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Governance

King III Compliance List

Application of King III principles

The Company considers corporate governance as an important aspect to the success of the group and remains committed to sound corporate governance principles.The Board confirms that the Company applies the principles of the King Code of Governance Principles for South Africa (King III Code) and has been effectively doing so and reporting on a spectrum of governance principles, underpinned by the values of responsibility, accountability, fairness and transparency.


For the period under review Telkom applied the principles of the King III code as disclosed in the table below:

King lll Reference
Principle
Status
Application of the principle by the Group
1. Ethical leadership and corporate citizenship 5
1.1 The board should provide effective leadership based on an ethical foundation Applied Management under the direction of the board has set the tone for the organisation by establishing a Business Code of Ethics (BCoE). The board further demonstrated commitment by ensuring that member declaration of conflict of interest is a standing agenda item at each Board meeting
1.2 The board should ensure that the company is and is seen to be a responsible corporate citizen Applied The Company has in place processes and policies such as the Corporate Citizenship policy to meet its legal, ethical and economic responsibilities. The Telkom Foundation enables the execution of the Company’s social responsibility aspiration. The activities of this Foundation are monitored by the Social and Ethics Committee which reports to both the Board and Shareholders
1.3 The board should ensure that the company’s ethics are managed effectively Applied The board mandated the Social and Ethics Committee to exercise oversight on the implementation of the Code by management. Telkom has charged the Company Secretariat with the responsibility of managing the Company’s Ethics programme Details of the activities of this office are reported to the Board through the Social and Ethics Committee, to ensure that ethical leadership is effectively managed. The report relating to the ethics survey conducted in 2016 was reviewed and interrogated by the Social and Ethics Committee to ensure the formulation of an appropriate ethics strategy
2. Boards and directors
2.1 The board should act as the focal point for and custodian of corporate governance Applied The Board has been charged with custodianship of corporate governance through formal terms of reference, which sets out its mandate, authority and responsibility in this regard
2.2 The board should appreciate that strategy, risk, performance and sustainability are inseparable Applied The board recognises that strategy, risk, performance and sustainability are inseparable. This is evidenced in the manner in which its committees are structured and represented; mandated and operationalised enabling cohesive oversight of strategy, risk, performance and sustainability matters
2.4 The board should ensure that the company is and is seen to be a responsible corporate citizen Applied The steps taken in order to efficiently and effectively manage ethics reflect our intention to be a responsible corporate citizen. As an all important link in the South African economy, we believe we can make a valuable contribution, not only in financial terms, but also in social terms. Our conduct towards stakeholders is determined by the values and attitudes that are fostered within the company, ethics starts at home
2.5 The board should ensure that the company’s ethics are managed effectively Applied Ethics Management ('EM') is about establishing, integrating and sustaining an ethical culture within Telkom, namely:
  • To foster a culture that leads with integrity – grounded in ownership, empowerment, good judgment, and personal accountability
  • To assist management in establishing, observing, and enforcing adequate standards of conduct both internally and with our stakeholders
  • To design and administer the Telkom Ethics management plan, as its custodian, with the purpose of creating an ethical culture within Telkom, i.e. actualizing the chart values
The Board of Directors, through the Social and Ethics Committee ensures that the company’s ethics are managed effectively.
In accordance with King III, it is the responsibility of the Chairman of the board to set the ethical tone for the board and it is the responsibility of the CEO to foster a culture that promotes sustainable ethical practices.
These responsibilities are achieved by various means, one of which is the appointment of an Ethics Officer, and the establishment of an Ethics Office. It is the task of this office to monitor and enhance Telkom’s internal organizational culture, and to ensure that employees are empowered and encouraged, through this culture, to act with integrity in an ethically responsible way.
These initiatives are meant to bring Telkom in line with South African regulation and legislation relating to Ethics management.
