Board composition, structure and report back

Board of Directors

The Board directs the Group towards and facilitates the achievement of the Group's strategy and operational objectives. It is accountable for the development and execution of the Group's strategy, operating performance and financial results. Its primary responsibilities include determining the Group's purpose and values; providing strategic direction to the Group; appointing the joint Chief Executive Officers; identifying key risk areas and key performance indicators of the Group's businesses; monitoring the performance of the Group against agreed objectives; deciding on significant financial matters; approving policies; and reviewing the performance of the Executive Directors against defined objectives. A range of non-financial information is also provided to the Board to enable it to consider qualitative performance factors that involve broader stakeholder interests.

The Board, which meets at least quarterly, retains full and effective control over all the operations. Additional ad hoc Board meetings are convened as circumstances require.

Board Charter

Our Board Charter assists our Board in conducting its business according to legislative requirements and the principles of good corporate governance. It ensures that each director is aware of his or her powers, duties and responsibilities when acting on behalf of the Blue Label Telecoms Group. The Board Charter is subject to the provisions of the Companies Act, JSE Listings Requirements, our Memorandum of Incorporation, and all other applicable legislation. The Board Charter covers the role and function of the Board; its detailed responsibilities; how it discharges its duties; the Board composition; and the establishment of Board Committees. The Board Charter as well as the terms of reference and work plans of the Board subcommittees were updated to align with the requirements of King IV during 2018.

The Board has concluded that it has collectively satisfied and fulfilled its responsibilities in accordance with the charter.

Governance framework

The Board regards governance as a fundamental essential for the success of the Group's business. It is committed to applying the principles of good governance in directing and managing the Group in order to achieve its strategic objectives. The Board is the focal point for and custodian of the Group's governance framework, and is supported by its committee structures, management, shareholders and other stakeholders of the Company. The Board is ultimately accountable for the performance and affairs of the Company.

The governance framework facilitates a balance between the Board's role of providing direction and oversight with accountability to support acceptable risk parameters and consistent compliance with regulations, standards and codes relevant to the Group. At the same time the Board encourages entrepreneurship and innovation, which are recognised as key drivers of Group performance. At the operations, governance processes are aligned with the governance framework established by Blue Label. Each subsidiary company has its own board of directors and its strategy, business plan and performance criteria are clearly defined. Subsidiary boards comprise Executive and Non-Executive Directors, some of whom are Executive and Non-Executive Directors of Blue Label.

Following the acquisition of 45% of Cell C in August 2017, the Blue Label Board has been actively monitoring and advising on the alignment of governance structures and processes at Cell C with those of the Company.

Board composition

Blue Label has a unitary Board structure comprising eight directors. Four are Independent Non-Executive Directors, while one is Non-Executive and three are Executive Directors. A biography of each director appears herein Board of Directors.

The Board has a majority of Non-Executive Directors. This is incorporated into our Board Charter, which promotes power and authority at Board of Director level to ensure that no one director has unfettered powers of decision-making. In line with King IV, the roles of the Chairman and the joint CEOs are separate. The Board is led by Larry Nestadt, an independent Non-Executive Chairman. The joint CEOs are Brett Levy and Mark Levy.

The Chairman's role includes setting the ethical tone for the Board and ensuring that the Board remains efficient, focused and operates as a unit. The Chairman provides overall leadership to the Board, without limiting the principle of collective responsibility for Board decisions. He also facilitates appropriate communication with shareholders and enables constructive relations between the Executive and Non-Executive Directors.

The joint CEOs' principal roles are to provide leadership to the executive team in running the Group's businesses. The Board defines the Group's levels of authority, reserving specific powers for the Board, while delegating others to Senior Management. The collective responsibility of management vests with the joint CEOs who regularly report to the Board on the Group's progress in delivering its objectives and strategy.

The Group's Financial Director is Dean Suntup. The Audit, Risk and Compliance Committee is satisfied that he has the appropriate expertise and experience for this position.

