Selby Baqwa SC (57)
Group Executive: Enterprise Governance and Compliance

6 years’ service • BIuris, LLB, MBA (De Mont Fort University, Leicester, UK, and Harvard, USA)

ENTERPRISE GOVERNANCE AND COMPLIANCE

Selby Baqwa had over 20 years’ experience as both an attorney and an advocate prior to being appointed to the position of Public Protector of the Republic of South Africa in 1995. He joined Nedbank Group in 2002 to head a new corporate governance function, and at the beginning of 2005 also assumed responsibility for compliance.

Enterprise Governance and Compliance (EGC) is responsible for the monitoring of regulatory and reputational risk and the setting of related policies. It also manages the Enterprise Governance and Compliance Frameworks. Nedbank Group’s governance strategy, objectives and structures have been designed to ensure that the group complies with legislation and a myriad of codes, while at the same time moving beyond conformance to governance performance.

Nedbank Group has incorporated competitive governance and compliance practices as core strategic imperatives for the sustainable development of our organisation. Our governance and compliance philosophy recognises the importance of ensuring continual adherence to legislative, regulatory and supervisory requirements as a critical part of effective risk management and sound enterprise governance.

Enterprise governance is at the heart of the operations of Nedbank Group and strategically links good governance to effective performance management. EGC constitutes part of the entire accountability framework of the organisation, and requires a balance between accountability and assurance (conformance) and value creation and resource utilisation (performance).

The Group Executive: EGC, Adv Selby Baqwa, serves as a member of the Group Executive Committee (Group Exco) and reports directly to the Chief Executive and also has direct access to the Chairman of the Nedbank Group Board.

He is supported by an extensive network of divisional governance and compliance officers, all of whom work closely with the central EGC Division in implementing projects, fulfilling monitoring and training requirements and creating a sustainable governance and compliance culture throughout the group.

PHILOSOPHY, STRATEGY AND OBJECTIVES

The EGC functions are an essential part of Nedbank Group’s control structure, having responsibility for the management of regulatory and reputational risk. A comprehensive Enterprisewide Risk Management Framework has been developed in line with the requirements stipulated in section 60A of the Banks Act, read with the provisions of regulation 49 (previously 47). This framework ensures a consistent focus on day-to-day governance requirements without losing sight of the long-term growth and profitability of the group.

Nedbank Group’s governance and compliance strategies, objectives and structures have been designed to ensure that the group complies with legislation and numerous codes, while at the same time moving beyond accountability and assurance issues to value creation and resource utilisation issues. Internally the function has expanded in five complementary directions, namely:

The division’s key objectives are to:

The enterprise governance and compliance functions operate, among others, at the following levels within the organisation:

EGC works closely with the Company Secretary and Group Risk in promoting a culture of good governance and compliance within the group.

The division’s key objectives are to:

COMPLIANCE

Compliance risk is the potential that the procedures implemented by the entity to ensure compliance with relevant statutory, regulatory and supervisory requirements are not adhered to and/or are inefficient and ineffective.

The group manages compliance risk through the following key activities:

Nedbank Group is committed to the highest standards of integrity, professionalism and ethical behaviour, and requires all its employees to display these traits to comply with all relevant laws, rules and standards when conducting the business of the group.

Nedbank Group’s compliance function is an independent function that identifies, evaluates, advises on, monitors and reports on the group’s compliance risk. Without impairing independence, qualified compliance officers are located in the different business units to monitor and report on compliance risk. The compliance function is further assisted by centralised and decentralised legal and risk functions in the group.

Compliance risk management tools provided to management include compliance manuals, compliance risk profiles, compliance control plans, compliance opinions and compliance control adequacy and effectiveness reports. These tools are increasingly integrated into the group’s operating systems and are technology-enabled.

As a result of the geographical spread of its operations the group is subject to wide-ranging supervisory and regulatory regimes. Accordingly, the group’s relationships with regulators are of paramount importance, specifically the relationship with the bank supervision department of the South African Reserve Bank. The group follows a policy of constructive engagement with regulators.

