Pick n Pay Stores Limited
Corporate governance report

Introduction

This report applies to Pick n Pay Stores Limited (Stores, alternatively the Company) and, where applicable, to Pick n Pay Holdings Limited RF (Holdings). Holdings and Stores are investment holding companies. Holdings’ sole purpose is the holding of the controlling shareholding in Stores. Stores, through its subsidiaries and associate, operates in the retail sector in southern Africa and on the African continent.

The Pick n Pay group of companies (the Group) is committed to upholding the highest standards of ethics, transparency and good governance, while pursuing sustainable profitable growth. The Board is accountable for ethical leadership, sustainability and good corporate citizenship. The Group’s commitment to good corporate governance is woven through every aspect of the management structure.

The Board takes overall responsibility for the Company, selecting the management team, overseeing corporate strategy and performance, and acting as a resource for management in matters of planning and policy.

With the aim of achieving a balanced economic, social and environmental performance, the Board supports efforts to ensure the long-term sustainability of the business. Legitimate stakeholder involvement is kept in mind at all times, and the Board fully supports the materiality approach, which emphasises reporting based on issues and elements that can have a material impact on the sustainable performance of the business over the short, medium and long term.

The Board takes guidance from:

• The King Report on Governance for South Africa 2009 (King III)
• JSE Listings Requirements
• Companies Act, No 71 of 2008, as amended
• The International Integrated Reporting <IR> Framework
• Global Reporting Initiative (GRI) G4 sustainability reporting guidelines

It is the responsibility of the Board to ensure the application of the principles contained in the King Report on Governance for South Africa 2009 (King III), while maintaining the Group’s focus on sustainable performance. Where the directors of the Board have deemed that recommended practices are not in the best interests of the Group, this report follows King III in explaining the reasons for the alternative application.

Summary of the application of King III principles

The Company has subscribed to the Governance Assessment Instrument (GAI) of the Institute of Directors Southern Africa (IoDSA). This instrument has as its primary objective the proficient discharge of responsibility relating to good governance. GAI considers the application of the related principles and practices as follows:

• All governance best practices within the retail industry are considered, including King III, JSE Listings Requirements, Companies Act and the Pension Funds Act;
• GAI is a robust framework and process methodology presented by IoDSA as complete, meaningful and credible; and
• GAI has an inherent scoring capability facilitating a measure of the application of good governance practices – it weights every practice and every related principle.

Stores’ overall Governance result on the GAI scale is AA, where AAA is the highest measure.

The table below summarises Stores’ application of the principles of King III:

Key

Applied	✓
Not applied	✗
Partially applied	#

 

