Corporate governance report

Governance structure

A sound corporate governance framework commits Grindrod to high standards of business ethics. The framework guides the board, as the custodian of responsible corporate governance, in the formulation and implementation of the company strategy to achieve targeted performance and create sustainable value to the benefit of all stakeholders. The framework comprises appropriate policies, procedures and power of execution to ensure that governance objectives are properly implemented, managed, reviewed and adjusted. This ensures responsible corporate citizenship through regulatory and best-practice adherence, effective and ethical leadership and sustainable value creation.

The governance framework is aligned to the company’s six core values of transparency, respect, integrity, professionalism, fairness and accountability. These values are encapsulated in four focus areas the company regards as core considerations in its drive to achieve business and social sustainability, namely health and safety, people, the environment and communities.

King IV

The Grindrod governance framework was adjusted to the sixteen-plus-one principles-based King IV Report on Corporate Governance for South Africa, which was released towards the end of 2016, to achieve four governance outcomes, these being ethical culture, good performance, effective control and legitimacy.

Following its release, the board elected for early adoption of King IV in a phased approach. An evaluation of the compliance requirements applicable to relevant practices included in the King IV Code was completed in 2016 and a governance practice improvement framework established to ensure Grindrod’s ability to meet all the application requirements.

Ethical culture

Principle 1: The governing body should lead ethically and effectively.

The strategic direction and control of the company is the responsibility of the board, as directed in the Grindrod memorandum of incorporation (MOI) and the board charter. This control is exercised through the company’s governance framework, which includes a system of assurances on internal controls and detailed reporting to the board and its committees.

The company MOI, the board charter and the terms of reference of all board and statutory committees are available on the company’s website.

The board charter sets out the practices and processes the board has adopted through which to discharge its mandate and responsibilities. The charter provides for a clear division of responsibilities at board level to ensure a balance of power and authority, such that no one individual has unfettered powers of decision-making. An internal assessment of adherence to the board charter was completed in 2017.

Matters reserved for board decision-making are reviewed regularly, based on recommendations made by the executive committee and board sub-committees where appropriate. The limits of authority were reviewed by management and no amendments were recommended to the board.

Directors are not permitted to deal directly or indirectly in the shares of the company during:

  • any closed period, being from the end of the interim and annual reporting periods to the announcement of the interim and annual results; or
  • any prohibited period as defined in the JSE Listings Requirements, of which none were declared by the company during the year.

Detail of share transactions in the ordinary share capital by directors during 2017 is as follows:

Name Date of transaction Nature of transaction Weighted
average
price (cents
per share)
Number of
shares
  Value of
transaction
(R)
B Ntuli 10 October 2017 Sale of ordinary shares 1 470 5 000   73 500
B Ntuli 12 October 2017 Sale of ordinary shares 1 515 5 000   75 750
B Ntuli 12 October 2017 Sale of ordinary shares 1 505 5 000   75 250
B Ntuli 12 October 2017 Sale of ordinary shares 1 500 5 000   75 000
B Ntuli 13 October 2017 Sale of ordinary shares 1 571 5 000   78 550
B Ntuli 13 October 2017 Sale of ordinary shares 1 550 5 000   77 500
B Ntuli 25 October 2017 Sale of ordinary shares 1 550 5 000   77 500
B Ntuli 25 October 2017 Sale of ordinary shares 1 555 5 000   77 750

Principle 2: The governing body should govern the ethics of the organisation in a way that supports the establishment of an ethical culture.

The principles of ethical leadership, management and behaviour to which the company subscribes, are set out in the Grindrod code of ethics and other relevant policies. The code, which outlines the principles for ethical conduct based on Grindrod’s six core values, is available on the company website.

The code is designed to raise ethical awareness, guide day-to-day decision-making and provide assurance on the integrity of the group companies to external stakeholders.

All employees are required to adhere to the code, which is communicated during employee induction. All South African staff annually acknowledge their adherence to the code of ethics and declare conflicts of interest and substantial gifts received.

In 2017 ethical behaviour was promoted through a focused fraud training and awareness campaign facilitated by the internal audit function.

