Transparency and risk control
ii. Transparency and risk control. Transparency at Investcorp involves the open and proactive discussion of issues and problems with all stakeholders. The role and nature of the Board of Directors and its committees and Investcorp's management structure are vital elements of an Investcorp Group-wide framework for mitigating risks, allocating resources and making decisions with full accountability based on all relevant information.
Board of Directors
Under the Articles of Association of Investcorp Bank, the Board of Directors consists of not less than five and not more than 20 Directors, and the number of Directors is determined by shareholder resolution.
The size of the Board of Directors was set at 12 by action of the shareholders at the Ordinary General Meeting of Shareholders held on September 27, 2016. (the ‘2016 Ordinary General Meeting’) and increased to 14 by action of the shareholders at the Ordinary General Meeting of Shareholders held on January 31, 2017 (the “2017 Ordinary General Meeting”). At the 2016 Ordinary General Meeting, out of the 12 then current Directors of Investcorp Bank, 9 were re-elected for a three year term that will expire at the 2019 Ordinary General Meeting of Shareholders. Three Directors who had been newly appointed prior to the 2016 Ordinary General Meeting to fill vacancies arising on the Board, were also appointed to the Board of Directors for a three year term that will expire at the 2019 Ordinary General Meeting of Shareholders.
At the 2017 Ordinary General Meeting, two new Directors were appointed to the Board of Directors for a term that will expire at the 2019 Ordinary General Meeting of Shareholders, bringing the total number of Directors on the Board to 14.
Each Director has signed a formal written appointment letter agreement which addresses a number of matters, including the Director's duties and responsibilities in serving on the Board of Directors, the fact that annual remuneration for service as a Director is subject to the approval of the shareholders of Investcorp Bank, his entitlement to expense reimbursement and access to independent professional advice when needed. There are no arrangements in effect relating to the termination of any Director.
The Corporate Governance Committee of the Board of Directors has developed and the Board of Directors has approved a formal induction program for new Directors that includes briefings on (i) the duties and responsibilities of Directors, (ii) Investcorp's investing lines of business, (iii) Investcorp's financial position and (iv) key strategic issues.
The Board of Directors is ultimately accountable and responsible for the strategy and business performance of Investcorp and its subsidiaries. The specific responsibilities of the Board of Directors are as follows:
- Ensuring that financial statements are prepared which accurately disclose Investcorp's financial position;
- Monitoring the implementation of strategy by management;
- The adoption and annual review of Investcorp's strategy, with responsibility as part of the strategy review process, for:
- Reviewing Investcorp's business plans and the inherent level of risk in these plans;
- Assessing the adequacy of capital to support the business risks of Investcorp;
- Setting performance and other business objectives; and
- Overseeing major capital expenditures, divestitures and acquisitions;
- Monitoring management performance and determining whether to approve recommendations by the Executive Committee for Administrative Policy (acting as a remuneration committee) for the remuneration of Approved Persons (i.e., persons approved by the CBB to perform their functions within Investcorp Bank) and executives who are classified as Material Risk Takers and other members of senior management;
- Adopting and reviewing management structure and responsibilities;
- Adopting and reviewing the systems and controls framework, to ensure that this framework, including Investcorp's Board structure and organizational structure, is appropriate for Investcorp's business and associated risks;
- Establishing corporate standards for itself, senior management and all other employees, including policies and procedures for the identification, disclosure, prevention or strict limitation of conflicts of interest;
- Convening and preparing the agenda for shareholders meetings;
- Monitoring conflicts of interest and preventing abusive related party transactions;
- Assuring equitable treatment of shareholders, including minority shareholders;
- Putting in place effective policies and procedures for approving budgets and reviewing performance against those budgets and key performance indicators, and the management of Investcorp’s compliance risk; and
- Ensuring that an adequate, effective, comprehensive and transparent corporate governance framework is in place.
The Directors' names, years of service on the Board of Directors, other directorships held by them, attendance of Board of Directors meetings held during Fiscal Year 2017 and the aggregate remuneration proposed to be paid to the Directors in respect of Fiscal Year 2017 are reported in the Fiscal Year 2017 Corporate Governance Report.
The approval of the Board of Directors is required for material matters, including the business plan and budget for each fiscal year, capital raising, capital markets and other financing transactions, Investcorp Group-wide risk limits, and employee remuneration plans.
During Fiscal Year 2017, all of the Directors other than Mr. Kirdar and H.E. Alardhi are independent. In line with the requirements of Module HC, the Board of Directors determines the independence of the Directors each year. The most recent determination of the independence of the Directors made by the Board of Directors is reported in the Fiscal Year 2017 Corporate Governance Report.
The Board of Directors has established four standing Executive Committees as follows: the Audit Committee, the Corporate Governance Committee, the Executive Committee for Administrative Policy and the Executive Committee for Investment Policy, each of which is described below.
The Audit Committee is responsible for the oversight of Investcorp Bank's internal audit, external audit, risk management and compliance functions. Investcorp Bank's external auditor and both the head of the Internal Audit department, the head of Compliance and the head of the Risk Management department report to the Audit Committee.
