Corporate Governance

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In my Chairman’s Statement I have highlighted the priorities and main areas of focus for the Board during the last financial year. In this report, I am pleased to discuss more fully the work and operation of the Board and the framework of governance it deploys to lead and control the business and report on the Group's performance.

We are committed to maintaining high standards of corporate governance and to applying the principles of good governance as now set out in the UK Corporate Governance Code (the “Code”) published by the FRC in June 2010 and which has been applicable to the Company from 1 December 2010. The Directors can confirm compliance throughout the year with the Code except in the following respect: Provision D.2.2 of the Code requires that the Remuneration Committee should have delegated responsibility for setting the remuneration of the Chairman. At Low & Bonar, the remuneration of the Chairman is determined by the Board based on the recommendation of the Remuneration Committee. This gives full transparency and allows the views of the Executive Directors to be taken into account.

The Board

The Group is controlled through its Board of Directors, which provides entrepreneurial leadership of the Group and is ultimately responsible for its long-term success. Our main objectives are to create value for shareholders, to set the Group's strategic objectives, to ensure that the necessary financial and human resources are made available to enable it to meet those objectives and to review executive management performance, all within a framework of prudent and effective controls which enable risk to be assessed and managed. The Board also sets the Group's values and standards and ensures that its obligations to shareholders and others are understood and met.

We have a formal schedule of reserved powers which we retain for Board decision-making on a range of key issues, including the formulation of Group strategy, the approval of the annual budget, the approval of reported financial statements and dividends, the approval of acquisitions, divestments and significant items of capital expenditure and the Group's risk management strategy.

I chair the Board. The Group Chief Executive is Steve Good and the Senior Independent Non-Executive Director is Steve Hannam.

Our current thoughts on the issue of diversity as it pertains to membership of the Board are given in the section dealing with the Nomination Committee below.

The roles of the Chairman and Group Chief Executive

My role and that of the Group Chief Executive are separate and clearly defined and were reassessed by the Board at the time that I became Chairman in 2010. I am responsible for leading the Board, facilitating the effective contribution of all members and ensuring that it operates effectively in the interests of shareholders. The Group Chief Executive is responsible for leadership of the business and implementation of strategy.

Directors and Directors’ independence

The Board currently comprises a Non-Executive Chairman, four independent Non-Executive Directors and two Executive Directors, although Chris Littmoden will retire from the Board on 28 February 2012. The names of the Directors, together with their biographical details, are set out in the Board of Directors page. In determining the membership of the Board, we are mindful that it should be of sufficient size that the requirements of the business can be met and that changes to its composition and that of the committees can be managed without undue disruption, but should not be so large as to be unwieldy. I believe that our Board has the appropriate combination of executive and non-executive directors (and, in particular, independent non-executive directors) and that no individual or small group of individuals can dominate decision taking.

I am also concerned to ensure that the Board and its committees should have the appropriate balance of skills, experience, independence and knowledge of the Group to enable them to discharge their respective duties and responsibilities effectively. This principle has been under active consideration in the year, leading to the appointment of John Sheldrick in October 2011. John has a great deal of experience as an executive and non-executive director in international manufacturing businesses and also brings a wealth of financial experience and expertise to the Board. He has taken over as Chairman of the Audit Committee from Steve Hannam, who has served in that role for some time. Chris Littmoden will leave the Board on 28 February 2012, and we have asked Steve Hannam to take over as Chairman of the Remuneration Committee in light of his considerable experience in remuneration matters, and the division of other responsibilities amongst the Non-Executive Directors.

The independent Non-Executive Directors challenge constructively and help develop proposals on strategy; and bring strong, independent judgement, knowledge and experience to the Board’s deliberations. We believe that an effective balance of power and authority is maintained through the number and calibre of Non-Executive Directors. All Directors have access to the advice and services of the Company Secretary and Directors may take independent professional advice at the Company’s expense.

Details of my professional commitments are included in my biography. The Board is satisfied that these are not such as to interfere with the performance of my duties for the Group, which are based around a commitment of at least one day and no more than two days per week.

