Corporate governance

Principles of corporate governance and structures

The board is committed to the principles of openness, integrity and accountability, and to providing timely, relevant and meaningful reporting to all stakeholders. The board ensures that the group’s business is conducted to high standards of corporate governance, and in line with local and internationally accepted corporate practice. These standards are entrenched in the group’s established systems of internal control, by its procedures and policies governing corporate conduct, with particular emphasis on the importance of qualitative aspects of corporate governance. The operating divisions are autonomous and it is not the style of the group to regulate every aspect of group behaviour through comprehensive policy documents, but rather to allow each division to formulate its own policies, appropriate to the industry and business environment in which it operates but subject to the guidance of the group executive committee and ultimately the board.

The group is committed to an open governance process such that all stakeholders are assured that its directors and managers at all levels are managing the group responsibly. The board subscribes to the principles of the Code of Corporate Practices and Conduct as set out in the King Report on Corporate Governance II (King II) and complies with its recommendations unless otherwise indicated.

The principles contained in King II are reflected in the group’s corporate governance structures, which are reviewed from time to time to accommodate organisational changes and international developments in the field of corporate governance. It is the policy of the board and management to actively review and enhance the group’s systems of control and governance continuously to ensure the group’s business is managed ethically and within prudently determined risk parameters that conform to internationally accepted standards of best practice.

In assessing the practices implemented by the group, the board has balanced the following factors:

  • Entrepreneurial freedom to take business risks and initiatives leading to satisfactory levels of performance and return on shareholders’ investment in the company.
  • Conforming to corporate governance standards, which can impose constraints on divisional management.

The board is assessing its governance practices and procedures against the draft King III reports that were recently published and will make adjustments where necessary. According to our initial assessments, the group already complies with all the substantive recommendations in the draft.

The board of directors

Composition and appointment

The company has a unitary board structure with the chairman and the majority of directors being non-executive.

Directors are appointed on the basis of skill, experience and their level of contribution to, and impact on, the activities of the group. The board decides on the appointment of directors based on recommendations from the remuneration and nominations committee. New directors are provided with formal induction material to facilitate their understanding of the group.

Currently the board comprises nine non-executive directors and six executive directors. Six of the non-executive directors, including the chairman, are independent. No block of directors can dominate the board and no shadow directors have been appointed. The non-executive directors not classified as independent (as defined in King II) are: Oshy Tugendhaft – a practising attorney who provides legal services to the group; Valli Moosa was nominated by Lereko Mobility, a large BEE shareholder; Younaid Waja was nominated by the Public Investment Corporation, a large shareholder.

At least one third of the non-executive directors retire by rotation each year and stand for re-election at the annual general meeting in accordance with the articles of association. This year, Messrs JR McAlpine and A Tugendhaft and Ms P Langeni have been put forward for re-election. In addition, the reappointment of directors appointed during the year is submitted to the annual general meeting for confirmation.

Responsibilities

The board of directors is responsible for setting the direction of the group through the establishment of strategic objectives and key policies. Board meetings are held at least quarterly with additional meetings called when necessary. The quorum for meetings is a majority of directors. In addition, other senior executives are invited to attend meetings as required to ensure comprehensive reporting to the board.

The responsibilities of the board are clearly defined. The board has also adopted, and regularly reviews, an authority policy governing the authority delegated to the management of the group and detailing matters retained for decision by the board.

The responsibilities of the board include issues of strategic direction, business plans and annual budgets, major acquisitions and disposals, changes to the board on recommendation from the remuneration and nominations committee and other matters having a material effect on the group or required by statute.

Board members are required to regularly declare any interest they might have in transactions with the group.

All directors are given access to the information needed to carry out their duties and responsibilities fully and effectively. Furthermore, all directors are entitled to seek independent professional advice about the affairs of the group, at the company’s expense.

The current members of the board are Thulani Gcabashe (chairman), Osman Arbee, Schalk Engelbrecht, Hubert Brody, Manny de Canha, Tak Hiemstra, Phumzile Langeni, Mike Leeming, Roy McAlpine, Hafiz Mahomed, Valli Moosa, Roddy Sparks, Gerhard Riemann, Oshy Tugendhaft and Younaid Waja.

Max Sisulu resigned from the board with effect from 31 May 2009 and Nazeer Hoosen resigned from the board with effect from 30 November 2008.

