CITY LODGE HOTEL GROUP

WHAT we do

The City Lodge Hotel Group is a multi-brand chain offering a variety of locations, features and budget choices to business and leisure travellers.

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GOVERNANCE report

STATEMENT OF COMPLIANCE

Sound corporate governance and an ongoing commitment to upholding the highest levels of integrity and business ethics serves as the foundation upon which the City Lodge Hotel Group conducts its business. This, together with a culture of compliance with applicable legislation, regulation, non-binding rules, codes of best practice and internal policies and procedures, play a critical role in delivering sustainable value to the benefit of the company's stakeholders.

The board is the focal point of the group's corporate governance system and is ultimately accountable and responsible for the performance and affairs of the company. It is supported in its efforts by various committees.

The board takes guidance from the principles advocated in the King Report on Corporate Governance 2009 ("King III"), the JSE Listings Requirements ("Listings Requirements"), the Companies Act, 71 of 2008 ("the Act") and the International Integrated Reporting Framework, and is satisfied that, for the year under review, the company has complied with the mandatory governance principles contained in the Listings Requirements and applied the recommendations in King III. Details of the group's application of King III are available on the company's website, www.clhg.com. Where a principle has not been applied, this has been stated and explained.

King IV, which was published on 1 November 2016 and advocates an outcomes-based approach to corporate governance, will have application to the company's 2017/18 financial year. Processes are under way to ensure suitable application.

GOVERNANCE STRUCTURE AND DEVELOPMENTS

Governance processes are continually reviewed to ensure they are appropriately aligned and to identify those areas which the company needs to address, further entrench or improve upon. Initiatives undertaken to enhance the governance framework during the reporting period included:

  • Adoption of the group's revised code of ethics and business conduct.
  • Review and gap analysis of King IV to assess the status of the group's governance when measured against the practices included in King IV.
  • Ongoing training on the impact of the Protection of Personal Information Act ("POPI Act") on the group and data processed by the business units, reviewing and where necessary amending documentation to align with the POPI Act.
  • Ongoing maintenance of the regulatory universe, including ongoing identification and analysis of applicable legislation, regulation, non-binding rules and best practice, implementation of policies and procedures based on applicable laws and regulations, creating awareness and monitoring compliance.
  • Revision of the current policy on selection and appointment to the board to encompass race and gender diversity at board level and adoption thereof. While no voluntary targets have been set, the remuneration and nominations committee will annually consider diversity at board level and make recommendations in respect thereof.

Areas of focus for the year ahead include:

  • King IV: Agree on an improvement framework and commence efforts on addressing the gaps identified, starting with the realignment of the board and committee charters to King IV.
  • A review of the remuneration philosophy and policy to ensure that it remains relevant and aligned with best practice.
  • Ongoing training on the impact of POPI on the group and data processed by the business units, reviewing and where necessary amending documentation to align with the POPI Act.
  • Presentation and confirmation of the regulatory universe, development and implementation of policies and procedures based on applicable laws and regulations, monitoring compliance and raising awareness and conducting training, where appropriate.
  • Compliance monitoring, which includes, inter alia, the review of legislation, its impact on the company and the associated compliance requirements.
  • Ongoing advancement of the group's ethics management, particularly in terms of ethics awareness.
  • Revision of the combined assurance plan to ensure that adequate mitigating strategies are in place and assurance providers identified.
  • Formalise terms of reference for the executive committee.

CITY LODGE GOVERNANCE STRUCTURE


Seven independent non-executive directors
F W J Kilbourn (lead independent), G G Huysamer, M S P Marutlulle, N Medupe, S G Morris, V M Rague, K I M Shongwe
Audit (statutory and board)
S G Morris (chairman), F W J Kilbourn, G G Huysamer, N Medupe
Risk (board)
N Medupe (chairman), G G Huysamer, S G Morris, V M Rague, C Ross, K I M Shongwe, A C Widegger, M S Kobilski (divisional director)
Remuneration and nominations (board)
F W J Kilbourn (chairman), S G Morris, B T Ngcuka
Social and ethics (statutory and board)
K I M Shongwe (chairman), C Ross, A C Widegger
Two executive directors
C Ross (chief executive) A C Widegger (financial director)
Exco
Chaired by chief executive
Mandasco
Chaired by chief executive
Transformation committee
Environmental sustainability steering committee

THE BOARD

Charter

The board operates in accordance with a formally approved charter that sets out the processes and practices that have been adopted by the board to assist in the effective discharge of its responsibilities. It ensures that board activities conform to sound corporate governance principles and comply with applicable legislation. The charter also sets out the division of responsibilities to ensure a balance of power and authority so that no one individual has unfettered powers of decision-making.

All board members are aware of their collective, as well as individual, responsibilities. The charter supports a work plan against which agendas are prepared and which gives guidance as to the timelines against which the board is required to discharge its responsibilities.

