Social & Ethics Committee

& Internal Audit

By Andrew Johnston

Altron Group Company Secretary

19 August 2011

“According to recent South African Police Service

crime statistics, 84 842 cases of commercial

crime were reported from April 2009 to March last

year, a 51,8% rise since 2003.

Employees committed undetected economic

crimes, such as procurement fraud during

recessions because companies inadvertently

weakened their internal controls”

www.businessday.co.za – 5 July 2011

Founded by Dr Bill Venter in 1965 with 4 people

Current revenue of R22.8bn (US$3.4bn)

15 200 employees

Family business – second generation

Within Top 50 companies on Johannesburg Stock Exchange

Operations in Africa, Europe, UK, India, China and Australasia

Strong international partnerships with leading multinationals

Background - Altron Group - History

Group structure

* *

61.5% 100% 100%

Telecoms,

Multi-media, Information

Technology (TMT)

Information Technology Power Electronics

Market cap: R6.2bn

Employees: ±5,500

Revenues: R9.7bn

CEO: Craig Venter

Market cap: N/A

Employees: ± 4,800

Revenues: R6.1bn

CEO: Rob Abraham

Market cap: N/A

Employees: ±4900

Revenues R7.2bn

CEO: Norbert Claussen

JSE listed *

CE: Robert Venter

2010 Revenue: R 22.8bn ($3.4bn)

Market cap: R 8.8bn ($1.3bn)

Employees: ± 15,200

Based on share prices on 4 August 2011

*

Our key brands

*

* Joint venture between

Powertech and Reunert

Swisstech

Altron’s social and ethics journey began

long before King I (1994), King II (2002)

and King III (2009) and the

Companies Act No 71 of 2008 ……

Altron’s Social & Ethics Journey

Memos dating back to 1977 evidence strategic work and ethical

values and culture

Staff Information Notice - Statement of Integrity,

1994

“I ask you all to make a personal commitment to follow our Code of

Conduct”

“Integrity is the rock upon which we build our business success”

“Nothing – not customer service, competiveness, direct orders from

a superior or making the numbers – is more important than integrity”

Memos from the Chairman

Staff Information Notice – Black Empowerment, 1994 - 1999

Strong support for human rights - corporate social responsibility

programmes and South Africa’s Reconstruction and Development

Programme

Staff Information Notice – Risk Management, 2000

Development of Business Risk Management Division ensuring,

among others, “that perpetrators of fraud and theft are brought to

book with all the might of the justice system”

Unique and mandatory induction process – senior managers and

executives required to read scrapbooks since company’s inception

Memos from the Chairman

Reflects commitment to the four specific ethical values that re-

enforces all aspects of corporate governance in Altron’s interaction with

its stakeholders:-

Responsibility

Accountability

Fairness

Transparency

Altron’s Integrated Report 2011

Preservation of “familiness” culture

“Commitment to the transformation process”

“Provide a work environment that attracts, motivates, rewards”

“To integrate sustainable development”

“Is totally committed to quality, best practice”

“Adheres to the highest standards of integrity”

Extracts – Altron’s Mission Statement

Altron audit committee and financial review & risk committees at

sub-holding levels – review and monitor compliance with the Code

of Conduct and Code of Ethics – approve changes to the Codes

Altron risk management committee – assesses fraud, theft and

dishonesty along with reputation management

Committees (through chairmen) feedback to the Altron board = item

on board agenda (copies of audit and risk committee minutes are

included in board packs)

Current Social & Ethical

Management Framework

Altron Code of Conduct forms part of Altron’s policy manual, 1987

Adoption of revised Group Code of Ethics Policy, 2009

Establishment of Groups Ethics Office, 2010

Appointment of Ethics Officer, 2010

Establishment of Altron Sustainability Department, 2011

Current Social & Ethical Management Framework

Tip-Off Tim (Deloitte)

Roll out of compulsory Bytes People Solutions training programme;

“ethics dialogue” developed on Altron intranet (e-learning and

library) > 450 senior managers exposed to and trained on Code of

Ethics – will roll down to remaining 12,000 employees

Gained valuable insight and revelations as a result of employee

engagement

Social & Ethical Awareness

2010 Directors’ Conference – Presentation by contractor of The

Ethics Institute of South Africa (EthicsSA) on the ethics of doing

business

Publication of articles (Ethics, CSI, green initiatives) in internal group

publications e.g. Altron’s “Profile” magazine, screensavers, poster

campaigns, competitions, etc.