Subsidiary and divisional boards

In line with the decentralised nature of the group’s operations, many subsidiary and divisional boards manage day-to-day affairs within their areas of responsibility, subject to board-approved authority limits. The company board ratifies appointments to the boards of major subsidiaries.

Board committees and governance structure

The board has established a number of subcommittees, which operate within defined terms of reference laid down by the board in writing. Members of these committees are suitably qualified and experienced to meaningfully contribute to the workings of the committees on which they serve. All committees report to the board and operate in accordance with written terms of reference approved by the board.

Executive committee (Exco)

This committee is responsible for:

  • Devising group strategy for recommendation to the board of directors and to implement the strategies and policies approved by the board
  • Managing the business and affairs of the group.


The executives on this committee are appointed by the board. The committee consists of not less than four members and meets at least once a month.

The current members are Hubert Brody (chairman), Osman Arbee, Manny de Canha, Berenice Francis, David Gnodde, Tak Hiemstra, Hafiz Mahomed, Moeketsi Mosola and Marius Swanepoel.

Audit committee

The group audit committee consists only of independent non-executive directors, one of whom is appointed as chairman. The quorum is the majority of members. Certain directors, the group internal audit executive and the external auditors are invited to attend meetings. In addition, members of executive management, including those involved in risk management and control, and finance attend meetings when appropriate. The committee meets at least four times per year.

The role and functions of the committee are determined by its charter and include:

  • Approval of the external and internal audit scope and plans
  • Annual consideration of the performance of the group financial director or equivalent appointee
  • Review of the adequacy and effectiveness of the company’s internal controls including computerised information system controls and security
  • Review of the quality of financial information produced to ensure integrity and reliability
  • Review of significant findings and recommendations of the internal and external auditors together with management’s responses
  • Review of the effectiveness of risk management processes
  • Review of significant cases of employee conflicts of interest, misconduct or fraud
  • Review of compliance with legal, statutory and regulatory matters and any current or pending litigation or regulatory proceedings in which the company is involved in any way
  • Oversight of the internal audit function
  • Oversight of the external audit function
  • Nomination of auditors and lead audit partner
  • Determination of fees to be paid to auditor and terms of engagement
  • Determination of nature and extent of any non-audit services which the auditor may provide to the group and approval of any non-audit fees paid or payable to the auditors
  • Consideration and confirmation of the independence of the auditors as contemplated in the Act
  • Examination and review of interim results and annual financial statements as well as results publications before submission to the board
  • Review of trading statements and any other publications or press releases with a financial impact that are required to be published by the group in terms of legislation or regulations governing its operations.


The committee receives and deals appropriately with any complaints (internal or external) relating either to accounting practices and internal audit of the company or to the content or auditing of its financial statements, or to any related matter.

The functions of the committee are also performed for each subsidiary company of Imperial Holdings Limited that has not appointed an audit committee as contemplated in section 270 of the Act, provided that the committee delegates the performance of such functions to subcommittees referred to as financial review committees.

Divisional financial review committees have been constituted and these committees report significant issues to the group audit committee. Each divisional financial review committee is chaired by an independent chairman with no operational role in that division.

The external and internal auditors have unrestricted access to all audit committees and financial review committees and attend meetings to report on their findings and to discuss accounting, auditing, internal control and financial reporting matters.

The chairman of the committee also attends the group’s annual general meeting.

During the year:

  • The performance of the group financial director was reviewed at the end of the year and his appointment confirmed for the next year
  • The independence of the auditors was tested and confirmed
  • Audit fees were reviewed and agreed
  • A policy on non-audit services was approved
  • The appointment of the external auditors, Deloitte and Touche, and of the lead audit partner were reviewed and recommended for approval by shareholders at the annual general meeting.

The current members are Mike Leeming (chairman), Phumzile Langeni, Roddy Sparks and Younaid Waja.

Remuneration and nomination committee

This committee consists of the chairman of the board and other non-executive directors. It meets at least three times a year and the quorum for meetings is the majority of members.

The responsibilities and work of the committee during the year are set out in the remuneration report here.

The current members are Thulani Gcabashe (chairman), Phumzile Langeni, Roy McAlpine, Roddy Sparks and Oshy Tugendhaft.

Risk committee

The board is responsible for the total process of risk management in the group. The risk committee sets the group risk framework and strategy and ensures that a robust risk management process is in place. The committee is assisted by the group risk executive, internal audit executive and divisional risk management sponsors who have been tasked with coordinating the risk management process.

