Corporate Governance Report - 2010

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• THE BOARD AND BOARD COMMITTEES

  
  

  The company has a unitary board of directors which comprises a majority of non-executive directors (presently nine non-executive, independent directors, four non-executive directors, three of whom are nominated by the holding company, and five executive directors). Non-executive directors are chosen for their business acumen and skills pertinent to the business of the group and meet the criteria of the King II Report. The board is ultimately responsible for ensuring that the business is a going concern, and to this end effectively controls the group and its management and is involved in all decisions that are material for this purpose. The board functions in terms of a formal Board Charter which requires that there is an appropriate balance of power and authority on the board. The board has defined and monitors levels of materiality and has formally documented matters which it has delegated to the board committees and management.
  
  The roles of the chairman and the chief executive are separated and the chairman is a non-executive, independent director.
  
  New appointments to the board are subject to the recommendation of the Remuneration / Nomination Committee and formal approval by the board. At each annual general meeting of shareholders, not less than one-third of the directors must retire, being those directors longest in office since their appointment or last re-election, and may, if available, be proposed for re-election. The appointments of new directors are subject to confirmation by shareholders at the next annual general meeting following their appointment.
  
  Members of the board have access to the advice of the company secretary and may, in appropriate circumstances, take independent professional advice at the company’s expense.
  
  The board has six regular meetings a year. In addition, there is provision in the company’s Articles of Association for decisions taken between meetings to be confirmed by way of directors’ resolutions.
  
  In the past year, six meetings were held, attendance at which is reflected in a table on page 32 in the 2010 Annual Report.
  
  Audit Committee
  
  The responsibilities and activities of the group Audit Committee are covered in the Audit Committee Report on pages 65 and 66 in the 2010 Annual Report.

  
  

  Audit committees are also established and operational at each of the operating subsidiaries.
  
  Remuneration / Nomination Committee
  
  The responsibilities and activities of the Remuneration / Nomination Committee are covered in the Remuneration Report on page 34 in the 2010 Annual Report.
  
  Risk Management Committee
  
  The company’s Risk Management Committee presently comprises six non-executive directors, four of whom are independent and one of whom is the chairman of the Committee, three of the executive directors and five members of senior management. Members of the Committee are indicated on pages 6, 7and 8 in the 2010 Annual Report. The Committee is chaired by Mr M J Shaw, and upon his retirement in July 2010 will be chaired by Mr D G MacLeod.

  
  

  The Committee has formal terms of reference approved by the board. The Committee is responsible for reviewing the Company’s risk philosophy, strategy and policies, and ensuring compliance with such policies; reviewing the adequacy and overall effectiveness of the Company’s risk management function; ensuring the implementation of an ongoing process for risk identification, mitigation and management; ensuring the establishment of a comprehensive system of controls; pursuing measures for increasing risk awareness throughout the company; reviewing any significant legal matters; and reviewing the adequacy of insurance coverage. The Committee gives particular focus to operational risks, including health and safety.

  
  

  The Committee meets at least twice a year. In respect of the past year, two meetings were held, attendance at which by the director members is reflected in a table on page 32 in the 2010 Annual Report. For the period under review, the Committee satisfied its responsibilities in compliance with its terms of reference.

  
  

  Attendance at board and committee meetings during the year ended 31 March 2010

  
  

  

  
  Executive Committees
  
  

  The executive directors along with the human resources executive and the company secretary constitute the Executive Committee which meets on a weekly basis to review operational performance, capital programmes and other relevant issues. In addition, consideration is given to major investment and capital expenditure proposals as well as issues of strategic importance to the group, for recommendation to the board. Furthermore, the daily involvement of the executive directors with operational and functional executives ensures the interactive nature of the overall management reporting structure.
  
  A Group Executive Committee, comprising the executive directors, one of the non-executive directors, nominated by the holding company and certain senior members of management, meets on a regular basis, particularly to share and discuss the group’s key strategies and issues. The members of this Committee are indicated on pages 6 to 9 in the 2010 Annual Report. The Committee presently meets at least four times a year.

