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Sustainability

Coporate governance report

Introduction

Good corporate governance is integral to Altech’s operations and, as such, the board is fully committed to the principles of the Code of Corporate Practices and Conduct (the code) set out in the King Report on Corporate Governance (King II). The purpose of King II is to promote the highest level of corporate governance in South Africa. In supporting the code, the board of directors (the Altech board) recognises the need to conduct the enterprise with integrity and in accordance with generally acceptable corporate practices.

The Altech board is the focal point of the group’s corporate governance system and remains ultimately accountable and responsible for its performance and affairs.

Compliance with King II

The directors believe that Altech materially complied with the requirements of King II during the year under review.

Application of King II

All entities within the group are required to subscribe to the spirit and principles of King II. The Altech board also seeks to ensure that good governance is practised at all levels in the group and that it is an integral part of Altech’s operational divisions.

Whereas the Altech board takes responsibility for group compliance with the code and is the focal point of the group’s corporate governance system, the directors of specific companies in the group are responsible for ensuring compliance in respect of the companies of which they are directors.

All key King II principles reflected in Altech’s corporate governance structures are reviewed from time to time to take into account corporate changes and international developments in corporate governance.

Responsibility for annual financial statements

Shareholders are referred to the statement of approval of the annual financial statements set out in the directors’ report.

Board of directors

Board composition

Altech has unitary board structures in all of its subsidiaries.

The Altech board comprises 11 directors. Of these, five are considered independent non-executive directors while three are considered non-executive directors. Three are executive directors. Details of the categorisation of the directors appear on pages 118 to 122 of the annual report.

The Altech board has an appropriate balance of directors, with a majority being independent directors. In line with best practice, the roles of the chairman and the chief executive officer are separate. The Altech board is led by Dr Hilton Davies, an independent non-executive chairman. The chief executive officer is Craig Venter.

The Altech board recognises the importance of promoting entrepreneurial flair, while continuing to ensure conformance to governance and other compliance restraints. The directors bring a wealth of skills, knowledge and experience from their own fields of business to the Altech board and ensure that debate on matters of strategy, performance, resources, transformation, diversity, employment equity, standards of conduct and policy is robust, informed and constructive.

The role of the board and board procedures

The Altech board exercises leadership, enterprise, integrity and judgement in directing the group to achieve continued prosperity for Altech and its shareholders.

The Altech board, which meets at least quarterly, retains full and effective control over all the operational companies in the group and monitors executive management in implementing board plans and strategies. Additional board meetings, apart from those planned, are convened as circumstances dictate. The number of meetings held during the year under review, (including meetings of board-appointed committees) and the attendance of each director are set out on pages 53 to 56 of this report. Where directors are unable to attend a meeting personally, video- and teleconferencing facilities are made available to include them in the proceedings and to allow them to participate in the decisions made and the conclusions reached.

The Altech board’s primary responsibilities include determining the group’s purpose and values and providing strategic direction to the group, identifying key risk areas and key performance indicators of Altech’s business, monitoring the performance of the group against agreed objectives, advising on significant financial matters and reviewing executive management’s performance against defined objectives, and, where applicable, industry standards.

The Altech board has unrestricted access to all company information, records, documents and resources to enable it to properly discharge its responsibilities. Management ensures that board members are provided with all relevant information and facts to enable the Altech board to reach objective and informed decisions. Efficient and timely procedures for informing and briefing board members prior to board meetings have been implemented.

Board meetings are scheduled well in advance and board documentation is provided timeously. Tabling documents at board meetings is the exception rather than the rule. The Altech board agenda and meetings’ structure assist the Altech board to focus on strategy and performance monitoring, followed by governance and related matters, which ensures that the Altech board’s time and energy is appropriately applied.

The Altech board considers a number of key performance indicators, variance reports and industry trends in evaluating the financial performance of the group. A range of non-financial information is also provided to the Altech board to enable it to consider qualitative performance factors that involve broader stakeholder interests. Directors are afforded the opportunity to propose additional matters for discussion at board meetings.

Directors are kept appropriately informed of key developments affecting the group between board meetings. Non-executive directors have access to management and may meet separately with management without the attendance of the executive directors.

All board members complete a detailed board assessment each year, probing the composition, duties, responsibilities, process and effectiveness of the Altech board.

