Corporate Governance

Although not required to do so by the AIM listing rules, the Directors have chosen to provide selected corporate governance disclosures with this report, which they consider valuable to the readers.

The Directors believe that effective corporate governance, appropriate to the Group considering its size and stage of development, will assist in the delivery of corporate strategy, the generation of shareholder value and the safeguarding of shareholders’ long-term interests. The Directors are committed therefore, wherever it is reasonably practicable, to ensure that the Group is managed in accordance with the principles set out in the Code.

Composition of the Board

The Board comprises the Chairman, three full-time Executive Directors and six Non-Executive Directors. Brief biographical details of all members of the Board are set out under the Directors page of this website.

In order to assist in securing the recruitment and retention of high calibre Non-Executive Directors, prior to the flotation of the Company in 2005, the Company granted options to Non-Executive Directors to acquire shares in the Company in addition to fees. In the period since listing on AIM, no equity-based incentives have been granted to Non-Executive Directors and there are no plans for any such grants in the future. During the year, Peter Keen exercised all his remaining share options. At the end of the year, the only Non-Executive Director with a small number of unexercised share options is Tony Kouzarides. These options are not subject to any performance conditions.

The holding of share options by Non-Executive Directors could, amongst other things, be relevant in determining whether a Non-Executive Director is independent. After detailed consideration, the Board has determined that it does not believe that the exercise or holding of share options by these Non-Executive Directors impacts on their independence in character and judgement.

The Board therefore considers Mike Redmond, Murray Hennessy, Michael Ross, Anthony Martin and Peter Keen to be independent within the meaning of the Code. Tony Kouzarides is also considered by the Board to be independent, notwithstanding the fact that he has served on the Board for more than nine years, since he demonstrates a continuous independence in character and judgement in all Board matters. Peter Keen has been identified as the Senior Independent Director.

The roles of Chairman and Chief Executive Officer are vested in separate individuals, each with clear allocation of accountability and responsibility. The Chairman has prime responsibility for running the Board and the Chief Executive Officer has executive responsibilities for the Company’s strategic development, operations and results.

The structure of the Board and the integrity of each Director ensures that there is no one individual or group dominating the decision making process.

The role of the Board

The Board holds full meetings every month, with attendance required in person one month and via telephone the next month. The principal matters that it considers are as follows:

• monthly management accounts, KPIs and performance against budget;
• regular reviews of R&D, operations and product sourcing;
• regular reviews of strategic objectives and Group priorities;
• the annual Group budget and revised forecasts;
• reporting including statutory accounts, dividend policy, dividend payments and the AGM;
• performance of the Board and sub-Committees;
• reports of the Audit, Nomination and Remuneration Committees;
• an annual review of risk-management strategy and controls and a six-monthly review of the risk register;
• matters relating to the Company’s obligations as an AIM listed Company;
• determination of the remuneration policy for the Directors and other Senior Executives; and
• management of funds and major capital expenditure, including proposals for mergers or acquisitions of other companies or product lines.

The Board is supplied with information in a timely manner, in a form and of a quality appropriate to enable it to discharge its duties.

Directors receive appropriate induction on joining the Board and regularly update their skills and knowledge.

The Board has a policy to set out which matters are reserved for the decision of the Board, and those to which the Executive Directors need not refer for approval. This policy also identifies those matters regarding which full delegation to a Board Committee is not normally permitted because a final decision is required to be taken by the whole Board.

Matters which the Board considers are suitable for delegation to a Board Committee are contained in each Committee’s terms of reference.

Board Committees

The Board has established three Committees: the Audit Committee, the Nomination Committee, and the Remuneration Committee.

Summary of Committee membership

The role of each Committee is described in more detail below.

The Audit Committee

The Committee has responsibility for the following matters:

• reviewing the accounts and the key judgements and policies underlying them in relation to the interim and annual financial statements before they are submitted to the Board for final approval;
• reviewing the management’s reports on internal controls;
• reviewing the Group’s risk-management process, including the adequacy of insurance cover;
• reviewing the appointment of the external auditors together with the audit fee;
• monitoring the audit and non-audit work of the external auditors, including reviewing any management letters and the Company’s response; and
• reviewing the arrangements by which staff may, in confidence, raise concerns about possible improprieties.

As part of its procedures, the Committee discusses the interim and annual financial statements with the external auditors. When appropriate, non-Committee members are invited to attend. During the period under review the Committee has met twice on a formal basis and a number of times informally. The Committee is expected to continue to meet formally twice a year.

