Governance

4.1

Explain the structure of the organization, including committees under the highest governance body responsible for strategy and organizational oversight.

The Board of Massmart  comprises two Executive Directors, four Independent non-executive Directors and three non-executive Directors. It is responsible for directing the Group towards the achievement of the Massmart vision and mission. The Board is therefore accountable for the development and execution of the Group’s strategy, operating performance and financial results, as well as being the custodian of the Group’s corporate governance. The Board appreciates that strategy, risk, performance and sustainability are inseparable.

Further information regarding the Board and its composition can be found  in the Corporate Governance.

EXECUTIVE COMMITTEE

The Massmart Executive Committee is the most senior executive decision-making body in the Group. The Committee is chaired by the Chief Executive Officer. The Committee deliberates, takes decisions or makes recommendations on all matters of strategy and operations. Within the parameters described by the Board-approved Governance Authorities, the decisions or recommendations are sometimes referred to the Board or its relevant Committee for final approval, while in other cases the power to take decisions is delegated to Divisional Boards or Executive Committees.

SOCIAL AND ETHICS COMMITTEE

Previously called the Sustainability Committee, this Committee has been renamed and now includes in its terms of reference the requirements of the Companies Act, 2008, in regard to this type of committee. The role of the Committee broadly is to assist the Group with its responsibility towards sustainability with respect to practices that are consistent with good corporate citizenship. 

AUDIT AND RISK COMMITTEE

Following the Walmart transaction, the reconstituted Audit and Risk Committee now fulfills the roles and responsibilities of the previously separate Risk and Audit Committees, with effect from June 2011.  On behalf of the Board, the Audit & Risk Committee oversees the Group’s risk management programme.

Audit responsibilities include: overseeing the effectiveness of the Group’s governance, risk and internal control systems; reviewing the scope and effectiveness of the external and Internal Audit functions; ensuring that adequate accounting records have been maintained; ensuring the appropriate accounting policies have been adopted and consistently applied; reviewing and reporting on the application of the King III Report and  overseeing the quality and integrity of the annual financial statements.

From a risk perspective the Committee’s primary role is one of oversight and therefore it reviews and assesses the dynamic interventions, within the Group’s available resources and skills, required in response to business-specific, industry-wide and general risks. In addition, the Committee tables to the Board annually in August a Group risk register aggregated from those prepared by the Divisions and the Group Executive Committee.

Remunerations and Nominations Committee

Massmart, through the Remuneration and Nominations Committee, implements remuneration policies that enable it to recruit, retain and motivate the executive talent needed to achieve superior performance. The Committee, with periodic advice from external executive remuneration consultants, ensures the provision of executive remuneration packages that are competitive with reference to other major South African retail companies, as well as other companies similar to Massmart in their size, spread and complexity.

4.2

Is the Chair of the Board also an executive officer of Massmart?

The Chairman, Mark Lamberti, appointed as such on 1 July 2007 was previously the CEO of Massmart and could not be considered independent until June 2010.  The Board is satisfied that he should now be considered an independent director but recognising, however, that some may not be of the same opinion. Chris Seabrooke, the non-executive Deputy Chairman, maintains his role as the Group’s Lead Independent Director.  As recommended by King III, the chairmanship of each of the four Board Committees is held by independent directors.

4.3

What mechanisms are in place to enable shareholders and employees to provide recommendations or direction to the Board?

Employees have a 6.04% shareholding in Massmart through their participation in the Thuthukani Employee Empowerment Trust, Black Scarce Skills Trust and Executive Share Trust. Employee and external shareholders are entitled to make recommendations to the board at annual general meetings. Employees are represented at the annual general meeting by staff elected Thuthukani trustees. The toll-free Thuthukani hotline was established to enable employees to enquire about their Thuthukani investment and also to provide input to their elected trustees continued operation during the year under review.

4.4

What is the linkage between compensation for members of the Board, senior managers, and executives and the organisation’s performance?

