Governance and Remuneration:
The Board of Directors is accountable to the Company’s shareholders for ensuring the sound management and long-term success of the Group. This can only be achieved if the Board is supported by appropriate governance processes to ensure that the Group is managed responsibly and with integrity, fairness, transparency and accountability. The Board is committed to maintaining the highest standards of corporate governance, integrity and ethics. This Corporate Governance Statement describes the key elements of Mediclinic’s corporate governance framework.
To ensure consistency in adherence to corporate governance practices, a Group corporate governance manual, dealing with Board practices and Group policies, provides guidance to the company secretaries, boards and management of the Company and its three divisions.
COMPLIANCE WITH UK CORPORATE GOVERNANCE CODE AND LISTINGS RULES
The current UK Corporate Governance Code (“2016 Corporate Governance Code”) was published by the FRC in April 2016 and is available on its website at www.frc.org.uk. The 2016 Corporate Governance Code contains a series of broad principles and specific provisions which embody good practice in relation to five key areas: leadership, effectiveness, accountability, remuneration and relations with shareholders. This Corporate Governance Statement, together with the Directors’ Remuneration Report and the various Board committee reports included in this Annual Report, describes the Board’s application of and compliance with the 2016 Corporate Governance Code.
During the year under review and up to the date of this report, the Company complied with all the provisions of the 2016 Corporate Governance Code, other than the exceptions noted below:
- Provision B.2.1 (regarding the Nomination Committee leading the process for Board appointments and making recommendations to the Board)
The Nomination Committee recommends appointments to the Board and further details of the committee and the appointment process can be found in the Nomination Committee Report. In accordance with the Company’s relationship agreement with its principal shareholder, Remgro Ltd (“Remgro”), further details of which are provided in the “Relationship Agreement”, Remgro is entitled to appoint up to a maximum of three Directors to the Board. Mr Jannie Durand was appointed by Remgro on 15 February 2016 and represents Remgro on the Board of Directors. His appointment was therefore not led by the Nomination Committee. With the exception of this appointment, made in accordance with the terms of the Relationship Agreement, the Nomination Committee leads the process for Board appointments and makes recommendations to the Board. No new Board appointments were made in terms of the Relationship Agreement during the year under review.
- Provision B.2.4 (an explanation should be given if neither an external search consultancy nor open advertising has been used in the appointment of a chairman or a non-executive Director)
Neither an external search consultancy nor open advertising were used in the appointment of Dr Anja Oswald in July 2018. She was selected as the preferred candidate for the role of independent non-executive Director of the Company from a number of candidates identified based on a search-and-interview process through the Company’s extensive network in Switzerland. Dr Oswald, with her expertise in the Swiss healthcare system, political landscape and regulatory environment, in addition to her experience in surgical medicine, general management and the development of business strategies, is proving to be a valuable addition to the Board. Through a structured and balanced process, Dr Oswald’s proposed appointment was considered by the Nomination Committee and recommended to the Board.
- Provision E.1.1 (regarding the attendance by the SID of sufficient meetings with a range of major shareholders)
The Company has not met the requirement that the “SID should attend sufficient meetings with a range of major shareholders to listen to their views in order to help develop a balanced understanding of the issues and concerns of major shareholders”. This provision supports the main principle requiring dialogue with shareholders based on a mutual understanding of objectives and that the chairman should ensure that all Directors are made aware of major shareholders’ issues and concerns, with which the Company complies. The Board believes that appropriate mechanisms are in place to engage with shareholders, without the need for the SID to attend meetings with major shareholders. The SID is, however, available to attend such meetings if requested. During the year, the Chairman met with two of Mediclinic’s top shareholders (excluding Remgro) and the SID attended one of these meetings in London. Although the SID and the non-executive Directors have the opportunity to attend results presentations and other events hosted by the Company, the principal engagement with the capital markets lies mainly with the CEO, CFO and the Head of Investor Relations, who provide regular feedback to the Board on investor relations matters, including, inter alia, an overview of meetings held with investors through the extensive global investor relations programme scheduled during the year. In April 2018, the Group conducted a detailed perception study with 88 participants using QuantiFire, a third-party independent service provider. The results were shared with the Board and a summary of the details have been set out in Shareholder engagement, along with more information on the Company’s shareholder engagement.
During the year, the Board and its committees considered the FRC’s consultation on proposed revisions to the UK Corporate Governance Code and the subsequent publication of the 2018 Corporate Governance Code. The amended Code applies to the Company from 1 April 2019 and as at the date of this report, the Board has reviewed the 2018 Corporate Governance Code and its implications, and initiated activities to ensure compliance. The Board will continue the implementation thereof during the coming year, with a view to taking the steps required to ensure that the Company’s corporate governance framework remains robust and effective, and reflects good governance practice.
In addition to complying with applicable corporate governance requirements in the UK, in accordance with its primary listing on the LSE, the Board is also satisfied that the Company meets all the relevant requirements of the JSE Listings Requirements and the NSX Listings Requirements arising from its secondary listings on the JSE in South Africa and the NSX securities exchange in Namibia.
BOARD STRUCTURE AND ROLES
The Board has full and effective control of the Company and all material resolutions are approved by the Board. The Board has adopted a robust corporate governance framework, as summarised in Figure 1, which assists the Board in the exercise of its responsibilities, namely providing strategic direction to the Company in order to create long-term shareholder value. A Board Charter sets out the key responsibilities of the Chairman, SID, non-executive Directors, executive Directors, the CEO and the Company Secretary, and outlines the roles of the various Board committees.