KING II CODE

As part of its compliance with the Code of Corporate Practices and Conduct of the King Committee (‘King II’), Nedbank Group has a comprehensive implementation and monitoring plan to meet all of its requirements and recommendations. This plan – the implementation of which is monitored by the Directors’Affairs Committee and EGC –covers all the corporate governance requirements relating to the Banks Act as well as the recommendations of the Myburgh Report and has been approved by the board.

At 31 December 2008 the group complied substantially with King II, with the only areas of non-compliance being the following:

The Nedbank Board is satisfied that these areas of non-compliance do not impair the governance integrity of the group or perceptions of the group.

Nedbank Group’s Enterprise Governance Framework incorporates a full range of governance objectives, and individual responsibilities are clearly delineated at board, board committee, group executive and management levels.

In other respects, as far as compliance with King II is concerned:

The Nedbank Group has provided input and commentary on King III from both a sustainability and ethics content perspective and eagerly awaits the release of the first draft of King III.

COMBINED CODE

Old Mutual plc subscribes to the United Kingdom Combined Code. Nedbank as a subsidiary takes cognisance of all governance best practices, including the United Kingdom Combined Code. Nedbank Group is not obliged to adhere to the United Kingdom Combined Code, but if it were, areas of non-compliance would be as follows:

GOVERNANCE/COMPLIANCE CULTURE

Enterprise governance requires commitment at every level of the organisation and it is therefore essential to create an effective governance and compliance culture. Creating this culture also involves the alignment with the ethics and values of the group.

During 2008 there was a continued focus on governance and compliance training and awareness programmes to all employees. Over 88% of the employees have completed the training in corporate governance and 87% of the employees have been trained in compliance. The e-learning training initiatives included the following topics: Introduction of FAIS, Money-laundering-control Awareness, Employment Equity, National Credit Act, Occupational Health and Safety Act and Sustainability.

EGC hosted regular governance and compliance forums to enable employees to engage with thought leaders such as Judge Mervyn King, Clem Sunter and Moeletsi Mbeki.

A communications and awareness plan was rigorously applied in 2008 and included interventions such as email communications, workshops, awareness through the Nedbank TV channel, governance and compliance presentations and a workshop with the main regulators of the bank.

Africa and offshore subsidiaries

The mandate of the EGC Division is enterprisewide and the Nedbank Group Board is responsible for the state of corporate governance and compliance in the entire organisation.

In 2008 the division provided governance and compliance assistance to the group’s operations in Africa, including:

ENTERPRISE GOVERNANCE FRAMEWORK

Nedbank Group’s Enterprise Governance Framework incorporates a full range of governance objectives, a delineation of responsibilities at board, board committee, Group Exco and management level, and the identification of champions and key functions for corporate governance integration into all operations.

Key features in achieving an effective governance process are the cooperation between executive management and non-executive directors and the significant emphasis, resources and structure given to executive management functions to champion corporate governance on a day-to-day basis and assist the board, board committees and individual non-executive directors with corporate governance and compliance responsibilities.

CORPORATE GOVERNANCE STRATEGY

Formalised governance objectives

The board has formalised its governance objectives and annually assesses and documents whether the process of corporate governance implemented by the group successfully achieves these objectives, measured as part of the Regulation 39(18) [previously 38(5)] Report on the state of corporate governance in Nedbank Group.

Strategy

The board, together with recommendations from senior management, is responsible to the shareholders and other stakeholders for setting the strategic direction of the group through defining objectives and key policies, which are then cascaded throughout the organisation.

Stringent investment and performance criteria are determined and refined by the board. These are monitored on an ongoing basis through business plan reviews, key operational and management performance indicators, economic policies and trends, annual budgets and major capital expenditure programmes, significant acquisitions, disposals and other transactions, as well as criteria important to Nedbank Group’s relations with its primary stakeholders and its reputation and conduct as a good corporate citizen.

The above process is supported by a schedule of matters reserved for the board, versus those that are delegated to board committees, to ensure that the directors maintain full and effective control over the group, specifically regarding significant strategic, financial, organisational and compliance matters.

The board is accountable to Nedbank Group’s shareholders for exercising leadership, enterprise, integrity and judgement in directing the organisation to achieve continuing prosperity in the interests of all the group’s stakeholders.

