Governance

The following statement sets out the corporate governance framework adopted by the board of Telkom and highlights the work undertaken by the Board and its committees over the past financial year.

Approach to governance

Corporate governance is at the core of the Board’s approach to ensuring a sustainable future for the Company and its stakeholders, the protection of shareholders’ funds and the creation and enhancement of shareholder value. Telkom is committed to ensuring that its policies and practices in the critical areas of financial reporting, sustainability reporting, remuneration reporting and general corporate governance meet high levels of disclosure and compliance.

Compliance with governance standards

The board of Telkom is fully committed to the values and principles of good governance espoused in the King Code on Corporate Governance for South Africa 2009 (“King III”). As a Company listed on the JSE, Telkom is required generally either to apply the principles espoused in King III or explain any non-adherence to such principles.

The Company has reviewed its current corporate governance policies and practices against the JSE’s requirements and considers that it substantially met the principles and recommendations outlined in King III for the financial period ended 31 March 2013. Instances where the Company has not applied the principles as outlined in King III have been identified and explained on pages 57 and 58 of this report.

THE BOARD

Composition and membership

Telkom has a unitary board structure comprising fourteen directors, made up of two executive directors, ten independent non-executive directors and two non-executive directors. The Board has adopted a policy of ensuring that its composition reflects an appropriate mix of skills to provide the necessary breadth and depth of knowledge and experience to meet its responsibilities and objectives.

The procedure for the selection and appointment of new directors and or the re-election of incumbent directors, and the Board’s policy for the nomination and appointment of directors, is set out in the Company’s Memorandum of Incorporation, read together with the Nominations Committee Charter.

The Nominations Committee, when assisting the Board in reviewing potential candidates for board appointment and assessing retiring directors standing for re-election, considers a number of factors including:

Skills and attributes

The Board recognises that having a range of different skills, backgrounds and experience represented among its directors is important to ensuring robust decision-making processes. The diversity of viewpoints enhances the effective governance of the Group. The range of skills, backgrounds and experience currently represented on the Board includes experience in senior roles in retail, property, banking and finance, transport, ICT, oil and gas, construction, management consultancy and telecommunications, as well as qualifications across a range of fields including business management, economics, accounting, engineering, actuarial science, law and the humanities.

Details of the composition of and movements on the Telkom board of directors during the year under review are as follows:

The Board was led by Mr PL Zim until 24 October 2012 when he resigned. Mr PSC Luthuli was appointed as lead independent director, a role he played until 24 October 2012 when he retired. Mr JA Mabuza was appointed as independent non-executive chairman on 14 November 2012. The chairman of the board is appointed on an annual basis in accordance with the memorandum of incorporation (MOI) read together with the Nominations Committee’s terms of reference. In line with best practice, the roles of the chairman and GCEO are separated. All nonexecutive directors are subject to retirement by rotation and re-election by shareholders in accordance with the MOI, King III and JSE Listings Requirements.

Details concerning the directors’ qualifications and experience are included on pages 60 and 61 of this report and the directors’ records of attendance at board and committee meetings are included in the respective board and committee reports.

The role of the board

The Board’s principal objective is to direct the Group towards the achievement of its vision while ensuring that Telkom’s overall activities are properly managed. The Board is ultimately accountable for the Group’s strategy, operating performance and financial results. The Board has adopted a Board Charter which sets out how its role, powers and responsibilities are exercised, having regard to principles of good corporate governance, international best practice and applicable laws.

Responsibilities and objectives

Subject to any limitations imposed by the Companies Act, JSE Listings Requirements and the MOI, the management of the business of the Company is vested in the directors. The roles, powers and responsibilities of the Board are formalised in the Board Charter, which defines the matters that are mandated to the Board and its committees. As set out in the Board Charter, the Board is responsible for, amongst others:

Board meetings

Board meetings are held at least five times a year, one of which is devoted to strategic review. In addition to these meetings and whenever circumstances dictate the necessity, special board meetings are convened. During the year under review, five scheduled board meetings were held and seven additional special board meetings were convened. Details of attendance by each director of the Board have been set out in the table below. Certain senior management members attend board meetings when invited to make presentations on particular issues of interest to the Board. For a board meeting to constitute a quorum, a majority of directors are required to attend.

