COMPLIANCE MANAGEMENT

You have recently been employed as a compliance consultant for de Buys Agri-logistics, an agri-logistics company listed on the AltX of the JSE.

Note:

The AltX is the alternative board for small and medium-sized companies to raise capital on the JSE. Many organizations use the AltX as a means to raise capital and as a stepping-stone to listing on the JSE Main Board.

De Buys & Sons was established in 1928 and has been run by the family ever since. The parent company owns subsidiary businesses that operate in bulk storage, distribution, and fertilization investments for large-scale fruit farming in the Western Cape, as well as maize and wheat commodities farming in the North West Province and the Free State. The company has an annual turnover of approximately R150 million, with an annual profit of R67 million in the financial year. The financial results are audited and approved by an independent auditor.

The total number of employees in the holding company is 24 (typically administrative and professional services employees: auditors, financial analysts, and human resources professionals). Each subsidiary organization has a wide employee and stakeholder footprint. The stakeholders include local communities (i.e., families, small businesses, and schools) as well as employee groups such as logistics personnel (i.e., truck drivers and delivery persons), warehousing staff, farm laborers, fruit pickers, and seasonal staff. There are also employees involved in food sciences and farm management, as well as climatologists and hydrologists.

The company is a family-founded organization; however, you have discovered that the board of directors of this organization is predominantly made up of family members. The CEO and chairperson, Frikkie de Buys, and the CFO, John de Buys, are the grandsons of the founder. The board consists of eight people, including the CEO and CFO, the CEO’s daughter, and three other members of the family who are also shareholders. There is one independent, non-executive director, Elana Francis, who is a good friend of the CEO, and a representative of the trust. The casting vote of the board lies with Frikkie, as the chairperson. Figure 1 illustrates the composition of the board.

Figure 1: The board of directors of de Buys Agri-logistics company.

As a compliance practitioner, you are worried about the possibility of conflicts of interest and non-compliance that may occur due to the current structure of the board.

Using the King IV Code and Section 72 of the Companies Act of 2008, you are required to write a report to advise a restructuring of the board that is more ethically compliant with the King IV Code. Your answer should pay particular attention to the social and ethics committee and the audit and risk committee.

Your report should consist of the following sections:

1. Introduction (100 words max)
2. Issues with the current board structure (200 words max)
3. Suggestion for a new board structure (200 words max)
4. Appeal for a social and ethics committee (200 words max)
5. Conclusion (100 words max)

(Max. 800 words in total)

The current board structure of de Buys Agri-logistics poses risks of conflicts of interest and non-compliance. To address these concerns, a new board structure should be implemented, incorporating independent directors with relevant expertise.

Report on Restructuring the Board of de Buys Agri-logistics

1) Introduction:
In this report, I will address the concerns regarding the current board structure of de Buys Agri-logistics and propose a more ethically compliant board structure based on the King IV Code and Section 72 of the Companies Act of 2008. The aim is to mitigate potential conflicts of interest and improve compliance within the organization.

2) Issues with the current board structure:
The current board of de Buys Agri-logistics predominantly consists of family members, which raises concerns about potential conflicts of interest. Family members holding key positions such as the CEO and CFO may prioritize personal interests over the company's overall well-being. Additionally, the lack of independent directors limits the diversity of perspectives and independence in decision-making. This could compromise the effectiveness of the board and hinder effective risk management and compliance.

3) Suggestion for a new board structure:
To address the concerns raised, it is recommended to restructure the board of de Buys Agri-logistics by incorporating more independent directors. These independent directors should have relevant expertise and experience in agri-logistics, governance, and compliance. Their appointment would ensure a diversity of perspectives, unbiased decision-making, and enhanced accountability. By reducing the dominance of family members on the board, conflicts of interest can be minimized, and the best interests of the company can be prioritized.

4) Appeal for a social and ethics committee:
In line with the King IV Code, it is crucial to establish a social and ethics committee within de Buys Agri-logistics. This committee would oversee the company's ethical practices, social responsibility initiatives, and compliance with relevant laws and regulations. The committee should consist of a mix of board members and external experts to ensure independence and expertise. This committee would play a vital role in promoting ethical behavior, monitoring compliance, and addressing any non-compliance issues promptly.

5) Conclusion:
In conclusion, the current board structure of de Buys Agri-logistics poses risks of conflicts of interest and non-compliance. To address these concerns, a new board structure should be implemented, incorporating independent directors with relevant expertise. Additionally, the establishment of a social and ethics committee would strengthen ethical practices and compliance within the organization. By implementing these changes, de Buys Agri-logistics can enhance its governance practices and ensure the long-term sustainability and success of the company.

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