Social & Ethical Awareness

Extract “Profile” Magazine

Extract “Profile” Magazine

Extract “Profile” Magazine

That the boards of companies “should ensure that the company‟s

ethics performance is assessed, monitored, reported and disclosed”

That the “assessing, reporting and disclosures of ethics performance

should enable users of ethics reports to form opinions and make

decisions based on disclosed and verified information”

King III Recommends

Section 72(4) read in conjunction with regulation 43 of the Act deals

with the appointment of social and ethics committees (SEC)

To be appointed within 12 months from 1 May 2011 (existing

companies)

To comprise of not less than 3 directors or prescribed officers of the

company, at least one of whom must be a director who is not

involved in the day-to-day management of the company’s business

and must not have been so involved within the previous 3 financial

years

Companies Act 71 of 2008

(“the Act”) – Social & Ethics Committees

Who qualifies (see section 72(4) and regulation 43(1) and (2)) –

public interest score > 500 points

Who are prescribed officers? See regulation 38

- What skills? – See regulation 43(5)

- Diversity?

When – 30 April 2012 or 12 months (see regulation 43(3)

How appointed? – Board or shareholders? – Initially board thereafter

shareholders (regulation 43(2))

Practical Considerations (SEC)

Fees of members – timing – AGM – approve or ratify

Duties of members – see regulation 43(5)

- Ethics missing!

- Left up to mandate and terms of reference

- Chairman to report on matters within its mandate at AGM –

separate report in integrated report?

- Altron drafted mandate and terms of reference – see EthicsSA

website for draft template

Practical Considerations (SEC)

King III (Chapter 7) recommends that:-

“The key responsibility of internal audit is to the board, its committees,

or both, in discharging its governance responsibilities and as a

minimum to perform the following functions:-

- evaluating the company‟s governance processes including ethics,

especially the „tone at the top‟

- performing an objective assessment of the effectiveness of risk

management and the internal control framework

- systematically analysing and evaluating business processes and

associated controls

- providing a source of information, as appropriate, regarding

instances of fraud, corruption, unethical behaviour and irregularities

Role of Internal Audit - Ethics

© Ethics Institute of South Africa

Role of Internal Audit - Ethics

2. Develop or revise code of ethics & policies

Build an ethical culture

1. Assess ethics risks

and opportunities

3. Integrate ethical

standards

4. Audit, report & disclosure

Distinction between the role of an internal auditor and an external

auditor

Internal assessment – to evaluate the adequacy and effectiveness

of an organisations ethics performance

External assessment – to verify and provide assurance on the

quality of an organisations ethics performance

© Ethics Institute of South Africa

Role of Internal Audit - Ethics

Altron adopted a 3 phase approach towards the internal and external

assessment of ethics within the organisation

- Phase 1 : deals with the 1 and 2 of building an ethical culture. This

relates to the assessment of the ethical foundations and building

blocks of the organisation, i.e. Code of Ethics, Code of Conduct,

ethics awareness campaigns, whistleblowing facilities and

procedures, Gifts and Entertainment Policies, etc.

- Phase 1 assessed externally by Corporate Governance

Accreditation and SustainabilityServices. See AA1000 AS (2008)

assurance statement in 2011 Altron integrated report – page 104:

“Altron employs adequate ethics policies, procedures and controls

throughout its operations”

Role of Internal Audit - Ethics

- Phase 2 : deals with the 3 and 4 of building an ethical culture.

Altron internal audit department responsible for assessing the

ethical climate of the organisation and confirming the integration

of ethical standards throughout the organisation

- An Altron ethics questionnaire has been drafted by the Altron

internal audit department with the assistance of EthicsSA to

assess, monitor, report/disclose ethics performance

Role of Internal Audit - Ethics

The questionnaire is divided into five distinct components:-

1. Altron Code of Ethics and Policies

2. Reporting Misconduct

3. The Role of Management

4. The Role of Staff

5. Ethical Culture

Will be completed anonymously by employees

Role of Internal Audit - Ethics

Each question/statement is graded (from an effectiveness

perspective) from “strongly agree” to “strongly disagree” with “not

applicable” also being an optional answer

It is envisaged that questionnaire will be scored into various modes

of ethics e.g.:-

- Immoral

- Reactive

- Compliance

- Integrity

- Totally aligned

Role of Internal Audit - Ethics

Once the scoring system is developed, it will be possible to measure

progress in ethical improvement at operational level

Questionnaires will be completed annually and results will be

reported to the Altron risk management committee

- Phase 3 : deals with the 4 of building an ethical culture, but

purely from an external assessment perspective. This includes

the external review plus assurance statement regarding the

entire ethical process, systems and practices throughout the

organisation

Role of Internal Audit - Ethics

Why the use of internal audit – besides King III?

- Objective

- Independent

- Understand risk environment – poor ethics is a risk to an

organisation – reputational damage

- Chief audit executive usually an invitee on audit and risk

management committees and executive committee

- Review company’s control environment and provides assurance

to the board regarding the effectiveness of the system of internal

audit controls and risk management to the company

- Skilled in reporting and trusted strategic adviser

Role of Internal Audit - Ethics