Introduction from the Chairman, Sir John Armitt CBE
Good corporate governance
Following the publication in 2018 of the Financial Reporting Council’s new UK Corporate Governance Code (the 2018 Code), my Board and I took the opportunity from 2019 to re-assess what good corporate governance means to us.
At its simplest level, we, as a Board, believe that good corporate governance is about having the best people governing our business and taking decisions on its behalf at every level of the organisation. We consider that the best people are those who are invested in the Company’s Purpose, behave in accordance with its Values and are fully engaged in delivering its strategy. We also believe that such people should be appropriately incentivised and rewarded for their commitment and delivery. Good corporate governance is also about having a strong system of internal control in place, together with a programme of internal and external stakeholder engagement. This enables those who govern to fully understand the risks, rewards and wider implications of every decision they take relating to our business. It also assists us, as Directors of the Company, to comply with our duties under Section 172(1) of the Companies Act 2006.
We believe that we have good governance in place which is contributing to the longterm sustainability of the Company, as evidenced by:
- our delivery in 2019 of yet another set of record-breaking financial results;
- the achievement of our best ever safety result;
- our increasing focus on environmental matters;
- our continued drive for excellence in everything we do; and
- our investment in our people, our customers and the communities we serve.
Purpose, Values and culture
During 2019, the Board articulated the Company’s Purpose, rooting it in our fundamental belief that high quality public transport is critical to a clean, green and prosperous future. Our Purpose is: “To help lead a modal shift by making public transport an increasingly attractive option for all our customers whether they are individuals, transport authorities, school boards or businesses. We seek to do this by earning our customers’ loyalty by providing safe, reliable and great value multi-modal services on clean and green vehicles”. To assist us in achieving our Purpose, we have retained our existing Values — of Safety, Excellence, Customers, People and Community & Environment — but evolved the level of ambition for delivery against each of these as explained here. We believe this approach will underpin the delivery of superior outcomes for all our stakeholders.
We look further at our Purpose, and how it is aligned with the Company’s Values and strategy, here. We also explain, on page 70 of our Annual Report, how the Company has cultivated a healthy corporate culture and the steps the Board has taken during the year to monitor that culture. We monitor our culture as want to ensure that our people are living by our Values as this will, in turn, help us to fulfil our Purpose.
Board composition, succession planning and diversity
Ensuring that the Board is composed of Directors with the appropriate experience, skills and diversity, particularly in their thought and approach, is critical to good decision-making.
We draw our strength from our varied backgrounds and relevant experience in either the industry, geography or culture in which our business operates.
While the Board has enjoyed stability in its membership over the last few years, which has served the Company well, we recognise the value that refreshing our membership and bringing more diversity into the Boardroom can bring to enhance decision-making. To this end, during the year under review we began to implement our succession plans which resulted in the appointment of two new Non-Executive Directors – Ana de Pro Gonzalo and Karen Geary – who joined the Board and certain of its Committees on 1 October 2019. In addition, from 31 December 2019, two of the incumbent Non-Executive Directors – Joaquín Ayuso and Jane Kingston – stepped down from the Board and its Committees. As explained in the Nominations Committee Report on pages 79 to 86, the appointment of the new Directors has enhanced the strength and diversity of the Board and its Committees. Over the next few years as we continue to implement our succession plans, we will seek to preserve and enhance that strength and diversity further still.
We are equally cognisant of the importance of developing a talented and diverse senior management succession pipeline and developing talent and enhancing diversity, in all its forms, across the wider workforce to ensure that we have the best people to serve our customers and the diverse communities in which we operate. During the year, we therefore also reviewed the Company’s senior management succession plans and we oversaw the establishment of the Group’s Diversity & Inclusion Council and multiple talent development and diversity initiatives across the Group, further details of which can also be found in the Nominations Committee Report.
Stakeholder engagement and Section 172(1) Statement
Engagement with the Company’s stakeholders, including its workforce, customers, suppliers, central and local government bodies and regulators, is key to enabling the Board to understand stakeholder views, which better informs the Board’s own decision-making and enables the Company to build strong and lasting relationships with such stakeholders. It is also an important method of monitoring the Company’s culture and assessing whether we are living by our Values.
