Corporate governance

Introduction

The Eqstra group is committed to embracing good corporate governance practices and subscribes to the philosophy of the Code of Corporate Practices and Conduct as set out in the King Code for South Africa (King III) and the additional requirements of the JSE Limited.

The board is in a process of assessing its governance practices and procedures against the King III report and are implementing adjustments where necessary. The group is committed to comply with legislation, regulations and best practices in the countries in which it operates.

The board of directors emphasises and expects high standards of financial management, accounting and reporting. The financial statements are prepared in accordance with International Financial Reporting Standards (IFRS). In addition, Eqstra reports with the Global Reporting Initiative’s (GRI) sustainability reporting guidelines on environmental, economic and social performance in mind.

In guiding the group’s development, the board attempts to balance and encourage entrepreneurial freedom within the constraints of good corporate governance to achieve maximum shareholder value.

The Governance structure

Board at a glance

THE BOARD OF DIRECTORS

Composition and appointment

The appointment of new directors is considered by the entire board, based on recommendations by the nomination and remuneration committee following a formal and transparent process. These recommendations are based on identified skills  and experience requirements combined with personal and business attributes. Reappointment of retiring directors is not automatic and is recommended by the board after consultation with the nomination and remuneration committee.

New directors are required to attend an induction course which includes a tour of the various divisions, focusing on their core business areas, key drivers and management teams. All directors are also provided with an explanation of their fiduciary duties and responsibilities.

Non-executive directors are required to devote sufficient time to the group’s affairs. The strong independent composition of the board and clearly defined directors’ responsibilities ensures that no individual director has unfettered powers of decision making and authority.

At least a third of non-executive directors retire by rotation each year and stand for re-election at the annual general meeting (AGM) in accordance with the Memorandum of Incorporation (MOI). Dr DC Cronjé who retires by rotation in terms of article 35.1 of the MOI of the company indicated that he will not be available for re-election at the next annual general meeting to be held on 16 November 2011. Mr TDA Ross, being eligible and available for re-election, will retire by rotation in terms of article 35.1 of the MOI.

Responsibilities and board meetings

The board is ultimately responsible for directing the group towards achieving its objectives. Executing the strategy, operational performance and financial results are the responsibility of the group chief executive officer (CEO) and executive management team, within parameters set by the board. Management timeously reports to the board to enable them to make informed decisions.

The board believes the balance and composition of directors’ knowledge, skills and experience support the group’s vision to effectively lead the group in line with the recommendations of King III.

The board has a charter detailing its policies, roles and responsibilities in executing its mandate. The board is assisted by the following committees: asset and liability committee, audit committee, nomination and remuneration committee, risk committee and social and ethics committee. Each board committee is governed by a charter which was approved and adopted by the board. These charters are annually reviewed by the board. The board delegates the detailed planning and implementation of policy to management and formally reviews progress each quarter.

The board plans to meet at least four times a year and on an ad hoc basis should an issue demand its attention. The board met four times during the year under review as well as attended a strategy session. The board formally considered and approved group strategies and budgets.

A number of decisions were taken between meetings by written resolution in accordance with the company’s MOI.

Board meetings are convened by written notice and a quorum for meetings is a majority of directors. Members receive minutes of all committee meetings and supporting documentation prior to each meeting to ensure the meetings are effective. The board follows an agenda and considers strategy, growth initiatives, operational performance, sustainability, structures, key risks and other activities of the group. The directors have unrestricted access to all information needed to carry out their duties and responsibilities fully and effectively. With the prior agreement of the chairperson, they are entitled to obtain independent professional advice on group-related matters at the group’s expense.

The powers of the directors are set out in the company’s MOI. The main responsibilities of the board are set out in the board charter. These include, but are not limited to:

The chairperson

The role of the chairperson is to provide overall leadership to the board without limiting the principle of collective responsibility for board decisions. Dr DC Cronjé, Eqstra’s independent non-executive chairperson, has significant experience in leading boards and ensuring that the board remains efficient, focused and operates as a unit. The chairperson is also responsible for the annual appraisal of the CEO’s performance. The board reviewed the performance of the chairman in November 2010 and based on the outcome of the review, re-elected Dr DC Cronjé as chairperson of the board for the ensuing year. However, Dr DC Cronjé indicated that he will not be available for re-election.

