Reporting Council (“FRC”) in June 2010.
The Board is accountable to shareholders for the good corporate governance of the Company and in so doing is committed to the principles outlined in the Code as well as compliance with the Companies Act 2006, the Listing Rules and the Disclosure and Transparency Rules. This report, together with the Directors’
Responsibilities Statement in respect of the Annual Report on page 42 and the Remuneration Report on pages 33 to 41 describe how the main principles of good governance have been applied.
The Board is satisfied that, unless disclosed otherwise within this report, the Company has complied with the relevant best practice provisions set out in Section 1 of the Code throughout the year ended 31 December 2011. A copy of the Code is available at the FRC’s website www.frc.org
Leadership
The role of the Board
The Board comprises the Chairman, four independent Non-Executive Directors and five Executive Directors and is collectively responsible for the long-term success of the Company. It does this by providing entrepreneurial leadership whilst ensuring effective controls are established that enable the effective assessment and management of risk. The Board is ultimately responsible for the Company’s strategic aims and the long-term prosperity of the Company by ensuring that the right financial and human resources are in place. The Board held 13 board meetings during the year.
The Group has a set of formal governance policies, which are reviewed annually and define the formal matters reserved for the Board.
The Board carries out its role by:
• overseeing the Group’s operations worldwide;
• providing input into and approval of management’s development of corporate strategy and performance objectives;
• approving budgets and monitoring progress against those budgets;
• monitoring and reviewing the effectiveness of the Company’s internal system of control;
• reviewing and ratifying the Company’s system of governance, compliance, risk management and internal audit; and • appointing and removing, where appropriate, the senior
executives of the Company.
The Board reviews all aspects of the Group regularly, including, major commercial decisions, client relationships, operations, financial performance and position, employee matters, company policies, compliance, risks, risk management and internal audit. This ensures that the Board is able to direct the management of the Company to the best of its ability and identify, address and resolve matters of importance in a timely manner.
The Board has delegated to management responsibility for: • managing the Company’s day-to-day operations;
• developing the Company’s annual budget and recommending it to the Board for approval;
Corporate Governance
There is a clear division of responsibilities between the Chairman responsible for running the Board, the Executive Directors responsible for running the Company and the Non-Executive Directors responsible for exercising independent and objective judgement to challenge constructively board decisions. As Chairman Rupert Robson is responsible for:
• leadership of the Board, ensuring its effectiveness on all aspects of the Board’s role;
• setting the Board agenda and ensuring that the directors receive accurate, timely and clear information;
• oversight of the Company’s affairs and its strategy; facilitating openness and debate between the Executive and Non-Executive Directors and
• ensuring effective communication between the Company and its shareholders.
David Marock, as the Group Chief Executive Officer, is responsible for: • the day-to-day management of the Company;
• development of Company strategy; and
• specific responsibility for major client relationships.
He is supported by George Fitzsimons, the Group Finance Director and Damian Ely, the Group Chief Operating Officer. Alistair Groom and Joe Roach are Executive Directors who support the Board in the management of the Group.
Julian Cazalet is the Senior Independent Non-Executive Director who acts as a sounding board for the Chairman and an intermediary for the other directors where necessary.
All directors, whether executive or non-executive, have unrestricted access to the Group Company Secretary and General Counsel and executives within the Group on any matter of concern to them in respect of their duties. In addition, new directors are given appropriate training on appointment to the Board. Appropriate time is made during the year for continuing training on relevant topics concerning the functioning of the Board and the obligations of directors. The Company has undertaken to reimburse legal fees to the directors if circumstances should arise in which it is necessary for them to seek separate, independent legal advice in furtherance of their duties. At no time during the year did any director hold a material interest in any contract of significance with the Company or any of its subsidiary undertakings other than a third-party indemnity provision between each director and the Company and service contracts between each executive director and the Company. The Company has purchased and maintained throughout the year Directors’ and Officers liability insurance in respect of itself and its directors. Details of directors’ remuneration, service contracts and interests in the ordinary shares of the Company are set out in the Remuneration Report.
Effectiveness
The Nomination Committee and the Board regularly evaluate and consider the mix of skills, experience and diversity on the Board and are satisfied that these are appropriate to achieve the Company’s stated strategy and objectives.
All board appointments are subject to recommendation from the Nomination Committee which takes into consideration, amongst other things, the make-up of the Board and its balance of skills and experience when making recommendations. The Nomination
Charles Taylor Consulting plc Annual Report and Accounts 2011
30
The Non-Executive Directors, Julian Avery, Julian Cazalet, David Watson and Gill Rider are regarded by the Board to be independent of the management and free from any business or other relationship that could materially interfere with the exercise of their material judgement, notwithstanding their shareholdings held during the year, which are not considered by the Board to be significant.
The Non-Executive Chairman Rupert Robson was considered independent upon his appointment in 2007, but is not considered to be independent by virtue of his appointment as Chairman. The letters of appointment of the non-executive directors are available for inspection at the Company’s registered office during normal business hours, and at the AGM.
The non-executive directors have met together without the executive directors as required by the Code.
