CORPORATE GOVERNANCE

Corporate governance report

Pick n Pay Stores Limited

Enduring principles of Pick n Pay
The Board has a responsibility to ensure that the following core principles of the Group are maintained:

• Consumer sovereignty
• Doing good is good business
• Maintaining a discount image
• Fighting collusion among suppliers, and rejecting collusion between retailers
• Maintaining strong cash balances for buying forward on a rising market.

CHAIRMAN

The recommendation of King III is for the Chairman of the company to be an independent non-executive director. As Gareth Ackerman is not independent by virtue of his indirect shareholding, Hugh Herman has been appointed as Lead Independent Director (LID). All members of the Board have unfettered access to the LID when required.

CEO 

The CEO is responsible and accountable to the Board for all Group operations. He has a formal role description (with limits of authority) from the Board, which is reviewed and reaffirmed annually. The Chairman evaluates the performance of the CEO annually, which is then discussed with the non-executive directors. The evaluation is based on objective criteria including performance of the business, accomplishment of long-term strategic objectives and management development.

The CEO reports to the Board on succession planning, with a defined succession plan in place should key executives or any of the senior management personnel need to be replaced. The CEO reports annually to the Board on the Group’s programme and performance in respect of management development and employment equity.

Nick Badminton resigned as CEO with effect 29 February 2012. As an interim measure, Gareth Ackerman has assumed the role of acting CEO and is assisted by deputy CEO Richard van Rensburg who is responsible for day-to-day operations. We are currently searching both locally and internationally for a suitable candidate who has both the experience and qualifications necessary to assume the position.

GROUP EXECUTIVE 

The Group Executive consists of 10 key management personnel. The duties and responsibilities of each member of the Group Executive are detailed in a formal role description together with limits of authority. These are reviewed and approved annually by the CEO.

BOARD SUB-COMMITTEES 

The Board is assisted by the following specialist committees: audit; remuneration; nominations; corporate governance; corporate finance and social and ethics. Each committee has a formal charter which is reviewed annually by the Board. Detailed information on each of the committees is available from our website (www.picknpay-ir.co.za).

A brief outline of the role and responsibility of each committee is provided below:

For details on this committee, please refer to the audit committee report on here.

For details on the composition and the role of the remuneration committee please refer to the remuneration report on here.

The nominations committee is chaired by the Chairman and its members, Lorato Phalatse and Ben van der Ross, are non-executive directors. The committee identifies and evaluates potential candidates for appointment to the Board and has strict guidelines on the qualities required of directors. These qualities include being tough-minded, independent and objective, as well as being loyal to the principles and values upon which the Group is built. The committee meets on an ad hoc basis.

The corporate governance committee comprises Gareth Ackerman as Chairman, and Jeff van Rooyen. The committee meets with the Company Secretary and relevant members of the executive as required, ensuring that corporate governance structures are in line with national and international standards, and are both appropriate and effective.

The corporate finance committee comprises Jeff van Rooyen as Chairman, Alex Mathole and Lorato Phalatse. The committee assesses and reports on investment opportunities for the Group.

The Group has a social and ethics committee, with the mandate to monitor compliance with social, ethical and legal requirements, as well as best practice codes of conduct. The social and ethics committee will bring to the attention of the Board, and will report to shareholders, on relevant matters within the scope of its mandate. The Group’s principle of “doing good is good business” will be the cornerstone of the work done by the committee.

Members appointed to the committee are: Suzanne Ackerman-Berman (Chair, executive director), Lorato Phalatse (non-executive director), Isaac Motaung (Group Executive), Debra Muller (Company Secretary), Charl Cowley (Group risk and assurance), Andre Nel (sustainability), Janis Bouwers (finance), Melinda White (food regulations) and Babalo Ndevu (transformation). The committee will meet quarterly. All members were present for the inaugural meeting held on 2 February 2012.

GROUP RISK AND ASSURANCE SERVICES 

The internal audit function is carried out internally by Group Risk and Assurance Services (GRAS). The role of GRAS is to determine whether risk management and internal controls are adequate and functioning. GRAS makes use of enterprise-wide management software and records and monitors each divisions risk profile on the Company’s risk register. GRAS reports bi-annually to the audit committee where the results of the audits conducted are reviewed.

RISK MANAGEMENT 

The Board has recognised the importance of an effective risk management process and has adopted an enterprise-wide approach to risk management. This has resulted in the Company investing in an Enterprise Risk Management (ERM) software package. Risks identified are captured and rated in the ERM package, which houses the Company’s risk register.

The Board is responsible and accountable for ensuring that adequate procedures and processes are in place to identify, assess, manage and monitor key business risks. The Board is assisted in its responsibilities by the audit committee, whose objective is to monitor, develop and communicate the process for managing risk across all divisions in the Group. The day-to-day responsibility for identifying, evaluating and managing risk resides with management. The risk management process, which is regularly assessed by the audit committee, involves a formalised system to identify and assess risk, both at a strategic and operational level. The process includes the evaluation of the mitigating controls and other assurances in identifying and assessing the risks.

The Group’s assets are insured against loss, with cover being taken out above predetermined self-insurance levels. In a disaster recovery circumstance, business continuity plans will ensure the business continues with the least amount of disruption, both from an information technology and operational viewpoint. These plans are reviewed and updated regularly.

A summary of major risks and mitigation strategies is presented in the table below and overleaf:

Strategic and market risk

	Risk		Risk mitigation
	Brand and reputation		The Group operates within a governance philosophy that seeks to protect and enhance our brand and reputation. A core to this philosophy is built upon the continued maintenance of ethical business practices and the highest level of integrity. Recent enhancements to the brand have been achieved through the new fresh Pick n Pay logo’s, the relaunch of private label brands, the continuous improvement of the quality of fresh foods and the Pick n Pay Express stores initiative in partnership with BP South Africa. We are aware of the constant need to differentiate the brand from other competitors in terms of service offering and product range and this remains a key focus area.
	Competition		The Group continuously monitors market trends in which it operates and sets its strategy accordingly to ensure that Pick n Pay remains the retailer of choice. Two main pillars of Group strategy are to defend and grow LSM 7 – 10 and bring Pick n Pay to LSM 4 – 7. The former has been achieved by listening to our customers and providing quality products and services at affordable prices. The latter has been achieved by the conversion of Score stores into black-owned Pick n Pay franchise stores and the opening of further stores in that market, both of which have allowed us to increase our share of the LSM 4 – 7 market. Boxer is also becoming a major player in that market. The Group also monitors the market for new entrants with plans in place to counter any new entrants. We are aware of the threat of foreign competition entering the market and to this end we have invested substantial capital in gearing up the business. The launch of the Smartshopper card as well as our world-class PnP on Nicol type store will enhance our position in the market.