Creating value through
GOOD GOVERNANCE

Good corporate governance remains a pillar on which the Clicks Group builds value for all its stakeholders, ensuring the sustainability of the business and enhancing long-term equity performance.

The group’s governance and compliance framework, premised on the principles of accountability, transparency, ethical management and fairness, has been tested and has been shown to be robust and capable of withstanding a multitude of factors in a particularly difficult year.

From a governance perspective, the group’s focus over the past year has been decidedly forward looking. In addition to its normal work, and despite the significant extraordinary pressures that the business has faced in the form of the September 2020 controversy surrounding a supplier haircare advertisement placed on the Clicks website, the Covid-19 pandemic and the July 2021 civil unrest in KwaZulu-Natal, the board has:

• considered appropriate criteria to be applied when selecting new non-executive directors to ensure broad diversity on the board (a formal broader board diversity policy is presently under consideration);
• engaged in succession planning, and more particularly plotted a course for the medium term to bring new non-executive directors onto the board, and expose these new directors to the board and its committees and to the group, as part of the ongoing process of refreshing the board. Long-tenured non-executive directors will leave the board gradually, serving out the remainder of their current terms of office, resulting in one or two long-tenured directors retiring each year in 2022, 2023 and 2024. The chairman will be recommended to shareholders for re‑election at the January 2022 annual general meeting (AGM), so as to provide for stability in leadership during this transitional phase, and if re‑elected will serve as much of his three-year term as is required in order for the group to identify his replacement;
• appointed Dr Penny Moumakwa to the board as a non-executive director, effective 1 April 2021, and in July 2021 resolved that Sango Ntsaluba should join the board from 1 September 2021. Both individuals will be recommended by the board for election by shareholders as non-executive directors, and Mr Ntsaluba will be recommended for election to the audit and risk committee, at the AGM in January 2022;
• appointed Mfundiso Njeke to the audit and risk committee effective 21 September 2020. Mr Njeke was subsequently elected by shareholders in January 2021 as a non-executive director and as a member of the audit and risk committee; and
• after the reporting period, accepted the resignation of group CEO, Vikesh Ramsunder, and appointed his successor, Bertina Engelbrecht, to take the helm from 1 January 2022.

The depth of understanding of the business that the board has built up over years has served the group well in responding to the challenges in the past 18 months. Among other benefits, the board’s sage advice and guidance has helped to ensure that the group stayed on course in advancing its medium and long-term strategic objectives.

The increased use of technology in support of the group’s governance processes has remained a theme for the past year.

• The board induction for Dr Moumakwa, as was the case with Mr Njeke in the preceding year, was conducted primarily by way of virtual meetings, which proved effective and efficient from a time and cost perspective. Although as the group has become more familiar with safe ways of working and assessing and adapting to the risks posed by Covid-19, safe physical site visits to our facilities were possible in between waves of Covid-19 infection, and these were attended by both Mr Njeke and Dr Moumakwa. A similarly constructed induction programme was conducted for Mr Ntsaluba in September and October 2021.
• The AGM was held in January 2021, as a hybrid physical and virtual meeting. A limited number of shareholders and directors, and the company secretary, attended the meeting in person, and electronic participation was available for shareholders, analysts, the media and the other directors to join the meeting. This proceeded smoothly and will likely be the format employed for the January 2022 AGM.

The group has applied the King lV report throughout the 2021 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 2021 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

Board composition

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

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.

David Nurek has served as a non-executive director for 24 years, Martin Rosen for 14 years and Fatima Abrahams, John Bester and Fatima Daniels have each served for 12 years. Mr Nurek and Ms Daniels are to retire from the board immediately prior to the AGM in January 2022, and only Mr Nurek will stand for re-election at that AGM. The board has taken the view that it would be prudent to retain Mr Nurek as chairman to provide stability to the board as a number of new non-executive directors take office, and if elected to serve as much of his three-year term as is necessary to identify a suitable candidate to take over leadership of the board.

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 64% of the directors are black and 36% 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 whom shareholders believe will add value to the business.

Annual performance evaluation

Instead of conducting an internal assessment of the board’s effectiveness (as would ordinarily take place annually), an independent external assessment of the board effectiveness was commissioned from a respected external consultant, Deloitte. To periodically obtain an external assessment is in keeping with best practice in ensuring good governance. Deloitte rated the board, its committees, its chairman and directors, and the company secretary as highly effective. A separate, internal assessment of the company secretary was also conducted, which agreed with the external assessment of his effectiveness.

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.

Board and committee meeting attendance

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 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 2022

The execution of the board’s succession plan will continue to be a focus area in 2022. So too will be the difficult task of continuing to steer the group through the pandemic, with the health and safety, social and economic risks that the pandemic has brought with it. The fact that the incoming CEO brings immense credibility and considerable understanding of the business gained from her many years as an executive director of the group will serve to ensure stability of leadership in a time of change.

Increased focus on ESG, and specifically environmental sustainability, is a priority. It is a global imperative to take action to mitigate global warming and climate change, and the group has committed to make meaningful reductions to its carbon footprint by 2030. Despite being the leading retailer on the JSE in relation to environmental performance, the group recognises that it will require sustained effort to achieve its goals.