INTEGRATED REPORT 2023

X
GOVERNANCE

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 GUIDED BY THE GROUP’S BUSINESS PHILOSOPHY AND IS ACCOUNTABLE FOR THE OVERALL STRATEGIC OBJECTIVES AIMED AT DELIVERING THE OUTCOMES (VISION) OF THE BUSINESS PHILOSOPHY, AND FOR 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 and preserve or prevent value erosion 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 risks and opportunities in the macroeconomic and trading environment.

In the 2023 financial period, the board reaffirmed that the Group’s strategic objectives are aimed at delivering a diversified earnings profile, and improved returns for shareholders, deriving benefits for stakeholders over the medium to long term. The board confirmed the Group’s strategic objectives which 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 Truworths. The material issues of aspirational fashion, supply chain and retail presence have been identified for Office. Owing to the increasingly challenging human resources environment with the scarcity and competition for specialist skills globally, the potential impact of skills shortages and loss of talent, human capital has been identified as a new material issue for the Group for the forthcoming financial period.

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, supported by the boards of the principal operating subsidiaries, Truworths Ltd (in South Africa) and Office Holdings Ltd (in the UK and Republic of Ireland), assesses on an ongoing basis whether the activities of the Group are creating value for its key stakeholders as defined by its Vision for stakeholders. Refer to the Creating stakeholder value report.

INNOVATION

The board promotes and enables innovation and complete alignment with the Business Philosophy in a number of ways, including:

  • ensuring that strategic projects carried out by management emphasise innovation and creativity in areas such as 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;
  • 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;
  • 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;
  • delegating the responsibility for monitoring progress on strategic and other projects to the chief executive officer 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
  • 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 and enable the Group to take advantage of opportunities that present themselves.

OUR CORPORATE GOVERNANCE AIM IS ACHIEVED BY:

  • Critically considering governance requirements with a view to determine how they could be implemented in a value-adding way and in a manner that aligns with the Group’s Business Philosophy
  • Identifying opportunities in governance requirements for enhanced accountability, improved decision making, better risk mitigation and more comprehensive disclosure
  • Conducting a thorough enquiry process before putting into place policies, reporting and monitoring mechanisms, and committee structures that are hallmarks of a sound corporate governance framework
  • 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 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
  • 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 and created value for the business and its stakeholders in the form of lower risk, ongoing sustainability and resilience, reasonable consistency of financial performance, sound stakeholder relationships, high levels of legislative compliance and reputational integrity.

In addition to its responsibility for maintaining a sound corporate governance framework, the board is ultimately responsible for the Group’s environmental and social practices, and accordingly has overall oversight responsibility for the environmental, social and governance (ESG) strategy and performance. The board has delegated its responsibility for monitoring the Group’s ESG performance, particularly in relation to environmental and social matters, to the Social and Ethics Committee. Several of the directors have experience in managing sustainability issues and risks or have undergone relevant training (refer to table of board of directors’ expertise below). Full details of the Social and Ethics Committee’s activities during the year and how it assisted the board to monitor the Group’s ESG performance is contained in the Social and Ethics Committee Report 2023 available on the website www.truworths.co.za/reports.

Board deliberations

Office

A material matter considered and discussed by the board during prior reporting periods related to the performance of Office, and the interventions planned by executive management to address the issues that had contributed to its disappointing levels of revenue and profitability in the past. In the reporting period the board monitored the further successful implementation of these plans and was pleased to note a further material improvement in both its operational and financial performance. The matters monitored included:

  • The provision of increased operational alignment with Truworths
  • The effect of restructuring Office’s borrowings
  • Further rationalising the store portfolio by reviewing leases and closing loss-making stores
  • Opportunities to grow Office’s retail footprint through the opening of new stores in strategically important locations as well as the reconfiguration of existing trading space
  • Office’s operational and capital expenditure and cash flow management so as to ensure alignment with the medium-term strategic direction
  • Aligning merchandise buying and planning processes with Truworths’ best practices
  • Aligning marketing and communication strategies, and strengthening relationships with international brands
  • The performance of the executive management team.

The board was most 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.

Non-executive director succession

A further significant matter considered by the board is succession planning 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 five years, eight 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.

Mike Thompson retired as a non-executive director and chairman of the Social and Ethics Committee on 1 September 2022. Mike made a valuable contribution to the Group over a period of more than 18 years, during which he also served as the chairman and as a member of the Audit Committee.

Daphne Motsepe and Wayne Muller were appointed as additional independent non-executive directors of the company with effect from 1 August 2023. Wayne was also appointed as a member of the Remuneration and Nomination committees with effect from 1 September 2023.

Maya Makanjee, an independent non-executive director since 2018, has advised the board of her decision to retire as a director at the forthcoming AGM.

