Corporate governance
How we address the recommendations of the King Code on Governance Principles (King III) for Discovery
King III was introduced during March 2010 and during the past year, we analysed the implications for Discovery in order to understand where we can improve our governance practices. The analysis was done under the guidance of Discovery’s Financial Director, and involved our Group Compliance Division. Discovery’s Audit and Risk Committee has final oversight of the analysis and work plan to address any gaps. This is monitored on an ongoing basis by Discovery’s Group Compliance Division. The analysis identified areas for improvement as well as specific areas where processes should be changed to meet the recommendations of King III.
During the year we focused on the following areas:
- We completed internal stakeholder engagement around sustainability issues for Discovery, and started a change management and communication programme on Discovery’s sustainability strategy. Read more about Discovery and sustainability on page 34
- We have established a framework for the implementation of a Combined Assurance Model. This framework was approved by the Audit and Risk Committee during 2011
- The Board of Directors agreed that the Group Internal Audit Division would provide assurance for the 2011 Integrated Annual Report and that no external assurance would be obtained for this report.
The board of directors and its committees
Discovery has a Board with clear divisions of responsibilities between the Board and the Executive Management. During the year, we appointed one Executive Director and one Non-executive Director to the Board to meet the strategic objectives of the business.
The boards of Discovery Holdings Ltd, Discovery Life Ltd, Discovery Health (Pty) Ltd and Vitality HealthStyle (Pty) Ltd are held in one combined meeting, where possible. Mr MI Hilkowitz is the Chairperson of the Group and is non-executive and independent according to King III. The Chairperson has been a Director of Discovery for nine years. In terms of King III the Board of Directors is required to consider the independence of the Chairperson in these circumstances. This was discussed and the Board unanimously agreed that the Chairperson remains independent. The roles of the Chairperson and the Chief Executive Officer are separate, each with an own set of duties. At the time of publishing the Integrated Annual Report, the Board of Discovery Holdings consisted of 20 members: nine are Executive and the other 11 are Non-executive Directors. Of the Non-executive Directors, eight are independent (as defined according to King III and the JSE). The members of the Board bring a mix of skills, experience and technical expertise to the Board.
The role of the Board of Directors is to:
- Appoint the Chief Executive Officer
- Be the guardian of the values and ethics of Discovery
- Approve the strategic direction of the Group and the budgets necessary for the implementation thereof
- Monitor the executive management in the implementation of the corporate vision and strategy
- Ensure there is compliance with the letter and spirit of the law
- Communicate with shareholders openly and timeously throughout the year.
Duties of the directors
The Directors exercise their fiduciary duty with due diligence and act in the best interests of the company. The Chief Executive Officer presents a report at each Board meeting. The Board also receives reports from the Audit and Risk, Actuarial, Transformation and Sustainable Development, and Remuneration committees.
Board performance assessment
A collective board-effectiveness evaluation is done annually (with the help of external advisers if required). The Chairperson meets with individual Directors on a one-to-one basis throughout the year to discuss matters relevant to their directorship.
Appointment of directors
When necessary, the Board identifies suitable new Directors. The Board has agreed that the appointment of new Directors remains the responsibility of the Board as a whole and appointments will be discussed and approved at Board meetings. Non-executive Directors are appointed for three years and reappointments are not automatic. All Executive Directors have contracts that may be terminated within one to three months’ notice. Directors must operate in accordance with the Discovery Code of Conduct.
The Company Secretary arranges induction and orientation and continuing education programmes for new Directors. This includes an explanation of their fiduciary duties and responsibilities. They also go on visits to different parts of the businesses for discussions with management on industry-specific issues.
