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CORPORATE GOVERNANCE

2011 Risk Report

"The primary identified risks to the group are listed below, with strategies to manage them. These risks are largely unchanged from the previous year."

RISK   HOW WE MANAGE THIS RISK

Fashion trends
The misreading of fashion
trends by the merchandise
teams.

 

 

 

  
  • development and retention of talented merchandise teams who keep abreast of global fashion trends;
  • extensive input from international fashion fairs, consultants, the internet as well as local fashion research;
  • based in the southern hemisphere, benefiting from the knowledge of the forthcoming season’s successful trends in the northern hemisphere;
  • utilising advanced systems to ensure that purchasing volumes are correct; and
  • developing “quick response” and “fast fashion” models.
 
 
 
 
     
Customer base retention
Retaining our existing customers and attracting new customers.		  
  • an established customer relationship management department which has the specific objective of maximising customer value and duration of relationship by creating an unbeatable customer experience over all legs of the relationship life cycle;
  • expanding our store base into varied locations;
  • creating a wide base of stores to satisfy a broad spectrum of the market; and
  • implementing credit score models for collections and follow-ups, to assist customers in maintaining an open-to-buy position.
     
Supply chain
The inability to provide our customers with the desired merchandise at the right price and time as a result of deficiencies in the management process of the supply chain.

Volatility in raw material supply and potential impacts associated with supply chain ethics and environmental performance.		  
  • considering all possible occurring events and factors that can cause a disruption in our supply chain;
  • examining possible scenarios from past experience and analysing changing market forces;
  • creating solutions culminating in improved stock turn and customer satisfaction;
  • implementing changes in the supply chain methodically within appropriate and achievable time frames;
  • enhancing our supplier assessment processes to ensure responsible practice. This approach includes updated quality assurance and quality control processes, ensuring that all our contractual obligations are being met;
  • continuing significant support for our local apparel supplier base in order to ensure sustained merchandise manufacture and supply;
  • undertaking a project in conjunction with certain key manufacturers, with the objective of expanding local production utilising “fast fashion” models; and
  • considering the inflationary and delivery pressures arising out of procurement from China, we are sourcing from a wider range of countries and expanding our procurement opportunities, as well as developing models to expand our support of local manufacturers.
     
Bad debts
With the increase in new active accounts, there is an inherently greater risk of bad debt than established accounts.		   Account origination

  • credit applications are reviewed for fraud indicators and assessed against NCA-compliant internal scorecards, credit bureau scores and verification of employment where necessary

Account Management

  • analytic decision systems determine appropriate collection strategies, approved credit line adjustments and authorisations by utilising internal behavioural and credit bureau scores

Systems and strategies are subject to ongoing management review within both of the above risk areas.
     
Information technology (IT)
Ever-increasing reliance upon computer systems necessitates a stable, secure and uninterrupted computer infrastructure.		  
  • constant senior management review and updating of the IT strategic plan;
  • maintaining a comprehensive, regularly-tested disaster recovery plan that should provide seamless computing capacity in the event of a disaster, involving the establishment of secure computer suites in separate locations with adequate capacity to provide backup access to critical systems;
  • strict change control procedures for all system enhancements;
  • conducting risk assessments for all significant projects;
  • ensuring that access controls are implemented and enforced;
  • ongoing consolidation and standardisation of applications and infrastructure technology;
  • an ongoing upgrade and technology “refresh” programme to ensure that our applications and infrastructure are current and supported;
  • instilling employee awareness of the need for responsible use of computer facilities (all employees being required to abide by a formal computer code of conduct);
  • ongoing emphasis at all levels on enhancing IT security from all potential threats, both internal and external; and
  • adopting strong IT governance policies and best practice IT service delivery models.
     
Legal compliance
The legislative framework within which we operate has become increasingly complex. Amendments to existing laws, new laws and pending Bills have to be tracked and
continuously assessed to ensure compliance. Business processes have to be aligned to ensure compliance.