Subsequent to year end, and with effect from 1 September 2023 Hans Hawinkels was appointed Lead Independent Director.

CEO and senior executive succession

The succession for the Chief Executive Officer (CEO) and senior executives has been an important consideration for the board.

During the period under review the board announced the appointment of Sarah Proudfoot and Emanuel (Mannie) Cristaudo as the Group’s Joint Deputy Chief Executive Officers with effect from 1 October 2022. The board is confident that Sarah and Mannie, together with the seven directors and 10 divisional directors of Truworths, and five directors and divisional directors of Office, are the right team to transition the Group in future years by retaining the strength of the Group’s unique DNA while at the same time being able to continue to move the businesses forward.

The board prevailed on Michael Mark to retain the position of Group CEO and chairman of the material subsidiary companies, beyond the November 2022 AGM. The appointments of the Group Joint Deputy CEOs confirm the board’s firm belief in their competence and leadership, and that of the directors and divisional directors who report to them.

KEY ISSUES
ROUTINE MATTERS
KEY ISSUES
  • The much-improved financial and operational performance of Office
  • Management’s strategies to deal with risks in the local merchandise supply chain, including the steps taken, equipment acquisitions made (such as generators) and financing provided to vertically integrate key local suppliers
  • Management’s achievement of a further enhanced compliance level on the broad-based black economic empowerment scorecard for Truworths
  • Management’s conclusion of the acquisition of the Bonwit design house business, and the steps taken to ensure its integration into the Group
ROUTINE MATTERS
  • The general annual and other declarations made by directors regarding their personal financial interests
  • The quarterly analysis of the company’s shareholders and beneficial owners of shares
  • Various presentations by management relating to different aspects of the Group’s business, including the performance of the Truworths account portfolio, recent initiatives in the corporate social investment programme, performance on strategic projects, and the functionalities of the merchandise information systems
KEY ISSUES
  • The further progress made and steps taken to ensure adequate succession planning for key senior executives, including that of the CEO
  • Management’s actions to return to full operational capability and process appropriate insurance claims following the damages and losses suffered during the civil unrest in South Africa in July 2021
  • Implementation by management of its plans to develop a new distribution facility for Truworths
  • The outcomes of the board, committee, director and Company Secretary evaluation processes
ROUTINE MATTERS
  • The quarterly financial reports and forecasts presented by the Chief Financial Officer (CFO)
  • The quarterly reports of the chairpersons of the Audit, Remuneration, Nomination, and Social and Ethics committees, and of the Truworths Transformation Committee
  • The quarterly presentations of the Risk Committee chairman, together with the top risk matrices for the Truworths and Office segments
  • The quarterly presentations by the Company Secretary on new relevant legislation and regulation
  • The reports on management’s performance against financial targets and other key indicators
KEY ISSUES
  • Executive management’s strategies for Truworths and Office
  • Management’s working capital forecast and revisions thereto for the period to December 2023
  • Management’s budget for the Group and the various operating entities
ROUTINE MATTERS
  • The Group’s operational and capital expenditure budgets by business segment
  • The Group Audited Annual Financial Statements, Integrated Report and Summarised Audited Group Annual Results and Notice of Annual General Meeting
  • The Group’s Interim Report and all results and other announcements on SENS and in the media
  • The Group’s interim and final dividends and the company’s dividend cover, including consideration of the solvency and liquidity tests
  • The Group’s financial and strategic targets for executive incentive scheme purposes
KEY ISSUES
  • Executive management to continuously explore various potential acquisitions
  • Executive management to further undertake company share repurchases within defined parameters, including during closed periods, subject to solvency and liquidity requirements, and to cancel and delist shares repurchased


ROUTINE MATTERS
  • Executive management to issue and list company shares pursuant to share incentive scheme transactions within defined parameters
  • Executive management to arrange for the company to provide financial assistance, in the form of guarantees, to Group companies in accordance with legislative prescripts
KEY ISSUES
  • To appoint a new Audit Committee member, a new Risk Committee member, a new chairman of the Social and Ethics Committee, and an additional member to the Social and Ethics Committee
  • To provide ongoing financial and increased operational support to Office



ROUTINE MATTERS
  • To declare interim and final dividends in respect of the 2023 financial period after consideration of the company’s solvency and liquidity position

SHAREHOLDERS

TRUWORTHS INTERNATIONAL

GROUP BOARD OF DIRECTORS

External Audit

Internal Audit

Audit Committee

Risk Committee

Remuneration
Committee

Social and Ethics
Committee

Nomination
Committee

TRUWORTHS SEGMENT

Operational board

Operational board governance committees
Sustainability, Transformation, Tender and Capex, Compliance, Change Control

OFFICE SEGMENT

Operational board

Operational board governance committees
Audit, Tender and Capex, Risk, Change Control

BOARD AND COMMITTEE MEETING ATTENDANCE

FOR THE REPORTING PERIOD THE DIRECTORS ACHIEVED A

96.6%

(2022: 97.8 %)

LEVEL OF ATTENDANCE AT BOARD, COMMITTEE AND ANNUAL GENERAL MEETINGS.

