Role of the board

As the Exxaro group of companies is an integral part of society, the board assumes ultimate responsibility for the performance and affairs of the company. In doing so, it effectively represents and promotes Exxaro's legitimate interests. In turn, as a responsible corporate citizen, Exxaro considers the legitimate needs, interests and expectations of its stakeholders now and in future.

Our board creates sustainable value for our stakeholders through ethical and effective leadership of the Exxaro group. It is the focal point and custodian of good corporate governance in the group in line with King IV. The board sets the strategic direction of the group and the way in which specific governance areas are conducted within a framework of effective controls, approves policy and planning that gives effect to the group strategy and direction, monitors implementation of the strategy and planning, and finally ensures accountability for organisational performance through, among others, reporting and disclosure.

The board acknowledges its crucial role in exercising ethical and effective leadership in the group to achieve the following governance outcomes in line with King IV:

• The group being recognised for having an ethical culture
• The group creating positive value
• The board having effective control over the performance and affairs of the group
• The group's legitimacy not being compromised.

To achieve these objectives, the board is committed to ensuring good corporate governance throughout the group, in line with the recommendations of King IV. At all times, it ensures the appropriate application of the 16 principles of the King IV code by adopting the required and relevant practices, or alternative appropriate practices as determined by the board, that will give effect to these principles in the context of both the company and the group. Our King IV application register is on King IV Compliance.

Board committees assist the board in discharging its duties and responsibilities, but without abdicating the board's responsibilities. Each committee has formal, approved, written terms of reference that are reviewed annually to ensure effective delegation of roles and responsibilities from the board. To ensure effective leadership, the board monitors how its committees discharge their responsibilities for group operations by annually setting key performance indicators (KPIs) for each committee. Individual reports from committee chairs begin on Audit Committee Report.

While King IV allocates responsibility for implementing a group governance framework to the board, the board recognises each subsidiary as a separate and independent juristic person to whom its directors owe fiduciary duties. In tandem with its responsibility to set a group corporate governance framework that articulates and gives effect to the strategic direction and exercise of authority across the group, the board also ensures these arrangements are appropriate within the group. In the case of a conflict between the duties of a director to a subsidiary company and the interests of the holding company, the duties of the director to the subsidiary company must prevail.

The board charter

To guide its effective functioning, the board approved an amended charter at the end of 2017, the provisions of which at all times are subject to all statutory and regulatory requirements, including the Companies Act 71 of 2008, as amended (the Act), JSE Listings Requirements, Exxaro's memorandum of incorporation and King IV. Following implementation of the new BEE shareholding transaction and the commitment to annually review its charter, this was again reviewed in 2018.

The purpose of the board charter is to regulate the parameters within which the board operates and to ensure Exxaro applies the principles of good corporate governance in all its dealings. The charter also sets out the roles and responsibilities of the board and individual directors, including the composition and relevant procedures of the board.

Any director or member of a board committee may bring any material matter which they deem appropriate to the notice of the chair, lead independent director, CEO or finance director.

How the board added value in 2018

Value distribution - 2018

Our people

Investors

Government

Community

R3 486 million Salaries and wages

R5 483 million External dividends

R1 007 million Direct taxes

R77 million Investment and volunteerism

R2 351 million dividends to Eyesizwe

R153 million Indirect tax

R260 million Training and bursaries

R485 million

Royalties and levies

R1 155 million

UIF and PAYE

Board of directors

The board is constituted in terms of Exxaro's memorandum of incorporation as well as the board charter, in line with the requirements of King IV.

Following the replacement BEE transaction that was implemented in December 2017, a number of directors resigned/retired and new appointments were made. We have continued to ensure that the majority of our board members are independent non-executive directors, and we strengthened the independence of our board from seven independent non-executive directors in 2017 to nine in 2018. Individual members bring considerable and diverse demographics, skills and experience to the boardroom, in line with King IV. This ensures decisions are taken prudently, effectively and efficiently, and ensures the interests of shareholders are protected.

Appointment of directors

Directors are appointed through a formal process. The remuneration and nomination committee (remco) is responsible for identifying suitable candidates as independent
non-executive directors to be proposed to the board and, on its recommendation, to shareholders for approval. Remco is also responsible for overseeing that the required independent background checks are done and that proposed candidates provide the required information as recommended in the King IV code.

