Integrated Annual Report
2020

Abridged governance report

Transaction Capital follows a progressive and stakeholder-inclusive approach to governance. The board of directors is the focal point and custodian of the group’s corporate governance framework, with the board being ultimately responsible and accountable to stakeholders for the performance, activities and control of the group.

PRINCIPLE 6

Our governance philosophy

Transaction Capital’s board is committed to remaining at the forefront of corporate governance, beyond its commitment to complying with legislation, regulations and best practices relevant to the group. The board regards the process of assessing and monitoring adherence to adopted governance standards as a dynamic process, and endeavours to continually improve governance structures to match the group’s growth and evolution.

Transaction Capital’s governance structures are aligned to King IV, which advocates an outcomes-based approach to governance.

THIS ICON HIGHLIGHTS THE APPLICATION OF KING IV PRINCIPLES IN THIS REPORT. The King IV application table and full governance report are available online at www.transactioncapital.co.za. The King IV application table defines each principle and references the relevant section in the full governance report.

King IV defines corporate governance as the exercise of ethical and effective leadership to achieve the governance outcomes of:

  • An ethical culture.
  • Good performance.
  • Effective control..
  • Legitimacy.

The King IV principles are intended to provide guidance to organisations in continuously working towards these governance outcomes. As such, this governance report references each principle where relevant, to demonstrate the group’s progress in achieving the outcomes as envisaged in King IV. The board assessed the group’s application of King IV and has satisfied itself that the group complied with these principles, in all material aspects, for the year under review.

KEY GOVERNANCE OBJECTIVES AND PROGRESS IN 2020

AUGMENT BOARD SKILLS AND DIVERSITY

  • Appointment of new independent non-executive directors with insurance, legal and technical financial skills which augment the existing skillset of the board.

ENHANCE SUSTAINABILITY

  • Adopted an ESE framework.

STRENGTHEN BOARD INDEPENDENCE

  • Three new independent non-executive directors appointed to the board, bringing the total number of independent directors to eight out of 14 directors.

PROMOTE ETHICAL CONDUCT

  • Updated whistleblowing policy to align with best practice and appointed divisional ethics officers.

Ethical leadership

The board maintains a high level of individual and collective accountability and responsibility, and strives for fairness and transparency in all its dealings. Together, these principles drive a culture of ethical leadership and support the creation of value for the group’s stakeholders.

The board is responsible for the strategic direction of the group, which it considers in conjunction with the group’s values and ethics charter. The board directs strategy to ensure business sustainability, while considering the short- and long-term impacts on society, the environment and stakeholders, as per the group’s sustainability policy framework.

PRINCIPLE 1

Ethics and culture

The group’s ethics charter constitutes a formally documented policy to guide and entrench an ethical and values-based culture across the group. The charter was revised in 2019 to ensure it aligns with best practice, is applicable to the group and its growth ambitions, is practical in application, and that it is relevant to all stakeholders.

With effect from 1 April 2020, the role of ethics executive forms part of the portfolio of the group internal audit executive, who has direct access to the group board of directors and subsidiary boards, as required. Divisional ethics officers were appointed during the year to serve as the custodians of the ethics function in their respective divisions, to further extend and deepen ethics structures across the group.

Transaction Capital maintains an independent whistleblowing hotline operated by an external service provider. Reports can be made anonymously, and all ethics-related incidents are investigated. Executive management is provided with a report on the results of the investigation and appropriate action is taken. Furthermore, unethical or fraudulent behaviour can be reported to line management and the respective human resources departments of the group’s businesses. The group received 68 new reports (2019: 81 new reports) through its whistleblowing hotline for the year under review. All reports were independently investigated and where appropriate, disciplinary action instituted for all substantiated allegations.

Regular ethics reporting is provided to the social and ethics committee and, where relevant, the ARC committee and the board.

PRINCIPLE 2

SUSTAINABILITY FRAMEWORK

The group’s sustainability policy mandates the social and ethics committee, the ARC committee, ALCO and Transaction Capital’s executives with overseeing specific sustainability matters to ensure that the group and its businesses operate in an ethical, corruption-free and sustainable way. In addition, group environmental and human rights policies are being presented for board approval in the 2021 financial year to bolster the group’s sustainability policy.