BOARD PERFORMANCE

An annual evaluation is conducted to assess the effectiveness of the board as a unit. The evaluation concluded that the board’s overall functioning and governance were excellent, and further indicated that:

  • The board maintains its effectiveness and overall high performance and continues to demonstrate its competence in executing its roles and responsibilities; including ethics and compliance standards, monitoring operational and financial performance, and implementing effective leadership at both board and committee levels.
  • The board is pleased with its success in recruitment and retention and has been very effective in the orientation of new directors. An area of ongoing focus is the continuing education of directors on issues, including corporate governance. The board notes that succession planning continues to be a key priority and the board members feel that continued board emphasis on key executive and board succession is a critical component of future success. In addition, board members welcomed the enhanced focus and promotion of diversity and inclusivity, as embodied in the revised Values statement in the Business Philosophy termed “Embrace the power of inclusive teams.”
  • The free and open exchange of views are encouraged, facilitating excellent relationships between board members and with the CEO and other executives, while leadership remains highly skilled in managing and conducting overall board business.
  • Roles and responsibilities, as well as scope of authority, are clearly defined and communicated. The board prioritises the discussion of key issues and implements mechanisms to identify and mitigate issues that may arise, well in advance.
  • Board leadership, teamwork and management relations are viewed as significant strengths. The directors and CEO work to ensure an open culture, encouraging participation and seeking outside advice when appropriate.
  • Size, composition and level of independence remain strengths, while the board continues to articulate and implement policies to ensure suitable composition of skills, experience, as well as demographic and gender diversity.
  • A comprehensive board evaluation process is in place and performance is effectively rewarded. The board maintains the required resources and support to function optimally. Opportunity is highlighted to implement more individual performance benchmarks as well as evaluations for
    non-executive directors.
  • Board and committee meetings are highly productive as the board excels in providing the directors with high quality and quantity of information relating to the agenda. Sufficient meeting time is devoted to discussion of strategic matters. The opportunity exists for non-committee members to be more adequately informed of the deliberations of each committee.
  • The board is highly satisfied with the noteworthy level of ethical behaviour and compliance standards throughout the Group, observing that business ethics and the Group Business Philosophy underpins all key matters.

THE NINE DIMENSIONS EVALUATED IN DETERMINING THE EFFECTIVENESS OF THE BOARD:

Roles and responsibilities

Composition, size and independence

Director orientation and development

Leadership,teamwork and relationships with management

Board and committee meeting productivity

Director evaluation and compensation

Succession planning

Ethical leadership and culture

Stakeholder engagement

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.

BOARD OF DIRECTORS

Hilton
Saven
Michael
Mark
Sarah
Proudfoot
Emanuel
Cristaudo
Rob
Dow
Dawn
Earp
Hans
Hawinkels
Maya
Makanjee
Tshidi
Mokgabudi
Thabo
Mosololi
Daphne
Motsepe
Wayne
Muller
Roddy
Sparks
Tony
Taylor
Diversity of expertise | Policy: To have a well-rounded board with the necessary skills and expertise to govern effectively and satisfy business requirements Independent
Non-executive
Director/
Chairman
Executive
Director/
Chief
Executive Officer
(CEO)
Executive
Director/
Joint
Deputy CEO
Executive
Director/
Joint
Deputy CEO/
Chief Financial
Officer
Independent
Non-executive
Director
Independent
Non-executive
Director
Lead
Independent
Director/
Non-executive
Director
Independent
Non-executive
Director
Independent
Non-executive
Director
Independent
Non-executive
Director
Independent
Non-executive
Director
Independent
Non-executive
Director
Independent
Non-executive
Director
Independent
Non-executive
Director
  Expertise Collective expertise  
  Strategic planning 100%
  Finance and taxation 71%
 
   
 
  Retail 29%  
   
  Corporate affairs and communication 79%
 
 
 
  Financial services 57%
 
   
 
 
 
  Information technology and communication 29%  
 
   
           
  Risk management, compliance and governance 86%
 
 
  Distribution and logistics 29%            
       
  Human resources and transformation 14%              
       
 
  Corporate finance, mergers and acquisitions 64%
 
   
 
 
  Marketing 21%  
                   
  Sustainability matters 43%
 
 
 
 
       
  Board committees
Committee chair
Committee member
 
  Remuneration  
   
 
       
 
  Risk  
 
 
         
 
  Nomination  
   
 
       
 
  Audit            
 
     
 
  Social and Ethics  
 
     
 
       
Notes Financial services includes insurance. Corporate affairs and communication includes CSI.
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 individual contribution and engagement as assessed through the annual director evaluation process.

