DENEL GROUP

Corporate Governance

Denel is a state-owned company (SOC), with the South African Government as the sole shareholder.The Minister of Public Enterprises is the shareholder representative who appoints a board of directors to oversee the functioning of the company’s executive management.The company groups together several divisions and subsidiaries in which Denel has varying degrees of shareholding.

The company has developed a governance turnaround plan, which, among other things, addresses governance lapses that occurred in the preceding period, including the elimination of fruitless and wasteful expenditure.

The board is committed to applying and enforcing applicable corporate governance principles.It recognises that sound corporate governance enhances the long-term sustainability of the company and provides assurance to its stakeholders that the company is well managed.Risk management and internal control systems in place are designed in accordance with best practice in compliance with the King Code of Governance Principles; as well as the King Report on Governance (King IV report) recommendations, the Public Finance Management Act, no. 1 of 1999 (PFMA); and the governance requirements of the Companies Act, no. 71 of 2008 (Companies Act), as amended.Following the launch of King IV, the company is in the process of implementing the principles of King IV, although the Board charter and Terms of References of the Board committees already reflect the King IV principles.

Governance principles and the main duties of the board, under the leadership of the chairperson; executive and non-executive directors and Group Chief Executive Officer (GCEO) are clearly documented in the board charter.The board charter includes a schedule of matters reserved for the board and the Terms of Reference of the respective board committees.The governance framework was developed to meet the group’s strategic objectives and compliance requirements.It further balances the interests of stakeholders, minimises and avoids conflicts of interest, whilst practicing good corporate behaviour.The board further delegated management accountability to the company’s GCEO through the Delegation of Authority Policy and performance contract.

As a state-owned company (SOC), the company enters into an annual shareholder’s compact with the Government of South Africa represented by the Minister of Public Enterprises.This contract sets out annual key performance deliverables that cover but are not limited to social and economic drivers.

Although each of the group’s subsidiary companies has a separate board of directors, the Denel board and its committees oversee all significant aspects and transactions of the subsidiaries.The subsidiaries are also governed by the limits of authority set by the board in the Denel Delegation of Authority.

The board plays a critical role in strategy planning and establishes clear benchmarks to measure the company’s performance.Sound corporate governance practices underlie the company’s values, culture and processes. The board promotes efficient, accountable, transparent and ethical management of the business through an effective system of corporate governance. This ethos is embedded in all the group’s activities and thus Denel’s governance framework goes beyond mere compliance with legislation.

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