Corporate Governance

Joel Wolpert, Company Secretary

Netcare's business objectives are to deliver healthcare services in a way that is profitable, ethical and sustainable, while remaining relevant to the requirements of the broader community and environmental protection. This approach was recognised on 26 November 2008 when the JSE announced the constituents of the Socially Responsible Investment (SRI) Index for 2008. The SRI Index assesses environmental, social and economic sustainability practices and governance of listed companies. Netcare is particularly proud to have been included in the top 21 best performers (of 61 companies) on the SRI Index for the first time this year - the only healthcare company to be ranked in the top third.

Introduction

Netcare recognises that a company’s corporate governance policies form an integral part of its overall strategy. Sound corporate governance principles are embedded in Netcare’s business structure, values, policies, processes and systems, and are not viewed in isolation as peripheral guidelines on which a company must report to meet regulatory obligations. These principles encompass:

• Compliance with the law and adherence to commercial legitimacy;
• Fair treatment of employees and business partners;
• A responsibility to the communities and environment in which we operate; and
• Probity, integrity and business ethics in operational activities.

Netcare strives to balance conformance and the creation of value as a key driver in corporate performance. In addition, corporate governance standards are incorporated into our overall balanced scorecard framework which informs the Group’s performance appraisal process.

The Group subscribes to the highest standards in its corporate governance structure, processes and behaviour. We are committed to complying with the recommendations contained in the Code of Corporate Practices and Conduct (the Code) as set out in the second King Report on Corporate Governance for South Africa 2002 (King II), most elements of which are either formally or informally in place. We recognise the pragmatic flexibility inherent in the “comply or explain” approach and have adopted this in our application of the King Code.

We deliberately avoid a “tick-box” approach in assessing our corporate governance processes. In particular, Netcare endorses the sentiments of paragraph 8.1 of the code which states that the quality of information communicated must be based on the principles of openness and substance over form, as well as addressing material matters of significant interest and concern to all stakeholders. Certain features of the Board structure, although technically non-compliant with certain elements of the King Code, remain in force because we believe that they are aligned with the best interests of Netcare.

Netcare complied with King II during the year ended 30 September 2009, except for the following:

• The Audit Committee does not have a majority of independent non-executive directors and is chaired by a non-executive director who is the senior partner of the Group’s external legal advisers and is therefore not independent;
• The Audit Committee Chairman also chairs the Remuneration Committee;
• The Risk Committee does not have a majority of independent non-executive directors; and
• The Nominations Committee is not chaired by the Board Chairman but by an independent non-executive director. This situation has prevailed since the committee was established; at that time the Board Chairman was not independent.

As indicated last year, the Board initiated a process for formal Board evaluation during the year under review and is currently considering the steps necessary to enhance the independence of certain Board committees.

Netcare supports the principles embodied in the revised code, set out in the third King Report on Governance Principles for South Africa (King lll), released on 1 September 2009. The Board intends to apply these principles insofar as is practicable, when relevant and appropriate.

Board of directors

The Board is the focal point for the application of sound corporate governance principles. Accordingly, governance structures and practices have been designed by the Board to allow it to fulfil its duties effectively. These structures and practices are transparent and designed to ensure the objectivity of Board decisions, as well as the accountability of the Board to all its stakeholders.

Strategic priorities, information needs and relevant risks have all been factored into Board decision-making. The Board retains full and effective control over the organisation and decisions on material matters are reserved for the Board.

Standing subcommittees of the Board have been appointed (details are provided below) and ad hoc subcommittees are created when necessary. The Board has also adopted and regularly reviews a policy governing the authority delegated to Group management that specifies the matters reserved for Board decision.

The Board has unrestricted access to all information, records and documents to enable it to discharge its responsibilities. The Board’s information needs are reviewed regularly and appropriate procedures are in place to inform and brief Board members prior to relevant meetings. The standard Board agenda focuses on monitoring governance, strategy and performance, and imperatives dictated by the contents of the Board charter.

Board structure and composition

Netcare has a unitary Board structure which comprises an appropriate balance of executive and non-executive directors. At the end of the financial year, the Board comprised 13 directors, four of whom are executive; six of the nine non-executive directors are independent. The biographical details of the Board of directors are provided.

Peter Nelson resigned as Financial Director/Chief Financial Officer with effect from 5 December 2008. He was succeeded by Vaughan Firman who was appointed on 12 February 2009.

