It has become increasingly important to understand the impact of governance and risk management on the context in which financial results are achieved. By applying the King IV Code on Corporate Governance for South Africa, 2016 (King IV) we aim to achieve good corporate governance that protects and creates value, and ensures ethical, effective and responsible leadership at Board and Executive level and throughout our Group. It also promotes strategic decision-making that balances short, medium and long-term outcomes, integrity, transparency and robust risk and performance management; and supports the embedding of an ethical culture and a response to our role as a responsible business that goes well beyond compliance
The Board’s collectively responsibility for its primary governance role
Our governance structures
The Massmart Group Corporate Governance Framework embeds and codifies Massmart’s application of corporate governance standards and principles which originate from its application of legislative requirements, King IV and global standards. The Framework is also intended to ensure that Massmart embraces continuous performance improvement throughout the organisation, while striving to meet its governance obligations and, simultaneously, adhering to legislative requirements. Massmart’s governance and delegation structures position our Board as the custodian of corporate governance, and provide a solid foundation for our application of King IV with a focus on achieving the four corporate governance outcomes of an ethical culture, good performance, effective control and legitimacy.
The facilitate independent judgement, the leveraging of directors’ specialist skills and experience, and the sustainable execution of our Board-approved strategy. They also facilitate the delegation of authority to the Board Committees, the Chief Executive Officer, the Executive Committee and operational management, who all have clearly defined mandates. Our application of King IV is a commitment on Massmart’s part to stakeholder inclusivity, responsible corporate citizenship and protecting value.
Our Board retains specific powers with regard to strategic planning, risk and opportunity management (including the setting of our risk appetite and risk tolerances), financial controls, compliance, oversight and compensation of executive management, talent management and succession planning, social responsibility, environmental and climate change.
Our governance structures and operational forums support a transparent organisational structure and clear lines of responsibility. Our operational forums include the: Liquor Forum, Marketing Forum, Africa Forum, Real Estate Forum, Supply Chain Forum, Food Forum, General Merchandise Forum, CIO Forum, IT Governance Committee, Senior Legal Forum, Finance Leadership, HR Forum and Ethics and Compliance Committee Forum.
The members of the Audit Committee are all independent Non-Executive Directors, while the Risk Committee membership consists of three independent Non-Executive Directors and two Executive Directors and the membership of both the Nominations and Remuneration Committees consists of two independent Non-Executive Directors and one non-independent Non-Executive Director, while the membership of the Social and Ethics Committee is made up of one independent Non-Executive Director, one non-independent Non-Executive Director and one executive Director.
The Board of Massmart and its Executive team work together to create economic value for all our stakeholders in the short, medium and long term by delivering on our purpose of Saving our customers money so they can live better by stabilising, focusing, growing and ultimately optimising our business. The Board uses its meetings to discharge its duties in terms of the Companies Act, the JSE Listings Requirements, King IV and legislation relating to our business. The Board meets quarterly to consider reports on operating and financial performance; risks and opportunities and compliance; the results of our efforts to embed an ethical culture in Massmart, safety and health performance, environmental performance and climate change mitigation and our social performance. We also monitor the macro environment and its potential impact on our business.
Oversight rooted in the King IV principles
The Board’s governance oversight, which is guided by is commitment to its responsibilities and governance objectives, supports good governance practices.
JSE 3.84 (i)
Leadership, ethics and corporate citizenship
The Board sets the tone and leads the Group ethically, effectively and responsibly. When making decisions, individual Board members will ensure they are well-informed, they will act independently, with courage, awareness and insight, and will manage conflicts of interest if any arise. The Board will ensure the Group plays a key role in society as a major employer, tax payer, contributor to transformation and economic growth, and as a responsible corporate citizen. Information on the progress we have made with the embedding of an ethical culture in the Group is provided here.
The balance of knowledge, skills, experience, diversity and independence, that the Board requires in order to discharge its governance role and responsibilities objectively and effectively are set out on page 25 of this report. Our Nominations Committee monitors and provides oversight of our Board diversity policy, which includes gender and racial targets.
The Board oversees the process of nominations and appointments of new directors for which a policy and procedure exists and is applied, as required, to ensure leadership aligns with the demands of the business. Charles Redfield was nominated for appointment as a Non-Executive Director of the Board, effective 25 February 2020.
