Corporate Governance

The board of directors ("the board") endorses the code of corporate practices and conduct as set out in the King IV™ Report on Corporate Governance for South Africa, 2016 (“King IV™”) and confirms that the group is compliant with the provisions thereof.

The board has been addressed by independent consultants to ensure that all directors are fully conversant with best practice and current thinking with regard to corporate governance.

In line with the King IV™ apply and explain basis, a register of the applicable 17 King IV™ principles and associated practices, and the extent of the company's compliance therewith, is available HERE.

The board comprises five executive directors and nine independent non-executive directors. All directors serve for a maximum period of three years and are subject to retirement by rotation and re-election by members in general meeting. Board appointments are made in terms of the policy on nominations and appointments, such appointments are transparent and a matter for the board as a whole.

There are no fixed term contracts for executive directors and the notice period for termination or resignation is one calendar month. There is no restraint of trade period for executive directors.

Ultimate control of the company rests with the board of directors while the executive management is responsible for the proper management of the company. To achieve this, the board is responsible for establishing the objectives of the company and setting a philosophy for investments, performance and ethical standards. Although quarterly board meetings are arranged every year, additional meetings are called should circumstances require it. Six board meetings were called during the 2018 financial year.

In 2018, the chairman with the assistance of the company secretary, led a formal review of the effectiveness of the board and its committees. Each director completed a detailed evaluation questionnaire and an analysis of the findings was presented to the board. There was agreement that the board was operating effectively. The results were positive and action plans were formulated where required.

The evaluation confirmed that adequate time was allocated to discuss agenda items and that the chairman promotes a culture of openness and debate.

The board acknowledges that it is responsible for ensuring the following functions as set out in the board charter:

• good corporate governance and implementation of the code of corporate practices and conduct as set out in the King IVTM report;
• that the group performs at an acceptable level and that its affairs are conducted in a responsible and professional manner; and
• the board recognises its responsibilities to all stakeholders.

Although certain responsibilities are delegated to committees or management executives, the board acknowledges that it is not discharged from its obligations in regard to these matters.

The board acknowledges its responsibilities as set out in the board charter in the following areas:

• the adoption of strategic plans and ensuring that these plans are carried out by management;
• monitoring of the operational performance of the business against predetermined budgets;
• monitoring the performance of management at both operational and executive level;
• ensuring that the group complies with all laws, regulations and codes of business practice; and
• ensuring a clear division of responsibilities at board level to ensure a balance of power and authority in terms of group policies.

The board of directors’ independence from the executive management team is ensured by the following:

• separation of the roles of chairman and chief executive officer, with the chairman being independent;
• the board being dominated by independent non-executive directors;
• the audit, investment, nomination, remuneration, risk, special and social and ethics committees having a majority of independent non-executive directors;
• non-executive directors not holding service contracts;
• all directors having access to the advice and services of the company secretary; and
• with the prior agreement from the chairman, all directors are entitled to seek independent professional advice concerning the affairs of the company at the company's expense.

The following independent non-executive directors chair the various sub-committees of the board:

• Audit - Djurk Venter
• Investment - Banus van der Walt
• Nomination - Iraj Abedian
• Risk - Robin Lockhart-Ross
• Social and Ethics - Tshiamo Matlapeng-Vilakazi
• Special subcommittee – Robin Lockhart-Ross
• Remuneration committee - Tshiamo Matlapeng-Vilakazi

The independence of the non-executive directors was assessed, and all are considered independent in terms of the requirements of King IVTM. Independence evaluations are done annually.

One director has served for a term in excess of nine years, and his independence is assessed and pronounced upon annually by the board, in line with the recommendations of King IV.

Further, he will put himself forward for re-election every year at the AGM.

A full list of directors' interests is maintained, and directors certify that the list is correct at each board meeting. All board members are given the opportunity to declare personal interest of any nature in any agenda item at every board and committee meeting.

Directors recuse and absent themselves from the meeting for the duration of any discussion and decision on matters in which they have a material interest.

The primary role of the audit committee is to ensure the integrity of financial reporting and the audit process. In pursuing these objectives, the audit committee oversees relations with the external auditors. The committee also assists the board in discharging its duties relating to the safeguarding of assets, the operation of adequate systems and internal control processes, overseeing the preparation of accurate financial reports and statements in compliance with all applicable legal requirements and accounting standards, ensuring compliance with good governance practices and nomination of external auditors. The role of the audit committee has been codified in the audit committee charter which has been approved by the board. This charter has been aligned with the requirements of King IVTM and the Companies Act.

The audit committee presently comprises: Djurk Venter (chair), Robin Lockhart-Ross and Jan Potgieter, all of whom are independent non-executive directors. The managing director and financial director attend meetings as invitees. The committee members have unlimited access to all information, documents and explanations required in the discharge of their duties, as do the external auditors.

