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King IV application register

Massmart is of the view that the practices underpinning the principles espoused in King IV Code on Corporate Governance for South Africa, 2016 (King IV) are entrenched in the Group’s internal controls, policies and procedures, governance frameworks and supporting structures. King IV was adopted by the Group in 2017 and its principles are embedded largely in the Group’s business practices and policies and monitored by the Board and relevant Committees. During the reporting period, the key pillars and practises that the Board focused on included: embracing an ethical culture, improving stakeholder engagement, driving and embedding good corporate governance and corporate citizenship within the South African economy.

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    Principle 1:
    The governing body should lead ethically and effectively.

    Massmart’s governing body (the “Board”) accepts collective responsibility for the effective leadership of the Group and is ultimately accountable for achieving the Group’s strategy, operating performance and financial results in line with the Group’s corporate governance framework. The Board endorses and accepts responsibility for achieving the values underpinning good governance, namely: integrity, competence, fairness, responsibility, transparency and accountability.

    The Board ensures that Massmart’s Code of Ethical Conduct is reviewed and approved on an annual basis. It further ensures that the Code of Ethical Conduct and the Group’s ethics policies address the key ethical risks facing Massmart as well as articulate and give effect to the Board’s direction on organisational ethics. Furthermore, the Board ensures ethical behaviour and the Group‘s compliance programmes are consistent with applicable laws and regulations and the Group’s own governance policies, including the Code of Ethical Conduct.

    During the reporting period, the Board focused on driving Group strategy, operating structure, operational and financial performance, corporate citizenship initiatives, stakeholder engagement, ethics and compliance, risk management, governance and other key pertinent business activities of the Group. With respect to the Board and its Committees’ activities, formal Board and Committee papers are prepared for every discussion item on the meeting’s agenda and are distributed timeously to Board and Committee members for deliberation and consideration. Directors are encouraged to take independent advice, at the Company’s cost, for the proper execution of their duties and responsibilities. Directors have unrestricted access to any Executive, manager or employee in the Group and this affords them the ability to make informed decisions. The Board and Committee members receive reports of the Group’s ongoing strategic and operational initiatives timeously in order that they may devote sufficient time to considering matters on the agenda and to prepare for discussion of those matters. Members of the Board own and take accountability for the execution of their responsibilities and duties, even when these are delegated.

    Massmart’s Board Charter prescribes that Directors must disclose in writing any conflicts of interest including, any share ownership of securities in the Company or in related parties and/or their financial interests in other businesses that may have dealings with the Company either as suppliers or customers, including any competitor of the Company. Directors are reminded of their obligation to disclose any conflicts of interest on a quarterly basis. Director’s declarations of conflict of interest are periodically monitored by the Company Secretary. Additionally, all Directors, employees and officers of the Company are notified as regularly as circumstances may require of restrictions on trading Company securities during closed periods, and thereby reminded of rules on insider trading and implications thereof in terms of the Financial Markets Act.

    The Board and its Committees, specifically through the Social and Ethics Committee are responsible for overseeing and monitoring on an ongoing basis; how the consequences of the Company’s activities affect its status as a responsible corporate citizen; measuring performance against targets of measures set for the environment (including responsibilities in respect of pollution and waste disposal and protection of biodiversity); society (including public health and safety, consumer protection, community development and protection of human rights). The Board further ensures that the organisations’ practices are sustainable. To support its stakeholder inclusive approach, Massmart participates in one-on-one meetings with key stakeholders throughout the year and undertakes regular engagements and themed discussions with subject matter experts.

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    Principle 2:
    The governing body should govern the ethics of the organisation in a way that supports the establishment of an ethical culture.

    The Board is bound and guided by its Charter, and through the Group’s Code of Ethical Conduct it ensures that ethical behaviour and compliance with laws and regulations prevails across by the Group. Through the Social and Ethics Committee, the Board monitors and assures that Massmart applies the highest ethical standards as reflected in the Group’s Code of Ethical Conduct. In addition, the Code of Ethical Conduct articulates and gives effect to the Board’s agenda to promote a culture of organisational ethics.

    In line with good practice Massmart refreshed and updated the Code of Ethical Conduct in December 2017 after which, it was distributed to all of Massmart employees, suppliers and contractors. Massmart continues to ensure that its ethics and compliance programme is well known through employee induction programs, information booklets and training and continuous communication on the program initiatives to all employees, and achieved its target of 90% employee completion rate on the ethics and anti-corruption compliance training. The Massmart ethics programme dovetails and aims to replicate global practices used and applied by Walmart under its Global Ethics & Compliance program, a process that has been easy to adopt. In order to further drive greater awareness, the Code of Ethical Conduct is published on Massmart’s website and is incorporated by reference in supplier and employee contracts.

