Integrated Annual Report 2015

Corporate governance

Reporting standard

Sound corporate governance is implicit in our values, culture, processes, functions and organisational structure

Chairman’s introduction

Dear Shareholder

It is pleasing to present the 2015 annual corporate governance report which sets out Investec’s approach to corporate governance.

Continuing and embedding our structured board refreshment programme has been a particular area of focus over the past year. It is pleasing that a thorough selection process, overseen by the nominations and directors affairs’ committee (NOMDAC) has led to the appointment of five independent non-executive directors, bringing further diversity of background, skills and experience to the board.

The last year also saw Sir David Prosser stepping down as joint chairman of the board. The transition from a joint chairmanship to a sole chairman has been a smooth one due, in no small part, to the invaluable role Sir David played in chairing the board and supporting me during this time.

Our culture and values

Our culture, values and philosophies provide the framework for how we conduct our business and measure behaviour and practices to ensure that we demonstrate the characteristics of good governance. Our values require that directors and employees act with moral strength and integrity, and conduct themselves to the highest ethical standard to promote and maintain trust.

Sound corporate governance is therefore implicit in our values, culture, processes, functions and organisational structure. Structures are designed to ensure that our values remain embedded in all businesses and processes. We continually refine these structures, and a written statement of values serves as our code of ethics.

Regulatory context

The disclosure of our governance practices requires a description of the regulatory context that Investec, as a dual listed company (DLC), operates within.

We operate under a DLC structure, and consider the corporate governance principles and regulations of both the UK and South Africa before adopting the appropriate standard for the group which also complies with requirements in both jurisdictions. All international business units operate in accordance with the above determined corporate governance principles, in addition to those of their jurisdiction, but with clear adherence at all times to group values and culture.

The board, management and employees of Investec are committed to complying with the disclosure, transparency and listing rules of the United Kingdom Listing Authority (UKLA), the JSE Limited (JSE) Listings Requirements the UK Corporate Governance Code (the Code) which was issued by the UK’s Financial Reporting Council in 2010, revised in September 2012 with the most recent version being published in September 2014 for reporting periods commencing after 1 October 2014, and the King Code of Governance Principles for South Africa (King III).

Therefore, all stakeholders are assured that we are being managed ethically and in compliance with the latest legislation, regulations and best practices.

The past year in focus

Sir David Prosser

Sir David decided in 2014 that it would be an appropriate time for him to retire and therefore stepped down from the board following the annual general meetings of Investec plc and Investec Limited held on 7 August 2014.

Consequently, I assumed the role of sole chairman of the board, with effect from 8 August 2014.

Composition of the board and board refreshment

The board, on the recommendation of the NOMDAC, implemented a structured refreshment programme so as to ensure that we are recruiting new independent non-executive directors and retiring some of our longer serving non-executive directors. Accordingly, the following changes were made to the composition of the board:

Additionally, discussions have been concluded with Haruko Fukuda, who has served on the board for a period exceeding nine years, who has agreed that she will not stand for re-election at the August 2015 annual general meeting.

The board continues to monitor the impact of the evolving regulatory landscape in the UK, and consideration is being given to appoint a UK independent non-executive director with specific and recent financial services knowledge to the board.

Composition of the DLC remuneration committee

Composition of the audit committees

Composition of NOMDAC

Board and directors’ effectiveness review

The 2015 review of the board’s effectiveness took the form of a detailed questionnaire and a series of structured interviews between the chairman and each individual director (the 2015 review). All directors completed the questionnaire and were interviewed during the course of the 2015 review.

Key themes to emerge from the effectiveness review included:

An externally facilitated board effectiveness evaluation last took place in 2013.

The board has agreed that the 2016 review of the board’s effectiveness will be conducted by an external independent facilitator.

Priorities for the new year

In broad terms, our priorities for 2015, from a corporate governance perspective, are as follows:

Board diversity and effectiveness

The board will continue with its structured refreshment programme to ensure its composition is the most appropriate to provide effective entrepreneurial leadership and robust oversight.

The board believes that diversity in terms of a broad range of skills, experience, background and outlook is required for it to be effective. While non-executive appointments are based on merit and overall suitability for the role, the NOMDAC is mindful of all aspects of diversity when making recommendations for appointments to the board.

Per Lord Davies’ report on ‘Women on Boards’, the board has an aspirational target of 25% female representation on the board by the end of 2015. The board recognises that gender is an important aspect of diversity. The NOMDAC continues to implement the structured refreshment programme referred to above so as to ensure that we are retiring some of our longer serving non-executive directors over a period of years. At the date of this report, the board had adopted a board diversity policy and female directors currently comprise 24% of the board.

