Governance and Sustainability

Report of the board

INTRODUCTION

In providing effective and responsible leadership, the board remains the custodian of the Group’s ethics and values, and is the centre of the Group’s corporate governance system. The board is ultimately accountable and responsible for the key governance processes and the sustainable growth, performance and affairs of the Group, taking into account the legitimate interests and expectations of all stakeholders.

This year the board has once again had to apply its collective mind to an array of strategic developments, particularly on the transactional front. To this end, it has established a new standing investment subcommittee of the board to robustly interrogate the Group’s new investments and divestments. We have supplemented the board membership with a director with Latin American experience; his contributions to board deliberations will no doubt be invaluable as the Group forges ahead with its Latin American expansion.

There has been a marked increase in stakeholder engagement, particularly with the Group’s employees and unions during the Group’s restructuring exercise. While unsettling for many, the restructure had become a very real necessity for the long-term sustainability of the Group. Engagement with the Group’s gambling board regulators has also been emphasised this year as on-going compliance in each of the Group’s jurisdictions remains a key imperative.

The board has satisfied itself with the extent of the Group’s compliance with King III, the Group’s regulatory universe, and with the JSE Listings Requirements as articulated in this report.

The Group is pleased to report that there have been no serious instances of non-compliance during the year under review. While the board is satisfied with the Group’s level of compliance in accordance with applicable governance and regulatory requirements, it recognises that governance practices can always be improved. Accordingly, the board has and will continue to review the Group’s governance framework against best practices.

This report details the board’s position on matters ranging from governance to administration, and is provided to stakeholders with a view to highlighting the board’s position and mandate in terms of its overall responsibilities. Details of the matters canvassed by the various board committees can be found in their individual reports.

GOVERNANCE

Ethical leadership

The Sun International Group remains committed to ethical and responsible leadership. We aim to demonstrate sound corporate governance practices and embed these throughout the Group companies. The Group’s key tenet is to do the right thing, and its governance practices are integral to its licence to operate across all jurisdictions in which it operates.

The Group’s code of ethics (“the code”) commits management and employees to the highest ethical standards of conduct and has been reviewed during the year, without amendment. The code articulates the Group’s commitment to all its stakeholders and is available on the Sun International website. During the year, the principles of the code were applied successfully in the manner in which management conducted the restructuring exercise. With the board’s oversight, the process has been conducted fairly, ethically and with due consideration to the dignity and rights of all employees.

In the Group’s pursuit of ethical practices, whistle blowing and fraud response policies are encapsulated in clear guidelines which have been disseminated throughout the Group. These provide an infrastructure and mechanism for protected disclosure to executive management or an independent third party (via the KPMG hotline) for investigation and action. Employees are encouraged to report any criminal, illegal, discriminatory or other improprieties by any associated person, as well as fraud and misconduct, without fear of occupational detriment. Employees who are aware of any crime or fraud within the Group may also contact the Ethics Line anonymously. This toll-free number is staffed by operators employed by an external service provider, and is available to staff on a 24-hour basis.

Our commitment to good governance remains underpinned by the pillars of responsibility, fairness, transparency and accountability to all stakeholders. These pillars preserve the Group’s long-term sustainability, thereby delivering value to all stakeholders. The board will continue to oversee that management abide by these pillars in their dealings.

Ethical practices

The Group’s approach to ethical leadership is translated into demonstrable ethical practices. Sun International is a member of the UN Global Compact and supports the ten principles of the Global Compact on human rights, labour, environment and anti-corruption. An analysis which describes our efforts to implement the ten principles is available for the review of our stakeholders.

Sun International remains committed to making the principles of the UN Global Compact part of the strategy, culture and day-to-day operations of our Group. In addition and where appropriate, this commitment extends to engaging in collaborative projects which advance the broader development goals of the United Nations, particularly the Millennium Development Goals. We have already collaborated with the National Business Initiative in certain environmental initiatives that reinforce the principles of People, Planet and Profit.

Supporting sustainable business practices

The Group remains cognisant of its responsibility towards People, Planet and Profit. The Group considers the sustainability of its business practices and its potential impact on all stakeholders and on the environment. The achievement of the Group’s key strategic imperatives are underpinned by the Group’s sustainable business practices and are often an enabler by ensuring that a sound corporate reputation and the Group’s brand are synonymous.

The board has again engaged the services of an external assurance provider to provide an independent assurance statement on the Group’s sustainability reporting as advocated by King III. Even though the Group has had several independent assessments done, particularly in the areas of environmental management and risk, an external assurance assessment of this nature is beneficial in indicating areas where the Group’s business practices meet sustainability criteria, and in identifying those areas where there is room for improvement.

