The UK Corporate Governance Code
The Group is committed to practising good corporate governance of its affairs as part of its management of relationships with its shareholders and other stakeholders. The Group seeks to uphold and to report on compliance in accordance with best practice in corporate governance.
The directors are satisfied that the Group has complied with the principles and provisions set out in the UK Corporate Governance Code (the Code) which was published in June 2010 (available from www.frc.org.uk) and was compliant throughout the financial year under review. The Board has noted the introduction of the September 2012 edition of the Code to apply for periods commencing on or after 1 October 2012. During the current financial year, the Board will continue to assess its practices to ensure continued compliance with the Code and will monitor any changes required to be made to further develop and enhance its governance policies including reporting against the 2012 edition of the Code in its next Annual Report.
The principles of the Code cover five areas: leadership, effectiveness, accountability, remuneration and relations with shareholders. With the exception of the directors' remuneration (which is dealt with separately under the Remuneration Report) the following sets out how the Board has applied the principles.
The Board is committed to establishing and maintaining high standards of corporate governance. Its policy is to appoint directors with appropriate skills who have sufficient time to carry out their duties adequately. The Board provides opportunities through site visits and regular access to senior management to permit directors to familiarise themselves with the Company and the markets in which it operates.
The Role of the Board
The Board is responsible for the long-term success of the Company. Individual members of the Board have equal responsibility for the overall stewardship, management and performance of the Group and for the approval of its long-term objectives and strategic plans.
Division of Responsibilities
There is a clear division of responsibilities between the role of the Chairman and that of the Chief Executive of the Company and the roles are clearly set out in writing and reviewed by the Board. The primary responsibility of the Chairman is to lead and manage the Board and to promote high standards of corporate governance, and that of the Chief Executive is to manage the business of the Group.
Peter Fellner was appointed non-executive Chairman of the Company with effect from 1 May 2009. The Chairman is responsible for leading and managing the Board and ensuring its effectiveness on all aspects of its role. He works closely with the Chief Executive on developing Group strategy, and provides general advice and support as well as participating in the dialogue between the Company and its major shareholders. Dr Fellner has attended all Board meetings held during the year and commits substantial time to fulfilling his role. His other significant commitments are listed in his biography.
The Chairman was considered to be independent on his appointment.
The Chief Executive
Jonathan Glenn is the Company's Chief Executive. His principal responsibility is to manage the Group's business and to lead the senior management team in delivering the Company's strategic and operational objectives.
The Senior Independent Director
Dr William Jenkins was appointed the Senior Independent Director with effect from 1 September 2011. Where the Chairman is not present, the Senior Independent Director is responsible for and has chaired meetings of the non-executive directors who have met when required during the year. He is available to meet with shareholders.
The Non-Executive Directors
Each of the non-executive directors are free from any relationship with the executive management of the Company and are free from any business or other relationship that could affect or appear to affect the exercise of their independent judgement. The Board considers that all of the Company's non-executive directors are independent directors, in both character and judgement, in accordance with the recommendations of the Code.
The Operation of the Board
Reserved Matters and Delegated Authorities
The Board has the authority for ensuring that the Group is appropriately managed and achieves the strategic objectives it sets. To achieve this, the Board reserves certain matters for its own determination including matters relating to Group strategy, approval of interim and annual financial results, dividend policy, major capital expenditure, treasury policy, risk management and the effectiveness of the systems of internal control. The full schedule of matters reserved to the Board was reviewed during 2011 and is published on the Company's website.
The Board performs its responsibilities through an annual programme of meetings, and by continuous monitoring of the performance of the Group as a whole. The Board also delegates the discharge of a number of its responsibilities to committees and management as described below.
Board Meetings and Attendance
The Board has allocated its time generally to strategy; finance and operations; risk; governance; and succession planning.
