Enhancing Board Effectiveness: Key Roles and Evaluation Framework

1. Role of the Company Secretary in Board Evaluation September 2010 Joel Wolpert CA (SA) FCMA FCIS

2. Board EvaluationsPresentation Index • Governance Overview • Expectations • What to measure • Directors’ competencies • Barriers to board effectiveness • King III requirements • Questionnaire content • Benefits of board evaluation • Conclusion

3. Board Evaluations – Governance Overview Objective: to determine whether experience and collective knowledge of board members has been effectively applied to their stewardship agenda • i.e. “Big 6” • Entrepreneurial, ethical leadership • Strategic aims and resource allocation • Review management performance • Set values and standards • Meet obligations to shareholders • Make decisions in best interests of company (stakeholders)

4. Board Evaluations - Expectations • Formal and rigorous evaluation by Board of its own and committee’s performance to be carried out and reported on in annual report • Chairman is responsible for evaluation process – focus on strengths and weaknesses – improve individual and collective effectiveness • Formal educational programme to ensure that all directors maintain level of knowledge/skills • Chairman must demonstrate that new directors were inducted and trained and that others have updated their knowledge and skills (Cosec) • Executive – focus on performance/targets • NEDs – must be subjected to a test of continuing contribution • NEDs should be required to have formal training (Cosec) and be assessed on how they exercise both scrutiny and other aspects of a non-executive role • Boards should commit to an annual development activity in which they can more obviously focus on how they operate (as a Board), rather than on the usual business of the day

5. Board Evaluations – What to measure • People : Experience, Training, Technical Expertise, Confidence, Trust of Colleagues, Teamwork, Leadership style • Process : Timing of meetings: Setting of Agenda, Link Policies / Decisions & Strategic Objectives • Role : Structure, Organisation, Responsibilities • Information : Accuracy Brevity Clarity, Linkage to Strategy • Engagement : Integration between Chairman, CEO, NEDs/Executives : Board/Management • Responsiveness : Implementation of Board decisions; Reaction to crisis/Flexible strategy/Relations with Stakeholders • Communications : Internal information flow/Investor relations/Corporate Governance Statements in Annual report

6. Board Evaluations – Directors’ Competencies • Integrity Truthful, trustworthy, no double standards, no compromise on ethical or legal matters Sets high personal standards • Business acumen Rational risk taking capacity Ability to delegate appropriately Organisational awareness Strategic awareness/perspective • Critical faculty for decision making Readiness to take decision and action Sensible and rational analysis in exercise of judgement Intellectual curiosity – for new knowledge and experience

7. Board Evaluations – Directors’ Competencies - Continued • InformationManagement Understanding of required detail Financial, business and statistical numeracy Ability to recognise cause and reasons of problems • Communication skills Mature listening skills: sensitivity Open and frank communication style/self-assured/confidential Written & verbal fluency and presentation skills • Persuasiveness/presence/charisma in a group Motivation – commitment, enthusiasm, encouragement and support Tenacity to complete plan of action Ability to operate as part of a team • Stamina/Tenacity/Rigour Demonstrates personal energy and drive Displays appropriate resilience

8. Board Evaluations - Barriers to Board Effectiveness • Structural Anomaly (SOE) • Inappropriate balance between Executives and Non-Executives • “Staleness”- Extended length of service • Dominant CEO • Not enough Independent NEDs • Related party problems/conflict of interests • Unethical tone at the TOP/(Values!) • Arrogance/Ineptitude – 2008 Banking crisis /”FAT CAT” syndrome/rewards for failure

9. Board Evaluations - Barriers to Board Effectiveness (cont) • Lack of competence, skills, expertise, experience • Poor information presentation • Indecisiveness/Short – termism/crowding out of strategic thought/too polite. “Groupthink” • Lack of understanding of business risks (Lessons of 2008 meltdown!) • Inconsistent/conflicting expectations • Lack of trust/co-operation between Chairman/CEO • Not all members contributing sufficiently (armchair role!) • Celebrity/pantheonic appointments

