Corporate governance

HIGHLIGHTS

Additional independent non-executive directors appointed, bringing board composition to 50% independent non-executive directors

Independent non-executive director appointed as chairman of the remuneration and nomination committee

Audit committee comprised exclusively of independent non-executive directors

APPROACH TO CORPORATE GOVERNANCE

Our approach to corporate governance is based on a set of values and principles that underpin the day-to-day activities of the group which include responsiveness, collaboration, transparency, integrity and accountability. This approach encompasses a commitment to excellence in governance standards, which we see as fundamental to the sustainability of the group’s performance.

APPLICATION OF GOVERNANCE PRINCIPLES

The board is committed to applying the recommendations as set out in King III, and complying with legislation such as the Companies Act as well as relevant, accepted standards of best practice. Building on this commitment we continually monitor developments in corporate governance in South Africa and internationally, and in light of these review and enhance the company’s systems of governance and control.

In line with the King III Report’s ‘apply or explain’ approach, the directors will continue to state the extent to which the company applies these corporate governance principles to create and sustain value for stakeholders over the short, medium and long-term, and to explain any instances of non-compliance. The application of King III can be found in Annexure A of this integrated report.

Where specific principles have not been applied, explanations for these are contained within this integrated report.

Read more on www.hyprop.co.za

ETHICAL LEADERSHIP AND CORPORATE CITIZENSHIP

Responsible leadership

In accordance with the board charter, the board is the guardian of the values and ethics of the group. Our board strives to embody the values set out in our Code of Conduct and Ethics, recognising that this process must devolve from the top down. As a business imperative, the directors continually strive to ensure that the company conducts its business with the utmost integrity towards all its stakeholders.

Hyprop’s board is the focal point for good corporate citizenship and aims to integrate responsible corporate citizenship into the company’s growth strategy and daily operations in order to ensure sustainability.

The social and ethics committee, a committee of the board, monitors Hyprop’s compliance with relevant social, ethical and legal requirements and best practice codes, and ensures Hyprop is meeting its responsibility to its various stakeholders. This includes social transformation in the workplace, and the safety, health and dignity of all employees. The committee reports to unitholders on matters that fall within the scope of its mandate at the annual general meeting of the company and by contributing to this integrated report.

The Code of Conduct and Ethics (“the Code”)

The Code provides guidance as to ethical conduct in all areas, appropriate policies in respect of the safeguarding of assets and information, and the appropriate measures to enforce these policies.

The primary purpose of the Code is to promote the good conduct of all employees and other representatives of Hyprop to enable the company “to create the most desirable shopping destinations in South Africa which constantly deliver an exceptional and memorable shopping experience”. This is intended to be achieved through:

The Code encapsulates Hyprop’s commitment to best practice corporate governance, including timeous, valuable and transparent communication with all stakeholders. In addition it contains guidelines on confidentiality, fair and ethical market competition and sound environmental practices, addressing responsible corporate governance.

In terms of the Code, Hyprop specifically endeavours to:

The board’s responsibilities

The board is governed by a formal charter supported by relevant authority limits, which was updated following the 2012 annual review to comply with the Companies Act. The charter and complete terms of reference of the board are available on Hyprop’s website.

The board embraces the responsibilities set out by King III, and acknowledges that:

In respect of compliance

In respect of the internal audit

In respect of stakeholder engagement

Ethics line

During the year Hyprop launched an independent ethics hotline operated by KPMG. The Hyprop Ethics Line is available to employees of the group and the public at large, and whistle blowers are assured of anonymity. KPMG provides Hyprop with a regular analysis of calls received to enable the group to investigate all allegations timeously. Hyprop has recently embarked on an extensive campaign to educate staff on the optimal use of the line.

Formal reports of matters which may impact financial reporting are submitted to the audit committee.

Read more on www.hyprop.co.za

BOARD AND DIRECTORS

Role and function of the board

The Hyprop board acts as the focal point for, and the custodian of, corporate governance. It provides the group with effective leadership based on an ethical foundation, and ensures that the company is, and is seen to be, a responsible corporate citizen.

Composition of the board

Hyprop’s board currently comprises 14 directors, two of whom are executive. During the year under review, two additional independent non-executive directors were appointed, Gavin Tipper in March 2012 and Jabulane Mabuza in June 2012, which has improved the balance of independent non-executives on the board.