Non-executive directors

Eqstra’s non-executive directors are Dr DC Cronjé, Mr MJ Croucamp, Ms S Dakile-Hlongwane, Mr VJ Mokoena, Dr SD Mthembi-Mahanyele, Mr AJ Phillips and Mr TDA Ross. Other than Ms S Dakile-Hlongwane, all non-executive directors are considered to be independent.

These non-executive directors are individuals of high calibre and credibility from different backgrounds. They are representative of South Africa’s population and contribute significantly to the board’s discussions and deliberations. They have the necessary skill and experience to bring judgement to bear, independent of management, on issues of strategy, performance, diversity and employment equity.

The Chief Executive Officer

Mr WS Hill is responsible for formulating and recommending strategies to the board. Once approved, he is required to ensure that the strategies are implemented. He is held accountable to the board to provide regular reports during board meetings and at any other time when required. Mr WS Hill is assisted in this task by the executive committee members.

The Chief Financial Officer

Mr JL Serfontein was appointed as CFO on 1 January 2011, replacing Mr E Clarke who was appointed CEO of Contract Mining and Plant Rental. Mr Serfontein is responsible for the financial functions and internal control processes within the group as well as ensuring that sufficient funding is available and bank covenants are adhered to.

The company secretary

Ms L Möller guides the board as a whole and directors individually on discharging their responsibilities. Appointment and removal of the company secretary are matters for the board. She is considered suitably qualified to perform her duties. Her duties include:

Directors and company officers keep the company secretary advised of their dealings in securities of the company according to well-defined rules and procedures. A report is tabled at the board meeting following any such dealings.

Shareholders, employees and investors are encouraged to communicate recommendations or instructions to the board to the company secretary or the CEO. No issues relating to economic, environmental and social performance were raised during the year through these mechanisms.

BOARD COMMITTEES

The board is assisted by committees to which specific responsibilities were delegated. Each board committee acts according to its written charter as approved by the board, which sets out its purpose, membership requirements, duties and reporting procedures. Board committees may take independent professional advice at the company’s expense. The performance and effectiveness of these committees are subject to evaluation by the board. Committee chairpersons report formally to the board and the minutes of committee meetings are circulated to directors. These committees do not diminish the board’s responsibilities.

The chairpersons of the board committees and the designated partner of the company’s external auditors are required to attend annual general meetings to answer questions raised by shareholders.

The four divisional boards are responsible for managing day-to-day affairs in their areas of responsibility and subject to board-approved authority limits. These meetings consist of divisional directors, the CEO and CFO, as well as relevant management by invitation. The company secretary acts as the secretary. Committee and board charters, as approved by the main board, were adopted by the divisional boards.

Asset and liability committee (ALCO)

ALCO consists of five directors. The members of the committee are Messrs WS Hill (chairperson), E Clarke, MJ Croucamp and Dr DC Cronjé. Mr JL Serfontein (CFO) was appointed as committee member during the year and Mr P Siddall (group treasurer) attends as ex officio participant. The company secretary acts as secretary. Invitees do not have voting rights.

The group has committed funding facilities from South African and international banks. The committee is pleased to report that all bank covenants have been met. The board and the committee are committed to actively manage borrowings and assets to ensure covenants are not breached. During the year, the committee reviewed the long-term funding strategy of the group. The committee also reviewed the group’s dividend policy and resources before recommending it for approval to the board.

Eqstra successfully concluded a new South African bank funding package which increased the size of the long-term facilities as well as extended the debt repayment period, as detailed in the review from the CFO. Subsequent to year-end the group renewed its UK debt facility for a further three years.