The members of the Audit Committee are appointed by the Board of Directors, and the Committee currently has three members. Consistent with Module HC, none of the members of the Audit Committee has any other Board responsibilities that could conflict with his obligations as a member of the Audit Committee. The Audit Committee is required to meet at least four times each fiscal year.
The responsibilities of the Audit Committee include:
- The selection, appointment, remuneration, oversight and termination, where appropriate, of the external auditor;
- Determining the independence of the external auditor once a year;
- Reviewing and discussing with the external auditor the scope and results of the annual audit of Investcorp Bank's financial statements and the half-year financial statements;
- The appointment and termination, where appropriate, of the head of the Internal Audit department and reviewing the budget allocated to the Internal Audit department;
- The appointment and termination, where appropriate, of the head of Compliance and reviewing the budget allocated to the Compliance function;
- Reviewing the activities, performance and adequacy of Investcorp Bank’s internal audit and compliance personnel and procedures;
- Reviewing the adequacy of Investcorp Bank's internal controls and risk management systems;
- Reviewing the risk management function, including the independence and authority of its reporting obligations and reviewing with the head of Risk Management the adequacy and effectiveness of Investcorp Bank's risk management policies and methodologies; and
- Overseeing Investcorp Bank's compliance with legal and regulatory requirements and ensuring that Investcorp Bank communicates with shareholders and relevant stakeholders (internal and external) openly and properly; and
- Overseeing any special investigations the Committee deems necessary to meet its responsibilities, including any investigation required to be conducted by Investcorp Bank’s Whistleblowing Procedures.
The Corporate Governance Committee is responsible for overseeing Investcorp Bank's corporate governance. The members of the Corporate Governance Committee are appointed by the Board of Directors, and the Committee currently has three members. The Corporate Governance Committee is required to meet at least twice each fiscal year.
The Corporate Governance Committee's responsibilities include:
- Developing for consideration and approval by the Board of Directors, and recommending changes to the Board of Directors from time to time in, Investcorp Bank’s corporate governance guidelines, which constitute Investcorp Bank's corporate governance policy framework;
- Overseeing Investcorp Bank's implementation of the Corporate Governance Code of the Kingdom of Bahrain;
- overseeing a formal and tailored induction program for newly appointed Directors, to which current Directors must be invited;
- Overseeing Directors' corporate governance educational activities; and
- Considering any report of an actual or potential conflict of interest involving any Director, member of senior management or less senior executive who is a Central Bank of Bahrain approved person and making a recommendation to the Board regarding such actual or potential conflict of interest.
The Executive Committee for Administrative Policy functions as (i) a nominating committee; (ii) a remuneration committee; and (iii) an administrative policy committee. The members of the Executive Committee for Administrative Policy are appointed by the Board of Directors, and the Committee currently has five members. The Committee is required to meet at least twice each fiscal year.
When acting as a nominating committee, its responsibilities include:
- Making recommendations from time to time regarding changes to the size of the Board of Directors or any Executive Committee that the Committee believes to be desirable;
- When a vacancy on the Board of Directors arises, identifying persons qualified to become members of the Board of Directors and recommending a person to fill such vacancy, either through appointment by the Board of Directors (if a current Director ceases to serve on the Board of Directors) or by the shareholders (if a vacancy will arise due to the shareholders approving an increase in the size of the Board of Directors);
- Identifying Directors qualified to fill any vacancy on any Committee of the Board of Directors;
- Identifying persons qualified to become the Chief Executive Officer, Chief Financial Officer, Corporate Secretary and any other officers of Investcorp considered appropriate by the Board of Directors except for the head of Internal Audit and the head of Compliance, which is the responsibility of the Audit Committee; and
- Overseeing succession planning and designing a plan for orderly succession and replacement of officers including replacement in the event of an emergency or other unforeseeable vacancy.
When acting as a remuneration committee, its responsibilities include:
- Considering and making recommendations to the Board of Directors regarding remuneration policies and individual remuneration packages for Approved Persons, Material Risk Takers and other members of senior management;
- Considering and making recommendations to the Board of Directors regarding the remuneration to be paid to Directors based on their attendance of Board meetings and performance;
- Considering and approving remuneration amounts for each Approved Person and Material Risk Taker, as well as the total variable remuneration to be distributed, taking into account all forms of remuneration and ensuring that such remuneration is consistent with Investcorp’s corporate values and reflects an evaluation of performance in implementing agreed corporate goals and objectives;
- Considering and approving remuneration amounts for all other Managing Directors and Principals taking into account all forms of remuneration and ensuring that such remuneration is consistent with Investcorp’s corporate values and reflects an evaluation of performance in implementing agreed corporate goals and objectives;
- Approving, monitoring and reviewing the remuneration systems to ensure the systems operation as intended; and
- Retaining and overseeing outside consultants or firms for the purpose of determining CBB Approved Persons’ and Material Risk Takers’ remuneration, administering remuneration plans or related matters.
When acting as an administrative policy committee, its responsibilities include:
- Reviewing and approving the Executive Chairman’s recommendations for corporate and administrative policies;
- Reviewing and approving the Executive Chairman’s recommendations for capital expenditures; and
- Overseeing charitable contributions by Investcorp.
