ONLINE ANNUAL REPORT 2010

CORPORATE GOVERNANCE

Massmart believes that the first steps towards good corporate governance must include embracing the requirements of the relevant governance framework and corporate best practice. More than this, Massmart believes that sustainable and effective corporate governance is best demonstrated through a consistent pattern of ‘doing the right thing’, through good times and bad.

The primary corporate governance framework in South Africa is now the recently released King III Report on Corporate Governance, which forms the backbone to Massmart’s own corporate governance framework; in addition Massmart applies high ethical standards which are considered essential for any governance framework to operate in.

In addition to this corporate governance framework, the Group is committed to complying with all legislation, regulations and best practices relevant to our business, in every country where we conduct business.

For the 2010 financial year, apart from the exceptions outlined immediately below, the Board confirms that the Group complied with the Code of Corporate Practices and Conduct as set out in the King III Report.

EXCEPTIONS TO KING III

  • The King III Report states that the chairman of the board be an independent non-executive director. Mark Lamberti was appointed non-executive Chairman on 1 July 2007 and, as he was previously the CEO of Massmart, he could not be considered independent until June 2010. The Board is satisfied that Mark Lamberti should now be considered an independent director. Recognising however that some may differ with this view, Chris Seabrooke, the non-executive Deputy Chairman, maintains his role as the Group’s Lead Independent Director. In addition, to ensure good governance, and as recommended by King III, the chairmanship of each of the four Board Committees is held by independent directors.
  • The King III Report requires that the salaries of the three most highly-paid employees who are not executive directors should be disclosed. Due to their specialised retail skills, the highly competitive South African retail environment and the employees’ value to Massmart, the Board does not wish to disclose this information for each of the individuals but has instead disclosed the total salaries of the three employees concerned here. None of the employees earns a higher salary than either of the executive directors.
  • The Board does not believe that directors should earn attendance fees in addition to a base fee. Many directors add significant value to the Group outside of the formal Board and Committee meetings, sometimes greater than they might do within the confines of a formal meeting.
  • The Board does not intend to ask the shareholders for non-binding approval for the Group’s remuneration policies. The rationale and basis for the Group’s executive remuneration policy is carefully considered by the Remuneration and Nominations Committee and is documented in the annual reports. Shareholders with concerns at this policy should contact the Chairman of either the Board or the Committee.
  • The head of the Group’s Internal Audit function, the Chief Audit Executive (CAE), does not report to the Audit Committee. Instead, the CAE reports administratively to the CFO but functionally to the Audit Committee. The Committee believes that the CFO respects and encourages the independence of the CAE and his department, and that the CAE, in turn, is able to maintain his independence despite his administrative reporting-line to the CFO.
  • The Board does not intend to institute a formal dispute resolution process as it believes that the existing processes within the Group operate satisfactorily and do not require a more formal and separate mechanism.
  • Contrary to the recommendations in the King III Report, the Board is unable to remove directors without shareholder approval, except where a director retires by rotation. The Board believes that all directors’, but particularly non-executive directors, represent the Company’s shareholders and so it should be the shareholder body that finally approves a director’s appointment or dismissal from the Board.
  • The King III Report requires that the Company’s sustainability report be audited by an independant external professional. Massmart’s sustainability report has not been audited but verification of the key sustainability metrics here have been obtained through agreed upon procedures performed by Deloitte & Touche. A copy of the agreed upon procedures report is available at the registered offices of the Company.

THE BOARD

The Board of Massmart is responsible for directing the Group towards the achievement of the Massmart vision and mission. The Board is therefore accountable for the development and execution of the Group’s strategy, operating performance and financial results, as well as being the custodian of the Group’s corporate governance. The Board appreciates that strategy, risk, performance and sustainability are inseparable.

The Board is responsible for its own composition, the appointment of the Chairman and the Chief Executive Officer, and the constitution and composition of its Committees. The Board has a charter setting out its policies, roles and responsibilities in the execution of its mandate described above. Each Board Committee also has a charter, or terms of reference, that is formally signed off by the Board. Annually in November the Committees and Board review, and amend if necessary, the respective charters to ensure their relevance.