Transaction Capital’s newly adopted ESE framework is intended to provide the group and its stakeholders with an objective and balanced view of the group’s corporate impact. Furthermore, the framework will inform strategic and operational initiatives going forward to ensure that the group’s impacts are appropriately managed to enhance value creation for Transaction Capital and its stakeholders. The framework facilitated the development of thematic sustainability impact areas and the identification of relevant metrics, risks and opportunities in this regard.

Responsible corporate citizenship

Ultimate responsibility for corporate citizenship lies with the board, with oversight vested in the social and ethics committee and the ARC committee. The principles of responsible corporate citizenship underpin all key aspects of the business. The social and ethics committee monitors many of the aspects listed under the King IV practices, while the ARC committee is responsible for preventing, detecting and responding to fraud and corruption, as well as tax policy.

PRINCIPLE 3

Stakeholder engagement

Engaging with stakeholders forms an integral part of the group’s strategy. The sustainability policy governs the relationship and interaction with stakeholders, with the board and the social and ethics committee assuming ultimate responsibility and providing oversight for stakeholder engagement. The divisions each have their own tailored stakeholder engagement plans in place, which are reported, considered and discussed at their respective board meetings.

PRINCIPLE 16

GOVERNANCE FRAMEWORK AND STRUCTURES

The role of the board of directors

The board acts as the custodian of governance. It has adopted the board charter and approves group policies and the terms of reference of the board sub-committees. The board charter and group policies regulate how the board conducts itself in the best interest of the company and its stakeholders, considering relevant legislation and the principles of good corporate governance.

Transaction Capital’s governance and compliance framework facilitates the board’s role of providing direction and oversight. It sets the group’s risk appetite and a high level of accountability to support consistent compliance with regulatory requirements, while also encouraging an entrepreneurial mindset as a key driver of performance.

The board delegates specific responsibilities to appropriately mandated and constituted sub-committees. The ARC committee and the social and ethics committee fulfil the statutory governance functions on behalf of Transaction Capital, its divisions and group subsidiaries in terms of the Companies Act 71 of 2008 and King IV.

PRINCIPLE 1 & 6

All sub-committees have fully functional structures, with clear objectives set out in their respective terms of reference. Through their respective chairpersons, sub-committees report back to the board at each board meeting. Sub-committees also report to stakeholders annually as required, in the integrated annual report and at the annual general meeting (AGM) if required.

The board, in conjunction with the nominations committee, is responsible for appointing the CEO and for monitoring his management of the performance of the group’s assets and resources against approved strategic and financial objectives.

An authority framework is in place for the group. It governs the authority delegated to group management and matters reserved for approval by the board.

Strategy and reporting functions of the board

The board has set out the group’s business model, strategy and associated material risks in this integrated annual report. In undertaking its duties of directing the group’s strategy, assessing its business model and enhancing sustainability to create value for all stakeholders, the board takes into consideration the risks and opportunities related to the context in which the group operates.

The board has delegated the formulation and implementation of group strategy to management, with the board providing input where required. The board has approved the group strategy along with key performance criteria and targets to assess its implementation.

PRINCIPLE 4

The ARC committee assists the board with the governance of risk, as detailed in the committee’s terms of reference. The board assesses the overall viability of the company with regard to its reliance and effects on capital, solvency and liquidity, and its status as a going concern.

The integrated annual report enables stakeholders to make an informed decision about the group’s strategic direction, performance and prospects. The board delegates responsibility to the ARC committee to ensure the integrity of the integrated annual report, with all financial and non-financial indicators reviewed by group internal audit. Assurance on the annual financial statements is provided by the external auditors (as detailed in the Independent auditor’s report in the audited annual financial statements). Based on the recommendation of the ARC committee, the board approves the annual financial statements, the integrated annual report and any other reports published by the company.

PRINCIPLE 5

Board composition

The board, through the nominations committee, assesses the composition and membership of the board and board sub-committees annually.

Non-executive directors bring independent judgement and experience to the board’s deliberations and decisions, with the structure of the board ensuring that no one individual or group of individuals has unfettered powers of decision-making.

The board charter and nominations committee terms of reference prescribe that non-executive directors are selected on the basis that their business skills and expertise are appropriate to the group’s strategic direction and its specialism in alternative assets in credit-related and specialised market verticals. The board and nominations committee consider the academic qualifications, technical expertise, industry knowledge, experience, business acumen and diversity of board appointments. In addition, the board considers the integrity and leadership skills, as well as other directorships and commitments, of all directors to ensure that they have sufficient time available to fulfil their responsibilities.