The Executive Committee for Investment Policy is responsible for overseeing Investcorp’s budget, funding plans and investment policy. The members of the Committee are appointed by the Board of Directors, and the Committee currently has five members. The Committee is required to meet at least twice each fiscal year.
The Committee's responsibilities include:
- Reviewing and approving Investcorp's corporate funding plan for each fiscal year;
- Reviewing and approving Investcorp's budget for each fiscal year;
- Evaluating Investcorp's investment processes and recommending enhancement to those processes;
- Taking action with respect to any other matter relating to the oversight of Investcorp's investment processes; and
- Reviewing and approving recommendations for Investcorp’s investment strategies, products and services.
The names of the members of each of the Executive Committees, their attendance at their relevant Executive Committee meetings during Fiscal Year 2017 and the aggregate remuneration proposed to be paid to Directors for their Executive Committee service during Fiscal Year 2017 is reported in the Fiscal Year 2017 Corporate Governance Report.
During Fiscal Year 2017, the Board of Directors evaluated the performance of the Board of Directors as a whole, each Executive Committee and each Director and the Board will continue such evaluations each year going forward. Information regarding the evaluation conducted during Fiscal Year 2017 is presented in the Fiscal Year 2017 Corporate Governance Report.
A report regarding the evaluations conducted each year also is provided annually at the Ordinary General Meeting of Shareholders.
For information regarding related party transactions, please see Note 31 to the consolidated financial statements of Investcorp Bank.
The Board of Directors has adopted Conflicts of Interest Policies and Procedures that apply to the Directors, members of senior management, and less senior executives who have been approved by the CBB to perform their respective functions (collectively, ‘Covered Persons'). A conflict of interest exists when any activity, interest or relationship of a Covered Person interferes with or could reasonably be expected to interfere with the Covered Person's ability to act in the best interests of Investcorp, including if a Covered Person has a personal interest in a transaction to which Investcorp is or may become a party.
The Conflicts of Interest Policies and Procedures prohibit Covered Persons from engaging in certain activities, including participating in any discussion or decision-making or vote that involves a subject in which a conflict of interest exists, and requires the disclosure of any existing or potential conflict of interest to the Corporate Governance Committee. The Corporate Governance Committee is required to consider the matter and report to the Board of Directors, which ultimately must determine how to proceed and whether to approve any transaction in which a conflict of interest exists. If a conflict of interest involves a Director, that Director should not participate in any Board of Directors discussion regarding, or vote on, that transaction.
However, the Conflicts of Interest Policies and Procedures specifically provide that a Covered Person's investment in Investcorp securities, Investcorp transactions and/or Investcorp products on the same terms as are extended to other similarly situated persons, which includes non-Covered Persons, will not be considered to give rise to a conflict of interest. Accordingly, these transactions are not specially considered by the Board of Directors and they are instead approved by Investcorp's management.
To ensure that any existing or potential conflict of interest is identified, Directors and members of senior management are required to periodically complete a questionnaire. The questionnaire requires disclosure of the companies in which directorships are held and interests in other entities (whether as a shareholder of 5% or more of the voting shares, a manager or some other form of significant participation).
The Board of Directors has approved the Investcorp Group Code of Conduct which applies to the Directors of Investcorp Bank and all Investcorp employees. On an annual basis, all Investcorp employees are required to certify in writing their compliance with the Code of Conduct. A copy of the Code of Conduct is printed as an Annex to the Fiscal Year 2017 Corporate Governance Report.
Transparency for other stakeholders
It is the policy of Investcorp Bank to provide to its shareholders, clients, creditors and other stakeholders public disclosure that is fair, transparent, comprehensive and timely, and the Board of Directors has adopted a Public Disclosure Policy and Procedures Statement which includes internal review procedures to ensure that the standards of this policy are satisfied. In accordance with this Policy and Procedures Statement, all information relating to Investcorp that is publicly disclosed is made available on Investcorp's website promptly after such disclosure is made and Investcorp Bank's financial statements for at least the last five years are maintained on the Investcorp website at all times. A copy of the Public Disclosure Policy and Procedures is available on Investcorp's website.
In addition to publishing its annual audited financial statements, Investcorp Bank publishes its unaudited financial statements for the first six months of its financial year (July-December) and shareholder updates for the first three (July-September) and nine months of its financial year (July-March). An annual shareholders meeting, in addition to the Ordinary General Meeting of Shareholders, provides further information and an opportunity for an exchange of opinions and ideas. The Placement and Relationship Management ('PRM') team and several senior members of the management team also periodically meet with shareholders in one-to-one meetings. Clients have direct, on-going access to the PRM team and investment professionals. Clients are provided with a detailed written review of each investment in their portfolio every six months, and they regularly meet with PRM team members to discuss their current portfolio and new investment opportunities. Periodically, clients have the opportunity to meet the management teams of the portfolio companies in which they have invested. Lenders receive semi-annual updates on the health of the business and have direct, on-going access to the members of the finance team, usually through one-to-one communications.