Effective and ethical corporate governance is embedded in our organisational culture and is reflected in the principles and policies that are integrated into our operations. Afrox’s Board is the focal point and custodian of corporate governance in the Group. This role is fulfilled with the support of its statutory committees that collaborate with management, employees and external specialists in executing their mandates. The Company’s SET Committee provide oversight of Afrox’s ethics and governance.
Our robust governance structure considers the King IV principles and includes the presence of a lead independent non-executive director. Afrox conducts effectiveness reviews of the Board, Board Committees and individual directors every alternate year to ensure appropriate governance capacity and application.
Afrox governance structure
|1||Sue Graham Johnston resigned as Chairperson with effect from 1 September 2017 and Bernd Eulitz was re-appointed as Chairman with effect from 1 September 2017.|
|2||Resigned effective 18 February 2018. A replacement for Richard Gearing is being considered.|
|3||Appointed as a non-executive director with effect from 1 March 2017.|
|4||Dorian Devers resigned as Group Financial Director and executive director on 9 May 2017. Matthias Vogt was appointed as Group Financial Director and executive director with effect from 1 August 2017.|
|5||Resigned effective 1 April 2018.|
|6||Appointed 1 November 2017.|
|7||Appointed as Head of Healthcare effective 1 September 2017.|
Board of directors
Independent non-executive directors
Lead Independent Director
Non-independent non-executive directors
Group Financial Director
Afrox is satisfied that our Board’s composition reflects an appropriate mix of knowledge, skills, experience, diversity and independence. Refer to www.afrox.co.za for the curricula vitae of our Board and executive management members.
The Board’s conduct is regulated through a King IV-aligned Board charter, underpinned by the principles of sound corporate governance encapsulated by applicable regulatory and best practice frameworks.
The Board charter is divided into three sections: corporate governance matters in Afrox, matters reserved for the Board and director role profiles. The Board charter is revised annually to ensure alignment with better practice while incorporating changes brought about by new legislation or significant changes in the business environment.
The Afrox Board is satisfied that it has fulfilled its responsibilities in accordance with its charter for the financial year. Furthermore, we believe that our governance structure and application of our governance principles enabled the development of an ethical culture, supported good Company performance, improved Company control and enhanced our legitimacy.
Chairman and Managing Director
The Chairman provides overall leadership of the Board and its committees. He is an executive of the controlling shareholder, The Linde Group, and the Chief Executive of EMEA. His role includes monitoring and evaluating the performance of the Managing Director in conjunction with the NGMR Committee. This is done to ensure the achievement of Afrox’s strategic and operational objectives.
Dr Khotso Mokhele is the lead independent director, as the Chairman is not independent. To ensure a balance of power and authority to support unfettered or polarised decision making, the Board recognises that the roles of the Chairman and Managing Director must be separate. The lead independent director’s roles and responsibilities are recorded in the Board charter, and include the following:
- presiding at all meetings of the Board at which the Chairperson is not present or where the Chairperson is conflicted, including any sessions of the independent directors;
- calling meetings of the independent directors where necessary;
- serving as principal liaison between the independent directors and the Chairperson;
- performing all such functions that cannot be performed by the Chairperson due to their absence or the existence of a conflict of interest;
- liaising with major shareholders if requested by the Board in circumstances or transactions in which the Chairperson is conflicted;
- performing other duties that the Board may from time to time delegate;
- in the event of the Chairperson’s absence, the lead independent director serves in this capacity for as long as circumstances that caused the Chairperson’s absence, inability or conflict exist; and ensuring the independence of the Chairperson at all times.
The Managing Director is required to give three calendar months’ notice for termination and the Company may terminate employment for any lawful cause. Within the first five years of employment, should the Company choose to terminate the Managing Director’s employment, the Managing Director will be entitled to 12 months’ remuneration. Any personal debts to the Company will be deducted from the Managing Director’s remuneration upon termination. There is a succession plan in place for the MD, and he has no other responsibilities or affiliations outside Afrox.
Delegation of authority
Afrox maintains effective control of the Company through a governance framework that provides for delegation of authority and applicable duties. Furthermore, there is a governance framework in place between Afrox and Linde. The Board delegates authority to various Board Committees and individuals with clearly defined mandates that are reviewed annually. For a list of the Board Committees and their activities in the year, refer below. These Committees discharge Board responsibilities in specific areas of focus according to their relevant skills and expertise.
