MODULE 1 UNIT 3 ACTIVITY SUBMISSION

You have recently been employed as a compliance consultant for de Buys Agri-logistics, an agri-logistics company listed on the AltX of the JSE.

Note:

The AltX is the alternative board for small and medium-sized companies to raise capital on the JSE. Many organisations use the AltX as a means to raise capital, and as a stepping-stone to listing on the JSE Main Board.

De Buys & Sons was established in 1928 and has been run by the family ever since. The parent company owns subsidiary businesses that operate in bulk storage, distribution, and fertilisation investments for large-scale fruit farming in the Western Cape, as well as maize and wheat commodities farming in the North West Province and the Free State. The company has an annual turnover of approximately R150 million, with an annual profit of R67 million in the financial year. The financial results are audited and approved by an independent auditor.

The total number of employees in the holding company is 24 (typically administrative and professional services employees: auditors, financial analysts, and human resources professionals). Each subsidiary organisation has a wide employee and stakeholder footprint. The stakeholders include local communities (i.e. families, small businesses, and schools) as well as employee groups such as logistics personnel (i.e. truck drivers and delivery persons), warehousing staff, farm labourers, fruit pickers, and seasonal staff. There are also employees involved in food sciences and farm management, as well as climatologists and hydrologists.

The company is a family-founded organisation; however, you have discovered that the board of directors of this organisation is predominantly made up of family members. The CEO and chairperson, Frikkie de Buys, and the CFO, John de Buys, are the grandsons of the founder. The board consists of eight people, including the CEO and CFO, the CEOs daughter, and three other members of the family who are also shareholders. There is one independent, non-executive director, Elana Francis, who is a good friend of the CEO, and a representative of the trust. The casting vote of the board lies with Frikkie, as the chairperson. Figure 1 illustrates the composition of the board.

Figure 1: The board of directors of de Buys Agri-logistics company.

As a compliance practitioner, you are worried about the possibility of conflicts of interests and non-compliance that may occur due to the current structure of the board.

Using the King IV Code and Section 72 of the Companies Act of 2008, you are required to write a report to advise a restructuring of the board that is more ethically compliant with the King

QUESTIONS:

IV Code. Your answer should pay particular attention to the social and ethics committee and the audit and risk committee.

Your report should consist of the following sections:

Introduction [100 words max]

Issues with the current board structure [200 words max]

Suggestion for a new board structure [200 words max]

Appeal for a social and ethics committee [200 words max]

Conclusion [100 words max]

(Max. 800 words in total)

Note:

Part of your substantiation will require evidence from the King IV Code and the Companies Act of 2008. If you have not yet done so, please familiarise yourself with these documents.

VERY IMPORTANT: YOUR ANSWERS SHOULD ALSO CONSIST OF THE FOLLOWING BELOW FOR QUESTIONS 1 TO 6 ABOVE.

Introduction: The introduction should provide a clear outline of what will be addressed in the body of the written work, along with a good reason for compiling the report.

General introduction guidance: An introduction should provide a clear layout of what you will address in the main section of the written work and explain why you are doing so; provide a reason why the written work should be drawn up. Please bear in mind what perspective you are writing from; in this particular submission you have been appointed by de Buys Agri as a compliance consultant. Thus they are aware of the company's activities. You are required to provide them with advice in the form of a report. You should indicate the specific acts, regulations and codes which you will refer to in the body/main section of the written work. This report should identify what they are not doing correctly based on the Act, Regulations and King IV Code.

Issues with current composition: The three main issues were: (1) the Chairperson and CEO are the same individual; (2) the complete lack of independence at board level; and the (3) the lack of diversity (race and culture). There were other potential issues but these were the main three issues which students were required to identify.

Further students were required to make specific reference to the Act and Code by correctly identifying the relevant section /principles (and recommendations) and summarizing what adherence required.

Restructuring: You have to proposed a restructuring plan which is capable of practical implementation. You should identify concrete steps they can take to remedy the deficiencies. For example: appoint a new Chairperson who is an independent non-executive. Identify the ratio of executive: non-executive: independent non-executives they should implement. Recommend which existing board members should be replaced. Identify the characteristics which the new board members should possess.

The SEC appeal: Students were required to identify that constituting a SEC for this organization is mandatory as it is a JSE listed organization. Further, students were required to sell the value of the SEC to the board of directors by demonstrating the benefit to the company, shareholders ,and stakeholders.

The focus areas were: (i) sustainability and long-term profit generation; (ii) stakeholder interests and mindfulness of how and why stakeholder interests can impact the growth of an organization; (iii) to oversee compliance (to a degree as Audit and Risk committee more appropriate), and most importantly (iv) ethical oversight.

Conclusion: you should summarize and wrap up the report in the conclusion and it should not contain new information or recommendations.