Board proceedings
The Board meets six times a year, with additional meetings as necessary. A separate strategy day is arranged each year where executive management is invited to present and discuss strategy matters with the Board. Directors have full and unrestricted access to relevant information. They can get independent professional advice at Discovery’s expense to help them in their duties
Attendance at Board meetings, over the last financial year, was as follows:
| Aug 2010 | Oct 2010 | Dec 2010 | Feb 2011 | Apr 2011 | June 2011 | |
|---|---|---|---|---|---|---|
| MI Hilkowitz (Chairman) |  | | | | | |
| P Cooper | | | | | | |
| A Gore (Chief Executive Officer) | | | | | | |
| BA Brink | | | | | | X |
| SB Epstein | | | | | | |
| HD Kallner | | | | | | |
| R Farber | | | | | | |
| NS Koopowitz | | | | | | |
| TV Maphai | X | | X | | X | |
| HP Mayers | | | | | | |
| AL Owen | | | | | | |
| A Pollard | | | | | X | |
| JM Robertson | | | | | | |
| SE Sebotsa | | X | | | X | |
| T Slabbert | | | X | | | X |
| B Swartzberg | | | | | | |
| SV Zilwa | X | | | | | |
| J Broomberg | | | | | | |
| KS Rabson | | | | | | |
| P Tlhabi | | | | | | |
Dr J Broomberg and Dr P Tlhabi are Directors of Discovery Health (Pty) Ltd only. Mr KS Rabson is a Director of Discovery Life Ltd only
Board committees
To help the Board with its responsibilities, specific committees have been set up with their own responsibilities. The overall responsibility, however, remains with the Board. Performance of these committees is considered by the Board on an annual basis. The current Board committees are:
Holdings executive committee
The Holdings Executive Committee is empowered and responsible for implementing the strategies approved by the Discovery Board and for managing the affairs of Discovery. The Holdings Executive Committee is chaired by the Chief Executive Officer and meets weekly. The different business units, including the offshore operations, also have executive committees. All the executive committees meet weekly, except for PruHealth which currently meets every second week. Feedback on the activities of each business unit is given at the weekly meetings of the Holdings Executive Committee.
Audit and risk committee
The Board of Discovery oversees business performance and risk management activities. It is supported by the Audit and Risk Committee. The responsibilities of the Audit and Risk Committee are:
- To examine and review the company’s interim and financial statements prior to submission to and approval by the Board
- To receive and deal appropriately with any complaints relating either to the accounting practices or internal audit of the group or the content or auditing of its financial statements
- To review the effectiveness of internal controls
- To nominate, with the approval of the Board, to the Annual General Meeting the appointment of the External Auditor, after considering the independence of the proposed auditor
- To approve the External Auditor’s terms of engagement, the audit plan and audit fees
- To approve the provision of any non-audit services by the External Auditor to the company
- To review the adequacy and effectiveness of the system for monitoring compliance with laws and regulations
- To review the performance of the company’s internal audit function
- To provide independent and objective oversight of the financial, operational and strategic risks.
With effect from 1 January 2011, the Audit and Risk Committee increased the number of its meetings from four times to six times a year. The executive management team and representatives of the external audit and internal audit teams attend these meetings by invitation.
The Board recognises the need for members of the Actuarial Committee to attend the Audit and Risk Committee meetings and vice versa. Mr AB Rayner, the independent Chairperson of the Actuarial Committee, attends the Audit and Risk Committee meetings by invitation.
The members of the Audit and Risk Committee are Mr AL Owen (Chairperson), Ms SE Sebotsa and Ms SV Zilwa. The Chairperson of the Audit and Risk Committee is also present at the Annual General Meeting.
Attendance at Audit and Risk Committee meetings, over the past financial year, was as follows:
| Aug 2010 | Nov 2010 | Feb 2011 | April 2011 | June 2011 | |
|---|---|---|---|---|---|
| L Owen | | | | | |
| SE Sebotsa | | X | | X | |
| SV Zilwa | X | | X | | |
Individual risk committees for each business unit have been set up as part of the executive functions. Each risk committee meets monthly and the CEOs of the business units, members of their executive committees and key risk management stakeholders from compliance and internal audit attend these meetings. Their aim is to develop, implement and monitor processes for key financial and non-financial risks using the enterprise-wide risk management framework.
