Ethical business practice is essential for the long-term performance and sustainability of IDC’s business and to protect and enhance the interests of its stakeholders.
We comply with the Corporation’s enabling act, the Industrial Development Corporation Act 22 of 1940 (IDC Act), the Public Finance Management Act 1 of 1999 (PFMA), the Treasury Regulations, and are guided by Companies Act 71 of 2008 and the principles of good corporate governance as contained in the King Report on Corporate Governance for South Africa 2009 (King III). A table setting out IDC’s application of King III appears in this report.
Board of directors
The IDC Board holds ultimate responsibility for the performance of the Corporation while retaining full and effective control. It provides strategic direction to the Corporation and is responsible to the shareholder for setting strategic objectives and key policies, major plans of action, its risk policy, annual budgets and business plans. It ensures that the shareholder’s performance objectives are achieved through performance monitoring systems and reporting.
The size of the Board is determined by the IDC Act, which permits a minimum of 5 and a maximum of 15 directors to be appointed by the shareholder. A unitary board structure is applied, with the majority being independent non-executive directors. As at 31 March 2015, the Board comprised 1 executive and 11 non-executive members and a gender composition of 6 female and 6 male directors. The positions of Chairperson and Chief Executive Officer are separately held to ensure a clear division of duties. The Chairperson of the IDC Board is an independent non-executive director, in line with the recommendations of King III.
All new directors are provided with an opportunity to participate in a formal induction process co-ordinated by the Company Secretary. The induction process includes briefings on financials, strategic, operational and risk management policies and processes, governance framework, culture and values, and key developments at the IDC and in the sectors and environments in which the IDC operates.
Directors have complete access to senior management through the Chairperson, CEO or Company Secretary at any time. In addition to regular presentations by senior management at Board meetings, directors may seek briefings from senior management on specific matters.
The Board has a charter in place. The Charter sets out the Board’s responsibilities for the adoption of strategic plans, developing a clear definition of materiality, monitoring of operational performance and management, determination of policy processes to ensure the integrity of the Corporation’s risk management and internal controls, communication policy, director selection, orientation and evaluation. The Board Charter is supported by the IDC Act and Regulations.
The Company Secretary plays a pivotal role in the corporate governance of the Corporation. The Company Secretary is responsible to the Board for, inter alia, acting as a central source of information and advice to the Board on matters of ethics, adherence to good corporate governance principles, and compliance with procedures and applicable statutes and regulations.
The Company Secretary is not a director of the Corporation and acts independently from it, maintaining an arm’s length relationship with the Board. In line with good governance practice, the appointment and removal of the Company Secretary is a matter for the Board.
During the reporting period the Acting Company Secretary, Mr P Makwane, was appointed permanently to this position. Mr Makwane is currently both the General Counsel and Group Company Secretary of the Corporation.
Board meetings and meeting attendance
Particulars of attendances at Board meetings by members during the reporting period are provided in Section 2 (Committed to good governance) of the report.
Rotation of directors
Non-executive Directors are appointed for a period of 3 years subject to an annual confirmation by the shareholder representative, the Minister of Economic Development, at the Annual General Meeting of the IDC. At the Annual General Meeting held on 29 January 2015, 4 directors retired by rotation and 3 new directors, who had not previously served on the IDC Board, were elected. Particulars of the changes to the Board are set out in Section 2 (Committed to good governance) of the report.
An assessment of the Board’s effectiveness was conducted towards the end of the financial year under review and the Board’s performance was found to be satisfactory.
Delegation of authority
While the Board has the authority to delegate powers to Executive Management and Board Committees, it remains accountable to the shareholder. A Delegation of Authority is in place, which is updated on a regular basis.
As depicted in the diagram below, specific powers and authority have been delegated to those Board and Executive Committees responsible for credit approvals. Each of these committees has a clearly defined mandate spelt out in written Terms of Reference. The management of day-to-day operations is delegated by the Board to the Chief Executive Officer (CEO), who is assisted by the Executive Management Committee (EXCO) and its subcommittees.
Delegation of credit approval
The Board has established five standing committees to assist it in exercising its authority – the Board Investment Committee, Human Capital and Nominations Committee, Audit Committee, Risk and Sustainability Committee, and the Governance and Ethics Committee. All Board Committees operate under Board-approved terms of reference which are updated from time to time to stay abreast of developments in corporate law and governance best practice.
The Chairperson of each Board Committee is a Non-Executive Director. The members of each Board Committee are appointed by the Board of Directors, except for Audit Committee members who are appointed by the shareholder at the annual general meeting. Following each Committee meeting, at a Board meeting, the Board receives a report on deliberations, conclusions and recommendations. The Board Committees are discussed in greater detail below.