In order to operate efficiently and provide the appropriate level of attention and consideration to relevant matters, the Board has delegated authority to five committees to carry out certain tasks on its behalf, while reserving the authority to approve certain key matters, as documented in the Group’s authority levels and reserved matters. The latter is reviewed annually by the Board. The key responsibilities of the Board committees, namely the Audit and Risk Committee, Clinical Performance and Sustainability Committee, Investment Committee, Nomination Committee and Remuneration Committee are summarised in Figure 1. The terms of reference of each Board committee, which are reviewed annually by the relevant committee and approved by the Board, are available on the Company’s website at www.mediclinic.com. Reports on the role, composition and activities of these committees are included in this Annual Report.
Separation of Chairman and CEO roles
There is a distinct division of responsibilities between the Chairman and the CEO, as summarised in Figure 1. The separation of authority, which is set out in writing and agreed by the Board in a policy on the segregation of the roles of the Chairman and the CEO, enhances independent oversight of executive management by the Board and ensures that no one individual on the Board has unfettered powers or authority.
Figure 1: Corporate Governance Framework
Dr Edwin Hertzog
- Leads the Board
- Ensures the effective performance of the Board
- Works closely with the CEO to ensure the implementation of Board-approved actions
- Ensures effective communications with shareholders
The Chairman’s other significant commitments are indicated in his biography.
SENIOR INDEPENDENT DIRECTOR2, 3
Mr Desmond Smith
- A sounding board for the Chairman
- Acts, if necessary, as a focal point and intermediary for other Directors
- Available to shareholders should they have concerns if contact outside the normal channels is required
- Leads the annual appraisal of the Chairman’s performance and the independence of non-executive Directors
BOARD1, 2, 3
One non-executive Chairman, two additional non-executive Directors, seven independent non-executive Directors and two executive Directors
- Responsible for the effective oversight of the Company
- Agrees the strategic direction of the Group and the nature and extent of the principal risks it is willing to take
- Establishes the Group’s governance structure, corporate reporting, risk management and internal control
- Sets appropriate corporate culture and ensures it is embedded across the Group
- Accountable to shareholders for the long-term success of the Group and delivering value to shareholders
- Delegates authority to Board committees to carry out certain tasks on its behalf
The biographies of the Board members are set out in Board of Directors.
CHIEF FINANCIAL OFFICER
Mr Jurgens Myburgh
Key responsibilities – CEO & CFO
- Contribute detailed insight into the operations of the business, enabling the Board to determine feasibility and practicality of proposed strategies, goals and direction
- Make and implement operational decisions
CHIEF EXECUTIVE OFFICER
Dr Ronnie van der Merwe
- Leads and oversees the executive management team
- Manages the business of the Group
- Progresses, develops and oversees the implementation of Board-approved actions, and the strategic direction of the Group and its commercial objectives
- Ensures appropriate culture and governance are embedded across the Group
Dr Muhadditha Al Hashimi, Mr Jannie Durand, Mr Alan Grieve,2 Dr Felicity Harvey, Mr Seamus Keating, Mr Danie Meintjes,1 Dr Anja Oswald, Mr Trevor Petersen, Mr Desmond Smith3
- Support the development of the Group’s strategy
- Scrutinise management’s performance
- Provide constructive challenge, drawing on their skills, experience and judgment
- Satisfy themselves on the integrity of the Group’s financial reporting and on the effectiveness of its internal controls and risk management systems
- Determine the remuneration of executive Directors
- Approve the appointment or removal of Directors and review succession planning
AUDIT AND RISK COMMITTEE2, 3
Four independent non-executive directors
- Reviews and monitors the integrity of the Group’s financial reporting
- Reviews and monitors the Group’s relationship with the external auditor and the effectiveness of the external audit
- Reviews the effectiveness of the Group’s Internal Audit function
- Reviews and monitors the effectiveness of the Group’s internal control systems and risk management processes
CLINICAL PERFORMANCE AND SUSTAINABILITY COMMITTEE
Three independent non-executive Directors, one non-executive Director and one executive Director
- Monitors clinical performance throughout the Group
- Promotes culture of excellence in patient safety, quality of care and patient experience, together with Mediclinic’s values, ethical standards and behaviours
- Monitors the sustainable development performance of the Group
- Ensures the Group is a good and responsible corporate citizen
Link Company Matters Ltd
- Acts as Secretary to the Board and its committees
- Provides advice and guidance to the Board collectively, and Directors individually, with regard to their duties, responsibilities and powers
- Ensures the effective administration of proceedings and matters related to the Board, the Company and its shareholders
- A point of contact for shareholders on corporate governance matters
GROUP EXECUTIVE COMMITTEE
CEO, CFO, Chief Corporate Services Officer, Chief Clinical Officer, CIO, Chief Human Resources Officer and the three divisional CEOs
- Responsible for the executive management of the Group’s businesses
- Considers investment opportunities, operational matters and other aspects of strategic importance to the Group and makes recommendations to the Board
- Performs any other functions delegated to management by the Board
One independent non-executive Director, three non-executive Directors and two executive Directors
- Reviews and approves proposed investments and capital expenditures within its authority levels
- Reviews and makes recommendations to the Board regarding proposed investments and capital expenditures that exceed its own authority level
- Monitors performance of approved investments
Three independent non-executive Directors and two non-executive Directors
- Reviews the structure, size, and composition of the Board
- Identifies and recommends potential candidates to be appointed as Directors or members of Board committees, as the need arises
- Reviews succession planning and diversity within the Board, the Group Executive Committee and their direct reports
Three independent non-executive Directors
- Makes recommendations to the Board on the Company’s policy on executive remuneration
- Establishes the parameters and governance of the Remuneration Policy
- Determines the remuneration and benefits package for individual executive Directors and other members of executive management
- Provides guidance on general remuneration policies across the Group
|1||Dr Van der Merwe succeeded Mr Meintjes as CEO with effect from 1 June 2018. Mr Meintjes continued to serve as an executive Director until 31 July 2018 and as a non-executive Director with effect from 1 August 2018.|
|2||Mr Alan Grieve will succeed Mr Desmond Smith as SID and Chairperson of the Audit and Risk Committee with effect from the conclusion of the AGM on 24 July 2019.|
|3||Mr Smith will retire from the Board and the Board committees upon the conclusion of the AGM on 24 July 2019.|
The names of all the Directors who served during the reporting period are set out in Table 1 below, together with their attendance of Board meetings held during the period under review. Their biographies are provided in Board of Directors. Attendance of Investment Committee meetings held during the year under review is set out in Table 2. Attendance of other committee meetings is set out in the respective committee reports. Each Director’s attendance of Board and Board committee meetings is considered part of the formal annual review of their performance. When a Director is unable to attend a Board or Board committee meeting, they communicate their comments and observations on the matters to be considered in advance of the meeting via the Chairman, the SID or relevant Board committee’s Chairperson for raising, as appropriate, during the meeting.