The following table presents the attendance of meetings held during the period ended 31 March 2013 by directors:

Scheduled board meetings

Special board meetings

Director

07 Jun 2012

04 Jul 2012

16 Nov 2012

18 Feb 2013

27 Mar 2013

07 May 2012

28 Aug 2012

14 Sep 2012

29 Oct 2012

03 Nov 2012

10 Dec 2012

13 Dec 2012

JA Mabuza

–

–

–

–

–

–

–

J Molobela

*

B Du Plessis

*

*

N Kapila

*

*

*

*

*

*

F Petersen

–

–

–

–

–

–

–

–

–

–(1)

Dr CA Fynn

–

–

–

–

–

–

–

–

–

–(1)

LL von Zeuner

–

–

–

–

–

–

–

–

–

–(1)

K Kweyama

–

–

–

–

–

–

–

–

–

–(1)

I Kgaboesele

*

S Botha

–

–

–

–

–

–

–

–

–

–

L Maasdorp

–

–

–

–

–

–

–

K Mzondeki

–

–

*

–

–

–

–

–

JH Schindehütte

*

*

NT Moholi

NP Dongwana

–

–

–

–

–

–

SP Sibisi

–

–

–

–

–

–

–

NP Mnxasana

–

–

–

–

–

–

–

RJ Huntley

–

–

–

–

–

–

–

PSC Luthuli

–

–

–

*

–

–

–

–

Y Waja

–

–

–

*

–

–

–

–

PL Zim

–

–

–

–

–

–

–

JN Hope

–

–

–

–

–

–

–

	Attended in person
*	Teleconference
	Apologies
–	Was not a member at this time
(1)	Members were not invited as this was a follow up of the meeting held before their appointment date.

Delegation of authority

The ultimate responsibility for the Group’s operations rests with the Board. The Board retains effective control through a well-developed governance structure of board committees, each specialising in certain areas of the business. Certain authorities have been delegated to the GCEO to manage the day-to-day business affairs of the Group. The executive committee assists the GCEO in discharging his duties and those of the Board when it is not in session. However, in terms of statute and the Company’s constitution, read together with the Delegation of Authority, certain matters are still reserved for board and/or shareholder approval.

Committees

While at all times the Board retains full responsibility for guiding and monitoring the Company, in discharging its responsibilities, it makes use of board committees to perform certain of its functions and to provide it with recommendations and advice. The Board has established the following committees for this purpose:

Audit Committee (formerly part of the Audit and Risk Committee)

The Audit Committee is chaired by Mr I Kgaboesele, an independent non-executive director who is a chartered accountant by profession. The Committee held four scheduled meetings and two special meetings during the financial year.

The Committee’s mandate is defined in its terms of reference and includes:

As at 31 March 2013, the committee comprised the following five independent non-executive directors.

		Scheduled Audit meetings				Special Audit meetings
	Director	04 Jun 2012	06 Sep 2012	13 Nov 2012	18 Mar 2013	25 Apr 2012	15 Feb 2013
	I Kgaboesele						*
	B Du Plessis						*
	K Mzondeki	–	–	–		–	*
	F Petersen	–	–	–		–	–
	LL von Zeuner	–	–	–		–	–
	PSC Luthuli			–	–		–
	NP Mnxasana			–	–		–
	NP Dongwana			–	–		–

	Attended in person
*	Teleconference
	Apologies
–	Was not a member at this time

The Audit Committee evaluates the chief financial officer’s function as well as conducts a self-evaluation exercise into its effectiveness, on an annual basis. After conducting the evaluation of the chief financial officer, Mr Jacques Schindehütte, the committee confirmed that it was satisfied with the appropriateness of the expertise and experience of the chief financial officer.

The internal and external auditors have unlimited access to the chairman of the Audit Committee.

The Audit Committee is satisfied that Ernst & Young Inc. is independent in accordance with Section 94(8) of the Companies Act 71 of 2008, and has recommended the re-appointment of Ernst & Young Inc. as the registered auditors for the Company for the 2014 financial year.

Audit Committee pre-approval policy

In accordance with the Audit Committee pre-approval policy, all audit and non-audit services performed for the Company by the independent auditors were pre-approved by the Telkom Board’s Audit Committee, which concluded that the provision of such services by the independent auditors was not incompatible with the maintenance of that firm’s independence in the conduct of its auditing functions.

The annual audit services engagement terms and fees are subject to the specific pre-approval of the audit committee. The Audit Committee may grant general pre-approval for other audit services that only the independent auditor may reasonably provide.