The Chairman and the Non-Executive Directors are not employees of the Group.

The Board considers that Steve Hannam, Chris Littmoden, John Sheldrick and Folkert Blaisse, the Non-Executive Directors, are independent in character and judgement and we continue to monitor whether there are relationships or circumstances which are likely to affect, or could appear to affect, a Director’s judgement. Although he has served on the Board for more than nine years, we continue to view Steve Hannam as independent in character and judgement. Steve is highly experienced in both relevant executive and non-executive roles and continues to offer a regular and substantive challenge to the Executive Directors on their strategy for and management of the business. Steve is asked to submit himself for re-election to the Board annually given his long tenure and we consider his continued membership of the Board rigorously. In light of the significant changes which the Board has undergone since late 2009, we continue to value his contribution (and the continuity which it brings) highly and, in the coming year, have asked him to change one of his key areas of focus by chairing the Remuneration Committee.

I ensure that the Non-Executive Directors meet without the Executive Directors present from time to time.

Professional development and performance evaluation

The Board has adopted a policy of providing appropriate training for all new Directors who have not previously received such training. A personal induction programme is provided for each new Director, depending on the experience and needs of the individual. On appointment, they receive information about the Group, the role of the Board and the matters reserved for its decision, the terms of reference and membership of the principal Board and management committees, and the powers delegated to those committees, and the latest financial information about the Group. This is supplemented by visits to key locations and meetings with key senior executives. I work to ensure that the Directors continually update their skills and the knowledge and familiarity with the Group required to fulfill their role both on the Board and its committees and to make sure that the necessary resources for developing and updating Directors’ knowledge and capabilities are made available. I encourage Directors to avail themselves of opportunities to meet our major shareholders.

The Board has established a process, led by me, for the annual evaluation of the performance of the Board and its principal committees. In previous years, a list of questions has been drawn up by me with the assistance of the Company Secretary which have provided a framework for the evaluation process during a meeting of the Board. Again this year, we considered the merits of using external assistance in connection with the evaluation but determined that it was not necessary to do so given the size of the Board, the good working practices and relationships which we have established over the years and the open and constructive way in which Directors express their views in relation to the operation of the Board on an ongoing basis. However, I did determine, in conjunction with the Group Chief Executive and the Company Secretary, that we would substantially refresh the Board’s internal methodology for review to ensure that the process continued to be effective.

I have also reviewed the contribution of individual Directors, in conjunction with my colleagues as appropriate, to reassure myself and the Board that each Director continues to contribute effectively and to demonstrate commitment to the role (including commitment of time for Board and committee meetings and any other duties). The Senior Independent Non-Executive Director leads the Non-Executive Directors in conducting my annual performance evaluation, taking into account the views of the Executive Directors.

Information and meetings

The Board meets regularly to review the performance of the Company and to formulate strategy and is supplied in advance of each meeting with an agenda and papers covering the financial and operating performance of the Group's businesses and other matters to be considered at the meeting. It is my goal to ensure that the information available to the Board is accurate, timely and clear. Executive management reports on a continuing basis against the Group's budget (set at the start of the financial year) and the quarterly forecasts for the year which are made three times a year. The Board also considers other key developments, such as the implementation of major projects. I encourage the Non-Executive Directors to seek clarification and amplification of information where necessary.

I set the agenda in discussion with executive management and the Company Secretary and consideration is given to ensuring that adequate time is available for discussion of all agenda items. The papers are supplemented by information specifically requested by the Directors from time to time. Other members of senior management attend the Board meetings from time to time to present to the Board on the performance of businesses within the Group. I also now arrange for the Board to meet at least twice a year in separate session to consider and approve the strategy for the Group so that adequate time can be given to this vital aspect of its role away from the normal business of monthly Board meetings. In 2011, these sessions have also considered the development of the organisation in light of the challenges posed by its strategy and goals. I also arrange for the Board to meet in more informal surroundings several times a year to discuss topics of interest and relevance to the Group and our external advisers are often invited to these sessions to offer their counsel.

