Corporate governance report

 
   
The Board is committed to the highest standards of business integrity, ethical values and governance; it recognises the responsibility of Sanlam to conduct its affairs with prudence, transparency, accountability, fairness and social responsibility, thereby safeguarding the interests of all its stakeholders.
 

Statement of commitment

The Sanlam Board of directors promotes and supports high standards of corporate governance and in so doing endorses the principles of the third report on Corporate Governance in South Africa (King III), which came into effect on 1 March 2010. Sanlam complies with the additional requirements for good corporate governance stipulated in the JSE SRI Index. Sanlam subscribes to a governance system whereby in particular ethics and integrity set the standards for compliance, and constantly reviews and adapts its structures and processes to facilitate effective leadership, sustainability and corporate citizenship, and to reflect national and international corporate governance standards, developments and best practice.

With regard to the year under review, the directors of Sanlam believe that a large number of King III principles are already entrenched in the Group's internal controls, policies and procedures governing corporate conduct and that Sanlam complies with the main principles of King II in all significant respects. The Board of Sanlam is satisfied that all reasonable efforts were made during the 2010 financial year to start implementing the material aspects of the King III principles and will progressively do so in the future.

The Board is committed to the highest standards of business integrity, ethical values and governance; it recognises the responsibility of Sanlam to conduct its affairs with prudence, transparency, accountability, fairness and social responsibility, thereby ensuring its sustainability and safeguarding the interests of all its stakeholders. The Board also acknowledges the relationship between good governance and risk management practices, equity performance and corporate profitability.

Sound governance principles remain one of the top priorities demonstrated by the Board and Sanlam's executive management.
 

Application of and approach to King III

Sanlam welcomes King III and is taking steps to ensure that it will become compliant with the obligations placed on the company as a consequence thereof. The company assessed its compliance level in respect of King III and is identifying areas that require improvement. To ensure that Sanlam’s governance framework will be of a superior standard and aligned with governance best practice developments, a King III task team has been established and will give continuous guidance on King III principles and practices. Sanlam uses these governance trends and developments as an opportunity to review its governance framework and structures throughout the Group. To this end, provisions impacting operations have been and are being identified, assessed and addressed; gaps, if any, are addressed through action plans and regular monitoring and reporting to the appropriate governance structures. Ongoing progress reports in this regard are presented to the Sanlam Board as well as its Risk and Compliance committee. A number of policies and procedures have already been addressed within the main operating companies in the Sanlam Group. These include the following:
 
> The Sanlam Group Corporate Governance Policy Framework (first approved in 2007) has been updated and aligned with the King III recommendations. It now includes the Group Business Philosophy and Code of Ethical Conduct. 
> The annual evaluation of the independent status of Sanlam's directors is being conducted in accordance with the King III standards and criteria. 
> Sanlam prepared a first Integrated Annual Report for 2010 (including a Group Sustainability Review) in which it strives to comply with the new reporting requirements. 
> Sanlam also prepared a comprehensive Sustainability Report for 2010. 
> Sanlam's risk appetite statement has been approved by the Sanlam Board and will be reviewed annually. 
> A Combined Assurance Model for Sanlam Life has been developed and is being implemented. The model will also be rolled out to the rest of the Group. 
> The Group IT Governance Framework and Charter as well as the IT Policy Framework have been developed. 
> A Group Compliance Office was established in 2009.
> A draft Sustainability Development Framework has been developed and will be finalised during 2011. 
> The development of a comprehensive stakeholder engagement policy has been initiated. 
> With effect from the 2010 AGM, Sanlam has been disclosing its Remuneration Report to its shareholders, enabling them to cast a non-binding advisory vote. 
> The members of the Sanlam Audit, Actuarial and Finance committee will be elected by the shareholders at the next AGM. 
 
The Board is still in the process of embedding the principles and recommendations of King III across the Group and will be in a position to report more fully on the level of application in its Integrated Annual Report for 2011.

According to Sanlam's decentralised business approach, each of its business clusters operates in concert with its underlying business units. However, all entities within the Group are required to subscribe to the spirit and principles of King III. All the business and governance structures in the Group are supported by clear approval frameworks and agreed-upon business principles, ensuring a coherent and consistent governance approach throughout the Group. 
 

Sustainability performance

Sanlam's overall philosophy, policy and achievement of best practice in sustainability are set out in this Integrated Annual Report. The full Sustainability Report will be available on Sanlam's website. 
 

Governance entrenched

Sanlam has once again qualified for the (2010) JSE's Socially Responsible Investment (SRI) Index. The overall quality of Sanlam's corporate governance practices has been evaluated and the result of the rating, on a scale of 1 to 10, was 7, which is considered above average. 
 

Board structures

All the non-executive directors of Sanlam Limited (Sanlam) also serve on the Board of Sanlam Life Insurance Limited (Sanlam Life), a wholly owned subsidiary of Sanlam Limited. The two Boards function as an integrated unit in practice as far as possible. Both Boards have the same independent director as chairman as well as the same executive director as CEO. 
 

