GOVERNANCE AND ECONOMIC SUSTAINABILITY

Material indicators

Establishment and maintenance of board and management structures

Implementing good practice in governance and reporting

Integrity and ethics

Compliance with legislation

Risk management and mitigation

This section on Harmony’s approach to sustainability reporting details how we identified our material issues.

Harmony has a solid governance structure. This is regularly reviewed to ensure we comply with legislation and standards in the countries in which we operate and with the stock exchanges on which Harmony is listed. A detailed discussion on corporate governance appears in the annual report.

No significant fines were paid by the company in any areas of operation in FY11, and no actions were brought against Harmony for anti-competitive behaviour, anti-trust or monopoly practices.

Harmony remains committed to applying and upholding the highest corporate governance practices. The company’s disclosure practices and policies are guided by the new South African Companies Act, regulations governing its primary listing on the JSE Limited (JSE) and the latest King Report on corporate governance (King III).

In addition, Harmony complies with the regulations of other exchanges on which it is listed, as well as with the United States Securities and Exchange Commission (SEC) and the Public Company Accounting Reform and Investor Protection Act of 2002, commonly referred to as the Sarbanes-Oxley Act.

Harmony’s 2011 annual and sustainable development reports follow an integrated approach, which combines financial and non-financial reporting. This report has been developed in line with the requirements both of King III and the Global Reporting Initiative (GRI G3) (see Scope of report on the inside front cover).

• Shareholders
• Employees and their representatives
• National, regional and local government, and regulators
• Industry organisations, such as the Chamber of Mines
• Customers and suppliers
• Partners
• Host communities
• Media and analysts
• Non-governmental and community-based organisations
• General public to general communities in which we operate
• Neighbours.

The sustainability of our business relies heavily on proactive and transparent stakeholder engagement, which takes two forms. The first is direct engagement, including organised dialogues, round table discussions, bilateral meetings, internal surveys and regular engagement with local communities at each operation. The second is indirect engagement, including the use of external benchmarks and standards that are designed to reflect and address societal expectations.

• Kalgold has hosted a number of regulator visits to appraise institutions of the mine’s continued commitment to driving safe responsible production. Focus group meetings with government, unions, local farmers unions and the local municipality were held to engage key stakeholders on the company’s intention for rehabilitating the pit.
• Public consultation meetings took place on the proposed mini Libra project in Evander.
• An additional public participation exercise was undertaken for the Free State on a proposed major hazard installation.

The corporate office is responsible for strategic engagements while the regional team ensures engagement with provincial legislature including the premier and MEC, both through direct and indirect engagement. In the Free State particularly, Harmony has a very strong presence among regulators and communities.

PNG has comprehensive community engagement programmes including those associated with the Hidden Valley mine, communities living along the Watut River and those associated with our Wafi-Golpu exploration activities.

In addition to regular community consultation and engagement, a community relations team is overseeing the implementation of the sustainable community development programme. This was initiated in the prior year to provide greater education support, enhanced agricultural skills, improved health programmes and community facilities such as sanitation and water supplies. These programmes are being developed in partnership with the Morobe provincial government to ensure long-term sustainability and lasting benefits for people affected by the company’s operations.

We interact with various community-based organisations (CBO), NGOs and other entities in communities. When requested, we attend community meetings and present our socio-economic development initiatives or share any other information communities might seek.

• Free State Development Corporation
• FGF Chamber of Commerce
• IDC
• Mine mitigation group
• DMR – mineral regulation and health and safety
• War councillors
• Provincial government
  – Dept of Human Settlements
  – Education
  – Police, roads and transport
  – Economic development, tourism, and environmental affairs
  – Sport, arts, culture and recreation
• Lesotho consulate

Despite significant recent progress, our drive for continuous improvement means we plan to continue strengthening our stakeholder engagement processes. Accordingly, we have appointed an executive director: government relations who will ensure adequate and effective dialogue between the company and its regulators.