The Board has eight scheduled meetings per year, with other meetings convened for specific matters. The attendance of each of the directors, whether in person or by telephone, at the scheduled Board and Board sub-committee meetings where appropriate, is shown below:
* Mr Banks, Mr Dick, Mr Woolrych and Mr Higgins attended all meetings prior to their departure from the Company.
† Mr Cotton, Mr Crummett and Mr Nicholson have attended all meetings held since their appointment date.
‡ Ms Drummond attended all Remuneration Committee meetings until she stepped down.
In addition, the Company operates a number of committees including sub committees of the Board (Audit, Remuneration, and Nomination), a Scientific Advisory Board, a Corporate Responsibility Committee, a Group Executive Committee and divisional operating boards. For details please click here.
The Board's Composition
As of 30 April 2013 the Board of the Company consisted of the non-executive Chairman, two executive directors and four non-executive directors. The profiles of the Board members are set out in the Board of Directors. No individual or group of individuals dominates the Board's decision-making process. The non-executive directors occupy, or have occupied, senior positions in industry. Together they constitute a valuable body of relevant industry experience and expertise.
The Board believes in the importance of diversity (including but not limited to gender) and the benefits that it can bring to the operation of an effective Board. The female representation on the Board constitutes 12.5%.
Appointment of Non-Executive Directors
Non-executive directors are appointed to the Board following a formal, rigorous and transparent process, where appropriate, involving external recruitment agencies, to select individuals who have a depth of relevant experience, thus ensuring that the selected candidates will be capable of making a considerable contribution to the Board. The process for the appointment of Steve Crummett and Ian Nicholson is addressed here as part of the responsibilities of the Nomination Committee.
Terms of Appointment and Time Commitment
All non-executive directors are appointed for an initial term of three years subject to satisfactory performance. After this time they may serve additional three-year terms following review by the Board. All non-executive directors are expected to devote such time as is necessary for the proper performance of their duties. Directors are expected to attend all Board meetings and committee meetings of which they are members and any additional meetings as required. Further details of their terms and conditions are summarised in the Remuneration Report and the terms and conditions of appointment of the non-executive directors are available at the Company's Registered Office.
Induction and Professional Development
Upon joining the Board, newly appointed directors receive a tailored induction comprising background information on the operation and activities of the Group, the role of the Board and its committees and those matters reserved for the Board's decision, and the latest financial information on the Group. During the year Messrs Cotton, Crummett and Nicholson each underwent a full induction programme on joining the Board. They were also encouraged to visit the sites at which the Group operates and were invited to meetings with relevant members of senior management. Training and development needs of directors are reviewed regularly. The directors are kept appraised of developments in legal, regulatory and financial matters affecting the Group from the Chief Financial Officer, the Company Secretary, the Group's external auditors and advisers.
Information and Support
Board members are provided with appropriate documentation in advance of each Board and committee meeting. Senior executives are invited to attend Board meetings periodically for the purpose of making presentations on their areas of responsibility. In addition to formal Board meetings, the Chairman and Chief Executive meet frequently and make regular contact with other Board members. The Board and the senior executives meet formally once during each financial year to discuss corporate strategy.
Independent Professional Advice
The Board has approved a procedure whereby directors may consult the Company's advisers and, if necessary, take independent professional advice at the Company's expense, although not in respect of a director's personal interests. Before seeking advice, the director concerned must notify the Chairman, or in his absence, the Senior Independent Director. No such advice was sought by any director during the year.
Board members have access to the Company Secretary who attends all Board meetings. The appointment and removal of the Company Secretary is subject to the approval of the Board.
An evaluation of the Board is carried out each year. As for previous years, a Board evaluation was carried out during the year ended 30 April 2013. A rigorous and formal review required completion of a questionnaire relating to the performance of the Board and its committees and with regard to compliance with the Code. The evaluation focused on the role of the directors and the Board; the non-executives directors; the executive directors; Board meetings; committees of the Board; monitoring performance; leadership and culture; and corporate governance. There was general recognition that directors understood the strategy and objectives of the Company and that non-executive directors were kept adequately and timely informed of developments to allow proper monitoring of business performance. Recognition of the benefit from increased experience of the business sectors in which the Company operated resulted in the recruitment of Ian Nicholson as a non-executive director. Non-executive directors expressed a desire for more regular opportunities to meet with senior management. It was considered that the Company operated to standards of corporate governance required of a listed company and that the Board led by its Chairman was fully aware of shareholder views and provided effective leadership. The Board will continue to review its effectiveness in the year ahead.
