The Shareholders Agreement provides for the nomination, election and appointment of Board members by shareholders.

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1 Governance De Beers Société Anonyme De Beers (the Company), formally incorporated in Luxembourg in November 2000, is the holding company of the De Beers Group. It is managed and controlled from its head office in Luxembourg where the Board meets to attend to the business of the group. Commercial activities in different parts of the world are carried out by a number of subsidiaries, investments and joint ventures which constitute the Family of Companies. Taxes and royalties to governments are paid by each of the different subsidiaries and investments as required by the jurisdiction in which they operate. De Beers prepares annual and independently audited statutory financial statements of both the Company and the Group in accordance with International Financial Reporting Standards. These are lodged with the Registre du Commerce and other authorities in Luxembourg and are sent to each of the shareholders directly for adoption at the Annual General Meeting held in March each year. Powers of the Shareholders and the Board The powers reserved for the shareholders and those reserved for the De Beers Board are defined in a Shareholders' Agreement between the shareholder groups, entered into on 30 January The agreement also provides for the relationship between the shareholders and the Company. Appointment of Board Directors The appointment of De Beers directors is governed by two legally binding documents: the Shareholders Agreement and the Company s Articles of Incorporation. The Shareholders Agreement provides for the nomination, election and appointment of Board members by shareholders. The Articles of Incorporation relate to the legal establishment and registration of De Beers as a public company limited by shares in Luxembourg. As the legal constitutional instrument it allows for a minimum of three and a maximum of 20 Board members. The shareholders are directly responsible for the appointment and removal of directors in accordance with the provisions of the Shareholders Agreement. Composition and Independence As of 16 August 2012, the De Beers Board consisted of nine directors. Three who serve in an executive capacity are members of the Executive Committee. Each shareholder group can nominate persons for appointment to the Board. Currently, four non-executive directors are appointed by shareholders under the appropriate clauses of the Shareholders Agreement. The role of the Chairman (currently vacant) is distinct from that of the CEO. Independent directors are those appointed independently of the shareholders direct entitlement. Additional independent directors may be appointed by shareholders by majority consent or majority vote at the Annual General Meeting of shareholders. Two non-executive directors are currently appointed to the Board in this manner under the appropriate provisions of the Shareholders Agreement. Accordingly, of the nine directors in office on 16 August 2012, five are independent directors (as defined in the Shareholders Agreement) and six are non-executive directors. Two directors have both independent and non-executive status, as defined. 1

2 Expertise of the Board Members Given the terms of the Shareholders Agreement, the appointment of a number of directors is based on the extent to which they represent the interests of the shareholders. Importantly, the appointment of all directors is based on their ability to provide strategic guidance on the direction, values and performance of the Company. This includes with respect to the Principles, ECOHS policies and related sustainability and reputational risk management. The term of office for each director is limited by law and the constitutional documents of the Company to six years, but directors are eligible for re-election by the shareholders. The terms of office of those directors appointed by the majority consent of shareholders has been limited to periods of three years, with the opportunity for re-election by shareholders. Shareholders also have the ability to terminate appointments, if necessary, prior to the completion of the appointed term of office. Board continuity is fundamental to the sustained success of the De Beers Group. This requires an on-going resource and skills identification to be performed by the Board in consultation with shareholders. Board members are able to supplement their own expertise with independent professional advice on issues pending decision. The Company Secretary coordinates the provision of professional advice to ensure that advisors are appropriately briefed, provided with relevant information and paid on completion of the assignment. The results of any advisory engagement are also made available to other members of the Board. Ethics and the Board The Board supports the principles of openness, integrity, responsibility and accountability. It also endeavours to ensure the Company s governance processes and policies meet best practice standards. De Beers complies with Luxembourg company law as well as applicable principles and recommendations set out in the King III Code on Governance for South Africa. De Beers follows the King Code for its internationally recognised status, but also because, as a company with roots in South Africa, De Beers is comfortable and familiar with its origins. In addition to recommendations on the role, function and composition of the Board and directors, the King Code also includes specific sections on the governance of risk and integrated sustainability reporting and is aligned with the UN Global Compact and the Global Reporting Initiative sustainability reporting guidelines. A Governance Assessment Tool, developed by Deloitte & Touche based on the principles of King III, is being used to assess governance within the Group. Avoiding conflict of interest A number of structures already exist to ensure conflict of interest is avoided in line with external best practice standards. These include the De Beers Diamond Best Practice Principles (BPPs) and the proposed Directors Conflict of Interest Policy. Existing statements in our Code of Conduct and Business Ethics also require all personnel to act in the best interests of De Beers and its shareholders. The Code also prohibits involvement in business interests that conflict with the Principles and policies of the Family of Companies or that might compromise independence in decision-making. 2