Grindrod (South Africa) Proprietary Limited and subsidiaries and operating divisions obtained certification from TRACE International, a leading global anti-bribery standards-setting organisation for the second consecutive year. SGM was TRACE certified for the third consecutive year. The certification is internationally recognised and used widely in tender and other relevant processes.

Unethical behaviour can be reported to the Grindrod ethics officer, who is the custodian of the code.

In 2017 two instances were reported to the ethics officer, none of which were considered material transgressions of the code. The reported instances have been investigated or are in the process of being investigated and closed out.

Grindrod operates an independent, toll-free fraud-reporting hotline through Deloitte & Touche, which provides an impartial and confidential facility for all stakeholders to anonymously report any fraud-related matter. In 2017, 20 incidents (2016: 25 incidents) were reported through this hotline.

All reported incidents are investigated and listed in a register, although confidentiality is always guaranteed. Incidents of corruption at management level are investigated internally and, if deemed appropriate, referred to disciplinary proceedings or to law enforcement agencies. No material incidents of corruption were identified in 2017.

Compliance with the code of ethics is also monitored through internal audits to assess the adequacy and effectiveness of the internal control environment, which includes risks related to fraud and corruption. The executive committee and social and ethics committee are provided with statistics of non-compliance to the code.

Principle 3: The governing body should ensure the organisation is, and is seen to be, a responsible corporate citizen.

The objective of responsible corporate citizenship is underpinned by various policies, procedures and review mechanisms in the corporate governance framework. Execution and oversight is achieved through various board sub-committees, corporate and divisional management and internal and external communications objectives.

At its meetings, the board reviews and monitors the company’s performance against measures and targets related to human capital and economic, social and environmental areas. Further detail on board meetings and the attendance of directors is included in the attendance directorate and executive committee section.

Performance and value creation

Principle 4: The governing body should appreciate that the organisation’s core purpose, risk and opportunities, strategy, business model, performance and sustainable development are inseparable elements of the value-creation process.

The company’s vision of creating sustainable returns and long-term value for stakeholders is targeted and achieved against the norms, values and processes detailed in the governance framework.

During 2017, discrepancies between vision and business performance were reviewed and the strategy adjusted to achieve optimum short- and medium-returns.

Principle 5: The governing body should ensure that reports issued by the organisation enable stakeholders to make informed assessments for the organisation’s performance and its short-, medium- and long-term prospects.

The Grindrod integrated annual report aims to provide stakeholders with a balanced assessment of the company’s ability to create and sustain value to ensure its short-, medium- and long-term viability. Based on the IIRCs International Integrated Reporting Framework, the Sustainability Reporting Standards of the Global Reporting Initiative and relevant regulations and codes, the report aims to provide a complete and balanced review of Grindrod’s economic, social and environmental performance.

Effective control

Principle 6: The governing body should serve as the focal point and custodian of corporate governance in the organisation.

The board is ultimately responsible for the formulation and implementation of company strategy to achieve targeted performance and create sustainable value within a comprehensive framework which has been designed to ensure responsible corporate governance, of which the board is the custodian.

Board members are appointed through a formal process, assisted by the nomination committee to identify and review suitable candidates for election by the shareholders.

Principle 7: The governing body should comprise the appropriate balance of knowledge, skills, experience, diversity and independence for it to discharge its governance role and responsibilities objectively and effectively.

Board appointments are based on the corporate leadership skills, knowledge, experience and expertise required to advance the strategic direction of the company, with diversity in gender and race also considered.

The duties of the board, performed in accordance with the board charter and terms of reference of the board sub-committees and work plans that are reviewed and approved on an annual basis to ensure compliance, include monitoring and reviewing the implementation of the group business plan within the approved budget and with due cognisance of the associated business risks and opportunities.

The group’s strategy is mapped by the executive committee for approval by the board. The group business plan for the ensuing year, inclusive of the annual budget, is finalised following the review of the strategy by the board at its meeting held each year in November.

Board composition

The board, including the executive chairman, comprised 14 directors at 31 December 2017, of which four are executive directors. The chairman, assisted by the lead independent director, is responsible for the effective leadership of the board.