Our Code of Ethical Conduct, a revised version of which was launched as the Code of Conduct on 1 February 2021, applies to the Board of Directors and all our associates. It ensures that all conflicts of interest are declared, disclosed and managed, where required. The Company Secretary maintains a register of directorships and shareholdings, as well as a conflict of interest register. No conflicts of interest were noted in the current year at a Board level.
Strategy, performance and reporting
The Board is accountable for Massmart’s performance. It takes into account all the elements of the value creation process when steering and setting Massmart’s strategic direction. It approves short, medium and long-term strategies and business plans. It maintains oversight of the Group’s performance against its strategy and business plans, measuring its performance against agreed targets.
The Board also assumes responsibility for Massmart’s Integrated Annual Report and Annual Financial Statements and makes every effort to ensure that our reporting meets the needs of our stakeholders and complies with any legal requirements.
Information on required disclosures are to be found in this Integrated Annual Report, our Annual Financial Statements and a summary of our financial performance.
Governance designed to establish an ethical culture
In the current environment the governing of ethics in a manner that supports the establishment of an ethical culture in Massmart remains a challenge. The Audit, Risk and Social and Ethics Committees are mandated to monitor and manage ethics, fraud and corruption in the Group. In addition, the Executive Committee established a management sub-Committee, the Ethics and Compliance Committee to oversee the Group’s ethics and compliance programme. An Operational Ethics Forum was established to provide guidance on the operationalising of ethic within Massmart. The membership of the forum, which meets quarterly, includes key stakeholders from the business and is chaired by the Massmart Group Ethics Executive. It implemented various campaigns during 2020, which addressed subjects such as fraud, theft, financial integrity, conflict of interest and confidentiality. An Ethics Forum was also established in May 2020, which convenes biannually, it is chaired by the Massmart Chief Ethics and Compliance Officer. The initiatives driven by the Operational Ethics Forum and other ethics initiatives feed into this forum. Its members critically assess these initiatives and, where applicable, recommend areas for improvement. Both of these Forums report to the Social and Ethics Committee.
The Operational Ethics Forum critically evaluates the results of associate surveys used to measure ethical performance and implements measures to address concerns raised by associates. In 2021 the Ethics Institute will be conducting an Ethical Culture Assessment at Group Level, which should provide us with feedback that identifies opportunities for enhancing the ethics culture in Massmart.
During the year under review our Code of Ethical Conduct was reviewed and a revised version renamed Code of Conduct was launched on 1 February 2021.
All calls reporting possible unethical behaviour are overseen by Ethics case managers and, where necessary, are investigated by Massmart’s Forensic Services Department and external service providers. We are experiencing an increase in the number of reporters willing to disclose their contact details, which signals increasing confidence in the protocols we have in place in this regard.
Board delegation and independence
JSE 3.4 (a and b)
The Board ensure that its arrangements for delegation within its own structures promote independent, judgement and assist with the balance of power and the effective discharge of its duties.
Through the appointment of strong independent directors and the separation and clear definition of the roles and responsibilities of the Chair and Chief Executive Officer, Massmart has established a clear balance of power and authority at Board level. Our Chief Executive Officer in turn delegates responsibilities in accordance with the Company’s delegation of authority framework. The Board is satisfied that the delegation of authority framework contributes to role clarity and the effective exercising of authority and responsibility.
We have ensured that the interests of our shareholders are protected by the majority of our Board members being Non-Executive Directors with half being independent Non-Executive Directors.
Our Board performs its duties within a framework of policies and controls that provide for effective risk assessment and management of our economic, environmental and social performance. The Massmart Board Charter, which is closely aligned with the recommendations of King IV, details the responsibilities of the Board, while our Memorandum of Incorporation (MOI) also addresses certain of the Directors’ responsibilities and powers. Our MOI also requires that one third of our Directors retire from office at every Annual General Meeting based on their tenure since they were previously elected or re-elected to the Board where the Directors standing have been identified and notes of the notice of the Annual General Meeting. The Board Charter is regularly reviewed to assess whether or not it needs amending.
In October of each year the Nominations Committee facilitates a comprehensive self-assessment of the Board and its Committees. The assessment covers their composition, duties, responsibilities, processes and effectiveness. It includes an appraisal of the Chair, individual Board members, permanent invitees, the Chief Executive Officer and the Chief Financial Officer. It also includes an assessment of the independence of Non-Executive Directors who have served on the Board for a period of nine years or more. The Committee concluded that while Ms Langeni and Ms Gwagwa have both served on the Board for over nine years they have maintained their independence.
