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 revised Combined Code on Corporate Governance ("the Code").

The role and composition of the Board

The Board comprises a Non-Executive Chairman, who is not deemed to be independent because of his shareholdings, three full-time Executive Directors and four other Non-Executive Directors, two of whom are deemed not to be independent: Tony Kouzarides because of the size of his shareholding and Mark Webster because he has been employed in an executive capacity during the last five years.

The roles of Chairman and Chief Executive 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 Board holds full meetings every second month. The principal matters that it considers are as follows:

Monthly management accounts, key performance indicators and performance against budget;
Regular reviews of R&D, operations and product line acquisitions;
An annual review of strategic objectives and Group priorities;
The Group 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; and
Management of funds and major capital expenditure, including proposals for mergers or acquisitions of other companies or product lines.

In those months when the Board does not meet, members continue to be informed on a formal reporting basis of financial results and key issues. The Board is supplied with information in a timely manner, and 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 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. The terms and conditions for the appointment of Non-Executive Directors are available for inspection. 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; and
The Remuneration Committee.

The membership and role of each committee is described in more detail below.

The Audit Committee

The Committee is made up of three Non-Executive Directors one of whom, the Chairman, is considered to be independent. 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 auditors together with the audit fee; and
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. The Committee is expected to continue to meet formally twice a year.

The Nomination Committee

During the year under review the Committee was made up of three Non-Executive Directors, one of whom was considered to be independent: David Cleevely was the Chairman, and Peter Keen and Tony Kouzarides were the other Directors on the Committee. From 1 September 2008 Tim Dye, an independent Director, took over as Chairman with David Cleevely remaining as a member of the Committee.

The Committee is responsible for the following matters:

To identify and nominate suitable candidates to fill vacancies on the Board; and
To review succession planning for both Directors and the management team.

The Remuneration Committee

The Committee is made up of three Non-Executive Directors, two of whom are deemed to be independent including the Chairman: Peter Keen is the Chairman, and David Cleevely, and Tim Dye are members.

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;
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 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 profit share and its equity based incentive schemes, which are reviewed each year.

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 a system of internal control to provide it with reasonable assurance regarding effective and efficient operation, internal financial control and compliance with laws and regulations.

Through the Audit Committee, 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.

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.

The Board is committed to transparency in financial reporting, internal control and external audit as demonstrated, amongst other things, by its reviewing of the Group’s arrangements for its employees to raise concerns, in confidence, about possible wrongdoing in these areas, which are formalised in a “whistleblowing” policy circulated to all employees, and through the adoption of its policies and procedures for financial reporting.

Board performance evaluation

The Board has recently undertaken an evaluation of its own performance. The review involved detailed interviews with each Director and the Company Secretary and covered 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.

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

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. The Board intends to give a presentation on progress at the AGM held in November.