The board satisfied itself that the committee fulfilled its responsibilities as set out in its charter.

Audit committee

The group audit committee comprises four independent non-executive directors, one of whom is appointed as chairperson. The CEO, CFO, internal and external auditors as well as certain management attend by invitation. A majority of members present constitutes a quorum. The group company secretary acts as secretary. In line with its plan, the committee met four times during the year.

Members of the group audit committee are Messrs TDA Ross (chairperson), MJ Croucamp, Dr SD Mthembi-Mahanyele and Mr AJ Phillips. Invitees to these meetings do not have voting rights.

Further to the board audit committee, divisional financial and risk review committees have been constituted to support and assist the committee. Each committee is chaired by an independent non-executive member of the group audit committee. The remaining members of the divisional committees comprise the group CFO and company secretary who are not associated with the day-to-day activities of that division, which ensures independence of the committees. These meetings are also attended by the management and internal and external auditors by invitation. Divisional audit committees report to the group audit committee and the company secretary acts as secretary. The group audit committee accepts overall responsibility.

The board satisfied itself that the committee fulfilled its responsibilities as set out in its charter and that the committee as a whole has a good understanding of financial risks and financial and internal controls. The committee has sufficient and relevant knowledge of corporate law, a thorough understanding of IFRS and other relevant frameworks applicable to the company.

Nomination and remuneration committee

This committee consists of three non-executive directors, all of whom, including the chairperson, are independent. The CEO and CFO attend by invitation to assist the committee in its deliberations, except when issues relating to their own remuneration are discussed. The company secretary acts as secretary. Invitees do not have voting rights.

The members of the committee are Dr DC Cronjé (chairperson), Messrs VJ Mokoena and AJ Phillips. Although King III recommends that the chairperson of the remuneration committee not be the chairman of the board, the board is satisfied that Dr DC Cronjé is sufficiently independent to be the chairperson of the combined committee. As Dr Cronjé will be stepping down as chairperson in November 2011, this will be reviewed.

The committee met three times during the period, with all members attending.

The board of directors assigned the following main duties and responsibilities to the committee:

The committee also regularly reviews the independence of non-executive directors. The committee classified the following non-executive directors as not being independent:

Mr VJ Mokoena represented Ukhamba Holdings (Proprietary) Limited, a major BBBEE shareholder until his resignation from Uhkamba Holdings (Proprietary) Limited in February 2011. He was subsequently classified as an independent director.

All other directors were assessed as being independent as defined by the Act.

The committee evaluated the work done by Mr TDA Ross, the director who retires by rotation and recommend that shareholders re-appoint him at the AGM on 16 November 2011. Dr DC Cronjé will not be available for re-election

The board satisfied itself that the committee fulfilled its responsibilities as set out in its charter.

Risk committee

The board is responsible for the risk management process and is assisted in its responsibilities by the risk committee. The day-to-day responsibility for identifying, evaluating and managing risk resides with management.

The board’s risk committee consists of two executive directors and four non-executive directors of whom three members, including the chairperson, are independent. The members of the committee are Messrs AJ Phillips (chairperson), WS Hill (CEO), VJ Mokoena, TDA Ross, JL Serfontein (CFO) and Ms S Dakile-Hlongwane. The company secretary acts as secretary. Invitees do not have voting rights.

Mr JL Serfontein replaced Mr E Clarke as a member in May 2011. Ms D Naidoo was previously the head of risk and internal audit. In May 2011 management separated these roles and Mr GE Bantam was appointed as risk executive. He serves as ex officio participant.

The chairperson of the committee is also a member of the group audit committee to ensure the appropriate exchange of key issues between these committees. The committee met twice during the year.

The committee believes that the group’s risk management process is effective in identifying and evaluating risks.

The board satisfied itself that the committee fulfilled its responsibilities as set out in its charter.

Social and ethics committee

The board expanded the transformation and empowerment committee’s charter during the year to align the roles and responsibilities to the principals of King III and the Companies Act 2008 and Regulations. In line with this, the committee was reconstituted to form a social and ethics committee.