Essential to the achievement of the Ethics management objectives is the implementation of an ethics management structure to support the achievement of the objectives
2.6 The board should ensure that the company has an effective and independent audit committee Applied The audit committee comprises non-executive directors only who are also independent, thus ensuring an appropriate balance of power. The Audit Committee executes against an approved terms of reference and is chaired by a nonexecutive director, other than the Chairman of the Board. Its membership is reviewed annually to ensure the right mix of skills continues to be in place which contribute to the effectiveness of the committee
2.7 The board should be responsible for the governance of risk Applied The board considers and approves the Enterprise Risk Management framework annually. Through the Risk Committee the Board ensures that appropriate risk controls are in place that monitor enterprise risk management. A risk dashboard that outlines all the risks relevant to the company, their respective risk ratings and mitigation factors is reviewed at every meeting of the Risk committee. The Chairperson of the Risk provides feedback at every Board meeting to ensure the Board is always up to date with all factors around the Company’s risks
2.8 The board should be responsible for information technology (IT) governance Applied > The board has been charged with IT governance responsibility through its Terms of Reference. The Risk Committee has been delegated the responsibility to oversee this matter and report to the board in this regard.
2.9 The board should ensure that the company complies with applicable laws and considers adherence to non-binding rules, codes and standards Applied The audit committee comprises non-executive directors only who are also independent, thus ensuring an appropriate balance of power. The Audit Committee executes against an approved terms of reference and is chaired by a nonexecutive director, other than the Chairman of the Board. Its membership is reviewed annually to ensure the right mix of skills continues to be in place which contribute to the effectiveness of the committee
2.10 The board should ensure that there is an effective risk-based internal audit Applied The establishment and operation of an effective risk based internal audit function has been delegated to the audit committee by the board. The audit committee discharges this responsibility through annual assessments of the effectiveness of the internal audit function, including the approval of external independent quality assurance reviews of the internal audit function on a maximum 5 year cycle
2.11 The board should appreciate that stakeholders’ perceptions affect the company’s reputation Applied The Board fully appreciates the impact of stakeholder perceptions hence the company monitors and manages the stakeholder perceptions for its reputation and longterm sustainability. The Chairman and CEO play an active role in ensuring that the activities of the company enhance stakeholders' perceptions
2.12 The board should ensure the integrity of the company’s integrated annual report Applied A number of checks are employed in the preparation of the Integrated Report which include verification of information through various teams. External auditors review the financial performance and the non-financial part of the report is assured independently
2.13 The board should report on the effectiveness of the company’s system of internal controls Applied The board through the audit committee assesses the effectiveness of the company’s system of internal controls annually based on a written assessment from the internal audit function. Thiswhich forms the basis for the board report on the effectiveness of the system of internal controls in the integrated report
2.14 The board and its directors should act in the best interests of the company Applied The board and its directors are aware of their collective and individual fiduciary obligations and responsibilities towards the company. A process is in place for the directors to disclose any conflict of interest they may have in relation to the Company or on any transaction deliberated on at board meetings. The company has adopted a Conflict of Interest policy which forms part of the Business Code of Ethics which our directors adhere to. The Business Code of ethics is reviewed annually by the Social and Ethics Committee
2.15 The board should consider business rescue proceedings or other turnaround mechanisms as soon as the company is financially distressed as defined in the Act Noted The board notes this principle and will act accordingly should circumstances require
There have not been any circumstances requiring business rescue in the year under review
2.16 The board should elect a chairman of the board who is an independent non-executive director. The Chief Executive Officer (CEO) of the company should not also fulfil the role of Chairman of the board Applied The chairman of the board is an independent nonexecutive director. The roles of the chairman and CEO are separate
2.17 The board should appoint the Chief Executive Officer and establish a framework for the delegation of authority Applied The appointment of the CEO is a matter for the Board. A comprehensive delegation of authority framework is in place which is periodically revised and approved by the Board
2.18 Composition of the board
The board should comprise a balance of power, with a majority of non-executive directors. The majority of non-executive directors should be independent.
Applied The majority of Telkom's board comprise independent non-executive directors
2.19 Board appointment processes
Directors should be appointed through a formal process.
Applied Directors are appointed through a formal process in accordance with the Company’s Memorandum of Incorporation as well as the procedures set out in the Nominations committee’s Terms of Reference.
2.20 Director development
The induction of and ongoing training and development of directors should be conducted through formal processes
Applied The Board has a formal induction process for its new directors in place. Training and development is on-going through the various committees.
