| |
| Review of historic
business practices |
| |
 |
| |
Janice
Salvado |
Significant issues have been raised in the past
few months resulting in the group performing a
review of the historic practice in the South African
Financial Services business of bulking retirement
funds’ current banking accounts and related
business practices. This review included the engagement
of lawyers, Deneys Reitz, and independent auditors,
Ernst & Young. A sub-committee consisting
of non-executive directors of the Alexander Forbes
Limited board was appointed to consider the findings
of the review and to make recommendations to the
Board in this regard. After consultation with
the Financial Services Board (FSB), the first
part of the process has been substantially concluded
and has resulted in a provision for an estimated
settlement to clients of R368 million. A wider
review has been commissioned to Deneys Reitz and
Ernst & Young in respect of business practices
throughout the group. The purpose of this review
is to ensure that all of the company’s business
practices meet the highest levels of integrity.
This review is nearing completion, and has identified
a limited number of additional potential historical
exposures for which a further provision of R100
million has been raised. These amounts were fully
provided in the group’s results for the
period under review. Importantly, the exposures
identified primarily relate to historical practices
which do not have a material effect on current
earnings. The group acknowledges that it did not
meet the disclosure standards to which it aspires
in relation to the historic income earned for
the practice of bulking. However, the board of
Alexander Forbes assures stakeholders that it
remains committed to meeting the highest standards
of corporate governance. |
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 |
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| |
| 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 practised
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.
As at the date of publication of this report,
the board comprises seven independent directors,
two non-executive directors and three 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 business plan
for the group, monitoring the performance of executive
management against the 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, Rael Gordon and
Peter Moyo, in their respective capacities as
chairman, group chief executive, and group chief
executive elect 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 |
|
| |
| |
 |
| |
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| 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. |
| |
| Meeting attendance |
| The attendance of meetings
by the directors of the company during the financial
year is shown in the table: |
| |
| Directors |
Board |
Audit |
Remuner-
ation |
Nomi-
nation |
Acqui-
sitions |
Life
under-
writing |
Non-life
under-
writing |
Non-
executive
sub-
committee |
| |
|
|
|
|
|
|
|
|
| Meetings planned |
4 |
4 |
4 |
4 |
4 |
4 |
4 |
–
|
| Meetings held |
5 |
5 |
5 |
4 |
7 |
4 |
4 |
1 |
| PL Heinamann |
5 |
–
|
5 |
4 |
6 |
–
|
3 |
1 |
| TRT Bohlmann |
5 |
5 |
–
|
–
|
–
|
4 |
4 |
–
|
| JJ Durand |
5 |
–
|
N/A (5)
|
N/A (5) |
–
|
–
|
–
|
–
|
| RI Gordon |
5 |
5 |
–
|
–
|
7 |
–
|
–
|
–
|
| MG Ilsley |
5 |
–
|
–
|
–
|
–
|
–
|
–
|
–
|
| MP Nicholls |
5 |
5 |
–
|
–
|
7 |
–
|
–
|
–
|
| MC Ramaphosa |
5 |
–
|
–
|
–
|
–
|
–
|
–
|
1 |
| JVH Robins |
5 |
5 |
5 |
4 |
7 |
–
|
–
|
–
|
| GGH Todd (1) |
2 |
–
|
–
|
–
|
–
|
–
|
–
|
–
|
| AF van Biljon (2) |
2 |
2 |
–
|
–
|
–
|
–
|
–
|
1 |
| PJJ van der Walt (3) |
4 |
5 |
5 |
4 |
6 |
–
|
–
|
–
|
| JH Vickers (4) |
2 |
–
|
–
|
–
|
5 |
–
|
2 |
–
|
|
| |
| (1) |
Mr Todd retired from
the board on 27 July 2005. |
| (2) |
Mr van Biljon was
appointed to the board on 7 October 2005. |
| (3) |
Mr van der Walt tendered
his apologies for the special board meeting
held on 13 April 2005 due to health reasons. |
| (4) |
Mr Vickers was appointed
to the board on 7 October 2005. |
| (5) |
Mr Durand was appointed
chairman of the Remuneration and Nomination
Committees in April 2006. |
|
| |
| • |
Mr Moyo and Mrs Lucas-Bull
were appointed to the board subsequent to
the year-end and are, therefore, not reflected
in the table above. |
| • |
Apologies were received
where relevant from committee members unable
to attend meetings. |
|
| |
The
Audit Committee comprises six
members, being five 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 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 meetings of the additional audit committees
are attended by the internal and external auditors,
compliance officers as well as management.
The Remuneration
Committee comprises three independent
directors and is chaired by a non-executive director.
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 comprises
three independent directors and is chaired by
a non-executive director. 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, the group development
director 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
committees. The life and non-life
underwriting 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.
Non-Executive
Sub-Committee. In addition, the
board has established a Non-Executive Sub-Committee,
comprising local non-executive directors and chaired
by an independent director, to make recommendations
to the board regarding the conduct of the company
and its officers in relation to any ethical, legal
and liability related risks/issues arising out
of the historical bulking practice within the
South African Financial Services business and
any other items reviewed. The sub-committee has
input into the scope of work performed by Deneys
Reitz and Ernst & Young and receives their
reviews. |
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 |
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| 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 (“EWRM”) policy 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.
It is important to recognise that risk, internal
audit, compliance and other review work is performed
with a reasonable expectation of detecting significant
weaknesses and irregularities. However, these
reviews, even when carried out with due professional
care, do not guarantee that all irregularities
will be detected. |
| |
| 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. |
| |
| |
 |
| Janice Salvado |
| Company Secretary |
| |