Primary areas of focus include monitoring, reviewing and implementing matters of a strategic, financial, non-financial (including governance, compliance, ethics, sustainability and social responsibility) and an operational nature.

The board takes the lead in guiding the company's strategic direction, ethics, governance processes, operating, financial, as well as non-financial performance.

No changes were effected to the charter over the past year.

Composition

The unitary board comprises 10 directors, eight of whom are classified as non-executive directors ("NEDs") and two as executive directors. Seven of the eight NEDs are considered independent. In total, 50% of the board comprises members of colour, with females making up 20% of the board. The chief executive and financial director serve as the two executive directors on the board. Each of the NEDs are individuals of high calibre, with sound credibility, who possess the requisite knowledge, skills and experience to make a meaningful contribution to and ensure the effective leadership of the company. All directors participate actively in the board deliberation and decision-making process.

The strong representation of tourism industry expertise and experience blends well with the diversity of experience in other areas and serve to strengthen the board's collective business acumen. As such the board is satisfied that it possesses the appropriate balance of knowledge, skills, experience, diversity and independence to discharge its responsibilities and does not currently merit a change in constitution.

As reported in last year's Integrated Report, Ms Sizakele Marutlulle was appointed to the board with effect from 1 October 2016.

Appointment, rotation and retirement

Procedures for appointments to the board are formal and transparent and a matter for the board as a whole, assisted where appropriate by Remcom. Appointments are based on leadership skills, experience and expertise required, with diversity and gender being taken into account. All potential board appointees are subject to a fit and proper test, in accordance with the JSE Listings Requirements, and all appointments are subject to shareholder approval.

NEDs have no fixed term of appointment or service contract. In accordance with the company's memorandum of incorporation ("MoI"), at least one-third of the NEDs retire by rotation at the company's annual general meeting. The directors so retiring may, if eligible, offer themselves for re-election.

Executive directors are full-time salaried employees engaged on the company's standard terms and conditions of employment, which may be terminated on three months' notice. Termination of an executive director's employment contract will result in resignation from the board.

Executive directors do not receive fees for their services as a director on the board or member of the board and statutory committees and, in accordance with King III, do not retire by rotation at the annual general meeting.

Newly appointed directors retire at the first annual general meeting following their appointment and make themselves available for re-election by shareholders.

The retirement age for a NED is 70 years, subject to review at the discretion of the board, and 65 years for an executive director.

Despite him having reached retirement age, the board wishes to continue to avail itself of the services of Mr S G Morris, as he continued to be a valuable member of the board and contributes meaningfully to board and committee deliberations and on the basis that his independence continues to be reviewed annually.

Having considered the suitability of the directors retiring by rotation and being available for re-election, the board has resolved to put the directors, whose brief curricula vitae are set out to shareholders for re-election.

Independence

The board evaluates the independence of the NEDs, particularly long-serving directors on an annual basis. In addition to evaluating participation and effectiveness at meetings, consideration is given to the directors' independence of behaviour and judgement, paying close attention to his/her interest and/or involvement with other companies, number of other directorships, relationships with, inter alia, suppliers and competitors and interests in material contracts with the company, as well as any other factors which could have a bearing on his/her ability to act independently.

The evaluation process includes disclosure by each director of external associations and/or relationships for purposes of determining, inter alia, potential conflicts of interest and possibility that independence may be impaired.

At its most recent assessment, the board concluded that:

  • the chairman, Mr Bulelani Ngcuka is, not considered independent due to his substantial interest in one of the company's BEE shareholders;
  • Messrs Kilbourn and Morris, Dr Shongwe and Mrs Medupe continue to contribute to board deliberations in a manner that is objective, meaningful and unbiased and that their independence in character and judgement is in no way affected or impaired by their length of service or age and there is no relationship or circumstance that is likely to, or could appear to, affect their independence. In fact, if one has regard to the cyclical and specialist nature of the tourism industry it could be argued that requiring directors to resign after nine years is not only impractical but not in shareholders' best interest.

Board leadership

Responsibility for running the board and for running the company's business are two critical functions. The role of the chairman is distinct from that of the chief executive. Separation of these roles ensures a clear division of responsibilities, which is necessary to ensure a balance of power and authority, so that no one individual has unfettered powers of decision-making.

Chairman of the board and lead independent director ("LID")

The chairman of the board is responsible for setting the ethical tone for the company, ensuring the integrity and effectiveness of the board's governance processes, acting as the link between the board and management and providing leadership and vision in a manner that will serve to enhance shareholder value and ensure the long-term sustainability of the company. The board has, in line with the recommendations in King III and the Listings Requirements, appointed an LID to provide leadership and advice to the board in matters where there may be an actual or perceived conflict of interest.

The chairman and LID are elected annually. The board is comfortable that Messrs Ngcuka and Kilbourn are able to effectively carry out their respective duties and has accordingly re-elected them as chairman and LID for the ensuing year.

