Statement of Compliance with the Combined Code
This statement together with the Nomination Committee Report, the Audit Committee Report and the Remuneration Report, describes how the Main Principles of the Combined Code on Corporate Governance, issued by the Financial Reporting Council (FRC) dated June 2008 (the Code), have been applied during the year ended 31st March 2011. In June 2010 the FRC replaced the Code with the UK Corporate Governance Code which applies to accounting periods beginning on or after 29th June 2010 (the New Code). The board will report on compliance with the New Code in next year’s annual report.
During the year ended 31st March 2011, the company has complied with all relevant provisions set out in Section 1 of the Code throughout the year except in respect of provision D.1.1 – The senior independent director should attend sufficient meetings with a range of major shareholders to listen to their views in order to help develop a balanced understanding of the issues and concerns of major shareholders. During the year 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’.
The Role of the Board
The board is responsible to the company’s shareholders for the group’s long term success, its strategic objectives, its system of corporate governance and the stewardship of the group’s resources and it is ultimately responsible for social, environmental and ethical matters. The board is also responsible for determining the nature and extent of the significant risks it is willing to take in order to achieve its strategic objectives.
Other key matters reserved for board decision include approval of the annual group operating and capital expenditure budgets, annual group three year plan and ten year strategy and of changes relating to the company’s capital structure. The board also approves announcements of the group’s results, the Annual Report and Accounts, the declaration of the interim dividend and recommendation of the final dividend. The board is responsible for considering and approving major capital projects, major acquisitions and major disposals of assets or operations. The board reviews the key activities of the business and receives papers and presentations to enable it to do so effectively.
In respect of board membership and other appointments, the board determines the structure, size and composition of the board, appointments to the board, selection of the Chairman of the board and the Chief Executive, appointment of the Senior Independent Director and membership and chairmanship of board committees.
The board held seven meetings in the year. In addition, the board met separately in the year to undertake a ten year strategy review.
The board delegates specific responsibilities to board committees, as described below.
Board Composition
The board comprises the Chairman (Sir John Banham), the Chief Executive (Mr N A P Carson), three other executive directors, the Chairman Designate (Mr T E P Stevenson) and six other independent non-executive directors. Sir John Banham will be retiring as Chairman with effect from the close of the 2011 Annual General Meeting, having served as Chairman for five years, and will be succeeded by Mr Stevenson who was appointed to the board on 29th March 2011. Sir John Banham’s and Mr Stevenson’s other commitments are disclosed in the Board of Directors section.
Also with effect from the close of the 2011 Annual General Meeting, Mr A M Thomson and Mr R J W Walvis will be retiring from the board, each having served as a non-executive director for nine years. Mr A M Ferguson, who was appointed as a non-executive director on 13th January 2011, will succeed Mr Thomson as Chairman of the Audit Committee and Mr M J Roney, non-executive director, will be appointed the Senior Independent Director. Mr Roney will also take over the chairmanship of the Management Development and Remuneration Committee upon Mr Walvis’ retirement. Following these changes, the board will comprise the Chairman, the Chief Executive, three other executive directors and four independent non-executive directors.
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 is responsible for ensuring a culture of openness and debate and that adequate time is available for discussion. 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 group’s operations, implementing group strategies and policies agreed by the board.
The three other executive directors, Mr R J MacLeod, Mr L C Pentz and Mr W F Sandford, have specific responsibilities, which are detailed in the Board of Directors section, and have direct responsibility for all operations and activities.
The role of the non-executive directors, who are appointed for specified terms subject to re-election and to the provisions of the Companies Act 2006 relating to the removal of a director, is to enhance independence and objectivity of the board’s deliberations and decisions. Additionally, the non-executive directors play an important role in developing strategy. Each non-executive director (including, until his forthcoming appointment as Chairman, Mr Stevenson) is considered by the board to be independent in character and judgment and there are no relationships or circumstances which are likely to affect, or could appear to affect, the director’s judgment.
Under the company’s Articles of Association, all directors submit themselves for re-election at least once every three years. However, in accordance with the provisions of the New Code, all directors will retire at each Annual General Meeting and offer themselves for re-election. All directors except Sir John Banham, Mr Thomson and Mr Walvis, who are retiring from the board in July 2011, will be offering themselves for re-election at the 2011 Annual General Meeting. Mr Ferguson and Mr Stevenson will offer themselves for election having been appointed to the board since the 2010 Annual General Meeting.
Information and Support
Each board meeting includes a business or strategy presentation from senior managers. These presentations assist the non-executive directors in familiarising themselves with the group’s businesses. The board also 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. During the year ended 31st March 2011, the board visited the Johnson Matthey Technology Centre in Sonning, UK where it toured the site and received presentations from management on the company’s R&D organisation and on R&D long term trends. 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. Account is taken of environmental, social and governance matters in the training of directors.
The Company Secretary is responsible to the board, and is available to individual directors, in respect of board procedures. The Company Secretary is also responsible for keeping the board up to date on legislative, regulatory and corporate governance developments.
The company has in place formal induction programmes for new directors. Since their appointments, Mr Ferguson and Mr Stevenson have received a tailored induction programme which so far has included meetings with the Chief Executive, the executive directors and senior management in order to be briefed on the group strategy and individual businesses, briefing sessions with key group functions and visits to the principal UK sites. As part of his induction programme, Mr Stevenson has had meetings with several major shareholders. Mr Ferguson is available to attend meetings with major shareholders if requested.
Board and Committee Performance Evaluation
Following the appointment of Mr Stevenson as Chairman Designate on 29th March 2011, the board has instigated a formal evaluation of its performance and that of its committees and individual directors. This evaluation is being led by Mr Stevenson and is being externally facilitated. The external facilitator has no other connection with the company. The evaluation will allow Mr Stevenson to gain an objective view of the workings of the board and of its committees. The evaluation includes detailed interviews with each director covering the following key areas:
- overall board effectiveness,
- board composition and balance,
- succession planning,
- strategy process,
- financial and non-financial monitoring,
- risk and management systems, and
- the board development plan (including training and site visits).
This evaluation process is ongoing and will be reported on further in next year’s annual report.
A full review of the Chairman’s performance was undertaken in 2009/10 and the results were reported by the Senior Independent Director to the board in May 2010. In view of the forthcoming change in the chairmanship of the company, a separate formal review of the Chairman’s performance has not been undertaken although the board expects feedback on the Chairman’s performance to be reflected in the externally facilitated evaluation currently underway.
During the year ended 31st March 2011, the Chairman met with non-executive directors without the executive directors present.
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