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The Company is committed to the principles of Corporate Governance contained in the Combined Code on Corporate Governance which is appended to the Listing Rules of the Financial Services Authority (the Combined Code) and for which the Board is accountable to shareholders. The Company has complied with the provisions of Section 1 of the Combined Code throughout the year except for the following matters:
The Company has applied these Principles of Good Governance set out in Section 1 of the Combined Code, including both the main principles and supporting principles, by complying with the Combined Code as noted above.
Further explanation of how the principles have been applied is set out below and, in connection with Directors' remuneration, in the Directors' remuneration report.
The Board currently comprises the Chairman, three Non-Executive Directors (including the Senior Independent Director) and two Executive Directors (being the Chief Executive and Finance Director). The AVEVA Group Board meets regularly in combination with the Board of AVEVA Solutions Ltd, which owns all the Group's operating subsidiaries and includes as members the Head of Product Development and the Head of Group Operations as well as all the members of the Group Board. This ensures that the Group Board is well informed on technical and market factors driving the Group's performance as well as on financial outcomes. 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 for providing overall leadership, providing management to the Group and for the execution of the Group's strategic and operating plans. Brief biographical details of all Board members are set out on the Board of directors page. The membership of all Board Committees is set out below:
| Board | Audit | Remuneration | Nomination | ||
|---|---|---|---|---|---|
| Nick Prest | Chairman | Chairman | — | Member | Chairman |
| David Mann | Senior Independent Non-Executive Director | Member | Member | Chairman | — |
| Jonathan Brooks | Independent Non-Executive Director | Member | Chairman | Member | Member |
| Philip Dayer | Independent Non-Executive Director | Member | Member | Member | Member |
| Richard Longdon | Chief Executive | Member | — | — | — |
| Paul Taylor | Finance Director | Member | — | — | — |
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 the Board of directors page demonstrate a range of experience and sufficient calibre to bring independent judgement on issues of strategy, performance, resources and standards of conducts which is vital to the Group. David Mann is the Senior Independent Director and he will have served ten years as a Non-Executive Director in June 2009. Notwithstanding this, the Board believes that he remains independent and continues to be effective in his role and demonstrates commitment to the role. David Mann has never had any business relationship with the Group, has never been an employee and has never participated in any share option plan or been a member of the Group's pension schemes.
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 includes overall responsibility for the strategy of the Group, Corporate Governance, review of trading performance and forecasts, risk management, Board membership, communications with shareholders, the approval of major transactions, including mergers and acquisitions and the approval of the financial statements and annual operating and capital expenditure budgets. The Board met ten times during the year and the Board also conducted a strategy meeting, receiving presentations from senior management. 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 in advance of Board meetings and all members of the Audit Committee and Remuneration Committee respectively prior to meetings of such Committees.
The attendance of individual Directors at Board meetings and Committee meetings during the year is set out in the table below:
| Board meetings attended |
Audit Committee meetings attended |
Remuneration Committee meetings attended |
|
|---|---|---|---|
| Number of meetings held | 10 | 2 | 2 |
| Nick Prest | 10 | — | 2 |
| David Mann | 10 | 2 | 2 |
| Jonathan Brooks | 10 | 2 | 2 |
| Philip Dayer | 10 | 2 | 2 |
| Richard Longdon | 10 | — | — |
| Paul Taylor | 10 | — | — |
| Non-Executive Directors are encouraged annually to undertake training in furtherance of their specific roles and general duties as a Non-Executive Director. | |||
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 Combined Code requires that the Board undertakes a formal annual evaluation of its own performance and that of its Committees and individual Directors. The Chairman conducted a review of both the structure and skills of the Board generally and the individuals involved. This included discussions with fellow Board members and covered Board structure, effectiveness of the Board and its Committees, information and communication. The Chairman's conclusions, which were accepted by the Board, were that the Board and its Committees are operating effectively. The Chairman's performance was assessed by the Senior Independent Director, having consulted with the other Non-Executive Directors. A formal evaluation of the performance of the Executive Directors, Richard Longdon and Paul Taylor, was also carried out by the Remuneration Committee as part of the process for determining their remuneration for the year.
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.
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 in the appropriate circumstances. All members of the Board have access to the advice of the Company Secretary.
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. Given his length of service, David Mann is subject to annual re-election under the Combined Code. Under the Articles of Association, Nick Prest and Paul Taylor are also subject to re-election at the forthcoming Annual General Meeting.
