Corporate governance report
IntroductionThe board acknowledges that Altron’s shareholders are the true owners of the company and that management’s role vis-a-vis the company is that of a trustee on behalf of shareholders. The company’s approach to corporate governance seeks to balance conformance with governance principles while generating superior performance to justify shareholders’ investments. Governance also has an essential oversight function.
The 2009 King Report on Corporate Governance for South Africa (King III) brought a maturing of the board’s approach to governance. This approach involved Altron considering interests beyond those of the company’s directors and shareholders to take into account the concerns and issues of its wider stakeholder community, which includes customers, suppliers, employees, custodians of environmental concerns, investors and communities. These concerns are taken into account in formulating our strategy and ensuring that we balance long term social, environmental and economic interests with the primary requirement to maximise the long-term profits of the company.
As a direct result of our early adoption of the principles embodied in King III, we were not only able to produce one of the country’s first truly integrated annual reports, but were materially compliant with King III at the date of implementation.This year the integration of sustainability matters in the business strategy of the organisation progressed further with the appointment of a senior group sustainability manager and the formation of a dedicated sustainability department to, among others, drive the appreciation of non-financial issues including without limitation,environmental, social and governance issues, across the group.
Altron follows the principles of good governance set out in the Global Reporting Initiative (GRI) guidelines and once again has been included in the JSE SRI index for 2010. We also engaged in several other governance initiatives as a result of our commitment to sustainability. We are signatories to the UN Global Compact, The Copenhagen Communiqué (climate change) and have also been admitted to the Shariah Index, therebyincluding a groupof investors that would otherwise have been excluded. Where the assessment of the directors is that recommended practices are not in the best interests of Altron, this report follows King III in explaining the reasons for an alternative approach to governance. A King III checklist is included at the back of this abridged governance report.
Given that this is an integrated report, we aim to deal with each important aspect of governance only once, where it best applies.
Engagement with stakeholdersAltron engages with all classes of stakeholders on a regular basis. Details of those stakeholder groups where engagement has revealed issues that are material to the company are listed in the table of material issues of this report. The manner in which we engage with these stakeholders is addressed in the relevant sections of the report and can be found from the references on the table.
To ensure that the interests of Altron’s management remain aligned with those of all its shareholders, we have a dedicated programme to engage with analysts, investors and individual stock owners. This includes,among others, providing timeous, relevant, accurate, honest and accessible announcements and circulars to shareholders in accordance with the JSE Listings Requirements. Before sending out Altron’s notice of annual general meeting, the company secretary engages with the most material shareholders to get input and feedback on resolutions the company is proposing to put to shareholders at the meeting.
Engagement with shareholders and investors
When not in a closed period, the executive management team and a wide range of institutional investors and analysts interact regularly through one-on-one meetings held mostly on request by the institutional investors or the analysts. Twice a year the group’s results are presented to the investor community in Johannesburg and in Cape Town. The annual results presentation is webcast live and published on the website.
The Altron chief executive and chief financial officer presented at a number of investor conferences during the year and also spent time while overseas on business, meeting with various interested investors. Altron maintains regular contact with our investor community and ensures that they receive all media releases and other relevant company publications.
In addition to these ongoing interactions, the company secretary initiated further interactions with investors to better understand their material concerns.
In July 2010 Altron contracted an independent external party to conduct a survey of the perceptions of the investor community following the release of our annual results. The findings of this perception audit reflected the following:
|Overall image of the group||Well positioned to participate in a cyclical recovery
Well diversified across key markets
|Competition Commission investigations at Altech Netstar and Aberdare Cables||Altech Netstar appeal ruled in favour of Altech Netstar. Altron is co-operating fully with authorities in the Aberdare Cables investigation|
|Complex group makes valuation difficult||Increased levels of disclosure have improved investors’ understanding of the businesses|
|Governance||Dual listed structure not ideal but not a value inhibitor
Comfortable that the interests of the Venter family and minority shareholders are aligned
|Remuneration report should be clear on management of incentivisation and retention of management talent.||Reward and retention strategy fully illustrated in the Remuneration Report|
|Management||Well regarded, credited with right-sizing business at the appropriate time.
|Chairman’s remuneration is high||Chairman’s remuneration approved by shareholders at 2010 AGM and explained in the Remuneration Report|
|Timing of acquisitions and prices paid questioned||Thorough due diligences are undertaken and all acquisitions are approved at both the executive committee and main board levels.|
|Improve returns on current businesses before making further acquisitions.||See outlook statements of board in past 2 years. No material acquisitions concluded and focus has been on cost reductions and extracting synergies from existing acquisitions.|
|Age of certain directors raised as a concern.||Annual review of performance of directors above 70 years of age and articles to be amended to reflect the same|
|Senior management departures at Altech||Retention remains a key focus across the group. Comprehensive succession plan in place|
|Disclosure||Good levels of disclosure||Value of sustainability reporting to shareholders questioned||Long term sustainability and profitability depends on balancing financial and non-financial considerations affecting the group including the reporting thereon to stakeholders|
|Benefits of high levels of disclosure unclear||Better disclosure enables better understanding of the business and its opportunities|
|Altech should disclose more divisional financial information||See Altron group 2011 financial year-end presentations|
|Sector outlook||Limited growth catalysts
Altron’s growth dependant on Powertech
Sector not expected to recover for 12 to 18 months
|Risks to Altech are stronger rand, regulation, margin pressure||Risks assessed regularly at risk committee meetings|
|Global oversupply of cables||Oversupply has receded in recent months due to recovery in global economy|
|Group company performance||Altron, Altech not expected to recover until sector recovers||Funding and cash management a challenge||Group treasury manages capital allocation across the group|
|Management team in East Africa||Altech head office focussed on and committed to building a competent and sustainable management team in East Africa|
|Succession planning in Altech||Comprehensive succession planning policy in place|
It is not surprising that, given their financial focus, certain members of the investment community regard sustainability reporting as superfluous but nonetheless heartening that others see the value in an integrated approach to governance and operations, and therefore reporting. Altron will conduct the next independent third-party analyst perception audit in June/July this year and after the release of the year-end results.
King III requires companies to engage with shareholders regarding the positive role business sustainability plays in society, reducing the impact on the environment and improving prospects for the company over the long term. In order to fulfil this obligation Altron’s company secretary engaged with the company’s key investors during November 2010, focussing on ethics, reputation, governance and sustainability. Discussion items included:
- the importance of ethics in an investment decision and how this is measured;
- specific ethical challenges for Altron and how the company is performing;
- the investor community’s assessment of Altron’s overall reputation and potential for improvement; and
- further environmental and governance issues
All of the key investors responded that ethical considerations play a significant part in the investment decision making process and also noted that their perception was that Altron was operating as an ethical company. Key ethical risks to the ICT sector raisedincluded:
- the award of public sector contracts and tenders in South Africa and the rest of Africa;
- supply chain threats, especially child labour in the Far East;
- potential anti-competitive behaviour and the threat of the Competition Commission; and
- higher risk of ethics being compromised in countries into which the group is expanding (especially in Africa).
Altron’s reputation was perceived to be good among these investors and last year’s integrated report had been well received. Requests included more frequent updates against the material issues, more discussion in the CFO report on the capital structure and the company’s attitude towards debt, clearer targets against goals and more focus on water and recycling initiatives, including reduction targets around climate change.
During the first two months of 2011, to reinforce our focus on corporate ethics, ethics questionnaires were completed by senior staff, the results of which can be seen in the corporate ethics section on page54 of this report. It is envisaged that this formal training will be rolled out to all of the Altron group’s employees within the following year.
Altron is currently engaging a corporate reputation expert to crystallise ten key questions to be posed to important stakeholder groups. Input will be sought from the most significant stakeholders in each area and this feedback will be used to further refine Altron’s reputation- and risk-management strategies.
Through the representation of the company secretary, Altron is one of a few issuer companies represented on the Committee on Responsible Investing by Institutional Investors in South Africa (CRISA). As such the company secretary has an important role to play in providing input from an issuer company perspective in the development and finalisation of the Code for Responsible Investing by Institutional Investors in South Africa, which aims to take the concepts embodied in the Principles for Responsible Investing (PRI) to their practical conclusion and encourages best practice by shareholders and companies alike.
Shareholder attendance at annual general meetings is a critical part of governance. The AGM represents an important opportunity for both institutional and individual shareholders to raise relevant issues and participate in subsequent discussions. Altron makes every effort to encourage attendance and participation, including a personal invitation to attend the annual general meeting from the chairman to each shareholder in the annual report.
In line with international trends in best practice corporate governance, in June 2010, the company wrote to its shareholders to encourage them to publish their voting records from the AGM, together with reasons or explanations where necessary. While the suggestion received a mixed response, we believe it is important for investors to be transparent about their voting decisions and trust that the future will bring increased disclosure in this area. This is believed to be the first such request by a listed company in South Africa.
Summary of 2010 analyst feedback to investor-related questions
|Overall image of the group||Sell-side analysts and fund managers on the whole appeared to be very well informed about the group, and spoke positively about management, strategy and the level of investor communications.||Altron’s efforts to improve dialogue and interaction with the investor community continue.|
|Thoughts on current market situation||The group is expected to remain under pressure for the short term but is seen as well positioned to benefit from the cyclical recovery of the South African economy in the second half of 2011||Altron has endeavoured to provide timeous, accurate and honest information to stakeholders. Adequate forewarning of developments thus informs investors’ view of the company’s prospects in changing markets.|
|Management||Praise for management and for being accessible and forthcoming in answering questions, giving real insight into the company. Succession was raised as an issue – stakeholders should be made aware of a succession plan, particularly for Bytes and Altech.||Detailed succession plans are reviewed biannually across the group.
Altech: see below.
Bytes: Rob Abraham appointed as CEO of Bytes group with effect from 1 March 2010 and detailed succession plans put in place for both Altech and Bytes.
|Disclosure||Full and regular disclosure.||Previous issues re segmental disclosure have largely been addressed by the requirements of IFRS 8, which requires more detailed segmental analysis of operational performance.|
|The sector||Positive views on the sector’s medium-term fundamentals. The global crisis was seen as the cause of sectoral effects on the Group’s results, but there were positive expectations for future growth. [Check wording].||Altron anticipates some recovery in the second half of 2011, which should prove beneficial to the Altron group.|
|Group company performance (general)||Good general knowledge, but better informed about Altech and Powertech, than Bytes. Overall a good mix of businesses.||Bytes: See comment below|
|Altech||A good business, good prospects. Questions around senior management turnover and succession plans?||Retention policies and succession plans are in place and regularly reviewed. Successors identified for the current incumbents|
|Powertech||Current markets and sector delays responsible for difficulties. Swift action taken to right size the business||Ongoing focus on costs and optimum resource allocation.|
|Bytes||Little said, not of direct interest to most analysts compared with the other companies in the group.||More effort to be put into a marketing campaign to improve the visibility of Bytes in the new financial year. This has been achieved since Rob Abraham’s appointment – he attends road shows and has focussed on several marketing initiatives to increase exposure of Bytes in the market.|
The board is satisfied that Altron has made every practical effort to apply the material aspects of King III.
Independent rating of Corporate Governance Structures and Practices
In 2010, the company again engaged Corporate Governance Accreditation (Pty) Ltd (CGA) to independently verify Altron’s corporate governance procedures and policies. All areas of governance are covered by the gap analysis, including board functioning, composition, roles and duties of executive and non-executive directors, chairmen of the board and committees and the Chief Executive (CE); board committee governance; risk management, internal and external audit; and the full spectrum of integrated sustainability issues including environmental, social responsibility, ethics, diversity, B-BBEE and HIV/Aids. As a signatory to the United Nations Principles of Responsible Investment, CGA takes cognisance of these guidelines when reviewing a client’s environmental and social awareness as part of the integrated sustainability criteria.