10. Board Evaluations – King III Performance Assessment Principle 2.22: The evaluation of the board, its committees and the individual directors should be performed every year Board and committee evaluation • 109. Improved Board performance and effectiveness can be achieved through regular and timelyappraisals of the board. • 110. Effective and meaningful evaluation is only possible once the board has determined its own role, functions, duties and performance criteria as well as those for directors on the board and on board committees. • 111. The board should carefully consider whether the evaluations of performance and independence should be done in-house or conducted by independent service providers, subject to legislative requirements. Evaluation procedures and results should be reviewed by the nomination committee or such similar committee of the board.

11. Board Evaluations – King III Performance Assessment – continued Board and committee evaluation – continued • 112. The chairman, through the nominations committee, may lead the overall performance evaluation of the board and board committees with the assistance of company secretary. However, independent performance appraisals should be considered in the interest of eliciting candid responses. The board should discuss the board evaluation results at least once a year. • 113. Yearly performance appraisals of individual directors, the board, board committees and the chairman, can provide the basis for identifying future training needs and, where necessary, explain why a re-appointment may or may not be appropriate. • 114. The board should state in the integrated report whether the appraisals of the board, its committees have been conducted. The report should provide an overview of the results of the performance assessment and the action plans to be implemented, if any.

12. Board Evaluations – King III Performance Assessment – continued Individual director evaluation • 115. The same principles adopted in the evaluation of the board should be applied when evaluation the board committees’ chairmen and individual directors. • 116. A director’s contribution to the board should be measured against his duties. The nomination for re-appointment of a director at the AGM should not be an automatic process and should only occur after the proper evaluation of the performance and attendance of the director in question. • 117. Evaluations should be led by the chairman through the nominations committee, or by an independent service provider. The chairman should ensure that directors know that they will be subject to evaluation, and understand the criteria used for evaluation, and the evaluation procedures that will be followed. A series of evaluation questions should be distributed in time for directors to complete before any meeting with the chairman or independent service provider.

13. Board Evaluations – King III Performance Assessment – continued Individual director evaluation – continued • 118. Should a deficiency in a director’s performance be identified, a plan should be developed and implemented for the director to acquire the necessary skills or to develop appropriate behavioural patterns. The director evaluation should be approached in an open, constructive and non-confrontational manner. • 119. The action plan arising out of the evaluation should be reported to and discussed by the board and a consolidated summary of the whole process should be reported to the full board. • 120. Evaluation questions should include criteria to evaluate the performance of the chairman.

14. Board Evaluations – King III Performance Assessment – continued Individual director evaluation – continued • 121. The board should appoint an independent non-executive director from within its ranks, or the LID, to lead the process of the evaluation of the chairman’s performance if an independent service provider is not used. • 122. The chairman should not be present when his performance is discussed by the board. The discussion and evaluation should be performed by the board as a whole under the guidance of the LID, deputy chairman, and other independent non-executive director chosen by the board or an independent service provider.

15. Board Evaluations – King III Performance Assessment – continued CEO and Executive director evaluation • 123. The chairman, or a committee appointed by the board, should evaluate the performance of the CEO and other executive directors at least once a year. • 124. The evaluation should assess the performance of the CEO and other executive directors, both as directors and as executives. The results of such an evaluation should also be considered by the remuneration committee to guide it in determining the remuneration of the CEO and other executive directors. Note: JSE Listings Requirements contains specific requirements for the Financial Director

16. Board Evaluations - Financial DirectorJSE Listings Requirements 3.84 (h) the audit committee must consider, on an annual basis, and satisfy itself of the appropriateness of the expertise and experience of the financial director and the listed company must confirm this by reporting to shareholders in its annual report that the audit committee has executed its responsibility. (All listed companies must have a financial director)

17. BOARD EVALUATION – Questionnaire Composition and Selection • Conflict of interest – structural vs behavioural/outside directorships • Representation/Diversity (Gender/Race) • Balance – new/experienced members • Skills, experience, competence, qualifications • Term limit/Age Limit/rotation cycle • Pool of future members • Development of current members/training programmes • Appropriate recruitment process/nominations committee • Size of board appropriate

