Our approach to governance

Introduction

Merafe is committed to high standards of corporate governance and it endorses the four governance outcomes set out in the King IV report on corporate governance for South Africa, 2016 (“King IV”) namely an ethical culture, good performance, effective control and legitimacy.

King IV register

The register set out below provides an overview of Merafe’s application of the principles contained in King IV. The register should be read in conjunction with the 2019 Merafe Integrated Annual Report.

Leadership      

Principle 1

The governing body should lead ethically and effectively.

   

The Merafe Board (the "Board”) leads ethically and effectively. Disclosure of interests is a standard agenda item at Board and committee meetings and there is an annual declaration by all directors. Further, there is a Code of Ethics in place which applies to all directors and all employees. It is displayed on Merafe’s website. There is also a Director Induction and Training Programme, which is reviewed annually. Further, various aspects of Principle 1 are covered in Merafe’s Board Charter and other key documents.

The Code of Ethics and the Board Charter are on Merafe’s website and form part of the 2019 online Integrated Annual Report. The Company has a policy to guide directors on dealing in Company securities and no director or employee may buy or sell the Company's shares during a closed period.

Organisational ethics      

Principle 2

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

    The ethical tone at Merafe is set by the Board and applies throughout the organisation. Although Merafe’s Code of Ethics applies to all directors and employees, it has not yet been fully extended to suppliers; however, this is mostly complete and will be finalised in 2020. There is a Whistle Blowing Line and reports are provided to the Social, Ethics and Transformation Committee and the Audit and Risk Committee on a confidential basis. In respect of any ethical breaches discovered by staff and the external auditors, the relevant laws and regulations are applied. More information on Merafe and the Venture's Whistle Blowing Policy is on our website.
Responsible corporate citizen      

Principle 3

The governing body should ensure that the organisation is and is seen to be a responsible corporate citizen.

    The Board’s approach to being a responsible corporate citizen is supported by various policies and the work done by the Social, Ethics and Transformation Committee. Various safety, health, environmental and community aspects are covered by the above committee with inputs from the Venture as set out in this report.
Strategy and performance      

Principle 4

The governing body should appreciate that the organisation's core purpose, its risks and opportunities, strategy, business model, performance and sustainable development are all inseparable elements of the value creation process.

    The Board recognises that all these elements are inseparable, and Merafe follows the six capitals approach as described in this report. This integrated approach is taken by the Board at its meetings, strategy sessions and committee meetings. All budgets and strategic plans (medium and longer term) are approved by the Board. Risks and opportunities are covered in strategy sessions and meetings of the Audit and Risk Committee and the Board in an integrated manner.
Reporting      

Principle 5

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

    The Board is responsible for the integrity of the information contained in this report and other reports, including the annual financial statements and interim and year end results presentations. It is assisted in this regard by the Board Committees which review and recommend their respective reports to the Board in accordance with their terms of reference. Reports are provided in printed and online form. The approved reporting framework is set out in this report. Matters material to Merafe are reflected in this report.
Primary role of the Board      

Principle 6

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

    The Board is the focal point and custodian of corporate governance in the Company. Various key policies supporting the Company’s strategy are in place. The Board has an annual strategy session and performance is measured against agreed targets. The Board oversees the implementation and execution of the strategy by management. The Board has a Board Charter, a copy of which is on our website, and which is reviewed annually against best practices. The Board is satisfied that in respect of the 2019 financial year, it has discharged its duties as set out in the Board Charter.
Composition of the Board      

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.

    Assisted by the Remuneration and Nomination Committee, the Board reviews its knowledge, skills, experience, diversity and independence annually, or as circumstances change. The Company has a Diversity Policy and has set targets in this regard. This policy has been updated to take account of the changes to the JSE Listings Requirements, where further diversity criteria, namely race, culture, age, field of knowledge, skills and experience, have been prescribed. The composition of the board in terms of race and gender is set out below. The Board comprises a majority of non-executive members, most of whom are independent. The King IV recommendations for director independence, board composition, chair, induction and training, managing conflicts and nomination and appointments of directors are met. Merafe appointed the Chairperson of the Remuneration Committee as the Lead Independent Director during 2019.
Committees of the Board      

