2019
Integrated report
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Following the significant governance and reputational challenges EOH has recently faced, a new board of directors has been appointed to drive governance and protect shareholder value. As the newly appointed Board, we are committed to ethical leadership and best practice corporate governance principles. EOH’s strong new leadership team is committed to rebuilding the EOH brand by being ethical and transparent, and ensuring sound corporate governance throughout our business and subsidiaries.
A comprehensive review of EOH’s governance procedures has been undertaken by the University of Stellenbosch’s Centre for Corporate Governance in Africa and areas for improvement identified are in the process of being implemented.
EOH has a unitary Board with the necessary collective knowledge and balance of skills, experience, resources and diversity to guide the business effectively. The Board’s composition promotes the balance of authority and precludes any one director from dominating decision making. The directors bring to the Board a wide range of experience and expertise and, in the case of the independent non-executives, an independent perspective and judgement on issues of policy, strategy and performance. The Board believes that the current composition reflects an appropriate balance of knowledge, skills, experience, diversity and independence to effectively guide the business. Directors are classified as executive directors if they are full-time employees of EOH. At the date of this report, the Board comprised ten directors, three of whom are executive directors and seven are independent non-executive directors. Seven of the Board members are black and five are women.
The Chairman and the CEO are appointed by the Board. Their roles are formally defined and separate. The Chairman is primarily responsible for leading the Board and for ensuring that the Board plays an effective role, facilitating communication with shareholders and fostering constructive relations between the executive and non-executive directors. The CEO is responsible for the commercial and operational management of the Group, including providing leadership to the executive team.
The Chairman is considered to be independent and is supported by a lead independent non-executive director.
The Nominations Committee identifies potential candidates for the Board should a director retire, resign or be disqualified and removed. The committee assesses the appropriateness of candidates in terms of their experience, skills and considers all facets of diversity to determine the optimal composition and balance of the Board. Selection, induction and ongoing training of directors is formalised and a basic succession plan is in place for key executives in the event of any resignations.
Newly appointed directors are ratified at the next annual general meeting (‘AGM’) following their appointment.
Details of the directors who left the Board and new appointments during the year are available in the Nominations Committee report.
| * | 'Black people' means African, coloured or Indian persons who are natural persons and are citizens of South Africa by birth or descent; by naturalisation and/or became citizens before the commencement date of the Constitution of the Republic of South Africa Act of 1993. |
The Board is satisfied that non-executive directors, through their actual conduct at Board and committee meetings, have no relationships or circumstances which could affect their independence. All except one of the current directors have served for less than two years. In future, directors who have served for longer than nine years will be reassessed annually to ensure that they remain independent.
In terms of the Company’s memorandum of incorporation (‘MoI’), one-third of the non-executive directors are required to ‘retire’ at each AGM, and if they are eligible and available for re-election, their names are put forward for re-election by the shareholders at the next AGM. The non-executive directors who have been in office for the longest period since their appointment are required to ‘retire’ in terms of the rotation policy.
We recognise and embrace the benefits of a diverse Board and believe that diversity at Board level is an essential component for sustaining a competitive advantage. Race, age and gender diversity, underpinned by the relevant skills as well as business, geographic and academic experience and background, enhance the composition of a truly diverse Board.
The Board is committed to ensuring a diverse and inclusive Board and the Company’s race and gender diversity policy forms part of the Board Charter. Board appointments are made on merit, having due regard for the benefits of diversity.
The overriding role of the Board is to ensure the long-term sustainability and success of EOH for the benefit of all stakeholders. The duties, responsibilities and powers of the Board, the delegation of authority and matters reserved for the Board are set out in the Company’s MoI and the Board Charter.
The Board approves the long and shortterm strategy of EOH and determines how business is conducted. This includes the setting, monitoring and review of strategic targets and objectives, the approval of material capital expenditure, acquisitions, internal controls, risk management and IT governance. The EOH EXCO is responsible for managing the Group’s operations and the Group’s overall strategy, which is discussed, debated and approved by the Board.