The non-executive directors have diverse backgrounds in commerce and industry. Their collective experience enables them to provide sound, independent and objective judgement in decision-making that is in the best interests of Hyprop. They review and ratify Hyprop’s strategy, in addition to monitoring its performance and executive management against key performance indicators. The non-executive directors provide opinion and advice regarding the group’s financial, audit, governance and risk management controls. In order to ensure sustainable leadership they review transformation and succession planning at senior levels and provide input into the remuneration process.

All directors exercise unfettered discretion in the fulfilment of their duties, resulting in constructive debate at meetings that continues to yield well-considered decisions.

Chairman, CEO and independent directors

The position of Chairman is currently held by an independent non-executive director, Michael Aitken, whose role is clearly defined and separated from that of the CEO, Pieter Prinsloo. Likewise, the responsibilities of CEO and Financial Director are strictly separated from those of the non-executive directors to ensure that no single director can exercise unrestricted powers of decision-making. The Chairman provides leadership and guidance to the board and encourages proper deliberation on all matters requiring directors’ attention, while obtaining input from other directors.

The CEO and Financial Director are responsible for implementing strategy and operational decisions.

The independent non-executive directors contribute a wide range of industry skills, knowledge and experience to the board’s decision-making process. These directors are not involved in the daily operations of the company.

Changes to the board

Changes to the directorate during the year and proposed changes subsequent to year-end (at the annual general meeting) include:

Appointments

Re-election by rotation

Retirement

Detailed information on the directors and their credentials is set out on pages 30 - 32

Operation of the board

The board’s overarching objective is to ensure that the group delivers long-term, sustainable returns for our stakeholders. It takes overall responsibility for directing the company towards the achievement of its strategic objectives, vision and mission and for the group’s performance. This encompasses financial performance as well as considering Hyprop’s sustainability.

Board appointment process

The board, supported by the remuneration and nomination committee, is responsible for new appointments. Identification and selection of candidates is conducted in a formal and transparent manner. The board and committee take into account the necessary blend of skills and experience that will enable new directors to meaningfully contribute to the company’s operational progress and sustainable transformation, with specific relevant factors taken into consideration including diversity and regulatory compliance.

An induction process is in place which includes, amongst other things, a briefing by the Chairman, CEO, Financial Director and the company’s sponsor, Java Capital. New appointees are also introduced to key senior management at company and shopping centre levels and encouraged to undertake site visits to the shopping centres.

The appointment of new directors is confirmed by combined unitholders at the first annual general meeting following their appointment, in terms of the MOI. Therefore Jabulane Mabuza will have his appointment raised for confirmation at the upcoming annual general meeting.

Rotation of directors

The company’s MOI provides for one-third of the non-executive directors to retire by rotation after a three-year term of office. Being eligible, the directors in question will offer themselves for re-election in accordance with the company’s MOI .

Succession planning

It is the responsibility of the remuneration and nomination committee to ensure adequate succession planning for all board directors, as well as to ensure that all committees are appropriately constituted and chaired. The committee gives due consideration to succession planning on an ongoing basis.

The board is comfortable that the depth of skill meets current board succession requirements. As mentioned in the Chairman’s Report, it is Mike Aitken’s intention to retire from the board at the forthcoming annual general meeting. The remuneration and nomination committee is in the process of considering appropriate candidates for the chairmanship of the board, and further communication will follow in due course. To achieve continuity, preference will be given to appointing a candidate from existing board members.

Director development

To the extent necessary directors have access to experts and other parties in carrying out their duties. In addition, directors are encouraged to undergo continuing professional development in their personal capacity.

Company secretary

The company secretary, Probity Business Services Proprietary Limited, is an independent company secretarial practice providing services to numerous JSE-listed companies. The board is comfortable that the company secretary, and in particular its representative Neville Toerien, maintains an arms-length relationship with the board at all times and is sufficiently qualified and skilled to act in accordance with, and update directors in terms of, the recommendations of the King III Report and other relevant regulations and legislation.

The role and functions of the company secretary include:

It is further the responsibility of the company secretary to keep the board updated in regard of ethics, governance and regulations.

The board then reviews any changes and appropriate measures are implemented to comply with best practice in such a way as to support sustainable performance.

Performance self-assessment

An evaluation of the board and individual directors was performed at the beginning of the year. The evaluation was undertaken by the company secretary, and will be done annually going forward. An assessment of the committees will be conducted in the current year.

The board is satisfied that all of the independent non-executive directors meet the objective independence criteria of King III. Of the six such directors, two have served a term exceeding nine years. The board has therefore reviewed the independence of Michael Aitken and Les Weil, and after due consideration, has concluded that their long association with the group in no way impairs their independence.

