De Beers Société Anonyme
De Beers was formally incorporated in Luxembourg in November 2000. It is the holding company of what is regarded as the De Beers Group, and is managed and controlled from its head office in Luxembourg where the Board meets to attend to the business of the group. Its commercial activities are carried out by a number of subsidiaries, investments and joint ventures in different parts of the world.
Together these subsidiaries and investments in joint ventures constitute the Family of Companies.
Taxes and royalties to governments are paid by each of the different subsidiaries and investments in a manner consistent with the requirements of the jurisdiction in which they operate. De Beers prepares annual and independently audited statutory financial statements of both the Company and the group in accordance with International Financial Reporting Standards.
These are lodged with the Registre du Commerce and other authorities in Luxembourg as well as being sent to each of the shareholders directly for adoption at the Annual General Meeting of shareholders of the Company held in March each year.
Powers of the Shareholders and De Beers Board
A Shareholders' Agreement between, amongst others, the three shareholder groups was entered into on 30 January 2002. It defines, inter alia, the powers reserved for shareholders and those reserved for the De Beers Board, as well as providing for the relationship between the shareholders and the Company.
Appointment of Board Directors
The appointment of De Beers directors is governed by three legally binding documents: the Shareholders Agreement, the Management Contract and the Company’s Articles of Incorporation.
The Shareholders Agreement' specificially provides for the nomination, election and appointment of Board members with reference to the role of Central Management Services Limited (CMSL) (the management company) in terms of the Management Contract.
The Management Contract was also concluded on 30 January 2002: CMSL has been appointed to assist in the appointment of directors, senior executives and management. It also assists in the strategic development of the De Beers Family of Companies. CMSL is a company within the Central Holdings group (representing the Oppenheimer family).
The Articles of Incorporation relate to the legal establishment and registration of De Beers as a public company limited by shares in Luxembourg. As the legal constitutional instrument it allows for a minimum of three and a maximum of 20 Board directors.
The shareholders and CMSL are directly responsible for the appointment and removal of directors in accordance with the provisions of the Shareholders Agreement and Management Contract.
Composition and independence
As of 31 December 2009, the De Beers Board consisted of 17 directors. Six serve in an executive capacity and are members of the Executive Committee. Each shareholder group is entitled to nominate two persons for appointment to the Board. Accordingly, six directors, five non-executives and one executive (the Chairman, Nicky Oppenheimer) are currently appointed under the appropriate clauses of the Shareholders Agreement.
The role of the Chairman is quite distinct from that of the Managing Director. As provided for in the Shareholders' Agreement, up to 10 independent directors may be appointed by CMSL under the Management Contract in consultation with the shareholders. Independent directors are those appointed independently of the shareholders direct entitlement.
A majority of these independent directors must be employed or hold executive office with De Beers. Seven directors, two of which are non-executive, are currently appointed to the Board under the appropriate provisions of the Management Contract.
Additional independent directors may be appointed by shareholders by majority consent or majority vote at the Annual General Meeting of shareholders. Four non-executive directors are currently appointed to the Board in this manner under the appropriate provisions of the Shareholders Agreement. Accordingly, of the 17 directors in office on 31 December 2009, 11 are independent directors (as defined in the Shareholders Agreement) and 11 are non-executive directors. A number of directors have both independent and non-executive status.
Expertise of Board Directors
The appointment of directors is based on the extent to which they represent the interests of the shareholders and, importantly, on their ability to provide strategic guidance on the direction, values and performance of the Company. This includes with respect to the Principles, ECOHS policies and related sustainability and reputational risk management. Suitable directors are only appointed by CMSL after prior consultation with shareholders.
The term of office for each director is limited by law and the constitutional documents of the Company to six years, but directors are eligible for re-election by the shareholders. The terms of office of those directors appointed by the majority consent of shareholders has been limited to periods of three years, with the opportunity for re-election by shareholders.
Shareholders also have the ability to terminate appointments, if necessary, prior to the completion of the appointed term of office. Board continuity is fundamental to the sustained success of the De Beers group. This requires an ongoing resource and skills identification to be performed by the Board in consultation with shareholders.
Board members are able to supplement their own expertise on issues pending decision by obtaining independent professional advice. The Company Secretary coordinates the provision of professional advice to ensure that advisors are appropriately briefed, provided with relevant information and paid on completion of the assignment. The results of any advisory engagement are also made available to other members of the Board.