Table 1: Board meeting attendance
table 2: Investment committee meeting attendance
|1||The composition of the Board and its committees is shown as at 31 March 2019.|
|2||The attendance reflects the number of scheduled Board meetings held during the financial year. Between the Company’s financial year-end and the Last Practicable Date, the Board held one scheduled meeting and all members who were eligible to attend did so.|
|3||Dr Hertzog was unable to attend one scheduled Board meeting and one scheduled Investment Committee meeting for unexpected personal reasons.|
|4||Dr Van der Merwe was appointed as CEO of the Company on 1 June 2018 and attended all subsequent scheduled Board meetings.|
|5||Mr Grieve was unable to attend one scheduled Board meeting owing to a prior commitment which could not be changed.|
|6||Dr Oswald was appointed as independent non-executive Director of the Company on 25 July 2018 and attended all subsequent scheduled Board meetings.|
|7||The attendance reflects the number of scheduled meetings of the Investment Committee held during the financial year. The Investment Committee held three additional ad hoc meetings during the financial year to deal with urgent matters, which were attended by all or a majority of members. Between the Company’s financial year-end and the Last Practicable Date, the Investment Committee met once and all members were present.|
PRINCIPAL BOARD ACTIVITIES
Table 3 outlines a number of specific areas that the Board focused on during the year under review. The Board’s annual agenda plan is designed to ensure that sufficient time is allocated to address all necessary matters. The agendas are adjusted throughout the course of the year to prioritise relevant issues and ensure focused consideration of strategic priorities. Sufficient time is provided for the Chairman to meet privately with the SID and non-executive Directors to discuss any concerns arising.
TABLE 3: 2018 BOARD FOCUS AREAS
Principal risks and uncertainties categories
As described in Our strategy, goals and progress.
As described in Risk management, principal risks and uncertainties.
TABLE 4: Principal board activities
|Strategic goals||Principal risks|
|STRATEGY AND BUSINESS PLANS|
Refer to Our strategy, goals and progress.
Refer to the Divisional Reviews.
Refer to the Clinical services overview.
Financial performance, reporting, tax strategy and dividend policy
Refer to the Financial Review.
Risk management and internal controls
Refer to the report on Risk management, principal risks and uncertainties and the Audit and Risk Committee Report.
Information and communicationS technology
Refer to the Stakeholder interest and board engagement section further below.
BOARD COMPOSITION AND DIVERSITY
The delivery of the Company’s long-term strategy depends on attracting and retaining the right skills across the Group, starting with the Board, as well as the executive management team, and their direct reports. Biographies of the Company’s current Directors who were in office during the year and up to the date of signing the financial statements, can be found in Board of Directors.
As at 31 March 2019 and as at the date of this Annual Report, the Board comprised the non-executive Chairman, two non-executive Directors, seven independent non-executive Directors, and two executive Directors from wide-ranging backgrounds and with varying industry and professional experience. The Company complies with the 2016 Corporate Governance Code recommendation that at least half the Board should be independent.
When determining whether a non-executive Director is independent, the Board considers each individual against the 2016 Corporate Governance Code and also considers how they conduct themselves in Board meetings, including how they exercise judgement and independent thinking. Taking those factors into account, the Board believes that the Directors who are classified as independent non-executive Directors continue to demonstrate their independence as set out in the Assessment of independence of non-executive Directors.
Mr Alan Grieve will succeed Mr Desmond Smith as both as SID and Chairperson of the Audit and Risk Committee with effect from the conclusion of the AGM on 24 July 2019. The Board believes that Messrs Smith and Grieve are independent in character, skill and judgement and that both continue to provide challenge within Board meetings and to drive productive discussions.
The Company’s Chairman, Dr Hertzog, is not considered to be an independent Director given his involvement as Chief Executive of Mediclinic International Ltd until his appointment as Chairman in 1992 and his position as non-executive Deputy Chairman of Remgro Ltd, the principal shareholder of the Company. Nonetheless, given his in-depth industry knowledge and experience, the Board considers it in the best interests of the Company that he serves as Chairman.
Mr Meintjes does not meet the criteria to be considered an independent non-executive Director. The Board considered his proposed appointment as a non-executive Director and, after careful deliberation, concluded his appointment is in the best interests of the Group, its shareholders and other stakeholders, taking into account the knowledge and experience of the industry and the business that Mr Meintjes has gained over 30 years in different capacities across the business, and the overall composition of the Board.
