Corporate Governance

Leadership and board composition

On 31 August 2013, Roger Jardine resigned as Chief Executive Officer (CEO) of the Group, and the remuneration and nomination committee took on the complex task of filling this strategic position. Kobus Verster, the Group's Financial Director, took on the role of acting CEO. This required a special dispensation from the JSE to allow Kobus Verster to fulfil the role of acting CEO while continuing his full-time employment as Group Financial Director. After a thorough international search, Kobus Verster was formally appointed to the position of Group CEO in February 2014 and a new search for a Group Financial Director was embarked upon. Once again, this required a special dispensation from the JSE to allow Kobus Verster to be employed as full-time CEO while taking on the responsibilities of an acting Group Financial Director. On 8 September 2014, Adrian Macartney was appointed as Group Financial Director enabling Kobus Verster to relinquish his acting position.

Each member of the Board offers a wide range of relevant knowledge, expertise, commercial and technical experience and business acumen that allows them to exercise independent judgement in board deliberations and decision-making. Annually, the Board's composition, skills, experience and succession plans are reviewed. This year two new directors, Eric Diack and Kholeka Mzondeki, were appointed to the Board to replace two long-serving non-executive directors, Nkululeko Sowazi and Myles Ruck, who resigned in December 2013. With the retirement of Rick Hogben on 20 August 2014 after eight years of service, the Board took the opportunity to determine whether additional non-executive directors were needed apart from the appointment of another non-executive who could strengthen its construction and engineering experience.

During the year, Eric Diack was appointed to the McConnell Dowell board in Australia and Ian Luck, who has 40 years of experience in the industry, was also appointed to that board as an independent non-executive director.

The global trend with regard to board structures is to reduce the number of executive directors to a minimum and thereby restrict the size of boards. In South Africa the transformation requirement in terms of the new B-BBEE Codes requires 50% of the Board to comprise black directors and 25% to be women. It is likely that boards in South Africa will get bigger to accommodate these requirements as well as balancing the skills needs. For the year under review the board profile was 42% black and 25% black female.

Composition of board committees

Following the changes to the Board, the skills, experience and diversity profile of the board committees were assessed and the following changes were made:

Audit committee: With the resignation of M Ruck and the retirement of R Hogben, E Diack and K Mzondeki were nominated as suitable replacements with the necessary qualifications and experience to execute the Board's statutory responsibilities in terms of the Companies Act 71 of 2008.

Remuneration and nomination committee: R Hogben retired from the committee as member and Chairman with effect from 12 February 2014, and T Mokgosi-Mwantembe was appointed as Chairman of this committee with immediate effect. The addition of M Seedat meant that the committee was properly constituted and no further appointments were necessary. Both of these directors have the requisite experience in the remuneration field.

Social, ethics and transformation committee: M Seedat replaced N Sowazi as chairman of the committee. At the board and strategy meeting in December 2013, it was agreed that the Group's transformation efforts require stronger focus and that M Seedat is suitably qualified to provide strong oversight on this critical imperative. With both T Mokgosi-Mwantembe and A Band remaining members, the committee was properly constituted in terms of skill, experience and corporate memory.

Safety, health and environmental committee: This committee remained properly constituted in terms of skill and experience and was unaffected by any of the changes.

Risk committee: This committee remained properly constituted with P Erasmus as Chairman and M Kilbride, A Band and P Ward as members but was strengthened by the appointment of E Diack as an additional member. The tender risk committee, a sub-committee of the risk committee, was also reinforced by the appointment of E Diack as an additional member. A non-executive director of McConnell Dowell, I Luck, was appointed to the tender risk committee specifically for McConnell Dowell projects.

Investment committee: The resignation of both M Ruck and N Sowazi resulted in the investment committee losing two members including the chairman. E Diack and M Kilbride were appointed to this committee, with E Diack as Chairman. E Diack is an experienced Non-Executive Director with strong finance, general management and investment experience across various industries and will be well placed to lead this committee.

Competition Law reference committee: Following the announcement of the fast-track settlement process by the Competition Commission in February 2011, this ad hoc advisory committee was established to support and advise management in dealing with the matter. Members of this committee were A Band, M Ruck and N Sowazi. Following Messrs Ruck and Sowazi's resignations, M Seedat and M Hermanus were appointed onto this ad hoc advisory committee.

Structure of board committees for the period under review

Key governance initiatives during the year

In the year under review, the Aveng Group continued its compliance initiatives and the memorandums of incorporation of all subsidiary companies were brought in line with the new Companies Act. In the previous period, several dormant companies had been closed so the group structure was revisited to ensure visibility of the number of companies and how they are related.

In 2013, a group legal compliance officer was appointed to monitor adherence to all relevant legislation. This year, a regulatory compliance assurance framework was developed and rolled out at both corporate office and operating group level. The Board appropriately gave particular attention to Competition Laws. At each operating group, a compliance leader was nominated to support the Group Compliance Officer.

