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Investors  Corporate Governance


Statement of compliance with the UK Corporate Governance Code

The Company is committed to the principles of corporate governance contained in the UK Corporate Governance Code that was issued in 2016 by the Financial Reporting Council (‘the Code’) for which the Board is accountable to shareholders. Throughout the financial year ended 31 January 2017 and to the date of this report, the Group has been compliant with the provisions set out in the Code. Further explanation of how the Main Principles have been applied is set out below and in the Directors’ Remuneration Report and Audit Committee Report.


Leadership

The Board and its role

The Board is collectively responsible to shareholders for the long-term success of the Company. It sets the Company’s strategic objectives and determines the risk appetite and control framework within which those objectives are achieved. The Board also provides leadership of the Company and direction for its management, ensuring that the necessary resources are in place to enable these objectives to be met. The Board also oversees the Company and its businesses within a robust governance structure to help achieve long-term success and to deliver sustainable shareholder value.

Throughout the financial year there were three Executive and four Non-Executive Directors. There were no changes to the composition of the Board’s members during the year and a list of Directors, their biographies and roles is set out on page [6]. The Board members with executive responsibility were the Chief Executive Officer, Group Finance Director and European Managing Director.

The Board meets at least eight times a year and has a fixed schedule for reviewing the Group’s operating performance. In addition, other meetings are arranged as required to deal with specific issues or transactions.

Matters reserved for the Board

The Board has a schedule of matters and responsibilities specifically reserved to itself, the main items of which include:

  • setting the Group’s strategic aims and corporate objectives;
  • approval of the published financial results and other external reporting;
  • approval of Nomination Committee recommendations;
  • annual approval of the Group Strategic Plan and Budget;
  • approval for acquisitions, mergers and disposals;
  • new businesses which require start-up capital;
  • material capital expenditure and leasehold agreements;
  • material contracts and transactions not in the ordinary course of business;
  • risk management and the underlying internal control environment;
  • treasury policy and significant financing arrangements; and
  • recommendation of the proposed level and payment of dividends.

Outside the formal schedule of matters reserved for the Board, the Chairman and Non-Executive Directors make themselves available for consultation with the executive team as often as necessary.

Division of responsibilities

The division of responsibilities between the Chairman and Chief Executive Officer is clearly established, set out in writing and agreed by the Board. There is a strong Non-Executive representation on the Board. The Non-Executive Directors meet regularly during the year without the Executives and provide effective balance and challenge.

The Executive Directors are responsible for the overall operational and financial management of the Group within the framework set out by the Board. The Executive Council sits below the Board and executes the day-to-day running of operations. The Executive Council comprises senior operational management, including the Executive Directors.

The Senior Independent Director and the Company Secretary monitor procedural compliance. The appointment and removal of Directors is a matter for the Board as a whole. Independent professional advice and training are available to all the Directors. The Senior Independent Director is available for consultation with shareholders. The Executive Directors meet with the Company’s major shareholders and other potential investors on a regular basis and report to the Board on those meetings.

Board and Committee attendance



Number of meetings



Group Board

 Nomination Committee

 Remuneration Committee

 Audit Committee

Total number of meetings

9

4

5

3

Non-Executive Directors

Julie Baddeley

9

4

5

n/a

David Bezem

9

4

5

3

Ian Davies

8

3

4

3

Kevin Thomas

8

3

5

2

Executive Directors

Richard Ashcroft

7

n/a

n/a

n/a

Albert Ellis

9

4

n/a

n/a

Simon Wassall

9

n/a

n/a

n/a

 

Board Committees

In relation to non-reserved matters the Board is assisted by a number of committees with delegated authority. The defined terms of reference for each committee are available within the Investors section of the Group’s website.

Audit Committee

The Audit Committee meets at least twice a year with the Group’s senior financial management and the External Auditor to review the interim and annual financial statements, the accounting policies of the Group, its internal financial control procedures and compliance with accounting standards.

The members of the Committee during the year were Ian Davies (Chairman), David Bezem and Kevin Thomas. The Board considers that the members of the Committee both individually and as a whole have sufficient recent and relevant financial experience to discharge its function.

The Audit Committee Report on pages [X to Y] includes details of the Audit Committee policy, practices and engagement with the External Auditor.

