Corporate Governance

The Telkom Board subscribes to and is fully committed to sound business principles

The Board takes overall responsibility for the Group and its role is to exercise leadership and judgement in directing it to achieve continued prosperity and to act in the best interests of stakeholders.

Compliance

The Telkom Board subscribes to and is fully committed to sound business principles and practices of integrity and accountability, and values of good corporate governance as espoused in the Code of Corporate Practices and Conduct of King II (the Code). In so doing, the directors recognise the need to conduct the enterprise in accordance with best corporate practices.

The Board is of the view that Telkom complies in all material respects to the principles of the Code. While it acknowledges the importance of good governance, the Board is aware that Telkom does not strictly comply with certain principles set out in the Code. These areas of non-compliance stem mainly from certain provisions in Telkom's articles of association. Most of the areas of noncompliance will be resolved by no later than March 2011, when the provisions of Telkom's articles of association resulting in non-compliance with the Code fall away or earlier if the shareholding of a significant shareholder falls below certain stipulated levels.

Chairman and Board of directors

The Board takes overall responsibility for the company and its role is to exercise leadership and sound judgement in directing it to achieve continued prosperity and to act in the best interests of stakeholders.

Telkom has a unitary Board comprising 12 directors. In accordance with Telkom's articles of association, five non-executives including the Chairman have been appointed by the government of South Africa (the Class A shareholder) and one non-executive appointed by Black Ginger 33 (the Class B shareholder).

There are four other non-executive directors who are appointed at the company's annual general meeting and are considered to be independent, as set out in King II and the JSE Listings Requirements. The executive directors on the Board are the Chief Executive Officer and the Chief Financial Officer. In line with best practice, the roles of the Chairman and Chief Executive Officer have been separated. The Board is led by Ms ST Arnold, the Chairman, while operational management of the Group is the responsibility of Mr RJ September, Chief Executive Officer.

In terms of the articles of association, the non-executive directors appointed by the Class A shareholder have a fixed term of three years and may be re-elected to the Board by those shareholders. The Chairman has a term of one year and is reelected as Chairman for the ensuing year by the Class A shareholder. The four independent non-executive directors are subject to retirement by rotation and reelection by shareholders at least every three years in accordance with the articles of association and JSE Listings Requirements.

The holders of the Class A and B ordinary shares are the government of South Africa and Black Ginger respectively. The only significant shareholder is the Class A shareholder who currently holds 39.8% of the issued ordinary shares in the company. The significant shareholder has certain Board-reserved matters which are detailed in the company's articles of association. Pursuant to the articles of association, whilst the government is a significant shareholder, neither Telkom nor any of its subsidiaries may take action with respect to certain reserved matters unless authorised by the Board. In addition, the authorising resolution of the Board must have received the affirmative vote of at least one of the directors appointed by the government.

The member's resignations and appointments to the Telkom Board of directors during the year under review are as follows:

Resignations

MJ Lamberti - 3 June 2008
AG Rhoda   - 3 July 2008

Appointments

B Molefe     - 3 July 2008
PG Joubert - 12 August 2008
DD Barber  - 1 September 2008
PG Nelson  - 8 December 2008

Company Secretary

All directors have access to the advice and services of the Group Company Secretary, who is responsible for ensuring the proper administration of the board and corporate governance procedures. The Group Company Secretary provides guidance to the directors on their responsibilities within the prevailing regulatory and statutory environment and the manner in which such responsibilities should be discharged.

• View Shareholder Contacts

Delegation of authority

The ultimate responsibility for the Group's operations rests with the Board. The Board retains effective control through a welldeveloped governance structure of Board committee's which specialise in certain areas of the business. Certain authorities have been delegated to the Chief Executive Officer to manage the day-to-day business affairs of the company. The Group executives assist the Chief Executive Officer in discharging his duties and the duties of the Board when it is not in session. However, in terms of statute and the company's constitution, together with the revised delegation of authority, certain matters are still reserved for Board and/or shareholder approval.

Board meetings

Board meetings are held at least once a quarter. In addition to these meetings, whenever circumstances dictate the necessity, special Board meetings are convened. During the year under review, four scheduled Board meetings were held and 11 additional special Board meetings were convened. Details of attendance by each director including attendance at committee meetings of the Board are set out in the table below. Certain members of senior management attend Board meetings when invited to make presentations on particular company issues of interest to the Board. A majority of directors, one of whom must be a representative of the Class A shareholder, is required for a quorum for Board meetings.

The following table presents the attendance of meetings held during the 2009 financial year by directors:

Share dealings

In line with JSE Listings Requirements and the Group's insider trading policy, executives who wish to trade in Telkom securities are required to obtain prior written approval from the Chairman of the Board and the Group Company Secretary before dealing in Telkom securities. The Group operates closed periods as defined in the JSE Listings Requirements. Additional closed periods are enforced, when required, in terms of corporate activities as and when these occur.

Compliance with Sarbanes-Oxley

The Sarbanes-Oxley Act of 2002 was passed in the United States of America to protect investors by improving the accuracy and reliability of corporate disclosures, accounting practices and corporate governance. Telkom, as a listed company on the New York Stock Exchange (NYSE), registered in terms of the US Securities Exchange Act of 1934, is required to comply with the Sarbanes-Oxley Act. Telkom is committed to good corporate governance practices and compliance with the Act as directed by the US Securities and Exchange Commission (SEC).