At its meeting held in March 2018 the nomination committee evaluated the independence, inclusive of the nine indicators included in King IV and tenure in excess of nine years, of all serving board members on a substance-over-form basis. Based on this assessment, all non-executive directors were deemed independent and the board, on the recommendation of the nomination committee, passed a resolution confirming the independence of the 10 serving non-executive directors.

In the board’s assessment, all directors have the relevant knowledge, skills and experience to make a meaningful contribution to and ensure effective leadership of the company.

One third of the company’s non-executive directors are required to retire by rotation at the annual general meeting. Retiring directors may offer themselves for reappointment by the shareholders. Directors who join the board during the course of a year are required to have their appointments confirmed by shareholders at the following annual general meeting. No board appointments were made during 2017. The suitability of the directors retiring by rotation was assessed by the nomination committee, and the board resolved to put these directors to shareholders for re-election based on the recommendation of the committee.

The nomination committee also evaluated the suitability of the proposed members of the audit committee. Based on the recommendation of the committee, the board proposed appointment of the evaluated members to the audit committee.

CEO

The board is responsible for appointing the CEO, an executive director whose role is separate from that of the chairman, and the group financial director.

Following the early retirement of the CEO on 31 July 2017, as an interim arrangement, the board appointed the non-executive chairman as executive chairman to oversee the implementation of the revised business strategy.

Mr Nkululeko Sowazi was appointed as lead independent director to maintain the balance between executive and independent directors.

The executive chairman, supported by the executive committee, is responsible for the formulation and implementation of strategies and policies, day-to-day operational management, the establishment of best-management practices, functional standards, risk management and internal control systems, good governance, legal compliance, the appointment and evaluation of senior management and guiding management and their teams during the period of transition.

The executive committee assists the executive chairman in managing the business at an operational level. The scope of authority and responsibilities of the executive committee are defined in the executive committee terms of reference, approved during 2013 and reviewed annually.

The executive committee terms of reference make provision for the annual evaluation of its members against KPIs contained in their respective performance scorecards. The evaluation is undertaken by the executive chairman and reviewed by the remuneration committee.

CFO

The group financial director is responsible for the financial management of the group, all aspects of the company’s financial strategy, due and proper preparation of financial statements as per IFRS and the Companies Act requirements, due and proper financial reporting and providing financial leadership through financial planning and organisationally aligned strategies.

He has also been tasked to take a prominent and strategic role, together with the executive chairman, to successfully implement the Spin-off of the Shipping division and repositioning of the consolidated and restructured continuing businesses.

The audit committee considered the expertise and experience of Andrew Geard Waller, the group financial director, and deemed it appropriate. The committee is also satisfied that the expertise, resources and experience of the finance function are appropriate to support the company business.

Company secretary

The group company secretary ensures corporate governance and legal compliance and adherence to the JSE Listings Requirements and to proper corporate governance principles. She does not fulfil an executive management function and is not a director of the board.

She is, as a basis for the submission of the annual compliance certificate submitted to the JSE, responsible for an annual detailed JSE Listings Requirements compliance audit. No material breaches of the JSE Listings Requirements were identified in 2017.

The group company secretary is, based on the approved annual work plans, responsible for preparing meeting agendas in advance and in consultation with the chairman of the board or sub-committee, and for recording minutes.

She provides material, accurate, concise and relevant information to the board in a timeous manner to enable the board to take informed decisions and to monitor the progress and performance of management against the approved business strategy and ensures accurate external disclosure including this integrated report.

The group company secretary also provides guidance to directors on governance, compliance and fiduciary responsibilities and sustainability.

The group company secretary also fulfils the function of the group ethics officer, is responsible for governance structures appropriate to sustainability reporting, and serves as the principal officer of the major Grindrod pension and provident funds.

The board considered the interactions between the group company secretary and the board during the past year, and is satisfied that there is an arms-length relationship between the board and the group company secretary.

