Corporate governance

The Group and its directors are fully committed to good corporate governance and to the principles of openness, integrity and accountability in dealing with shareholders and all other stakeholders. All directors endorse the Code of Corporate Practices and Conduct recommended in the King Report on Corporate Governance in South Africa 2002 (“King II report”). In addition, the Board has adopted the principles of corporate governance contained in the Combined Code on Corporate Governance issued in 2006 by the Financial Reporting Council (the “Combined Code”) for UK companies.

Compliance with the King II report and the combined code

In the opinion of the Board, good corporate governance is fundamental to the relationship between the Company and its stakeholders. Throughout the year ended 28 February 2009 and up to the date of approval of this annual report and accounts, the principles articulated in the King II report have been adhered to or are separately noted in this report. In addition the Company complied with the provisions set out in Section 1 of the Combined Code during that period.

Board of Directors

At 28 February 2009, the Board consisted of eight directors, being two executive directors and six nonexecutives who are independent as defined in the JSE Listings Requirements. The non-executive directors draw on their experience, skills and business acumen to ensure impartial and objective viewpoints in decisionmaking processes and standards of conduct. The directors consider the mix of technical, entrepreneurial, financial and business skills of the directors to be balanced, thus enhancing the effectiveness of the Board.

Stephen Davidson was appointed non-executive Chairman in March 2008 following the untimely death of Leslie Boyd.

Jens Montanana is the Chief Executive Officer. The separation of this role from that of the Chairman ensures a balance of authority and precludes any one director from exercising unfettered powers of decision making. Nick Temple is the senior independent non-executive director. On 1 March 2008 Ivan Dittrich was appointed to the Board and on 1 May 2008 took over the role of Chief Financial Officer. David Pfaff resigned from the Board on 31 May 2008. Full details of the directorate are set out on pages 18 and 19.

The Board retains full and effective control over the Group and monitors the executive management and decisions in the subsidiary companies. The Board is responsible for the adoption of strategic plans, monitoring of operational performance and management, determination of policy and processes to ensure the integrity of the Group’s risk management and internal controls, communications policy, and director selection, orientation and evaluation. These responsibilities are set out in the approved Board Charter. Please refer to pages 55 and 56 for a copy of the Board Charter. The directors are of the opinion that they have adhered to the terms of reference as articulated in the Board Charter for the financial year ended 28 February 2009.

To fulfil their responsibilities adequately, directors have unrestricted access to timely financial and other information, records and documents relating to the Group. During the year, the Board received presentations from the management teams of its major subsidiaries enabling it to explore specific issues and developments in greater depth. Directors are provided with guidelines regarding their duties and responsibilities as directors and a formal orientation programme has been established to familiarise incoming directors with information about the Group’s business, competitive posture and strategic plans and objectives.

Under the Company’s articles of association a third of the directors retire by rotation each year and are eligible for re-election by shareholders at the annual general meeting. Having reached mandatory retirement age, Mr Savage will retire this year at the annual general meeting and in addition Mr Davidson and Prof. Nkuhlu will retire by rotation. Mr Davidson and Prof. Nkuhlu, being eligible, will offer themselves for re-election. On behalf of the Board, the Chairman confirms that on the basis of the annual evaluation of the Board and of the performance of individual directors, the performance and commitment of Prof. Nkuhlu throughout his period of office has been highly satisfactory. Also, on behalf of the Board, the senior non-executive director confirms that on the basis of the annual evaluation of the Chairman, the performance and commitment of Mr Davidson throughout his period of office has been highly satisfactory.

The Board strongly recommends the reappointment of Mr Davidson and Prof. Nkuhlu and recommends shareholders vote in favour of their reappointment at the Annual General Meeting.

The Board has established the following committees to assist it with its duties:

Audit, Risk and Compliance Committee
Remuneration Committee
Nomination Committee

Audit, Risk and Compliance Committee

The Audit, Risk and Compliance Committee comprises four independent non-executive directors:

Chris Seabrooke (Chairman)
Stephen Davidson
Wiseman Nkuhlu
Cedric Savage.

The committee considers its chairman, Mr Seabrooke to be designated the financially qualified member. The financial qualifications of the committee members are: Chris Seabrooke – Bachelor of Commerce and Bachelor of Accountancy degrees from Natal University, an MBA from the University of the Witwatersrand and a Fellow of the UK Institute of Cost and Management Accountants (“FCMA”).

Stephen Davidson – 1st Class Hons degree in Mathematics and Statistics from the University of Aberdeen.

