Corporate governance

COMPLIANCE WITH THE CODE OF CORPORATE PRACTICES AND CONDUCT

The board of directors is fully committed to effective corporate governance and the need for integrity and high ethical standards in the conduct of its business. Adcorp fully supports the Code of Corporate Practices and Conduct and endorses the need to conduct its business in accordance with the highest standards of corporate practice. The directors have applied the recommendations as contained in the Code of Corporate Practices and Conduct set out in the King II report. King III recommendations are in the process of being implemented.

BOARD OF DIRECTORS

The board of directors as set out on pages 24 and 25 of the annual report consists of four executive directors and five non-executive directors of which one is independent. It is planned to appoint one additional independent non-executive member to the board in the near future. There is one black alternate director. The non-executive directors provide the board with independent judgement based on their significant range of skills and commercial experience. Five board members are black and four are women. The functions of Chairman and CEO are not performed by the same person.

The board meets quarterly and on an ad hoc basis if considered necessary. The main function of the board is to determine strategy and direction and to lead the Group in this direction with integrity and judgement. In addition, it is responsible for the overall sustainability of the Group including areas such as risk management, protection of Group assets, monitoring key performance indicators as well as the adequacy of policies and systems. It is further required to ensure compliance with all legal and statutory requirements.

Certain functions have been delegated to subcommittees, which currently consist of the audit and risk committee, transformation committee and the remuneration and nominations committee. The functions of these committees are described more fully under each of the relevant subheadings in this report.

All new directors are given a presentation on the Group's strategy as well as a document outlining the duties and responsibilities of directors. Presentations covering director responsibilities and fiduciary duties are also arranged for board directors from time to time.

Executive directors do not have service contracts, and employment is subject to a maximum of three months' notice with the exception of the CEO where the notice period is six months. Restraint agreements have been signed and all executive directors hold either shares or share options or both.

A declaration of interests is submitted by all directors annually in order to determine any conflict of interests. One conflict of interest exists at present but this has been debated and approved by the board. All board directors have access to the advice of the company secretary and are at liberty to obtain external advice at the company's cost if necessary.

P Ward resigned from the board on 2 March 2009 and A Alback was appointed on 14 April 2009.

The Group places significant importance on the use of empowered suppliers and sourcing of services and supplies from empowered companies is encouraged and monitored.

BOARD MEETINGS

Board meetings were held quarterly during the year under review. Below is a schedule setting out the attendance at the meetings by the board members.

For details of directors refer to Board of directors.

AUDIT AND RISK COMMITTEE

Four meetings were held during the financial year and attendance is detailed below:

A Alback was appointed to the audit and risk committee with effect from 14 April 2009 and P Ward resigned with effect from 2 March 2009.

Executive management together with both the external and internal auditors are in attendance at each meeting. Other members of staff attend as required. Executive attendees are not present during periodic discussions on executive openness, cooperation and effectiveness.

The Group’s updated audit and risk committee charter was ratified by the board during the course of the financial period and complies with the Companies Act Amendment 2006. It is currently being further amended to allow for the early adoption of the recommendations contained in King III.

The board of directors is fully committed to effective corporate governance and the need for integrity and high ethical standards in the conduct of its business.

The committee's main responsibility is to provide the board with additional assurance regarding the integrity and effectiveness of the Group's risk management framework and related internal controls, reporting and compliance systems applied within the Group and the operational implementation of corporate governance. Other duties include a review of the accounting policies, a recommendation to the board for the approval of the financial statements, a review of information systems and the review of the level and competency of financial management.

The Group’s risk management framework has been completed and major risks identified. A formal response to mitigate these risks is in progress.

As required by the JSE, the company has appointed a Chief Financial Director. The position is currently held by FD Burd who is an executive director on the board of Adcorp and is deemed competent by the audit committee.

The external auditors have confirmed their independence and the audit committee is satisfied that the audit has been carried out by independent auditors, free of any scope restrictions.

The directors are satisfied that the audit committee has carried out its designated function as required by the Code of Corporate Practice and the Amendment to the Companies Act of 2006 and as mandated by the board.

TRANSFORMATION COMMITTEE

The transformation committee was established in 2004 and consists of the members listed below. Two meetings were held and attendance was as follows:

Transformation is an ongoing Group focus and is discussed at all Adcorp board meetings as well as at all executive committee meetings.

The transformation committee is responsible for monitoring transformation at all levels within the Group as well as assisting with formulation of Group transformation policy and reviewing the implementation of these policies. In addition, the committee reviews progress on employment equity and skills development as well as corporate social investment. Adcorp has recently been awarded first place overall in the Financial Mail/Empowerdex Top Empowerment Companies Survey 2009 for the second year in a row.

REMUNERATION AND NOMINATIONS COMMITTEE

This committee met once during the year and consists of the following:

The remuneration committee is responsible for approving the remuneration of all board directors as well as the allocation of share options to employees. The committee is also responsible for reviewing senior management salary increases and bonuses. Independent external consultants and market comparisons are used to ensure that remuneration is market related and is linked to both individual and company performance. Directors' remuneration is fully disclosed in note 47.