The executive directors of the Company are delegated with the authority to manage the day-to-day business affairs of Afrox. Our executive management assists the Managing Director, subject to statutory parameters and the Board’s limits on the delegation of authority to the Managing Director. Delegated authorities are monitored and reviewed on an annual basis. An amendment to the delegation of authority framework was approved by the Board in September 2017. Amendments occur as and when required. Afrox is satisfied that our delegation of authority framework supports role clarity and the effective exercise of authority and responsibilities.
Regulations and compliance
Afrox has implemented a risk-based legal compliance framework designed to identify the Company’s statutory obligations and monitor compliance to the applicable regulatory requirements. Legal compliance registers have been compiled for each business unit following meetings with the head of each business unit. These registers will be monitored and reviewed on an ongoing basis.
Legislative breaches or potential exposures are assessed by the legal department and robust mitigation actions are put in place. Material concerns are reported to the SET Committee. To further strengthen the compliance culture within the Company, The Linde Group Compliance Framework was adopted. The Linde Group Compliance management system was externally audited by KPMG and achieved Level 1 Certification demonstrating that the system is adequately robust and effective. The Compliance team is well resourced with subject matter experts to provide effective business guidance.
The key focus areas for compliance were training employees and providing e-learning in relation to the Code of Ethics, corruption prevention, competition law compliance, business partner compliance, trade compliance, insider trading and other market abuses compliance, dawn raid training, and data privacy training. In addition, the compliance communication awareness plan is assessed on an annual basis to determine specific training requirements. The relevance and effectiveness of the annual compliance training is monitored by the SET Committee against the Company’s employee disciplinary/grievance trends, and against internal and external compliance threats.
Neither the Company nor any members of the Board experienced regulatory penalties, sanctions or fines for contraventions of, or non-compliance with, statutory obligations. The SHEQ Committee has oversight of monitoring and compliance inspections by environmental regulators, and report non-compliance to the Board. There was no finding of non-compliance with environmental laws, or criminal sanctions or prosecutions for non-compliance.
The primary compliance focus areas will be rolling out training in anticipation of impending privacy laws and refresher training around anti-corruption practices.
Our combined assurance model
Our approach to assurance includes three lines of defence as outlined in the diagram below. The Board reviews and assesses the quality and effectiveness of this model on a regular basis.
Refer to About this report for an overview of the assurance approach used in preparing this integrated report.
Year-on-year report back
|Focus areas identified in previous year||Feedback on progress|
|Introduce a new risk management system to review the external environment for risks, opportunities and benefits. Thereafter, apply these to our organisational culture from the employees up to the Board to build a deeper understanding of sustainability.||
The Board approved the following four frameworks:
Risk management training took place across the Company and each business unit head has an individual risk register and mitigation actions that are reviewed on a quarterly basis with the risk management team.
A bottom-up approach was developed where high-ranking risks with a particular score for likelihood and impact are rolled up the executive management risk register using the same methodology for the top significant risks to the Audit Committee.
|Review internal and external security and compliance risks.||This was done by the SET Committee through a ‘deep dive’ into ethics and compliance, internal controls and security and procurement compliance. At management level, a Security and Governance Committee was set up and is in operation, meeting quarterly to manage external security risks. An in-depth study into cyber-security was presented to the Board.|
|Monitor financial performance and cost recovery.||Financial performance and cost recovery have improved significantly as is evident in the Company’s financial results.|
|Build on our competitive advantages.||A strategic workshop with the Board, executive and senior management took place in May 2017. The workshop focused on innovation and approaches to maintain and improve our competitive positions while considering future competitive threats. This forward-looking session provided tools and insight to further develop the sales and marketing function of the Company.|
|Review sales and marketing performance.||The Board paid significant attention to the performance of the sales and marketing team to establish the effectiveness of sales force development and the streamlining of policies, procedures and controls. The Board also appointed a new General Manager Sales and Marketing to support the future effectiveness of these efforts.|
|Drive the right culture and behaviours.||
Afrox values are clearly defined and training has taken place with executive management and the top 100 senior managers to bolster application of the right values, behaviours and culture.