The Group has implemented a succession planning process at Board, top level management and subsidiary management levels. The succession plans are reviewed and approved by the appropriate bodies annually and documented accordingly. Furthermore, the business continuity plan for the Group has been drafted such that it incorporates the subsidiary succession plans. The Group has influential joint CEOs who co-founded the business, both of whom have a vested interest in the long-term future of the Group. However, in unforeseen circumstances, the Group has robust succession planning in place for both CEOs.

Blue Label Group recognises the value of diversity and is committed to promoting gender and race equality in the Group. Our Board has introduced the Policy on the Promotion of Gender and Race Equality in the Blue Label Telecoms Group which is available online at www.bluelabeltelecoms.co.za. Our talent management processes together with our policy will enable us to improve diversity within the Group.

On an ongoing basis, the Board shall consider its structure, its gender, race and size composition, as well as the relationship between Executive and Non-Executive Directors. It is committed to making sustainable progress towards ensuring that the Board is sufficiently gender and race diverse and has the necessary skills to competently discharge its duties, having regard to the strategic direction of the Group. No specific targets have been set in relation to the Board diversity policy. With 25% of the Board being black and no female representation following the resignation of Phuti Mahanyele, the Board recognises that it must continue to progress race diversity and female representation in particular. The Board is actively pursuing the appointment of an additional Independent Non-Executive Director to further enhance independence and diversity at Board level.

The Board has concluded that it has the appropriate mix of knowledge, skills, experience and independence.

The Remuneration and Nomination Committee (RNC) annually debates the independence of its Independent Non-Executive Directors who have served on the Board for a period of nine years or more. Laurence Nestadt, Gary Harlow and Joe Mthimunye have been assessed in this regard. The Committee has found them suitably independent, with continuing strong contributions, considering their experience within the Group and sector, and they are considered to continue to operate independently and objectively and have no conflicts of interest.

The Board wishes to assure all stakeholders that the tenure and independence of Non-Executive Directors is vigorously debated and tested and that all Board meetings are robust in terms of their deliberation. Given the complexity of the industry within which Blue Label operates and the complexity of Blue Label itself, the Board believes that long-term knowledge and understanding of the issues surrounding the business are invaluable. A succession plan at Board level is being pursued to ensure a pipeline of new Independent Non-Executive Directors is established.

Board appointments

One-third of the directors retire by rotation every three years in terms of the Memorandum of Incorporation (MoI). If eligible, available and recommended for re-election by the RNC, their names are submitted for re-election at the AGM, accompanied by a short biography set out in the integrated annual report. In this regard, Messrs. MS Levy, JS Mthimunye and LM Nestadt will be retiring at the forthcoming AGM and, being eligible, have made themselves available for re-election. A brief biography of each Director appears herein Board of Directors.

The RNC assists the Board with the assessment, recruitment and nomination of new Directors, subject to the whole Board approving these appointments. Board members are also invited to interview potential appointees.

A formal and transparent procedure applies to all new Board appointments, which are subject to approval by shareholders at the first AGM following that Director's appointment. Prior to appointment, candidates are required to complete a fit and proper test, as per the JSE Listings Requirements.

Ms P Mahanyele resigned as a Director on the Board and as a member of the Investment Committee with effect from 23 November 2018, following her appointment to another Board that would have presented a potential conflict of interest. A policy requiring directors to observe a 'cooling-off' period before accepting appointments to other Boards that may present a conflict of interest has been subsequently included in the Board Charter to regularise this aspect.

Board effectiveness

The Board Charter provides for assessment of the Board and its committees every other year, which is recommended by King IV. The Board and its committees assessed its performance and effectiveness according to the following categories:

• effectiveness and composition;
• dynamics;
• risk management;
• succession planning;
• ethical leadership; and
• corporate citizenship.

The Board further assessed its members according to the following categories:

• leadership;
• interpersonal skills;
• strategic thinking; and
• board contribution

Based on the consolidated feedback from the assessment performed in the prior year, the Board is satisfied with the overall performance and effectiveness of the Board, its members and the committees.

The Board is satisfied that the formal, internal evaluation process improves performance and effectiveness.