This committee comprises the following directors: Dr SD Mthembi-Mahanyele (chairperson), Ms S Dakile-Hlongwane and Mr WS Hill (CEO), as well as Mr NF Weideman (human capital executive) and Mr M Price (divisional managing director). The committee met twice during the year, attended by all members.

During the year the committee oversaw the implementation of the principles of transformation in the divisions and the broader matters relating to creating a framework that will enable the advancement of previously disadvantaged South Africans in the workplace and the formation of partnerships for the development of communities in which the company operates. The committee oversaw the implementation of the statements of mission and values relating to social, environmental and economic performance.

The committee will in future also oversee and monitor:

Social and economic development, including the principals of broad-based black economic empowerment, employment equity and the Organisation for Economic Co-operation and Development’s recommendations on corruption;

In fulfilling their duties and responsibilities, committee members may consult, whenever appropriate, with other members of the board or experts on any relevant subject matter.

The board satisfied itself that the committee fulfilled its responsibilities as set out in its charter.

Executive committee

The CEO is supported in his duties by the executive committee (exco). The committee members are Mr WS Hill (CEO), Mr JL Serfontein (CFO), Mr E Clarke (CEO of Contract Mining and Plant Rental), Ms JV Carr (CEO of Passenger and Commercial Vehicles), Mr GD Neubert (CEO of Industrial Equipment), Mr NF Weideman (human capital executive), Mr D Haripal (chief information officer) and Mr GE Bantam (risk, sustainability and investor relations executive). Mr MR Barnes retired in December 2010 as CEO of Contract Mining and Plant Rental and continues to serve as a divisional non-executive board member. The chairperson of the committee is the CEO. The company secretary acts as secretary.

This committee meets monthly. Its duties include:

Information Technology (IT) Governance

In line with King III, IT governance forms an important part of governance structures, policies and procedures. The group implemented monthly IT steering committees as well as a group IT committee, reporting to exco and the audit committee. This function is managed by Mr D Haripal, the chief information officer. The committee is governed by an exco approved charter.

This committee mainly focuses on:

Integrity and Ethics

Personal and organisational integrity are embedded in Eqstra’s culture. The board adopted a revised Code of Business Conduct and Ethics during the year. The Code is in the process of being communicated and implemented throughout the group.

Eqstra maintains the highest ethical standards in conducting its business, acknowledging that the group’s reputation is one of its most important assets. Equally, maintaining the trust and confidence of all with whom we deal is one of our most vital responsibilities. At divisional level, our values and standards of trust, integrity, accountability, teamwork, customer satisfaction and responsibility are used to guide the way the broader group conducts business.

We recognise our obligations to those with whom we have dealings, in particular shareholders, employees, clients, suppliers, competitors and the wider community. Accordingly, our Code of Business Conduct and Ethics sets overall principles and guidelines for practice to be adopted throughout the group. The divisions are required to adopt appropriate principles and processes to deal with specific ethical issues that arise in their particular circumstances. To report suspected irregularities, the group has email and tip-off line facilities that are easily accessible to all staff: eqstra@tip-offs.com or 0800 21 26 77.

The group monitors employees ethical performance to ensure corrupt or unethical business practices are minimised and is overseen by the social and ethics committee.

Employment and labour rights

Eqstra is committed to promoting equal opportunities and fair employment practices regardless of employees’ ethnic origin or sex. The group subscribes to the principals of fair labour practices and our conditions of service comply with applicable laws and industry standards. Details of the group’s policies and practices appear in the sustainability report.

Conflict of interest

The group’s company secretary maintains the declarations of interest and related-party disclosures register of the board. The directors are required to declare and update their interest at each board meeting. Directors who have a conflict of interest on any matter to be discussed at meetings are required to inform the chairperson and the company secretary before the meeting. This director is recused from the meeting when the item is discussed.

