assisted where appropriate by a nomination committee which consists of only non-executive directors of whom the majority are independent and which is chaired by the Board Chairperson?
The Remuneration and Nominations Committee consists of only non-executive directors of whom the majority is independent. As the Board Chairman, who is a Committee member, is not considered independent, the Committee is chaired by a senior independent non-executive director, Mr Kuseni Dlamini.
The Committee assists the Board with the assessment, recruitment and nomination of new directors, but the Board has final say in such appointments and Board members are invited to interview any potential appointees.
Has the Board put a programme in place ensuring staggered rotation of directors in order to ensure Board continuity?
All directors retire by rotation every three years. This year the following directors retire by rotation: Messrs MD Brand, ZL Combi, GRC Hayward, JC Hodkinson and P Maw.
Unless requested by the Board to serve a further term, retiring directors are not proposed for re-election by the shareholders.
In considering whether to propose a director for re-election, the Board takes into account various factors, skills mix and non-executive succession planning.
Newly appointed directors are required to resign and to offer themselves for re-election at the first AGM following their initial appointment.
2.3 CHAIRPERSON AND CHIEF EXECUTIVE OFFICER
Is there a clear division of responsibilities at the head of the Company?
There is a sufficiently clear division of responsibilities in order to ensure a balance of power and authority, such that no one individual has unfettered powers of decision-making.
Is the Chairperson an independent non-executive director?
The Chairman, Mr Mark Lamberti, is not an independent non-executive director. He was appointed non-executive Chairman on 1 July 2007 and, as he was previously the CEO of the Group, he cannot be considered independent until June 2010. The Board is of the view however, that the interest of all Massmart stakeholders remains best served by the retention of the skills and experience of Mark Lamberti in the role of Chairman.
To ensure good governance, the chairmanship of each of the four Board committees is held by independent directors, and Chris Seabrooke, the non-executive Deputy Chairman, maintains his role as the Groups Lead Independent Director.
Are the roles and functions of the CEO and Chairperson separate?
The roles and functions of the CEO and Chairman are separate.
Where the roles of the Chairperson and the CEO are combined, is an independent non-executive director serving as deputy chairperson? Alternatively, is there a strong independent non-executive director element on the Board?
The Chairperson and CEO roles are separate. Steps to insure independence of the Chairperson are described above in 2.3.2.
Does the Board appraise the performance of the Chairperson on an annual (or other) basis?
The Remuneration and Nominations Committee facilitates an annual formal performance evaluation of the CEO, comprising a self-evaluation by the CEO, an evaluation of the CEO by every non-executive Director by way of a questionnaire, and an appraisal of the CEO by each of his direct reports using a different questionnaire. The Chairman of the Board collates and summarises the above and provides feedback to the CEO.
Does the Board ensure that there is an appropriate balance of power and authority on the Board?
All Directors must bring independent judgement and experience to the Boards deliberations.
No one individual or block of individuals dominates the Boards decision taking.
Are the non-executive directors individuals of caliber and credibility and do they have the requisite skill and experience to bring judgement to bear on issues of strategy, performance, resources, transformation, diversity, employment equity, standards of conduct and evaluation of performance?
The composition of the Board is considered annually by the Remuneration and Nominations Committee, taking into account the issues noted in point 2.4.2.
Does the Board allow shadow directors?
Massmart does not have or allow shadow directors.
Are executive directors encouraged to hold other non-executive directorships, and do non-executive directors carefully consider the number of appointments they take in that capacity?
Executive directors are encouraged to hold other non-executive directorships, although this must be balanced against the demands of their executive role. Guy Hayward, for example, is a governor on the Hilton College board while Grant Pattison is co-chairman of the Consumer Goods Council of South Africa (CGCSA).
Before accepting a new non-executive appointment, Massmart non-executive directors must seek the prior approval of the Chairman.
Has the Board established a formal orientation programme to familiarise incoming directors with the Companys operations, senior management and its business environment and to induct them in their fiduciary duties and responsibilities?