Although the Altech board still retains overall responsibility for the affairs of the group, subsidiary boards play an important role in the group’s overall governance approach. Altech directors have full access to subsidiary board documentation These boards meet four times a year, usually prior to the Altech board meetings. The level of detail dealt with by each subsidiary company is generally greater than that dealt with by the Altech board and is specific to the relevant subsidiary.

Board charter

The Altech board has developed and adopted a charter to regulate how business is to be conducted in accordance with the principles of good corporate governance and legislation. This charter was reviewed in February 2008 and sets out the specific responsibilities to be collectively discharged by the Altech board members as well as the individual roles expected of board members.

The purpose of the Altech board charter is to ensure that all the directors are aware of their duties and responsibilities when acting on behalf of the company. The salient features thereof are set out below:

role and function of the Altech board.
roles of the chairman and the chief executive officer.
board and meeting procedures.
board composition.
conduct regarding conflicts of interest.
risk management and internal control.
supply of information to directors.
directors’ training and development.
succession planning.
compliance with laws and regulations.
board evaluation.

Board appointments and director training

A third of the directors retire by rotation annually. If eligible, their names are submitted for re-election at the annual general meeting accompanied by an appropriate curriculum vitae set out in the annual report.

The Altech board as a whole selects and appoints directors, including the chief executive officer and executive directors, on the recommendation of the remuneration and nomination committee. Prior to appointment, potential board appointees are subject to a fit and proper test as required by the Listings Requirements of the JSE Limited. Re-election to the board by shareholders is considered subject to performance and continued eligibility.

Attendance of board meetings

The following is a list of board meetings attended by each director during the year 1 March 2007 to 29 February 2008:

X Submitted apologies and was granted leave of absence in terms of the company’s articles of association.
* Special board meeting.
# ZJ Sithole and M Sindane joined the board after year-end in April 2008.

On appointment, new board members undergo a formal induction programme aimed at facilitating their understanding of the Altech group, its business environment and the markets in which it operates. The induction programme is conducted by the Altech group company secretary and, where appropriate, the company’s sponsor. The induction programme includes:

background on the Altech group and guidance on the businesses of the Altech group (business processes, corporate strategies, organisation, management and people ,and comparison with international benchmarks);
instruction in the key financial statements (ie annual financial results, directors’ reports, trends of key financial ratios and financial performance of the business);
a clear identification of reciprocal expectations on appointment (by way of discussions with the Altech group secretary, and, where appropriate the group’s sponsor); and
formal induction in terms of their statutory and common-law (fiduciary) duties and responsibilities.

Board committees

A number of board-appointed committees have been established to assist the Altech board in discharging its responsibilities. The membership and principal functions of the standing committees appear in the pages below.

The Altech board recognises that it is ultimately accountable and responsible for the performance and affairs of the group and that the use of delegated authorities to the Altech board committees and management in no way mitigates or dissipates the discharge by the Altech board and its directors of their duties and responsibilities.

Specific responsibilities have been delegated to the Altech board committees and they operate under written terms of reference approved by the Altech board. Each committee’s terms of reference are reviewed annually by the Altech board. Board committees are free to take independent outside professional advice as and when deemed necessary. The office of the Altech group company secretary provides secretarial services for each of the committees except the remuneration and nomination committee.

Notwithstanding the establishment of various board committees, the Altech board reserves for itself a range of key matters to ensure that it retains proper direction and control of the company.

There is transparency and full disclosure from board committees to the Altech board. The minutes of committees represented by predominantly non-executive directors are submitted to the Altech board for noting and discussion, if required. In addition, directors have full access to all board committee documentation and committee chairpersons provide the Altech board with a verbal report on recent committee activities.

The Altech board is of the opinion that the undermentioned board committees have effectively discharged their responsibilities, as contained in their respective terms of reference, for the year under review.

Remuneration and nomination committee

Members: Dr HK Davies (chairman), RE Venter and M Sindane. (PL Wilmot served as a member until his resignation on 29 February 2008.)

The remuneration and nomination committee is chaired by Dr HK Davies, the chairman of the board, with the chief executive officer having right of attendance at meetings except during the consideration of his remuneration. The chief financial officer attends the meetings by invitation and recuses himself when his remuneration is discussed. This committee generally meets twice a year.