The divisional risk committees are responsible for:
- Receiving and evaluating reports on the risk profile for the business according to severity and likelihood
- Reviewing the current effectiveness of control measures of the major risks
- Developing any plans to address any risks where more control improvements are necessary
- Implementing the risk management strategies
- Implementing risk control action plans
- Assessing the results of internal and external audit assessments and implementing recommendations. The Audit and Risk Committee conducted an effectiveness evaluation during the year and at the same time used the opportunity to review and change its charter to comply with King III and best practice.
Actuarial committee
The responsibilities of the Actuarial Committee are:
- To ensure that all relevant actuarial risks are identified and analysed across all businesses
- To consider the financial soundness valuation results of Discovery, including overall methodology and assumptions used to value the assets and liabilities of the Group and the overall checks and controls applied by the statutory actuary • To consider the embedded value results of Discovery, including the overall methodology and assumptions used in the embedded value calculation, as well as the overall checks and controls applied by the responsible actuary
- To review the external disclosure of the embedded value results of Discovery
- To make sure that, from an actuarial perspective, Discovery meets all statutory requirements and international best practice
- To consider the capital position of Discovery
- To make sure the necessary processes and forums are in place to allow the statutory actuary to decide on the actuarial soundness of new products and
- Revisions of existing products
- To review all reinsurance arrangements whether acting as reinsurer or as the reinsured.
The Actuarial Committee met six times during the year. Two extra, informal meetings took place to discuss specific matters. During the year separate actuarial committees were formed for the PruHealth Group in the UK and Discovery Insure. These committees are responsible for the specific issues relating to pricing and underwriting these companies’ products. The External Auditors, and the external and the internal actuaries for Discovery Health, Discovery Life and PruHealth attend by invitation.
Attendance of Actuarial Committee meetings, over the past financial year, was as follows:
| 04 Aug 2010 | 24 Aug 2010 | Oct 2010 | 2 Feb 2011 | 14 Feb 2011 | June 2011 | |
|---|---|---|---|---|---|---|
| AB Rayner (Chairman) | | | | | | |
| R Faber | | | | | | |
| AL Owen | | | | | | |
| S Matisonn | X | | | X | | |
| HP Mayers | X | | X | X | | |
| A Pollard | X | | | | | |
| B Swartzberg | | X | | X | | |
| RW Williams | | | | | | |
| R Lee | | | | | | |
Mr AB Rayner is a qualified actuary employed by the actuarial consultancy of Deloitte. Mr Rayner is not a member of the Board. The Board decided to appoint Mr Rayner as Chairperson of the Actuarial Committee because of the highly technical nature of the activities of the committee. Mr Rayner is invited to attend the Board meetings whenever matters relating to the Actuarial Committee are discussed.
Mr RD Williams, the statutory actuary, appointed as required by the Long-term Insurance Act. He is not a Board member.
Mr R Lee is a qualified actuary, living in the UK, and is not a member of the Board. Mr Lee was invited to join the Actuarial Committee because of his expert knowledge of actuarial affairs in the UK where PruHealth operates.
Remuneration committee
The main objective of the Remuneration Committee is to recommend to the Board the remuneration principles and strategies. It is responsible for:
- Approving remuneration packages for Executive Directors
- Approving policy relating to bonus and share incentive schemes
- Recommending the basis for Non-executive Directors’ fees
- Reviewing the annual salary increase process and the increases of all senior executives; and ensuring alignment of remuneration practice
The Remuneration Committee met twice during the last financial year and attendance was as follows:
| Aug 2009 | June 2010 | |
|---|---|---|
| ML Hilkowitz | | |
| T Slabbert | X | |
| M Olivier | | |
| P Cooper | | |
Mr Hilkowitz is both the Chairperson of the Board and Chairperson of the Remuneration Committee. The Board understands that King III recommends that the Board Chairperson should not also be Chairperson of the Remuneration Committee. The Board is of the opinion that Mr Hilkowitz is well experienced to chair the Remuneration Committee to the best interest of the company.