    The Code of Ethical Conduct applies to all employees across all levels of the organisation, as well as all members of the Board. Massmart expects all suppliers, consultants, contractors and other service providers and professional advisors to act ethically and in a manner consistent with this Code of Ethical Conduct. Massmart’s formal trading agreements detail ethical practices and guiding principles that suppliers are expected to uphold, and supplier ethics messages are distributed in supplier communications and training.

    Massmart maintains an Ethics Reporting Line and Ethics Guidance Line that is independently run by Deloitte Tip-Offs Anonymous. Deloitte Tip-Offs Anonymous has been certified by the External Whistle-blowing Hotline Services Provider Standard E01.1.1.

    Key areas of focus during the reporting period and planned areas of future focus are detailed in the Integrated Annual Report.

     

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    Principle 3:
    The governing body should ensure that the organisation is and is seen to be a responsible corporate citizen.

    Massmart’s business model and structure is underpinned by its purpose to be the most trusted, high volume, lowest cost, wholesale and retail Group in sub-Saharan Africa, delivering exceptional value to mass market consumers. The Board oversees that Massmart’s core purpose and values, strategy and conduct are congruent with it being a responsible corporate citizen.

    The Board, through the Social and Ethics Committee, is responsible for overseeing and monitoring, on an ongoing basis, how the consequences of Massmart’s activities affect its status as a responsible corporate citizen. This is measured against performance targets agreed with management in support of Massmart’s strategic priorities.

    Massmart continues to implement a comprehensive corporate accountability programme and we are proud once again, to be identified as one of the top 30 best performing listed companies in the FTSE/JSE Responsible Investment Index. In fulfilling its commitment to saving customer’s money so they can live better, Massmart is dependent on the transparent trust-based relationships it builds with its customers, employees and trade unions, shareholders, suppliers, regulators and the communities in which we operate.

    The Board continues to focus on and ensure that Massmart drives its Corporate citizenship initiatives and agenda successfully and this is monitored by the Social and Ethics Committee. The Integrated Annual Report outlines the arrangements in place for governing and managing the Group’s efforts towards responsible corporate citizenship and sustainability; these include: Massmart’s efforts towards supporting small and medium size local manufacturers and suppliers; socio-economic development; responsible sourcing; efforts to minimise its environmental footprint; contribution to society through employment and skills development; and responsible tax philosophy.

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    Principle 4:
    The governing body should appreciate that the organisation's core purpose, its risks and opportunities, strategy, business model, performance and sustainable development are all inseparable elements of the value creation process.

    The Board assumes responsibility for setting Massmart’s core purpose and values’ strategy and for giving direction on how it should be approached and addressed. The Board annually reviews and approves the Group’s competitive and sustainable strategies, and adopt business plans and budgets for the achievement of short, medium and long-term strategic objectives. In the short-term, the Annual Operating Plan is developed by Management and reviewed by Walmart before it is submitted to the Board for consideration and approval. Progress against this plan is tracked by the Massmart Executive Committee on a monthly basis. Over the medium-term a 3-Year-Plan and the execution thereof is monitored by the Board on a quarterly basis. The Massmart Executive Committee periodically assesses management’s progress against this plan. As part of the Group’s long term strategy, a 5-Year-Plan is developed by the Executive Committee and reviewed by Walmart before it is presented to the Board annually at the Board strategy session for consideration and approval. This plan takes into account strategies over longer time horizon.

    The Board delegates operational strategy implementation and general executive management of the business to its Executive Directors and members of the Executive Committee. In approving Massmart’s strategy, the Board: adopts a holistic view, actively challenges and debates the impact of the proposed strategy on the various forms of capital; takes into account the legitimate and reasonable needs, interests and expectations of Massmart’s key stakeholders; gives consideration to the interconnectivity and inter-dependence of the various forms of capital, and interests and expectations of material stakeholders; and considers the material risks and opportunities.

    The Board considers the results of Massmart’s assessment of risks and opportunities emanating from the triple context in which the Group operates and the capitals that the Group uses and affects. The material risks and opportunities are disclosed in the Integrated Annual Report and are approved by the Risk Committee. Through the Social and Ethics Committee, the Board is able to assess and responsibly respond to sustainability risks that may impact the long-term value creation of the business and/or the reputation of the Group.

    The Board continually monitors Massmart’s general viability and determines whether it appears reasonably unlikely that the Company will be unable to pay its debts as they fall due and payable within the ensuing 18 months or become insolvent within the ensuing 18 months. The Audit Committee reviews the Annual Financial Statements and interim reports, the preliminary reports and any other announcement regarding the Group’s results or other financial information, focusing on (among other matters) the basis on which the Group has been determined to be a going concern.

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    Principle 5:
    The governing body should ensure that reports issued by the organisation enable stakeholders to make informed assessments of the organisation's performance, and its short-, medium- and long-term prospects.