Evaluations of individual Executive Director's performance take place annually, once during remuneration increase and performance bonus award periods and, as applicable, prior to the AGM regarding the re-election of Directors. Refer to the remuneration section (page 98) for the performance evaluation of the CEOs and the CFO against agreed upon performance measures and targets.

Induction of a new Director is tailored according to the knowledge and experience of the Director in a listed company environment. Focus is placed on providing information on the Board structure, business operations and Group strategy. Ongoing training and development of Directors involve ad hoc presentations to the Board by professional advisers and Senior Management to ensure the Board is kept abreast of governance, regulatory and operational developments.

Company Secretary

Our Board remains satisfied with the competency and experience of our Group Company Secretary, Janine van Eden (BProc, LLB, Conveyancing). The performance appraisal of the Company Secretary for the year under review took into account the quality of support received and guidance provided to the Board. She maintains an arm's length relationship with the Board, providing guidance to Board members on execution of their duties and keeps up to date on the latest developments in corporate governance and regulation. All Directors have full access to the services and advice of the Group Company Secretary in all aspects of the Board's mandate and operations of the Group; the Board is satisfied that these arrangements are effective.

Board Committees

The Board has delegated certain functions to well-structured committees without abdicating its own responsibilities and accountability. Board Committees operate under written terms of reference approved by the Board. Board Committees are free to take independent professional advice as and when deemed necessary, for which a formal policy is in place. The Group Company Secretary provides secretarial services for the committees.

There is transparency and full disclosure from Board Committees to the Board. The minutes of Committees are submitted to the Board for noting and discussion. In addition, Directors have full access to all Board Committee documentation and Committee Chairpersons provide the Board with verbal reports on recent activities.

The Board is of the opinion that all Board Committees have effectively discharged their responsibilities, as contained in their respective terms of reference.

Our Board subcommittees are structured as follows:

Attendance at meetings

Subcommittee structure and report back

The Board remains accountable for all matters where it has delegated responsibility to its subcommittees. The committees, their members and principal functions and focus areas are set out below:

Executive Committee

Key objective and terms of reference

The Group Executive Committee has recently been augmented beyond the Executive Directors by the inclusion of operational and functional management to provide a forum for dissemination of strategies and policies to operating subsidiary levels and provide oversight and feedback from operations on strategic matters in a combined forum. Group-wide strategic and policy decisions are typically formulated by the Executive Directors and approved by the Board.

Certain Group Executive Committee members are represented on boards of operating subsidiaries and act as liaisons with operating subsidiary CEOs and/or management.

The Executive Committee has concluded that it has fulfilled its responsibilities in accordance with its terms of reference.

2019 focus areas and activities

In addition to discharging its obligations in its terms of reference, during the year under review the Executive Committee focused on:

• integration of acquisitions;
• continued focus on efficiencies and economies of scale;
• aggressive informal market expansion;
• building a unified and integrated platform;
• using big data analytics to up-sell and cross-sell;
• actively growing revenue assurance;
• expanding reach, customer service and footprint; and
• overseeing Mexico restructure and monitoring potential investment into the Indian operations.

Refer to CEO discussion and operational review for further details.

2020 focus areas

Key focus areas of the Executive Committee during the 2020 financial year shall include bedding down recent acquisitions and assimilating acquisition targets into the Group. As an ongoing practice, the Executive Committee is responsible for ensuring that subsidiaries:

• adhere to the strategies and policies of the Group;
• adhere to best management practices and functional standards;
• adhere to legal compliance and internal control; and
• are efficiently and competently managed.

Audit, Risk and Compliance

* Attendee.

*** Resigned 23 November 2018.

Key objective and terms of reference

Provides governance over internal controls, compliance, performance of internal and external audit, appropriateness of accounting and adequacy of external reporting.

The Audit, Risk and Compliance Committee concluded that it has fulfilled its responsibilities in accordance with its terms of reference.

