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Corporate Governance
Statement of Compliance
The Group has applied the principles set out in section 1 of the Combined Code on Corporate Governance issued by the Financial Reporting Council in June 2008, as referred to in the UK Listing Authority Listing Rules ("Combined Code") which is available online at www.frc.org.uk. A full statement of compliance with the Combined Code's main principles of the Code of Best Practice is on page 17. The Company has complied with the Combined Code throughout the year ended 31 December 2009, other than the limited exceptions stated as follows:
A.3.1 Mr Davies was an employee of the Group in 1999 and, together with Mr Kanter, have served on the Board for more than 9 years from the date of their first election.
The Board considers that all of the non-executive directors are independent in character and judgement of the management of the Company and free from any business or other relationship which could materially interfere with the exercise of their independent judgement. All of the non-executive directors have extensive business experience.
Board of Directors
The Board of Directors meets regularly to review strategic, operational and financial matters, including proposed acquisitions and divestments, and has a formal schedule of matters reserved to it for decision. It approves the interim and preliminary financial statements, the annual financial plan, significant contracts and capital investment in addition to reviewing the effectiveness of the internal control systems and business risks faced by the Group. Where appropriate, it has delegated authority to committees of directors. Information is supplied to the Board in advance of meetings and the Chairman ensures that all directors are properly briefed on the matters being discussed. The Board also receives detailed presentations from senior managers at the scheduled monthly Board meetings.
It is the Group's policy that the roles and the responsibilities of the Chairman and Chief Operating Officer are separate. The Chairman is primarily responsible for strategy, corporate development and ensuring effective communication with
shareholders. The Chief Operating Officer is responsible for managing the Group's operating businesses.
Non-executive directors are appointed for specified terms, up to a maximum of three years, and reappointment is not automatic. There is a formal selection process to appoint non-executive directors and a separate Nomination Committee was formed in 2001. Mr Davies is the independent senior non-executive director.
All directors have access to the advice and services of the Company Secretary, and all the directors are able to take independent professional advice, if necessary, at the Company's expense.
Directors offer themselves for re-election at the AGM following their appointment and thereafter in accordance with the Company's current Articles of Association, which require one-third of directors to retire in rotation at each AGM. The new Articles of Association, to be proposed at the forthcoming AGM, will have equivalent provisions together with the requirement that not more than 3 years can elapse before a director is put forward for reappointment in accordance with current practice for listed companies.
Board Committees
Each of Mr Bertram, Mr Davies and Mr Kanter serve on the Nomination, Remuneration and Audit Committees. The Committees have written terms of reference which clearly specify their authority and duties and those terms of reference are available upon written request to the Company.
The Nomination Committee is chaired by Mr Kanter and the Committee also comprises Mr Bertram, Mr Davies and Mr Ratclilffe.
Mr Davies is chairman of the Remuneration Committee and the Committee also comprises Mr Bertram and Mr Kanter. The report of the directors on remuneration appears on pages 18 to 26 of the Annual Report 2009.
Mr Bertram, a Fellow of the Institute of Chartered Accountants in England and Wales, is chairman of the Audit Committee and the Committee also comprises Mr Davies and Mr Kanter (from 22 April 2009). The Audit Committee meets regularly with management and the external auditors to review and monitor the financial reporting process, the statutory audit of the consolidated financial statements, audit procedures, internal controls and financial matters.
The Audit Committee also recommends the appointment, reappointment or removal of the Company's external auditors. The Chairman, Chief Operating Officer and Group Finance Director attend the meetings by invitation. The
auditors have unrestricted access to the Audit Committee.
Where the external auditors provide non audit services such work has been put out to tender as appropriate and the Board considers that the auditors' objectivity and independence is safeguarded. The expenditure on non audit services is set out on page 50 of the Annual Report 2009.
Board Attendance
Details of the number of meetings of the Board (including sub-committees at which only certain directors are required to attend) and committees and individual attendances by directors are set out in the table below.
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Board Meetings
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Audit Committee
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Remuneration Committee
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Nomination Committee
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Number of Meetings held in 2009 |
11 |
4 |
9 |
1 |
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M R Ratcliffe |
11 |
4* |
9 |
1 |
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D J Sherriff |
10 |
4* |
8 |
- |
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P B Wood |
11 |
4* |
8 | - |
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P Davies |
11 |
4 |
9 |
1 |
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R T L Kanter |
9 |
2 |
7 |
1 |
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P M Bertram |
10 |
4 |
8 |
1 |
*attendance by invitation.
The above table details attendance at scheduled meetings. In addition 10 ad hoc meetings were held, of these meetings, 4 meetings were held in relation to the exercise of share options.