Strict enforcement and compliance with regular monitoring and corrective action takes place. This displays our commitment to embedding the right culture and behaviour in our Company. These efforts have been widely supported by the employees, and awareness of these efforts is widespread in the organisation.
Future Board focus areas
- Diversification of the business through organic growth and acquisitions
- Cost containment
- Internal business development and organisational efficiency
- Embedding of the strategy further into all aspects of the Company to ensure robust application at all levels
The average Board member tenure is 3.9 years. The average length of executive director service is 1.6 years, and non-executive director service is 4.4 years.
3 members or 30% of the Board are historically disadvantaged South Africans.
Average Board member age is 54.2 years (2016: 53.6 years).
Board meetings and attendance
Directors of the Board receive the agenda and relevant supporting documents before each Board meeting. Unrestricted access to all Company information and records is available to all directors. Video or teleconferencing facilities are made available for meeting participation. Directors who are unable to attend a Board meeting submit comments on the agenda and general items to the committee chairman who raises these topics for discussion in the meeting. During 2017, there were four regular and no special ad hoc meetings.
|1||Appointed to the Afrox Board in August 2017.|
|2||Resigned 9 May 2017.|
|3||Re-appointed as Chairman in September 2017.|
|4||Former Chairperson, resigned 1 September 2017.|
|5||Dr Khotso Mokhele missed a single meeting due to a change in the Board meeting calendar.|
|6||Appointed to the Afrox Board in March 2017.|
Board appointments, training and evaluation
Rotation of directors and independence
Director rotations took place as per the Company’s notice of annual general meeting (AGM). Bernd Eulitz was appointed to the position of Chairman of Afrox’s Board of directors, succeeding Sue Graham Johnston, who was appointed to the Board on 7 September 2016. Mr Eulitz took up his role on 1 September 2017.
The Board acknowledges that Dr Mokhele has been the lead independent director for 13 years due to his invaluable contribution to the Company’s business transformation and evolution. The Board believes Dr Mokhele’s independence of character and judgement is in no way affected or impaired by the length of service. Dr Khotso Mokhele has served on the Afrox Board since 2005 and plays a critical role in ensuring continuity of knowledge and experience on the Afrox Board.
Selection process and support
The NGMR Committee is responsible for the Board’s composition and makes recommendations to the Board on executive and non-executive director appointments. The Board considers these recommendations in making appropriate appointments, subject to shareholder approval at the next AGM.
The skills, acumen, experience and actual or potential level of contributions are used as criteria for appointments.
Race and gender considerations are also made.
The Board has approved a gender and race diversity policy, which came into effect in February 2017. The NGMR Committee will consider annual gender and race representation targets that will promote diversity on the Board and make recommendations to the Board for approval. When appropriate, the NGMR Committee will consult with the SET Committee on gender and race diversity at Board level.
The Board approved a 25% female diversity representation target in 2017. With the exit of Sue Graham Johnston, the female diversity representation level is now 20%. Afrox is seeking to appoint another suitable black female candidate to meet the female diversity representation target for the coming year.
Training and evaluations
Afrox’s performance evaluation process may differ from year to year, but this process will normally take the form of a detailed questionnaire and personal interviews with individual directors. All new Board members undergo detailed Board induction training and occasional site visits. These visits promote visible leadership, employee engagement and provide site-specific information for member edification. The latest director induction site visit took place in May 2017.
Board evaluations may be internally facilitated or independently facilitated as deemed necessary by the Board. A detailed action plan will then be discussed and agreed by the NGMR Committee, and then endorsed by the Board.
The Board conducts an external skills gap analysis to ensure a balanced mix of skills. Internal Board evaluations for the prior year were completed in February 2018. The outcome of the evaluation was positive and indicated that the Board and the committees are functioning effectively. The evaluation identified three areas of enhancement, including organisational succession planning, bolstering of the risk management function and formalising stakeholder engagements. Progress on each focus area is detailed below:
|Through the NGMR Committee, the Board focused strongly on strengthening the succession plans for the executive committee and other positions deemed critical to business function. Succession planning is a standing item on the committee’s calendar and is now frequently reviewed. The NGMR Committee seeks guidance from the SET Committee when approving succession plans.|
|Refer to the Risk management section.|
|There is a formal training and development programme to enhance the stakeholder engagement skills of executive management. This medium-term programme was developed from the needs of executive management members to improve as a collective and enhance their individual skills in this area.|
The Board is satisfied that the evaluation process is improving its performance and effectiveness. The next internal Board evaluation will take place in 2019 for the 2018 year.