Board Investment Committee (BIC)
The purpose of the BIC is to consider transactions mandated to it by the Board which would, prior to the creation of the committee, vest with the Board. The BIC considers transactions as per the above delegation of credit approval and it makes recommendations to the Board.
The BIC contributed significantly to the overall funding approvals of R11.5 billion during the reporting period, particulars of which are provided in Section 2 (Impacting on industrial development) of the report.
Human Capital and Nominations Committee (HCNC)
The main objective of the HCNC is to assist the Board in the development of compensation policies, plans and performance goals, as well as specific compensation levels for the IDC.
The HCNC manages the Board’s annual evaluation of the performance of the Chief Executive Officer and assists the Board in fulfilling its oversight responsibilities relating to succession planning, as well as overall compensation and human resource policies for all IDC employees.
HCNC members have attended the following meetings during the reporting period:
Report of the Board Human Capital and Nominations Committee
Specific responsibilities of the HCNC, as set out in its Board approved terms of reference, include:
- To support the Board in overseeing the development and implementation of remuneration philosophy and policies;
- Set criteria necessary to evaluate the performance of the Chief Executive Officer and his Executive Managers;
- Support the Board in defining corporate performance indicators as well as evaluation of the achievement thereof;
- Provide a mandate for annual remuneration adjustments;
- Provide guidelines on the remuneration of directors;
- Recommending the appointment of Non-Executive Directors to the Board and to IDC investee companies; and
- The approval of short- and long-term employee incentive schemes.
Remuneration policy and philosophy
The Corporation’s philosophy is to ensure that employees are remunerated fairly, equitably and consistently based on individual performance, market remuneration trends and relative value of each position within the business. The principle of performance based remuneration is one of the cornerstones of the policy and it is underpinned by sound governance principles under the leadership of the Committee.
During the past financial year the Committee’s focus was on ensuring that the performance of the Corporation, the Chief Executive Officer and that of Executives was evaluated objectively in accordance with the corporate plan and defined key performance indicators. On the basis of this performance the Committee approved annual salary adjustments and the short-term incentive payable in July 2015. The long-term incentive bonus was not approved by the Board as certain key objectives were not met.
The Committee supported the Board and Management in defining key performance indicators for employees for the 2016 financial year in line with the new approved corporate strategy. These performance indicators were extended to the CEO and the Executives to drive alignment.
The Committee spent a considerable amount of time reviewing the Remuneration Policy and Philosophy to ensure that it is relevant in driving a culture of high performance and achievement of the new strategy. The new policy will be presented to the Board for approval during the 2016 financial year, for implementation across all level of the business.
The Committee plays an advisory role on the remuneration of IDC Non-Executive Directors. The directors are remunerated for the meetings they attend at rates approved by the shareholder. No performance-based remuneration or retainer fees are paid to directors. Senior management and other employees are paid market-related salaries as well as through the IDC shortand long-term incentive schemes, based on performance and achievement of specific set targets.
During the reporting period IDC directors were remunerated as follows:
Further particulars regarding the remuneration of directors and senior managers are provided in the Annual Financial Statements, in Section 4 of the report.
The Audit Committee monitors the adequacy of financial controls and reporting; reviews audit plans and adherence to these by external and internal auditors; ascertains the reliability of the audit; ensures that financial reporting complies with IFRS and the Companies Act; ensures the integrity of integrated reporting; ensures that there are effective measures in place on Information Technology risks as they relate to financial reporting; reviews and makes recommendations on all financial matters; and recommends the appointment and removal of auditors to the Board.
The Audit Committee has complied with the King III principles including integrated reporting, as is evidenced by this, the fourth issue of the IDC’s Integrated Report.
The Audit Committee has made an assessment of the effectiveness of the control environment through application of the “Combined Assurance” concept. This included engagements with different assurance providers (e.g. Internal Audit, External Auditors, Corporate Secretariat, etc.) in order to formulate a holistic opinion in this regard.
Audit Committee members have attended the following meetings during the reporting period:
In addition to its activities as described above the Audit Committee, during the financial year under review and as part of the IDC’s commitment to the promotion of transformation in the audit field, recommended to the Board a proposal in terms whereof the tender for the appointment to conduct 50% of the Corporation’s external audit work for the 2015 financial year would require of bidders to partner with a black-owned audit firm. The proposal was approved and the tender was awarded to KPMG Incorporated, with Ngubane & Company Incorporated being appointed as the empowerment partner. The IDC’s external auditors are KMPG Incorporated and SizweNtsalubaGobodo Inc (SNG).
