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 the Group’s strategic objectives together with several internal and external factors, including the Group’s strategies as formulated by executive management, the needs, expectations and concerns of its main stakeholders, and the economic and trading environment.

In the 2021 financial period the board reaffirmed that the Group’s strategic objectives are aimed at adherence to and fulfilment of the objectives of the Business Philosophy as defined by its Purpose and Vision for stakeholders (refer to Our Business Philosophy). The board confirmed the Group's strategic objectives and these are outlined in the Group Strategy report.

During the period under review the board confirmed that aspirational fashion, supply chain, retail presence and account management remain the material issues for the Truworths Africa segment. The material issues of aspirational fashion, supply chain and retail presence have been identified for the Office segment. The impact of COVID-19 and Brexit transition uncertainty and the ongoing challenging retail trading conditions in the UK have required the ongoing implementation of the turnaround strategy for the Office segment, including its restructuring and refinancing. Given the materiality of the Office segment to the Group, the effective execution of the turnaround strategy which commenced in the prior year has again been included as a material issue for the year ahead. The board has acknowledged that COVID-19 was a further growth inhibitor to the low-growth retail trading environments already prevailing in South Africa and the United Kingdom, its two main geographical areas of operation.

The board monitors progress on the implementation of the Group’s strategies and supporting growth initiatives, and measures performance against both the agreed financial targets and the strategic objectives.

The board, aided by the boards of the principal operating subsidiaries, Truworths Ltd (SA) and Office Holdings Ltd (UK), assesses on an ongoing basis whether the activities of the Group are creating value for its key stakeholders. Refer to How We Create Value.

Innovation

The board promotes and enables innovation in a number of ways, including as follows:

by ensuring that strategic projects carried out by management emphasise innovation and creativity as regards, inter alia, the development of merchandise ranges, the design of information systems, the strategies used to enhance the customer account offering, the design of stores and the expansion of e-commerce;
by linking management’s short and long-term rewards and incentives to its performance as regards delivery of measurable outcomes that encompass innovation in relation to such strategic projects;
by receiving presentations by management at board meetings on strategic projects and other business initiatives and critically assessing the extent of innovation evident in the progress and the benefits of such projects and initiatives;
by delegating the responsibility for monitoring progress on strategic and other projects to the Chief Executive Officer (CEO) who, at project report-back days held quarterly, stimulates innovation and creativity by challenging management to consider new concepts, designs, systems and processes when proposing solutions to business issues; and
by communicating and emphasising to management the importance of practically applying in everyday operations the Group’s Business Philosophy, at the heart of which lies innovation.

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, which initially may have been brought into existence to ensure adherence with applicable regulation and codes of conduct, to add value and ensure corporate sustainability.

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 the breadth of the perspectives expressed;
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 practically embedded in day-to-day operations and decision-making;
better and more comprehensive integrated reporting of both financial and non-financial aspects to stakeholders;
high 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, in a demanding operating environment, the sound governance framework has served to mitigate against the erosion of value, and has in fact 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 during the prior reporting period 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. In the reporting period the board monitored the implementation of the plans that had been formulated in the prior year, including:

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; and
appointment of a new Managing Director after the resignation of the incumbent.

The board was satisfied with the implementation of these action plans, and will continue to assess their effectiveness on an ongoing basis with a view to maintaining the business on a positive growth trajectory over the next two years.

NON-EXECUTIVE DIRECTOR SUCCESSION

A further significant matter that has enjoyed ongoing consideration by the board is succession for long-serving non-executive directors. The board had embarked in recent years 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 42 months six new non-executive directors have been appointed to the board as part of this succession strategy and it is envisaged that, as they have been and are to be promoted to committee membership, long-serving non-executives will be retiring from the board.

CEO and senior executive SUCCESSION

The succession for the CEO and senior executives has been an important consideration for the board during the period under review.