The Board has maintained procedures whereby potential conflicts of interest are reviewed regularly. The Board has considered the other appointments held by directors, details of which are contained in their biographies on pages 24 to 25, and on the Company’s website (www.ctcplc.com), including Rupert Robson’s appointment during the year as a Non-Executive Director of OJSC Nomos Bank. The Board consider that the Chairman and each director is able to devote sufficient time to fulfil the duties required of them under the terms of their contracts or letters of appointment.
The Board has delegated certain responsibilities to the Audit Committee, Remuneration Committee and Nomination Committee, which report back to the Board and further described below.
There are three management committees: the Executive Committee, the Finance Committee and the Group Compliance and Risk Committee, formed of executive directors or senior executives from the businesses, which meet on a regular basis to consider operational issues and commercial matters.
The performance of individual directors, the Board, its committees, and the Chairman are reviewed annually.
These performance reviews took into consideration whether or not the Board and its committees respectively had discharged their duties as set out in their terms of reference and whether their terms of reference in each case required updating or amendment. Each member of the Board was asked to complete a detailed questionnaire as well as having a one to one review meeting with the Senior Independent Non-Executive Director. The responses to the questionnaires and the findings of the review meetings were reviewed by the Chairman, who summarised the findings and discussed the output with the whole Board. Topics covered in the review of the Board included strategy, performance measurement, relationships with key stakeholders, risk management and the conduct and effectiveness of board meetings. The directors concluded that the Board had effectively discharged its duties during the year.
The Nomination Committee also considered the contribution of each of the executive directors and the Chairman considered the contribution of each of the non-executive directors. The non-executive directors, excluding the Chairman, considered the contribution of the Chairman. In accordance with the Company’s Articles of Association and the Code, one-third of the directors are required to offer themselves for re-election every year. Accordingly, one-third of the directors will retire at the AGM in May 2012 and the Report of the Directors gives details of those directors seeking re-election on page 27. The Board recommends the re-election of each of the directors. As a small company i.e. below FTSE 350, the Code does not require all the directors to be subject to annual re-election.
Directors’ attendance at the Board and committee meetings convened in the year was as follows:
Committee meetings Board Audit Nomination Remuneration
Total number of meetings in 2011 13 6 5 9
Number of meetings attended in 2011
Rupert Robson – Non-Executive Chairman1 13 – 5 9
John Rowe – Chief Executive Officer (resigned 30 June 2011) 8
David Marock – Group Chief Executive Officer 53
Damian Ely – Group Chief Operating Officer 13
George Fitzsimons – Group Finance Director 13
Alistair Groom 13
Joe Roach III 12
Julian Avery – Non-Executive2 12 6 4 9
Julian Cazalet – Non-Executive2 12 6 5 9
Judith Hanratty – Non-Executive2 (retired 31 December 2011) 12 5 5 8
David Watson – Non-Executive2 13 6 5 9
1 Member of the Remuneration and Nomination Committees. 2 Member of the Audit, Remuneration and Nomination Committees.
3 There having been 5 meetings since David Marock’s appointment on 1 July 2011.
Audit Committee
David Watson chairs the Audit Committee. David Watson is a chartered accountant with considerable recent and relevant financial experience. The Audit Committee comprises the Non-Executive Directors, Julian Avery, Julian Cazalet and Gill Rider. Judith Hanratty was a member of the
Committee to 31 December 2011. The Group Company Secretary and General Counsel acts as secretary to the Committee. There have been 6 meetings during the year. The Committee is responsible for assisting the Board with its responsibilities in respect of external financial reporting, internal financial controls and with compliance and risk management systems. This includes reviewing the Company’s financial statements, preliminary announcements and any formal announcements relating to financial performance or other statements containing financial information, before submission to the Board for endorsement. The Committee considers the implications of changes in accounting policies, compliance with accounting standards, the independence and effectiveness of the external Auditor and the scope and extent of non-audit services provided by it. The Committee regularly reviews the integrity of the Company’s financial controls, the operation and resources of the compliance, risk management and internal audit teams and the compliance, risk management and internal audit reports. The Company’s principal risks were reviewed by the Committee and the Board.
The full terms of reference are set out under the Investors section – Corporate Governance – of the Company’s website www.ctcplc.com
During the period the Audit Committee has:
• reviewed the financial statements both for the interim and full year report and accounts;
• reviewed summary financial statements and significant financial returns submitted to Regulators;
• reviewed the integrity and effectiveness of the Company’s internal financial controls;
• agreed the work plan of the internal audit team for 2011 and reviewed the findings of that work;
• reviewed the independence and objectivity of the external Auditor and agreed a policy for the external Auditor in relation to non-audit services;
• reviewed the Company’s systems and controls for the prevention of bribery, and;
• reviewed and assessed the Company’s compliance with corporate governance principles.
The revised policy on the provision of non-audit services by the external Auditor sets out a narrow range of non-audit services which would fall into a pre-approved category where the Auditor’s independence would not be compromised. The policy also sets out a range of prohibited non-audit services where the provision of such services could require the Auditor to pass judgement on their own work. Finally a balance of other work is contemplated which would require the prior approval of the Audit Committee. As set out in note 4, the non-audit services provided by the external audit amounted to less than 10% of audit fees and the Committee were confident that independence was in no way impaired.