    The Board, and where appropriate its sub-Committees, approves Massmart’s Annual Financial Statements, Integrated Annual Report, other reports and announcements to stakeholders. The Board collectively assesses the content of the Integrated Annual Report and accompanying statutory information, and acknowledges its responsibility for ensuring the integrity of the Integrated Annual Report.

    Massmart follows a structured process for identifying material matters to be included in external reports to stakeholders. The Board, through the Audit Committee, assesses and approves management’s basis for determining materiality. The reporting process for all external reports has been guided by the principles and requirements contained in the framework principles set out in the Integrated Reporting Framework of the International Integrated Reporting Council; the King IV Report on Corporate Governance for South Africa, 2016; JSE Listing Requirements; International Financial Reporting Standards; the Global Reporting Initiative Sustainability Reporting Standards, and the Companies Act of South Africa, No. 71 of 2008 (as amended).

    The Board collectively assesses the content of the Integrated Annual Report and accompanying statutory information, and acknowledges its responsibility for ensuring the integrity of the Integrated Annual Report. The Board satisfies itself that the combined assurance model is effective and sufficiently robust for the Board to be able to place reliance on the integrity of the Group’s external reports.

    Massmart’s Integrated Annual Report, Corporate Governance disclosures, Annual Financial Statements and other external reports are published and available on Massmart’s website.

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    Principle 6:
    The governing body should serve as the focal point and custodian of corporate governance in the organisation.

    The Board is wholly responsible for the formulation, development and effective implementation of Group strategy and delegates operational strategy implementation and general executive management of the business to its Executive Directors and Executive Committee. This is achieved through the direction provided by the application of the Board Charter, Memorandum of Incorporation, its respective letters’ of appointment and its application of the King IV Code on Corporate Governance. The corporate governance terms of reference are codified and are reviewed on an annual basis to ensure that they are relevant to Massmart and its strategic objectives. The Board’s sub-Committees play a pivotal role in ensuring that good corporate governance is achieved by embedding the principles enshrined in King IV in their terms of reference and mandates established in their respective charters, which are ultimately incorporated in the Group business practices.

    The Board, which adopts a unitary model is the focal point for corporate governance within the organisation and its mandate and authority are set out in its Charter. It delegates operational strategy implementation and general executive management of the business to the Group’s Executive Directors and Executive Committee. The Board, through its various sub-Committees, monitors and oversees the Group governance framework. The Board monitors governance and any transgressions thereof are reported to the Board by the management team, represented by the two Executive Directors and the Company Secretary. Digression from the Board’s corporate governance framework is deliberated at Board meetings and is ratified by the Board, where required and where relevant. The Board has the ultimate decision-making authority and relevant policies and protocol which underpin the Group’s operating model are in place to direct Management in the furtherance of governance in the Group.

    The Board has unrestricted access to Massmart’s business and other information it may require to discharge its responsibilities and does engages with members of the Executive Committee and senior management teams to request resources or information at the Company’s cost in line with established governance protocols. These resources include, the Board’s ability to obtain professional and expert guidance or advice on matters presented by management. Additionally, the Board (either itself or through the sub-Committees) has access to all of the Group’s strategic and operational information, records, documents and property and has unfettered access to any employee or officer of the Company it may wish to engage to enables the Board to properly assess the Group’s operating landscape in a holistic manner.

    Massmart’s subsidiaries adopt the Board’s corporate governance framework. The Board is responsible for directing the Group towards achieving high standards of corporate governance and is ultimately accountable for the Group’s strategy, operating performance and financial results, aligned to the Group’s corporate governance framework.

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    Principle 7:
    The governing body should comprise the appropriate balance of knowledge, skills, experience, diversity and independence for it to discharge its governance role and responsibilities objectively and effectively.

    The Board of Directors are appointed and elected in accordance with the South Africa Companies Act, 2008, the Johannesburg Stock Exchange Listings Requirements and in line with King IV principles. Each Director is selected for the experiences, expertise, knowledge and leadership competences he or she brings to the Board to ensure that the best interests of the Group are served in an effective manner. The range of skills and expertise on the current Massmart Board include, but are not limited to: finance and accounting; audit; legal and regulatory; international retail; risk management; corporate governance; public policy; transformation; real estate and commerce; and human resources. In addition to the aforesaid skills the Board is strengthened by the cultural, gender and racial diversity of its composition.

    There is a clear split of roles and responsibilities on the Board and cross functioning is achieved through members of the Board having cross-Committee membership. The roles of the Chairman and the Chief Executive Officer are separated. A balance of powers is maintained and all major decisions considered by the Committees, are tabled to the Board for holistic consideration and approval. Regarding its position on diversity, during 2017, through the Nominations Committees, the Board established, adopted and implemented a gender diversity policy and a race diversity policy. The Board’s diversity is one of Massmart’s strengths. With combined experience ranging from global retail and commercial experience to race, gender, business and finance experience and length of service, Massmart’s Board is well-positioned to add value to the business. The Board continues to meet its gender equality target of appointing 40% of women to independent non-Executive Director positions. Similarly, the Board met its target of appointing 50% African, Coloured and Indian (ACI) candidates to open Executive and non-Executive Director positions.