Based on a formal assessment, which included review of the group company secretary’s qualifications, experience and demonstration of competence in execution of her functions, the board is of the opinion that Catherina Isabella Lewis, the group company secretary, possesses the requisite competence, qualifications and experience and has confirmed that she is suitably qualified, competent and experienced to hold the position of group company secretary.

She is an admitted attorney and conveyancer with 23 years legal experience and holds the following degrees: BLC, BProc, BA, LLB, LLM (Law of Contract) and LLM (Corporate Law). The academic and professional qualifications of the group company secretary were externally verified prior to her appointment.

Principle 8: The governing body should ensure that its arrangements for delegation within its own structures promote independent judgement and assist with the balance of power and the effective discharge of its duties.

The board is assisted in its responsibility to manage the company and identify, oversee and manage economic, environmental and social risk and opportunities by management, executives and the board sub-committees, being the audit, investment, nomination, remuneration, risk and social and ethics committees.

Matters reserved for board decision-making and the delegation of authority to management in specified matters are reviewed regularly, based on recommendations made by the executive committee.

Principle 9: The governing body should ensure that the evaluation of its own performance and that of its committees, its chair and its individual members support continued improvement in its performance and effectiveness.

The performance and effectiveness of the board and its committees are evaluated annually in accordance with the board charter. Evaluations comprise standardised questionnaires, grounded on the principles of King IV and structured according to the board charter, the annual work plan of the board and the terms of reference and annual work plans of each committee. The performance and effectiveness of the chairman of the board is evaluated collectively by its members.

The evaluations undertaken in 2017/2018 indicated satisfactory levels of governance at board and committee levels.

The nomination committee was, based on an evaluation, satisfied with the board composition and the skills, experience and qualifications of the members. The board accepted the evaluation of the committee.

Principle 10: The governing body should ensure that the appointment of and delegation to management contributes to role clarity and the effective exercise of authority and responsibilities.

The board appoints the CEO to execute company strategy and oversee management of the company from day to day. The board charter prescribes the way in which his powers are executed, delegated and monitored. With the early retirement of the CEO, the board appointed the chairman in an executive capacity to execute the Spin-off and business repositioning strategy approved in 2017. A lead independent director was appointed to maintain the balance between independent and executive directors.

Principle 11: The governing body should govern risk in a way that supports the organisation in setting and achieving its strategic objectives.

The board, supported by the risk committee, is ultimately responsible for governing risk-management processes in accordance with corporate governance requirements to support the setting and achieving of strategic objectives.

More information on the company’s material identified risks is included in the risk review section.

Risk governance

The risk committee reviews the group’s risk appetite and tolerance levels relative to specific risks and risk-management policy and processes and recommends the approval of the group risk-management plan for the ensuing year by the board. The investment committee reviews, within the framework of the board-approved delegations of authority, capital and other strategic applications for recommendation to the board.

Appropriate risk-management measures, which include accountability for risk management as a key performance area of line managers, exist throughout the group to counter significant business risks which could undermine the achievement of business objectives. Policies and guidelines on risk management and control support management in discharging its risk responsibilities.

The effectiveness of risk-management efforts are assessed by internal and external assurance providers in terms of the group’s combined assurance model.

Further to the inputs of its sub-committees, the board monitors, reviews and assesses all aspects related to the appropriate management of economic, social and environmental risk and opportunity at each quarterly board meeting.

The group’s executive management encourages a risk-conscious business culture by embedding agreed internal controls and mitigating actions through all levels of management and supervisory staff.

Risk-management framework

The Grindrod risk-management framework was revised during 2017 to incorporate an assessment of the impact of identified risks and opportunities on the six capitals of value creation, first outlined in the IIRC’s Integrated Reporting Framework and incorporated in King IV.

The revision included an enhancement to risk and opportunity management by assigning the oversight of specific risks to relevant board sub-committees.

Executive and operational management is responsible for the continuous identification, assessment, mitigation and management of risks in conjunction with the evaluation of opportunities within their areas of operation.

The framework provides for the review of identified high-level strategic and external risks and accounts for new and emerging opportunities and risks and is supported by continuously updated operational risk registers. The effectiveness of this framework is reviewed by internal audit.

