We maintain robust corporate governance policies in all our businesses.
Corporate governance is the system of rules, practices and processes by which a company is directed and controlled. We are very proud of our approach to corporate governance and believe it is vital to ongoing value creation for our shareholders and other stakeholders.
The Corporate Governance section of the company’s website contains access to all relevant corporate governance information, including director profiles, Board and committee charters and Group policies.
Role of Board and management
The role of the Board is to approve the strategic direction of the Group, guide and monitor the management of Wesfarmers and its businesses in achieving its strategic plans and oversee good governance practice. The Board aims to protect and enhance the interests of its shareholders, while taking into account the interests of other stakeholders, including employees, customers, suppliers and the wider community.
In performing its role, the Board is committed to a high standard of corporate governance practice and fostering a culture of compliance which values ethical behaviour, personal and corporate integrity, accountability and respect for others.
The Board has a charter which clearly sets out its role and responsibilities and describes those matters expressly reserved for the Board’s determination and those matters delegated to management.
The Wesfarmers Managing Director has responsibility for the day-to-day management of Wesfarmers and its businesses, and is supported in this function by the Wesfarmers Leadership Team.
Details of the members of the Wesfarmers Leadership Team are set out under the Wesfarmers Leadership Team profiles in the corporate governance section of the company’s website. The Board maintains ultimate responsibility for strategy and control of Wesfarmers and its businesses.
Structure and composition of the Board
Wesfarmers is committed to ensuring that the composition of the Board continues to include directors who bring an appropriate mix of skills, experience, expertise and diversity (including gender diversity) to Board decision-making.
The Board currently comprises 10 directors, including eight non-executive directors. Details of the directors, including their qualifications and date of appointment are available on the Wesfarmers website. Detailed biographies are also included on pages 60 and 61 of the company’s 2016 annual report.
The Board is of the view that the tenure profile, represented by the length of service of each of its directors on the Board, is appropriately balanced such that Board succession and renewal planning is managed over the medium to longer term. The current directors possess an appropriate mix of skills, experience, expertise and diversity to enable the Board to discharge its responsibilities and deliver the company’s strategic priorities as a diversified corporation with current businesses operating in supermarkets, liquor, hotels and convenience stores; home improvement; department stores; office supplies; and an industrials division with businesses in chemicals, energy and fertilisers, industrial and safety products, and coal.
To the extent that any skills are not directly represented on the Board, they are augmented through management and external advisors.
Mr Archie Norman, who has significant retail experience, was appointed in 2009 as an advisor to the Board on retail issues. In this role, Mr Norman attends Wesfarmers Board meetings as required and is a director of the Coles and Target boards.
Independence of the Chairman
The Chairman is elected from the independent non-executive directors. The responsibilities of the Chairman are set out in the Board Charter.
Mr Michael Chaney is the present serving Chairman, who assumed the role at the conclusion of the 2015 Annual General Meeting. Further information on Mr Chaney is set out on page 60 of the company’s 2016 annual report.
Directors are expected to bring views and judgement to Board deliberations that are independent of management and free of any business or other relationship or circumstance that could materially interfere with the exercise of objective, unfettered or independent judgement, having regard to the best interests of the company as a whole.
Prior to accepting an invitation to become a director of an external company, each non-executive director is required to notify the Chairman. In considering the new appointment, the Chairman is to consider:
An independent director is a non-executive director who is not a member of management and free of any business or other relationship that could materially interfere with, or could reasonably be perceived to materially interfere with, the independent exercise of their judgement.
The Board regularly assesses the independence of each non-executive director in light of the information which each director is required to disclose in relation to any material contract or other relationship with Wesfarmers in accordance with the director’s terms of appointment, the Corporations Act 2001, the Board Charter and Wesfarmers’ Conflicts of Interest Policy. Each non-executive director may be involved with other companies or professional firms which may from time to time have dealings with Wesfarmers. Details of some of the offices held by directors with other organisations are set out on pages 60 and 61 of the company’s 2016 annual report and on the company’s website.
