Directors' Statement on Corporate Governance from 2011 Annual Report
The directors are committed to maintaining the highest standards of corporate governance. This statement details how the Group applies the main principles and provisions of the UK Corporate Governance Code, published by the Financial Reporting Council in June 2010 (‘the Code’). As noted in the Directors’ Report, the Irish Corporate Governance Annex (‘the Annex’), published by the Irish Stock Exchange, does not apply to the Group until the 2012 financial year however the Group has applied these recommendations this year.
Board of Directors
Role
The Board is responsible for the leadership, control and the long-term success of the Group. The Board has reserved certain items for its review including the approval of Group strategic plans, financial statements, budgets, risk management, significant acquisitions and disposals, investments in joint ventures, significant property transactions, significant capital expenditure and board appointments.
The roles of Chairman and Chief Executive are separate with a clear division of responsibility between them. The Board has delegated responsibility for the management of the Group, through the Chief Executive, to executive management. The Board has also delegated some of its responsibilities to board committees, details of which are set out below.
Non-executive directors are expected to constructively challenge management proposals and to examine and review management performance in meeting agreed objectives and targets. In addition, they are expected to input their experience and knowledge in respect of any challenges facing the Group and in relation to the development of proposals on strategy.
All directors are required to allocate sufficient time to the Group to discharge their responsibilities effectively.
The Group’s professional advisers are available for consultation by the Board as required. Individual directors may seek independent professional advice at the Group’s expense, where they judge it necessary to discharge their responsibility as a director.
The Group has a policy in place which indemnifies the directors in respect of legal action taken against them as directors of the Company.
Membership, Size and Structure
The Board is comprised of twelve directors, four executive directors and eight non-executive directors. Biographical details are set out on pages 26 and 27.
It is board policy that a majority of the Board is comprised of non-executive directors and that the Chairman is a non-executive director.
The Board believes the current board size and structure to be appropriate as it facilitates proper representation of the businesses, through the executive directors, whilst ensuring the independence recommendation under the Code is maintained. The current size and structure also facilitates the Board comprising the appropriate skills, knowledge and experience to ensure that the Board and committees discharge their responsibilities effectively.
The Board considers that the directors bring the necessary skills, expertise and experience to the Board to lead the Group and address the challenges facing the Group. The Chairman ensures that the skills, expertise and experience are harnessed to best effect in addressing significant issues facing the Group through ensuring directors are properly informed on all matters, that discussions foster constructive challenge and debate, adequate time is provided for discussions and the view of each director, and in particular the view of those directors with skills, knowledge or experience pertinent to the particular matter at hand, is presented and considered.
The balance of skills, knowledge, experience and the tenure of the Board are continuously assessed and reviewed to ensure they remain appropriate and as a result the composition of the Board may change from time to time. There are currently no plans for the size or structure of the Board to materially change.
Independence of Non-Executive Directors
The Board has evaluated the independence of each of its non-executive directors and has determined that each of the nonexecutive directors, with the exception of Ms. A. Flynn, is independent. In arriving at this conclusion, the Board considered many factors including whether any of the non-executive directors:
- has been an employee of the Group;
- has or had within the last three years, a material business relationship with the Group;
- receives remuneration from the Group other than a Directors' fee;
- has close family ties with any of the Group’s advisers, directors or senior employees;
- holds cross-directorships or has significant links with other directors through involvement in other companies or bodies;
- represents a significant shareholder; or
- has served on the Board for more than nine years from the date of their first election.
As with all directors, Ms. A. Flynn brings independent judgement to bear on board related matters however due to Ms. A. Flynn being a former employee of the Group she is determined not to be independent.
On appointment as Chairman, Mr. R. Kells met the independence criteria set out in the Code.
The Board have determined that at least half the Board, excluding the Chairman, is comprised of independent non-executive directors.
Chairman
Mr. R. Kells has been Chairman of the Group since 5 October 2005. The Chairman is responsible for the leadership of the Board. The Chairman also has overall responsibility for the effective and efficient working of the Board, ensuring that the Board considers the key strategic issues facing the Group and that the directors receive accurate, relevant, timely and clear information. In addition, the Chairman ensures appropriate and effective interaction with shareholders.
Senior Independent Non-Executive Director
Mr. G. McGann was appointed the Senior Independent non-executive director on 20 November 2007. Mr. G. McGann is available to shareholders who have concerns that cannot be addressed through the Chairman, Chief Executive or Finance Director and is available to meet major shareholders on request. Mr. G. McGann is also available to act as intermediary for directors, if necessary.