The board, in consultation with the audit committee chairman, makes appointments to the committee to fill vacancies. Members of the audit committee are subject to re-election by members in general meeting on an annual basis. The board has determined that the committee members have the skills and experience necessary to contribute meaningfully to the committee’s deliberations. In addition, the chairman has the requisite experience in accounting and financial management.

In fulfilling its responsibility of monitoring the integrity of financial reports to shareholders, the audit committee has reviewed accounting principles, policies and practices adopted in the preparation of financial information and has examined documentation relating to the annual integrated report and interim financial report. The clarity of disclosures included in the financial statements was reviewed by the audit committee, as was the basis for significant estimates and judgements.

It is the function of the committee to review and make recommendations to the board regarding interim financial results and the integrated report prior to approval by the board.

The audit committee considered and satisfied itself of the overall appropriateness of the finance function’s resources, experience and expertise as well as the experience and expertise of the financial director, who is responsible for the finance function. The committee has ensured that the appropriate financial reporting procedures have been established and are operating.

A key factor that may impair auditors’ independence is a lack of control over non-audit services provided by the external auditors. In essence, the external auditors’ independence is deemed to be impaired if the auditors provide a service which:

• results in auditing of own work by the auditors;
• results in the auditors acting as a manager or employee of the group;
• puts the auditors in the role of advocate for the group; or
• creates a mutuality of interest between the auditors and the group.

The company addresses this issue through three primary measures, namely:

• disclosure of the extent and nature of non-audit services;
• the prohibition of selected services; and
• prior approval by the audit committee of non-audit services.

Other safeguards encapsulated in the policy include:

• the external auditors are required to assess periodically, in their professional judgement, whether they are independent of the group;
• the audit committee ensures that the scope of the auditors' work is sufficient and that the auditors are fairly remunerated; and
• the audit committee has primary responsibility for making recommendations to the board on the appointment, re-appointment and removal of the external auditors.

The committee reviews audit plans for external audits and the outcome of the work performed in executing these plans. They further ensure that items identified for action are followed up. The external auditors report annually to the audit committee to confirm that they are and have remained independent from the group during the financial year.

The audit committee considered information pertaining to the balance between fees for audit and non-audit work for the group in 2018 and concluded that the nature and extent of non-audit fees do not present a threat to the external auditors’ independence. Furthermore, after reviewing a report from the external auditors on all their relationships with the company that might reasonably have a bearing on the external auditors’ independence and the audit engagement partner and staff’s objectivity, and the related safeguards and procedures, the committee has concluded that the external auditors’ independence was not impaired.

The audit committee approved the external auditors’ terms of engagement, scope of work, the annual audit fee and noted the applicable levels of materiality.

Based on written reports submitted, the committee reviewed, with the external auditors, the findings of their work and confirmed that all significant matters had been satisfactorily resolved. The committee determined that the 2018 audit was completed without any restriction on its scope.

The audit committee has satisfied itself as to the suitability of the external auditors for re-appointment for the ensuing year.

The company does not have a formalised internal audit department. This is primarily due to the fact that the majority of the property management functions are outsourced to external property managers who are subjected to annual external audits.

The audit committee continually examines the appropriateness of utilising independent internal auditors to periodically review activities of the company and service providers.

During 2018, Fortress engaged Grant Thornton to perform reviews on controls over specific key areas. The areas for testing were discussed at the audit committee who engaged directly with Grant Thornton in this regard.

The report to the audit committee indicated that the controls tested by the internal audit in the current year were generally adequate and effective.

In line with King IVTM the board of directors forms the core of the values and ethics subscribed to by the company through its various bodies and committees. These values and ethics are sustained by the directors’ standing and reputation in the business community and their belief in free and fair dealings in utmost good faith and respect for laws and regulations.

Fortress has a code of ethics communicated to all staff. The code of ethics stipulates, among other things, that all stakeholders are expected to act in good faith, that bribery in any form is not tolerated, all conflicts of interest need to be declared and that compliance with all legislation is of utmost importance. The code of ethics is reviewed by the social and ethics committee on an annual basis.

The board is not aware of any transgressions of the code of ethics during the 2018 financial year. No issues of non-compliance, fines or prosecutions have been levied against Fortress.

A framework of financial reporting, internal, and operating controls has been established by the board to ensure reasonable assurance as to accurate and timeous reporting of business information, safeguarding of group assets, compliance with laws and regulations, financial information and general operation.

All acquisitions, disposals and capital expenditure above executive management committee approval limits are considered by the investment committee. The investment committee approves acquisitions, disposals and capital expenditure up to pre-set limits.

The investment committee consists of two independent non-executive directors being Banus van der Walt (chair) and Jan Potgieter and one executive director, Mark Stevens. All members of this committee have extensive experience and technical expertise in the property industry. The financial director attends the meetings as an invitee.

The investment committee’s responsibilities and duties are governed by a charter that was reviewed by the board in 2018.