The Board and its subcommittees provide ongoing governance oversight over the respective established pillars of governance. It oversees control frameworks, risk management, compliance and assurance management, including:
The EOH Board Charter aligns with the recommendations of King IV and outlines the powers, responsibilities, induction and ongoing development requirements of Board members.
The Board Charter details the responsibilities of the Board, which include:
The Board is satisfied that it has fulfilled its responsibilities defined in the charter for the year under review.
The performance and effectiveness of the Board and its subcommittees that are evaluated every two years strive for continued improvement.
Key performance measures and targets for assessing the achievement of strategic objectives and positive outcomes over the short, medium and long term are defined within the EOH reporting framework. The respective Board subcommittees perform ongoing oversight over the implementation of the Group and operational strategies and their value drivers. The EXCO performs oversight and monitoring of operational budgets, plans and targets by management against agreed performance measures and targets.
The Board delegates certain functions to committees without abdicating any of its responsibilities. The committees are chaired by non-executive directors and operate under Board-approved terms of reference.
The Board has five committees consisting of the following:
Audit Committee: Only independent non-executive directors with other participants as invitees. Members are elected by shareholders at the Company's AGM;
Governance and Risk Committee: The majority of members are independent non-executive directors;
Technology and Information Committee: Both non-executive and executive directors;
Nomination and Remuneration Committee: All the members are independent non-executive directors; and
Social and Ethics Committee: The majority of members are independent non-executive directors.
The Group Company Secretary supports the directors and Chairman, and has direct access to and ongoing communication with the Chairman. All directors have access to the services of the Group Company Secretary and may obtain independent professional advice. The Board believes this provides the necessary access to corporate governance advice. The Group Company Secretary is not a director of the Company or its subsidiaries, and also acts as secretary of the Board committees.
Adri Els resigned as Group Company Secretary effective 14 June 2019 and was replaced by EOH Secretarial Services (Pty) Ltd, represented by Neill O'Brien. The Board is satisfied that the Group Company Secretary is suitably qualified, competent and experienced to provide such guidance.
EOH's wholly owned subsidiaries each have their own board of directors. The boards of the subsidiaries and the management committees of the various operating divisions have the necessary mix of skills and experience.
King IV advocates an outcomes-based approach and defines corporate governance as the exercise of ethical and effective leadership towards the achievement of the following governance outcomes:
EOH is committed to maintaining a high standard of corporate governance and has during the year engaged with some of the leading governance institutions to assist in the design and implementation of King IV. We have recently implemented a governance tool aimed at assessing our application of the corporate governance principles as recommended in King IV and are currently in the process of assessing ourselves against these principles. We have adopted a substance-over-form approach with regards to alignment with King IV to avoid tick-box compliance and also because this approach accommodates the achievement of the recommended King IV outcome/governance standards by applying practices other than those specifically detailed in the King IV report.
EOH has met its reporting requirements relating to the JSE Listings Requirements and the Companies Act (as amended).
The Board is committed to driving the strategy, based on an ethical foundation, to support a sustainable business that acts in the best interests of the Group, society, the environment and its stakeholders. The Board sets the tone for an ethical organisation and has discharged its responsibilities by ensuring that a robust and resilient GRC framework is in place. There are systems, procedures and monitoring structures in place to ensure the effectiveness of this framework. The directors of EOH are competent and act ethically in discharging their responsibility to provide strategic direction and effective governance in terms of the Board Charter and EOH's MoI.
The Board commits to the Constitution of the Republic of South Africa (including the Bill of Rights) and embraces the principles of fairness, accountability, integrity and transparency.
The Group has adopted an overarching formal Code of Ethics founded on our values of 'Respect', 'Integrity', 'Delivering Value', 'Valuing Diversity', 'Excellence' and 'Enterprising'. All employees have a duty to act in accordance with these values and thereby to maintain and enhance the reputation of the Group.