EXECUTIVE COMMITTEE

The Adcorp executive committee is the most senior executive decision-making body in the Group. The committee is chaired by the Chief Executive Officer and comprises the Chief Financial Director, the Chief Operations Officer and the Executive Director – Group Services.

The executive committee is responsible for inter alia the following:

• Strategic planning and direction, monitoring of market trends and competitive activity.
• Structuring of the Group’s portfolio of assets.
• Shaping and approving operational strategies, budgets and forecasts.
• Measuring, monitoring and taking proactive action on company performances.
• Monitoring and managing cash, cash collections and margins.
• Shaping and approving succession plans and senior management appointments.
• Group BEE structures, initiatives and transformation.
• Group reporting and reporting to shareholders.

INTERNAL CONTROL

The directors report that the company's internal controls and systems are designed to provide reasonable assurance as to the integrity and reliability of the financial statements and to adequately safeguard, verify and maintain accountability of its assets. Such controls are based on established written policies and procedures and are implemented by trained personnel with an appropriate segregation of duties. These policies and procedures are reviewed continually and updated as necessary. The internal audit division conducts ongoing audits on all Group companies and written reports are compiled. All items raised in these reports are addressed promptly. The audit and risk committee evaluates internal and external risks to the businesses and matters of concern are addressed on an ongoing basis by management. The Group has a documented and tested business continuity plan which should enable it to recover from a disastrous incident. Nothing has come to the attention of the directors to indicate that any material breakdown in the functioning of these controls, procedures and systems has occurred during the year under review.

GOING CONCERN

The directors are of the opinion that the business will be a going concern for the foreseeable future and, accordingly, the financial statements have been prepared on the going-concern basis.

SOCIAL INVESTMENT

Adcorp established a formal Social Investment Programme in January 2001. The achievements of this programme as well as its purpose and future direction are covered more fully under the section on "Corporate social investment".

NON-FINANCIAL MATTERS

All directors and employees are required to maintain the highest ethical standards in ensuring that the Group's business practices are conducted in a manner which in all reasonable circumstances is beyond reproach. There is a documented code of conduct which is signed by all employees.

Adcorp is committed to educating and supporting employees in the fight against HIV/Aids and will be launching an employee wellness product later this year which includes an HIV helpline.

Adcorp is concerned about employees’ safety and all reasonable steps are taken to ensure their safety.

Adcorp is environmentally responsible and aware and ensures that at all times the Group in no way negatively impacts the environment.

STAKEHOLDER COMMUNICATION

The board strives to present a balanced and understandable assessment of the Group’s position, addressing material matters of significant interest and concern to stakeholders. At all times, a balance is sought in presenting the positive and negative aspects of activities of the Group.

The Group reports under International Financial Reporting Standards (“IFRS”) and, accordingly, the results for the period ended 28 February 2009 have been prepared in accordance with the Group’s accounting policies, which comply with IFRS. Details of the Group’s accounting policies are set out more fully in the financial statements.

YEAR-END

As previously advised, Adcorp changed its year-end from December to February. In order to facilitate this, the initial reporting period covered a 14-month period being 1 January 2007 to 29 February 2008. The Group is now back on a 12-month reporting cycle with the current reporting period being 1 March 2008 to 28 February 2009.

USE OF EMPOWERED SUPPLIERS

The Group places significant importance on the use of empowered suppliers and sourcing of services, and supplies from empowered companies is encouraged and monitored.

CLOSED TRADING PERIOD

Directors and managerial staff are precluded from trading in Adcorp shares from end February until the announcement of the annual results and again from 31 August until the announcement of the interim results.

HUMAN RESOURCES

The board of directors has formalised a transformation programme whereby measurable objectives for the Adcorp Group have been set in four areas:

• best practices in human resources;
• affirmative action;
• organisational culture; and
• black economic empowerment.

The transformation framework has followed the strategic business plan of the Group and its operating companies and divisions and is focused primarily on building capacity through focused development and skills transfer.

This is aimed at achieving sustained growth and profitability both now and in the future. In order to achieve strategic business objectives, the above transformation process is supported with a performance measurement system focused on measuring key objectives at all levels throughout the Group. The system facilitates effective planning, implementation and monitoring at board level and reflects the individual and collective commitment of all directors and senior managers to the process. A table setting out the number of employees and the employment equity status of the Group appears Employment equity. In addition to 2 440 permanent employees, the Group has 70 000 to 75 000 contract and temporary employees on assignment at any one time. These temporary employees are placed in employment across a wide spectrum of businesses. Adcorp has a significant number of learnership contracts which also form part of the Group's training initiatives and contributes significantly to the process of upskilling the country's workforce. In addition, temporary contracts are a major conduit to permanent employment. Altogether 85% of temporary employees are black and of this number 50% have never been previously employed.