The nomination committee is mandated by the board to identify suitable candidates to be appointed to the board, identify suitable board candidates to fill vacancies, ensure there is a succession plan in place for key management, assess the independence of non-executive directors and assess the composition of the board sub-committees.

The nomination committee recommends the individuals to the board for appointment.

The nomination committee comprises three independent non-executive directors being Iraj Abedian (chair), Bongiwe Njobe and Jan Potgieter.

The nomination committee’s responsibilities and duties are governed by a charter that was reviewed by the board in 2018.

The remuneration committee is mandated by the board to set the remuneration and incentivisation of all employees, including executive directors. In addition, the remuneration committee recommends directors’ fees payable to non-executive directors and members of board sub-committees.

The remuneration committee comprises three independent non-executive directors, Tshiamo Matlapeng-Vilakazi (chair), Robin Lockhart-Ross and Djurk Venter.

The remuneration committee's responsibilities and duties are governed by a charter that was reviewed by the board in 2018.

The risk committee is mandated by the board to ensure that a sound risk management system is maintained, to assist the board in discharging its duties relating to the safeguarding of assets and to ensure that the company has implemented an effective plan for risk management that will enhance the company’s ability to achieve its strategic objectives.

The risk management plan, which is in line with industry practice and specifically prohibits the company from entering into derivative transactions not in the ordinary course of business, is reviewed annually and the risk matrix is reviewed by the committee at each meeting.

The risk committee is satisfied that the company has complied, in all material respects, with its risk management policy.

The risk committee consists of two independent non-executive directors being Robin Lockhart-Ross (chair) and Bongiwe Njobe and one executive director, Mark Stevens.

The risk committee’s responsibilities and duties are governed by a charter that was reviewed by the board in 2018.

The social and ethics committee is a statutory committee whose focus is to monitor compliance with labour legislation as well as corporate social responsibilities and corporate citizenship.

The social and ethics committee comprises two independent non-executive directors, Tshiamo Matlapeng-Vilakazi (chair) and Bongiwe Njobe, and one executive director, Mark Stevens.

The social and ethics committee's responsibilities and duties are governed by a charter that was reviewed by the board in 2018.

In 2018, the board has considered the competence, qualifications and experience of the company secretary, Tamlyn Stevens, and she was deemed fit to continue in the role as company secretary for Fortress. Tamlyn is not a director of Fortress and has arm's length relationship with the board.

The board is ultimately responsible for IT governance. The Fortress IT function is outsourced to a third-party service provider and is governed by a service level agreement. Compliance with the service level agreement is monitored by management and the terms are reviewed on a regular basis.

There is a dedicated member of the Fortress management team who oversees the IT function, attends the executive committee meetings and reports thereat. The risks and controls over IT assets and data are considered by the risk committee.

Dealing in the company’s securities by directors and company officials is regulated and monitored as required by the JSE Listings Requirements.

In addition, Fortress maintains a closed period from the end of a financial period to the date of publication of the financial results, for both year-end and interim results

There were no requests for information lodged with the company in terms of the Promotion of Access to Information Act, No 2 of 2000.

Fortress is committed to ensuring timeous, effective and transparent communication with shareholders and other stakeholders as set out below.

Shareholders: Fortress is committed to providing shareholders with timely access to applicable information. Communication with its shareholders is open, honest and transparent. Shareholders are provided with information via circulars and integrated and interim reports. Additional information is provided on Fortress’ website, via SENS announcements and press releases.

Analysts: Fortress holds semi-annual results presentations in Johannesburg, Cape Town and Durban.

Financiers: Fortress meets with its financiers on a regular basis to discuss its requirements and theirs. Information is provided through analyst presentations, road shows, integrated reports and interim reporting.

Tenants: Fortress strives to form mutually beneficial business relationships with its tenants. Fortress’ asset managers and property managers meet with the tenants on a regular basis and conduct regular site visits to Fortress’ properties.

Government: Fortress endeavours to have mutually beneficial relationships with government, its departments and parastatals. Fortress engages with local authorities both directly and via its property managers and external consultants regarding utility issues, rates clearances, zoning, etc.

Industry associations: Fortress’ asset managers belong to various industry bodies including SAPOA and the SA Council of Shopping Centres and regularly attend industry conferences. Fortress is a member of the SA REIT Association.

Business partners: Fortress maintains professional working relationships with its business partners at the same time as fostering a culture of teamwork. Fortress ensures that all of its business partners fully understand its performance standards and requirements. Fortress’ business partners include the property managers and both Fortress’ asset managers and senior management meet with the property managers on a regular basis.

Communities and environment: Fortress is committed to being a good corporate citizen and frequently evaluates the impact of its projects and developments on society and the environment.

Suppliers: Fortress maintains professional working relationships with all of its suppliers and ensures that its suppliers understand Fortress’ performance standards and requirements. Where possible, Fortress will have service level agreements or terms of reference for its relationships with suppliers, which include performance expectations.