During the year under review, Ingrid Davis, an executive director, announced her resignation, effective from 31 December 2009; this will reduce the number of executive directors to three.

Board appointments

A formal and transparent procedure is applied to all appointments by the full Board of directors, acting within its powers under the Articles of Association. The Nominations Committee considers executive succession planning and makes appropriate recommendations regarding appointments to the Board. This process encompasses an evaluation of the skills, knowledge and experience required to implement Group strategy, as well as due consideration of transformation imperatives.

No executive director has a service contract exceeding two years. Generally, directors have no fixed term of appointment but retire by rotation every three years and, if available, are considered for reappointment at the annual general meeting. The Chief Executive Officer is not required to stand for re-election.

Board responsibilities and charter

The Netcare Board brings together directors possessing a wealth of experience and expertise from many fields of business; this diversity ensures the effective leadership of Netcare into the future. The Board recognises the importance of promoting entrepreneurial flair within the organisation while at the same time ensuring conformance with governance and other compliance realities.

The Board is accountable to shareholders and other stakeholders for the performance of the Company. It is responsible for the strategic direction and primary objective of the Company, which is to create and build sustainable value for its shareholders. It does this by establishing goals for management and monitoring the achievement of these goals.

In undertaking these responsibilities the Board endeavours to:

• Act in the best interests of Netcare Limited;
• Carry out its responsibilities with honesty, fairness, integrity, care and diligence, and in a manner which reflects current best practice in good corporate governance;
• Be mindful at all times of the legitimate interests of other parties who may have an interest in or be affected by the activities of the Group; and
• Act in accordance with the duties and obligations imposed upon it by the law and the Memorandum and Articles of Association of Netcare Limited.

A Board Charter is in place which defines the Board’s role and responsibilities.

Board meetings

The Board meets at least five times a year in Sandton and all meetings are convened by formal notice. Ad hoc meetings are held when necessary. Information is distributed in a timely manner prior to Board meetings, to facilitate adequate preparation for relevant deliberation at these meetings.

Attendance of directors at Board meetings

during the year ended 30 September 2009

	Name		Status	20/11/08	12/02/09	14/05/09	12/08/09	30/09/09
	IM Davis		Executive				A
	VE Firman¹		Executive	N/A
	RH Friedland		Executive
	APH Jammine		Independent non-executive
	JM Kahn		Independent non-executive
	MJ Kuscus		Independent non-executive
	HR Levin		Non-executive
	VLJ Litlhakanyane		Executive
	KD Moroka		Independent non-executive
	PG Nelson²		Executive		N/A	N/A	N/A	N/A
	AA Ngcaba		Independent non-executive	A			A	A
	MI Sacks		Non-executive					A
	SJ Vilakazi		Independent non-executive	A				A
	N Weltman		Non-executive

	= Attendance.
A	= Apology.
N/A	= Not applicable.
1	= Appointed 12 February 2009.
2	= Resigned 5 December 2008.

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Company Secretary

The Company Secretary provides individual directors and the Board as a whole with detailed guidance on properly discharging their responsibilities in the best interests of the Company. The Board has empowered the Company Secretary with the responsibility for advising the Board, through the Chairman, on all governance matters. Accordingly, the Company Secretary is the central source of advice to the Board and the Company on matters of ethics and good corporate governance.

The Company Secretary ensures, in consultation with the Chairman, that the contents of the agenda are relevant to Board decision-making and that the outcome of Board deliberations is communicated throughout the Group as appropriate. In addition, the Company Secretary is responsible for the timely preparation and circulation of minutes to the Board and its committees, and for ensuring that the levels of authority in delegated matters are properly adhered to.

The Company Secretary is qualified to perform his duties in accordance with the applicable legislation and is considered by the Board to be fit and proper for the post.

Professional advice

The directors are entitled, at the Group’s expense, to seek professional advice about the affairs of the Group and have unrestricted access to all Group information, records, documents and property.

Board committees

The Board has established nine committees, comprising six governance committees and three operating committees, which are responsible for assisting the Board in discharging its responsibilities.

Governance committees

• Audit
• Remuneration
• Risk
• Nominations
• Board Transformation
• Quality Assurance and Clinical Risk Audit

Operating committees

• Executive
• Finance and Investment
• Operational Transformation

Each committee acts according to clearly defined terms of reference approved by the Board. Board committees are entitled to take independent and external professional advice, as and when necessary, and are subject to regular evaluation by the Board to monitor their performance and effectiveness.

