I am pleased to introduce the 2016 Corporate Governance statement.
The Company is committed to the principles of Corporate Governance contained in the UK Corporate Governance Code provided by the Financial Reporting Council and for which the Board is accountable to shareholders. The Company has complied with the provisions of the UK Corporate Governance Code throughout the year and to the date of this report. Further explanation of how the principles have been applied is set out below and, in connection with Directors’ remuneration, in the Remuneration Committee report on pages 49 to 63 of the Annual Report.
Composition of the Board
During the year the Board comprised the Chairman, three Non-Executive Directors (including the Senior Independent Director) and two Executive Directors (being the Chief Executive and the Chief Financial Officer).
Brief biographical details of all Board members are set out on pages 44 and 45 of the Annual Report. The membership of all Board Committees is set out on page 42 of the Annual Report.
The Nominations Committee has responsibility for Board and committee composition, particularly in relation to the diversity of background, skills and experience. The committee oversees the nomination, selection and appointment of Non-Executive and Executive Directors and monitors succession planning for Board and senior management roles.
The Chairman of the Nominations Committee and the remainder of the Board considered the independence of Philip Dayer and Jonathan Brooks now that both are in their third term of office. It was concluded that both remained independent and continued to contribute to the operation of the Board. Jonathan Brooks will stand for re-election to the Board at the Annual General Meeting (AGM) on the basis that he will resign from the Board in November 2016. The intent would be to allow a transition to a newly appointed Non-Executive Director during this time frame. Philip Dayer will not stand for re-election at the 2017 AGM. On this basis, and after considering a number of search firms, the Chairman has retained Spencer Stuart to find two new NEDs over the next 12-18 months. The first search to replace Jonathan Brooks is well advanced with a long list of candidates screened by the Chairman; shortlisted candidates have been interviewed by the Chairman and Audit Committee Chairman and, at the time of writing, the leading candidates are being interviewed by the Executive Directors. An appointment is expected to be made prior to the AGM.
AVEVA Group plc confirms that pursuant to S430(2B) of the Companies Act 2006 Jonathan Brooks stood down from the Board as a Non-Executive Director at the close of the Board meeting held on 3rd November 2016. Jonathan Brooks received his usual Non-Executive Directorship fee up to the point of his retirement on 3rd November 2016, but will receive no further payments thereafter. Jonathan Brooks will not receive any payment for loss of office or otherwise in respect of his retirement from the Board.
Operation of the Board
The Chairman, along with the Executive Directors and Company Secretary, ensures that the Board functions effectively and has established Board processes designed to maximise its performance and effectiveness. Key aspects of these processes are:
- The AVEVA Group Board meets regularly in combination with the Board of AVEVA Solutions Limited, the main operating company in the Group which owns the entire Group’s trading subsidiaries. The AVEVA Solutions Limited Board includes as members the Chief Technical Officer and Head of Engineering & Design Systems and the Chief Operations Officer and Head of Enterprise Solutions as well as all the members of the Group Board. This ensures that the AVEVA Group Board is well informed on technical and market factors driving the Group’s performance as well as on financial outcomes.
- The Board met seven times during the year. These meetings, together with any Committee meetings, are generally held at the Group’s Head Office in Cambridge or in our London office and are approximately one day in duration. In addition, nine unscheduled meetings of the Board took place predominantly to deal with matters arising related to the proposed transaction with Schneider Electric.
- Each Board meeting has an over-arching theme. These include annual technology review, business plan/strategy day, succession planning, annual budget, presentations from Executive Management and interim and final results.
- The Board aims that Directors visit an AVEVA office outside the UK at least once per year and in September 2015 the entire Board travelled to the Group’s office in Frankfurt and held a Board meeting, as well as meetings with staff and customers.In addition, in September 2015 one Non-Executive Director travelled to China to meet with management and staff in Shanghai to review operations.
- In addition, the Board holds a full-day strategy meeting every year at which Executive Directors and members of the senior management team make presentations covering progress against current strategy and objectives and ideas for future investment.
- The Board delegates the day-to-day responsibility for managing the Group to the Executive Directors.
- To enable the Board to discharge its duties, all Directors receive appropriate and timely information. Briefing papers are distributed by the Company Secretary to all Directors usually four working days in advance of Board and Committee meetings.