Appointments to the Board are recommended and led by the Nomination Committee and further details of the committee and the appointment process can be found in the Nomination Committee Report. In accordance with the Company’s Relationship Agreement with its principal shareholder, Remgro (further details of which are provided below), Remgro is entitled to appoint up to a maximum of three Directors to the Board. Mr Durand was appointed to the Board in accordance with the terms of the Relationship Agreement on 15 February 2016 and represents Remgro on the Board of Directors. No new Board appointments were made in terms of the Relationship Agreement during the year under review. Mediclinic recognises the importance and benefits of having a diverse Board and believes that diversity at Board level is an essential element in maintaining a competitive advantage. The Board considers that diversity is not limited to gender and that a diverse Board will also include and make good use of differences in the skills, geographic and industry experience, background, race, social background, cognitive and personal strengths and other characteristics of Directors.
The Board seeks to construct an effective, robust, well-balanced and complementary Board, the capability of which is appropriate to the nature, complexity and strategic demands of the business. The Board and the Nomination Committee actively consider the structure, size and composition of the Board and its committees when contemplating new appointments and succession planning for the year ahead, as described in the Nomination Committee Report. A range of diversity factors are taken into account in determining the optimal composition of the Board and its committees, together with the need to balance their composition and refresh this progressively over time.
The Company’s non-executive Directors come from a wide range of industries, backgrounds and geographic locations and have appropriate experience of organisations with international reach. The skills and expertise of the Board have been extended and reinforced through the appointment of Dr Oswald during the year. The Nomination Committee continues to consider and develop succession plans for the Board and its committees. Accordingly, when considering Board appointments and internal promotions at senior level, the Company will continue to take account of relevant voluntary guidelines in fulfilling their role regarding diversity, while seeking to ensure that each post is offered strictly on merit to the best available candidate.
The Board’s Diversity Policy statement is set out in the Nomination Committee Report. For details of the diversity of the Board, the Group Executive Committee and the executive committees of each division (including a breakdown of race for Southern Africa, in line with local requirements), see the section on Employees. Figure 2 provides an overview of the Board’s composition and diversity in terms of gender and experience.
FIGURE 2: BOARD COMPOSITION AND DIVERSITY
EVALUATION OF THE BOARD, COMMITTEES AND CHAIRMAN
During the year under review, the Board conducted an internally facilitated evaluation to review performance and effectiveness of the Board as a whole, the Board committees and the Chairman. The evaluation process was conducted by way of questionnaires and discussions with the Chairman of the Board and each committee. The results of the evaluation of the Board committees were considered by the relevant committee prior to their presentation, together with all other evaluations, for discussion at the Board meeting held in March 2019.
All Board members were invited to complete a set of online surveys addressing the performance of the Board, the Chairman and the committees. The anonymity of the respondents was ensured throughout the process in order to promote a frank exchange of views.
The conclusions of this year’s evaluation were discussed at the Board meeting held in March 2019 and the actions agreed upon for 2019 have been summarised below:
- To review the introduction of return on invested capital (“ROIC”) as a performance measure for forthcoming long-term incentives.
- To improve the implementation of technology and associated change management across the divisions continuously.
- To implement and oversee the Company’s corporate strategy.
- To oversee succession planning within all divisions continuously.
- To establish a meaningful and practical structure for updating the Board on issues concerning the workforce and wider stakeholders.
The non-executive Directors, led by the SID, discussed the performance evaluation of the Chairman, having obtained the views of the executive Directors. The results were discussed privately between the Chairman and the SID after the March 2019 meeting.
The Company will conduct an externally facilitated performance evaluation every three years and internal self-evaluations in the intervening years. The Board conducted an externally facilitated evaluation in the 2018 financial year and therefore does not anticipate doing so again until 2021, but is committed to ensuring that the internally facilitated review in 2020 will highlight progress against the above actions, as well as identify further areas for improvement.
The Board is satisfied with the progress made in respect of the key priorities identified by the externally facilitated evaluation conducted in 2018.
STAKEHOLDER INTEREST AND BOARD ENGAGEMENT
Mediclinic recognises its accountability to its stakeholders. Effective communication with stakeholders, not just at Board level but across the whole Group, is fundamental in maintaining Mediclinic’s corporate reputation as a trusted and respected provider of healthcare services and positioning itself as a leading international private healthcare group. The Group’s key stakeholders, methods of engagement, topics discussed and/or concerns raised are outlined further in the Sustainable Development Report. The Board is reviewing existing engagement mechanisms to ensure they are effective.
TABLE 5: BOARD ENGAGEMENT
Responsibility for shareholder relations rests with the Chairman, CEO, CFO, SID and Head of Investor Relations. Collectively – but mainly through the CEO, CFO and Head of Investor Relations (as referred to above) – they ensure that there is effective, regular and transparent communication with shareholders on matters such as operational and financial performance, regulatory changes, governance and strategy. In addition, they are responsible for ensuring that the Board understands the views of shareholders on matters such as governance and strategy. The Board is supported by the Company’s corporate brokers with whom it is in constant dialogue. The Management Disclosure Committee assists the Board to ensure the timely and accurate disclosure of all information that is required to be disclosed to meet the legal and regulatory obligations, as well as the requirements arising from its listing on the LSE.
During the year, the investor relations programme included regular communication with the capital markets including investor meetings, attendance at investor conferences, roadshows, presentations, site visits and ad hoc events with investors, sell-side analysts and sales teams. Members of the Board and Group Executive Committee met with more than 150 institutions and participated in some 20 roadshows, investor conferences and ad hoc capital market events across the UK, South Africa and North America. A breakdown of the fund manager style and geographic holdings as at year-end are provided in Figure 3 and 4 respectively.