The EOH Code of Conduct was developed around the principles of ethical leadership and was adopted by the Board. The code commits EOH and its employees to the highest ethical standards of conduct particularly in relation to non-discriminatory practices, unethical practices, bad behaviour, and confidentiality of personal information.
Our decisions and actions are guided by our core values:
The EOH EXCO is responsible for ensuring that these values are adhered to throughout the Group and the Board's Social and Ethics Committee ensures the application of these principles. The Governance Ambassador awareness training programme aims to ensure that the required tone from the top is reinforced.
An ethics programme provides education and training on ethical recruitment, employment and performance management practices, and inculcates ethical practices and behaviour throughout the Group and its activities.
Board members are under a legal duty to prevent any conflict of interest with Company business and to make full disclosure of any areas of potential conflict. The Group Company Secretary maintains a register of directors' interests and directors are required to declare their interests annually in order to determine whether there are any conflicts with their duties and the interests of EOH. The directors have certified that they have no material interest in any transaction of any significance with the Company or any of its subsidiaries.
In line with our value of transparency, all employees and directors of the Company are expected to make a declaration of any perceived or actual conflict of interest, when a relationship exists with a politically significant charged individual, when a gift or courtesy of significant value is accepted and to ensure a commitment and adherence to the Code of Conduct and relevant legislation.
It is not a requirement of the Company's MoI or the Board Charter that directors own shares in the Company. The shares held by the directors as at 31 July 2019 are disclosed in note 39 of the Annual Financial Statements.
Directors and senior executives are prohibited from trading in EOH shares during closed periods, which commence on 1 February and 1 August each year and remain in force until the publication of the interim and final results respectively. Closed periods also include any period during which the Company trades under a cautionary announcement. The Group Company Secretary informs the Board and management of closed periods. All directors' trading in EOH shares require the prior approval of the Group CEO or Group Financial Director. No director can approve his own trading of EOH shares. The Group Company Secretary retains a record of all such share dealings and dealings are announced as required in terms of the JSE Listings Requirements.
EOH aims to create a climate where workplace concerns and irregularities including suspected fraud and corruption, can be reported by employees safely and without fear of retribution and victimisation. This is formalised in the Code of Ethics and other related governance policies.
During the year, EOH launched the Expose-IT app, which provides a secure, completely anonymous and confidential channel for employees, suppliers, customers and any other stakeholders to report concerns regarding wrongdoing at EOH. Reports received through the app will be monitored by an independent entity. The app is available on both Apple and Android.
EOH has a Zero Tolerance Policy towards bad behaviour and unethical practices. The bidding process is governed through a joint bid compliance management process and only accredited third-party partners and suppliers are used. EOH is pursuing ISO 37001 compliance (the International Standard on Anti-bribery and Corruption) and is aligning its processes with the standard. Third-party due diligence has been implemented for all new customer, supplier, and partner on-boarding across the Group.
The directors individually and collectively are responsible for realising the Group's strategic objectives and for managing risks and opportunities to ensure an ongoing sustainable business. EOH's EXCO is responsible for working with the CEO to implement the strategies and policies of the Group. The Board oversees and monitors, with the support of its committees, the implementation and execution by management of the policies and procedures in order to ensure that the Group achieves its objectives.
The Group's business model incorporates the environmental, social and governance aspects of sustainability. Implementation is supported by formal policies governing environmental, corporate social investment, ethical and remuneration matters, all of which form key components of the value-creation process.
The Board is responsible for ensuring that the Group's reporting on its financial performance is reported fairly, with the assistance of the Audit Committee and the external auditors.
EOH is currently reassessing its formal contingency and business continuity plans, to ensure these plans are robust and fit-for-purpose. Once finalised, these plans will be tested and the outputs of such testing will be used to further enhance these plans and ensure consistency with current operations and business strategies.
The Board is responsible for governance and enterprise risk management, and determines how risk is approached and addressed across the Group. The Audit Committee assists the Board by providing an independent and objective view on the Group's financial, accounting and control mechanisms as well as the Group's compliance with all relevant statutory and regulatory requirements.
