King III application

Corporate governance principles

This table is a useful reference to each of the King III principles and how, in broad terms, they have been applied by Scaw.

King III reference King III principle Application of principle
1. Ethical leadership and corporate citizenship
1.1 The Board should provide effective leadership based on an ethical foundation. The Board directs Scaw’s activities with integrity, by the tone it sets through its actions, decisions, policies and codes, the culture it instils and the example set by its directors, thereby demonstrating transparency, accountability, fairness, honesty and responsiveness to stakeholders.
1.2 The Board should ensure that the company is and is seen to be a responsible corporate citizen. The Board ensures through its Social, Ethics and Transformation Committee that Scaw conducts its affairs in a manner that takes into account the realistic expectations of its stakeholders and is sensitive to inter alia, Scaw’s social, economic and environmental impacts, and ensures that it reports on its initiatives in this regard in its integrated annual report.
1.3 The Board should ensure that the company’s ethics are managed effectively. The Board has endorsed Scaw’s business integrity policy, business philosophy, ethical values, codes of conduct and disciplinary policies developed by management, and monitors the application and effectiveness thereof through the Social, Ethics and Transformation Committee.
2. Board and directors
2.1 The Board should act as the focal point for and custodian of corporate governance. The Board’s charter records the Board’s responsibility for good corporate governance by Scaw. The Board seeks to practise good corporate governance through its structures, actions and reporting and regularly monitors same.
2.2 The Board should appreciate that strategy, risk, performance and sustainability are inseparable. The Board understands and executive management appreciates that Scaw’s strategy, risk, performance and sustainability are interrelated, and ensures that Scaw’s activities are designed, managed and reported on in an integrated manner.
2.3 The Board should provide effective leadership based on an ethical foundation. The Board directs Scaw’s activities with integrity, through its decisions, policies and codes and the example set by its Directors demonstrating transparency, accountability, fairness and honesty.
2.4 The Board should ensure that the company is and is seen to be a responsible corporate citizen. The Board ensures through its Social, Ethics and Transformation Committee that Scaw conducts its affairs in a manner that takes into account the realistic expectations of its stakeholders and is sensitive to inter alia, Scaw’s social, economic and environmental impacts, and ensures that it reports on its initiatives in this regard in its integrated annual report.
2.5 The Board should ensure that the company’s ethics are managed effectively. The Board has endorsed Scaw’s business integrity policy and business philosophy developed by management, and monitors the application and effectiveness thereof through the Social, Ethics and Transformation Committee.
2.6 The Board should ensure that the company has an effective and independent audit committee. The Board has in place an Audit and Risk Committee whose responsibilities are documented in a written charter, whose members are financially literate and constitute at least two independent Non-executive Directors, whose Chairman is not the Chairman of the Board and whose activities, observations and recommendations are reported to the Board regularly.
2.7 The Board should be responsible for the governance of risk. The Board’s charter records that it is responsible for risk governance and the standard agenda items for its meetings is the report of the chairman of the Audit and Risk Committee which includes risk. Further, risk features as a standard agenda item in the Audit and Risk Committee meetings.
2.8 The Board should be responsible for information technology (IT) governance. The Board’s charter records that it is responsible for information technology governance and one of the standard agenda items for its meetings is the report of the chairman of the Audit and Risk Committee which includes IT governance. Further, IT governance features as a standard agenda item in the Audit and Risk Committee meetings.
2.9 The Board should ensure that the company complies with applicable laws and considers adherence to non-binding rules, codes and standards. A robust compliance policy has been approved by the Board to complement the compliance initiatives well under way in Scaw, together with a Compliance Framework.
2.10 The Board should ensure that there is an effective risk-based internal audit. The Board, through its Audit and Risk Committee, promotes the standing and value of Scaw’s internal audit department, assesses the adequacy of its resources and the effectiveness of its work and engages with management to ensure audit plans are risk based.
2.11 The Board should appreciate that stakeholders’ perceptions affect the company’s reputation. The Board is sensitive to the fact that Scaw’s reputation is most important. Management endeavours to engage meaningfully and frequently with Scaw’s stakeholders, through a variety of forums and channels, to ensure that negative perceptions are identified and appropriate remedial action is taken.
2.12 The Board should ensure the integrity of the company’s integrated report. Following a recommendation from the Scaw Exco, the Board through its Audit and Risk Committee, supported by the Social, Ethics and Transformation Committee, reviews the fairness and adequacy of the disclosures made in Scaw’s integrated annual report, and formally approves the report.
2.13 The Board should report on the effectiveness of the company’s system of internal controls. Based on assurance provided by the internal audit department to the Audit and Risk Committee and reported to the Board, the Board reports in the integrated annual report on the effectiveness of Scaw’s system of internal control.