Wiseman Nkuhlu – Bachelor of Commerce degree from the University of Fort Hare, Chartered Accountant (South Africa), MBA from the University of New York.

Cedric Savage – BSc Engineering degree from the University of Cape Town, MBA from the University of Cape Town’s Graduate School of Business, and International Senior Management Programme (“ISMP”) at Harvard Business School.

The chairman of the committee is not the chairman of the Company. The chairman of the Company is, however, one of the committee members. This is not regarded as “best practice” under the King Code in South Africa.

The Board has determined that his participation as a member of the committee with his wide experience and qualifications enhances the functioning of the committee and thereby improves the level of governance in the Company overall.

The committee operates within defined terms of reference as set out in its Charter and authority granted to it by the Board and meets at least three times a year, when the external auditors, the internal auditors, the Chief Executive Officer and the Chief Financial Officer are invited to attend. The external and internal auditors have unrestricted access to the Audit, Risk and Compliance Committee and meet with the committee members, without management present, at least once a year.

The principal functions of the committee are to review the annual financial statements, the half-yearly results announcement, monitor the effectiveness of internal controls, assess the risks facing the business, discuss the findings and recommendations of the internal and external auditors, review the internal and external audit plans and to review the effectiveness of the internal and external auditors. The chairman of the committee reports on the committee’s activities at each Board meeting.

Datatec’s operating subsidiary companies have financial review and compliance committees. Full reports from these sub-committees are submitted to the Datatec Audit, Risk and Compliance Committee which retains all the functions of an audit committee in respect of these subsidiaries. The chairman of the Audit, Risk and Compliance Committee is invited to attend the subcommittee meetings.

The Audit, Risk and Compliance Committee ensures that there is appropriate independence relating to non-audit services provided by the external auditors. Pre-approved permissible non-audit services performed by the external auditors include taxation and due diligence services.

The external auditors are prohibited from providing nonaudit services including valuation and accounting work where their independence might be compromised by later auditing their own work. Other non-audit services provided by the external auditors are required to be specifically approved by the chairman of the committee or by the full committee if the fees are likely to be in excess of 50% of the audit fee.

The external auditor has the policy of rotating the lead audit partner and those of South African subsidiaries every five years and the other subsidiary audit partners every seven years. The committee has adopted the same policy.

As required by the JSE Listings Requirements, the audit committee annually considers and satisfies itself of the appropriateness of the expertise and experience of the Chief Financial Officer.

The committee assists the Board in reviewing the risk management process and significant risks facing the Group. The committee sets the Group’s risk strategy in liaison with the executive directors and senior management, making use of generally recognised risk management and internal control models and frameworks in order to maintain a sound system of risk management and internal control as described later in this report.

The committee identifies and monitors, at least annually, key performance indicators and key risks, including operational, physical, human resources, technology, continuity, credit, market and compliance risks.

The committee also acts as the audit committee of each of the Group’s South African subsidiary companies as required by the Companies Act and has adopted a specific scope charter covering its duties in this respect.

The chairman of the Audit, Risk and Compliance Committee will be available at the Annual General Meeting to answer queries about the work of the committee.

Remuneration Committee

The Remuneration Committee currently consists of the following independent non-executive directors:

Stephen Davidson (Chairman)
John McCartney
Chris Seabrooke
Nick Temple.

The committee operates within defined terms of reference as set out in its charter, and authority granted to it by the Board and meets at least three times a year. The Chief Executive Officer and Chief Financial Officer may be invited to attend these meetings, but neither may take any part in decisions regarding their own remuneration.

The committee is satisfied that it has met its responsibilities for the year with respect to its terms of reference. The committee’s charter is available on the Group’s website (www.datatec.co.za) or from the company secretary.

The committee is responsible for making recommendations to the Board on the Group’s framework of executive remuneration and to determine specific remuneration packages for each of the executive directors and certain senior managers of the Group.

The committee is also responsible for the Group’s remuneration policies and the allocation of share-based payments in terms of the Group’s share-based incentive schemes.

Fees payable to non-executive directors are recommended by the Board and ratified by shareholders at the Annual General Meeting.

The chairman of the committee will be available at the Annual General Meeting to answer questions about the committee’s work.

Directors’ attendance at Remuneration Committee meetings – 2009 inancial year and subsequent meetings to date of this report.

Nomination Committee

The Nomination Committee currently consists of the following independent non-executive directors:

Stephen Davidson (Chairman)
John McCartney
Chris Seabrooke
Nick Temple.

