An essential role to play
Introduction
As corporate governance is essential to the interests of stakeholders of the Naspers group, the board of directors aspires to conduct the business of the group with integrity. It is committed to applying appropriate corporate governance policies and practices in each company in the group.
Naspers is a multinational media entity with operations in Africa, Europe, the USA, South America, South-east Asia and Russia. Its primary listing is on the JSE Limited (JSE). The company is therefore subject to the Listings Requirements of the JSE, as well as the guidelines contained in the King Report on Corporate Governance for South Africa 2002 (King II). In light of its secondary listing on The NASDAQ Stock Market, Inc. in New York (NASDAQ) with its American Depository Receipt (ADR) programme, the company took the required steps to become compliant with the Sarbanes-Oxley Act of 2002, and the applicable U.S. Securities and Exchange Commission (SEC) and NASDAQ requirements for the year ended 31 March 2007
The company has decided to delist its American Depository Shares (ADSs) from NASDAQ and terminate its registration of the ADSs with the SEC. Naspers will convert its current ADR programme into a Level I ADR programme to give current ADR holders the option to continue to hold ADRs. Level I ADRs are traded in the US over-the-counter (OTC) market as opposed to on a US national securities exchange.
Naspers also intends making application to list a Depository Receipt programme on the London Stock Exchange (LSE) to provide a platform for international investors who wish to trade in Naspers N ordinary shares other than on the JSE. The listing on the LSE is expected to become effective during the third quarter of 2007.
The company’s decision to delist from NASDAQ is based on the high costs of maintaining its listing and registration in the USA and complying with US obligations, especially the provisions of the Sarbanes- Oxley Act of 2002. Naspers believes that the resulting savings in costs and management time will benefit Naspers and its shareholders, while the continued trading of the company’s N ordinary shares on the JSE will provide liquidity to its shareholders and access to capital for Naspers.
Naspers’s primary listing will remain on the JSE. Accordingly, it is subject to the JSE Listings Requirements, high corporate governance standards as reflected in King II, as well as laws applicable to publicly listed companies in South Africa.
The board’s audit and risk management, and human resources and nomination committees fulfil key roles in ensuring good corporate governance. The group uses independent external advisors to monitor regulatory developments, locally and internationally, to enable management to make recommendations to the Naspers board and the boards of major group companies, on matters of corporate governance.
> Improvements made during the past year and plans for the year ahead
All members of the human resources and nomination committee, and the audit and risk management committee are independent. The board has a process to review, on an annual basis, the effectiveness and role of the board and its chair, as well as the effectiveness of the respective board committees and directors. A follow-up self-assessment was also performed on the functioning of the audit and risk management committee, which includes a focus on the key competencies of the committee.
The group took the necessary steps to ensure that its procedures for internal control over IFRS financial reporting were fully compliant with the Sarbanes-Oxley Act of 2002 by 31 March 2007.
A business ethics management process has been rolled out to the major subsidiary level, to ensure alignment with the overall group code of business ethics as well as ensuring that it is properly communicated to all staff members. Within Media24, there is an ombudsman process in terms of which readers may lodge complaints with regard to newspaper reporting.
Orientation programmes are in place for new members of the board, and the audit and risk management committee. Self-evaluations on the functioning of the board and its sub-committees are now standard practice.
The risk management process in respect of major subsidiaries such as Media24 has been revised, in line with the group’s overall risk management approach. Whistle-blowing facilities are in place at most of the major subsidiaries and are being implemented in others. Planning of and reporting on the group’s corporate social investments are under review.
For the ensuing financial year, Naspers will continue to evaluate areas where corporate governance at a corporate and major subsidiary level can be strengthened. The levels of authority are currently being reviewed. The implications of the new Companies Amendment Bill 2007 in South Africa will also be analysed and taken cognisance of. The print media sector is reviewing its environmental programme, based on the framework of the Global Reporting Initiative (GRI). Group companies will take the business ethics management process further to ensure that the required supporting policies and procedures are in place.
> Statement of compliance
The Listings Requirements of the JSE require that JSE-listed companies report on the extent to which they comply with the principles set out in King II. The board, to the best of its knowledge and belief, is of the opinion that throughout the accounting period under review, the company has applied the principles of King II.
