King III and PF130 To regulate or not to regulate?

Introduction  PF 130 issued in June 2007  Currently being reconsidered to incorporate King III principles  Possibility of new regulation with respect to governance for retirement funds  King III Code and the Final Report published on 1 September 2009  Implementation on 1 March 2010

Application of King III  King III applies to ALL institutions – companies as well as other institutions  King III requires corporate institutions to ‘apply or explain’ – Code of governance principles for corporate institutions (not only companies)  King II provided for ‘comply or explain’  King III does not follow the Sarbanes-Oxley approach of ‘comply or else’  Directors need to apply the best practice principles, or explain to shareholders why they opted not to  ‘Must’ and ‘Should’  Result: Every decision counts!  Customise King III to suite the needs of the institution as well as the particular industry

To regulate or not to regulate?  PF 130 embodies guidance and good practice with respect to the retirement fund industry  In many respects PF 130 was superseded by King III  Proposal:  Be careful to regulate good governance – tick box?  Rather provide a key to the retirement fund industry as to how to read, interpret and apply King III  Set minimum requirements for large(r) funds  Provide guidance to small funds to ensure optimum benefit

Key focus area: Board  Board is the focal point and custodian of good governance  27 principles relating to Boards and Directors/Trustees  11 of these principles cross reference to other Chapters  Sound ethics, good corporate citizen, effective independent audit committee, governance of risk, incl IT risk and governance, compliance with laws, codes, etc., effective risk based internal audit, stakeholder relations and management, integrity of integrated reporting, effectiveness of internal controls  Independent non-executive chairman... Not the CEO/PO

Key focus area: Board composition and committees  Composition of the board (execs, non-execs, independent non-execs)  Minimum 2 execs  Majority non-execs... Majority independent  Board appointment process formalised... Nominations committee  Assessment of skill and experience required by the board as a whole  Director orientation and induction, ongoing development and learning  Assisted by competent company secretary  Board, committees and director performance assessment

Key focus area: Audit committee  All institutions should appoint an effective audit committee, comprising at least 3 independent, non-executive, suitable skilled and experienced directors/trustees  Clearly defined role and functions of the audit committee, as per Companies act  Ensure independence of external auditor  Manage the relationship with the external auditor  Other functions as per King Report  Committee should be responsible for  Financial risks and reporting  Review of internal financial controls  Fraud risks and IT risks as it relates to financial reporting

Key focus area: Audit committee  Other functions as per King Report  Combined assurance model – management, internal assurance providers and external assurance providers  Oversee integrated reporting (both financial and sustainability reporting)  Satisfied re expertise, resources and experience of finance function  Oversee internal audit  Integral to risk management process  Oversee external audit process  Report to Board and shareholders on discharging its duties

Key focus area: Risk management  Risk management intrinsically linked to company’s strategy, performance and sustainability... Board responsible for governance of risk – including IT, compliance, etc  The Board:  consider the risk policy and plan  determination of the company’s risk appetite and risk tolerance  ensure risk assessments performed  monitor the whole risk management process  receive assurance (combined and the three lines of defence) regarding the effectiveness of the risk management process  Management:  design, implementation and effectiveness of risk management  continual risk monitoring  The Board may assign its responsibility for risk management to the risk committee, or audit committee  Retirement funds: Finance (or audit) committee to manage the performance of outsourced functions (including risk) through, among others, service level agreements

Key focus area: Other issues  Sustainability  Stakeholder identification and management  Integrated reporting A process of embedding a sustainable long term (competitive) strategy while preserving short term value

Key focus area: Other issues Questions?