corporate governance report

Introduction

New Clicks strives to achieve the highest standards of corporate governance to protect the interests of the company and its stakeholders. Recognising that governance is fundamental to business ethics and a key component of equity performance, the group embraces the principles of integrity, transparency and accountability in its dealings with stakeholders.

The group endorses the Code of Corporate Practices and Conduct contained in the King Committee Report on Corporate Governance (King ll). The directors believe New Clicks complies with both King ll and the Listings Requirements of the JSE Limited.

New Clicks is also committed to adopting practices which contribute to the long-term sustainability of the business and the broader society in which it operates. The groupís performance and its relationship with stakeholders on social, economic and environmental issues is outlined in the Sustainability Report.

Governance and compliance

The Governance committee of the board is responsible for ensuring compliance with King ll and monitors governance practices across the group. Governance structures and processes are regularly reviewed to ensure alignment with best practice. During the year the governance process was enhanced through the following:

  • The board meeting structure was reviewed and each of the four board meetings assigned a primary purpose;
  • The number of Audit committee meetings was increased from two per year to four. Two of the meetings are dedicated to interim and final results and external audit report backs, while the other meetings focus primarily on internal audit issues;
  • The charter of the Audit committee was aligned with the requirements of the Corporate Laws Amendment Act which, although promulgated, has not yet been implemented; and
  • Legal compliance was strengthened with the appointment of an in-house legal adviser who also functions as a legal risk manager.

Board of directors

Board composition

New Clicks has a unitary board structure with nine directors, including three full-time executive directors and six non-executive directors. For biographical details of the directors click here.

During the year Roy Smither was appointed as an independent non-executive director and Eliot Osrin, the longest-serving director on the board, did not make himself available for re-election at the annual general meeting.

Five of the six non-executive directors, including the chairman, are independent in terms of both the King ll definition and the guidelines outlined in the JSE Listings Requirements. The remaining non-executive director, Professor Peter Eagles, provides specialist consulting services to the group and is therefore not classified as independent. As the majority of non-executive directors are independent, this provides the necessary objectivity for the effective functioning of the board.

The roles of the independent non-executive chairman, David Nurek, and the chief executive officer, David Kneale, are separate and clearly defined. This division of responsibilities at the helm of the company ensures a balance of authority and power, with no one individual having unrestricted decision-making powers.

The non-executive directors have extensive business experience and specialist skills across a diverse range of sectors, including accounting, law, retailing, pharmacy and human resources. This enables them to provide balanced and independent advice and judgement in the decision-making process.

Non-executive directors have direct access to management and may meet with management independently of the executive directors.

The company has no controlling shareholder or group of shareholders and there is no direct shareholder representation on the board.

The board meets at least four times a year and additional meetings are convened to consider specific business issues which may arise between scheduled meetings. During the year the board met five times.

Board charter

The scope of authority, responsibility, composition and functioning of the board is set out in a formal documented charter which is regularly reviewed. The directors retain overall responsibility and accountability for:

  • Developing and adopting strategic plans;
  • Monitoring operational performance and management;
  • Ensuring effective risk management and internal controls;
  • Legislative and regulatory compliance;
  • Approval of significant accounting policies and annual financial statements;
  • Selection, orientation and evaluation of directors;
  • Appropriate remuneration policies and practices;
  • The ongoing sustainability of the business; and
  • Balanced and transparent reporting to shareholders.

Board appointment

Directors do not have a fixed term of appointment.

One third of the directors are required to retire by rotation each year and are eligible for re-election by shareholders at the annual general meeting. Executive directors are subject to an 18 month notice period in terms of their contracts of employment. Executive directors retire at the age of 65, while there is no prescribed retirement age for non-executive directors.

Newly-appointed directors undergo a formal induction programme which outlines their fiduciary duties and provides an in-depth understanding of the group and its operations.

Group executive committee

Executive management and the board work closely together in determining the strategic objectives of the group. Authority has been delegated by the board to the chief executive officer and the group executive for the implementation of the strategy and the ongoing management of the business. The directors are apprised of progress through reporting at board meetings and regular communications with management. The group executive committee consists of the three executive directors and the group human resources director.

Company secretary

The company secretary is responsible for ensuring that board procedures and all relevant regulations are fully observed. He also provides guidance to the directors on governance, compliance and their fiduciary responsibilities.

All directors have unrestricted access to the advice and services of the company secretary. They are entitled to seek independent professional advice at the company’s expense after consultation with the chairman of the board. No directors exercised this right during the year. Directors also have unrestricted access to all company information.

The company secretary co-ordinates the induction programme for newly-appointed directors as well as the board assessment process. The appointment and removal of the company secretary is a matter for the board and not the executive management.

Board evaluation

An annual evaluation is undertaken by the directors which includes an assessment of the performance of the board, the chairman, the chief executive officer, individual directors and all board committees. The results of these reviews are discussed with each director and the chairmen of the board sub-committees.

