The Board of Directors and Committees of the Board of Directors
The Board of Directors recognise the importance of corporate governance as set out in the QCA Code to protect shareholder value. Although adherence to the QCA Code is not compulsory for companies listed on AIM, the Directors adopt the principles of the QCA Code to the extent they consider appropriate for a company the size and nature of Avacta Group plc.
The Board is responsible for the Company’s systems of corporate governance. At 30 November 2017, the Board comprised four Non-executive Directors and two Executive Directors.
The division of responsibilities between the Chairman and the Chief Executive Officer is clearly defined. The Chairman’s primary responsibility is ensuring the effectiveness of the Board and setting its agenda. The Chairman has no involvement in the day-to-day business of the Group. The Chief Executive has direct charge of the Group on a day-to-day basis and is accountable to the Board for the financial and operational performance of the Group.
The Chairman, Dr Trevor Nicholls, was appointed as Non-executive Director in August 2013 and became Chairman in January 2015. Prior to his appointment to the Board, he had no involvement with any part of the Avacta Group. Given the size of the Company, he has been considered to be independent since his appointment.
Dr Mike Owen was appointed as a Non-executive Director in September 2015 and the Board determines him to be independent of the executive management and free from any relationship that could materially affect the exercise of his independent judgement. Mike also chairs the Avacta Life Sciences Scientific Advisory Board, which comprises independent key opinion leaders who provide a challenging review of the ongoing therapeutic programmes and areas such as immuno-oncology target selection.
Dr Michael Albin was appointed as a Non-executive Director in February 2014, with his initial responsibility to provide an independent review to the Board of the Affimer technology developments. This role continues and from February 2017 the Board has sought to convert his fee for services as a Non-executive Director to a fixed amount consistent with other Non-executive Directors so this cannot be considered to impact what the Board consider to be his independent position.
Alan Aubrey was appointed as a Non-executive Director in August 2006. He is also the Chief Executive Officer of IP Group plc, a significant shareholder in the Company, which means that he cannot be considered as an independent non-executive. Alan’s vast experience of working with fast-growing technology companies is considered to add significantly to the Board.
Tony Gardiner was appointed as an Executive Director in January 2016 and fulfils the role of Chief Financial Officer for the Group. In addition to this role, Tony is also Company Secretary and provides advice and guidance to the Board and Non-executive Directors. The Board acknowledges that best corporate governance practice would not combine the role of an Executive Director and Company Secretary; however, given the relative size of the Group at this stage the Board is comfortable with Tony performing both roles but will review the position as the Group grows.
The Board met regularly throughout the year with ad hoc meetings also being held. The role of the Board is to provide leadership of the Company and to set strategic aims but within a framework of prudent and effective controls which enable risk to be managed to acceptable levels. The Board has agreed the Schedule of Matters reserved for its decision, which includes ensuring that the necessary financial and human resources are in place to meet its obligations to its shareholders and others. It also approves acquisitions and disposals of businesses, major capital expenditure, annual financial budgets and recommends interim and final dividends. It receives recommendations from the Audit Committee in relation to the appointment of auditors, their remuneration and the policy relating to non-audit services. The Board agrees the framework for Executive Directors’ remuneration with the Remuneration Committee and determines fees paid to Non-executive Directors. Given the relative size of the Company, there is currently no separate Nomination Committee and the Board, with advice from the Remuneration Committee, take responsibility for any recruitment of Executive and Non-executive Directors together with succession planning. Board papers are circulated before Board meetings in sufficient time to allow meaningful review and preparation by all Board members.
The performance of the Board is evaluated on an ongoing basis informally with reference to all aspects of its operation including, but not limited to: the appropriateness of its skill level; the way its meetings are conducted and administered (including the content of those meetings); the effectiveness of the various Committees; whether Corporate Governance issues are handled in a satisfactory manner; and, whether there is a clear strategy and objectives.
A new Director, on appointment, is briefed on the activities of the Company. Professional induction training is also given as appropriate. The Chairman briefs Non-executive Directors on issues arising at Board meetings if required and Non-executive Directors have access to the Chairman at any time. Ongoing training is provided as needed. Directors are continually updated on the Group’s business by means of Board presentations on insurance as well as issues covering pensions, social, ethical, environmental and health and safety.
In the furtherance of his duties or in relation to acts carried out by the Board or the Company, each Director has been informed that he is entitled to seek independent professional advice at the expense of the Company. The Company maintains appropriate cover under a Directors and Officers insurance policy in the event of legal action being taken against any Director.
Each Director is appraised through the normal appraisal process. The Chief Executive is appraised by the Chairman, the executive Board members by the Chief Executive and the non-executive Board members by the Chairman. The Senior Independent Director seeks the views of all the Directors on the performance of the Chairman and discusses their combined views with him. Each Director has access to the services of the Company Secretary if required.
The Non-executive Directors are considered by the Board to be independent of management and are free to exercise independence of judgement. The Non-executive Directors have never been employees of the Company nor do they participate in any of the Company’s pension schemes or bonus arrangements. They receive no remuneration from the Company other than the Directors’ fees.