Each of our operations has a community complaints register allowing communities to raise concerns and issues or make recommendations to the mine.

In PNG, an external stakeholder advisory panel has been established to provide independent advice to the joint venture on environmental and related community impacts resulting from the operation of the Hidden Valley mine.

The establishment of the panel delivers on a commitment made by the joint-venture partners in December 2010 to form an expert advisory panel to review sediment and related issues affecting the Watut River. Since then, the HVJV has developed terms of reference for the panel and consulted with a wide range of industry and government stakeholders on potential panel members with the right mix of technical skills,knowledge and experience.

The key objectives of the panel include assisting the partners to formulate and implement appropriate environmental policies and strategies and recommend and review the results of relevant technical studies and investigations.

The panel will be chaired by Sir Joseph J Tauvasa KBE, an experienced chairman and businessman with over 45 years of working in the PNG private sector and government. Members have been appointed for an initial term of two years, and comprise five Papua New Guineans, including two prominent local women and one Australian. Each member is a specialist with extensive and best-practice experience in environmental and social issues in PNG.

• Sir Joseph J Tauvasa, KBE (chairman)
• Professor Simon Saulei – director, PNG Forest Research Institute, Lae
• Dr Misty Baloiloi – vice chancellor, University of Technology, Lae
• Ms Jean Kekedo, OBE – former PNG high commissioner to the United Kingdom
• Ms Freda Talao – human rights lawyer
• Professor Barry Hart – emeritus professor, Monash University

Harmony’s website is a valuable source of information for all stakeholders. Additionally stakeholders may engage with board members at the annual general meeting or at any other point as the directors are easily accessible and encourage engagement.

There were no significant issues raised by shareholders in FY11.

The board pays specific attention to non-financial matters through a dedicated committee, the sustainable development committee. In August 2011, the board resolved that this committee be replaced by a social and ethics committee to comply with the provisions of the new Companies Act, 2008. The social and ethics committee is chaired by an independent non-executive director, Modise Motloba. Its role is to supplement, support, advise and provide guidance on the effectiveness of management’s initiatives in sustainable development. The committee considers key issues for sustainability: occupational health, HIV/Aids, social investment and environmental management. Safety issues are included in the mandate of the technical committee.

The committee has six members and met five times in FY11. The chief executive officer and executive managers are invited to attend these meetings. The committee undertakes site visits as part of its investigations and reviews.

Given legislative requirements in South Africa, Harmony also has an empowerment committee. This committee ensures that Harmony meets the stipulations of the Employment Equity Act, Labour Relations Act, Mineral and Petroleum Resources Development Act (MPRDA) and the Mining Charter. It also monitors progress towards the company’s own empowerment imperatives. The committee is chaired by an independent non-executive director, Joaquim Chissano, and the chief executive officer and several executive managers are invited to attend meetings. The committee met four times in FY11.

Ultimately, the responsibility for the company’s performance and progress towards set objectives lies with the board of directors; sustainable development and empowerment are standard agenda items at board meetings.

• Representation by historically disadvantaged South Africans (HDSAs) and women. Two of Harmony’s non-executive directors are women, and eight directors are drawn from groups considered to be HDSAs. Harmony considers the gender and racial mix of the board when appointing directors
• The board includes individual and group performance in considering the remuneration of executive management. This includes non-financial indicators on social and environmental performance. Members of the empowerment and sustainable development committees (reconstituted as the social and ethics committee post year end) are particularly accountable for performance in these areas
• The performance of the board and its committees is evaluated annually. In FY11 a board self-assessment exercise was again carried out by external consultant, KPMG, for the third consecutive year, with each board member completing a questionnaire. A full report based on the findings of this evaluation was circulated to the board and improvements will be made where necessary.

