Corporate Governance
The Company is committed to high standards of corporate governance. The paragraphs below and in the Remuneration Report describe how the Board has applied the principles set out in the Combined Code ('the Code') issued by the Financial Services Authority in June 2008. The Code is part of the Listing Rules and applied to the Company throughout the year.
The Company has substantially complied with the provisions of the Code throughout the year, except where the Board has determined that they are inappropriate to the particular circumstances of the Company. The areas in which the Company has not applied the Code during the year essentially arise from the composition of the Board and are summarised as follows:
| Provision | Area | Details of non-compliance and mitigating circumstances |
|---|---|---|
| A1.3 | Board Evaluation | The non-executive Directors did not meet as a group without the Chairman since his performance was assessed by the Remuneration Committee (without the Chairman being present). |
| A3.2 | Composition of the Board | Less than half of the Board are independent non-executive Directors. |
| A3.3 | Composition of the Board | The Board has not identified a senior independent non-executive Director since it believes that to identify such an individual is potentially divisive to a unitary body, as this Board is, and disruptive to the role of the Chairman. |
| A4.1 | Composition of the Nominations Committee | Independent non-executive Directors do not comprise a majority of the Committee's members since Mr Balsemão is the only independent non-executive Director appointed. Nevertheless, the Board believes that the Committee operates well. |
| A7.2 | Re-election of Directors | Mr Hemingway is a non-executive Director who has served for more than nine years but is not subject to annual re-election. The Board considers that the existing practice, which is to subject non-executive Directors to re-election at least every three years, complies with Company law and with the Articles and works well. |
| B1.6 | Service contracts and compensation | The service contracts of Messrs Morgan and Dacre exceed the one year recommended in the Code. The explanation is given in the Remuneration Report. |
| B2.1 | Composition of the Remuneration Committee | The Committee comprises one independent non-executive Director, rather than two as set out in the Code. |
| C3.1 | Composition of the Audit Committee | The Committee comprises two independent non-executive Directors rather than three as set out in the Code. |
In addition, the Chairman was not independent on appointment (Code provision A2.2).
THE BOARD
The Company is headed by a Board which comprises a balance of seven executive Directors, including the Chairman and Chief Executive, and seven non-executive Directors. Biographical details of each of the Directors are set out in the Governance section. The Board has been progressively refreshed in recent years with several appointments, including four new independent Directors.
The Board normally meets regularly five times a year and at such other times as are necessary. It discusses and approves the Group's commercial strategy.
Its specific responsibilities are set out in a schedule of matters reserved to the Board which is published on the Company's website at www.dmgt.co.uk/corporategovernance.
The Board met six times during the 2008/09 financial year, all of which were regular meetings, attended by all Directors, except that Messrs Fallon and Dunstone were each unable to attend one of them. Individual attendance by Directors is set out in the Directors Report section.
| Number of meetings eligible to attend |
Number of meetings attended |
|
|---|---|---|
| Executive Directors | ||
| The Viscount Rothermere | 6 | 6 |
| M W H Morgan | 6 | 6 |
| J P Williams | 6 | 6 |
| D M M Dutton | 6 | 6 |
| P M Dacre | 6 | 6 |
| P M Fallon | 6 | 5 |
| K J Beatty | 6 | 6 |
| Non-executive (non-independent) Directors | ||
| J G Hemingway | 6 | 6 |
| S M Gray | 5 | 5 |
| I G Park | 2 | 2 |
| T S Gillespie | 6 | 6 |
| D H Nelson | 1 | 1 |
| Independent non-executive Directors | ||
| C W Dunstone | 6 | 5 |
| F P Balsemão | 6 | 6 |
| D J Verey | 6 | 6 |
| N W Berry | 6 | 6 |
The Board believes that four non-executive Directors may be considered to be independent under the Code, namely Messrs Dunstone, Balsemão, Verey and Berry.
Messrs Hemingway and Gillespie are not regarded by the Board as independent under the Code because they have advised the Company over many years; nor is Mr Nelson because he is an advisor to the Chairman. Nevertheless, the Board believes that these non-executive Directors make an important contribution to its deliberations and have invaluable experience of the Company, its business and its staff.
INFORMATION AND PROFESSIONAL DEVELOPMENT.
Procedures have been established to ensure that the Board receives timely and appropriate information both for its meetings and regularly between meetings. All Directors are offered such training as is considered necessary, both on appointment and at any subsequent time. There is an agreed procedure for Directors to take independent professional advice at the Company's expense, if necessary.