Requests or applications for services that require specific separate approval by the Audit Committee are required to be submitted to the Audit Committee by both management and the independent auditors, and must include a detailed description of the services to be provided and a joint statement confirming that the provision of the proposed services does not impair the independence of the independent auditors. The Audit Committee may delegate pre-approval authority to one or more of its members. The member, or members, to whom such authority is delegated, shall report any pre-approval decisions to the Audit Committee at its next scheduled meeting. The Audit Committee does not delegate to management its responsibilities to pre-approve services to be performed by the independent auditors.

Risk Committee

The Risk Committee, which is chaired by Mr LL von Zeuner, was previously part of the Audit and Risk Committee.

The Risk Committee’s main functions are:

As at 31 March 2013, the committee comprised six directors, as follows:

		Scheduled Risk meetings				Special Risk meeting
	Director	04 Jun 2012(1)	24 Aug 2012	07 Sep 2012	26 Mar 2013	25 Apr 2012(1)
	LL von Zeuner	–	–	–		–
	F Petersen	–	–	–		–
	I Kgaboesele		–	–
	N Kapila	–	–	–		–
	Dr CA Fynn	–	–	–		–
	L Maasdorp	–	–	–		–
	NP Dongwana		–	–	–
	B du Plessis		–	–	–
	J Molobela	–			–	–
	PSC Luthuli				–
	RJ Huntley	–			–	–
	Y Waja	–			–	–
	NP Mnxasana				–
	Dr SP Sibisi	–			–	–

	Attended in person
1	Teleconference
	Apologies
–	Was not a member at this time

Nominations Committee

The Nominations Committee provides advice and support to the Board in relation to board composition, governance and performance evaluation.

Responsibilities

The Nomination Committee’s roles and responsibilities are set out in its terms of reference and include the following:

In terms of its terms of reference, the Nominations Committee must comprise only of non-executive directors, one of which shall be the chairman of the board. A quorum for Nomination Committee meetings is two directors.

The Committee comprises five independent non-executive directors:

The Nominations Committee held three scheduled meetings and three special meeting during the 2013 financial year.

		Scheduled Nominations meetings			Special Nominations meetings
	Director	22 May 2012	11 Oct 2012	01 Feb 2013	28 May 2012	09 Nov 2012	04 Dec 2012
	JA Mabuza	–	–	*	–	–
	J Molobela				*
	B Du Plessis				*		*
	I Kgaboesele	–	*		–		*
	NP Mnxasana	–		–	–	–	–
	PSC Luthuli		*	–	*	–	–
	JN Hope			–	*	–	–
	PL Zim			–		–	–
	S Botha	–	–	–	–	–	–
	K Kweyama	–	–	–	–	–	–

	Attended in person
*	Teleconference
	Apologies
–	Was not a member at this time

During the year ended 31 March 2013, the Nominations Committee dealt with the following specific matters in addition to its normal annual programme:

Investment and Transactions Committee

The role of the Investment and Transactions Committee is defined in its terms of reference and the primary function of the committee is to assist the Board in evaluating investments, corporate actions and key funding and financial proposals.

The Investment and Transactions Committee:

The Investment and Transactions Committee consists of one executive director and five non-executive directors:

A quorum for a meeting is a majority of members. The Investment and Transactions Committee held three scheduled meetings and three special meetings during the financial year.

		Scheduled Investment meetings			Special Investment meetings
	Director	06 Jun 2012	26 Jul 2012	25 Mar 2013	04 May 2012	21 Jun 2012	27 Sep 2012
	L Maasdorp	–	–		–	–	–
	I Kgaboesele
	N Kapila	*	*		*	*	*
	K Mzondeki	–	–		–	–	–
	Dr CA Fynn	–	–		–	–	–
	JH Schindehütte	–	–		–	–	–
	Y Waja			–		*
	RJ Huntley	*	*	–
	JN Hope	*		–
	PSC Luthuli			–	*

	Attended in person
*	Teleconference
	Apologies
–	Was not a member at this time

Remuneration Committee (Remco)
(Formerly Human Resources Review and Remuneration Committee (HRRRC))

The role of the committee is to assist the Board to ensure that the Company remunerates directors and executives fairly and responsibly in alignment with the creation of long-term shareholder value and to ensure that the disclosure of director and senior management remuneration is accurate, complete and transparent.

The committee consists of non-executive directors and executive management as provided by its terms of reference. As at 31 March 2013 the Remuneration Committee comprised the following members:

The Remuneration Committee held four scheduled meetings during the financial year. A quorum for a meeting is 50% of members.

