The Board of Directors (“the Board”) acknowledges the importance and continued applicability for this reporting period of the principles set out in the UK Corporate Governance Code issued in April 2016 (the “Code”). Although the Code is not compulsory for AIM listed companies, the Board recognises the importance of good corporate governance practices and therefore has applied the principles in line with best practice for an AIM listed company. This Report identifies how it has complied with both the individual principles and the ‘spirit’ of the Code as a whole.
The Code itself defines the purpose of corporate governance being “to facilitate effective, entrepreneurial and prudent management that can deliver the long-term success of the company.” It is this overarching objective that the Board has sought to achieve in applying the Code principles.
The role of the Board
“Every Company should be headed by an effective Board which is collectively responsible for the long-term success of the company.”
The Company’s Board continues to be headed by its Chairman George Elliott and comprises two executive Directors, Keith Neilson, Chief Executive Officer and Craig Preston, Chief Financial Officer along with three further non-executive Directors, Ronald Verni (Senior Independent Director), Colleen Blye and Russ Rudish. As previously announced, Neil Heywood who was a non-executive Director for over 10 years did not stand for re-appointment at the 2016 AGM and resigned from the Board on 8th November 2016. Detailed biographies of all Directors are contained on pages 14 and 15. The Board meets regularly to discuss and agree on the various matters brought before it, including the Group’s trading results. The Board is well supported by the Group’s Operations Board (details of which are provided below) and a broader senior management team, who collectively have the qualifications and experience necessary for the day to day running of the Group.
There is a formal schedule of matters reserved for the Board, which include approval of the Group’s strategy, annual budgets and business plans, acquisitions, disposals, business development, annual reports and interim statements, plus any significant financing and capital expenditure plans. As part of this schedule, the Board has clearly laid out levels of devolved decision making authority to the Group’s Operations Board.
The Board has further established an Audit Committee and a Remuneration Committee details of which are provided below. The Board does not have a separate Nominations Committee as the Company has again taken advantage of the Code’s relaxations available to smaller companies and incorporated this function within the remit of the entire Board.
Attendance of Directors at Board and Committee meetings convened in the year, along with the number of meetings that they were invited to attend, are set out below:
|Board||Remuneration Committee||Audit Committee|
|No. Meetings in year||8||3||3|
|C T Preston||8/8||-||-|
|Non Executive Directors|
|G R Elliott||8/8||-||-|
|N P Heywood*||3/3||1/1||1/1|
* Resigned 8th November 2016
** Appointed to the Remuneration Committee and the Audit Committee on 8th November 2016
Where any Board member has been unable to attend Board or Committee meetings during the year, their input has been provided to the Company Secretary ahead of the meeting. The relevant Chairman then provides a detailed briefing along with the minutes of the meeting following its conclusion.
As detailed in the Directors’ Report on page 17, the Company maintains appropriate insurance cover against legal action brought against Directors and officers. The Company has further indemnified all Directors or other officers against liability incurred by them in the execution or discharge of their duties or exercise of their powers.
Division of Responsibilities
“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.”
The Board has established clearly defined and well understood roles for George Elliott as Chairman of the Company, and Keith Neilson as Chief Executive Officer. The Chairman is responsible for the leadership of the Board, ensuring its effectiveness and setting its agenda. Once strategic and financial objectives have been agreed by the Board, it is the Chief Executive Officer’s responsibility to ensure they are delivered upon. To facilitate this, Keith Neilson as CEO chairs the Group’s Operations Board which comprises the Chief Financial Officer and six further members of the Senior Management Team. The day-to-day operation of the Group’s business is managed by this Operations Board, subject to the clearly defined authority limits.
“The chairman is responsible for leadership of the Board and ensuring its effectiveness on all aspects of its role.”
George Elliott was appointed Chairman of the Board in August 2007, shortly before the Company listed on the AIM market. At that time the then Board satisfied themselves that he was independent, fulfilling the requirements of the Code. George has a depth of experience both as Chairman and a non-executive director for a number of other companies, including other listed companies, details of which can be found in the Directors’ biographies on page 14.
“As part of their role as members of a unitary board, non-executive directors should constructively challenge and help develop proposals on strategy.”
The Board has appointed Ronald Verni as Senior Independent Director. In this role, Ronald provides a sounding board for the Chairman as well as providing an additional channel of contact for shareholders, other Directors or employees, if the need arises. In addition to matters outlined above, there is regular communication between executive and non-executive Directors, including where appropriate, updates on matters requiring attention prior to the next Board meeting. The non-executive Directors meet, as appropriate but no less than annually, without executive Directors being present and further meet annually without the Chairman present.
The Composition of the Board
“The Board and its committees should have the appropriate balance of skills, experience, independence and knowledge of the company to enable them to discharge their respective duties and responsibilities effectively.”
The composition of the Board has been designed to give a good mix and balance of different skill sets, including significant experience in:
- high growth companies;
- software and healthcare sectors;
- entrepreneurial cultures;
- senior financial reporting;
- both UK and US companies;
- acquisitions; and
- other listed plc companies.
Through this mix of experience, the Board and the individual Directors are well positioned to set the strategic aims of the Company as well as drive the Group’s values and standards throughout the organisation, whilst remaining focused on their obligations to shareholders and meeting their statutory obligations.
The Board reviews on an annual basis the independence of each non-executive Director. In making this consideration the Board determines whether the Director is independent in character and judgement and whether there are relationships or circumstances which are likely to affect, or could appear to affect, the Director’s judgement.
Appointments of the Board
“There should be a formal, rigorous and transparent procedure for the appointment of new directors to the Board.”
When a new appointment to the Board is to be made, consideration is given to the particular skills, knowledge and experience that a potential new member could add to the existing Board composition. A formal process is then undertaken, usually involving external recruitment agencies, with appropriate consideration being given, in regards to executive appointments, to internal and external candidates. Before undertaking the appointment of a non-executive Director, the Chairman establishes that the prospective Director can 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.
Any conflicts, or potential conflicts, of interest are disclosed and assessed prior to a new Director’s appointment to ensure that there are no matters which would prevent that person from accepting the appointment. The Group has procedures in place for managing conflicts of interest and Directors have continuing obligations to update the Board on any changes to these conflicts. This process includes relevant disclosure at the beginning of each Board meeting. If any potential conflict of interest arises, the Articles of Association permit the Board to authorise the conflict, subject to such conditions or limitations as the Board may determine.
“All directors should be able to allocate sufficient time to the company to discharge their responsibilities effectively.”
All Board Directors recognise the need to allocate sufficient time to the Company for them to be able to meet their responsibilities as Board members. All non-executive Directors’ contracts include minimum time commitments; however these are recognised to be the minimums.
Details of the other directorships held by each Board member are provided in the Director biographies on pages 14 and 15. The Board has evaluated the time commitments required by these other roles and does not believe it affects their ability to perform their duties with the Company. No executive Director currently holds any other directorship of a listed company. The non-executive Director contracts are available for inspection at the Company’s registered office and are made available for inspection both before and during the Company’s Annual General Meeting.
“All Directors should receive induction on joining the Board and should regularly update and refresh their skills and knowledge.”
The Chairman is responsible for ensuring that all the Directors continually update their skills, their knowledge and familiarity with the Group in order to fulfil their role on the Board and the Board’s Committees. Updates dealing with changes in legislation and regulation relevant to the Group’s business are provided to the Board by the Company Secretary/Chief Financial Officer and through the Board Committees.
All Directors have access to the advice and services of 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 minuted. Directors may seek independent professional advice at the Company’s expense in furtherance of their duties as Directors.
Training in matters relevant to their role on the Board is available to all Board Directors. New Directors are provided with an induction in order to introduce them to the operations and management of the business.
“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.”
In setting the Board agendas, the Chairman, in conjunction with the Company Secretary, ensures input is gathered from all Directors on matters that should be included. Board papers are then issued in advance of meetings to ensure Board members have appropriate detail in regards to matters that will be covered, thereby encouraging openness and healthy debate. At a minimum these board papers include the Financial Results of the Group and a report from both the Chief Executive Officer and the Chief Financial Officer.
In addition, the non-executive Directors periodically meet with the Group’s Operations Board on an informal basis. This provides all Directors with direct access to the senior management of the Company and allows for better understanding of how the strategy set by the Board is being implemented across the Group.
“The Board should undertake a formal and rigorous annual evaluation of its own performance and that of its committees and individual directors.”
Following Neil Heywood’s resignation, the Board reviewed the skills and attributes of the individual Directors to identify a skills set that would be required from a new non-executive Director. In addition, the remuneration and audit committees were reviewed for both performance and skill sets. In regards to the committees, Russ Rudish has been appointed to both committees and Colleen Blye has been appointed chairman of the Audit Committee. The Board is proposing a full formal evaluation, in the current Financial Year. This is expected to take the form of a detailed questionnaire to be completed by each Director. This evaluation will include a review of the performance of individual Directors including the Chairman and the Board Committees.
Overall the Board has concluded that its performance in the period under review had been satisfactory. This review process will be repeated and updated as appropriate.
The Board has considered the Code’s recommendation that the evaluation of the Board be carried out externally at least every three years. The Board recognises this recommendation is not applicable to AIM listed companies and has determined it was not necessary to carry out an external review in the current year.
“All directors should be submitted for re-election at regular intervals, subject to continued satisfactory performance.”
Under the Company’s Articles of Association, at every Annual General Meeting, at least one-third of the Directors who are subject to retirement by rotation, are required to retire and may be proposed for re-election. In addition, any Director who was last appointed or re-appointed three years or more prior to the AGM is required to retire from office and may be proposed for re-election. Such a retirement will count in obtaining the number required to retire at the AGM. New Directors, who were not appointed at the previous AGM, automatically retire at their first AGM and, if eligible, can seek re-appointment.
However, the Board recognises the Code’s recommendation that all Directors should stand for re-election every year, and whilst not a requirement, the Board has decided to adopt this recommendation as best practice. As such, all Directors will retire from office at the Company’s forthcoming AGM. It is the intention of all Directors to stand for re-appointment.
Financial and Business Reporting
“The Board should present a fair, balanced and understandable assessment of the company’s position and prospects.”
The Board recognises its responsibilities, including those statutory responsibilities laid out on page 18. An assessment of the Group’s market, business model and performance is presented in the Chairman’s Statement and the Strategic Review on pages 5 to 12.
As detailed on page 16 of the Directors’ Report, the Board has confirmed that it is appropriate to adopt the going concern basis in preparing financial statements.
Risk Management and Internal Control
“The Board is responsible for determining the nature and extent of the principal risks it is willing to take in achieving its strategic objectives. The Board should maintain sound risk management and internal control systems.”
The Directors recognise their responsibility for the Group’s system of internal control, and have established systems to ensure that an appropriate and reasonable level of oversight and control is provided. These systems are reviewed for effectiveness annually by the Audit Committee and the Board. The Group’s systems of internal control are designed to help the Group meet its business objectives by appropriately managing, rather than eliminating, the risks to those objectives. The controls can only provide reasonable, not absolute, assurance against material misstatement or loss.
Executive Directors and senior management meet to review both the risks facing the business and the controls established to minimise those risks and their effectiveness in operation on an ongoing basis. The aim of these reviews is to provide reasonable assurance that material risks and problems are identified and appropriate action taken at an early stage. From this review the Company maintains its internal risk register which forms the foundation of the Board and the Audit Committee review process.
The annual financial plan is reviewed and approved by the Board. Financial results, with comparisons to plan and forecast results, are reported on at least a quarterly basis to the Board together with a report on operational achievements, objectives and issues encountered. The quarterly reports are supplemented by interim monthly financial information. Forecasts are updated no less than quarterly in the light of market developments and the underlying performance and expectations. Significant variances from plan are discussed at Board meetings and actions set in place to address them.
Approval levels for authorisation of expenditure are at set levels and cascaded through the management structure with any expenditure in excess of pre-defined levels requiring approval from the executive Directors and selected senior managers.
Measures continue to be taken to review and embed internal controls and risk management procedures into the business processes of the organisation and to deal with areas of improvement which come to the management’s and the Board’s attention. Metrics and quality objectives continue to be actively implemented and monitored as part of a continual improvement programme.
Details of the principal risks and uncertainties facing the Group are detailed in the Strategic Report on page 12. The principal financial risks are detailed in Note 3 to the financial statements.
Audit Committee and Auditors
“The Board should establish formal and transparent arrangements for considering how they should apply the corporate reporting and risk management and internal control principles and for maintaining an appropriate relationship with the Company’s auditors.”
An Audit Committee has been established to assist the Board with the discharge of its responsibilities in relation to internal and external audits and controls. The Audit Committee will normally meet at least three times a year. The Audit Committee was chaired by Neil Heywood until he left the Board in November 2016. At that time, Colleen Blye took over as chair and Russ Rudish joined the Committee, its other member is Ronald Verni. The Chief Financial Officer, Chief Executive Officer and other senior management attend meetings by invitation and the Committee also meets the external auditors without management present. Colleen Blye, as chair of the Audit Committee has recent and relevant financial experience.
Details of how the Audit Committee has discharged its responsibilities are provided below.
The Level and Components of Remuneration
“Executive Directors’ remuneration should be designed to promote the long-term success of the company. Performance-related elements should be transparent, stretching and rigorously applied.”
The Company has established a Remuneration Committee to assist the Board in this area. This Committee comprises non-executive directors and is chaired by Ronald Verni and its other members are Colleen Blye and Neil Heywood, until he left the Board in November 2016, at which point Russ Rudish joined the Committee. When appropriate Keith Neilson, as Chief Executive Officer, is invited to attend meetings (except where matters under review by the Committee relate to him).
The Committee has responsibility for making recommendations to the Board on the remuneration packages of the executive Directors, and monitor the level and structure of remuneration for senior management, this includes:
- making recommendations to the Board on the Company’s policy on Directors’ and senior staff remuneration, and to oversee long-term incentive plans (including share option schemes);
- ensuring remuneration is both appropriate to the level of responsibility and adequate to attract and/or retain Directors and staff of the calibre required by the Company; and
- ensuring that remuneration is in line with current industry practice.