The committee operates within defined terms of reference as set out in its charter, and authority granted to it by the Board and meets at least once a year. The Chief Executive Officer and Chief Financial Officer may be invited to attend these meetings, but neither may take any part in decisions regarding their own succession.

The committee is satisfied that it has met its responsibilities for the year with respect to its terms of reference. The committee’s charter is available on the Group’s website (www.datatec.co.za) or from the company secretary.

The committee is responsible for making recommendations to the Board regarding the appointment of new executive and non-executive directors and makes recommendations on the composition of the Board generally. Director appointments are formal and transparent. The chairman of the committee reports on the committee’s activities at each Board meeting. The chairman of the committee will be available at the Annual General Meeting to answer questions about the committee’s work.

Company secretary

All directors have access to the advice and services of the company secretary and are entitled and authorised to seek independent and professional advice about affairs of the Group at the Group’s expense. The company secretary is responsible for the duties set out in section 268G of the Companies Act. Datatec Management Services (Pty) Limited, a South African company, is the legal entity which is the company secretary. This company is managed by Simon Morris. The certificate required to be signed in terms of subsection 268 G (d) of the Act appears on page 88.

Risk management

Datatec’s Board is responsible for the total process of risk management and has established an ongoing process for identifying, evaluating and managing the significant risks faced by the Group. The Board and the Audit, Risk and Compliance Committee monitor risk management activities as a standard item on its agenda and actively participate in discussions around risk topics raised.

Each of the significant subsidiaries of Datatec regularly reviews their strategic risks and has followed a consistent approach by identifying and prioritising “high-risk” areas according to standard risk rating guidelines based on “impact” and “likelihood”. “Impact” ratings are broadly defined in terms of the following assessment criteria: financial thresholds; operational impacts; regulatory compliance; customer and community impacts; employee impacts and reputational impacts. Similarly, “likelihood” ratings are defined in terms of the overall likelihood of a risk materialising. These criteria formed the basis for allocating ratings that prioritised risks as either “low”, “medium” or “high”.

High-risk areas are further analysed to identify potential root causes. This allows Datatec to better understand the contexts within which risks occur and identify probable areas for risk mitigation and organisational control. Risks across all aspects of the Group’s sphere of operations are considered including financial, market, political, and operational risks as well as social, ethical and environmental risks.

Mitigating actions and associated monitoring/assurance activities have been identified for each high-risk area. In addition, responsible executive level staff members are assigned to monitor and manage specific risk areas on behalf of the Company on an ongoing basis.

The Group reports annually on key risk areas identified by the risk assessment processes described above in the finance report – see page 53.

Financial and internal control

The Board has applied Principle C.2 of the Code in its approach to risk management and internal control throughout the financial year under review and up to the date of approval of the annual report and accounts in accordance with the revised guidance. The Group’s internal control and accounting systems are designed to provide reasonable, but not absolute, assurance as to the integrity and reliability of the financial information and to safeguard, verify and maintain accountability of its revenues and assets. These controls are implemented and maintained by skilled Company personnel.

In accordance with Provision C.2.1 of the Code, the Board is able to report that procedures are in place for monitoring and evaluating the effectiveness of the internal controls. Local management is required to complete and submit control self-assessment programmes annually and management is monitored against internal control norms in all Group companies. Action is taken where ratings are considered to be inadequate. Ratings are also reviewed by the Audit, Risk and Compliance Committee.

Nothing came to the attention of the directors or arose out of the internal control self-assessment process, internal audits or year-end external audits to indicate that any material breakdown in the functioning of the Group’s internal controls, procedures and systems had occurred during the course of the year.

In addition, there are documented and tested procedures in the major subsidiaries which will allow these subsidiaries to continue their critical business processes in the event of a disastrous incident impacting their activities. Such documented procedures are reviewed annually and, where weaknesses are identified, the relevant subsidiaries are required to rectify them.

Internal audit

Internal audit is an independent appraisal function, which examines and evaluates the activities and the appropriateness of the systems of internal control, risk management and governance processes. Datatec has outsourced the internal audit function of the Group to Ernst & Young. Internal audit operates within defined terms of reference as set out in its charter, and authority granted to it by the Audit, Risk and Compliance Committee and the Board. The Audit, Risk and Compliance Committee is satisfied that internal audit has met its responsibilities for the year with respect to its terms of reference.

The Ernst & Young internal audit team reports to the company secretary on day-to-day matters, and to the chairman of the Audit, Risk and Compliance Committee. Audit plans are presented in advance to the Audit, Risk and Compliance Committee and are based on an assessment of risk areas involving an independent review of the Group’s own risk assessments. The internal audit team attends and presents its findings to the Audit, Risk and Compliance Committee.