Based on the annual board review performed in November 2020, the board and nominations committee are satisfied that the board’s overall composition (as well as that of its sub-committees) reflects an appropriate combination of knowledge, skills, experience, diversity and independence, as well as knowledge of the group and its specialism in alternative assets in credit-related and specialised market verticals.

PRINCIPLE 7
SKILLS AND EXPERIENCE

In assessing the skills and experience of the board, a board skills matrix is used to identify existing skills, knowledge and experience of the board, which is considered together with the overall tenure, diversity and independence of directors. In 2019, skills gaps were identified in the areas of IT and international experience, with the latter addressed through new board appointments in 2020 and the increased exposure of executive directors to Europe through TC Global Finance. In 2020, IT has again been identified as an area requiring further alignment between the group’s strategy and board experience, as well as sustainability/ESE skills.

INDEPENDENCE

In terms of their fiduciary duties, directors should act independently in exercising their judgement and fulfilling their duties, and should not have their discretion fettered in any way. Directors do not participate on matters in which they may be conflicted.

As part of the annual assessment of non-executive directors’ independence, the board specifically determined that both long-standing non-executive directors, Christopher Seabrooke and Phumzile Langeni, continue to act independently.

APPOINTMENT OF DIRECTORS

The nominations committee assists in identifying suitable board members, with the board skills matrix page serving to identify additional skills and experience required to augment the collective capability of the board.

The committee ensures background and reference checks are completed prior to the appointment of new directors to the board.

New directors are introduced to Transaction Capital through a formal induction programme, which is the responsibility of the company secretary and/or the CFO. The programme includes detailed discussions on the environment and operations of each of the major businesses, site visits, and an information pack about the group. Formal induction processes were conducted for those directors appointed during the reporting period.

CONSULTATION PROCESS

Directors are encouraged to take independent advice, where necessary, for the proper execution of their duties and responsibilities. This is done at Transaction Capital’s expense, after consultation with the chairman. In addition, directors have unrestricted access to the group’s auditors and professional advisers, and to the advice and services of the company secretary.

After advising the chairman of their intention to do so, directors may attend any sub-committee or subsidiary board meeting, and have unrestricted access to any executive, manager or employee in the group, as well as to any information generated by the group. In addition, the company provides training to directors, as required.

Board appointments, evaluations and processes

Sharon Wapnick was appointed as an independent nonexecutive director with effect from 12 March 2020. Paul Miller resigned as a non-executive director and was subsequently appointed as an alternate director to Roberto Rossi, both with effect from 12 March 2020. Ian Kirk and Suresh Kana were appointed as independent non-executive directors with effect from
1 November 2020.

This year, Buhle Hanise, Michael Mendelowitz, Diane Radley and Christopher Seabrooke will retire by rotation and are standing for re-election at the AGM. These directors have been appraised by the board and their re-election is recommended. In addition, Sharon Wapnick, Ian Kirk and Suresh Kana, who were appointed in 2020, will also be nominated for election as directors.

ASSESSMENT OF THE EFFECTIVENESS OF THE BOARD, ITS SUB-COMMITTEES AND THE COMPANY SECRETARY

The annual performance evaluations of the board, its subcommittees and the company secretary were undertaken during November 2020. Based on these evaluations, the board is satisfied as to directors’ commitment to their roles and their performance; sub-committees’ effectiveness and that they are operating to an appropriate standard; the effectiveness of the group’s risk management processes; the suitability of directors’ qualifications, skills and experience required to fulfil respective sub-committee mandates; and that King IV criteria for independence of independent non-executive directors
are met.

Assessments of the expertise, performance and experience of the chairman, lead independent non-executive director, CEO, CFO, internal audit executive and the company secretary found that they are performing adequately.

PRINCIPLE 9 & 10
SUCCESSION PLANNING

The nominations committee is responsible for formulating the formal succession plans of the board, the CEO and the CEO’s direct reports. The committee reviews these succession plans annually. On approval of the succession plans, the CEO conducts alignment discussions with potential successors, where necessary, which may result in direct development interventions.

