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 positive culture is fundamental to an effective risk management framework. Wesfarmers, through the Board, instills 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 Group is responsible for reinforcing and modelling the key behaviours required to maintain a strong 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. Divisional audit and risk committees have operated throughout 2020 financial year. These committees ensure that management has access to timely information about emerging and existing risks for each division 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 Wesfarmers Risk Management Framework is reviewed on an annual basis by the Board to satisfy itself that it continues to operate effectively and as intended, and that the Group is operating with due regard to the risk appetite set by the Board. The Board reviewed the operation of the risk management framework in June 2020 and approved the Group risk appetite statement for the 2021 financial year.
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, divisional audit and risk committees and Group Assurance and Risk.
Wesfarmers recognises 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.
- An Audit and Risk Committee, a Nomination Committee and a Remuneration Committee, established by the Board as standing committees, each with its own charter, to assist with the discharge of the Board’s responsibilities.
- Group and divisional structures, reporting lines, immediate reporting requirements and appropriate authorities built upon Group policies which focus on three pillars of governance, operations and oversight (review and approvals) detailing specific processes and responsibilities and setting out guidelines for conduct to mitigate and manage risk.
- Divisional audit and risk committees at Bunnings, Kmart Group, Officeworks, WesCEF, and Industrial and Safety to strengthen the divisional risk management processes.
- Talent management and succession planning processes aligned to Wesfarmers’ objective to be an employer of choice and attract outstanding people with the right values to utilise their individual talents to achieve sustainable success.
- Wesfarmers’ Operating Framework that clearly sets out the Board, Board committees, divisional board and divisional audit and risk committee activities and reports, including the process of reporting risks that are outside of risk appetite through the divisional and Group audit and risk committees.
- The Group Code of Conduct which sets out the standard of conduct expected by the Board of all persons employed by or working for the Wesfarmers Group built on the principles of honesty, integrity, fairness, respect and ethical behaviour.
- A formal corporate planning process as part of setting strategy, which requires each division to assess the environment for trends that are likely to affect and shape relevant industries, 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, identifies risk mitigation actions to be implemented and monitored.
- A Group compliance program, supported by approved guidelines and standards covering safety, the environment, legal liability, information technology, data privacy and human rights.
- A comprehensive Group insurance 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 audit programs.