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, through the Board, instils and 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 within the parameters and risk appetite set by the Board.
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 and reports any material issues to the Board. 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.
This framework 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 on an annual basis by the Board to satisfy itself that the Risk Management Framework continues to be sound and that the Group is operating with due regard to the risk appetite set by the Board. The Risk Management Framework was approved in May 2019.
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, Group Managing Director and Chief Financial Officer, Audit and Risk Committee, divisional management and Group Assurance and Risk.
Wesfarmers accepts that risk is part of doing business and the Group is committed to the identification, monitoring and management of material risks associated with its business activities.The Wesfarmers Risk Management Framework consists of the following elements:
- An independent Board, consisting of directors possessing the required values and bringing a suitable mix of skills, experience and diversity to Board oversight and decision-making.
- The Board has established an Audit and Risk Committee, a Nomination Committee and a Remuneration Committee as standing committees, each with its own charter, to assist with the discharge of its responsibilities.
- Established Group and divisional structures, reporting lines and appropriate authorities and responsibilities.These include guidelines and limits for approval of contracts, capital expenditure and investments.
- Audit and Risk Committees at Bunnings, Officeworks, Kmart Group, Industrial and Safety, and WesCEF to strengthen the divisional risk management processes.
- Wesfarmers recognises that while quality assets and strategies are critical, it is people who ultimately drive outcomes. Wesfarmers seeks to be an employer of choice as attracting outstanding people with the right values and utilising their individual talents is the most critical element in striving for sustainable success. Talent management and succession planning forms a key part of this.
- Wesfarmers Operating Framework that clearly sets out the Board, Board Committees and divisional Board activities and reports.
- Group policies and procedures, including those for the management of financial risk and treasury operations, such as exposures to foreign currencies and movements in interest rates.
- The Group Code of Conduct which is aimed at ensuring that anyone who is employed by or works for Wesfarmers acts in a manner consistent with the principles of honesty, integrity, fairness and respect, including ethical behaviour.
- A formal corporate planning process exists. As part of setting strategy, the divisions assess the environment for trends that are likely to affect and shape their industry, perform scenario planning and prepare a SWOT analysis.
- A Group risk review process that identifies, assesses and prioritises risks and as part of this process risk mitigation actions are also implemented.
- A Group compliance program, supported by approved guidelines and standards covering safety, the environment, legal liability, information technology and human rights.
- A comprehensive risk financing program, including risk transfer to external insurers and reinsurers.
- Annual budgeting and monthly reporting systems for all businesses, which enable the monitoring of progress against performance targets and the evaluation of trends.
- Appropriate due diligence procedures for acquisitions and divestments.
- Crisis management systems and business continuity processes for all key businesses in the Group.
- External and internal assurance programs.