The Combined Code
The Group is committed to practising good corporate governance of its affairs as part of its management of relationships with its shareholders and other stakeholders. The Group seeks to uphold and to report on compliance in accordance with best practice in corporate governance.
The directors are satisfied that the Group has complied with the principles and provisions set out in section 1 of the Combined Code published in June 2008 (available from www.frc.org) and was compliant throughout the financial year under review. During the current financial year, the Board will continue to assess its practices to ensure compliance with the new UK Corporate Governance Code which was published in June 2010 and will continue to monitor any changes required to be made to further develop and enhance its governance policies.
The principles of the Combined Code cover four areas: the Board, directors’ remuneration, accountability and audit and shareholder relations. With the exception of the directors’ remuneration (which is dealt with separately under the Remuneration Report) the following sets out how the Board has applied the principles.
The Board is committed to establishing and maintaining high standards of corporate governance. Its policy is to appoint directors with appropriate skills who have sufficient time to carry out their duties adequately. The Board provides opportunities through site visits and regular access to senior management to permit directors to familiarise themselves with the Company and the markets in which it operates.
The BoardThe Board’s composition
As of 30 April 2011 the Board of the Company consisted of the non-executive Chairman, three executive directors and five non-executive directors. Click here to view the profiles of the Board members. No individual or group of individuals dominates the Board’s decision-making process. The non-executive directors occupy, or have occupied, senior positions in industry. Together they constitute a valuable body of relevant industry experience and expertise.The role of the Board
Individual members of the Board have equal responsibility for the overall stewardship, management and performance of the Group and for the approval of its long-term objectives and strategic plans.Division of responsibilities
There is a clear division of responsibilities between the role of the Chairman and that of the Chief Executive of the Company and the roles are clearly set out in writing and reviewed by the Board. The primary responsibility of the Chairman is to lead and manage the Board and to promote high standards of corporate governance, and that of the Chief Executive is to manage the business of the Group.The Chairman
Peter Fellner was appointed non-executive Chairman of the Company with effect from 1 May 2009. The Chairman is responsible for leading and managing the Board and ensuring its effectiveness on all aspects of its role. He works closely with the Chief Executive on developing Group strategy, and provides general advice and support as well as participating in the dialogue between the Company and its major shareholders. His other significant commitments can be read on Board of Directors page.The Chief Executive
Jonathan Glenn is the Company’s Chief Executive. His principal responsibility is to manage the Group’s business and to lead the senior management team to ensure that the Company meets its objectives.The Senior Independent Director
George Kennedy was appointed the Senior Independent Director with effect from 1 May 2009. The Senior Independent Director is responsible for chairing meetings of the non-executive directors where the Chairman is not present and is available to meet with shareholders.
The non-executive directorsIndependence
Each of the non-executive directors (Peter Fellner, Jim Dick, George Kennedy, Chris Banks, Lynn Drummond and William Jenkins) are free from any relationship with the executive management of the Company and are free from any business or other relationship that could affect or appear to affect the exercise of their independent judgement. The Board considers that all of the Company’s non-executive directors are independent directors, in both character and judgement, in accordance with the recommendations of the Combined Code.Terms of appointment
All non-executive directors are appointed for an initial term of three years subject to satisfactory performance. After this time they may serve additional three-year terms following review by the Board. Further details of their terms and conditions are summarised in the Remuneration Report and the terms and conditions of appointment of the non-executive directors are available at the Company’s Registered Office.Appointment of non-executive directors
Non-executive directors are appointed to the Board following a formal, rigorous and transparent process, where appropriate involving external recruitment agencies, to select appropriate individuals who have a depth of relevant experience, thus ensuring that the selected candidates will be capable of making a considerable contribution to the Board. This process is monitored by the Nomination Committee.Meetings of non-executive directors
Led by the Senior Independent Director, the non-executive directors meet informally, without the Chairman being present, principally to appraise the Chairman’s performance and to review his remuneration. The Chairman holds meetings at least annually with the non-executive directors without the executive directors present.
