Statement of Compliance with the Combined Code The company has applied all of the principles set out in section 1 of the Combined Code on Corporate Governance (the Code) relating to the structure and composition of the board, the remuneration of the directors, relations with shareholders and procedures for financial reporting, internal control and audit. This statement describes how the principles of the Code have been applied.
The group was in compliance with the provisions of the Code throughout the year except that the board has taken the view that it is not necessarily practical, efficient or desired by shareholders for the Senior Independent Director to attend meetings with major shareholders in order to learn their issues and concerns unless such discussions are requested by shareholders. The methods by which major shareholders’ views are communicated to the board as a whole are discussed under ‘Relations with Shareholders’.
Directors and the Board The board is responsible to the company’s shareholders for the group’s system of corporate governance, its strategic objectives and the stewardship of the company’s resources and is ultimately responsible for social, environmental and ethical matters. The board held seven meetings in the year and in addition met separately to review the group’s long term strategy. The board delegates specific responsibilities to board committees, as described below. The board reviews the key activities of the business and receives papers and presentations to enable it to do so effectively. The Company Secretary is responsible to the board, and is available to individual directors, in respect of board procedures.
The board comprises the Chairman, the Chief Executive, four other executive directors and five independent non-executive directors. Mr N A P Carson is the Chief Executive. Sir John Banham is the Chairman. Sir John’s other commitments are disclosed in the Board of Directors section. The roles of Chairman and Chief Executive are separate. The Chairman leads the board, ensuring that each director, particularly each non-executive director, is able to make an effective contribution. He monitors, with assistance from the Company Secretary, the information distributed to the board to ensure that it is sufficient, accurate, timely and clear. The Chief Executive maintains day-to-day management responsibility for the company’s operations, implementing group strategies and policies agreed by the board.
The role of non-executive directors is to enhance independence and objectivity of the board’s deliberations and decisions. Mr M J Roney and Mrs D C Thompson joined the board as non-executive directors on 1st June 2007 and 1st September 2007 respectively. Mr C D Mackay and Mr M B Dearden both retired from the board on 31st March 2008. Mr C D Mackay was the Senior Independent Director until his retirement from the board. He has been succeeded in this role by Mr A M Thomson with effect from 1st April 2008. All non-executive directors are independent of management and free from any business or other relationship which could materially interfere with the exercise of their independent judgment. The executive directors have specific responsibilities, which are detailed in the Board of Directors section, and have direct responsibility for all operations and activities.
In accordance with the company’s Articles of Association, all directors submit themselves for re-election at least once every three years. The board composition allows for changes to be made with minimum disruption.
The board has undertaken a formal evaluation of its performance and the performance of its committees and the individual directors. Questionnaires, prepared by the Chairman with the assistance of the Company Secretary, were completed by all directors. The questionnaires focused on the operation of the board and its committees and on individual directors’ contributions. In addition, the Chairman and the Senior Independent Director held a series of one-to-one discussions with every director, which provided each director with the opportunity both to expand on their questionnaire responses and to raise any broader issues relating to the company’s strategy and governance. A summary of the responses was prepared by the Company Secretary and discussed at a board meeting.
One area covered by the board evaluation related to the training needs of the executive and non-executive directors. Regular business presentations from senior managers at board meetings assist the non-executive directors in familiarising themselves with the group’s businesses. The board also usually holds at least one board meeting per year at one of the group’s operational sites and takes the opportunity to tour the site and discuss issues with local senior and middle management. Individual non-executive directors also undertake site visits. Such presentations, meetings and site visits help to give a balanced overview of the company. They enable the non-executive directors to build an understanding of the company’s businesses, the markets in which the company operates and its main relationships and to build a link with the company’s employees. This is important in helping the non-executive directors to continually develop and refresh their knowledge and skills to ensure that their contribution to the board remains informed and relevant.
Led by the Senior Independent Director, the non-executive directors met without the Chairman present to consider evaluation of the Chairman’s performance.
