Corporate governance report
Clicks Group’s corporate governance standards are independently rated as aligning with global best practice and this has been an enabler of the sustained strong performance of the business, reflected in the group’s long-term equity outperformance. As ESG considerations have risen to prominence in recent years, the group has been well-positioned to capitalise on the investment made in robust governance policies and practices over several years.
The group’s governance and compliance framework, premised on the principles of accountability, transparency, ethical management and fairness, is deeply entrenched at all levels of the business. The board and top management are accountable for the group’s governance and consider governance to be critical to the group’s ability to execute its strategic objectives, to ensure that the group is sustainable and that it meets the expectations of its various stakeholders.
In the past year, notable governance matters in the group included the following:
- Managing the resignation of former CEO Vikesh Ramsunder and the appointment of Bertina Engelbrecht as his successor from 1 January 2022;
- JJ Njeke, who took over the chairmanship of the audit and risk committee from January 2022 was also appointed as the board’s lead independent director;
- As a continuation of the process of refreshing the board membership, bidding farewell to long-serving non-executive director Fatima Daniels in January 2022 and appointing Nomgando Matyumza to the board and the audit and risk committee, effective 1 September 2022. David Nurek, who served on the audit and risk committee in an interim capacity for the fnal six months of the 2022 financial year, stepped down from that committee upon Nomgando Matyumza’s appointment; and
- Preparing for the transition of CFOs, with Michael Fleming set to retire on 31 December 2022 and Gordon Traill to commence in the role from 1 January 2023;
- While welcoming a return to in-person board meetings, the group makes increasing use of technology, including virtual meetings and a digital platform for board documents, in conducting its business.
The group has applied the King lV report throughout the 2022 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 2022 published on the website. The board is not aware of any material non-compliance with the Companies Act, 2008, the JSE Listings Requirements or the Clicks Group memorandum of incorporation.
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 fulfills 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 is also required to 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.
Board composition
From the AGM in January 2023, the board will consist of eight directors, with two 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 on page 34. From the January 2023 AGM, Martin Rosen and Fatima Abrahams will leave the board with the group’s thanks for their service over many years. Nomgando Matyumza will be recommended for election to the board and to the audit and risk committee.
Independence of directors
All the directors understand their legal duty to act independently in the best interests of the company.
David Nurek has served as a non-executive director for 26 years, Fatima Abrahams and John Bester for 14 years, and Martin Rosen for 16 years. Fatima Abrahams and Martin Rosen are due to retire from the board immediately prior to the AGM in January 2023.
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. The board has take cognisance of investor concerns about potential waning of independence through long tenure or length of concurrent tenure between non-executive directors and executive directors (Bertina Engelbrecht has been an executive director since 2008 and Michael Fleming since 2011), and has commenced actively monitoring concurrency of service as one of the metrics to consider when assessing independence. 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.
Key issues addressed in 2022
In addition to the matters detailed in the report, the board addressed the following key issues during the year:
- Approving the group’s three-year strategic plans and budgets, including capital investment in IT systems and physical infrastructure;
- Monitoring the execution of projects and initiatives approved in preceding years;
- Entrenching ESG practices in the group’s ways of working, including reviewing the group’s environmental and climate change policy, adopting the JSE’s June 2022 guidance on sustainability and climate change disclosures in its annual reporting, incorporating ESG modifiers in the short-term and long-term incentive schemes, and providing training for directors on climate change;
- Restructuring the board by reducing the number of executive directors from three to two and undertaking the process to identify an additional non-executive director for election by shareholders at the January 2023 AGM, aimed at ensuring that the group and its stakeholders continue to benefit from a diverse, multi-skilled, independent and balanced board;
- Considering and satisfying itself as to the competence, qualifications and experience of both the CFO and company secretary;
- Reviewing the group’s remuneration policy, with specific focus on long-term incentives for senior executives and non-executive director remuneration, and making appropriate changes in keeping with global best practice such as the inclusion of ESG modifiers for short and long term incentive schemes for executives, and removing the meeting attendance component of non-executive director remuneration while allowing for fair and reasonable remuneration for extraordinary additional attendances by non-executive directors;
- Reviewing talent and succession plans for the business; and
- Ensuring the group is prepared for mandatory auditor rotation when this becomes compulsory (new auditors will be appointed in the 2023 financial year, to perform the audit for the 2024 financial year); and recommending EY for reappointment as the group’s auditor at the January 2023 AGM, noting that EY has served as the auditor for ten years, and the appointment of Malcolm Rapson as audit partner, replacing Anthony Cadman who completes his five-year tenure this year.
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 50% black and 25% female representation at board level. Currently 60% of the directors are black and 40% are female.
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. As detailed above, three non-executive directors retire and one is recommended for election to the board at the 2023 AGM. Executive director Gordon Traill, who will have commenced in his role as CFO on 1 January 2023, will resign and stand for election at the AGM.
Board and committee meeting attendance
Annual performance evaluation
An internal assessment of the board’s effectiveness was conducted, which concluded that the board, its committees, its chairman and directors, and the company secretary are highly effective. This followed the external assessment conducted by Deloitte in 2021.
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 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 coordinated 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 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 2023
The board will continue to allocate resources to sustainably operate and grow the business, and closely monitor the execution of projects. Responsible investment in areas including IT; growing and refreshing the store base; and training and development are key to providing the platform to ensure the growth of the business.
Continued focus on ESG is an imperative. The group understands how environmental, social and governance matters are inextricably linked, and how ESG performance is dependent on a concerted effort in all of these areas, together with a supportive culture and structure in the business. The unequivocal commitment of top management, as well as the appointment of a senior executive to head corporate affairs will assist the board and management in delivering on their ESG ambitions.
The appointment of new non-executive directors requires a comprehensive induction programme to harness the effectiveness of these directors. The programme will continue throughout the year.