Remuneration Committee

The Remuneration Committee meets at least twice a year. The members of the Committee during the year were David Bezem (Chairman), Julie Baddeley, Ian Davies and Kevin Thomas.

The Remuneration Committee determines and approves the policy and remuneration of the Company’s Executive Directors and the Chairman of the Board. The Chief Executive Officer may be invited to attend meetings of the Committee but does not participate in discussions of his own remuneration arrangements.

The remuneration of the Non-Executive Directors, excluding the Chairman of the Board, is set by the Executive Directors.

The Remuneration Report on pages [37 to 59] includes details of remuneration policy and the report on remuneration in the 2017 financial year.

Nomination Committee

The Group has a Nomination Committee which provides a formal, rigorous and transparent procedure for the appointment of new Directors to the Board. The members of the Committee during the year were Julie Baddeley (Chairman), Ian Davies, David Bezem, Kevin Thomas and Albert Ellis.

The Committee’s terms of reference include:

  • responsibility for identifying and nominating candidates for appointment to the Board;
  • evaluating the balance of skills, knowledge and experience required on the Board; and
  • succession planning.

In making appointments, the Nominations Committee takes account of the diversity of experience, gender, background and the composition of the Board.

The Committee considers succession plans for the members of the Group Board over the short and longer term, keeping in mind the balance of skills, experience and background required to ensure the Group’s commitment to deliver sustainable shareholder value is met. The Committee considers the requirements of the Board and seeks to maintain a balance between innovation and experience when considering the required composition of the Board.

In September 2016 Richard Ashcroft informed the Board of his intention to step down at a date to be determined in 2017. The process for selection of his successor was conducted by the Committee and involved determining the profile of the candidate required to fill the vacancy. The Committee was assisted by an independent executive search company. Following a thorough process, Mark Garratt was recommended to the Board as Group Finance Director Designate. The Board approved the appointment and Mark joined the Board as an Executive Director on 3 April 2017.

The Group remains committed to maximising career opportunities through significant investment in training and professional development at all levels of the Group. The Committee supports internal development programmes to build the skills required of future Board Directors and leaders amongst relevant employees.

The terms and conditions for the appointment of Non-Executive Directors are available for review at 110 Bishopsgate, EC2N 4AY during normal business hours. They will also be available 15 minutes before the AGM begins, at 9.30am on 29 June 2017.


Effectiveness

Re-election of Directors

The Company’s Articles of Association provide that each Director must retire from office every three years. Albert Ellis, Ian Davies and Kevin Thomas will stand for re-election at the AGM on 29 June 2017. The Board is satisfied that all three Directors have sufficient skills and experience to qualify them for re-election.

Mark Garratt joined the Board in April 2017 and will stand for election at the AGM.

Performance evaluation

In line with the Code, each year a rigorous evaluation of the Board’s performance is conducted, covering individual Directors, each of the Committees and the Board itself. In the current year, this was undertaken by the Senior Independent Director and was completed in January 2017. A formal survey was conducted to allow the members of the Board to provide confidential feedback. This feedback was discussed and actions set where required. In the prior year, the evaluation process was performed by Socia, an independent external adviser. The recommendations arising from that review were adopted and progress reviewed by the Senior Independent Director in the subsequent review. No significant issues were raised and the Board concluded that it remains effective.

The Board discusses and reviews its performance and membership regularly and sets its objectives annually. As part of this process, the Board, including the Chairman, considers whether it has sufficient time to discharge its responsibilities effectively. The Directors’ profiles and other commitments are set out on page [6].

Professional development

The Board has a policy of providing reasonable funding for independent professional advice for all Directors in furtherance of their duties as Directors of the parent Company and continued professional development. Directors have access to suitable resources to update and develop their knowledge and capability.

On joining the Board, a new Director receives appropriate induction, including meetings with other Directors and senior management, the opportunity to visit the Group’s key operations and meeting the Group’s principal advisers.


Accountability

A statement of Directors’ responsibilities in respect of the Annual Report is set out on page [X]. The Board’s responsibility to present a fair, balanced and understandable assessment of the Company’s position and prospects extends to interim and other public reports.

Audit Committee and Auditor

A separate Report of the Audit Committee is set out on pages [X and Y] and provides details of the role and activities of the Committee and its relationship with the External Auditor.