Non-Executive Directors are appointed for a term of three years with the exception of David Mann who does not have a specific term of appointment because he was appointed prior to the issue of the 2003 Combined Code. 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.
The Board has three Committees: Nominations, Audit and Remuneration. In accordance with the Combined 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.
In April 2009, a Nominations Committee was formed which is chaired by Nick Prest and the other members are Jonathan Brooks and Philip Dayer. The Chief Executive is invited to attend meetings as appropriate to the business being considered. Until the Committee was formed the full Board carried out the activities of the Nominations Committee which included nomination, selection and appointment of Non-Executive and Executive Directors, succession planning and the composition of the Board, particularly in relation to the diversity of skills and experience. There were no changes to the Board during the year.
The Remuneration Committee makes recommendations to the Board on the Group's policy for Executive remuneration and determines the individual remuneration packages on behalf of the Board for the Executive Directors of the Group. The Chief Executive attends meetings by invitation, except when the Chief Executive's own remuneration package is being discussed.
The Committee has access to professional advice, both inside and outside the Company, in the furtherance of its duties. The Directors' remuneration report sets out in more detail the Remuneration Committee's policies and practices on Executive remuneration.
The members of the Audit Committee are Jonathan Brooks, David Mann and Philip Dayer. The Chairman of the Committee during the year was Jonathan Brooks who is deemed by the Board to have recent and relevant financial experience. He is a Chartered Management Accountant and has held a number of senior financial positions in his career. The Committee invites the Finance Director and senior representatives from the auditors to attend meetings as appropriate to the business being considered. Subsequent to the year end, an Audit Committee meeting was held to approve the annual results which was attended by all members.
The Audit Committee met twice during the year to review the scope of the audit and the audit procedures, the format and content of the audited financial statements and interim reports, including the notes and the accounting principles applied. The Audit Committee also reviews all proposed announcements to be made by the Group to the extent that they contain financial information. The Audit Committee considers compliance with legal requirements, accounting standards and the Listing Rules of the Financial Services Authority and also reviews any proposed change in accounting policies and any recommendations from the Group's auditors regarding improvements to internal controls and the adequacy of resources within the Group's finance function. The Audit Committee advises the Board on the appointment of external auditors and on their remuneration both for audit and non-audit work, and discusses the nature, scope and results of the audit with external auditors. The Audit Committee keeps under review the cost effectiveness and the independence and objectivity of the external auditors. Controls in place to ensure that the independence and objectivity of the auditors are not compromised include monitoring of the independence and effectiveness of the audit, implementing a policy on the engagement of the external auditors to supply non-audit services, and a review of the scope of the audit and fee and performance of the external auditors. In addition, audit partners are rotated every five years and a formal statement of independence is received from the auditors each year. The Board and the Audit Committee are satisfied that the independence of the auditors has been maintained.
The Audit Committee monitors fees paid to the auditors for non-audit work. During the year there was limited non-audit work performed by the auditors and an analysis of non-audit fees is provided in note 7 to the financial statements. The Group engages other independent firms of accountants to perform tax consulting work and other consulting engagements to ensure that the independence of the auditors is not compromised.
There is a formal whistle-blowing policy which has been communicated to employees. This policy provides information on the process to follow in the event that any employee feels it is appropriate to make a disclosure. The Audit Committee is satisfied that the policy provides an adequate basis for employees to make representations in confidence to the Group and for appropriate and proportionate investigations.
The Board and the Audit Committee have considered the requirement to have an internal audit function and given the Group's relative size, does not consider one necessary at this point but will continue to monitor this annually.
Communication with shareholders is given high priority by the Board. The Chief Executive and the Finance Director 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. The Chairman also met with certain shareholders during the year to discuss strategy and performance of the business. The Senior Independent Non-Executive Director, David Mann, is available to shareholders if they have concerns which contact through the normal channels of Chairman, Chief Executive or Finance Director has failed to resolve or if such contact would be inappropriate. 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 public relations adviser and financial adviser. The Board is also 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. 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.
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, Nomination and the Remuneration Committees will be available at the Annual General Meeting to answer any questions.
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 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 Turnbull Guidance. The key elements of the systems of internal controls currently include:
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 has also performed a specific assessment for the purpose of this Annual report. This assessment considered all significant aspects of internal control arising during the period covered by the report. The Audit Committee assists the Board in discharging its review responsibilities.
