Corporate Governance statement
Statement of compliance with the code of best practice
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:
A.7.2 – One Non-Executive Director (David Mann) who served during the year does not have a contract of employment for a specific term due to his appointment being prior to the issue of the 2003 Combined Code. In April 2010, it was announced that Mr Mann will retire as a Director at the Annual General Meeting in July 2010.
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 page.
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 Finance Director).
During the year the Board considered the balance of skills, knowledge and experience on the Board and, in the light of this evaluation, prepared a description of the role and capabilities required for a new Non-Executive Director with a strong software technology background and experience of managing and delivering large scale software solution projects.
In April 2010, the Company announced the appointment of Hervé Couturier as a Non-Executive Director and the Board believes that he will bring significant skills and experience in these areas. Further details of the process for the appointment of Mr Couturier are contained in the Nominations Committee report.
In addition, in April 2010, it was announced that following eleven years of invaluable service to the Group, David Mann will retire as Non-Executive Director and Senior Independent Director at the Annual General Meeting in July 2010.
Brief biographical details of all Board members are set out on Board of Directors page. The membership of all Board Committees is set out below:
| Board | Audit | Remuneration | Nomination | Treasury Risk Management |
||
|---|---|---|---|---|---|---|
| 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 | Member |
| Philip Dayer | Independent Non-Executive Director | Member | Member | Member | Member | Chairman |
| Hervé Couturier1 | Independent Non-Executive Director | Member | — | — | — | — |
| Richard Longdon | Chief Executive | Member | — | — | — | — |
| Paul Taylor | Finance Director | Member | — | — | — | Member |
- 1Appointed to the Board on 1 April 2010
Operation of the Board
The AVEVA Group Board meets regularly in combination with the Board of AVEVA Solutions Limited, the main operating company in the Group which owns all of the Group’s trading subsidiaries. The AVEVA Solutions Limited Board 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 AVEVA Group Board is well informed on technical and market factors driving the Group’s performance as well as on financial outcomes.
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;
- approval of major transactions, including mergers and acquisitions; and
- 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 and visited key locations, receiving presentations from senior management. The Board delegates the day to day responsibility for managing the Group to the Executive Directors. The Chairman ensures that the Board functions effectively, overseeing the timely and effective provision of information to the Board. 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, Remuneration, Nomination and Treasury Risk Management Committees 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:
| Name of holder | Board meetings |
Audit Committee meetings |
Remuneration Committee meetings |
Nomination Committee meetings |
Treasury Risk Management Committee meetings |
|---|---|---|---|---|---|
| Number of meetings held: | 10 | 2 | 2 | 1 | 2 |
| Number of meetings attended: | |||||
| Nick Prest | 10 | — | 2 | 1 | — |
| David Mann | 8 | 2 | 2 | — | — |
| Jonathan Brooks | 10 | 2 | 2 | 1 | 2 |
| Philip Dayer | 9 | 2 | 1 | 1 | 2 |
| Richard Longdon | 10 | — | — | — | |
| Paul Taylor | 10 | — | — | — | 2 |
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 in the appropriate circumstances. 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.
Performance evaluation
The Combined Code requires that the Board undertakes a formal annual evaluation of its own performance and that of its Committees and individual Directors.
In the course of the year the Chairman, in conjunction with the other members of the Nominations Committee, conducted a review of the structure and skills of the Board and the performance of individuals. One decision which emanated from this review was the desirability of adding to the collective skills of the Board a stronger Non-Executive input on technology issues and this led to the appointment of Hervé Couturier as a Non-Executive Director. Overall the performance of the Board and its Committees was considered to be satisfactory but some ideas for changes in the way the Board handles its business in relation to the provision of information and the focus of Board meetings were generated by these consultations and these will be introduced in the current year. As part of the Board review process the performance of the Chairman was assessed by the Senior Independent Director following consultation with the other Non-Executive Directors.
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 re-appointment
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. Following his appointment in April 2010, Hervé Couturier is subject to election at the forthcoming Annual General Meeting. In addition, in accordance with Corporate Governance best practice, all of the remaining 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 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. In April 2010, it was announced that Mr Mann will retire from the Board at the Annual General Meeting in July 2010. 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.
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 Board of Directors page to demonstrate a range of experience and sufficient calibre to bring the independent judgement on issues of strategy, performance, resources and standards of conduct which is vital to the Group.
David Mann is the Senior Independent Director and he will have served eleven years as a Non-Executive Director in June 2010. In April 2010, it was announced that David Mann would retire as Non-Executive Director and Senior Independent Director at the Annual General Meeting in July 2010.