Governance committees

Audit Committee

The Audit Committee comprises Messrs HR Levin (Chair), APH Jammine, KD Moroka and MI Sacks.

During the previous financial year, pursuant to section 269A of the Companies Act (Corporate Laws Amendment Act) which came into effect on 14 December 2007, the Board appointed the Audit Committee to hold office in respect of the financial year ended 30 September 2009.

Attendance at Audit Committee meetings

during the year ended 30 September 2009

	Name	19/11/08	13/05/09	06/08/09	22/09/09
	APH Jammine
	HR Levin
	KD Moroka				A
	MI Sacks				A

	= Attendance.
A	= Apology.

Further information relating to the Audit Committee, as required by section 270A (1)(f) of the Companies Act, is now included in the Audit Committee report, which has been incorporated into the Group’s annual financial statements.

Pursuant to paragraph 3.84(h) of the JSE Listings Requirements, the Audit Committee reports that it has considered and satisfied itself of the appropriateness of the expertise and experience of the financial director of Netcare Limited.

Remuneration Committee

The Remuneration Committee comprises Messrs HR Levin (Chair), APH Jammine, AA Ngcaba, MI Sacks and SJ Vilakazi (appointed 12 February 2009).

The Remuneration Committee’s terms of reference include inter alia:

• Developing the remuneration philosophy and strategy for the Group;
• Determining Group policy regarding executive remuneration;
• Determining specific remuneration packages for executive directors and senior management; and
• Recommending for approval by the Company in general meetings, the fees payable to non-executive directors.

Independent external studies and comparisons are used to ensure that remuneration is market related and is linked to both individual and Company performance.

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Attendance at Remuneration Committee meetings

during the year ended 30 September 2009

	Name	11/12/08	05/03/09
	APH Jammine
	HR Levin
	AA Ngcaba
	MI Sacks	A	A
	SJ Vilakazi¹	N/A

	= Attendance.
A	= Apology.
N/A	= Not applicable.
1	= Appointed 12 February 2009.

The committee satisfied all its responsibilities in accordance with its terms of reference.

Risk Committee

The Risk Committee comprises Messrs JM Kahn (Chair), MI Sacks, RH Friedland, VE Firman (appointed 2 August 2009) and VLJ Litlhakanyane (appointed 12 August 2009).

The Risk Committee’s terms of reference include inter alia:

• Determining policy regarding Group risk appetite;
• Determining nature, role, responsibility, authority and scope of risk management functions in the Group;
• Developing procedures to quantify and measure risks;
• Developing risk mitigation action plans; and
• Identifying and assessing risks facing the Group.

Attendance at Risk Committee meetings

during the year ended 30 September 2009

	Name	22/10/08	04/08/09
	VE Firman¹	N/A
	RH Friedland
	JM Kahn
	VLJ Litlhakanyane3	N/A
	PG Nelson²		N/A
	MI Sacks

	= Attendance.
A	= Apology.
N/A	= Not applicable.
1	= Appointed 12 February 2009.
2	= Resigned 5 December 2008.
3	= Appointed 12 August 2009.

The committee satisfied all its responsibilities in accordance with its terms of reference.

Nominations Committee

The Nominations Committee comprises Messrs APH Jammine (Chair), JM Kahn and MI Sacks.

The Nominations Committee’s terms of reference include inter alia:

• Reviewing structure, size and composition of the Board and its committees;
• Evaluating leadership needs of the organisation and succession planning; and
• Identifying and nominating candidates for Board appointment.

Attendance at Nominations Committee meetings

during the year ended 30 September 2009

	Name	06/02/09
	APH Jammine
	JM Kahn
	MI Sacks

= Attendance.

The committee satisfied all its responsibilities in accordance with its terms of reference.

Board Transformation Committee

The Board Transformation Committee comprises Messrs KD Moroka (Chair), RH Friedland and VLJ Litlhakanyane.

The Board Transformation Committee’s terms of reference include inter alia:

• Developing transformation strategy and policy; and
• Guiding, monitoring and reviewing progress against transformation targets.

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Attendance at Board Transformation Committee meetings

during the year ended 30 September 2009

	Name	30/10/08	05/05/09
	RH Friedland
	VLJ Litlhakanyane
	KD Moroka

= Attendance.

