Corporate governance

In their commitment to sound corporate governance principles the directors of Simeka adhere to the Code of Corporate Practices and Conduct set out in the King II Report.

The board does not consider this a static responsibility. In line with developments in corporate governance in South Africa and internationally, the directors continually monitor compliance to ensure ongoing improvement of operational and corporate practices. Significant advancements in corporate governance at Simeka during the year included:

• Initiating the process of appointing further independent non-executive directors to facilitate the balance of board level representation and the composition of the Audit Committee in line with the Corporate Laws Amendment Act;
• Commissioning an independent evaluation of group corporate governance to progress compliance with new regulation and international best practice (see below); and
• Appointing an internal auditor. In anticipation of the King III Report in September 2009 and the new Companies Act in mid-2010, the board had commissioned an independent evaluation of the group’s corporate governance in relation to the proposed new requirements. A further review will be conducted by the board following the release of the final King III Report in September 2009, after which corrective action for areas requiring attention will be implemented.

The board

The Simeka board is the focal point of the company’s corporate governance processes. It is responsible and accountable for the performance and affairs of the company and the group.

The unitary board is chaired by independent non-executive director Dr PS Molefe and further comprises four executive directors and three non-executive directors, two of which are independent. A brief curriculum vitae for each director is set out on pages 12 to 13 of the annual report. Post year-end Bashier Adam and Tozamile Botha resigned as non-executive directors with effect from 25 June 2009 and 1 October 2009, respectively. The directors are cognisant of the need to increase the number of independent directors and are currently undertaking an interview process to appoint appropriate candidates.

The responsibilities of the Chairman and CEO and the remaining executive and non-executive directors are strictly separated to ensure that no director can exercise unfettered powers of decision-making. The Chairman provides leadership and guidance to the board and encourages proper deliberation on all matters requiring the board’s attention while ensuring the board is efficient and operates as a unit. The CEO and executive directors are responsible for implementing strategy and operational decisions in respect of day-to-day operations. All non-executive directors are sufficiently qualified to contribute their independent and objective knowledge and experience to board deliberations.

Non-executive directors have unrestricted access to management and the group’s external auditors at any time. Further all directors are entitled, at the group’s expense, to seek independent professional advice on any matters pertaining to the group where they deem this to be necessary.

In terms of the Articles of Association one-third of the directors retire at each Annual General Meeting. Retiring directors are free to make themselves available for re-election at the Annual General Meeting, provided that they remain eligible as required by the Articles of Association and in compliance with the JSE Listings Requirements. Directors appointed between these meetings are equired to have their appointments confirmed at the Annual General Meeting. Directors A Evan, KJ Molefe, PS Molefe, S Montsi and NY Mhinga will retire at the upcoming Annual General Meeting, and with the exception of A Evan, being eligible will offer themselves for re-election.

A Board Charter codifies the board’s composition, procedures, duties and responsibilities as well as provides guidelines for the appointment of directors, succession planning and directors’ Corporate governance In their commitment to sound corporate governance principles the directors of Simeka adhere to the Code of Corporate Practices and Conduct set out in the King II Report. Simeka Business Group Annual Report 2009 15 remuneration. It sets out the primary responsibilities of the board and includes regular review of strategic direction and performance against approved plans, budgets and best practice standards.

To assist the board in discharging its duties, certain board responsibilities have been delegated to the Audit Committee and Remuneration Committee within a regulated framework of written authority. The board nonetheless recognises that it is ultimately accountable and responsible for the performance and affairs of the company and the group and that the use of these delegated authorities in no way absolves the board and its directors of the obligation to carry out their duties and responsibilities.

The board meets quarterly with additional meetings convened when necessary. Attendance at board and committee meetings during the year is set out below:

Board processes

New appointments

The board as a whole is responsible for appointing new directors and all board members are consulted on new appointments. The appointment process is conducted in a formal and transparent manner. In making new appointments, the committee and the board take into account skills and experience, calibre, ability to contribute meaningfully and concerns such as diversity.

A formal induction programme is in place for new board appointees which sets out  responsibilities and fiduciary duties, as well as advises on the relevant statutory and regulatory framework. The induction programme further includes site visits, introductions to key management and copies of interim and annual financial statements. The company secretary is responsible for implementing this induction programme.

In addition all new directors compulsorily attend the four-day AltX Directors Induction Programme run through the Wits Business School and endorsed by the Institute of Directors. The programme is comprehensive, covering pertinent aspects of company law, securities exchange regulations, the roles, responsibilities and liabilities of directors, basic techniques of financial analysis and the importance of investor and media relations.

Existing directors are provided with ongoing support and resources in order to expand and refresh their skills, knowledge and familiarity with the company and to maintain an international standard of operation and corporate governance. This includes continuing professional development in the form of regular
updates on changes in laws and regulations, site visits and professional and skills training courses organised by and at the expense of the company.

