ONLINE ANNUAL REPORT 2010

KING III QUESTION AND ANSWER

1.

ETHICAL LEADERSHIP AND CORPORATE CITIZENSHIP

1.1 The board should provide effective leadership based on an ethical foundation
  The Board is responsible for directing the Group towards the achievement of the Massmart vision and mission. It is therefore accountable for the development and execution of the Group’s strategy, operating performance, financial results, and values as well as being the custodian of the Group’s corporate governance.

The Board believes that the Massmart Group must act ethically and in a sustainable manner in the longer-term interests of all key stakeholders and of the natural environment in which the Group operates. These stakeholders are contemplated in the Massmart Vision and include customers, suppliers, employees, investors and the community.

Massmart insists that all its business partners, specifically directors, employees and suppliers, do business ethically and will not retain business partners that do not maintain the same standard of ethics as Massmart.
   
1.2 The board should ensure that the company is and is seen to be a responsible corporate citizen
  The Board considers the impact of the Group’s operations on the societies within which it operates by pro-active measurement of the Group’s impact on the environment (such as understanding our carbon footprint and energy consumption) and has active Corporate Social Responsibility programmes and policies based on pre-defined levels of expenditure.
   
1.3 The board should ensure that the company’s ethics are managed effectively
  Since 2004, Massmart has had a Code of Ethical Practice in its desire to achieve the highest standards of ethical behaviour.

This Code has been communicated widely throughout the Group and there are formally appointed and trained Ethics Officers at Group and Divisional level. The Group is an active member of the SA Institute of Ethics.

Annually, our suppliers are reminded by a letter from the CEO that any concerns in respect of ethical behaviour can be reported directly to him or to the Ethics Hotline.

The Group uses an independently operated Ethics Hotline to which any customer, employee or supplier may report alleged unethical behaviour. Posters communicating our ethical standards and the details of this Hotline are visible in almost every area of the Group’s stores, offices and warehouses.

Included on here is a summary of the number and nature of the ethics calls received by this independent operator over the past year.
   

2.

BOARDS AND DIRECTORS

2.1 The board should act as the focal point for and custodian of corporate governance
  The Board has a charter setting out its roles and responsibilities, and key aspects of this are disclosed in the Annual Report. The Board has four quarterly Board meetings, an annual strategy day and will meet on an ad hoc basis if a situation demands it. Full details of the past year’s Board and Committee meetings, and directors’ attendances thereat, can be found here.
   
2.2 The board should appreciate that strategy, risk, performance and sustainability are inseparable
  Annually the Group’s Divisional executives formally present their three-year strategies to the Board, both in writing and through presentation. These strategies must be aligned with the Board-approved Vision and Mission for the Group and also address positive or negative effects of the Group on stakeholders, and all dimensions of the Vision must be addressed in formal Divisional strategies. The first year of the strategy period represents the following year’s budget.
   
2.3 2.13 Refer to principles elsewhere in King III that are already listed in this Question and Answer review.
   
2.14 The board and its directors should act in the best interests of the company
  Directors are encouraged to attend any Board or executive meeting within the Group’s Divisions in an effort to better understand the business, its leadership and their skills and competence.

At each Board meeting directors are required to confirm in writing any changes to their interests that have been previously disclosed in detail to the Board.

Directors are encouraged to take independent advice, at the Company’s cost, for the proper execution of their duties and responsibilities. No directors availed themselves of this during the 2010 financial year.
   
2.15 The board should consider business rescue proceedings or other turnaround mechanisms as soon as the company is financially distressed as defined in the Act
  The Board has developed various reporting metrics that are included in the quarterly Board meetings’ papers. Included in these metrics are liquidity and solvency ratios, cash flow analysis, details of bank facilities and reports on working capital performance.

Happily, at no time has the Board had to consider business rescue proceedings for the Group or any division within the Group.
   
2.16 The board should elect a chairman of the board who is an independent non-executive director. The CEO of the company should not also fulfil the role of chairman of the board
  Mark Lamberti was appointed as Massmart’s non-executive Chairman on 1 July 2007 and, as he was previously the Massmart CEO, he could not be considered independent until June 2010. Given this three-year milestone, 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 five Board Committees is held by independent directors.