The following directors retired/resigned from the board in 2018:

	Director				Designation				Effective date
	Ms S Dakile–Hlongwane				Non-executive director				6 March 2018
	Dr CJ Fauconnier				Independent non–executive director				24 May 2018
	Dr D Konar				Independent non–executive director and chairman of the board				24 May 2018
	Mr S Mayet				Independent non–executive director				24 May 2018
	Dr MF Randera				Non–executive director				6 March 2018
	Mr D Zihlangu				Non–executive director				6 March 2018

The board thanked all these directors for their contributions and guidance during their tenures and wishes them all the best in their future endeavours.

The following appointments to the board were made in 2018:

	Director				Designation				Effective date
	Ms GJ Fraser–Moleketi				Lead independent non-executive director				23 May 2018
	Ms D Mashile–Nkosi				Non-executive director				6 March 2018
	Ms L Mbatha				Non-executive director				6 March 2018
	Mr MJ Moffett				Independent non–executive director				23 May 2018
	Mr LI Mophatlane				Independent non–executive director				23 May 2018
	Ms A Sing				Independent non–executive director				6 March 2018

Details on the rotation and election of directors appear in the notice of the AGM of 2018.

Induction and training

On appointment, new directors undergo an induction programme to facilitate their understanding of the business environment and markets in which the company operates. This programme is facilitated by the group company secretary and includes, inter alia, information and guidance on:

• Group structure and business objectives
• Financial performance
• Reciprocal expectations
• Familiarisation through site visits and consultation with senior management
• Corporate policies and procedures, and information on directors' roles and responsibilities in terms of legislation, regulatory requirements and best practice.

All directors undergo continuing professional development and are required to attend regular briefings as arranged by the company on changes in legislation, governance and the business environment.

The board of directors in 2018

					Committees
	Name	Appointment date	Board		Audit	Remuneration	Sustainability, risk and compliance	Social and ethics	Investment
	J van Rooyen	13/08/2008	Chair		Former chair	Member
	S Dakile–Hlongwane*	21/02/2012 – 6/03/2018	Former member				Former member	Former member
	CJ Fauconnier*	01/11/2013 – 24/05/2018	Former member		Former member	Former chair	Former chair	Former member
	GJ Fraser–Moleketi	23/05/2018	Member			Member		Invitee
	MW Hlahla	04/06/2015	Member				Member
	D Konar*	01/11/2006 – 24/05/2018	Former chair and former member		Former invitee	Former member	Former invitee	Former invitee	Former invitee
	PA Koppeschaar	01/07/2016	Member
	D Mashile–Nkosi	06/03/2018	Member
	S Mayet*	18/8/2015 – 23/05/2018	Former member
	L Mbatha	06/03/2018	Member					Member
	MDM Mgojo	04/06/2015	Member
	VZ Mntambo	28/11/2006	Member			Member
	MJ Moffett	23/05/2018	Member		Member		Member		Member
	LI Mophatlane	23/05/2018	Member		Invitee			Invitee	Chair
	EJ Myburgh	01/09/2016	Member		Member	Chair		Former member	Member
	V Nkonyeni	03/06/2014	Member		Chair				Member
	MF Randera*	13/06/2012 – 06/03/2018	Former member					Former chair
	A Sing	06/03/2018	Member				Member	Chair
	PCCH Snyders	01/07/2016	Member				Chair	Member	Member
	D Zihlangu*	28/11/2006 – 06/03/2018	Former member				Former member
	* Resigned/retired

Board attendance

Attendance is based on four quarterly meetings, ad hoc special committee meetings, two governance sessions, two strategy days and three special board meetings, calculated against the number of meetings the individual was required to attend.

	Director				Designation				Attendance since appointment
	J van Rooyen (chairman)				Independent non–executive director and chairman of the board				100%
	S Dakile–Hlongwane1				Former non–executive director				0%
	CJ Fauconnier2				Former independent non–executive director				100%
	GJ Fraser–Moleketi				Lead independent non–executive director				88%
	MW Hlahla				Independent non–executive director				100%
	D Konar3				Former independent non–executive director and chairman of the board				100%
	PA Koppeschaar				Executive director: finance				100%
	D Mashile–Nkosi				Non-executive director				60%
	S Mayet4				Former independent non–executive director				100%
	L Mbatha				Non-executive director				100%
	MDM Mgojo				Executive director: chief executive officer				82%
	VZ Mntambo				Non-executive director				80%
	MJ Moffett				Independent non–executive director				75%
	LI Mophatlane				Independent non–executive director				100%
	EJ Myburgh				Independent non–executive director				86%
	V Nkonyeni				Independent non–executive director				100%
	MF Randera5				Former non–executive director				0%
	A Sing				Independent non–executive director				90%
	PCCH Snyders				Independent non–executive director				100%
	D Zihlangu6				Former non–executive director				100%

1	Ms S Dakile–Hlongwane resigned as a director on 6 March 2018
2	Dr CJ Fauconnier retired as a director on 24 May 2018
3	Dr D Konar retired as a director on 24 May 2018
4	Mr S Mayet retired as director on 24 May 2018
5	Dr MF Randera resigned as a director on 6 March 2018
6	Mr D Zihlangu resigned as a director on 6 March 2018

Board leadership

A new independent non-executive chairman, Mr J van Rooyen, was appointed in 2018. The board therefore continues to be led by an independent non-executive chairman, in compliance with paragraph 3.84 of the JSE Listings Requirements and recommended practices of King IV.