The Company Secretary is tasked with assisting the Board with induction of new directors, director orientation, development and education. This induction includes receiving copies of prior Board papers and the most recent Group strategy document, store visits with Group executives, and meetings with key executives, if felt necessary.
Do new directors with no or limited board experience receive development and education to inform them of their duties, responsibilities, powers and potential liabilities?
The Company Secretary assists the Board with director development and education where necessary, using materials from the Groups legal advisers and external auditors.
Does the Board ascertain whether potential new directors are fit and proper and whether they are not disqualified from being directors?
The Board, through the Remuneration and Nominations Committee, does thoroughly assess potential new directors before appointment. Use is sometimes made of third party executive search agencies to provide such assurances.
Are levels of remuneration sufficient to attract, retain and motivate executives of the quality required by the Board?
The Remuneration and Nominations Committee implements remuneration policies that enable it to recruit, retain and motivate the executive talent needed to achieve superior performance. These policies strive for fixed remuneration at the median to upper quartile of comparable positions, but place particular emphasis on generous annual incentives for high performance in order to motivate the executives. Finally, longer-term wealth creation aligned with shareholder value creation is underpinned by the share incentive plan.
Excluding emigration, there has been very low executive turnover in recent years which, combined with the Groups longer-term financial performance, suggests that the remuneration policies are appropriate.
Has a Remuneration Committee been appointed which consists of entirely (or mainly) independent non-executive directors and which is chaired by an independent non-executive director?
The Remuneration and Nominations Committee consists of only non-executive directors of whom the majority is independent. As the Board Chairman, who is a Committee member, is not considered independent, the Committee is chaired by a senior independent non-executive director, Mr Kuseni Dlamini.
Is membership of the Remuneration Committee disclosed in the annual report, and does the chairperson of such committee attend the AGM to answer questions from shareowners?
Membership of the Remuneration and Nominations Committee can be found here and the Committee chairman is required to attend the AGM.
Does the Company provide full disclosure of director remuneration on an individual basis, giving details of earnings, share options, restraint payments and all other benefits?
Details of individual directors remuneration are provided here, and explanations are provided for executive directors remuneration. In addition, details of executive remuneration polices are provided here.
Do performance-related elements of remuneration constitute a substantial portion of the total remuneration package of executives in order to align their interests with those of shareowners?
With the appropriate financial performance by the Group and/or exceptional personal performance, executives are able to earn significant short-term incentives that, at their maximum, can represent two or three years annual basic salary. For the long-term, equity incentive plans ensure the alignment of executive reward and wealth creation with shareholders interests, in particular the sustained creation of shareholder value.
Do shareowners approve the granting of share options to non-executive directors?
In general, share options are not granted to non-executive directors. During 2009 however, after specific shareholder approval, a limited number of fully paid-up shares were issued to the five black non-executive directors
When allocating share options, is the Board mindful of applying a vesting period to non-executive directors, of the shareowner approval required for the repricing of share options, and of the specific shareowner approval required where share options are to be issued at a discount to the ruling price?
As noted above, share options are not issued to non-executive directors.
Where share options were to be repriced or issued at a discount to the ruling price, then specific shareholder approval would be sought prior to making any issue.
Does the overriding principle of full disclosure by directors apply to all share and incentive schemes?
Full disclosure of individual directors shareholdings in Massmart shares, and of the individual executive directors participation in the Group share incentive scheme can be found here and here.
Does any executive directors fixed-term contract exceed three years?
None of the executive directors have fixed-term contracts and, in any event, compulsorily retire every three years but can make themselves available for re-election.
Has the Company established a formal and transparent procedure for developing a remuneration policy and is this policy supported by a Statement of Remuneration Philosophy in the annual report?
The Groups remuneration philosophy and policies can be found here.
Does the Remuneration Committee play an integral part in succession planning of the CEO and executive management?
The Remuneration and Nominations Committee assists the Board with succession planning for the CEO and executive management.
