annual report 2004 heading.
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The Applicable Code

The group is committed to high standards of corporate governance. The ‘Applicable Combined Code’ for Grainger for the year ended 30 September 2004 was the Combined Code issued in June 1998. This was the last year in which this code was relevant, and as such the board has made diligent progress towards compliance with the New Combined Code, published in July 2003.Where relevant, provisions of the New Combined Code are referred to within this report.

The terms of reference of the board’s committees have been reviewed in the light of the New Combined Code and have been adopted by the board. The terms of reference refer specifically to relevant matters that are reserved for the attention of the full board. Copies of these terms of reference are available from the Company Secretary upon request.

Board meetings

The group believes in recruiting and retaining the best staff throughout the organisation – and this begins at the top. There is a working balance of non-executives and executives, entrepreneurial and cautious. The board meets four times per year, with additional meetings as required. Telephone and video conference are used where short notice is necessary. In June each year the board meets for a two day period. During this time extended strategy discussions are held; there is often a visit to group properties and dinners are held with senior staff and group contacts, including advisers, bankers and agents.

Attendance at board meetings:
    Date of meeting
    Dec 03 Feb 04 Jun 04 Sept 04
Robert Dickinson
Stephen Dickinson
Rupert Dickinson
Andrew Cunningham
Sean Slade
Robin Herbert
Robert Hiscox
Nichola Pease
John Barnsley
Robin Broadhurst*    
John Ward**    
√ : attended – : apologies
* appointed after February 2004 board meeting ** resigned at February 2004 annual general meeting

The board’s responsibilities and procedures

The primary obligations of the board are detailed in a schedule of matters reserved for board attention. These include overall strategy, investment strategy, acquisitions and debt over certain limits and accounting policies. The executive directors are responsible for communicating the board’s strategy to the senior management of the organisation and hence the effective implementation of strategy and day-to-day running of the group.

The board is supplied with relevant financial and non-financial information to enable it to make decisions. Information is supplied in a timely manner, before each board meeting. During the year a new monthly report has been developed to provide the non-executive directors with up-to-date financial analysis. Any director may request further information at any time, such requests are given high priority. Procedures are in place for directors to take independent professional advice, when necessary, at the group’s expense.

The chairman is responsible for the running of the board. He has instigated a process of evaluation of the directors as individuals, the committees and the board as a whole. The process will begin in the financial year commencing 1 October 2004. The chief executive is responsible for the management of the day to day running of the group. Robin Herbert served as senior independent non-executive director throughout the year. He is therefore the director to whom shareholders may turn should any concerns fail to be resolved through the normal channels of chairman, chief executive or finance director. Following Robin Herbert’s impending retirement at the annual general meeting in February 2005, Robin Broadhurst will fulfil this role.

Board membership and independence

Although board members have been required to stand for re-election at intervals of no more than three years for several years now, the board believes it is important to maintain stability and continuity for longer periods. Principally, this is due to the long-term nature of the group’s core businesses. The process of purchasing land, negotiating planning and then subsequent development to sale can amount to many years’ hard work, where continuity of leadership is a real asset. The board in fact considers itself fortunate to have retained the services of several long-standing directors for extended periods. Further, the board does not consider that such service periods prohibit a director from being considered independent. Length of service does not in itself, in the board’s view, impair character or judgement.

During the year, the board comprised the chairman, six non-executive directors and three executive directors. Robin Broadhurst was appointed to the board following the annual general meeting in February 2004 when John Ward retired, thus maintaining the number of non-executives throughout the year. Robin Broadhurst will stand for re-election at the next annual general meeting. Sean Slade resigned on 12 November 2004.

Training for directors is available, where appropriate, both on appointment to the board and thereafter.

The independence of the non-executive directors who served during the year, as assessed by the Applicable Combined Code and by the board, is set out opposite.

Director Applicable combined code Board’s opinion
Robert Dickinson Chairman Not independent – close family ties, more than nine years´ service, cross directorships. Not independent. The board has decided that taking all relevant facts into consideration, Robert Dickinson cannot be considered ndependent.
Stephen Dickinson Deputy Chairman Not independent – close family ties, more than nine years’ service, cross directorships. Part time executive responsibilities Not independent. The board has decided that taking all relevant facts into consideration, Stephen Dickinson cannot be considered independent.
Robin Herbert Senior Independent Director Not independent – more than nine years’ service. Independent. As stated above, the board does not consider length of service, on its own, to affect the independence of its directors. It considers that Robin Herbert is of sound character and judgement and thus independent.
John Barnsley Independent as at the date of this report. Until December 2001 John Barnsley was a senior partner for the group’s auditors. Minor cross directorship. From December 2004 John Barnsley’s former position with the group’s auditors is no longer relevant for the determination of independence. He was however strictly not independent throughout the year under review. Independent as at the date of the report and throughout the year. Although it is suggested that three years should elapse following a relationship with a professional adviser of the group, John Barnsley was not connected with any service provided to the group during his time with the group’s auditors. He has no continuing personal interests with the group’s auditors and is not any form of conduit of information. Although John Barnsley is a director of Northern Investors Company PLC, where Robert Dickinson is also a director, this mutual interest is not considered to have any impact on his independent judgement as a director of Grainger.
Robert Hiscox Not independent – Trustee for Estate containing material shareholding. Independent. Robert Hiscox’s trusteeship is not, on its own, sufficient to affect his independent character and judgement. Robert Hiscox brings significant skill and business experience to the board in his own right.
Nichola Pease Independent. Independent.
Robin Broadhurst (appointed 26 February 2004) Independent. Independent.
John Ward (retired 26 February 2004) Not independent – more than nine years’ service, cross directorships. Independent. As stated above, the board does not consider length of service, on its own, to affect the independence of its directors. It considers that John Ward was of sound character and judgement and thus independent during his time on the board this year. John Ward was also a director of Northern Investors PLC, along with Robert Dickinson and John Barnsley, but this was not considered to have any impact on his independent judgement.

Under the New Combined Code, Nichola Pease, Robin Broadhurst and John Barnsley would be considered independent as at the date of this report.

The board therefore considers that it had a majority of independent non-executives throughout the year.

Board committees

The three principal committees of the board – Audit, Nomination and Remuneration, were maintained throughout the year. Each committee has terms of reference, which indicate matters that must be retained for the main board.

Audit committee

John Ward was succeeded as chairman on 26 February 2004 by John Barnsley, who was already a member of the committee. On appointment to the board on the same date, Robin Broadhurst also joined the committee. Robin Herbert served throughout the year. The board therefore considers that the committee comprised three independent non-executive directors throughout the period under review. As noted earlier, Robin Herbert will be retiring at the annual general meeting in February 2005. The board intends to appoint a further independent non-executive director to the board, and that director will also serve on the audit committee in order to retain the required constitution.

The audit committee met four times and updated its terms of reference during the year.

Nomination committee

Robert Dickinson (chairman) and Robin Herbert served on the nomination committee throughout the year. Nichola Pease replaced Stephen Dickinson during the year. Robert Hiscox was also appointed.

Remuneration committee

Nichola Pease, chairman of the remuneration committee, served throughout the year, as did Robert Hiscox and John Barnsley. John Ward retired at the annual general meeting on 26 February 2004.

Relations with shareholders

The company meets regularly with institutional shareholders and analysts. In addition to the usual meetings after results announcements, ad hoc meetings are arranged to continue dialogue throughout the year. In particular, during the year under review, the group’s chief executive and deputy chief executive/finance director have visited other countries in Europe where there is interest in Grainger’s shares.

The annual general meeting is the primary route for communication with smaller/private shareholders, although the group’s website also includes a specific Investor Relations section. All directors attend the annual general meeting, and the chairmen of all committees are available to answer questions. The notice of meeting and annual report and accounts are sent out at least 20 working days before the meeting. Separate votes are held for each proposed resolution, including the approval of the remuneration committee report, and a proxy count is available in each case.

Internal control

The group has a cyclical process for identifying, assessing and managing its significant risks. The process is designed to enable the board to be confident that such risks are mitigated, or controlled as far as possible. It should be noted however that no system can eliminate the risk of failure to achieve business objectives entirely and can only provide reasonable and not absolute assurance against material misstatement or loss. The audit committee is delegated the task of reviewing all identified risks, with the absolute key risks retained for full board review. Risks and controls are reviewed to ensure effective management of appropriate strategic, financial, operational and compliance issues. The audit committee also reviews the half year and full year financial statements and holds discussions with the group’s auditors. In addition, the group has an internal audit function which performs relevant reviews as part of a programme approved by the audit committee. The committee considers any issues or risks arising therefrom in order that appropriate actions can be undertaken to their satisfactory resolution.

In particular, over the last year, there have been many changes to the group’s systems made as a result of the acquisition of the remaining 50% of Bromley just prior to the year ended 30 September 2003. The group’s external auditors were involved in reviewing these changes as part of their normal audit procedures to the extent that they considered necessary. The group also enjoyed a unique opportunity to redesign the organisational structure, which, whilst not stifling the entrepreneurial nature of the group, allows the board to retain full control of the business.

An annual budget is produced, together with longer term projections, which are presented to the board for approval. At each meeting the board discusses progress against the budget and monitors any variances. If applicable, revisions are made to the expected outturn against which further progress can be monitored.

The board also discusses in detail the projected financial impact of major proposed acquisitions and disposals, including their financing. All such proposed substantial investments are considered by all directors or, where meetings are required between board meetings and a full complement of directors cannot be achieved, by an executive committee of directors. The board is also responsible for the discussion and approval of the group’s treasury strategy, including mitigation against changes in interest rates.

Going concern

After making enquiries, including the review of future anticipated cash flows and banking covenants, the directors have a reasonable expectation that the group and company have adequate resources to continue in existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the accounts.

Compliance statement

With the exception of the provisions listed below, the group has, throughout the year ended 30 September 2004, been in compliance with the Applicable Combined Code.

Independence: A3.2, B2.2, D3.1

Although the Applicable Combined Code strictly considers several of the non-executive directors to be not independent, the board differs in opinion.

Length of contracts: B1.7 to B1.10

Two of the executive directors have contracts of over one year, with no specific provisions for compensation for loss of office. The board feels that this is necessary to ensure commitment and long-term continuity in achieving the group’s objectives, which by virtue of the group’s activities are also long-term in nature. However, the notice period on their original contracts is being reduced from two years to one year on a straight line basis over a period of five years from 1 October 2002. At the date of this report, the notice period outstanding stood at approximately 18 months.

By order of the board

Marie Glanville signature
Marie Glanville
Company Secretary
21 December 2004

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