The Board is also responsible for ensuring that the technology and information needs of the businesses are in place and effectively governed. The Information and Technology Committee assists in this regard.
The directors are also responsible for the systems of internal control. These are designed to provide reasonable, but not absolute, assurance as to the reliability of the Annual Financial Statements, and to adequately safeguard, verify and maintain accountability of assets, as well as prevent and detect material misstatement and loss. Management believes that a strong internal control environment, is critical to the success of EOH. Management is aware of the material breakdowns in the control environment in the past, and is working to remediate this. However, there is still significant room for improvements in the control environment, both from a design and effectiveness standpoint.
The Board, supported by the Audit Committee, has approved the Internal Audit charter as well as the internal audit plan.
The internal audit function is outsourced to PwC, who is in the process of redesigning the function to improve the control environment. An integrated risk-based approach guides the development of the internal audit allocation of resources as the third line of defence.
The process by which directors are selected and their performance regularly reviewed, ensures that the Board collectively has the necessary ethical culture, range of skills, technical knowledge and experience to perform effective oversight of the Group.
EOH's systematic and integrated approach to stakeholder engagement aims to create the necessary channels to stay informed about stakeholders' key concerns and create transparency about the challenges the Group faces and progress in addressing these. The Board, through its committees, ensures that the interests of all stakeholders are addressed.
Our strategy aims to build greater confidence with all stakeholders through good governance, strong financial performance, transparency and increased disclosure. The Group's enhanced reporting framework defines the disclosure and reporting requirements to:
The EOH of the future is foremost committed to protect and promote its reputation and brand. A formal reputation and brand management strategy provides clear guidelines on building and retaining a strong brand. It covers the measures taken by EOH to avoid conflicts of interest and to train its employees accordingly. EOH's relationships with its vendors and suppliers are based on strong partnerships, transparency and ethical conduct.
The Board meets quarterly and on an ad hoc basis when considered necessary. Board meetings are convened by formal notice incorporating agendas and accompanied by background material relating to matters to be discussed at each meeting to enable the directors to prepare in advance.
| Board | Audit Committee | Risk and Governance Committee | Social and Ethics Committee | Nominations Committee | Remuneration Committee | Technology and Information Committee | |||||||||
| Executive directors | |||||||||||||||
| Stephen van Coller (CEO) | 10/10 | 1/1 | 1/1 | 1/1 | |||||||||||
| Megan Pydigadu (Group CFO) | 8/8 | ||||||||||||||
| Tebogo Maenetja*** | 2/5 | 1/1 | |||||||||||||
| Zunaid Mayet† | 10/10 | 1/1 | 1/1 | ||||||||||||
| John King (FD)* | 1/1 | 1/1 | 1/1 | ||||||||||||
| Non-executive directors | |||||||||||||||
| Dr Xolani Mkhwanazi (Chairman) | 2/2 | ||||||||||||||
| Andrew Mthembu (lead independent non-executive director) | 1/1 | ||||||||||||||
| Moretlo Molefi | 10/10 | 1/1 | 1/1 | ||||||||||||
| Ismail Mamojee | 10/10 | 3/3 | 1/1 | 2/2 | 1/1 | ||||||||||
| Jesmane Boggenpoel | 10/10 | 3/3 | 1/1 | 1/1 | |||||||||||
| Anushka Bogdanov | 1/1 | ||||||||||||||
| Mike Bosman | 1/1 | ||||||||||||||
| Asher Bobot (Chairman)** | 2/2 | ||||||||||||||
| Rob Sporen** | 1/2 | 1/2 | 1/1 | 1/1 | 1/1 | 1/1 | |||||||||
| Tshilidzi Marwala** | 2/2 | 2/2 | 1/1 | 1/1 | |||||||||||
| Pumeza Bam† | 4/10 | 1/1 | 2/2 | 1/1 |
| * | Resigned 3/10/18. |
| ** | Resigned 28/2/19. |
| *** | Resigned 31/3/19. |
| † | Resigned 12/7/19. |