Board responsibilities and functioning

The Sanlam and Sanlam Life Board meetings are combined meetings and are held concurrently, thereby removing one layer in the decision-making process. This is an attempt to enhance productivity and efficiency of the two Boards, to prevent duplication of effort and to optimise the flow of information.

The agenda of the Sanlam Board focuses more on Group strategy, capital management, accounting policies, financial results and dividend policy, human resource development, JSE requirements as well as corporate governance throughout the Group. It is also responsible for the relationship with shareholders and other stakeholders in the Group. The Sanlam Board has the following Board committees:
 
> Audit, Actuarial and Finance
> Risk and Compliance
> Nominations
> Human Resources
> Sustainability
> Non-executive Directors
> Policyholders’ Interest
 
The Sanlam Life Board is responsible for statutory issues across all Sanlam businesses, monitoring operational efficiency and operational risk issues throughout the Group, as well as compliance with long-term Insurance Act requirements. The responsibility for managing all Sanlam’s direct subsidiaries has been formally delegated to the Sanlam Life Board. The Sanlam Life Board has the following Board committees:
 
> Audit, Actuarial and Finance
> Risk and Compliance
> Human Resources
> Policyholders’ Interest
 
In Sanlam Life there were (until 31 December 2010) also the following high-level supporting committees:
 
> Retail Cluster
> Institutional Cluster
> Short-term Insurance Cluster
 
These cluster committees consisted of non-executive directors, key cluster executives and external specialists and were high-level supporting committees, appropriately authorised to advise on and monitor all strategic and operational aspects of a particular business cluster.

Following an external review of the Board structures and effectiveness, the Sanlam Board decided to abolish the three cluster committees, with effect from 31 December 2010. The cluster committees will be replaced by a system of increased independent and non-executive director representation on the various divisional business Boards and committees in the Sanlam Group. 
 

Business divisions and divisional Boards

Business divisions are the Institutional divisions (which includes Sanlam Investments, Sanlam Investments: Capital Management and Sanlam Employee Benefits) as well as Sanlam Developing Markets, Sanlam UK, Sanlam Personal Finance and Santam.

Each business division is managed by a chief executive, supported by an executive committee and support functions that are appropriate to their particular operational needs.

The divisions function within the strategy approved by the Sanlam Board and according to a set of management principles established by the Group Office for the Sanlam Group.

Divisional Boards were established for the business divisions. Each of these (not all statutory) Boards has committees (or forums) with specific responsibilities for the operation of that particular business division. Each of the divisional Boards has its own Financial and Risk as well as Human Resources (HR) forum/committee.

The divisional Boards consist of non-executive directors and executives. Non-executive directors include members of the Sanlam Life Board and, where appropriate, external appointments. Board committees are, where appropriate, strengthened through the appointment of independent experts.

The majority of the operating business decisions are made by these Boards and committees.

These structures are also responsible for the generation of memoranda and issues for consideration by the Sanlam Life Board. 
 

Business units and business Boards

Individual business units have their own Boards and executive committees that structure their activities within appropriate delegated authority levels. Where required, the various business unit Boards will also act as the statutory Boards of subsidiary and associated companies. 
 

Group Office

The Group Chief Executive Officer is supported by a Group Executive committee as well as by a small centralised Group Office mainly performing the following functions: strategic directing (tight issues); co-ordinating; synergy seeking; performance monitoring; assurance provision and the allocation of capital. A number of support functions are provided by the Group Office, grouped together under Group Services, headed by an executive director, Yvonne Muthien. 
 

The Sanlam Board and Board committees (as at 31 December 2010) 

Board charter

In accordance with the principles of sound corporate governance, the current Sanlam Board charter - modelled on the charter principles recommended by King II - incorporates the powers of the Board, providing a clear and concise overview of the division of responsibilities and accountability of the Board members, collectively and individually, to ensure a balance of power and authority. The Board charter (and the committee charters) are being reviewed with the aim of becoming aligned with the KIng III principles and the recommendations, where possible.

An annual evaluation process to review the effectiveness of the Board, its committees and individual directors has been entrenched. 
 

Committee charters

The Board committee charters, which describe the terms of reference of the committees as delegated and approved by the Board, are reviewed at least annually. 
 

Board composition

As at the 2010 financial year-end the Sanlam Board comprised 17 members, 13 being non-executive, 11 of whom were independent non-executives (in accordance with King III's standards of independence) and four executive directors. After completing two terms of three years as chairman, Roy Andersen stepped down as Chairman and director on 9 June 2010 and was succeeded as Chairman by Desmond Smith, an independent non-executive director, with effect from the same date.

The roles of Chairman and Group Chief Executive remain separated, with Desmond Smith and Johan van Zyl holding these positions respectively. The Group Executive committee members are also attendees at the Board meetings. At least a third of all Board members retire every year at Sanlam's annual general meeting (AGM). Retiring directors are eligible for reappointment. None of the non-executive directors has a director's service contract. Executive directors are full-time employees and as such are subject to Sanlam's conditions of service.

