This compliance piece is based on the Corporate Governance Report from the 2019 Annual Report (pages 38-43).
The board must be able to express a shared view of the company’s purpose, business model and strategy. It should go beyond the simple description of products and corporate structures and set out how the company intends to deliver shareholder value in the medium to long-term. It should demonstrate that the delivery of long-term growth is underpinned by a clear set of values aimed at protecting the company from unnecessary risk and securing its long-term future.
The Group’s business model is set out on page 10 with our strategy alongside on page 11. We believe this promotes long-term value for our shareholders as demonstrated by our five years’ financial performance (see page 110) and our key performance indicators on pages 12 to 13 which are shown for the last three years.
Our progressive dividend policy and share performance over the last five years are also indicators of long-term value for our shareholders with total shareholder return (shown here).
We also believe that remaining on AIM is of long-term value to our shareholders as it offers a combination of access to capital markets, flexibility to make acquisitions, incentives and rewards to management through share schemes, and a regulatory environment appropriate to the size of the Company.
Further disclosures required under QCA Principle 1 can be found below:
Directors must develop a good understanding of the needs and expectations of all elements of the company’s shareholder base.
The board must manage shareholders’ expectations and should seek to understand the motivations behind shareholder voting decisions.
Cohort places a great deal of importance on communication with all shareholders. The Company uses the Annual Report and Accounts, the AGM, the Interim Report, the website (www.cohortplc.com), social media, webcasts and email news alerts to provide information to shareholders. The Company also meets with its institutional shareholders and analysts and receives feedback from its institutional shareholders, via its Nomad, Investec, on a regular basis.
The primary points of contact with the shareholders are the Chairman, the Chief Executive and the Finance Director. Jeff Perrin, the Senior Independent Director, is available to all shareholders should they have any concerns which communication through the normal channels of Chairman, Chief Executive and Finance Director have failed to resolve, or for which contact through the normal channels would be inappropriate.
Contact details are located here.
The Company receives every year, just prior to its AGM, voting guidance reports from organisations such as the Association of British Pension Funds. These highlight any areas of concern and invite the Company to comment prior to publication.
In the recent past, these concerns have been in respect of:
- length of service of independent Non-executive Directors (see explanation under QCA Principle 5);
- membership of Board Committees (see explanation under QCA Principle 9); and
- executive remuneration, specifically no performance conditions applying to the exercise of share options (see Remuneration & Appointments Committee Report).
Not all of these involve non-compliance with the Code, but we have addressed them all and either introduced changes or explained in this year’s Annual Report and Accounts why we do not think it is in our shareholders’ interests to do so at this time.
Long-term success relies upon good relations with a range of different stakeholder groups both internal (workforce) and external (suppliers, customers, regulators and others). The board needs to identify the company’s stakeholders and understand their needs, interests and expectations.
Where matters that relate to the company’s impact on society, the communities within which it operates or the environment have the potential to affect the company’s ability to deliver shareholder value over the medium to long-term, then those matters must be integrated into the company’s strategy and business model.
Feedback is an essential part of all control mechanisms. Systems need to be in place to solicit, consider and act on feedback from all stakeholder groups.
Stakeholders other than shareholders include our employees, customers, partners, suppliers and neighbours.
Our employees (pages 34 and 35) are the key to our success. We are not a capital intensive business but depend upon the skills, capabilities and flexibility of our employees, and our business model depends upon us being agile and responsive.
The Group has formal arrangements in place to facilitate whistle-blowing by employees through a contract with a third-party service provider (shown here). If any call is made to this third party, either the Chief Executive or the Senior Independent Director are notified promptly of the fact and the content of the call, so that appropriate action can be taken.
Our customers and suppliers are in many instances long-term partners and an important part of our culture is to establish and maintain relationships of trust.
The board needs to ensure that the company’s risk management framework identifies and addresses all relevant risks in order to execute and deliver strategy; companies need to consider their extended business, including the company’s supply chain, from key suppliers to end-customer.
Setting strategy includes determining the extent of exposure to the identified risks that the company is able to bear and willing to take (risk tolerance and risk appetite).
The Board has overall responsibility for the system of internal control and for reviewing its effectiveness in managing the risks we face. Such systems are designed to manage rather than eliminate risks and can provide only reasonable and not absolute assurance against material misstatement or loss. Each year, on behalf of the Board, the Audit Committee reviews the effectiveness of these systems. This is achieved primarily by considering the risks potentially affecting the Group and from discussions with the external auditor.