Mr M Olivier is an independent remuneration expert. The Board appointed him to the Remuneration Committee to bring the required expertise to the meetings. Mr Olivier is not a Board member.
The CEO, Financial Director, the Head of HR and the Chairperson of the Internal Remuneration Committee attend the meetings by invitation. Executive Directors are not involved in setting their own remuneration.
Transformation and sustainable development committee
The main objectives of the Transformation and Sustainable Development Committee are to develop, implement and monitor processes to meet transformation and sustainability objectives for Discovery. Compliance is measured through an agreed scorecard and any other measures that apply to the charters and the Department of Trade and Industry’s Codes of Good Practice.
The Committee met four times during the year. The CEO and the CEOs of the business units, the Head of HR and the CFO form part of the Committee. Attendance was as follows:
| July 2010 | Oct 2010 | Feb 2011 | April 2011 | |
|---|---|---|---|---|
| SV Zilwa | | | | |
| B Brink | X | | | |
| T Slabbert | | | | |
| A Gore | X | X | | |
| J Robertson | X | | X | |
| H Kallner | X | | X | X |
| HP Mayers | X | | X | |
| NS Koopowitz | | n\a | n\a | n\a |
| B Swartzberg | | | | X |
| A Pollard | | | | X |
| R Farber | | | X | |
| P Tlhabi | | | | |
Company secretary
MJ Botha is the Company Secretary. He is suitably qualified and has access to the Discovery secretarial resources.
The Company Secretary gives support and guidance to the Board on governance and ethical practices across Discovery. The Directors all have unlimited access to the advice and services of the Company Secretary. The Company Secretary makes sure all members adhere to the administration protocols of Board and sub-committee proceedings. The Company Secretary also guides Directors on their responsibilities in the statutory environment and the restrictions on dealing in company shares during restricted periods according to JSE Limited requirements. A written notice is given to all Discovery Directors and employees advising them they may not deal in shares during a restricted period. A strict pre-approval policy and process is in place for all Discovery Directors. All share transactions in Discovery shares by Directors and the Company Secretary are communicated to the JSE Limited through the Stock Exchange News Service (SENS).
Code of conduct
Discovery’s aim is to maintain high standards of business ethics, morals, honesty and integrity among all employees in the business operations of the Group. A Code of Conduct has been published which all Directors and employees of the Group must follow. All employees sign a declaration agreeing to follow the Discovery Code of Conduct. The Code of Conduct explains Discovery’s approach to conducting business ethically with full compliance and in the best interests of all stakeholders.
Discovery’s Code of Conduct explains how the code applies and the general duties of Directors and employees. It also gives the rules that guide the code and how Directors and employees should follow the code in the following areas:
- Personal behaviour
- Disclosing information
- Media relations
- Conflict of interest
- Gifts
- Commission
- Plagiarism and company assets
- Proprietary interest
- Network, internet and email
- Gambling
- Dress code
- Alcohol and drugs
- Compliance with governing laws and rules
The Code of Conduct appears on the Company’s intranet site.
Compliance
Discovery also has a team that manages the compliance of the Group’s business operations. This division continuously works with all regulatory bodies to make sure Discovery does business in compliance with all relevant laws.
Employees of Discovery also have access to a secure and confidential online and telephonic fraud reporting channel. Details of the reporting channel are available on Discovery’s website and the company intranet site.
Communication with stakeholders
The Directors support the release of accurate information to Discovery stakeholders. Discovery uses reports and announcements to all audiences and meetings with investments analysts and journalists. The website is also regularly updated. Stakeholders are encouraged to share their views with Discovery. Transparency and disclosure is always the end goal in communication. Shareholders are invited to attend the Annual General Meeting of the company.