We have addressed the governance deficiencies highlighted in the past relating to stakeholder relations and integrated sustainability and this year achieved an AAA rating in all ten categories previously rated. As a result of our consistentfocus on corporate governance, Altron was for the third year running awarded a Gold Certificate, achieving a score in excess of 80%. This qualified Altron for Platinum Class status -the first company listed on the Johannesburg Securities Exchange to achieve this distinction.
In response to the CGA process, Altron has run a check on all the items that were noted in the exception report and the company is satisfied that no material issues were identified. Those that were, have for the most part, been dealt with since the report.
Establishing materiality through inclusivity
Altron’s strategic themes integrate all issues across the businessKing III requires the board totake into account the concerns and issues of its wider stakeholder environment. Altron’s approach to governance seeks an effective balance between the primary need to maximise the proﬁts of the company and long-term social, environmental and economic interests. Our strategic themes describe the long-term sustainability of Altron’s business, each having clear lines of accountability from board level down.
To apply the materiality principle of the Global Reporting Initiative (GRI), these eleven strategic themes are further subdivided into a list of some 45 issues deemed material to the business and its stakeholders.Issues are deemed material where they have the potential to impact on Altron’s ability to create and sustain value for shareholders. We measure our progress towards sustainability by applying relevant GRI indicators to these issues.Where the Altron group falls short in applying these indicators, or has used other methodologies to manage and report on these issues we give the reasons in accordance with the‘apply or explain’ philosophy of King III. Altron continually develops and refines its systems to enable the group to further improve on its application level going forward. [See King III checklist/summary on page 62]
Altron is governed by a unitary board and board committees established to govern speciﬁc material issues within the company’s eleven strategic themes. The governance bodies accountable for each strategic theme are listed below.
Governing bodies responsible for Altron’s eleven strategic themes
|Strategic themes||Governance body|
|External factors||Board, risk management committee,audit committee|
|Products and services||Board, risk management committee|
|Income and growth||Board, audit committee|
|Business partner relationships||Board, risk management committee|
|Costs and cash management||Board, audit committee|
|Customer relationships||Board, risk management committee|
|Human capital||Board, risk management committee, remunerationcommittee, human capital committee, transformation committee, nomination committee|
|Transformation||Board, risk management committee,transformationcommittee, human capital committee|
|The environment||Board, risk management committee|
|Business conduct in foreign operations||Board, risk management committee|
|Corporate governance||Board, risk management committee|
The Altron board
LeadershipThe board charter details the responsibilities of the board and is reviewed and adopted by the board annually. This charter was last updated in February 2011 and is aligned with the recommendations set out in King III. It forms the basis of the board’s responsibilities and duties. The charter is contained in the board minute book and every director receives a copy at induction.
The board supports the long-term sustainability of corporate capital, balanced economic, social and environmental performance and due consideration of legitimate stakeholder involvement.
Leadership development is a key focus area at Altron. The directors’ conference in November 2010 focused on reinforcing ethics and ethics management throughout the organisation and included a review of recent developments in the fields of environmental and competition law. The board also gained valuable insight into the minds of the next generation of employees as a result ofa presentation by a final year scholar that detailed what school leavers and young graduates value in prospective employers and how their world is changing.
AccountabilityThe role of the board is to exercise leadership and sound judgement in directing the company to achieve sustainable growth and to act in the best interests of the company and its stakeholders. Ultimate responsibility for the success of the company lies with the board.
Altron’s policies governing communication and conduct with stakeholders aim to ensure material information is disclosed in a full, accurate, relevant and timeous manner. The company’s formal disclosure policy regulates the nature, content and timing of all disclosures of price-sensitive and non-price-sensitive information to the investment community and other stakeholders.
Altron’s policies (including the code of ethics and directors dealing in securities policies) adhere to the principle of transparency by providing stakeholders with timeous, accurate and relevant information.
The full code of ethics is available at http://www.altron.com/pdf/Policies/Code of Ethics - Final - 160310.pdf
Board structure and related matters
Altron’s board charterThe board’s role, composition, materiality levels, delegation of authority, proceedings at meetings, director induction as well as composition and role of board committees are set out in the board charter. This is reviewed annually to ensure it continues to comply with local and international best practices and changes to the South African regulatory environment. The charter was amended and updated during the year under review to ensure that it continues to address the requirements of King III and to align with better business practices. Changes included:
- clarifying the role of the non-executive chairman and recording the appointment of a lead independent director in the prior period;
- clarifying the chairman’s role in the performance evaluation of individual directors;
- refining the requirement for directors to exercise care, skill and diligence in their discharge of company duties;
- inclusion of the Altron Declaration of Interest Policy in governing conflicts of interest at board level;
- reiterating that the Audit Committee is elected annually by shareholders;
- adding the requirement of King III that the remuneration of the three most highly paid employees who are not directors be disclosed in the remuneration report;
- adding a threshold value of >R50m on acquisitions or mergers requiring board approval;
- adding a threshold value of >R10m for borrowings with a repayment term of longer than six months requiring board approval;
- establishing the primacy of the board charter over the limits of authority delegated by the board to the executive directors;
- clarifying the requirement to timely and accurately disclose to shareholders information that would materially affect the value or worth of an investment in the company; and
- stipulating the performance reviews of board committees and the audit committee as being every second year as opposed to annually.
The updated board charter is available from the Altron group company secretary on request.
Composition of the boardConsistent with the company’s board charter, Altron has a unitary board, constituted to both lead and control the company.
Of the 15 serving directors, ten are non-executive directors, of whom seven are independent. The Altron Lead Independent Director (LID) and the Altron nomination committee satisfy themselves regarding the independence of the independent non-executive directors. This includes assessing all relationships and / or circumstances which are likely to affect or could appear to affect their Fivedirectors are executive directors. Four of the independent non-executive directors are black directors, two of whom are women.
At the February 2011 nomination committee and board meetingsa full review of the board was conducted to ensure that its composition remains appropriate. The review concluded that the board’s size, diversity and demographics facilitate its effectiveness.
Division of responsibilities at the head of AltronKing III requires the board to be led by an independent non-executive chairman and makes a number of points pertinent to this issue:
- a chief executive officer should not also hold the role of chairman of the company;
- the chairman of the board should be independent and free of conflicts of interest on appointment, failing which the board should consider appointing a lead independent director; and
- if the board appoints a chairman who is a non-executive director but is not independent, this should be disclosed in the integrated annual report, together with the reasons and justification for it.
King III therefore recognises that there may be sound reasons for a company to appoint a chairman who does not meet all the criteria for independence, but requires such a company to justify this decision. In this situation, King III advocates the appointment of a lead independent director to assist the board in dealing with any actual or perceived conflicts of interest that may arise.
Evolution of Altron’s leadership
- Dr Bill Venter is the founder and former executive chairman and chief executive of Altron (1965 – 2001);
- in 2001, Dr Bill Venter relinquished the chief executive role of Altron to Robert Venter, but remained on as a fulltime chairman of Altron until 2009;
- on 1 March 2009, the role of Dr Bill Venter changed from full-time chairman to non-executive chairman, following his successful guidance of the transition process that has seen his son Robert Venter take over the running of the business as chief executive; and
- Dr Bill Venter owns and controls 56% of the voting ordinary shares of Altron.
As a consequence of the above, Dr Bill Venter cannot be classified as an independent non-executive chairman (or independent director) of Altron in terms of the JSE Listings Requirements, King III or the proposed Companies Act, 2008. In addition, due to his large equity interest in the Altron group, there are likely to be perceptions of potential conflicts of interest regarding his decisions relating to Altron and its shareholders.
As a result, and in accordance with King III, the Altron board appointed Mr Mike Leeming as lead independent non-executive director on the company’s board in August 2009.Altron’s board believes the lead independent director provides an important point of contact for the greater investment community and wider stakeholders should they have concerns with the running of the company or potential conflicts of interest.
The Altron group’s increased interaction with shareholders is intended to provide the investment community with regular, clear communication and ensure that minority shareholders fully understand the structures Altron has in place to protect their rights. During the year under review, for example, and at the request of certain participating preference shareholders, Altron’s Notice of Annual General Meetingwas circulated to those shareholders prior to the AGM for comment and input. This was done notwithstanding that these shareholders do not,except in very limited circumstances, have the right to vote at the AGM. Altron considers it important that all classes of shareholders are kept abreast of developments in the company.
Role and responsibilities of the chairmanThe chairman presides over meetings of the boardand shareholders and guides the integrity and effectiveness of the board governance process. This includes ensuring that:
- no individual dominates the discussion;
- relevant discussion takes place;
- the opinions of all directors relevant to the subject under discussion are solicited and freely expressed;
- the board operates effectively and productively;
- complete, timely, relevant, accurate, honest and accessible information is provided to the board to enable directors to reach an informed decision; and
- board discussions lead to appropriate decisions and that these decisions are executed appropriately.
- setting the ethical tone for the board and company;
- strategic planning;
- relationships with principals, government and customers;
- group black economic empowerment;
- corporate relations;
- top-level contact with regulatory bodies; and
- advice and guidance on local and overseas acquisitions.
A formal board-approved mandate regulating the terms of reference of the chairman’s office govern his duties and is reviewed from time to time when appropriate.
The mandate for the Altron chairman’s committee was last updated in February 2011 to reflect the requirements of King III and the change in role and responsibilities of Dr Bill Venter from full-time chairman to non-executive chairman. The committee is mandated to assist the board in reviewing corporate strategy and major plans of action including acquisitions and divestitures, as well as setting Altron group policy. The committee meets at least every eight weeks and more often if required.
At a nomination committee meeting held on 23 February 2011, the committee satisfied itself regarding the chairman’s performance for the past twelve months and confirmed that Dr Bill Venter had substantially complied with those recommendations set out in King III, the Altron board charter and the chairman’s committee mandate and terms of reference, regarding the rolesand responsibilities of a chairman. Accordingly, the nomination committee recommended to the board that, subject to shareholder approval, Altron’s non-executive chairman, Dr Bill Venter, be reappointed for a further twelve month period with effect from 1 March 2011.
Role of lead independent director (LID)King III defines the main function of a LID as being to provide leadership and advice to the board when the chairman has a conflict of interest, without detracting from the authority of the chairman. The LID should at all times be aware that his/her role is that of support to the chairman and board and not in any way to undermine the authority of the chairman. The LID should also chair those board meetings which deal with the succession of the chairman and the chairman’s performance appraisal.
The LID, Mike Leeming, attends the first meeting of the Altron remuneration committee each year to address the committee on the performance of the chairman during the prior year. At this meeting, the LID typically presents his assessment and advocatesa recommendation in respect of the chairman’s fees.
Role of chief executiveOperational management of the group is the responsibility of the chief executive,Robert Venter. His responsibilities include, among others:
- developing and recommending to the board a long-term strategy and vision for the organisation that will generate satisfactory stakeholder value;
- developing and recommending to the board annual business plans and budgets that support the organisation’s long-term strategy; and
- managing the affairs of the organisation in accordance with its values and objectives, as well as the general policies and specific decisions of the board.
The chief executive, while chairing the executive committee, is not a member of the remuneration, audit or nomination committees, but attends these meetings by invitation. The CE is a member of the Altron risk management committee and holds no other non-executive directorships outside of the Venter family and the Altron group.
Non-executive directorsThe experience and diversity of the non-executive directors bring value and insight to the board. They are individuals of high calibre and integrity and provide insight and a depth of wisdom based on their knowledge and their backgrounds across a broad range of industries. The composition of the board is regularly reviewed to ensure a balance of power and authority, negate individual dominance in decision-making processes, reduce the possibility of conflicts of interest and promote objectivity.
The non-executive directors have no fixed terms of appointment and no employment contracts with Altron. With effect from 2006, all new non-executive directors are required to conclude written service agreements with Altron, upon joining the board. Their fees are not linked to the group’s financial performance nor do they receive share options or bonuses. The circumstantial exception mentioned in last year’s report, Mr David Redshaw, who retained certain legacy options from his time as an executive director of Bytes, has now been resolved as all options have since vested and been exercised/lapsed.