    The Nominations Committee is responsible for conducting a search of replacement non-Executive Directors and undertakes a full inquisition into candidates identified for Board membership and recommends suitable candidates to the Board. Once the Board has approved the appointment of a Director, the Company Secretary ensures that the Director attends a rigorous Board induction program in which a detailed overview of the Group, its regulatory landscape, its strategic objectives, risk and governance framework and its operational structure are explained. The Director induction is robust and affords the newly appointed Directors the opportunity to maximise their impact on the Board within the shortest time.

    The Board through the Nominations Committee frequently discusses and reviews succession planning of Executive Directors, Executive and Senior Management including, the Chief Executive Officer and the Chief Financial Officer.

    Whilst the Board of Directors does delegate its authority to the five sub-Committees and the Executive Committee, it exercises overarching oversight on matters within the Board’s mandate. The Board is able to monitor the matters dealt with by the sub-Committees through its members attending the sub-Committee meetings as members or invitees, and the reports of the respective sub-Committee chairs are shared with the Board on a quarterly basis. Additionally, the minutes of the sub-Committee meetings are further included in the Board pack for deliberation and noting. Each Chairman of a sub-Committee provides verbal feedback at the quarterly Board meetings.

    Directors are categorised as Executive, non-Executive and independent non-Executive, and this is disclosed in the Corporate Governance section of the Integrated Annual Report and on the Massmart website. Currently, 63% of the non-Executive Directors of the Board is considered independent. The remaining 37% of the non-Executive Directors are nominee representatives of the majority shareholder, Walmart. The non-Executive Chairman of the Board is deemed independent. The Deputy Chairman of the Board acts as the lead independent non-Executive Director. A robust assessment of the independence of the Board is conducted on an annual basis under the guidance of the Company Secretary, in line with the principles set out in King IV recommended practices (RP27 and RP 28) read with paragraph 3.84(e)(iii) of the JSE Listings Requirements and section 94(4) of the Companies Act, no 71 of 2008.

    A rigorous review of the independence and performance of independent non-Executive Directors serving longer than nine years is undertaken by the Nominations Committee and its outcomes are reported to the Board. Following this independence review, and on the recommendation of the Nominations Committee, the Board is satisfied that there are no relationships or circumstances likely to affect, or which may appear to affect, the judgement of Kuseni Dlamini, Chris Seabrooke, Lulu Gwagwa, and Phumzile Langeni, notwithstanding their tenure on the Board.

    All Directors and the Company Secretary declare and disclose any conflicts of interest they may have in accordance with the provisions of section 75 of the Companies Act no 71 of 2008. None of the Board members hold securities in the Group which are deemed to be material to their personal wealth. Two of the independent non-Executive Directors hold minor equity interests in Massmart. The Directors’ interests are disclosed on an annual basis in the Directors’ Report contained in the Integrated Annual Report.

    Directors of the Board are subject to, and participate in annual formalised assessments conducted by the Company Secretary. The annual assessment considers and evaluates the performance of each Director having regard to their technical knowledge, skill-set and experience and further considers the effectiveness of each participant in their role on the Board and its Committees. The 2018 annual Board assessments results indicate that all members of the Board are adequately and suitably equipped with knowledge, skills and experience to discharge of their duties and do so effectively, and that the Board and its Committees are all comprised of an encouraging mix of skills and varied experiences. The abridged curriculum vitae of each Director and the Company Secretary appear on the Massmart website.

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    Principle 8:
    The governing body should ensure that its arrangements for delegation within its own structures promote independent judgement, and assist with balance of power and the effective discharge of its duties.

    By conducting annual self-assessments, the Board aims to ensure the effectiveness of Board structures and governance procedures. The Board actively delegates its authority to the five sub-Committees and the Executive Committee in accordance with the scope and mandate prescribed in their respective charters. These include the charters for the Audit, Risk, Nominations, Remuneration and Social and Ethics Committees. All Board sub-Committee charters deal with the respective sub-Committee roles, duties, functions, responsibilities, mandate required composition, objectives, purpose and activities, delegated authorities – including the extent of power to make decisions, tenure and reporting mechanisms to the Board.

    Whilst the Board of Directors delegates its authority to the five sub-Committees and the Executive Committee, the ultimate authority and responsibility vests with the Board and any responsibilities which have not been delegated to the sub-Committees remain the responsibility of the Board. The minutes of the sub-Committee meetings are included in the Board pack for deliberation and noting. The Board further reviews and approves sub-Committee charters annually. The Board is able to monitor the matters dealt with by the sub-Committees through attending the sub-Committee meetings as members or invitees, and the reports of the respective sub-Committee chairs are shared with the Board on a quarterly basis. Additionally, the minutes of the sub-Committee meetings are further included in the Board pack for deliberation and noting. Each Chairman provides verbal feedback at the quarterly Board meetings.