- A monthly reporting pack containing management accounts with commentary and reports from each Executive is distributed to the Board on a monthly basis.
- Meetings were held between the Chairman and the Non-Executive Directors during the year, without the Executives being present, to discuss appropriate matters as necessary.
- The Chairman ensures that the Directors take independent professional advice where they judge it necessary to discharge their responsibilities as Directors at the Group’s expense. All members of the Board have access to the advice of the Company Secretary;
- Non-Executive Directors and Executive Directors are encouraged annually to undertake training in furtherance of their specific roles and general duties as a director.
Matter reserved for the Board
The Board is responsible to shareholders for the proper management of the Group. There is a formal schedule of matters specifically reserved for the Board’s decision that covers key areas of the Group’s affairs, which include:
- overall responsibility for the strategy of the Group;
- corporate governance;
- review of trading performance and forecasts;
- risk management;
- Board membership;
- communications with shareholders;
- approval of major transactions, including mergers and acquisitions; and
- approval of the financial statements and annual operating and capital expenditure budgets.
Independence of Non-Executive Directors and segregation of duties
The Board has considered the independence of the Chairman and the Non-Executive Directors and believes that all are currently independent of management and free from any material business or other relationships that could materially interfere with the exercise of their independent judgement. Their biographies on pages 44 and 45 demonstrate a range of experience and sufficient calibre to bring independent judgement on issues of strategy, performance, resources and standards of conduct which is vital to the Group.
The roles of the Chairman and the Chief Executive are distinct and the division of responsibility between these roles has been clearly established, set out in writing and agreed by the Board. The Chairman is responsible for the effectiveness of the Board and ensuring that it meets its obligations and responsibilities. The Chief Executive is responsible to the Board for the day-to-day management of the business, leadership of the executive team and execution of the Group’s strategic and operating plans. The Chairman and Chief Executive meet regularly to discuss any issues pertaining to the Company’s performance, reputation and organisation.
Committees of the Board
The Board has three committees: Audit, Remuneration and Nominations.In accordance with the UK Corporate Governance Code, the duties of the committees are set out in formal terms of reference. They are available on request from the Company’s registered office during normal business hours and are available on the Company’s website at www.aveva.com. Details of the main responsibilities and activities during the year of the Audit Committee are included on pages 46 to 48 and for the Remuneration Committee on pages 49 to 63.
The Board undertakes a formal and rigorous review of its performance and that of its Committees and Directors each financial year. In 2014, an extensive review was externally facilitated by Armstrong Bonham Carter LLP, the independent board performance consultants. The most recent review was carried out in March 2016, was led by the Chairman and was conducted following one-on-one interviews with each Director.
Overall, the review concluded that the Board and its committees had demonstrated a high degree of effectiveness. There were some recommendations on how to further improve the development of strategy and monitoring of risks which the Board is addressing.
Internal control and risk management
The Board has overall responsibility for the Group’s system of internal control and for monitoring its effectiveness. However, such a system is designed to manage rather than eliminate the risk of failure and by its very nature can only provide reasonable and not absolute assurance against material misstatement or loss. The principal risks and uncertainties the Group faces are set out on pages 34 and 35.
The Board has established a continuous process for identifying, evaluating and managing the significant risks the Group faces. The Board regularly reviews the effectiveness of the Group’s internal controls, which have been in place from the start of the year to the date of approval of this report, and believes that it is in accordance with the Internal Control: Revised Guidance for Directors on the Combined Code.
The key elements of the system of internal controls currently include:
- each member of the Executive Board has responsibility for specific aspects of the Group’s operations. They meet on a regular basis and are responsible for the operational strategy, reviewing operating results, identification and mitigation of risks and communication and application of the Group’s policies and procedures. Where appropriate, matters are reported to the Board;
- regular reports to the Board from the Executive Board on key developments, financial performance and operational issues in the business;
- operational and financial controls and procedures which include authorisation limits for expenditure, sales contracts and capital expenditure, signing authorities, IT application controls, organisation structure, Group policies, segregation of duties and reviews by management;
- an annual budget process which is reviewed, monitored and approved by the Board;
- regular meetings between the Executive Board, sales area managers and line of business managers to discuss actual performance against forecast, budget and prior years. The operating results are reported on a monthly basis to the Board and compared to the budget and the latest forecast as appropriate;
- targeted internal audit reviews and extended external audits which focus on confirming the operation of controls in key process areas; and
- maintenance of insurance cover to insure all major risk areas of the Group based on the scale of the risk and availability of the cover in the external market.