Independence

Policy: The majority of the board should consist of non-executive directors, the majority of whom should be independent. Categorisation of non-executives as independent is based on the board’s assessment of independence.

Gender, racial and broad diversity

Policy: Voluntary medium-term targets set within the board’s gender, racial and broad diversity policy. In 2017, the board resolved that at least 30% of the board should comprise of females in the medium term. In 2018, the board resolved that 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 in order to meet regulatory requirements and ensure the board and board committee workload is adequately performed.

SUMMARISED GOVERNANCE REVIEW

During the 2023 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 an important consideration 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 indicator of the level of governance as regards the Group’s financial reporting is the ranking of its 2022 Integrated Report in 8th place in the Ernst & Young (EY) 2023 Excellence in Integrated Reporting Awards. This is the 16th 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 acknowledgment, 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 (No. 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 2023 reporting period the Group has in all material respects, voluntarily applied the King IV Report on Corporate Governance for South Africa, 2016 (King IV) principles and complied with the mandatory corporate governance provisions in the JSE Listings Requirements.

This report is a summary of corporate governance matters within the Group and should be read in conjunction with the detailed Report on Corporate Governance and Application of King IV Principles 2023 available at www.truworths.co.za/reports.

GOVERNANCE DEVELOPMENTS IN 2023

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
composition
  Mike Thompson retired as an independent non-executive director with effect from 1 September 2022. The board appointed Sarah Proudfoot and Emanuel (Mannie) Cristaudo as the Group’s Joint Deputy Chief Executive Officers with effect from 1 October 2022. Wayne Muller and Daphne Motsepe were appointed as independent non-executive directors of the company with effect from 1 August 2023, and Hans Hawinkels, who has served on the board since February 2018, was appointed as lead independent director with effect from 1 September 2023.
Board
committees
  Mike Thompson retired as Chairman of the Social and Ethics Committee and as a member of the Risk Committee with effect from 1 September 2022. Tshidi Mokgabudi was appointed as a member of the Audit Committee with effect from 26 July 2022. Thabo Mosololi was appointed as Chairman and Hilton Saven was appointed as an additional member of the Social and Ethics Committee. Dawn Earp was appointed as a member of the Risk Committee with effect from 1 July 2023. Wayne Muller was appointed to the Remuneration and Nomination Committees with effect from 1 September 2023.
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 representivity respectively. Following the appointments of Wayne Muller and Daphne Motsepe with effect from 1 August 2023, 29% (4 ex 14) of board members were black and 36% (5 ex 14) were female.
Remuneration
governance

  The Group appointed new consultants to conduct a review of the Group’s disclosures relating to its remuneration policies and practices.

Management engaged with certain shareholders regarding the Group’s remuneration policies and practices.
External auditor
  The Group confirmed the nomination for appointment of Deloitte & Touche to replace Ernst & Young as external auditor with effect from the 2024 financial year, subject to shareholder approval.
Transformation
  The functioning of the Transformation Committee, a committee of the subsidiary Truworths Ltd board, was enhanced, with a view to ensuring executive director responsibility for transformation, ensuring transformation initiatives are aligned to the Group’s Business Philosophy and ensuring transformation remains a key strategic initiative.
Internal audit
  The extension of the scope of the Truworths internal audit team’s work to include various internal audit activities in Office, including controls in relation to financial management and reporting, was operationally embedded.
Financial
management

  The addition of resources to the Group’s financial management teams, and the restructuring of Office’s financial management team to report directly to a South African based head of finance, was continued.

 

2024 GOVERNANCE PRIORITIES

Governance priorities for the 2024 financial period will include:

  • Further developing governance and risk management within the Office business
  • Further developing sustainability and ESG reporting capabilities within the Group
  • Making further progress on the top senior management and non-executive director succession plans.

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.

2024 BOARD PRIORITIES

Board priorities for the 2024 financial period will include:

  • Continue to ensure that the board provides ethical leadership so that the Group operates within a culture of integrity and compliance.
  • Monitor the further implementation of management’s plans to grow the Office business.
  • Continue to ensure that the Group’s strategies maintain momentum notwithstanding low growth environments so that the attainment of the Group’s strategic objectives remains on track.
  • 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 the succession of top and senior management in the Group.
  • Ensure that the performance of executive management against financial and other targets is regularly reviewed.
  • Monitor management’s progress with regard to the development of a new distribution centre in South Africa.
  • Monitor management’s progress in relation to the Group’s ESG objectives, including the adoption of ESG reporting requirements and frameworks.
INTEGRATED REPORT 2023