ELECTION AND RE–ELECTION
The Company's Articles of Association require that a Director appointed by the Board must stand for election at the next Annual General Meeting. Thereafter all Directors are subject to re-election every three years.
The terms and conditions of appointment of the non-executive Directors are available for inspection at the Registered Office of the Company during usual business hours.
BOARD EVALUATION
The Board has undertaken its annual evaluation of its own performance and that of its individual Directors. It reviewed its performance by reference to the schedule of matters reserved for it. The evaluation process took the form of a questionnaire sent to each Director, seeking their views on progress made on vision and strategy; Board meetings and communications; fellow Directors; consideration of Directors views; and has solicited other comments. The Chairman reported the consensus view on performance to the Board at its meeting in September, enabling it to conclude that it had been effective in the year under review. No changes to procedures were judged necessary.
BOARD COMMITTEES
The Board has established Nominations, Remuneration, Audit, Risk and Corporate Social Responsibility Committees with mandates to deal with specific aspects of its business. The remits of these committees are published on the Company's website at www.dmgt.co.uk. Details of the membership of these committees are given in the Governance section. Each committee reports to the Board at every regular meeting. In September and November 2009, the Board carried out a review of the performance of its committees and concluded that they had been effective in the year.
COMPANY SECRETARY
The Company Secretary, Mr Jennings, is responsible for advising the Board through the Chairman on all governance issues. All Directors have access to the advice and services of the Secretary.
NOMINATIONS COMMITTEE
The Nominations Committee comprises three Directors: the Viscount Rothermere (its chairman), Mr Hemingway and Mr Balsemão. The Deputy Finance Director, Mr Perry, is secretary to the Committee. The Chief Executive attends most meetings at the invitation of the Committee.
The Committee met four times during the year and all meetings were attended by all serving members. Individual attendance by members is set out below:
| Number of meetings eligible to attend |
Number of meetings attended |
|
|---|---|---|
| The Viscount Rothermere | 4 | 4 |
| J G Hemingway | 4 | 4 |
| F P Balsemão | 4 | 4 |
The Committee reviews the structure, size and composition of the Board and makes recommendations to the Board on any changes. During the year it nominated Mr Nelson to the Board in succession to Mr Gray. Mr Nelson has been a member of the Finance Committee since November 2006 and has attended the Audit Committee since September 2008. The Committee determined, from his performance on those Committees and from his role as an advisor to the Chairman, that he had the right balance of skills, knowledge and experience, needed for the Board. External advice was not taken, nor advertising required in this instance.
The Committee continued to review succession planning for both executive and non-executive Directors. It has also assessed the most appropriate method of evaluating Directors' performance.
RELATIONS WITH SHAREHOLDERS
The Company maintains a regular programme of contact with its institutional shareholders. In the past year, this has included meetings in London, Scotland and the U.S.A.
Non-executive Directors are kept informed of the views of institutional shareholders by the regular distribution of analysts' reports and feedback is provided from institutional meetings.
All shareholders are welcome to attend the Annual General Meeting, of which 20 working days' notice is given, where they have the opportunity to speak to Directors.
In the interests of transparency and to assist private shareholders, the Company posts all announcements and general presentations given to analysts and institutions on its corporate website. Shareholders and others interested in the Group are encouraged to use the site and to email questions which they might have to investor.relations@dmgt.co.uk. Questions to particular Directors should be addressed through the Secretary.
Internal controls and management of risk
The Board has overall responsibility for the Group's system of internal control. This system is designed to provide reasonable assurance of the safeguarding of assets and shareholders' investment and the reliability of financial information. Any such system can, however, provide only reasonable, and not absolute, assurance of these matters. The Directors confirm that they have reviewed the effectiveness of the Group's system of internal control for the period up to the date of the approval of the Accounts. The Board has not identified any significant failings or weaknesses during this review.
The Group adopts a prudent risk strategy, weighing opportunities for potential gain against threats to overall business objectives and profitability. Senior management addresses the opportunities and uncertainties relating to the business activities of the Group. The risk management process consists of the identification, evaluation and control of risks, which could threaten the achievement of the Group's strategic, operational and financial objectives, as well as the active management of opportunities. The processes described below were in place throughout the year.
The Group operates on a divisional basis with each of the divisions described in the Chief Executive's Review section of the Annual Report having considerable autonomy as regards its operation and establishment of control systems. Overseeing the divisional structure is a central management responsible to the Board. Certain functions are undertaken centrally, notably newsprint buying, insurance, treasury, tax, pensions, and risk and assurance (including internal audit).
Operating businesses within the Group are required to confirm annually their compliance with Group accounting policies and financial reporting guidelines.