2.21 Company Secretary
The board should be assisted by a competent, suitably qualified and experienced Company Secretary
Applied The company secretary has the requisite experience, and qualifications to competently fulfil the role of assistance to the board
2.22 Performance assessment
The evaluation of the board, its committees and the individual directors should be performed every year
Applied A Board evaluation was performed in June 2016 by an external service provider. The outcome of these evaluations inform the need for change in strategy directions and other gaps which require the board’s attention, development and training requirements, if any, for the directors
2.23 Board Committees
The board should delegate certain functions to well-structured committees but without abdicating its own responsibilities
Applied The Board has established six Committees with approved terms of references which clearly document functions delegated by the board to such Committees. The Chairs of the Committees provide formal reports to the board on matters delegated to them. The details of these Committees appear in the Integrated Report
2.24 Group boards
A governance framework should be agreed to between the group and its subsidiary boards
Applied the DoA served as a framework between the group and subsidiary boards, but given the revised operating model the Board identified a need for a more robust framework in the form of a governance framework which is currently underway
2.25 Remuneration of directors and senior executives
Companies should remunerate directors and executives fairly and responsibly
Applied The remuneration of directors and executives is a matter for the board, which is assisted by the Remuneration Committee. Remuneration is reviewed annually and is duly benchmarked
2.26 Companies should disclose the remuneration of each individual director and certain senior executives Applied The remuneration of directors and prescribed officers of the company is disclosed annually in the Integrated Report.
2.27 Shareholders should approve the company’s remuneration policy Applied The company’s remuneration policy is presented to shareholders for approval through a non-binding advisory vote at every Annual General Meeting
3. Audit committees
3.1 The board should ensure that the company has an effective and independent audit committee Applied The board has established an independent Audit Committee in accordance with the requirements of the Company’s Act. The Audit Committee’s composition is reviewed on an annual basis
3.2 Audit committee members should be suitably skilled and experienced independent non-executive directors Applied Members of the audit committee individually and collectively possess the qualifications and experience necessary to fulfil the mandate of the committee. All members are independent non-executive directors and are elected at every Annual General Meeting
3.3 The audit committee should be chaired by an independent non-executive director Applied The chairman of the audit committee is an independent non-executive director
3.4 The audit committee should oversee integrated reporting Applied The audit committee oversee the Group’s integrated reporting process and the content therein. It convenes a special meeting to review the Integrated Report in its entirety
3.5 The audit committee should ensure that a combined assurance model is applied to provide a co-ordinated approach to all assurance activities Applied The Audit Committee ensures that a combined assurance model involving a matrix of various business and functional areas within the group is applied. The committee interrogates the process to ensure that the necessary forums within the group are well coordinated
3.6 The audit committee should satisfy itself of the expertise, resources and experience of the company’s finance function Applied The committee annually reviews the performance of the finance function and from time to time satisfies itself of the expertise, resources and experience of the finance function
3.7 The audit committee should be responsible for overseeing of internal audit Applied The internal audit function within Telkom is overseen by and reports its activities to the audit committee. An assessment of the function is conducted on an annual basis
3.8 The audit committee should be an integral component of the risk management process Applied The audit committee is an integral component of the company’s risk management process. The committee works very closely with the risk committee in the management of enterprise risk. There is also cross-membership between the chairman of this committee and that of the risk committee
3.9 External assurance providers
The audit committee is responsible for recommending the appointment of the external auditor and overseeing the external audit process
Applied The appointment of the external auditor is recommended by the audit committee annually. The external audit process is overseen by the audit committee, from approval of the annual audit plan, receiving reports against such plan, monitoring actions to address audit findings, oversight of audit processes relevant to the preparation of the annual financial statements etc.
3.10 Reporting
The audit committee should report to the board and shareholders on how it has discharged its duties
Applied The committee reports to the board at least once a quarter and submits a report on how it has discharged its duties to the shareholders in the Integrated Report
4. The governance of risk
4.1 The board should be responsible for the governance of risk Applied The Board through its Risk committee is responsible for the governance of risk. The Company’s Enterprise Risk Management section oversees the implementation of the risk strategies. Key risks are identified and prioritised on an ongoing basis in line with external environment and as the Company’s strategy evolves
4.2 The board should determine the levels of risk tolerance Applied The board has approved the risk appetite framework and the associated risk appetite and risk bearing capacity of the group. Through the risk committee, the board assesses the group’s risks against strategy, performance and other criteria and determines an acceptable level of risk tolerance for the group
4.3 The risk committee or audit committee should assist the board in carrying out its risk responsibilities Applied The Risk committee has the primary mandate of assisting the Board in carrying out its risk management responsibilities. The Risk committee works hand-in-hand with other committees, including the Audit committee, the Social and Ethics committee and the Investment and Transactions committee, to ensure that risks are properly managed from all relevant dimensions
4.4 Management's responsibility for risk management
The board should delegate to management the responsibility to design, implement and monitor the risk management plan
Applied The group has enterprise risk management function. On an annual basis management prepares a risk management plan, which in turn is approved by the risk committee. Management provides the risk committee with regular updates on the progress related to the implementation of the plan. Management has also established business unit assurance forums which ensure the implementation of the enterprise risk management framework, timely identification of risk and appropriate risk responses
4.5 Risk assessment
The board should ensure that risk assessments are performed on a continual basis
Applied The enterprise risk management framework prescribes the process of continuous risk assessment. The risk portfolio is presented to the risk committee on a quarterly basis covering both the internal and external environment. The risk portfolio is all bench marked against the global telecommunications industry
4.6 The board should ensure that frameworks and methodologies are implemented to increase the probability of anticipating unpredictable risks Applied The group has a board approved enterprise risk management framework which incorporates best in class risk management methodologies. The framework aids the board through the identification, assessment, mitigation and reporting of risks, both current and unpredictable
4.7 Risk response
The board should ensure that management considers and implements appropriate risk responses
Applied Management regularly reports to the board on the risk responses adopted in mitigating the reported risk exposures
4.8 Risk monitoring
The board should ensure continual risk monitoring by management
Applied The company's risk management framework sets out a comprehensive risk monitoring and reporting system inclusive of the identification and measurement of key risk indicators. Management is responsible for monitoring the risk portfolio and has established the relevant levels of lines of defence and allocated responsibilities accordingly. The board, through its relevant committees, receives regular reports on all aspects of risk management
4.9 Risk assurance
The board should receive assurance regarding the effectiveness of the risk management process
Applied An assessment on the effectiveness of risk management is an annual review that is performed by internal audit and reported accordingly
4.10 Risk disclosure
The board should ensure that there are processes in place enabling complete, timely, relevant, accurate and accessible risk disclosure to stakeholders
Applied The Board has established a separate risk committee that approves the risk plan on an annual basis. The chairman of the risk committee reports to the board on a quarterly basis. The group provides full risk disclosure in the integrated report
5. The governance of IT
5.1 The board should be responsible for IT governance Applied The Board understands the importance, relevance and inherent risks in IT. Through the Risk Committee, the Board oversees the efefctiveness of IT governance
5.2 IT should be aligned with the performance and sustainability objectives of the company
The board should delegate to management the responsibility for the implementation of an IT governance framework
Applied The IT strategy is informed by and aligned to the company performance and sustainability objectives through the business planning process
5.3 The board should delegate to management the responsibility for the implementation of an IT governance framework Applied The implementation of an IT strategy was delegated to and is run by management
5.4 The board should monitor and evaluate significant IT investments and expenditure Applied Significant investments and expenditure in IT are evaluated by the Board. The Delegation of Authority framework of the company ensures that all significant investments and expenditure be considered by the Board through its Investments and Transactions committee. Where appropriate, the Audit and Risk committees consider aspects of such investments or expenditure
5.5 IT should form an integral part of the company’s risk management Applied IT forms an integral part of the company’s risk management.
5.6 The board should ensure that IT assets are managed effectively Applied IT assets are the engine through which the company is run. As such, effective management thereof is deemed vital on how the business as a whole is managed.
