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Corporate governance

In the almost two decades since its JSE listing, RMBH successfully built up a portfolio comprising significant stakes in Southern Africa's pre-eminent financial services businesses. After the restructuring completed during March 2011, RMBH is now a focused financial services group that holds a significant investment in FirstRand, itself the owner of the country's leading banking enterprises including FNB, RMB and WesBank.

A core element of RMBH's success can be ascribed to an "owner-manager" culture which has been inculcated at every business in which it invested. Thus:

• 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; and consequently,
• FirstRand has its own governance structure, i.e. board of directors, executive team, audit, risk, capital and compliance and remuneration committees that monitor operations and deal with governance and transformation related issues.

Effective corporate governance forms part of RMBH's investment assessment criteria which is further monitored by nonexecutive board representation on those boards.

RMBH subscribes to a set of values which seek to foster integrity, innovation, individual empowerment and personal accountability. RMBH re-enforces these values through various board committees with clearly defined responsibilities.

In South Africa, principles and guidelines for corporate governance are set by:

• the King III Report's Code of Corporate Practices and Conduct ("King III"); and
• •effective 1 May 2011, the new Companies Act, 71 of 2008, as amended ("Companies Act"). Both RMBH and FirstRand endorse King III. RMBH is listed on the Johannesburg Stock Exchange ("JSE"). RMBH therefore also complies with the JSE Listing Requirements.

Approach to Integrated Reporting

This is RMBH's first annual integrated report (as envisaged by King III). Currently very little guidance is available on what integrated reporting entails, especially given the focused and specialised nature of RMBH's business model as an investment holding company. We accept that our approach will evolve as the investor community moves towards the formalisation of a framework for integrated reporting.

RMBH does not believe integrated reporting has a significant influence on how we run the business but have evolved our reporting structure into a more transparent approach and have connected the various areas of financial statement reporting, sustainability reporting, management commentary and governance and remuneration into a more cohesive whole. We are mindful of the fact that significant elements of the disclosure has already been made by FirstRand and, rather than a by rote replication of the information, we have chosen to rather cross-refer stakeholders to the FirstRand report where appropriate.

King III

King III became effective on 1 July 2010 for RMBH. The JSE Listings Requirements prescribe that all JSE-listed companies provide a narrative of how it has applied the recommendations contained in King III, in respect of financial years commencing on or after the effective date.

During the year under review RMBH applied all principles of King III, save for the following recommendations which were deviated from:

• The majority of the board should be independent non-executives. The RMBH board consists of eleven members of whom ten are non-executives. Of the non-executives directors five are seen as not being independent, primarily as a result of their interests in the company, or due to the fact that they represent significant shareholders. RMBH believes that all board members are suitably qualified and believes that the current composition of the board is in the best interest of all stakeholders without prejudice to them.
• The three highest earners who are not board members remuneration should be disclosed. After due consideration of this recommendation, RMBH decided that the disclosure of executives and non-executive directors is sufficient and appropriately demonstrates alignment between remuneration and shareholders return.
• Management should report annually on the IT platform of the business. RMBH does not have any direct customers that require services by an IT platform. Currently all IT functions (largely administrative in nature) have been outsourced and the arrangement is reviewed annually. Management has therefore not performed a review of the IT platform as recommended.

Year under review

Disclosure in this report is limited to RMBH. FirstRand, the only entity over which RMBH has significant influence, discloses the relevant information in its own annual integrated report.

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, the board applies best practice principles, as contained in King III, where appropriate.

The following are the notable aspects of RMBH's corporate governance:

The Board of Directors

Role and responsibilities

The board's paramount responsibility is the positive performance of RMBH in creating value for its shareholders. In so doing it should take account of the legitimate interests and expectations of other stakeholders. RMBH's stakeholders include the present and potential beneficiaries of RMBH group as investors in it.

In terms of its formal charter, 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 board is the guardian of the values and ethics of the company and its investees and seeks to ensure that the company is and is seen to be a responsible corporate citizen. The board is also responsible for formulating the company's communication 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.

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. A formal board charter, as recommended by King III, 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 or employees.

Board members have full and unrestricted access to management and all group information and property. They are entitled, at the cost of the group, to seek independent professional advice in the fulfilment of their duties. Directors may meet separately with management without the attendance of executive directors.

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

Composition of the board

RMBH has a unitary board with a non-executive director as chairman. The chairman is not independent in terms of the definition stated below. The Board believes that the chairman's specialist knowledge of the financial services industry makes it appropriate for him to hold this position.

The roles of chairman and chief executive officer are separate and the composition of the board ensures a balance of authority precluding any one director from exercising unfettered powers of decision making. The directors are individuals of a high calibre with diverse backgrounds and expertise, facilitating independent judgement and broad deliberations in the decision-making process. The board each year evaluates its composition to ensure an appropriate mix of skills and experience.

The board comprises eleven members of whom ten are non-executive directors. Five of the non-executive directors are also independent directors in terms of the definition stated below. During the year, Mr Goss was appointed as lead independent non-executive director. The independence of the directors classified as "independent" was evaluated by weighing all relevant factors, including length of services, which may impair independence.