Chief executive

The board has delegated responsibility for the day-to-day management of the company's affairs to the chief executive. The chief executive's functions and responsibilities include, inter alia:

  • implementation of the board-approved strategies, objectives and decisions within the framework of the delegated authorities, values and policies of the company;
  • developing and recommending the annual business plan and budget;
  • monitoring and reporting on company performance;
  • ensuring key management roles are occupied by individuals with the necessary competence and authority and that the functions are appropriately resourced.

Board meetings and procedures

Meeting dates are established in advance in respect of each calendar year. The board works to a formal agenda prepared by the company secretary, in consultation with the chairman. Board packs containing the meeting agenda and relevant supporting documentation are circulated well enough in advance of each meeting to allow sufficient time for preparation.

Where a director is not able to attend a meeting he/she informs the chairman of the board or relevant committee, as well as the company secretary, of this together with the reason for his/her absence.

Directors may, when they are unable to attend in person, participate via video and/or teleconferencing facilities and, where appropriate, make submissions on matters to be tabled for discussion, which submissions are recorded at the meeting. Decisions taken between scheduled board meetings, as provided in the company's MoI, are tabled for noting at the subsequent board meeting.

Details of the type and number of meetings held during the year under review, as well as individual director attendance, are set out in the table below.

Board and committee meeting schedule and attendance

    Board     Annual
general
meeting
    Audit
committee
    Remuneration
and
nominations
committee
    Risk
committee
    Social and
ethics committee
 
Number of meetings   4     1     3     3     3     2  
G G Huysamer   4     1     3         3      
F W J Kilbourn   4     1     3     3     -      
N Medupe   4     1     3         3      
B T Ngcuka   4     1         3          
M S P Marutlulle   3#     1                  
S G Morris   4     1     3     3     3      
V M Rague   4     Δ             3      
C Ross   3Δ     1     2Δ*     2Δ*     2Δ     2  
K I M Shongwe   4     1             3     2  
A C Widegger   4     1     3*     1*     3     2  
* By invitation.
- Not a member.
Δ Apologies.
# Appointed to the board with effect from 1 October 2016.

Meeting dates

11 August 2016
10 November 2016
15 February 2017
18 May 2017

Annual general meeting date

10 November 2016

Induction and ongoing training and development

To assist them in the effective discharge of their responsibilities, directors are afforded the benefit of an induction programme tailored to the individual's needs and aimed at broadening their understanding of the company and the business environment within which it operates. The company shares the responsibility of ensuring directors are equipped with the necessary skills to effectively carry out their duties and, when it is deemed appropriate, directors can avail themselves of continuing professional development programmes.

Succession plan

The board:

  • is responsible for its own succession planning; and
  • annually reviews the succession plans in place for the executive directors and other senior executives.

Information and communication

Directors have:

  • access to the advice and services of the company secretary and may, where necessary, and in accordance with the board-approved policy, seek independent professional advice at the company's expense; and
  • unrestricted access to all company information and senior management to assist them in the discharge of their duties and responsibilities.

Company strategy

Strategy, risk, performance and sustainability are inseparable. The board assumes responsibility for:

  • formulating, developing and adopting the company's strategic plans and providing effective leadership and oversight of performance against targets and objectives;
  • satisfying itself that the strategy and business plans do not give rise to risks that have not been thoroughly assessed by management;
  • ensuring that the strategy will result in sustainable outcomes;
  • considering sustainability as a business opportunity that guides strategic formulation; and
  • monitoring management in implementing board plans and strategies.

Progress on the implementation and achievement of the company's strategic objectives is monitored on an ongoing basis and is reported on at each meeting of the board and Exco.

Evaluation of the board, chairman, chief executive and company secretary

Board effectiveness is considered on an annual basis and takes the form of a self-assessment. Where a director's performance is not considered satisfactory, the board will not recommend him/her for re-election.

The board is satisfied that it operates effectively and that it has discharged its responsibilities as detailed in the board charter and annual work plan.

The chairman

The performance and leadership of the chairman is assessed by the LID in an informal manner.

The chief executive

The chairman of the board, in consultation with the NEDs, assesses the performance of the chief executive.

Company secretary

The appointment and removal of the company secretary is a matter for the board as a whole.

The group company secretary ensures statutory and legal compliance, as well as adherence to the Listings Requirements and relevant governance principles. She provides guidance to the board on their governance, compliance and fiduciary duties, assumes responsibility for administering the proceedings and affairs of the board and communicates with stakeholders and liaises with the company's transfer secretary and sponsor.

Mrs van Heerden is an admitted attorney notary and conveyancer, holding BCom and LLB degrees, with 15 year's post-qualification experience. Her academic and professional qualifications were externally verified prior to appointment.

The board, while evaluating her performance and interactions with the directors and board as a whole considers Mrs van Heerden to be suitably qualified and experienced and is satisfied that she demonstrates the requisite competence to continue to hold the office of group company secretary.