The Board considers any changes to non-executive director’s interests, positions, associations or relationships that could bear upon his or her independence. The Board’s assessment of independence and the criteria against which it determines the materiality of any facts, information or circumstances is formed by having regard to the ASX Principles, in particular, the factors relevant to assessing the independence of a director set out in recommendation 2.3; the materiality guidelines applied in accordance with Australian Accounting Standards; any independent professional advice sought by the Board at its discretion; and developments in international corporate governance standards.
The Board considers a relationship to materially interfere with, or that could reasonably be perceived to materially interfere with, a director’s independent judgement, where it is of such substance and consequence and there is a real and sensible possibility that it would affect the director’s judgement across all aspects of the director’s role.
The Board has reviewed the position and relationships of all directors in office as at the date of the company’s 2016 annual report and considers that seven of the eight non-executive directors are independent.
Ms Vanessa Wallace is deemed to be independent. Ms Wallace previously held senior roles at Strategy&, the consultancy firm formerly known as Booz & Company which forms part of the PwC Network, which is a provider of material professional services to the Group (a factor relevant to assessing the independence of Ms Wallace, according to recommendation 2.3 of the ASX Principles). Within the last three years, Ms Wallace’s role with Strategy& was based in Japan and focused on managing the operations of Strategy&, Japan.
During that period, Strategy& has not been a material provider of professional services to the Group. The Board is of the opinion that Ms Wallace’s past relationship with Strategy& and PwC does not compromise Ms Wallace’s exercise of objective or independent judgement in relation to the company’s affairs.
Mr James Graham is deemed not to be independent, by virtue of his position as Chairman of Gresham Partners Limited (Gresham), which acts as an investment advisor to the company. Details of Mr Graham’s association with Gresham are set out in note 26 on page 127 of the company’s 2016 annual report. The Board has determined that the appointment of Mr Graham continues to be in the best interests of Wesfarmers because of his substantial knowledge, technical competencies and expertise. There are a number of policies and protocols in place, including Wesfarmers’ Conflicts of Interest Policy, the Gresham Mandate Review Committee Charter, Wesfarmers’ Code of Conduct, Wesfarmers’ Board Charter, and Directors’ Standing Notices, to ensure that any conflicts of interest which may arise are managed in accordance with the ASX Principles and all applicable laws.
Board succession planning
Appointment of new directors
As part of the Nomination Committee’s oversight of Board succession planning, it is also responsible for identifying suitable candidates to fill Board vacancies as and when they arise, or to identify candidates to complement the existing Board, and make recommendations to the Board on their appointment. Where appropriate, external consultants are engaged to assist in searching for candidates.
Where a candidate is recommended by the Nomination Committee, the Board will assess that candidate against a range of criteria including background, experience, professional qualifications, personal qualities, the potential for the candidate’s skills to augment the existing Board and the candidate’s availability to commit to the Board’s activities. Wesfarmers also undertakes appropriate checks before a candidate is recommended to the Board. If these criteria are met and the Board appoints the candidate as a director, the director will enter into a written contract with the company, setting out the terms of his or her appointment consistent with the ASX Principles, and that director must seek to have their appointment approved by shareholders at the next annual general meeting.
The Board aims through the notices of meeting for annual general meetings to provide shareholders with all material information known to the Board and relevant to a decision on whether or not to elect or re-elect a director.
The Board Charter requires a director to hold, directly or indirectly, a minimum of 1,000 ordinary shares in Wesfarmers within two months of their appointment and at all times during the director’s period of office, and increase that shareholding to an amount equivalent in approximate value to the gross annual base fee paid to each non-executive director within five years of appointment.
Induction of new directors and ongoing director development
As part of a comprehensive induction program covering Wesfarmers’ financial, strategic, operational and risk management position, a new director meets with the Chairman, the Audit and Risk Committee Chairman, the Wesfarmers Managing Director, divisional managing directors and other key executives, to gain an insight into the values and culture of Wesfarmers. The program also includes site visits to a number of Wesfarmers’ key operations.
All directors are expected to maintain the skills required to discharge their obligations to the company.
On an ongoing basis, directors are provided with papers, presentations and briefings on matters which may affect the business or operations of Wesfarmers. Directors are also encouraged to undertake continuing education and training relevant to the discharge of their obligations as directors of the company, typically arranged by the Nomination Committee. Subject to consultation with the Company Secretary, the reasonable cost of continuing education and training is met by Wesfarmers.