Election and Re-election of Directors
The Company's Articles of Association require all directors to retire and submit themselves for re-election at the first AGM after appointment and thereafter at least every three years. The Notice of Annual General Meeting will give details of those directors seeking re-election.
Meetings of Non-Executive Directors
Led by the Senior Independent Director, the non-executive directors meet informally, without the Chairman being present, principally to appraise the Chairman's performance and to review his remuneration. The Chairman holds meetings at least annually with the non-executive directors without the executive directors present.
The Board has the three main committees listed below. The current terms of reference of each committee may be obtained from the Company's website.
During the year members of this committee were William Jenkins (Chairman), Lynn Drummond who stepped down from the Committee in February 2013, Jim Dick until his retirement on 30 August 2012, Steve Crummett from his appointment in June 2012 and Ian Nicholson from 1 March 2013. The Chairman is invited to attend all meetings, but does not attend any part of any meeting at which his own service contract is discussed. The Chief Executive attends by invitation where appropriate except where his own remuneration is being considered.
The Remuneration Committee is primarily responsible for determining the structure, components including pension rights and compensation payments and level of the remuneration packages of the Chairman, the executive directors and designated members of the senior management team. Details of the role of the Remuneration Committee and attendance of Committee members are set out in the Board Meetings and Attendance table. The Remuneration Committee met six times during this year.
Members during the year were Peter Fellner (Chairman), Chris Banks and Jim Dick (until their retirement on 30 August 2012), Jonathan Glenn, William Jenkins, Lynn Drummond and following their appointment on 13 June 2012 Steve Crummett and Ian Nicholson.
The Nomination Committee is primarily responsible for reviewing the membership of the Board and identifying suitable candidates for appointment and reappointment as directors. In addition, the Board has delegated responsibility to the Nomination Committee for succession planning both at Board and senior management level. The inclusion of the Chief Executive in the membership of the Nomination Committee ensures that a balanced view is taken regarding the needs of the Group as a whole. The Committee ensures that the search for Board members is undertaken against objective criteria and with due regard to the benefits of diversity including gender. Appointments are made on merit taking into account the importance of maintaining a balance of skills, experience, independence and knowledge.
The Nomination Committee met independently from the Board on one occasion during the year with all eligible members in attendance.
During the year, Messrs Crummett, Nicholson and Cotton joined the Board. The Nomination Committee identified the importance of recruiting individuals with relevant and recent experience to complement the existing skills and experience of the Board. Using the services of the Zygos Partnership and Spencer Stuart the Committee undertook a recruitment search for suitable candidates for the roles of Chief Financial Officer, Audit Committee chair (a non-executive director with recent and relevant financial experience) and a non-executive director with relevant pharma business experience. Neither the Zygos Partnership nor Spencer Stuart has any other connection with the Company.
The Audit Committee is comprised entirely of independent non-executive directors. Members during the year have been Steve Crummett who succeeded Chris Banks as Chairman from Chris' retirement on 30 August 2012, Jim Dick (until his retirement) and Lynn Drummond. Ian Nicholson joined the Audit Committee on his appointment to the Board. Steve Crummett is the individual who the Board considers has recent and relevant financial experience and is a chartered accountant.
The external auditors' lead partner and the Chief Financial Officer attend each meeting as requested by the Committee.
The Audit Committee met three times during the year. The meetings were attended by all members. At each meeting the members of the Committee took the opportunity of meeting the external auditors without management being present.