During the year under review, we have therefore embraced the recommendations of the 2018 Code that we, as a Board, engage with our workforce and understand the views of our stakeholders. We have done so by supplementing our existing ‘Board in Action’ programme (as explained in previous Annual Reports) with additional focused workforce engagement events and by putting in place additional means of understanding other stakeholder views. Details of this engagement and these methods, together with an explanation of why our approach to engaging with the workforce is considered effective, are set out on pages 71 to 75 of our Corporate Governance report.
Our Section 172(1) Statement, explaining how we, as the Company’s Directors, have regard to stakeholder interests and other factors in accordance with our duty to do so under Section 172(1) of the Companies Act 2006, is set out on page 9 of the Strategic Report and incorporates pages 66 to 68 of this Corporate Governance Report explaining how we have had regard to such factors in our principal decisions taken during the year. Additional information about the way the Company engages with employees can also be found in the Directors’ Report.
The Board and I remain committed to our engagement with the Company’s stakeholders, including its workforce, to continue to inform our decision-making and we look forward to more interaction in the year ahead.
Strong system of financial and operating control and risk management
A key aspect of good corporate governance is having a strong system of control within which those who govern can take decisions on behalf of the Company and implement its strategy with a clear understanding of, and controls to manage, the risks and rewards involved in such decisions and implementation. This is achieved through the Company having an established risk appetite, framework and processes for identifying both principal and emerging risks and putting in place actions to manage and mitigate such risks.
The Board is responsible for setting the Company’s risk appetite and both it and its Audit and Safety & Environment Committees play important roles in monitoring and ensuring the management of its principal and emerging risks.
Details of the Company’s risk appetite and principal and emerging risks can be found here. Information about the work of the Audit Committee during 2019 in monitoring and assessing the integrity of the Company’s financial reporting and the robustness of its system of internal control, including its work on behalf of the Board in conducting ‘deep dives’ into certain of the Group’s principal risks and its divisions’ risk registers, can be found in the Audit Committee Report. Information about the work of the Safety & Environment Committee during 2019 in overseeing the Company’s management of safety and environmental matters — which represent risks but also increasingly opportunities — can be found in the Safety & Environment Committee Report.
Fair Executive Director and senior management remuneration
2019 was the second year of application of the Directors’ Remuneration Policy that was approved by shareholders at the AGM in 2018 (the Policy). The Board’s Remuneration Committee has therefore been focused during the year on ensuring that the Policy is continuing to operate as intended to appropriately reward, retain and incentivise the Executive Directors who are driving the Company’s success.
It has done so by seeking to ensure that the Company’s remuneration schemes and their outcomes for Executive Directors continue to be transparent, aligned with the Company’s strategy and aligned with the interests of, and returns delivered to, shareholders. Due regard has also been had by the Remuneration Committee when determining Executive Director pay to the Company’s workforce pay and related practices (as explained on page 101 of the Annual Statement by the Remuneration Committee Chair) and to the interests of the Company’s wider stakeholders. The latter can be seen in the Committee’s decision, following consultation with its principal shareholders, to add two new environmental performance measures to the awards to be granted to Executive Directors and senior management under the Company’s Long-Term Incentive Plan (LTIP) in support of the Company’s ambition to reduce its carbon emissions and provide its customers with sustainable mobility services.
Annual General Meeting
This year’s Annual General Meeting (AGM) will be held at 2.30pm on Thursday, 7 May 2020 in the Banqueting Hall at Glaziers Hall, 9 Montague Cl, London SE1 9DD. All current Board Directors will be seeking re-election to office, with the exception of Ana de Pro Gonzalo and Karen Geary who will be standing for election to office for the first time. As the AGM provides an opportunity for you to meet with and ask questions of your Directors regarding this Annual Report and the matters before the meeting, I encourage you to attend and look forward to seeing you there.
Finally, I would like to thank my fellow Board Directors, the senior management team and every single member of the workforce for their hard work in 2019 and their ongoing commitment as we continue to seek to achieve our Purpose through 2020 and beyond.
Sir John Armitt, CBE
Chairman
