King III Checklist

KING III CHECKLIST

ESOR 2015

APPLICATION OF KING III

Principle

Compliance

2.1 The board should act as the focal point for and custodian of corporate governance.

The board is the focal point and custodian of corporate governance at Esor. In accordance with the board charter the board is committed to the highest standards of corporate governance. (See board charter on our website.)

2.2 The board should appreciate that strategy, risk, performance and sustainability are inseparable.

The board, in accordance with the board charter, and all committee terms of reference reviewed in line with King III, is responsible for aligning the strategic objectives, vision and mission with performance and sustainability considerations. The group’s formalised risk management process takes into account the full range of risks including strategic and operational risk, as well as performance and sustainability.

2.3 The board should provide effective leadership based on an ethical foundation.

The board provides effective leadership and is committed to the highest levels of corporate governance as a key driver of sustainability.

2.4 The board should ensure that the company is and is seen to be a responsible corporate citizen.

See 2.3 above.

2.5 The board should ensure that the company’s ethics are managed effectively.

The social and ethics committee is tasked with ensuring that the company’s ethics are managed effectively. In addition to ensuring adherence to the Code of Ethics, the social and ethics committee aligns itself with the goals of the United Nations Global Compact Principles, the OECD Guidelines on Corruption and the Employment Equities Act.

2.6 The board should ensure that the company has an effective and independent audit committee.

The audit and risk committee is chaired by an

independent non-executive director. It further

consists of three independent non-executive directors. The audit and risk committee includes three new independent non- executive directors.

 

The board is satisfied with their levels of independence in accordance with directors’ mandatory quarterly disclosures. The board is

satisfied that the audit and risk committee is effective. The audit and risk committee met three times during the financial year.

2.7 The board should be responsible for the governance of risk.

The board’s audit and risk committee has conducted an evaluation of governance risk and is satisfied with the effective management of risk.

2.8 The board should be responsible for information technology (IT) governance.

The board ensures that IT governance is an integral part of corporate governance and that it is assessed in line with the IT Governance Charter and framework.

2.9 The board should ensure that the company complies with applicable laws and considers adherence to non-binding rules, codes and standards.

The board ensures that the company complies

with applicable laws and considers adherence to non-binding rules, codes and standards within South Africa.

2.10 The board should ensure that there is an effective risk-based internal audit.

The board ensures that the internal audit function continues to report directly and effectively to the audit and risk committee.

 

The internal Audit Charter defines the scope of the internal audit function as assisting the board in assessing the group’s risk management and governance processes.

2.11 The board should appreciate that stakeholders` perceptions affect the company’s reputation.

The board of Esor recognises the importance of developing and nurturing positive and stable relationships with key stakeholders as a key driver of business success. The value we place on our stakeholders is articulated in our mission statement.

2.12 The board should ensure the integrity of the company’s integrated report.

The board continues to ensure that the integrated report endeavours to provide a true view of the group’s commitment to ensuring that financial, social and environmental sustainability permeates the entire business.

2.13 The board should report on the effectiveness of the company’s system of internal controls.

The board continuously ensures the soundness of the company’s system of internal controls through independent review by internal and external audit.

2.14 The board and its directors should act in the best interests of the company.

The board acknowledges its role as a trustee on behalf of the shareholders. In addition to the Code of Ethics, the members of the board are governed by a formal policy in respect of dealing in Esor shares as well as disclosure related to third-party transactions.

 

All directors and senior executives with access to financial and any other price- sensitive information are prohibited from dealing in Esor shares during ‘closed periods’, as defined by the JSE, or while the company is trading under cautionary. The CFO informs all directors by email when the company enters a ‘closed period’. At all other times directors are required to disclose any share dealings in the company’s securities to

the CFO and company secretary for approval. The CFO, together with the sponsor, ensures that share dealings are published on SENS.

2.15 The board should consider business rescue proceeding or other turnaround mechanisms as soon as the company is financially distressed as defined in the Act.

The board monitors the company’s solvency and liquidity. Business rescue has not been required.

2.16 The board should elect a chairman of the board who is an independent non- executive director. The CEO of the company should not also fulfil the role of chairman of the board.

