Creating value through good governance

Clicks Group’s governance processes were stress-tested during the Covid‑19 pandemic and lockdown. The fact that the group has operated for the second half of its financial year and into the 2021 financial year during the pandemic and lockdown with minimal disruption to its governance processes is evidence that its systems, structures and people are resilient and robust.

The responses to the pandemic on a governance level were many:

• Technology was employed to enable board and committee meetings to function effectively, with board meetings being conducted using secure virtual meeting platforms. All directors have become proficient in operating under these conditions, another benefit of having many seasoned directors who gain experience operating on the boards of other major companies as well as ours.
• The induction programme for Mfundiso Njeke, who was appointed to the board on 1 March 2020, was adjusted to eliminate travel and postpone onsite visits and replace these with video meetings. These video meetings proved an excellent way of allowing a new director access to senior staff in a cost and time-efficient manner.
• Both the Clicks Group’s internal audit department and the external auditor's processes were subjected to enhanced scrutiny to ensure that they could discharge their functions even under these adverse circumstances. It is likely that improvements to our pre-lockdown processes can be found in the new processes that have been employed during lockdown.
• The board has applied its mind to a range of risks and scenarios as a consequence of the global pandemic crisis.

We will continue to investigate ways of using software to improve our ways of working, specifically in terms of enhancing efficiency in communication and greater accountability.

The pandemic has reaffirmed the board's view that corporate governance creates value for the Clicks Group by ensuring the sustainability of the business and by enhancing long-term equity performance, in addition to the benefits that good governance brings to society at large and to the group's stakeholders in particular. It therefore remains appropriate to continue to premise the group's governance and compliance framework on the principles of accountability, transparency, ethical management and fairness.

As the Clicks Group's annual general meeting (AGM) was held in January 2020 before the outbreak of Covid‑19 in South Africa, management has been able to learn from how other companies conduct their AGMs, and the group is well positioned to take these learnings into its own AGM in January 2021.

The group has applied the King lV report throughout the 2020 financial year and the directors confirm that the group has in all material respects voluntarily applied the principles of the code. The application of King lV is covered in the corporate governance report 2020 published on the website.

Role of the board

Elected by the shareholders, the directors are responsible for the sustainability of the business within the triple context of the economy, society and the environment. The board's composition, authority, responsibilities and functioning are detailed in the board charter.

The board fulfils a range of legal duties, while being the primary source of effective, ethical leadership for the group. In executing its mandate the board is required to approve strategic plans; monitor operational performance; ensure that risk management and internal controls are effective; monitor regulatory compliance; and promote good governance. It must also approve significant accounting policies and the annual financial statements; monitor transformation and empowerment; manage the process of selection and appointment of directors; and ensure that the group's remuneration policies and practices are effective and fair. Certain of these functions are delegated to board committees.

Governance structure

Key issues addressed in 2020

The board addressed the following key issues during the year:

• approving the group's three-year strategic plans and budgets, including capital investment, with a focus on updating the IT infrastructure of the business and expanding the Clicks omni-channel offering and digital marketing;
• implementing succession plans for the board, and in particular strengthening the board with the appointment of Mfundiso Njeke as an independent non-executive director. Mr Njeke will be recommended by the board to shareholders for election as a non-executive director and as a member of the audit and risk committee;
• ensuring that the group's accounting policies are appropriate. The directors have spent time understanding the impact and formulating the group's response to the implementation of IFRS 16 which has changed the accounting treatment for leases for the current financial year;
• reviewing talent and succession plans for the business;
• monitoring the finalisation of the employee share ownership programme, and the winding up of the Clicks Employee Share Ownership Trust;
• reappointing John Bester as lead independent director; and
• ensuring the group is prepared for mandatory auditor rotation when this becomes compulsory in 2023 and recommending EY for reappointment as the group's auditor at the forthcoming AGM, noting that EY has served as the auditor for eight years.

Board composition

The board presently consists of nine directors, with three salaried executive directors and six independent non-executive directors. The age, tenure, experience and expertise of each director is briefly set out in the board of directors' report.

After the end of the reporting period, with effect from 14 September 2020, Nonkululeko Gobodo resigned from the board for personal reasons.

Independence of directors

All the directors, both executive and non-executive, understand their legal duty to act with independence of mind in the best interests of the company.

The benefit of continuity from long-serving directors with a thorough understanding of the business and the retail sector was highlighted during the Covid‑19 pandemic. David Nurek has served as a non-executive director for 23 years, Martin Rosen for 13 years and Fatima Abrahams, John Bester and Fatima Daniels have each served for 11 years. While the company remains of the view that it benefits from the depth of understanding of a stable board, it will continue to identify new directors who can add value to the board and who will contribute to keeping the board's thinking fresh and introduce diverse viewpoints into discussions.

The remuneration and nominations committee conducted an evaluation of the independence of the chairman and non-executive directors during the year. Factors which could impact on their independence and performance were considered, in particular the factors contained in King IV and the JSE Listings Requirements. In the opinion of the remuneration and nominations committee there are no factors which prevent the directors from exercising objective, unfettered judgement or acting in an independent manner. All of the non-executive directors, including the chairman, are therefore appropriately classified as being independent.