A number of changes were made to board processes in response to issues identified in the board evaluation.

Board and committee structure

  • All board committees are chaired by independent non-executive directors;
  • Committees have clearly-defined mandates which are reviewed annually;
  • The directors confirm that the committees have functioned in accordance with these written terms of reference during the financial year;
  • Detailed terms of reference for each committee are available on the New Clicks website.


Click to enlarge

Audit committee

Role
Ensure that management has created and maintained an effective control environment in the group.

Functions

  • Review and approve the appropriateness of accounting and disclosure policies in the annual financial statements and related financial reporting;
  • Assess the effectiveness of internal controls;
  • Review actions taken on major accounting issues;
  • Oversee the functioning of the internal audit department, which reports to the audit committee;
  • Ensure no limitations are imposed on the scope of the internal and external audits;
  • Confirm the nomination and appointment of the group’s auditors and be satisfied that the auditors are independent;
  • Approve the terms of engagement and fees paid to the auditors;
  • Ensure the appointment of the auditor complies with all legislation relating to the appointment of auditors;
  • Determine the nature and extent of any non-audit services which the auditors may provide to the company; and
  • Ensure that any non-audit services provided to the company by the auditors are pre-approved by the audit committee.

Composition
Three independent non-executive directors. Executive directors, finance and internal audit staff, as well as the external audit partners and staff, attend meetings at the invitation of the committee. The committee also meets separately with the external auditors and internal audit.

Meetings
Four meetings per year.

Remuneration committee

Role
Ensure the group has a competitive remuneration policy to attract, retain and reward quality staff.

Functions

  • Ensure that the group has a remuneration policy which is aligned with the group strategy and performance goals;
  • Assess and review remuneration policies, employee long-term incentive schemes and performance bonuses;
  • Approve the remuneration of executive directors and senior management;
  • Propose fees for non-executive directors, which are tabled for shareholder approval at the annual general meeting; and
  • Determine executive and staff participation in the long-term incentive schemes.

Composition
Three independent non-executive directors and a non-executive director. The chief executive officer attends by invitation.

Meetings
Three meetings per year.

Risk committee

Role
Assist the board in ensuring material compliance with the principles of risk management as outlined in King ll by assessing the risk management processes and procedures implemented and managed by management.

Functions

  • Review risk management processes;
  • Assess the risk tolerance levels of the business;
  • Review the risk philosophy, strategies and policies;
  • Evaluate the basis and adequacy of insurance cover;
  • Ensure that internal audit is aligned with risk management processes; and
  • Identify emerging areas of risk.

Composition
Three independent non-executive directors, a non-executive director, the chief executive officer and the chief financial officer.

Meetings
Three meetings per year.

Governance committee

Role
Monitor compliance with King ll and all other relevant regulatory requirements and recommend best governance practices to be incorporated into the business.

Functions

  • Formalise board and company governance structures;
  • Enhance levels of governance at board and company level;
  • Identify areas of non-compliance and propose remedial action; and
  • Ensure ongoing compliance with good governance principles.

Composition
The chairman of the board, the chief executive officer and chief financial officer.

Meetings
One meeting per year.

Nominations committee

Role
Ensure optimal functioning of the board, oversee the composition of the board, the appointment of directors and succession planning.

Functions

  • Advise on the composition of the board, review the board structure, size and balance between non-executive and executive directors;
  • Identify and recommend qualified candidates for directorships;
  • Ensure that the board has an appropriate balance of skills, experience and diversity;
  • Co-ordinate the board evaluation process;
  • Ensure effective succession plans are developed for senior management; and
  • Ensure that the performance of the board, individual members and sub-committees is reviewed formally and regularly.

Composition
Three independent non-executive directors. The chief executive officer attends by invitation.

Meetings
Two meetings per year and ad hoc meetings as required.

Transformation committee

Role
Monitor progress on strategic empowerment, including employment equity and affirmative procurement, as well as compliance with transformation codes.

Functions

  • Ensure appropriate short- and long-term targets are set by management;
  • Monitor progress against targets; and
  • Monitor changes in the application and interpretation of empowerment charters and codes.

Composition
Two independent non-executive directors, a non-executive director and two executive directors. The group human resources director attends the meetings along with other members of operational management.

Meetings
One meeting per year.

Board attendance

  Board Audit Remuneration Risk Governance Nominations Transformation
Number of meetings 5 4 3 3 1 2 1
David Nurek 5 4 3 1 2 1
Peter Eagles 4 3 3 1
Robert Lumb 5 3 3 2
Eliot Osrin* 2/2 1/1 0/1
Martin Rosen 5 3 3
Roy Smither 3 3 1
Lucia Swartz 3 3 2 1
David Kneale 5 3 1 1
Michael Harvey 4 1
Keith Warburton 5 2 1
% attendance at meetings 87 85 100 79 100 100 100
               
* Retired with effect from 30 January 2007

Internal accountability

Risk management

The board, through the Risk committee, is responsible for setting risk policies, risk tolerance levels and ensuring that appropriate risk management processes have been implemented by management. Further details are contained in the Risk Report.