Executive directors’ emoluments, share option/conditional rights allocations and other benefits are considered by this committee, taking account of responsibility, individual performance and retention. To this end, the committee relies on external market surveys and industry reward levels as benchmarks.

Further details may be found in the remuneration report on page 59 of this annual report.

This committee further reviews the size and composition of the Altech board from time to time. It makes recommendations for changes that would result in a board that collectively contains the skills, experience, diversity and demographics, as well as a mix of personalities appropriate to the strategic direction of the Altech group that is necessary to secure its sound performance. It also is responsible for succession plans for key members of the Altech board, and for the chairman and chief executive officer in particular.

Remuneration and nomination committee – meeting attendance 2007/2008

Note
*M Sindane joined the Altech group after year-end on 4 April 2008.

Audit committee

Members: ZJ Sithole (chairman), MS Leoka and M Sindane. (PL Wilmot served as the chairman of this committee until his resignation and Ms DC Radley served as a member, until her resignation. Both resigned on 29 February 2008.)

The audit committee is comprised independent non-executive directors only and is chaired by Mr ZJ Sithole. In terms of the Corporate Laws Amendment Act, which became effective on 14 December 2007, all members of the audit committee are required to be non-executive directors who act independently.

Meetings are held at least twice a year and are attended by the group’s external and internal auditors as well as Altech’s executive management to review accounting, auditing and financial reporting matters to ensure that an effective control environment is maintained throughout the group. All the members of the committee are financially literate.

The committee also monitors proposed changes in accounting policies, reviews the internal audit function and discusses the accounting implications of major transactions. In addition, the committee advises the Altech board on the adequacy of the group’s internal controls and the content and presentation of the group’s preliminary, interim and annual financial reports.

The committee has adopted a policy for the use of the external auditors for non-audit-related services. In terms of this policy the external auditors are prohibited from acting as the registered office address for Altech or any of its subsidiaries, performing any internal audit or internal audit outsourcing service for Altech or any of its subsidiaries, performing any valuations on any business asset of Altech or any of its subsidiaries for which the external auditors will be required to subsequently issue an audit opinion, providing any legal or information technology consulting services to Altech or any of its subsidiaries, conducting due diligence exercises for and on behalf of Altech or any of Altech’s subsidiaries which use Altech’s external auditors for audit-related services (without prior permission from the chairman of the audit committee) and any services which entail providing management functions for Altech or any of its subsidiaries.

Non-audit-related services which the external auditors are permitted to provide to the Altech group include: tax compliance services; assurance-related work (excluding implementation consulting work that results in an impairment of the external auditors’ independence); and opinion work, provided, however, that where any of the aforementioned non-audit-related services are likely to exceed, in aggregate, 5% of the annual Altech audit fee, the prior approval of the Altech audit committee is required. The internal and external auditors have unrestricted access to the audit committee, which ensures that their independence is unimpaired. Members of the committee are also afforded the opportunity to meet with the head of internal audit and the external auditors without management being present.

The audit committee recommends the appointment of the external auditors for the Altech board and shareholders’ approval. During the financial year, PKF (Jhb) Incorporated were the external auditors for the Altech group and the audit committee is satisfied that they are independent.

Audit committee – meeting attendance 2007/2008

governance
Note
*M Sindane and ZJ Sithole joined the Altech group after year-end in April 2008.

Business risk committee

Members: M Sindane (chairman), AJ Baker, Dr JEW Carstens, JC Gellatly, G Passmoor, SH Sidley, AJO van der Westhuizen, R Warren and CG Venter. (PL Wilmot served as the chairman and Ms DC Radley, as member of the committee, until their resignations on 29 February 2008. Due to internal restructuring, PF du Preez is no longer a member of this committee, while AJ Baker and JC Gellatly became members after year-end during April 2008.)

The business risk committee was established to assist the Altech board of directors in the discharge of its duties relating to the identification of risk and the assessment of the effectiveness of risk management within the group. The committee meets at least twice a year and reviews and assesses issues such as the integrity of risk control systems, compliance with King II and other corporate governance matters, the impact that significant litigation could have on the group, the adequacy of the insurance coverage as well as the control effectiveness of risks in relation to assurance reports from the group’s internal audit, Health Safety and Environment (OHASA), ISO management and external audit. It monitors external developments relating to corporate accountability with specific reference to emerging and prospective impacts.