Dedicated strategy sessions of Group Exco and divisional executive committees, as well as between the board and Group Exco, are held to focus on strategy determination and revision. Progress against strategic objectives is tracked through the balanced-scorecard methodology.

THE BOARD OF DIRECTORS

Role and composition

In line with the recommendations of King II Nedbank Group has a unitary board structure comprising the following 15 directors at 31 December 2008:

Independent non-executive directors (6)
Patience Mnxasana   Brian Figaji
Chris Ball   Thenjiwe Chikane
Johannes Magwaza   Mafika Mkwanazi
     
Non-executive directors (7)
Reuel Khoza (Chairman)   Bob Head
Lot Ndlovu   Mustaq Enus-Brey
Michael Katz   Gloria Serobe
Rosie Harris    
     
Executive directors (2)
Tom Boardman (CE)   Mike Brown (CFO)

Note:

Alan Knott-Craig was appointed independent non-executive director with effect from 1 January 2009. Michael Katz and Lot Ndlovu were classified as independent non-executive directors in February 2009.

Patience Mnxasana was appointed as an independent non-executive director from 1 October 2008. Jim Sutcliffe, Barry Davison and Cedric Savage resigned from the board during 2008.

Three of the seven non-executive directors, including the Chairman, are not considered independent, as they either serve as directors or are senior executives of the group’s holding company, Old Mutual plc. Mustaq Enus-Brey, Gloria Serobe and Reuel Khoza, are also not considered independent because of their relationship with Nedbank Group’s BEE partners.

The non-executive directors all have a high degree of integrity and credibility, and the strong independent composition of the board provides for independent and objective input into the decisionmaking process, thereby ensuring that no one director holds unfettered decisionmaking powers.

The directors come from diverse backgrounds and bring to the board a wide range of experience in commerce, industry and banking. The directors have access to management, whenever required.

Board appointments and evaluation

Board appointments are conducted in a formal and transparent manner, in line with the board appointment policy, by the board as a whole, assisted by the Group Directors’Affairs Committee. Any appointments to the Nedbank Group Board are made taking into account the need for ensuring that the board provides a diverse range of skills, knowledge and expertise, the requisite independence, the necessity of achieving a balance between skills and expertise and the professional and industry knowledge necessary to meet the group’s strategic objectives, as well as the need for ensuring demographic representation.

In general directors are given no fixed term of appointment, while executive directors are subject to short-term notice periods. An executive director is required to retire from the board at age 60, while a non-executive director is required to retire at age 70, unless otherwise agreed. Reappointment of non-executive directors is not automatic. Executive directors are discouraged from holding a large number of directorships outside the group.

A full assessment of the effectiveness of the board and board committees, as well as an evaluation of the Chairman of the board, took place during 2008. An assessment of the board’s performance by management was included in the process.

The Chief Executive’s performance is also evaluated according to his performance scorecard, which is approved annually by the Group Remuneration Committee, with the input of the Chairman and Old Mutual plc. The feedback from this board evaluation process contributed to the production of the Regulation 39(18) Report addressing the state of corporate governance in the organisation.

Board charter

The board has a formal written charter that is reviewed on an annual basis.

The main functions of the board covered by the charter are:

Board committees

The board committee structure is designed to assist the board in the discharge of its duties and responsibilities, and was unchanged during 2008.

Current board committees:

Each board committee has formal written terms of reference that are reviewed on an annual basis and effectively delegated in respect of certain of the board’s responsibilities, which are monitored by the board to ensure that the board retains effective coverage of and control over the operations of the group. The directors confirm that the committees functioned in accordance with these terms of reference during the financial year.

Board Strategic Innovation Management Committee

The Board Strategic Innovation Management Committee has the broad responsibility to monitor all issues pertaining to information technology (IT), both operational and strategic, in as much as these may impact the business, financial, performance, risk profile and IT strategies of the group. This committee aims to ensure alignment of the prioritisation and magnitude of IT development spend and investment with overall group strategy and direction.

Group Audit Committee

The functions of the Group Audit Committee are primarily to assist the board of directors in its evaluation and review of the adequacy and efficiency of the internal control systems, accounting practices, information systems and auditing processes applied within the bank in the day-to-day management of its business, and to introduce measures to enhance the credibility and objectivity of financial statements and reports prepared with reference to the affairs of the group.