Succession planning

Simeka continually seeks to identify suitable candidates within the group to train and mentor for succession to senior management and the board. Mentorship and coaching programmes (in-house and external) are ongoing and short courses in conjunction with Wits Business School are offered. In the year ahead sychometric assessments will be conducted to assist in determining areas of development, identifying potential and supporting individual advancement. To further this a leadership rogramme for Simeka is being finalised in conjunction with the Gordon Institute of Business Science (GIBS).

Self-evaluation

The board conducts a self-assessment/self-evaluation annually.

The Remuneration Committee undertakes the evaluation of the CEO and other executive directors and EXCO evaluates the performance of the non-executive directors.

Feedback to the evaluations is currently being compiled and will be communicated to the board as a whole in due course. Any necessary steps to address areas of improvement will be put in place expeditiously.

Conflicts of interest and share dealings

Directors are required to disclose their shareholdings, additional directorships and any potential conflicts of interest to the Chairman and the company secretary. If there is a conflict of nterest in respect of a transaction involving a director, such director must recuse himself from deliberations in respect of
that transaction. Should the conflict of interest be ongoing the director is required to resign from the company.

In addition, directors and senior employees likely to have access o the company’s financial results and other price-sensitive information are prohibited from dealing in Simeka’s shares for specified time periods preceding the relevant announcements. The directors and senior employees are informed via e-mail when the company is entering a closed period. Any dealings in Simeka’s shares during appropriate times are reported to the Chairman and company secretary, who together with the Designated Advisor ensure that these dealings are published on SENS.

Legal and regulatory compliance

The company secretary together with key management is esponsible for monitoring the group’s compliance with the JSE Listings Requirements and the requirements of the ompanies Act, the Corporate Laws Amendments Act and other legislation applicable to Simeka. In this regard the group compiles an annual compliance checklist. Subsidiaries report to the company secretary who together with the Group Legal Officer, reports to the board.

Company secretary

The company secretary acts as advisor to the board and notifies the directors of any relevant regulatory changes and new developments in corporate governance. In addition she provides the board, individual directors and the sub-committees with guidance as to how their responsibilities should be discharged in the best interests of the company. The company secretary attends all board meetings at the invitation of the board, and is responsible for preparing a comprehensive agenda and board pack in advance of board and committee meetings and for accurately recording the minutes of these meetings.

Whenever deemed necessary she also reviews the rules and procedures applicable to the conduct of the affairs of the board. Where appropriate, the company secretary will involve the Designated Advisor and other experts in this regard to ensure that the directors have adequate information to discharge their responsibilities efficiently.

Board committees

The EXCO, Audit Committee and Remuneration Committee assist the board in discharging its responsibilities. These committees enhance governance and contribute to the performance of the group. The chair of each committee reports at each scheduled meeting of the board and minutes of the committee meetings are also provided. All committee chairmen are non-executive directors and are required to attend the Annual General Meetings of the company.

The board is of the opinion that the board committees set out on the following pages have effectively discharged their responsibilities as contained in their respective terms of reference for the year under review. Self-evaluations of the committees were carried out during the year in accordance with corporate
governance recommendations and best practice. Once feedback is finalised the findings will be communicated and actioned.

The board is currently re-evaluating the composition of the committees, for instance the Audit Committee, as it strives to meet legislative and best practice requirements.

EXCO

The EXCO is chaired by the CEO and further consists of the group’s titled executive directors, the company secretary and the divisional managing executives. The EXCO is responsible for the day-to-day running of the group, review of operations and maintenance and development of group strategy. It is further
responsible for the ongoing assessment and implementation of Simeka’s employment equity policy.

Audit Committee

“The information below constitutes the report of the Audit Committee in respect of the year under review of the company, as required by section 270A of the Corporate Laws Amendment Act.

Simeka is cognisant of the most recent legislative requirements that the committee comprise only independent  non-executive directors and is currently identifying and interviewing appropriate candidates in this regard.

Corporate governance continued Simeka Business Group Annual Report 2009 17 In the year under review the committee was chaired by nonexecutive director T Botha and consisted further of independent non-executive directors NY Mhinga and KJ Molefe. The CEO, CFO, external auditors and Designated Advisor are invited to attend all meetings.

The committee met twice during the year, which the directors believe is sufficient for the purpose of discharging the committee’s responsibilities. The Audit Committee is governed by an Audit Committee Charter. Although the current charter does comply materially with King II and the recommendations of King III, it will nonetheless be reviewed during the current year to improve in accordance with recent legislative and best practice developments. In terms of the Charter the committee is tasked with:

• Monitoring compliance with codes of conduct and the ethical conduct of the company;
• Reviewing the group’s adherence to corporate governance principles and regulations/legislation;
• Evaluating the independence and effectiveness of the external auditors and recommending their appointment;
• Reviewing the annual financial statements and interim reports;
• Approving any non-audit services performed by the external auditors and setting the formal policy in this regard;
• Reviewing the effectiveness of the group’s information systems, systems of internal control, risk management policies and internal audit function;
• Determining the key risk areas facing the group and recommending risk mitigation measures;
• Assessing and advising on potential acquisitions; and
• Advising and updating the board on issues ranging from accounting standards and published financial information to financial implications of major transactions.