It is the Audit Committee’s policy to ensure that there is audit partner rotation to safeguard the external Auditor’s objectivity and independence. The current audit partner has been in place for the financial years ended 2010 and 2011.
The Committee also reviews the Company’s whistleblowing policy. The Group has in place whistleblowing procedures which are designed to encourage staff to raise, in confidence, issues which may amount to possible impropriety in either financial or other respects.
Committee to 31 December 2011. There have been 5 meetings of the Committee during the year.
During the year the Committee reviewed the make-up, knowledge, diversity, balance of skills and independence of the Board. The Committee engaged executive recruitment consultants to help identify a new Group Chief Executive Officer to replace John Rowe and a replacement for Judith Hanratty. The Committee when recommending appointments does so based on the merits of the candidate against objective criteria with due regard for the benefits of diversity on the Board. The Committee considered the performance, contribution and effectiveness of all the directors on the Board. The Committee also considered board and senior management succession in the Company, governance issues and made various recommendations to the Board. The terms of reference of the Nomination Committee are available in the investors section – corporate governance – of the Company’s website www.ctcplc.com
Remuneration Committee
Julian Avery chairs the Remuneration Committee, on which the Non-Executive Directors, Julian Cazalet, Gill Rider, David Watson and Rupert Robson also sit. Judith Hanratty was a member of the Committee to 31 December 2011. There have been 9 meetings during the year. The Remuneration Report is set out on pages 33 to 41. The Committee has retained New Bridge Street as remuneration consultants to advise the Committee generally on remuneration and related matters. The Company has no other connection with New Bridge Street. The Committee reviewed the executive directors’ remuneration and reviewed the Company’s remuneration policies for senior management.
The terms of reference of the Remuneration Committees are available in the investors section – Corporate Governance – of the Company’s website www.ctcplc.com
Accountability
The Board is responsible, in its reporting, for presenting a balanced and understandable assessment of the Company’s financial position and prospects and has complied with this main principle of the Code. The Group applies a range of internal controls in relation to the financial reporting process, including setting budgets and forecasts against which actual results are measured, authorisation of transactions by appropriate levels of management and financial reconciliations and independent reviews.
Full details of the Group’s, business model setting out how the Group generates and preserves value is set out on pages 6 to 11. The directors’ responsibilities for preparing the financial statements are set out on page 42. The directors have, at the time of approving this report, a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Thus, the directors continue to adopt the going concern basis of accounting in preparing the financial statements. Further detail is contained in the Report of the Directors on page 26.
Maintenance of a sound system of risk management and internal control
The Board has applied the Main Principle C.2 of the Code by establishing a continuous process for identifying, evaluating and managing the principal risks the Group faces. These risks include
Charles Taylor Consulting plc Annual Report and Accounts 2011
32
approval of this report. The Group’s risk management processes are designed to manage, rather than eliminate, the risk of the Group failing to achieve its business objectives, and can only provide reasonable, but not absolute, assurance against material misstatement or loss.
Role of the Board in internal control
The Board is responsible for the Group’s system of internal control, which consists of internal audit, risk management and compliance teams along with various control systems and procedures in each of the Group’s business units. The Board regularly reviews the effectiveness of the Group’s system of internal control in accordance with the Code. The Board continues to take steps to further embed internal control and risk management into the operations of the Group and monitor and review matters which come to management’s and the Board’s attention.
Internal audit team
An internal audit team operates within the Group. The team is managed and led by a senior manager who reports directly to the Group Chief Executive Officer and to the Audit Committee. The Audit Committee and the Board receive four reports each year summarising the findings of their audits together with a schedule of the outstanding audit issues and progress against their internal audit timetable. The internal audit team is responsible for auditing the Company’s businesses worldwide. An audit timetable is approved by the Audit Committee at the beginning of the year and is subject to review throughout the year to monitor progress. The audit programme is focused around the Group’s principal risks and will also take into consideration amongst other things the operational, financial and administrative aspects of the Company’s businesses, taking as their points of reference those businesses’ controls and procedures, the controls recorded in the risk register and any reported incidents. Some audits are occasionally carried out by external consultants or by staff from outside the internal audit team. The internal audit team’s effectiveness is reviewed annually by the Audit Committee.
Risk management
The Group’s risk management systems are subject to continual review and development. The controls and processes are overseen by the Group Chief Operating Officer and the Group Compliance and Risk Officer in conjunction with the Group Compliance and Risk Committee. The Group’s compliance and risk management processes and systems are designed to ensure that management and the Group’s various business units regularly review the risks and controls in the risk register and that the tracking and monitoring of outstanding risk mitigation actions or controls are actioned in a timely manner and properly followed up. The Group Compliance and Risk Committee reports on its work to the Audit Committee.
The principal risks facing the Company and the risk mitigation actions, controls and processes by which they are managed are explained in the report on the management of risks on pages 18 to 21. The Audit Committee and Board review the Company’s principal risks regularly along with the risk mitigation actions, controls and processes in place