2019 focus areas and activities

• Successful integration and accounting treatment of acquisitions.
• Continued implementation of compliance framework for the Group.
• Oversight of accounting change for the adoption of IFRS 9 and 15.
• Bedding down Group control environment with focus on technology and fraud risks.
• Oversight of the resolution of the JSE proactive monitoring panel query on accounting for investments in associate companies.

The Audit, Risk and Compliance Committee, with the support of the Board, have spent significant effort on stabilising and strengthening governance structures and processes at Cell C by:

• benchmarking governance processes to those of BLT and the telecom sector with updates to terms of reference and processes;
• overseeing the process of the appointment of new CFO and CEO and restructuring and strengthening finance resources;
• aligning risk management policy with BLT and establishing risk management committee;
• reviewing and amending Delegation of Authority Matrix;
• reviewing internal audit resources and scoping;
• participation in Liquidity Committee; and
• oversight of stabilisation and control environment.

Refer to governance of risk, technology and information governance, combined assurance and to the Audit, Risk and Compliance Committee report for further details.

2020 focus areas

• Continued focus on effectiveness of governance, risk management, control environment, liquidity and cost management at Cell C;
• Bedding down group control and compliance environment;
• Review investments in associates taking note of the potential impairments of goodwill and intangibles.
• Focus on technology innovation and risk management; and
• Accounting change – IFRS 16.

Remuneration and Nomination Committee

* Attendee.

Key objective and terms of reference

Ensure competitive remuneration and incentive policies aligned with strategy to drive right performance and value creation and to attract and retain the right talent, review design and targets of incentive schemes and remuneration packages, Executive and Non-Executive Director appointments and succession planning, annual evaluation of independence of Non-Executive Directors and composition of Board and its Committees.

The Remuneration and Nomination Committee (RNC) concluded that it has fulfilled its responsibilities in accordance with its terms of reference.

2019 focus areas and activities

The RNC continues to ensure that total rewards are set at levels that are competitive and drive performance in the short and long term ensuring alignment with shareholder interest and at the same time promoting an ethical culture and responsible corporate citizenship.

2019 focus areas included:

• oversight of development of revitalised Group Remuneration Policy
• continued review of equality of pay levels across gender and race groups throughout the Group;
• implementation of the Hay grading scheme to ensure consistency and alignment of remuneration across the Group;
• employment equity targets regarding new appointments; and
• review of financial performance targets in light of recent acquisitions in ensuring a consistent application in future years regarding the definition of Group earnings.

Refer to remuneration report for further details on our remuneration philosophy, policy and implementation.

2020 focus areas

• Succession planning and diversity at Board/Senior Management level;
• Overseeing implementation of grading systems and new Remuneration Policy; and
• Developing ESG performance measures and targets.

Social, Ethics and Transformation Committee

Key objective and terms of reference

Monitor the Group's activities and compliance with legislation relating to equality, black economic empowerment, good corporate citizenship, the environment, health, public safety, and consumer and labour relations, as well as advise the Board where necessary and appropriate. Review ethical business conduct, including any activity on the ethics hotline.

The Social, Ethics and Transformation Committee concluded that it has fulfilled its responsibilities in accordance with its terms of reference.

2019 focus areas and activities

Our review has highlighted that more work needs to be done and that we are falling behind on our transformation targets.

Through the appointment of a Group B-BBEE Compliance Manager under whom CSI business development skills training falls, ensures a cohesive and practical approach to achieving these B-BBEE and employment equity goals.

Focus areas for the year included the following:

• Continued emphasis on employment equity targets;
• Development and promotion of black talent in management;
• Development of new Employment Equity Plan for the next five years;
• Alignment of CSI spend in terms of the shares value concept, i.e. business development within communities where we have engaged CSI programmes;
• Monitoring of B-BBEE goals and scorecard ratings;
• Continue to ensure the alignment of business strategy to B-BBEE requirements with particular emphasis on the JSE regulations regarding a Group consolidated scorecard;
• Continue to monitor the Group learning and development initiatives such that they are aligned with strategic intent and B-BBEE requirements;
• Scale up the Group CSI, enterprise development, and supplier development initiatives through the formation of the Trust Blu Foundation as an enabler for the shared value model between the various beneficiaries and the Group; and
• Continue to monitor and support Group health and safety policies and practices.