The Nomination Committee

The Committee is responsible for the following matters:

• reviewing the size and composition of the Board;
• identifying and nominating suitable candidates to fill vacancies on the Board; and
• reviewing succession planning for both Directors and the management team.

The process adopted by the Committee to identify a candidate for a specific vacancy is, in the first instance, to determine whether any individuals known to the Board would be suitable for the role. If no candidates can be identified through this process, or if the Committee believes that the process would be improved by the involvement of other candidates, then an external search consultancy will be approached.

Short-listed candidates are interviewed by all members of the Committee and other Executive and Non-Executive Directors as the Committee deems appropriate. Once a suitable candidate has been identified and references taken, the Chairman of the Committee will recommend to the Board that the Company make a formal offer of employment to the candidate.

There were no new appointments to the Board during the year.

All Directors are subject to election by shareholders at the first AGM after their appointment, and to re-election thereafter at intervals of no more than three years.

The terms of appointment of all Non-Executive Directors are available for inspection at the Company’s AGM in November each year.

The Remuneration Committee

The Committee is responsible for the following matters:

• setting the basic pay of executive directors and the remuneration of the Chairman;
• the operation of the performance-related bonus plan for the executive directors;
• agreeing the allocation and term for the granting of share-based incentives to Executive Directors;
• determining the executive directors’ pension contributions; and
• overseeing the overall annual pay review for the Group.

The remuneration of the non-executive Directors is a matter for the Chairman and the executive Directors.

The Group has a formal and transparent procedure for developing policy on Directors’ remuneration. No Director is involved in deciding his own remuneration.

The Committee aims to set levels of remuneration for Executive Directors that are sufficient to attract, retain and motivate Directors of the quality required, without paying more than necessary, and that are appropriate for the size and complexity of the Group. It aims to see that a significant proportion of each Executive Director’s remuneration package is performance-related.

Internal Control

The Board acknowledges its responsibility for safeguarding the shareholders’ investment and the Group’s assets. In applying this principle, the Board recognises that it has overall responsibility for ensuring that the Group maintains an ongoing system of internal control to provide it with reasonable assurance regarding effective and efficient operation, internal financial control and compliance with laws and regulations. This has been in place for the year under review and up to the date of approval of the Annual Report.

The Audit Committee reviews the need for an internal audit function on an annual basis and has concluded that, despite the rate of growth in recent years, the structure of the Group and the level of control exercised by the management team, an internal audit function continues to be neither necessary nor cost effective at this time. The Directors have reviewed the effectiveness of the internal controls, and taken steps to ensure that the Group has an appropriate control environment for its size and complexity. The management team will ensure that the internal control environment develops with the size of the Company, with respect to the identification, evaluation and monitoring of risk.

Arrangements are also in place for all employees to raise concerns about any fraud, misconduct or wrongdoing which are formalised into a ‘whistle-blowing’ policy. Such systems, which are designed to manage, rather than eliminate the risk of failure to achieve business objectives, will provide reasonable, though not absolute, assurance against material loss or misstatement.

Board performance evaluation

The Board undertakes a regular evaluation of its own performance. This review involves detailed interviews with each Director and the Company Secretary and covers the functioning of the Board as a whole and the operation of each of the Committees. The review confirmed the high level of commitment and professionalism exercised by the Board in the strategic and commercial leadership of the Group. It also concluded that the Board and its individual members continue to perform effectively and operate within a framework of sound governance and practices which, wherever it is reasonably practicable, are consistent with the principles set out in the Code.

Following the appointment of Mike Redmond as Chairman in November 2009 the Board has undertaken an evaluation of its own performance and during the 2011 financial year it is intended that a further evaluation exercise will be undertaken.

The Company provides the Board with a regular programme of training opportunities, including training provided by external advisors, in order to ensure Directors remain appropriately informed of their roles and responsibilities. Regular updates on corporate governance are also provided to the Board by the Group’s advisors.

Dialogue with shareholders

The Board believes it is important to have open communications with shareholders. To this end, the Chief Executive Officer and Chief Financial Officer, working in consultation with the Company’s corporate and PR advisors, make themselves available and expect to meet with shareholders at least twice a year. It is the Company’s practice to give a presentation on the Group’s progress at the AGM each year.

Where appropriate the Company also consults with major shareholders on significant issues.