	Chapter and principle	Application		Comments
	Chapter 1 – Ethical leadership and corporate citizenship
	The Board should provide effective leadership based on an ethical foundation.	✓		Refer to Pick n Pay’s code of ethics, which is to be found on our website, www.picknpayinvestor.co.za, under the corporate profile tab.
	The Board should ensure that the Company is, and is seen to be, a responsible corporate citizen.	✓
	The Board should ensure that the Company’s ethics are managed effectively.	✓
	Chapter 2 – Board and directors
	The Board should act as the focal point for and custodian of corporate governance.	✓		The responsibilities of the Board are set out in the corporate governance charter. The charter aligns with the recommendations of King III, and establishes the responsibilities and mandates of the Board and its directors, as well as the roles of the Board committees. An updated charter was approved by the Board in June 2013. A copy of the charter is to be found on our website, www.picknpayinvestor.co.za under the corporate profile tab.
	The Board should appreciate that strategy, risk, performance and sustainability are inseparable.	✓		The Group recognises the importance of incorporating sustainability into our business strategy.
	The Board and its directors should act in the best interests of the Company.	✓		All directors submit a list of all companies in which they hold directorships or positions of influence. These lists are regularly updated, and are reviewed every quarter. This assists in ensuring that disclosure is current, transparency is maintained, and potential conflicts of interest are avoided.
	The Board should consider business rescue proceedings or other turnaround mechanisms as soon as the company is financially distressed as defined in the Companies Act.	✓		Not relevant during the 2014 annual financial period.
	The Board should elect a Chairman of the Board who is an independent non-executive director. The CEO of the company should not also fulfil the role of Chairman of the Board.	✗		Refer to note 1
	The Board should appoint the CEO and establish a framework for the delegation of authority.	✓		Richard Brasher was appointed by the Board as CEO to the Group in January 2013. The Board contributes to all decisions made about senior executive appointments and has approved a framework for the delegation of authority.
	The Board should comprise a balance of power, with a majority of non-executive directors. The majority of non-executive directors should be independent.	✓		Refer to note 2 for full details. The Board comprises a balance of power between the executive, the majority shareholder and the independent non-executive directors. All directors are possessed with the knowledge, skills and resources necessitated by the size and nature of the Company. Following recent appointments to the Board, the majority of non-executive directors are independent. Nine of the 14 directors are non-executive, namely Gareth Ackerman, David Robins, Hugh Herman, Ben van der Ross, Jeff van Rooyen, Lorato Phalatse, John Gildersleeve, Audrey Mothupi and David Friedland. Of the nine non-executive directors, six are independent, namely Hugh Herman, Ben van der Ross, Jeff van Rooyen, Lorato Phalatse, John Gildersleeve and Audrey Mothupi. Independence is assessed annually, and any director who has been on the Board for over nine years, if eligible, is put forward annually for election by shareholders.
	Directors should be appointed through a formal process.	✓		Refer to the report of the nominations committee.
	The induction and ongoing training and development of directors should be conducted through formal processes.	✓		A copy of the corporate governance charter is given to each director upon induction, as is the Memorandum of Incorporation, which also addresses certain responsibilities of the directors. In addition, new directors are introduced to all members of the executive management. Directors are provided with relevant material regarding statutory and regulatory developments, including the code of ethics, and receive briefings on changes in risks, laws and the business environment.
	The Board should be assisted by a competent, suitably qualified and experienced Company Secretary.	✓		The Company Secretary of the Group ensures that all directors have full and timely access to the information that helps them to perform their duties and obligations properly, enabling the Board to function effectively. The Company Secretary is not a director of any of the Group’s operations and maintains an arm’s-length relationship with the Board and its directors. The Company Secretary has a direct channel of communication to the Chairman. The Company Secretary is responsible for the functions specified in section 88 of the Companies Act. Annual consideration is given by the Board to the competence, qualification and experience of the Company Secretary. At the Board meeting held in February 2014, after a formal evaluation was conducted, the appointment was re-affirmed. Please see cv here.
	The evaluation of the Board, its committees and the individual directors should be performed every year.	#		Evaluations of the Board’s effectiveness are regularly undertaken. Given the recent introduction of three new non-executive directors, an external evaluation of the Board’s effectiveness will be conducted in the 2015 financial year, as it is felt that the contribution of the three new non-executive directors to the Board can only be adequately assessed after the elapse of a period of time. Individual performance evaluations of directors are undertaken annually by the Chairman of the Board. The results allow the Board to determine whether or not it has delivered on its mandate. It also measures, and where possible, enhances the Board’s overall efficiency and each director’s individual contribution to the Board. If improvements are indicated, the necessary measures are implemented.
	The Board should delegate certain functions to well-structured committees but without abdicating its own responsibilities.	✓		The Board is assisted by six committees. For further details, refer to the page references set out below: Social and ethics committee Audit and risk committee Remuneration committee Nominations committee Corporate governance committee Corporate finance committee Each committee has a formal charter which is reviewed annually by the Board. Information on each of the committees is available on www.picknpayinvestor.co.za.
	A governance framework should be agreed between the Group and its subsidiary boards.	✓		Refer to the diagram here.
	Companies should remunerate directors and executives fairly and responsibly.	✓		Non-executive directors have no fixed terms of appointment and no employment contracts with Pick n Pay. Their fees are not linked to the Group’s financial performance, nor do they receive share options or bonuses. Executives are remunerated in terms of the remuneration policy set out here.
	Companies should disclose the remuneration of each individual director and prescribed officer.	✓		Refer to the remuneration committee report.
	Shareholders should approve the Company’s remuneration policy.	✓		Shareholders approved the policy at the AGM held on 25 June 2013.