    The Board and sub-Committee charters enable cross membership between the Board and its sub-Committees which in turn requires coordinated timing of meetings to avoid duplication or fragmented functioning, insofar as possible, and consequently the Board is able to achieve effective collaboration. There is a balanced distribution of power in respect or membership across Committees, so that no individual has the ability to dominate decision-making, and no undue reliance is placed on any individual. Massmart’s Board charter ensures that a relevant system of policies and procedures is in place to ensure control and the devolution of authority and responsibility to individuals as identified and delegated.

    Each of the five Massmart Board sub-Committees comprise no less than three members and the Board sub-Committee meetings are attended by senior management, as-and-when invited. Some members of the Executive Committee have standing invitations to certain sub-Committee meetings. Senior management’s attendance at Board sub-Committee meetings is disclosed in the Integrated Annual Report.

    Audit Committee

    The Audit Committee oversees the continued application of a combined assurance model which provides a coordinated approach to all assurance activities and ensures that the combined assurance received from management and internal and external assurance providers, is sufficient to address all identified significant risks. The Audit Committee also oversees the internal financial controls and any reporting, fraud and IT risks that may affect the integrity (i.e. accuracy and reliability of information) of the Integrated Annual Report and other external reports within its mandate. The Audit Committee manages the relationship with the Group’s internal and external auditors and assesses their independence and effectiveness.

    Risk Committee

    A Risk Committee has been established and the Board has allocated to it the responsibility of oversight of the risk management and governance. The Audit and Risk Committees are separate committees and there is cross-functionality of its members.

    Remuneration Committee

    A Remuneration Committee has been constituted and the Board has allocated to it oversight on the Group remuneration policies and protocols.

    Nominations Committee

    The Nominations Committee has been delegated the responsibility of nominating, electing and appointing Board members and Executive management.

    Social and Ethics Committee

    The Board has allocated to the Social and Ethics Committee the responsibility for overseeing and reporting on ethics, employment equity, transformation, responsible corporate citizenship, sustainable development, health and safety and stakeholder relationships. It is also responsible to execute on its statutory duties as set out in the Companies Act.

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    Principle 9:
    The governing body should ensure that the evaluation of its own performance and that of its committees, its chair and its individual members, support continued improvement in its performance and effectiveness.

    On an annual basis, the Board and its sub-Committees undergo an informal, internally conducted assessment navigated by the Company Secretary. The 2018 assessment results indicated that the Board and its sub-Committees were generally satisfied with the performance of the Board and sub-Committee respectively. An assessment of further conducted on the Chairman, Kuseni Dlamini and the results indicated that Kuseni Dlamini was a strong chairman who was not conflicted on any decisions made during the year. Some of the key focus areas highlighted during the 2018 assessments include: improving human capital and elements of succession planning; increasing the Board’s access to personnel and management in order to understand key business issues; and the manner in which unanticipated Board and Committee vacancies are dealt with. The Board and its sub-Committees were positive about the impact of the annual self-assessment and its purpose in improving and contributing to effectiveness.

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    Principle 10:
    The governing body should ensure that the appointment of, and delegation to, management contribute to role clarity and the effective exercise of authority and responsibilities.

    Massmart operates under a formal Delegation of Authority (“DoA”) framework, which is reviewed and updated by the Board on an annual basis. The DoA sets the direction and parameters for the authority and powers which are to be reserved for the Board and those that are to be delegated to the Executive Directors (the Group CEO and Group CFO) and management. The framework defines the Board’s level of materiality and approval thresholds and is clear in instances in which the Board’s authority is reserved. The Executive Committee manages and oversees the day to day affairs of the Group in line with the delegated authority conferred on them by the Board and key executives of Massmart’s major subsidiaries lead and oversee key operational and management functions of the operating subsidiaries in line with the Group’s strategic, operational and financial objectives.

    The Board is satisfied that the powers and responsibilities delegated to the Executive Directors, in particular the Group CEO, Guy Hayward are clear and effectively discharged, and that the Group CEO provides effective leadership and management of the Group business affairs and he is accountable to and reports to the Board on a regular basis within the scope of his service contract.

    The Group CEO’s overall responsibility is to lead the Company effectively and implement the policies and strategies adopted by the Board. The CEO chairs the Massmart Executive Committee and the Boards of each of the four divisional Management operating Committees thereby serving as the chief link between management and the Board. Whilst the Group CEO does not have a fixed-term contract, he is contractually bound by a notice period of twelve months.