The full Board had 10 scheduled meetings during the year and all Directors who served throughout the year attended each scheduled meeting, with the exception of Mr Hannam who was unable to attend one meeting. Only two meetings were held between the date of John Sheldrick’s appointment and the end of the year, both of which he attended. I also encourage the Board to establish closer links with the Group's subsidiaries and their key executive management by visiting the Group's facilities and, in 2011, one of the Board meetings was held at the Group's manufacturing facility in Dundee and one at the facility in Hückelhoven, Germany. The scheduled Board meetings concentrate on strategy, financial and business performance. Additional meetings, including of certain ad hoc committees, were called during the year to deal with specific matters. I also encourage individual Non-Executive Directors to meet with executive management to ensure constructive relations between them and to continue to promote a culture of openness and debate and to improve the effectiveness of the contribution of our Non-Executive Directors as I believe that, to function effectively, all Directors need appropriate knowledge of the Group and access to its operations and staff.

The Company Secretary is tasked with advising the Board on governance matters through me. I use the Board agenda to ensure that Directors, especially Non-Executive Directors, have access to independent professional advice at the Company’s expense where we judge it necessary to discharge our responsibilities as Directors. In 2011, this included the Group's corporate finance, insurance, public relations, legal and pensions advisers attending Board meetings from time to time.

Conflicts

A director has a duty under the Companies Act 2006 (the “Act”) to avoid a situation in which he has or can have a direct or indirect interest that conflicts or possibly may conflict with the interests of the company. The Act allows directors of public companies to authorise conflicts and potential conflicts where the Articles of Association contain a provision to that effect and the Company’s Articles of Association include such provisions. The Board considers each Director’s conflicts or potential conflicts of interest. Only Directors that have no interest in the matter under consideration take the relevant decision. In addition, the Board considers each conflict situation separately on its particular facts; considers the conflict situation in conjunction with the rest of a Director’s duties under the Act; keeps records and Board minutes of authorisations granted by Directors and the scope of any approvals given; and regularly reviews conflict authorisations (at least annually). In addition, the Directors are able to impose limits or conditions when giving authorisation if they think this is appropriate.

Committees

In accordance with the Code, the Board has established Audit, Remuneration and Nomination Committees. All of the committees have written terms of reference, approved by the Board. The terms of reference of the committees are available on the Company’s website on the following link: http://www.lowandbonar.com/investor-centre/corporate-governance.aspx, or on request from the Company Secretary. The Board has also established a Risk Oversight Committee which is discussed in more detail below.

The Board recognises the value of ensuring that committee membership is refreshed and that undue reliance is not placed on particular individuals in deciding chairmanship and membership of committees. Membership of our committees has been refreshed over the last two years and all of the main committees will have appointed new chairmen since July 2010 following Chris Littmoden’s departure from the Board in February 2012.

We adhere to the principle that no one other than the committee chairman and members is entitled to be present at a meeting of the Nomination, Audit or Remuneration Committees, but others may attend at the invitation of the committee and our practice in this respect is addressed below.

Audit Committee

The Board has established formal and transparent arrangements for considering how they should apply the Group's corporate reporting and risk management and internal control principles and for maintaining an appropriate relationship with the Company’s auditor. This responsibility is primarily discharged through the Audit Committee.

The Audit Committee currently comprises John Sheldrick, Chairman of the Committee since his appointment to the Board in October 2011, Steve Hannam, Chairman of the Committee until Mr Sheldrick’s appointment, Chris Littmoden and Folkert Blaisse. The Committee is made up entirely of independent Non-Executive Directors. The Committee collectively has the skills and experience required to fully discharge its duties, and has access to independent advice at the Group's expense. Mr Sheldrick is considered by the Board to have recent and relevant financial experience.

