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The Group >> Corporate governance

ADHERENCE TO CORPORATE GOVERNANCE

The directors of Alexander Forbes Limited are committed to the highest standards of corporate governance as embodied in the King II Report on Corporate Governance South Africa 2002 (“King II”). The board is committed to ensuring that the principles of the Code of Corporate Practices and Conduct are practiced and adhered to in both the local and international regions where Alexander Forbes operates. It is the opinion of the directors of Alexander Forbes Limited that the group upholds the principles of King II.

In keeping with its governance responsibilities, the board has established mechanisms and policies appropriate to the group’s business to ensure compliance with King II and the JSE Listings Requirements. Alexander Forbes is also listed on the Botswana and Namibian Stock Exchanges and adheres to the various requirements of these Stock Exchanges and the governance standards applicable in these jurisdictions.

The board supports the principles of transparency, ethical behaviour and honesty, in all the group’s business dealings.

The directors regularly review the group’s policies and procedures to ensure that they remain relevant and appropriate.

THE BOARD

The board has a unitary structure comprising five independent directors, three non-executive directors and two executive directors. It is considered to be effective in size and composition.

The board comprises individuals with a wide range of skills and experience, collectively suitable to carry out its responsibilities. The directors have a responsibility to become acquainted with all their duties and an induction process is in place for new directors. The board has a charter clearly defining its roles and responsibilities, a copy of which is available on the group’s website. In accordance with its charter, the board considers and approves an annual strategic plan for the group, monitoring the performance of executive management against the strategic objectives outlined in this plan. The board has adopted an authorities matrix, which is regularly reviewed and updated, clearly indicating the matters that are delegated to various committees, subsidiary boards and members of management, and those matters that are reserved for decision by the board.

The company secretary ensures that directors are kept abreast of applicable legislation and changes to legislation.

The directors are responsible for ensuring that the operations of the business are known to them to enable them to fulfil their fiduciary duties.

The chairman of the board is an independent director and the roles of chief executive and chairman are separate. Paul Heinamann and Rael Gordon, in their respective capacities as chairman and group chief executive, provide leadership and guidance to the board. No individual or block of directors can dominate the board and there are no shadow directors, as defined in King II.

The board meets on a quarterly basis or more frequently if circumstances require.

All information acquired by directors in the performance of their duties, which is not disclosed publicly, is treated as confidential. Directors may not use, or appear to use, such information for personal advantage or for the advantage of third parties.

Directors are required to disclose their interest in contracts that are significant to the Alexander Forbes business. Any potential conflict of interest is disclosed as soon as it arises.

Directors of Alexander Forbes are required to comply with the prescriptions of the JSE regarding inside information, transactions and disclosure of transactions.

BOARD COMPOSITION

In accordance with the Articles of Association, one third of the directors retire by rotation at every annual general meeting and their reappointment is subject to shareholder approval.

The performance of the board and its members is assessed annually against objective criteria.

The independent and non-executive directors may meet separately with management without the attendance of the executive directors and may attend subsidiary board and committee meetings as and when they wish. All directors have access to the advice of the company secretary and are entitled to seek independent professional advice concerning the affairs of the group at the group’s expense.

BOARD COMMITTEES

The board has established a number of committees that assist it in discharging its duties:

Audit Committee
Remuneration Committee
Nomination Committee
Acquisitions Committee
Life Underwriting Risk Committee
Non-Life Underwriting Risk Committee

Although the board delegates certain functions to these committees, it retains ultimate responsibility for the activities. The committees are all empowered to obtain such outside or other professional advice as the members consider necessary to carry out their duties. Each committee has a charter with defined terms of reference setting out the roles, duties and responsibilities of the committee, copies of which are available on the group’s website. The Acquisitions Committee’s terms of reference are currently being reviewed. However, an acquisitions policy is in place which, along with the board charter, governs the committee’s roles for the time being.

The Audit Committee comprises five members, being four independent directors and the group chief executive. The chairman is an independent director and is not the chairman of the board. The audit committee meets at least four times per year. These meetings are attended by the internal and external auditors and management of the operations for which the committee is responsible, as well as the group finance director and other board members and invitees as considered appropriate by the committee’s chairman.