Company Secretary
The appointment and removal of the Company Secretary is a matter for the Board. All directors have access to the advice and services of the Company Secretary, who is responsible for ensuring that board procedures are followed and that applicable rules and regulations are complied with.
Terms of Appointment
The non-executive directors are engaged under the terms of a letter of appointment. A copy of the standard letter of appointment is available on request from the Company Secretary. It is board policy that non-executive directors are normally appointed for an initial term of three years. Non-executive directors are typically expected to serve two, three year terms however the Board may invite them to serve longer. Ms. A. Flynn’s term of appointment as a non-executive director is for an initial term of two years.
Retirement and Re-Election
The Group’s Articles of Association provide that directors must submit themselves for re-election at least every three years, directors appointed by the Board must submit themselves for election at the Annual General Meeting following their appointment and directors over the age of seventy must submit themselves for re-election on an annual basis.
However, in accordance with the recommendation for annual election of all directors contained in the Code, the Board has adopted the practice that all directors shall retire at each future Annual General Meeting and offer themselves for re-election where appropriate.
Induction and Development
On appointment, directors are provided with briefing materials on the Group and its operations. Visits to group businesses and briefings with senior management are arranged as appropriate and ongoing briefings are also provided to all directors. During the year, the Board visited businesses in the US, during which they received a tour of the facilities and met local management. Presentations by internal and external parties are also made to the Board and committees, as appropriate.
Performance Evaluation
The Board conducts an annual review of its own performance and process and that of its committees and of each individual director, including the Chairman. The review performed seeks to ensure all aspects of the Board are operating efficiently and effectively. The review also seeks to identify areas of weakness and strength in order to facilitate development.
During the year, this review was primarily achieved through discussions held by the Chairman with directors on both an individual and group basis and through a detailed questionnaire completed by each director on an anonymous basis. In addition, the Chairman also independently met with the non-executive directors. The Senior Independent non-executive director also met with the other non-executive directors, without the Chairman present, to review the performance of the Chairman, taking the views of the executive directors into account. The Chairman and the Senior Independent non-executive director provided the Board with a summary of the results of the evaluation process and suggestions for any related changes for discussion. The methodology applied encompasses evaluation on an anonymous, individual and group basis which fosters open communication and objective results.
The Board acknowledges the recommendation contained in the Code for evaluation of the Board to be externally facilitated at least every three years and accordingly has committed to undertake an externally facilitated evaluation by year end 2013.
Remuneration
Details of directors’ remuneration are set out in the Report of the Remuneration Committee on Directors’ Remuneration on pages 39 to 48.
Share Ownership and Dealing
Details of directors’ shareholdings are set out in the Report of the Remuneration Committee on Directors’ Remuneration.
The Group has a policy on dealing in shares that applies to all directors and senior management. This policy adopts the terms of the Model Code as set out in the Listing Rules published by the UK Listing Authority and the Irish Stock Exchange.
Communication with Shareholders
The Group recognises the importance of shareholder communications and has an established and ongoing investor relations programme. There is regular dialogue with institutional shareholders as well as general presentations at the time of the release of the annual and interim results. During the year, the Chief Executive made a presentation at the Company’s Annual General Meeting. In addition, executive directors met with investors in the UK, Ireland, Continental Europe and the US. The Chairman also attended meetings with significant shareholders. The Board is briefed regularly on the views and concerns of institutional shareholders and receive analysts’ reports on the Company on a regular basis.
Results announcements are released promptly to shareholders. Interim management statements were also issued in February and August 2011, in accordance with requirements under the EU Directive 2004/109/EC (‘the Transparency Directive’). In addition, information including acquisition details are notified to the stock exchanges in accordance with the requirements of the Listing Rules.
The Group's website, www.united-drug.ie provides the full text of the annual and interim reports, investor presentations, interim management statements and stock exchange announcements.
Meetings
The Board routinely meets at least six times a year and additionally as required. During the year, the Board met ten times. Details of directors’ attendance at these meetings are set out on page 38.
The Chairman sets the agenda for each meeting in consultation with the Chief Executive and the Company Secretary. The agenda and board papers are circulated prior to each meeting to provide the directors with relevant information and enable them to fully consider the agenda items in advance of the meeting. In the event a director is unavailable to attend a board meeting, he or she will receive the Board papers in advance of the meeting and can communicate their views on any items, to be raised through the Chairman at the meeting.