		Scheduled Remuneration meetings
	Director	01 Jun 12	07 Sep 12	12 Nov 12	19 Mar 13
	S Botha	–	–	–
	JA Mabuza	–	–	–	*
	J Molobela			*
	K Kweyama	–	–	–
	B Du Plessis		*
	JN Hope			–	–
	NT Moholi				–
	NP Dongwana			–	–

	Attended in person
*	Teleconference
	Apologies
–	Was not a member at this time

The Committee must perform all the functions necessary to fulfil its role including the following:

The Remuneration Committee employs the services of specialist consultants in the field of executive remuneration to assist it when necessary.

During the year ended 31 March 2013, the Remuneration Committee worked on the following specific matters in addition to its normal annual programme:

Social and Ethics Committee (SEC) (formerly Social, Ethics and Sustainability Committee (SESC))

In accordance Regulation 43 of the Companies Act, the committee is responsible for monitoring the Company’s activities, having regard to any relevant legislation, other legal requirements or prevailing codes of best practice, with regard to matters relating to:

The committee comprises the following non-executive directors:

The SEC held three scheduled meetings during the financial year. A quorum for a meeting is a majority of members.

		Total scheduled meetings
	Director	30 May 2012	10 Sep 2012	15 Mar 2013
	J Molobela	–	–
	K Kweyama	–	–
	L Maasdorp	–	–
	F Petersen	–	–
	LL von Zeuner	–	–
	JN Hope			–
	RJ Huntley		*	–
	Y Waja			–
	NP Mnxasana			–
	NP Dongwana			–

	Attended in person
*	Teleconference
	Apologies
–	Was not a member at this time

The chairman of the Social and Ethics Committee reports at the Company’s Annual General Meeting on the matters within the Committee’s mandate.

The group chief executive officer (GCEO)

THE ROLE OF THE GCEO AND MANAGEMENT
Pursuant to formal delegations of authority, the Board has delegated the management of day to day operations to the GCEO. However, ultimate accountability for strategy and control rests with the board of directors. The Board approves corporate objectives for the GCEO to satisfy and, jointly with the GCEO, develops the duties and responsibilities of the GCEO.

The GCEO is accountable to the Board for the exercise of the delegated authority and, with the support of the Exco, must report to the Board on the exercise of the authority through reports, briefings and presentations.

Responsibilities and objectives

The day-to-day management and operations of the Company are the responsibility of the GCEO who reports to the Board on key management and operational issues, including:

Director tenure, election and appointment

At each Annual General Meeting (“AGM”) of the Company, at least a third of the directors in office must retire by rotation and those directors may, if eligible, offer themselves for re-election. Any non-executive director who would otherwise hold office without re-election beyond the third AGM since their appointment or last election, or for at least three years, whichever is the longer, must retire. Any non-executive director who has been appointed during the year must stand for election by shareholders at the next AGM.

Any director who has held office in excess of nine years in aggregate must also retire, notwithstanding that such director may have retired at the previous AGM.

Independence of directors

The majority of Telkom directors are independent non-executive directors as the term is defined in King III. In order for a director to be considered independent, the Board needs to have determined that the director meets the criteria set out in King III to be regarded as such. An independent non-executive director is a non-executive director who:

The Board only considers directors to be independent where they are independent of management or shareholders and are free of any business or other relationship that could materially interfere with, or could reasonably be perceived to materially interfere with, the exercise of their unfettered and independent judgment.

Any director who considers that he/she has or may have a conflict of interest or a material personal interest in any matter concerning the Company is required to give the Board notice of such interest.

The Independent non-executive directors and nonexecutive directors of the Board periodically meet without the executive directors or management being present.

Board effectiveness

The chairman is responsible for monitoring the contribution of individual directors and counselling them on any areas which might help improve board performance. The chairman is also responsible for the process of evaluating the performance of the directors, board committees and the Board as a whole. The Board engages external assistance, as appropriate, in reviewing the performance of the Board.

An appraisal of the effectiveness of the Board was conducted externally during the latter part of the financial year. The appraisal was benchmarked against the strategic requirements of Telkom to ensure the capacity to deliver these requirements and strengthen the diversity and sector expertise of directors. Whilst the composition of the Board has changed substantially since the appraisal, the results of the appraisal will be a useful tool for learning and will be instructive in designing the Board’s plans and work programmes for the future.

Induction and director development

New directors receive a letter of appointment which sets out the Company’s expectations of the role, their duties, the terms and conditions of their appointment and their remuneration. The appointment letter forms the initial part of the programme of induction for directors.

Directors are also expected to participate in all induction and orientation programmes and continuing education, training or development programmes arranged for them by the company secretary. The company secretary, in consultation with the chairman, oversees and reviews the director induction process in order to ensure that it remains effective and up-to-date.