The Audit Committee
The Audit Committee (‘the Committee’) is established by and is responsible to the Board. The terms of reference of the Audit Committee include the following responsibilities:
- To monitor and be satisfied with the truth and fairness of the Company’s financial statements before submission to the Board for approval, ensuring their compliance with the appropriate accounting standards, the law and the Listing Rules of the Financial Services Authority
- To monitor and review the effectiveness of the Company’s system of internal control
- To make recommendations to the Board in relation to the appointment of the external auditors and their remuneration, following appointment by the shareholders in general meeting, and to review and be satisfied with the auditors’ independence, objectivity and effectiveness on an ongoing basis
- To implement the policy relating to any non-audit services performed by the external auditors
Alan Aubrey is the Chair of the Committee. Whilst he is not considered an independent Non-executive Director by the nature of his position as Chief Executive Officer of IP Group plc, a significant shareholder in the Company, he is a Fellow of the Institute of Chartered Accountants in England and Wales and brings significant breadth of recent and relevant financial experience. The other members of the Committee, Trevor Nicholls, Michael Albin and Mike Owen, all of whom are Non-executive Directors, have gained wide experience in regulatory, commercial and risk issues.
The Committee is authorised by the Board to seek and obtain any information it requires from any officer or employee of the Company and to obtain external legal or other independent professional advice as is deemed necessary by it.
Meetings of the Committee are held once per year (usually during September) to coincide with the review of the scope of the external audit and observations arising from their work in relation to internal control and to review the financial statements. The external auditors are invited to these meetings and meet with the Audit Committee at least once a year. At its meeting, the Committee carries out a full review of the year-end financial statements and of the audit, using as a basis the Report to the Audit Committee prepared by the external auditors and taking into account any significant accounting policies, any changes to them and any significant estimates or judgements. Questions are asked of management of any significant or unusual transactions where the accounting treatment could be open to different interpretations.
The external auditors are required to give the Committee information about policies and processes for maintaining their independence and compliance regarding the rotation of audit partners and staff. The Committee considers all relationships between the external auditors and the Company to ensure that they do not compromise the auditors’ judgement or independence, particularly with the provision of non-audit services.
The Audit Committee considers that the Company’s relationship with the Group’s auditors is working well and the Committee remains satisfied with the effectiveness of the auditors. Accordingly, the Company does not consider it necessary to put the audit out to tender. There are no contractual obligations restricting the Company’s choice of external auditors.
Due to its size and structure, the Group does not have an internal audit function. This is a matter which the Committee reviews annually.
The Remuneration Committee
The Remuneration Committee is chaired by Trevor Nicholls and the other members of the Committee are Alan Aubrey, Michael Albin and Mike Owen, all of whom are Non-executive Directors. The Committee meets at least once a year with the Chief Executive in attendance as appropriate.
The terms of reference of the Remuneration Committee include the following responsibilities:
- To determine the framework and policy, together with the individual packages of the remuneration of the executive directors and certain other senior executives of the Group
- To determine targets for performance-related pay schemes
- To review employee benefit structures
- To produce an annual report of the Committee’s remuneration policy
Internal control and risk management
The Board is responsible for the Group’s system of internal controls and for reviewing its effectiveness. Such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives, and can only provide reasonable and not absolute assurance against material misstatement or loss.
The Group highlights potential financial and non-financial risks which may impact on the business as part of the risk management procedures. The Board receives these regular reports and monitors the position at Board meetings. There are ongoing processes for identifying, evaluating and mitigating the significant risks faced by the Group, which are reviewed on a regular basis. The review process involves a review of each area of the business to identify material risks and the controls in place to manage these risks. The process is undertaken by the Chief Financial Officer and senior managers with responsibility for specific controls. Where any significant weakness or failing is identified, implementation of appropriate remedial action is completed following approval by the Board.
Following the implementation of the Bribery Act 2010, the Board reviewed the Group’s policies and procedures to ensure that adequate procedures were in place should a person associated with the Company be accused of bribery. The Board now reviews its policies and procedures on a regular basis to ensure compliance and effectiveness.
The Group maintains appropriate insurance cover in respect of actions taken against the Directors because of their roles, as well as against material loss or claims against the Group. The insured values and type of cover are comprehensively reviewed on a periodic basis.
Share Dealing Code
The Company has adopted a code on dealings in relation to the securities of the Group. The Company requires the Directors and other relevant employees of the Group to comply with the Share Dealing Code and takes proper and reasonable steps to secure their compliance.
Corporate social responsibility
The Board recognises the importance of taking into account corporate social responsibility in operating the business and in particular the impact of its activities relating to health, safety and environmental issues.
The Group has well defined health and safety policies and procedures, complying with current legislation and safeguarding staff, contractors and visitors. Alastair Smith is the Executive Director responsible for health and safety, chairing quarterly Group meetings and reporting on health and safety matters to the Board. The Group’s policies and procedures form a part of staff induction and training programmes. Regular internal safety audits are carried out and no significant issues have been identified by these audits.