In 2020 an external Board evaluation was conducted following which action plans were put in place to enhance the performance of the Board and its Committees.
The Company Secretary also facilitates an annual evaluation of the performance and effectiveness of the Chair, the Board and its Committees and individual members by means of an internal evaluation process.
Evaluating the Board’s performance and the performance of its members in terms of the application of the King IV principles provides our Board with a mechanism with which to assess its governance performance. The results of this assessment are used to address any gaps in performance identified and to enhance the Board’s effectiveness.
Our Board is committed to fully complying with all applicable laws and regulations, and it supports the application of certain non-binding codes and standards. Our combined assurance framework and our regulatory risk management process ensure that the effectiveness of the key internal controls to mitigate our compliance risks are continually monitored and that risk management plans are in place to ensure compliance with new legislation or amendments to current legislation. Massmart complied with the JSE Listings Requirements, MOI and Companies Act during the year under review.
Remuneration that is fair and promotes the achievement of our strategic objectives
Massmart understands that it is essential that our strategy, risks, performance and rewards are aligned if we are to create shareholder value. The Remuneration Committee is charged with ensuring that Executive Directors and senior management are fairly rewarded for their individual contributions to the Group’s overall performance, and for ensuring that our remuneration policies and practices are designed to align performance with reward and to attract and retain the right talent, while having regard to the interests of stakeholders and the financial conditions of Massmart. See our remuneration section of this report for our remuneration review, which sets out our remuneration philosophy, policy and structure, our efforts to achieve fair and responsible remuneration, our engagement with shareholders on our remuneration reporting, and the implementation report which sets out the implementation of our Remuneration Policy.
Enabling an effective control environment
JSE 3.84 (g)
To ensure Massmart has adequate structures in place to provide assurance across the Group and to prevent gaps or duplication in assurance efforts, we have adopted a combined assurance approach.
The Audit Committee obtained assurance on the financial statements and internal financial controls and carried out its statutory duties as set out in section 94 of the Companies Act. It satisfied itself as to the expertise and experience of Massmart’s Chief Financial Officer and the finance function, and assessed the independence and performance of the internal and external audit functions (see the Audit Committee report of the Annual Financial Statements).
External audit quality and independence
In accordance with paragraph 3.84 (g) (iii) and 22.15(h) of the JSE Listings Requirements, the Audit Committee requested and received information from Ernst & Young Inc (EY) that allowed it to assess the credentials as a registered audit firm in good standing, including the appointed audit partner, Roger Hillen. The information also supported an demonstrated its claim of independence; the findings by the Independent Regulatory Board of Auditors with regard to its monitoring of the firm in respect of its independence, quality control and any corrective action by the firm; as well as any legal claim against the firm. Similarly, information was obtained and discussed in respect of the designated auditor. The Committee concluded that it was satisfied with the independence and audit quality of EY and the designated auditor, Roger Hillen.
External audit fees are disclosed within note 06 to the Annual Financial Statements. Non-audit services (disclosed in the Audit Committee report included as part of the Annual Financial Statements) provided by EY were approved by the Committee in accordance with the policy for the provision of non-audit services.
The Risk Committee evaluates the effectiveness of internal controls and control processes and determines what independent assurance is requires to manage and mitigate risk across the Group, including in relation to compliance, tax, information technology, financial controls and addressing statutory and regulatory issues.
The Social and Ethics Committee advises and provides guidance to the Board on the effectiveness of management effort in respect of social, ethics, sustainable development-related matters and transformation. It also carries out its duties in terms of the Companies Act and reports on the fulfilment of its mandate in this regard to the Board and stakeholders.
By identifying the Group’s stakeholders through engagement and taking into consideration out stakeholders’ interests, needs and expectations, our Board and management achieve stakeholder inclusivity and contribute value to both the business and its stakeholders (see here for more information). By effectively governing Massmart through its oversight and monitoring of performance, and taking into consideration our stakeholders’ interests, our Board and management contribute value to both Massmart and its stakeholders.
JSE 3.84 (h)
The Company Secretary is appointed in accordance with the Companies Act. The Board considered the Company Secretary’s competence, qualifications and experience and is satisfied that he is competent and has appropriate qualifications and experience to serve as the Company Secretary.