2.14 The Board and its directors should act in the best interest of the company. The directors are aware of their fiduciary duties to act in the best interest of the company and to avoid conflicts of interest, and disclose annually to the Board, their personal financial interests.
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 Companies Act (71of 2008, as amended). To the extent that this may be necessary, the Board will consider such proceedings and mechanisms if and when appropriate.
2.16 The Board should elect a chairman of the Board who is an independent Non-executive Director. The chief executive officer of the company should not also fulfil the role of chairman of the Board. The Board has an Executive Chairman. The non-independence of his role is adequately addressed by the composition of the Board and particularly by the appointment of a lead independent Non-executive Director, who is also the chairman of Scaw’s Audit and Risk Committee. The CEO is not the Chairman of the Board.
2.17 The Board should appoint the Chief Executive Officer and establish a framework for the delegation of authority. The Board has appointed the CEO whose appointment has been vetted and recommended by the Scaw Remuneration Committee. Further, there is an approved delegation matrix in place.
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 majority of the Board is non-executive, including three (3) Non-executive Directors who are independent.
2.19 Directors should be appointed through a formal process. New directors are appointed in terms of Scaw’s MOI and in line with the applicable legislation.
2.20 The induction of and ongoing training and development of directors should be conducted through a formal process. New directors undergo an induction programme including site visits. Ongoing director education and development takes place through presentations by management and attendance at external educational events.
2.21 The Board should be assisted by a competent, suitably qualified and experienced Company Secretary. The Board is assisted by a Company Secretary and according to the most recent assessment the Board is satisfied that she is suitably competent, qualified and experienced for the role.
2.22 The evaluation of the Board, its committees and the individual directors should be performed every year. The Board charter requires that the evaluation of the Board, individual directors including Board committees takes place annually.
2.23 The Board should delegate certain functions to well-structured committees but without abdicating its own responsibilities. The Board has established the Social, Ethics and Transformation Committee, the Audit and Risk Committee, the Remuneration Committee and the Board Investment Committee as committees of the Board in terms of written charters and reporting obligations to the Board.
2.24 A governance framework should be agreed between the group and its subsidiary boards. There are informal practices in place regarding Scaw’s interaction with its subsidiary boards. Further improvements are required to implement a more formal process.
2.25 Companies should remunerate directors and executives fairly and responsibly. The Board believes that Scaw’s remuneration policy and strategy are designed to ensure that executives are appropriately remunerated, with an acceptable balance between guaranteed and performance-based elements, as well as between short and long-term incentives, and ensures that reward levels benchmark fairly against sector norms.
2.26 Companies should disclose the remuneration of each individual director and certain senior executives. The company discloses in its annual financial statements, the remuneration of directors and prescribed officers in accordance with the requirements of the Companies Act (71 of 2008, as amended).
3. Audit committees
3.1 The Board should ensure that the company has an effective and independent audit committee. Scaw’s Audit and Risk Committee operates in terms of a written charter and performs the duties prescribed. This committee meets at least three times annually, considers detailed reports from management and reports and makes recommendations in writing to the Board.
3.2 Audit committee members should be suitably skilled and experienced independent Non-executive Directors. Scaw’s Audit and Risk Committee comprises financially literate, professionally qualified and commercially astute members and is constituted by a majority of independent Non-executive Directors.
3.3 The audit committee should be chaired by an independent non-executive director. The Audit and Risk Committee is chaired by an independent Non-executive Director.
3.4 The audit committee should oversee integrated reporting. The Audit and Risk Committee does oversee Scaw’s integrated reporting process, and does review the content of the integrated annual report, recommending same for approval by the Board.
3.5 The audit committee should ensure that a combined assurance model is applied to provide a coordinated approach to all assurance activities The Audit and Risk Committee ensures that it obtains regular and comprehensive assurance from the external auditor, the internal audit department and/or management in relation to matters such as financial reporting, legal compliance, adequacy of internal controls and veracity of risk management processes.
3.6 The audit committee should satisfy itself of the expertise, resources and experience of the company’s finance function. The Audit and Risk Committee is satisfied as to the expertise, resources and experience of the company’s finance function and the CFO.
3.7 The audit committee should be responsible for overseeing of internal audit. The Audit and Risk Committee’s mandate imposes an oversight role in regard to internal audit, and the committee monitors internal audit resources, activities, findings and coverage plans via the comprehensive reports submitted by internal audit management to each committee meeting.
3.8 The audit committee should be an integral component of the risk management process. The executive head of professional service has line responsibility for risk and is a permanent invitee to audit and risk committee meetings. Risk is a standing agenda item forthe committee meetings.