During the year the Audit Committee discussed the following key items:
- Risk assurance
- Accounting policies
- Financial results and budgets
- Engagement and review of external auditors
- Review of audit and non-audit services and fees
- Review of reimbursed expenses
- Committee Terms of Reference
The Audit Committee is responsible for reviewing on behalf of the Board the Group's financial and reporting practices and disclosures, reviewing the integrity of the financial statements, the Group's system of internal controls, the work of the external auditors and Group compliance with financial policies, laws and regulations. Audit Committee terms of reference may be obtained from the Company's website.
The annual and half-yearly financial reports are reviewed by the Committee through a process which includes discussion with the Chief Financial Officer and the external auditors. The external auditors prepare reports to the Committee on significant accounting policies and issues and judgements applied in the preparation of the financial reports. The Audit Committee gives its recommendation to the Board concerning the adoption and publication of all financial reports to shareholders.
In addition to the Board, the Audit Committee has conducted its annual review of the system of internal controls based on a review of significant risks identified, internal reviews, external audits and reports from management.
In accordance with its policy on non-audit services provided by the Company's auditors, the Committee reviews and approves the award of any such work. The Audit Committee refers to the Board for approval of any work comprising non-audit services where the fees for such work will represent a significant proportion of the annual audit fee.
During the year PwC has provided accounting and due diligence support for corporate development activities. Ernst & Young LLP have handled the Group's tax compliance programme and audited the defined benefit pension scheme. Deloitte LLP have provided remuneration advice and valuation service in respect of Long-term Incentive Plan grants and KPMG LLP have provided risk assurance audit services.
The Audit Committee keeps under review the scope and results of the external audit work, its cost and the independence and objectivity of the auditors. The independent auditors operate procedures to safeguard against the possibility that their objectivity and independence could be compromised. This includes the use of quality review partners, a technical review board (where appropriate) and annual independence review procedures. The auditors are required to rotate the lead audit partner to the Group every five years. The Committee has considered the reappointment of the auditors of the Group and recommended to the Board that PricewaterhouseCoopers LLP be proposed for reappointment, having noted the scope and results of their work in relation to this year's audit as well as their objectivity, effectiveness and independence. The Board endorsed this recommendation.
The Audit Committee has from time to time considered the need for a separate dedicated internal audit activity and has again concluded that in its opinion, given the scale and nature of the Group's operations, this is not required. Instead the Group conducts appropriate internal audit activities through both the deployment of independent Group employees, and through the engagement of internal audit services from suitably qualified external providers. The Audit Committee keeps this under review.
The Audit Committee has reviewed and approved the internal procedures whereby employees can raise concerns about possible financial or other irregularities. The policy gives guidance on the type of matters that staff may wish to disclose, and a means of doing so via an independent organisation in the event that any staff member feels that he or she cannot make a disclosure via the usual management channels.
The Group is committed to the highest standards of openness, integrity and accountability and the prevention of bribery and corruption. The Group operates a whistle-blowing policy so that employees can report confidentially any matter giving rise to concerns about the operation of the Group's business.
The Executive Committee
This Committee is responsible for the executive management of the Group. It comprises the Chief Executive, the Chief Financial Officer, the Company Secretary/General Counsel, the Bespak managing director, and the Director of Human Resources. This Committee meets monthly to review and make decisions on operational matters not reserved for Board decisions.
The Corporate Responsibility Committee
The Corporate Responsibility Committee is responsible for reviewing and prioritising the Group's Corporate Responsibility activities, further details of which can be found in the Corporate Responsibility Review. The Committee is chaired by non-executive director Ian Nicholson. Other members include the Chief Executive Officer, the Bespak managing director and the Director of Human Resources. The Company Secretary acts as Secretary to the Committee.
Scientific Advisory Board
The role of the Scientific Advisory Board is to provide an expert independent view on the current portfolio of products and programs together with advice and guidance on the external environment in the specific therapeutic areas that Consort operates in.