The role of all directors is to bring independent judgement and experience to the Board’s deliberations and decisions. With effect from July 2010, the Board comprises two executive directors and 11 independent non-executive directors.

The Remuneration and Nominations Committee prepares and circulates a questionnaire aimed at gauging the independence status of each non-executive director. This is completed by each non-executive director and returned to the Committee, which then considers each director’s independence.

The Board comprises:

  • Two Executive Directors; and
  • 11 Independent Non-executive Directors.

The Committee feels that the following aspects are important in assessing a non-executive director’s independence:

  • Whether the director had been employed in an executive capacity in the Group within the last three years;
  • Whether the director had served on the Board for longer than nine years. In this case, the Committee considers whether that director’s independence, judgement and contribution to the Board’s deliberation could be compromised, or may appear to be compromised, by this length of service;
  • Whether the director was a representative of a major shareholder; and
  • Whether the proportion of that director’s shareholding in Massmart (if any) or director’s fees represented a material part (10% or more) of their wealth or income.

In addition to the above, the Committee considers whether the director is independent in character and judgement and whether there are circumstances which are likely to affect, or could appear to affect, the director’s judgement. Having considered the responses and circumstances of each non-executive, the Committee believes that with effect from June 2010 all non-executive directors can be considered independent. The Committee believes that no other non-executive director, or entities associated with or controlled by him/her, owns shares in Massmart which, relative to his/her personal wealth or income, are sufficiently material to affect his/her independence.

Read more

Biographical details of each Board member can be found here

Massmart at a Glance

The Company Secretary, Mr Ilan Zwarenstein, CA(SA), assists the Board in fulfilling its functions and is empowered by the Board to perform his duties. The Company Secretary, directly or indirectly:

  • Assists the Chairman, CEO and CFO with induction of new directors;
  • Assists the Board with director orientation, development and education;
  • Ensures that the Group complies with all legislation applicable/relevant to Massmart;
  • Monitors the legal and regulatory environment and communicates new legislation and any changes to existing legislation relevant to the Board and the Divisions; and
  • Provides the Board with a central source of guidance and assistance.

All directors retire by rotation every three years and, unless requested by the Board to serve a further term, retiring directors are not proposed for re-election by the shareholders. In addition, shareholders must ratify the initial appointment of each director at the first annual general meeting following that director’s appointment.

As a result of the requirement that all directors compulsorily retire after three years, at the 24 November 2010 annual general meeting the following directors retire by rotation but all offer themselves for re-election: Messrs Kuseni Dlamini, Mark Lamberti and Nigel Matthews and Mmes Lulu Gwagwa and Phumzile Langeni.

BOARD PROCESS AND EVALUATION

The Board meets four times a year and on an ad hoc basis should a particular issue demand its attention. In addition, the Board meets annually to formally consider and approve the strategies of the Massmart Divisions and Group.

The Board’s authority is devolved sequentially through the Massmart Executive Committee, the Divisional Boards and the Divisional Executive Committees, as formally prescribed by the Massmart Governance Authorities (described below). In addition, the Board has delegated certain specific responsibilities to five Board Committees, described more fully below. These Committees assist the Board and directors in discharging their duties and responsibilities under King III and the Governance Authorities. Full transparency of the Committees’ deliberations is encouraged and the minutes of all Committee meetings are included in the formal Board papers at the ensuing Board meeting. All directors are welcome to attend any Board Committee or Divisional Board meetings.

The Massmart Governance Authorities describe the specific levels of authority and required approvals for all major decisions at both Group and Divisional level. It clarifies which executive position, Committee or Board needs to be consulted prior to taking the decision, which body makes the decision and which bodies should thereafter be informed of the decision.

The Board works to a formal agenda that covers strategy, structure, operating performance, growth initiatives, sustainability, investor relations, risk and governance, and any other key activities of the Group. An annual agenda structure ensures that other areas including IT and compliance are addressed. Formal Board papers are prepared for every discussion item on the meeting’s agenda and are distributed timeously to Board members.