The board furthermore concluded that there is an arm's-length relationship between itself and the group company secretary, taking into account that she is not a director serving on the board nor related to a director, and that as a result, the potential for conflict of interest is minimised.

BOARD, STATUTORY AND MANAGEMENT COMMITTEES

The board, statutory and management committees contribute to enhancing good corporate governance and improving internal controls. The delegation of specific responsibilities to these committees in no way relieves the board from discharging its duties and it remains ultimately accountable for the performance and affairs of the company.

Each board and statutory committee operates within approved terms of reference, which are updated from time to time to ensure that they are aligned with governance best practice, as well as internal, market, legislative and regulatory requirements, and against an approved work plan, which provides members with an understanding of their roles as well as guidance as to when various responsibilities need to be discharged. No changes were effected to the charters during the year.

Each committee, with the exception of the management committees, is chaired by an independent non-executive director who reports on the activities and recommendations made by the committee at the board meeting immediately following the committee meeting. Minutes of all board and statutory committee meetings, save for Remcom (which are available on request), are tabled for noting by the board. The group company secretary serves as secretary for all the committees.

Additional meetings may be convened when necessary to address urgent matters falling within the committee's scope of responsibility. No such meetings were held during the year.

The board regularly assesses the composition of the committees to ensure that they each possess the appropriate balance of skills, knowledge and experience, as well as the need for additional committees, to assist it in carrying out its duties and meeting its statutory and other legal requirements. There were no changes in committee composition during the year under review nor were any additional committees constituted.

The effectiveness of each committee is considered annually and entails a self-assessment. Any areas identified as requiring improvement are considered and the appropriate measures put in place.

The board is satisfied that each committee operates effectively and has discharged the responsibilities detailed in their respective terms of reference, at the intervals indicated in the annual work plan.

The chairmen of the respective committees attend the annual general meeting to respond to any questions shareholders may raise with regard to matters falling within their respective committee mandates.

The chief executive chairs the executive and management development and succession committees established to assist him in the discharge of the responsibilities delegated to him by the board.

Audit committee

The audit committee is a statutory committee of the board. Members are elected annually in accordance with the Companies Act and King III by shareholders, on the recommendation of the board. It assists the board in the discharge of it statutory duties as well as other duties assigned to it by the board.

Composition

The committee comprises four independent non-executive directors.

All members are financially literate and have business and financial acumen.

The chief executive, financial director, divisional director: financial, lead external audit partner and internal audit partner attend committee meetings by invitation and participate in discussions, but do not vote on any matters tabled for decision.

The internal and external auditors have unrestricted access to the committee through the chair.

The chairman of the board is not a member of the committee. He may, however, attend meetings by invitation.

Role and responsibilities

The committee's responsibilities, in addition to its statutory responsibilities, as detailed in its terms of reference include:

  • safeguarding the company's assets, the operation of systems, control processes and the preparation of accurate financial reports and statements in compliance with relevant legal requirements and accounting standards;
  • evaluating the adequacy and efficiency of internal control systems, accounting practices, information as well as the auditing thereof;
  • consideration of the internal and external audit process and accounting principles and policies;
  • ensuring the independence of the external and internal audit functions; and
  • ensuring legislative and regulatory compliance and compliance with applicable codes.
Meetings and activities

Three meetings were held during the year under review to:

  • examine and review reports to shareholders, including financial and sustainability reports;
  • review the annual financial statements, interim reports, accompanying reports to shareholders, preliminary results announcement and any other announcement regarding the company's results or other financial information to be made public, prior to submission and approval by the board;
  • review the internal control structures, including financial control, accounting systems and reporting;
  • nominate the registered auditor, including the lead audit partner, review and approve the scope of work, the external audit fee and nature and extent of non-audit services;
  • monitor and supervise the effectiveness of the internal audit function, including the performance of the internal audit partner;
  • ensure that the roles and functions of external and internal audit are sufficiently clarified and coordinated;
  • review and approve the annual internal audit plan and fee, and receive internal audit's written assessment of operational controls;
  • receive reports and note the minutes from the risk committee with regard to the policy and plan for risk management and its implementation;
  • oversee the implementation of the IT governance framework and ensure that it aligns with the company's performance and sustainability objectives;
  • monitor and evaluate significant IT investments and expenditure;
  • ensure that IT forms an integral part of the company's risk management process and ensure that information assets are managed effectively;
  • oversee financial reporting risks, internal financial controls, fraud risks as they relate to financial reporting and IT risks as they relate to financial reporting;
  • pre-approve and monitor the extent of non-audit services provided, which for the year under review represented 23% (2016: 37%) of the total audit fee paid. On the basis that the auditor does not function in the role of management, does not audit its own work or serve in an advocacy role for the company, the committee concluded that the non-audit work performed did not impair the independence of the auditors;
  • monitor legislative and regulatory compliance and compliance with governance codes and accounting standards (local and international);
  • consider and approve the material issues facing the company, against which reporting will take place;
  • approve the annual work plan against which the agenda for committee meetings will be prepared and monitoring progress against it; and
  • consider and satisfy itself as to the independence of the external auditors and determining that the reporting accountant is accredited in accordance with the provisions of the Listings Requirements.

