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Corporate governance

 

RMBH subscribes to a set of values which seeks to foster integrity, innovation, individual empowerment and personal accountability.

Attitude to governance

RMBH is a diversified financial services group that currently holds significant investments in four entities (collectively referred to as the “Group”) as set out here. RMBH endorses the Code of Corporate Practices and Conduct (the “King Code 2002”) contained within the King Report on Corporate Governance for South Africa 2002. The Board advocates sound governance practices by all entities the Company is invested in and all the Company’s subsidiaries and listed associate companies endorse the King Code 2002 where applicable.

RMBH subscribes to a set of values which seeks to foster integrity, innovation, individual empowerment and personal accountability.

While the RMBH board is responsible for the maintenance of sound corporate governance, it believes that its implementation is best managed at an investee level. Consequently each principal Group entity has its own governance structure, (board of directors, executive team, audit, risk and remuneration committees) that monitors operations and deals with governance and transformation related issues. Effective corporate governance forms part of the Group’s investment assessment criteria which is further monitored by non-executive board representation on those boards.

Disclosure is limited to RMBH and where it exercises control over the financial and operating policies of an entity. Entities over which RMBH has significant control disclose the relevant information in their own published annual reports.

The following are the notable aspects of the Group’s corporate governance:

Classification of directors

The basis on which directors have been classified in terms of their independence in this annual report is as follows:

• executive directors are employed in a fulltime capacity by RMB Holdings;
• non-executive directors are those who, while not in the fulltime employment of the Company, are members of the management committee or who have been nominated by a shareholder owning more than 20% of the Company; and
• independent non-executive directors are all other directors irrespective of the period during which they have been members of the board.

No director has an automatic right to a position on the board. All directors are required to be elected by shareholders at an annual general meeting on a rotational basis.

The board of directors

A formal board charter, as recommended by the King Code 2002, has been adopted. The charter includes a code of ethics to which all directors subscribe. The code deals with duties of care and skill, as well as those of good faith, including honesty and integrity and the need to always act in the best interests of the company. Procedures exist in terms of which unethical business practices can be brought to the attention of the board by directors.

The soliciting or acceptance of payments, other than declared remuneration, gifts and entertainment as consideration to act or fail to act in a certain way are disallowed. The Group does not make political donations.

Composition of the board

RMBH has a unitary board with a non-executive director as Chairman. The roles of Chairman and Chief Operating Officer are separate.

The board comprises ten members of whom nine are non-executive directors. Four of the non-executive directors are also independent directors as defined above. Further details are disclosed under the section “Directorate”.

The directors are individuals of a high calibre with diverse backgrounds and expertise, facilitating independent judgement and broad deliberations in the decision-making process. There is an appropriate balance of power and authority on the board.

The board evaluates its composition each year to ensure an appropriate mix of skills and experience. New directors are subject to a ‘fit and proper’ test. An informal orientation programme is available to incoming directors.

Board responsibilities

The fundamental responsibility of the board is to improve the economic prosperity of the Group. The board has a fiduciary duty to act in good faith, with due care and diligence, and in the best interests of the Group and its stakeholders. It is the primary body responsible for the corporate governance values of the Group. While control is delegated to the management committee in the day-to-day management of the Group, the board retains full and effective control over the Group.

The board’s responsibilities include the appointment of the executive officers, approval of corporate strategy, risk management and corporate governance. The board reviews and approves the business plans and monitors financial performance of the Group and implementation of the strategies.

The Companies Act places certain duties on directors and determines that they should apply the necessary care and skill in fulfilling their duties. To ensure that this is achieved, best practice principles, as contained in the King II Report on Corporate Governance for South Africa, are applied.

The board is also responsible for formulating the Company’s com- munication policy and ensuring that spokespersons of the Company adhere to it. This responsibility includes clear, transparent, balanced and truthful communication to shareholders and relevant stakeholders.

After evaluating their performance in terms of their respective charters, the directors are of the opinion that the board and the subcommittees have discharged their responsibilities.

Term of office

Non-executive directors retire by rotation every three years and are eligible for re-election. Re-appointment of non-executive directors is not automatic. The retirement age of the directors is set at seventy.

The Chief Operating Officer has an employment contract that can, subject to fair labour practices, be terminated with one month’s notice.

Board meetings

The board meets once every quarter. Should an important matter arise between scheduled meetings, additional meetings may be convened.

Before each board meeting, an information pack, which provides background information on the performance of the Group for the year to date and any other matters for discussion at the meeting, is distributed to each board member. At its meetings, the board considers both financial and non-financial qualitative information that might have an impact on the stakeholders in the Group.