Pursuant to its policy of aligning group corporate governance with international best practice and thereby safeguarding the interests of stakeholders, Imperial has implemented an enterprise risk model to identify and assess relevant risks facing the group at strategic, business and process levels.

Risk is not only viewed from a negative perspective. The assessment process also identifies areas of opportunity, for example where effective risk management can be turned into a competitive advantage, or where taking certain risks could result in reward for the group. Any risk taken is considered within the group’s risk appetite.

The decentralised structure of the group consists of many business units and therefore overall group risk is spread and minimised to within group tolerance levels. The management of risk substantially takes place in the divisions, and responsibility and accountability largely remains in divisional management structures. The risk committee formalises, standardises and monitors this process by guiding management and assessing their effectiveness in implementing the approved risk management framework.

The board determines the level of acceptable risk and requires the operations to manage and report accordingly. Material issues and circumstances that could affect the group’s reputation and financial affairs constitute unacceptable risk.

The established system of internal control for managing risk, which requires transparency and clear accountability, has the commitment of senior management.

The system of internal control has been implemented in all key operations and is tailored to suit the specific circumstances of each business unit. It provides reasonable rather than absolute assurance that the group’s business objectives will be achieved within prescribed risk tolerance levels. The associated risk areas and control processes are monitored and reported on across the group continuously. Internal audit aligns its procedures with the risks identified. Formal feedback is provided at every risk committee meeting.

King II describes risk management as the identification and evaluation of actual and potential areas of risk as they pertain to a company, followed by a procedure of termination, transfer, acceptance (tolerance) or mitigation of each risk. The group’s risk management process therefore uses internal controls as a measure to mitigate and control risk.

In reviewing risk management reports and internal control, the board has:

  • Considered what the company’s risks are and how they have been identified, evaluated and controlled
  • Assessed the effectiveness of the related process of risk management and, particularly, reports of significant failings or weaknesses in the process
  • Considered if the necessary action is being taken timeously to rectify any significant failings or weaknesses
  • Considered whether results obtained from the review process indicate that more extensive monitoring is required.

Key inherent group risks

The group has identified key risk categories that affect the group as a whole in addition to the business and industry specific risks identified by the operating divisions. The risk categories and strategies taken to mitigate these risks are the following:

Risk  Strategies implemented  
Downturn in the economy Impact of adverse trading conditions and reduction of credit facilities and terms to customers by banks  
  • Focus on financial discipline and review of operational efficiencies
  • Ongoing debtor monitoring and relationship management
  • Strategic re-deployment of capital aligned with group required returns
 
Valuations of assets Effective control of asset values given the inventory holding of new and used assets that are core to the group’s business model  
  • Divisional asset management dashboards
  • Regular review and application of latest accounting and business principles
  • Enhanced governance oversight
 
Regulatory

Ensuring compliance with relevant legislation and regulations  
  • Centralisation of selected specialist areas where compliance risk is high
  • Enhanced compliance and risk management functions in divisions
  • Group support and advice on emerging and current legislative landscape as it affects business operations
 
Reduction in bank credit extension
In response to increased risk and capital adequacy requirements banks reduced credit facilities and terms to customers  
  • Monitoring of credit trends and continuous interaction with vehicle finance institutions
  • Specialised Group Treasure management
  • Imperial has significant unutilised credit lines
 

Currency volatility
Managing exposure to currency fluctuations  
  • Established hedging policies
  • Regular reporting by divisions within frameworks defined by asset and liability committee and independent reviews
 
Adequate utilisation of IT as an enabler to business strategy 
  • Appropriate disaster recovery and business continuity plans
  • Decentralisation of systems
  • Independent system audits and reviews focusing on IT governance
 
Talent management
Key to our success are our people, their commitment and knowledge of the business and industry  
  • Identification of individuals within the group for training and leadership focus
  • Divisional training initiatives
  • Established specialist training academies and skills development fund
  • Succession planning
 
Transformation
Failure to meet transformation goals as a result of external factors such as skills shortages and failure to meet ownership targets due to equity-market downturns 
  • Executive appointment to focus and co-ordinate transformation philosophy
  • Established a transformation committee reporting to the board
  • Consistent monitoring of BEE initiatives and targets
 
Dependence on key resources
 Our business is dependent on the availability of key resources such as fuel, water and power  
  • Strategic procurement initiatives, particularly focusing on fuel availability
 
Acquisition risks
 Expansion into unknown business sectors or models  
  • Clearly defined expansion areas have been identified
  • Strong group mandate structure relating to investments
  • Regular review of acquisition risks at executive level
  • Post acquisition reviews
 


The board

  • Recognises that it is accountable for the process of risk management and the system of internal control, which is regularly reviewed for effectiveness, and for establishing appropriate risk and control policies and communicating these throughout the group
  • Is satisfied there is an ongoing process for identifying, evaluating and managing the significant risks faced by the group. This process has been in place for the review period and up to the date of approving the annual report and financial statements
  • Is satisfied there is an effective system of internal control in place to mitigate the significant risks faced by the group to an acceptable level.