 

Annually the Chairman’s performance is formally assessed and the feedback is collated by the Deputy Chairman and discussed with the Chairman.

The Board is responsible for its own composition, the appointment of the Chairman and the Chief Executive Officer (CEO), and for executive succession planning. Succession planning for the Chairman, non-executive directors and CEO is delegated to the Remuneration and Nominations Committee which considers these issues annually.

   
2.17 The board should appoint the chief executive officer and establish a framework for the delegation of authority
  The Board is responsible for the appointment of the CEO.

The framework for the delegation of authority is actioned through the Massmart Governance Authorities. These 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. These authorities are evaluated and updated annually, where necessary, by the Board.

The Board’s authority and control is devolved sequentially through the Board sub-Committees, Massmart Executive Committee, the Divisional Boards and the Divisional Executive Committees, as formally prescribed by the Governance Authorities.
   
2.18 The board should comprise a balance of power, with a majority of non-executive directors. The majority of non-executive directors should be independent
  The Board comprises two executive directors, being the CEO and CFO, and 11 independent non-executive directors.

The Board assesses its effectiveness annually, taking various factors into account, including the requisite skills and experience required to direct the Group, as well as the Board’s size, diversity and demographics.

All directors retire by rotation every three years. Unless requested by the Board to serve a further term, retiring directors are not proposed for re-election by the shareholders. In considering whether to propose a director for re-election, the Board takes into account various factors, including skills mix, diversity and succession planning.

This year the following directors retire by rotation: Messrs Kuseni Dlamini, Mark Lamberti and Nigel Matthews and Mmes Lulu Gwagwa and Phumzile Langeni.

Newly appointed directors are required to resign and to offer themselves for re-election at the first AGM following their initial appointment.
   
2.19 Directors should be appointed through a formal process
  The Remuneration and Nominations Committee assists the Board with the assessment, recruitment and nomination of new directors, but the Board must approve these appointments and Board members are invited to interview any potential appointees. The Committee thoroughly assesses potential new directors before appointment. Use may be made of third-party executive search agencies to provide such assurances.
   
2.20 The induction of and ongoing training and development of directors should be conducted through formal processes
  The Company Secretary is tasked with assisting the Board with induction of new directors and director orientation, development and education. This induction includes receiving copies of prior Board papers and the most recent Group strategy document, store visits with Group executives, and meetings with key executives, if necessary.

Directors are encouraged to remain abreast of major governance and regulatory developments and where applicable, the Board will receive formal presentations and notes on key topics. The Company Secretary assists with ongoing director development and education, using materials from the Group’s legal advisors and external auditors where necessary.
   
2.21 The board should be assisted by a competent, suitably qualified and experienced company secretary
  The Company Secretary, Mr Ilan Zwarenstein, is a qualified chartered accountant and was previously an audit partner at Grant Thornton. He is formally empowered by the Board to fulfil his duties and to assist the Board in fulfilling its functions.

Together with the Board and Committee Chairpersons, as appropriate, he ensures that: meetings are scheduled well in advance, meeting agendas are agreed beforehand and the appropriate papers are circulated timeously.
   
2.22 The evaluation of the board, its committees and the individual directors should be performed every year
  Annually all Board and Committee members complete detailed self-assessments covering the composition, duties, responsibilities, processes and effectiveness of the Committees. The results of these assessments are collated by the Company Secretary and sent in summarised form to the respective Committee Chairpersons for a formal written response.

The summarised results together with the Chairpersons’ written responses are then included in the Board papers for review and discussion at the November Board meeting.

Annually, the Board Chairman, Deputy Chairman and CEO assess the effort and contribution of each individual director, and where necessary provide verbal feedback to that director. Due to the personal nature of the findings of these individual reviews, they are not included in the Annual Report.
   
2.23 The board should delegate certain functions to well-structured committees but without abdicating its own responsibilities
  Each Board Committee’s charter or term of reference specifically documents that Committee’s scope, duties and responsibilities.

Annually in November, each Committee’s charter or term of reference is reviewed by the Committee and Board for relevance and completeness, and amended where necessary.

Details regarding the duties and responsibilities of each Committee, and its composition, can be found here.