Figure 3: Style of Fund Manager Breakdown
Figure 4: Geographic HoldingS
In June 2018, the Group hosted a Capital Markets Day and site visit for investors and analysts in Switzerland. Several Group Executive Committee members presented at the event, including the CEO and CFO, and all presentations were available to view on the investor relations section of Mediclinic’s website via a live webcast. Additionally, the Group hosted an investor and analyst site visit to Mediclinic Middle East in December 2018.
The Group receives regular feedback from investors through QuantiFire, a third-party service provider that collects feedback and confidence measures from investors on behalf of the Board and presents these results on a quarterly basis. In addition, the Group conducted a detailed perception study in April 2018, the results of which were shared with the Board. The perception study gathered feedback from 75 institutions and included 11 of Mediclinic’s top 15 active shareholders representing 61% of the shares in issue at that time, excluding Remgro. The results revealed some concern from investors about regulation and margin pressures in Switzerland and a growing optimism in growth opportunities in the Middle East, along with confidence levels in the Company’s 3–5 year outlook. Successful execution in the Middle East and maintaining margins in Switzerland were identified by investors as the main priorities for the Company, as well as disciplined capital allocation, the need to set and meet guidance, and to generate returns on invested capital.
Shareholders can access details of the Group’s results and other news releases through the LSE’s Regulatory News Service and the JSE Stock Exchange News Service. In addition, the Group publishes the announcements on the investor relations section of its website at investor.mediclinic.com. Shareholders and other interested parties can subscribe to email news updates by registering via the website.
The Group continuously investigates ways to improve its use of online channels to communicate with stakeholders through the Group website and webcasting. During the year, the Group launched a new corporate website that ensures information is easier to access and offers an enhanced user experience.
Internal controls and risk management
The Group has comprehensive risk management and internal control systems in place. These systems are designed to identify and appropriately mitigate the principal risks of the business and ensure the accuracy and reliability of the Group’s financial reporting, while facilitating the delivery and sustainability of the Group’s financial, operational and strategic objectives.
The Board is responsible for reviewing and confirming the effectiveness of the Group’s risk management and internal controls, including material controls (i.e. financial, operational and compliance controls). Although the responsibility of evaluating the Group’s risk management procedures, assessing the effectiveness of internal controls and monitoring reporting integrity has been delegated to the Audit and Risk Committee, the Board, maintains a strong and regular oversight of the outcome of the Audit and Risk Committee’s work.
Key features of the Group’s internal control systems include:
- clearly defined delegations of authority and lines of accountability;
- policies and procedures governing financial resource management, financial reporting, key projects and ICT security;
- periodic checks conducted by the Internal Audit function;
- annual representation letters from the divisional CEOs regarding key risks and associated mitigating actions per division; and
- review of the disclosures by the Group, the Board and the Audit and Risk Committee within the annual, interim and other price-sensitive reports, as relevant, to ensure compliance.
The Group’s governance structure for risk management is illustrated in Figure 5 below.
FIGURE 5: RISK MANAGEMENT GOVERNANCE STRUCTURE
A review of the Group’s risk management approach and internal control systems is further discussed in the Strategic Report. For detail on the management and mitigation of each principal risk, see Risk management, principal risks and uncertainties. The Group’s Viability statement can be found here. Please click here for more information on the role of the Audit and Risk Committee.
Ethics and compliance
Conducting business in an honest, fair and legal manner is one of Mediclinic’s fundamental guiding principles and is actively endorsed by the Board and management, ensuring that the highest ethical standards are maintained in all dealings with stakeholders. The Group’s commitment to ethical standards is set out in the Group’s values and is supported by the Company’s Ethics Code which is available on the website. The Ethics Code provides a framework of the standards of business conduct and ethics that are required of all divisions, Directors and employees in order to promote and enforce ethical business practices and standards across the Group. The Ethics Code is available to all employees and communicated to new employees as part of the on-boarding process.
Compliance with relevant legislation, regulations and accepted standards/codes is integral to the Group’s risk management process and is monitored in accordance with the Group’s Regulatory Compliance Policy.
Slavery and human trafficking
The Board has considered and approved the Company’s updated Modern Slavery and Human Trafficking Statement for the year under review, as required in terms of the Modern Slavery Act 2015. The updated statement reflects the steps taken by the Group to enhance its internal processes and due diligence of suppliers to prevent slavery and human trafficking and demonstrate its commitment to this objective. The statement is available on the Company’s website.
Fraud and corruption
The Group adopts zero-tolerance to unethical business conduct, in particular fraud and corruption, which is addressed in the Ethics Code and the Group’s Anti-bribery Policy. Refer to the Audit and Risk Committee Report for more information.
The Group supports and adheres to the relevant competition and anti-trust legislation applicable in the various countries in which it operates. The legislation is complex and the Group has issued guidelines, which are reviewed and updated at least annually, to its employees on compliance with competition legislation within their relevant jurisdiction.
The South African Competition Commission is continuing its market inquiry into the private healthcare sector in South Africa. Mediclinic is participating in the inquiry, with the assistance of competition legislation experts and legal advisors who support Mediclinic through the process, as referred to in Risk management, principal risks and uncertainties.
No legal action for anti-competitive, anti-trust or similar conduct was instituted against the Group during the year under review.
Mediclinic has an extensive ICT environment that acts as an enabler of business strategies and operations. The core business information systems cover clinical processes, revenue cycle management and patient administration. The SAP enterprise resource planning back-office systems support, inter alia, the Finance, Accounting, Human Resources Management and Procurement functions. An enterprise data warehouse enables advanced analytics and supports decision-making by providing sourcing and enriching the required data sets. An extensive office automation environment exists which enables both on-premise and remote working, as well as collaboration and communication within and across divisions, while an international network enables data flows, inter-operability and communication across the entire Group. Major planned ICT-related projects include various SAP projects, an EHR system and a further phase of the international human resources management system.