The role of the chairman is separate and distinct from that of the chief executive officer (CEO) and the separation of powers and responsibilities, as set out in the board charter, ensures no single person has unfettered decision-making powers and that the appropriate balance of power exists at board level.

The new board charter adopted on 30 November 2017 provides for the appointment of a lead independent director in line with the principles of King IV. Following nominations received for this role, the board conducted assessments and, at its meeting on 14 June 2018, appointed Ms GJ Fraser-Moleketi as lead independent director. Her business experience in Africa and multiple roles at the United Nations are valuable contributions to the skill set on the board.

Roles and responsibilities

	Functions				Responsibilities
	Chairman				Is an independent non–executive director Is responsible for representing the board with shareholders and indirectly with other stakeholders on performance Is responsible for ensuring the integrity and effectiveness of the governance process of the board Is responsible for maintaining regular dialogue with the CEO on all operational matters and will consult with the board promptly on any matter that gives him cause for major concern Acts as facilitator at board meetings to ensure no director dominates discussion, that appropriate discussion takes place, that members' opinions are aired, and discussions result in logical and understandable outcomes Plays a crucial role in ensuring the board is properly led Provides the necessary direction for an ethical and effective board and should form the link between the board, CEO and management
	CEO				Leading the execution of approved strategy, policy and operational planning and the chief link between management and the board Monitoring and managing the day–to–day operational requirements and administration of the company Developing and recommending business plans, policies and objectives for consideration by the board and considering business, economic and political trends that may affect the operations of the company Managing/ensuring the submission of reports, financial statements and consolidated budgets for consideration by the board Overseeing the financial management of the company, including financial planning, cash flow and management reporting Involving himself in group affairs via the executive committee and acting as its chair Not causing or permitting any practice, activity or decision by or in the company that is contrary to commonly accepted good business practice, good corporate governance or professional ethics
	Lead independent non–executive director (LID)				Leading in the absence of the chair Serving as a sounding board for the chair Acting as an intermediary between the chair and other members of the governing body, if necessary Dealing with shareholders' concerns where contact through normal channels has failed to resolve concerns, or where such contact is inappropriate Strengthening independence on the governing body if the chair is not an independent non–executive member, for whatever reason Chairing discussions and decision making by the governing body on matters where the chair has a conflict of interest Leading the performance appraisal of the chair

The group company secretary

Mrs SE van Loggerenberg was appointed as group company secretary and legal from 1 October 2017.

The board recognises the pivotal role of the group company secretary in establishing effective processes and systems to ensure that good corporate governance forms part of the fibre of the organisation and is entrenched in its culture.

In compliance with paragraph 3.84(i) of the JSE Listings Requirements, an annual evaluation of the incumbent company secretary was carried out to consider and satisfy itself of Mrs van Loggerenberg's competence, qualifications and experience. The formal evaluation confirmed:

• Her competence score of 97.67%
• Confirmed the suitability of her qualifications
• Confirmed her experience of over 10 years in the mining industry and 17 years in various capacities in the fields of governance, risk and compliance.

The board is comfortable that she maintains an arm's-length relationship with individual directors and confirms that she is neither a director nor public officer of the company or any of its subsidiaries.

Board composition

As indicated below, the board comprises the appropriate balance of knowledge, skills, experience, diversity and independence to discharge its governance role and responsibilities objectively and effectively.

There were a number of directors who resigned/retired from the board after Main Street 333 Proprietary Limited was unwound through the BEE transaction. Members had to be nominated anew by Eyesizwe (RF) Proprietary Limited, which now holds 30% of the shares in Exxaro. This offered an opportunity to promote race and gender diversity targets for board composition.

As per JSE Listings Requirements paragraphs 3.84(i) and 3.84(j) and King IV, the board must set race and gender diversity targets, which have been set.

Diversity of skills and experience:

The board skills matrix is on Leadership.

