Statement from the independent non-executive directors
The non-executive directors of the Company, together with the executive directors and the company secretary, are committed to ensuring that the Board of the Company provides sound and effective leadership. The Corporate governance statement sets out the Company’s compliance with the UK Corporate Governance Code (“the Code”). The Board welcomes the clarity provided by the Code and the added emphasis on responsibility and accountability. However, as the statement about the role of the Board in the Corporate governance statement makes clear, the Board believes that good governance and effective leadership are about more than adherence to the Code or to any particular guidance. The members of the Board take very seriously their responsibilities to promote the success of the Company, whilst managing risk and demonstrating the high ethical standards and behaviours expected of everyone in the Company.
Following an initiative I commenced last year, the Audit Committee and the Board have given additional focus this year to the approach across the Group to the identification and management of risk. This has involved reviews at business, divisional and Group level, in addition to discussion at the Audit Committee and the Board, as to whether any existing processes relating to risk management within the Group could benefit from being refreshed. The Board, Audit Committee and executive management teams have also examined whether any lessons could be learned from recent external events which have had significant impact on other corporates and, indeed, on governments.
The steps taken to examine the risk management processes included an externally facilitated review with senior executive management to catalyse discussion of possible “blue-sky” risks. Separately, input was also sought from the Company’s external auditors. An additional meeting of the Board was held to consider the Group-wide risks identified in the review by the senior management team, including their probability, likely impact and mitigating controls. The Audit Committee approved a number of proposals for enhancements to the scope, programme and approach of the Internal Audit team. The conclusions of the Audit Committee and the Board to refine other aspects of existing risk management processes will shape a strengthened approach to risk management and review going forward.
In addition to the work on risk, each of the non-executive directors has been actively involved in the work of the other Board committees. As described in the statement from the non-executive directors in last year’s Annual Report, all the non-executive directors are members of all the principal Board Committees: Audit*, Nomination and Remuneration. This gives every non-executive director information about, and the opportunity to shape, various important areas, and informs the Board’s decision making.
This year during the Board’s visit to John Crane, Lutin in the Czech Republic, the Nomination Committee carried out a detailed review of talent management and succession planning across the Group, facilitated by the Group’s Human Resources Director and the Group’s Director of Talent Management and Reward. As part of the meetings in Lutin the Board also met to consider the strategy for the John Crane division (with the Group Managing Director of John Crane and a senior member of his management team) and for the Group as a whole. Following a recommendation from the Group Director of Strategy (who joined the Company in February), the Board agreed that going forward it will consider strategy for the five divisions on a “rolling basis” across the year, with the enhanced work on risk forming an integral part of the ongoing strategy review process. Group strategy will continue to be reviewed at least once a year.
Aside from the modified strategy process, the General Managers of each division already present to the Board on their businesses at least twice a year and attend additional Board meetings (often accompanied by senior members of their respective management teams) as required when a specific issue relating to a particular division is under consideration by the Board. Each Divisional General Manager also presents a detailed report to the Audit Committee once a year setting out the principal risks facing his division and the steps in place to manage those risks, and will continue to do this under the enhanced process for risk management review and reporting referred to above.
The independent non-executive directors are aware of, and keep in constant view, their accountability to the Company’s stakeholders, in particular the providers of the Company’s capital. As the Senior Independent Director, I regard myself as available to shareholders at any time. The non-executive directors are updated regularly on shareholders’ views. Following analyst or investor meetings, detailed briefings are provided to the Board, including feedback from those present. Analysts’ reports are also circulated to the non-executive directors throughout the year. The Board discusses points raised by investors and seeks the views of the Company’s brokers and other advisers on the market perception of the Company. Towards the end of the fiscal year 2011 an independent research agency was commissioned to carry out an investor perception study for the Company. The Board will consider the research agency’s findings in the autumn.
Shareholders can also provide feedback in relation to the individual performance of the directors at this year’s Annual General Meeting in November when all the directors will again be standing for re-election.
As set out in the Corporate governance statement, the directors also provide structured feedback on each other’s performance and the effectiveness of the Board and each of the Board Committees through the annual performance evaluation process. This year the evaluation has been conducted with the aid of an external, independent facilitator, Professor Goffee of the London Business School. Professor Goffee has worked with a large number of companies on Board evaluation and appraisal exercises, and thus brings with him expertise and a database of comparator information, which support the Board in benchmarking its own performance and understanding areas of improvement and best practice. As the Senior Independent Director, I lead the annual review of the Chairman’s performance on behalf of the other directors, which helps to inform the Chairman’s priorities and approach going forward.
The independent non-executive directors are satisfied that the Company’s corporate governance controls have been effective throughout the financial year ended 31 July 2011.
David Challen
Senior Independent Director
* The Chairman of the Company is not a member of the Audit Committee, in accordance with the Code (C.3.1) and the Terms of Reference of the Audit Committee, but is invited to attend meetings.