Principle 8

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

    Merafe has three standing Board Committees (as described below), to which specific duties and responsibilities have been delegated. They operate under written terms of reference which are reviewed annually and are on our website. The composition of the Board and Committees are in line with King IV, the Companies Act and the JSE Listings Requirements, as applicable.
Board performance evaluation      

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 reviewed at least every two years in line with King IV. This process comprises a self-evaluation questionnaire and is co-ordinated and reported on by the Company Secretary. Areas for improvement are documented and actioned. Performance reviews of individual directors and the Board Chairperson are done every two years. During the first quarter of 2020, the committees and the board conducted an evaluation to assess their effectiveness. Overall, the outcomes of the evaluation were positive with only minor areas for imrovement.
Appointment and delegation to management      

Principle 10

The governing body should ensure that the appointment of, and delegation to, management contribute to role clarity and the effective exercise of authority and responsibilities.

    The Board Charter sets out matters reserved for the Board and is reviewed annually. In addition, there is a Corporate Approvals Framework (approved by the Board and reviewed annually) which sets out matters delegated to management and those reserved for the Board. The Board appoints the CEO and the incumbent is accountable to the Board for leading the implementation of strategy, policy and running the day to day business of the Company. The King IV recommendations for the CEO in respect of appointment, roles and responsibilities, succession and performance evaluation are complied with. As regards to the Company Secretary, we refer you to our reporting of 3.84(h) of the JSE Listings Requirements.
Risk governance      

Principle 11

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

    The Board governs and is responsible for risk. It is assisted by the Audit and Risk Committee, which evaluates risk and guides the Board. Merafe has a Risk Management Policy and Framework, a detailed Risk Register and also a Tax Risk Register. Risk matters are a standard agenda item at every Audit and Risk Committee and Board meeting. In this regard we refer you to (Material issues) and (Approach to Risk management) of this report. Opportunities flowing from risk assessments form part of the overall approach to risk governance. Emerging risk trends are identified and monitored regularly.
Technology and information governance      

Principle 12

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

    IT governance is a standard agenda item at meetings of the Audit and Risk Committee. Merafe has a very small head office but is reliant on technology. Various IT related policies are in place and due to the small head office, integration of IT and business occurs. Merafe (as opposed to the Venture) has limited investment in technology but is aware of its importance and also the need to protect information. During 2019 a specialist external service provider reviewed Merafe’s IT systems, controls and processes. The recommendations flowing from the review are being addressed.
Compliance governance      

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 governs compliance, which is monitored by a combination of management controls, compliance via the Venture, external audit, sponsors and the Company Secretary. There is no dedicated in-house compliance function nor is one required, given Merafe’s size and structure. Merafe relies on processes within the Venture. Compliance is a standard agenda item for the Audit and Risk Committee, which reports to the Board.
Remuneration governance      

Principle 14

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

    The Board takes responsibility for remuneration governance. It is assisted by the Remuneration and Nomination Committee, which oversees that the organisation remunerates fairly, responsibly and transparently so as to promote the delivery of strategic objectives and the creation of value in a sustainable manner. It makes recommendations to the Board in this regard. The Remuneration Report of this report.
Assurance      

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 of the organisation's external reports.

   

Merafe follows a combined assurance model, with assurance being provided by management, Merafe's external auditors, the Venture’s internal audit function and the external auditors. Oversight on assurance is provided by the Audit and Risk Committee which reports to the Board. For more information please see below of this report.

Merafe has no Internal Audit function, as this is not justified taking into account the size, complexity and risk profile of the Company. In this regard, management annually provides a memorandum to the Audit and Risk Committee on its views of the Merafe internal control environment. Special ad hoc internal audits by an external firm are considered on a case by case basis.

Merafe also receives a statement from an Independent Competent Person on the Mineral Resources and Mineral Reserves as well as other assurance as set out in this report.

Stakeholders      

Principle 16

In the execution of its governance role and responsibilities, the governing body should 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 has identified its key stakeholders and material issues and risks that could impact the stakeholders of Merafe and the Venture. The methods of engaging with stakeholders and issues arising from these engagements are set out in a table referred to in the 2019 integrated online report.