Does the Remuneration Committee consider and recommend fees to be paid to the non-executive directors, and are these fees approved by shareowners at the AGM?
The Remuneration and Nominations Committee considers and recommends to the Board the proposed fees to be paid to the non-executive directors, and these fees are put to shareholders for approval at the next AGM.
2.6 BOARD MEETINGS
Does the Board meet regularly (at least once a quarter), and are the number of Board and Committee meetings disclosed in the annual report, as well as the attendance of each director at such meetings?
The Board meets at least once a quarter. Full details of Board and Committee meetings and directors attendances can be found here.
Are Board members efficiently and timeously briefed prior to meetings?
For every discussion item on the meetings agenda formal papers are prepared, bound together and are distributed timeously to Board members.
Do the non-executive directors have access to management and can they meet separately with management without the attendance of the executive directors?
The non-executive directors have unrestricted access to any executive, manager or employee in the Group, with whom they may meet separately if they so wish.
Does the Board regularly review processes and procedures to ensure the effectiveness of the Companys internal systems of control, so that its decision-making capability and the accuracy of its reporting are maintained at a high level at all times?
The Board has delegated to the Audit Committee the task of overseeing the effectiveness of the Groups internal control systems, ensuring that they are designed in response to identified key business and control risks, and that they have been effective throughout the financial year.
Does the Board go beyond assessing the financial and quantitative performance of the Company and does it look at other qualitative performance factors that involve broader stakeholder interests?
In addition to financial reporting and external audits, Massmart has implemented independent reviews of its non-financial performances. These reviews include Division-wide staff surveys conducted by third parties; biannual surveys of the Groups suppliers, also conducted by a third party; a biannual ethics review by the South African Institute of Ethics; and an annual Socially Responsible Investment (SRI) Index review that is coordinated by the JSE Limited.
2.7 BOARD COMMITTEES
Does the Board delegate certain of its functions to committees, being mindful of the fact that the Board still retains ultimate accountability for its duties and responsibilities?
The Board has delegated specific responsibilities to the Board Committees, which committees assist the Board and the Directors in discharging their duties and responsibilities under King II and legislative requirements. These delegated responsibilities are formally recorded in each committees charter or terms of reference and are noted in the governance authorities.
Is there a formal procedure in place for the delegation of certain functions of the Board to committees?
Each committees charter or term of reference specifically documents that committees scope, duties and responsibilities. These are reviewed for relevance and completeness, and amended where necessary, annually in November.
Do such committees have formally determined terms of reference, life spans, functions, reporting processes and scopes of authority?
These issues are included in each committees charter or terms of reference.
Is there transparency and full disclosure from such committees to the Board?
At each Board meeting the full minutes of all committee meetings in the previous quarter are included in the formal papers. In addition, when required the Committee Chairman gives verbal feedback at the Board meeting and answers questions or queries from Board members.
Has the Board, as a minimum requirement, established audit and remuneration committees?
The Board has established an Audit Committee and a Remuneration and Nominations Committee, both of which have been operating since 2000. There are also Risk, Sustainability and Transformation and Strategy and Investment Committees.
Do the non-executive directors play an important role in the Board Committees?
The Committees comprise a majority of non-executive directors.
Are all Board Committees chaired by an independent non-executive director?
All the Committees are chaired by independent non-executive directors, with the exception of the Strategy and Investment Committee, which is chaired by Mark Lamberti who is not considered to be independent.
Are Board Committees free to take independent outside professional advice?
Directors are encouraged to take independent professional advice, at Massmarts expense, in respect of the proper execution of their duties and responsibilities as Board and Committee members.
Are details regarding Board Committees disclosed in the annual report and do the chairpersons of the Board Committees attend the AGM?
Details regarding the duties and responsibilities of each Board Committee, and its composition, can be found here.
The Committee chairpersons do attend the AGM.
Are Board Committees subject to regular evaluation by the Board?
