Corporate governance

Approach

Northam is committed to upholding and implementing principles of good corporate governance at all levels of the company. The board of directors ensures that all deliberations, decisions and actions of the company’s business and operational structures are based on good corporate governance and fundamentally sound values including but not limited to integrity, responsibility, accountability, fairness and transparency.

The pursuit of good corporate governance is guided by the company’s memorandum of incorporated (formerly the memorandum of articles of association), the board charter, the listings requirements of the JSE Limited, the new South African Companies Act (Act No 71 of 2008) which came into full effect on 1 May 2011, the third King report on Corporate Governance for South Africa (King III), the Global Reporting Initiative (GRI) and any other applicable laws and regulations.

Compliance

The following laws, regulations and compliance codes guide corporate governance at Northam:

• Mineral and Petroleum Resources Development Amendment Act, No 49 of 2008 (MPRDA)
• Mining Charter
• Companies Act, No 71 of 2008
• Employment Equity Act, No 55 of 1998
• Labour Relations Act, No 66 of 1995
• Mine Health and Safety Act, No 29 of 1996
• Basic Conditions of Employment Act, No 75 of 1997
• King III Report and Code on Governance for South Africa 2009
• JSE Listing Requirements (listings requirements)
• Social Responsibility Index
• Global Reporting Initiative

Integrated reporting and King III

King III adopts an “apply or explain” approach to corporate governance, a change from the “comply or explain” approach that was adopted by King II. The “apply or explain” approach implies that the board of directors, in its collective decisionmaking, may conclude that to follow a practice recommended in King III would not, in the particular circumstances, be in the best interests of the company. In the circumstances the board could decide to apply the recommendation differently or apply another practice and still achieve the objective of the overarching corporate governance principles of fairness, accountability, responsibility and transparency.

In F2011, the board commissioned a King III gap analysis by Ernst & Young Inc (E&Y) to ensure that the board and senior management fully understand the implications of King III on the company’s business and operations and in order to be properly guided on how best to implement the corporate governance recommendations contained therein.

During the year, the board charter and terms of reference for the board committees, audit and risk committee, health, safety and environmental committee, investment committee and social, ethics and human resources committee were updated to be in line with the Companies Act and King III.

The new South African Companies Act, Act No 71 of 2008

The board seeks to ensure that the group operates within the legislative and regulatory environment of the country and has established structures and processes with appropriate checks and balances that enable directors to discharge their legal duties and responsibilities.

On 1 May 2011 a new Companies Act was introduced to regulate the corporate business landscape in South Africa. Companies were given a two year window period to implement most of the provisions of the Act. Northam is in the process of implementing and effecting these changes and intends completing them by 30 April 2013. Major changes are expected to be approved by shareholders at the upcoming annual general meeting of the company on 7 November 2012.

Northam has in place a memorandum of incorporation and has established a Social and Ethics Committee, two significant requirements of the Companies Act.

At the general meeting of 18 August 2011, shareholders approved a special resolution, in terms of section 45 of the new Companies Act, No 71 of 2008, which resolution approved the granting of financial assistance by Northam to its subsidiaries, an immediate change which was brought about by the then new Companies Act.

Leadership and oversight by the board

Northam’s board has a unitary structure, and comprises 11 members (and one alternate). In compliance with King III, the board directs the group within a corporate governance framework.

Board of directors

It is at board level that strategy, risk, performance and sustainability are fused to satisfy the various stakeholder interests of the group.

The board is guided by the board charter, and is supported in its role by a number of board committees, namely:

• the audit and risk committee;
• the health, safety and environmental committee;
• investment committee; and
• the social, ethics and human resources committee.

Board committees

The board comprises two executive and nine non-executive directors, six (55%) of whom are regarded as being independent for the following reasons:

• they are not representative of a share owner who has the ability to control or significantly influence management;
• they have not been employed by the company or the group in any executive capacity for the preceding three financial years;
• they are not members of the immediate family of any individual who is, or has been in any of the past three financial years, employed by the company or group in an executive capacity;
• they are not professional advisors to the company or the group, other than in a director capacity;
• they are not a significant supplier to, or customer of the company or group;
• they have no significant contractual relationship with the company or group; and
• they are free from any business or other relationship that could be seen to materially interfere with their capacity to act in an independent manner.

The chairman of the board, Mr Lazarus Zim, who was appointed in 2007, although nonexecutive, is not independent in terms of the King III recommendations. A non-executive lead independent director, Mr Alwyn Martin, was therefore appointed on 28 June 2010.

In terms of the company’s memorandum of incorporation, no fewer than 50% of the directors are required to be historically disadvantaged South Africans (HDSAs) as defined in the MPRDA. The board has seven HDSA directors.

Board and performance evaluation

An evaluation of the directors and the board is conducted regularly, the last having been undertaken in August 2011. Results of the evaluation are used by the board to determine future performance improvements. An internal evaluation process was undertaken to facilitate the evaluation of the board and each director.

Specific areas covered in the board’s evaluation are:

• composition of the board and board committees;
• effectiveness of each board member;
• effectiveness of board meetings;
• relationship between senior management and the board;
• board transparency and accountability; and
• performance criteria and succession.