The current members of the committee are Younaid Waja (chairman), Harvey Adler, Osman Arbee, Hubert Brody, Berenice Francis, Werner Behrens, Tak Hiemstra, Mike Leeming, Gerald Rudman, David Gnodde and Clive Masinga.

Transformation committee

The transformation committee’s role is to guide and assist Imperial in its quest to reflect the South African social fabric while positioning the organisation positively relative to the economy.

The committee assists in designing a transformation strategy for the group and determines time frames and milestones for implementing the strategy.

In particular, the committee reviews:

  • The organisation’s public profile regarding transformation
  • Appointment of black people in management positions
  • Appointment of women in management positions
  • Retention of such staff and clear guidance on the cultural shift required to retain black staff
  • Utilisation of available leadership and training facilities and mentoring techniques to identify and develop talent, and accelerate these individuals responsibly through the organisation.


The members of the committee provide practical recommendations to the executive in achieving the desired result.

The committee, in conjunction with the executive committee, oversees the implementation of the group transformation strategy.

The current members are Valli Moosa (chairman), Phumzile Langeni, Oshy Tugendhaft, Thulani Gcabashe, Marius Swanepoel, Manny de Canha, Osman Arbee and Berenice Francis.

Asset and liability committee

The asset and liability committee (Alco) is responsible for implementing best practice asset and liability risk management policies. Its primary objective is to manage the liquidity, interest rate and exchange risk of the group within an acceptable risk profile.

Liquidity risk is the risk that funding is not available to fund the assets, operations and financial commitments of the group timeously and cost-effectively. This risk is measured by analysing the maturity mismatch gap between assets and liabilities and is managed by accessing various sources of funding (bonds, commercial paper and bank facilities) across the yield curve and having appropriate terms of repayment from a diverse pool of investors and lenders. In addition, significant standby facilities are arranged to further reduce liquidity risk.

Interest rate risk is the risk that the interest or interest rate-related income earned on assets and paid on liabilities is not properly matched in terms of their repricing profile and therefore, should there be fluctuations in interest rates, the company could suffer losses as the margin between asset returns and borrowing rates is eroded. Interest rate risk is measured by analysing the repricing profile of assets and liabilities into the future through repricing gap analysis and managed by ensuring that the interest rate repricing profile of borrowings is matched to assets, or through interest rate derivatives, to attain an appropriate mix of fixed and floating rate exposures.

Exchange rate risk exists if foreign currency obligations and receivables are not adequately secured to ensure that the local currency equivalent of such monies, once exchanged, is not adversely affected by exchange rate fluctuations. This risk is managed by various means including appropriate forward cover over foreign currency obligations and receivables.

Alco meets at least quarterly and bases its strategies on developments in both the domestic and world economy. In addition to risk management, Alco also approves funding mechanisms and exposure limits for recommendation to the board where required.

The current members of the committee are Hubert Brody (chairman), Tak Hiemstra, Mike Leeming, Hafiz Mahomed, Russell Mumford and Willem Reitsma.

Meeting attendance

The table below details attendance of board and committee meetings during the year.

                       
   Board           Remune-       
      Annual     Asset and     ration and     Trans- 
   Regular  strategy  Executive  liability  Audit  nomination  Risk  formation 
   meetings  meeting  committee  committee  committee  committee  committee  committee 
Number of meetings                         
during the year  4  1  21  4  4  5  4  4 
Thulani Gcabashe  4  1           5     4 
Hubert Brody  4  1  21  4        4    
Osman Arbee  4  1  20           4  4 
Manny de Canha  4  1  20              4 
Schalk Engelbrecht  3  1                   
Tak Hiemstra  4  1  19  4        4    
Phumzile Langeni  4  1        4  5     3 
Mike Leeming  4  1     4  4     4    
Hafiz Mahomed  4  1  20  4             
Roy McAlpine  4  1           5       
Valli Moosa  4  1                 4 
Gerhard Riemann  4  1                   
Roddy Sparks  4  1        4  5       
Oshy Tugendhaft  3  1           5     4 
Younaid Waja  4  1        4     4    
Marius Swanepoel        20              4 
                          

Max Sisulu and Nazeer Hoosen resigned during the year.