To assist the directors in maintaining an appropriate level of knowledge of the operations of the company, directors undertake site visits each year to some of Wesfarmers’ businesses.
Evaluation of the Board and its committees
The Nomination Committee is responsible for scheduling formal performance reviews of the Board and its committees at least every two years. The Board then undertakes an evaluation process to review its performance which is facilitated by an external consultant.
The review process for both the Board and its committees involves: (i) completion of a questionnaire/survey by each director or member of the committee and nominated senior executives who have regular interaction with the Board, facilitated by an external consultant; (ii) the preparation and provision of a report to each director with feedback on the performance of the Board or committees of the Board based on the survey results; and (iii) the Board /committee members meet to discuss areas for improvement and identify actions to be taken for improvement.
A performance review of the Board was conducted in July 2015 in accordance with the process outlined above. The next performance reviews of the Board committees is scheduled for December 2016.
The Nomination Committee is also responsible for scheduling performance reviews of each non-executive director. In relation to the re-appointment of a non-executive director, the Nomination Committee reviews the performance of each non-executive director during their term of office and makes recommendations to the Board.
Annual performance reviews for each non-executive director took place in July 2015. The performance review process comprises:
Remuneration and evaluation of senior executives
Full details of the remuneration paid to non-executive and executive directors, and senior executives, are set out in the remuneration report on pages 71 to 84 of the company’s 2016 annual report.
Evaluation of the performance of senior executives
Senior executives comprising members of the Wesfarmers Leadership Team have an annual and long-term incentive or ‘at risk’ component as part of their total remuneration package. The mix of remuneration components and the performance measures used in the incentive plans have been chosen to ensure that there is a strong link between remuneration earned and the achievement of the Group’s strategy and business objectives and, ultimately, generating satisfactory returns for shareholders.
Annual incentives are based on the achievement of annual performance conditions, which are set at the start of the financial year and are heavily weighted to return and earnings-based measures, and also include non-financial measures which seek to achieve the Group’s long-term objectives in areas such as safety, diversity, succession planning and talent management. Awards are determined after the preparation of the financial statements at the end of the financial year (in respect of the financial measures) and after a review of performance against the non-financial measures has been carried out by the Wesfarmers Managing Director. In the case of the Wesfarmers Managing Director, this review is conducted by the Chairman and the results are reported to the Board. The Board confirms final awards based on overall personal and financial performance after the reviews have been completed in August each year.
Each senior executive has a written contract with the company, setting out the terms of his or her appointment, including remuneration entitlements and performance requirements.
The Securities Trading Policy reflects the Corporations Act prohibition on key management personnel and their closely related parties entering into any arrangement that would have the effect of limiting the key management personnel’s exposure to risk relating to an element of their remuneration that remains subject to restrictions on disposal. Wesfarmers directors, the Wesfarmers Leadership Team, and certain members of their immediate family members and controlled entities are prohibited from dealing in Wesfarmers securities and engaging in short selling, short-term trading, security interests, margin loans and hedging relating to Wesfarmers securities unless approval has been sought and clearance obtained from the Company Secretary.
As part of the annual performance and development review process, the potential future development of an executive is discussed, along with any training required to enhance the prospects of both the development objectives being achieved and overall progression within Wesfarmers. Annual performance reviews of each member of the Wesfarmers Leadership Team, including the executive directors, for the 2016 financial year have been undertaken in accordance with the process described above. The Wesfarmers Long Term Incentive Plan (WLTIP) for the 2016 financial year comprised an allocation of performance rights, subject to a four-year performance period, with performance hurdles based on growth in return on equity and relative total shareholder return. Shareholder approval will be sought at the annual general meeting for WLTIP allocations to executive directors. The Board tests the WLTIP performance conditions following finalisation of the annual accounts at the end of the four-year performance period.
The remuneration report, which details Wesfarmers’ policy on the remuneration of senior executives, is set out on pages 71 to 84 of the company’s 2016 annual report.