    The Board is assisted by a competent, suitably qualified and experienced Company Secretary, Joe Ralebepa, who is appointed by the Board. As Group Company Secretary employed by Massmart on a full-time basis he is empowered to properly fulfil his duties inter alia, including those statutory obligations set out in section 88 of the Companies Act 71 of 2008. Joe Ralebepa also serves as the Group Legal Executive and General Counsel, and with his varied legal, commercial and corporate governance experience spanning 20 years, he is duly equipped to provide professional corporate governance advice to the Board and its sub-Committees. In its annual assessment of the Company Secretary, the Board is satisfied that it has an arm’s length relationship with the Company Secretary, notwithstanding the access to guidance and counsel the Board enjoys from the Company Secretary, and he has the necessary qualification, competence and expertise required of a company secretary Measures are in place for the Board to assess adherence to the DoA and delegated executive management responsibilities, including regular review of prevailing governance protocols and risk management processes. The Risk Committee serves as an independent source of assurance for the Board in relation to adherence to the DoA and other governance protocols.

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    Principle 11:
    The governing body should govern risk in a way that supports the organisation in setting and achieving strategic objectives.

    Through its risk framework, the Board takes responsibility for ensuring that the Group implements an effective process to anticipate and identify risk, measure its potential impact and implement steps it believes are necessary to proactively manage associated risks and identify opportunities. When approving Massmart’s strategy, the Board takes into consideration the strategic opportunities available and the related risks associated with its strategy.

    The risk policy includes all of the following: Massmart’s definitions of probabilities and risk management; risk management objectives; the risk approach and philosophy; and the various responsibilities and ownership for risk management within Massmart, which enable the achievement of organisational objectives.

    Massmart’s risk framework encompasses both the potential positive and negative effects of identified risks on the achievement of the organisational objectives; this is documented in the risks and opportunities framework. The Board considers operational; strategic; regulatory; financial and reputational risks in executing its duties and considers risk as an integral part of its decision-making. In considering the potential loss appetite of the organisation, the Board is mindful of the following factors: the cause of the risk; the amount of the loss; the impact and management response; any current or envisaged risks threatening Massmart’s sustainability, and the effectiveness of its risk management controls.

    The significant opportunities available to Massmart are determined by taking the following qualitative elements into consideration: Massmart’s definition of purpose; the internal and external risks affecting Massmart; how Massmart streamlines its processes and behaviours to be more responsive to customer demands; and opportunities to maximise stakeholder value in the most efficient manner.

    The Board, through the Massmart Chief Information Officer (CIO) Forum, ensures that adequate contingency plans are in place to ensure business continuity in the event of the destruction of major assets, head offices, IT sites, and/or loss of executive teams. These include, but are not limited to formal Divisional Business Continuity Plans; significant focus on IT back-up and redundancies; off-site documentation storage and retention; and cyber and IT security.

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    Principle 12:
    The Board should govern technology and information in a way that supports the company setting and achieving its strategic objectives.

    The Board is responsible for ensuring proper system security, data integrity and disaster recovery, but this is given effect by the Audit Committee, the Massmart Chief Information Officer Forum (CIO Forum) and Massmart’s formally contracted Information Technology (IT) business partners and service providers. There is a comprehensive information and technology framework in place that outlines the structures processes and mechanisms that will enable the delivery of value to the business and reduce information and technology risks.

    Massmart aligns its IT teams with best practice frameworks including the Information Technology Information Library (ITIL), Control Objectives for Information Technology (COBIT) and National Institute of Standards and Technology (NIST). Measures are in place to ensure compliance with all relevant laws, information security and the protection of personal information. The CIO Forum is tasked with ensuring proper system security, data integrity and disaster recovery. Through its link into Walmart Information Technology and Information Security Departments, Massmart receives daily and weekly updates regarding any concerns and security threats that are identified internationally.

    This information is shared with Massmart’s Divisions through the Divisional IT Operations Managers. Active network monitoring and profiling is managed through industry best-practice tools and firewall traffic is submitted real-time to Walmart’s Security Operations Centre for interrogation.

    As a responsible retailer, Massmart is committed to ensuring that all internal e-waste is discarded in a safe, responsible and secure manner, whereby the risk to human health and the environment is minimised and the security of public and private information is maintained. The Board, through the Risk Committee and Massmart’s Compliance department, oversees the protection of privacy and personal information. To ensure that management keeps abreast of changing regulation, regular Protection of Personal Information (“POPI”) meetings coordinated through the POPI Steering Committee are held by management and advanced POPI training is scheduled for high-risk departments.

    The Board receives independent assurance on the effectiveness of technology and information internal controls from internal and external auditors. Massmart Audit Services (MAS) not only assess the processes and controls around large projects, but also assess the control environment within existing systems and the Group’s general computer control environment. MAS adopted the COBIT methodology for technology auditing several years ago.

    Massmart has acquired cyber security insurance which will assist with reducing the associated cost-impacts related to security incidents. This can also be utilised to assist with the liability exposure for Members of the Board.