Risk-management process

Risk-management processes are designed to identify, quantify, prioritise, respond to and monitor the consequences of both internal and external risks and their associated opportunities. The processes also promote the ownership of risk areas and risk-management accountability within the group.

Identified risks are evaluated in terms of potential impact and probability in terms of the likelihood of occurrence. Areas include strategy execution and market risks and the risk of harm to people and environment, stakeholder engagement, financial loss, legislative and regulatory compliance and reputation. The evaluations of the impact and probability establish the basis for determining the inherent risks and their significance to the business. Residual risk is determined based on the risk-mitigation plans developed and implemented by management.

The internal audit charter provides for an internal audit plan that is aligned with the risk framework.

The board, supported by the risk committee, reviews the effectiveness of both the processes and procedures adopted by management for identifying, assessing and reporting on significant business risks, and the roles of assurance providers with respect to risk management.

Principle 12: The governing body should govern technology and information in a way that supports the organisation setting and achieving its strategic objectives.

The board, supported by the audit committee, is responsible for information and technology (IT) governance and the strategic alignment of IT with the performance and sustainability objectives of the company.

IT governance is based on best practice principles, providing for the alignment of the IT strategy with that of the company. Additionally, best-practice frameworks have been adopted, including PMBOK and Prince II. A continually refined three-year IT governance roadmap, initially developed in 2015, provides for IT strategy, governance and policies and legal and other compliance as key focus areas. This roadmap has been aligned with the principles of King IV.

An IT governance charter has been developed and is managed through the Grindrod executive committee and group IT steering committee. The charter ensures that the IT function is focused on the strategic leadership and alignment of IT activities, prioritised IT investment initiatives, internal engagement to promote collaborative IT planning and the promotion of IT effectiveness to capitalise on economies of scale across the group.

The group IT steering committee, responsible for the implementation of business-focused IT strategies, comprises the chief information officer, divisional CFOs and IT managers, and ad-hoc members who are experts in particular business processes or technologies. The committee met three times in 2017 (2016: five times) to drive the implementation of fit-for-purpose IT infrastructure and software.

Decision-making structures are defined and a reporting framework is in place. Based on bi-annual reporting, the audit committee reviews and evaluates audit assessments of IT-related controls performed by the internal and external auditors, together with the appropriateness of actions taken by management to address key issues identified.

Principle 13: The governing body should govern compliance with applicable laws and adopted non-binding rules, codes and standards in a way that supports the organisation being ethical and a good corporate citizen.

The board resolved that Grindrod complies with the JSE Listings Requirements and all significant requirements incorporated in relevant legislation, regulations, international codes and best practices in all countries in which it operates.

A formalised group legal compliance universe was approved by the social and ethics committee in 2013 on the recommendation of the executive committee, with the associated legal compliance strategy being implemented in 2015. This aims to entrench legal and regulatory compliance across the group. Divisional legal registers and training and awareness further promotes a culture of compliance.

Further to decentralising in 2017, legal compliance is conducted at a divisional level with divisional executives individually being responsible for legal compliance within their areas of operation.

Compliance with all applicable laws and consideration to non-binding rules, codes and standards is reviewed by the social and ethics committee bi-annually and by the audit committee as it applies to its mandate.

Further to perceived employment equity (EE) breach in 2015 and Grindrod’s voluntary placement under Director General Review, a framework to ensure employment equity compliance across all group companies was established in consultation with the Department of Labour (DOL). Matters raised were successfully addressed through constructive engagement and collaboration with the DOL on the substantive implementation of EE plans and tracking of progress against set targets.

Grindrod supports the objectives of economic empowerment and, in compliance with the requirements of the Broad-Based Black Economic Empowerment (B-BBEE) Amendment Act No 46 of 2013, the Broad-Based Black Economic Empowerment Regulations 2016 and the JSE Listings Requirements, a B-BBEE compliance report is available on the company website.

