OWNERSHIP
Investcorp Bank BSC (IBBSC) is domiciled in Bahrain as a wholesale bank, under the regulatory oversight of the Central Bank of Bahrain (CBB), with shares listed and traded on the Bahrain Stock Exchange (BSE) and the London Stock Exchange (LSE), represented by GDRs in the case of the LSE listing.Within the Investcorp Group of companies, IBBSC is the principal parent entity and owns a 100% economic interest in a Cayman Islands-based subsidiary, Investcorp Holdings Limited (IHL). In turn, IHL has two subsidiaries, the principal being Investcorp SA (ISA), domiciled in Luxembourg as a financial holding company.The principal subsidiaries of the Group are discussed in footnote 1.A(iv) of the consolidated financial statements of IBBSC.

Investcorp Bank BSC and its subsidiaries
The ownership and subsidiary structure of Investcorp is designed to ensure that:

• The interests of the strategic shareholder group, comprising Investcorp directors, prominent Gulf individuals and institutional shareholders, together with the public shareholders, are closely aligned with management.
• Investcorp effectively operates as a management controlled entity.
• Substantially all of the Group's assets and operations are owned and controlled by ISA. As a result, substantially all of Investcorp's commercial risks are held outside the Middle East. This structure, reinforced by the protection mechanism described below, is viewed favorably by both lenders and rating agencies in terms of domicile risk.

Ownership structure
The ownership structure of IBBSC is outlined in footnote 1.A(iii) of the consolidated financial statements of IBBSC. IBBSC is owned by public shareholders, management and strategic shareholders. Public shareholders own approximately 38.8% of the ordinary shares of IBBSC. Approximately 18.4% of these shares are traded on the BSE and are held by Gulf-based nationals or institutions, and approximately 20.3% of these shares are traded on the LSE (represented by GDRs) and are held primarily by international institutions.

Ownership Holdings Limited (OHL), directly and through C.P. Holdings Limited (CPHL), has control of 52.6% of the ordinary shares of IBBSC. CPHL is majority owned by OHL which, in turn, is majority owned by SIPCO Limited (SIPCO).  SIPCO is the company through which IBBSC's employees beneficially own IBBSC's ordinary shares. Approximately 60 strategic shareholders who are Gulf-based nationals or institutions own the balance of CPHL. 10.5% of IBBSC's shares are held in treasury. Treasury shares include a portion that is held for future sale to management under the SIP Plan. The Group has approval from the CBB to hold up to 40% of the ordinary shares of IBBSC for the SIP plan. 

Investcorp management's ownership in the Group is implemented through the SIP plan. This provides for management to buy their allocated shares for cash. This program is an effective tool for ensuring stakeholder alignment, encouraging management to focus on long-term value creation and enable prudent control of balance sheet risks.

As a result of certain proxy arrangements and IBBSC's ownership structure, seven senior members drawn from the Board of Directors of IBBSC and management of the Investcorp Group (the 'Controlling Shareholders') control the voting of 61.2% of the ordinary shares of IBBSC.

CORPORATE GOVERNANCE
Investcorp views corporate governance as the manner in which members of the Board of Directors, shareholders, investors, management and employees of Investcorp are organized and how they operate in practice. Good corporate governance involves keeping business practice above reproach and thus retaining the trust and confidence of all the stakeholders who enable Investcorp to operate, thrive and prosper.

Investcorp makes large investments in mostly illiquid asset classes such as private equity, real estate and venture capital. It places a majority of these investments with clients and retains a portion for its own balance sheet. These investment activities operate with above-average risk levels and have led to the development of a comprehensive risk management infrastructure and strong corporate governance over the past 25 years.

Investcorp's corporate governance practices have been structured
around the following four principles:

i. alignment of interests among shareholders, clients and management combined with protection of lenders' interests;
ii. transparency of reporting and actions plus proactive risk control;
iii. collective decision-making; and
iv. an institutional mindset.

i. Alignment of interests
A central tenet of Investcorp's philosophy is to ensure that interests among shareholders, clients and management are optimally aligned and that lender interests are well protected.