The objective of internal audit is to assist the Board in the effective discharge of its responsibilities.

Management reporting

The Group has established management reporting disciplines which include the preparation of annual budgets by operating entities. Monthly results and the financial status of operating entities are reported against approved budgets. Profit projections and cash flow forecasts are reviewed regularly, while working capital, borrowing facilities and bank covenant compliance are monitored on an ongoing basis.

Organisational integrity and ethics

The Group operates on a basis of decentralised management across numerous countries and a Code of Ethics has been approved by the directors and has been rolled out through the Group. All employees are required to maintain the highest level of ethical standards in ensuring that the Group’s business practices are conducted in a manner that, in all circumstances, is above reproach. The directors believe that the required ethical standards have been met during the year under review.

Datatec maintains a performance-driven culture of full disclosure and transparency in which individual employees assume responsibility for the actions of the business. The integrity of new appointees is assessed in the selection and promotion process and the basis of ethical conduct as set out in the Code of Ethics is entrenched in the Company culture.

All employees of the Group have been notified of a “whistle-blowing hotline” telephone number which is available to call to report anonymously any matter of concern. Any matter reported in this way is referred to the Audit, Risk and Compliance Committee which has in place a documented procedure for handling complaints made via the whistle-blowing hotline or in any other way. No significant matters were reported on the whistleblowing hotline during the year under review.

Share dealings

The Company has a share dealing code to regulate dealings by its directors and applicable employees in the Company’s shares.

No Group director or employee may deal, directly or indirectly, in Datatec shares or warrants on the basis of previously unpublished, price-sensitive information.

Restrictions are imposed upon directors and senior management in the trading of Datatec shares and warrants and upon all employees regarding the exercising of Datatec share-based incentives during certain “closed periods”. In light of the JSE Listings Requirements, the insider trading laws and good corporate governance, the Datatec Remuneration Committee has advised that employees are not permitted to exercise their share options during closed periods or when in possession of unpublished price-sensitive or inside information relating to Datatec. The closed periods include the periods between Datatec’s interim and financial year-end reporting times and the dates on which the relevant results are published, and any time when Datatec is trading under a cautionary announcement.

Employees may nonetheless on application, and at the sole discretion of the directors, be allowed to exercise their share options while Datatec is trading under a cautionary announcement provided that the JSE Listings Requirements and the relevant insider trading laws permit the exercise of options at the relevant point in time.Employees exercising their options in these circumstances will be required to sign a declaration confirming that they are not in possession of unpublished price-sensitive or inside information relating to Datatec.

In respect of the closed periods preceding the publication of results, employees whose option exercise date falls within such a closed period will be permitted to exercise their options during a period of one month prior to the starting date of such a closed period. This concession has been made in accordance with clause 5.8.1 of the Datatec Share Option Scheme whereby “the directors shall be entitled if in their opinion special circumstances exist and in consequence of which they consider it reasonable to permit the exercise of the option (in whole or in part) prior to the date on which it could be otherwise exercised, to permit such exercise”. No employee shall, however, be permitted to exercise an option when in possession of unpublished price-sensitive or inside information relating to Datatec.

Investor relations and shareholder communication

Datatec is committed to providing timely, transparent and full disclosure to all its stakeholders on both financial and non-financial matters.

The Group maintains a dialogue with its institutional shareholders via a planned programme of communications headed by the Chief Executive Officer and the Chief Financial Officer together with nominated investor relations management. These activities include regular meetings and presentations to analysts, institutional investors and the media in South Africa and the UK, as well as meeting twice a year with institutional investors after the release of the Group’s interim and final results.

The Group’s website (www.datatec.co.za) provides current and historical financial and other information on the Group including formal announcements, presentations, webcasts as well as annual reports. Datatec also disseminates information to stakeholders who subscribe to the Group’s investor relations programme on the website. Press releases, announcements and notifications are distributed via email to subscribers as soon as they become publicly available.

Shareowners and their appointed representatives are encouraged to attend Datatec’s Annual General Meeting, to vote on the resolutions placed before the meeting and to conduct relevant discussions with the Group’s directors. As noted above, the chairmen of the Audit, Risk and Compliance Committee, Remuneration Committee and Nomination Committee attend the Annual General Meeting and are available to answer questions on the activities of the committees.

Going concern

The directors’ assessment on the Group as a going concern is set out on page 91.