Integrated report 2019
Exxaro Resources Limited
Integrated report 2019
Our values# provide a foundation for our corporate governance practices. Therefore, as the custodian of corporate governance in the group, the board of directors of Exxaro Resources Limited (the board) is fully committed to the 16 principles of good corporate governance as set out in the King IV Report on Corporate Governance for South Africa, 2016 (King IVTM). Alongside our values, the King IV principles are critical for effective governance outcomes to create long-term stakeholder value.
Independence
Board composition (%)
The board is diverse in demographics, skills and experience to support governance that sustains value.
In line with King IVTM, non-executive members may be categorised as independent if the board concludes that there is no interest, position, association or relationship which, when judged from the perspective of reasonable and informed third party, is likely to influence unduly or cause bias in decision- making in the best interest of the company.
Currently, one non-executive director, Mr J van Rooyen, has served on the board in an independent capacity for longer than nine years. In line with the company's memorandum of incorporation and the board charter, a formal assessment regarding the independence of mind has been conducted annually since 2017. After in-depth deliberation, the nomination committee, after the recusal of Mr J van Rooyen, concluded that he was independent in appearance and in fact.
The following directors resigned during 2019:
1. Ms D Mashile-Nkosi resigned as a non-executive director of the company with effect from 11 October 2019
2. Ms MW Hlahla resigned as an independent non-executive director of the company with effect from 31 December 2019
The period in office of our directors provides a proper blend of experience to the board. Our director tenures can be summarised as follows:
Director tenure (%)
* Excluding Ms Mashile-Nkosi who resigned with effect from 11 October 2019
The importance and promotion of diversity at board level is recognised and the board formally adopted a Diversity Policy in February 2018, focusing specifically on the diversity attributes of gender, race, culture, age, field of expertise, skills and experience. Following the resignation of two female directors, diversity will be a key consideration when nominating new directors for appointment on the board to shareholders.
# Refer to People of this report and also People of our ESG Report.
For the reporting period, the diversity of the board can be represented as follows:
| Racial diversity (%) | Gender diversity (%) | Diversity of age (%) |
 |
 |
 |
* Excluding Ms Mashile-Nkosi who resigned with effect from 11 October 2019
The board set a racial diversity target, at board level, of 50%.
There has been a marked improvement in the racial diversity of our board since 2017, increasing from 50% to 69% in 2019.
The board and its committees set annual key performance indicators (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 in achieving the group strategy. We recognise that these KPIs are still more qualitative in nature but we aim to mature them into more meaningful quantitative measures to give stakeholders an in-depth understanding of the performance of the board and its committees.
The board and board committee evaluation for 2019 only focused on whether these KPIs had been achieved.
| KPIs in 2019 | Evaluation | |
| 1. | Review the Exxaro 2026 strategy including Coal 2023 strategy and Business of Tomorrow strategy | Achieved |
|---|---|---|
| 2. | Review board KPIs and risk appetite thresholds in light of strategic changes (if any) | Achieved |
| 3. | Review the investment portfolio, including joint ventures and equity accounted investments and determine the hurdle rates (IRR and NPV among others) and other non-financial criteria for investment decisions (risk appetite and social return on investment among others) |
Achieved |
| 4. | Approve the investment or non-investment of a large targeted coal company's coal energy operations | Achieved |
| 5. | Monitor the gaps with regard to King IV compliance (as determined by EY) | Achieved |
| 6. | Oversee the implementation of lessons learnt from corporate failures (such as Steinhoff) | Achieved |
| 7. | Receive and review analyst reports | Achieved |
| KPIs in 2020 |
|
|
|
|
* HDSA means historically disadvantaged South Africans.
Board attendance
The attendance reflected below is based on four quarterly meetings, two governance sessions and six special board meetings calculated against the number of meetings the individual was required to attend.
| Director | Designation | Attendance (%) |
| J van Rooyen | Independent non-executive director and chairman of the board | 100 |
| GJ Fraser-Moleketi | Lead independent non-executive director | 100 |
| MW Hlahla** | Non-executive director | 50 |
| PA Koppeschaar | Executive director: Finance director | 100 |
| D Mashile-Nkosi* | Non-executive director | 71 |
| L Mbatha | Non-executive director | 83 |
| MDM Mgojo | Executive director: Chief executive officer | 100 |
| VZ Mntambo | Non-executive director | 83 |
| MJ Moffett | Independent non-executive director | 100 |
| LI Mophatlane | Independent non-executive director | 92 |
| EJ Myburgh | Independent non-executive director | 100 |
| V Nkonyeni | Independent non-executive director | 92 |
| A Sing | Independent non-executive director | 83 |
| PCCH Snyders | Independent non-executive director | 100 |
| * | Ms D Mashile-Nkosi resigned as a director of the company with effect from 11 October 2019 |
| ** | Ms MW Hlahla resigned as a director of the company with effect from 31 December 2019 |
An independent evaluation was done in respect of the performance and effectiveness of the board and its committees. The purpose was to identify and record possible areas for strengthening while taking into consideration internal and external dynamics, and factors that may positively or negatively impact on the board's ability to enhance its performance and effectiveness in these areas where gaps were identified.