Furthermore, the Group continues to use the Global Reporting Initiative (GRI) framework as the basis of its integrated sustainability reporting.

King III Code of Governance

The Group has long embraced the principles of sound governance and adherence to regulatory frameworks, as well as corporate best practice. This is evidenced in the King III assessment register, which documents the assessment of 75 principles of King III for the year ended 30 June 2014. The board confirms that the Group complied with the Code of Governance Principles (“King III Code”) as set out in the King III assessment register and that the spirit of the King III Code is preserved and entrenched in the manner in which the Group operates.

In anticipation of the revisions to the King III Code, for the year under review the Group has utilised the governance assessment tool published by the Institute of Directors to comprehensively record the Group’s King III adherence, thereby facilitating the Group’s readiness to adopt relevant provisions of any revisions to the King III Code.

BOARD COMPOSITION

Sun International has a unitary board structure comprising a mix of executive and non-executive directors, the majority of whom are independent non-executive directors. The board presently comprises three executive and eleven non-executive directors, nine of who are considered independent in terms of governance criteria. The non-executive directors have the necessary skills, qualifications and experience, as is evident from their résumés, to provide judgment independent of management on material board issues. We value diversity on our board and of the 14 directors, six are women.

• Executive and non-executive directors: Non-executive directors: 78%/Executive directors: 22%
• Independence: Independent directors: 64%/Non-independent directors: 14%/Executive: 22%
• Gender: Female: 43%/Male: 57%
• Race: Black: 50%/White: 50%

DIRECTORATE APPOINTMENT

This year, the board welcomed Mr Enrique Cibie as a non-executive director to the board with effect from 22 August 2014. Enrique is a Chilean national and currently serves as a non-executive director on various boards in Chile, having previously served as the chief executive of various multi-national and Chilean companies. With the group’s increasing exposure to Latin America, Enrique’s experiences and in-depth knowledge of business in Latin America is of significant value to the Group.

BOARD OVERVIEW

Chairman

The board is chaired by Mr Valli Moosa, a non-executive director, who has annually been reappointed as board Chairman since 1 July 2009. The Chairman of the board is responsible for, inter alia, ensuring the integrity and effectiveness of the board’s governance processes. In terms of the Company’s Memorandum of Incorporation, the board Chairman is subject to annual election from among its members. The Chairman’s reappointment follows an evaluation of his performance by all directors during the year under review.

Lead Independent Director

The board charter requires the appointment of a Lead Independent Director (“LID”) in the event that the board Chairman does not meet the independence criteria in terms of the requisite governance principles.

Mr Nigel Matthews has annually been reappointed as the LID with effect from 1 July 2009. The LID provides leadership and guidance at any meetings or in consultations with other directors or executives in circumstances where the board Chairman may be subject to a conflict of interest. The LID is instrumental in leading and introducing discussion at board and committee meetings regarding the performance and evaluation of the board Chairman.

Chief Executive and delegation of authority

Mr Graeme Stephens was appointed as Chief Executive on 1 February 2013. The board’s governance and management functions are linked through the Chief Executive, who is tasked with running the business and implementing the policies and strategies adopted by the board. The role and function of the Chief Executive is formalised, and the board, through the remuneration committee, annually evaluates the performance of the Chief Executive against specified criteria. In addition, the Chief Executive’s performance in his capacity as a director of the board is assessed by the nomination committee. The Chief Executive delegates the appropriate authority to his management team in terms of defined levels of authority and retains accountability to the board.

Group Company secretary

Ms Chantel Reddiar was appointed as the Group company secretary in April 2010. She provides a central source of advice to the board on the requirements of the JSE Listings Requirements, the Companies Act, King III, sustainability considerations and corporate governance.

In addition to the Group Company Secretary’s statutory and other duties, she provides the board (as a whole, individual directors and the committees) with guidance as to the manner in which their responsibilities should be discharged in the best interests of the Company. The appointment and removal of the Group company secretary is a matter for the board as a whole.

The board is satisfied that, following an assessment conducted by the nomination committee, the Group Company Secretary has the requisite knowledge, qualifications and experience to carry out the duties of a company secretary of a listed company. The board is of the opinion that the Group company secretary maintains an arm’s length relationship with the board and its directors.

i. Board processes

Board appointments and rotation of directors

Procedures for appointment to the board are formal and transparent, and are a matter for the board as a whole. The board is assisted in this process by the nomination committee which has clear criteria for the selection of board directors. In terms of the Company’s Memorandum of Incorporation, new directors appointed since the last annual general meeting (AGM) may only hold office until the next AGM at which time they will be required to retire and offer themselves for election. Accordingly, Mr Enrique Cibie, having been appointed with effect from 22 August 2014, will stand for election at the forthcoming AGM. Mr Cibie’s résumé summarises his experience.