Operating Board
The Operating Board comprises the Chairman, Chief Operating Officer and Group Finance Director, together with other senior managers within the Group. The Operating Board normally meets on a monthly basis to discuss policy and operational issues. Those issues outside the delegated authority levels set by the plc Board are referred to the plc Board for its decision.
Relations with Shareholders
In order to maintain dialogue with institutional shareholders the Chairman, Chief Operating Officer and Group Finance Director meet with them following interim and final results announcements, or as appropriate, with other directors available to meet institutional shareholders on request. Where practicable the Annual Report is sent to shareholders at least 20 working days before the Annual General Meeting and each issue for consideration at the Annual General Meeting is proposed as a separate resolution. All directors generally attend the Annual General Meeting.
Social, Ethical and Environmental Risks
The Board takes regular account of the significance of social, environmental and ethical ("SEE") matters to the Group's business of providing IT services and solutions (including software, managed services and consultancy) to the business community.
The Board considers that it has received adequate information to enable it to assess any significant risksto the Company's short and long-term value arising from SEE matters and has concluded that the risksassociated with SEE matters are minimal. The Board will continue to monitor those risks on an ongoing basis and will implement appropriate policies and procedures if those risks become significant.
Internal Control
The Group maintains an ongoing process in respect of internal control to safeguard the shareholders' investment and the Group's assets and to facilitate the effective and efficient operation of the Group.
These processes enable the Group to respond appropriately, and in a timely fashion, to significant business, operational, financial, compliance and other risks, in line with the Turnbull Guidance, which may otherwise prevent the achievement of the Group's objectives.
The Group recognises that it operates in a highly competitive market that can be affected by factors and events outside its control. Details of the risks faced by the Group are set out in the table on pages 7 and 8. It is committed to minimising risks arising wherever possible and accepts that internal controls, rigorously applied and monitored, are an essential tool in achieving this objective.
The key elements of Group internal control, which have been effective during 2009 and up to the date of approval of these financial statements, are set out below:
- The existence of a clear organisational structure with defined lines of responsibility and delegation of authority from the Board to its executive directors and operating divisions;
- A procedure for the regular review of reporting business issues and risks by operating divisions;
- Regular review meetings with the operating management;
- A planning and management reporting system operated by each division and the executive directors; and
- The establishment of prudent operating and financial policies.
The directors have overall responsibility for establishing financial and other reporting procedures to provide them with a reasonable basis on which to make proper judgements as to the financial position and prospects of the Group, and have responsibility for establishing the Group's system of internal control and for monitoring its effectiveness. The Group's systems are designed to provide directors with reasonable assurance that physical and financial assets are safeguarded, transactions are authorised and properly recorded and material errors and irregularities are either prevented or detected with the minimum delay. However, systems of internal financial control can provide only reasonable and not absolute assurance against material misstatement or loss.
The key features of the systems of internal financial control include:
- financial planning process with an annual financial plan approved by the Board. The plan is regularly updated providing an updated forecast for the year;
- monthly comparison of actual results against plan;
- written procedures detailing operational and financial internal control policies which are reviewed on a regular basis;
- regular reporting to the Board on treasury and legal matters;
- defined investment control guidelines and procedures;
- periodic reviews by the Audit Committee of the Group's systems and procedures.
The majority of the Group's financial and management information is processed and stored on computer systems. The Group is dependent on systems that require sophisticated computer networks. The Group has established controls and procedures over the security of data held on such systems, including business continuity arrangements.
On behalf of the Board, the Audit Committee has reviewed the operation and effectiveness of this framework of internal control for the year ended 31 December 2009.
Internal Audit
The need for an internal audit function is reviewed on an annual basis by the Audit Committee taking into account the size and complexity of the Group. At present there is no intention to establish an internal audit function.
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COMPLIANCE WITH THE COMBINED CODE ON CORPORATE GOVERNANCE |
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Code of Best Practice- Principles |
Microgen Compliance Statement |
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A |
DIRECTORS |
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1. |
The Board Every company should be headed by an effective board, which is collectively responsible for the success of the company. |
The directors' responsibilities are outlined in the Report of the Directors. The Board meets regularly on a formal basis plus additional ad hoc meetings as necessary. |
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2 |
Chairman and Chief Executive There should be a clear division of responsibilities at the head of the company between the running of the board and the executive responsibility for the running of the company's business. No one individual should have unfettered powers of decision.
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It is the Group's policy that the roles and responsibilities of the Chairman and Chief Operating Officer are separate. The Chairman is primarily responsible for strategy, corporate development and ensuring effective communication with shareholders. The Chief Operating office is responsible for managing the Group's operating businesses. |
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3 |
Board Balance and Independence The board should include a balance of executive and non-executive directors(and in particular independent non-executive directors) such that no individual or small group of individuals can dominate the board's decision taking.