The Chairman, Dave Thompson, an independent non-executive Chairman retired effective 21 August 2014. Bernie Krone was appointed Chairman effective 1 September 2014. Independent non-executive director Dr Oswald Franks was appointed as the Lead Independent Director of the company effective 21 August 2014. The roles of CEO and Chairman are clearly defined.

2.17 The board should appoint the chief executive officer and establish a

framework for the delegation of authority.

The board has appointed Wessel van Zyl as CEO effective 1 September 2014. A delegation of authority framework is reviewed regularly.

2.18 The board should comprise a balance of power, with a majority of non-executive directors. The majority of non-executive directors should be independent.

The board comprises a majority of independent non-executive directors, five independent non-executive directors, one non-executive director and two executive directors. The composition of the board ensures the balance of power with no single member having the majority influence.

2.19 Directors should be appointed through a formal process.

A formal and transparent appointment process is in place. One-third of directors retire on a rotational basis. Accordingly, Dr Oswald Franks and Ethan Dube retire, but only Dr Franks will offer himself for re- election at the upcoming annual general meeting.

Suitable successors have been identified in the company for all senior management positions.

Succession planning remains on the risk register of the group for frequent tracking and consideration.

The board is responsible for annually reviewing the strategy.

2.20 The induction of and ongoing training and development of directors should be conducted through formal processes.

New appointees to the board are appropriately familiarised with the company through an induction programme and ongoing training is provided and offered to the directors through membership of the Institute of Directors. Formal introduction and induction programmes are in place.

The group risk officer and CFO are responsible for ensuring directors receive ongoing development and training.

2.21 The board should be assisted by a competent, suitably qualified and experienced company secretary.

Ithemba Governance and Statutory Solutions (Pty) Limited is an independent company secretarial practice providing services to numerous JSE-listed companies and was appointed in compliance with the Companies Act, 2008, the JSE Listings Requirements and the recommendations of King III.

During the financial year, the board commenced with an annual evaluation of the competence, qualifications and experience of the group company secretary and report on these in the annual report.

2.22 The evaluation of the board, its committees and the individual directors should be performed every year.

The Chairman of the company performs an internal board assessment annually. The board is satisfied that all committees have fulfilled their responsibilities during the year. To ensure transparency, committee chairmen provide the board with a verbal report on recent committee activities at all meetings and the minutes of committee meetings are available. In addition, the committee chairmen or a nominated committee member attends the company’s annual general meeting to answer any questions from stakeholders pertaining to their respective matters.

 

The independence of directors is ascertained on a quarterly basis through formal mandatory declarations of personal interest/

s. Esor’s definition of ‘independent’ is in line with King III recommendations. Non- executive directors are non-permanent employees of the group. Each individual director also performed a self-evaluation exercise during the year. The results of these were reviewed by the board, which was

satisfied that the overall assessment did not diminish in any material respect or degree from the previous assessment.

2.23 The board should delegate certain functions to well structured committees but without abdicating its own responsibilities.

The board delegates certain functions without

abdicating its own responsibilities to the following

committees:

  • Audit and risk committee

  • Remuneration and nominations committee

  • Social and ethics committee

  • Exco

2.24 A governance framework should be agreed between the group and its subsidiary boards.

A governance framework between the group and its subsidiary boards is agreed and is in effect.

2.25 Companies should remunerate directors and executives fairly and responsibly.

The remuneration philosophy reflects Esor’s commitment to best practice. The group’s remuneration and nominations committee determines the remuneration policy on executive and senior remuneration in line with the group’s remuneration philosophy and strategy. The total remuneration packages of the executive directors

and senior management are subject to annual review and benchmarked against external market data, taking into account the size of the company, its market sector and business complexity. A detailed remuneration report is contained in the integrated report on page 41.

2.26 Companies should disclose the remuneration of each individual director and certain senior executives.

The remuneration of directors and prescribed

officers is disclosed in the integrated report on pages 43 and 97 of the integrated report 2015.

2.27 Shareholders should approve the company’s remuneration policy.

Shareholders consider and endorse, by way of a non-binding advisory vote, the company’s remuneration policy at the annual general meeting.