Corporate governance report
The Clicks Group’s governance and compliance framework is premised on the principles of accountability, transparency, ethical management and fairness. The group’s corporate governance standards are independently rated as aligning with global best practice.
The group’s consistent focus on corporate governance has been an enabler of the sustained strong performance of the business, reflected in the long-term equity outperformance. 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, and to ensure that the group is sustainable and meets the expectations of its various stakeholders.
In the past year, notable governance matters in the group included the following:
- Welcoming new independent non-executive directors, Christine Ramon and Richard Inskip, following the retirement of long-standing board members, Prof Fatima Abrahams and Martin Rosen, who had served with distinction for many years. This is a continuation of the planned board refresh which was initiated in 2021;
- Accepting the early retirement of former CFO Michael Fleming and appointing Gordon Traill as his successor from 1 January 2023;
- Conducting a selection process to appoint an audit firm to replace EY Inc. in terms of the decision of the board pertaining to audit firm rotation. KPMG Inc. will be proposed to shareholders for appointment as the group’s auditors for the 2024 financial year;
- Appointing Nomgando Matyumza as chair of the social and ethics committee and Sango Ntsaluba as chair of the remuneration committee, following the retirement of Prof Fatima Abrahams on 26 January 2023, who had previously chaired these committees; and reappointing JJ Njeke as chair of the audit and risk committee and as lead independent director, and David Nurek as chair of the nominations committee; and
- Reviewing the structure of the board and its subcommittees, in order to ensure that the structure serves the needs of the group and can efficiently attend to the work required of the governing body.
The group has applied the King lV report throughout the 2023 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 2023 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 fulfils a range of legal duties, while being the primary source of effective and 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.
Governance structure
Board composition
Following the AGM to be held in February 2024, the board will consist of nine directors, with two salaried executive directors and seven independent non-executive directors. The age, tenure, experience and expertise of each director is briefly set out in the board of directors’ report.
From the February 2024 AGM, John Bester will retire from the board with the group’s thanks for his exemplary service, including serving as chair of the audit and risk committee for 14 years. Ms Ramon and Mr Inskip will be proposed to shareholders for election, together with Mr Njeke who retires in terms of the rotation of directors provisions in the memorandum of incorporation. Mr Inskip, Ms Matyumza, Mr Njeke, Mr Ntsaluba and Ms Ramon will be recommended for election 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.
Mr Nurek has served as a non-executive director for 27 years and Mr Bester for 15 years. As detailed above, Mr Bester will retire from the board ahead of the AGM in February 2024.
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 taken 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 Gordon Traill since 2023), 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 2023
In addition to the matters set out above, the board addressed the following key issues during the year:
- Approving the group’s three-year strategic plans and budgets, including capital investment in acquisitions
(180 Degrees, Sorbet and M-Kem), 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 water management, presented by the World Wide Fund for Nature;
- Identifying suitable additional non-executive directors for election by shareholders at the January 2024 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 a return on invested capital metric for long term incentive schemes for executives, increasing the vesting period for long term incentive schemes, and introducing a minimum shareholding requirement for the top four executives in the group. The group’s remuneration report is available on its website at www.clicksgroup.co.za; and
- Reviewing talent and succession plans for the business.
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 information technology. The board’s broader diversity policy contains voluntary targets for race and gender of 50% black and 33% 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. At the 2024 AGM, four non-executive directors retire and three of these are recommended for election to the board.
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. The last external assessment of board effectiveness was conducted by Deloitte in 2021.
Board and executive relationship
The roles of the chairman and the CEO 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 CEO 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. Major group risks are 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 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 interest. 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 2024
The board approved substantial capital investment in 2023 and in the new financial year will continue to allocate resources to sustainably operate and grow the business. The board closely monitors the execution of significant projects as well as the performance of businesses acquired by the group, such as Sorbet. Strong governance processes are required to ensure that the investments made by the group are value-accretive and that they are effectively monitored.
As the board refresh process nears conclusion, the directors are shifting their focus to ensuring that the board’s structure most effectively utilises the skillsets and experience of directors, and best serves the businesses in the group. This includes the review of the board committee structure and the mandates and membership of each committee. Induction of the recently appointed board members will continue.
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 appointment of a group head of corporate affairs, whose portfolio includes responsibility for much of the group’s ESG initiatives, has provided enhanced performance in these areas and it is expected that this improvement will continue with the support of the board and top management.
Detailed disclosure on the roles, functions and composition of the committees is contained in the corporate governance report available on www.clicksgroup.co.za.