There is a clear policy in place detailing procedures for appointments to the board. Such appointments are formal and a matter for the board as a whole. New directors are subject to a 'fit and proper' test. An informal orientation programme is available to incoming directors. 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. The company in general meeting may appoint any person to be a director subject to the provisions of its memorandum of incorporation.

During the year Messrs Goss, Shubane and Mrs Sebotsa retired in terms of the company's memorandum of incorporation and, being eligible, were re-elected by the shareholders at the annual general meeting of the company. Messrs Crouse and Carroll were appointed to the RMBH board on 25 May 2011. Mr Durand resigned as a non-executive director on 25 May 2011.

The names of the directors, their age, qualifications and other detail can be viewed here.

The boards of the group's major investment and its operating divisions are similarly constituted with the necessary mix of skills, experience and diversity. There is also an appropriate mix between executive and non-executive appointments.

Term of office

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

The chief executive officer has an employment contract that can, subject to fair labour practices, be terminated with one month's notice.

Definition of independence An independent non-executive director is a non-executive director who:

• is not a representative of a shareholder who has the ability to control or significantly influence management of the board;
• does not have a direct or indirect interest in the company which exceeds 5% of the shares in issue;
• does not have a direct or indirect interest which is material to his/her personal wealth;
• has not been employed by the company or the group of which it currently forms part in any executive capacity for the preceding three financial years; and is
• free from any business or other relationship which could be seen as by an objective outsider to interfere materially with the individual's capacity to act in an independent manner.

Directors' interests It is not a requirement of the company's memorandum of incorporation or the board charter that directors own shares in the company. Directors' interests in the ordinary shares of the company are disclosed on page 30.

Board proceedings

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.

Details of the board meetings held during the year ended 30 June 2011, as well as the attendance by individual members, are disclosed in the section "Directorate" on page 32. The attendance by the directors at the company's annual general meeting is disclosed in the section "Directorate" on page 32.

Board committees

The board has established four sub-committees to assist the directors in their duties and responsibilities. There are:

• a Directors' affairs and governance committee (incorporating the Remuneration committee).
• a Management committee;
• an Audit and Risk committee; and
• a Social and Ethics committee.

Each committee has a formal charter and report to the board at regular intervals. The charters, which set out the objectives, authority, composition and responsibilities of the committee, 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.

Further details of the board committees are provided on pages 19 to 24.

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.

Directors' affairs and governance committee (incorporating the remuneration committee) Role and responsibilities

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.

Governance effectiveness

During the year under review the board conducted evaluations to measure its effectiveness and that of its members. The evaluations conducted in respect of the period under review found no material concerns in respect of board and board committee performance. The directors are aware of the need to convey to the chairman any concerns that they might have in respect of the performance and conduct of their peers.

The performance of the chief executive officer is also formally evaluated at least once per year.

Ethics

Upon joining the group all directors are obliged to sign a code of ethics. RMBH's code of ethics addresses duties of care and skill, good faith, honesty and integrity, whistle blowing, processes for dealing with conflicts of interest and the need to always act in the best interests of the group.

Soliciting or accepting payments, other than declared remuneration, gifts and entertainment as consideration to act or fail to act in a certain way is not allowed. The group does not make political donations.

No issues of impropriety or unethical behaviour on the part of any of the directors were drawn to the attention of the committee during the year.

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 interests 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.

Dealings in securities

In accordance with the JSE Listing Requirements, the company has adopted a code of conduct to avoid insider trading. During the closed periods (as defined) directors and designated employees are prohibited from dealing in the company's securities. Outside closed periods directors and designated employees may only deal in the company's securities with the authorisation of the chairman. The closed periods last 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.

Executive remuneration

The committee is also responsible for the determination of the remuneration of the chief executive officer – the sole executive director employed by the group. It provides oversight of all forms of executive remuneration and rewards, including fees, basic and variable pay other benefits and share related awards. The committee also reviews proposals to shareholders on non-executive director remuneration.

Remuneration and fees payable to both executive and non-executive directors are approved at the annual general meeting of shareholders.

The committee seeks to align executive remuneration with stakeholder interests through appropriate refinements to fixed, variable and long-term remuneration arrangements relative to company performance and industry specific remuneration practices. The strategy is accordingly tailored towards:

• creating recognisable alignment between rewards and the risk exposure of shareholders and other stakeholders;
• incentivising the delivery of consistent performance in line with strategic goals and risk tolerances and rewarding success appropriately;
• delivering compensation that is affordable and reasonable in terms of the value created for shareholders; and
• encouraging behaviour consistent with the group's business philosophy and corporate culture.

To align remuneration with shareholder returns and the group's remuneration policy specifically addresses the following factors:

• individual performance measured against both financial and non-financial performance criteria, individual behaviour and competitive performance;
• incentives which diminish or disappear in the event of poor group performance;
• no multi year guaranteed incentives, substantial severance arrangements or remuneration linked to revenue generation by formula;
• significant deferral of variable remuneration into RMBH shares for a period of two years; and
• transparency to enable stakeholders to make reasonable assessments of reward practices and underlying governance processes.