With regard to short-term or performance incentives, Massmart places particular emphasis on generous annual incentives for high performance for both executive directors and executive management. This policy, communicated to and understood by the Group’s executives, codifies a range of performance incentives linked to annual headline earnings per share growth for the Group in excess of average CPI (as reported by StatsSA) plus 5%, or growth in profit before tax for each Division, as appropriate. Executives can earn an increasing multiple of their monthly basic salary depending upon the earnings growth exceeding CPI plus 5% or higher % increments. With effect from 2006, an element of the annual incentive bonus was linked to corporate accountability performance, specifically the achievement of B-BBEE transformation targets approved by the Remuneration and Nominations Committee. This incentive can amount to an additional one to three months’ salary. The Committee also has the discretion to reward superior individual performance.

4.5

What processes are in place for the Board to ensure that conflicts of interest are avoided?

The Remuneration and Nominations Committee prepares and circulates a questionnaire aimed at gauging the independence status of each non-executive director.  This is completed by each non-executive director and returned to the Committee, which then considers each director’s independence using the following aspects to assess a non-executive director’s independence:

• whether the director had been employed in an executive capacity in the Group within the last three years;
• whether the director had served on the Board for longer than nine years.  In this case, the Committee considers whether that director’s independence,  judgement and contribution to the Board’s deliberation could be compromised, or may appear to be compromised, by this length of service;
• whether the director was a representative of a major shareholder;  and
• whether the proportion of that director’s shareholding in Massmart (if any) or director’s fees represented a material part (10% or more) of their wealth or income.

In addition, the Committee considers whether the director is independent in character and judgement and whether there are circumstances which are likely to affect, or could appear to affect, the director’s judgement.

4.6

What practice is in place for determining the qualifications and expertise of the members of the Board for guiding the organisation’s strategy on economic, environmental and social topics?

All executive and non-executive directors have extensive experience in the retail industry both outside and within the organisation.  Biographical details of each of our executive and non-executive directors and Executive Committee members can be found here. 

The acquisition by Walmart of 51% of Massmart became effective on 20 June 2011.  Several changes to the composition of the Board and the Committees were then implemented.  These had been described in earlier communication to shareholders, including the shareholders’ circular covering the approval of the transaction.

The changes are described below:

• Messrs Dods Brand, Kuseni Dlamini, Jim Hodkinson, Nigel Matthews, Peter Maw and Michael Rubin, and Ms Dawn Mokhobo resigned from the Board. 
• Messrs Doug McMillon, Jeff Davis and JP Suarez joined the Board and are the Walmart-appointees. 
• The executive directors, Messrs Grant Pattison and Guy Hayward, remained  as CEO and CFO respectively, and non-executive directors Messrs Mark Lamberti and Chris Seabrooke and Ms Phumzile Langeni and Lulu Gwagwa also remained on the Board. 
• The composition of the Board Committees was amended and these are noted in the respective sections below.

4.7

What is Massmart’s mission, codes of conduct and principles and explain how these are applied across the organisation in different regions and departments?

Massmart is a South African-based, globally competitive, regional management group, invested in a portfolio of differentiated, complementary, focused wholesale and retail formats, each reliant on high volumes and operational excellence as the foundation of price leadership, in the distribution of mainly branded consumer goods for cash.  The Group actively seeks the continual improvement of performance in the portfolio and its parts, through strategic and structural clarity, high market shares, excellent management, principle-driven ethical leadership, cost-effective technology and the sharing or agglomeration of capabilities, knowledge, resources, influence and information. 

To this end, thought leadership, individual and collective performance, and collaboration throughout the Group are appropriately rewarded, with executive management incentivised predominantly on Group performance.

Massmart has evolved a business model that empowers its Divisions to take trading decisions suited to their individual operating needs but within a strategic operating and financial framework set by the Group.  Further information on how our mission is applied is more fully described in our business model.

4.8

What procedures are followed by the Board to oversee the organisation’s identification and management of economic, environmental, and social performance, including relevant risks and opportunities, and adherence or compliance with internationally agreed standards, codes of conduct and principles?  How frequently is sustainability performance assessed?