The committee satisfied all its responsibilities in accordance with its terms of reference.

Quality Assurance and Clinical Risk Audit Committee

The Quality Assurance and Clinical Risk Audit Committee comprises Messrs MJ Kuscus (Chair), RH Friedland and VLJ Litlhakanyane.

The Quality Assurance and Clinical Risk Audit Committee terms of reference include inter alia:

• Ensuring the availability of transparent and accountable systems for the provision of patient centred, safe, high quality care;
• Identifying areas of clinical risk and standardising clinical practice;
• Reviewing systems, policies and procedures for clinical governance throughout the Group; and
• Reporting on the effectiveness of clinical risk and clinical audit management processes and structures.

Attendance at Quality Assurance and Clinical Risk Audit Committee meetings

during the year ended 30 September 2009

	Name	24/10/08	05/05/09	15/09/09
	RH Friedland
	MJ Kuscus
	VLJ Litlhakanyane

= Attendance.

The committee satisfied all its responsibilities in accordance with its terms of reference.

Operating committees

Executive Committee

The Executive Committee comprises Ms IM Davis and Messrs RH Friedland, VLJ Litlhakanyane and VE Firman (appointed on 12 February 2009), replacing PG Nelson who resigned on 5 December 2008.

The following Group executives, who are divisional, associate and branch directors, have been appointed in terms of Article 72 of the Company’s Articles of Association:

• Eileen Brannigan (Group Nursing Director)
• Melanie Da Costa (Director: Strategy and Health Policy)
• Jacques du Plessis (Managing Director: Hospitals)
• Tumi Nkosi (Managing Director: Emergency services)
• Charmaine Pailman (Managing Director: Primary care)
• Peter Warrener (Group Human Resources Director)

The Executive Committee terms of reference include inter alia:

• Monitoring the business environment and competitive landscape;
• Strategic planning and implementation of corporate philosophy, vision, mission, values and ethics;
• Formulation of budgets, operating policies and organisation structure;
• Managing stakeholder relationships and external communication protocols;
• Implementation of risk management and internal control systems;
• Managing the Group’s human resources;
• Managing the Group’s information systems;
• Designing and monitoring of key performance indicators; and
• Evaluating performance against targets.

Finance and Investment Committee

The Finance and Investment Committee is chaired by VE Firman (appointed on 12 February 2009), replacing PG Nelson who resigned on 5 December 2008.

Membership comprises three executive directors, certain Executive Committee members and other senior managers.

The Finance and Investment Committee terms of reference include inter alia:

• Raising capital and administration of banking facilities and relationships;
• Evaluating acquisitions and capital expenditure;
• Determining the economic forecasts and the overall framework that sets hurdle rates for capital projects and tariff increases;
• Controlling income taxation and VAT risk, and monitoring all exposures with the revenue authorities;
• Setting of the dividend payout by applying the appropriate cover ratio;
• Reviewing and implementing all transaction approval frameworks within the Group;
• Updating accounting policies in line with latest IFRS improvements; and
• Reviewing of all Treasury risk and ensuring compliance with Treasury Policies and Procedures.

Operational Transformation Committee

The Operational Transformation Committee is chaired by VLJ Litlhakanyane. Membership comprises two executive directors, certain Executive Committee members and other senior managers.

The terms of reference of the Operational Transformation Committee include inter alia:

• Participating in the development of the Health Sector Charter;
• Implementing transformation strategies at Netcare;
• Reviewing BEE legislation and regulations; and
• Liaising with relevant stakeholders regarding BEE targets.

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Accountability and control

Financial statements

The Board is responsible for preparing the financial statements and other information presented in reports to shareholders in a manner that fairly presents the state of affairs and results of the Group’s business operations. The external auditors are responsible for carrying out an independent examination of the financial statements in accordance with International Standards on Auditing.

The annual financial statements are prepared in terms of the Companies Act, the JSE Limited Listings Requirements and International Financial Reporting Standards (IFRS).

The annual financial statements are based on appropriate accounting policies which have been consistently applied and are supported by reasonable and prudent judgements and estimates. The Board is satisfied that the annual financial statements fairly represent the state of affairs of the Group at the end of the financial year and the financial performance and cash flows for the financial year.

