Corporate governance

Summary of 2008 analyst feedback to investor-related questions

Attendance at meetings

Members – Peter Wilmot (chairman), Norman Adami, Mike Leeming and Jacob Modise

Composition and proceedings – Both Alex Smith (chief financial officer) and Robert Venter (chief executive) are required to attend committee meetings. The committee meets periodically with the group’s external and internal auditors and Altron’s executive management. It also determines and carefully monitors the use of the external auditors for non-audit-related services, and is guided by a formal policy that precludes the external auditors from providing services which would impair audit independence. Prohibited services include:

The internal and external auditors have unlimited access to the chairman of the committee. The internal audit department reports directly to the audit committee and is also responsible to the chief financial officer on day-to-day matters.

The external auditors and the head of internal audit attend Altron’s annual general meeting to answer any queries raised by stakeholders.

Re-appointment of independent auditors

Accordingly, the Altron audit committee is satisfied that KPMG Inc is independent as contemplated by the South Africa Independence laws and the applicable rules of the International Federation of Accountants (IFAC), and nominated the re-appointment of KPMG Inc as registered auditors for the 2009/10 financial year. On 27 February 2009, the Altron board, subject to shareholder approval, re-appointed KPMG Inc and Mr Mark Hoffman, the audit partner, as the independent registered auditors of Altron.

The Altron audit committee also considered and satisfied itself that KPMG Inc and its advisors are registered on the JSE Register of Auditors as contemplated in paragraph 3.86 of the JSE Listings Requirements.

Internal controls and internal audit

Internal controls comprise methods and procedures adopted by management to assist in achieving the objectives of safeguarding assets, preventing and detecting error and fraud, ensuring the accuracy and completeness of accounting records and preparing reliable financial statements. The group’s approach is detailed in the directors’ report on page 129 dealing with the approval of annual financial statements.

The internal audit function serves management and the board by performing independent evaluations of the adequacy and effectiveness of group companies’ controls, financial reporting mechanisms and records, information systems and operations, and provides additional assurance on safeguarding group assets and financial information. The removal of the head of internal audit would be a matter for the board as a whole.

Throughout the group, detected fraud decreased from 6 to 3 incidents over the reporting period, but represented a more than threefold increase in value of nearly R3.8 million compared to the previous year. However, a full recovery was made in the case of one incident involving R3.6 million, resulting in a net loss (net of recovery) of R167 000.

Incidents of theft increased from 59 to 75, with the net loss increasing by 35% to R4 million for the year compared to 2008. An aggressive drive to re-enforce Altron’s code of conduct, and the ethics of the group received impetus with the introduction of the Deloitte Tip-Offs Anonymous independent hotline from 1 March 2007, further strengthening the group’s internal controls.

Altron tracks the number of crimes committed against the group by outside parties, including hijackings and break-ins. During the year under review, hijackings increased from 7 in the previous year to 8, break-ins increased from 6 to 10, while armed robberies decreased from 11 incidents in the previous year to 6. The total loss from all incidents (internal and external) increased from R5.08 million to R7.85 million, before insurance recoveries.

PricewaterhouseCoopers is due to perform an independent assessment of the effectiveness of the Altron internal audit department early in 2010. Their last assessment, performed in 2005, found the Altron internal audit department complied with the Standards for the Professional Practice of Internal Auditing as issued by the Institute of Internal Auditors and highly commending it on its professionalism.

Remuneration committee

Self-assessment exercise

In February 2009, following a two-year cycle, the committee conducted a self-assessment exercise to review its functioning and effectiveness. Questions for assessment help determine that the committee is satisfied that it has provided adequate disclosure to shareholders, determined remuneration levels that are sufficient to attract, motivate and retain senior executives of Altron, and that performance-related elements of remuneration constitute a large proportion of total remuneration packages.

Overall, the findings of the remuneration committee assessment revealed an extremely positive result with participants recording that only minor improvements were required to the functioning and effectiveness of this committee.

The members and invitees appeared to demonstrate a sound appreciation for the need and benefits of having a remuneration committee and displayed that they had applied their minds to answering the questions contained in the self-assessment.

From a committee perspective, the three major focus areas to address in the future include:

confirmed that the levels of funding of the Altron Group Pension Fund and Altron Medical Aid are adequate and appropriate

* Submitted apologies and was granted a leave of absence in terms of the company’s articles of association. 1 Appointed as a member to the remuneration committee on 15 April 2009.
2 Participated by way of teleconference.
3 Has right of attendance but is not a member of the remuneration committee.
4 Attends by invitation and is not a member of the remuneration committee. Commenced attending meetings from 1 August 2008.