Annually all Board Committee members complete detailed self-assessments covering the composition, duties, responsibilities, processes and effectiveness of the Committees. The results of these assessments are collated by the Company Secretary and sent in summarised form to the respective Committee chairpersons for a formal written response. The summarised results together with the Chairpersons written responses are included in the Board papers at the November meeting.
2.8 BOARD AND DIRECTOR EVALUATION
Does the Board regularly review its required mix of skills and experience by means of a self-evaluation of the Board as a whole, its committees and the contribution of each individual director?
All Board members complete a detailed Board self-assessment each year, covering the composition, duties, responsibilities, process and effectiveness of the Board. See 2.7.10 with regard to the assessment of the Board Committees.
Annually, the Board Chairman, Deputy Chairman and CEO assess the effort and contribution of each individual director, and where necessary provide verbal feedback to that director.
Are these self-evaluations conducted at least annually?
All self-assessments are conducted annually and are then reported and discussed at the November Board meeting.
2.9 DEALINGS AND SECURITIES
Does the Company have a practice prohibiting dealing in its securities by its directors, officers and other select employees for a designated period preceding the announcement of its financial results or in any other period considered sensitive and having regard to the Listings Requirements of the JSE in respect of dealings of directors?
Massmarts does have strict closed periods during which all directors, executives and employees are not allowed to deal in Massmart shares. These closed periods begin one month prior to the end of each reporting date (being 31 December and 30 June) and end on release of the Group results.
A closed period also applies from the date Massmart issues a cautionary announcement.
No director, executive or employee may deal, directly or indirectly, in Massmart shares where that person may be aware of unpublished price-sensitive information.
Is such practice determined by way of a formal policy established by the Board and implemented by the Company Secretary?
It is strict Massmart policy that all share dealings by any director, executive or employee must have prior authorisation by either the CEO or the CFO. Any dealings by the CEO are authorised by the Chairman, and any dealings by the CFO are authorised by the CEO.
2.10 COMPANY SECRETARY
Does the Company Secretary play a pivotal role in the corporate governance of the Company?
The Board believes that practicing good corporate governance is the duty of each director, but looks to the Company Secretary to be the central source of guidance and advice to the Board, and within the Group, on matters of ethics and good governance.
Ilan Zwarenstein, Massmarts Company Secretary, is a CA(SA) and a former partner of a national audit firm.
Is the Board cognisant of the duties imposed on the Company Secretary and does it empower him accordingly to enable him to properly fulfil those duties?
The Company Secretary is empowered by the Board to fulfill his duties and to assist the Board in fulfilling its functions.
In addition to his extensive statutory duties, does the Company Secretary provide the Board as a whole and directors individually with detailed guidance as to how their responsibilities should be properly discharged?
This guidance would be provided during the induction process and thereafter also on an ad hoc basis in response to changes in the legislative or regulatory environment, or as circumstances demanded.
Does the Company Secretary play an important role in the induction of new or inexperienced directors, in assisting the Chairman and CEO in determining the annual Board plan and in the administration of other issues of a strategic nature at Board level?
See 2.4.6 concerning the induction of new directors.
The Company Secretary is directly involved in discussions on the Board process, agenda and administration.
Does the Company Secretary provide a central source of guidance and advice to the Board, and within the Company, on matters of ethics and good governance?
Is the Company Secretary subjected to a fit and proper test in the same manner as for new director appointments?
The Board believes that as a minimum the Company Secretary should be a qualified professional and he or she would undergo the same background checks as would apply to any new Board appointee.
Is the Board responsible for the risk management process with management being accountable for the implementation thereof?
The Board, through the Risk Committee, oversees the Groups risk management programme, while the day-to-day responsibility for risk management remains with the Group and Divisional executives.
Does the Board set the risk strategy policies in liaison with management and are these policies clearly communicated to all employees?
Through the Risk Committee, and thereafter the Group Executive Committee, the Group risk strategy has been established. This takes into account the Groups risk tolerance and is necessarily balanced against the drive towards the achievement of its strategies and objectives.