Naspers has also reviewed the governance requirements currently applicable to foreign private issuers under the Sarbanes-Oxley Act of 2002, the rules and regulations of the SEC, as well as the NASDAQ’s requirements, and is satisfied that it complied in all material respects with these regulations to 31 March 2007.
While the board believes that the company’s level of compliance with the appropriate governance requirements is sufficient, it recognises that practices and procedures can always be improved, and therefore reviews progress annually.
> The board
Composition
> Board committees |
| While the board remains accountable and responsible for the performance and affairs of the company, it delegates to board subcommittees and management certain functions to assist it to properly discharge its duties. Appropriate structures for those delegations are in place, accompanied by monitoring and reporting systems.
Each subcommittee acts within agreed, written terms of reference. The chair of each subcommittee reports at each scheduled meeting of the board and minutes of subcommittee meetings are provided to the board.
The chair of each subcommittee is a non-executive director and is required to attend annual general meetings to answer questions raised by shareholders. The established board subcommittees are as follows: |
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| Executive committee |
| This committee comprises a majority of non-executive directors, one being the chair of the board, who also serves as the chair of the executive committee, and the executive directors.
The executive committee acts on behalf of the board with regard to the management of urgent issues when the board is not in session, subject to statutory limits and the board’s limitations on delegation. This committee met once during the past financial year. All other matters put to the committee were dealt with on a round-robin basis. |
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| Audit and risk management committee |
| The members of this committee are all independent. Messrs Boetie van Zyl and Ton Vosloo, and Adv Fran du Plessis fulfil the requirements of a financial expert as defined in the NASDAQ and SEC regulations. Mr van Zyl was the chair of the committee for the past financial year. All members are financially literate and possess substantial business and financial expertise.
The committee held five meetings during the past financial year. Details of attendance of the members of this subcommittee are provided in the directorate.
Both the internal and the external auditors have unrestricted access to the committee. The external auditors may also report their findings to the committee with members of executive management not in attendance.
The managing director and the financial director attend the audit and risk management committee meetings by invitation.
The scope of this committee includes risk management, as well as compliance with the Listings Requirements of the JSE. Among others, the main responsibilities of the audit and risk management committee are to: |
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review and recommend to the board for approval the company’s annual reports, interim and provisional reports |
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receive the external auditor’s reports |
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evaluate the effectiveness of the internal auditing function, including its activities, scope, adequacy and costs, and approve the annual internal audit plan and any material changes thereto |
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evaluate procedures and systems (including, without limitation, internal controls, disclosure controls and procedures and information systems) introduced by management |
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review and approve the activities, scope, adequacy and effectiveness of the company’s risk management and regulatory associated procedures |
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evaluate legal matters that may affect the financial statements |
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establish procedures for the treatment of complaints received by the company regarding accounting, internal control or auditing matters |
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determine the principles for the use of the external auditor for non-audit services |
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evaluate the effectiveness of the committee. |
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| Human resources and nomination committee |
| This committee, chaired by Ton Vosloo, now comprises only non-executive directors. The executive directors are ex officio members. This committee met six times during the financial year. Details of attendance of the members of this subcommittee are provided in the directorate.
Among others, the main responsibilities of the human resources and nominations committee are to: |
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determine the company’s general policy on remuneration |
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annually review and approve remuneration packages of executive directors, including bonus incentive schemes and increases |
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annually appraise the performance of the managing director/chief executive officer |
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regularly review the company’s code of business ethics and the effectiveness of the business ethics management programme |
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annually review the general level of remuneration for directors of the board, as well as its committees, and recommend proposals to the board for final approval by shareholders in general meeting |
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fulfil delegated responsibilities in respect of the Naspers share schemes |
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approve appointments and promotions of top executives |
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annually review the effectiveness of the corporate governance guidelines and charter of the board |
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evaluate cases of unethical business behaviour, if any, by senior managers and executives of the company |
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make recommendations to the board on the structure, size and composition of the board |
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evaluate the performance of the board, subcommittees of the board, directors and the chair |
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review employment equity and skills development plans |
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make recommendations to the board on the appointment of new directors. |
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| Discharge of responsibilities |
| The board has determined that all the subcommittees discharged their responsibilities for the year under review in compliance with their terms of reference. |
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| > The company secretary |
| The company secretary is responsible for providing the board with guidance on the discharge of its responsibilities in terms of the legislation and regulatory requirements of the relevant jurisdictions.