Refer to the human capital report, the Social, Ethics and Transformation Committee report, the effective and ethical leadership report and stakeholder relations sections for further details.

2020 focus areas

Continued focus on:

• Transformation/B-BBEE strategy and performance;
• Ethical practices throughout the Group; and
• Transformational talent and succession planning.

Investment Committee

*** Resigned 23 November 2018.

Key objective and terms of reference

Reviewing, considering and approving proposed acquisitions, investments and disposals of the Group recommended by the Executive Committee.

Reviewing, considering and recommending to the Board acquisitions and investments of the Group.

Annually review the performance of each investment and acquisition made over the past five years.

The Investment Committee concluded that it has fulfilled its responsibilities in accordance with its terms of reference.

2019 focus areas and activities

The Group had come to the end of its expansion phase and, in the 2019 financial year focused on the integration of acquisitions made in the past.

Cell C is presently undergoing a significant debt restructuring programme, management changes and a new strategic direction. The success of these programmes is vital to the Group's performance and share price rerating. BLT's management and Board nominees are playing an active role in these initiatives.

Our review has highlighted the need for a greater and more in-depth analysis of the risk profile of acquisitions and particularly the impact on gearing and shareholder perceptions of the risk and investment merits of these acquisitions.

Finally, our review of the performance, strategic fit and investment merits in Oxigen and Blue Label Mexico have resulted in the ongoing negotiations to sell our stake in Oxigen and a more regular review of the future potential of Blue Label Mexico, notwithstanding a very strategic and supportive local partner, Group Bimbo.

Blue Label's strategy is to grow its businesses organically and to enhance its competitive advantage and offering to its customers, through strategic acquisitions. All new investments considered have to be motivated by alignment with Group objectives, and strategic focus, and they have to enhance future profitability. Among the considerations are the requirements that the future returns exceed Blue Label's weighted average cost of capital (WACC) adjusted with a risk profile metric, meet stringent internal rate of return (IRR) targets, enhance Blue Label's service and product offerings or complement existing ones, attract new skills and management and offer synergy benefits.

The main challenge is that Blue Label operates in a rapidly developing and highly competitive market where the customer is 'king'. Acquisitions need to be strongly motivated to the Investment Committee to meet these challenges. An increased focus will be on affordability within the constraints set by the Board of strengthening the balance sheet.

Past acquisitions over the previous five years are reviewed in terms of actual performance compared to budget and whether they met the criteria set when they were initially approved by the Investment Committee. Any subperformance is analysed in full to assist the committee in shaping its criteria for future acquisitions as well as advising management on corrective steps to be taken. This has led to consolidation of some of these entities and strengthening management teams. In most cases, subperformance has been mitigated by synergies and strategic positioning of other business units (cross-selling) in the Group. Good examples are TicketPro and Viamedia. More will be done to accurately measure the extent of synergies realised.

2020 focus areas

• Cell C stabilisation and future strategy;
• Develop and apply revised risk and return parameters to new investments and monitor previous acquisitions and their performance; and
• Continue to look for buyers in order to dispose of Oxigen in India.

As mentioned, due to the increased risk profile to the Group, attributable to the Cell C acquisition and to a lesser extent 3G and Airvantage, the Investment Committee has considered developing a new risk assessment metric to make target IRR goals more challenging before approval. The Investment Committee recognises that the risk appetite associated with the Cell C acquisition was exceeded, but was motivated by its investment return merits as well as a strategic defensive positioning resulting from the perceived future threat of Network disintermediation.

The Investment Committee and the Board resolved to impose a moratorium on acquisitions for the following 12 months, as we enter a consolidation phase, strengthen our balance sheet and channel our energies to Cell C's refinancing and stabilisation initiatives.

The Committee has also requested certain interventions by the BLT-nominated directors of Cell C, as well as bi-annual Cell C management report backs to the Committee.