Ethics and the Board
The Board supports the principles of openness, integrity, responsibility and accountability. It also endeavours to ensure the Company’s governance processes and policies meet best practice standards. De Beers complies with Luxembourg company law as well as applicable principles and recommendations set out in the King Code on Governance for South Africa.
De Beers follows the King Code for its internationally recognised status, but also because De Beers, as a company with its roots in South Africa, is comfortable and familiar with its origins.
In addition to recommendations on the role, function and composition of the Board and directors, the King Code also includes specific sections on the governance of risk and integrated sustainability reporting and is aligned with the UN Global Compact and the Global Reporting Initiative sustainability reporting guidelines.
Avoiding conflict of interest
A number of structures already exist to ensure conflict of interest is avoided in line with external best practice standards. These include the DTC Diamond Best Practice Principles (BPPs) and the Directors Conflict of Interest Policy. Existing statements in our Code of Conduct and Business Ethics also require all personnel to act in the best interests of De Beers and its shareholders.
The Code also prohibits involvement in business interests that conflict with the Principles and policies of the Family of Companies or that might compromise independence in decision-making.
Compensation of Board directors
The Articles of Incorporation of De Beers provide that shareholders may determine the fees of Board directors. These have been set at US$50 000 per annum with the Chairperson receiving an additional US$25 000 per annum.
Non-executive directors that serve on Board sub-committees receive an additional US$10 000 per annum. Chairpersons of the respective committees receive an additional US$10 000 per annum. This remuneration is fixed and is not currently linked to the performance of the Company.
The annual statutory financial statements filed with the authorities in Luxembourg include details on the remuneration framework, benefits and fees paid to Board directors. Copies of these financial statements are provided to each of the shareholders. The annual statutory financial statements also include details of the aggregate remuneration and other benefits available to key senior managers and executives.
Structures under the Board
The Board is responsible for the group’s system of governance and is ultimately accountable for the strategic direction of the business and all activities across the Family of Companies. This includes setting risk management policy, reviewing the effectiveness of risk management processes, recommending enhancements and ensuring effective succession planning.
It also provides oversight of and consultation to the different business entities across the Family of Companies. This includes on governance structures and on the identification, appointment and training of directors. The Board also reviews sustainability performance and risks on at least an annual basis in line with the formal risks review process.
Detail on these risks is presented in the introductory statement of the Chairman and performance overview of the Managing Director, as well as in our Report to Society 2009. The De Beers Board is supported in its decision-making by five committees all established with proper terms of reference: the Executive Committee, the Audit Committee, the ECOHS Committee, the Investment Committee and the Remuneration Committee.
Although not an official committee under the Board, the Principles Committee provides further review and scrutiny on the extent to which the Family of Companies contributes to sustainable development and operates in conformance with its Principles.
In 2008 the Board adopted a Board Charter which, inter alia, sets out the mandate of the Board and those powers reserved to it.
Executive Committee
The Executive Committee is chaired by the De Beers Chairman, Nicky Oppenheimer. It meets at least six times a year in Luxembourg and is responsible to the Board for implementing the Principles, policies and strategies of De Beers and managing the business and affairs of the De Beers group.
The Executive Committee deals with all executive business not specifically reserved for the Board or shareholders. It prioritises the allocation of capital, technical and human resources and is also responsible for the biannual review of business and reputational risks for each business unit.
The Executive Committee also provides strategic oversight on sustainability performance and management.
Audit Committee
The Board has appointed an Audit Committee consisting of directors who do not hold executive office in De Beers, its subsidiaries or investments. The Audit Committee meets three times a year. It monitors the adequacy of internal controls, accounting policies and financial reporting to shareholders.
It also monitors and supervises the effective functioning of the Internal Audit department and the ethical conduct of the Company. The Audit Committee provides a forum for communication between the Board and the external and internal auditors.
It reviews the half-year and full-year results and the annual financial statements prior to their submission to the Board. It also receives annual appraisals from the business units and the internal auditors with regard to the adequacy of risk management and the status of the control environment across the Family of Companies.
This includes sustainability risks and associated performance. An overview of these risks is presented to the Executive Committee biannually and to the Board on at least an annual basis. A summary of the proceedings from each Audit Committee meeting is submitted at the subsequent Board meeting for review. Each Board meeting includes an opportunity for the Audit Committee chairperson to report orally on matters of significance.
ECOHS Committee
The Environment, Community, Occupational Hygiene, Health and Safety (ECOHS) Committee monitors and reviews associated policies, guidelines, operational practices and the ECOHS performance of the Family of Companies.