The directors have unlimited access to the advice and services of the company secretary. The company secretary plays an active role in the company’s corporate governance and business ethics management process, and ensures that in accordance with the pertinent laws, the proceedings and affairs of the board, the company itself and, where appropriate, shareholders are properly administered. He is also the company’s public officer, compliance officer and delegated information officer. The company secretary monitors directors’ dealings in securities and ensures adherence to closed periods for share trading. |
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| > Risk management |
| As an international multimedia group with business activities in various countries, the group is exposed to a wide range of risks, which may have serious consequences.
However, the diversified nature of the group helps to spread the risk. The identification of risks and their management form part of each business unit’s business plan. These are assessed by the board annually.
Major group companies have specific risk management functions. The audit and risk management committee also reviews the risk management process. At present the following major risks are evident, among a wide range of related exposures: |
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| > Global political and market developments |
| The Naspers group operates in the media and entertainment industry worldwide and has its primary listing on the JSE. It intends to terminate its secondary NASDAQ listing and its registration of ADSs with the SEC. Thereafter, the company will apply to list its ADSs on the LSE. It is consequently sensitive to any global political and other events that may influence the global economy or share prices. |
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| > Competition and technical innovations |
| The group operates in fiercely competitive and sometimes maturing markets. Technology forms an integral part of its operations. The group devotes significant resources to analyse emerging trends in technology and consumer demand, and to the development of new products and services, but it may be mistaken in its analyses or its projects may misfire. |
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| > Currency fluctuations |
| The group reports in South African rand, the exchange rate of which may vary relative to other currencies. In addition, in several markets the group has substantial input costs in foreign currencies. The movements of these currencies could have a negative or positive impact on our operating expenses. Unrealised currency translation gains or losses may distort the group’s financial accounts. The group has a policy to hedge only some of its foreign currency positions. |
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| > Legislation and regulations |
| The media industry is, in general, subject to government regulation in most countries. Failure or delays in obtaining or renewing regulatory approvals could influence the availability of our services to our customers. The Naspers group aims to comply with applicable laws and regulations. To achieve this, the group cooperates and consults with the various regulators in the countries in which it operates. Furthermore, the group participates in the regulatory processes in the various territories, sometimes in conjunction with partners that are local experts. |
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| > Political and economic instability |
| Political instability in any of the countries in which the group operates could cause us damage. The group undertakes an initial risk assessment before entering new territories and monitors current risks in countries in which we operate. |
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| > Technology failures |
| Satellite failure: most of the group’s pay-television services are delivered to subscribers via satellite transmission. Satellites are subject to damage or destruction, which may disrupt the transmission of our services. Some procedures are implemented to secure the availability of our services, ranging from back-up capacity in some cases to built-in redundancy. The cost of these measures are considered against the impact and likelihood of the risk occurring and consequently, in some cases, satellites remain unprotected or only partially protected.
The production and distribution of the group’s products, especially in the case of the print media, depends on constant and high-quality electricity supply. The economic growth and accompanying developments planned for South Africa in the short term places increasing pressure on the limited sources of electricity. The group has taken measures to lessen the impact of any power failures (eg by installing generators), but the effect of protracted power failures will have a negative impact on revenues.
Printing facilities: damage or malfunction in the printing environment would disrupt circulation of print media and decrease the revenue of the printing business. This risk is only partially mitigated by insurance cover and back-up. |
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| > Internal control systems |
| The company has a sound system of internal control, based on the group’s policies and guidelines, in all material subsidiaries, associates and joint ventures under its control. In respect of those entities in which Naspers does not have a controlling interest, the directors who represent Naspers on the boards of these entities seek assurance that significant risks are managed.Risk managers and the internal auditors monitor the functioning of the internal control systems and make recommendations to management and to the audit and risk management committee. External auditors consider elements of the internal control systems as part of their audit and communicate deficiencies when identified.
All internal control systems do, however, have shortcomings, including the possibility of human error and the evasion or flouting of control measures. Even the best internal control system may provide only partial assurance. The group’s internal controls and systems are designed to provide reasonable, and not absolute, assurance as to the integrity and reliability of the financial statements; to safeguard, verify and maintain accountability of its assets; and to detect fraud, potential liability, loss and material misstatement, while complying with applicable laws and regulations.
The board expects that the work performed in compliance with Sarbanes-Oxley Section 404 for the year ended 31 March 2007 will further strengthen the internal control environment.