At the start of every calendar year the LID, in conjunction with the nomination committee, performs an assessment of the independence of each non-executive director. This review examines, among other things:
- the directors’ involvement with other companies;
- external directorships;
- relationships withmaterial customers and suppliers; and
- materialcontracts with the company, if any.
Applying the guidance in King III, the JSE Listing Requirements and the Companies Act, the LID concludes as to their independence. This is then presented to each non-executive director for them to either confirm the findings or provide further evidence to support their independence.
The company secretary also performs an independent review of the independence of non-executive directors and where necessary will solicit external legal opinion to justify their status.
From February 2011, where a non-executive director has served on the board for nine years or longer their independence must be reassessed each year.
With the exception of Peter Wilmot who has served on the board for nine years and who has been adjudged by the nomination committee to still be independent, none of the remaining present independent non-executive directors have served on the board for a period longer than nine years and neither are they disqualified in terms of the criteria for independence as laid down by the JSE Listings Requirements or King III.
The nomination committee mandate was changed during the year under review to require non-executive directors who have reached the age of 70 years to retire annually and if appropriate, be re-elected as directors by the shareholders at the AGM. This requirement will be included in the proposed changes to the articles.
Executive directorsExecutive directors are subject to the standard terms and conditions of employment for all Altron employees where their notice periods are short term, generally, not exceeding 60 days. Directors are subject to retirement by rotation and re-election by shareholders at least once every three years under article 16 of the articles of association. The Altron nomination committee assesses the performance of all directors standing for election/re-election each year and makes formal recommendations to the board and shareholders in this regard.
The board evaluates its effectiveness in a formal process every second year or more often if required. The last such assessment was performed in 2009 and the next will be repeated in the year ahead. During the evaluation, six key areas are assessed:
Effectiveness of the board
- strategy and planning;
- board structure and role;
- meeting processes;
- performance monitoring;
- board and director responsibilities; and
- board culture and relationships.
Self-evaluation questionnaires are completed by the board members, the findings of which (and remedial steps taken, if any) are reported in this integrated annual report. In addition to the board evaluation, Altron’s board members also evaluate each board committee andthese committees also conduct their own self-evaluation exercises.
The board considers a two year review cycle to be a more appropriate interval than the annual review recommended by King III, especially in the light of the ongoing assessments of board members that are conducted as part of other processes. These include:
- annual evaluations by the remuneration and nomination committees into the performance of both executive and non-executive directors, for purposes of annual increases, annual performance bonuses and re-election. These reviews assess directors’ performance against their KPIs, take into account the scope of their job and its function, peer comparisons, the number of meetings attended, qualifications, experience and the number of other boards on which they service;
- succession plan reviews conductedtwice a year (which involves identifying development and training needs of directors);
- non-executive directors are assessed annually for independence by the LID and the nomination committee; and
- non-executive directors are evaluated annually by the nomination committee as part of the process for putting them forward for re-electionwhen they are due to retire by rotation.
- feedback from investors led to the new policy stipulating that any director over the age of 70 must be put up for re-election at each annual general meeting thereafter and therefore must be assessed for effectiveness.
2009 board self-evaluation
The following table highlights the areasfor improvement raised in the June 2009 board self-evaluation and the steps taken in the interim to address these issues.
|Area for improvement||Initiatives|
|More positive involvement within customer base, i.e. leverage off relationships||New Group Alliance Manager appointed to foster and maintain relationships with top 20 suppliers and customers.
Non-executive directors encouraged to apply their minds to identifying opportunities in other industry areas
|More frequent ‘strategy feedback’ sessions||Two strategy planning sessions are conducted each year – a two-day executive director breakaway session and a one day full board session|
|Greater focus on BBBEE progress||Formation of Human Capital Council and roll-out of group human capital plan and Transformation Vision 2012|
|The appointment of a lead independent non-executive director||Mr Mike Leeming appointed|
|Greater focus on industry trends and long term strategic decisions||Covered in the strategy sessions|
The board assessment also included each of the committees and concluded that the various committees function effectively and assist the Altron board in discharging certain of its responsibilities. Areas for improving the performance of the committees and the resulting steps taken include:
|Area for improvement||Initiatives|
|Regular review of composition||This happens annually during the nomination committee meeting and by the board at the first board meeting held after the AGM.|
|Specialist training||Since 2009, independent specialists/consultants in their respective fields of expertise have attended Remuneration, Risk Management and Audit Committee meetings to update the meeting on recent local and global trends.|
|Clarity on role of Altron vs. Altech committees||King III has assisted and provided guidelines to Altron on how but to manage the relationship between the Altron and Altech board committees.|
|Formalise continued training||See comments above. The secretariat also conducts formal training for all of the group’s directors during the year as explained elsewhere in this report.|
The group company secretary is responsible for making sure that all directors have full and timely access to the information that may be necessary for them to properly discharge their duties and obligations so that the board can function effectively.
The company has a detailed policy in place,included in the board charter, to encourage directors to consult with independent professionals and advisors, at Altron’s expense, where this may be necessary for them to discharge their duties.
During the year a travel and expenses policy for non-executive directors was implemented to stipulate the appropriate class of travel, cars hired and hotels to be used on company-related travel. This policy is administered through the office of the company secretary and reported against budget to the board
The company secretary performs the following functions, among others, in discharging his duties to the directors:
- collates and distributes information such as agenda items for board meetings, corporate announcements, investor communications and any other developments, which may affect Altron or its operations;
- provides counsel and guidance to the board on their individual and collective powers and duties;
- develops director training;
- inducts new directors together with the company’s sponsor. Induction includes a briefing on directors’ fiduciary and statutory duties and responsibilities (including those arising from the JSE Listings Requirements), as well as two- to three-day induction visits to group operations around South Africa;
- provides ongoing support and resources to enable directors to extend and refresh their skills, knowledge and understanding of the Altron group;
- provides regular updates on changes and proposed changes to laws and regulations affecting the group and/or its businesses; and
- facilitates professional and skills training.
Examples of training provided to directors during the past few yearsinclude:
- a series of talks by ENS Attorneys, experts in the fields of corporate governance and corporate law, on various topical issues affecting directors, notably the proposed new Companies Act, King III,the new Competition and Consumer Protection Acts and changes to environmental legislation;
- a presentation on corporate ethics by the Ethics Institute of South Africa; and
- a presentation by a matric student on the values and aspirations of school leavers and recent graduates.
The group company secretary is not a director of any of the Altron group’s operations and accordingly maintains an arm’s length relationship with the board and its directors.
The group company secretary reports to the chief executive and has a direct channel of communication to the chairman. He meets with the chairman before each board and general meeting to prepare for and discuss important issues, agree on the agenda and assist the chairman or the board and committee chairmen in the drafting of yearly work plans.
The Altron group company secretary is responsible for the functions specified in the Companies Act(the Act). All meetings of shareholders, directors and board sub-committees are properly recorded as per the requirements of the Act. The removal of the group company secretary would be a matter for the board as a whole.
The Altron group company secretaryis an active member of the accounting and auditing task force of the King Committee responsible for the drafting of King III and is therefore well versed in most aspects of corporate governance. This involvement has helped Altron and its board to stay at the cutting edge of best practices and procedures in the field of corporate governance. As indicated previously, he is also an active member of CRISA and was recently appointed as a director of the Corporate Lawyers Association of South Africa.
Board meetingsThere are a minimum of four board meetings and two strategic sessions scheduled per financial year and additional board meetings are convened as necessary. Five board meetings and two strategy sessions were held during the past financial year. The table below details the attendance by each director at board meetings held during the year under review:
Attendance at meetings
|Dr WP Venter||0|
|Dr PM Maduna|
0 Could not attend due to incapacitation and hospitalisation
# Special board meeting
* Recused himself from the meeting due to a conflict of interest
+ Participated by way of teleconference
Submitted apologies and was granted a leave of absence in terms of the company's memorandum of incorporation
Board committeesAltron’s board committees play an active and pivotal oversight role and operate under board-approved terms of reference. These terms of reference are updated when necessary to keep them aligned with best practice. All committees, except the executive committee, are chaired by an independent non-executive director who attends the annual general meeting in order to respond to shareholder queries. The various committee mandates and terms of reference are available from the Altron secretariat on request.
Members of each committee, except the audit and executive committees, are re-elected every year at the first board meeting following the annual general meeting. The chairmen of the committees are, in conjunction with the board, elected by the members of each committee and hold office for not more than five consecutive years, unless sound reasons cause the nomination committee and the board to determine otherwise.As the audit committee is a statutory committee,under the new Companies Act and King III shareholders are required to elect the members of this committee at each Altron annual general meeting.
Role - Responsible for the operational activities of the group, developing strategy and policy proposals for consideration by the board and implementing the board’s directives
The committee meets monthly with additional meetings convened as and when necessary.
The purpose of the committee is to assist the Altron chief executive in the performance of his duties, including:
- the development and implementation of strategy, operational plans, policies, procedures and budgets;
- the monitoring of operating and financial performance;
- the assessment and control of risk;
- the prioritisation and allocation of resources; and
- monitoring competitive forces in each area of operation.
The executive committee has a properly constituted mandate and terms of reference which is reviewed from time to time.
Role- The committee has written terms of reference and its responsibilities include among others:
- overseeing integrated reporting (i.e. the integrity of the integrated annual report, the financial statements and the disclosure of sustainability for consistency with the financial information);
- recommending engaging an external assurance provider on material sustainability issues;
- considering the need, if appropriate, to issue reviewed interim results;
- reviewing summarised information and engaging the external auditor to provide assurance on summarised financial information;
- ensuring there is a combined assurance approach for assurance activities to address all significant risks;
- monitoring the relationship between external assurance providers and the company;
- reviewing annually and satisfying itself on the group’s finance function and disclosing such in the integrated annual report;
- overseeing internal audit (including the appointment/dismissal and performance management of the head of internal audit, approving the internal audit plan, assessing internal audit performance and ensuring internal audit is properly resourced with sufficient budget);
- recommending the external auditor appointment and overseeing the external audit process (nomination, terms of engagement, remuneration, monitoring independence, defining non-audit services and pre-approval of non-audit services, be informed of reportable irregularities, and review quality and effectiveness of external audit process);
- reporting internally to the board and externally to shareholders on:
- the discharge of its statutory duties;
- independence of external auditor;
- financial statements and accounting practices;
- effectiveness of the internal financial controls;
- its role, composition, meetings and activities; and
- recommending the integrated annual report for approval by the board.
- overseeing financial reporting risks, internal financial controls, fraud and IT risks as they relate to financial reporting;
- reviewing half-year and annual financial statements before submission to the board; and
- addressing the section 269, 270A and 300A requirements set out in the previous Companies Act of 1973, as pertains to Bytes and Powertech.
At its February 2011 meeting, the audit committee also addressed the following additional responsibilities as set out in King III and the JSE Listings Requirements:
- evaluated and confirmed the independence of the internal audit function;
- reviewed the findings of the evaluation of the internal audit function ;
- noted and approved the appointment of SustainabilityServices, an external assurance provider, to provide assurance over material elements of the sustainability section of the integrated annual report;
- reviewed the expertise, resources and experience of the Altron group’s finance capability and agreed an action plan in respect of those areas of the group where the finance skills and/or procedures are inadequate;
- satisfied itself that management regularly monitors compliance with Altron’s code of conduct and approved amendments to the code of conduct to align with the new corporate compliance policy and the declaration of interest policy;
- approved the reportable irregularities policy for Altron; and
- Evaluated the appropriateness of the expertise and experience of Altron’s financial director.
Composition and proceedings– Alex Smith (chief financial officer) and Robert Venter (chief executive) attend committee meetings by invitation, but do not have a vote. The external auditor and the head of internal audit attend meetings by invitation. The committee meets periodically with the group’s external and internal auditors and Altron’s executive management. At the year-end audit committee meeting the chairman ensures that senior management and the external auditors as well as internal audit are able to report back to the committee chairman and members on the audit process both candidly and independently of each other. The internal and external auditors have unlimited access to the chairman of the committee. The internal audit department reports directly to the chairman of the audit committee and is also responsible to the chief financial officer on routine day-to-day matters.