Risk management and internal control

The Board identifies and appraises risks, and maintains control and direction over appropriate strategic, financial and organisational structure matters, with formally defined lines of responsibility and delegation of authority.

The Directors have overall responsibility for ensuring that the Group maintains a system of internal controls, for monitoring their effectiveness to provide them with reasonable assurance regarding the reliability of financial information used within the business and for publication, and that assets are safeguarded. There are inherent limitations in any system of internal control, and accordingly even the most effective system can only provide reasonable, and not absolute, assurance against misstatement or loss.

A full evaluation of the Group’s risk management and internal control systems is performed at least annually. This is delegated to the Audit Committee.

The Board has delegated to Executive Management the implementation of the systems of internal financial control within an established framework that applies throughout the Group. This is monitored by an internal audit function which reports back to the Board through the Audit Committee. Further details of internal audits performed in the year are provided in the Audit Committee Report on page [X].

The Directors believe the following to be the key procedures established to provide internal financial control:

  • the operation of authorisation procedures
  • appropriate segregation of duties
  • clearly delegated responsibilities
  • close involvement of senior management in day-to-day activities
  • setting of detailed annual budgets with reporting of variance analysis on a monthly basis
  • the operation of an Audit Committee, supported by an internal audit function
  • an established whistleblowing policy, the governance of which is overseen by the Audit Committee

The Board considers a significant failing to be any item that would lead to a material misstatement of the financial statements. In considering whether an item represented a significant failing, qualitative aspects of any failing would also be considered, as would the potential for the failing to affect the wider Group. All weaknesses identified, whether significant or otherwise, are discussed at Audit Committee meetings, with actions agreed and subsequently monitored.

Significant failure of internal control

In the latter half of FY2017 it was discovered that a number of trade receivable accounts in the USA had been subject to a misallocation of cash receipts. The subsequent investigation revealed a significant failure of internal control, specifically in segregation of duties. The Group policy was not correctly applied and, as a consequence, the USA credit controller had responsibility for billing, cash collection and cash allocation.

Evaluation following discovery

An immediate review of all USA trade receivable balances was performed to ascertain the full extent of the issue. The employee in question was dismissed and replaced with a new individual with significantly more experience.

An internal audit was performed to verify the findings and to evaluate both the design and the effectiveness of the revised internal controls. This was provided to the Audit Committee in November 2016.

A review of all other business units was undertaken to ensure that no similar weaknesses in segregation of duties existed. This control was found to be satisfactory in all other locations.

Remediation of identified control deficiencies

In addition to replacement of the USA credit controller discussed above, the Group policy is now correctly implemented. Billing, cash collection and cash allocation duties are separated between three individuals in the finance team to ensure the misallocation is not able to happen in future.

The External Auditor also reviewed the control environment as part of the audit and the findings are discussed in the Independent Auditor’s Report on page [X].

Aside from this issue, no significant concerns were raised with internal controls.

Going concern

A going concern statement is set out towards the end of the Strategic Report on page [X].


Remuneration

The Directors’ Remuneration Report sets out in full the policies and practices which demonstrate the Company’s implementation of the Code.


Relations with Shareholders

The Board maintains regular dialogue with its major shareholders and City analysts through formal annual and interim presentations, meeting to discuss long-term issues and communicating regularly throughout the year. During the year the Chief Executive Officer and Group Finance Director met significant shareholders to update them in person regarding results and key developments. The views of shareholders and market perceptions are regularly communicated to the Board via verbal briefings.


Constructive use of the Annual General Meeting

Shareholder attendance and participation at the AGM is welcomed. Amendments to the Company’s Articles of Association require shareholder approval at the AGM. The Company proposes separate resolutions on each substantially separate issue and the proxy appointment forms for each resolution provide shareholders with the option to direct their proxy to vote either for or against a resolution or to withhold their vote. The Company’s registrars ensure that all valid proxy appointments received for the AGM are properly recorded and counted and a schedule of proxy votes cast is made available to all shareholders attending the meeting. There is also full disclosure of the voting outcome on the Company’s website as soon as practicable after the AGM. All Directors normally attend the AGM and are available to answer questions. Issues can also be raised informally following the meeting. Notice of the AGM and related papers are sent to shareholders at least 20.