There is ongoing engagement with shareholders via various mechanisms, including interim and year end reports, the Integrated Annual Report, presentations, quarterly reports, shareholder meetings and the AGM.

A stakeholder framework is in place.

We recognise that King IV is a journey and the Board will be spending further time in 2020 analysing our practices to support the various principles and outcomes in terms of King IV.

The structure and roles and responsibilities of the Merafe Board and committees

Board and Board committees     Roles and responsibilities     Members/invitees     Attendance
                  Board
meetings
Merafe Board    

The Chairperson is responsible for ensuring that:

  • the Board provides effective leadership;
  • the Board maintains ethical standards;
  • Merafe develops and implements strategies aimed at achieving its sustainability; and
  • the Board and its committees are effective.

The Board is responsible for:

  • governance of the Merafe Group on behalf of its shareholders;
  • its own governance;
  • strategy, strategic decision-making and risk tolerance;
  • assessment of performance;
  • engaging with stakeholders;
  • Merafe’s approach to its social responsibility, safety, health, the environment, ethics and risk; and
  • information technology governance.

Key issues in 2019 included:

Safety, Merafe strategy, stakeholder engagement, Merafe sustainability, Venture performance and sustainability, IT governance and risk management, approval of annual financial statements and Integrated Annual Report, approval of interim results and considering the payment of dividends: Board and committee effectiveness review; review and approval of various charters, policies and mandates; and committees’ terms of reference, King IV analysis, review of effectiveness of internal controls, review of compliance and consideration of investment opportunities.

   

Chris Molefe (Chairperson)1
Abiel Mngomezulu (Chairperson)2
Belese Majova
Mpho Mosweu
Shaun Blankfield
Matsotso Vuso
Grathel Motau
Jeff Mclaughlan3
Zanele Matlala (CEO)
Ditabe Chocho (FD)

1. Retired 15 May 2019
2. Appointed 15 May 2019
3. Appointed 1 May 2019

 

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                  Committee
meetings
Audit and Risk Committee    

All members of this committee are independent non-executive directors (as required by the Companies Act).

The committee:

  • monitors the adequacy of financial controls and reporting; reviews the audit plans of the external auditors and adherence to these plans; considers and determines the principles for approving the use of the external auditors for non-audit services; ensures that financial reporting complies with IFRS, the Companies Act and tax legislation; reviews and makes recommendations on all financial matters;
  • oversees Merafe’s integrated reporting as well as the assurance function; and
  • assists the Board in the identification of all material risk and sustainability issues to which the Company is exposed. It ensures that the requisite risk management culture, policies, practices, systems and resources are in place and are functioning effectively.

Key issues in 2019 included:

Review work of external auditors, assess independence of external auditors, review risk register, monitor compliance with statutory requirements, assess adequacy of internal controls and compliance, oversee the appliance of IFRS 16 from 1 January 2019, funding, monitor and consider all tax returns and matters related to SARS, risk management workshop, oversee forex and interest rate hedging policies: IT governance implementation, assess formal tax strategy and policy document, reviewed and approved Integrated Annual Report and assurance process, recommend annual financial statements and reviewed interim results; Integrated Annual Report for approval by Board, assessment of FD, committee self assessment and review terms of reference, review internal audit function, King IV analysis and compliance.

   

Matsotso Vuso (Chairperson)
Belese Majova
Grathel Motau
Chris Molefe*1
Abiel Mngomezulu*
Zanele Matlala*
Ditabe Chocho*

* Invitee
1. Retired 15 May 2019
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Remuneration and Nomination Committee    

The committee:

  • makes recommendations to the Board for its consideration and final approval regarding remuneration strategy and policy;
  • assists the Board in ensuring that directors and executives are remunerated fairly and responsibly;
  • ensures the disclosure of directors and other executive remuneration is accurate, complete and transparent;
  • assists the Board with ensuring that remuneration policies which are adopted to promote the achievement of strategic business objectives and encourage individual performance and monitoring remuneration policies;
  • makes recommendations on non-executive directors’ fees; and
  • develops policy around the appointment of directors, investigates potential Board members for necessary skills and competence and makes appropriate recommendations to the Board.