The committee considered the independence of the external auditors PKF (Pta) Inc. in accordance with section 270A of the Corporate Laws Amendment Act and was of the view that the external auditors were independent of the company. The committee nominated, subject to the endorsement of the board and the approval of shareholders, the appointment of Mazars Moores Rowland as the independent registered audit firm and Mark Snow as the individual registered auditor of the company. The external auditors report to the committee at each meeting and the committee approves auditing fees. The external
auditors have unrestricted access to the Audit Committee and its chairman at all times.

The company’s policy on non-audit services, which is reviewed annually by the committee, sets out which services may or may not be provided by the company’s external auditors.

The committee considered and is satisfied with the expertise and experience of the company’s CFO, S Singh.

The committee conducts an annual self-evaluation exercise to review and assess its own performance in terms of the Charter. Recommendations are tabled at the next meeting and actioned as soon as possible. This was completed during the year and feedback will shortly be communicated and addressed.”

Remuneration Committee

The Remuneration Committee was chaired during the year by non-executive director T Botha and further consists of independent non-executive directors NY Mhinga and KJ Molefe. The committee met four times during the year.

Remuneration philosophy

Simeka aims to attract and retain dedicated, entrepreneurial candidates passionate about their jobs. To this end basic salaries are as far as possible market-related with incentives based on performance assessments against predetermined key deliverables. Through the share incentive scheme, employees will be shareholders in the company to the extent commensurate with their level of employment, ensuring that they participate in wealth creation and aligning their interests with those of all stakeholders.

Accounting and auditing

External audit

The external auditors are responsible for reporting on whether the financial statements are fairly presented in compliance with IFRS. Their audit includes an assessment of internal controls. The preparation of the annual financial statements remains the responsibility of the directors.

Internal audit

During the year a formal internal audit function was introduced in light of the group’s growth. An internal auditor has been appointed to head this function. He will be required to report to the Audit Committee at each meeting. The internal audit function is tasked with:

• Evaluating the risk management processes and the group’s exposure to risk;
• Evaluating the adequacy and effectiveness of controls;
• Assessing the corporate governance process; and
• Establishing appropriate policies and procedures for the internal audit function. The internal auditor will be required to ensure that the internal audit resources are appropriate and sufficient and that the team as the appropriate professional qualifications and skills to maintain the internal audit competence.

Internal control and risk management

Internal control

The board is responsible for the group’s systems of internal control and risk management, assisted by the new internal auditor and Audit Committee. These systems of internal control are designed to provide reasonable but not absolute assurance as to the integrity and reliability of the financial statements and
to safeguard and maintain accountability of the group’s assets. These systems also provide reasonable but not absolute assurance regarding compliance with statutory laws and regulations and the maintenance of proper accounting records.

The group’s systems of internal control are further designed to detect and minimise significant fraud, potential liability, loss and material misstatement. There are inherent limitations to the effectiveness of any system of internal control, including the possibility of human error and the circumvention or overriding of controls. The system is therefore designed to manage rather than eliminate risk of failure and opportunity risk.

A breakdown in the underlying controls of Red Edge Solutions due to high staff turnover in the accounting department and changes in the accounting systems was noted. This has subsequently been stabilised.

Nothing further has come to the attention of the board to indicate that there has been a material breakdown in the internal systems of control during the year.

Risk management

The board, assisted by the new internal auditor and the Audit Committee, is responsible for ensuring that appropriate risk management processes are in place. Key industry risks facing the group and the mitigation in place to counter these include:

Stakeholder communication

Simeka is committed to timely, consistent and transparent communication with all stakeholders. Monthly and quarterly newsletters are distributed to staff and posted on the group website for stakeholders. Staff attend regular informal informationsharing sessions led by the CEO, CFO and HR Director.

The CEO and CFO further meet with major shareholders, institutional investors and analysts on an ongoing basis but especially twice a year following interim and annual results. Where appropriate they liaise with the financial press in order to ensure accurate reporting. Company announcements are published on SENS and are available on Simeka’s website. Financial results announcements are also posted to shareholders, who are further encouraged to attend the Annual General Meeting to enhance interaction with the board.

Code of ethics (“the Code”)

Simeka is committed to conducting its business with integrity and its business ethics are formalised in the Code. All employees have access to the Code via the group’s intranet and Quality Management Systems. It applies to all directors, officers and employees in the group. The group companies’ disciplinary codes and procedures further ensure compliance with the underlying policies and practices contained in the Code.