Board and sub-committee meetings

Directors are required to attend all board meetings. The board follows a formal workplan that includes strategy, operational and financial performance, risk and governance. Progress against the group’s strategic objectives is reported on at each meeting. The company secretary is responsible for circulating the agenda and other meeting papers in good time. Formal board papers are prepared for each item on the meeting’s agenda, including reports by the executive office. At least four board meetings are held annually, one of which includes a strategic review.

BOARD MEETING
ATTENDANCE
(2020)


96%

BOARD SUB-COMMITTEE MEETING ATTENDANCE

Board sub-committees

Terms of reference for board sub-committees are reviewed annually. The governance function of the board sub-committees is outlined in the respective sub-committee terms of reference approved by the board.

Included in each sub-committee’s terms of reference is the imperative to enhance the standard of governance within the group, together with clearly defined authority delegation and reporting procedures. The board receives formal feedback from the chairperson of each sub-committee at each board meeting. Copies of the minutes of sub-committee meetings are included in the board documentation.


PRINCIPLE 8

BOARD SUB-COMMITTEES AT DATE OF REPORT


      Audit, risk and compliance     Nominations     Remuneration     Social and ethics     Asset and liability    
   

Chairperson

 

Diane Radley

    Christopher
Seabrooke
    Kuben Pillay     Phumzile Langeni     Suresh Kana  

 

   

Members

 

Buhle Hanise
Suresh Kana
Ian Kirk

    Suresh Kana
Kuben Pillay
Roberto Rossi
Sharon Wapnick
    Ian Kirk
Roberto Rossi
Christopher Seabrooke
    David Hurwitz
Suresh Kana
Kuben Pillay
Roberto Rossi
    Mark Herskovits
David Hurwitz
Johnathan Jawno
Ian Kirk
Diane Radley
Christopher
 

 

   

Functions
managed

 
  • Accounting, tax and compliance
  • IT
  • Internal audit
  • Risk Credit
   
  • Directors
  • People
  • Succession
   
  • People
  • Remuneration
  • Retention
   
  • Stakeholders
  • Transformation
  • Sustainability
  • Ethics
   
  • Funding
  • Liquidity
  • Capital
 

 

   

Number of
meetings
per year

 

At least four

    At least two     At least two     At least two     At least four  

 

The following changes to the composition of the board subcommittees took place for the year under review:

  • Roberto Rossi was appointed as a member of the social and ethics committee with effect from 1 February 2020 and as a member of the remuneration committee with effect from 12 March 2020.
  • Paul Miller resigned as a non-executive director and as a member of the remuneration committee with effect from 12 March 2020.
  • Phumzile Langeni resigned as a member of the ARC committee with effect from 30 June 2020.
  • With effect from 1 November 2020:
    • Christopher Seabrooke resigned as a member of the ARC committee.
    • Kuben Pillay resigned as lead independent non-executive director of the board.
    • Buhle Hanise resigned as a member of ALCO.
    • Ian Kirk was appointed as a member of the ARC and remuneration committees and ALCO.
    • Suresh Kana was appointed as lead independent non-executive director of the board, chairperson of ALCO, and a member of the ARC, nominations and social and ethics committees.
    • Sharon Wapnick was appointed as a member of the nominations committee.

Subsidiary boards

Each of Transaction Capital’s divisions has its own board of directors, with governance processes aligned to Transaction Capital’s governance framework to appropriately allocate levels of authority to individuals and committees throughout the group structure.

PRINCIPLE 6

COMBINED ASSURANCE FRAMEWORK

Audit, risk and compliance

The ARC committee is responsible for overseeing the external and internal audit functions, as well as the combined assurance model and its objectives, which include:

  • Enabling an effective internal control environment.
  • Supporting the integrity of information used for internal decision-making by management, the board and its subcommittees.
  • Ensuring the integrity of external reports.

Internal audit, risk management and compliance collaborate on combined assurance to support the board, and to effectively cover the group’s material risks and material matters.

External audit

The ARC committee is satisfied that the external auditor remains independent of the organisation. The group has a policy in place to address the provision of non-audit services by the external auditors. The ARC committee considers the financial reporting procedures that are in place and whether these procedures are operating effectively.

The ARC committee considered the tenure of Deloitte & Touche, who have been Transaction Capital’s auditors for 11 years. During this time, the group has rotated audit partners ahead of the five-year mandatory audit partner rotation requirement.

Internal audit

The purpose, authority and responsibility of the internal audit function are defined in the internal audit charter, which is aligned to the requirements of the International Standards for the Professional Practice of Internal Auditing (ISPPIA).