Particulars of the Sanlam Board members and their capacities categorised as executive, non-executive and independent, are set out below.
 

The Sanlam Board of directors

Director Executive (E)
Non-executive (N)
Independent (I)
Changes during 2010
RC Andersen (Chairman up to 9 June 2010) I Retired 9 June 2010
MMM Bakane-Tuoane I
AD Botha I
AS du Plessis I
FA du Plessis I
MV Moosa I
JP Möller E
PT Motsepe N
YG Muthien E
TI Mvusi E
SA Nkosi I
I Plenderleith* I
GE Rudman I
RV Simelane N
DK Smith (Chairman from 9 June 2010) I Appointed Chairman 9 June 2010
ZB Swanepoel I
J van Zyl E
PL Zim I
 
Composition of the Board as at 31 December 2010: Three black females, five black males, one white female, eight white males. 
*UK Citizen.
 

Independence of Board members

Through its Nominations committee the Board annually considers and reconfirms the classification of directors as being independent. The guidelines of King III were used for the 2010 classification. Their independence in character and judgement, and whether there are any relationships or circumstances which are likely to affect, or could appear to affect, their judgement, are also taken into consideration. The independent and non-executive directors on the Sanlam and Sanlam Life Boards are highly respected and experienced, having the required integrity, professional knowledge and skills to make sound judgements on various key issues relevant to the business of Sanlam, independent of management.

The Nominations committee is of the view that all the Sanlam directors meet the criteria set for independence except for PT Motsepe and RV Simelane owing to their involvement in Ubuntu-Botho, Sanlam's anchor empowerment partner, as well as J van Zyl, JP Möller, YG Muthien and TI Mvusi being executive directors. 
 

Appointment and re-election of directors

The Board charter contains a policy detailing the formal and transparent procedures for appointment to the Board. The Nominations committee reviews the composition of the Board on a continuous basis to ensure the appropriate level of skills and experience in key areas such as strategy, industry knowledge, finance, human resources, corporate governance, risk management and sustainability. Gender and racial diversity, as well as diversity in business, geographical and academic backgrounds, are also taken into account, in accordance with Sanlam's commitment to transformation.

Sanlam's Articles of Association empower the Board to appoint a director until the next AGM if a casual vacancy arises. In terms of the Articles, directors are subject to retirement by rotation every three years and, if put forward for re-election, are considered for reappointment at the AGM. Shareholders may also nominate directors for election at the AGM, in accordance with formal, prescribed procedures. In the Notice of the Annual General Meeting, shareholders are referred to the biographical details of each of the candidates as contained in the Board of directors section of this Integrated Annual Report. All directors are consequently appointed at an AGM by a shareholders' resolution.

New Board member orientation and Board training are conducted in accordance with an induction programme, designed to meet the individual needs and circumstances of each new director, and approved by the Board. The office of the Company Secretary manages the induction programme. Ongoing support and resources are also provided to Board members as required, in order to enable them to extend and refresh their skills, knowledge and understanding of the Group. Professional development and skills training are provided through regular updates on changes and proposed changes to laws and regulations affecting the Group or its businesses. 
 

Board effectiveness evaluation

The Nominations committee annually assesses the contribution of each director standing for re-election, using an individual director evaluation process that is conducted by the Board Chairman or an external service provider. The Board Chairman’s own performance is appraised by the Board under the direction of the Deputy Chairman.

The Sanlam Board as a whole considers the result of the evaluation processes. This culminates in a determination by the Board as to whether the Board will endorse a retiring director’s re-election. Where a director’s performance is not considered satisfactory, the Board will not recommend the re-election.

The names of the directors standing for re-election at the 2011 AGM are contained in the explanatory notes to the resolutions for the AGM. It should be noted that Messrs AS du Plessis and GE Rudman have (after more than nine years’ service as Sanlam directors) decided, although eligible, not to make themselves available for re-election.

Every year, a collective Board effectiveness evaluation is conducted. This assessment, which is performed in alternate years by an external service provider and by the Chairman, is aimed at determining how the Board’s effectiveness can be improved. The Nominations committee considers the results of the evaluation process and makes recommendations to the Board where deemed appropriate.

The annual Board effectiveness review was conducted by Deloitte towards the end of 2010. It was reported that the Sanlam Board and committees were functioning very well. The only significant recommendations (which were both accepted by the Board) were:
 
> the simplification of the Sanlam Board structures by the abolition of the supportive cluster committees; and 
> the appointment of separate (independent) chairmen for the Audit, Actuarial and Finance as well as the Risk and Compliance committees due to the increased statutory-related workloads of these two committees. 
 

Board meetings

The Board meets at least quarterly to consider business philosophy and strategic issues, to set risk parameters, approve financial results and budgets, and monitor the implementation of delegated responsibilities. Feedback from its committees, as well as a number of key performance indicators, variance reports and industry trends are considered. In addition to the quarterly Board meetings, a two-day strategy session is held and is attended by all Board members and Group Exco members, reviewing Group strategy which is considered and approved annually. 

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