The business risk committee is chaired by an independent non-executive director and comprises group executives of the principal operating groups and divisions and other senior executives.

The major risks identified and addressed during the past financial year on a consolidated basis were:

skills shortage; and
the continued focus on the development of alternative technologies.

Business risk committee – meeting attendance 2007/2008

governance
Notes
* M Sindane, AJ Baker and JC Gellatly became members after year-end.
X Submitted apologies and was granted leave of absence.

Executive committee

Members: CG Venter (chairman), AJ Baker, Dr JEW Carstens, PMO Curle, J Klein, M Lynch, SH Sidley and AJO van der Westhuizen. The executive committee is chaired by the chief executive officer and comprises group executives of the principal operating groups. It meets monthly, except during the month where there is an Altech board meeting, and deals with day-to-day operational matters, strategic issues for the future as well as human resources and public relation’s affairs.

The Altech group has grown its market capitalisation from R1.2 billion in 2002 to R6.4 billion in 2007 and due, to the rapid expansion and global nature of the group’s business, the executive committee was restructured at the beginning of January 2008. AJ Baker became the company’s first chief operating officer and reports directly to CG Venter. Group executives who report directly to AJ Baker include G Passmoor (Group executive: Telecommunications and Wireless Communications); JC Gellatly (Group executive: IT Division). AJO van der Westhuizen, is Altech’s chief strategic officer and as such will continue to report to CG Venter.

The remainder of the executive team reporting to CG Venter are Dr JEW Carstens (chief financial officer), SH Sidley (chief technology officer), PMO Curle (Director: Corporate Finance), J Klein (Group executive: Human Resources and Industrial Relations) and M Lynch (Group executive: Procurement and Special Projects). The executive structure appears on pages 6 and 7.

Group secretary

All directors have access to the advice and services of the Altech group company secretary, who is responsible to the Altech board for ensuring that established procedures and the relevant statutes and regulations are complied with.

The group company secretary also assists the chairman and chief executive officer in determining the annual board plan, board agendas and formulating governance and board-related matters.

Internal controls and internal audit

Internal control comprises methods and procedures adopted by management to assist in achieving the objectives of safeguarding assets, preventing and detecting error and fraud, ensuring the accuracy and completeness of accounting records, and preparing reliable financial statements. The group’s approach in this regard is further set out on page 70 of the directors’ report dealing with the approval of annual financial statements.

The internal audit function, conducted by the Altron internal audit department and supported by the Altech internal audit department, as well as the external auditors, serves management and the Altech board by performing independent evaluations of the adequacy and effectiveness of the group companies’ controls, financial reporting mechanisms and records, information systems and operations, and in the reporting on the adequacy of these controls. It also provides additional assurance regarding the safeguarding of group assets and financial information. Furthermore, there is further a large focus on information technology, including the general and specific control environment throughout the group, in order to maintain satisfactory IT governance and assurance.

The Altron internal audit department provides internal audit services to the Altech group and is structured to respond to Altech management’s need while maintaining an appropriate degree of independence to render impartial and unbiased judgements in performing its services. It also enables the internal audit staff to obtain a broad range of diverse, group-wide experience and provides them with an opportunity to share their experience with other team members. The Altech internal divisional audit department assists the internal audit function in performing ad-hoc trouble shooting and follow-up functions as opposed to a traditional internal audit function.

Annual financial statements

The directors are responsible for the preparation of the annual financial statements. Management fulfils its responsibilities by maintaining adequate accounting records to ensure the integrity of these annual financial statements. This is accomplished by systems of internal controls designed to provide reasonable, but not absolute, assurance as to the reliability of these financial statements. Such controls provide assurance that the group’s assets are safeguarded, that transactions are executed in accordance with management’s authorisations and that the financial statements and records are reliable. This is augmented by the Altron group policy manual which outlines the group’s ethics and prescribed fundamental group policies and procedures and is regularly updated to take cognisance of changing circumstances in the financial and operational environment.