Notwithstanding his length of service, the Board believes that Mr Mann has remained and remains independent during the term of his appointment and continues to be effective in his role and demonstrates commitment to the role. He 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.
Hervé Couturier was appointed to the Board in April 2010. After a formal review, the Board has concluded that Mr Couturier is independent in character and judgement, and that:
- he has never been an employee of the Group;
- he has never had any material business relationship with the Group;
- he does not receive any remuneration other than Director’s fees;
- he does not have any close family ties with other Directors or senior management of the Group or advisers to the Group;
- he has no significant links with other Directors or senior management or advisers to the Group through involvement with other companies; and
- he does not represent a material shareholder of 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 for providing overall leadership, providing management to the Group and for the execution of the Group’s strategic and operating plans.
Committees of the Board
The Board has four Committees: Audit, Remuneration, Nominations and Treasury Risk Management. 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.
Nominations CommitteeThe Nominations Committee was formed in April 2009. The Chief Executive is invited to attend meetings as appropriate to the business being considered. The activities of the Nominations Committee include 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. The Nominations Committee meets periodically when required. In addition to the meetings there are a number of ad-hoc meetings to address specific matters.
On 1 April 2010, Hervé Couturier was appointed to the Board. An external search consultant, Russell Reynolds, was instructed by the Nominations Committee to assist in the identification of appropriate candidates having considered the requisite skills, knowledge and experience required for the position. All short listed candidates were interviewed and as a result Mr Couturier was selected and his appointment was then recommended to and approved by the Board.
On 5 October 2009, Paul Taylor (Finance Director) was appointed a Non-Executive Director of Anite plc. Prior to the appointment, the Board considered the impact on his role as Finance Director and concluded that he could still devote sufficient time to his Finance Director role and therefore approved that Mr Taylor could accept the appointment.
Remuneration CommitteeThe Remuneration Committee makes recommendations to the Board on the Group’s policy for Executive and senior management 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.
Audit CommitteeThe Chairman of the Committee 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. Hervé Couturier will join the Audit Committee from the date of the Annual General Meeting (7 July 2010) being the date that David Mann will retire. 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 review the results of the audit, 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 members (as part of the full Board) review 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 and the Disclosure and Transparency 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 this 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. The Audit Committee monitors fees paid to the auditors for non-audit work and delegates the authority for approval of such work to the Finance Director where the level of fees involved are insignificant. During the year there was limited non-audit work performed by the auditors which mainly consisted of tax compliance work for subsidiaries of the Group and other statutory filing work. Any significant non-audit work such as reporting accountant engagements would require prior approval from the Audit Committee.
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. 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.
An analysis of non-audit fees is provided in note 7 to the financial statements.
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, do not consider one necessary at this point but will continue to monitor this annually.
Treasury Risk Management Committee (TMRC)
The TMRC was formed in April 2009 to oversee the Group’s treasury function given the increasing importance of managing the Group’s treasury activities and associated risks. In addition to the above members, the Head of Finance and Group Treasurer are also invited to attend the meetings. The TMRC reviews the Group’s overall financial risk management including:
- foreign exchange risk and related hedging policy;
- credit risk which includes monitoring the Group’s counter-party exposure to banks; and
- liquidity risk which includes reviewing the cash management structure in the Group.
The policies of the Group in relation to these areas are explained in note 24 to the financial statements.
During the year the TMRC met twice to discuss the above matters and provided a report to the Board after each meeting.
Dialogue with institutional shareholders
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. Senior managers from Product Development, Business Strategy and Finance also attended analyst and shareholder meetings during the year. 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 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 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. 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, Nomination and the Treasury Risk Management Committees will be available at the Annual General Meeting to answer any questions.
Share capital structure
Further information on the share capital structure of the Company and the Takeover Directive Disclosures is contained on Other statutory information page.
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 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:
- an Executive Board comprising the Executive Directors, Head of Group Operations, Head of Product Development and Head of Human Resources. Each member 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 Directors, Head of Group Operations, Head of Product Development, Head of Human Resources and Sales Division Managers 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, 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 Division managers and Product Development 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; 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 during the year travelled to Asia to meet with senior management from the Asia Pacific region and receive presentations on their operations.
The Board has also performed a specific assessment for the purpose of this Annual report. This involved reviewing the reports from a risk assessment workshop involving the Executive Board and senior members of management from Product Development, Sales and Finance/Legal. The workshop was conducted in January 2010 and was facilitated by a third party. 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.