For further details on the remuneration of Altron’s executives see the remuneration report within this website.

Risk management committee

In understanding the risk universe, both the impact and probability of risk are ranked on a nine-point scale: from ‘catastrophic’ to ‘negligible’ in relation to the impact and from ‘negligible’ to ‘confidently expected’ for probability. Inherent risk is ranked similarly to the impact of risk while control effectiveness is measured as either ‘good’, ‘satisfactory’, ‘corrective action required’ or ‘deficient’.

Depending on the value of the residual risk exposure, management will then decide on its acceptability. If considered high, an action plan – stipulating the responsible person, required action and timeframe – will be put in place to reduce the level of risk to a more acceptable level.

Self-evaluation exercise

The risk committee last conducted a self-evaluation exercise during 2007, and will again conduct a self-evaluation later this year, to be reported on next year. The committee believes that its composition, frequency of meetings and authority are adequate and that it operates in an atmosphere of openness and trust.

Over the last number of years, the group has made a concerted effort to engage an increasing

number of independent assurers to verify the risks. These included the following:

Furthermore, the risk management committee has:

Material risks and opportunities facing the group

Nomination committee

Transformation committee

Corporate ethics

The issue of corporate ethics is one that receives attention from the highest level of management within Altron, with the chief executive being ultimately responsible for implementing the code of ethics.

The Altron risk management committee regularly assesses the company’s vulnerability and risks associated with bribery and corruption. Altron is aware that it operates in countries that have been identified as high-risk environments for bribery and corruption, including Kenya, Lesotho, Mozambique, Nigeria and Uganda. Other risk areas include the company’s involvement in various government contracts that may require government licensing.

Corporate code of conduct

The Altron code of conduct (inside front cover) is endorsed and guided by the boards of Altron, Altech, Powertech and Bytes and commits all employees to the highest standards of behaviour. The code sets out the expected behaviour of all employees in their dealings with the group’s stakeholders. A detailed code of conduct forms part of the Altron group policy manual and outlines Altron’s ethos. All 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.

This code was last reviewed by the Altron audit committee in February 2009 and was amended to bring the same in line with best business and corporate governance practices. Of particular note: the code is now aligned with the corporate gifts and entertainment policy, and all donations to political parties have to be approved by shareholders. No donations were made to political parties during the period under review.

Corporate gifts and entertainment policy

During the period under review, Altron released a new corporate gifts and entertainment policy, which was circulated to all managers and employees. This policy embraces the Prevention and Combating of Corrupt Activities Act of 2004, and sets out clearly and prescriptively the boundaries that define corrupt activities in terms of the giving and receiving of gifts and/or entertainment. The policy defines categories of gifts and entertainment and describes the approvals required, as well as the immediate or ultimate vested authority responsible. Procedures for reporting criminal behaviour and disciplinary action are also set out in the policy and employees are encouraged to report any such behaviour to the Deloitte Tip-Offs Anonymous hotline.

On employment, Altron employees receive the Altron policy manual which includes a corporate code of conduct. Copies of all relevant policies regarding corporate ethics are made available on the Altron intranet, and an ongoing employee awareness campaign makes use of posters, the in-house publication Profile and staff magazines to highlight the issue. Similar marketing channels are used to publicise the group’s whistle-blowing hotline. This confidential fraud hotline is independently managed by Deloittes which, together with the Altron internal audit department and the relevant subholding group security officers, monitors Altron’s compliance with ethical practice.

Incidences of criminal activity reported and dealt with by the Altron group during the period under review are detailed above under ‘Internal controls and internal audit’ on page 103.

Share dealings

Altron and its subholding companies have approved written policies on directors’ dealings in securities. These require all relevant directors who wish to deal in Altron or its subholdings’ securities to obtain prior written clearance from any two of the following senior executives: the chairman, chief executive or chief financial officer. The same restriction applies to the group company secretary. The chairman requires prior written clearance from the non-executive chairman of the Altron audit committee and group company secretary.

The group operates closed periods as defined in the JSE’s Listings Requirements. These periods are communicated to directors, officers and employees in the group policy manual and a specific policy for directors. In addition, special electronic and printed notices advise staff of imminent closed periods. During these periods, the group’s directors (including associates), officers and employees may not deal in the securities of Altron or Altech, as the case may be. Additional closed periods are enforced, when required, in terms of corporate activities.