Going concern

The Altech board has considered and recorded the facts and assumptions on which it relies to conclude that Altech will continue as a going concern in the financial year ahead. The board’s statement in this regard is contained in the statement on the responsibility of directors for the annual financial statements. The Altech board considers this aspect at both the interim reporting stage and financial year-end.

Corporate code of conduct and ethics

Altech is committed to promoting the highest standards of behaviour, and the group’s corporate code of conduct (page 26) provides a clear guide as to the expected behaviour of all employees in their dealings with the group’s stakeholders. This is further augmented by a detailed code of conduct which forms part of the Altron group policy manual and outlines the Altron group’s ethics. All employees are required to maintain the highest ethical standards in ensuring that the group’s business practices are conducted in a manner which in all reasonable circumstances is above reproach.

Altech’s management demonstrates its commitment to the code of conduct by following disciplinary procedures and instituting criminal and civil charges for theft, fraud, corruption or any other dishonest behaviour. A facility for the reporting of unethical conduct, “Tip-offs Anonymous”, an independent hotline service provider, was implemented in March 2007 and is available to all staff and clients of the group. This hotline allows staff members and clients to report any misconduct on an anonymous basis and guarantees the protection of their identity.

Share dealings

Altech has adopted a director dealing in securities policy, which precludes directors, officers and staff who may have access to price-sensitive information from dealing in Altech securities prior to the release of interim and final results as well as during prohibited periods.

All the directors of Altech and its material subsidiaries, who wish to deal in Altech’s securities, are required to obtain prior written clearance from the Altech chief executive officer and the Altech chief financial officer. They, in turn, require prior clearance from any two of the Altron chairman, the Altron chief executive or the Altron chief financial officer.

Details of share dealings by any of Altech’s directors, as well as the directors of its material subsidiaries, are disclosed to the Altech board and the JSE Limited through the Securities Exchange News Service (SENS).

Integrated sustainability reporting

Reporting approach

Altech has adopted the GRI sustainability guidelines on economic, environmental and social performance as a benchmark for the group’s sustainability reporting, and a sustainability report is included on pages 21 to 49 of this annual report.

JSE Social Responsibility Investment (SRI) Index

Altech has qualified for the fourth consecutive year for the JSE SRI Index. This index was launched by the JSE in 2004 and measures a listed company’s performance with regard to economic, environmental and social factors (collectively known as the triple bottom line).

Relationship with stakeholders

The Altech group has various policies governing communication, relationships and conduct with its stakeholders that comprise shareholders, employees, customers, service providers, suppliers, the community and government.

Altech is committed to:

enhancing shareholder value;
maintaining and creating excellent relationships with its customers;
maintaining the healthy, safe and non-racial working environment for employees and assisting them to achieve their full potential through skills development and employment equity initiatives;
providing financial assistance to disadvantaged communities and supporting black economic empowerment initiatives; and
continuing to comply with South Africa’s laws and regulations and to assist with the development of a sound information, communication and telecommunications (ICT) sector.

In communicating the group’s strategy and results Altech makes use of a broad range of communication channels such as the Altech website (www.altech.co.za), SENS, the print, radio and television media.

Altech also has a media and investor relations department responsible for ensuring appropriate communication with shareholders and the investor community. Regular presentations are made by the chief executive officer, the chief operating officer and the chief financial officer to institutional investors, analysts and the media.

Investec Bank Limited acted as the company’s sponsors during the year under review.

Altech acknowledges the importance of its shareholders attending the company’s annual general meeting as this meeting offers an opportunity for the shareholders to participate in discussions relating to items on the agenda and to raise additional issues. Explanatory notes setting out the effects of all proposed resolutions have been included in the notice of annual general meeting.

The chairmen of board appointed committees, as well as the executive directors, are required to attend the annual general meeting and other general meetings of the company to respond to questions from shareholders.

A section dealing with employment equity issues, training and development initiatives, occupational health and safety matters, and Altech’s policy with regard to HIV/Aids appears on page 47 of the sustainability report.

The company’s overall strategy on broad-based black economic empowerment is contained on pages 38 to 41 of the sustainability report.

An environmental report is set out on pages 42 to 45 of the sustainability report.

Donations to political parties

During the period under review, the Altech group did not make any donations to political parties.

Altech Management Services (Pty) Limited
Secretaries

Per: Reana Wolmarans
May 2008