Additional audit committees have been constituted which include members of the Group Audit Committee and are chaired by independent directors. These additional audit committees are mandated to review the Africa and international operations of the group and their reports are reviewed by the Group Audit Committee. The Africa Audit Committee also reviews reports of audit committees that have been established in respect of the South African businesses of Investment Solutions Holdings Limited, Guardrisk Holdings Limited, Alexander Forbes Insurance Company Limited and Alexander Forbes Life Limited.

The Remuneration Committee is chaired by the chairman of the board and consists entirely of independent directors. The committee determines, agrees and develops the general policy on executive directors and senior management remuneration for approval by the board. The objective is to ensure that such remuneration is fair, responsible and appropriate and that the remuneration scales, including share and other incentive schemes and conditions of employment, are market-related and at levels sufficient to attract, retain and motivate individuals of quality.

The Nomination Committee is chaired by the chairman of the board and consists entirely of independent directors. The committee identifies, reviews and makes recommendations to the board in respect of new independent or non-executive board appointments and the composition of the board generally. The committee is also tasked with the consideration of succession planning in respect of executive appointments as well as succession planning relating to independent and non-executive directors.

The Acquisitions Committee is chaired by the deputy chairman of the board and consists of four independent directors and the group chief executive. The purpose of this committee is to decide on acquisitions, disposals, joint ventures, start up operations and team hires of up to 5% of the market capitalisation of the company in terms of the acquisitions policy approved by the board.

Underwriting Risk Committees. The Life and Non-Life Underwriting Risk Committees consider specialised risks related to the underwriting activities conducted by the group. Individuals with specialised knowledge have been included in these committees. The committees report to the Africa Audit Committee and are chaired by independent directors.

MEETING ATTENDANCE

The attendance of meetings by the directors of the company during the financial year is shown in the table:


				Life	Non-Life
						Under-	Under-
			Remu-	Nomi-		writing	writing
Directors	Board	Audit	neration	nation‡	Acquisitions‡	Risk	Risk
Meetings planned	4	4	5	5	1	4	4
Number of meetings
held in the year	4	5	5	6	2	4	4
PL Heinamann	4		5	6		2	3
TRT Bohlmann	4	5				3	3
JJ Durand ⁽¹⁾	2
RI Gordon	4	5			2
MG Ilsley	4
MP Nicholls ⁽²⁾	4	–			1
J Percy-Davis ⁽³⁾	3
MC Ramaphosa	3
JVH Robins	3	4	5	6	1
GGH Todd	4
PJJ van derWalt	4	5	5	6	2
QJ Heaney ⁽⁴⁾	1

(1)	Mr Durand was appointed to the board on 5 October 2004.
(2)	Mr Nicholls was appointed to the Acquisitions and Audit Committees with effect from 1 December 2004. He tendered his apologies for the Audit Committee meeting held on 21 February 2005, due to a commitment made prior to his appointment.
(3)	Mr Percy-Davis resigned as director on 17 February 2005.
(4)	Mr Heaney resigned as director with effect from 4 June 2004.
‡	At its meeting held on 9 September 2004, the board approved the Nomination Committee’s recommendation that the Acquisitions Committee be re-established as a standing board committee. Formal, quarterly meetings of the committee were therefore scheduled with effect from the calendar year commencing 2005.

DEALING IN SECURITIES

The board has implemented a formal policy prohibiting directors, including directors of material subsidiaries, from dealing in Alexander Forbes Limited securities during the period between the financial year end and half year end and the release of the final and interim results respectively. Directors of Alexander Forbes Limited and material subsidiaries are further prohibited from dealing in Alexander Forbes Limited securities during cautionary periods and other periods considered to be sensitive. Participants in the share incentive schemes are bound by the company’s closed periods.

A director may only deal in Alexander Forbes Limited securities having first advised the chairman and group chief executive in advance and receiving clearance to deal.

COMPANY SECRETARY

The company secretary is qualified to perform her duties in accordance with applicable legislation and is considered by the board to be fit and proper for the position. All directors have access to the advice and services of the company secretary who ensures compliance with applicable procedures and legislation, and the removal of the company secretary is a matter for the board as a whole.