Does the Board determine the Companys tolerance for risk and has it ensured an effective ongoing process to identify risk and to measure its potential impact?
The Risk Committee, working through the Group Executive Committee, identifies and assesses the risks in the Groups operations and business environment with a view to eliminating or reducing them in the context of the Groups strategies and operations.
Does the Board maintain a sound system of risk management and internal control to provide assurance regarding the achievement of organisational objectives?
The Risk Committee, together with the Audit Committee, oversees the maintaining of a sound system of risk management and control with regard to operations, safeguarding assets, reliability of management reporting and compliance with laws and regulations. In addition, the mandates of the Group and Divisional Executive Committees and Internal Audit, explicitly include the identification and management of risk.
Does the Board ensure that a documented assessment of key risks is undertaken at least annually?
The Risk Committee tables a Group risk report and risk register to the Board annually in August.
Has the Board established a dedicated committee to review the risk management process and significant risks facing the Company?
The Risk Committee directly and the Audit Committee indirectly oversees the Groups risk management programme.
Is risk management and are internal controls embedded in Company practice?
The day-to-day responsibility for risk management sits with the executives of the Group and of each Division.
Has the Board established a confidential reporting process to cover fraud and other risks?
The Massmart Ethics Line (also known as Anonymous Tip-Offs) has been in place since October 2004 to enable anyone to report perceived cases of unethical practice or criminality.
3.2 APPLICATION AND REPORTING
Has the Board established a comprehensive system of control which covers ethical values, managements philosophy and employees competence?
The Board has not explicitly addressed these issues in combination.
There is a well-documented and communicated Code of Ethics in place across the Group, of which the Ethics Line (noted in 3.1.8 above) is one aspect.
Through its interactions with Group and Divisional executives, the Board is directly exposed to managements values and business philosophy, and is therefore in a position to change or influence those values and philosophy if necessary.
The attraction, employment, retention and development of employees is the responsibility of management, with the remuneration polices approved by the Remuneration & Nominations Committee forming a critical backdrop. The Board believes that the employees competence forms part of this responsibility.
Are risks assessed on an ongoing basis and are control activities designed to respond to risks throughout the Company?
The Risk Committee oversees the Groups risk management programme, while the day-to-day responsibility for risk management sits with the executives of the Group and of each Division. The Board and Risk Committee are of the view that effectively managing a business operation out of necessity incorporates managing risk in the same operation.
Has the Company developed a system of risk management and internal control that enhances stakeholders interests?
The Board is satisfied that Massmarts system of risk management and internal control addresses all stakeholders interests.
Does the Board identify and monitor key risk areas and performance indicators?
The Risk Committee, through the Group Executive Committee, identifies and monitors the key risks facing the Group as well as the Groups key performance indicators.
Do reports from management to the Board provide a balanced assessment of risks and the effectiveness of the system of internal controls?
The Board believes that the combination of the efforts of the Risk and Audit Committees, the Group Executive Committee, and Internal Audit provides a balanced assessment of Group risks and a good measure of risks and the effectiveness of internal controls.
Does the Board disclose issues relating to risk management in the annual report?
Massmarts risk management process, and the top risks identified, is disclosed in the Annual Report.
Does the Board view risks from both a negative and a positive perspective?
The point is clichéd but the executive committees are alert to the possibility that many risks may hold the promise of opportunity.
4.1 STATUS AND ROLE
Does the Company have an effective internal audit function which has the respect and cooperation of both the Board and management?
Massmart Internal Audit is an independent, objective body providing assurance to the Groups activities and has unrestricted access to the Board, Audit Committee and executive management.
Norman Gray, the Chief Audit Executive, holds a senior executive position in the organisation and has 34 years retail and audit experience.
Has the Board formally defined the purpose, authority and responsibility of the internal audit activity?
The responsibilities of Internal Audit are defined and governed by a charter approved annually by the Audit Committee.
Is the internal audit function consistent with the requirements of the Institute of Internal Auditors?