The Board established an Audit Committee and a Remuneration and Nominations Committee in 2000. There are also Risk, Sustainability, and Strategy and Investment Committees. All committees comprise a majority of independent non-executive directors and are chaired by independent non-executive directors.

Directors are encouraged to take independent professional advice, at Massmart’s expense, in respect of the proper execution of their duties and responsibilities both as Board and Committee members.
   
2.24 A governance framework should be agreed between the group and its subsidiary boards
  [this principle relates to listed subsidiaries only]
   
2.25 Companies should remunerate directors and executives fairly and responsibly
  The Remuneration and Nominations Committee implements remuneration policies that enable it to recruit, retain and motivate the executive talent needed to achieve superior business performance in the short and longer term. Included here are policies on employee benefit funds, service contracts (if any), and retention and severance payments.

These policies strive for fixed remuneration at the median- to upper-quartile of comparable positions, but place particular emphasis on generous annual incentives for high growth and performance in order to motivate the executives. Finally, longer-term wealth creation – aligned with the creation of shareholder value through the Group’s market valuation – is underpinned by the Group’s employee share incentive plan.

Excluding some emigration in 2008, there has been very low executive turnover which suggests that the Group’s remuneration policies are appropriate and effective.

Non-executive directors’ fees are reviewed and established by the Committee. Directors’ attendance fees are not paid.
   
2.26 Companies should disclose the remuneration of each individual director and certain senior executives
  Details of individual directors’ remuneration are provided on here of this report, and explanations are provided for executive directors’ remuneration. In addition, details of executive remuneration policies are provided here.

Due to their specialised retail skills, the highly competitive South African retail environment and the specific employees’ value to Massmart, the Board has chosen not to disclose the remuneration of the most highly paid executives who are not directors.

Instead this information is disclosed in aggregate for the three executives concerned (see here). None of these executives earns a higher salary than either of the executive directors.
   
2.27 Shareholders should approve the company’s remuneration policy
  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 regarding this policy should contact the Chairman of either the Board or the Committee.

Non-executive directors’ fees are however, tabled for approval at each annual general meeting.
   

3.

AUDIT COMMITTEES

3.1 The board should ensure that the company has an effective and independent audit committee
  The Audit Committee’s charter was established by the Board and is annually reviewed and amended, if necessary, by both the Committee and the Board. The Committee’s composition, duties and responsibilities are incorporated within the charter.

The Committee meets at least three times a year and each meeting commences with an audience between only the Committee and the external auditors. The Committee Chairman meets quarterly with the Chief Audit Executive (CAE), Management is not present at these meetings.
   
3.2 Audit committee members should be suitably skilled and experienced independent non-executive directors
  The Committee comprises four independent non-executive directors, each of whom have the requisite financial and commercial skills and experience to contribute to the Committee’s deliberations. The Board elects the Audit Committee members, assisted as is necessary by the Remuneration and Nominations Committee.

The Committee Chairman also chairs the Risk Committee given the overlap between those two bodies.

Committee members regularly receive technical updates from the external auditors and legal advisors. With the prior approval of the Chairman, any Committee member may seek external professional advice, at the Company’s expense, on any issue.
   
3.3 The audit committee should be chaired by an independent non-executive director
  Nigel Matthews, an independent non-executive director, is Chairman of the Committee. He attends the Company’s annual general meeting (directors’ attendance at the AGM is shown here).
   
3.4 The audit committee should oversee integrated reporting
  The Audit Committee reviews the interim and preliminary financial results and associated announcements, and recommends these to the Board for approval. The Committee also reviews the integrated report which includes detailed reviews by each of the CEO, CFO and the four Divisional CEOs as well as a thorough review of sustainability issues.

The Committee has approved the use of an external assurance provider with regard to material sustainability issues but this will only be effective for the 2011 financial year. For the last five years Massmart Internal Audit has provided this assurance.
   
3.5 The audit committee should ensure that a combined assurance model is applied to provide a co-ordinated approach to all assurance activities
  Through formal reports included in Committee papers and the attendance of all key executives involved with assurance, the Audit Committee is provided with a thorough review of the Group’s assurance activities. These reports include the principles of combined assurance through reports from management, Internal and external audit and these also note reliance that has been placed upon other assurance providers. Attendees at most Committee meetings would include: the CEO, CFO, CAE, external audit representatives, and two members of the Risk Committee (being also members of the Audit Committee).
   