The external and internal auditors and representatives from senior management meet, at least annually, with the committee independently of one another to report back on and discuss any issues relevant to the audit process.

During its meeting with management, the committee, in addition to discussing issues relevant to the audit, considered the quality and effectiveness of the external audit function and concluded that it was satisfied with the performance and level of services rendered by the external auditor. The board has, on the recommendation of the audit committee, nominated KPMG Inc. for reappointment as the company's registered auditor for the ensuing year, with Mr Michael Oddy as the engagement partner, at the forthcoming annual general meeting.

Both the external and internal audit partners attend the annual general meeting to respond to any questions shareholders may raise.

Confirmation of the expertise of the financial director

The audit committee has considered and confirmed that the finance function is adequately resourced with suitably skilled and technically competent individuals and in particular confirms that it is satisfied that the company's financial director, Mr Andrew Widegger, is equipped with the necessary expertise and experience to fulfil the requirements and responsibilities associated with the position.

Further information is contained in the report of the audit committee in the Annual financial statements.

Remuneration and nominations committee ("Remcom")

Composition

Remcom comprises three NEDs, two of whom are independent. The LID chairs the committee. The chief executive attends meetings by invitation, but does not have a vote on matters to be decided upon nor does he participate in the decision-making process relevant to his remuneration.

The chairman of the board drives the nomination process and leads the nomination portion of meetings.

Role and responsibilities

Remcom is responsible for:

  • ensuring that the directors and executives are fairly and responsibly remunerated and that the disclosure in respect thereof is accurate and transparent. Remcom does this by overseeing the implementation of remuneration policies in relation to NEDs', executive directors' and other senior executives' and reviewing the outcomes of the implementation of these policies and evaluating whether they promote the achievement of the company's strategic objectives and encourage individual performance. Where circumstances necessitate, Remcom will recommend the necessary improvements to the board;
  • reviewing other remuneration-related matters, as the board may from time to time direct;
  • considering the appropriate composition, in terms of size, mix, knowledge and experience for the board and its committees;
  • ensuring there is a formal process in place for the appointment of directors;
  • ensuring that induction and ongoing training and development of directors takes place; and
  • ensuring that formal succession plans for the board, chief executive and senior executives are in place.
Meetings and activities

The committee met three times during the year under review to:

  • review the Exco's remuneration packages in accordance with the company's approved remuneration policy, which included mandating third-party service providers to conduct a benchmarking exercise and assist in the formulation of a recommendation to the board;
  • determine, following review of associated performance criteria, the short-term and long-term incentive awards;
  • consider the succession plans in place for the Exco as well as the company's organisational structure;
  • receive and approve the committee's annual work plan against which the agenda for committee meetings is prepared to ensure that the committee attends to all matters falling within its mandate;
  • consider management's proposal regarding NEDs' fees, for recommendation to the board and subsequent approval by shareholders; and
  • review the company's remuneration policy, for tabling at the annual general meeting of the company by way of a non-binding advisory vote.

Details on how the Remcom discharged its responsibilities can be found in the remuneration report.

Risk committee

Risk appetite and tolerance are fundamental concepts setting the context for determining the group's strategic objectives and is informed by the group's risk culture and details the risks the group can or is prepared to take and which are to be avoided.

The board determines the group's risk appetite and tolerance levels, while management assumes responsibility for the day-to-day management of risks.

The group's enterprise risk management process encompasses the review, identification, quantification, prioritisation, response to and monitoring of the consequences of both internal and external risks and also accounts for new and emerging risks and opportunities. It also promotes ownership of risk areas and accountability for risk management. Risk and control procedures are developed, and enhanced upon, on an ongoing basis to improve risk identification, assessment and monitoring. Risks are assessed in terms of potential impact and likelihood. Inherent risk is determined with reference to an evaluation of impact and probability and its significance to the business, while residual risk is determined with reference to the mitigating strategies in place.

Composition

The committee comprises eight members, five of whom are independent non-executive directors, two executive directors and a divisional director.

The chairman of the board is not a member of the committee.

Role and responsibilities

The risk committee assists the board in discharging its responsibilities associated with risk management by reviewing the effectiveness of the processes and procedures adopted by management in relation to identifying, evaluating, documenting, managing, monitoring and reporting on risks and the assurance provided thereon.

It is the committee's responsibility to ensure that an effective policy and plan for risk management, that will enhance the company's ability to achieve its strategic objectives, has been implemented.