In 2007, a third party professional body rated Massmart Internal Audit as generally conforming (being the highest compliance rating) to the International Standards for the Professional Practice of Internal Auditing as promulgated by the Institute of Internal Auditors.
Does the head of internal audit report directly to the CEO and does he have full access to the chairmen of the Board and the audit committee?
To ensure independence, the Chief Audit Executive reports functionally to the Audit Committee and, only from an administrative perspective, to the Chief Financial Officer. Massmart Internal Audit has the unequivocal support of the Board and Audit Committee and has total access to any part of or person in Massmart.
Does internal audit report at all audit committee meetings?
The internal auditors present formal reports to the Audit Committee and attend all meetings by invitation. In addition, the Audit Committee Chairman and CEO separately meet quarterly with the Chief Audit Executive.
Is the Audit Committee involved in the appointment and dismissal of the Head of Internal Audit?
The appointment or dismissal of the Chief Audit Executive is the decision of the Audit Committee.
If the internal and external audit functions are carried out by the same accounting firm, has the Board and the Audit Committee satisfied themselves that there is adequate segregation between the two functions?
4.2 SCOPE OF INTERNAL AUDIT
Does the internal audit activity provide independent, objective assurance and does it add value through consultation?
The Audit Committee and Board believe that Massmart Internal Audit is a very effective and independent, objective body providing assurance to the Groups risk, governance and control dimensions.
Does the internal audit activity provide assurance on management processes and confirmation of the effectiveness of the Companys control systems?
Through formally documented risk assessments, thorough audit field work and high quality personnel, Internal Audit is able to provide a reliable opinion on the level of assurance that can be placed on the management of the Groups risk governance and control activities.
Is the internal audit plan based on risk assessment as well as issues highlighted by the Audit Committee and senior management?
Internal Audit applies a risk-based approach that aligns its audit methodology to the internal and external risks facing Massmart. Internal Audit regularly meets with the Audit Committee Chairperson and Massmart executives to discuss perceived risks.
Does the Audit Committee approve the internal audit work plan?
Internal Audits annual audit plan is preapproved by the Audit Committee.
Does the internal audit function coordinate with other internal and external assurance providers to ensure proper coverage of controls?
Internal Audits scope and efforts are coordinated with those of the external auditor which in certain areas places full reliance on Internal Audits work and findings. Similarly, Internal Audit liaises with other key third parties providing assurance coverage to the Group.
5.1 SUSTAINABILITY REPORTING
Does the Company report annually on the nature and extent of its social, transformation, ethical, safety, health and environmental management policies and practices?
A comprehensive Sustainability Report is issued annually together with the Massmart annual report.
Does the Company report on adopted principles, implementation of practices and demonstration of resulting changes and benefits?
The Sustainability Report comprehensively covers all sustainability issues and uses the guidelines in the Global Reporting Initiative (GRI) as its reporting framework.
Does the Board consider the scope of issues subject to disclosure, disclosure of non-financial information and criteria and guidelines for materiality?
The Sustainability Committee assists the Board with discharging its responsibilities with respect to the implementation, and disclosure, of practices that are consistent with good corporate citizenship.
Does the Board specifically consider practices reflecting a committed effort to reducing workplace accidents, application of the Best Practicable Environmental Option standard, black economic empowerment with regard to procurement practices and investment strategies, and disclosure of human capital development with particular focus on progress against equity targets?
These issues form part of the Sustainability Committees mandate and are thoroughly addressed in the annual Massmart Sustainability Report.
5.2 ORGANISATIONAL INTEGRITY/ CODE OF ETHICS
Has the Company demonstrated its commitment to organisational integrity by codifying its standards in a code of ethics?
In October 2004 Massmart developed a Code of Ethical Practice in order to achieve the highest standards of ethical behaviour. This Code has been communicated widely throughout the Group and there are formally appointed and trained Ethics Officers at Group and Divisional level.
Has the Company demonstrated its commitment to its code of ethics?