Directors are encouraged to take independent advice, at the Company’s cost, for the proper execution of their duties and responsibilities. During this financial year no director felt it necessary to seek such advice. They also have direct, unfettered access to the Group’s external auditors, professional advisors and to the advice and services of the Company Secretary.

Directors have unrestricted access to any executive, manager or employee in the Group.

Annually in September, the Remuneration and Nominations Committee facilitates a comprehensive formal performance evaluation of the CEO, comprising a self-evaluation, a questionnaire evaluating the CEO by every non-executive director, and an appraisal of the CEO by each of his direct reports using a different questionnaire. The Board Chairman provides the summary and feedback of the above to the CEO, and he is encouraged to probe and debate any aspect of the evaluation with the Board.

At the same time, all Board members complete a detailed Board self-assessment, covering the composition, duties, responsibilities, process and effectiveness of the Board. Similarly, all Board Committee members complete detailed self-assessments covering the same aspects of their committees. The results of these assessments are collated by the Company Secretary and sent in summarised form to the respective Board and Committee Chairpersons for a formal written response. The summarised results together with the Chairpersons’ written responses are included in the Board papers at the November meeting.

Finally, all Board members formally assess the Chairman’s performance and the Deputy Chairman provides the feedback. These assessments are approached in a constructive manner and provide valuable input that is used to enhance the effectiveness of the Chairman, the CEO, and the Board and its Committees.

BOARD AND COMMITTEE ATTENDANCE

The Strategy and Investment Committee did not meet during the 2010 financial year

Read more

Greater detail on each committee's terms of reference, activities and meetings held during the financial year are shown here

Corporate Governance

BOARD COMMITTEES

       
    Scheduled

meetings

   
  Composition Read more Responsibility
Audit Committee Nigel Matthews
Chris Seabrooke
Phumzile Langeni
Peter Maw
Three times during the year. More information on the activities and responsibility of the Audit Committee can be found here.
  • Overseeing the effectiveness of the Group’s internal control systems.
  • Reviewing the scope and effectiveness of the external and Internal Audit functions.
  • Ensuring that adequate accounting records have been maintained.
  • Ensuring the appropriate accounting policies have been adopted and consistently applied.
  • Reviewing and reporting on compliance with the King III Report.
  • Testing that the Group’s going-concern assertion remains appropriate.
  • Overseeing the quality and integrity of the annual financial statements.
      Corporate Governance
Remuneration and Nominations Committee Kuseni Dlamini
Mark Lamberti
Chris Seabrooke
Nigel Matthews
Dawn Mokhobo
Four times during the year. More information on the activities and responsibility of the Remuneration and Nominations Committee can be found here.
  • Designing, monitoring and communicating the Group’s remuneration policies.
  • Considering and approving executive remuneration including short- and long-term incentives.
  • The assessment, recruitment and nomination of new non-executive directors.
      Corporate Governance
Risk Committee Nigel Matthews
Dods Brand
Lulu Gwagwa
Guy Hayward
Peter Maw
Norman Gray
Kevin Vyvyan-Day
Twice during the year. More information on the activities and responsibility of the Risk Committee can be found here.
  • To oversee the Group’s risk management programme as contemplated in King III.
    Corporate Governance
Strategy and Investment Committee Mark Lamberti
Chris Seabrooke
Guy Hayward
Jim Hodkinson
Peter Maw
Grant Pattison
Did not meet during the year.  
  • To monitor issues that may materially affect Massmart’s strategy, financial health or shareholder value.
Sustainability and Transformation Committee Phumzile Langeni
Dods Brand
Grant Pattison
Brian Leroni
Pearl Maphoshe
Prof Derek de Jongh
Twice during the year.  
  • To assist the Group to discharge its business sustainability responsibility with respect to the implementation of practices that are consistent with transformation and good corporate citizenship.