Grindrod aims to comply fully, in a timely, accurate and professional manner, with the tax laws and regulations of the countries in which it operates, to fulfil its tax obligations by contributing fairly to the fiscus of the various jurisdictions in which it operates. Its moral and legal responsibilities are guided by a tax governance framework that deals with tax compliance and tax risk and is incorporated into the corporate governance framework of the board. The company seeks to achieve clarity, certainty and transparency in its tax affairs, thereby ensuring that tax planning is built on a sound commercial business activity. From a board perspective, in order to identify improvement opportunities in a tax-efficient manner through proactive collaboration with all group companies, the board has formalised and articulated a group tax compliance and tax risk policy that is compliant and congruent within the organisation.

In this regard, Grindrod is progressing according to plan to meet the 2018 three-tier documentation approach implemented by SARS in terms of the Organisation for Economic Co-operation and Development Base Erosion and Profit Shifting (OECD BEPS) Action Plan 13 report. The plan takes into account changes in global tax and transfer pricing regulations and the resulting, increased focus on transfer pricing. Transfer pricing is an evolving concept and has been included in requirements for 2018 for documentation.

The requirements include, as per the Action Plan 13 report, that Grindrod Limited, as a reporting entity based in South Africa, file a Country-by-Country (CbC) report, a master file and a local file for the tax years commencing on or after 1 January 2016.

Principle 14: The governing body should ensure that the organisation remunerates fairly, responsibly and transparently to promote the achievement of strategic objectives and positive outcomes in the short, medium and long term.

The Grindrod remuneration policy and implementation thereof is set out in the report of the remuneration committee.

Principle 15: The governing body should ensure that assurance services and functions enable an effective control environment and that these support the integrity of information for internal decision-making and the organisation’s external reports.

Grindrod’s internal audit function, which covers the group’s operations, is central to the company’s governance processes, internal control framework and risk governance.

All internal audit activities are performed in compliance with International Internal Audit Practice and the methodology and standards required by the South African Institute of Internal Auditors.

The effectiveness of the internal audit function and scope restrictions are monitored and reviewed by the audit committee together with the internal audit manager’s appointment and performance. The internal audit manager reports functionally to the audit committee and administratively to the group financial director and has unrestricted access to the chairman and members of the audit committee.

The audit committee approves the internal audit charter, internal audit plan and the budget of internal audit to ensure it operates independently of management.

The internal audit charter outlines the role of the internal audit function. The function reviews significant business, strategic and control risks to assist management to develop and embed internal financial control frameworks, to identify financial reporting risks and ensure the adequacy of controls to address the risk of material misstatements of financial results and to provide the audit committee with an assessment on the level of assurance that can be placed on governance and control across Grindrod.

The annual audit plan is based on an assessment of identified internal and external risk areas. The annual audit plan is updated as appropriate to ensure it remains responsive to changes in the business. A comprehensive report on material internal audit findings and matters of significance is submitted to the audit committee bi-annually.

The directors are ultimately responsible for the company’s system of internal control, which is designed to identify, evaluate, manage and provide reasonable assurance against material misstatement and loss. It has been designed to provide assurances on the maintenance of proper accounting records and the reliability of financial information used within the business and for publication. The internal control systems and governance structures are subject to independent review by internal audit and external assurance providers.

A combined assurance model aims to optimise assurance coverage by management and internal and external assurance providers. Collectively, they provide the board with assurances on the effectiveness of controls that mitigate the risks identified during risk assessments. The model, aligned with the principles and supporting practices of King IV, was developed by identifying risks, control measures and assurance providers.

The audit of risks is assigned to appropriate assurance providers and the action plans that were developed and implemented by management to mitigate the risks are continuously monitored.

This model gives the board the assurance, through the audit and risk committees, that all significant risks and associated opportunities are adequately managed.

Trust, good reputation and legitimacy

Principle 16: The governing body should, in the execution of its governance role and responsibilities, adopt a stakeholder-inclusive approach that balances the needs, interests and expectations of material stakeholders in the best interests of the organisation over time.

The board supports stakeholder engagement and communication strategies that facilitate transparent, understandable and reciprocal communication.

The group maintains continual engagement with its identified key stakeholder groups to promote the achievement of business objectives and support economically, socially and environmentally sustainable business practices.