ICT governance is done in the context of the Group’s overall enterprise governance, in general, and in the context of the Group’s risk management structures and processes, specifically. Central to ICT governance is the Group’s ICT Steering Committee and various ICT architecture sub-committees across the divisions. The Group ICT Committee is a sub-committee of the Group Executive Committee, and membership consists of the Group CIO, divisional CIOs, Group ICT architects and key functions such as risk management, finance and the enterprise project management office. This committee focuses on collaboration, standardisation and synergies across the various ICT entities by way of:
- digitalisation of Mediclinic’s business model and services;
- performance and cost of ICT departments across the divisions;
- establishing ICT reference architectures and standards;
- setting information security-related policies and standards;
- developing and reviewing ICT risk profiles; and
- providing assurance regarding information and cybersecurity, data protection and privacy, as well as access control, change management and disaster recovery.
The Group ICT Committee is supported by the Group’s Information Security Architecture Committee, consisting of the Group’s Information Security Officers. The proceedings of this committee are informed by information security best practices sourced from Gartner, ISACA, CoBIT 5, ITIL, ISO27001 and the South African King IV™ Report on Corporate Governance.
The Group’s risk management system is used to capture and track all ICT risks, audit findings, actions and responsibilities.
To ensure business continuity, Mediclinic employs a wide range of technology capabilities to safeguard its ICT installation, users and connections to other external ICT systems.
Information security and data protection policies and controls are in place throughout the Group regulating, inter alia, the processing, use and protection of own, personal and third-party information. This is further entrenched through continuing user training, security awareness programmes and certification courses in information security. The flow of personal data across country borders is managed in accordance with country-specific legislation. There were no material information security or data privacy incidents during the year under review.
Appointment, removal and tenure
The rules relating to the appointment and removal of Directors are set out in the Company’s Articles of Association, as adopted on 20 July 2016 (“Articles”).
Non-executive Directors are appointed for a term of three years, subject to earlier termination, including provision for early termination by either the Company or the non-executive Director on three months’ notice. All non-executive Directors serve on the basis of letters of appointment, which are available for inspection at the Company’s registered office and at the AGM. The letters of appointment set out the time commitment expected of non-executive Directors who, on appointment, undertake that they will have sufficient time to meet their responsibilities.
Induction and training
The Chairman, with the support of the Company Secretary, is responsible for the induction of new Directors and ongoing development of all Directors.
Upon appointment, all Directors are provided with training in respect of their legal, regulatory and governance responsibilities and obligations in accordance with the UK regulatory regime. The induction includes face-to-face meetings with the Group Executive Committee and operational site visits to orientate and familiarise the new Directors with the healthcare industry as well as Mediclinic’s business, strategy and commercial objectives and key risks.
Dr Oswald was appointed during the year under review and is undertaking a comprehensive Board induction programme tailored to her individual requirements.
The training needs of the Directors are periodically discussed at Board meetings and briefings are arranged on issues relating to corporate governance and other areas of importance.
The Board is kept informed of legal, regulatory and governance matters. Additional training is available on request, where appropriate, so that Directors can update their skills and knowledge as applicable. During the year, the Board received refresher training on conflicts of interest and training on the new corporate governance requirements introduced by the 2018 Corporate Governance Code and the Companies (Miscellaneous Reporting) Regulations 2018.
Independent professional advice
All Directors may seek independent professional advice in connection with their roles as Directors. All Directors have access to the advice and services of the Company Secretary at the expense of the Company.
In accordance with the Company’s Articles, a Director appointed by the Board must stand for election at the first annual general meeting subsequent to such appointment, and other Directors must retire by rotation and seek re-election by shareholders every three years. However, the 2016 Corporate Governance Code requires that all Directors of FTSE 350 companies should stand for re-election annually. Accordingly, Dr Oswald (appointed on 25 July 2018) will stand for election at the AGM and all other Directors will stand for re-election.
Taking into account the result of the Board evaluation carried out during the year and following recommendations from the Nomination Committee, the Board considers that all the current Directors continue to be effective, are committed to their roles and have sufficient time available to perform their duties. The Board therefore recommends the re-election of all Directors (other than Mr Smith) and the election of Dr Oswald. Biographies of the Directors can be found in Board of Directors.
Remgro, through wholly owned subsidiaries, holds 44.56% of the issued ordinary shares of the Company and is therefore regarded as a controlling shareholder of the Company for the purposes of the listings rules issued by the Financial Conduct Authority (“Listings Rules”). The Listings Rules require that independent non-executive Directors of a company with a controlling shareholder must be elected by a majority of votes cast by independent shareholders, in addition to a majority of votes cast by all shareholders in such company. The resolutions proposed at the AGM for the election of the independent non-executive Directors of the Company will therefore be taken on a poll and the votes cast by independent shareholders and all shareholders will be calculated separately. Such resolutions will be passed only if a majority of votes cast by independent shareholders are in favour thereof, in addition to a majority of votes cast by all shareholders are in favour thereof.
Powers of Directors
The general powers of the Directors are contained within relevant UK legislation and the Company’s Articles. The Directors are entitled to exercise all powers of the Company, subject to any limitations imposed by the Articles or applicable legislation.
Indemnification of Directors
The Company has entered into a deed of indemnity with each Director who served during the year under identical terms. The deeds indemnify the Directors in accordance with the applicable laws of England against liability incurred as a Director or employee of the Group. In addition, the Company has provided Directors and officers with indemnity insurance and insurance in connection with their duties and responsibilities.