In conducting the annual remuneration review, the committee also gave consideration to the outcomes of remuneration reviews in other group companies and had reference to independent advice on both general and specific remuneration practices.

The committee considered the expanded remuneration disclosure requirements enacted and recommended during the year. It holds the view that neither of the other two group employees are "prescribed officers" in the context of the Companies Act and that no meaningful benefit would be derived by other stakeholders in specific disclosure of their remuneration.

Details of directors' remuneration for the year under review can be found on pages 30 to 31 of this report.

Composition of the committee

The committee comprises all of the non-executive directors. The committee was chaired by the lead independent nonexecutive director.

Committee proceedings

The committee shall meet at least twice annually with additional meetings when required at the request of the board or any committee member or as often as it deems necessary to achieve its objectives as set out in the terms of reference or at the request of the board.

The committee may invite any of the directors, professional advisors or officers whose input may be required to the meetings.

The chairman may excuse from the meeting or from any item on the agenda any of the attendees at a meeting who may be considered to have a conflict of interest, or for confidentiality reasons.

Management Committee

Role and responsibilities

The committee is responsible for implementing the strategies approved by the board and for managing the affairs of the group. In terms of its charter, 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.

Composition of the committee

The committee comprises four members, three of whom are non-executive. The committee is chaired by the chairman of the board.

The names of the members of the committee, are disclosed in the section "Directorate" on page 32.

Committee proceedings

The committee will meet at least once a quarter or at the call of the chairperson. Comprehensive minutes of meetings are kept.

Audit and Risk Committee

Role and responsibilities

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;
• review of the annual integrated report;
• the business conduct of the group and its officials; and
• the appointment of the external auditor and the evaluation of their services and independence.

Finance function

The committee has considered and satisfied itself of the appropriateness of the expertise and adequacy of resources of the finance function and experience of the senior members of management responsible for the financial function.

The committee has considered and has satisfied itself of the appropriateness of the expertise and experience of the financial director.

Effectiveness of company's internal financial controls

The committee report to the board that they 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 investments were effective for the period under review. No material weakness in financial control of the company and its subsidiaries was reported for the period under review.

Auditor independence

At the annual general meeting held in December 2010 shareholders approved the committee's recommendation for the re-appointment of PricewaterhouseCoopers Inc as auditors of the company until the next annual general meeting. Mr Tom Winterboer was appointed as the individual registered auditor undertaking the company's audit for the year under review.

RMBH believes that the auditors have observed the highest level of business and professional ethics. The committee is satisfied that the auditors have at all times acted with unimpaired independence. Details of fees paid to the external auditors are disclosed in note 22 of the group annual financial statements. No non-audit services were provided during the current financial year.

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.

Companies Act

As required in terms of the Companies Act, the committee is satisfied that it complied with and performed its functions and that the company's external auditors are independent of the company.

King III

During the year under review the committee updated its charter to ensure that new obligations in terms of the King III Code are met. These updates are effective from 1 July 2010.

Composition of the committee

The committee comprises a minimum of three members and consists only of non-executive directors who must act independently. The Chairman is an independent non-executive director and attends the annual general meeting.

Committee proceedings

The committee meets at least twice a year or at the call of the chairperson, any member of the committee, the board or the auditors. Comprehensive minutes of meetings are kept.

Details of committee meetings held during the year ended 30 June 2011, as well as the attendance by individual members are disclosed in the section "Directorate" on page 32.

The chief executive officer/financial director attends the meetings. The committee invites, at its discretion, the appropriate representatives of the external auditors, other professional advisors, officers or members of staff whose input may be required.

Board members have the right of attendance.

The chairperson may excuse from the meeting or from any item on the agenda any of the attendees at a meeting who may be considered to have a conflict of interest

Social and Ethics committee

Composition of the committee

The committee comprises a minimum of three members and consists only of non-executive directors who must act independently. The chairman is an independent non-executive director and attends the annual general meeting.

Role and responsibilities

This committee is a statutory requirement as per the new Companies Act. The committee's objectives are to monitor:

• the social and economic development, including the 10 principles as set out in the United Nations Global Compact principles, the Organisation for Economic Co-operation and Development recommendations regarding corruption, the Employment Equity Act and the Broad-Based Black Economic Empowerment Act;
• good corporate citizenship including promotion of equality; prevention of unfair discrimination, reduction of corruption; contribution to the development of communities, and record of sponsorship, donations and charitable giving;
• the environment, health and public safety, including the impact of the company's activities;
• consumer relationships; including the company's advertising, public relations and compliance with consumer protection laws; and
• labour and employment including the standing in terms of the International Labour Organisation Protocol on decent work and working conditions, the company's employment relationships and its contribution toward the educational development of its employees.

Committee proceedings

The committee will meet at least twice a year or at the call of the chairperson, any member of the committee or the board. Comprehensive minutes of meetings are kept.

The chairman will be required in future to report at the annual general meeting. The first report back will be at 2012 annual general meeting.

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 investees 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 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;
• 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 FirstRand 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 at the company's associated companies.

 

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