In addition, directors retire by rotation at least once every three years in accordance with the Company’s Memorandum of Incorporation. The nomination committee assesses the performance of those directors and recommends their re-election to the board and shareholders. In this regard, the nomination committee, having concluded its performance assessments, recommends the re-election of the retiring directors – Mr Valli Moosa, Mr Graham Rosenthal and Ms Bridgette Modise – all of whom, being eligible, have offered themselves for re-election at the 2014 AGM. Their résumés are available for review.

Nomination and selection process for board appointments

The nomination committee is mandated by the board and its terms of reference to regularly review the composition of the board and committees. If deemed necessary, the nomination committee makes recommendations to the board on its composition, the appointment of new directors and the composition of the board committees.

Independence

The board, through the nomination committee, annually assesses the independence of the non-executive directors against the criteria set out in King III, the JSE Listings Requirements and the Companies Act. The board confirms that two of its non-executive directors, Mr Valli Moosa and Dr Lulu Gwagwa, are not considered independent as they are shareholders and directors of Lereko Investments (Pty) Limited, which is a material shareholder of Dinokana Investments (Pty) Limited, the Group’s empowerment partner. The remaining nine non-executive directors are considered independent, eight of whom were assessed in terms of the 2014 annual independence assessment and the remaining member upon his assessment for appointment to the board.

The nomination committee conducted a rigorous independence assessment of the non-executive directors who have served on the board for nine years or more (these being Messrs Leon Campher, Nigel Matthews and Graham Rosenthal) and concluded that these directors retain their independence in character and judgement, notwithstanding their length of service, and that there were no relationships or circumstances that were likely to affect or be perceived to affect their independence. The board concurred with these findings and is of the view that the aforesaid non-executive directors bring valuable experience and skill to the board, and that they will continue to exercise independent judgement.

Succession planning

Succession planning, which involves identifying, developing and advancing future leaders and executives of the Group, is an on-going responsibility of the board and is carried out through the remuneration committee. Detailed succession plans are presented annually to the remuneration committee in this regard. Board committee succession planning is carried out through the nomination committee. The nomination committee reviews the composition of all committees and the committee members’ readiness to succeed a committee Chairman if the need arises.

Conflicts of interest

Directors are required to inform the board of any conflicts or potential conflicts of interest which they may have in relation to any particular area of business. Directors are required to recuse themselves from discussions or decisions on those matters where they have conflicts or potential conflicts of interest.

Board meetings

A minimum of four board meetings are scheduled for each financial year. In addition, the board holds a fifth meeting, in the form of an annual strategy meeting together with executive management, to deliberate the Group’s strategic direction and agree the Group’s annual budget as proposed by management. The Group’s key strategic objectives are set at the strategy meeting and progress is reported at each board meeting. This year the board convened an additional special meeting to consider the transactions pertaining to the Group’s disposal of a 14.9% interest in each of SunWest International (Pty) Limited and Worcester Casino (Pty) Ltd.

Board charter

The board’s role is to exercise ethical leadership and sound judgment in directing Sun International to achieve sustainable growth in the best interests of its stakeholders. The board is regulated by a board charter which details the manner in which the business should be governed by the board in accordance with the principles of sound corporate governance and organisational integrity.

The board charter is reviewed annually to ensure its relevancy.

Board, directors and committee evaluations

The board, the board Chairman, LID, board committees and the board members are evaluated annually on their performance in relation to their governance of economic, environmental and social sustainability issues, as well as the board and committee processes and procedures. This evaluation is conducted by way of an online self-evaluation, with the last evaluation carried out during April 2014. The board intends to conduct an independent external assessment during 2015.

All committee evaluations are reviewed by the board and action plans, when required, are implemented to improve any areas of development that are raised in the results. The nomination committee appraises the performance of the board Chairman, the LID, the board and each board member, based on the evaluation results. The board Chairman meets with each board member to provide feedback on their assessment and discuss any areas for improvement.

Based on the results of the 2014 evaluations, the directors are of the opinion that the board and its various committees have effectively discharged their responsibilities in accordance with their respective written terms of reference.

STAKEHOLDER ENGAGMENT

The board has delegated the responsibility to deal with stakeholder relationships in a proactive and constructive manner to management. The risk and the social and ethics committees review the initiatives and activities on an annual basis.

The board ensures that the relevant stakeholder engagements that are emphasised in the year are aligned to achieving the Group’s strategic objectives. The table below is reflective of some of the stakeholder engagements undertaken during the year.