The Audit Committee meets at least three times a year. It is required to:

  • monitor the integrity of the financial statements of the Company and the Group and any formal announcements relating to the Company and the Group's financial performance, reviewing significant financial reporting judgements contained in them;
  • review the Group's internal financial controls and to review the Group's internal control and risk management systems;
  • monitor and review the effectiveness of the Group's internal audit function;
  • make recommendations to the Board, for it to put to the shareholders for their approval in general meeting, in relation to the appointment, re-appointment and removal of the external auditor and to approve the remuneration and terms of engagement of the external auditor;
  • review and monitor the external auditor’s independence and objectivity and the effectiveness of the audit process, taking into consideration relevant UK professional and regulatory requirements; and
  • develop and implement policy on the engagement of the external auditor to supply non-audit services, taking into account relevant ethical guidance regarding the provision of non-audit services by the external audit firm, and to report to the Board, identifying any matters in respect of which it considers that action or improvement is needed and making recommendations as to the steps to be taken.

During the course of 2011, the Audit Committee was also delegated specific responsibility for certain key areas of risk management to support the Board’s role in overseeing an enterprise-wide approach to risk identification, management and mitigation which included funding and capital, financial controls, evaluation and control of acquisitions, information, pensions and treasury matters.

The current overall tenure of the external auditor dates from 1975. Any decision to open the external audit to tender is taken on the recommendation of the Audit Committee. There are no contractual obligations that restrict the Company’s current choice of external auditor.

Following a review by the Audit Committee, the Board is recommending the re-appointment of the external auditor to shareholders at the Annual General Meeting for a period of one year.

The Audit Committee is responsible for ensuring that an appropriate relationship between the Group and the external auditor is maintained, including reviewing non-audit services and fees. It has developed and implemented a policy on the supply of non-audit services by the external auditor to ensure their continued objectivity and independence, and we reviewed and updated this policy during the year. The Committee is satisfied that the provision by KPMG Audit Plc of non-audit services currently provided does not impair their independence or objectivity. The Audit Committee has approved the range of services that may be provided by KPMG Audit Plc. These include taxation compliance services, transaction due diligence and accountancy assistance on projects. Subject to approved authorisation limits, the services require prior authorisation from either the Group Finance Director, the Chairman of the Audit Committee or the full Audit Committee. The Committee is satisfied that the majority of the tax services supplied by KPMG Audit Plc during the year were compliance related or related principally to foreign advisory work that required a detailed understanding of the Group and which did not impair their independence.

The Audit Committee met on four occasions during 2011 and those meetings were attended by all of the Committee members, save that Mr Hannam missed one of the meetings and Mr Sheldrick attended only the one meeting held after his appointment. The meetings of the Committee coincide with key dates in the financial reporting and audit cycle. The external auditor, KPMG Audit Plc, and the Group Internal Auditor, who reports directly to the Audit Committee, attend all of the meetings.

The Chairman, Group Chief Executive and Group Finance Director also generally join at least part of Audit Committee meetings by invitation.

The Committee Chairman may call a meeting at the request of any member, the Company’s external auditor or the Group Internal Auditor. The Audit Committee meets privately with the external auditor and the Group Internal Auditor at least once a year.

In 2011, the Audit Committee discharged its responsibilities by:

  • reviewing the Group's draft financial statements and interim results statement prior to Board approval and reviewing the external auditor’s detailed reports thereon;
  • reviewing the appropriateness of the Group's accounting policies;
  • reviewing and approving the audit fee and reviewing non-audit fees payable to the Group's external auditor in accordance with the policy it has adopted;
  • reviewing the external auditor’s plan for the audit of the Group's accounts, which included key areas of extended scope work, key risks on the accounts, confirmations of auditor independence and the proposed audit fee;
  • reviewing an annual report on the Group's system of internal control and its effectiveness and reporting to the Board on the results of the review;
  • assisting the Board with overseeing an enterprise-wide approach to risk identification, management and mitigation;
  • receiving regular reports from the Group Internal Auditor following operational audits; and
  • reviewing the arrangements by which staff of the Company may, in confidence, raise concerns about possible improprieties in matters of financial reporting or other matters, with the objective to ensure that arrangements are in place for the proportionate and independent investigation of such matters and for appropriate follow-up action. This was felt to be necessary in light of the Group's implementation of procedures designed to combat corruption and bribery in light of new UK legislation in this field.