5.7 A risk committee and audit committee should assist the board in carrying out its IT responsibilities Applied Responsibility for overseeing IT governance is carried out by the Audit and Risk committees. While the Risk committee receives reports from Management on a regular basis, The audit committee through the Chairs attendance of the risk committee oversees matters pertaining to IT
6. Compliance with laws, rules, codes and standards
6.1 The board should ensure that the company complies with applicable laws and considers adherence to non-binding rules, codes and standards Applied The group has a compliance division which is charged with the responsibility for ensuring compliance with laws applicable to it
The compliance framework is approved the board on an annual basis. The group has a defined regulatory universe with compliance risk management plans to address the applicable legislation, codes and standards
6.2 The board and each individual director should have a working understanding of the effect of the applicable laws, rules, codes and standards on the company and its business Ongoing As part of the induction and ongoing training programme, the board is exposed to materials and interventions aimed at enhancing their understanding of the effect of laws, rules, regulations, codes and standards applicable to the company and its business
6.3 Compliance risk should form an integral part of the company's risk management process Applied The compliance risk management framework is integrated with the board approved enterprise risk management framework. Management reports to the risk committee on a quarterly basis regarding compliance with legislation, codes and standards
6.4 The board should delegate to management the implementation of an effective compliance framework and processes Applied The compliance risk management framework is prepared by management and approved by the board on an annual basis. Additionally management prepares a compliance plan, which in turn is approved by the risk committee. Management provides the risk committee with regular updates on the progress related to the implementation of the plan. Management has also established business unit assurance forums which ensure the implementation of the compliance framework, timely identification of compliance risks and appropriate risk responses Management has also implemented a control self-assessment process in order to obtain assurance regarding compliance with legislation, codes and standards
7. Internal audit
7.1 The board should ensure that there is an effective risk-based internal audit Applied Telkom has established an internal audit function which is mandated through a charter to provide risk-based assurance to the Audit Committee, as delegated by the board
7.2 Internal audit should follow a risk-based approach to its plan Applied The internal audit plan has adopted a risk-based annual planning approach, which is primarily informed by the risk register of the company and other sources of risk
7.3 Internal audit should provide a written assessment of the effectiveness of the company’s system of internal control and risk management Applied A written assessment of the effectiveness of the company’s system of internal controls and risk management is provided to the board through the audit committee on an annual basis
7.4 The audit committee should be responsible for overseeing internal audit Applied The audit committee oversees the activities of the internal audit function, from approving its annual plan to assessing its effectiveness at the end of each annual cycle
7.5 Internal audit should be strategically positioned to achieve its objectives Applied Internal audit reports functionally to the Chair of the Audit Committee and administratively to the Chief Financial Officer. The internal audit executive is a permanent invitee at both the Risk and Audit committee meetings
8. Governing stakeholder relationships
8.1 The board should appreciate that stakeholders' perceptions affect a company’s reputation Applied The Board fully appreciates the impact of stakeholder perceptions on the company’s reputation and how this can in turn affect the company’s performance and long-term sustainability. The board therefore places emphasis on ensuring ethical leadership and that company policies are understood and applied across the group
8.2 The board should delegate to management to proactively deal with stakeholder relationships Applied The CEO is charged with the management of stakeholder relationships
8.3 The board should strive to achieve the appropriate balance between its various stakeholder groupings, in the best interests of the company Applied In all its dealings, the board acts in the best interests of the company. As such, balancing the needs and expectations of the various stakeholders, such as clients, employees, regulators and shareholders, is a critical component of the board’s decision-making processes
8.4 Companies should ensure the equitable treatment of shareholders Applied Shareholders are treated equitably, in accordance with the JSE Listings Requirements
8.5 Transparent and effective communication with stakeholders is essential for building and maintaining their trust and confidence Applied The company has a comprehensive communications strategy and framework which informs its engagements with stakeholders. Transparency is a core element of this strategy and the board effectively communicates with the company’s stakeholders through the integrated report
8.6 Dispute resolution
The board should ensure that disputes are resolved as effectively, efficiently and expeditiously as possible
Applied Internal processes are in place to ensure that dispute resolutions are addressed effectively
9. Integrated reporting and disclosure
9.1 The board should ensure the integrity of the company's integrated annual report Applied The integrity of the company’s integrated report is ensured through a number of checks and balances employed in its preparation. Independent external auditors and other service providers provide the necessary assurance to the board regarding the integrity of the information in the integrated report. The Board ensures the integrity of the company’s integrated annual report through the Audit Committee which is mandated by the Board to ensure all the comments of the Board are incorporated into the integrated report. The Board signs off on it
9.2 Sustainability reporting and disclosure should be integrated with the company’s financial reporting Applied Sustainability reporting and financial disclosure are integrated into the company’s financial reporting