The external auditor and head of internal audit attend Altron’s annual general meeting to answer any queries raised by shareholders.
Three meetings are scheduled annually, with special meetings called as and when required. The committee met three times during the year under review.
External auditorAssessment of external auditor – during the year the committee conducted an evaluation regarding the effectiveness of the external auditor. Members of the audit committee and invitees were polled for their views. Overall, the evaluation concluded that the majority of participants are satisfied that Altron receives value and are satisfied with the performance of the external auditor. At the end of the previous audit cycle Altron’s lead audit partner, Mark Hoffman, rotated off the audit in terms of KPMG’s internal policy and the recommendations set out in King III and the Audit Profession Act. The board noted the excellent service which Mr Hoffman had provided to the Altron group during his tenure.
Details of the external audit areas evaluated and the responses received are listed below.
|Audit planning||Planning is appropriate with regards to:
||No concerns raised||N/A|
|Technical Abilities, Audit Process / Outputs and Quality Control||Appropriate and adequate practices are followed regarding technical abilities and quality control||Insufficient training for junior members of the audit team||External auditor noted the concern.|
|Business insight||External audit has a comprehensive understanding of the company’s systems, risks and business in general||No concerns raised||N/A|
|Consultancy abilities||Meet the requirements of the audit committee||No concerns raised|
|Independence||Maintained independence, integrity and objectivity and always operated with an objective state of mind||No concerns raised|
||Failed to bring ‘big’ exposures to the committee’s attention
Failed to pick up issues at Bytes Specialised Solutions
Problems experienced at Powertech Calidus
|Both internal and external audit systems and procedures operate on the concept of materiality and statistical testing and cannot guarantee the discovery of every issue|
Prohibited services – the audit committee determines and carefully monitors the use of the external auditor for non-audit-related services guided by a formal policy that precludes the external auditor from providing services which would impair audit independence. Prohibited services include:
- performing any internal audit or internal audit outsourcing services for Altron or any of its relevant subsidiaries;
- performing any valuations on any business assets of Altron, or any of its relevant subsidiaries, for which the external auditor will be required to subsequently issue an audit opinion;
- dispensing corporate finance advice, assistance or services to Altron or any of its relevant subsidiaries;
- providing any legal or information technology (design or implementation) consulting services to Altron or any of its relevant subsidiaries; and
- conducting any due diligence exercises for and on behalf of Altron or any of Altron’s relevant subsidiaries which utilise Altron’s external auditor for audit- related services.
Permitted services -the permitted and/or qualified non-audit-related services which the external auditor is permitted to render to Altron include:
- tax compliance services in relation to, for and on behalf of Altron;
- assurance related work, but excluding implementation consulting work which results in an impairment of the external auditor’s independence; and
- opinion work not relating to or associated with any of the prohibited services referred to above.
Contracts for any permitted non-audit-related services must be pre-approved by Altron’s audit committeeand such services cannot exceed 20% of the total Altron group audit fee agreed by the Altron audit committee for the financial year in question.
Non-audit related services rendered by the external auditor during the prior year, and pre-approved by the audit committee (within the financial parameters prescribed by the committee), comprised mainly compliance and other assurance-based engagements, as listed below:
|Independent review of disaster recovery and continuity arrangements||82 196|
|Tax compliance and advisory||37 372|
|Audit procedures regarding compliance with the Import and Export Undertaking entered into with the South African Reserve Bank Exchange Control (EXCON)||200 000|
|Processing accounts and preparing tax returns||91 640|
|Transfer pricing study and issuance of accountants report for Indian Transfer Pricing Laws||40 593|
|Tax compliance service - preparation and submission of tax returns||27 220|
|Agreed upon procedures relating to details of a divided declaration||4 000|
|Tax optimisation review||234 877|
|MIDP related services in terms of the requirements of the International Trade and Administration Commission of South Africa||11 259|
|Audit of import rebate credit certificates in terms of the requirements of the International Trade and Administration Commission of South Africa (DA190 audit)||82 196|
|Reviewed preparation of subsidiary company'sAFS||4 180|
|Commission calculation review||1 500|
|General accounting support including accounting opinions, queries and IFRS training||40 360|
|Asset verification for billing process||22 637|
|Total non-audit services||R 880 030|
Total fees for non-audit services for the period of R880 030 represent 5% of the audit fee for the period, well below the prescribed limit of 20%
The Altron audit committee is the formal audit committee of both Bytes and Powertech, as contemplated in the Corporate Laws Amendment Act. Messrs Peter Wilmot and Mike Leeming, both independent non-executive directors of Altron and members of the Altron audit committee, chair the Bytes and Powertech financial review and risk committees respectively.
Re-appointment of independent auditor
At a meeting held on 24 February 2011, the Altron audit committee considered the independence of the external auditor, KPMG Inc., in accordance with Section 270A of the Corporate Laws Amendment Act. In assessing the independence of the external auditor, the audit committee satisfied itself that KPMG Inc.:
- does not hold a financial interest (either directly or indirectly) in Altron;
- does not hold a position, either directly or indirectly, that gives the right or responsibility to exert significant influence over the financial or accounting policies of Altron;
- is not economically dependent on Altron, having specific regard to the quantum of the audit fees paid by Altron and its sub-holding companies to KPMG Inc. during the period under review in relation to its total fee base;
- does not provide consulting or non-audit services to Altron or its sub-holding companies which fall outside of the permitted or qualified non-audit-related services as specified in the policy for the use of the external auditor for non-audit-related services and which could compromise the external auditor’s independence; and
- including the individual registered auditors who undertake the audit, do not have personal or business relationships of immediate family, close relatives, partners, either directly or indirectly, with Altron and its sub-holding companies.
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 auditor for the 2011/12 financial year. On 25 February 2011, the Altron board, subject to shareholder approval, re-appointed KPMG Inc. and Mr Nicholas Southon, the audit partner, as the independent registered auditor of Altron.
The Altron audit committee also considered and satisfied itself that KPMG Inc. and PKF (Jhb) Inc. (Altech’s external auditor), including their advisors, are accredited in terms of the JSE List of Accredited Auditors as contemplated in paragraph 3.86 of the JSE Listings Requirements.
Attendance at meetings
Members (and invitees)
+ Participated by way of teleconference
Submitted apologies and was granted a leave of absence in terms of the company's memorandum of incorporation
1 Attends by invitation and is not a member of the audit committee
2 Could not attend due to incapacitation and hospitalisation
For more information regarding the activities of the audit committee, please refer to the audit committee report in the annual financial statements.
Internal controls and internal auditStatement of internal control
The board recognises the importance of a sound system of internal control that supports the achievement of the Altron group’s policies, aims and objectives while ensuring compliance with statutory duties and responsibilities.
The board acknowledges its overall responsibility for the Altron group’s system of internal controls. This includes the establishment of an appropriate control environment and framework, as well as reviewing the effectiveness, adequacy and integrity of this system.
The system of internal control is based on an ongoing process designed to identify the principal risks to the achievement of policies, aims and objectives, to evaluate the nature and extent of those risks and to manage them efficiently, effectively, and economically.
It should be noted, however that such a system is designed to manage rather than eliminate the risk. Accordingly, this system can only provide reasonable and not absolute assurance against the occurrence of any material misstatement or loss.
The Altron group has in place an on-going process for identifying, evaluating, monitoring and managing the principal risks affecting the achievement of its business objectives. This process has been in place for the year ended 28 February 2011, and up to the date of the approval of the annual financial statements for that year. In addition this process is embedded into the Altron group’s culture, people, processes and structures. The key elements of this process are outlined below.
Delegation of responsibilities
The Altron group has in place clearly defined delegation of responsibilities for both executive and operating management, which includes authorisation levels for all aspects of the business. The delegation of these responsibilities is reviewed annually.
There are written mandates and terms of reference for all committees of the board.
Policies and procedures
Clearly documented policies and procedures are set out in the group’s Policies and Procedure Manual which is subject to regular reviews and updates.
The internal audit department monitors compliance with policies and procedures and reviews the effectiveness of the internal control environment. Significant findings in respect of non-compliance with policies and procedures, or weaknesses in internal controls are highlighted in their reports, brought to the attention of management and reported to the Altron audit committee.
Audits are carried out on all significant operating units. The frequency of an audit is determined by the assessment of risk which includes but is not limited to the results of the previous audit review, operational financial contribution, and changes in key staff and systems. High risk operations are audited annually, medium risk sites once every 18 months, and low risk sites once every 3 years. The audits are conducted in accordance with the International Standards for the Professional Practise of Internal Auditing.
The annual audit plan is reviewed and approved by the Altron audit committee.
Management review meetings
Management review meetings are held on a regular basis for all operating units. Operational, financial and key management issues are identified, discussed and resolved at these meetings.
Monitoring of results
Monthly monitoring of results against budget takes place at both an operational level and at a board level. Major variances against budget are followed up by management and action taken.
Code of conduct
The group has an established code of ethics and code of conduct which emphasise corporate values and ethical behaviour.
The group has in place an anonymous whistle blowing facility which is independently run by Deloitte. All tip-offs are actively investigated, followed up and resolved.
Review of this statement
The Altron internal audit department has reviewed this statement of internal control for the financial year ended 28 February 2011 and has reported to the Altron audit committee that all internal control weaknesses identified during the course of its audit assignments for the financial year ended 28 February 2011 have been, or are being addressed and that none of the weaknesses have resulted in any material losses, contingencies or uncertainties that would require disclosure in the Altronintegrated annual report.
It should be noted, however, that systems of internal control are designed to manage rather than eliminate risk that may impede the group’s business objectives. Accordingly, these systems can only provide reasonable, and not absolute, assurance against the occurrence of any material misstatement or loss.
The external auditor, KPMG Inc., has also reviewed the statement of internal control and reported to the board that nothing has come to its attention that causes them to believe that the statement is inconsistent with their understanding of the process adopted by the board in reviewing the adequacy and integrity of the system of internal controls.Internal audit
Role of the internal audit function
The internal audit function serves management and the board of directors by performing independent evaluations of the adequacy and effectiveness of the Altron group companies’ controls, financial reporting mechanisms and records, information systems and operations and provides additional assurance on the safeguarding of group assets and financial information.
Independence of the internal audit function
The Altron audit committee conducts an annual review of the independence of the internal audit function and the committee is satisfied that the independence of the internal audit function has not been impaired in any way. Removal of the head of internal auditwould be a matter for the whole board of directors.
King III The King III requirements with respect to internal audits have been reviewed by both the audit committee and the head of internal audit. Both parties are in agreement that the internal audit function is compliant with the requirements of the code.
Compliance with Institute of Internal Auditing Standards
The internal audit function adheres to the International Standards for the Professional Practice of Internal Auditing (IIA Standards).
The audit plan is communicated to sub-holding executive management and the respective audit committees.
Special assignments are also undertaken at the request of the various audit committee members. Appropriate arrangements are made to ensure that these additional requests do not compromise the achievement of the audit plan. Two special reviews were conducted during the prior year. These relate to an Altron business continuity review as well as an Altron group risk review that was performed in line with the Altron Information Management Council’s request.
Types of reviews
Internal audit performs the following types of audits:
|Financial Systems Reviews (FSR)||Computer Systems Reviews (CSR)||Production Systems Reviews (PSR)||Risk Control Reviews (RCR)||Environmental Reviews (ENV)|
|A review of transactions processed through the financial cycles including sales, debtors, receipts, purchases, creditors, payments, inventory, fixed assets, payroll, cash and bank.||An assessment of the adequacy and effectiveness of internal controls implemented and maintained by management, in the IT general controls environment.||An assessment of the adequacy and effectiveness of control implemented by management regarding.
||To ensure companies comply with the legal requirements of the Occupational Health and Safety Act (OHAS Act) no 85 of 1993.||To ensure companies comply with the legal requirements of the various environmental laws and regulation and best environmental practice.