The company secretarial function supports directors by providing:

Company Secretary

All directors have access to the advice and services of the group company secretary, who is responsible for ensuring the proper administration of the Board and Corporate Governance procedures. The group company secretary provides guidance to the directors on their responsibilities within the prevailing regulatory and statutory environment and the manner in which such responsibilities should be discharged.

During the year under review Ms Mmathoto Lephadi resigned as group company secretary and Ms Andisa Ditle was appointed as acting group company secretary with effect from 1 November 2012 until 17 March 2013. Ms X oliswa M pongoshe M akasi was appointed group company secretary with effect from 18 March 2013.

The Board can confirm that the company secretary possesses the necessary qualifications, relevant experience and the competence to discharge her duties. The company secretary is suitably qualified for the role, maintains an arm’s length relationship with the Board and is not a director.

Details of the group company secretary’s business address and the Group’s registered office are set out on the inside back cover of this integrated report.

Directors’ independent advice

The directors, the Board and the board committees are empowered to seek external professional advice, as considered necessary, at the Company’s expense, subject to prior consultation with the chairman.

Business code of ethics

ETHICS PERFORMANCE
The Business Code of Ethics applies to all employees and sets out the standards in accordance with which they are expected to act. The policy is aimed at the maintenance of standards of honesty, integrity and fair dealing by all employees in their interaction with customers, suppliers, the community, competitors and each other in the performance of their duties and responsibilities. All employees are provided with a copy of the Code of Ethics on the commencement of their employment.

The focus in the last year was on establishing a dedicated ethics function, and raising awareness on the Business Code of Ethics. An ethics officer was appointed and an ethics office responsible for the implementation of the Telkom ethics programme was established. The following initiatives formed part of the roll-out of Telkom’s ethics programme:

Company Secretary

All directors have access to the advice and services of the group company secretary, who is responsible for ensuring the proper administration of the Board and Corporate Governance procedures. The group company secretary provides guidance to the directors on their responsibilities within the prevailing regulatory and statutory environment and the manner in which such responsibilities should be discharged.

During the year under review Ms Mmathoto Lephadi resigned as group company secretary and Ms Andisa Ditle was appointed as acting group company secretary with effect from 1 November 2012 until 17 March 2013. Ms X oliswa Mpongoshe Makasi was appointed group company secretary with effect from 18 March 2013.

The Board can confirm that the company secretary possesses the necessary qualifications, relevant experience and the competence to discharge her duties. The company secretary is suitably qualified for the role, maintains an arm’s length relationship with the Board and is not a director.

Details of the group company secretary’s business address and the Group’s registered office are set out on the inside back cover of this integrated report.

Directors’ independent advice

The directors, the Board and the board committees are empowered to seek external professional advice, as considered necessary, at the Company’s expense, subject to prior consultation with the chairman.

Business code of ethics

ETHICS PERFORMANCE
The Business Code of Ethics applies to all employees and sets out the standards in accordance with which they are expected to act. The policy is aimed at the maintenance of standards of honesty, integrity and fair dealing by all employees in their interaction with customers, suppliers, the community, competitors and each other in the performance of their duties and responsibilities. All employees are provided with a copy of the Code of Ethics on the commencement of their employment.

The focus in the last year was on establishing a dedicated ethics function, and raising awareness on the Business Code of Ethics. An ethics officer was appointed and an ethics office responsible for the implementation of the Telkom ethics programme was established. The following initiatives formed part of the roll-out of Telkom’s ethics programme:

In addition to the Business Code of Ethics, there are a range of activities and compliance programs across the Company designed to promote and encourage the responsibility and accountability of individuals for avoiding unethical practices or reporting such practices should they become aware of them.

Share dealings

In line with JSE Listings Requirements and the Group’s insider trading policy directors and executives who wish to trade in Telkom securities are required to obtain prior written approval from the chairman of the board and the group company secretary before dealing in Telkom securities. The Group operates closed periods as defined in the JSE Listings Requirements.

Additional prohibited periods are enforced, when required, in relation to corporate activities as and when these occur.

Application of King III

Telkom strives to apply the principles of King III to the extent practical and fit for the business. Telkom recently completed its own assessment of the application of the King III principles. The following table outlines areas where, based on our own assessment, the Company did not apply the principles of King III, and provides explanations for each of those instances of non-compliance, as required in terms of King III:

We have the following mechanisms in place for shareholders and employees to provide recommendations or direction to the highest governing body: