Annual report and accounts 2010

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Corporate Governance Report

The Board of Directors is responsible for the strategic direction and management and control of the Group’s activities. It sets the tone, as well as the structure, of governance for the Group as a whole.

The Board considers that best practice in corporate governance is an essential part of maximising and sustaining the success of any major business. Accordingly, the Board is committed to achieving the highest standards of corporate governance as an integral part of pursuing the Group’s strategic objectives. Appropriate controls and processes sit hand in hand with the entrepreneurial drive and ambition in the Group. Together, they enable the success of the Group over the long as well as
short term.

This is not merely to follow the letter of any particular code and then report on having done so, important though
that is. It is to instil in the Group the high standards with which the Board believes its business should be conducted.

Neither is this a process which the Board will ever consider fully complete. It is one, like pursuit of the Group’s strategic objectives in general, which will always be ongoing, with evolving requirements, and with further improvements to be made as the Group and the environment in which it operates develop.

This report summarises the work of the Board in this area.

Code compliance

The Board confirms that the Company has complied throughout the year with all the relevant recommendations of Section 1 of the Combined Code on Corporate Governance issued in June 2008 (the ‘Combined Code’) in all respects other than as set out below in the ‘Areas of non-compliance’ section at the end of this report. A summary of the ways in which the Company has complied follows in this report. A copy of the Combined Code can be found at the Financial Reporting Council’s website (www.frc.org.uk).

The Company has also begun to comply with the additional provisions of the new UK Corporate Governance Code (the ‘UK Governance Code’) (which replaces the Combined Code, although did not yet apply to the Company during the year). The Board intends that the Company will fully comply with the UK Governance Code in 2011. In relation to those areas of non-compliance with the Combined Code noted at the end of this report, this will be achieved as soon as possible during the year. A copy of the UK Governance Code can be found on the Financial Reporting Council’s website (www.frc.org.uk).

Composition of the Board

The members of the Board are drawn from different backgrounds and with the range of knowledge, experience and skill sets necessary and appropriate to set and monitor implementation of the Group’s strategy. The Directors contribute their wide-ranging business and financial experience to the Board’s decision-making process.

The Chief Executive Officer and Group Finance Director are primarily responsible for overseeing the operation of the Group’s business on a day-to-day basis. The Board is supported by a senior management team, with the qualifications and experience necessary for the running of the Group under the direction of the Board.

During the year, the Board comprised the non-executive Chairman, two executive Directors and three non-executive Directors. The Board considers that two of the non-executive Directors, Simon Batey and John O’Reilly, are independent and free from any business or other relationship which could materially interfere with the exercise of their independent judgement. In addition, the Chairman was considered independent at the date of his appointment as Chairman (although for the purposes of the Combined Code and UK Governance Code he is excluded from the calculation of the number of independent non-executive Directors in the Company).

The Board has a senior independent Director, Simon Batey, whose role includes being available to shareholders if required as an alternative way of communicating with the Company.

Biographies of each member of the Board are set out in the Board of Directors section and their terms of appointment are available for inspection at the Company’s registered office.

Re-election of Directors

Under the UK Governance Code, at every AGM, all Directors retire from office and may then be proposed for re-election. Any term of a non-executive Director beyond six years will be subject to particularly rigorous review by the Board. The retirement and proposals for re-election of Directors at this year’s AGM are commented upon further in the Directors’ Report.

The Chairman, John Hughes, holds a number of non-executive directorships as set out in the Board of Directors section. The Board considers that the time commitment required by his other roles does not impact on his Chairmanship of the Group. Neither of the executive Directors has held any non-executive directorships of a FTSE 100 company or the chairmanship of such a company.

Functioning of the Board

Board meetings

The Board meets regularly, approximately every two months, and also by telephone when required at other times for particular matters. Board meetings, together with relevant committee meetings, generally take place over the course of one day. In addition to the executive Directors, other members of senior management frequently attend Board meetings.

Each year, the Board meets over two consecutive days to enable a full review of the Group’s strategy to take place. As well as management, external participants, who may include specialist professionals in particular aspects of the Group’s industry, customers and suppliers, present at these meetings. The Group’s strategy is kept under review at other meetings as appropriate.

The Board generally meets at the Group’s offices in London or at offices elsewhere in the Group, for example at a location at which a new build project is underway. In 2010, it met in Paris and Manchester, as well as in London.

Matters handled by the Board

There is a formal schedule of matters reserved for the Board’s decision. This includes approval of Group strategy, budgets and business plans, of Annual and Half Year Reports and Interim Management Statements, and of significant financing and capital expenditure plans. The Board also monitors implementation of the Group’s strategy and its operational and financial performance.