Key issues in 2019 included:

Considered composition of all committees, appointment of non-executive directors, attending benchmarking exercise of directors' executive remuneration, recommended approval of remuneration policy to Board, approved CEO’s (individual) and business performance KPIs, evaluated Executive Committee's individual and business performance against objectives, reviewed executive contracts, review of Remuneration Policy and approval of the Board Diversity Policy, King IV analysis and compliance.

   

Abiel Mngomezulu1, 2
Chris Molefe3
Shaun Blankfield
Jeff Mclaughlan4
Zanele Matlala*
Ditabe Chocho*

1. Chairperson of Nomination Committee appointed 15 May 2019
2. Chairperson of Remuneration Committee resigned 15 May 2019
3. Chairperson of Nomination Committee retired 15 May 2019
4. Chairperson of Remuneration Committee appointed 24 May 2019
* Invitee
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Social, Ethics and Transformation Committee    

The roles, responsibilities and key issues for the Social, Ethics and Transformation Committee are set out in the Social, Ethics and Transformation Committee report.

Key issues in 2019 included:

The key issues are set out in the Social, Ethics and Transformation Committee report.

   

Belese Majova (Chairperson)
Abiel Mngomezulu1
Mpho Mosweu
Chris Molefe2
Zanele Matlala
Ditabe Chocho

1. Appointed 24 May 2019
2. Retired 15 May 2019
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The structure and roles and responsibilities of the Venture’s Joint Board

Management structure     Roles and responsibilities     Members
Executive Committee of the Venture     The Executive Committee consists of the heads of all the Venture’s divisions and the Managing Director of the Venture. The committee meets at least once a month, recommends policies and strategies and is responsible for the implementation of strategy and carrying out the Board’s mandates and directives. It deals with all executive management business and is responsible for all material matters that are not the responsibility of the Board. It also assists with the execution of Merafe’s compliance and disclosure obligations.     Merafe is represented by Zanele Matlala and Ditabe Chocho.
The Joint Board of the Venture     The Joint Board meets quarterly with the aim of ensuring proper governance of the activities of the Venture. Members of Merafe’s management team also attend and participate in the Venture’s monthly Executive Committee and sustainable development meetings and quarterly Audit Committee and Treasury meetings.     The Joint Board consists of two representatives from Glencore and two representatives from Merafe (Zanele Matlala and Ditabe Chocho). Currently, Glencore appoints the Chairperson of the Joint Board.

Reporting in terms of Section 3.84 of the JSE Listings Requirements on Board governance processes

Requirement     Principle     Merafe’s approach and compliance
3.84(a)     There must be a policy evidencing a clear balance of power and authority at Board level to ensure that no one director has unfettered powers.     Our Board Charter clearly demonstrates that there is a clear balance of power and authority at Board level and that no one director has unfettered powers.
3.84(b)    

Issuers must have a CEO and a Chairperson and these positions must not be held by the same person.

The Chairperson must either be an independent director or the issuer must appoint a lead independent director as defined in King IV.

   

The CEO and Chairperson positions in Merafe are held by different people and Merafe’s Chairperson is an independent non-executive director as defined in King IV. We refer you to Governance section of this report.

Mr Mngomezulu was appointed Chairperson on 15 May 2019. In accordance with King IV, the Board conducted an in-depth review of both his performance and independence. It concluded that his independence has not been affected or impaired by his length of service and that Merafe would continue to benefit from his performance as Chairperson if he were to continue in this role.

3.84(c)    

All issuers must in accordance with King IV appoint an (i) Audit Committee, (ii) a committee responsible for remuneration and (iii) a Social and Ethics Committee.

The composition of such committees must comply with the Companies Act and should be considered in accordance with King IV and each committee must consist of three members.

The composition of such committees, a brief description of their mandates, the number of meetings held and any other relevant information must be disclosed in the annual report.