3 Compensation of Board Directors The Articles of Incorporation of De Beers provide that shareholders may determine the fees of Board directors. These have been set at US$ per annum, with any non-executive Chairperson receiving an additional US$ per annum. Non-executive directors that serve on Board sub-committees receive an additional US$ per annum and the chairpersons of the respective committees receive an additional US$ per annum. This remuneration is fixed and is not currently linked to the performance of the Company. Executive directors have waived their right to receive fees. The annual statutory financial statements filed with the authorities in Luxembourg include details on the remuneration framework, benefits and fees paid to Board members. Copies of these financial statements are provided to each of the shareholders. The annual statutory financial statements also include details of the aggregate remuneration and other benefits available to key senior managers and executives. Structures under the Board The Board is responsible for the Group s system of governance and is ultimately accountable for the strategic direction of the business and all activities across the Family of Companies. This includes setting risk management policy, reviewing the effectiveness of risk management processes, recommending enhancements and ensuring effective succession planning. The Board also provides oversight of, and consultation to, the different business entities across the Family of Companies on governance structures and on the identification, appointment and training of directors. Additionally, the Board reviews sustainability performance and risks on at least an annual basis in line with the formal risks review process. Detail on these risks is presented in the introductory statement of the Chairman and performance overview of the CEO in the 2011 Operating and Financial Review, as well as in our 2011 Report to Society. The De Beers Board is supported in its decision-making by six committees all established with proper terms of reference: the Executive, Audit, ECOHS, Investment, Remuneration and Treasury committees. Although not an official committee under the Board, the Principles Committee provides further review and scrutiny on the extent to which the Family of Companies contributes to sustainable development and operates in conformance with its Principles. In 2008 the Board adopted a Board Charter which, among other things, sets out the mandate of the Board and those powers reserved to it. Executive Committee The Executive Committee is chaired by the Chief Executive Officer, Philippe Mellier. It meets at least six times a year in Luxembourg and is responsible to the Board for implementing the Principles, policies and strategies of De Beers and managing the business and affairs of the De Beers Group. The Executive Committee deals with all executive business not specifically reserved for the Board or shareholders. It prioritises the allocation of capital, technical and human resources and is also responsible for the biannual review of business and reputational risks for each business unit. The Executive Committee also provides strategic oversight on sustainability performance and management. 3