  
  

  A Corporate Executive Committee, comprising the executive directors and certain senior members of corporate management meets on a regular basis to discuss and agree implementation processes in respect of corporate strategies and policies. The members of this Committee are indicated on pages 6 and 8 in the 2010 Annual Report. The Committee presently meets at least nine times a year.

• MANAGEMENT REPORTING

  
  

  The group has established comprehensive management reporting disciplines which include the preparation of annual strategic plans and budgets by all operating entities. Results and the financial status of operating entities are reported monthly against approved budgets and compared to the prior year. Profit and cash flow projections are reviewed regularly, whilst working capital and borrowing levels are monitored on an on-going basis.

• FINANCIAL STATEMENTS

  
  

  The company’s directors are responsible for overseeing the preparation of the financial statements and other information presented in reports to shareholders in a manner that fairly presents the state of affairs and results of the group’s business operations. The independent auditors are responsible for carrying out an independent examination of the financial statements in accordance with International Standards on Auditing and reporting their findings.

  
  

  The annual financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) and the Companies Act, 1973, as amended. They are based on appropriate accounting policies which have been consistently applied, except when otherwise stated, in which case full disclosure is made. The directors believe that the business will be a going concern in the year ahead. The auditors concur with the opinion of the directors.

• INTERNAL CONTROL

  
  

  The group maintains internal controls and systems designed to provide reasonable assurance as to the integrity and reliability of the financial statements and to adequately safeguard, verify and maintain accountability for its assets. Such controls and systems are based on established policies and procedures and are implemented by trained personnel with an appropriate segregation of duties. The effectiveness of these internal controls and systems is monitored in a number of ways, as set out below, dependent upon the particular circumstances –

  
  

  • the aid of internal control checklists;
  • the establishment of defalcation reporting procedures;
  • the functions of the internal audit department; and
  • adherence to performance standards.

  
  

  The purpose, authority and responsibility of the internal audit department are defined in a formal Charter approved by the Audit Committee and the board. The department functions as an independent appraisal activity established to conduct reviews of operations and procedures, and to report findings and recommendations to company management, the Audit Committee or the board as may be appropriate. The head of the department reports administratively to the financial director, but has unrestricted access to the chief executive, the Audit Committee and its chairman, and the chairman of the board.

  
  

  The independent auditors, through the audit work they perform, confirm that the abovementioned monitoring procedures have been implemented.

  
  

  Nothing has come to the attention of the directors or the independent auditors to indicate that any material breakdown in the functioning of the abovementioned internal controls and systems has occurred during the year under review.

• ETHICS

  
  

  It is a fundamental policy of the company, embracing all group operations, to conduct its business with honesty and integrity and in accordance with the highest legal and ethical standards. The company has established a Code of Conduct and Business Practices, determining the minimum standards required of all staff, which is disseminated throughout the group and reviewed annually by the Executive Committee. The Code prescribes, inter alia, that the company shall not make political contributions. All managers are required to give written agreement to this Code. In any instance where ethical standards are called into question, the circumstances are investigated and resolved by the appropriate executive.

  
  

  “Crimeline” facilities, inviting people from within and outside the company to anonymously report any wrongdoings are operated by independent forensic accountants, and all matters arising are then appropriately investigated and reported upon.

• INSIDER TRADING

  
  

  The company has a code of conduct for dealing in securities issued by any of the group’s listed companies. Directors and officers of the group who have access to unpublished, price-sensitive information in respect of any of these companies are prohibited from dealing in the shares of such companies during defined restricted periods, including those periods immediately prior to the announcement of interim and final financial results and periods during which cautionary announcements are operative. Directors and the company secretaries of both Illovo Sugar Limited and its major subsidiaries are required to obtain clearance from either the chairman or the chief executive before dealing in company shares.