Strategic objectives	Key risk matters	Key stakeholders	Engagement	Desired outcome
Improve our existing operations and guest experience	Successful completion of the S189A restructure in the South African gaming operations The restructure was considered necessary in order to achieve the efficiencies brought about by technology and outdated business processes.	Employees; Unions; and Regulators	Extensive consultation with our employees and unions in terms of seeking alternatives to the number of impacted positions. The process is close to finalisation and efforts will now be focused on rebuilding Sun International’s culture and employee morale. Concerted engagement with our regulators has ensured that the Group is not compromising any legal/regulatory considerations.	Efficient, improved and simplified business processes. Staff morale and Sun International culture is rebuilt. Guest experience is improved. Our smart technology is fully utilised. Our best practices in gaming are imported to our new businesses.
	Negative impact on business through onerous travel restrictions imposed by the Department of Home Affairs The Group has already received cancellations from certain international groups that arise from the increased travel restrictions. Several service providers in the tourism industry are projecting a significant decline in the number of tourism visitors as a result of the travel restrictions.	Departments of Home Affairs and Tourism; and Government	Representations have been made to Government to highlight the significant impact that biometric visas will have on tourism. In addition there is industry collaboration to represent the real impact on tourism to the Country. Engagement with service providers.	Alternative solution is obtained to address concerns of the Department of Home Affairs without the significant impact on business. The outcome of the process is yet to be determined however the Group acknowledges the postponement of certain restrictions insofar as this relates to travel with minors and welcomes the Department of Home Affairs looking into alternative viable solutions.
Protect and leverage our existing asset portfolio	The successful amendment of the Morula Casino licence conditions thereby permitting a relocation of the casino licence to Menlyn Maine The inaccessibility of Morula Casino and the emergence of other urban gaming have resulted in an existing asset that is underperforming. The ability to amend the casino licence conditions and the resultant R3 billion Time Square at Menlyn Maine development has significant benefits for all stakeholders.	Gauteng Gambling Board; other Regulators; National and Provincial Government; Communities; and Staff	Widespread engagement with the relevant stakeholders and communities which culminated in public hearings. Continued engagement with relevant stakeholders.	The outcome of the Group’s application to the Gauteng Gambling Board was successful. Certain legal challenges have been received and are being dealt with. The Group remains confident with the merits of its application and the findings of the Gauteng Gambling Board.
	Impact of EBTs and further rollouts within our casino catchment areas EBTs impact on our casinos given the relative convenience and ease of accessing these terminals.	Gambling Boards; Government; CASA; and Equity partners	Engagement with the various stakeholders to explain the Group’s position and the reasons for the Group’s objections to EBTs being situated within the Group’s catchment areas. CASA as an industry has made similar representations on behalf of the casino operators. The Group has launched legal proceedings in KwaZulu-Natal and will continue to consult and legally object if there is no other recourse.	The roll-out of EBTs be properly regulated and no EBTs are permitted within the catchment areas of our casinos. The current outcomes vary in each province dependent on the view taken by provincial regulators. EBT rollout is curtailed and is eventually rolled out in under serviced areas under the appropriate restrictions.
Grow our business into new areas and products	Maturity of the South African land-based casino market There is a national cap on land-based casinos and no further ability to grow the number of land based casinos. Focus must be to grow our business into new areas and products that are linked to our core competencies.	Regulators; Shareholders; and Equity partners	Continued engagement with regulators and interested parties as to new avenues within the alternate gaming market. Our engagements in assessing the opportunities in the online gaming domain have resulted in our acquisition of SunBet which facilitates our readiness for the legalisation of online gambling. We continue to engage with market leaders in the online gaming domain. Our engagements with Grand Parade Investments Ltd (“GPI”) have led to our potential acquisition of GPI’s LPM business which allows the business immediate presence in the LPM market by acquiring a national LPM footprint and growing into new geographical areas with this new product. Certain regulatory approvals are still required.	We diversify and grow our business by entering into new products and markets.
	Our international expansion and the performance of our new acquisitions We continue to target new investments predominately in Latin America, given that international expansion is the route to grow our land-based casino operations. The countries targeted within Latin America have a good growth and robust regulatory profile.	International regulators; Shareholders; South African Diplomats; and Advisors	Discussions with potential investors; regulators and foreign governments as we seek to grow our business globally. We engage with the relevant advisors in assessing matters such as country risk and the necessary due diligences. In the event that management believes that the proposed investment is feasible it engages firstly with the investment committee and then the board in terms of adjudicating the opportunity against the Group’s investment criteria.	We have built a successful Latin American portfolio of casinos.
Our people	Creating a high performance culture We believe that our service is a key differentiator within our Group. As such Sun International has to be a high performance culture where all of our employees are constantly giving of their best.	Employees	Focused interventions with employees to rebuild performance culture. Engagements on performance contracting and management. Unit roadshows to management across the Group to present the Group’s pay for performance methodology which has personal performance as a 1/3rd component of the executive bonus scheme.	A high performing team throughout the Sun International Group that consistently delivers memorable experiences to our guests.
	Succession planning for key management positions Proper succession planning ensures business continuity and minimal interruptions to our business. We want to create diverse opportunities for our employees.	Remuneration committee; Executive Management; and Employees	Engagement within the organisation to identify successors for the key management positions. Feedback has been provided to managers following talent management reviews. We have spent time understanding our manager’s career aspirations and are engaging on learning and development plans that will support their career development.	All key positions within the Group have an available pool of successors through our talent pipeline.
Governance and sustainability	Ensuring compliance throughout the Group We operate in an extensively regulated industry and the preservation of our casino licences are dependent on our compliance with such regulations. Our corporate reputation is enhanced through our reputation for compliance.	Employees; and Regulators	We have engaged in focus meetings with most of our gaming regulators to understand their perceptions of the Group’s compliance. We are rolling out new compliance training and a new compliance portal that will see our Group’s compliance standardised across all units, and further roadshows will be held at all units.	The Group is fully compliant with all regulatory aspects and builds strong relationships with its regulators.
	Finalisation of the Group’s Climate Change Strategy The Group is cognisant that its use of natural resources must be mitigated by implantation of an appropriate strategy.	Leadership; Employees; Communities; and Consultants	Extensive engagement with our stakeholders ranging from the board and external consultants to our communities in order to understand the meaningful contribution that the Group can make in preserving natural resources.	Our Climate Change Strategy will make a meaningful contribution to the preservation of natural resources and will ensure that certain efficiencies and cost savings are obtained throughout the Group.