3.9 The audit committee is responsible for recommending the appointment of the external auditor and overseeing the external audit process. In terms of the Audit and Risk Committee’s charter its mode of operation, the Audit and Risk Committee is responsible for recommending the appointment of the external auditor and overseeing the external audit process, including receiving reports on the external auditor’s findings during the annual audit.
3.10 The audit committee should report to the Board and shareholders on how it has discharged its duties. The Audit and Risk Committee reports to each Board meeting. The chairman of the Audit and Risk Committee is a permanent invitee to annual general meetings and reports to shareholders by way of the Audit Committee report which forms part of the group’s annual financial statements, on its activities, findings and recommendations.
4. The governance of risk
4.1 The Board should be responsible for the governance of risk. The Board’s charter reflects its responsibility for risk governance and it discharges this responsibility by receiving reports from the chairman of the Audit and Risk Committee at its quarterly meetings and by making recommendations to management on its risk management programme.
4.2 The Board should determine the levels of risk tolerance. The approved risk management plan, the risk appetite framework and risk tolerance levels are deliverables for FY16.
4.3 The risk committee or audit committee should assist the Board in carrying out its risk responsibilities. The charter of the Audit and Risk Committee requires said committee to assist the Board in carrying out its risk governance responsibilities and this committee provides this assistance by monitoring Scaw’s risk management activities.
4.4 The Board should delegate to management the responsibility to design, implement and monitor the risk management plan. The Executive Head of Professional Services is responsible for designing, implementing and monitoring the risk management plan. The Board has entrusted the Audit and Risk Committee to monitor the activities and processes re risk.
4.5 The Board should ensure that risk assessments are performed on a continual basis. The Board receives assurance from the Audit and Risk Committee that risk assessments are carried out continually and that Scaw’s corporate risk registers are updated at least annually by management.
4.6 The Board should ensure that frameworks and methodologies are implemented to increase the probability of anticipating unpredictable risks. The ERM framework has been implemented and the Board receives assurance from the Audit and Risk Committee that the process of continual risk assessment by management takes into account emerging and unusual risks not typical of normal operating and environmental conditions.
4.7 The Board should ensure that management considers and implements appropriate risk responses. The Board receives assurance from the Audit and Risk Committee and the Executive Head of Professional Services that management appropriately identifies, manages, transfers and mitigates risk facing Scaw.
4.8 The Board should ensure continual risk monitoring by management. The Board receives assurance from the Audit and Risk Committee that it and management continually monitor risks facing Scaw through Scaw Exco, Opco and other management committees.
4.9 The Board should receive assurance regarding the effectiveness of the risk management process. As the risk management process in Scaw in still being embedded, an audit of the effectiveness of the risk management process is scheduled for FY18.
4.10 The Board should ensure that there are processes in place enabling complete, timely, relevant, accurate and accessible risk disclosure to stakeholders. The Board ensures that Scaw’s integrated annual report appropriately discloses risk-related information of importance to stakeholders.
5. The governance of information technology
5.1 The Board should be responsible for information technology (IT) governance. The written charter of the Board records its responsibility for IT governance, and it discharges this duty by monitoring reports on IT governance-related matters provided bythe Audit and Risk Committee.
5.2 IT should be aligned with the performance and sustainability objectives of the company. Scaw’s IT strategy is designed to support Scaw’s business strategy and with the aim of ensuring that Scaw will operate effectively and remain sustainable.
5.3 The Board should delegate to management the responsibility for the implementation of an IT governance framework. The Scaw Exco takes responsibility for IT governance. IT governance forms an integral partof the IT strategy. IT is a standard agenda item at the monthly Scaw Exco meetings. AnITSteering Committee (ITSC) comprising representatives from business and IT has been established.
5.4 The Board should monitor and evaluate significant IT investments and expenditure. All IT investments are approved by the Board Investment Committee, as applicable. Expenditure is controlled by budgets. Strategic projects have been included within the IT strategy document. Capital and operating expenditure including project monitoring is presented at the quarterly Audit and Risk Committee meetings.
5.5 IT should form an integral part of the company’s risk management. The risks associated with Scaw’s IT infrastructure, applications and networks are identified, managed and mitigated as a key element of Scaw’s risk management processes that are overseen by the Scaw Exco, the Audit and Risk Committee and by the Executive Head of Professional Services.
5.6 The Board should ensure that information assets are managed effectively. IT assets are extensively protected through normal day-to-day IT practices. IT assets are appropriately bar-coded before distribution to the business. Assets are recorded within an information security management system.
5.7 A risk committee and audit committee should assist the Board in carrying out its IT responsibilities. The Audit and Risk Committee assists the Board in carrying out its IT governance responsibilities, as required by its written charter.