3.6 The audit committee should satisfy itself of the expertise, resources and experience of the company’s finance function
  Annually the Committee considers the suitability of the CFO and the Group’s finance function, and its opinion is noted here.
   
3.7 The audit committee should be responsible for overseeing of internal audit
  The Committee is responsible for overseeing the Internal Audit function, through a functional reporting relationship to the Audit Committee and specifically the Audit Committee Chairperson. For practical purposes and to maintain an excellent working relationship with management, the CAE reports administratively to the CFO. The Audit Committee, CAE, CFO and CEO believe that there is no conflict as a result of this reporting relationship. The scope, findings and opinions of Internal Audit are not interfered with and the CAE and the Audit Committee are satisfied with this. Although not used to date, the CAE has unfettered access to any non-executive director or the Chairman where issues of independence could be raised if necessary.

Annually, the Committee approves the Internal Audit work plan, staffing, resources and operating budget, and thereafter monitors progress with the audit work plan and results which are reported upon at each Audit Committee meeting.

A few years ago the Committee engaged an external professional to conduct a quality review of the Internal Audit function. The review’s findings were extremely positive.

The Audit Committee, CEO, CFO and the CAE agree that the performance assessment of the CAE is appropriately managed with input where necessary from the Audit Committee. The appointment or dismissal of the CAE would be mutually agreed to between the Audit Committee, the CEO and CFO.
   
3.8 The audit committee should be an integral component of the risk management process
  As noted in 3.5 above, given the width and depth of the information presented to the Committee, the Committee is an integral component of the Group’s risk management process.

As regards IT systems, on a cyclical basis the key general, security and application controls on the Group’s major IT systems are reviewed by experts employed by the external or internal auditors. Massmart Internal Audit is intimately involved in assessing the IT control environment and the Group adopted the COBIT governance approach to IT several years ago. Senior Internal Audit personnel attend the Group’s TIP Forum (see here) where all major IT developments and projects are signed-off. Massmart Audit is involved in auditing every significant IT project based in the Group.
   
3.9 The audit committee is responsible for recommending the appointment of the external auditor and overseeing the external audit process
  The Audit Committee is responsible for recommending appointment of the proposed external auditor to the shareholders at the AGM.

Annually, the external auditor’s engagement letter and audit fees, recommended by the CFO, are approved by the Committee. The external auditors regularly confirm their independence, which opinion is considered by the Committee.

The Committee has defined the nature and extent of non-audit services that may be provided by the external auditors, and has limited the total fees that may be paid for those services to less than 50% of the total normal audit fee.
   
3.10 The audit committee should report to the board and shareholders on how it has discharged its duties
  The Audit Committee Chairman reports regularly to the Board both in writing and verbally; and annually, prior to the release of the Group’s preliminary results, the lead partner of the external auditors addresses the Board.

The Committee’s report to shareholders is shown here and includes details on the role of the Committee, members’ attendances at meetings, and confirmation of the control environment.
   

4.

THE GOVERNANCE OF RISK

4.1 The board should be responsible for the governance of risk
  The Board has mandated the Risk Committee, through its charter, to oversee the design, maintenance and reporting of a sound system of risk management and control with regard to all key aspects of the business and is reported here.

This Committee necessarily works closely with the Audit Committee.
   
4.2 The board should determine the levels of risk tolerance
  The Board does not explicitly determine levels of risk tolerance and/or risk appetite for the Group. Instead, these would effectively be reviewed, and assessed by the Board, on an ongoing basis through regular reports and financial analysis and evaluation by the CEO and CFO, as well as the Audit and Risk Committees. Risk is an agenda item at the Board meeting and this is also cascaded through the Executive Committee and Divisional Boards.
   
4.3 The risk committee or audit committee should assist the board in carrying out its risk responsibilities
  The Risk Committee directly – and the Audit Committee indirectly – oversees the Group’s risk management programme. There are four independent non-executive directors on the Committee, as well as two Group executives and the CAE.

The Committee meets annually in July to consider the Group’s risk landscape and annually in November to consider the Group’s insurance arrangements together with the Group’s insurance brokers. Annually in February an interim Group risk report is prepared by the CFO for the Committee.
   