Key focus areas include the management, rather than elimination, of risk, and ensuring comprehensive, timely and relevant disclosure with regard to risks facing the company. While the committee assumes responsibility for overseeing the risk management programme in place for the group, management is responsible for identifying and evaluating strategic and operational risks and opportunities, putting the necessary mitigating strategies in place, allocating responsibility, formulation of a risk management plan and monitoring compliance against the plan.

Exco supports the committee in discharging its responsibilities.

Meetings and activities

The committee met three times during the year under review for the purpose of:

  • performing the annual review of the group risk register, which includes:
    • considering whether any issues have come to light that impact the risk profile of the company which would result in an amendment of the risk register;
    • identifying opportunities where effective risk management can be turned into a competitive advantage;
    • where appropriate, the re-ranking of existing risks;
  • confirming its satisfaction with the effectiveness of the risk management system and processes in place and that the risks facing the company are being addressed appropriately;
  • receiving the chief executive's report on the status with regard to the company's key risks;
  • considering the governance, legal and compliance reports, incorporating calls to the whistleblower alertline, at intervals where the social and ethics committee does not sit;
  • considering uninsured and uninsurable risks and adequacy of cover;
  • approving the committee's annual work plan against which meeting agendas are prepared.

The material issues provide further detail on the material risks the company faces.

The board is satisfied that the group's risks are being managed appropriately and is comfortable with the risk management processes adopted by management.

Social and ethics committee ("SEC")

The SEC is constituted as a statutory committee for purposes of discharging the duties contemplated in Regulation 43 of the Act and as a board committee in respect of the responsibilities delegated to it by the board.

Composition

The three member committee comprises the chairman, an independent non-executive director, and two executive directors. While the committee complies with the Act's requirements regarding its constitution, it does not meet the King III recommendation for a majority of the committee members to be non-executive directors. The committee, having applied its mind to the current membership, and having taken into consideration that a significant portion of the matters falling within its mandate are operational, remains comfortable with the current membership and its ability to effectively discharge its responsibilities.

The group company secretary and representatives from the various functions responsible for managing the subject matter falling within the remit of the SEC assist the committee in the discharge of its responsibilities.

Role and responsibilities

The committee is primarily responsible for ensuring the group is and remains a responsible corporate citizen and engages in sustainable business practices. Its role and responsibilities, which cover the group's South African operations, include:

  • social and economic development;
  • good corporate citizenship;
  • issues around the environment, health and public safety, including the impact of the company's activities and services;
  • consumer relationships;
  • management of the company's ethics;
  • labour and employment, including transformation; and
  • reporting annually to shareholders on matters falling within the scope of its responsibilities.
Meetings and activities

The committee met twice during the year under review to consider:

  • Socio-economic development, including the company's standing in terms of:
    • The 10 principles set out in the United Nations Global Compact Principles
      The group has adopted the 10 principles and monitors and reports on compliance with human rights, labour, anticorruption and environmental matters despite not being a signatory to the compact.
    • Human rights

      The group remains committed to protecting and upholding human rights as far as it is able to exercise control over such. It subscribes to and supports "the Code", a compact between members of the international tourism industry that deals with the awareness of its staff with regard to issues and circumstances prevalent in the practices of human trafficking and child sex tourism.

      City Lodge is not complicit in human rights abuses. It does not vet its suppliers in this regard on the basis that it does not believe doing so is necessary in the context of its operations and profile of suppliers.

    • Freedom of association

      The group recognises the right to freedom of association as well as the right to collective bargaining and continues to recognise and bargain with the trade union, SACCAWU. All staff (up to supervisory level) in the deemed "bargaining unit" may belong to the union from a bargaining perspective. While any other level of staff member may belong to the union, they are not covered by any bargaining gains made by the union.

    • Forced or compulsory labour
    • The group supports the elimination of all forms of forced or compulsory labour and has no exposure to such practices. Suppliers are not vetted in this regard as the group is of the opinion that this is not necessary in the context of its operations and the profile of its suppliers.

    • Abolition of child labour
    • The group demonstrates its support for the abolition of child labour by ensuring that no minors are employed. It is a condition of employment that all employees provide proof of age upon commencement of employment.

    • The Organisation for Economic Co-operation and Development's recommendations regarding corruption.
  • Activities associated with good corporate citizenship including the group's positioning and efforts with regards promotion of equality, prevention of unfair discrimination, reduction of corruption, contribution towards community development in the areas within which the company operates and record of sponsorship, donations and charitable giving.

In this regard it is to be noted that:

  • no judgments, penalties and/or fines were recorded and/or levied against the company or its directors for failure to comply with any legislative or regulatory requirement;
  • no political donations were made during the year; and
  • no requests for information under the Promotion of Access to Information Act were received during the year under review.

For details on sponsorships, donations and charitable giving.

The company operates a 24-hour whistleblower alertline which is independently managed by Whistle Blowers Proprietary Limited. The alertline affords all stakeholders the opportunity to anonymously report perceived cases of unethical or corrupt behaviour. All reports to the hotline are actively investigated and, where appropriate, action is taken.