INTERNAL AND EXTERNAL AUDIT

The group has an internal audit department with a charter approved by the Group Audit Committee and the board. The internal audit function reviews the reliability and integrity of the financial and operating functions, systems of internal control and risk management, means of safeguarding assets, the efficient management of the group’s resources and the effective conduct of its operations. Certain aspects of the internal audit function are outsourced and performed by personnel from the same firm as the external auditors. In this regard, the board is satisfied as to the segregation between the internal and external audit functions. The internal audit function of certain of the regulated subsidiaries is outsourced to an independent firm of auditors (not involved in the external audit). The internal audit function reports to the Audit Committee and has unrestricted access to the chairman of the Audit Committee and the chairman of the board.

The group’s firm of external auditors is PricewaterhouseCoopers Inc. The group has adopted a Policy on Auditor Independence and Non-Audit Services, a copy of which is available on the group’s website. In terms of this policy, any engagement to render non-audit services requires the Group Audit Committee’s pre-approval where the value of such services exceeds R250 000 or £75 000. The policy also sets down certain criteria which must be considered, including safeguards in respect of objectivity and suitability of the auditor to perform the services. The external audit firm is required to report to the Group Audit Committee annually on all aspects concerning independence and provide written confirmation of its independence.

BOARD CONFIRMATION

The board is satisfied:

that adequate accounting records have been maintained and that there is reasonable assurance with respect to the maintenance of effective systems of internal control and risk management, and
that there is no reason to believe that the group will not continue as a going concern in the year ahead.

ETHICS

The group subscribes to sound principles of ethics and good business practice and the directors believe that the ethical standards and the criteria for compliance with these standards as contained in King II are being met.

RISK MANAGEMENT

Enterprise-Wide Risk Management

Growth, in essence, is the reward for taking risks successfully. Taking appropriate, measured risks in the pursuit of growing the group’s business has always been at the heart of Alexander Forbes’ success. In a rapidly changing environment the effective understanding and management of risk is central to the group’s continued growth.

To ensure a standardised approach across the group’s diversified international operations, all risks are assessed and managed within a common framework. Each of the major operations is responsible for implementation of the framework, based on its respective strategic and operational needs.

The group’s objective is to entrench risk management in day-to-day activities, whereby each business:

understands the risks that may prevent it achieving its objectives,
has identified the risk mitigating controls in place and has assessed their efficacy, and
has formulated a plan wherever additional action is required.

The extent of risk control will be balanced by the group’s continued encouragement of enterprise and innovation, with good corporate governance implemented through the regular measurement, reporting and enhancement of risk management activities.

The board believes that effective risk management will provide greater certainty for our clients and suppliers, our shareholders, our employees and the communities in which we operate.

Accountability

The board is ultimately responsible for the total process of risk management, as well as for forming an opinion on the effectiveness of the risk management process. Management is accountable to the board for designing, implementing and monitoring the process of risk management and integrating it into the day-to-day activities of the group. The group has adopted an Enterprise-Wide Risk Management Policy (“EWRM”) which encapsulates the group’s approach to risk and risk management.

Risk management activities

The group utilises a global EWRM methodology to facilitate the monitoring of its risk management responsibilities. Each risk is analysed according to its potential financial, reputational or regulatory impact on the relevant business.

Two managers are deployed in South Africa and the United Kingdom to ensure that EWRM is carried out effectively across the

main areas of the group’s operations. Each of the major operations has a risk champion who coordinates that area’s risk management activities and is responsible for maintaining its risk register.

Prior to being presented to the main board, the risk information is discussed at the appropriate regional and operational boards. The information presented to the boards includes a measure of the size of the risk (which takes into account its potential impact and likelihood), a list of risk mitigating initiatives and an assessment of their effectiveness.

A key element of the EWRM methodology is the ranking of actions according to the level of risk so that management can prioritise and allocate resources on a consistent, objective and reliable basis.

Risk management statement

The board is satisfied that there is an ongoing process for identifying, evaluating and managing the significant risks faced by the group.

Details are provided in the annual financial statements of financial, legal and regulatory risks impacting the group.

RELATIONS AND COMMUNICATION WITH SHAREHOLDERS

The board and management of Alexander Forbes are committed to transparent reporting and to keeping shareholders informed of material developments in the business through its Investor Relations programme.

Locally and overseas, the company initiates regular communication sessions with analysts, shareholders and potential shareholders to ensure a mutual understanding of objectives in an open and honest relationship.