The company has no controlling shareholder or group of shareholders and there is no direct shareholder representation on the board.

Board diversity

The directors are diverse in terms of gender, race and professional backgrounds, contributing to strong decision-making and ensuring that a range of perspectives are brought to bear on matters under consideration by the board. The directors have extensive experience and specialist skills across a range of sectors, including retail, commercial, governance, human resources, remuneration, accounting and finance, legal, healthcare and marketing. The board race and gender diversity policy sets voluntary targets of 25% black and 25% female representation at board level. Currently 56% of the directors are black and 33% are female, which exceeds these targets.

Director election

A third of non-executive directors are required to resign at each AGM and executive directors are required to resign on the third anniversary of their appointment or most recent re-election to the board. This provides shareholders with the ability to hold directors to account and to appoint directors to the board who shareholders believe will add value to the business.

Annual performance evaluation

Each director is required annually to assess the performance of the board, its committees, the chairman, the chief executive officer and the company secretary. This year's assessment indicated that in the opinion of the directors the board, its committees and the company's most senior executive have discharged their responsibilities effectively. The directors believe that the board is well balanced in terms of skills, qualifications and experience, and makes a meaningful contribution to the group.

Board and executive relationship

The roles of the chairman and the chief executive officer are formalised, separate and clearly defined. This division of responsibilities at the helm of the company ensures a balance of authority and power, with no individual having unrestricted decision-making powers. The chairman leads the board and the chief executive officer is responsible for the executive management of the group. While the board and executive management collectively determine the strategic objectives of the group, the board is responsible for approving the group's strategy, and the executive is responsible for executing this strategy and for the ongoing management of the business. Regular reporting by the executive on progress made in executing its mandate allows the board to monitor implementation of strategy and to assess the effectiveness thereof. Non‑executive directors have direct access to management and may meet with management independently of the executive directors.

Board and committee meeting attendance

Board oversight

The board discharges its oversight function both directly and through its three committees. The board and its committees are each chaired by independent non-executive directors. The composition of the committees conformed to regulatory requirements and King IV for the reporting period. Detailed disclosure on the roles, functions and composition of the committees is contained in the corporate governance report available on the website.

Risk governance

While the board recognises that certain risks are necessary to ensure sustainable growth and competitive returns, the directors acknowledge that the group and its stakeholders should be protected from avoidable risks. Risk management and governance processes are therefore aimed at creating an appropriate balance between risk and reward. The audit and risk committee is responsible for overseeing risk management for the board, with particular focus on combined assurance arrangements, ensuring that the group has implemented an effective policy and mitigation plan for risk, and that disclosure of these risks and mitigation plans is comprehensive, timely and relevant.

The committee is tasked with ensuring that the combined assurance model provides a co-ordinated approach to assurance activities, and that the combined assurance received addresses all significant risks facing the group. The group and business unit risk registers are regularly reviewed and updated, containing current and emerging risks as well as risks associated with future strategic initiatives and identifying mitigating measures to address specific risks. Risk registers are updated as the nature of the risk changes over time or as mitigation measures take effect. Refer to the major group risks detailed in the managing material issues report.

Group internal audit monitors the progress of the group and business units in managing risks and reports its findings to the audit and risk committee. Any significant weaknesses in the design, implementation or execution of the group’s internal financial controls which could result in material financial loss, fraud, corruption or error, are reported to the audit and risk committee and this information will be disclosed in the audit and risk committee report. No material issues were brought to the attention of the committee during the reporting period.

Ethics and values

The group subscribes to high ethical standards of business practice. A set of values and a behavioural code of conduct require staff to display integrity, mutual respect and openness. Members of staff have an obligation to challenge others who are not adhering to these values. The social and ethics committee is responsible for monitoring ethical practices. The group has various documented policies which require all employees to adhere to ethical business practices in their relationships with one another, suppliers, intermediaries, shareholders and investors. These policies also set stringent standards relating to the acceptance of gifts from third parties and declarations of potential conflicts of interests. A fraud prevention policy ensures that a firm stance is taken against fraud and the prosecution of offenders.

Anti-competitive conduct

Oversight, governance and risk management processes are in place to promote compliance with statutory prescripts relating to competition, and the effectiveness of these processes is borne out by the fact that the group has not been sanctioned for anti-competitive conduct.

The decision by the group not to increase prices of a range of products that were considered essential in the context of the pandemic has reflected positively on Clicks, as the Clicks Group's responses to the various investigations by the Competition Commission, the National Consumer Commission and competition authorities in Namibia and Botswana have been a credible and consistent denial of any price gouging. No investigations have led to any complaints being referred or sanctions imposed.

The group has market-leading positions in healthcare retailing and supply. This emphasises the need for the group to remain vigilant in guarding against engaging in anti-competitive practices.

Governance focus areas in 2021

The board will increase its focus on issues of diversity, inclusiveness and sensitivity training, and will closely monitor and assist executive management's approach and actions in this regard.

Data protection and privacy issues remain focus areas with the Protection of Personal Information Act coming into force in South Africa. The group will continue to ensure that effective governance policies and processes are in place to address these issues.