In total 14 calls were logged during the year under review, all of which were investigated. The majority of the calls were found to be internal grievances and were dealt with in accordance with the company's internal grievance procedure.

  • The group's labour and employment practices, including its standing in terms of the International Labour Organisation Protocol on decent work and working conditions, its employment relationships and contribution toward employee educational development.
  • Progress made with regard to transformation, taking the Employment Equity and Broad-Based Black Economic Empowerment Acts into account.
  • The group's compliance with applicable legislation, regulation and codes of good practice.
  • Environmental sustainability practices, in particular three of the UN Global Compact Principles relating to supporting a precautionary approach to environmental challenges and supporting greater environmentally friendly technologies.
  • Consumer relationships, including advertising and public relations and stakeholder engagement, it being specifically noted that no complaints have been lodged with either the Consumer Tribunal or the Advertising Standards Authority for the year under review.
  • The revised code of ethics and business conduct and adoption thereof for implementation throughout the group.

The report detailing how the committee has discharged its responsibilities in this regard.

Executive committee ("Exco")

The 11 member Exco is the most senior executive decision-making body within the group and assists the chief executive in managing the group's operations and discharging the obligations delegated to him by the board. Peter Schoeman, divisional director: sales and marketing, resigned effective 28 February 2017.

As reported in last year's Integrated Report, Ms Melanie van Heerden and Mr Ryan Ruthven were appointed to the Exco with effect from 1 July 2016.

Exco's responsibilities include:

  • implementing strategy;
  • overseeing and managing the company's operations as well as operational and financial performance against set objectives;
  • competitor activity;
  • developing and making recommendations to the board with regard to the company's strategy and key policies, including the implementation and progress towards the achievement thereof;
  • providing effective leadership to the company's employees;
  • developing and presenting budgets and financial reports for subsequent submission to the board; and
  • developing, implementing and monitoring governance, compliance, sustainability, risk management, internal control processes and ethics.

Exco met five times during the year.

Management development and succession committee ("Mandasco")

Mandasco comprises seven members, all of whom are Exco members, and is responsible for ensuring that:

  • effective management development practices are in place and that they are aligned with the group's business needs and human capital requirements;
  • the company is able to meet its employment equity and transformation objectives through the attraction and retention of the appropriate level of talent; and
  • an adequate succession pool and talent pipeline is maintained.

Five meetings were convened during the year under review for purposes of discharging its responsibilities in relation to:

  • maintaining an adequate succession pool and talent development plan through:
    • the identification of suitable candidates to populate the respective succession pools and for participation in the accelerated development and deployment programme ("ADDP");
    • the compilation, execution and monitoring of individual development plans for succession pool and ADDP members to enable them to reach their full potential and develop the requisite skills and expertise necessary to suitably qualify them for the position for which they are being developed; and
    • the deployment of succession pool and ADDP members to fill positions for which they have been developed, as and when they become available;
    • transformation initiatives, specifically the achievement of the targeted employment equity levels, by identifying individuals for participation in the succession pools and ADDP, and monitoring the progress of existing candidates.

The various programmes in place saw the following appointments being made during the year under review:

  • General manager: one ADDP candidate;
  • Assistant general manager: two succession pool candidates and two ADDP candidates.

IT governance

IT governance is integrated into the business and is an important enabler both in the enhancement and advancement of the company's objectives and position as a leader in its field.

The board is ultimately responsible for IT governance and the strategic alignment of IT with the company's performance and achievement of its strategic objectives. It has delegated responsibility to implement the IT governance framework to management under the oversight of the audit committee.

The divisional director: IT, who reports directly to the chief executive, is responsible for IT operations within the group and specifically the implementation of business focused IT strategies and ensuring proper system security, data integrity and business continuity. He is furthermore responsible for consolidating feedback relating to the performance of IT within the company, so that reactive or proactive steps may be taken to ensure that the company derives the maximum value from IT, while at the same time managing its risks and ensuring that the IT function is focused on IT investment initiatives, internal engagement to promote collaborative IT planning and the promotion of IT effectively to capitalise on economies of scale across the group.

The board is satisfied that IT governance is being addressed appropriately and is suitably aligned to the achievement of the company's objectives and that the systems of internal control over information technology are adequate and effective and that there has not been a material breakdown in the functioning of the internal control systems during the year under review.

INTERNAL AUDIT FUNCTION

The internal audit function provides support to the audit committee, board as well as all operations within the group by evaluating significant business, strategic and control risks. This assists management in the development and implementation of effective internal controls, the identification of financial reporting risks and in ensuring the adequacy of controls to address the risk of material misstatement of financial results. KPMG Services Proprietary Limited performs the company's internal audit function. Despite being administratively accountable to the divisional director: financial, internal audit has unrestricted access to the chief executive, the financial director, as well as the chairman of the audit committee.