Berenice Francis, David Gnodde and Moeketsi Mosola were appointed to the Executive committee after year end.

Company secretary

The board considers the company secretary qualified to perform his duties in accordance with applicable legislation and fit and proper for the position. All directors have access to the advice and services of the company secretary who ensures compliance with applicable procedures and legislation. The removal of the company secretary is a matter for the board as a whole.

Accountability and audit

Going concern

The group audit committee considers the facts and assumptions used in the assessment of the going-concern status of the group at financial year end. This provides assurance to the directors in confirming their assessment that the annual financial statements are properly prepared on the going-concern basis.

Internal financial controls

The directors acknowledge that they are responsible for instituting internal control systems that provide reasonable assurance on safeguarding of assets and prevention of their unauthorised use or disposal, as well as maintenance of proper accounting records that give reasonable assurance on the reliability of financial information produced.

Internal audit

The internal audit department’s responsibilities are defined in a written charter approved by the board.

Internal audit is an independent, objective assurance and consulting activity established to add value and improve the group’s operations. It helps the group accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the adequacy and effectiveness of risk management, control and governance processes.

The internal audit activities of the group are coordinated by the group internal audit executive based at the corporate office, who reports to the chief executive and has unrestricted access to the group audit committee and its chairman. The group internal audit executive reports formally at all audit committee meetings held during the year. The audit plan for the wider group is approved by the group audit committee. The group internal audit executive also attends and co-ordinates the activities of all divisional financial review committees and attends all divisional and group risk committee meetings to ensure that internal audit focuses on all relevant risks.

The internal audit function did not identify any significant breakdowns in internal control that were known to have had a material impact on performance during the past year.

Financial reporting

Imperial Holdings has a comprehensive system for reporting financial results to the board each quarter and to the executive committee monthly. Each division prepares detailed monthly management accounts, budgets and a five-year plan approved by the board. Performance against budget is monitored and variances analysed. Profit and cash flow forecasts to the end of the year are reviewed and include an analysis of material changes. Accounting policies are disseminated throughout the group to ensure compliance.

Insider trading

No group director or employee with inside information about the group may deal, directly or indirectly, in Imperial Holdings’ or its listed subsidiary’s securities, which include allocations of and dealings in the group’s share incentive schemes (the securities). The board has determined certain closed periods during which directors and other senior management officials of the group may not deal, directly or indirectly, in the securities. In addition, the group has adopted a policy requiring directors, executive committee members, the company secretary and directors of major subsidiaries to obtain permission from designated individuals before trading in the group’s securities.

Principles of conduct

Business integrity and ethics

The board has adopted a written code of ethics. The group supports free enterprise as the system best able to contribute to the economic welfare of society, and to promote individual liberty. Without satisfactory profits and a strong financial foundation, it would not be possible to fulfil our responsibilities to shareholders, employees, society, and those with whom we do business. However, our corporate actions are not governed solely by economic criteria, but also take into account social, environmental, and political considerations.

The group is committed to the principles of sustainable development, striking an optimal balance between economic, environmental and social development. We strive to innovate and adopt best practice, wherever we operate, working in consultation with stakeholders. In this regard the group publishes a sustainability report which forms part of this annual report.

Management and employees operate within a framework that requires compliance with all applicable laws and maintenance of the highest integrity in the conduct of the group’s business.

Employment and labour rights

The group subscribes to the principle of fair labour practices at our workplaces, and our conditions of service comply with applicable laws and industry standards. More detail on the group’s policies and practices is contained in the summary sustainability report here and the comprehensive report published on the group website: www.imperial.co.za.

Safety, health and environmental stewardship

We report regularly at executive level on our safety, health and environmental (SHE) performance.

Our objective is to prevent fatalities, work-related injuries and health impairment of our employees.

We recognise the need for environmental stewardship to minimise consumption of natural resources and waste generation, and to minimise the impact of our operations on the environment.

Senior executives and line management are accountable for the group’s SHE issues and for allocating adequate financial and human resources within their operations to address these matters. We work to keep SHE at the forefront of workplace concerns.

More detail on the group’s policies and practices appears in the summary sustainability report on here and the comprehensive report published on the group website: www.imperial.co.za