The Audit Committee is entitled to obtain, at the expense to the Company, such external advice as it sees fit on any matters falling within its terms of reference.

Remuneration Committee

The Remuneration Committee currently comprises the following Non-Executive Directors of the Company, all of whom are considered by the Board to be independent, with the exception of Martin Flower: Chris Littmoden (Chairman of the Remuneration Committee); Steve Hannam; Martin Flower; John Sheldrick and Folkert Blaisse. The Remuneration Committee met on three occasions during the year ended 30 November 2011 and those meetings were attended by all of the Committee members, save that Mr Sheldrick attended only the one meeting held after his appointment. Mr Hannam will become the Chairman of the Committee from 1 March 2012.

The Committee is responsible for recommending to the Board the Company’s broad policy for executive remuneration, including both short-term and long-term incentive arrangements, and for reviewing and approving, at least annually, the entire remuneration packages of the Executive Directors and certain other senior executives of the Group. The Committee is also responsible for recommending the Chairman’s remuneration to the Board. The Committee is entitled to obtain, at the expense of the Company, such external advice as it sees fit on any matters falling within its terms of reference.

Further information on the work of this Committee is given in the Directors’ Report on Remuneration.

Nomination Committee

The Nomination Committee comprises the Chairman, the Group Chief Executive and the four Non-Executive Directors. The Nomination Committee met on two occasions during the year ended 30 November 2011 and those meetings were attended by all of the Committee members at the relevant time.

The Committee, which is established with formal written terms of reference, is responsible for regularly reviewing the structure, size and composition of the Board and for making recommendations to the Board with regard to any changes, including recommending candidates for appointment as both Executive and Non-Executive Directors. Appointments are discussed fully before a proposal is made to the Board and, as Chairman of the Committee, I am mindful that there should be a formal, rigorous and transparent procedure for the appointment of new Directors. The selection criteria are agreed by me in conjunction with my colleagues and we make use of independent recruitment consultants and the final appointment rests with the full Board.

As part of its review of non-executive succession and taking account of Chris Littmoden’s retirement in 2012, the Committee identified the need for the recruitment of a new non-executive director and discussed the appropriate role specification and time commitment expected. It was agreed that this should include the requirement for recent and relevant financial expertise suitable for chairing the Audit Committee. An independent consultant was appointed to conduct the search and a long list of names was shared with Committee members. A number of short-listed candidates were interviewed by both the Chairman, the Group Chief Executive and Group Finance Director and a final short list was also seen by all of the other Directors.

The Board is mindful, in the context of the current focus on the value of gender diversity, of the Company’s approach to the diversity of its management and of the representation of women in senior roles. During the appointment of Mr Sheldrick, a number of female candidates for the role were considered but Mr Sheldrick was appointed on merit as the best candidate for the role when judged against the specific criteria the Committee had set for that appointment. We have not set, and do not intend to set, a specific target for the number of female members of the Board and wish to continue to appoint the best candidate available to us for any particular role. However, in setting the criteria for selection of candidates, for both executive and non-executive roles, I am conscious that it is possible to inadvertently discourage the successful candidacy of women and we intend to bear this in mind for all future appointments and to continue to have regard to the benefits of diversity, including as to gender. We have requested of our search consultants that they provide a sufficient number of female candidates for any role. The Company is also now considering its approach to diversity more widely and is developing proposals for a formal diversity policy to allow it to establish guidance for progress in this area during 2012.

In the coming year, the Board and the Committee will be giving further detailed consideration to the organisation of the business in light of the further implementation of its strategy for growth outside its heartland markets, and the impact which this might have on plans for an orderly succession for appointments in senior management so that the Group continues to have the appropriate balance of skills and experience, and how this might, over time, allow it to augment and refresh membership of the Board.

In 2011, I also used the Nomination Committee to assist me in reviewing the training and development needs for each Director.