The Board believes that the governance policies and practices adopted by Wesfarmers during the reporting period for the year ended 30 June 2016 follow the recommendations contained in the ASX Principles released on 27 March 2014. This Corporate Governance Statement is current as at the date of the company’s 2016 annual report, and has been approved by the Board. Wesfarmers’ compliance with the recommendations contained in the ASX Principles is set out in the Group’s Appendix 4G which is available on the corporate governance section of the company’s website.
The corporate governance section of the company’s website contains access to all relevant corporate governance information, including Board and committee charters, and Group policies.
Click here to see the full 2016 Corporate Governance Statement which covers these matters in more detail.
Wesfarmers is committed to the identification, monitoring and management of material risks associated with its business activities across the Group.
The Board recognises that a sound culture is fundamental to an effective risk management framework. Wesfarmers promotes a culture which values the principles of honesty, integrity, fairness and accountability, and these values are reflected in the Group’s Code of Conduct.
Management is responsible for the Group’s day-to-day compliance with risk management systems. Management monitors compliance with, and the effectiveness of the risk management systems and controls at a divisional level. Wesfarmers’ senior management reports to the Board on the adequacy of the risk management systems and processes on a consolidated basis across the Group. This assists the Board in identifying areas to further strengthen the Group’s culture and approach to risk management. Separately, Group Assurance and Risk review and report to the Audit and Risk Committee on the adequacy of the Group’s risk management systems and internal control environment.
Risk Management Framework
The Risk Management Framework of Wesfarmers is reviewed by the Board on an annual basis and was approved in May 2016. This framework details the overarching principles and risk management controls that are embedded in the Group’s risk management processes, procedures and reporting systems and the division of the key risk management functions between the Board, Wesfarmers Managing Director and Finance Director, Audit and Risk Committee, divisional management and Group Assurance and Risk including:
Wesfarmers is committed to complying with the laws and regulations of the countries in which its businesses operate and acting in an ethical manner, consistent with the principles of honesty, integrity, fairness and respect.
Bribery and the related improper conduct are serious criminal offences for both the company and any individuals involved. They are also inconsistent with Wesfarmers’ values.
Our Anti-bribery Policy can be found here.
Our Anti-bribery Policy stipulates that political donations must not be made at business unit or divisional level. Any political donations must be authorised by the Wesfarmers Board and disclosed as required by law and recorded in the Wesfarmers Group accounts. Any donations above a level determined in Federal legislation must be disclosed annually to the Australian Electoral Commission and will be published on its website.
Wesfarmers does not make political donations. However, occasionally and on a non-partisan basis, Wesfarmers representatives do pay fees to attend functions and forums organised by political parties. These forums provide an opportunity to discuss and exchange views with policy makers on issues of importance to the company and its shareholders.
Target supplier rebate arrangements investigation
On 24 March 2016, it was brought to the new Target management team’s attention that the accounting treatment of a number of Target supplier arrangements negotiated in December 2015 required scrutiny.
Wesfarmers, with its external auditors, Ernst & Young, immediately commenced an extensive internal investigation, with particular focus on Target’s rebate income receivable as at 31 December 2015 and supply arrangements. The investigation identified that the collective effect of agreed rebates of $18.1 million for past activity and subsequent product cost increases negotiated in December with 31 overseas suppliers did not meet the Group’s accounting policies and operating standards. Additionally, a number of supply arrangements amounting to less than $3 million were found to not comply strictly with the Group’s accounting policies.
The investigation into this matter was swift and comprehensive and Wesfarmers’ response was open and transparent. The investigation identified that the full arrangements were not disclosed to Wesfarmers or its auditors. Appropriate action was taken against the Target employees who were found to be directly involved, with a number of employees exiting the Group.
Wesfarmers stated publicly that there were no excuses for the conduct which had occurred. Wesfarmers sets very clear direction and expectations, crystallised in the Code of Conduct, and supported by detailed Group policies, divisionally specific accounting policies, and regular staff training. It encourages and expects adherence to a strong culture of managing for long-term sustainable growth over short-term gain, which is regularly reinforced by the Wesfarmers Board and should have guided behaviour. Wesfarmers took immediate action throughout the Group to reinforce the importance of compliance with its policies and governance practices.
GRI Reference: G4-56, G4-DMA (Compliance), G4-SO6, G4-DMA (Public policy)