Anyone may call the Massmart Ethics Line to report an apparent breach of ethics. These reports are sent directly to the Group Ethics Officer for further investigation. Internal Audit acts as the independent investigative arm of the Group Ethics Officer when requested to do so.
Recent reported incidents addressed through this process include an aggrieved supplier that felt its prices had been shared with a competitor (the Group manager concerned received a written warning); and a customer complaining of alleged racists practices at a Group store (the Ethics Officer met with the customer who, after discussion, was happy to withdraw his complaint but appreciated that his complaint had been addressed).
Does the Company disclose its adherence to its code of ethics?
Included in the annual report is a summary, and analysis, of all calls to the Massmart Ethics Line. Any serious ethical breaches there have been none to date would be disclosed in the Risk section of the annual report as well as the Sustainability Report.
Does the Company deal with individuals or entities not demonstrating the same level of commitment to organisational integrity?
Massmart insists that all its business partners, specifically employees and suppliers, demonstrate the same level of commitment to ethical standards.
6.1 AUDITING AND NON-AUDIT SERVICES
Does the Audit Committee recommend the appointment of the external auditors?
The Audit Committee does nominate the proposed auditor to shareholders at the AGM.
Do the Companys auditors observe the highest level of business and professional ethics and is their independence impaired in any way?
Massmart requires that its auditors observe the highest level of ethics and that they remain independent at all times.
Do the external auditors work in conjunction with the internal audit function?
The external auditors do work in conjunction with Massmart Internal Audit and, in certain areas, place audit reliance on Internal Audits findings.
Does management encourage consultation between the external and internal auditors?
Given the answer to 6.1.3 above it follows that there is consultation between Internal Audit and the external auditors. More than this, this interaction is encouraged and expected.
Does the Audit Committee set the principles for using the external auditors for non-audit services?
The Audit Committee has defined the nature and extent of non-audit services that may be provided by the external auditors, and has limited the total fees that may be paid for those services to less than 50% of the total normal audit fee.
6.2 REPORTING OF FINANCIAL AND NON-FINANCIAL INFORMATION
Does the Audit Committee determine whether interim reports should be subject to independent review?
The Audit Committee requires that the Groups interim reports are always subject to independent review by the external auditors.
Is the Audit Committees report and the external auditors review report tabled at Board meetings?
As noted in 2.7.4 above, the Audit Committee Chairman reports regularly to the Board; and annually, prior to the release of the Groups preliminary results, the lead partner of the external auditors addresses the Board.
Does the Board minute the facts and assumptions used in its assessment of the going concern status of the Company?
The going-concern facts and assumptions are minuted by the Audit Committee and recommended to the Board.
Does the Board review their going-concern assessment at the interim reporting stage?
The going-concern assertion is reviewed at interim and final reporting stage.
Where non-financial aspects of reporting have been subject to external validation, is this fact stated and are details provided in the annual report?
This generally applies to aspects of the Sustainability Report and so details of any external evaluation and validation of non-financial aspects of reporting are provided in that report.
Does the Company ensure that information is distributed timeously to all shareowners via a broad range of communication channels?
Massmart endeavours to distribute information to all stakeholders as quickly and efficiently as possible, and uses a broad range of communication channels which vary depending upon the message and audience being addressed.
6.3 AUDIT COMMITTEE
Does the Audit Committee consist of a majority of independent non-executive directors?
The Audit Committee consists only of independent non-executive directors.
Is the chairperson of the Audit Committee an independent non-executive director and not the chairperson of the Board?
The Audit Committee Chairman is an independent non-executive director and is not the chairperson of the Board.
Does the Audit Committee have written terms of reference that deal adequately with its membership, authority and duties?
The Audit Committee has a comprehensive charter that sets out its duties and responsibilities.
Does the Company disclose whether the audit committee has satisfied its responsibilities for the year in the annual report?
Massmart discloses the extent of the Audit Committees compliance with its requirements in terms of section 270A(1)(f) of the Companies Act. here.