Committees of the Board The Chief Executive’s Committee is responsible for the recommendation to the board of strategic and operating plans and on decisions reserved to the board where appropriate. It is also responsible for the executive management of the group’s business. The Committee is chaired by the Chief Executive and meets monthly. It comprises the executive directors and five senior executives of the company.
The Audit Committee is a sub-committee of the board whose purpose is to assist the board in the effective discharge of its responsibilities for financial reporting and corporate control. The Committee meets quarterly and is chaired by Mr A M Thomson. It comprises all the independent non-executive directors with the group Chairman, the Chief Executive, the Group Finance Director and the external and internal auditors attending by invitation. Click here to view a report from the Committee on its activities.
The Nomination Committee is a sub-committee of the board responsible for advising the board and making recommendations on the appointment of new directors. The Committee is chaired by Sir John Banham, the group Chairman, and also comprises all the independent non-executive directors. Click here to view a report from the Committee on its activities.
The Management Development and Remuneration Committee (MDRC) is a sub-committee of the board which determines on behalf of the board the remuneration of the executive directors. The Committee was chaired by Mr C D Mackay until his retirement from the board on 31st March 2008. He was succeeded by Mr R J W Walvis with effect from 1st April 2008. It comprises all the independent non-executive directors of the company together with the group Chairman. The Chief Executive and the Director of Human Resources attend by invitation except when their own performance and remuneration are discussed. Further details are set out in the Remuneration Report.
Attendance at the board and board committee meetings in 2007/08 was as follows:
Full Board
MDRC
Nomination Committee
Audit Committee
Director
Eligible to
attend
Attended
Eligible to
attend
Attended
Eligible to
attend
Attended
Eligible to
attend
Attended
Sir John Banham
7
7
4
4
1
1
-
4(1)
N A P Carson
7
7
-
4(1)
-
1(1)
-
4(1)
M B Dearden
7
6
4
2
1
1
4
2
P N Hawker
7
7
-
-
-
-
-
-
C D Mackay
7
7
4
4
1
1
4
4
D W Morgan
7
7
-
-
-
-
-
-
L C Pentz
7
7
-
-
-
-
-
-
M J Roney
6
6
2
2
1
1
3
3
J N Sheldrick
7
7
-
-
-
-
-
4(1)
I C Strachan
7
6
4
3
1
1
4
4
D C Thompson
3
3
2
2
1
1
2
2
A M Thomson
7
7
4
4
1
1
4
4
R J W Walvis
7
7
4
4
1
1
4
4
(1) Includes meetings attended by invitation for all or part of meeting.
Relations with Shareholders The board considers effective communication with shareholders, whether institutional investors, private or employee shareholders, to be extremely important.
The company reports formally to shareholders twice a year, when its half year and full year results are announced and a half-yearly report and a full report are issued to shareholders. These reports are posted on Johnson Matthey’s website (www.matthey.com). At the same time, executive directors give presentations on the results to institutional investors, analysts and the media in London and other international centres. Copies of major presentations are also posted on the company’s website.
The company’s annual general meeting (AGM) takes place in London and formal notification is sent to shareholders at least 20 working days in advance of the meeting. The directors are available for questions, formally during the AGM and informally afterwards. Details of the 2008 AGM are set out in the notice of the meeting accompanying this Annual Report.
Contact with major shareholders is principally maintained by the Chief Executive and the Group Finance Director, who ensure that their views are communicated to the board as a whole. The Chairman also discusses governance and other matters directly with major shareholders. The board believes that appropriate steps have been taken during the year to ensure that the members of the board, and in particular the non-executive directors, develop an understanding of the issues and concerns of major shareholders about the company. The board is provided with brokers’ reports and feedback from shareholder meetings on a six-monthly basis. The canvassing of major shareholders’ views for the board in a detailed investor survey is usually conducted every two years by external consultants. The board has taken the view that these methods, taken together, are a practical and efficient way both for the Chairman to keep in touch with major shareholder opinion on governance and strategy and for the Senior Independent Director to learn the views of major shareholders and to develop a balanced understanding of their issues and concerns. The Senior Independent Director is available to attend meetings with major shareholders if requested.