Telkom's Sarbanes-Oxley steering committee represents divisions directly impacted by the requirements of the Act. Working closely with line management, a Sarbanes- Oxley compliance team is responsible for ensuring that risks and controls that may impact on the integrity of financial reporting are properly documented, reviewed and reported on. The independent external auditor attested to and reported on management's assessment of the effectiveness of internal control over financial reporting for the year ended March 31, 2009.

The Chief Executive Officer and the Chief Financial Officer (CFO) have certified that the requirements of Section 302 have been met for the year ended March 31, 2009.

In addition to the Sarbanes-Oxley Act, the NYSE corporate governance rules, approved by the SEC, permit NYSE-listed companies that are foreign private issuers, such as Telkom, to follow home-country practices in lieu of the requirements applicable to listed US companies, subject to certain exceptions.

In particular, foreign private issuers must have an audit committee that satisfies the requirements of Rule 10A-3 under the Securities Exchange Act of 1934, as amended and must disclose the significant ways in which their corporate governance practices differ from those followed by US companies under the NYSE listing standards. In addition, the CEO of a foreign private issuer must promptly notify the NYSE in writing after any executive officer of the listed company becomes aware of any material non-compliance with any applicable provisions of the NYSE corporate governance standards and foreign private issuers must submit an annual and interim written affirmation to the NYSE with regard to compliance with the foregoing requirements and certain changes to their audit committee's.

As a foreign private issuer the definition of independence of directors for Telkom is only relevant to the audit committee and is included in Rule 10A-3 of the US Security Exchange Act. This states that each member of the audit committee must be a member of the Board and should be independent as defined in Rule 10A-3 (b)(1)(ii) of the US Securities Exchange Act. A member of an audit committee of a listed issuer may not, other than in his capacity as a member of the audit committee, the Board, or any other Board committee:

• Accept directly or indirectly any consulting, advisory or other compensation from the listed entity; and
• Be an affiliated person of the listed entity.

An affiliated person of an issuer is a person who directly, or indirectly, through one or more intermediaries, controls, or is controlled by or is under common control with the issuer.

Rule 10A-3(b)(1)(iv)(E) of the US Securities Exchange Act provides an exemption from the prohibition on being an affiliated person of the issuer for an audit committee member of a foreign private issuer, who is a representative or designee of a foreign governmental entity that is an affiliate of the foreign private issuer if the member is not an executive officer of the foreign private issuer.

Key differences between NYSE corporate governance listing rules and Telkom practice are:

Internal controls

Our internal control environment is monitored by the ARC, which:

• Ensures that risks are identified and assessed.
• Ascertains that all systems and processes to prevent and/or mitigate these risks are monitored; and
• Reviews the quality of reporting and adherence to internal policies and other governance best practices.

Our organisational structure facilitates and allows the flow of information upstream, downstream and across all business activities. This is supported by formal mechanisms in place to communicate the responsibilities and expectations of business activities at executive level.

Section 404 of the Sarbanes-Oxley Act requires that companies listed on the NYSE annually evaluate and report on the effectiveness of their controls over financial reporting. We submit progress reports at least quarterly to the ARC which then reports to the Board.

Our internal audit function plays a key role in providing an objective view and continuous assessment of the effectiveness of the internal control systems throughout the Group to both management and the ARC.

Mechanisms are in place that capture and report on identified internal control weaknesses, including processes that ascertain the level at which deficiencies are reported. Significant deficiencies and material weaknesses in internal controls are reported to top management, the Board or the ARC, and the external auditors.

Telkom Audit Services (TAS)

TAS, in accordance with global best practices, is a value-adding, independent and objective assurance and consulting function, designed to add value to, and improve our operations. Its mandate is to provide an independent assessment on the reliability of financial reporting, validate control systems and provide an oversight of management and overall business activities, bringing a systematic, disciplined approach to the evaluation and improvement of the effectiveness of risk management, internal controls and corporate governance processes. In carrying out its mandate, TAS co-ordinates with other control and monitoring functions (enterprise risk management, compliance, security, legal, ethics, environment and external audit).

TAS is required to provide reasonable assurance and to determine whether or not our control processes and systems are adequate and functioning to ensure that:

• Resources and assets are effective and efficiently used and adequately protected;
• Risks are appropriately identified and managed;
• Significant financial, managerial and operating information is accurate, reliable and timely;
• Employee's actions are in compliance with policies, standards, procedures, applicable laws and regulations;
• Significant legislative or regulatory issues impacting on us are recognised and addressed appropriately; and
• An assessment is provided regularly of the adequacy and effectiveness of our corporate governance, risk and control processes for controlling our activities and managing our risks.

To ensure the independence of TAS, the Group Executive: Telkom Audit Services reports functionally to the ARC Chairman and administratively to the Chief Financial Officer and has direct access to the Chief Executive Officer. In this context, the ARC oversees processes related to financial risks and internal controls, financial reporting and the monitoring of internal and external auditing processes. In carrying out its duties, the team has unrestricted access to all Telkom functions, records, property and personnel.

The TAS team conducts audit work, or any other task, in accordance with the internal auditing standards set by the globally recognised Institute of Internal Auditing (IIA). This requires compliance with the Standards or Professional Practice of Internal Auditing (SPPIA) and, in particular, the codes of conduct and ethics that are promulgated from time to time by relevant professional bodies and any other corporate governance initiatives. Internal audit practices and activities are also benchmarked independently by an authoritative external party as recommended by the SPPIA and required by the ARC.