(outsourced to MS Alexander)
Table of audits per type
|Planned Audits per Type|
|Financial Systems Review||
|Risk Control Review||
The deferred audits within Bytes related to the Lasercom operation which was consolidated within Bytes Document Solutions, as well as the implementation of Oracle at Bytes Managed Solutions not being complete. Within Powertech the deferred audits relate to the relocation of the Aberdare Group Operations Centre which affected the production and health and safety reviews. Aberdare management requested the financial systems review at Alcobre be deferred to the new financial year due to changes in management. In addition, two reviews scheduled for Alcon Marepha have been deferred. All of the deferred reviews will be audited in the 2011-12 financial year.
All audits that were deferred were agreed with the respective audit and financial review and risk committees.
A set of standard audit opinions has been defined to give context to the opinion given in internal audit reports.
• Good – The system of internal control is adequate and effective. Control weaknesses identified were minimal and of a minor nature, and do not impair the overall system of internal control.
• Satisfactory – Whilst for the most part satisfactory, certain controls are missing or are only partial in nature. Whilst other controls compensated in part for the weakness, timely corrective action is required by management. The system of internal control is not significantly impaired.
• Corrective Action Required – Critical controls are absent or inadequate. The weaknesses identified, taken together or independently, significantly impair the overall system of internal control. As a result, prompt corrective action by management is necessary to bring controls up to a satisfactory level.
• Deficient – Control weaknesses are so significant or widespread that there is a high risk of financial loss, business interruption, breach of privacy, non-adherence to company policies or failure to meet contractual or statutory obligations. Immediate action is required by management to implement effective controls. The overall system of internal control is materially impaired.
|Table of audit ratings achieved per review type|
|Planned Audits per Type||Good||Satisfactory||Corrective
|Financial Systems Review||3||20||6||2|
|Computer Systems Review||-||3||3||-|
|Production Systems Review||-||3||1||-|
|Health and Safety Review||7||4||2||-|
|Total||15 (23%)||36 (55%)||12 (19%)||2 (3%)|
Audit ratings for 14 audits in progress had not been finalised at the date of this report.
Deficient Audit Findings
The two deficient ratings for the financial systems reviews relate to the newly acquired operations of Altech Fleetcall and Altech Technology Concepts where the standards of internal controls were not alignedto Altron group requirements. Control deficiencies were noted throughout most of the financial cycles that were subject to review. Where audit deficiencies are identified at new acquisitions these are immediately brought to the attention of management who then has a defined time period to rectify the deficiencies and are then re-audited to ensure compliance. Management is committed to ensuring that the audit findings raised are addressed and rectified as a matter of urgency to ensure proper compliance with Altron group policies and accounting standards. The Altron internal audit department has planned a further audit of both these operations during the 2011/12 financial year.
Outstanding issues and timetable for correction
If controls are inadequate, ineffective or not complied with, they are raised in the internal audit reports. Management have committed to rectify the shortcomings and specify action plans, due dates and responsible persons in the audit report.
Evaluation of the effectiveness of the internal audit function
During the year under review an internal evaluation of the effectiveness of the internal audit function was conducted. Participants canvassed in the evaluation included members of the Altron audit committee, management, external and internal audit. 12 of the 13 people invited to participate answered the evaluation in full. The evaluation covered seven aspects and the overall conclusion was that the internal audit department was functioning well. Details of the areas evaluated, the findings and areas of concern are shown in the table below
|Understanding||Respondents strongly believed that internal audit:
||No areas of concern raised||No response required|
|Charter and structure||
||Terms of reference of the internal audit department are not visible to everyone in the organisation
Concern that internal audit did not pick up problems in Bytes Retail ATM business when it should have done so
|Terms of reference are available on the Altron intranet Refer to response to ‘Planning’ below|
|Skills and experience||
||One participant queried competencies due to their not detecting the problems in Bytes’ Retail ATM business
Possible over-dependence on key personnel in the department
Rote basis of methodology may be insufficient given the sophistication of crime in the workplace
|Refer to response to ‘Planning’ below Identification of other service providers in process. Contracting key personnel to ensure continuity Methodology in line with current best practice (IIA Standards). PWC peer review raised no concerns regarding methodology.|
|Communication||Internal audit interacts well with the audit committee||Concerns about whether internal audit proactively shares its learning widely outside strict reporting channels within the business
Failure to detect the problems in Bytes’ Retail ATM business
|Presentations are made on an ongoing basis at the various group Financial Directors conferences Refer to response to ‘Planning’ below|
||Internal audit should spend more time understanding the business it audits so recommendations show greater commercial value Failure to detect the problems in Bytes’ Retail ATM business||Completion of Business Understanding Document (BUD) in process which aims to ensure a more comprehensive understanding by the internal audit team of the business including its activities, core processes, significant suppliers/customers and other specific risks. This will lead to recommendations of greater commercial value. Refer to response to ‘Planning’ below|
|Planning||Internal audit’s planning is efficient||Planning and communication could be improved to avoid expectation gaps||Existing roles and responsibilities within the audit team restructured and audit supervisorsappointed to ensure compliance with departmental procedures, quality control standards, business understanding and value add.|
||No areas of concern raised||
No response required
External review of audit function
The International Standards for the Professional Practice of Internal Auditing (IIA Standards) as promulgated by the Institute of Internal Auditors requires internal audit departments to have an external quality assurance review at least once every five years. PriceWaterhouseCoopers last conducted such a review in 2005, so in September of the year under review a second review of the Altron internal audit function was conducted.
The review evaluated:
- how the existing internal audit framework enables Altron’s internal audit department to effective comply with the IIA Standards; and
- the extent to which Altron’s internal audit practices are aligned with stakeholders’ needs and expectations.
The review involved surveys and interviews with line management, internal audit, the Altron chief executive and financial director, the external audit partner and the chairman of the Altron audit committee. Three project files were reviewed as well as the internal audit process, procedures and documentation.
Of the four areas marked for improvement and reported on in 2005, three were fully addressed and one partially addressed. Areas for improvement identified in the year under review related to:
- retention of evidence on working paper files in terms of management’s agreement and acceptance of engagement objectives and scope;
- retention of all client communications onworking paper files including minutes of meetings and any other form of client communications; and
- continuous monitoring of the adequacy of documentation of work performed in the electronic working paper files by internal audit supervisors, with periodic review by the head of internal audit.
The review indicated that the Altron internal audit department ‘Generally Conforms’ to the IIA Standards and concluded that “Internal Audit is well respected and has the appropriate authority through the organisation as was evident from the stakeholder interviews. Internal Audit is perceived to be a business partner adding value to the organisation”.
Role– In consultation with executive management, ensures that, among others, the group’s directors and senior executives are fairly rewarded for their individual contributions to overall performance and in line with the Altron remuneration policies.
Composition– Thecommittee comprises a majority of independent non-executive directors. Robert Venter (chief executive) has right of attendance at committee meetings andAlex Smith (chief financial officer) attends by invitation.No executives participate in discussions on their own remuneration and benefits and neither do they have a vote at meetings. Two meetings are scheduled annually with special meetings called as required. The committee met twice during the year under review.Responsibilities
- assisting the board in its responsibility for setting and administering remuneration policies in the company’s long-term interests;
- recommending remuneration policies for all levels in the company, but especially the remuneration of executive directors and senior managers, including the company secretary;
- advising on the fees of non-executive directors;
- in proposing remuneration policies, aim to set appropriate remuneration levels to attract, motivate, reward and retain the calibre of directors and executives required to run the company successfully, whilst at the same time, linking remuneration to individual performance, and aligning the executive directors and executive managements’ interests with those of the shareholders and with the strategy of the company;
- reviewing and recommending to the company’s board all proposals for executive share based and other short and long-term incentive schemes;
- determining targets for any performance related pay schemes operated by the company and requesting the board, when required, to seek shareholder approval for any share based and other long term incentive schemes/arrangements;
- within the terms of the agreed policies, determining on an annual basis the total remuneration package of each executive director including, where appropriate, their total cost of employment (TCOE) packages plus annual increases, short-term performance bonuses and long-term (share based) incentives;
- determining the employment contracts for the company’s executive directors and other members of executive management, with appropriate notice periods; and
- determining such packages and arrangements, giving due regard to the remuneration guidelines of the King III Report on Corporate Governance for South Africa, as well as the JSE Limited Listings Requirements.
The last review was performed in 2009 and overall, the findings of the remuneration committee assessment revealed an extremely positive result. A review of the effectiveness of the remunerationcommittee will be performed in the coming year and the results disclosed in next year’s integrated report.
From a committee perspective, the three major focus areas indentified which needed to be addressed in the future included:
|The relevance (or not) of discussing and debating pension fund and medical aid benefits and group life cover at remuneration committee meetings||This has now been addressed and a separate report from the trustees of the Altron Medical Aid and Pension fund circulated with the February remuneration committee pack.|
|Tabling the directors’ and officers’ insurance cover at remuneration committee meetings for noting||The remuneration committee believed that this matter is best left for and more appropriate to the risk management committee. Accordingly, this committee does not review directors’and officers’ insurance cover.|
|The need to remain abreast of remuneration best practices and recent trends in remuneration practices including the circulation of remuneration publications to members of the committee and board.||Mabili Reward, an independent remuneration consultant, is invited to attend the February remuneration committee meeting to present on current trends, local and global, regarding remuneration practices.|
Furthermore, the committee has, during the year:
- satisfied itself that the remuneration packages of its senior executives and the fees of its non-executive directors are market related. Several independent consultants are used to benchmark these packages and fees;
- confirmed that the levels of funding and benefits of the Altron Group Pension Fund and Altron Medical Aid are adequate and appropriate;
- agreed that non-executive directors should not be awarded share options or any other long-term share based incentives as this could compromise their independence vis-à-vis the company; and
- confirmed the methodology of payment of non-executive director’s fees by including an attendance fee component as well as a retainer.
The remuneration committee’s deliberations and conclusion on the level of remuneration of the chairman is fully discussed in the Remuneration Report.At the forthcoming annual general meeting, the remuneration committee will table theAltron reward strategy document for shareholder approval. This document lays out a best practice context and framework, a set of principles, and a number of guidelines, all of which will guide the company’s HR practitioners in the finalisation of a coherent and cohesive set of reward policies for the Altron group. While each sub-holding company in the Altron group may have its own unique set of reward policies, tailored to its own operational requirements, and owned and administered by its respective HR departments, all policies conform or align closely to the principles and guidelines set out in the reward strategy document.
Members (and invitees)
|Dr WP Venter|
Submitted apologies and was granted a leave of absence in terms of the company's memorandum of incorporation
1 Has right of attendance but is not a member of the remuneration committee
2 Attends by invitation and is not a member of the remuneration committee
For further details on the remuneration of Altron’s executive and non-executive directors, as well as Altron’s remuneration philosophy and policies, see the remuneration report and reward strategy policy on pages..to ....of this integrated annual report.
Risk management committee
Chairman– Mike Leeming
Role – To identify strategic risks, review their impact, assess the probability of occurrence and monitor the perceived effectiveness of existing controls.
Composition– The committee comprises a chairman and at least seven other members, two of whom (including the chairman) should be non-executive, the CEO, CFO and the CEOs of the company’s sub-holding groups. The chairman of the Altron audit committee is an ex officio member of the committee. The committee has two scheduled meetings each year and met twice during the year under review.Responsibilities
The duties of the Committee include:
- establishing and maintaining a common understanding of the risk universe that needs to be addressed in order to achieve corporate objectives;
- reviewing and confirming at least annually, the levels of risk tolerance and risk profile of the company;
- co-ordinating the company’s risk management and assurance efforts;
- considering the results of the assurance efforts and ensuring that appropriate action is taken;
- assisting the board in the discharge of its duties relating to the identification of risk and the assessment of the effectiveness of risk management within the Altron group;
- reviewing and assessing the integrity of the risk control systems and ensuring that the risk policies and strategies are effectively managed;
- monitoring external developments relating to corporate accountability, including but not limited to emerging and prospective impact;
- setting out the nature, role and responsibility and function of risk management within the Altron group;
- reviewing the impact that significant litigation could have on the Altron group;
- reviewing the risk philosophy, strategies and policies and ensuring compliance with such policies and risk profile of the Altron group. Risk in the widest sense shall include issues such as market risk, credit risk, liquidity risk, operational risk and commercial risk, which together may cover detailed combined risk such as:
- interest rate risk;
- country risk;
- currency, foreign exchange and commodity price risk;
- technology risk;
- price risk;
- disaster recovery risk;
- prudential risk;
- reputational risk;
- competitive risk;
- legal risk;
- compliance and control risks;
- sensitivity risk e.g. environmental, health and safety;
- investment risk;
- asset valuation risk; and
- other risks appropriate to the business, which may be identified from time to time.