The Committee has presented its Remuneration Report on pages 23 to 27, which details the work undertaken operating under its terms of reference (which are available at the Company’s registered office) to discharge its responsibilities.
“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.”
Details of how the Committee and Board have discharged their responsibilities in this area are detailed in the Remuneration Committee’s Report on pages 23 to 27.
Relations and Shareholders
Dialogue and Shareholders
“There should be a dialogue with shareholders based on mutual understanding of objectives. The Board as a whole has responsibility for ensuring that a satisfactory dialogue with shareholders takes place.”
The Company engages in full and open communication with both institutional and private investors and responds promptly to all queries received. In conjunction with the Company’s brokers and other financial advisors all relevant news is distributed in a timely fashion through appropriate channels to ensure shareholders are able to access material information on the Company’s progress.
To facilitate this:
- All shareholders are invited to attend the AGM and are encouraged to take the opportunity to ask questions.
- The primary point of contact for shareholders on operational matters is Keith Neilson as CEO and Craig Preston as CFO.
- The primary point of contact for shareholders on corporate governance and other related matters is George Elliott as Chairman. Ronald Verni as Senior Independent Director is available as a point of contact should a shareholder not wish to contact the Chairman for any reason.
Keith Neilson and Craig Preston meet regularly with shareholders, normally immediately following the Company’s half year and full year financial results announcements, to discuss the Group’s performance and answer any questions. The Board monitors the success of these meetings through anonymous evaluations from both shareholders and analysts performed by the Company’s Broker and Financial PR advisor.
The Company’s website (at www.craneware.com) has a section for investors which contains all publicly available financial information and news on the Company.
Constructive Use of the AGM
“The Board should use the AGM to communicate with investors and to encourage their participation.”
The Board encourages attendance at its AGM from all shareholders. The Notice of AGM together with all resolutions and explanations of these resolutions are sent at least 20 working days before the meeting. All Directors, where possible, make themselves available to answer any questions shareholders may have. Results of all votes on resolutions are published as soon as practicable on the Company’s website.
The Audit Committee
During the year the Audit Committee, operating under its terms of reference (which are available at the Company’s registered office), discharged its responsibilities, including reviewing and monitoring:
- interim and annual reports information including consideration of the appropriateness of accounting
- policies and material assumptions and estimates adopted by management;
- developments in accounting and reporting requirements;
- external auditors’ plan for the year-end audit of the Company and its subsidiaries;
- the Committee’s effectiveness;
- the systems of internal control and their effectiveness, reporting and making new recommendations to the Board on the results of the review and receiving regular updates on key risk areas of financial control;
- the requirements or otherwise for an internal audit function;
- the performance and independence of the external auditors concluding, in a recommendation to the Board, on the reappointment of the auditors by shareholders at the Annual General Meeting. The auditors provide annually a letter to the Committee confirming their independence and stating the methods they employ to safeguard their independence;
- the audit and non-audit fees charged by the external auditors; and
- the formal engagement terms entered into with the external auditors.
The Committee has also reviewed the arrangements in place for internal audit and concluded, due to the current size and complexity of the Company, that a formal internal audit function was not required.
Under its terms of reference, the Audit Committee is responsible for monitoring the independence, objectivity and performance of the external auditors, and for making a recommendation to the Board regarding the appointment of external auditors on an annual basis. The Group’s external auditors, PricewaterhouseCoopers LLP, were first appointed as external auditors of the Company for the year ended 30 June 2003.
The Audit Committee has also implemented procedures relating to the provision of non-audit services by the Company’s auditors, which include non-audit work and any related fees over and above a de-minimis level to be approved in advance by the Chairman of the Audit Committee. Details of the fees paid to the auditors for audit and non-audit services are shown in Note 6 to the financial statements.
The Audit Committee has considered the level of non-audit services and the related fees paid and has concluded they do not compromise auditor independence.
AIM Rule Compliance Report
Craneware plc is quoted on AIM and as a result the Company has complied with AIM Rule 31 which requires the company to:
- have in place sufficient procedures, resources and controls to enable its compliance with the AIM Rules;
- seek advice from its Nominated Advisor (“Nomad”) regarding its compliance with the AIM Rules whenever appropriate and take that advice into account;
- provide the Company’s Nomad with any information it reasonably requests in order for the Nomad to carry out its responsibilities under the AIM Rules for Nominated Advisors, including any proposed changes to the Board and provision of draft notifications in advance;
- ensure that each of the Company’s Directors accepts full responsibility, collectively and individually, for compliance with the AIM Rules; and
- ensure that each Director discloses without delay all information which the Company needs in order to comply with AIM Rule 17 (Disclosure of Miscellaneous Information) insofar as that information is known to the Director or could with reasonable diligence be ascertained by the Director
Approved by the Board of Directors and signed on behalf of the Board by:
4 September 2017