Directors’ conflicts of interest
In accordance with the Act and the Company’s Articles, the Board may authorise any matter that otherwise may involve any Director breaching his/her duty to avoid conflicts of interest. The Board has adopted a procedure to address this requirement, which includes the Directors completing detailed conflicts of interest questionnaires upon appointment and annual confirmation of these detailed declarations. The matters disclosed in the questionnaires are reviewed by the Board as part of the Director’s appointment and annually thereafter and, if considered appropriate, authorised in accordance with the Act and the Articles. Directors are also required to disclose any new conflicts of interest and additional external appointments as soon as they arise, for prior approval by the Board.
Compensation for loss of office
There are no agreements in place with any Director or employee that provide for compensation for loss of office or employment resulting from a takeover, except that provisions of the Company’s share plans may cause options and awards granted under such plans to vest on a takeover. Further information on Directors’ service agreements and their notice periods can be found in the Directors’ Remuneration Report.
The Board has established a Remuneration Committee to assist with discharging its responsibility in relation to Board and executive remuneration. A report on the activities of the committee, including its composition and key responsibilities, is included in the Remuneration Committee Report.
The Directors’ shareholding and share interests in the issued shares of the Company are provided in the Directors’ Remuneration Report.
Articles of Association
The Company’s Articles may be amended by way of a special resolution of the shareholders.
The Articles are available in the governance section of the Company’s website.
The following agreements are considered significant in terms of their potential impact on the business of the Group as a whole, and that could alter or terminate on the change of control of the Company:
- The Relationship Agreement with Remgro was entered into on 14 October 2015 with an effective date of 15 February 2016. This agreement does not include a change of control provision but does terminate if:
- the Company’s ordinary shares cease to be listed and admitted to trading on the LSE’s main market for listed securities; or
- Remgro, taken together, ceases to hold the minimum interest of 10% in the Company.
- The following facilities and finance agreements are regarded as significant and contain change of control provisions:
- Swiss senior secured borrowings expiring in September 2024 with three uncommitted extension options and bearing interest at Swiss franc London Interbank Offered Rate (“LIBOR”) plus a margin of 1.25% up to a maximum of Swiss franc LIBOR plus a margin of 1.65% depending on the loan-to-value:
- CHF1.5bn amortising senior secured term loan facility;
- CHF0.254bn senior secured capex facility; and
- CHF0.1bn senior secured revolving facility.
- South African senior secured borrowings totalling R6.2bn, bearing interest at Johannesburg Interbank Average Rate (“JIBAR”) plus a margin of 1.48% to 1.59%, expiring in September 2022 with uncommitted extension options.
- South African unsecured preference share funding totalling R1.8bn, bearing interest at 72% of JIBAR plus a margin of 1.65%, expiring in September 2022 with uncommitted extension options.
- UAE amortising senior secured borrowings of US$250m bearing interest at USD LIBOR plus a margin of 1.85%, expiring in August 2023.
- Swiss senior secured borrowings expiring in September 2024 with three uncommitted extension options and bearing interest at Swiss franc London Interbank Offered Rate (“LIBOR”) plus a margin of 1.25% up to a maximum of Swiss franc LIBOR plus a margin of 1.65% depending on the loan-to-value:
Principal shareholder and relationship agreement
In accordance with Listings Rule 9.8.4(14), the Company has set out below a statement describing the Relationship Agreement. Remgro held 44.56% of the issued ordinary share capital of the Company, as at 22 May 2019.
Under the Relationship Agreement, Remgro undertakes to comply with the following independence provisions, as required under the Listings Rules:
- Transactions and arrangements between the Company and Remgro (and/or its associates) are, and will be, at arm’s length and on normal commercial terms.
- Neither Remgro nor any of its associates will take any action that would have the effect of preventing the Company from complying with its obligations under the Listings Rules.
- Neither Remgro nor any of its associates will propose, or procure the proposal of, a shareholder resolution that is intended or appears to be intended to circumvent the proper application of the Listings Rules.
The Company has complied with the above independence provisions and, insofar as it is aware, Remgro complied with the independence provisions and the procurement obligation set out in the Relationship Agreement from the effective date of the agreement. In accordance with the terms of the Relationship Agreement, for every 10% of the issued ordinary share capital of the Company (or an interest which carries 10% or more of the aggregate voting rights in the Company from time to time) held, Remgro is entitled to appoint one Director to the Board, up to a maximum of three Directors, provided that the right to appoint a third Director is subject to the requirement that the Board will, following such appointment, comprise a majority of independent non-executive Directors.
If Remgro’s shareholding reduces to below 10% of the Company’s share capital (or 10% of the aggregate voting rights in the Company), the rights and obligations of Remgro in terms of the Relationship Agreement shall terminate. The ordinary shares owned by Remgro rank pari passu with the other ordinary shares in all respects.
Details of all related-party transactions are contained in note 35 of the consolidated financial statements.
Political donations are generally prohibited in terms of the Company’s Ethics Code and Anti-bribery Policy, unless pre-approved by the executive committee of the division and reported to the Group Executive Committee. It is not the policy of the Company to make political donations as contemplated in the Act and during the year, the Group, made no such payments. However, as a result of broad definitions used in the Act, normal business activities of the Company, which might not be considered political donations or expenditure in the usual sense, may possibly be construed as political expenditure or as a donation to a political party or other political organisation and fall within the restrictions of the Act. This could include sponsorships, subscriptions, payment of expenses, paid leave for employees fulfilling public duties and support for bodies representing the business community in policy review or reform. The Board has therefore resolved to propose a resolution for shareholder consideration at the AGM, as in previous years and in line with best practice, to authorise the Company to make political payments up to an aggregate amount of £100 000.