The operation of the BoardDelegated authorities
The Board has the authority for ensuring that the Group is appropriately managed and achieves the strategic objectives it sets. To achieve this, the Board reserves certain matters for its own determination including matters relating to Group strategy, approval of interim and annual financial results, dividend policy, major capital expenditure, treasury policy, risk management and the effectiveness of the systems of internal control.
The Board performs its responsibilities through an annual programme of meetings, and by continuous monitoring of the performance of the Group as a whole. The Board also delegates the discharge of a number of its responsibilities to committees, and matters not listed above are usually delegated to management. The Board’s terms of reference and the full schedule of matters reserved to the Board are published on the Company’s website.
The various matters delegated by the Board to management include:
- maintaining systems that identify and evaluate significant risks affecting strategies that apply to management’s areas of the business;
- identification and evaluation of significant risks to the business, together with the design of mitigating controls; and
- operations of the internal control systems.
The Board has eight scheduled meetings per year, with other meetings convened for specific matters, some of which are delegated to committees, as appropriate. The attendance of each of the directors, whether in person or by telephone, at the scheduled Board and committee meetings where appropriate, is shown below:
|Name||Board meetings (Total 8)||Nomination Committee meetings
|Remuneration Committee meetings
|Audit Committee meetings
Board members are provided with appropriate documentation in advance of each Board and committee meeting. Senior executives are invited to attend Board meetings periodically for the purpose of making presentations on their areas of responsibility. In addition to formal Board meetings, the Chairman and Chief Executive meet frequently and make regular contact with other Board members. The Board and the senior executives meet formally once during each period to discuss corporate strategy.Independent professional advice
The Board has approved a procedure whereby directors may consult the Company’s advisers and, if necessary, take independent professional advice at the Company’s expense, although not in respect of a director’s personal interests. Before seeking advice, the director concerned must notify the Chairman, or in his absence, the Senior Independent Director. No such advice was sought by any director during the year.Company Secretary
Board members have access to the Company Secretary who attends all Board meetings. The appointment and removal of the Company Secretary is subject to the approval of the Board.Election and re-election of directors
The Company’s Articles of Association require a certain number of directors to retire and resubmit themselves for re-appointment each year. Any director appointed during the year is subject to appointment by shareholders at the first Annual General Meeting after his appointment. The number is made up initially from those directors who have not retired from office at the two preceding Annual General Meetings. Where this number is less than a third of all directors, those who have been longest in office since their last appointment or re-appointment make the number up to one third. As between those who became appointed or were last appointed on the same day, those to retire are to be determined by lot. New Articles of Associations (‘Articles’) will be proposed at the forthcoming Annual General Meeting (‘AGM’). Assuming that the new Articles are approved, all directors will be required to retire and submit themselves for re-election at the first AGM after appointment and thereafter at least every three years.
Board effectivenessInduction and professional development
Upon joining the Board, newly appointed directors receive induction comprising background information on the operation and activities of the Group, the role of the Board and those matters reserved for the Board’s decision, responsibilities of, and membership of, Board committees and the latest financial information on the Group. They are also encouraged to visit the sites at which the Group operates and are invited to meetings with relevant members of senior management. Training and development needs of directors are reviewed regularly. The directors are kept appraised of developments in legal, regulatory and financial matters affecting the Group from the Group Finance Director, the Company Secretary, the Group’s external auditors and advisers.Performance evaluation
An evaluation of the Board is normally carried out each year in respect of each Board member and each Board committee. A Board evaluation was carried out during the year ended 30 April 2011 following a rigorous and formal examination requiring completion of a questionnaire relating to the performance of the Board and its committees and with regard to compliance with the Combined Code and Turnbull Guidance. There was generally a positive response which indicates that the Board and its committees are operating in an effective manner and that the Board provided the effective leadership and control required for a listed company. The Board will continue to review its effectiveness in the year ahead.
The Board has the three main committees listed below. The current terms of reference of each committee may be obtained from the Company’s website.