Internal audit

Internal audit is an independent, objective appraisal and assurance function which is central to the group’s governance structures. The role of internal audit is contained in the Audit committee charter and the internal audit charter. Internal audit encompasses the review of the

  • Effectiveness of the systems of internal control;
  • Means of safeguarding assets;
  • Reliability and integrity of financial and operating information;
  • Efficient management of the group’s resources;
  • Efficient conduct of the operations; and
  • Compliance with applicable laws and regulations.

TThe internal audit function reports to the Audit committee and has the support of the board and management. Operationally, the internal audit manager reports to the chief financial officer who in turn reports to the chief executive officer. The internal audit manager has direct and unrestricted access to the chairman of the Audit committee. The head of internal audit is appointed and removed by the Audit committee, which also determines and recommends remuneration for the position.

Internal control

The board is accountable for systems of internal control which are designed to provide reasonable – but not absolute – assurance of the accuracy of financial reporting and the safeguarding of assets.

The Audit committee has reviewed the effectiveness of the systems of internal control. The board is satisfied that management has a system of controls and procedures of a high standard to ensure the accuracy and integrity of the accounting records and to effectively monitor the group’s businesses and performance.

No incidents have come to the attention of the board that would indicate any material breakdown in these internal controls during the year.

Personal share dealings

The group’s insider trading policy precludes directors and staff from trading in New Clicks Holdings shares during two formalised closed periods. These closed periods run from the end of the interim and annual reporting periods until the financial results are disclosed on the Securities Exchange News Services (ENS).

Embargoes can also be placed on share dealings at any other time if directors or executives have access to price sensitive information which is not in the public domain.

Directors are required to obtain written clearance from the chairman prior to dealing in the company’s shares. The chairman is required to obtain approval from the chairman of the Audit committee before undertaking any share dealings. It is also mandatory for directors to notify the company secretary of any dealings in the company’s shares. This information is then disclosed on SENS within 48 hours of the trade being effected. These dealings are also reported retrospectively at board meetings.

Ethical behaviour and values

The group subscribes to the highest ethical standards of business practice. A set of values and behavioural principles require staff to display integrity, mutual respect and openness, and affords them the right and obligation to challenge others who are not adhering to these values.

A fraud policy ensures that a firm stance is taken against fraud and the prosecution of offenders. This policy outlines the group’s response to fraud, theft and corruption committed by staff and external parties against the company. The internal audit department manages the legal processes relating to fraud cases to ensure the highest possible level of recovery for the group from any fraudulent behaviour.

Tip-Offs Anonymous

Staff are encouraged to report suspected fraudulent or unethical behaviour via a toll-free telephone service managed by an external service provider. Every reported incident is investigated.

During the year 126 incidents were reported covering theft, fraud and internal irregularities. These cases were all investigated and resulted in 25 dismissals or resignations, counselling for 16 staff and a further 9 cases of disciplinary action.

Financial statements and external review

The directors accept ultimate responsibility for the preparation of the annual financial statements that fairly represent the results of the group in accordance with the Companies Act and International Financial Reporting Standards (IFRS).

The external auditors are responsible for independently auditing and reporting on these financial statements in conformance with statements of International Standards on Auditing and applicable laws.

Going concern

The directors are satisfied that the group has adequate resources to continue operating for the next 12 months and into the foreseeable future. The financial statements have accordingly been prepared on a going concern basis. The board is apprised of the group’s going concern status at board meetings.

External audit

The Audit committee confirms that it has carried out its functions, as defined in section 270A of the Corporate Laws Amendment Act (which, although promulgated, has not yet been enacted), by:

  • Confirming the nomination and appointment of KPMG Inc as the group’s registered auditor and being satisfied that they are independent of the company;
  • Approving the terms of engagement and the fees to be paid to KPMG Inc;
  • Ensuring that the appointment of the auditor complies with all legislation relating to the appointment of auditors;
  • Determining the nature and extent of any non-audit services which the auditor may provide to the company; and
  • Ensuring that any non-audit services to be provided to the company by the auditors are pre-approved by the Audit committee.

The company has received confirmation from the external auditors that the partners and staff responsible for the audit comply with all legal and professional requirements with regard to rotation and independence, including the stipulation that they should not hold shares in New Clicks Holdings.

Policy on non-audit services

In terms of the group’s policy on the provision of non-audit services by the external auditors, non-audit services may not exceed 25% of the total audit fee and should exclude any work which may be subject to external audit and which could compromise the auditor’s independence. During the year KPMG received fees of R446 000 for non-audit services relating to taxation services and advisory services on shareholder distributions. .

KPMG satisfied the Audit committee that appropriate safeguards have been adopted to maintain the independence of the external auditors when providing non-audit services.