Relations with shareholders

I work to ensure that there is a dialogue with shareholders based on the mutual understanding of objectives. The Board as a whole has responsibility for ensuring that a satisfactory dialogue with shareholders takes place. Whilst recognising that most shareholder contact is with the Group Chief Executive and Group Finance Director, I ensure that all Directors are made aware of major shareholders’ issues and concerns in whatever ways are most practical and efficient. This includes meeting directly with our brokers and public relations advisers and receiving written reports from them, as well as through direct meetings with shareholders. The Board is also given copies of the reports on the Group written by analysts, of which there have been a much greater number in 2011 than recent years. It is also our practice to consider feedback from shareholders following results presentations. Our Non-Executive Directors have opportunities to meet with shareholders on request and, in 2012, I will encourage them to attend results presentations and investor days so that they have an opportunity to meet with key stakeholders in person.

The Company maintains good communications with its shareholders through its Interim and Annual Reports and through information posted on its website at www.lowandbonar.com. The Company holds regular meetings throughout the year with major shareholders, analysts and the financial press, in particular following the announcements of its interim and full year results. Visits for analysts and large shareholders are also arranged from time to time to operating units. I have met with a number of the Group's largest shareholders during the year to discuss governance and strategy with them.

The Company’s Annual General Meeting is used as an opportunity to communicate with private investors. Shareholders attending the Annual General Meeting are invited to ask questions and to meet with the Directors informally after the meeting. I, as Chairman of the Board and Nomination Committee, Steve Hannam as Senior Independent Non-Executive Director and as Chairman of the Remuneration Committee, and John Sheldrick as Chairman of the Audit Committee, will answer questions, as appropriate, at the Annual General Meeting.

Shareholders are given the opportunity to vote separately on each proposal, including on the report and accounts. For each resolution, proxy appointment forms provide shareholders with the option to direct their proxy to vote either for or against the resolution or to withhold their vote. The proxy form and any announcement of the results of a vote make it clear that a ’vote withheld’ is not a vote in law and will not be counted in the calculation of the proportion of the votes for and against the resolution.

The numbers of proxy votes cast in respect of each resolution are announced after the resolution has been voted on by a show of hands. The Company ensures that all valid proxy appointments received for general meetings are properly recorded and counted by its registrar. For each resolution, where a vote has been taken on a show of hands, we ensure that the following information is given at the meeting and made available as soon as reasonably practicable on our website:

  • the number of shares in respect of which proxy appointments have been validly made;
  • the number of votes for the resolution;
  • the number of votes against the resolution; and
  • the number of shares in respect of which the vote was directed to be withheld.

Notice of the Annual General Meeting is sent to shareholders at least 20 working days prior to the date of the meeting.

Internal control and risk management

The Directors acknowledge their responsibility for the systems of internal control within the Group. The purpose of these systems
is to provide reasonable assurance as to the reliability of financial information and to maintain proper control over the income, expenditure, assets and liabilities of the Group. The Board has also reviewed in detail the areas of major risk that the Group faces in its operations. It has noted and is satisfied with the current control mechanisms and reporting lines that have been in place throughout the year. However, no system of control can provide absolute assurance against material misstatement or loss. In carrying out our review, the Directors have regard to what controls in our judgement are appropriate to the Group's businesses, to the materiality and the likelihood of the risks inherent in these businesses and to the relative costs and benefits of implementing specific controls.

In recognition of its responsibility for risk issues, the Board has reviewed the key risks associated with the business and will continue to do so as a regular agenda item at its meetings in the coming year. The Group also views the careful management of risk as a key management activity. Since 2010, the Group's work in the area of risk management has been facilitated by the Risk Oversight Committee. Its membership comprises the Group Chief Executive, the Group Finance Director (who chairs the Committee) and the other members of senior executive management, including the Deputy Group Finance Director, the Group Internal Auditor and the Head of Legal Affairs. Health and safety and environmental matters have been overseen by a sub-committee, known as the Environmental, Health and Safety Committee, which is chaired by the Group Health and Safety Director. In 2011, the Board considered again the work of the Committee and decided that formal responsibility for risk matters set out in the newly-revised Group Risk Register should be divided between the Board, the Audit Committee and the Risk Oversight Committee. The Board has primary responsibility for those risks broadly categorised as political risks, take-overs, funding and capital, acquisitions, the funding of pensions and investor relations. The Audit Committee has delegated responsibility for control of funding and capital, financial controls, evaluation and control of acquisitions, information, valuation and reporting in respect of pensions and treasury matters.