Is membership of the Audit Committee disclosed in the annual report and does the chairperson of the Audit Committee attend the AGM?
Membership of the Audit Committee is disclosed on page 100 and the Chairman attends the AGM.
7.1 & 7.2 CONSTRUCTIVE ENGAGEMENT WITH INSTITUTIONAL SHAREOWNERS
Does the Company enter into dialogue with institutional investors based on constructive engagement and the mutual understanding of objectives?
The executive directors believe in, and practice, open and constructive engagement with all actual or potential shareholders and the broader investment community.
Twice a year, immediately following the release of the Groups financial results, the CEO and CFO give public presentations to interested parties from the investment community and also visit key institutional shareholders.
Annually in May, the CEO and CFO host day-long visits by institutional analysts and investors to Massmart stores and they regularly meet with institutional shareholders and any other existing and prospective shareholders.
7.3 EFFECT OF PROPOSED SPECIAL RESOLUTIONS TO BE INCLUDED IN NOTICE OF AGM
Does the Company ensure that each item of special business included in the notice of AGM is accompanied by a full explanation of the effects of a proposed resolution?
Each special resolution is accompanied by a full explanation of the reasons for and the effect of such special resolution.
7.4 UTILISATION OF A POLL
Does the Company utilise voting by way of a poll in relation to special business, or where contentious issues are under consideration?
Massmart only allows voting by way of a poll for all resolutions (special and ordinary).
8.1 BALANCED AND UNDERSTANDABLE REPORT TO STAKEHOLDERS
Does the Board present a balanced and understandable assessment of the Companys position when reporting to stakeholders and is the quality of the information based on the principles of openness and substance over form?
The Board strives to present a balanced and readable assessment of the Group. Given the Groups inclusion for the last three years in the Top 10 of the Ernst & Young Corporate Reporting Awards, it seems that Massmart is succeeding in this objective.
8.2 TRANSPARENCY AND ACCOUNTABILITY CONCERNING NON-FINANCIAL MATTERS
Does the Company demonstrate transparency and accountability regarding non-financial matters?
The annual report attempts to fully disclose and thoroughly explain all material issues necessary to understanding the operations and performance of the Group. This includes such diverse information such as: number and category of employees, number and location of stores, consumption of water and electricity, key risks, expenditure on staff training, and HIV/Aids prevalence.
COMPREHENSIVE AND OBJECTIVE ASSESSMENT OF COMPANY ACTIVITIES
Do reports present a comprehensive and objective assessment of the Companys activities?
See 8.2 above.
8.4 DO THE DIRECTORS REPORT ON THE FOLLOWING IN THE ANNUAL REPORT:
That it is the directors responsibility to prepare financial statements that fairly present the state of affairs of the Company as at the end of the financial year and the profit and loss cash flows for that period?
Included in the Directorsí Report
That the auditor is responsible for reporting on whether the financial statements are fairly presented?
This is reported on in the Approval of Annual Financial Statements.
That adequate accounting records and an effective system of internal controls and risk management have been maintained?
This is reported on in both the Approval of Annual Financial Statements and Directors Report respectively.
That appropriate accounting policies supported by reasonable and prudent judgements and estimates have been used consistently?
This is reported on in the Directorsí Report.
That applicable accounting standards have been adhered to, or, of there has been any departure in the interest of fair presentation, this is not only disclosed and explained, but quantified?
This is reported on in the Directors Report and in the report from the CFO.
That there is no reason to believe the business will not be a going concern in the year ahead or an explanation of any reasons otherwise?
This is reported on in the Directors Report.
That the King Code has been adhered to, or, if not, where there has not been compliance, give reasons therefore?
This is reported on in the Corporate Governance section.
Does the Board and do the individual directors accept their duty and responsibility to ensure that the Company observes the principles set out in the King Code?
The Board and the individual directors accept their duties and responsibilities in terms of the King Code on Corporate Governance and strive to adhere to the Code. See here.