Group Credit Committee

The primary roles of the Group Credit Committee are to approve credit policies and philosophy, set credit limits and guidelines, confirm that procedures are in place to manage and control credit risk, approve the adequacy of interim and year-end provisions and ensure that the quality of the group’s credit portfolio is in accordance with these requirements by monitoring credit risk information, processes and disclosure. This primary role comprises a monitoring function. An important secondary role of this committee is the approval of advances above sanctioned and regulatory authority levels.

Group Directors’ Affairs Committee

The primary roles of the Group Directors’ Affairs Committee are to consider, monitor and report to the board on strategic risk, reputational and compliance risk, compliance with King II and the corporate governance provisions of the Banks Act, as well as the regulations issued thereunder, and to act as a nominations committee for board appointments.

Group Finance and Oversight Committee

The chairmen of the Group Audit, Credit, Risk and Capital Management and Strategic Innovation Management Committees, as well as Bob Head, are members of this committee, with the Chief Risk Officer attending by invitation. Its primary functions are to be a board discussion forum, to consider the full spectrum of risks in the bank and to ensure that the board and the various board committees address the risks effectively.

Group Remuneration Committee

The Group Remuneration Committee consists of non-executive directors only and is chaired by an independent non-executive director.
The Group Remuneration Committee is authorised to approve the aggregate of adjustments to the remuneration of employees below executive director and managing executive level. The committee individually approves adjustments to the total remuneration of members of the Group Exco. The board, following recommendations made by the Group Remuneration Committee, individually approves adjustments to executive directors’ total remuneration. This committee is also charged with the supervision of the Nedbank Group Employee Incentive Scheme and is involved in executive officer succession policy. The committee considers remuneration in its totality in an integrated and holistic manner, thereby assisting the board in discharging its corporate governance duties related to remuneration strategy, structure and costs.

The Remuneration Report, commencing here, covers all the corporate governance aspects and disclosure with respect to remuneration of directors.

Group Risk and Capital Management Committee

All directors have access to the advice and services of the Company Secretary and EGC, who are responsible for ensuring that board procedures and applicable rules and regulations are fully observed. Further to this, the board has an established procedure in the furtherance of its duties, whereby directors may obtain independent professional advice at the group’s cost.

In terms of the Banks Act a risk committee is required to assist the board of directors in evaluating the adequacy and efficiency of risk policies, procedures, practices and controls; identify the buildup and concentration of risk; develop risk mitigation techniques; ensure formal risk assessment; identify and monitor key risks; facilitate and promote communication through reporting structures; and ensure the establishment of an independent risk management function and other related functions. In addition, this committee also oversees the group’s policies and procedures to ensure compliance with Basel II, which has became fully effective in 2008.

The Group Risk and Capital Management Committee is tasked with groupwide risk monitoring, focusing primarily on the management and assessment of risk, including market and trading risks; financial instrument (derivative) usage; asset and liability management (ALM) risks; Group Asset and Liability and Executive Risk Committee (Group ALCO) processes and functions; investment exposures; and risks related to the underwriting of share issues.

Group Transformation and Sustainability Committee

The Group Transformation and Sustainability Committee has the broad responsibility to monitor all issues pertaining to the integrated economic, social, environmental, human resources and transformation performance of the group.

This committee assists the board in discharging its responsibility to ensure that the group proactively addresses the requirements and/or recommendations for integrated sustainability reporting as set out in King II and the Global

Reporting Initiative, an international multishareholder process, as well as to give the needed attention at board level to issues pertaining to the FSC, dti Codes on BEE, training and development, and social and environmental responsibility.

The board committee structure is also supported by group executive management committees.

Chairman and Chief Executive

In line with best practice the roles of chairman and chief executive are separate. The board is led by the Chairman, Reuel Khoza, and the executive management of the group is the responsibility of the Chief Executive, Tom Boardman. This accepted division of responsibilities at the helm of the group ensures a balance of authority and power, so that no one individual has unrestricted decision making powers. At the same time the board and executive management work closely together in determining the strategic objectives of the group.