	Director classification

Director classification

In line with King IV, non-executive members may be categorised as independent if the board concludes there is no interest, position, association or relationship which, when judged from the perspective of a reasonable and informed third party, is likely to influence unduly or cause bias in decision making in the best interest of the company.

We have two non–executive directors that have served on the board in an independent capacity for over nine years. An assessment has been conducted annually since 2017, and it has been concluded that these members exercise objective judgement and there is no interest, position, association or relationship which, when judged from the perspective of a reasonable and informed third party, is likely to influence unduly or cause bias in decision making.

After a formal assessment, the board concluded that the majority of directors are independent.

• Independent non–executive directors = 64.3%
• Non-executive directors = 21.4%
• Executive directors = 14.3%

There has been a marked increase in the independence of our board from 2017, from 50% to 64% independent non-executive directors, with non–executive directors declining to 21% from 36% in 2018.

Gender and racial diversity

In line with King IV, the board charter and remco terms of reference, race and gender targets have been set for the board. This coincided with the appointment of new directors in 2018, after shareholders approved implementation of the replacement BEE transaction.

Compliance against targets:

• HDSA target of 50%:
  • HDSA: 71.4%
  • Non-HDSA: 28.6%
• Gender target of 30% HDSA women:
  • Female: 35.7%
  • Male: 64.3%

There has been a marked increase from 2017 in our HDSA female representation, from 14% to 36%.

Directors’ equity and gender status

Director tenure

The implementation of the replacement BEE transaction in 2018 coincided with the resignation/retirement of a number of directors and appointment of new directors, following shareholder approval.

Appointment and the period of office of directors are as follows:

• New directors, appointed in casual vacancies during the year, will hold office only until the next AGM, at which they will retire and be available for re-election
• All non-executive directors are subject to retirement by rotation and re-election by shareholders at least once every three years, consistent with the memorandum
  of incorporation
• If an executive director's employment is terminated for any reason, that director will be deemed to have resigned as a director of the company on the same date.

	Director tenure

Diversity of age

The retirement age for an executive director is 63, and 70 for a non-executive director. The board is entitled to recommend the re-election of a non-executive director who has passed the age of 70, provided that remco and the board recommend to shareholders that the individual is suitable for
re-election. This re-election will occur on an annual basis once the director has reached age 70.

To ensure continuity of experience and knowledge, the company has adopted a process of staggered re–election of directors, in terms of the memorandum of incorporation.

Our directors:

70> years = 1

60 – 69 years = 4

50 – 59 years = 5

40 – 49 years = 4

The performance of our board

Key performance indicators

As explained in prior reports, the board and committees set annual KPIs to ensure that, in addition to general requirements placed on these bodies, their attention is directed to key activities that support and enable management to achieve the group strategy. We recognise that these KPIs are still more quantitative in nature, but we aim to mature them into more meaningful qualitative measures to give stakeholders an in–depth understanding of the performance of the board and its committees.

The board and committee evaluation for 2018 therefore only focused on whether these KPIs had been achieved.

	Key performance indicator (KPI)			2018
	Continue to enhance the visibility and agreement at board level of key risks facing the company and associated mitigation plans by embedding a structured institutional process, agreeing the level of risk tolerance the company is willing to accept in pursuit of its strategic objectives
	Address both board and personal enhancement opportunities identified in the board effectiveness review and improve board diversity as opportunities allow
	Cultivate a formal process to review financial advisers/consultants and others to Exxaro and make changes as appropriate
	Innovation and information management (IM): govern technology and information that support the organisational culture change to the new digital way of working. Oversee improvement of EBIT or throughput by digitalisating operations
	Enterprise and supplier development: continue to ensure legislative compliance with sector codes that regulate both supplier and enterprise development; monitor drive toward supplier diversity by focusing on new entrants to the Exxaro value chain, as well as the social impact of the enterprise development strategy, including new jobs created and beneficiaries supported

Significant skills and experience (10+ years, in–depth, main focus area, weekly use of skills, line accountability)

Committee KPIs are discussed in each committee report.

Board evaluation

Formal evaluations of the board, committees and individual directors, including the chair and committee chairs, are performed at least every second year by an independent third party. In the review period, the assessment used an electronic survey process administered by the group company secretary as well as a qualitative assessment approach.

This evaluation process is twofold: to review the governance system and processes supporting effective leadership and, secondly, to assess group and individual performance against set criteria. The outcome of the board evaluation process is shown below:

Observations were ranked as follows:  1 – poor   2 – needs some improvement   3 – satisfactory   4 – good   5 – meets best practice

Performance out of five