4.4 The board should delegate to management the responsibility to design, implement and monitor the risk management plan
  Management is responsible for the design, implementation and monitoring of the risk management plan. As part of this, risk is an agenda item on all Divisional executive meetings and the quarterly Divisional Board meetings.

The Group Risk Officer is the CFO and each Divisional Finance Director is the Risk Officer for that Division.
   
4.5 The board should ensure that risk assessments are performed on a continual basis
  Risks across the Group are monitored and reported to the Board directly through the Audit and Risk Committees, and indirectly through the reports of the CEO and CFO. Annually, the Risk Committee tables the Group Risk Report and Risk Register for review and confirmation by the Board.
   
4.6 The board should ensure that frameworks and methodologies are implemented to increase the probability of anticipating unpredictable risks
  The Board is comfortable that the Group’s risk management framework and processes are adequate but is aware that the nature and essence of risk – being both uncertain and unpredictable – means that in isolated cases this process may, with hindsight, appear to have been inadequate.
   
4.7 The board should ensure that management considers and implements appropriate risk responses
  Responded to in 4.5 and 4.6 above.
   
4.8 The board should ensure continual risk monitoring by management
  Responded to in 4.5 and 4.6 above
   
4.9 The board should receive assurance regarding the effectiveness of the risk management process
  Responded to in 4.5 and 4.6 above.
   
4.10 The board should ensure that there are processes in place enabling complete, timely, relevant, accurate and accessible risk disclosure to stakeholders
  Massmart’s risk management process, and the ten key Group risks identified by that process, is disclosed in the integrated report.
   

5.

THE GOVERNANCE OF INFORMATION TECHNOLOGY

5.1 The board should be responsible for information technology (IT) governance
  The Board has delegated IT governance to management. Governance over significant IT risks is formally overseen by the Technology, Information and Process (TIP) Forum, which forum is chaired by a member of the Group Executive Committee and attendees include all Divisional IT Directors and the CAE who attends to provide independent governance, advice or input.

Annually, the Chairman of the Group’s TIP Forum gives a presentation to the Board of the major Group and Divisional IT initiatives, key service providers and risk areas.

The external auditor reviews key computer controls and reports its findings to the Audit Committee, as does Internal Audit which uses the COBIT governance assessment methodology.
   
5.2 IT should be aligned with the performance and sustainability objectives of the company
  Each Division has an IT strategy that is aligned to its strategic and business objectives.
   
5.3 The board should delegate to management the responsibility for the implementation of an IT governance framework
  Management is responsible for the design, implementation and operation of the structures and processes required for IT governance. There is no Group Chief Information Officer but management has established the TIP Forum (see 5.1) which very effectively executes the IT governance mandate and these are reviewed by external and internal audit (also discussed in 5.1 above).
   
5.4 The board should monitor and evaluate significant IT investments and expenditure
  The TIP Forum is responsible for approving all major IT developments and projects, including the financial investment and return. Those IT services that are outsourced – relating mainly to networks, desk-top support and off-site data storage – are regularly reviewed by both Internal and external audit. The Divisional Boards approve project expenditure within their governance limits and only after recommendation by the TIP Forum for significant projects.
   
5.5 IT should form an integral part of the company’s risk management
  Management and the Board are fully alert to the vulnerability of the Group’s operations to the proper functioning of all key IT equipment and processes. Formal disaster-recovery programmes are therefore in place for all Divisions and for all major IT functionalities. These programmes form part of a broader business continuity planning (BCP) framework that has considerably matured in the past year.
   
5.6 The board should ensure that information assets are managed effectively
  Management and the Board are cognisant that the storage, management, manipulation and confidentiality of IT data is crucial. The TIP Forum is mandated to monitor and address these issues continually, effected by each Divisional IT leader and assurance is assessed by internal and external audit.
   
5.7 A risk committee and audit committee should assist the board in carrying out its IT responsibilities
  Both the Risk and Audit Committee play essential roles in assisting the Board with its IT responsibilities. As noted elsewhere (see 3.8), both Committees receive regular and thorough exposure to the key control issues associated with this topic.
   

6.