It provides strategic oversight of the ECOHS disciplines and their respective peer groups. Further information on the peer groups and work completed during the reporting period is provided in our Report to Society 2009. The ECOHS Committee attains assurance regarding the adherence of the Family of Companies to our common ECOHS policies, guidelines and operational practices as well as appropriate local and international standards and relevant legislation.
The ECOHS Committee meets at least four times each year as well as undertaking visits to and inspections of the operations. It acts in an advisory capacity and does not perform management functions directly. A summary of matters of key significance is submitted at relevant Board meetings for review. Each Board meeting includes an opportunity for the ECOHS Committee chairperson to report orally on matters of significance and on key risks.
Investment Committee
The Investment Committee manages the process of investment capital approval and allocation within the group. Its key aim is to ensure that investments, divestments and financing proposals increase shareholder value and meet De Beers' financial and business strategy criteria.
The Investment Committee draws on the De Beers Risk Management Policy and guidelines to assist in its risk analysis. It also invites discipline experts and heads of departments from across the Family of Companies to provide further insight in advance of making any recommendation to the Board.
This includes recommendations on political, economic, social and environmental risks and alignment with the Principles as well as the Code of Conduct and Business Ethics. The Investment Committee includes representatives of the three shareholder groups.
Remuneration Committee
The Remuneration Committee comprises a majority of directors who do not hold executive office in De Beers, its subsidiaries or investments. It approves remuneration for executive directors on the Board and other senior managers including those on the Executive Committee. The exact remuneration structures of senior managers and other employees at subsidiaries and investments is informed by group policy and performance, but determined separately by the respective boards, committees and finance and human resource functions of each company.
The Remuneration Committee ensures that remuneration policies, procedures and practices are linked to both group and individual performance; take into account market relativities and have regard to effective risk management.
Principles Committee
The Executive Committee, Audit Committee and ECOHS Committee are further supported in developing their input to the Board by the Principles Committee. The Principles Committee is not a formal Board committee.
The Principles Committee, established in 2007, addresses all sustainable development issues contained in the Report to Society including those that fall outside the scope of the current ECOHS Committee.
It is composed of senior managers from across the Family of Companies as well as discipline experts and De Beers Internal Audit (DBIA). The Principles Committee produces a quarterly update of reputational and sustainability risks and presents a quarterly summary of progress to the De Beers Executive Committee.
Risk management
The shareholders and Board recognise that engaging risk is at the core of the business. De Beers is governed by a risk framework through which risks are proactively identified, engaged and managed. This includes taking advantage of opportunities and protecting capital, income and assets by mitigating the adverse impacts of risk.
The management of De Beers recognise the importance of effective risk management in ensuring that business objectives are met and that sustained growth and profitability are achieved. In order to formalise this and provide overall guidance to the business, the board of De Beers approved the Group Risk Management Policy on 24 April 2002. A risk management strategy and plan was approved by the Board on 18 November 2009.
This policy addresses risks in areas of strategy, operations, finance and compliance. In accordance with the Policy and the Group Risk Management Guidelines each business unit has formally embedded risk management into the business management process within its own operations.
All significant risks are identified by each respective business unit and are then reported to the Audit, ECOHS and Executive committees biannually, and to the Board at least on an annual basis. The Group Risk Management Policy is also subject to annual review by the Board. Awareness and understanding of the risk management framework is established at all appropriate levels of the organisation.
A process of identifying significant risks with reference to strategic, business or process objectives has been established and implemented across the Family of Companies. Management is involved in a continuous process of developing and enhancing its risk and control procedures to improve the mechanisms for identifying and monitoring risks.
These risks encompass areas including consumer markets, skills and people, technology, stakeholders, social, environmental, reputation, legal compliance, professional liability and general operating, financial and treasury risks.
Treasury Risk Management Committee
In addition to the above Group Risk Management Policy, the Board has adopted a Treasury Risk Policy governing treasury activity throughout the De Beers group and has established a Treasury Risk Management Committee.
The Treasury division has been delegated with the authority to enter into financial transactions on behalf of the group and to alter the financial risk profile of the group through hedging transactions governed by the guidelines set out in the policy.
The Treasury Risk Management Committee has also been assigned the responsibility of ensuring the overall financial risk profile of the group is appropriate in the context of prevailing economic conditions and the restrictions placed by the covenants of existing credit facilities.
It also has responsibility for managing interest rate risks and foreign exchange exposures. The committee reviews the group’s debt position and hedging transactions on a quarterly basis considering, inter alia, mark-to-market valuations and prevailing market rates: revised hedging policy limits were approved by the Baord on 9 February 2010.