We have also assessed the impact of King III, ensuring that we are compliant.		  
  • ongoing review of legislation (existing, new and pending);
  • meeting with regulators and government departments, in particular the Department of Trade and Industry;
  • submitting comments on Bills to government, in our name, or as part of the Retailers' Association and Business Unity South Africa;
  • compliance report-backs given to committees such as the internal risk committee;
  • compliance reports submitted to the board audit committee three times a year;
  • TFG Internal Audit audits compliance with key laws;
  • forums, workshops and task teams are formed within our business to assess the impact of laws and to agree on implementation action items. Implementation is then monitored; and
  • awareness sessions for our staff on new laws.
   

 
Shortage of skills and expertise
Without insightful, specialised, and talented staff at all levels, our continued success and growth through innovation would be endangered.		  
  • maintaining an effective nominations committee for succession planning and appointment of senior executives and board appointments;
  • ensuring that processes are in place to attract, retain and develop high-quality staff within an environment that can satisfy ambition;
  • having access to a pool of skills in all key areas via our divisionalised structure, which lends itself to seamless resource transference;
  • recruiting and retaining graduate trainees, who are placed on an 18-month academic programme to subsequently fill key positions;
  • creation of development, incentivisation and retention programmes for store and field managers; and
  • creation of continuous management capability via a number of new SETA-sponsored programmes.
   

 
Crime
Crime, particularly armed and violent crime, which continues unabated, creating losses and, in particular, trauma to our staff.		  
  • continually reviewing security at stores;
  • providing staff training on how to deal with armed robberies;
  • maintaining a strong focus on syndicated identity fraud via a dedicated forensics department;
  • maintaining regular communication with anti-crime forums to ensure that we minimise the impact of crime in all of its forms; and
  • utilising an anonymous toll-free whistle-blowing facility for the reporting of criminal acts.
   

 
Business continuity
The loss of a major head office facility or distribution centre could impact upon critical business functions.		  
  • maintaining separate head office buildings and distribution facilities, and providing backup facilities for critical functions;
  • splitting the computing capacity over four server rooms in separate locations;
  • maintaining current business continuity plans for all trading and service divisions;
  • maintaining and regularly reviewing comprehensive physical protection measures; and
  • maintaining appropriate insurance cover.
     

Internal Control

The board of directors is responsible for the group’s systems of internal control. Effective internal control systems have been implemented and are continuously evaluated:


The internal control systems are governed by a comprehensive internal control standards manual that is available to all staff via our intranet. Compliance with these standards rests within each division and is monitored by internal and external audit checks.

The board is not aware of any material breakdown during the past year in the functioning of these controls.

Internal Audit

The internal audit department carries out an independent appraisal and assurance function. This department reports to the audit committee of the board, whilst to the CFO for administrative matters. This structure does not impair the function’s independence or objectivity. An internal audit charter, approved by the audit committee and conforming to the International Standards for the Professional Practice of Internal Auditing, determines the mission and scope of the function.

Further information on the internal audit function is contained in the divisional reports section of the Integrated Annual Report.

Code of ethics

The board has adopted a code aimed at creating a culture of the highest standards of ethics and uncompromising honesty among all employees throughout the group. The code is founded on the principles of integrity, good faith, impartiality, openness and accountability. The code of ethics forms an integral part of the induction programme and all new employees agree to subscribe to the code. It is available to all staff members on our intranet.

It is comprehensive in nature, clearly outlining the full obligations of every member of staff in their dealings with fellow employees, customers, suppliers, competitors, shareholders and society at large. It requires inter alia:


Sound processes are in place to manage any deviations from this code.

WHISTLE-BLOWING

A whistle-blowing facility has been in place since February 1998 for the reporting of suspected fraud and unethical behaviour. Use is made of an outsourced, anonymous, toll-free hotline. All reports are submitted to the centralised risk management department, which ensures that all incidents are logged and resolved. A minimum reward of R10 000 is paid when follow-up confirms evidence of fraud or unethical behaviour. There is a strong focus on staff awareness of this facility through regular distribution of informational cards, e-mails and posters.

An additional reward of R10 000 is paid twice annually to a randomly-selected staff member who has already been awarded the initial reward.

During the year 116 reports were received, resulting in 10 dismissals and 10 resignations before enquiry.