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Governance
creating value

Board contribution to strategic delivery and value creation

The Truworths International board functions in terms of a formal charter and provides ethical and strategic direction and leadership to the Group. The board is accountable for the overall strategy, governance and performance of the Group.

The board of directors periodically reviews the opportunities and threats it believes could have the most significant impact on the Group’s ability to create sustainable value for stakeholders. In determining these material issues the directors consider several internal and external factors, including the Group’s strategy as formulated by executive management, the needs, expectations and concerns of its main stakeholders and the economic and trading environment.

In the 2020 financial period the board reaffirmed the Group’s strategy of aiming to be a world-class omni-channel retailer of fashion clothing, footwear, homeware and related merchandise, operating in both the southern and northern hemispheres. The board noted that this strategy is aimed at ensuring a diversified mass market customer base in both developed and emerging market countries. The board observed that the successful implementation of this strategy had the aim of delivering a diversified earnings profile, improved returns for shareholders, and value being created for its other stakeholders over the medium to long term.

During the period under review the board confirmed that against the backdrop of the COVID-19 pandemic, fashion risk, supply chain efficiency, retail presence and managing account risk remain the material issues for the Truworths segment. The specific material issues of fashion risk, supply chain efficiency and omni-channel retail presence have been identified for the Office segment. The impact of COVID-19 and Brexit uncertainty and the ongoing challenging retail trading conditions in the UK have required the implementation of a restructuring and refinancing of the Office segment. Given the materiality of the Office segment to the Group, the effective execution of this restructuring and refinancing together with the turnaround strategy commenced in the prior year has again been included as a material issue for the Group and Office for the year ahead. The board has acknowledged that COVID-19 fuelled the low to negative growth retail trading environments in South Africa and the United Kingdom, its two main geographical areas of operation, and remains challenging.

The board confirmed the Group’s growth strategies and these are outlined in the Group Strategy report.

The board monitors progress on the implementation of the strategic growth initiatives and measures performance against both the agreed financial targets and the strategic goal objectives.

The board, aided by the principal operating company boards, assesses on an ongoing basis whether the activities of the Group are creating value for its key stakeholders. Refer to the How We Create Value report.

Governance adding value

The Group’s approach to corporate governance is to ensure it contributes to improved operational decision-making and corporate performance, thereby reducing the risk of failure. The Group’s aim therefore is for the relevant governance policies, structures and processes, that initially may have been brought into existence to ensure adherence with applicable regulation and codes of conduct, to add value and ensure corporate sustainability.

This aim is achieved by:

considering the governance requirements critically and with a view to determining how they could be implemented within the Group in a value-adding way;

identifying opportunities in governance requirements for enhanced accountability, improved decision-making, better risk mitigation and more comprehensive disclosure;

conducting a thorough debate and enquiry process before putting into place the applicable policies, reporting and monitoring mechanisms, and committee structures, that are hallmarks of a sound corporate governance framework; and

periodically reviewing these elements and benchmarking the Group’s initiatives against comparable organisations and recommended best practice.

Improved corporate performance arising from sound corporate governance has manifested itself in a number of ways in the Group over an extended period, including:

  • diversity and independence of opinion in board decision-making, with the aim of ensuring sound outcomes;
  • improved operational decision-making that takes into account diversity and breadth of perspectives;
  • maintenance of discipline and integrity in management’s reporting to the board;
  • enhanced levels of accountability and transparency by management to the board;
  • meaningful risk management processes and controls that are embedded in day-to-day operations and decision-making;
  • better and more integrated reporting of both financial and non-financial aspects to stakeholders;
  • improved levels of assurance regarding the reporting by management to shareholders; and
  • achievement of an appropriate balance in meeting the expectations of the different stakeholders of the Group.

It is the view of the board that the sound governance framework has, in a challenging operating environment, preserved value for the business and its stakeholders, in the form of lower risk, ongoing sustainability, reasonable consistency of financial performance, sound stakeholder relationships, high levels of legislative compliance and reputational integrity.

Board deliberations

Office

A material matter considered and discussed by the board related to the performance of the Office segment, and the interventions planned and implemented by executive management to address the issues that were contributing to its disappointing levels of revenue and profitability. The board noted and approved a range of plans that included:

  • restructuring the Office segment’s external borrowings and continuing to provide ongoing operational and financial support;
  • rationalising the store portfolio by reviewing leases and closing loss-making stores;
  • prioritising the Office segment’s operational and capital expenditure and cash flow management in alignment with the turnaround plan and medium-term strategic direction;
  • critically reviewing staffing levels in stores and head office and commencing a redundancy process;
  • better aligning merchandise buying/planning processes with Truworths’ practices;
  • improving the made-to-order (MTO) own-brand range to increase the MTO contribution to revenue over the next two years; and
  • aligning marketing and communication strategies, and strengthening relationships with international brands.

The board will critically monitor the implementation of these actions, will reassess their effectiveness on an ongoing basis and will task management to take such other steps as may be necessary to return the business to a positive growth trajectory over the next two years.