The role of the Social and Ethics Committee broadly is to assist the Group with its responsibility towards sustainability with respect to practices that are consistent with good corporate citizenship.  The Companies Act includes specific responsibilities including: the company’s standing in terms of the United Nations Global Compact Principles, the OECD recommendations concerning corruption, the contribution to development within our communities, labour and employment, and the environment and health and public safety. The Committee met twice during the financial year with the objective of reviewing Massmart’s Socially Responsible Investment Index. Broad-based black economic performance in each of these areas is measured with reference to the Johannesburg Stock Exchange’s (JSE) Socially Responsible Investment Index criteria, the Department of Trade and Industry’s (DTI) Broad-based Black Economic Empowerment (B-BBEE) scorecard and the Global Reporting Initiative III guidelines. The Committee is satisfied with Massmart’s sustainability performance and is particularly encouraged that the Group continues to exceed its interim B-BBEE target and is now a Level 3 contributor.

4.9

Outline the process for evaluating the Board’s own performance, particularly with respect to economic, environmental, and social performance.

Annually in September, the Remuneration and Nominations Committee facilitates a comprehensive formal performance evaluation of the CEO, comprising a self-evaluation, a questionnaire evaluating the CEO by every non-executive director, and an appraisal using a different questionnaire of the CEO by each of his direct reports. The Board Chairman provides the summary and feedback of the above to the CEO, and he is encouraged to probe and debate any aspect of the evaluation with the Board. As noted elsewhere, there was no CEO assessment during 2011.

The Chairman’s performance is assessed by Board members and the Deputy Chairman provides the feedback.  These assessments are used to enhance the effectiveness of the Chairman, the CEO, and the Board and its Committees.

Commitments to external initiatives.

4.10

Explain whether and how the precautionary approach or principle is addressed by Massmart and its approach to risk management in operational planning and the introduction of new products.

We have implemented a variety of interventions that reinforce the principles of the precautionary approach. These include training staff in the process of ethical decision-making, applying a risk management approach that seeks to avoid exposing the organisation to undue risk, defining comprehensive product specifications that emphasise health and safety issues, conducting supplier environmental surveys, contracting suppliers to specified standards of conduct, implementing third party food product testing and contracting external subject matter experts to conduct pre-emptive risk reviews within the organisation.

The newly constituted Audit and Risk Committee responsible to the Board oversees the Group’s risk management programme.  The day-to-day responsibility for risk management, including maintaining an appropriate loss prevention and internal control framework, remains with the executives of the Group and of each Division.  Operational risks by their nature can be immediately addressed or mitigated by local management actions.  These risks – which include in-store health, safety and security, compliance, fire prevention and detection, IT systems and food safety, amongst others – are therefore the direct responsibility of each Divisional Executive Committee where a Loss Prevention or Risk Officer has line responsibility for overseeing these risks. click here.

For further information regarding the functioning of the Risk Committee, click here. 

Which externally developed economic, environmental, and social charters, principles, or other initiatives does Massmart subscribe to or endorse?  Differentiate which are non-binding, voluntary initiatives and those with which Massmart has an obligation to comply.

As a listed company, Massmart has an obligation to and complies with the criteria defined in the JSE Ltd’s Socially Responsible (SRI) Index. 

Massmart is also a member of or subscribes to and endorses the social charters and principles of the following :

• Department of Trade and Industry’s Codes of Good Practice on Broad-based Black Economic Empowerment
• Carbon Disclosure Project (CDP)
• King III Report on Governance for South Africa
• Global Reporting Initiative guidelines.

4.12

Which memberships of associations and advocacy organisations does Massmart participate in and support?

Massmart is a member of and/or makes contributions to organisations including:

• Business Against Crime (BAC),
• Business Unity South Africa (BUSA),
• Consumer Goods Council of South Africa (CGCSA),
• Ethics Institute of South Africa,
• National African Federated Chamber of Commerce (Nafcoc),
• National Economic Development & Labour Council (Nedlac),
• South African Institute of Race Relations, and
• IDASA

Stakeholder Engagement

4.13

List of stakeholder groups engaged by Massmart.

We are committed to proactively understanding and responding to the priorities of our stakeholders whom we interpret to include investors, shareholders, employees, customers, suppliers, local communities, government, foreign African diplomats, civil society and the media.