The formal evaluation is performed at least every second year by an independent third party and comprehensive feedback on the performance and effectiveness of the board and its board committees is provided
Performance was ranked as follows:
| Rating | Explanation |
| 1 | Needs significant improvement |
| 2 | Needs improvement |
| 3 | Satisfactory |
| 4 | In line with best practice |
Overall performance
The overall, average rating achieved by the board of 3.21 is slightly above satisfactory and an indication that, although the board was generally satisfied with its performance and effectiveness, it does believe that there was still room to strengthen and/or refine specific areas.
The average ratings per evaluation theme are as follows:
| The average ratings per evaluation theme are as follows: Analysis per theme |
Board committee evaluation Average rating per comittee |
 |
 |
Following the evaluation, various observations and recommendations have been made to the board. The board will also take the learnings from the evaluation, specifically the areas that they have identified as requiring additional focus, into its annual work plan for 2020.
General observations following the independent evaluation of the board committees:
For more detail on the board and board committee evaluations, please see our ESG report.
King IV forms the cornerstone of our approach to governance. As such, we support the overarching outcomes of King IV, being the creation of
➤Ethical culture
➤Performance and value creation
➤Adequate and effective control
➤Trust, good reputation and legitimacy
Please refer to our full governance report in our ESG report for full detail on how we go about achieving these outcomes.
➤Ethical culture
Key areas of focus included
As the board assumes the responsibility for the governance of ethics, it also sets the direction for manner in which ethics should be approached and addressed by the organisation. Following a group-wide assessment, the board approved and endorsed a revised code of ethics in September 2018, which expressed the board's commitment to comply with the letter and spirit thereof. The revised code of ethics was rolled out within the group throughout 2019.
The code of ethics is read in conjunction with all the company's policies and procedures, with specific reference to the following policies that support the establishment of an ethical culture:
• Use of technology
In line with our continued pursuit of digitalisation, key considerations were deliberated at board level with regard to the use of technology and supporting an ethical culture.
➤Performance and value creation
Key areas of focus included:
• Strategy
Following extensive engagements with key stakeholders, including our providers of capital, and an assessment of our operating context, a strategic review was undertaken. Furthermore, in the formulation of a new strategy for the company, the board engaged with the executive and senior management in several strategy sessions throughout the year. The board therefore appreciates that the company's core purpose, its risks and opportunities, strategy, business model, performance and sustainable development are all inseparable elements of the value creation process. The insight that conditions are changing and that there is a need to become future-fit is used to drive decisions and measure our transition to a lower carbon future.
For detailed information on the outcome of these discussions,
please see the Chairman's review , the CEO's review and our strategy discussion, including our trade off considerations.
Further key strategic considerations:
• Innovation
Within its overarching values, the company has five cultural themes, viz., responsibility, adaptability, openness and connectivity, diversity and ownership. The company aims to foster a culture of being adaptable to the ever-changing world around us, encouraging its employees to be willing to learn and improve in everything they do. As change is inevitable, based on current social, economic, and technological realities, the company is placing emphasis on agility and creating new opportunities to move the group forward whilst remaining responsible to its stakeholders.
➤Adequate and effective control
Key areas of focus included
The Exxaro corporate governance structure supports the group's ability to create long-term value for stakeholders. The structure is constantly assessed to ensure agility in decision making and supporting different business requirements. Through this structure, the board exercises effective control, builds and protects the organisation's reputation and legitimacy. Good corporate governance is the responsibility of the board and executive management as well as all our employees.
Exxaro recognises the integral link between strategy, operating model and the corporate governance structures, hence the company continuously evaluates and monitors these elements to ensure that it remains fit for purpose and drives shareholder value.
The board therefore retains full and effective control over the business and affairs of the company and the board does not assume the functions of management, which remain the responsibility of the executive directors, prescribed officers and other members of senior management.
Our corporate governance structure
 |
Board |  |
|||||||||||||||||||||||
| Board committees | |||||||||||||||||||||||||
|
|||||||||||||||||||||||||
Detailed reports from each of the board committees are included in our ESG report at https://www.exxaro.com/investor/integrated-reports2019/esg/index.php
We use a strategic performance dashboard to measure whether the company is on track to achieve its strategic objectives. This is a practical tool that was developed to monitor the creation of value and assist the board in understanding the pace and trajectory of execution of the strategy. Reporting on the status of the strategic dashboard is done at each of the board and the board committee meetings throughout the year to assist the board in tracking the achievement of the strategic objectives. The strategic dashboard KPIs are classified under the six capitals and can be found on the ESG report. These KPIs are regarded by the board and executive as most material or the best possible aggregated representation of performance in these areas.
The strategic dashboard KPIs cover inter alia, the areas of health and safety, skills development, environmental stewardship, carbon emissions, water management, socio-economic development, and compliance with key regulations such as the Codes of Good Practice and the Mining Charter scorecards. Furthermore, governance and financial metrics are also reported in the strategic dashboard.
➤Trust, good reputation and legitimacy
Key areas of focus included:
In support of the company's purpose of powering better lives in Africa and beyond, the company continues to work towards improving the quality of our relationships with stakeholders and building long-term, stable and trusting relationships that will create shared value for all our stakeholders. More information on our stakeholder engagements can be found under "stakeholder management".
Implementation of the replacement BEE transaction phase 2: As part of the replacement BEE transaction of 2017, Exxaro committed to introducing appropriate schemes to benefit its employees and communities. Exxaro was guided by the Mining Charter III, published in 2018, and will implement these schemes during the 2020 financial year.