    Massmart is committed to the highest level of information and technology governance, as managed by the Group Chief Information Officer (CIO). The Board is satisfied that Massmart complies with the significant governance principles in King IV, and has identified Information and cyber security as an area for future focus.

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    Principle 13:
    The governing body should govern compliance with applicable laws and adopted, non-binding rules, codes and standards in a way that supports the organisation being ethical and a good corporate citizen.

    Massmart’s Delegation of Authority Framework delegates responsibility for implementation and execution of effective compliance management to senior members of management and/or members of the Massmart Executive Committee. The Board ensures compliance with laws and regulations by the Group and the Group’s own governing documents, codes of conduct and legal standards. Massmart has an Ethics and Compliance Management Committee comprising some of Massmart’s Executive Committee members and senior management and they are responsible for embedding compliance within the Group on behalf the Board and this is reported to the Massmart Social and Ethics Committee. The Board approves a legal compliance policy which is implemented by management. By reviewing and approving this policy, the Board sets the direction on the adoption of the Group’s compliance philosophy.

    The Board has oversight over ensuring the Group’s commitment to the principles of good corporate governance and ensuring that compliance is reviewed regularly. This ensures that there is a general understanding of the rights and protections afforded by the compliance measures implemented. Massmart’s Compliance and Ethics Management Committee is responsible for ensuring that the Group embeds its compliance philosophy and approach, as directed by the Board. A central Group Ethics and Compliance function exists which mirrors the Walmart Global Ethics and Compliance Programme as there are also certain legal obligations required of a subsidiary of a United States Company that apply.

    The Board has an overview of the arrangements for governing and managing compliance and the key areas of focus during the reporting period. Through the Risk Committee, the Board determines, on an ongoing basis, what independent assurance is needed to manage the effectiveness of compliance management. The Group’s combined assurance model is one of the tools utilised to regularly assess compliance and risk management. The combined assurance model is applied internally and externally. The Board, through its Risk Committee monitors the tracking of risks and the outcomes thereof. This is the manner in which the Board ensures effective compliance management.

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    Principle 14:
    The governing body should ensure that the organisation remunerates fairly, responsibly and transparently so as to promote the achievement of strategic objectives and positive outcomes in the short, medium and long term.

    The Remuneration Committee assists the Board to oversee a formal and transparent procedure for developing and implementing a fair and responsible policy on remuneration that enables the Group to recruit, retain and motivate talent in order to create value for the Company over the long term. The Remuneration Policy sets out arrangements for ensuring that the remuneration of Executive Management is fair and responsible in the context of overall employee remuneration in the Group. As documented in the Remuneration Policy, the Remuneration Committee is committed to reviewing remuneration at all levels, as well as comparing remuneration between levels, to ensure that progress is made in addressing any inequality identified in the Group, whilst at the same time ensuring that key employees and Executives are remunerated competitively, ensuring internal equity and market competitiveness across all levels. A remuneration gap analysis was conducted during 2018 and remuneration imbalances were addressed and are being remediated by management under the auspice of the Remuneration Committee.

    Massmart’s total reward offering is clearly described and defined in the Remuneration Policy, including an explanation of: base salary, and financial and non-financial benefits; sign-on, retention and restraint payments; termination and severance payments; any commissions and allowances; and a description of the fees paid to the non-Executive Directors. Massmart’s Remuneration Policy defines the Group’s short- and long-term incentives, both of which are aligned to the strategic objectives of the Group. Massmart’s incentive schemes are aligned to the achievement of Group financial and strategic objectives, directly linking this remuneration component to Company financial performance and the sustained creation of shareholder value. The Remuneration Policy sets out the use of performance measures that support positive outcomes across the economic, social and environmental context in which the Group operates. The non-financial metrics include, not in order of importance: the business objective of improvement against the BBBEE score; improved customer satisfaction, addressing team or business unit management succession, food safety, market share gains, completing specific significant projects or interventions, new product category or geographic market developments, etc. This is in line with the Group’s culture and values, whilst aligning remuneration with stakeholder interests and best practice in the retail environment.

    Massmart’s Remuneration report is presented in the three sections in the Integrated Annual Report: Section one serves as a background statement with the Remuneration Committee Chairman’s letter to the shareholders; Section two provides an overview of Massmart’s remuneration philosophy and policy; and Section three reports on Massmart’s implementation of the Remuneration Policy during the year under review.

    Massmart tables its Remuneration Policy and the implementation thereof for two separate non-binding advisory votes at all of its Annual General Meetings. If 25% or more of the shareholders vote against either resolution at the Annual General Meeting, the Board commits to inviting dissenting shareholders to engage with the Remuneration Committee on their concerns. At the 2018 Annual General Meeting, the Remuneration Policy and the implementation thereof were submitted by an affirmative shareholders vote of more than 92%.