These matters are regularly reviewed and discussed by the Board and its committees at their meetings at which comprehensive reports on the Group’s strategic plans, operations, financial results and forecast updates, and of its risks and internal controls, are presented. Between Board meetings, there is regular communication among executive and non-executive Directors to ensure that all Directors are fully up to date on all significant aspects of the Group’s operations and their development. This includes review of a comprehensive monthly financial reporting pack and reports on significant specific operational and other matters as they arise. If considered appropriate, specific Board meetings, generally held by telephone, are arranged to review these in more detail.

Roles of Chairman and Chief Executive Officer

The roles of Chairman and Chief Executive Officer are split and a formal statement of the division of responsibilities between the Chairman and Chief Executive Officer has been adopted by the Board. The Chairman is principally responsible for the leadership of the Board and for ensuring its effectiveness. The Chief Executive Officer has primary responsibility for the management of the Group’s day-to-day operations, authority for which is delegated to management subject to defined authority limits.

The non-executive Directors meet at least annually without the executive Directors present and, separately, also without the Chairman present to appraise the Chairman’s performance.

Training/induction of Directors

The Chairman is responsible for ensuring that all the Directors continually update their skills and their knowledge and familiarity with the Group in order to fulfil their role on the Board and the Board Committees. Training in matters relevant to their role on the Board is available to all Directors. The Chairman and Committee Chairmen attend seminars relevant to their roles as such. Technical updates dealing with changes in legislation and regulation relevant to the Group’s business are provided regularly to the Directors by the Group Finance Director, the Company Secretary and the Group’s external auditors. Training requirements are reviewed as part of the annual evaluation of the effectiveness of the Board.

New Directors are provided with an induction in order to introduce them to the operations and management of the business. Data centre visits are also arranged as appropriate so that Directors may familiarise themselves with the Group’s operations.

Compliance and advice

All Directors have access to the Company Secretary, who is responsible to the Board for ensuring that Board procedures are properly complied with, and that discussions and decisions are appropriately recorded. The Company Secretary is also responsible under the direction of the Chairman, for ensuring good information flow within the Board and its Committees, and for advising the Board, through the Chairman, on governance matters.

Directors may seek independent professional advice at the Group’s expense in furtherance of their duties as Directors should they consider it appropriate to do so.

Board performance

The Board’s performance is evaluated annually. The process and results of the review carried out in 2010 are commented upon under the Board performance review section later in this report.

Management of conflicts of interest

Section 175 of the Companies Act 2006 (the ‘Act’) places upon a Director a statutory duty to avoid a situation where he has, or could have, a direct or indirect interest that conflicts, or possibly may conflict with the Company’s interests. Occasionally though, circumstances can arise in which such a conflict of interest could occur. The Company’s Articles of Association empower the Directors, as permitted by Section 175 of the Act, to authorise such a situation. Any such authorisation can be effective only if the conflicted Director is not counted in the quorum for the meeting at which the matter is considered and any vote of such Director on any such authorisation is ignored. The non-conflicted Directors may impose conditions or limitations on any such authorisation.

The Board maintains under review at every main Board meeting the potential for conflicts of interests of Directors in the Company. This includes all Directors being asked to notify the Company of any conflicts of interest or potential conflicts of interest that may arise, before they so arise. On being advised of such a conflict or potential conflict, the procedure of the Board is to consider whether to authorise this conflict in accordance with the Company’s Articles and, if it is to be authorised, to consider whether to impose any conditions on such authorisation. Such conditions could limit the distribution, or use of, information to, or by, a conflicted Director or involve the Director absenting himself from discussions on the matter affected by the conflict of interest. The Board reviews the register of any actual and potential conflicts of interests at each of its main scheduled meetings to consider whether any changes may be appropriate to this.

Transactions with Directors and with parties related to Directors require the prior consideration by, and approval of, the other Directors.

Board Committees

The Board has established three Committees to deal with specific aspects of the Group’s affairs:

The terms of reference of these Committees are available on the Group’s website. The Company Secretary acts as Secretary to each of the committees and the proceedings of their meetings are generally reported to all Directors.

Audit Committee

Chaired by

Simon Batey

Other members

Robert Morse
John O’Reilly

The Audit Committee’s role is to assist the Board with the discharge of its responsibilities in relation to internal and external audits. It also assists the Board in overseeing controls and risk management in the Group which the Board views as critical to the achievement of the Group’s strategic objectives over the long as well as short term. The Committee’s work includes reviewing and monitoring:

The Audit Committee generally meets three times per year, as it did in 2010. It meets towards the end of the calendar year at which time it reviews plans for the preparation of the annual accounts for the year and for the audit of these. It meets early in the calendar year, around one week before announcement of the Group’s annual results, and considers the reports of the Group Finance Director and the external auditors on those results and the Annual Report and Financial Statements prior to making a recommendation on these to the Board. It also meets in the week leading up to announcement of the Group’s half year results and considers the reports of the Group Finance Director and external auditors on these before making a recommendation on the results to the Board. At each meeting it reviews risk management and other matters relating to internal control, and a report from the
internal auditor.

The Chairman of the Committee has recent and relevant financial experience having formerly served as a Finance Director, and now as Chairman of the Audit Committee, of other companies. The Group Finance Director and external auditors generally also attend each meeting of the Committee as do the internal auditor and senior members of the Group’s financial management. At least annually, the Committee meets with the internal auditor, and with the external auditors, in the absence of management.

The Audit Committee has implemented procedures relating to the provision of non-audit services by the Company’s external auditors. These procedures require non-audit work and the fees involved to be approved in advance by the Audit Committee, or by the Chairman of the Committee on its behalf in routine matters, after taking account of any potential risks of any current or future conflicts of interest. During the year, the only significant non-audit work performed by the external auditors related to assurance services in respect of due diligence assignments and the review of the Group’s Half Year report (£183,000); and advisory work in respect of taxation matters and IT consultancy (£228,000).

The rotation of external audit personnel accords with their professional guidelines. Whilst the Company does not consider it necessary to have a policy for rotation of external audit firms, consideration is periodically given to placing future audits out to tender, as was done in 2008. The Company has a policy whereby, before any former employee of the external auditors may be employed by the Group, careful consideration must be given as to whether the independence of the auditors will be adversely affected, and approval of the Audit Committee is required.

The Audit Committee reviews the performance of the external auditors at least annually at the conclusion of the annual audit. In addition, as recommended by the Financial Reporting Council, this year the Committee reviewed the results of the Audit Inspection Unit’s routine annual review of the work of PwC as auditors in general, focusing particularly on those aspects of that general review with relevance to the Group.

Remuneration Committee

Chaired by

John O’Reilly

Other members

Simon Batey
John Hughes

The Remuneration Committee determines the levels of remuneration for each of the executive Directors and monitors the structure and levels of the remuneration of other members of senior management. The Committee sets the remuneration of the executive Directors within a structure and at levels considered appropriate for the Group to meet its strategic objectives, including operating within its governance control and risk management procedures. This Committee also considers and approves the Directors’ Remuneration Report to be submitted for approval by the members of the Company at the AGM. This report which includes further details of the work of the Committee, is contained in the Directors’ Remuneration Report.

The Remuneration Committee met formally twice during 2010. Michael Tobin, as Chief Executive Officer, from time to time is invited to attend meetings of the Committee, save where the Committee is dealing with matters relating to his remuneration. The Group’s Head of Human Resources is also invited to attend meetings of the Committee periodically.

Nominations Committee

Chaired by

John Hughes

Other members

Simon Batey
John O’Reilly

Having the appropriate composition of the Board, and succession planning in the Group are considered by the Board to be of key importance to the Group in achieving and sustaining success in its strategic objectives over the long term. The Nominations Committee assists the Board in determining the composition and make-up of the Board. It also assists the Board in succession planning in the Group at both the Board and senior management levels.

This Committee met formally twice during 2010 and communicated less formally between meetings as appropriate. Michael Tobin, as Chief Executive Officer, is periodically invited to attend meetings of the Committee, although this would not be the case where it was dealing with matters relating to him or with the appointment of his successor; and was not the case during the year when the Committee was determining its recommendation to the Board for the appointment of the new non-executive Director.

Following the departure of two non-independent non-executive Directors in 2009, the Board determined it to be appropriate for an additional independent non-executive Director to be recruited to the Company. For this recruitment, a formal, rigorous and transparent process has been undertaken, led by the Nominations Committee, with the assistance of a specialist external search consultancy.

The first stage of this process was to select the specialist external search firm to be engaged. Three leading firms were invited to tender for this role and each gave detailed presentations in this regard to the Nominations Committee. Following consideration of these presentations, on the recommendation of the Nominations Committee, Heidrick & Struggles were appointed to assist the Company in the recruitment process.

With the assistance of Heidrick & Struggles, the Nominations Committee then evaluated the balance of skills, knowledge, experience and character of each of the current Directors. This was to assist in preparation of the description of the role and capabilities required from the new appointment. It was also to ensure that the individual to be recruited would be complementary to the existing Board. With this information, the Committee determined the type of profile to seek from appointment of the new Director, and agreed this with the Board as a whole.

Heidrick & Struggles then prepared a list of potential candidates from which the Committee selected a significant number for its members to interview. As part of the interview process, the Committee sought to establish the suitability of the candidate for appointment in terms of skills, knowledge, experience and character. It also confirmed that the candidate could give the time and commitment necessary to fulfil their duties, in terms of availability both to prepare for and attend meetings, and to discuss matters at other times.

Following this initial interview process, and consideration of the results by the Committee, a short-list of candidates was recommended to the Board and meetings then held between those candidates and other Directors. As at the date of this report, the Board is in the final stages of making an appointment of the new independent non-executive Director. This appointment will bring the Board into full compliance, and enable the Audit and Remuneration Committees also to be brought into full compliance, with the recommendations of the UK Governance Code.

Attendance at meetings

Directors’ attendance at Board, Committee and general meetings convened in the year, along with the number of meetings that they were invited to attend, in whole or in part, is set out below:

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All Directors other than Robert Morse attended the Company’s 2010 AGM.

Board performance review

Critical to the success of the Board achieving its aims is the effectiveness with which it operates.

The Board is committed to an evaluation of its performance being carried out every year. Externally facilitated reviews of its performance are carried out every three years. In other years, the Board carries out an internally facilitated self assessment incorporating learnings and best practice derived from externally facilitated reviews.

In 2008 and 2009, the Board and its committees carried out reviews of their performance and effectiveness assisted by the Company Secretary. In 2010, the review was externally facilitated by Heidrick& Struggles, who were selected for this role following meetings held by the Chairman with, and evaluation of, a number of professional providers in the area.

The review was conducted in three stages. The first stage was the completion by each Director of a detailed questionnaire on the operation, performance and activities of the Board, on the performance of each of the other individual Directors, and on the Director himself. The questionnaire was different to that used in the prior year to ensure that the results were obtained from a different perspective. In particular, it enabled a wider assessment of the roles and performance of individual Directors. In addition, several non-Director members of senior management were asked to complete a questionnaire on their perceptions of the Board. The individual answers to the questionnaires by each participant were maintained as confidential by Heidrick& Struggles to ensure that these were given on an open, frank and impartial basis.

The second stage was an interview between each Director and Heidrick& Struggles to discuss the Director’s answers to that questionnaire and clarify and expand on these as appropriate. These interviews also allowed for wider discussion of matters with individual Directors including any with particular relevance to that Director that had been raised by others.

The third stage was a detailed analysis and report prepared by Heidrick& Struggles of the results of the questionnaires and the interview process. This was presented to the Board as a whole in person by the team responsible at Heidrick& Struggles and the results discussed with them as well as amongst the Board.

From this, conclusions were drawn and, where appropriate, actions determined. Where actions were determined to be appropriate, these have been or are being implemented as agreed by the Board. They included the identification of long-term strategic matters to be given greater consideration by the Board in future, and recommendations in relation to the profile of the new independent non-executive Director which is reported on further in the report on the work of the Nominations Committee within the Board Committees section.

Relations with shareholders

The Board seeks to establish a mutual understanding on the strategic objectives for the Group with its shareholders.

The Chief Executive Officer and Group Finance Director meet or speak with investor representatives regularly during the year to discuss strategic and other issues within the constraints required by the Disclosure and Transparency Rules of the UK Listing Authority. On the announcement of the Group’s annual and half year results, the Chief Executive Officer and Group Finance Director give presentations to institutional investors and analysts and hold a series of one-to-one briefings with key shareholders. Copies of the presentations are available on the Group’s website.

The Board receives regular reports on meetings with shareholders in order to ensure that members of the Board, and in particular the non-executive Directors, develop an understanding of the views of major shareholders about the Company. The senior independent Director is available to shareholders as an alternative channel of communication with the Board. In addition, each Director met with at least one institutional investor in the Company during the year.

The Group also encourages dialogue with all shareholders at the AGM, at which a presentation on the Group’s business is given, as well as during the year. The Chairman, executive Directors and Committee Chairmen attend the AGM to deal with any matters raised by shareholders and all other Directors are encouraged to, and indeed generally do, attend as well. The proxy votes of shareholders for the AGM are tabulated independently by the registrars to the Company and made available on the Company’s website shortly after conclusion of the AGM.

