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annual report
2007
The directors endorse the principles of effective corporate governance and accept responsibility for ensuring that it is consistently practised throughout the group. In discharging this responsibility, the Board has ensured that the company complies in all material respects with the requirements of the Code of Corporate Practices and Conduct as set out in the second King Report on Corporate Governance (King II).
During the year, the following developments in the governance practices were implemented:
THE BOARD
Non-executive members: D M Nurek (chairman), H Saven, B J van der Ross and Professor F Abrahams
Executive members: A J Smart (chief executive officer), L A Davies (chief financial officer)*
* appointed 1 April 2007.
The directors do not have fixed terms of appointment and all directors are subject to retirement by rotation and re-election by shareholders at least every three years.
Directors are selected to serve on the Board, based on their knowledge, experience, credibility, the contribution they can make and attention they can devote to the role.
In terms of its charter, the Board’s responsibilities include the following:
The Board has defined levels of materiality recorded in a written delegation of authority, setting out decisions it wishes to reserve for itself.
A self-evaluation of the Board’s performance is undertaken annually.
The Board meets four times a year. The charter allows for additional meetings when it is considered necessary.
Meetings are conducted in accordance with formal agendas, ensuring that all substantive matters are properly addressed and monitored. Any director may request additional items be included on the agenda. Meaningful, relevant and complete information is disseminated prior to Board meetings to facilitate in-depth discussion.
Non-executive directors bring an independent view and enjoy significant influence at the meetings. In addition, there is ongoing communication between the executive and non-executive directors outside of the formal meetings.
The directors have unrestricted access to information and management and may seek independent professional advice at the group’s expense, after consultation with the Chairman.
Newly-appointed directors are taken through an induction programme, outlining their fiduciary responsibilities and the necessary company and industry-specific background information.
| May | August | November | March | |
| 2006 | 2006 | 2006 | 2007 | |
| D M Nurek |  |
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| H Saven | |
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| B J van der Ross | |
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Apologies | |
| Professor F Abrahams | |
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| A J Smart | |
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The Board of directors has delegated specific responsibilities to board committees, each with their own charter and terms of reference. The board committees meet independently and report back through their chairman. Minutes of committee meetings are distributed to the Board. The secretary for these committees is the company secretary.
The Board structure is illustrated below.
Members: H Saven (chairman), D M Nurek, B J van der Ross
In terms of its charter, the committee consists of the independent non-executive directors. The directors are financially literate and suitably qualified to perform their role.
The committee is responsible for:
The committee meets four times a year. Committee meetings are also attended by the group’s chief financial officer, the company secretary, the group’s internal audit manager and the external auditors, PricewaterhouseCoopers Inc.
Currently, the charter and meeting agendas are being aligned with the Corporate Laws Amendment Act of 2006.
| Attendance | ||||
| May | August | November | March | |
| 2006 | 2006 | 2006 | 2007 | |
| H Saven | |
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| D M Nurek | |
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| B J van der Ross | |
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Apologies | |
Members: D M Nurek (chairman), H Saven, B J van der Ross, Professor F Abrahams
In terms of the charter, all members must be independent non-executive directors.
The committee is responsible for the following:
The committee meets twice a year. At the invitation of the committee, the chief executive officer attends the meetings except when matters relating to his own compensation are under discussion.
The committee reviews and approves the compensation of the executive directors, non-executive directors and senior executives. All awards under the group’s share incentive plans are approved by the committee. The committee in its discretion may engage independent and professional advice in reviewing remuneration policies.
| Attendance | ||
| August | March | |
| 2006 | 2007 | |
| D M Nurek | |
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| H Saven | |
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| B J van der Ross | |
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| Professor F Abrahams | |
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Non-executive members: Professor F Abrahams (chairperson), D M Nurek
Executive members: A J Smart (chief executive officer), J Enslin (chief operating officer), D Loudon (general manager: merchandising), J Horn (general manager: human resources), S Röhm (corporate social responsibility administrator)
The committee is responsible for:
The committee meets twice a year. The first meeting of this committee was convened in October 2006 where the composition of the committee was reassessed. The committee now includes executives from Lewis. The reconstituted committee met for the first time in March 2007.
| Attendance | ||
| October | March | |
| 2006 | 2007 | |
| Professor F Abrahams | |
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| D M Nurek | |
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| A J Smart | n/a | |
| J Enslin | n/a | |
| D Loudon | n/a | |
| J Horn | n/a | |
| S Röhm | n/a | |
| n/a = not a member of the committee at the time. | ||
The Chief Executive Officer, Alan Smart is responsible for formulating, implementing and maintaining strategic directions, as well as ensuring that the day-to-day activities are appropriately supervised and controlled.
The responsibility for the implementation of strategy and management control over the activities of the group rests with the executive management committee. The committee is chaired by the Chief Executive Officer and consists of 12 senior members of the executive team which includes the six directors of Lewis Stores (Pty) Ltd.