Management succession

Succession planning for senior management is also a key area of focus and the identification of talented future leaders is essential for Investec’s long-term success.

The NOMDAC received a detailed presentation from the executive management regarding senior management succession, and the NOMDAC is satisfied that there is a formal management succession plan in place. The NOMDAC will continue to focus on ensuring that the management succession plan remains up to date and the respective succession plans in the three core activities continue to be implemented within the respective businesses.

Regulatory and governance best practice

In the United Kingdom, the year ahead will see the group’s implementation of the Financial Services (Banking Reform) Act 2013, bringing about a new Senior Managers Regime which will include specific responsibilities for non-executive directors. A revised UK Corporate Governance Code, published in September 2014, effective for reporting periods beginning on or after 1 October 2014, will see changes to its provisions relating to remuneration, engagement with shareholders and risk management.

Conclusion

The following pages of this report describe in more detail the governance framework, and the structures that are in place to ensure that Investec is able to maintain the highest standards of corporate governance. However, it is important to emphasise once again that underpinning all of this, and at the core of everything we do, are Investec’s culture, values and philosophies.

Increasingly, the importance of organisational culture and its part in ensuring good corporate governance and conduct is understood by other organisations and by our regulators. Our culture and values have always been at the heart of how we operate, and we believe the strength with which these are embedded and lived throughout the organisation distinguishes Investec from others. We believe that these will, as ever, provide the group with a strong foundation to enable it to meet the challenges of the future.

Fani Titi

Fani Titi
Chairman

10 June 2015

Governance framework

Governance framework

Statement of compliance

UK Corporate Governance Code

The board is of the opinion that, based on the practices disclosed throughout this report, which were in operation during the year under review, the group has complied with the relevant provisions set out in the UK Corporate Governance Code, save that Bradley Fried, was appointed as a member of the DLC remuneration committee (Remco) on 3 April 2013. Bradley Fried was not considered to be independent as he was employed as Investec Bank plc CEO during the five years prior to his appointment as a director. The board believes that Bradley Fried’s knowledge and experience was beneficial to the work of the Remco for the period of his appointment, that he exercised independent judgement, and that the balance of independent non-executive directors on the Remco meant that it was able to effectively discharge its responsibilities. Bradley Fried stepped down as a member of the Remco with effect from 18 September 2014.

King III

The board is of the opinion that, based on the practices disclosed throughout this report, which were in operation throughout the year under review, Investec has applied the King III principles.

For a complete list of all principles and a reference to demonstrate how Investec has applied these principles, please refer to our website.

Financial reporting and going concern

The directors have confirmed that they are satisfied that the group, as well as Investec plc and Investec Limited individually, have adequate resources to continue in business for the foreseeable future. The assumptions underlying the going concern statement are discussed at the time of the approval of the annual financial results by the board and these include:

The board is of the opinion, based on its knowledge of the group, key processes in operation and enquiries, that there are adequate resources to support the group as a going concern for the foreseeable future.

Further information on our liquidity and capital position is provided here and here in volume two.

Furthermore, the board is of the opinion that the group’s risk management processes and the systems of internal control operate effectively.

The directors are responsible for monitoring and reviewing the preparation, integrity and reliability of the Investec plc and Investec Limited combined consolidated financial statements, accounting policies and the information contained in the integrated annual report, and to ensure that the annual financial statements are fair, balanced and understandable.

In undertaking this responsibility, the directors are supported by an ongoing process for identifying, evaluating and managing the key risks Investec faces in preparing the financial and other information contained in this integrated annual report. This process was in place for the year under review and up to the date of approval of this integrated annual report and annual financial statements.

The process is implemented by management and independently monitored for effectiveness by the audit, risk and other sub-committees of the board.

Further information is provided here.

Our annual financial statements are prepared on a going concern basis, taking into consideration:

Management and succession planning

Global business unit heads, geographic management and the heads of central and group service functions are appointed by executive management and endorsed by the board, based on the skills and experience deemed necessary to perform the required function. In general, managers do not have fixed-term employment contracts and there are no employment contracts with managers for a term of more than three years.

Our management structure, reporting lines and the division of responsibilities are built around a geographic, divisional and functional network as depicted here.

Each strategic business unit has a management committee and is responsible for implementing operational decisions, managing risk and aligning divisional objectives with the group strategy and vision.