- reviewing the adequacy of the company’s insurance coverage;
- reviewing the risk identification and measurement methodologies;
- monitoring procedures to deal with and review disclosure of information of stakeholders;
- iaising closely with the Altron audit committee to exchange information relevant to risk;
- expressing the committee’s formal opinion to the board on the effectiveness of the system and process of risk management; and
- reviewing reporting concerning risk management that is to be included in the integrated report, in order to ensure that it is timely, comprehensive and relevant.
Risk and inherent risk are ranked on a nine-point scale:
- Impact is rated from ‘catastrophic’ to ‘negligible’;
- Probability is ranked from ‘negligible’ to ‘confidently expected’; and
- Control effectiveness is measured as either ‘good’, ‘satisfactory’, ‘corrective action required’ or ‘deficient’.
The range of risks considered by the risk management committee is guided by the 11 strategic sustainability themes and material issues, covering not only operational and financial issues, but economic, environmental and social impacts and opportunities as well. Management deliberates on the residual risk exposure to determine its acceptability. If the risk is adjudged as too high an action plan that stipulates the responsible person, required action and timeframe is put in place to reduce the level of risk to a more acceptable level.
Self-Evaluation- The risk management committee conducteda self-evaluation exercise during April 2010. The exercise invited opinions from 12 people, 10 of whom completed the evaluation. The overall conclusion of the participants was that the risk management committee functions extremely effectively. Details of the areas surveyed, results, areas of concern and responses are laid out in the table below.
|Board accountability||The board has:
||Definition of the company’s level of risk tolerance should be clearer||Internal audit reviewed the risk tolerance matrix which was approved ata recent risk management committee meeting.|
|Committee Responsibilities||Adequate practices are in place to ensure the risk management committee has:
||There is a need to formulate formal risk limits There should be more focus on management’s strategic mitigations for key risks, the adequacy of risk controls, procedures and constraints in place for key risks and the group’s business continuity response plans There should be more regular review of risk monitoring practices established by the group Management’s risk assurance framework need to be improved The group communication strategy for risk should be improved||Ongoing|
|Composition and effectiveness||
||New members should be better appraised of the committee’s responsibilities||Ongoing, directors’ conferences and training modules incorporate aspects of risk management.|
||No concerns raised|
|Charter and evaluation||
||Individual members’ performance should be evaluated regularly, possibly annually as recommended by King III||Performance evaluated every other year as opposed to annually for the reasons explained on page ….|
|The future||The risk management committee considers whether there are emerging issues that will demand its attention going forward, and is proactive in positioning itself to deal with them||Consider including emerging issues as a standing item on the agenda||Done by the company secretary in terms of articles attached at back of meeting packs and as distributed during the year to the members.|
External risk verification
The group engages a range of independent assurers to externally verify risk. These include:
|MS Alexander & Associates, PricewaterhouseCoopersERM||Environmental/climate change/biodiversity|
|Aurum Institute for Health Research||HIV/Aids|
|College Hill, Ince, Brunswicks||Shareholder/analyst perception audits|
Altron formed an information management (IM) councilin 2009 with the support of the risk committee to ensure sound information technology (IT) governance and at the same time drive effective collaboration between group companies. Immediate focus areas are:
- IM strategy development
- Standards definition;
- Policy setting;
- Risk management;
- Group projects and platforms; and
- Skills development.
- established a reputable independent fraud hotline with Deloitte; and
- adequately reported to stakeholders on the group’s material risks as contained in the 2009 Altron annual report, as well as in the 2010 and 2011 integrated annual report.
Information Technology (IT) GovernanceKing III defines IT governance as “the effective and efficient management of IT resources to facilitate the achievement of corporate objectives”.
Altron created an Information Management (IM) council with representatives from across the group to take responsibility, delegated by the board, for putting in place frameworks and processes to ensure appropriate IT governance within the Altron group. The IM council focuses on the corporate IT environment and does not deal with IT services delivered to third parties in the ordinary course of the group’s business.
In summary, the role and function of the IM council is:
- to provide leadership, guidance and in certain cases strong direction and governance over the information management affairs of the Altron group; and
- add value to the Altron group through increased cooperation and collaboration between group companies.
Members - The IMcouncil comprises a maximum of five representatives from each sub-holding group and four representatives from Altron’s corporate office including the group information manager. Each sub-holding group CFO is a compulsory attendee and thereafter IT/business executives from within each group are selected to represent the sub-holding group at the IM council. The Altron CFO chairs this council.
Meetings – The IM council meets on a quarterly basis.
Reporting – The IM council reports to the board at every board meeting.
A high level review of the alignment of Altron’s IT governance structures and processes to the principles of King III has been conducted and the results are highlighted in the table below:
|King III Governance Recommendation||Implementation status|
|The board should be responsible for information technology (IT) governance/IT governance should be placed on the board agenda||Information technology risk, strategy and performance are reported via a written report at each board meeting. Information technology risk is further reported in detail at each sub holding group risk committee as well as at the Altron risk management committee on a bi-annual basis.|
|IT should be aligned with the performance and sustainability objectives of the company||In progress at IM Council - different operations are at different maturity levels|
|The board should delegate to management the responsibility for the implementation of an IT governance framework||Altron’s information management council (IM Council) manages IT governance in accordance with the annually approved mandate. The IM council comprises senior IT and financial management representative of each sub holding group.|
|The board should monitor and evaluate significant IT investments and expenditure, ensuring expenditure is optimised and value is measured and delivered||In progress at IM Council - different operations are at different maturity levels|
|IT should form an integral part of the company’s risk management||Risks are identified, managed and measured by each operational company. On a bi-annual basis, these risks are further identified and measured across the group and reported to risk committees. Internal audit reviews are further aligned to identify risk issues and areas of risk within the group. These audit reviews are also reported to the risk committees to enable a comprehensive view of the IT risk profile within the group at each meeting.|
|The board should see that information assets are managed effectively||In progress at IM Council - different operations are at different maturity levels|
|A risk committee and audit committee should assist the board in carrying out IT responsibilities||Risk management and audit committees are in place and IT risk is reported to the risk management committee as well as the audit committee where applicable.|
The group IT / IM policies are currently under external review to ensure that they are aligned with existing and pending guidelines and legislation including King III, the Protection of Personal Information Act, the new Companies’ Act and the relevant elements of the Consumer Protection Act.
The board is kept up to date on the latest developments in IT governance through regular briefings at board meetings throughout the year:
- At the August and February board meetings the Altron IT manager and the IM council provide detailed reports to the board on how the group is complying with the requirements of King III, including managing return on investment, dealing with risks, business continuity, disaster recovery and the approach to IT governance and risk; and
- At the May and October board meetings the risk management committee chairman provides feedback to the board on IT and IT governance.
The IM council’s King III IT governance compliance review checklist is included as Appendix II on page 62 of this report.
The risk management committee identified that there is need for company-specific Disaster Recovery / Business Continuity plans rather than one group-wide strategy. The board consequently requested a full review and confirmation that corporate IT continuity plans exist in every organisation. This review confirmed that in most cases IT continuity plans existed and where there were no plans, the operational management were contacted to ensure that these are completed. Feedback on progress is given at each risk committee meeting. These findings also confirmed a lack of comprehensive business continuity planning although key areas of each business are addressed to ensure business sustainability. For those operations at high risk, it was agreed that these plans would be completed by business management within the next financial year.
Members (and invitees)
Submitted apologies and was granted a leave of absence in terms of the company's memorandum of incorporation.
Material risks and opportunities facing the Altron groupAltron defines material risks and opportunities as those that have the potential to impact on shareholder value, regardless of whether their origin is financial, operational, environmental, social or governance in nature. The accompanying table lists the major consolidated risks identified by the board at the end of the review period, the strategic sustainability themes they relate to, and management’s action and progress in response thereto.
|Strategic risks||Strategic sustainability themes||Management action and progress|
|Threat of international competition||The external environment
Products and services
Income and growth
|Need to maintain relationships with key international partners & look at developing others. Looking at partnerships in several key operations|
|Management of business process outsourcing||Business partner relationships
|Currently reviewing risk around all outstanding arrangements. Internal audit to help in ensuring appropriate contracts are in place|
|Reduction in interconnect rates||The external environment
Products and services
Income and growth
Costs and cash management
|Uncertainty over regulatory direction. Financial impact studies completed and steps taken to offset effects in cost reductions and investment in Altech Technology Concepts|
|Maturing markets in key subsidiaries of sub-companies||The external environment||Limited potential for organic growth. Recent focus on cost control and balance sheets now needs to return to growth prospects. Africa presents opportunities|
|Compliance to regulatory environment||The external environment
|Recent policies introduced. New Companies Act and King III. Changes in competition law and consumer protection. Executive education being managed by secretarial and legal. Major new initiative to ensure compliance with Competition Law. Environmental laws compliance|
|Human capital – skills shortage (including finance staff) and succession planning||Human capital
|New incentivisation schemes in place. Self-development programmes such as Altech Academy and PLP in place. Assessing resources in finance. Needs close attention in current environment. Succession plans in place|
|Market risk – commodity pricing and foreign exchange||The external environment
Income and growth
Costs and cash management
|Hedging policy in place for all foreign exchange expenses and some commodities. Exploring other options around hedging.|
|BEE structure / EE targets not timely met||Transformation||Corporate affairs executive driving targets for Vision 2012. ICT Charter represents a potential threat to the group especially the ownership and preferential procurement sections.|
|Deterioration in stakeholder relationships (investor and supplier)||The external environment||Ongoing stakeholder communication. Expectations of investors being addressed as well as PIC requirements.|
|Lean management structure||Human capital||Management structure kept under review|
|RSA dependency||Income and growth||Currently looking at significant African expansion. Progress being made through Altech, Bytes and Powertech. Foreign revenue and exports now approximately 20% of total revenue|
|Risk of double dip economic scenario||The external environment||Focus remains on cost control and cash management|
|Capacity constraints||Products and services
Income and growth
Costs and cash management
|Building manufacturing capacity in key areas. Developing skills and introducing retention policies. Downturn in markets has mitigated against this|
|Intergroup business conflict||Products and services||Conflicting acquisitions are reviewed by Excom when they arise. Bytes and Altech exploring areas for co-operation|
|Loss of key agency / principal relationships||Customer relationships||Build and maintain relationships at all levels. Bytes Document Solutions contract with Xeroxbeen renewed for a further 10 year period after 2013.|
Altron’s compliance framework rests on the company’s comprehensive set of policies. These are regularly updated to reflect governance best practice and the evolving legal environment. All group companies and employees are obliged to comply with these policies.
During the year under review, Altron issued the following new policies:
- competition law policy;
- human rights and labour conditions policy;
- succession planning policy;
- conflicts of interest policy;
- non-executive directors travel and expenses policy;
- anti-corruption and economic crime policy; and
- Altron records management policy.
Altron’s corporate compliance policy focuses on ten fundamental principles of business conduct which include the following:
- No anti-competitive behaviour;
- No corruption;
- No inappropriate risks for human health and the environment;
- No illegal insider trading;
- No deception;
- No discrimination;
- No infringement of others’ intellectual property rights;
- No conflicts of interest;
- No misinformation; and
- No breach of laws.