Access to information

Access to the advice and services of the company secretary and to company records, information, documents and property is unrestricted. Non-executive directors have unfettered access to the external and internal auditors, and to management, at any time. All directors are entitled, at Hyprop’s expense, to seek independent professional advice on any matters concerning the affairs of the company.

Access to the board

Unitholders and employees are able to provide recommendations or direction to the board at the annual general meeting, one-on-one meetings, investor presentations and through semi-annual investor polls.

During the year under review certain investors raised concerns regarding Hyprop’s investment in Sycom, the slow pace of the Rosebank redevelopment and the yield, and the strategy to move into Africa. These have all been addressed through a proactive communications strategy.

Dealing in securities

The board complies with the requirements of the JSE regarding restrictions on the trading of Hyprop’s units by directors, the company secretary and employees during the defined closed periods. In terms of the Code of Ethics and Conduct directors are required to declare to the Chairman and company secretary their unitholdings, additional directorships and any potential conflicts of interest. In conjunction with the Financial Director and sponsor, they ensure that any required disclosure in respect of trades in Hyprop combined units is published on SENS. Directors and senior employees with access to the company’s financial results and other price sensitive information are barred from dealing in Hyprop’s combined units for specified time periods preceding relevant announcements. A notification is sent to all directors and affected staff alerting them that the company is entering a closed period.

board committees

Five committees, comprising audit, risk, investment, remuneration and nomination (combined into one committee during the year) and social and ethics, assist the board in the discharge of its duties.

The board is satisfied that all committees have fulfilled their responsibilities during the year. Each committee operates under an approved charter which will be reviewed on an annual basis. The need for additional committees is continually evaluated.

There is transparency and full disclosure from board committees to the board. Committee chairmen provide the board with a verbal report on recent committee activities and the minutes of committee meetings are available. In addition, the chairman of the board and chairman of the audit committee will be attending the company’s annual general meetings going forward, to answer any questions from stakeholders.

Board meetings and attendance

The board meets at least four times a year with ad-hoc meetings when necessary, to review, amongst other matters, strategy, planning, financial performance, resources, operations, risk, capital expenditure, reporting and compliance matters, standards of conduct, transformation, diversity, employment equity, human resources and environmental management.

Relevant information is supplied timeously in advance of meetings, ensuring that directors can make well-researched and reasoned decisions.

Details of directors’ attendance at board and committee meetings are set out below:

Remuneration of directors and senior executives

The remuneration paid to directors during the current year together with information relating to the direct and indirect holdings of the directors at 31 December 2012, as well as their participation in share incentive schemes (where relevant), is disclosed in the directors’ report.

Read more on pages 67 and 68

AUDIT COMMITTEE

Membership and resources of the audit committee

During the year the audit committee comprised independent non-executive directors Les Weil (committee chairman), Lindie Engelbrecht and Gavin Tipper, ensuring the committee comprised exclusively independent non-executive directors, applying the principles of King III and complying with the Companies Act.

The committee meets at least three times a year, and subsequent to each meeting, the chairman reports to the board on the activities and recommendations made by the committee.

Responsibilities of the audit committee

The audit committee is governed by a formal charter which codifies the committee’s role and responsibilities including the responsibility for reviewing accounting, auditing and financial reporting matters. The committee assesses adherence to the company’s systems of controls and, where necessary, recommends and monitors improvements during the year.

The charter has been reviewed and updated in line with King III requirements and the Companies Act. It is available on the company’s website.

Read more on www.hyprop.co.za

Assurance providers

The committee is responsible for reviewing the internal audit function and recommending the appointment of external auditors for approval by unitholders. In addition, it establishes guidelines for the use of external auditors for non-audit services to maintain independence.

Grant Thornton acts as the external auditor to Hyprop. The independence of the external auditor is reviewed every year by the audit committee.

The external auditors annually provide a report to the audit committee motivating their independence. The committee has considered the independence of the external auditors, Grant Thornton, and is of the view that the external auditors are independent of the company. Further, the external auditors attend all audit committee meetings and have unrestricted access to the chairman of the audit committee.

REMUNERATION AND NOMINATION COMMITTEE

During the year the separate remuneration and nomination committees were merged into a single committee.

Details of remuneration policies and practices are on page 60

INVESTMENT COMMITTEE

The role of the investment committee is to assist the board in considering investment opportunities relating to properties, listed securities and other corporate actions, as well as to approve acquisitions, disposals and capital expenditure in line with the limits of authority delegated to it and in line with the strategy determined by the board.