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King IV Compliance List

Application of King IV principles

“The group’s practices on good corporate governance are underpinned by integrity, competence, transparency and accountability in its decision-making processes. This is supported by sound ethics in the prevention of corruption and fraud”

Implementation of King IV

For the period under review Telkom applied the principles of the King IV as disclosed below:

Leadership, organisational ethics and corporate citizenship

Telkom’s response

Principle 1
The board 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 always act in the best interest of Telkom, 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. The board charter and code of ethics supports the company’s ethical culture.

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 it constitutes the right skills in order to ensure that the board is effective in dealing with Telkom matters and discharging its duties.

Refer to pages 97, 98, 101

Principle 2
The board 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 online portal. The board approved a leadership pledge which is underpinned by the pillars of sound corporate governance.

Through the social and ethics committee, 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 related matters.

Telkom has a supplier code of conduct which supports ethical behavior by third parties and forms part of the bid documentation.

Telkom has an independent crime hotline that can be accessed 24 hours to report any unethical practices. All our employees and contractors are required to report any incidents of an unethical nature.

Refer to pages 97, 98, 101

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

Telkom acts in a socially responsible manner and endeavours to meet its legal, ethical and economic responsibilities. These are through the activities of the Telkom Foundation, Telkom’s internal initiatives related to the prevention of fraud and corruption, the fair treatment of employees and responsible sponsorship activities. These are monitored through 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 we serve and operate in. Various initiatives and policies are in place to ensure that Telkom is regarded as a responsible corporate citizen. A corporate citizenship policy has been implemented with a corporate citizenship policy statement which articulates the areas of focus as a responsible 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 previously disadvantaged young people through investment in education.

Refer to page 101

Principle 4
The board should appreciate that Telkom’s core purpose, its risks and opportunities, strategy, business model, performance and sustainable development are all inseparable elements of the valuecreation process.

Telkom has a short, medium and long-term strategy that is focussed on value creation.

Our board approves the strategy for the Telkom, 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 implementation of the strategy and the measurement of targets is through business flight plans, which are developed once a year and converted into business plans. These include strategic goals for the entity’s execution. Performance tracking is assessed on a monthly basis as part of the operations and financial reviews. The functionary for strategy initiatives resides in the Group CEO’s Office.

Refer to page 8

Principle 5
The board 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 and social and ethics committees are closely involved in the process of reviewing and recommending the integrated report, for approval 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 mode of release.

Telkom makes use of assurance providers that provide assurance on financial and certain non-financial information prior to publication. Our range of assurance providers include the external auditors, internal auditors, audit committee, IBIS ESG Assurance and BEE online.

Refer to page 2

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

Our board is the focal point of governance. This is emphasised 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 the integrated report.

Refer to pages 91,92, 99

Principle 7
The board 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 nominations committee, considers 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 on an annual basis. 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 its composition including gender, race, experience and qualifications.

Refer to pages 89, 95

Principle 8
The board 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 with formal terms of reference. These are chaired by independent non-executive directors and are composed of individuals with the required skill sets. 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 committees where they are not members. Other members of management are invited to the meetings either as permanent invitees, or as and when required.

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

Refer to pages 91,93, 94

Principle 9
The board 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 frequently, in line with the recommendations of King IV. 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 2018, an internal evaluation was conducted. The 2019 evaluation was conducted by an independent external service provider. The results of these evaluations are discussed with the board, committees and individual directors. Areas of improvement were completed for execution.

Refer to pages 95, 96

Principle 10
The board should ensure that the appointment of, and delegation to, management contributes to role clarity and effective exercise of authority and responsibilities.

Telkom has implemented a delegation of authority framework, which outlines the responsibility of the Group CEO and that of the executive management. The board delegates the implementation of the board-approved strategy to the Group CEO 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 Group CEO is considered and approved in line with required legislation and guidelines by the board, which is responsible for the performance evaluation of the Group CEO through the board-approved process. Succession planning for top management is conducted through the remuneration committee in conjunction with the nominations committee which receives reports in this regard from the chief of HR. The board, through the remuneration and nominations committees will continually develop required succession plans and ensure that the group has adequate talent management activities to guarantee a suitable pool of persons for the succession plan.

Refer to page 96

Principle 11
The board 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 Group CFO. 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.

Refer to pages 25, 31

Principle 12
The board 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 significant investments and expenditure are 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, depending on the related terms of reference.

Refer to pages 65, 66

Principle 13
The board 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 noncompliance 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 quarterly, which reports back to the board at least once a quarter.

Refer to page 32

Principle 14
The board 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 to employees and directors is competitive and fair and that it enables Telkom to attract and retain talent. The remuneration committee will be focussing on aligning the remuneration philosophy across the group.

Refer to page 103, 104, 105

Principle 15
The board should ensure that assurance services and functions enable an effective control environment, and that these support the integrity of information for internal decisionmaking and of the organisation’s external reports.

Telkom follows a combined assurance model that is informed by the risks and opportunities that affect the Group’s ability to create value and makes use of various internal and external service providers and functions. 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 services on the financial and non-financial information.

Refer to page 97

Principle 16
In the execution of its governance roles and responsibilities, the board 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 Telkom’s reputation as this may affect Telkom’s performance and long-term sustainability. In all its dealings, the board’s singular focus is acting in the best interests of Telkom and balancing the interests of all stakeholders. 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.

Refer to pages 18, 24

Principle 17
The board 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.