General Meetings
The Company’s Annual General Meeting affords shareholders the opportunity to question the Chairman and the Board. The Notice of Annual General Meeting, the Form of Proxy and the annual report are issued to shareholders at least 21 working days before the meeting. At the meeting, resolutions are voted on by a show of hands of those shareholders attending, in person or by proxy. After each resolution has been dealt with, details are given of the level of proxy votes cast on each resolution and the number of votes for, against and withheld. If validly requested, resolutions can be voted by way of a poll whereby the votes of shareholders present and voting at the meeting are added to the proxy votes received in advance of the meeting and the total number of votes for, against and withheld for each resolution are announced. Details of proxy votes received are made available on the Company’s website following the meeting.
All other general meetings are called Extraordinary General Meetings (EGMs). An EGM called for the passing of a special resolution must be called by providing at least 21 clear days’ notice. Provided shareholders have passed a special resolution at the immediately preceding Annual General Meeting and the Company allows shareholders to vote by electronic means, an EGM to consider an ordinary resolution may, if the directors deem it appropriate, be called by providing at least 14 clear days’ notice. A quorum for a general meeting of the Company is constituted by three or more shareholders present in person or by proxy and entitled to vote. The passing of resolutions at a meeting of the Company, other than special resolutions, requires a simple majority. To be passed, a special resolution requires a majority of at least 75% of the votes cast.
A quorum for a general meeting of the Company is constituted by three or more shareholders present in person or by proxy and entitled to vote. The passing of resolutions at a meeting of the Company, other than special resolutions, requires a simple majority. To be passed, a special resolution requires a majority of at least 75% of the votes cast.
Shareholders have the right to attend, speak, ask questions and vote at general meetings. In accordance with Irish company law, the Company specifies record dates for general meetings, by which date shareholders must be registered in the Register of Members of the Company to be entitled to attend. Record dates are specified in the Notice of Annual General Meeting. Shareholders may exercise their right to vote by appointing a proxy/proxies, by electronic means or in writing, to vote some or all of their shares. The requirements for the receipt of valid proxy forms are set out in the Notice of Annual General Meeting. A shareholder, or a group of shareholders, holding at least 5% of the issued share capital of the Company, has the right to requisition a general meeting. A shareholder, or a group of shareholders, holding at least 3% of the issued share capital of the Company, has the right to put an item on the agenda or to table a draft resolution for inclusion on the agenda of a general meeting, subject to any contrary provision in Irish company law.
Memorandum and Articles of Association
The Company’s Memorandum and Articles of Association sets out the objects and powers of the Company and may be amended by a special resolution passed by the shareholders at a general meeting of the Company.
Board Committees
The Board has established four permanent committees to assist in the execution of its responsibilities. These committees are the Audit Committee, Remuneration Committee, Nomination Committee and Acquisitions and Finance Committee. Each committee has specific terms of reference under which authority is delegated to it by the Board. The terms of reference of each are available on the Group’s website. The membership of each committee is set out in this report and on pages 26 and 27. Details of attendance at meetings are set out on page 38. The Chairmen of each committee report to the Board. The Chairmen of these committees attend the Annual General Meeting and are available to answer questions from shareholders.
Audit Committee
The Audit Committee comprises Mr. P. Gray (Chairman), Dr. J. Peter and Mr. P. Toomey, all of whom are independent non-executive directors.
The Chief Executive, Mr. L. FitzGerald and the Finance Director, Mr. B. McGrane, are not members of the Committee but normally attend meetings at the invitation of the Committee. In addition the Chairman of the Board, Mr. R. Kells also attends meetings at the invitation of the Committee. The Head of Internal Audit and the external auditor also attend meetings and have direct access to the Chairman and the Committee for independent discussions. During the year, the Committee met with the Head of Internal Audit and with the external auditor on separate occasions in the absence of management.
The Committee meets a minimum of three times a year. During the year under review, the Committee met seven times. Attendance at meetings is set out on page 38.
The Committee has determined that Mr. P. Gray, a Fellow of the Institute of Chartered Accountants in Ireland and former Chief Financial Officer/Finance Director of a number of Irish public companies, is the Committee’s financial expert.
The Committee's responsibilities include:
- monitoring the integrity of the Group’s financial statements;
- reviewing the effectiveness of the Group’s internal financial control and financial risk management systems;
- monitoring and reviewing the effectiveness of the Group’s internal audit function;
- monitoring and reviewing the external auditor’s independence and objectivity;
- making recommendations to the Board on the appointment, re-appointment and removal of the external auditor; and
- reviewing the Group’s confidential reporting arrangements whereby employees can raise concerns about possible wrongdoing in confidence.