A policy management framework was also established to ensure a single streamlined, and uniform system governing the development, formulation, approval, dissemination and maintenance of policies. The process is centrally governed and supported by the office of the Group Compliance Officer, and a central repository of group policies has been created on the Aveng Group Intranet. Policy implementation was decentralised to the appropriate corporate functional divisions and operating groups.

Charters, work plans and delegations of authority are reviewed and approved by the Board annually. The revised delegation of authority framework enables the Board to control resource allocation while empowering the managing directors of each business unit to run the business and make decisions to pre-authorised levels.

The Board placed significant attention on project execution and minimising contract losses. The risk committee reviewed major and problematic projects on a quarterly basis. Concerns raised by the committee were communicated to the relevant operating group and a formal close-out of the issue was required. All major bids as prescribed by the tender risk policy were reviewed by the tender risk committee before submission to ensure that appropriate business processes had been followed and that due consideration was given to risks and key commercial terms. A further high-level monthly review is now being implemented by the tender risk committee to focus on changes in costs, commercial claims, margins and any other item of concern on major projects. Issues emanating from peer reviews are brought to the attention of the tender risk committee as and when required.

Additional information is available in the risk section here.

The Board's meeting calendar has been adapted to address material issues. Monthly informal board business update sessions have become the forum for the Board to be kept abreast of current issues and address any concerns before they escalate into critical situations. Further, quarterly operating group board meetings have been changed to bi-monthly (every second month) business update meetings that include the operating group executive committees. This was initiated to bolster support to the operating group businesses that have been facing challenges. Executive management is now more keenly aware of material issues in the operating groups and where assistance is required. At these meetings, focus is given to people issues in line with Aveng's belief that a skilled and experienced workforce with a strong talent pipeline is critical to sustainability and securing quality work.

In order to achieve better upward visibility, the Aveng (Africa) and Trident Steel finance and risk committees were dissolved in favour of smaller finance and risk committees at each operating group. Agendas are directed towards compliance and material issues with a clear focus on identifying key risks and agreeing mitigation strategies in support of the Group's strategic goals. Relevant policies are now in place and consistent across the Group.

Given the evolving role of the risk and finance committees, a separate forum (Group Internal Control Forum) was created to focus specifically on internal financial control mechanisms. Objectives are to review and build control systems that:

- are effective at both a corporate office and operating group level
- support the organisation's overall strategy
- are pragmatic in approach
- are measured in response to risk
- are tailored to scale, environment and the nature of the individual business, its people and its processes.

An integrated SAP HR system is being implemented in all the South African business operations to ensure a consistent monitoring and reporting framework. The system will cover around 66% of the Aveng workforce and has been phased in between November 2013 and November 2014. For the non-South African-based operating groups and expatriate employees not on SAP, systems are in place to measure and monitor relevant human resource metrics which are then reported to the corporate office through an integrated business intelligence reporting tool. The SAP Human Capital Management (HCM) project is on track in terms of both cost and timeline.

To ensure that the Aveng Group's directors are clearly and constantly aware of their personal responsibilities and duties, a corporate governance refresher training workshop was held to discuss the JSE regulations and the Companies Act 2008. Two site visits were arranged at Aveng Steel and Aveng Grinaker-LTA. The visit to Aveng Grinaker-LTA enabled the Board to meet the fairly new management team and to review their initial business turnaround plan.

Key challenges and outcomes
Governance is a dynamic and multifaceted arena. It embraces people, roles, structures, and policies and must be equipped to identify, assess, and adapt to changing conditions internally and externally. The Aveng Group operates in a particularly challenging macro environment with a number of acute short term challenges but extremely attractive medium and long-term prospects and opportunities. While the challenges of project execution, compliance and succession planning have been discussed elsewhere in the integrated report, it is appropriate to discuss two issues that have been at the forefront of many of this year's strategic efforts.

The investigation by the Competition Commission intensified an already in-depth systemic overhaul to identify and remediate any transgressions of governance. The Group took a proactive approach to root out historical anti-competitive behaviour across the Group and put in place numerous initiatives including group-wide competition law compliance programmes, appointment policies, dedicated compliance professionals, anonymous tip-off hotlines, pre-bid reviews on contracts and tender bids and third-party due diligence.

The Group's commitment is to continue to drive Aveng's ethics and compliance programmes, including training for all employees in critical roles, and ensuring adherence to the Group's enhanced risk review processes. These specifically include compulsory annual Competition Act training for all managers and employees involved in tendering processes. The Aveng DNA which makes specific provision for addressing ethical conduct is also being reenergised.

The Group's B-BBEE transaction was another key challenge requiring a substantial amount of analysis and planning due to the conclusion on 30 June 2014 of this transaction. This was further impacted by the new BEE Codes of Good Practice being gazetted on 11 October 2013, giving companies one year to transition to the new BEE Scorecard. Advice was taken to ensure ownership, management control and preferential procurement gaps are closed and a roadmap is being developed to ensure the Group achieves its transformation strategic objectives and legal and compliance requirements.

Additional information on the B-BBEE transaction is available on note 16 of the summarised annual financial statements and the transformation report at