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 Board monitors compliance/adherence through the Audit and Risk Committee.
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. A robust compliance policy and compliance framework have been adopted by the Board which will be rolled out. Laws applicable to Scaw have been identified and provisionally risk rated. Further, a gap analysis of the top laws applicable to Scaw has been conducted.
6.3 Compliance risk should form an integral part of the company’s risk management process. Compliance risk is a key area of focus of Scaw’s risk management programme and departmental heads will be actively considering regulatory compliance when compiling and annually reviewing the risk registers for their business units.
6.4 The Board should delegate to management the implementation of an effective compliance framework and processes. The Executive Head of Legal and Company Secretary is responsible for the design and implementation of an effective compliance framework. Key elements will include the establishment of project teams to ensure compliance with applicable legislation.
7. Internal audit
7.1 The Board should ensure that there is an effective risk-based internal audit. Scaw has established an internal audit function that the Board considers to be effective and substantially risk based.
7.2 Internal audit should follow a risk-based approach to its plan. The internal audit department’s coverage plan is informed by Scaw’s risk registers, the audit plan of the external auditor and the requirements of top management, and is endorsed annually by the Audit and Risk Committee as being appropriately risk based.
7.3 Internal audit should provide a written assessment of the effectiveness of the company’s system of internal controls and risk management. No opinion is provided to the Board by the internal audit department on the effectiveness ofthe company’s system of internal controls. Given the limited number of audits that are performed by Scaw’s outsourced internal audit service provider, they are not in a position to express an opinion on the company’s system of internal controls. To be able to express an opinion on the control environment would require substantially more internal audits to be performed. This is not a financially viable option at this time.
7.4 The Audit Committee should be responsible for overseeing internal audit. The internal audit department reports on its work, findings and recommendations at each meeting of the Audit and Risk Committee, presents its coverage plan annually to the Audit and Risk Committee for approval, and the Head of Internal Audit Reports functionally to the Chairman of the Audit and Risk Committee.
7.5 Internal audit should be strategically positioned to achieve its objectives. The stature of the internal audit department within Scaw, the appropriateness of its resources, its reporting line to the CEO and its regular reporting to the Audit and Risk Committee indicate that the department is well positioned to fulfil its mandate. However, the resourcing of the department remains a priority.
8. Governing stakeholder relationships
8.1 The Board should appreciate that the stakeholders’ perceptions affect a company’s reputation. The Board recognises that perceptions of its key stakeholders can impact Scaw’s reputation and encourages management to engage meaningfully with such stakeholders with a view to upholding Scaw’s reputation.
8.2 The Board should delegate to management to proactively deal with stakeholder relationships. The Board has tasked management with the responsibility of engaging with Scaw’s key stakeholders, being customers, employees, as well as suppliers, regulators and community organisations, of devising suitable forums and communications channels for such interaction and of responding appropriately following such engagements, in the interests ofScaw.
8.3 The Board should strive to achieve the appropriate balance between its various stakeholder groupings, in the best interest of the company. The Board aims to ensure that the interests of Scaw’s different stakeholders are suitably considered and appropriately balanced.
8.4 Companies should ensure the equitable treatment of shareholders. The company does have a majority shareholder, and endeavours to ensure that all shareholders are treated in a fair manner, through the dissemination of information, its transparent financial reporting and its encouragement of shareholder involvement at meetings.
8.5 Transparent and effective communication with stakeholders isessential for building and maintaining their trust and confidence. The Board and management work to ensure that communication with Scaw’s stakeholders is frequent, substantive, transparent and credible, recognising that such communication leads to trust and mutual respect and helps to ensure the sustainability of Scaw.
8.6 The Board should ensure that disputes are resolved as effectively, efficiently and expeditiously as possible. The Board encourages management to resolve disputes with customers, suppliers, employees and regulators in an effective and reasonable manner and in appropriate forums including alternative dispute resolution mechanisms, having due regard for contractual and legislative obligations and the best interest of Scaw.
9. Integrated reporting and disclosure  
9.1 The Board should ensure the integrity of the company’s integrated annual report. The Board ensures the integrity of Scaw’s integrated annual report by requiring management to draft it in a fair, balanced and transparent manner, through requiring an initial review thereof by the Scaw Exco, the Audit and Risk Committee, supported by the Social, Ethics and Transformation Committee.
9.2 Sustainability reporting and disclosure should be integrated with the company’s financial reporting. Scaw adheres to GRI 3 guidelines in the compilation of the integrated annual report.
9.3 Sustainability reporting and disclosure should be independently assured. Scaw is committed to ensuring sustainability reporting is independently assured over a period of time.