The group internal audit executive reports administratively to the CFO and functionally to the chairperson of the ARC committee. Internal audit has remained independent of all operational functions.

An independent quality review on internal audit was conducted during 2016, and the internal audit function was found to generally conform to ISPPIA, which is the highest rating awarded during such a review. The next independent quality review is set to take place in 2022 following the adoption of a revised internal audit methodology in the 2021 financial year. In accordance with Transaction Capital’s combined assurance model, internal audit continues to liaise with external audit and other identified assurance providers to effectively assure against key risks.

PRINCIPLE 15

Risks and opportunities

Transaction Capital has a board-approved risk framework, which sets the policy, risk appetite and tolerance levels of the group, identifies the material risks, and ensures ongoing risk oversight and monitoring for the group. The board is assisted by the ARC committee and ALCO in governing risk in a way that supports the group’s strategic objectives.

The group’s risk management approach aims to prevent the destruction of value through deliberate planning, arranging and controlling of activities and resources to minimise the negative impact of risks to tolerable levels. It also entails maximising the potential opportunities and positive impacts of risks to achieve the group’s strategic objectives and enhance value creation.

PRINCIPLE 11

Information and technology

IT is integral to the operations of the group and its divisions, and to their ability to deliver value and growth sustainably. The board has delegated the governance of IT to the ARC committee, which also ensures that an IT governance reporting framework is in place. The group’s IT policy addresses the governance of IT in line with the recommended practices of King IV.

Chief information officers are appointed at each division, and each subsidiary sets its own strategy with regards to IT, which is reported to its board and the ARC committee. IT expenditure is reported on and governed under the group’s authority framework.

The 2020 review of IT strategy included an enhanced focus on cybersecurity and connectivity for the group’s distributed workforce in response to the COVID-19 pandemic.

Disaster recovery and business continuity plans are in place for the group and are tested regularly. Compliance, information security, cybersecurity, risk and the control environment are all managed within each IT team. In 2020, these systems and processes were proven to be effective in light of the COVID-19 pandemic. Additionally, the IT functions reported to the ARC committee that adequate arrangements are in place for ongoing business continuity, with proactive monitoring of intelligence in place to identify and respond to potential cyberattacks. General cybersecurity measures are in place in both divisions.

PRINCIPLE 12

COMPLIANCE FRAMEWORK

Compliance structures

The ARC committee and the social and ethics committee are responsible for compliance oversight. Board processes are in place to keep up to date with changes in the legislative landscape. The group-wide risk framework specifically manages compliance risk, with dedicated internal compliance functions in place within the divisions.

Regulatory compliance is non-negotiable. The board proactively oversees the review of the group’s systems of control and governance. It also continuously recommends enhancements to ensure that each division is managed ethically, in compliance with legislative requirements and in line with best practice governance guidelines. Suitably qualified compliance officers are employed in the divisions to provide the following functions:

  • I dentify the applicable legislative, regulatory and governance requirements.
  • Prepare relevant monitoring programmes relating to these requirements.
  • Recommend improvements to the functional heads within the businesses and assist with implementation.

Divisional compliance reports are submitted to the ARC committee and board for consideration. The divisions actively engage with external legal counsel, where necessary, for advice on the application and implementation of any proposed new legislation, as well as on the potential effects of that legislation on their respective businesses.

PRINCIPLE 13

Regulatory environment

Due to the nature of its businesses, the group is subject to a broad range of regulations and legislation. Compliance with the letter and spirit of all laws, regulations and codes is required. The board, supported by the ARC committee, is responsible for keeping abreast of changes to the legislative landscape.

Remuneration governance

The remuneration committee is responsible for establishing and overseeing the group’s remuneration policy, which promotes the achievement of strategic objectives and encourages individual performance at all levels within the group.

Remuneration consists of base pay and short- and long-term incentives that are deemed to adequately remunerate executives while aligning executive performance with the requirements of shareholders. The remuneration policy and its implementation report are put forward for separate non-binding advisory votes at the AGM. At the AGM held on 11 March 2020, the remuneration policy and implementation report both received the requisite non-binding advisory votes to pass, at 83% and 84% respectively. The remuneration policy was updated after extensive engagement with shareholders and investors on areas of concern.

PRINCIPLE 14