Co-investments: clients, shareholders and management all participate in each of Investcorp's investment products. Investcorp retains a stake of between 5% and 20% in each private equity or real estate transaction, placing the balance with clients. Investcorp also invests a substantial portion of its liquid assets in the hedge funds program. Hence, through ownership of Investcorp, shareholders and management indirectly participate in each of the investment products. In addition, Investcorp's employees co-invest alongside clients and Investcorp in all these investment products (further described under 'program for investment participation' in Note 25 of the consolidated financial statements of IBBSC).  As a result, all three groups are collectively exposed to the same risks and share the same outcomes. This emphasis on co-investment ensures that all stakeholders are motivated to grow Investcorp and enhance its value through generation of superior risk-adjusted returns in each of the Company's products.

Performance-based incentive compensation: investment professionals, consistent with industry practice, participate in performance-based 'carry' programs whereby a certain variable portion of exit proceeds due to investors from realization of their investments is shared with the investment professionals, provided that a certain pre-established minimum performance objective is exceeded on the underlying investment.

In addition, approximately two-thirds of the overall executive compensation is paid in the form of variable incentive compensation that is highly correlated with Investcorp's net income. Investcorp's net income is driven by its ability to acquire, place, manage and realize investments (franchise value) and realize gains from investments on its balance sheet.

The franchise value, in turn, depends on management's ability to provide long-term value to Investcorp's clients and shareholders and protection for its creditors. In this manner, Investcorp's executive compensation programs play a critical role in aligning management's interests with the interests of shareholders, clients and lenders.

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 are vital elements of a group-wide framework for mitigating risks, allocating resources and making decisions with full accountability based on all relevant information.

Board of directors: The Board of Directors of IBBSC is ultimately accountable and responsible for the affairs and performance of IBBSC. Entrusted by shareholders, the Board establishes organizational and strategic policies to be implemented day-to-day by senior management. Since Investcorp's inception, the Board has been composed of non-executive directors, with the single management director being the CEO. Also since inception, IBBSC has separated the roles of Chairman of the Board of Directors and the CEO. Directors are elected for three-year terms and, in line with CBB corporate governance standards, a letter of appointment is issued to each Director following his election to the Board, confirming his election to the Board of Directors and any Board of Directors Committee. Each Director's letter of appointment references the Investcorp Director's Handbook and the Handbook's provisions relating to:

• Administrative responsibilities of Directors
• Legal obligations of a Director
• Board of Directors structure and operations
• Restrictions on a Director's trading practices

Please click here for directors' details.

The Board of Directors has determined that each Director other than the CEO is an independent non-executive Director.  In making this determination, the Board of Directors considered whether each director:

• Is a 'controller' of IBBSC as that term is defined by the CBB, which term includes a person who owns 10% or more of the shares of IBBSC;
• Is an 'associate' (as defined by the CBB) of a Director or a member of senior management of IBBSC, which term includes a close relative of a Director or member of senior management of IBBSC;
• Is a professional advisor to IBBSC;
• Is a large depositor with or borrower from IBBSC; or
• Has a significant contractual or business relationship with IBBSC which could be seen to interfere materially with the Director's capacity to act in an independent manner.

All of the Directors own Investcorp shares, in part to satisfy a requirement under the Bahrain Commercial Companies Law that each Director own shares with an aggregate nominal value of not less than BD 10,000 (approximately $26,525), which represents 107 shares at $250 par value. In addition, many of the Directors invest in various Investcorp investment products (Investcorp Investments).

With reference to the last of the criteria listed above, in determining Director independence, the Directors have not considered their ownership of Investcorp shares or their Investcorp Investments as factors that could materially interfere with a Director's ability to act in an independent manner because their share ownership and Investcorp Investments are purely passive in nature.

The Board determined the significance of any other contractual or business relationship that a Director has with IBBSC by reference to the extent of the relevant Director's other contractual and business relationships and determined that a contractual or business relationship with IBBSC that represents 5% or less of a Director's net worth or annual income is not significant.

In the case of any Director that does have a significant other contractual or business relationship with IBBSC, the Board of Directors determined that a Director's demonstrated independence of character, judgment and integrity during his years of service on the Board of Directors are conclusive of that Director's independence.

The Board of Directors is given open access across the management team. This team provides a regular flow of information to the Board through full year forecasts, year-to-date updates and long range plans. All major decisions are discussed with the Board, including the rationale behind investment decisions.