In light of the prospective retirement of Michael Mark as Group CEO, the board has agreed a succession plan which will continue to be implemented 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 era and to launch the Group into a post-COVID 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 has confidence that overall performance is to a very high standard and that it is highly competent on business, governance issues and the Group’s strategy.
The relationships between the board members and with the CEO and other executives continue to be excellent, with very high overall satisfaction with the level of leadership and team synergy.
The board’s role and responsibilities are distinct, performance objectives are in place, issues are prioritised and discussed timeously while operational and financial performance is effectively monitored.
A very high level of independence of the non-executive directors is regarded as a strength in the manner in which the board operates.
Continued advancement has been made in evolving the composition of the board by scope of experience and skill, and also by gender and race. The recent additions to the board have further facilitated its effectiveness and diversity in this regard.
Succession planning is regarded as a priority and continues to be an area of focus, particularly with regard to the CEO and senior board members.
A focus on continued development of board members, particularly those recently appointed, is regarded as a significant strength.
Board and committee meetings are regarded as extremely productive, particularly with regard to the quality and quantity of information, frequency and overall agenda management.
Board members are appropriately compensated in relation to their roles and fees are regularly benchmarked against market practices.
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 PRIORITIES FOR THE 2022 PERIOD

Continue to ensure that the board provides ethical leadership so that the Group operates within a culture of integrity and compliance.
Work to ensure that the Group’s strategies maintain momentum in low growth environments so that the attainment of the Group's strategic objectives remains on track.
Monitor the further implementation of management’s plans to turn around the Office business.
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.
Monitor management’s progress with regard to the restoration of damaged stores and the Group's insurance claims following the recent civil unrest and rioting in South Africa.
Strategically review distribution capabilities and consider executive management's proposals to address projected capacity requirements.

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: 63 years

Non-executive directors’
average tenure: 9 years

Executive directors’
average age: 61 years

Executive directors’
average tenure: 12 years*

* Average tenure of executive directors as employees of the Group is approximately 23 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 and turnover

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:
Nine directors appointed, four 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.

Notes: Corporate affairs and communication (includes CSI). Financial services (includes insurance).

SUMMARISED GOVERNANCE REVIEW

During the 2021 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 (2020: 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 2020 Integrated Report at position 7 in the Ernst & Young (EY) 2020 Excellence in Integrated Reporting Awards. This is the 14th consecutive year that the Group has attained a top 10 ranking in the EY excellence in reporting awards and is the only JSE-listed company to achieve this acknowledgement, reflecting the consistently high quality of its financial and integrated reporting and the accountable and transparent manner in which 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.

The directors confirm that during the 2021 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 2021 available at www.truworthsinternational.com.

GOVERNANCE DEVELOPMENTS IN 2021

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
Directors	Three independent non-executive directors were appointed to the company’s board, thereby extending its skills, diversity and experience.
Board diversity	Based on the recommendation by the Nomination Committee, the board adopted a broad diversity policy in respect of the composition of the board.
Board committees	The membership of the Audit, Remuneration, Risk, and Social and Ethics Committees was refreshed by the appointment of new members thereto, while a new chairman was appointed to the Remuneration Committee.
Board race and gender diversity policies	The board continued the implementation of its race and gender diversity policies at board level towards the adoption of its medium-term targets of 30% black and female representation respectively. By the reporting period-end 29% (4 ex 14) of board members were black and 36% (5 ex 14) were female.
CFO	Following the resignation of the former CFO in February 2021, an Acting CFO was appointed to fulfil the functions of the role ahead of the appointment of the new CFO with effect from 1 July 2021.
Treasury Policy	The board adopted an updated Treasury Policy to take account of market developments and operational requirements, and to enhance the section dealing with the processes for the purchase of foreign exchange contracts.
Information technology (IT) governance	Information security and privacy within the Truworths Africa segment underwent a continuous improvement process ahead of the coming into operation of the Protection of Personal Information Act in South Africa, which 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.
CEO and CFO attestation in respect of the annual financial statements	Based on a framework developed by management that was reviewed by the internal audit function and noted by the Audit Committee, the CEO and the CFO positively attested to the fairness of presentation of the Group’s annual financial statements and the effectiveness of the internal controls underlying the Group’s financial reporting process.
Social and Ethics Committee	The committee reviewed 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.
Executive management succession	Pursuant to the board’s plans to ensure succession in executive management ranks, a Deputy Managing Director: Truworths Ltd, a Group CFO and seven new directors were appointed to the board of the Group’s principal operating subsidiary in South Africa, Truworths Ltd, and a new Managing Director was appointed to the principal operating subsidiary in the UK, Office Holdings Ltd.

2022 GOVERNANCE PRIORITIES

Board and governance priorities for the 2022 financial period will include:

further implementation of the King IV-recommended practices across the Group;
further developing governance and 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.

Governance

Governance creating value