EXECUTIVE COMMITTEE

Composition Scheduled meetings Read more Responsibility
Grant Pattison (CEO)
Guy Hayward (CFO)
Jan Potgieter (Massdiscounters Chief Executive)
Kevin Vyvyan-Day (Masswarehouse Chief Executive)
Llewellyn Walters (Massbuild Chief Executive)
Robin Wright (Masscash Chief Executive)
Joe Owens (New Formats Chief Executive)
Jay Currie (Retail Director Masscash)
Pearl Maphoshe (Group Human Capital Executive)
Brian Leroni (Group Corporate Affairs Executive)
Llewellyn Steeneveldt (Group Commercial Executive)
Monthly Biographical details of each Executive Committee member can be found here.
  • Deliberates and takes decisions or makes recommendations on all matters affecting Group strategy and operations, including risk management, and executive and senior management succession.
Massmart at a Glance

STRATEGY AND INVESTMENT COMMITTEE

The Strategy and Investment Committee comprises the CEO, the CFO, and Messrs Mark Lamberti (Chairman), Chris Seabrooke, Peter Maw and Jim Hodkinson, but other experts, internal or external, may be invited as appropriate.

The role of the Committee is to debate issues that may materially affect Massmart’s strategy, financial health or shareholder value, and, where appropriate or required, to make firm recommendations on these issues to the Board. These issues may include: major acquisitions or disposals; major commitments and investments; material new share issues; possible significant changes or threats to the Group gearing levels; and new debt structure or related-risk exposures.

The Committee meets on an as-required basis initiated by either a potential transaction greater than R400 million or when a material issue requires debate.

SUSTAINABILITY AND TRANSFORMATION COMMITTEE

The Sustainability Committee comprises Mmes Phumzile Langeni (Chairperson) and Pearl Maphoshe (Group Human Capital Executive), and Messrs Dods Brand, Brian Leroni (Group Corporate Affairs Executive) and an independent expert, Professor Derek de Jongh (Director: Centre for Responsible Leadership, The Facility of Economic and Management Sciences, University of Pretoria) who was appointed on 1 July 2009. Grant Pattison resigned from the committee on 25 August 2009.

The role of the Committee is to assist the Group with its responsibility towards sustainability with respect to practices that are consistent with good corporate citizenship. The Committee met twice during the financial year with the objective of reviewing Massmart’s Socially Responsible Investment Index, broad-based black economic empowerment, and sustainability reporting performance.

Performance in each of these areas is measured with reference to the Johannesburg Stock Exchange’s (JSE) Socially Responsible Investment Index criteria, the Department of Trade and Industry’s (DTI) Broad-based Black Economic Empowerment (B-BBEE) scorecard and the Global Reporting Initiative III guidelines.

The Committee is satisfied with Massmart’s sustainability performance and is particularly encouraged that the Group continues to exceed its interim B-BBEE target by now achieving Level 4 contributor status a year earlier than planned.

Further detail on the Group’s sustainability practices can be found in the section titled ‘Corporate Accountability’ here.

EXECUTIVE COMMITTEE

The Massmart Executive Committee is the most senior executive decision-making body in the Group. The Committee is chaired by the Chief Executive Officer (Grant Pattison) and comprises the Chief Financial Officer (Guy Hayward), Group Human Capital Executive (Pearl Maphoshe), Retail Director Masscash (Jay Currie), Group Corporate Affairs Executive (Brian Leroni), the four divisional Chief Executives (Jan Potgieter, Kevin Vyvyan-Day, Llewellyn Walters and Robin Wright), the Chief Executive of the New Formats Division (Joe Owens) and the Group Commercial Executive (Llewellyn Steeneveldt).

The Committee deliberates, takes decisions or makes recommendations on all matters of strategy and operations. Within the parameters described by the Board-approved Governance Authorities, the decisions or recommendations are sometimes referred to the Board or its relevant Committee for final approval, while in other cases the power to take decisions is delegated to Divisional Boards or Executive Committees.

The Executive Committee has specific responsibility, inter alia, for:

  • Monitoring and measuring the structures, trends and performance of markets and competition;
  • Strategic planning;
  • Defining, configuring, financing and structuring the Group’s portfolio of assets;
  • Shaping and approving the competitive strategies, operating plans and budgets of the Divisions and functional departments;
  • Measuring, monitoring and taking proactive corrective action on Divisional performance;
  • Ensuring adequate risk management, controls, governance, and compliance throughout the Group; and
  • Shaping and approving succession plans and senior executive management appointments.

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