Accountability and Audit

The directors acknowledge their responsibility for instituting internal control systems which provide reasonable assurance on safeguarding assets and preventing their unauthorised use or disposal, as well as maintaining proper accounting records that give reasonable assurance on the reliability of financial information produced

Going concern

The group audit committee considers the facts and assumptions used in assessing the going concern status of the group at the financial year-end. This provides assurance to the directors before confirming their assessment that the annual financial statements have been effectively prepared on the going concern basis. The directors have every reason to believe that the company and the group have adequate resources in place to continue to operate for the foreseeable future.

Internal control framework

The board approved the levels of authority of the CEO, who in turn delegates appropriate levels of authority to executive members of the divisions to ensure effective day-to-day operations. This framework is designed to maintain an appropriate control environment within approved budgets and implementation of strategies. The CEO conducted a business control review during the year at all divisions.

Internal audit

Internal audit is an independent and objective assurance and consulting function to add value to the group’s operations. With its responsibilities clearly defined and approved by the audit committee, internal audit functioned effectively.

Internal audit focused on the following main areas:

An annual review of the company’s system of internal controls and risk management, including the design, implementation and effectiveness of internal financial controls conducted by the internal audit function, is prepared for the audit committee to support the committee’s formal annual assessment of internal controls on behalf of the board.

The chief audit executive (CAE), who reports functionally to the CEO and who has regular meetings with the chairperson of the audit committee, reports the consolidated activities and key findings of the internal audit function at each audit committee meeting.

Audit findings were formally reported to divisional financial and risk committees, which in turn report all material findings to the group audit committee. The CAE coordinates the internal audit function.

The internal audit process did not highlight any material breakdowns in internal controls that were known to have had a material impact on the reported financial information.

The group audit plan, that was achieved for 2011, was developed on a combined assurance approach and based on identified divisional risks.

Litigation and legal

All material legal actions and litigations are reported monthly to exco and quarterly to divisional audit committees and boards as well as the group risk committee. The board is not aware of any material pending or threatened legal action against the group.

Financial reporting

All divisions of Eqstra prepare detailed monthly management accounts, budgets and four-year plans. These are approved by the board. Performance against budget is monitored monthly by exco and quarterly by the board. Variances are analysed and corrective measures put in place where required.

Profit and cash flow forecasts are reviewed and include an analysis of material changes. Accounting policies, which have been agreed by the external auditors and approved by the audit committee, are disseminated throughout the group to ensure compliance.

Appropriate and adequate resources are available in the finance functions within the group with experienced senior management members responsible for these functions. During the year, the audit committee identified areas that required additional resources and management are addressing these concerns.

Insider trading and price sensitive information

No employee, nominee or members of his/her immediate family may deal either directly or indirectly, at any time, in the securities of the company based on unpublished price-sensitive information about the company’s business or affairs. No director or officer may deal in the securities of the company during the closed period determined by the board in terms of a formal policy implemented by the company secretary. Closed periods are from the end of the interim and annual reporting periods to 24 hours after announcing financial and operating results for those respective periods. Directors and senior designated employees are required to instruct their portfolio or investment managers not to trade in the securities of Eqstra without written consent. A list of people who are restricted for this purpose has been approved by the board and is revised from time to time. A register of directors and officers is available for inspection at the company’s registered office in Kempton Park, South Africa.

The rules of the JSE Limited extend obligations regarding transactions in the securities of the company to include those of any major subsidiary. The directors or officers of the company’s subsidiaries are included in the list of directors, company secretary and other officers.

Relationship with stakeholders

The group is committed to protecting the interests of shareholders, other investors and stakeholders and will not do anything which will prejudice one class of stakeholder at the expense of another. The group is committed to presenting accounting statements which are true and timely.

Eqstra aims to generate attractive returns to investors on a long-term basis. The group will also communicate business policies, achievements and prospects honestly.

The CEO, CFO and divisional CEOs conduct presentations which are available on the Eqstra website. The website also includes the group’s latest financials, operational and historical information, including its annual reports.