SUMMARY CORPORATE GOVERNANCE REPORT
The Board supports the highest standards of corporate governance and ethical practices within all its operations and continues to review its policies on an ongoing basis. The Board has endorsed a set of principles which establish the framework for how its businesses operate. Key to these is working in an open and honest manner.
Statement of Compliance with the Combined Code
In the opinion of the Directors the Company has complied with Section 1 of the Combined Code on Corporate Governance published in 2003 (the “Combined Code”) throughout the year apart from provision B.1.6.9 (notice periods) as follows:
- the notice period of Ray O’Toole, which previously had been 12 months, was increased to 24 months as at 1 September 2006.This period reduces on a daily basis such that on 1 September 2007 the notice period will be 12 months. This change was approved by the Remuneration Committee on the appointment of a new Chief Executive to the Group to try to ensure continuity of management.
Applying the Principles of Good Governance
The Board of Directors
The Directors believe it is essential for the Group to be led and controlled by an effective Board that provides entrepreneurial leadership within a framework of sound controls. The Board is responsible for setting the Group’s strategic aims, its values and standards and ensuring the necessary financial and human resources are in place to achieve its goals.
The Board consists of the Chairman, three Executive and five Non Executive Directors. The offices of Chairman and Chief Executive are held separately and the division of responsibility between them is clearly defined. Barry Gibson is the Senior Independent Director. The Board considers all of the Non Executive Directors to be independent other than Jorge Cosmen, and considered David Ross to be independent prior to his appointment as Chairman. Mr Cosmen is not considered to be independent by the Board due to his close links with the Alsa business and significant interests in the shares of the Company which are held through European Express Enterprises Limited.
The Executive Directors are responsible for the day-to-day management of the Group’s businesses, implementation of its strategy, policies and budgets and its financial performance. Executive management meetings, involving the Executive Directors and senior management from the divisions are held regularly to discuss current issues.
Committees of the Board
The Board has established a number of committees with defined terms of reference. The principal committees are the Remuneration Committee, the Nomination Committee, the Audit Committee and the Safety and Environment Committee. In addition there is an Executive Committee with authority to approve routine matters of business and a Tax and Treasury Committee which reviews the Group’s tax planning, banking facilities and treasury reports. The terms of reference of the Committees are set out in the Annual Report and Accounts and are available on the Company’s website.
Appointments to the Board
The Nomination Committee leads the process for Board appointments and makes recommendations to the Board. External advisers are normally appointed when recruiting Board members; they use as a basis for their search a description of the role and capabilities required for a particular appointment proposed by the Nomination Committee.
Information and Professional Development
Reports from the Executive Directors, which include in-depth financial information, are circulated to Board members prior to every Board meeting. Senior management and advisers give presentations to the Board on significant matters during the year.
Under the direction of the Chairman, the Company Secretary is responsible for ensuring Board procedures are followed and applicable rules and regulations are complied with and advises the Board on governance matters. All Directors have access to the advice and services of the Company Secretary and the appointment or removal of the Company Secretary is a matter for the Board as a whole. There is a procedure in place for any Director to take independent professional advice where considered necessary.
On appointment, Directors are offered an appropriate training course and are thereafter encouraged to keep abreast of matters affecting their duties as a Director and to attend training courses relevant to their role. An induction process is in place for new Directors.
Performance Evaluation
During the year the annual performance evaluation, led by the Senior Independent Director, was undertaken by an external third party. The evaluation covered in scope the Board’s performance, its Committees and the Chairman. The evaluation process involved a detailed questionnaire with input from all of the Directors followed by individual interviews. Feedback was given to individual Directors and to the Board as a whole and action plans were developed as appropriate. These will be reviewed as part of the 2007 evaluation.
Re-Election
In accordance with the Company’s Articles of Association all Directors submit themselves for election at the Annual General Meeting following their appointment and thereafter by rotation at least once every three years. Non Executive Directors are appointed for specific terms, subject to re-election. Non Executive Directors will only be put forward for re-election if, following performance evaluation, the Board believes the Director’s performance continues to be effective and demonstrates commitment to the role.
Internal Control
The Board’s responsibilities
The Board has overall responsibility for the Group’s system of internal control and for reviewing its effectiveness. The Board maintains full control and direction over appropriate strategic, financial, operational and compliance issues and has put in place an organisational structure with formally defined lines of responsibility, delegated authorities and clear operating processes. The systems that the Board has established are designed to safeguard both the shareholders’ investment and the assets of the Group, and are described below.
Key elements of the control framework
Strategic and financial planning – an annual budgeting and strategic planning process has been established whereby each division and constituent operating company assesses its competitive position and goals, taking account of the strategic risks faced. This strategy is translated into a financial plan with clear milestones and performance indicators.
Performance management – the performance of each division and operating company against its plan is closely monitored by a formal monthly reporting process and by the attendance of the Executive Directors at monthly divisional Board meetings.
Annual fitness check process – a self assessment review takes place at each operating company to assess the integrity of the balance sheet and to challenge the effective operation of key financial and information systems controls within each material accounting cycle. This process is led by divisional finance Directors and is closely monitored by group finance and validated by the internal audit function.
Capital investment – a clear process is in place for the approval of capital expenditure, which includes detailed appraisal of the benefits of the proposed investment and any associated key risks. Material capital expenditure requires Board approval.
Health and safety – Health and safety standards and benchmarks have been established in all our businesses and the performance of operating companies in meeting these standards is closely monitored.
Risk management reporting process – each division and operating company evaluates its internal control environment and key risks, and the results are cascaded through management levels and the Audit Committee before being presented to the Board. This process is reviewed on a regular basis to ensure the validity and relevance of the key risks reported and presented to the Board on a quarterly basis, unless exceptional issues arise. The review covers strategic, financial, compliance and risk management controls. These procedures are mandated and designed to manage the risk in order to ensure that the operations achieve their business objectives.
Internal audit –the internal control system is independently monitored and supported by an outsourced internal audit function. The internal audit function reports to management and the Audit Committee on the Group’s financial and operational controls, and reviews the extent to which its recommendations have been implemented.
Board-level reporting on internal control – during the year the Audit Committee has reviewed regular reports from the internal audit function, the external auditors, and executive management on matters relating to internal control, financial reporting and risk management. The Audit Committee provides the Board with an independent assessment of the Group’s financial position, accounting affairs and control systems. In addition, the Board receives regular reports on how specific risks that are assessed as material to the Group are being managed.