Company Secretary and director development

All directors have access to the advice and services of the Company Secretary and EGC, who are responsible for ensuring that board procedures and applicable rules and regulations are fully observed. Further to this, the board has an established procedure in the furtherance of its duties, whereby directors may obtain independent professional advice at the group’s cost.

New directors are informed of their duties and responsibilities by way of an induction course that is run by the Company Secretary and other experts on board effectiveness, corporate governance and banking and technical information, familiarising the directors with the bank’s senior management and strategies. A formal ongoing director development programme was instituted during 2006, focusing on relevant briefings of all members of the board and board committees to ensure that they are kept up to date with local and international industry developments, technology issues, risk management and corporate governance best practice. All business cluster heads also undertake regular presentations to update the board on progress and key issues within particular clusters.

During 2008 the director development was continued. The following topics have been included as part of the internal training schedule for directors:

During 2008 the South African Reserve Bank also encouraged directors to attend external training workshops with the Gordon Institute of Business Science (GIBS). The programme put together by GIBS is the Banking Board Leadership Programme, which was attended by seven boardmembers. The GIBS director development will continue in 2009.

Succession planning

Succession planning is an important focus area at board and at both executive and senior management level. Detailed and intensive planning is conducted through the Chairman’s Office in consultation with the Group Directors’ Affairs and Group Remuneration Committees.

The Chief Executive is required to report regularly to the board on the group’s management development and employment equity programmes.

Business governance

Business governance forms the link between the strategic objectives set by the board and board committees, and the actions and decisions taken by the management committees. Primary attributes of this portfolio are the reviewing, implementing and monitoring of structures, internal controls and compliance according to the principles of good corporate governance at management level, involving the functions of the Group Exco, divisional executive committees, operational risk committees, Group Exco subcommittees and all other management committees.

Recognising the crucial link between board governance and management implementation of group strategy, focus has been placed on governance structures and processes at management level under the business governance banner, and a number of activities have been completed:

We believe that business governance provides an essential way of bringing corporate governance into the everyday activities of all staff members.

A number of subcommittees ensure this alignment:

The Executive Strategic Innovation Management Committee assists the Group Exco and the Board Strategic Innovation Management Committee in discharging their responsibilities to ensure that Nedbank Group has a well-coordinated, efficient, effective and properly resourced IT strategy, enabling the organisation to remain highly competitive, and that this strategy is timeously implemented.

The Group Asset and Liability and Executive Risk Committee is responsible for ensuring that the impact of the following risks is effectively managed in Nedbank Group:

The Mergers and Acquisitions (M&A) Steering Committee ensures proper corporate governance, oversight and control of corporate actions taken by the group as a whole. All operational acquisitions, disposals, restructuring and major corporate actions within the group are brought to the M&A Steering Committee.

The primary role of the Executive Transformation and

Human Resources Committee is threefold, namely:

The primary role of the Executive Taxation Committee is monitoring tax compliance and tax policy and ensuring the management of tax risk throughout the group in accordance with Nedbank Group’s tax policy. Furthermore, the committee assists the Group Audit and Group Risk and Capital Management Committees in discharging their responsibilities relative to the management and monitoring of tax risk.

The Nedbank Capital Investment Committee’s primary role is considering private-equity and mezzanine equity investments and the underwriting of share issues, including initial approval, periodic reviews and any material changes.

The primary role of the Nedbank Corporate Property Investment Committee is considering private-equity investments in client-driven property ventures and strategic investments in the listed-property sector and allied-service companies, including initial approval, periodic reviews and any material changes. The Business Risk Management

Forum’s role is to provide leadership in assessing the impact of any new regulatory requirements and legislation across Nedbank Group and promoting, directing and overseeing the successful implementation thereof.

The primary role of the Advanced Internal Ratings Based (AIRB) Credit Executive Committee is to approve and monitor all material aspects of the bank’s AIRB credit system, and receive regular reporting thereon. In addition, the bank’s AIRB Credit Framework and policies, including any changes thereto, are reviewed and approved.

The Nedbank Brand Committee assists the Group Exco in fulfilling inter alia the following responsibilities: