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King IV Compliance List

Application of King IV principles

“The group embraces the importance of a well-governed company as an environment conducive for an ethical culture, effective control, good performance and legitimacy while reducing the likelihood of fraud and breaches of authority.”

The board decided to mindfully apply the principles of the King IV Code of Corporate Governance for South Africa, 2016 (King IV). For the period under review Telkom applied the principles of the King IV as disclosed below:

1. The governing body should lead ethically and effectively.

Our board understands that the ethical tone is set at the top and therefore leads by example. Directors are required to act in the best interest of the company always, in line with their fiduciary duty and ethical principles. Policies and procedures are in place which echo ethical behaviors and to which we hold the directors accountable to.

Directors are expected to adhere to the conflict of interest policy, share dealing policy and to declare any interest that they may have in any matter that concerns Telkom.

Every year (and any other time necessary) the Nominations Committee reviews the composition of the board to ensure that the right skills are in order to ensure that the board is effective in dealing with Telkom matters and discharging its duties.

2. The governing body must govern the ethics of Telkom in a way that supports the establishment of an ethical culture.

Telkom has a code of ethics applicable to the board and all employees. Annually, employees declare their commitment to the code of ethics and this is captured on the electronic system.

Through the Social and Ethics Committee and as introduced in March this year, each board member is required to sign a commitment to the code of ethics annually, regardless of the fact that they commit and sign on this on appointment to the board.

The board is supported by the Social and Ethics committee in ensuring the establishment and monitoring of the code of ethics and the promotion of ethical behaviour.

The ethics office, which resides in the company secretary’s office, is responsible for ethics management which includes ensuring governance structures are in place to assist in monitoring ethics requirements and outcomes, monthly induction sessions with new employees, review of compliance to and effectiveness of the code of ethics and supplementary policies and providing guidance and advice on ethics matters. Telkom has a crime hotline that can be accessed 24hours. All our employees and contractors are required to report any incidents of an unethical nature.

3. The governing body should ensure that Telkom is, and is seen to be, a responsible corporate citizen.

The company acts in a socially responsible manner and endeavours to meet its legal, ethical and economic responsibilities, through the activities of the Telkom Foundation, as well as internal company initiatives related to the prevention of fraud and corruption, the fair treatment of employees and responsible sponsorships, which are monitored by the Social and Ethics Committee which reports to the board and shareholders.

Our board is cognisant of the importance of returning value within the communities that we serve and operate in. Various initiatives and policies are in place to ensure that Telkom is a responsible corporate citizen.

A corporate citizenship policy is in place together with a corporate citizenship policy statement which articulate the areas of focus as a corporate citizen. Examples of other policies that aim to ensure corporate citizenship that Telkom adheres to are the disability policy, whistle blowing policy and employment equity policy.

Through the Telkom Foundation, Telkom aims to improve learner uptake of ICT careers among disadvantaged young people through investment in education. The Telkom Foundation strategy follows a three (3) phased approach, which involves to improve the quality of passes of disadvantaged high school (Gr- 8-12) selected learners by offering supplementary tuition in Maths, Science & English, to stimulate learner interest in ICT and in pursuing ICT related careers, to facilitate access and provide holistic support to learners up to post-school education and training with a specific focus in ICT as well as facilitate placement of learners.

4. The governing body should appreciate that Telkom’s core purpose, its risks and opportunities, strategy, business model, performance and sustainable development are all inseparable elements of the value-creation process.

Telkom has a short, medium and long term strategy that is formulated and developed by management led by the Group CEO.

Our board approves the strategy for the company, taking into account the business imperatives, risks, opportunities and resources available to execute on the strategy. The board has an annual strategy session to deliberate on and review the appropriateness of the strategy and provide overall guidance on the strategy to management.

Monitoring of the strategy is through business flight plans, which include strategic goals, developed once a year and converted into business plans. Performance tracking is assessed on a monthly basis as part of the operations and financial reviews. Telkom has an executive officer that is responsible for leading strategy and who reports directly to the GCEO.

5. The governing body should ensure that reports issued by Telkom enable stakeholders to make informed assessments of the organisation’s performance, and its short, medium and long-term prospects.

Telkom’s Integrated Report is prepared in line with International Integrated Reporting Council’s Integrated Reporting Framework (IIRC). The board approves management’s basis for determining materiality and takes accountability of the integrated report. The audit committee is closely involved in the process of reviewing and approving the integrated report, as mandated by the board. Telkom aims to adhere to the disclosure requirements as required by the JSE, Companies Act, King IV and all relevant legislation and codes that Telkom abides by.

To ensure the credibility of information that is released to the public, a disclosure policy is in place that defines how information is released to the public and the responsible persons for the release of such information. There are internal processes for validating and approving information or communication to be released to the public regardless of the manner that this information will be released in.

Telkom makes use of assurance providers that provide assurance on financial and certain non-financial information before it is published. External auditors, internal auditors, audit committee, IBIS ESG Assurance and BEE online form part of our assurance providers.

6. The governing body should serve as the focal point and custodian of the corporate governance in Telkom.

Our board is the focal point of governance. This is emphasized in the board charter, which sets out the mandate of the board and provides for the board to take accountability for Telkom’s corporate governance.

To assist the board in discharging its duties, six committees have been constituted each with a formal terms of reference. These terms of reference make provision for the committee members to obtain professional advice should this be required in the exercise of their mandate. The board meets at least 4 times a year (excluding the strategy session) and additional special meetings are scheduled as required. The attendance of board and committee members is as tabled in our integrated report.

7. The governing body should comprise the appropriate balance of knowledge, skills, experience, diversity and independence for it to discharge its governance role and responsibilities objectively and effectively.

The board, through the nomination committee, considers, on an annual basis, its composition in terms of balance of skills, experience, diversity, independence and knowledge, and whether this enables it to effectively discharge its role and responsibilities. Directors are appointed through a formal process in accordance with the procedures set out in the Nominations Committee’s Terms of Reference, which specify various elements that should be considered in selecting an incumbent for the board.

The board approved a diversity policy which articulates various categories of diversity to be considered in the composition of the board including gender, race, experience and qualifications.

8. The governing body should ensure that its arrangements for delegation within its own structures promote independent judgement, and assist with the balance of power and the effective discharge of its duties.

The board has constituted six committees of the board with formal terms of reference. The delegation to committees ensures that the work of committees is complementary in nature where duties overlap. Cross membership also forms part of the delegation to ensure that there is collaboration among the committees. Members of the board are allowed to attend any of the committees but do not vote at such committees where they are not members. Other members of management are invited to the meetings either as permanent invitees or as required.

Membership of the committees is reviewed on an annual basis through the nomination committee to ensure that these are optimally constituted for their respective mandates.

9. The governing body should ensure that the evaluation of its own performance and that of its committees, its chair and its individual members, support continued improvement in its performance and effectiveness.

The board, its committees and individual directors are evaluated every second year. This process is coordinated by the nominations committee with the assistance of the group company secretary. These evaluations are rotated between internal and external evaluations. In 2016, an external evaluation was performed by an external service provider. In 2018, an internal evaluation was conducted. The results of these evaluations are discussed with the board, committees and individual directors. Through the group company secretary, areas of improvement or concern are noted and actions taken to address these.

10. The governing body should ensure that the appointment of, and delegation to, management contribute to role clarity and effective exercise of authority and responsibilities.

Telkom has in place a delegation of authority policy, which outlines the responsibility of the GCEO and that of the executive management. The board delegates the implementation of the strategy to the GCEO who is assisted by the executive management. Specific matters that the board reserves for itself are stipulated under board reserved matters.

The appointment of the GCEO is considered and approved by the board, which is responsible for the performance evaluation of the GCEO through the board approved process. Succession planning for top management is done through the remuneration committee in conjuction with One Nomination Committee who receive reports in this regard from the chief of HR.

The board, through the Remuneration and Nominations committees will continually develop the succession plan and ensure talent management within the group to guarantee a suitable pool of persons for the succession plan.

11. The governing body should govern risk in a way that supports Telkom in setting and achieving its strategic objectives.

The Enterprise Risk Management (ERM) Framework describes Telkom’s approach to risk management. The group has a fully-fledged risk management department, headed by the chief risk and compliance officer. The risk management team is responsible for the design, implementation, and monitoring of the risk management plan of the group.

The risk committee has the primary mandate for assisting the board in carrying out its risk responsibilities and works with other committees, including the audit committee and the social and ethics committee, to ensure that risks are properly managed from all relevant dimensions.

The Risk committee will be paying heightened attention to technology and information risks as recommended by King IV. The terms of reference of the committee were updated to include the additional responsibilities in this regard.

12. The governing body should govern technology and information in a way that supports the organisation setting and achieving its strategic objectives.

The risk committee is responsible for the governance of technology and information as mandated by the board. The committee approved the Technology and Information Governance Charter. The Information Technology (IT) Governance and Information Security forum is responsible for information and security governance.

Significant investments and expenditure in technology are monitored by the board. The Delegation of Authority framework of the group 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 might also consider aspects of such investments or expenditure.

Additional time was added to the committee meetings to adequately deal with the matters on technology and information.

13. The governing body should govern compliance with applicable laws and adopted, non-binding rules, codes and standards in a way that it supports Telkom being ethical and a good corporate citizen.

Compliance with laws and regulations applicable to Telkom’s operations is critical as non-compliance may have potential serious consequences. To this end Telkom has developed a compliance framework, and compliance policy. Compliance reviews are included in the annual audit plan. The group has a dedicated compliance function which is charged with responsibility for ensuring compliance with laws applicable to it.

As part of its governance ethos, the group does, as and when appropriate, consider and apply non-binding rules, codes and standards. There is an effective compliance framework and attendant processes in place. Management is charged with responsibility for implementing the framework and processes. Reports on compliance risk are provided to the risk committee, which reports back to the board at least once a quarter.

14. The governing body should ensure that the organisation remunerates fairly, responsibly and transparently so as to promote the achievement of strategic objectives and positive outcomes in the short, medium and long term.

The board delegated the implementation and execution of the remuneration policy to the Remuneration Committee. A benchmarking exercise is performed annually to ensure that the remuneration paid by Telkom is competitive and fair and that it enables the company to attract and retain talent. The remuneration committee will be focussing on aligning the remuneration philosophy across the group.

15. The governing body should ensure that assurance services and functions enable an effective control environment, and that these support the integrity of information for internal decision-making and of the organisation’s external reports.

Reliance is placed on both internal and external assurance providers. Telkom follows a combined assurance model that is informed by the risks and opportunities that affect the Group’s ability to create value. We rely on the three lines of defence which enable an effective control environment thereby supporting the integrity of our information. We have both internal and external assurance providers that provide assurance on the financial and non-financial information.

16. In the execution of its governance roles and responsibilities, the governing body should adopt a stakeholder-inclusive approach that balances the needs, interests and expectations of material stakeholders in the best interests of the organisation over time.

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. In all its dealings, the board’s singular focus is acting in the best interests of the company. As such, balancing the needs and expectations of the various stakeholders is a critical component of the board’s decision-making processes. There is a dedicated function whose purpose is the management of stakeholder relationships.

17. The governing body of an institutional investor organisation should ensure that responsible investment is practised by the organisation to promote the good governance and the creation of value by the companies in which it invests.

This principle does not apply to Telkom.