The Board has established a Nomination Committee, a Remuneration Committee, an Audit and Risk Committee, and a Gresham Mandate Review Committee as standing committees to assist with the discharge of its responsibilities. Following the resignation of Mr Graham from the Board in July 2018, the Gresham Mandate Review Committee was disbanded in August 2018. Details of the current membership and composition of each committee are set out in the 2018 Corporate Governance Statement.
Role of the Nomination Committee
As part of the Nomination Committee’s oversight of Board succession planning, it is responsible for identifying suitable candidates to fill Board vacancies as and when they arise, or to identify candidates to complement the existing Board, and to make recommendations to the Board on their appointment. Where appropriate, external consultants are engaged to assist in searching for candidates. 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. More details about Wesfarmers’ review process for both the Board and its committees are set out in the 2018 Corporate Governance Statement.
Key focus areas of the Nomination Committee during the 2018 financial year included:
–– Identification and nomination of Bill English as a new non-executive director for election to the Board bringing skills, experience and expertise to augment those of current directors–– Identification and nomination of Chairman-elect and non-executive directors for the proposed Coles demerged entity–– Consideration of feedback from major shareholders during the Chairman’s Roadshow conducted prior to the 2017 Annual General Meeting
Role of the Remuneration Committee
The role of the Remuneration Committee is to review and make recommendations to the Board in relation to overall remuneration policy. Full details of the remuneration paid to non-executive and executive directors, and senior executives are set out in the remuneration report on pages 77 to 96 of the 2018 annual report.
Senior executives comprising members of the Wesfarmers Leadership Team have a variable or ‘at risk’ component as part of their total remuneration package under the Key Executive Equity Performance Plan (KEEPP). The mix of remuneration components and the performance measures used in the KEEPP 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, risk management and, ultimately, generating satisfactory returns for shareholders.
Annual performance reviews of each member of the Wesfarmers Leadership Team, including the Group Managing Director, for the 2018 financial year have been undertaken. More details about Wesfarmers’ performance and development review process for senior executives is set out in the 2018 Corporate Governance Statement.
Key focus areas of the Remuneration Committee during the 2018 financial year included:
–– Reviewing and making a recommendation to the Board in relation to the fixed and variable remuneration of the Group Managing Director and his direct reports–– Reviewing and making recommendations to the Board in relation to the Wesfarmers variable remuneration plans, including recommending to the Board the vesting outcomes of the 2014 Wesfarmers Long Term Incentive Plan shares, based on the achievement of the performance conditions as at 30 June 2018–– Reviewing the succession and transition plans for the Wesfarmers Leadership Team, including the transition plans for the newly appointed Group Managing Director and Group Chief Financial Officer–– Reviewing the senior executive remuneration framework and policies, including terms of employment such as notice periods, restraint and non-solicitation clauses–– Reviewing the expected implications of the proposed demerger of Coles from the Wesfarmers Group on the long-term incentive plans in operation within the Group–– Reviewing and making a recommendation to the Board on non-executive director fees–– Reviewing and monitoring diversity targets and gender pay equity
Role of Audit and Risk Committee
The Audit and Risk Committee assists the Board in fulfilling its responsibilities in overseeing the company’s financial reporting, compliance with legal and regulatory requirements, the setting and reviewing of risk parameters of the Wesfarmers Group, and proactively managing the Group’s systems of internal control and its financial and non-financial risk management framework.
Key focus areas of the Audit and Risk Committee during the 2018 financial year included:
–– Monitoring the Group’s cyber security framework, including data protection management, third party data risk management and the reporting structure and escalation process on information security risks–– Monitoring the ethical sourcing of products for resale through the Group’s retail networks to ensure that there are appropriate safeguards and processes in place–– Reviewing and assessing the Group’s processes which ensure the integrity of financial statements and reporting, and associated compliance with accounting, legal and regulatory requirements–– Reviewing the processes and controls around the recognition of commercial income by the retail divisions to ensure recognition is in accordance with Accounting Standards and accepted industry practice–– Monitoring the retail shrinkage control measures and reporting procedures in the Group’s divisions–– Reviewing and evaluating the adequacy of the Group’s insurance arrangements to ensure appropriate cover for identified operational and business risks–– Monitoring the Group’s tax compliance program both in Australia and overseas, including crossborder intra-Group transactions, to ensure its obligations are met in the jurisdictions in whichthe Group operates
Role of the external auditor
The company’s external auditor is Ernst & Young. The effectiveness, performance and independence of the external auditor is reviewed annually by the Audit and Risk Committee. Darren Lewsen is the lead partner for Ernst & Young and was appointed on 1 July 2013. In accordance with the requirements of the Corporations Act 2001, the Audit and Risk Committee approved Mr Lewsen to act as the lead partner for a sixth year in 2018/19.
Ernst & Young provided the required independence declaration to the Board for the financial year ended 30 June 2018. The independence declaration forms part of the directors’ report and is provided on page 76 of the 2018 annual report.
Wesfarmers is committed to the identification, monitoring and management of material financial and non-financial 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, transparency, integrity, fairness, constructive challenge and accountability, and these values are reflected in the Group’s Code of Conduct.
These elements are necessary to support effective risk management and awareness, and to support appropriate behaviours and judgements about risk taking.
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. Senior management across the Wesfarmers Group is responsible for reinforcing and modelling the key behaviours required to maintain a sound risk culture, including encouraging constructive challenge and transparency. Wesfarmers’ senior management reports to the Board on the adequacy of the risk management systems and processes on a consolidated basis across the Group. Divisional Managing Directors are accountable for risk management outcomes, and day-to-day compliance in their respective divisions. During the second half of the 2018 financial year, the Group formalised its approach to the review and consideration of operational risks within each division through the establishment of divisional audit and risk committees.These committees ensure management has access to timely information about emerging and existing risks and provides management with a dedicated forum to facilitate constructive debate and challenge regarding operational risk management. The committees further strengthen operational risk management and support the divisional boards and management and have become an increasingly important component of the Board’s assurance framework on risk and governance.