Corporate Governance
Statement of Compliance with the Combined Code
The Company believes that effective corporate governance, appropriate to the Company considering its size and stage of development, will assist in delivering shareholder value. In the prospectus issued prior to admission to AIM, the Directors stated their intention that, wherever it was reasonably possible, the Company should be managed according to the principles set out in the revised Combined Code on Corporate Governance. The details of how the Company follows the Code and the progress made are set out below.
The role of the Board
During the four years leading up to the Company's admittance to AIM, the Board comprised three Executive Directors and two Non-Executive Directors, none of whom were deemed to be independent. In October 2005, shortly before the Company was admitted to AIM, an independent Director - Peter Keen - joined the Board, and he took on the responsibility of chairing the Audit and Remuneration Committees. The Board continued to seek additional independent Directors and evaluated the ideal skill sets that would enhance its operation, and on 1 July 2006 two new members - Tim Dye and Mark Webster - were appointed. They will contribute their expertise in public companies, operations, manufacturing and sales and marketing.
The Board now comprises a Non-Executive Chairman, who is not deemed to be independent, four full-time Executive Directors and three other Non-Executive Directors, two of whom are deemed to be independent. The roles of Chairman and Chief Executive Officer are vested in separate individuals.
Throughout the period under review, the Board has met on a bi-monthly cycle (having a full meeting one month and a teleconference meeting the following month). The principle matters that it considers are as follows:
monthly management accounts and performance against budget
regular reviews of R&D, operations and product line acquisition
an annual review of strategic objectives and Company priorities
the company budget
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 a listed company
management of funds and major capital expenditure, including proposals for mergers or acquisitions of other companies or product lines
The Board has introduced a policy to set out which matters are reserved for the decision of the Board, and to clarify those matters 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 on the matter is required to be taken by the whole Board. Matters which the Board considers suitable for delegation are contained in the terms of reference of its Committees.
The Board has established the following three committees:
the Audit Committee
the Nomination Committee
the Remuneration Committee.
Each of these is described in more detail below.
The Audit Committee
The Committee is made up of three non-executive Directors. The Chairman is Peter Keen, who is a Chartered Accountant, with David Cleevely and Tony Kouzarides being the other Directors on the Committee.
The Committee has responsibility for the following matters:
to review 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
to review the management's reports on internal controls
to review the Group's risk-management process, including the adequacy of insurance cover
to review the appointment of the external auditor together with the audit fee
to monitor the audit and non-audit work of the external auditors, including reviewing any management letters and the Company's response
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 the Committee has met twice on a formal basis and a number of times informally. In future, the Committee is expected to meet formally twice a year.
The Committee requested an external review of the Group's internal controls. This was carried out by Deloittes and no significant issues arose as a result of the review.
The Nomination Committee
The Committee consists of three Non-Executive Directors: David Cleevely (Chairman), Peter Keen and Tony Kouzarides. It is responsible for the following matters:
to identify and nominate suitable candidates to fill vacancies on the Board
to review succession planning for both directors and the management team.
The Committee has been active over the last few months in handling the recruitment of the two Non-Executive Directors who have now been appointed to the Board. This process involved identifying a wide range of potential candidates through various intermediaries, including Board members of other companies, professional investors and corporate advisors. The Committee interviewed a number of candidates and then drew up a shortlist of four to be interviewed by the rest of the Board. Final selection was then made by the whole Board.
The Remuneration Committee
During the year, the Committee consisted of three Non-Executive Directors: Peter Keen (Chairman), David Cleevely and Tim Dye.
The Committee is responsible for the following matters:
setting the basic pay of Executive Directors and the remuneration of the chairman
setting a performance-related bonus plan for the Executive Directors, including determining the extent to which they participate in the Company's Profit Share Scheme (PSS)
agreeing the allocation and term for the granting of new share options to Executive Directors
determining the Executive Directors' pension contributions
overseeing the overall annual pay review for the Group.
The Committee aims to set levels of remuneration for Executive Directors that are appropriate for the size and complexity of the Group. It aims to see that a significant proportion of their remuneration package is performance-related.
The Committee is also responsible for overseeing the Company's PSS and its Share Option Scheme, both of which are reviewed each year.
The composition of the Committee will shortly change so that it comprises three independent Non-Executive Directors.
Dialogue with shareholders
The Board believes it is important to have open communications with shareholders. To this end, the CEO and Finance Director, working in consultation with the Company's corporate and PR advisors, make themselves available on a regular basis and expect to meet with shareholders at least twice a year. The Board intends to give a comprehensive presentation on progress within the Company at the AGM.