Non-executive director succession

A further significant matter under ongoing consideration by the board is succession for long-serving non-executive directors. The board has embarked on a process of refreshing the non-executive component of the board in a systematic manner that will enable the Group to have continuity in terms of the important and ongoing contribution from long-standing directors, while newly appointed non-executive directors grow their knowledge of the Group and begin to influence board deliberations in a substantive manner.

Over the past 30 months four non-executive directors have been appointed to the board in pursuance of this succession strategy and it is envisaged that as they are promoted to committee membership in due course long-serving non-executives will be retiring from the board.

CEO SUCCESSION

The succession for the Chief Executive Officer (CEO) has been an important consideration for the board during the period under review.

In light of the impending retirement of Michael Mark as Group CEO, the board has agreed a succession plan which will be implemented over the next two years in a structured and phased manner to ensure a smooth transition. This phased approach will ensure that the leadership of the Group is appropriately constituted to successfully emerge from the COVID-19 era and to launch the Group into a post-COVID-19 growth phase. Refer to the Chairman’s Report for further information.

During the period under review board deliberations included the following:

Governance Framework

Board performance

An annual evaluation is conducted to assess the effectiveness of the board as a unit, as regards:

The evaluation concluded that the board’s overall functioning and governance were excellent, and further indicated that:

  • The board believes it is functioning to very high standards and that it is well versed on the business, governance issues and the Group’s strategy.
  • The relationships between the board members and with the CEO and other executives are excellent.
  • The board’s role and responsibilities have been clearly defined, performance objectives are in place, issues are prioritised and discussed timeously while operational and financial performance is effectively monitored.
  • The board is satisfied that there is a high level of independence of the non-executive directors given that same is evaluated on an annual basis.
  • Good progress has been made in evolving the composition of the board by breadth of experience and skill, and also by gender and race. It is believed that the recent additions to the board have further strengthened its effectiveness and diversity.
  • The board is satisfied with its retention and continues to place importance on the development of its members, particularly those who have recently been appointed.
  • Leadership, teamwork and management relations on the board are regarded as highly effective.
  • Board and committee meetings are productive and allow for appropriate issues to be raised when necessary. There has been a significant increase in the time allocated to meetings to cover a broader set of issues in more depth given the challenges experienced during the current financial year.
  • Board members are suitably compensated in relation to their roles and fees are regularly benchmarked against market practices.
  • Succession planning continues to be an important area of focus particularly with regard to the succession of the CEO and senior management.
  • The board is satisfied with the high level of ethical behaviour and proper compliance standards throughout the Group.
  • There is a high level of consideration by the board of the Group’s various constituencies, including shareholders, employees, customers, suppliers and communities.

Board and committee meeting attendance

For the reporting period the directors achieved a 98.7% (2019: 95.5%) level of attendance at board and committee meetings.

Board priorities for the 2021 period

  • Continue to ensure that the board provides ethical leadership so that the Group operates within a culture of integrity and compliance.
  • Monitor the implementation of management’s plans to turn around the Office business.
  • Work to ensure that the Group’s strategy maintains momentum in low growth environments.
  • Ensure that the Group’s strategies for managing its key risks and suitably dealing with its material issues are appropriately implemented and regularly reviewed.
  • Ensure that further progress is made as regards implementing the succession plan for the CEO.
  • Ensure that the performance of executive management against financial and other targets is regularly reviewed.

Board information


Age and tenure

Policy: Directors are appointed to the board based on skill, leadership, integrity, experience, diversity and business requirements. No maximum age limit is applicable and tenure on the board is determined with reference to contribution and engagement as assessed through the annual director evaluation process.

Non-executive directors’
average age: 64 years

Non-executive directors’
average board tenure: 10 years

Executive directors’
average age: 58 years

Executive directors’
average average board tenure: 11 years*

*Average tenure of executive directors as employees of the Group is approximately 24 years.


Independence

Policy: The majority of the board should consist of non-executive directors, the majority of whom should be independent.


Gender and racial diversity

Policy: At least 30% of the board should comprise females in the medium term. At least 30% of the board should comprise black directors in the medium term.


Board size

Policy: The board should comprise sufficient directors, having regard for suitable diversity of skills, experience and background, and in order to meet regulatory requirements and ensure the board and board committee workload is adequately performed.

Director movement over last five years:
Seven directors appointed, three directors resigned/retired


The Truworths International board provides ethical and strategic direction and leadership to the Group. The board is accountable for the overall strategy, governance and performance of the Group.

Summarised governance review

During the 2020 financial period the Group continued to practise corporate governance at a high level, aimed at adding value to the business as well as facilitating the Group’s sustainability, generating long-term shareholder value and benefiting other stakeholders.

Governance in the Group is a strategic imperative and accordingly compliance with codes, legislation, regulations and listings requirements is the minimum requirement. Management has adopted sound corporate governance principles and appropriate governance structures and policies, and believes it has embedded a business-wide culture of good governance that is aligned to the Group’s Business Philosophy.