   

Merafe has combined its Audit and Risk Committee. The committee currently has three members, all of whom are independent non-executive directors, as set out in the King IV. The Chairperson of the Board is invited to attend committee meetings.

As previously indicated Merafe has appointed a combined Remuneration and Nomination Committee. The committee has three members, two of whom are independent non-executive directors. The Chairperson of the Board is a member of the Remuneration Committee, but is Chairperson of the Nomination Committee.

Merafe has a Social, Ethics and Transformation Committee. It comprises five members, with the majority being non-executive directors.

The composition of the Committees, the mandates, activities and meetings held are set out here in.

During 2019, our Chief Executive Officer and Financial Director were permanent invitees to the Audit and Risk Committee.

3.84(d)     A brief CV of each director standing for election or re-election must accompany relevant notice of meeting.     Brief curricula vitae of our directors can be found in this report.
3.84(e)     Capacity of directors in relation to executive, non-executive and independent must be categorised and disclosed in the relevant documentation.     The curricula vitae mentioned at 3.84(d) also contain information as to whether a director is independent, non-executive or executive. The composition of the Merafe committees is in accordance with the requirements of the Companies Act and King IV.
3.84(f)     Issuers must have a full time executive financial director.     Merafe has a full time Financial Director who does not hold any other position, nor does he have any other commitments that could be considered as full or part time employment.
3.84(g)     The audit committee must consider on an annual basis, and satisfy itself of the appropriateness of the expertise and experience of the financial director and report thereon in the annual report and compliance with paragraphs 3.84(g)(ii) to 3.84(g)(iv).     Our Audit and Risk Committee annually considers and satisfies itself of the appropriateness of the expertise and experience of the Financial Director and has reported in its Audit and Risk Committee report that it is satisfied with the appropriateness of the expertise and experience of the Financial Director. The Audit and Risk Committee, as contemplated in paragraphs 3.84(g)(ii) to (iv), also ensures that the issuer has established appropriate financial reporting procedures and that those procedures are operating, which should include consideration of all entities included in the consolidated group IFRS financial statements, ensures that it has access to all the financial information of the issuer to allow the issuer to effectively prepare and report on the financial statements of the issuer; requests from the audit firm (and if necessary consult with the audit firm on) the information detailed in paragraph 22.15(h) in their assessment of the suitability for appointment of their current or a prospective audit firm and designated individual partner both when they are appointed for the first time and thereafter annually for every re-appointment as well as for an applicant issuer prior to listing; and notwithstanding the provisions of Section 90(6) of the Companies Act, ensures that the appointment of the auditor is presented and included as a resolution at the annual general meeting of the issuer pursuant to Section 61(8) of the Companies Act.
3.84(h)     The provision deals with the competence, qualifications and experience of the Company Secretary and the Board of Directors’ responsibility in relation thereto.     The Remuneration and Nomination Committee as well as the Board assessed the competence, qualifications and experience of the Company Secretary (CorpStat Governance Services, represented by William Somerville and Elise Waldeck) against various criteria and a rating scale, and they have agreed that the firm is sufficiently qualified, competent and experienced to hold the position of Company Secretary. The Board made their assessment in a closed Board meeting with the Company Secretary being recused from the meeting.
3.84(i)     The provision deals with a broader diversity policy.    

Merafe's Diversity Policy prescribes that at least 30% of the Board shall be female. At 31 December 2019, five of the nine directors were female (56%) and post year end (56%). Merafe’s Diversity Policy prescribes targets for the racial composition of the Company, namely that the majority of the Board should be black. Seven of the nine directors are black (78%). Please see the Merafe board of directors which covers the broader diversity information as contemplated by the JSE amendments.

During the first quarter of 2020, the Remuneration and Nomination Committee approved a revised Board Diversity Policy which includes additional diversity criteria, namely culture, age, field of knowledge, skills and experience (in addition to gender and race), as required by the JSE amendments.

The Remuneration and Nomination Committee undertakes when nominating and recommending directors to the Board, to take into account the principles and aims of the Diversity Policy of the Company.

3.84(j)     The provision deals with the remuneration policy and implementation report.     The Remuneration Policy and Implementation report are set out in this report.