The Risk Oversight Committee has delegated responsibility for risks in the areas of health and safety, the environment, major physical or operational incidents, raw materials, product failure, new product development, competition, customers, human resources and regulatory and compliance issues. The Remuneration Committee considers risks associated with remuneration structures and advises the Board, the Audit Committee and the Risk Oversight Committee accordingly.

The Risk Oversight Committee meets at least three times a year and operates under formal terms of reference established by the Board and is committed to continuing to develop and embed risk management processes within the Group. The Risk Oversight Committee is specifically charged with developing Group management of, and policy towards, environmental, social and governance (“ESG”) risks so that the Board may take account of their significance to the business of the Group in both the short and long term and to ensure that the Group has in place effective systems for managing and mitigating significant ESG risks, including appropriate key performance indicators. The work of all of the Board committees relating to risk management are discussed at full Board meetings on a regular basis in addition to the work undertaken by the Board on key risk issues. The Risk Oversight Committee receives reports from the Environmental, Health and Safety Committee and reports on relevant matters to the Board. The Group Health and Safety Director, who deals with health, safety and environmental issues, reports to the
Risk Oversight Committee in his capacity as Chairman of the Environmental, Health and Safety Committee. The Group Internal Auditor has a direct reporting line to the Audit Committee and attends Audit Committee meetings by invitation.

In addition to the risk review process and the internal audit function, the Group operates within an established internal financial control framework, which can be described under three headings:

  • Financial reporting. There is a comprehensive budgeting system with an annual budget approved by the Directors. Monthly actual results are reported against budget and revised forecasts for the year, which are prepared regularly.
  • Operating unit controls. Financial controls and procedures, including information system controls, are detailed in the Group Policies and Procedures Manual. All operating units are required to confirm quarterly their compliance with policies and procedures set out in the manual (including those relating to health, safety and the environment), local laws and regulations and report any control weaknesses identified in the past year. Independent confirmation of compliance is obtained annually for selected operating units.
  • Investment appraisal. The Group has clearly defined guidelines for capital expenditure which are also set out in the Group Policies and Procedures Manual. These include detailed appraisal and review procedures, levels of authority and post-completion audits. Where businesses are being acquired, detailed due diligence is undertaken in advance of acquisition.

The Company is committed to ensuring that all employees comply with all anti-trust legislation. To ensure that relevant employees are aware of the issues and receive the appropriate level of training and information, the Group has a personalised online anti-trust compliance training programme which all relevant personnel within the Group are required to complete on a regular basis.

The continued development and implementation of the risk management and internal control system across the Group has allowed the Directors to comply with the Code provisions on internal control in the course of the financial year ended 30 November 2011.

A key part of the work of the Risk Oversight Committee in 2011 has been ensuring that the Group has been able to respond adequately to the UK’s Bribery Act 2010. The Committee oversaw an enterprise-wide risk assessment process and developed a detailed set of polices and procedures in response to the findings of that assessment. The Group values its reputation for ethical behaviour and for financial integrity and has a commitment to carry out business fairly, honestly and openly. We will not tolerate bribery in our dealings. It is illegal and harmful for business. Any involvement with improper inducements in order to secure business or gain any advantage for either any Group company or our employees reflects adversely on our image and reputation and undermines the confidence of our customers and other business partners in us. We seek to eliminate bribery in our business dealings by:

  • setting out a clear anti-bribery policy;
  • training all of our employees so that they can recognise and avoid the use of bribery by themselves and others;
  • encouraging our employees to be vigilant and to report any suspicion of bribery through suitable channels of communication and ensuring sensitive information is treated appropriately;
  • rigorously investigating instances of alleged bribery and assisting the police and other appropriate authorities in any resultant prosecution; and
  • taking firm and vigorous action against any individual(s) involved in bribery.

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