Chairperson and lead independent director
The Board was satisfied with the evaluation process for the then Chairperson (Sue Graham Johnston). The same questionnaire approach used for the Board was applied for her evaluation. This included questions associated with the role profile of the individual against the applicable code of governance, which was King III at the time. The lead independent director underwent a similar evaluation process. Both achieved excellent results.
Cheryl Singh has been Afrox’s Company Secretary since January 2014. Her role as Company Secretary is to provide the Board with guidance in discharging directors’ duties and responsibilities in the context of legislation, regulation, governance procedures and requirements. The Company Secretary acts as secretary to all Board-appointed committees. She is not a member of the Board or a prescribed officer.
The Board has access to, and is aware of, the responsibilities and duties of the Company Secretary. Furthermore, the Board is committed to providing the Company Secretary with due support as and when required.
The Board assessed the Company Secretary’s competence, qualifications and experience in line with the JSE Listings Requirements. The Board concluded that the Company Secretary is competent to carry out her duties. The Afrox Board remains satisfied that an arm’s-length relationship exists between it and the Company Secretary. The Board is responsible for the appointment and removal of the Company Secretary.
Each committee and director has access to professional governance services and independent expert advice by request, through the Company Secretary. This is done at the Company’s expense where such advice is deemed necessary to enable the obligations imposed on the Committee or director. The Board believes these arrangements involving the Company Secretary are effective.
Various Board-appointed committees support the discharge of the Board’s duties. Each committee acts within agreed, written terms of reference available below. At its meetings, the Board receives minutes of committee meetings and reports from the Chairman of each Board-appointed committee.
The Chairman of each committee is an independent non-executive director and members are non-executive directors. The exceptions are the SHEQ and SET Committees, where the Managing Director is an official member. Executive directors attend committee meetings by invitation.
The SET and the Audit Committees are responsible for decision making on economic, environmental and social topics. The Audit Committee report is included in the audited group annual financial statements.
|Committee members||Key focus areas|
The Audit Committee is an independent statutory committee appointed by the shareholders to fulfil the obligations contained in the Companies Act, and the principles contained in King IV. It also executes further duties delegated to the Audit Committee by the Board.
Members and meeting attendance:
External advisers engaged:
The Audit Committee report is available online. This report includes the significant matters the Audit Committee has considered in relation to the annual financial statements, and how these were addressed by the Committee.
“The Audit Committee focused on:
Nominations, Governance and Management of Resources Committee
This committee has two cores areas of responsibility, namely the management of resources, and nomination and corporate governance:
Management of resources
Members and meeting attendance:
“Afrox strives to develop a highly competent and motivated workforce that delivers results safely and adds superior value for all its stakeholders.
During 2017, the NGMR gave specific attention to remuneration and incentive policies and structures in order to ensure that these are market related, while supporting the strategic objectives and needs of our Company, and our people.” – GJ Strauss, Chairman NGMR Committee
The Board’s SHEQ Committee:
Members and meeting attendance:
The SHEQ Committee, during 2017, was pleased with progress on various SHEQ initiatives and performance indicators. The Committee focused on and supervised significant management interventions around transport and passenger car safety, reduction of security risks on operational sites and process safety – Dr KDK Mohkele (Chairman of the SHEQ Committee)
Social, Ethics and Transformation Committee
The committee has specific statutory duties in terms of provisions of the Companies Act, the Company’s Memorandum of Incorporation and any other applicable law or regulatory provision. This includes the responsibility to:
Members and meeting attendance:
The SET Committee report is available online.
During 2017, the SET Committee focused on transformation and diversity management. Under the auspices of the Committee, the Afrox BBBEE compliance status improved significantly to a Level 4 and the Committee will be seeking to improve the status going forward.– Dr KDK Mohkele (Chairman of the SET Committee)
|1||Resigned as a committee member on 7 September 2016.|
|2||Appointed to the Committee on 1 March 2017.|
Each Afrox committee is satisfied that it has fulfilled its responsibilities in accordance with its terms of reference. Refer to the leadership and committee terms of reference supplementary report available at www.afrox.co.za.