The executive committee meets regularly and is responsible for assisting the Chief Executive Officer in the management of the group, is accountable for the performance of the group and makes policy proposals to the Board for consideration and adoption.
The company secretary acts as adviser to the Board and plays a pivotal role in ensuring compliance with statutory regulations and the Code, the induction of new directors, tabling information on relevant regulatory and legislative changes, and giving guidance to the directors regarding their duties and responsibilities. The directors have unlimited access to the advice and services of the company secretary.
The appointment and removal of the company secretary is a matter of the Board.
The group’s internal controls and systems are designed to provide reasonable, but not absolute assurance as to the integrity and reliability of the annual financial statements, to safeguard and maintain accountability of its assets, to minimise fraud, loss and material misstatements and to ensure compliance in all material respects with applicable laws and regulations.
The systems of internal control are based on established organisational structures, written policies and procedures and includes the preparation of budgets and forecasts and the subsequent comparison of actual results to these budgets and forecasts. These systems and procedures are implemented, maintained and monitored by appropriately trained personnel with suitable segregation of authority, duties and reporting lines and by the comprehensive use of computer technology.
The effectiveness of the systems of internal control is monitored by the senior executives, general managers and the internal auditors. These reviews indicate that the systems of internal control are appropriate and satisfactory and in addition, no material loss, or misstatement arising from a material breakdown in the functioning of the systems has occurred. The Board is of the view that current controls are adequate and effective to mitigate, to an acceptable level, the significant risks faced by the group.
The internal audit department reports to the Audit and Risk Committee and has direct access to the Chairman of the Audit and Risk Committee. For day-to-day matters, it reports to the Chief Financial Officer.
It provides assurance that management and business processes are adequate to identify and monitor significant foreseeable risks. It monitors the effective operation of the established internal control systems and is responsible for establishing credible processes for feedback on risk management to the Board.
The internal audit department’s charter has been approved by the Audit and Risk Committee and is consistent with the Institute of Internal Auditors’ requirements for internal auditing. The audit coverage plan is reviewed annually and all significant findings and recommendations are reported to executive management and the Audit and Risk Committee.
The internal audit department coordinates with the external auditors, as far as practically possible, to ensure proper coverage of financial, operational and compliance controls and to minimise duplication of effort.
The external auditors provide an independent assessment of the annual financial statements and express an opinion on the fair presentation of the financial disclosures.
The external auditors have free and unrestricted access to the Audit and Risk Committee.
The annual audit plan prepared by the external auditors is reviewed by the Audit and Risk Committee to ensure that all significant areas are covered, without infringing on the external auditors’ independence and right to audit.
The external auditors report their audit findings to the Audit and Risk Committee and executive management. The committee ensures that the matters identified and significant differences of opinion between management and the external auditors are considered.
Non-audit services provided by the external auditors are reported to the Audit and Risk Committee on a biannual basis.
We consider compliance with applicable laws, industry regulations and codes an integral part of conducting business. The group facilitates compliance through analysing statutory and regulatory requirements and ensuring that the implementation thereof is in accordance with the applicable laws and regulations.
Particular emphasis has been placed on the National Credit Act due to the significance of the legislation on the group’s activities. A project team has been working on the implementation of the Act since the initial bill was published. Regular reportbacks were made to an internal steering committee overseeing the overall implementation of the Act on the business processes and systems. Where appropriate, legal advice has been sought from attorneys. The Board has been updated on a regular basis with the progress of the project.
The group is committed to a culture of the highest levels of professionalism and integrity in its business dealings with stakeholders.
The behavioural codes set out standards of honesty, integrity and mutual respect. Employees are expected to act within this code at all times.
The corporate fraud policy sets out the responsibility of the staff and management towards the detection and prevention of fraud.
An anonymous hotline is available to all employees to report suspected incidents for investigation. Employees are guaranteed confidentiality in reporting such incidences.
Directors or senior executives, once aware of any conflict of interest, are required to disclose such a conflict immediately and are precluded from voting at meetings on conflicting matters.
An insider trader policy exists. During closed periods the directors, officers and defined employees may not deal in the shares of Lewis.
Directors are required to obtain written clearance from the Chairman of the Board before dealing. If the Chairman wishes to deal, he is required to obtain written permission from the Chairman of the Audit and Risk Committee.
A register of share dealings by directors is maintained by the company secretary and reviewed by the Board.
In all communications with stakeholders, the Board aims to present a balanced and understandable assessment of the group’s position. This is done through adhering to principles of openness and substance over form and striving to address material matters of significant interest and concern to all stakeholders. Proactive communication is maintained with institutional investors and investment analysts. The Board encourages shareholder attendance at general meetings and provides understandable explanations of the effects of resolutions to be proposed.