4 Audit Committee The Audit Committee consists of directors who do not hold executive office in De Beers, its subsidiaries or investments. The Audit Committee meets three times a year. It monitors the adequacy of internal controls, accounting policies and financial reporting to shareholders. It also monitors and supervises the effective functioning of the Internal Audit department and the ethical conduct of the Company. The Audit Committee provides a forum for communication between the Board and the external and internal auditors. It reviews the half-year and full-year results and the annual financial statements prior to their submission to the Board. It also receives annual appraisals from the business units and the internal auditors with regard to the adequacy of risk management and the status of the control environment across the Family of Companies. This includes sustainability risks and associated performance. An overview of these risks is presented to the Executive Committee biannually and to the Board on at least an annual basis. A summary of the proceedings from each Audit Committee meeting is submitted at the subsequent Board meeting for review. Each Board meeting includes an opportunity for the Audit Committee chairperson to report orally on matters of significance. ECOHS Committee The Environment, Community, Occupational Health and Safety (ECOHS) Committee monitors and reviews associated policies, guidelines, operational practices and the ECOHS performance of the Family of Companies. It provides strategic oversight of the ECOHS disciplines and their peer groups. Further information on the peer groups and work completed during the reporting period is provided in our Report to Society The ECOHS Committee attains assurance regarding the adherence of the Family of Companies to our common ECOHS policies, guidelines and operational practices as well as appropriate local and international standards and relevant legislation. The ECOHS Committee meets at least four times each year. In addition, the committee visits and inspects the operations. It acts in an advisory capacity and does not perform management functions directly. A summary of matters of key significance is submitted at relevant Board meetings for review. Each Board meeting includes an opportunity for the ECOHS Committee chairperson to report orally on matters of significance and on key risks. Investment Committee The Investment Committee manages the process of investment capital approval and allocation within the group. Its key aim is to ensure that investments, divestments and financing proposals increase shareholder value and meet De Beers' financial and business strategy criteria. The Investment Committee draws on the De Beers Risk Management Policy and guidelines to assist in its risk analysis. It also invites discipline experts and heads of departments from across the Family of Companies to provide further insight in advance of making any recommendation to the Board. This includes recommendations on political, economic, social and environmental risks and alignment with the Principles as well as the Code of Conduct and Business Ethics. The Investment Committee includes representatives of the three shareholder groups. 4

5 Remuneration Committee The Remuneration Committee makes recommendations on all elements of directors remuneration The exact remuneration structures of senior managers and other employees at subsidiaries and investments is informed by Group policy and performance, but determined separately by the respective boards, committees and finance and human resource functions of each company. The Remuneration Committee ensures that remuneration policies, procedures and practices are linked to both group and individual performance, take into account market relativities and have regard to effective risk management. Treasury Committee The Treasury Committee has been assigned with the responsibility of ensuring that the overall financial risk profile of the Group, including the impact of any hedging transactions, is appropriate in the context of prevailing economic conditions and the restrictions placed by the covenants of existing credit facilities. The committee also has the functional responsibility for managing interest rate risks, foreign exchange exposures and liquidity risk. Within the laid down Group Treasury Policy, which applies throughout the Group, the committee reviews the Group's debt position and hedging transactions at least prior to each meeting of the Board, considering, inter alia, mark-to-market valuations and prevailing market rates. Principles Committee The Principles Committee, which is not a formal Board committee, supports the Executive, Audit and ECOHS committees in developing their input to the Board. Established in 2007, the Principles Committee addresses all sustainable development issues contained in the Report to Society including those that fall outside the scope of the current ECOHS Committee. It is composed of senior managers from across the Family of Companies as well as experts in relevant disciplines and De Beers Internal Audit. The Principles Committee produces a quarterly update of reputational and sustainability risks and presents a quarterly summary of progress to the De Beers Executive Committee. Risk Management The shareholders and Board recognise that engaging risk is at the core of the business. De Beers is governed by a risk framework through which risks are proactively identified, engaged and managed. This includes taking advantage of opportunities and protecting capital, income and assets by mitigating the adverse impacts of risk. The management of De Beers recognise the importance of effective risk management in ensuring that business objectives are met and that sustained growth and profitability are achieved. In order to formalise this and provide overall guidance to the business, the board of De Beers approved the Group Risk Management Policy on 24 April The Board has approved a risk management strategy and plan for the Group. This policy addresses risks in areas of strategy, operations, finance and compliance. In accordance with the Policy and the Group Risk Management Guidelines, each business unit has formally embedded risk management into the business management process within its own operations. All significant risks are identified by each business unit and are reported to the Audit, ECOHS and Executive committees biannually, and to the Board at least on an annual basis. The Group Risk Management Policy is also subject to annual review by the Board. Awareness and understanding of the risk management framework is established at all appropriate levels of the organisation. 5

6 A process of identifying significant risks with reference to strategic, business or process objectives has been established and implemented across the Family of Companies. Management is involved in a continuous process of developing and enhancing its risk and control procedures to improve the mechanisms for identifying and monitoring risks. These risks encompass areas including consumer markets, skills and people, technology, stakeholders, social, environmental, reputation, legal compliance, professional liability and general operating, financial and treasury risks. 6