UK Corporate Governance Code – Statement of compliance
The Group recognises the importance of, and is committed to, high standards of corporate governance. These are set out in the UK Corporate Governance Code issued by the Financial Reporting Council in June 2010 (the "Code"). The Board is accountable to the Company's shareholders for good governance and this report describes how the Board has applied the main principles of good governance set out in the Code during the year under review. Throughout the year the Company has complied with the main principles of the Code (as they apply to a smaller company outside the FTSE 350).
The Code recommends that the Board should include a balance of Executive and Non-Executive Directors, such that no individual or small group of individuals can dominate the Board's decision taking. It further recommends that at least half of the Board, excluding the Chairman, should comprise Non-Executive Directors determined by the Board to be independent, and that one Non-Executive Director should be nominated as the Senior Independent Director.
The Company currently has seven Directors, which includes the Chairman, three Executive Directors and three independent Non-Executive Directors. As a result, the Directors consider that there is a satisfactory balance of decision-making power on the Board.
The Board is aware of the other commitments of its Directors and is satisfied that these do not conflict with their duties as Non-Executive Directors of the Company. The Executive Directors do not hold any non-executive directorships in other companies.
There is a clear division of responsibilities between the Chairman and Chief Executive. Adrian Martin, deemed to be independent upon his appointment in 2008, is the Senior Independent Director. Keith Edelman is deemed to be independent. Alan Lewis was deemed to be independent from 19 January 2011 following the disposal by Bridgepoint, a major shareholder in the Company, of its shareholding in the Company.
The Board recognises the effective performance and commitment of Adrian Martin and Alan Lewis and has recommended a resolution for shareholders to re-appoint them both to the Board at the forthcoming AGM.
A clear division of responsibility at the head of the Group is established, agreed in writing and approved by the Board. The Chairman is responsible for the management of the Board and for aspects of external relations, while the Chief Executive has overall responsibility for the management of the Group's businesses and implementation of the strategy approved by the Board.
The statement of the division of responsibilities between the Chairman and the Chief Executive is available on the Group's website at www.safestore.com.
Appropriate directors' and officers' insurance cover is arranged by the Group through its insurance brokers and is reviewed annually.
The Board normally schedules at least ten meetings throughout the year, including an extended strategy review. Additional meetings are held as and when required.
It has a formal schedule of matters specifically reserved for its decision, which includes (amongst other things) the approval of strategic plans, annual budgets, interim and full year preliminary results announcements and internal control and risk analysis.
Implementation of agreed plans, budgets and projects in pursuit of the Group's strategy and the actual operation of the Group's system of internal control and risk management are delegated to management.
The services of the Company Secretary are available to all members of the Board. The Directors are entitled to take independent legal advice if they consider it appropriate and, if the Board is informed in advance, the cost of the advice will be reimbursed by the Group. In the event that a Non-Executive Director deems it appropriate, upon resignation, to provide a written statement to the Chairman, this would be circulated to the Board.
Board papers are normally issued one week before Board meetings and the quality of content is reviewed continually. Board minutes are circulated to all Board members. There is also regular informal contact between Executive and Non-Executive Directors to deal with important matters that arise between scheduled Board meetings. A separate meeting for Non-Executive Directors only is held at least once in every year.
The Board has three principal committees, each of whose terms of reference are available from the Investor Relations page of the Group's website at www.safestore.com.
All committees and all Directors have the authority to seek information from any Group Director or employee and to obtain professional advice.
The Audit Committee comprises Adrian Martin (Chairman) and Keith Edelman.
The Audit Committee's report is set out on the Audit Committee's report page.
The Remuneration Committee comprises Keith Edelman (Chairman), Richard Grainger and Alan Lewis. The responsibilities of the Remuneration Committee are set out in the Remuneration report.
The Nomination Committee comprises Richard Grainger (Chairman), Adrian Martin and Alan Lewis. On 7 December 2011, Peter Gowers was appointed a member of the Committee. The Nomination Committee's report is set out on the Nomination committee report page.
Attendance at Board/committee meetings
The following table shows attendance of individual Directors at Board and committee meetings that they were eligible to attend during the year ended 31 October 2011:
Number of meetings held
P D Gowers
R D Hodsden1
R S Grainger
A H Martin
A S Lewis
K G Edelman
S W Williams
1 Mr Hodsden did not attend one meeting in July 2011 due to commitments away from the United Kingdom, which were notified in advance, agreed and approved by the Board.
Board performance evaluation
During the year, an evaluation of the performance of the Board, its committees, the individual Directors and the Chairman was conducted. The Board and committee evaluation process was led by the Chairman with support from the HR Director of the subsidiary board. Directors completed detailed written questionnaires covering a number of key areas including strategy, succession planning, Board size and composition, risk management and the relationship between the Board and management. The results of the reviews were then considered by the Chairman and discussed by the Board as a whole. The review also involved an assessment by the Chairman of individual Directors' own performance. The Chairman's own performance was assessed by the Senior Independent Director.
The Directors have concluded that, following this evaluation, the Board and its committees operate effectively. Recommendations were made to further enhance the performance and effectiveness of the Board and a process of continuous improvement is now being led by the Chairman.
Every decision to appoint further Directors to the Board is taken by the entire Board in a formal meeting based on a recommendation from the Nomination Committee. The Nomination Committee consults with financial and legal advisers and uses the services of external recruitment specialists. New members of the Board are provided with initial and ongoing training appropriate to individual needs in respect of their role and duties as directors of a listed plc.
The service agreements of the Executive Directors and the letters of appointment of the Non-Executive Directors are available for inspection at the registered office of the Company during normal business hours, including the 15 minutes immediately prior to the AGM. The letters of appointment for Non-Executive Directors are in line with the provisions of the UK Corporate Governance Code relating to expected time commitment.
Re-election of Directors
The Company's Articles of Association provide that one-third of the Directors retire by rotation each year and that each Director will seek re-election by the shareholders at the AGM at least once every three years. Additionally, new Directors are subject to election by shareholders at the first opportunity after their appointment. Details of the Directors seeking re-election at the 2012 AGM are given in the Notice of Meeting.
Relations with shareholders
The Group places a great deal of importance on communication with its shareholders and maintains a dialogue with them through investor relations programmes. These include formal presentations of the full year and interim results and meetings with institutional investors and analysts as required. To ensure all Board members share a good understanding of the views of major shareholders about the Group, there is a formal process whereby the Board reviews announcements and reports prior to public distribution and is sent summaries of institutional investor comment following meetings on the full year and interim results. The Non-Executive Directors are available to meet major shareholders when requested.
The Board considers the Annual Report and financial statements and the AGM to be the primary vehicles for communication with private investors. Resolutions are proposed on each substantially separate issue and the Company indicates the level of proxy voting lodged in respect of each. The AGM gives all shareholders who are able to attend (especially private shareholders) the opportunity to hear about the general development of the business. It also provides an opportunity for shareholders to ask questions of the full Board of Directors, including the Chairmen of the Audit, Nomination and Remuneration Committees.
The Directors are responsible for the Group's system of operational control and risk management. During the year the Group undertook regular quarterly reviews of the formal risk management assessment. Risk management remains an ongoing programme within the Group and is formally considered at regular operational meetings as well as meetings of the Board. This process accords with the Turnbull guidance.
The Code requires that at least annually Directors review the effectiveness of the Group's system of material internal controls including financial, operational and compliance controls and risk management systems. The Board confirms that it carried out a review of the effectiveness of the system of internal control which operated within the Group during the financial year in accordance with the Code. The Board places considerable importance on maintaining a strong control environment but recognises that such systems are designed to manage rather than eliminate risk, providing reasonable but not absolute assurance against material misstatement or loss.
Key features of the Group's systems of internal control include:
- an annual strategy review process to ensure that the Group's resources are prioritised to deliver optimum shareholder returns;
- a comprehensive system of reporting monthly, half yearly and annual financial results to the Directors and key groups of senior management, focusing on key initiatives, reviewing performance and implementing remedial action where necessary;
- a robust and detailed process to develop the Group's annual budget and regular revised forecasts;
- monthly Group management accounts to report performance as compared to budget and/or forecast as appropriate;
- a management structure with clearly defined authority limits; and
- development and frequent reporting of relevant Key Performance Indicators to monitor operational progress.
The Directors believe that the system of internal control is appropriate for the Group. The Group currently employs a risk manager supported by two store auditors who are responsible for reviewing operational and financial control at store level. The risk manager reports to the Chief Executive Officer and Chief Financial Officer. The Group does not have a separate internal audit function although the Board periodically reviews the need for establishing one in addition to the existing store assurance team. An externally facilitated internal audit programme is being commissioned for certain specific aspects of financial controls based on the recommendations of the Audit Committee. Upon completion of this project, the Audit Committee will review the findings to determine whether a rolling programme of work should be commissioned periodically until a separate internal audit function is deemed necessary.
A summary of the principal risks and uncertainties within the business is set out in Risk management.