Our stakeholder engagement practices include participation in stakeholder organised forums, conducting one-on-one meetings, making formal submissions to Parliament, conducting stakeholder surveys, and hosting public policy and general interest discussion groups. In 2010/2011 Massmart engaged with the following stakeholders: SAB Miller, Tiger Brands, Snackworks, Pioneer Foods, Simba, Internal Audit, Human Resources Manager, Operations Forum Manager, Food Safety Manager, Human Resources Forum Manager, IT Executive, University of South Africa, University of Pretoria, University of the Witwatersrand, World Wildlife Fund (WWF), Endangered Wildlife Trust (EWT), National Business Institute (NBI), South African Institute for Race Relations (SAIRR), Eskom and Siyakhana Initiative Consumer Goods Council of South Africa (CGCSA), Business Leadership South Africa, Business Against Crime (BAC), Packaging Association South Africa (PACSA), Southern African Food Lab, SME Forum, Empowerment SA, Raizcorp, Department of Basic Education, Economic Development Department, Competition Commission, South African Commercial Catering and Allied Workers Union and Massmart’s suppliers who responded to our surveys. We had 813 unique supplier companies respond to an environmental survey conducted at our CPA conferences in 2010 and a further 117 responses to our online supplier survey conducted in 2011. ( refer to accountability)

4.14

What is the basis for identification and selection of stakeholders with whom Massmart engages?

Massmart engages proactively with identified stakeholder groups that directly impact on, or are directly impacted by activities in our direct sphere of commercial influence. Factors that are considered before engaging stakeholders include whom they represent, their credentials and the  social and business relevance of issues.

Notwithstanding numerous one-on-one meetings, our stakeholder engagement generally involves conducting regular discussion groups that include themed discussions with subject matter experts, public policy discussions with government and civil society representatives and consumer discussions with consumer interest groups.

4.15

How frequently does Massmart engage stakeholders?

Stakeholder engagement activities occur on an ongoing basis throughout the year. Engagement with investors and shareholders takes place at least four times a year through results presentations, meetings and the Massmart annual general meeting. We aim to engage with government and civil society stakeholders at least six times per year through meetings, workshops and surveys. Employee, customer and supplier engagement is considerably more intensive and occurs as needed.

Some recent examples of stakeholder engagement:

• Internal, external and supplier stakeholder engagement workshops were conducted in June 2011.
• Group wide Customer Satisfaction surveys were also conducted in June 2011.
• Environmental Supplier Survey conducted at the CPA Conference in 2010.
• Customer interaction was also encouraged by way of broadly advertised dedicated customer service lines  managed by our divisions.  Customer contact is also encouraged through our various websites and  further planned enhancement is our recent presence on various social media networks (e.g. Facebook and Twitter).
• Massmart has set up a Product Safety website based on the requirements of the CPA for suppliers.
• Massmart engages with the Consumer Goods Council of South Africa (CGCSA) on an ongoing basis to discuss a range of issues including food safety and retail.
• Massmart also engaged with stakeholders during the Massmart-Walmart Competition Commission investigation and during the Massmart-Walmart Competition Tribunal hearings in May 2011.

4.16

What are some of the key topics and concerns that have been raised through stakeholder engagements and how has Massmart responded to those key topics and concerns.

A wide variety of issues were identified, investigated and debated during our stakeholder engagement process. These issues included the Walmart Effect, South Africa’s Consumer Protection Act, product safety, Broad-Based Black Economic Empowerment (B-BBEE), rural poverty, the marginalisation of unemployed youth, labour rights, unsustainable consumption, local manufacturing competitiveness, biodiversity systems, the crisis in education, energy security, crime and corruption, waste management, HIV and AIDS, water security, job security, food security and many others. Some of the key issues raised by our stakeholders included:

• Stakeholders suggested that Massmart make a public commitment regarding the number of jobs (i.e. 15 000) that would be created by the merged entity. It was also suggested that the company consider commissioning an independent longitudinal study that could be used to effectively ascertain the impact of Walmart’s entry into South Africa.

• Stakeholders felt that we should implement innovative workplace programmes to de-stigmatise HIV and AIDS in order to increase the level of voluntary testing penetration.
• A key aspect of the feedback we received from our stakeholders, particularly our employees, was the view that we have not been sufficiently clear and concise in communicating our corporate accountability commitment. As a result, we have begun classifying various accountability interventions under the umbrella of three broad accountability themes which relate simply to Massmart’s operations, products and people.