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The Board consists of the Chairman, Chief Operating Officer and Group Finance Director plus three non-executive directors. All of the non-executive directors(including those detailed in the Statement of Compliance) are considered by the Board to be independent of the management of the company and free from any business or other relationship which could materially interfere with the exercise of their independent judgement. |
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4 |
Appointments to the Board There should be a formal, rigorous and transparent procedure for the appointment of new directors to the board. |
A separate Nomination Committee, comprising of all the non-executive directors together with the Chairman, is responsible for identifying and nominating candidates to fill Board vacancies. |
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5 |
Information and Professional Development The board should be supplied in a timely manner with information in a form and of a quality appropriate to enable it to discharge its duties. All new directors should receive induction on joining the board and should regularly update and refresh their skills and knowledge. |
The Board is supplied with full management accounts and detailed operational reviews prior to each meeting. All non-executive directors have extensive business experience and possess relevant and updated skills and knowledge to perform their duties. |
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6 |
Performance Evaluation The board should undertake a formal and rigorous annual evaluation of its own performance and that of its committees and individual directors.
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Given Microgen's size and Board structure, performance evaluation is an ongoing process. A performance evaluation is undertaken for all directors at the |
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7 |
Re-election All directors should be submitted for re-election at regular intervals, subject to continued satisfactory performance. The board should ensure planned and progressive refreshing of the Board.
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Non-executive directors are appointed for specific terms, up to a maximum of three years and re-appointment is not automatic. All directors offer themselves for election at the AGM following their appointment and for re-election thereafter in accordance with the company's articles, which require one-third of directors to retire in rotation at each AGM. |
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B |
REMUNERATION |
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1 |
The Level and Make-up of Remuneration Levels of remuneration should be sufficient to attract, retain and motivate directors of the quality required to run the company successfully, but companies should avoid paying more than is necessary for this purpose. A significant proportion of executive directors' remuneration should be structured so as to link rewards to corporate and individual performance.
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The Chief Operating Officer and Group Finance Director's remuneration consists of basic salary and a variable annual bonus. Basic salaries are reviewed annually in the light of individual performance and market comparisons for similar jobs. Annual bonus may be paid, at the sole discretion of the Remuneration Committee, at a target level of up to 50% with an overall cap of 100% of basic salary. The annual bonus payment is determined on the basis of individual and corporate performance. In addition there are long term incentive schemes in place as detailed in the Report of the Directors on Remuneration. These long term incentive schemes include the Microgen Value enhancement and Realisation Bonus Scheme, Performance Shere Plan and Share Option Plans. |
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2 |
Procedure There should be a formal and transparent procedure for developing policy on executive remuneration and for fixing the remuneration packages of individual directors. No director should be involved in deciding his or her own remuneration.
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Remuneration packages for individual directors are set by the Remuneration Committee after receiving information from independent sources and the company's Human Resources function. The Chairman, Chief Operating Officer and Group Finance Director may be invited to attend the Committee's meetings. |
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C |
ACCOUNTABILITY & AUDIT |
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1 |
Financial Reporting The board should present a balanced and understandable assessment of the company's position and prospects. |
The Board considers it is in compliance with this requirement. |
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2 |
Internal Control The board should maintain a sound system of internal control to safeguard shareholders' investment and the company's assets. |
The Company operates a detailed internal control process which is reviewed at least on an annual basis by the Audit Committee and endorsed by the Board. |
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3 |
Audit Committee and Auditors The board should establish formal and transparent arrangements for considering how they should apply the financial reporting and internal control principles and for maintaining an appropriate relationship with the company's auditors.
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The Audit Committee consists of all non-executive directors and meets at least three times a year. The Chairman, Chief Operating Officer and Group Finance Director are invited to attend but the Audit Committee meets at least annually |
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D |
RELATIONS WITH SHAREHOLDERS |
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1 |
Dialogue with Institutional Shareholders There should be a dialogue with shareholders based on the mutual understanding of objectives. The board as a whole has responsibility for ensuring that a satisfactory dialogue with shareholders takes place. |
The Chairman, Chief Operating Officer and Group Finance Director meet on a regular basis with the company's major shareholders. Non-executive directors are available to meet institutional shareholders on an ad hoc basis. |
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2 |
Constructive Use of the Annual General Meeting The board should use the Annual General Meeting to communicate with investors and encourage their participation. |
All directors make themselves available at the Annual General Meeting to respond to any questions raised by the investors in attendance. |