Accountability, Audit and Control
The statement of the Responsibility of Directors for the preparation of the Annual Report and the accounts is set out in the Responsibility of Directors section.
In its reporting to shareholders, the board aims to present a balanced and understandable assessment of the group’s financial position and prospects.
The group’s organisational structure is focused on its three divisions. These are all separately managed but report to the board through a board director. The executive management team receives monthly summaries of financial results from each division through a standardised reporting process.
The group has in place a comprehensive annual budgeting process including forecasts for the next two years. Variances from budget are closely monitored.
The board has overall responsibility for the group’s systems of internal control and for reviewing their effectiveness. The internal control systems are designed to meet the group’s needs and address the risks to which it is exposed. Such systems can provide reasonable but not absolute assurance against material misstatement or loss.
There is a continuous process for identifying, evaluating and managing the significant risks faced by the company, which has been in place during the financial year and up to the date of approval of the Annual Report and Accounts. The board regularly reviews this process.
The assessment of group and strategic risks is reviewed by the board and updated on an annual basis. At the business level, the processes to identify and manage the key risks are an integral part of the control environment. Key risks and internal controls are the subject of regular reporting to the Chief Executive’s Committee.
The Group Control Manual, which is distributed to all group operations, clearly sets out the composition, responsibilities and authority limits of the various board and executive committees and also specifies what may be decided without central approval. It is supplemented by other specialist policy and procedures manuals issued by the group, divisions and individual business units or departments. The high intrinsic value of many of the metals with which the group is associated necessitates stringent physical controls over precious metals held at the group’s sites.
The internal audit function is responsible for monitoring the group’s systems of internal financial controls and the control of the integrity of the financial information reported to the board. The Audit Committee approves the plans for internal audit reviews and receives the reports produced by the internal audit function on a regular basis. Actions are agreed with management in response to the internal audit reports produced.
In addition, significant business units provide assurance on the maintenance of financial and non-financial controls and compliance with group policies. These assessments are summarised by the internal audit function and a report is made annually to the Audit Committee.
The directors confirm that the system of internal control for the year ended 31st March 2008 and the period up to 3rd June 2008 has been established in accordance with the Turnbull Guidance included with the Code and that they have reviewed the effectiveness of the system of internal control.
Corporate Social Responsibility
Measures to ensure responsible business conduct and the identification and assessment of risks associated with social, ethical and environmental matters are managed in conjunction with all other business risks and reviewed at regular meetings of the board and the Chief Executive’s Committee.
A review of the group’s policies and targets for corporate social responsibility (CSR) is set out in the Sustainability section of the Business Review. A full version of the Sustainability Report is available on the company’s website.
The identification, assessment and management of environment, health and safety (EHS) risks are the responsibility of the CSR Compliance Committee, which is a sub-committee of the Chief Executive’s Committee. It comprises the division directors, the Director of EHS, the Company Secretary and senior representatives of Group Legal, Internal Audit and Group EHS and has specific responsibility for setting and overseeing compliance with the standards for group CSR performance through the development, dissemination, adoption and implementation of appropriate group policies and other operational measures. Performance is monitored using monthly statistics and detailed site audit reports. EHS performance is reviewed on a regular basis by the Chief Executive’s Committee and an annual review is undertaken by the board.
Risks from employment and people issues are identified and assessed by the Chief Executive’s Committee and reported to the board.
Employment contracts, handbooks and policies specify acceptable business practices and the group’s position on ethical issues. The Group Control Manual and security manuals provide further operational guidelines to reinforce these.
The Audit Committee reviews risks associated with corporate social responsibility on an annual basis and monitors performance through the annual control self-assessment process conducted by the internal audit function.