COMPLIANCE WITH LAWS, RULES, CODES AND STANDARDS

6.1 The board should ensure that the company complies with applicable laws and considers adherence to non-binding rules, codes and standards
  The Group is committed to complying with all legislation, regulations and best practices relevant to our business, in every country where we conduct business. This is monitored through both prevention and detection approaches.

Through regular interactions with corporate lawyers and key decision-makers in government and civil service, the Group attempts to keep abreast of all intended or promulgated legislation. The Group’s Internal Audit team assesses significant legal risks and the level of compliance as part of its regular procedures.

The Group utilises experts in non-South African countries to perform evaluations on relevant applicable legislation and compliance effectiveness.

Most issues concerning compliance would be reported to the Audit Committee which would bring the more material issues to the Board’s attention. Material breaches would also be reported by either the CEO or CFO.
   
6.2 The board and each individual director should have a working understanding of the effect of the applicable laws, rules, codes and standards on the company and its business
  Directors are encouraged to remain abreast of major governance and regulatory developments and where applicable, the Board will receive formal presentations and notes on key topics. New proposed legislation that may have onerous consequences for the Group will specifically be brought to the Board’s attention through the executives and/or external professionals.
   
6.3 Compliance risk should form an integral part of the company’s risk management process
  As part of the recently created Compliance function, the Divisional Finance Directors act as Compliance Officers for their Divisions, and so any material compliance issues would be reported through either the Audit Committee or Risk Committee channels, as appropriate.
   
6.4 The board should delegate to management the implementation of an effective compliance framework and processes
  The Board has delegated the implementation of an effective compliance framework and process to management. Not wishing to impose a potentially bureaucratic process on the workings of the Group, management followed a similar approach to the implementation of the Risk Management framework by incorporating the Compliance role within existing reporting and management structures. As noted elsewhere, the Group Compliance Officer is the CFO and the Divisional Finance Directors are the compliance Officers for their respective Divisions.
   

7.

INTERNAL AUDIT

7.1 The board should ensure that there is an effective risk-based internal audit
  Massmart has a very effective Internal Audit department which performs invaluable work in providing assurance on all key aspects of the Group’s risks, employees, operations and assets.

The Internal Audit department applies a risk-based approach that aligns its audit methodology to the internal and external risks facing Massmart. Through formally documented risk assessments, thorough audit field work and high quality personnel, Internal Audit is able to provide a reliable opinion on the level of assurance that can be placed on the management of the Group’s risk governance and control processes and provides the Audit Committee and Board with an annual risk assurance assertion.

The responsibilities of Internal Audit are defined and governed by a charter reviewed annually by the Audit Committee.

The CAE regularly meets with the Audit Committee Chairman and Massmart executives to discuss risks and challenges across the Group’s operations and external environment.

The Internal Audit department complies fully with the International Standards for the Professional Practice of Internal Auditing as promulgated by the Institute of Internal Auditors and has previously been independently reviewed.
   
7.2  Internal audit should follow a risk-based approach to its plan
  The Audit Committee and Board believe that Massmart Internal Audit is a very effective and independent, objective body providing assurance to all the key dimensions of the Group’s risk, governance and control.

The external auditors place reliance on many aspects of the department’s audit coverage and Internal Audit place reliance on other assurance providers’ work once satisfied that their methods can be relied upon.
   
7.3 Internal audit should provide a written assessment of the effectiveness of the company’s system of internal controls and risk management
  Internal Audit provides an annual assurance assertion to the Audit Committee and Board, which includes internal control, internal financial control, governance, risk management and IT.
   
7.4 The audit committee should be responsible for overseeing internal audit
  To ensure independence, the CAE reports functionally to the Audit Committee and, only from an administrative perspective, to the CFO who encourages Internal Audit’s independence and does not interfere with audit scope or opinion. The hiring and dismissal of the CAE is subject to final approval by the Audit Committee. The evaluation of the performance of the CAE includes the Audit Committee’s input too.

The Internal Audit department has the unequivocal support of the Board and Audit Committee and has unrestricted access to any part of, or person or committee, in Massmart.

Internal Audit’s annual audit plan and resource needs are pre-approved by the Audit Committee.

The CAE presents formal reports to the Audit Committee and attends all meetings by invitation. In addition, the Audit Committee Chairman and CEO, separately, meet quarterly with the CAE.
   