The Board of Directors meets at least four times a year. Governance of Investcorp is carried out through the focused activities of three Board committees, together named executive committees, each of which meets at least three times a year.

The administrative policy committee is responsible for making administrative decisions and for oversight of Investcorp's administrative policies. The committee's principal charter calls for it to:

• approve cash bonuses, compensation programs and other incentive plans;
• review corporate and administrative policies;
• approve annual budgets and dividend policy; and
• function as a nominating committee to identify and review candidates to fill vacancies on the Board of Directors and evaluate the balance of skills, knowledge and experience on the Board of Directors when evaluating potential candidates to fill vacancies on the Board of Directors.

The audit committee is responsible for the oversight of Investcorp's internal audit, external audit, risk management and compliance activities. Both the head of internal audit and the head of risk management report to the committee.  The committee's principal charter calls for it to:

• review the integrity of Investcorp's financial reporting;
• ensure the independence of Investcorp's internal audit functions;
• review the adequacy and effectiveness of Investcorp's accounting and financial controls;
• oversee the selection and compensation of Investcorp's external auditor for appointment and approval at each Annual General Meeting and ensure the external auditor's independence;
• review the adequacy and effectiveness of Investcorp's risk management policies and methodologies; and
• oversee Investcorp's compliance with all applicable laws and regulations.

The investment policy committee is responsible for the oversight of Investcorp's investment policies. The committee's principal charter calls for it to:

• review and approve recommendations for investment strategies and products and services;
• set investment and trading limits;
• evaluate investment, financing and trading decisions and recommend enhancements; and
• approve corporate funding policy and banking relationships.

At the end of FY09, Investcorp's CEO, Nemir A. Kirdar, took on more direct involvement in the day-to-day management of Investcorp and assumed direct responsibility for those business areas that had previously reported to him through the Chief Operating Officer (COO), as it was felt that in light of current industry challenges the strategic direction of Investcorp would benefit from the CEO being closer to the lines of business.

The leadership team now comprises five senior partners: Nemir A Kirdar, Executive Chairman & CEO; Mohammed Al-Shroogi, President, Gulf business; Christopher O'Brien, President, US and European business; Rishi Kapoor, Chief Financial Officer; and Mark Slaughter, Chief Administrative Officer. Messrs. Al-Shroogi, O'Brien, Kapoor and Slaughter will report directly to the CEO.

In line with the corporate governance standards of the CBB, letters of appointment have been issued to the senior members of the management team. Each letter of appointment confirms the principal management responsibilities and reporting lines of the senior manager and specifies his or her responsibilities.

Click here for a list of the senior members of the management team and their principal management responsibilities.

Transparency for other stakeholders: Investcorp is transparent and open with its shareholders, clients and lenders. Investcorp 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 AGM, provides further information and an opportunity for interchange of opinions and ideas. The relationship management team and several senior members of the management team also periodically meet with shareholders in one-to-one meetings. Clients have direct, ongoing access to the relationship management team and investment professionals. Clients are provided with a detailed review of each investment in their portfolio every six months, and they regularly meet with relationship management team members to discuss their current portfolio and new investment opportunities. Periodically, clients have the opportunity to meet the management teams of their portfolio companies. Lenders receive semi-annual updates on the health of the business and have direct, ongoing access to the members of the corporate financial management team, usually through one-to-one meetings.

iii. Collective decision-making
At Investcorp, significant decisions are always made by teams, rather than by individuals. No single person at Investcorp has a right of veto or is in a position to override another. 

Such collective decision-making is evident in the set of cross-functional committees that fully review and approve all investments and asset/liability decisions as described elsewhere in this annual report, including the various investment committees, the commitment committee and the FRMC.

Investcorp acts with a partnership mentality. All business units are accountable to, and have their performance evaluated by, their partners within Investcorp. In addition, all employees adhere to the Investcorp Group code of conduct. They are expected to consider the reputational impact of their actions and to act ethically at all times to protect the interests of Investcorp, shareholders, clients and lenders.

iv. Institutional mindset
Investcorp is an institution. It has a strong corporate culture, a highly professional management team, appropriate infrastructure and systems, as well as a deep talent base. Supporting this are concrete institutional foundations. Investcorp is a publicly listed company and has been licensed and regulated as a bank since inception.