Audits are conducted in accordance with the International Standards for the Professional Practice of Internal Auditing, with hotels being audited once every three years, unless circumstances dictate otherwise. Reports, presented at each audit committee meeting, are prepared in accordance with a defined set of audit criteria which highlight audit area ratings per hotel and summarise internal audit activities. Corrective action is taken where significant internal control weaknesses are identified and follow-up audits may be conducted if deemed necessary.

Based on the results of the 18 internal audit reviews completed during the year, which yielded an overall average level of compliance with the key controls tested of 93% (2016: 84%), the internal audit function and the audit committee concluded that the overall internal control effectiveness is good.

The audit committee reviews the effectiveness of the internal audit function to ensure that adequate, objective internal audit assurance standards and procedures exist and annually approves the internal audit plan and fee for the ensuing year.

Where mandated by the audit committee, internal audit carries out special assignments. One risk-based review, covering IT governance, was undertaken during the year. The primary objective of the review was to identify whether the company had designed and implemented appropriate IT governance structures, policies and procedures to ensure that IT is managed in a controlled manner and is aligned to business objectives. The overall conclusion was that the IT governance structures, policies and procedures currently in place, are adequate.

In terms of the IT disaster recovery review undertaken in the prior year but not reported on, internal audit concluded that despite the nature and number of weaknesses identified during the review, an overall rating of adequate was assigned in respect of IT disaster recovery.

The audit committee upon assessing the independence of the internal audit function has concluded that, notwithstanding KPMG acting as internal and external auditors to the company and taking the ratio of fees between non-audit services and audit services into account, it is satisfied that the independence of the function has not been compromised.

DEALING IN SECURITIES AND INSIDER TRADING

The company has a board-approved policy on dealing in company securities, which requires directors and the group company secretary to obtain prior written clearance from the chairman of the board before dealing in City Lodge shares during an open period. The chairman of the board requires prior written clearance from any other designated director.

All dealings in securities are effected through the office of the group company secretary who assumes responsibility for the enforcement of the policy, maintains a record of requests for dealing and clearances which, with regard to directors' dealings, is tabled at each meeting of the board, and arranges for the publication of the relevant announcement via the company's sponsor on the JSE's Stock Exchange News Service.

Directors, the group company secretary and senior employees are prohibited from dealing in the company's securities during closed periods as defined by the Listings Requirements and at any time when those persons possess inside information. General investor interaction during closed periods is limited to discussions on strategy and/or historical, publicly available information.

CONFLICTS OF INTEREST AND OTHER DIRECTORSHIPS

In addition to the annual declaration, declaration of interests in contracts and details of other directorships, is a standing board agenda item.

Directors are required to recuse themselves from discussions on those matters where they are, or may potentially be, conflicted after they have provided any material information relating to the matter or known to them or if requested to make any observations or pertinent insights relating to the matter, by the other directors.

Executive directors may, with the chairman's permission, having due regard to whether the appointment may conflict with the business of the company and/or have a negative impact on the director's ability to effectively meet his/her responsibilities, accept external board appointments.

Although no limitations are imposed on the number of other appointments directors may accept, they are required to engage with the chairman with regard to their external appointments in order to ensure that acceptance of the additional appointments will not impact his/her ability to devote sufficient time to the company.

The chairman of the board is satisfied that the NEDs have devoted the requisite amount of time to discharge their responsibilities to the company and that no director has a material interest in any contract entered into by the company.

Exco also subscribes to the practice of disclosing interests in other companies, board memberships and interests in contracts at the beginning of each Exco meeting in addition to making an annual written declaration in this regard.

STAKEHOLDER ENGAGEMENT

The company acknowledges the importance of acting with integrity towards its various stakeholders, details of which are provided, and is committed to providing timely, transparent, consistent, relevant and credible information.

The board, as ultimate custodian of stakeholder relations, has delegated responsibility for proactively dealing with the group's various stakeholders to the executive and divisional directors, group company secretary, hotels and outsourced public relations function.

Various methods of engagement have been adopted and include face-to-face meetings, results presentations with major institutional shareholders after the release of results, hosting investor and analyst sessions, the annual general meeting, engaging with the broader stakeholder community through its marketing efforts, advertising and via various social media platforms and directly with guests via guest questionnaires.

LITIGATION

The company is, in the ordinary course of business, subject to legal proceedings, which for a number of reasons, including risks and uncertainties, cannot be reliably predicted.

The company is not and has not during the year under review, been involved in any legal or arbitration proceedings that will or may have a material effect on the operations or financial position of the company, nor are there any such known proceedings pending.

SPONSOR

The company's sponsor advises the board on compliance with the Listings Requirements. During the year, Nedbank Corporate and Investment Banking replaced JP Morgan Equities South Africa Proprietary Limited as the company's sponsor.

COMPLIANCE

The company is committed to complying with applicable laws, regulations and codes of best practice. A regulatory universe has been developed to assist with the group's compliance initiatives and delegated to appropriate compliance owners.