The Committee discharged these responsibilities during the year by:
- Reviewing the Group’s interim management statements which were issued in February and August 2011, the interim report for the six months ended 31 March 2011 and the preliminary announcement and annual report for the year ended 30 September 2011. The Committee’s review incorporated a review of the consistency of, or, any changes to significant accounting policies; significant judgemental areas; and disclosure and compliance requirements. During August 2011, the Committee reviewed the external auditor’s 2011 year end audit plan and during November 2011, reviewed in detail the 2011 Report to the Audit Committee prepared by the external auditor;
- Discussing the Group’s internal financial control and financial risk management systems with management, the Head of Internal Audit and the external auditor; considering internal audit and external audit reports received; and discussing and reviewing the results of the Group’s financial internal control and financial risk management systems assessment process;
- The Committee reviewed and approved the internal audit function’s charter and audit plan and reviewed the adequacy of the resources of the internal audit function. Internal audit reports and any resulting action points were also regularly reviewed and followed up to ensure resolution. Progress of the audit plan was also reviewed;
- The Committee monitored and reviewed the independence and objectivity of the external auditor by receiving confirmation from the external auditor that they are independent from the Group, including details of the external auditor’s internal policies and procedures for maintaining independence and monitoring independence compliance. The Committee reviewed and monitored the Group’s policy on the hiring of former employees of the external auditor to senior managerial positions in the Group within three years of having previously been employed by the external auditor. The Committee also reviewed and monitored the Group’s policy on the provision of non-audit services by the external auditor whereby the external auditor may not provide services which would result in it auditing its own firm’s work, conducting activities that would normally be undertaken by management, having a mutuality of financial interest with the Group or acting in an advocacy role for the Group. The nature, extent and scope of non-audit services provided to the Group by the external auditor and the economic importance of the Group to the external auditor were also monitored to ensure that independence and objectivity was not impaired. Details of amounts paid to the external auditor during the year are set out in note 3 to the financial statements;
- The Committee recommended the re-appointment of the external auditor to the Board. Prior to making the recommendation, the Committee considered matters incorporating the effectiveness of the external auditor, the reasonableness of the fees charged by reference to certain benchmarks and the outcome of the independence and objectivity review;
- The Committee reviewed the Group’s confidential reporting policy and procedures.
Remuneration Committee
The Remuneration Committee consists solely of independent non-executive directors and comprises Mr. G. McGann (Chairman), Mr. C. Brinsmead, Mr. H. Friel, Mr. R. Kells, Dr. J. Peter and Mr. P. Toomey.
The Chief Executive, Mr. L. FitzGerald, is not a member of this committee but may be invited to attend meetings, except those where his own remuneration is discussed.
The Committee meets at least once a year. During the year under review, the Committee met eight times. Attendance at meetings is set out on page 38.
The Committee's responsibilities include:
- determining the Group's policy on executive remuneration;
- determining the remuneration of the executive directors;
- monitoring the level and structure of the remuneration for senior management; and
- reviewing the design of share incentive plans and approving awards under such schemes.
Details of the activities of the Committee during the year are set out in the Report of the Remuneration Committee on Directors' Remuneration.
Nomination Committee
The Nomination Committee comprises Mr. R. Kells (Chairman), Mr. L. FitzGerald, Mr. P. Gray, Mr. G. McGann and Mr. P. Toomey.
The Committee meets at least once a year. During the year under review, the Committee met five times. Attendance at meetings is set out on page 38.
The Committee's responsibilities include:
- reviewing the structure, size and composition, including the skills, knowledge and experience required by the Board, and making recommendations regarding any changes in order to ensure that the composition of the Board and committees is appropriate for the Group’s requirements;
- establishing processes for the identification of suitable candidates for appointment to the Board; and
- overseeing succession planning for the Board and senior management.
During the year, the Committee reviewed and approved a succession plan for directors and senior management. The Committee also reviewed and recommended to the Board the re-appointment of Mr. P. Toomey at the conclusion of his specified term of office and the appointment of Ms. A. Flynn as a non-executive director following her resignation as an executive director, having considered the balance of skills, knowledge, experience and the tenure of the Board.
Acquisitions and Finance Committee
The Acquisitions and Finance Committee advises the Board on matters relating to acquisitions and finance. The Committee comprises Mr. R. Kells (Chairman), Mr. C. Brinsmead, Mr. L. FitzGerald, Ms. A. Flynn, Mr. H. Friel, Mr. P. Gray, Mr. G. McGann and Mr. B. McGrane.