This compliance policy is integrated and aligned with Altron’s other material policies and business efforts, and compliance or non-compliance with the policy is regularly appraised by the Altron risk management committee.
The various legal departments active throughout the Altron group, as well as internal auditors and tax advisors bringincidents of non-adherence with laws, regulations and standards to the attention of the Altron group legal manager, who in turn notifies management and, where appropriate, the Altron risk management committee. Twice a year all material risks and liabilities are reported to the Altron risk management committee, which monitors all risks throughout the Altron group and which reports to the board. Material risks and liabilities are immediately reported to executive management as soon as knowledge thereof becomes known.
Management and staff are kept up to date through various staff notices dealing with important legal developments distributed from time to time as well as training sessions dealing with important legal issues such as the Competition Act, the Consumer Protection Act, the Privacy Protection Bill, and other important legal issues. In the past year, more than 400 managers and senior employees received training in connection with the Competition Act.
Apart from initiatives by the Altron legal department and the other legal managers throughout the group, other role players, including the office of the company secretary, the tax department and the internal audit department, conduct ongoing training and education in the fields of corporate governance, ethical conduct and adherence to applicable laws, regulations and standards.
No judgements, damages, penalties, or fines wererecorded and/or levied against any group company, directors, officers or employees during the period under review for non-compliance with any legislation.
Competition Tribunal finding in relation to Altech Netstar
The Competition Tribunal found that Altech Netstar, Matrix, Tracker and the Vehicle Security Association of South Africa (VESA) entered into an agreement or concerted practice between 1999 and 2003 which, at that time only, had the effect of substantially preventing or lessening competition. This was because the Stolen Vehicle Recovery (SVR) companies, in the forum of the VESA SVR sub-committee, assisted in suggesting standards for vehicle recovery companies to VESA, who then suggested these standards to the insurance industry. Some insurance companies chose to follow those standards and only use recovery companies who could meet the standards. The Competition Tribunal held that SVR companies’ act of assisting to suggest standards to the VESA Sub-Committee lessened competition.
The conduct for which the above tracking companies were accused of does not, in terms of the Competition Act, give rise to a fine, the only consequence being that the parties have to cease the conduct (which was already the case in 2003) and that they may be exposed to civil actions by competitors who may have suffered damages.
Altech Netstar, Tracker and Matrix appealed the Competition Tribunal decision in November 2010 and in early 2011 the Competition Appeal Court unanimously upheld the appeal in a judgement which found that there was no act which lessened competition and was also very critical of the Competition Tribunal. The Competition Appeal Court also ordered costs in favour of Altech Netstar, Tracker and Matrix. Subsequent to the successful appeal, the Competition Commission indicated their intention to appeal the latest judgment.
Competition Commission Investigation against Aberdare Cables and Others
On Thursday, 6 May 2010, the Competition Commission conducted a search at the offices of Aberdare Cables and three of its competitors following allegations of prohibited practices by these companies in the power cable market.
Both Powertech and Aberdare Cables are co-operating fully with the authorities’ investigations and have taken the allegations made against Aberdare Cables on advisement with external legal advisors.
Further communication to shareholders will be made once the investigation has been completed.
Subsequent to the Competition Commission launching these investigations, Altron has implemented ongoing initiatives to guard against possible anti-competitive behaviour, including:
- publishing a competition law policy on the intranet;
- including an anti-competitive behaviour section in all tender checklists;
- ongoing competition law training for all key and senior managers and executives throughout the group;
- disseminated a staff information notice to the entire Altron group cautioning against anti-competitive behaviour; and
- consideration of high-level internal audits to test for anti-competitive behaviour at operations.
During the period under review, there were no requests for information under the terms of the Promotion of Access to Information Act and consequently no refusals for such requests.
The Altron group was involved in 37 litigation matters in the year under review with a total value of R134 million, appearing as plaintiffs in 17 matters (2009 – 19) and defendants in 20 (2009 – 15).A number of matters where group companies were defendants have been settled during the period under review. The slight increase in claims against group companies can probably be ascribed to the tough economic conditions which often lead to companies instituting actions or counterclaims in the hope of being released from valid contractual obligations, or to play for time. The majority of cases relate to labour-related matters or normal commercial litigation (disputes arising between contracting parties). All of these matters are handled and/or overseen by the group’s legal departments and are elevated to the Altron risk management committee and where necessary referred to the Altron audit committee and board for deliberation and/or action.
There were several settlements of large claims during the year, resulting in a fall in the number of cases we are pursuing, but the company is the subject of several large claims by companies in liquidation which accounts for the increase in the total value of litigation and the increase in the number of cases we are standing as defendants. We believe these latter claims are spurious and highly unlikely to result in successful claims against the group.
The Altron board understands the need to ensure that all disputes are resolved effectively, expeditiously and efficiently. Consequently, and where possible, the group’s legal departments ensure that all incoming and outgoing legal agreements which the group enters into contain appropriate alternative dispute resolution clauses.
Role-Identifying and evaluating suitable candidates for appointment to the board and succession planning. This is vital to the development of a diverse leadership at Altron, representative of all race groups and in accordance with both the spirit of and the targets set out in the dti Codes of Good Practice. Across the Altron group, employment equity at middle and senior management levels remains a key challenge. The activities of this committee form an integral part of Transformation Vision 2012 by identifying and developing leadership talent.
Composition – This committee comprises a majority of independent, non-executive directors. In line with corporate governance best practice, the committee is chaired by an independent non-executive director, as opposed to the non-executive chairman of Altron, Dr Bill Venter, in light of the Venter family’s interest and close involvement in the company and its operations. Robert Venter (chief executive) has right of attendance at committee meetings, but has no vote. The committeegenerally meets as and when required although there is a standing meeting which is held in February each year. The committee met twice during the year under review.
Directors are appointed in a transparent and formal procedure governed by the mandate and terms of reference of the nomination committee as well as by the Altron board charter. The mandate and terms of reference was updated in February this year to, among others,further align with the recommendations of King III. It also introduced the nine year independence evaluations of the non-executive directors and the re-election every year of non-executive directors who have turned 70. A director’s skills, knowledge,experience in relevant sectors, qualifications, availability, number of external board appointments and what they bring to the diversity of the board are among the issues considered in the selection process, examined against the backdrop of Altron’s strategies. The chairman of the board, Dr Bill Venter, is appointed annually by the board after formal evaluation by the nomination committee.
Specific areas of responsibility include:
- monitoring of succession planning;
- reviewing the performance of Altron’s non-executive chairman;
- proposing changes, if any, to the Altron board and its material committees;
- evaluating the proposed re-election of Altron directors who retire by rotation;
- evaluating the proposed election/ re-election of members of the Altron board committees (excluding the audit committee);
- nominating members of the Altron audit committee for election by shareholders; and
- review of the Altron nomination committee mandate and terms of reference for alignment with King III.
Altron’s Human Capital Council is responsible for addressing the following key facets of the business:
- succession planning;
- performance management;
- training and development;
- remuneration in relation to job grading; and
A sophisticated succession planning policy has been implemented throughout the Altron group and covers the entire leadership structure, from executive to management level. This involves a review conducted twice a year at each of the three sub-holding groups which includes such items as:
- identity and profile of the incumbent (age, qualifications etc.);
- potential successors to the position, both internal and external;
- grade for the position, qualifying potential for mobility;
- development requirements of both the incumbent and the successor; and
- scheduleof the timing of succession for each post.
This overall strategy also includes initiatives such as the two-year leadership development programme (drawn from the Altron Young Presidents’ Club and run by the da Vinci Institute in association with the Altech Academy) and regular reviews of B-BBEE candidates throughout the organisation.
Only the board has the authority to appoint directors. The nomination committee evaluatesdirectors and makesrecommendations to the board on the suitability of directors put forward for re-election at the annual general meeting. This happens when directors are:
- due to retire by rotation;
- over 70 years old (subject to annual evaluation and put forward for re-election each year); or
- non-executives on the board for 9 years or longer (subject to review of their independence).
Self-evaluation - The committee conducted a self-evaluation exercise into its effectiveness during the year under review and this was completed by all those polled. Based on the overall response by the participants, the committee is working effectively and has discharged its obligations in terms of its mandate for the year under review.
|Structure and composition||The committee has the appropriate number of members relative to the needs of the business The committee’s chairperson is an independent non-executive director who has appropriate skills and experience to chair this committee.||No concerns raised||N/A|
|Process and relationships||All members have a thorough understanding of this committee’s purpose.||Induction on joining the committee may not be adequate
There is a need for structured ongoing training on, among others, LTIPs
|Information flows and presentation||Information flow to the members is both relevant, timeous and useful Feedback from the committee to the board is effective.||No concerns raised||N/A|
|Decision making processes||Committee meetings encourage critical thinking and debate, with sufficient time allowed for the exchange of ideas Committee discussions are candid, open and effective Members feel comfortable challenging each other in meetings Committee members respect and value each other’s contributions||Unclear whether the committee has the ability to influence key affairs of the company||Better timing of meetings being achieved so as to allow members to fully consider the issues and make the appropriate recommendations.|
|Specific duties||The committee:
||Does the committee adequately address the continuation of director’s service once they reach the age of 70? Appointments or offers may have been made by the time the committee sees the information.||Yes – see new resolution.
See previous comments.
Members (and invitees)
|Dr PM Maduna|
|Dr WP Venter|
Submitted apologies and was granted a leave of absence in terms of the company's memorandum of incorporation.
1 Has right of attendance but is not a member of the nomination committee.
Transformation committeeMembers – This is a sub-committee of the Altron executive committee, led by the Altron group executive for corporate affairs. Members are transformation champions from each sub-holding group, including Altron group representatives.
Role– Transformation Vision 2012 lays out the Altron group’s strategic transformation objectives and is aligned with the dti Codes of Good Practice (“the Codes”). The committee’s mandate is to develop a transformation strategy and ensure consistent execution thereof throughout all the group companies.
The transformation committee was established in 2005 to drive economic transformation and broad-based black economic empowerment across the Altron group. The focus of the committee this year is to focus on increasing the levels of diversity at leadership levels throughout the group. To this end, the committee has started creating a strategy, goals and targets on employment equity for the entire group to be implemented beyond the Altron Transformation Vision 2012.
Despite ongoing uncertainty on the industry sector charters and the Codes, the Altron transformation committee is engaged in several projects, namely:
- establishing a 5 year transformation strategy whichgoes beyond compliance to the Codes and legislation to a transformation strategy aligned towards Altron’s business strategy and government developmental growth goals;
- auditing the entire Altron group’s employment equity status at management levels in order to set targets over a period of 5 years;
- implementing group-wide economic and social development projects in communities we do business, an example of such is the Public Private Partnership wherein Altron contributed R14 million to establish facilities for healthcare in mother and child; and
- creating wealth and jobs by concluding empowerment transactions valued at over R2.4 billion.
Corporate ethicsAltron requires all those who represent the company to act in good faith and in a way that promotes our aspiration to be a good corporate citizen. The issue of corporate ethics receives attention from the highest level of management within Altron, with the chief executive being ultimately responsible for implementing the code of ethics.
Compliance with Altron’s ethical codes is monitored by the board and audit committee through feedback from the whistleblower hotline, the ethics office, Altron’s internal audit department and the relevant sub-holding group security officers.
Code of ethics
Codes and policies
The Altron code of ethics clearly lays out aspirational ethical guidelines for everyday events to codify the conduct required by managers, employees and owners in their dealings with each other, customers, suppliers and society at large.The code lays out practical guidance on the obligations of those that represent the company, covering issues such as conflicts of interest, protection of confidential information and bribery. The code requires that all people to whom it applies observe their ethical obligations in such a manner as to conduct business without causing harm, other than by fair commercial competitive practices.