The executive directors and company secretary were assessed by the social, ethics and human resources committee in August 2012. (In terms of King III, the company secretary’s performance is also evaluated by the board and that of the financial director by the audit and risk committee.)

Business and risk management

Northam’s risk management function is based on an inclusive, team-based approach to effective application across the company. The board is responsible for the oversight of risk management within the group and continuously reviews its risk management structures, systems, processes and procedures to ensure that these are aligned to the principles contained in King III.

Management is accountable to the board for designing, implementing and monitoring the process of risk management and integrating it into the day-to-day activities of the company.

Extensive systems of internal control are in place to identify and manage significant risks. These systems support the board in discharging its responsibility of ensuring that the range of risks associated with the group’s operations are managed effectively and that the interests of stakeholders are safeguarded. Northam has developed an integrated risk management framework which identifies the significant risks facing the group, as well as factors in mitigation thereof including:

• all activities carried out in the various processes;
• the assessment of the impact of the inherent risks with those activities; and/or
• processes and measures taken or to be taken to mitigate such risks.

The following specific major risks have been identified by Northam and are discussed in further detail in the Social, ethics and human resources committee report (PDF - 138KB) of the Northam Annual integrated report 2012:

• country risk;
• market, financial and financing risk;
• geological and ore reserve risk; and
• health, safety and environmental risk

A risk matrix is subject to quarterly review by management in conjunction with the group’s internal auditors.

While the operating risks cannot be fully eliminated, the company has put in place appropriate infrastructure, controls and systems applied throughout the group to manage such risks.

Northam engages with underwriters and assurers on an ongoing basis and a significant portion of the company’s operational risk is underwritten.

Sustainability leadership

Policies, practices and performance relating to sustainable development form an integral part of the management of the company. While overall responsibility for sustainability lies with the board, specific oversight of various areas of sustainability issues have been delegated to the audit and risk committee, the health, safety and environmental committee and the social, ethics and human resources committee.

These committees function in accordance with established terms of reference approved by the board and material matters, particularly issues related to safety, are escalated to board level for consideration. Transformation and compliance with the MPRDA and the Mining Charter are considered by the board as a whole and are a standard agenda item.

The audit and risk committee, which is chaired by lead independent director Mr Alwyn Martin, comprises four independent non-executive directors. The health, safety and environmental committee, under the chairmanship of Mr Ralph Havenstein, comprises three non-executive directors. The social, ethics and human resources committee comprises four independent non-executive directors and is chaired by Ms Emily Kgosi.

Code of ethics

The group has a code of ethics which has been approved by the board and is updated from time to time. This code applies to both directors and employees and governs the interaction between these groups and the company’s, suppliers, contractors, and customers and covers the use of company assets and confidential information. A breach of the code of ethics could result in disciplinary action and/or civil or criminal action being taken against a perpetrator.

Conflicts of interest

Members of the board and its committees are required to declare their interests in any matters to be discussed at every board and committee meeting. All board and committee members are required to report any conflicts of interest that may arise in the course of their duties in order to avoid corruption.

Insider trading

The company has clear rules and guidelines in place which seek to ensure that employees do not contravene the JSE’s rules on insider trading. Neither directors nor employees are allowed to deal in the company’s shares if they are in possession of non-public information or during closed periods. These rules extend to also to close relatives of directors and employees. Directors and employees are required to obtain prior approval for dealing in the company’s shares. Employees are routinely advised of the company’s closed periods.

Donations

The company has a long-standing policy which prohibits party-political donations. Furthermore, employees may not accept gifts, hospitality or favours from suppliers or contractors of more than a nominal value. All gifts and entertainment details are recorded in a gift register for record purposes.

Ethics 24-hour whistle-blowing hotline

Northam’s ethics hotline number 0800 15 25 39 became effective in 2011 and is monitored by an external party (KPMG), 24 hours a day in all the official languages of South Africa. Anyone (whistle-blower) can anonymously report corruption, fraudulent activity or other problems for investigation. All whistle-blowers are protected against any form of victimisation provided disclosures are made in accordance with the provisions of the Protected Disclosures Act, No 26 of 2000.

Significant legal issues or fines

Northam did not incur any fines during the year under review in respect of non-compliance with laws or regulations, and was not involved in any legal action relating to anti-competitive behaviour, anti-trust or monopoly practices. The company has obtained a high court interdict against the community interfering with the construction of the permanent power line to Booysendal. The company also went to court to appeal a Section 54 notice issued by the DMR. The notice was subsequently withdrawn by the DMR. The company has not engaged in any other legal actions.

Awards and recognition

The company was admitted to the JSE’s Socially Responsible Investment Index (SRI) for the fifth consecutive year.

Approval of the annual integrated report and the sustainable development report

In response to the recommendations of King III, Northam produced its first integrated annual report for the financial year in 2011. This second annual integrated report seeks to continue to provide stakeholders with a broader view of the group’s performance in terms of both financial and non-financial results. Integrated reporting provides greater context for performance data, clarifies how sustainability fits into the company’s operations and helps to demonstrate that sustainability is included in the decision-making structures of the group.

Both the annual integrated report and the sustainable development report are reviewed by the audit and risk committee and thereafter recommended to the board for approval.