An independent assessment of the Group’s standard of governance is provided by the annual evaluation process for the FTSE4Good Index Series, conducted by FTSE/Russell, which relies on publicly available information. In the reporting period the Group again was a constituent company, attaining 5 out of 5 points (2018: 5 out of 5) for the corporate governance theme of the FTSE Environmental, Social and Governance (ESG) Ratings scorecard. A further indicator of the level of governance as regards its financial reporting is the ranking of the Group’s 2019 Integrated Report in the top 10 positions in the Ernst & Young (EY) 2020 Excellence in Integrated Reporting Awards. This is the 13th consecutive year that the Group has attained a top-10 ranking in the EY excellence in reporting awards, reflecting the consistently high quality of its financial and integrated reporting and the accountable and transparent manner it reports to stakeholders.

The directors confirm to the best of their knowledge and belief that, based on a written assessment conducted by Group management in preparation for the submission of the company’s annual Compliance Checklist to the Companies and Intellectual Property Commission (CIPC), pursuant to the CIPC’s compliance monitoring and enforcement mandate in terms of the Companies Act (71 of 2008, as amended), the company is in compliance with the provisions of the said Act and is operating in conformity with its memorandum of incorporation (MOI).

The directors confirm that during the 2020 reporting period the Group has in all material respects voluntarily applied the 2016 King Code of Governance Principles (King IV) and complied with the mandatory corporate governance provisions in the JSE Listings Requirements. A schedule of how the Group has applied the King IV principles and complied with the JSE Listings Requirements can be viewed at www.truworthsinternational.com.

The Group continued its assessment of the impact of the King IV principles and endorses the outcomes-based approach to corporate governance. While many refinements to the Group’s governance processes have already been brought about, the work involved to align the Group’s governance structures, policies and processes with the King IV-recommended practices is ongoing.

This report is a summary of corporate governance matters within the Group and should be read in conjunction with the more detailed Report on Corporate Governance and Application of King IV Principles 2020 available at www.truworthsinternational.com.

Governance Developments 2020

While the board believes the Group has achieved a suitably high level of maturity in relation to governance, the relevant processes, policies and structures are continually reviewed and modified. The following enhancements were made to the Group’s governance framework during the period:

Governance element

Governance development

Board meetings

The board held an additional meeting (in addition to the four meetings originally scheduled) to consider the consequences of the COVID-19 pandemic and lockdown for the Group and be apprised of management’s plans and initiatives to minimise the impact on the Group’s employees and business operations.

Social and Ethics Committee

The committee continued its monitoring function to ensure that over a rolling period all matters requiring monitoring by regulation are suitably presented on by management and appropriately considered by the committee.

Directors

A black female independent non-executive director was appointed to the company’s board, thereby extending its skills, diversity and experience.

Risk governance

The reporting by management to the Risk Committee has been enhanced to encompass reporting on major incidents impacting operational and business performance.

Board committees and evaluation

An additional independent non-executive director has been appointed to the Remuneration and Nomination Committees.

The formal annual evaluation process was conducted to assess the performance of the board committees and its members, and the evaluation of the Audit Committee has been extended to include a benchmarking assessment.

Board race diversity policy

The board continued the implementation of its race diversity policy at board level towards the adoption of its medium-term target of 30% black representivity.

Risk governance in Office

The risk management process in the Office segment has been focused on cash flow management, store lease rationalisation, engagement with key suppliers and optimising staffing levels.

Corporate social investment

The revised corporate social investment policy for the Truworths segment has been applied to ensure alignment with business objectives and improved governance oversight.

Information technology (IT) governance

Information security and privacy within the Truworths segment remains subject to a continuous improvement process and the coming into force of the Protection of Personal Information Act in South Africa has galvanised management’s plans to ensure the privacy of the data of customers and employees.

The focus on cybersecurity risk mitigation has been maintained through the implementation of structured plans to address the development areas identified.

Supplier codes of conduct

The Group’s codes of conduct for local and international suppliers have been communicated to suppliers and plans to commence a structured process for monitoring of adherence have been formulated.

Credit legislation compliance

Management has applied its revised processes in response to proposed credit legislation regarding debt relief and has implemented policies and processes to mitigate the associated risks.

Tax risk governance

Management enhanced its reporting on tax matters to the Audit Committee and extended the assurance provided regarding compliance to include all taxes, duties and fiscal obligations.

Sustainability reporting

The Group’s reporting on ESG initiatives was improved through further enhancements to the content of its Social and Environmental Report 2020, and obtaining independent verification of information contained in the Report.

Remuneration policies

The Remuneration Committee adopted a malus and clawback policy in relation to both short-term and long-term incentives payable to the executive team members.

The Remuneration Committee adopted and implemented a policy whereby dividends on unvested performance shares held by executive management in terms of the long-term incentive scheme are forfeited and repayable in the event that performance conditions are not met, and concluded contractual arrangements involving a pledge of such shares to secure such repayments.

2021 governance priorities

Board and governance priorities for the 2021 financial period will include:

  • further implementation of the King IV-recommended practices across the Group;
  • further developing risk management within the Office business;
  • further developing sustainability reporting capabilities within the Office business; and
  • implementing the CEO succession plan.

The board will continue to follow an approach of continuous incremental improvement as regards governance practices and structures to ensure the reasonable expectations of stakeholders as regards the Group’s corporate governance standards are met.