The role and responsibilities of the Risk Committee are outlined under the section Risk Management.
Internal Controls Review
The Board acknowledges that it is responsible for the Group's system of internal controls and for reviewing its effectiveness. Such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable, but not absolute assurance against material misstatement or loss. The Board has received regular reports on areas of any significant risk and on related internal controls. The Board reviews the framework of internal controls annually and has reviewed the effectiveness of its internal systems of control as they have been operated within the year in accordance with the Turnbull Guidance (2005). This system has been in place for the year under review and up to the date of approval of the Annual Report and accounts.
The review covers all material controls including financial and financial reporting processes, operational, compliance and risk management systems.
Controls over the financial reporting process and preparation of the consolidated accounts consist of extensive reviews by qualified and experienced individuals that ensure that all elements of the financial statements and appropriate disclosure are considered and accurately stated.
The Board accepts responsibility for determining the nature and extent of the significant risks it is willing to take in achieving its strategic objectives.
There is an ongoing internal process for identifying, evaluating and managing significant risks faced by the Company that is regularly reviewed by the Risk Committee, the Executive Committee and then by the Board. This process has been in place throughout the year and up to the date of this report.
The Risk Committee is responsible for advising the Executive Committee on the co-ordination and prioritisation of risk management issues throughout the Group and developing risk management strategy; ensuring that the Board's risk policy is implemented throughout the Group through effective development and review of risk registers, mitigation plans and insurance policies and promote risk awareness at all levels.
A risk management strategy encompassing risk assessment and risk treatment has been adopted with the key objective to ensure that risk management is an integral part of the strategic and operational management decision making, planning and implementation process. Risk appetite and tolerance has been reviewed and agreed by the Board and will be considered annually and monitored as appropriate.
The Company's strategic plan is reviewed annually at an off-site meeting involving the Board and the Executive Committee. An annual budget is prepared by each of the operating divisions of the Company and this is consolidated into a Group Plan, which is reviewed and approved by the Board.
Further information on how we manage our business risks is set out in the Risk section, which contains a list of the principal risks and uncertainties.
Progress against budget is monitored at operating business and Group levels throughout the Company via monthly reporting of actual financial performance against budget and prior period actual results. The Executive Committee also reviews monthly the key measures of operating performance.
The Group has clear authority limits deriving from the list of matters reserved for decision by the Board, including capital expenditure approval procedures.
The directors' responsibility for preparing the accounts is set out in the Directors' Report.
The directors have a reasonable expectation that the Group and the parent Company have adequate resources to continue in operational existence for the foreseeable future and have therefore adopted the going concern basis in preparing the accounts.
Our Remuneration Report, which describes the level and components of the remuneration of the directors.
Relations with Shareholders
The Board regards relationships with shareholders as very important and it aims to encourage open dialogue with them through regular meetings with the Group's institutional shareholders, including regular meetings following the announcement of the Company's interim and annual results. During the year the Company held an investor day at its Bespak facility for key investors and analysts to allow them to develop a greater understanding of the business, its products and ongoing strategy. Meetings are also held at other times with institutional investors and other shareholders at their request. Shareholders may meet with any new non-executive director if they wish. The Chairman ensures that views expressed at these meetings are reported to the Board as a whole. The Company's brokers also attend Board meetings at the request of the Chairman to provide feedback on shareholder opinion.
The Senior Independent Director is available to meet with shareholders as required.
The Annual General Meeting
All shareholders have the opportunity of discussing the Group's performance and development at the Annual General Meeting, which provides a forum for shareholders to raise issues with the Board. Members of the Remuneration, Nomination, Audit and Corporate Responsibility Committees will also be available at the Annual General Meeting so that shareholders may discuss any queries they may have.
Our previous AGM was held in Hemel Hempstead on 30 August 2012 and the full voting results on each of the resolutions are published on our website. Our 2013 AGM will be held on 2 September 2013 at the Company's registered office in Hemel Hempstead.