Harmony is highly influenced by public policy both locally and internationally. As such, the company is increasingly participating in and influencing government policy, either directly or through the Chamber of Mines. Harmony also participates in lobbying with Eskom and the National Energy Regulator of South Africa (Nersa) on issues such as security, supply and cost of electricity and potential carbon taxes.

• Housing and Living Conditions Standard
• Codes of Good Practice for the Minerals Industry
• Revisions to the Mining Charter
• Amendments to the Labour Relations Act.

Through the Chamber of Mines, Harmony continuously provides input on public policy development, especially legislative issues that affect or govern the mining industry. The company also lobbies on environmental legislative reform such as the inclusion of mining environmental management in the Department of Water and Environmental Affairs (DWEA); changes to financial provision guidelines; and the proposed carbon tax. Harmony has participated in the Wonderfontein Spruit Catchment Forum through the Mining Industries Group, and has been involved in finalising the remedial action plan report – an initiative between government, industry and civil society focusing on the remediation of the Wonderfontein Spruit.

Harmony’s code of ethics (refer to www.harmony.co.za) commits the company, its employees and contractors to adhere to a set of values in adopting the highest ethical standards, free from conflicts of interest. For code of ethics view on www.harmony.co.za. These values include transparency, trust, accountability, respect, equality and responsibility.

Security and related clearance checks are conducted prior to appointing employees. All employees are required to sign a copy of the code of ethics when appointed. Employees are also required to review relevant sections of the code when they return from annual leave. In addition to printed copies, the code is distributed electronically to all employees with access to e-mail.

In August 2011, the board approved the establishment of a social and ethics committee in compliance with the new Companies Act, Act No 71 of 2008 (the act). This board committee will attend to the functions of a social and ethics committee as provided for in the act and will establish a regulatory framework to assist the board in reaching and monitoring high standards of corporate governance and ethical conduct. The committee will also ensure adherence to the requirements of King III on ethical leadership and corporate citizenship on behalf of the board.

An ethics committee was established in May 2006 by the executive committee to monitor the ethical culture and standards of integrity within Harmony. In future, this committee will report to the social and ethics committee of the board. The ethics committee meets quarterly, ensures that the code of ethics is signed by all employees and assesses reports from the white-collar crime committee. During the period, the code was reviewed in line with the provisions of King III and will be presented to the board for consideration and approval in October 2011. No material changes were made to the code.

Harmony encourages employees to anonymously report suspected breaches of the code using the Khuluma line, the company’s whistle-blowing or crime line. The crime line is managed by an external security contractor and is accessible 24 hours a day. During the year, 135 alleged irregularities were investigated. In 31 cases, the employees concerned were disciplined or dismissed, and 12 cases were referred for criminal prosecution.

The board charter specifically considers conflicts of interest, advising how these must be declared and dealt with at board level. Directors are required to declare any interests and potential areas of conflict at every board meeting in line with the provisions of the Companies Act and JSE Listings Requirements.

Harmony has a donations policy dealing with requests from political parties. Fair allocations of funding to parties reflect the support received in the most recent South African national and regional elections. In FY11 donations totalling R2 million were made to the African National Congress and R500 000 to the Congress of South African Trade Unions (Cosatu). Another R1 million was donated to various other parties, including the Democratic Alliance. No donations in cash or in kind were made to political parties in PNG in FY11.

Harmony has a formal risk policy framework and extensive risk management structures covering all categories of risk. The risk factors and primary risks identified in FY11 and how these are managed are comprehensively covered under risk management.

Risk factors are assessed from both a financial loss and reputational point of view, although it is easier to quantify the financial aspect. Considered from a sustainability perspective, a different aspect of these risks is highlighted. This section should, therefore, be read in conjunction with the section on Harmony’s approach to sustainability reporting.

We evaluate safety, health, environment and human rights risks. The precautionary approach is addressed in planning and developing new projects, in line with relevant legislation and good practice. We also evaluate the levels of due diligence applied before engaging in significant contracts.