WELCOME TO OUR ONLINE ANNUAL REPORT 2011

Corporate governance

Massmart believes that the first steps towards good corporate governance must include embracing the requirements of the relevant governance and regulatory frameworks, as well as 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 regardless of the circumstances.  

The primary South African corporate governance framework is the King III Report on Corporate Governance, which forms the backbone of 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 2011 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 should be an independent non-executive director. Mark Lamberti was appointed non-executive Chairman in July 2007 and, as he was previously the CEO of Massmart, he could not be considered independent until June 2010. The Board is therefore 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 two of the three Board Committees is held by independent directors.
  • Following the Walmart transaction, the reconstituted Board does not have a majority of independent non-executive directors as required by King III. In mitigation, the majority of the non-executive directors are independent, as are the Chairman and Deputy Chairman.
  • 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 value than they might do within the confines of a formal meeting. In addition, the directors have a record of high attendance at Board and Committee meetings.
  • The Board does not 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 the Board, who is also Chairman of the Committee.
  • The head of the Group's Internal Audit function, the Chief Audit Executive (CAE), does not report solely 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 have 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 independent 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 Massmart Internal Audit Services. A copy of the agreed-upon procedures report is available at the registered offices of the Company.
  • The Chairman of the Remuneration and Nominations Committee is also Chairman of the Board.

Impact of the Walmart transaction

The acquisition by Walmart of 51% of Massmart became effective on 20 June 2011. Several changes to the composition of the Board and the Committees were then implemented. These had been described in earlier communication to shareholders, including the shareholdersĂ­ circular covering the approval of the transaction.
 

The changes are described below:

  • Messrs Dods Brand, Kuseni Dlamini, Jim Hodkinson, Nigel Matthews, Peter Maw, Michael Rubin and Ms Dawn Mokhobo resigned from the Board.
  • Messrs Doug McMillon, Jeffrey Davis and JP Suarez who joined the Board are the Walmart appointees.
  • The executive directors, Messrs Grant Pattison and Guy Hayward, remained on as CEO and CFO respectively, and non-executive directors Messrs Mark Lamberti and Chris Seabrooke and Ms Phumzile Langeni and Dr Lulu Gwagwa also remained on the Board.
  • The composition of the Board Committees was amended and these are noted in the respective sections below.

Finally, during the year, some aspects of the Board's usual corporate governance processes were interrupted or suspended as a result of the demands of the Walmart transaction which required ad hoc Board meetings and, given its significance to the Group, often dominated the agenda of quarterly Board meetings. Specifically, the May 2011 Board meeting was cancelled, although the usual papers were circulated, and the annual Board and Committee self-assessment processes were skipped given the intended changes to the composition of both the Board and those Committees.