The Board’s monitoring covers all material controls, including financial, non-financial, operational and compliance controls and risk management. It is based principally on reviewing reports from management to consider whether significant risks are identified, evaluated, managed and controlled and whether any significant weaknesses are promptly remedied and indicate a need for more extensive monitoring. The Board periodically carries out visits to the Group’s subsidiaries and receives presentations on their operations.
The Board has also performed a specific assessment for the purpose of this annual report. This involved reviewing the Group’s risk matrix that had been reviewed/updated during a risk assessment workshop involving the Executive Board and senior managers. This assessment considered all significant aspects of internal control necessary for the Company to successfully carry out the key business strategies of the Group together with more generic inherent risks of the Group’s operations. The Audit Committee assists the Board in discharging its review responsibilities.
Indemnities to Directors
In accordance with the Company’s Articles of Association, Directors are granted an indemnity from the Company to the extent permitted by law in respect of liabilities incurred as a result of the performance of their duties in their capacity as Directors to the Company. The indemnity would not provide any coverage to the extent the Director is proven to have acted fraudulently or dishonestly. The Company has maintained Directors’ and officers’ liability insurance cover throughout the year.
Policy on appointment and reappointment
In accordance with the Articles of Association, all Directors are required to retire and submit themselves for re-election at least every three years by rotation and also following their appointment. In addition, as in the prior year and in accordance with the UK Corporate Governance Code, all of the Board members are offering themselves for re-election at the Annual General Meeting.
On appointment, all Directors are asked to confirm that they have sufficient time to devote to the role, which is confirmed together with details of their duties in the letter of appointment. All Directors undergo an induction as soon as practical following their appointment. As part of the induction process, Directors are provided with background information on the Group and attend the Group’s headquarters in Cambridge for meetings and presentations from senior management. In addition,where appropriate, meetings are also arranged with the Group’s advisers.
Non-Executive Directors are appointed for a term of three years. The terms and conditions of appointment of Non-Executive Directors are available for inspection at the Company’s registered office during normal business hours and will be available for inspection on the day of the forthcoming Annual General Meeting.
Dialogue with institutional shareholders
Communication with shareholders is given high priority by the Board. The Chief Executive, Chief Financial Officer and Head of Investor Relations have meetings with representatives of institutional shareholders and hold analyst briefings at least twice a year, following the announcement of the interim and full year results, but also at other times during the year as necessary. Senior managers from Product Development, Business Strategy and Finance also attended analyst and shareholder meetings during the year. In September 2014, the Company held a capital markets day in London, where analysts and shareholders were updated on the activities of the Group including its Sales operations and latest technological developments. All of these meetings seek to build a mutual understanding of objectives with major shareholders by discussing long-term strategy and obtaining feedback. The Board also receives formal feedback from analysts and institutional shareholders through the Company’s financial PR adviser and financial advisers. The Board is appraised of discussions with major shareholders to ensure that Executive and Non-Executive Directors consider any matter raised by shareholders and to enable all Directors to understand shareholder views. In addition, when necessary, the Group consults with shareholders in respect of proposals for the remuneration of Executive Directors. The Senior Independent Non-Executive Director, Philip Dayer, is available to shareholders if they have concerns which contact through the normal channels of Chairman, Chief Executive or Chief Financial Officer has failed to resolve or if such contact would be inappropriate. The Chairman, Senior Independent and Non-Executive Directors are available for dialogue with shareholders at any time and attend (together with the other members of the Board) the Annual General Meeting, but are not routinely involved in investor relations or shareholder communications. Corporate information is also available on the Company’s website, www.aveva.com.
Constructive use of the Annual General Meeting
The Board seeks to use the Annual General Meeting to communicate with investors and all shareholders are encouraged to participate. The Chairmen of the Audit, Remuneration and the Nominations Committees will be available at the Annual General Meeting to answer any questions.