Internal control

The Directors are responsible for establishing, maintaining and reviewing the effectiveness of the Group’s systems of internal control. Such systems are designed to manage, rather than eliminate, the risks faced by the business and can provide only reasonable and not absolute assurance against material misstatement or loss, including those resulting from fraud.

The Board does not believe that there have been any instances of non-compliance with laws and regulations or any fraud or suspected fraud which could result in a material misstatement of the financial statements and its assessment in this respect has been shared with the auditors.

These systems of internal control are regularly reviewed by the Board. The key elements of the existing systems of internal control, which operated throughout the year and up to the date of approval of this 2010 Annual Report and Financial Statements, are set out below.

Open culture

The Group operates a risk-aware culture and an open style of communication, which allows for early identification of risks and issues, leading to appropriate action being taken to eliminate or minimise the impact on the business.

Ongoing process of risk identification, evaluation and management

There is an ongoing process for the identification, evaluation and management of the most significant risks that the Group faces. A detailed discussion of these processes and risks can be found in the
Risk Review
.

Annual assessment of the effectiveness of systems of internal control

The Board and Audit Committee review at least annually a report from senior management in order to assist the Board with their annual assessment of the effectiveness of the Group’s systems of
internal control.

This includes review of the adequacy and effectiveness of the Group’s internal audit arrangements.

Framework and procedures

The key elements of the Group’s procedures and internal financial control framework, are set out
on the right.

Through the processes outlined, areas for improvement in internal controls are identified, action plans to deliver such improvement are devised and delivery is then monitored by management and the Board or its Audit Committee. The Board considers that none of the areas for improvement identified constitute a significant failing or weakness.

As part of the ongoing process of improvement, existing policies and procedures are reviewed and new policies and procedures are put in place. During 2010, the Group’s anti-bribery policy was reviewed and amended to bring it into line with the new Bribery Act in the UK as well as other jurisdictions in which the Group operates. As well as requiring compliance with the relevant laws, this policy requires all those within the Group to act with integrity in the conduct of the Group’s business at all times. The updated policy is being rolled out across the Group. Other policies reviewed include those in relation to the prompt identification, proper control and, if appropriate, announcement of information that may be ‘inside information’ under the rules of the Financial Service Authority in the UK.

The review of existing, together with the development of new policies and procedures, is something that the Board considers will always be an ongoing process in order that these are up to date, tailored to the Group’s requirements and following best practice.

The Board considers that the information that it receives is sufficient to enable it to review the effectiveness of the Group’s internal controls.

Framework and procedures

The key elements of the Group’s procedures and internal financial control framework:

Financial reporting

The Group also has specific systems of internal control to govern the financial reporting process and preparation of the Annual Report and Financial Statements. These systems include clear policies and procedures for ensuring that the Group’s financial reporting processes and the preparation of the consolidated accounts comply with all relevant regulatory reporting requirements. These are detailed in the Group’s Policy and Procedure Manual.

The processes and procedures in relation to the production of the Group’s financial statements are embedded within the Group’s internal monthly financial reporting systems. The Group’s consolidated management accounts are prepared monthly in accordance with the measurement principles of IFRS. In addition, the primary statements are presented in a manner consistent with those in the Annual Report. On a quarterly basis, the full IFRS financial statement disclosures are included within the internal reporting. The monthly consolidated management accounts are subject to management review and analysis.

Whistleblowing

The Group has adopted a whistleblowing policy and operates a process whereby employees may, in confidence, report any incidences or concerns over any possible wrongdoing in financial reporting or other matters. This system operated across all the countries in which the Group is present and was operational for the whole of the financial year. No incidences or concerns were raised by employees during 2010.

Areas of non-compliance

One of the current non-executive Directors, Robert Morse is not considered independent because he is associated with one of the Group’s significant shareholder groups. As such, during the year, the Company did not comply fully with the Combined Code provisions in respect of the composition of the Board and its Audit and Remuneration Committees (provisions A.3.2, B.2.1 and C.3.1 ). In 2010, the interest of that shareholder group reduced from 16.52% to 5.41% of the share capital of the Company. The Board considers that the service on the Board of Mr Morse provides a valuable resource to the Company particularly because he has several years’ experience in the Company’s industry both in Europe, and in the US where he is based.

Following the planned appointment of an additional independent non-executive Director to the Board commented on under the work of the Nominations Committee, and the subsequent appointment of that Director to the Audit and Remuneration Committees, the Company will be in full compliance with the UK Governance Code.

On behalf of the Board

John Hughes
Chairman

Simon Batey
Senior Independent Director
8 February 2011

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