During the year members of this committee were George Kennedy (Chairman), Jim Dick, William Jenkins and Lynn Drummond (who joined the Committee with effect from 9 February 2011). The Chairman is invited to attend all meetings, but does not attend any part of any meeting at which his own service contract is discussed. The Chief Executive attends by invitation where appropriate except where his own remuneration is being considered.
The Remuneration Committee is primarily responsible for determining the structure, components including pension rights and compensation payments and level of the remuneration packages of the Chairman, the executive directors and designated members of the senior management team. Details of the role of the Remuneration Committee and attendance of Committee members can be found here. The Remuneration Committee met three times during this year.Nomination Committee
Members during the year were Peter Fellner (Chairman), Chris Banks, Jim Dick, Jonathan Glenn, George Kennedy, William Jenkins and Lynn Drummond (who joined the committee with effect from 9 February 2011).
The Nomination Committee is primarily responsible for reviewing the membership of the Board and identifying suitable candidates for appointment and re-appointment as directors. In addition, the Board has delegated responsibility to the Nomination Committee for ensuring that succession planning both at Board and senior management level is undertaken. The inclusion of the Chief Executive in the membership of the Nomination Committee ensures that a balanced view is taken regarding the needs of the Group as a whole.
As part of its regular evaluation of Board requirements taking into account the importance of maintaining a balance of skills, experience, diversity, independence and knowledge, the Nomination Committee recommended during the year the appointment of Nick Higgins as an executive director and Dr Lynn Drummond as a non-executive director. Their biographies can be found here.
The Nomination Committee met once during the year.Audit Committee
The Audit Committee is comprised entirely of independent non-executive directors. Members during the year have been Chris Banks (Chairman), Jim Dick and George Kennedy. Chris Banks is the individual who the Board considers has recent and relevant financial experience and is a chartered accountant.
The external auditors’ lead partner and the Group Finance Director attend each meeting as requested by the Committee. The Board considers that the membership of the Committee as a whole has recent and relevant financial experience properly to discharge its functions.
The Audit Committee met three times during the year. The meetings were attended by all members. At each meeting the members of the Committee took the opportunity of meeting the external auditors without management being present.
The Audit Committee is responsible for reviewing on behalf of the Board the Group’s financial and reporting practices and disclosures, reviewing the integrity of the financial statements, the Group’s system of internal controls, the work of the external auditors and Group compliance with financial policies, laws and regulations. Audit Committee Terms of Reference may be obtained from the Company’s website.
The annual and half-yearly financial reports are reviewed by the Committee through a process which includes discussion with the Group Finance Director and the external auditors. The external auditors prepare reports to the Committee on significant accounting policies and issues and judgements applied in the preparation of the financial reports. The Audit Committee gives its recommendation to the Board concerning the adoption and publication of all financial reports to shareholders.
In addition to the Board, the Audit Committee has conducted its annual review of the system of internal controls based on a review of significant risks identified, internal reviews, external audits and reports from management.
In accordance with its policy on non-audit services provided by the Company’s auditors, the Committee reviews and approves the award of any such work. The Audit Committee refers to the Board for approval of any work comprising non-audit services where the fees for such work will represent a significant proportion of the annual audit fee.
The Audit Committee keeps under review the scope and results of the external audit work, its cost and the independence and objectivity of the auditors. The independent auditors operate procedures to safeguard against the possibility that their objectivity and independence could be compromised. This includes the use of quality review partners, a technical review board (where appropriate) and annual independence review procedures. The auditors are required to rotate the lead audit partner to the Group every five years. A new lead partner was appointed during the year. The Committee has considered the re-appointment of the auditors of the Group and recommended to the Board that PricewaterhouseCoopers LLP be proposed for re-appointment, having noted the scope and results of their work in relation to this year’s audit as well as their objectivity and independence. The Board endorsed this recommendation.
The Committee has considered whether there is a need for an internal audit function within the Group and has concluded that no internal audit function is immediately required. In reaching its conclusion, the Committee considered the size and structure of the Group and its finance function as well as the procedures, controls and mechanisms designed to monitor and control risk within the Group. The Committee also took into account the fact that the business operates within a highly regulated industry.