Board Risk and Sustainability Committee (BR&SC)
The primary duty of the BR&SC is the governance of risk. It also assists the Board to determine the maximum mandate levels for the various Credit, and Asset and Liability Committee decisions. The Committee assists management with the responsible stewardship of sustainability, including stakeholder impact, management of material issues, sustainability governance and reporting.
Board Risk and Sustainability members have attended the following meetings during the reporting period:
During the year under review, the BR&SC approved an Enterprise Risk Management Policy which emphasises the Board’s commitment to risk management, and a framework which communicates the implementation of a robust approach in order to identify, evaluate and mitigate key risks that may impact business objectives. The Committee raised concerns about the apparent increase in impairments and the Risk Management Department was requested to conduct a root cause analysis and devise interventions to arrest the growth thereof.
The reporting of liquidity and market risk exposures to the BR&SC were improved in line with new measurement criteria introduced during the financial year. In terms thereof, liquidity risk is assessed in terms of structural and stressed liquidity whereas interest rate risk is assessed in terms of earnings and economic value at risk. Exchange rate risk exposures have been segmented to provide a comprehensive breakdown of any net open foreign currency positions.
Governance and Ethics Committee (GEC)
The main purpose of the GEC is to advise the Board generally on corporate governance and ethics matters. The GEC aims to promote the ideals of corporate fairness, transparency and accountability as well as to assist the Board in vetting funding applications, projects and any matter in which a director of the IDC has an interest. The GEC is accordingly mandated by the Board to ensure that no special or unusual treatment is accorded to any application, project or any matters in which a director of the IDC has an interest, and to make appropriate recommendations to the Board.
GEC members have attended the following meetings during the reporting period:
During the year under review the GEC considered a total of 6 matters in which IDC directors had potential conflicts of interest. The matters in question ranged from financial interests to IDC directors being acquainted with directors of IDC clients. Note 43 to the Annual Financial Statements, in Section 4 of the report, provides particulars of directors’ financial interests in IDC transactions.
Executive Management Committee (EXCO)
EXCO is responsible for amongst others, the implementation of strategies and policies of the IDC as developed by the Board; managing the business and affairs of the IDC on a day-to-day basis; developing the annual budget and business plan for the Board’s approval; implementing the Board’s directive; prioritising the allocation of capital; technical and human resources.
EXCO assists the CEO by guiding the overall direction of the Corporation and exercising executive control in the management of its day-to-day operations. The CEO is an executive director appointed by the shareholder through a recommendation by the Board and other EXCO members are appointed by the Board.
EXCO has a properly constituted mandate and Terms of Reference. The current composition of EXCO is reflected Section 1 of the report. Mr P Mainganya was appointed as the Corporation’s Chief Risk Officer with effect from 1 September 2014 and Mr D Jarvis was appointed as the Divisional Executive: Corporate Strategy with effect from 1 April 2015.
A summary of the significant activities and actions undertaken by EXCO can be found in the CEO’s report, which appears in Section 1 of the report.
Ethics and managing directors’ conflicts of interest
A Code of Ethics and Business Conduct is in place which guides the Corporation’s business conduct in all matters, requiring honesty and integrity in dealings with suppliers, customers, business partners, stakeholders, government and society at large.
The Board, subsidiary Directors and Executive Management are required to disclose any potential conflicts at regular meetings and as and when necessary, to the Company Secretary. This is done in line with the guidance provided by Section 75(4) of the Companies Act and in accordance with IDC Guidelines on Conflict of Interest. Such declarations occur at each Board meeting, including meetings of the Board Committees whose responsibility it is to consider transactions. Transactions that place a Board member in a potential conflict of interest are submitted to the Governance and Ethics Committee for deliberation and thereafter to the Board for final decision.
As part of promoting ethical behaviour, employees are encouraged to report any suspected fraudulent, unethical or corrupt practices to the Fraud Tip-Offs hotline which is managed by an independent external service provider.
The IDC has a Gifts Policy that requires all employees to declare gifts received from clients. Gifts with a value of R500 and above can only be retained by a recipient with the permission of his/her departmental head. Departmental heads need permission from the relevant divisional executive and divisional executives must, on the same basis, obtain permission from the Chief Executive Officer. During the reporting period 71 employees declared gifts of which 32 had a value of more than R500. The figure below provides a breakdown of the gifts received.
Governance training and assessment of clients/investee companies
The previous phase of providing corporate governance training to IDC clients and investee companies, reported on in our previous two reports, was finalised during the 2015 financial year, with training being provided in the Western Cape, Northern Cape and Limpopo provinces. The training sessions were received very positively and it highlighted the need that exists for further interventions in this regard. For the current year, the focus is on corporate governance assessments of individual clients with a view to identifying specific training needs and to provide such training where necessary.