Code of conduct
The group code of conduct commits all employees to the highest standards of behaviour, setting out the behaviour expected of all employees in their dealings with the group’s stakeholders. A detailed Code of Conduct is included in the Altron group policy manual and outlines Altron’s philosophy. As the actions of a single employee can affect the reputation of the wholeAltron group, all employees are required to maintain the highest ethical standards to ensure that the group’s business is conducted in a way that in all reasonable circumstances is beyond reproach.
The Altron audit committee is responsible for the code of conduct and reviews and updates it every year to ensure that it stays in line with best business and corporate governance practices. The audit committee also monitors and reports on breaches of the corporate code of conduct.
The code of conduct specifically addresses issues such as:
- use of company funds and/or assets;
- customer/supplier/government relationships;
- conflicts of interest;
- share dealings and insider trading;
- duties of directors;
- operating procedures; and
- supplemental guidelines for government contracting.
The group corporate compliance policy sets out Altron’s principles of business conduct for management and employees against which conduct can be tested.
Altron’s ethics office, run by the Altron group company secretary, co-ordinates ethics training and ethics awareness campaigns across the group.All employees receive and/or have access to the Altron policy manual on employment which includes a copy of the code of conduct. All relevant policies regarding corporate ethics are made available on the Altron intranet, and an ongoing employee awareness campaign makes use of posters, screensavers, 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 and the ethics office.
Driving ethics in the organisation
In the first quarter of 2011 the ethics office ran a group-wide ethics training programme focussed on group values, ethics and appropriate behaviour. The first phase of the training targeted executives and managers at all levels within the group and was attended by 531 staff (46% of those invited). The interactive nature of the training allowed the collection of quantitative data about employees’ consideration and understanding of ethics in the group. This data will be used to guide future interactions with staff around ethics.
Ethics training responses
The ethics training concluded with a declaration between employees and the Altron group, where employees signed a statement declaring that:
- they have attended the ethics training;
- they are familiar with and understand the contents and purpose of the code;
- they know where to find copies of the code; and
- they undertake to be guided by the code in all their business dealings with both internal and external stakeholder of the Altron group.
To date the declaration has been signed by 506 senior staff members.
The anonymous ethicsquestionnaire mentioned on page 7 of this report solicited feedback in the following areas:
- the single most important aspect regarding ethics the respondents want to see addressed within the Altron group;
- whether they believe the Altron group adequately deals with ethics in the workplace;
- whether they are aware of any unethical business practices within their operation or the broader Altron group; and
- what the most prevalent ethical dilemma they are or have been faced within the course and scope of their duties in the Altron group.
62% of delegates believed that Altron effectively deals with ethics in the workplace and only 10% are aware of practices in their operations that they believe to be unethical.
The directors’ conference in November 2010 included a presentation by the Ethics Institute of South Africa to help directors keep up to date with the latest trends and thinking around ethics. During the year under review the Altron group company secretary completed an ethics officer certification course.
Altron has included clauses in the group’s supply contracts that alert suppliers and contractors to the code of ethics and strongly advising them to refer to this and act accordingly.
The company is currently considering the need to establish a social and ethics committee as contemplated in the new Companies Act- providing continuous ethics training to senior managers and executives throughout the group
Fraud and illegal actsAltron has a zero-tolerance approach to those that engage in fraudulent or illegal acts in the conduct of its business. Perpetrators will be actively pursued and prosecuted where such acts come to light. Concerns around fraudulent or illegal activity can be reported:
- through the company’s ‘Tip-Off Tim’ anonymous whistleblower hotline, run by Deloitte;
- directly to a secure, confidential email address at the ethics office;
- to Altron’s internal audit department; or
- to the relevant sub-holding group security officers
Employees are also encouraged to seek advice from the ethics office should they have an ethical dilemma.
The company’s vulnerability and risks associated with bribery and corruption are regularly reviewed by the Altron risk management committee, especially in the light of its operations in countries identified as high-risk environments for bribery and corruption, including Kenya, Lesotho, Mozambique, Nigeria and Uganda. Another risk area monitored closely is the company’s involvement in various government contracts that may require government licensing.
Altron’s Anti-Corruption and Economic Crime Policy comes into effect from May 2011, setting out guidance on preventing and dealing with corruption, fraud and other illegal acts.
Throughout the Altron group fraud decreased from 11 to 4 incidents over the reporting period, but the value only decreasedto R3.1million from R4.7million.Unfortunately no recoveries were made resulting in a net loss of R3.1 million (compared to R4.2millionlast year).
Incidents of theft increased from 50 to 52. The total value of incidents amounted to R1.25 million of which R456 000 was recovered resulting in a net loss of R797 000, double last year’s R396 000.
Hijackings and break-ins are also tracked. During the year under review, hijackings increased from 7 in the previous year to 8, and break-ins decreased from 10 to 4. There were also five armed robberies this year (none last year) resulting in a loss to the group of R660 000 and 3 other incidents of dishonesty (3 last year) that resulted in a loss after recoveries of R50 000 (R9 000 in 2010).
The total number of fraud, theft and other dishonest incidents decreased from 81 in the previous year to 76. The total loss from all incidents recorded however increased from R7.1million in the previous year to R9.5million, however recoveries of R3.6million resulted in a net loss of R5.9million before insurance recoveries, an increase of R300 000 against the previous year of R5.0million.
At Altech, there were 21 dismissals for misconduct and all 21 were referred to the CCMA. Seven of these cases were settled, six dismissed and eight are still pending.. Bytes had 44dismissals for misconduct , 31 of which were referred to the CCMA. Of these,6 cases were settled, 8 dismissed and 17 are pending. Powertech had 61dismissals for misconduct, 17 of which were referred to the CCMA or labour courts. Of these eight were settled, two dismissed and seven are still pending.
During the year under review some 70 contacts were made with the Tip-off Tim anonymous hot line administered by Deloitte compared to 34 in the previous year. All tip-offs are followed up and where they prove justified, result in full investigations. These 70 contacts resulted in 27 incident reports (12 last year) that were fully followed up and investigated. A summary of the reports per category is listed in the table below.
|Offence||No. of Tip-offs||Baseless||Merited, Under Investigation||Merited, Resolved||Comments||Company|
|Abuse of company vehicles||2||Yes||-||-||Ref: 100520101020092853
Investigated and found to be baseless.
Matter was investigated and found that use of vehicle was justified.
|Alleged Bribery||1||-||-||Yes||Ref: 100320110106101110||Powertech|
|Alleged Theft||2||-||-||Yes||Ref: 100820100509143223||Bytes Technology|
This is not a Powertech Group Company and was reported on by Neil Kayton.
|Concerns - Human Resources||3||Yes||-||-||Ref: 9810100806114903||Altech|
No financial loss for company, employee was given a final written warning
|-||-||Yes||Ref: 100220100915175833||Bytes Technology|
|Concerns - Criminal||3||-||-||Yes||Ref: 100520100301173834||Altech|
Investigated and found to be baseless.
KPMG Forensic Audit.
|Human Resource Issues||3||Yes||-||-||Ref: 0024052010082822||Altech|
The matter was valid, investigated and corrected. We now have female security guards that search on a random basis.
|Irregularities - Criminal||1||Yes||-||-||Ref: 101220100917135211
Matter was investigated but no substantial evidence found.
|Irregularities - Human Resource||1||Yes||-||-||Ref: S20100526122048
Matter investigated and found that proper procedures were followed.
|Unethical Behavior||6||Yes||-||-||Ref: 100820100915075648
Matter was investigated and resolved
|Calls adding information to existing reports||8||-||-||Yes||Ref: 102820100916153726||Bytes Technology|
Report never received.
Matter was investigated but no substantial evidence found.
Of the four criminal concerns investigated, two were found to be spurious, one had insufficient evidence to proceed and one was the subject of an external forensic audit but no concrete evidence was discovered to form a basis for prosecution.
Donations to Political PartiesThe Altron code of conduct is aligned with the corporate compliance policy and anti-corruption and economic crime policy and states that all donations to political parties must be pre-approved by shareholders.No donations were made to political parties in the year under review.
The groupcorporategifts and entertainment policy embraces the Prevention and Combating of Corrupt Activities Act of 2004, clearly and prescriptively setting out the boundaries that define corrupt activities in terms of the giving and receiving of gifts and/or entertainment.
Corporate gifts and entertainment policy
- defines categories of gifts and entertainment;
- describes the approvals required;
- lists the immediate or ultimate vested authority responsible; and
- sets out procedures for reporting criminal behaviour and disciplinary action.
During the year the company established an online gifts register, including an electronic approval process that takes into account issues such as the employee’s position, role in the company and earnings compared to the nature and value of the gift. The system automatically weighs the responses against the corporate gifts and entertainment policy and then recommends the next steps. Employees are encouraged to report any inappropriate behaviour to the Tip-Off hotline or to the ethics office directly.
The corporate gifts and entertainment policy has been incorporated into the corporate compliance policy and will form a subsidiary policy of the anti-corruption and economic crime policy once finalised.
In addition to the corporate gifts and entertainment policy, Altron is guided by the group corporate compliance policy, as well as by the UN Global Compact principles, one of which is that businesses should work against corruption in all its forms, including extortion and bribery.
Altron’s new group-wide anti-corruption and economic crime policy, which will be approved in April this year, is designed to, among others, address the risks set out in the UK Bribery Act and in the Foreign Corrupt Practices Act in the USA.
Investor protectionThe company and its sub-holdings have approved written policies on directors’ dealings in securities which have been updated to reflect the latest JSE Listings Requirements. The company secretary and any director who wishes to deal in Altron or its sub-holdings’ securitiesmust obtain prior written clearance from any two of the chairman, chief executive or chief financial officer. 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.
During the year under review the corporate disclosure policy, which regulates dealings and communications with the investor community, was updated.
In order to facilitate effective dividend pay-outs, the articles of the company have been amended so that dividends of less than R30 in value will no longer be paid out in cash, but will be donated to the shareholder’s choice of charity. The company encourages shareholders with small shareholdings to make use of the Strate Charity Shares initiative which enables the free of charge charitable donation of shareholdings that may be too small to sell cost-effectively.
Conflicts of interestAt the meeting of the Altron board in February 2011, the conflict of interest policy was approved. This policy lays out a clear framework for what is considered to be a conflict of interest as well as the steps required should a potential conflict of interest arise.Directors are required to provide details of any external shareholdings and directorships which could potentially create conflicts of interest every quarter. These declarations are assessed by both the chairman and the group company secretary and are tabled at the beginning of each quarterly board meeting. Directors are also required to table their interests in material contracts and shareholdings in outside companies and if necessary must recuse themselves from discussions in meetings when these conflicts may exist. Altron seeks independent legal opinion where this is necessary to corroborate the company’s assessment of the risk relating to a potential conflict of interest. These opinions have in the past not only concluded on whether or not a conflict of interest exists, but have also prescribed appropriate procedures for the company to take in dealing with these matters, for example directors extricating themselves from contractual relationships and/or resigning their directorships or disposing of their shareholdings.
The following memberships in associations and/or national/international advocacy organisations assist Altron in fulfilling its role as a good corporate citizen within broader society.
|Mr Robert Venter||Member of the Manufacturing Circle convened by the Minister of Trade and Industry in the dti|
|Ms Barbara Masekela||Trustee of the Nelson Mandela Children’s Fund|
|Mr Jacob Modise||Chief executive officer of the Road Accident Fund
Trustee of the Nelson Mandela Children’s Fund
|Mr Craig Venter||Member of the world-wide Young Presidents’ Organisation
Member of ICT/Department of Communications Panel
Board member of the Ministry of Science and Technology, Technology Innovation Agency (TIA)
|Mr Mike Leeming||Member of The Board Sub-Committee of the main King III|
|Mr Peter Wilmot||Honorary life member of SAICA
Member of the Institute of Directors
|Ms Seara Macheli-Mkhabela||Member of the dti ITAC Advisory Committee|
|Mr Andrew Johnston||Member of The Auditing and Accounting Sub-Committee of the main King III Committee;
Member of the Committee on Responsible Investing by Institutional Investors in South Africa (CRISA);
Director of the Corporate Lawyers Association of South Africa
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