7.5 Internal audit should be strategically positioned to achieve its objectives
  Internal Audit reports functionally to the Audit Committee and the CAE holds a senior executive position of influence within the organisation. Despite the Internal Audit department reporting to the CFO, the Board and Audit Committee are both satisfied that this crucial team functions in a wholly objective and independent manner.

The CAE has many years’ operational, IT, Supply Chain and audit experience in Retail and leads a multi-functional team of appropriately qualified employees. The CAE has a standing invitation to attend the Group and/or Divisional Executive Committee meetings, Board meetings or strategy sessions.
   

8.

GOVERNING STAKEHOLDER RELATIONSHIPS

8.1 The board should appreciate that stakeholders’ perceptions affect a company’s reputation
  The Board and management carefully monitor and measure Massmart’s reputation and the perceptions of key stakeholder groupings. These key groupings are: customers, employees, suppliers, investors and the community.
   
8.2 The board should delegate to management to pro-actively deal with stakeholder relationships
  The key stakeholder groupings, being: customers, employees, suppliers, investors and the community, are monitored, measured and reported upon in different ways. Some would be formal and structured, for example, customer intercept surveys, web-based employee surveys, or written supplier surveys, whilst others may rely on regular interactions with representatives from the various stakeholder groupings.

The Group’s policies as regards key stakeholder groupings are spelt out in the Sustainability section. In addition, the key results and findings of interactions with these groupings are disclosed.

Shareholders are welcome at Massmart’s AGM but, in common with many other South African companies, attendance outside of Corporate sector representatives is almost non-existent.
   
8.3 The board should strive to achieve the appropriate balance between its various stakeholder groupings, in the best interests of the company
  The Board is alert to the inherent conflict between the demands of the different stakeholder groupings, but believes that it is possible to achieve a position of sustainable compromise that balances the demands of all stakeholders. As noted above however, this requires regular monitoring and measurement to ensure its sustainability.
   
8.4 Companies should ensure the equitable treatment of shareholders
  The Board is careful to treat all Massmart ordinary shareholders equitably. The CEO and CFO meet periodically with major institutional shareholders at their request but this does not preclude any other shareholder requesting a meeting with the CEO or CFO.
   
8.5 Transparent and effective communication with stakeholders is essential for building and maintaining their trust and confidence
  Subject to the rules and regulations of the JSE, all announcements and disclosures are distributed widely through the electronic media and posted to all shareholders unless they have elected not to receive these communications. The CEO and CFO endeavour to communicate in clear and uncomplicated language the strategies, operations and financial results of the Group.

The Board is not aware of any material requests under the Promotion of Access to Information Act that were either complied with or denied. In addition, our website includes a link to the Audit Committee should this be required. To date nothing has been brought to the Committee’s attention through this mechanism.
   
8.6 The board should ensure that disputes are resolved as effectively, efficiently and expeditiously as possible
  The Board does not have a formal dispute resolution programme. Should any situation arise that may require formal dispute resolution the Board would consider alternatives which, failing intervention by either the Board Chairman or CEO, may include use of independent legal counsel or arbitration.
   

9.

INTEGRATED REPORTING AND DISCLOSURE

9.1 The board should ensure the integrity of the company’s integrated report
  The Board and the Audit Committee is careful to ensure that the Group’s integrated report includes all key issues, is easy to read and understand, and addresses the legitimate concerns of key stakeholder groupings.

The success of this approach has been recognised externally. The Massmart Annual Report has been rated Excellent for the last five years in the annual Ernst & Young Corporate Reporting awards in South Africa. In addition, our 2006, 2007, 2008, and 2009 annual reports came 3rd, 4th, 9th and 4th in all categories in those respective years.
   
9.2 Sustainability reporting and disclosure should be integrated with the company’s financial reporting
  The Massmart Board focuses closely on full and effective disclosure of all aspects of its strategies, operations and financial performance, and ensures that all key successes and failures are usefully reported and commented upon.
   
9.3 Sustainability reporting and disclosure should be independently assured
  The Sustainability Committee has specific oversight on those sustainability areas covered in the integrated report but the entire report would be reviewed by the Audit Committee and recommended to the Board for approval.

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