The NOMDAC receives a detailed presentation from the executive regarding senior management succession and the NOMDAC is satisfied that there is a formal management succession plan in place.

The NOMDAC will continue to focus on ensuring that the management succession plan remains up to date. Senior management succession plans are also presented annually to the banking regulators.

Internal control

Risks and controls are reviewed and monitored regularly for relevance and effectiveness. The DLC board risk and capital committee (BRCC), group risk and capital committee (GRCC) and audit committees assist the board in this regard.

Sound risk management practices are promoted by the group risk management function, which is independent of operational management. The board recognises its responsibility for the overall risk and control framework and for reviewing its effectiveness.

Internal control is designed to mitigate, not eliminate, significant risks faced. It is recognised that such a system provides reasonable, but not absolute, assurance against material error, omission, misstatement or loss. This is achieved within the group through a combination of risk identification, evaluation and monitoring processes, appropriate decision as well as oversight forums, and assurance and control functions such as group risk management, internal audit and compliance.

Internal Audit reports any control recommendations to senior management, group risk management and the relevant audit committee. Appropriate processes, including review by the audit committees’ support structures, ensure that timely corrective action is taken on matters raised by Internal Audit. Significant risks are regularly considered by the executive risk review forum (ERRF) and by the GRCC and BRCC. Material incidents and losses and significant breaches of systems and controls are reported to the BRCC and the audit committees. Reports from the audit committees, BRCC and risk and control functions are reviewed at each board meeting.

Conflict of interest

Certain statutory duties with respect to directors’ conflicts of interest are in force under the UK Companies Act 2006 and the South African Companies Act 2008, as amended. In accordance with these Acts and the Articles of Association (Articles) of Investec plc and the Memorandum of Incorporation (MOI) of Investec Limited, the board may authorise any matter that otherwise may involve the directors breaching their duty to avoid conflicts of interest. The board has adopted a procedure, as set out in the Articles and MOI, that includes a requirement for directors to submit, in writing, disclosures detailing any actual or potential conflict for consideration and, if considered appropriate, approval.

Internal financial controls

Internal financial controls are based on established policies and procedures. Management is responsible for implementing internal financial controls, ensuring that personnel are suitably qualified, that appropriate segregation exists between duties, and that there is suitable independent review. These areas are monitored by the board through the audit committees and are independently assessed by Internal Audit and Compliance. Processes are in place to monitor internal control effectiveness, identify and report material breakdowns, and ensure that timely and appropriate corrective action is taken. Group Finance and Investor Relations coordinate, review and comment on the monthly financial and regulatory reports, and facilitate the interim and annual financial reporting process, including the external audit process.

Directors’ dealings

The remuneration report, contains details of Investec shares held by directors.

Reporting standard  Sustainability

Directors’ dealings in the securities of Investec plc and Investec Limited are subject to a policy based on regulatory requirements and governance best practice. All directors’ dealings require the prior approval of the Compliance division and the chairman, the senior independent director or the chairman of the audit committees.

All dealings of persons discharging management responsibilities require approval by line management, the Compliance division and the chairman.

Board of directors

In terms of the DLC arrangements, the boards of Investec plc and Investec Limited are identical and the group is managed as a unified economic enterprise. The board seeks to exercise leadership, integrity and judgement in pursuit of strategic goals and objectives, to achieve long-term sustainability, growth and prosperity. The board is accountable for the performance and affairs of Investec. It provides leadership for the group within a framework of prudent and effective controls which allow risks to be assessed and managed.

The board has adopted a board charter which is reviewed annually and which provides, a framework of how the board operates as well as the type of decisions to be taken by the board and which decisions should be delegated to management.

The Investec board:

The board meets its objectives by reviewing and guiding corporate strategy, setting the group’s values and standards, promoting high standards of corporate governance, approving key policies and objectives, ensuring that obligations to its shareholders and other stakeholders are understood and met, understanding the key risks, determining our risk tolerance and approving and reviewing the processes in operation to mitigate risk from materialising, including the approval of the terms of reference of supporting board committees.

Certain matters are specifically reserved for the board. To achieve its objectives, the board may delegate certain of its duties and functions to various board committees, group forums or the chief executive officer, without abdicating its own responsibilities. The board has formally defined and documented, by way of terms of reference, the authority it has delegated to the various board committees, group forums and chief executive officer.

In fulfilling its responsibilities, the board is supported by management in implementing the plans and strategies approved by the board. Furthermore, directly or through its committees, the Investec board:

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