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    Principle 15:
    The governing body should ensure that assurance services and functions enable an effective control environment, and that these support the integrity of information for internal decision-making and of the organisation's external reports.

    The Audit Committee, on behalf of the Board, oversees the effectiveness the effectiveness of the Group’s governance and internal control systems and also overseeing the mandates of and ensuring coordination between the activities of internal and external audit. Massmart’s combined assurance model enables an effective control environment; support the integrity of information used for internal decision making by Management and the Board; and supports the integrity of the Group’s external reports.

    Massmart adopts a collaborative approach to risk identification, mitigation and assurance activities between the management of the various Divisions, Head Office support functions and internal and external assurance providers. The Divisional risk committees give feedback on their significant risks and material matters to the Risk Committee, who ultimately own and manage risks, and in turn give feedback to the Board thereon.

    The Board, through the Risk Committee, objectively reviews the Group’s combined assurance model bi-annually, forming an opinion on the integrity of information and reports, and the degree to which an effective control environment has been achieved. An important role of Massmart’s Audit Committee, as delegated by the Board, is to monitor and supervise the effective function of Massmart Internal Audit Services (“MAS”) to provide an objective overview of the operational effectiveness of the Group’s systems of internal control and reporting. The Board, through Massmart’s Audit Committee, reviews and approves the MAS internal audit charter, internal audit coverage plan and budgets and satisfies itself that the coverage plan makes provision for effectively addressing, the critical risk areas of the business, including addressing its role within combined assurance and the internal audit standards to be adopted.

    It further ensures that the arrangements for MAS provide for the necessary skills and resources to address the complexity and volume of risk faced by the Group, and that MAS is supplemented as required by specialist services such as those provided by forensic fraud examiners and auditors, safety and process assessors, and statutory actuaries. The Chief Audit Executive has unrestricted access to anyone in the Group, has frequent and independent discussions and updates with the Audit and Risk Committee Chairmen and Massmart Executive Directors.

    MAS apply the standards of the International Standards for the Professional Practise of Internal Auditor and the recommendations of King IV. In accordance with the International Standards for the Professional Practise of Internal Audit standards, it has been determined that MAS will be subjected to an independent external quality assessment review at least once in five years.

    The Board and its sub-Committees assume responsibility for the integrity of the Group’s issued external reports, and through the Audit Committee sets the direction for how assurance of the external reports should be approached and addressed. Massmart has obtained assurance on the data included in the Integrated Annual Report from the following sources:
    • Group and Company Annual Financial Statements were audited by Ernst & Young Inc.
    • Emissions data was externally verified by GCX Africa
    • Massmart’s BBBEE scorecard were verified by Honeycomb BEE Ratings Proprietary Limited
    • Key compliance, Corporate Social Investment (CSI) and human capital performance indicators were assured by Massmart Audit Services (MAS)

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    Principle 16:
    In the execution of its governance role and responsibilities, the governing body should adopt a stakeholder-inclusive approach that balances the needs, interests and expectations of material stakeholders in the best interests of the organisation over time.

    Massmart is committed to saving customer’s money so they can live better. Our ability to fulfil this commitment is dependent on the transparent trust-based relationships we build with our customers, employees, shareholders, suppliers, regulators and the communities in which we operate. The Board, through the Social and Ethics Committee, is responsible for the governance of stakeholder relationships by providing guidance on stakeholder engagement policies and monitoring the quality of stakeholder relationships.

    Management develops a strategy and formulates policies and mechanisms for the management of relationships with each stakeholder grouping. Through regular reporting by management to the Social and Ethics Committee and the Chairperson of that Committee to the Board, the Board is equipped with the necessary information to enable it to take the legitimate interests and expectations of our material stakeholders.

    In order to identify relevant issues we use the following forms of engagement: we conduct desktop research to identify topics of interest in the broader public discourse; we track media coverage to understand leading public viewpoints; we assess the materiality of these issues to the Group through workshops and engagement with subject matter experts and interested parties; and we review alignment to broader Group objectives and priorities.

    Stakeholder engagement activities occur on an ongoing basis throughout the year. Massmart participates in numerous one-on-one meetings with key stakeholders groupings and undertakes regular engagements and themed discussions with subject matter experts. Massmart seeks opinion from customers and suppliers through its intercept and advocacy surveys. Engagement however occurs as needed throughout the year. Engagement with employees occurs through regular interactions, performance review and career planning discussions, CEO road-shows and the BUA employee engagement survey. Massmart actively engages trade unions and bargaining councils on industrial and labour relations. Through its Corporate Affairs Function, Massmart is involved in public policy discussions with government and civil society representatives, and engage consumer interest groups. Engagement and facilitated discussion with regulators and industry bodies in respect of legislative developments are regularly had. Furthermore, Massmart, through its Executive Management engages with shareholders through investor presentations, meetings and road-shows, as well as during the Annual General Meetings.