The Audit Committee has reviewed and approved the internal procedures whereby employees can raise concerns about possible financial or other irregularities. The policy gives guidance on the type of matters that staff may wish to disclose, and a means of doing so via an independent organisation in the event that any staff member feels that he or she cannot make a disclosure via the usual management channels.
The Company is committed to the highest standards of openness, integrity and accountability and the prevention of bribery and corruption. The Group operates a whistle-blowing policy so that employees can report confidentially any matter giving rise to concerns about the operation of the Group’s business.
Other CommitteesThe Executive Committee
This Committee is responsible for the executive management of the Group. It comprises the Chief Executive, the Group Finance Director, the Company Secretary/General Counsel, the managing directors of the Group’s businesses, the Director of Human Resources, the Group Director of Operations and the Corporate Development Director. This Committee meets monthly to review and make decisions on operational matters not reserved for Board decisions.The Corporate Responsibility Committee
The Corporate Responsibility Committee is responsible for reviewing and prioritising the Group’s Corporate Responsibility activities, further details of which can be found in the Corporate Responsibility Review. The Committee is chaired by non-executive director Jim Dick. Other members include the Chief Executive Officer, the managing directors of Bespak and King Systems and the HR Director. The Company Secretary acts as Secretary to the Committee.
Internal controls review
The Board acknowledges that it is responsible for the Group’s system of internal controls and for reviewing its effectiveness. Such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable, but not absolute assurance against material misstatement or loss. The Board has received regular reports on areas of any significant risk and on related internal controls. The Board reviews the framework of internal controls annually and has reviewed the effectiveness of its internal systems of control as they have been operated within the year in accordance with the Turnbull Guidance (2005). This system has been in place for the year under review and up to the date of approval of the annual report and accounts.
The review covers all material controls including financial and financial reporting processes, operational, compliance and risk management systems.
Controls over the financial reporting process and preparation of the consolidated accounts consist of extensive reviews by qualified and experienced individuals that ensure that all elements of the financial statements and appropriate disclosure are considered and accurately stated.
The Board accepts responsibility for determining the nature and extent of the significant risks it is willing to take in achieving its strategic objectives. There is an ongoing internal process for identifying, evaluating and managing significant risks faced by the Company that is regularly reviewed first by the Executive Committee and then by the Board. This process has been in place throughout the year and up to the date of this report and accords with the Turnbull Guidance. The Executive Committee carries out a business risk assessment exercise to identify the key risks and establish means of monitoring and controlling risk. The Company’s strategic plan is reviewed annually at an off-site meeting involving the Board and the Executive Committee. An annual budget is prepared by each of the operating Divisions of the Company and this is consolidated into a Group Plan, which is reviewed and approved by the Board.
Progress against budget is monitored at operating business and Group levels throughout the Company via monthly reporting of actual financial performance against budget and prior period actual results. The Executive Committee also reviews monthly the key measures of operating performance.
The Group has clear authority limits deriving from the list of matters reserved for decision by the Board, including capital expenditure approval procedures.
Relations with shareholders
The Board regards relationships with shareholders as very important and it aims to encourage open dialogue with them through regular meetings with the Group’s institutional shareholders, including regular meetings following the announcement of the Company’s interim and annual results. In particular, shareholders may meet with any new non-executive director if they wish. Meetings are also held at other times with institutional investors and other shareholders at their request. The Chairman ensures that views expressed at these meetings are reported to the Board as a whole. The Company’s brokers also attend Board meetings at the request of the Chairman to provide feedback on shareholder opinion.
The Senior Independent Director is available to meet with shareholders as required.
All shareholders have the opportunity of discussing the Group’s performance and development at the Annual General Meeting, which provides a forum for shareholders to raise issues with the Board. Members of the Remuneration, Nomination, Audit and Corporate Responsibility Committees will also be available at the Annual General Meeting so that shareholders may discuss any queries they may have.
The directors’ responsibility for preparing the accounts is set out in the Directors’ Report.
The directors have a reasonable expectation that the Group and the parent company have adequate resources to continue in operational existence for the foreseeable future and have therefore adopted the going concern basis in preparing the accounts.