The Committee meets during the year as required. During the year under review, the Committee met twice. Attendance at meetings is set out on page 38.
Corporate Social Responsibility
The Group’s corporate social responsibility policies and activities are summarised on pages 24 and 25.
Internal control and risk management
The directors have overall responsibility for the Group’s internal control and risk management systems and for reviewing the effectiveness of these systems.
The system of internal control is designed to manage, rather than eliminate, the risk of failure to achieve business objectives and can provide only reasonable but not absolute assurance against material misstatement or loss.
There is a continuous process for identifying, evaluating and managing the significant risks faced by the Group which has been in place during the year under review and up to the date on which the financial statements were signed. The Group’s management operates a risk management process, which identifies the key risks facing the business, and reports to the Board on how these risks are being managed. This is based on each business producing a risk register, which identifies its key risks, evaluates the probability of those risks occurring, the likely impact should the risks materialise and actions being taken to manage those risks to the desired level. This information is compiled and reviewed by the Risk Register Group, which includes executive directors. The Risk Register Group discuss these risks, and other risks faced at group level, and this process culminates in the Group risk register. The Group risk register is reviewed and approved by the Board. On an ongoing basis, management ensure that steps are taken to further embed internal control and risk management into the operations of the Group and to identify any areas for improvement.
The Audit Committee receives reports from both internal and external auditors and satisfies itself as to the adequacy of the Group’s internal financial control and financial risk management systems. The Chairman of the Audit Committee reports to the Board on significant matters considered by the Committee and the minutes of its meetings are circulated to all directors.
Further key procedures that have been established and are designed to provide effective internal control include:
- a management structure with clearly defined lines of responsibility and delegation of authority;
- the approval by the Board of comprehensive annual budgets, and the monthly monitoring of performance against these budgets;
- the preparation of the Group accounts is managed by group finance and supported by a network of finance personnel with appropriate expertise across the Group. The financial information for each entity is subject to review at both reporting entity and group level. The interim and annual group accounts are also reviewed by the Audit Committee in advance of being presented to the Board for review and approval;
- the approval by the Board for all major capital and acquisition projects; and
- the existence of an independent internal audit function, which reviews key business processes and controls.
The directors confirm that they have reviewed and are satisfied with the effectiveness of the internal control and risk management systems, which operated during the year covered by the financial statements and up to the date on which the financial statements were signed. In particular, they have considered the significant risks affecting the business and the way in which these risks are managed, controlled and monitored.
Compliance Statement
The Board has taken the necessary steps to ensure compliance with the provisions set out in the Code throughout the accounting period and has applied the recommendations set out in the Annex.
Going Concern
After making enquiries, the directors have a reasonable expectation that the Company, and the Group as a whole, have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.
Attendance at board and committee meetings
Attendance at board and committee meetings during year ended 30 September 2011 is set out below
| |
Board |
Audit Committee |
Remuneration Committee |
Nomination Committee |
Acquisitions and Finance Committee |
| |
A |
B |
A |
B |
A |
B |
A |
B |
A |
B |
| R. Kells |
10 |
10 |
- |
- |
8 |
8 |
5 |
5 |
2 |
2 |
| L. FitzGerald |
10 |
10 |
- |
- |
- |
- |
5 |
5 |
2 |
2 |
| C. Brinsmead |
10 |
9 |
- |
- |
8 |
7 |
- |
- |
2 |
1 |
| C. Corbin |
10 |
8 |
- |
- |
- |
- |
- |
- |
- |
- |
| A. Flynn |
10 |
10 |
- |
- |
- |
- |
- |
- |
2 |
2 |
| H. Friel |
10 |
9 |
- |
- |
8 |
8 |
- |
- |
2 |
2 |
| P. Gray |
10 |
10 |
7 |
7 |
- |
- |
5 |
5 |
2 |
2 |
| G. McGann |
10 |
9 |
- |
- |
8 |
8 |
5 |
5 |
2 |
2 |
| B. McGrane |
10 |
10 |
- |
- |
- |
- |
- |
- |
2 |
2 |
| J. Peter |
10 |
10 |
7 |
7 |
8 |
8 |
- |
- |
- |
- |
| A. Ralph |
10 |
10 |
- |
- |
|
- |
- |
- |
- |
- |
| P. Toomey |
10 |
10 |
7 |
7 |
8 |
8 |
5 |
5 |
- |
- |
Column A details the number of meetings held during the year when the director was a member of the Board and committee.
Column B details the number of meetings attended during the year when the director was a member of the Board and committee.