18. BOARD EVALUATION - QuestionnaireOrientation and Training • Statement of duties and responsibilities – board code of conduct • Legal liability understood • Induction process/orientation adequate • Board manual/Code of conduct produced by Secretary • Updating of skills – training opportunities (Co’s Act/King III)

19. BOARD EVALUATION - QuestionnaireBoard Organisation/Structure • Charters/TOR available (Cosec role) • Committee Design/statutory requirements/appropriateness • Chair selection – LID? • Working relationships • NED/s/shareholders • Chairman/CEO • NED’s/Execs • Duties/responsibilities clarified/certain • Balance – NED/Independent/Execs • Major shareholder representation

20. BOARD EVALUATION - QuestionnaireBoard at Work • Frequency of meetings/duration • Agenda planning – appropriate input from members - relevance • Tone of meetings/discussion/attendance appropriate/debate • Minutes – follow up process • Awareness of current issues/strategic perspective • Specific assignments/action lists/commitment follow up • Self-review/evaluation/culture/common vision • Leadership development evident from evaluation process • Information flow (CoSec)

21. Evaluation of Chairman by NED/LID • Shareholder Relationships • Manages shareholders relationships and meets with shareholders • Actively meets with potential sources of equity and debt capital • Managers shareholder meetings effectively and promotes a sense of participation in all shareholders. Promote shareholder confidence in the Board • Leadership • Is the Chairman an effective Board leader? • Does the Chairman promote the image of the company, portraying the requisite leadership in the community?

22. Evaluation of Chairman by NED/LID (continued) • Management Relationships How effective is the Chairman in: • Monitoring, planning and operations • Building relationships • Influencing strategy • Helping define problems • Monitoring and evaluation performance of the CEO and senior officers • Representing shareholders and Board to the management • Maintaining accountability • Ensuring succession plans are in place at senior management level

23. Evaluation of Chairman by NED/LID (continued) • Managing the Board How effective is the Chairman in: • Chairing meetings of the Board • Managing directors’ performance • Communicating with directors between meetings • Setting meeting schedules (Cosec) • Setting meeting agendas (Cosec) • Controlling meeting attendance • Determining board information packages (Cosec) • Helping appoint committees • Attending committee meetings where appropriate • Determining director compensation • Promoting the training and development of directors

24. Evaluation of Chairman by NED/LID (continued) • Developing a more Effective Board How effective is the Chairman in: • Encouraging board contribution • Planning board composition and succession • Establishing and working towards a vision • Promoting effective good corporate governance (Cosec)

25. Evaluation of Chairman by NED/LID (continued) • Relationships with other Stakeholders How effective is the Chairman in: • In conjunction with the CEO representing company to public, suppliers, customers and staff • In conjunction with the CEO developing relationships and representing the company with regulators and government agencies • Working with competitors in industry sector problems • In liaison with CEO and management, leading the company in charitable, educational and cultural activities.

26. Benefits of Board Evaluation • Focuses Leadership (Performance culture/commitment) • Clarifies Role Expectations (Behaviour/duties/dedication) • Improves Communication (Trust/relationships) • Improves Team Work (Participation/commitment/involvement) • Optimises Decision-Making (Skills gaps/development areas) • Enhances Accountability (External focus/governance culture) • Better Board Operations (Policies/time management)

27. Board Evaluations - Conclusion– Will the elephant in the room please tick the right box! • Board composition/diversity (re-look) – avoid box-ticking. Focus on individual effectiveness, not race/gender!! • Review information process/channels of review – avoid rubber-stamping decisions already made. • Consideration of monetary cost of board meetings (value for money?) • Analyse process of board decision making: backward looking/vs forward looking • Necessary to trade off competence vs independence • Fit and proper test must be widened to recognise technical competence/expertise/experience • Structure vs behaviour vs process (SOE’s?)