Board members have full and unrestricted access to relevant information and may, at the cost of the Group, seek independent professional advice in the fulfilment of their duties.

Details of the board meetings held during the year ended 30 June 2009, as well as the attendance by individual members are disclosed in the section “Directorate”.

Board committees

The board has established three sub-committees to which it has delegated some of its responsibilities in meeting its corporate governance and fiduciary duties. These are:

• a management committee;
• an audit and risk committee; and
• a directors’ affairs and governance committee (also responsible for remuneration matters).

Each committee has a charter, which sets out the objectives, authority, composition and responsibilities of the committee. The charters of these committees have been approved by the board.

All the committees are free to take independent outside professional advice, as and when required, at the expense of the Group.

The names of the members of the committees, details of committee meetings held during the year ended 30 June 2009, as well as the attendance by individual members are disclosed in the section “Directorate”.

The committees, with a summary of their charter objectives, are as follows:

Management committee

The committee comprises four members, three of whom are non- executive. It is responsible for implementing the strategies approved by the board and for managing the affairs of the Group.

The committee is also responsible for:

• the development, implementation and monitoring of strategies and policies of the Group;
• the optimisation of the Group capital base and its financial resources;
• the timeous and transparent communication with all stakeholders;
• ensuring best practices in the terms of corporate governance across the Group;
• managing the Group image and reputational issues; and
• optimising overall Group profitability through synchronising the strategies of the operating units of the Group and leveraging off Group strength.

Audit and Risk committee

The committee comprises a minimum of two members. The chairman is an independent non-executive director.

The committee’s objectives are to assist the board of directors in fulfilling its fiduciary duties with regard to:

• the safeguarding of the Group’s assets;
• the financial reporting process;
• the system of internal control;
• the management of financial and non-financial risks;
• the audit process and approval of non-audit services;
• the Group’s process for monitoring compliance with the laws and regulations applicable to it;
• the Group's compliance with the corporate governance practices;
• the business conduct of the Group and its officials; and
• the appointment of the external auditor and the evaluation of their services and independence.

As required in terms of the Companies Act, as amended by the Corporate Laws Amendment Act (No. 24 of 2006), the committee is satisfied that it has complied with and performed its functions and that the Company’s external auditors are independent of the Company. Details of fees paid to the external auditor are included here.

The JSE Limited (“JSE”) Listings Requirements were amended with effect from 1 September 2008, requiring all listed companies to have a financial director, with which the Company has complied. The committee has considered and has satisfied itself of the appropriateness of the expertise and experience of the financial director.

The independent auditor attends all audit committee meetings and the annual general meeting of shareholders. The partner responsible for the audit is required to rotate every five years. The committee meets with the auditors independently of senior management.

The chairman of the committee attends the annual general meeting.

Directors’ affairs and governance committee

The committee comprises all of the non-executive directors. It is chaired by the chairman of the board.

The committee’s primary objectives are to assist the board in discharging its responsibilities relative to:

• its determination and evaluation of the adequacy, efficiency and appropriateness of the corporate governance structures in the Company;
• board and board committee structures;
• the maintenance of a board directorship continuity programme;
• the remuneration, other benefits and employment conditions of any executive directors;
• the self-assessment of the effectiveness of the board as a whole and the contribution of each director; and
• ensuring that succession plans are in place for the key posts in the greater Group.

The committee is also responsible for determining the remuneration of the Chief Operating Officer. Fees payable to non-executive directors are approved at the annual general meeting of shareholders.

The Company’s policy that guides the remuneration of all directors and senior management is aimed at:

• retaining the services of existing directors and senior management;
• attracting potential directors and senior managers;
• providing directors and senior management with remuneration that is fair and just;
• ensuring that no discrimination occurs;
• recognising and encouraging exceptional and value-added performance;
• ensuring that remuneration structures are consistent with the Company’s long-term requirements; and
• protecting the Company’s rights by means of service contracts.

In accordance with these objectives, the committee annually reviews and evaluates the contribution of each director and member of senior management and determines their annual salary adjustments. For this purpose it also considers salary surveys compiled by independent organisations.

Details of directors’ remuneration for the period under review can be found here.

Company secretary

The company secretary of RMBH is Anthony Maher, a Chartered Accountant (South Africa). He was appointed by the board in 2008. All directors have unlimited access to the services of the company secretary, who is responsible to the board for ensuring that proper corporate governance principles are adhered to.