Divisional and subsidiary company boards regularly review relevant and timely financial information that is produced from the management information systems operated across the Group. This is supported by a framework of budgets that are approved at a divisional level by the Finance Committee. Variance analysis of actual results versus budget and forecast is undertaken regularly throughout the year.
The Group does not maintain common detailed accounting or operations manuals because of the diverse operations carried out by its divisions, though guidance is issued from the centre. Where applicable, divisions maintain their own manuals. A number of the divisions also undertake regular control review work as part of their control process.
In reviewing the effectiveness of the system of internal control the Board has considered material controls (including those undertaken through its committees), including financial, operational and compliance controls and risk management systems as follows: The central Risk and Assurance function carries out internal audit activities across the Group. It operates under an internal audit charter which covers: the purposes and objectives of the Group's internal audit function; its authority and scope; independence issues; standards of professional practice, performance monitoring, planning and reporting. The department also co-ordinates with a number of the divisions who undertake control reviews on companies within their divisions. Following each review, a formal report is issued to divisional management with the audit findings and management's response. At each Audit Committee meeting, the Head of Assurance, Mr Ashby, reports on the internal audit activity across the Group, including progress against completion of the annual assurance plan and a summary of the findings of assurance reviews undertaken.
RISK COMMITTEE
The Risk Committee gives the Board assurance on risk management issues and processes. The process for the management of significant risks is undertaken by the Risk Committee and it accords with the Turnbull Guidance on internal control, appended to the Code. Over the course of the past year the Risk Committee has considered the key risks pertaining to all divisions and head office functions within the business as well as the key risks which affect the Group, including fraud risk.
The Committee, comprises Messrs Morgan, its chairman, Williams and Dutton, Mr Verey from 31st July (before that Mr Gray) and Mr Kass, the legal director of A&N Media. Mr Verey provides a non-executive perspective to the review of risk management processes within the Group, as well as providing a direct link to the Audit Committee.
The Committee met four times during the year and all meetings were attended by all serving members. Individual attendance by members is set out below.
| Number of meetings eligible to attend |
Number of meetings attended |
|
|---|---|---|
| M W H Morgan | 4 | 4 |
| J P Williams | 4 | 4 |
| D M M Dutton | 4 | 4 |
| H Kass | 4 | 4 |
| D J Verey | 1 | 1 |
| S M Gray | 3 | 3 |
The head of the Group's risk function, Mr Page, is Secretary to the Committee.
Risk Committee considers risk registers prepared by each of the divisions of the Group and by central functions, on a rotational basis, in general reviewing a division and central function at each meeting. These reports identify inherent strategic and operational business risks and describe the controls in place to manage those risks. The Committee also embarked on a project to improve the quality and formality of risk management across the Group by embedding the DMGT risk management model into the operating divisions. The Committee considers the Group risk register (a consolidation of divisional and central function risk registers with Group-wide risks overlaid) annually. In addition, the Committee reviews specific risk management issues and topics for consideration across the Group. This year the Committee has focused on the following risks: fraud, information security (considered at a Risk Committee sponsored workshop for senior management); pandemic risk; and again on business continuity and disaster recovery planning. In addition, the Committee aimed at ensuring that the business conduct of its employees is appropriate to, and in accordance with, the Group's values and ethics. The Committee also monitors developments in relevant legislation and regulations to consider the impact these might have on the Group and on its system of internal control.
Members of the Risk Committee also maintain direct links with each of the main divisions through attendance at divisional board meetings as directors of these boards. The Committee reports to the Board after each of its meetings to assist the Board in its determination of the overall effectiveness of the system of internal control and risk management more widely.
AUDIT COMMITTEE
The Audit Committee, on behalf of the Board, has responsibility for the review of financial risk management and of internal financial controls, as these directly relate to the quality of financial reporting. In addition, the Committee is mandated to:
- review all public financial statements of the Company and of the Group, including the half year and annual financial statements, before such statements are submitted to the Board;
- consider any appointment of external auditors to Group companies, to review audit fees and to consider any questions of resignation or dismissal of auditors;
- monitor and review the resources and effectiveness of internal audit (including approval of the appointment and removal of the Head of Assurance);
- agree the internal audit programme for the forthcoming year; and
- to consider a summary of Group internal audit reports and such individual reports as the Committee sees fit and management's response to any recommendations, and to monitor the progress of any required actions.
The Committee also considers significant financial reporting issues, approves any changes to Group accounting policies and reviews a summary of recommendation letters to management prepared by the Group's external auditors following their audit procedures.
The Committee comprises four nonexecutive Directors: Messrs Verey (its chairman from 31st July), Hemingway, Berry and Nelson. Mr Nelson was appointed on 1st July and Mr Gray stood down as chairman on the date of his retirement from the Board on 31st July. The Code recommends that an audit committee should comprise at least three members, all of whom should be independent non-executive Directors. Only Messrs Verey and Berry are considered to be independent under the Code. Nevertheless, the Board believes that the Committee operates independently. Members' qualifications are set out in their biographies in the Governance section. The Board is satisfied that Mr Nelson, senior partner of a firm of chartered accountants, and Mr Verey, the Committee chairman, have recent and relevant financial experience. The Company Secretary, Mr Jennings, also a Chartered Accountant, is secretary to the Committee.
The Audit Committee met four times during the year and all meetings were attended by all serving members, except that Mr Hemingway was unable to attend one of them. Individual attendance by members is set out below:
| Number of meetings eligible to attend |
Number of meetings attended |
|
|---|---|---|
| D J Verey | 4 | 4 |
| J G Hemmingway | 4 | 4 |
| N W Berry | 4 | 4 |
| D H Nelson | 4 | 4 |
| S M Gray | 3 | 3 |
The Finance Director attends all meetings and the Chief Executive most meetings by invitation.
The Committee has implemented the procedures set out in the Smith Guidance to the Code which are within its control. It reviews the Group's policy on whistle blowing.
In addition, the Committee has primary responsibility for making a recommendation to the Board on the appointment, reappointment and removal of the external auditors, together with approval of their remuneration. As part of its role in ensuring the effectiveness of the audit process, the Committee also undertakes an annual assessment of the qualifications, expertise and resources of the external auditors.
The appointment of Deloitte LLP as the Group's external auditors (incumbents since the last audit tender in 2001) is kept under annual review, and, if satisfactory, the Committee will recommend the reappointment of the audit firm. The appointment of Deloitte followed a formal tender process undertaken in 2001 and, rather than adopting a policy on tendering frequency, the annual review of the effectiveness of the external audit is supplemented by a periodic comprehensive reassessment by the Committee. Such a reassessment was performed this year, as with many suppliers, and having received assurances on the continued quality of the audit, the Committee determined to recommend the reappointment of the incumbent firm. As the appointment of the auditors is for one year only, being subject to annual approval at the Company's AGM, there is no contractual commitment to the current audit firm and as such the Committee may undertake an audit tender at any time at its discretion.
In performing its review, the Committee evaluated the adequacy of the audit firm's key processes and controls in certain key areas including, but not limited to:
- arrangements for ensuring independence and objectivity, including the rotation of key audit partners;
- appropriateness of the planned audit scope and its execution;
- the robustness and perceptiveness of the auditors in their handling of the key accounting and audit judgements; and
- the quality of their reporting.
Procedures exist to monitor the independence of the external auditors and include a policy on employment of former audit principals. There is also a policy on the provision of non-audit services with which the Group's head office and each division complies. The choice of firm is normally determined on the basis of professional expertise and competitiveness. The Group may engage the external auditors to perform audit-related work, accountancy advice and corporate tax services. Non-audit services in other areas are decided on their merits and are put out to tender where the amounts in question are significant. The external auditors are excluded from the following areas: where they are auditing their own work; where a mutuality of interest is created; or where the external auditor would be put in the role of advocate for the Company.
Non-audit fees payable to Deloitte LLP in 2009 amounted to £2.3 million, compared to £1.8 million the previous year, reflecting the continuing extent of their involvement in the restructuring of Northcliffe Media.
During the year, the Committee received reports from management on the status of the finance systems within A&N Media, on Going concern and the financial consequences for DMGT of various economic downturn scenarios, on the Company's response to the Financial Reporting Council's key questions for audit committees and on developments in international financial reporting standards.
The Committee also reviewed the annual internal audit plan, summaries of reports received and reviewed the effectiveness and resources of the Group's internal audit function. In September, it carried out an annual review of its terms of reference and of its effectiveness and concluded that it did not need to recommend to the Board any substantive changes to its remit or operations. In November 2009, the Board conducted its own review of the Committee's performance and confirmed that the Committee had fulfilled its obligations and been effective in the year under review.
Euromoney Institutional Investor plc is subject to the requirements of the Code in its own right. As disclosed in its latest annual report, it has in place its own system of internal control and risk management processes which forms part of the Group's overall framework of control. The joint ventures and associates of the Group are not included in the Group's system of internal control described above.
On behalf of the Board
N D JENNINGS, FCA
Secretary
4th December, 2009