Going concern

The financial statements have been prepared on a going-concern basis. After making enquiries and at the time of approving the financial statements, the directors formed a judgement that there is a reasonable expectation that the Group has adequate resources to continue to operate for the foreseeable future. For this reason, the directors continue to adopt the going-concern basis in preparing the financial statements.

Internal control and internal audit

The Board is responsible for ensuring that appropriate systems of internal control are maintained to ensure that Group assets are safeguarded and managed, and losses arising from fraud and/or other illegal acts are minimised. Control systems are continually monitored and improved in accordance with generally accepted best practices.

The Internal Audit department is a function established at Group level, reporting to the Audit Committee, to assist executive management and the Audit Committee in the effective discharge of their respective responsibilities, by means of independent financial, internal control and operational systems reviews.

The Audit Committee’s responsibility in this regard has been reported on in the Audit Committee report included in the financial statements.

The Board is confident that major business risks are being identified and managed appropriately and that the risk management and internal control framework is operating effectively. Nothing has come to the attention of the Board to indicate that any material breakdown in the functioning of the Group’s internal controls and systems has occurred during the year under review.

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Share dealings

The Company operates closed periods which commences two weeks before its interim and year-end reporting dates, and which ends 24 hours after the publication of its interim and final results, and also when cautionary notices are in effect.

During these periods, directors, officers and other designated members of Group management who may have access to price-sensitive information are precluded from dealing in the Company’s shares.

Share dealings in the Company’s shares by directors and designated managers require the prior approval of the Chairman.

Ethics

Netcare is committed to achieving the highest standards of ethical behaviour. The Group’s values are core to its business philosophy and guide the way the Group conducts business and interacts with all stakeholders. A formalised policy details the Group’s code of ethical and acceptable conduct and articulates the Group’s policy with regard to conflicts of interest, gifts, confidentiality, fair dealing and protection and proper use of Group assets.

The Board of directors is committed to ensuring the consistent application of the Code of Ethics.

The Group is aware of the importance of Competition Law and the need to ensure that no collusive behaviour is tolerated. To this extent, the Group provided a seminar to senior management to enhance their understanding of the terms of the Competition Law and the Group policy in this regard. Senior management also acknowledged and agreed to comply in every manner with the rules governing Competition Law.

The Group is mindful of the professional codes which govern the conduct and ethics of health professionals in South Africa. The Group supports the Health Professional Council of South Africa in all its endeavours to enforce any breaches of its code, its principles and its values.

The Fraud and Ethics Hotline is a whistle blower mechanism made available to all Netcare employees to report fraudulent and unethical behaviour of any nature (including any unethical medical behaviour). The Hotline ensures the anonymity of all information received, and the protection of the employees reporting these incidents. The Fraud and Ethics Hotline can also be used by the public, including suppliers and patients, and posters are positioned at all Netcare’s business units.

The Netcare Group has a “zero tolerance” approach towards fraud and corruption. Accordingly, all identified cases are reported to the South African Police Services and any other appropriate bodies.

The Fraud and Ethics Hotline is only one of a number of mechanisms that employees, management and external parties utilise to report irregularities. All internal and external parties can contact the Forensics Department by telephone, email or meeting request. The Forensics Department resides within Group Audit Services and reports directly into the Head of Group Audit Services and Forensics.

All incidents reported on the Fraud and Ethics Hotline or from any other source are logged onto the defalcation register, and are investigated and a monthly report is provided to the Chief Executive Officer and Chief Financial Officer. The register is also included in every Audit Committee pack.

Fraud and Ethics Hotline: 0860FRAUD1 (0860372831). If anonymity is not a concern, then the e-mail address fraud@netcare.co.za can be utilised.

Fraud and Ethics Hotline – statistics

Relations with shareholders

For Netcare, regular stakeholder communication about the Group’s activities is essential and we endeavour to timeously present appropriate information.

Investor relation activities include presentation of interim and annual results, participation in investor conferences, issuing regular updates of trading performance and arranging periodic site visits for major investors.

Netcare endeavours to periodically and regularly communicate with its shareholders and other members of the investment community about its business operations only through designated representatives. All new material and price-sensitive information is disseminated via a formal press release and on the JSE’s electronic news service (SENS) to ensure appropriate public disclosure.

During closed periods, no communication with the investor community by directors, officers and designated members of Group management with access to price-sensitive information is permitted.

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