 

Conflicts

Mechanisms are in place to recognise, respond to and manage any potential conflicts of interest. Directors sign a declaration stating that they are not aware of any undeclared conflicts of interest that may exist due to their interest in, or association with, any other company. In addition, directors disclose interests in contracts that are of significance to the Group’s business and do not participate in the voting process of these matters.

All information acquired by directors in the performance of their duties, which is not disclosed publicly, is treated as confidential. Directors may not use, or appear to use, such information for personal advantage or for the advantage of third parties.

All directors of the Company are required to comply with the RMBH Code of Conduct and the requirements of the JSE regarding inside information, transactions and disclosure of transactions.

Risk management and internal control

RMBH recognises that managing risk and compliance is an integral part of generating sustainable shareholder value and enhancing stakeholder interests.

The board and the boards of Group companies are accountable for establishing, maintaining and monitoring the effectiveness of the processes of risk management and systems of internal control applied throughout the Group and in any joint ventures and associations to which the Group or any subsidiary is party.

The Group’s risk management and control framework covers the following key aspects:

• identifying key performance indicators;
• identifying significant business risks, both financial and other;
• maintaining proper accounting records;
• ensuring the reliability of financial information used within the business for decision making or for publication;
• ensuring compliance with applicable laws, regulations and codes of conduct;
• ensuring that the Group is not unnecessarily exposed to avoidable financial risks such as the risks associated with fraud, potential liability and loss, including the safeguarding of assets;
• managing potential conflicts of interest of management, board members and shareholders, including misuse of corporate assets and abuse in related party transactions;
• ensuring the effectiveness and efficiency of operations;
• monitoring the progress of Group companies in complying with the Financial Sector Charter and the Department of Trade and Industry Codes of Good Practice;
• ensuring that the Group and any projects in which it is involved are subject to sound environmental practices; and
• ensuring that the appropriate balance is struck between entrepreneurial endeavour and sound business practice.

Overall effectiveness of control environment

As with most systems of internal control, the effectiveness of internal control systems in the Group is subject to inherent limitations, including:

• the possibility of human error and/or poor decision making;
• the deliberate circumventing of controls by employees or others;
• management overriding controls; and
• the occurrence of unforeseeable circumstances.

Controls systems are therefore designed to manage, rather than eliminate, the risk of failure. Accordingly, it is recognised that a sound system of internal control can provide only reasonable and not absolute assurance against risks impacting the achievement of business objectives or any misstatement or loss.

Management reports regularly to the respective Group boards on the effectiveness of the Group’s risk and compliance management and control framework. The effectiveness of this framework is subject to continuous review.

Integrated assurance

The Board does not only rely on the adequacy of the internal control embedment process but considers reports on the effectiveness of risk management activities. The Audit and Risk committee ensures that the assurance functions of management as well as internal and external audit are sufficiently integrated.

The various assurance providers to the Board comprise the following:

• The management committee and senior management consider the Company’s risk strategy and policy along with the effectiveness and efficiency thereof.
• The Audit and Risk committee considers the adequacy of risk management strategies, systems of internal control, risk profiles, legal compliance, internal and external audit reports and also reviews the independence of the auditors, the extent and nature of their engagements, scope of work and findings. This committee also reviews the level of disclosure in the annual financial statements and the appropriateness of accounting policies adopted by management, the ethics register and other loss incidents reported. The board reviews the performance of the Audit and Risk committee against its charter.

Internal audit

RMBH outsources its internal audit function to the FirstRand Group Internal Audit division (“Internal Audit”). Internal Audit is an effective independent appraisal function and employs a risk-based audit approach. The head of Internal Audit has direct access to the chairman of the Audit and Risk committee as well as to the chairman of the Group.

 

External audit

The Company’s external auditor attends all Audit and Risk committee meetings and has direct access to the chairman of the Audit and Risk committee and the chairman of the Group. The external audit scope of work is adequately integrated with the internal audit function without the scope being restricted.

The directors are of the opinion that, based on enquiries made and the reports from the internal and external auditors, the risk management processes and systems of internal control of the Company and its subsidiaries were effective for the period under review.

The Audit and Risk committee has satisfied itself that there are effective audit committees functioning in the Company’s associated companies.

Dealings in securities

In accordance with the Listings Requirements of the JSE, the Company has adopted a code of conduct for insider trading. During the closed period directors and designated employees are prohibited from dealing in the Company’s securities. Directors and designated employees may only deal in the Company’s securities outside the closed period, with the authorisation of the chairman. The closed period lasts from the end of a financial reporting period until the publication of financial results for that period. Additional closed periods may be declared from time to time if circumstances warrant it.

 

 

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