As is customary in Switzerland, Hirslanden maintains a proper and constructive dialogue with political decision-makers and stakeholders, to represent the division’s perspective and support informed decision-making that contributes to improving patient outcomes and the long-term sustainability of the business. Under the Swiss political system, citizens are active in political bodies at federal, cantonal and municipal levels in addition to their regular occupations. Parliamentarians are not professional politicians in this system and the parties do not receive state support. Therefore, in line with common and official practice in Switzerland, Hirslanden assists in supporting the country’s political system by making third-party contributions to a number of political parties, institutions and associations involved in campaigns which are of interest to the business. Payments of this kind made by Hirslanden in the 2019 financial year totalled CHF4 500 (2018: CHF30 000). These contributions are not considered political payments as contemplated in Part 14 of the Act, as they are not made to the political parties within the scope of the Act.
The employees’ trust and respect are vital to Mediclinic’s success. Listening and responding to employee needs through effective communication and sound relations are important components in being regarded as an employer of choice among existing and prospective employees, and vital to maintaining an engaged and loyal workforce. Employee engagement is conducted through various methods, including leadership video conferences, periodic employee surveys, performance reviews, employee magazines and employee wellness and recognition programmes. Further details of the Group’s employee engagement are included in the Sustainable Development Report.
At the end of March 2019, the Company announced the appointment of Mr Meintjes as designated non-executive Director for engagement with the Group’s workforce with effect from 1 April 2019. As the former CEO and with his prior experience as Divisional HR Executive, Mr Meintjes was closely involved with the Company’s approach to engaging with, investing in and rewarding the Group’s employees. With his wealth of knowledge and experience gained in different capacities over 30 years at Mediclinic, the Board considers him to be extremely well positioned to engage effectively with employees.
Details of how the Group engaged with key stakeholders, including employees, can be found above.
Continuous training and development of the Group’s employees ensure employee retention, particularly of scarce skills which are most critical, and proper succession planning. Further details of the Group’s training initiatives can be found in the Sustainable development overview and the Sustainable Development Report.
The distribution of the Group’s employees per division is included here, with only one employee (Head of Investor Relations) based in the UK. A breakdown by gender, age and, in respect of Southern Africa only, race in Board and senior management roles as at year-end is illustrated in Table 6.
The Group values diversity and provides equal opportunities in its workplace and does not tolerate any form of unfair discrimination, such as access to employment, career development, training or working conditions, based on gender, religion, nationality, race, language, HIV/Aids status, sexual orientation or other form of differentiation. Adequate procedures are in place for applicants with disabilities to receive training to perform safely and effectively; there are also development opportunities to ensure they reach their full potential. Where an individual becomes disabled during the course of employment, Mediclinic will seek to provide, wherever possible, continued employment on normal terms and conditions. Adjustments will be made to the environment and duties or suitable new roles within the Company will be secured, with additional training where necessary.
TABLE 6: Race, gender and age representation on governance bodies1
|1||The race, gender and age distribution of the direct reports to the executive committees of the Company and the divisions are included in the Sustainable Development Report.|
|2||Total membership is shown as at the Last Practicable Date.|
|3||Consistent with the Parker Report, the term “persons of colour” is used to identify individuals with evident heritage from African, Asian, Middle Eastern and South American regions.|
TABLE 7: GENDER REPRESENTATION –
GROUP EMPLOYEES AND SENIOR MANAGERS1
|1||Senior managers are employees who have responsibility for planning, directing or controlling the activities of the Group or a strategically significant part of the Group and directors of undertakings included in the Group consolidation (excluding the executive Directors of the Company).|
Going concern status
The Group’s consolidated financial statements and approved by the Board on 22 May 2019, were prepared on a going concern basis. The Directors considered the Company’s financial position, availability of funding, the principal risks and uncertainties, as well as the viability assessment, and accordingly considered it appropriate to adopt the going concern basis of accounting in preparing the financial statements, further details of which are included in the Audit and Risk Committee Report and the Viability statement.
Events after the reporting period
No events which may have a material effect on the Group occurred between the financial year-end and Last Practicable Date.
The Company, having secondary listings on the JSE in South Africa and the NSX in Namibia, has established an overseas branch in South Africa.
Requirements of the Listings Rules
Information required to be disclosed in terms of Listings Rule 9.8.4R, as applicable, is referenced below:
Location in Annual Report
Long-term incentive schemes
Confirmations regarding entering into a relationship agreement with a controlling shareholder and compliance with independence provisions
Agreements with a controlling shareholder
None other than the relationship agreement
Provision of services by a controlling shareholder
None other than the services provided by Remgro described in note 35 of the consolidated financial statements
Waiver of emoluments by a Director
Waiver of future emoluments by a Director
Non-pre-emptive issues of equity for cash
Non-pre-emptive issues of equity for cash by any unlisted major subsidiary
Parent company participation in a placing by a listed subsidiary
Shareholder waiver of dividends
Shareholder waiver of future dividends
The information set out in this Corporate Governance Statement, together with the following disclosures included in this Annual Report and incorporated by reference, constitute the Directors’ Report of the Company for the year ended 31 March 2019, as contemplated in the Act, and was duly approved by the Board on 22 May 2019:
The Strategic Report sets out those matters required to be disclosed in the Directors’ Report which are considered to be of strategic importance:
- Strategy and future developments
- Financial risk management objectives and policies
- Research and development activities – refer to various activities discussed in the Strategic Report; the standardised employee engagement initiatives; and clinical research activities, with further details available in the Clinical Services Report
- Greenhouse gas emissions, with further details available in the Sustainable Development Report
- Corporate social responsibility and corporate social investment – refer to the Sustainable development overview, with further details available in the Sustainable Development Report
For and on behalf of the Board.
Dr Edwin Hertzog
22 May 2019