The group evaluated its internal control systems as at 31 March 2007 with regard to financial reporting and safeguarding of assets against unauthorised purchases, use or sales. During the period under review, the internal control system revealed no shortcomings that led to a material loss that should be reflected in the financial statements or the external auditors’ report. |
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| > Internal audit |
| An internal audit function is in place throughout the group and is an independent appraisal mechanism that evaluates the group’s procedures and systems (including internal controls, disclosure procedures and information systems), ensuring that these are functioning effectively. The head of internal audit reports to the chairman of the Naspers audit and risk management committee with administrative reporting to the finance director. The annual internal audit plan for 31 March 2007, approved by the audit and risk management committee, focused mainly on providing assurance on the effectiveness of internal control over financial reporting for the purposes of the Sarbanes-Oxley Act of 2002. The internal audit fieldwork is outsourced to one of the major auditing firms. |
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| > Relations with shareholders |
| The company maintains a dialogue with its key financial audiences, especially institutional shareholders and analysts. The investor relations unit manages interaction with these audiences and presentations take place at the time of publishing interim and final results.
The company’s website (www.naspers.com) provides the latest and historical financial and other information, including the financial reports. The board encourages shareholders to attend its annual general meeting, notice of which is contained in this annual report, where shareholders will have the opportunity to put questions to the board, including to the chairs of the various board subcommittees. |
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| > Business ethics |
| In support of the requirements of King II, the company has formalised its business ethics management process within the group. The group code of business ethics is compliant with appropriate regulatory requirements. This code applies to all directors, officers and employees in the group. The current phase of ensuring that group companies adopt this process in their own companies, to ensure alignment with the overall code and to establish supporting policies and procedures, is an ongoing process. Effective communication of the code for business ethics is a key focus.
The human resources and nomination committee acts as the overall custodian of the business ethics management process and monitors compliance with the group’s code of business ethics. The group companies’ disciplinary codes and procedures are being used to ensure compliance with the underlying policies and practices, which underpin the overall code of business ethics.
Naspers is committed to conducting its business with integrity. This commitment, which is endorsed by the board, is captured in our integrity chain, which expresses the guiding principles that bind us to one another and to our stakeholders. The group expects all directors, officers and employees to share its commitment to business ethics and legal standards. |
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| > Remuneration philosophy |
| The remuneration policy and its execution is the responsibility of the human resources and nomination committee.
Non-executive directors qualify for an annual remuneration as opposed to a fee per meeting. This recognises the ongoing responsibility of directors for the efficient control of the company as well as the additional accountability required from them. This remuneration is augmented by remuneration for services on any of the subcommittees of the board. A premium is payable to the chair of the board, as well as to the chairs of the subcommittees.
The remuneration in question is reviewed annually, based on an independent survey of major JSE-listed companies, as well as a sample of companies that have a dual listing on the JSE and an overseas securities exchange. Independent advice is acquired in order to review directors’ remuneration. This remuneration is not linked to the company’s share price or performance. Non-executive directors do not qualify for participation in the group’s share-based incentive schemes.
As regards remuneration of executives, the group aims to attract, motivate and retain competent and committed leaders in its drive to create sustainable shareholder value. We aim to recognise top performance and to utilise the opportunity to attract entrepreneurs to further expand the group.
The remuneration philosophy for executives strives to meet this objective. Accordingly, the focus of the policy is not primarily on the guaranteed annual remuneration package, but on individual non-guaranteed incentive plans linked to the creation of shareholder value.
Guaranteed remuneration packages are monitored and compared with reported annual remuneration for comparable positions in the relevant economy to ensure that it is fair and compatible. Executives have an annual bonus scheme, provided that strategic and operational objectives are met or surpassed.
As a long-term incentive, executives participate in share-based incentive schemes in respect of Naspers N shares and, in appropriate instances, shares or stock appreciation rights in their respective subsidiaries. These awards normally vest over a period of four or five years.
The fees for non-executive directors for the past year, as well as the remuneration packages of executive directors, are disclosed in note 13 to the consolidated annual financial statements. |
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| > Subsidiaries |
| Independent boards of directors, all of which have established their own governance practices and subcommittees that comply in the main and as appropriate to the companies with the applicable governance and regulatory requirements, govern Naspers’s major subsidiaries. |
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