 

GOVERNANCE AND REGULATION

In light of gaming being core to the Group’s business activities, monitoring and compliance with gambling regulatory measures in the Group’s licensed jurisdictions remains a priority for the management team. A dedicated compliance function has been established at a central level and the Group holds its general managers and surveillance managers accountable at each licenced property. Compliance is also a key performance indicator for all executive managers and is considered a significant business imperative.

International trends in developed gaming jurisdictions are also monitored, to keep abreast with developments elsewhere and so position the Group to be proactive in considering and implementing best practice opportunities that may apply to our own operations.

In addition to our internal activities, the Group is an active member of the Casino Association of South Africa (“CASA”) and participates in working committees regarding casino regulatory matters.

The gaming industry in which the Group operates is highly regulated and is subject to significant probity and external regulatory monitoring, both locally and internationally. This requires the Group, its major shareholders, directors, senior management and key employees to observe and uphold the highest standards of corporate governance.

Statutory regulation of the gambling industry in South Africa takes place through the National Gambling Act and the gambling legislation of each province. Among the other statutory laws of the land, the Group’s business activities require particular sensitivity to its rights and obligations under the legislation pertaining to competition, consumer protection, money laundering, the environment, and occupational health and safety.

Our industry remains at risk of over-regulation. Previously announced increased restrictions on advertising gambling activities have been withdrawn but may be republished at any time. Previously announced draft regulations to further curb the smoking of tobacco products in public places are undergoing drafting and are expected to be released again for public comment.

Accordingly, the Group has identified the main areas of legislation that materially affect its operations and regularly engages with its key regulators to make public comments and submissions on proposed new industry and other relevant legislation.

BOARD COMMITTEES

The board is authorised to form committees to assist in the execution of its duties, powers and authorities. It currently has six standing committees, as depicted below.

Various other committees are established throughout the Group from time to time. The terms of reference and composition of the committees are determined and approved by the board and have been adopted by all the committees. Terms of reference are reviewed by the board (and each committee) annually, with the most recent review having been conducted in August 2014 to ensure that the terms of reference remain current and reflect an appropriate focus for the year. The terms of reference of the various committees are available for review. The chairpersons of the committees report to the board on a quarterly basis in terms of their committees’ respective terms of reference and copies of all committee minutes are circulated to the full board.

Reports of each of the board’s committees are provided for the 2014 year and set out the salient details of the mandate that each committee has fulfilled for the year under review.

CONCLUSION

The board is confident that the Group is meeting the requisite standards of governance and compliance, and that matters for board consideration have been robustly interrogated and canvassed. The board continues to apply its mind both individually and collectively to guide the strategic direction of the Group.