The Audit Committee, on behalf of the Board, reviews the risk environment faced by the Group on a regular basis and how the Group manages and mitigates these risks. The key risks of the Group are presented on pages 46 to 51.
The Board is not aware of any significant failings or weaknesses in the system of internal control.
On the recommendation of the Audit Committee, the Board has determined that an internal audit function is not required due to the relatively small size of Cohort and the high level of Director review and authorisation of transactions. The Board will keep this matter under review as the Group develops.
The board members have a collective responsibility and legal obligation to promote the interests of the company, and are collectively responsible for defining corporate governance arrangements. Ultimate responsibility for the quality of, and approach to, corporate governance lies with the chair of the board.
The board (and any committees) should be provided with high quality information in a timely manner to facilitate proper assessment of the matters requiring a decision or insight.
The board should have an appropriate balance between executive and non-executive directors and should have at least two independent non-executive directors. Independence is a board judgement.
The board should be supported by committees (e.g. audit, remuneration, nomination) that have the necessary skills and knowledge to discharge their duties and responsibilities effectively.
Directors must commit the time necessary to fulfil their roles.
The Board of Cohort plc is highly experienced in the defence market. Through the operation of the Board and the Group Executive, which comprises the subsidiary Managing Directors and the Cohort plc Executive Directors, the Board is able to monitor the business and respond in a timely manner to issues and opportunities as and when they arise.
As at 30 April 2019, the Board of Directors comprised of the Chairman, two Executive Directors, Andrew Thomis and Simon Walther, and three Non-executive Directors, Stanley Carter, Jeff Perrin and Sir Robert Walmsley. Ed Lowe joined the Board as a Non-executive Director on 1 July 2019.
The Board considers that Jeff Perrin and Ed Lowe are independent.
All Directors retire by rotation and are subject to election by shareholders at least once every three years. Any Non-executive Directors who are considered by the Board to be independent but who have served on the Board for at least nine years or in conjunction with an Executive Director for nine years or more, will be subject to annual re-election.
The board must have an appropriate balance of sector, financial and public markets skills and experience, as well as an appropriate balance of personal qualities and capabilities.
The board should understand and challenge its own diversity, including gender balance, as part of its composition. The board should not be dominated by one person or a group of people. Strong personal bonds can be important but can also divide a board.
As companies evolve, the mix of skills and experience required on the board will change, and board composition will need to evolve to reflect this change.
The Board has a broad range of skills, with particularly deep experience in the defence sector. The balance of skills and experience of the Board is summarised here.
The Board biographies (page 36) give an indication of the breadth of skills and experience. Each member of the Board takes responsibility for maintaining his skill set, which includes roles and experience with other boards and organisations as well as formal training and seminars. We also commission tailored executive coaching for our senior executives from time to time.
We are aware that a Board comprising seven men and no women does not reflect current views of best practice and carries some risks in terms of the breadth of capability and views brought to the table. An issue in the defence industrial sector is that, for a variety of reasons, there are not many women in senior positions and our policy so far has been to appoint Board members who have, alongside their other skills, defence experience. We continue to keep the issue under review.
The board should regularly review the effectiveness of its performance as a unit, as well as that of its committees and the individual directors.
The board performance review may be carried out internally or, ideally, externally facilitated from time to time. The review should identify development or mentoring needs of individual directors or the wider senior management team.
It is healthy for membership of the board to be periodically refreshed. Succession planning is a vital task for boards. No member of the board should become indispensable.
The Board undertook a formal evaluation of its performance in 2017 and conducts such reviews as and when they are necessary. After considering different alternatives the Board made the decision to undertake the evaluation internally, using a process led by the Chairman.
The evaluation criteria used assessed the effectiveness of the Board through the analysis of the following key areas which included, the composition of the Board, Board processes, Board direction of the Company and the interests of stakeholders. The evaluation involved both a numeric and discursive self-assessment by each Board member, in response to a questionnaire, on the role and functioning of the Board and its members and Committees. The results of the review were broadly satisfactory but a number of actions emerged from it, as follows:
- A comprehensive review of the legal and regulatory environment applying to Cohort, intended to ensure that our policies and procedures address comprehensively these obligations.
- Following on from this, the production of an internal Company manual codifying all our policies and procedures, known as the Cohort plc Corporate Governance Handbook.
- An expanded review of the Group’s business risks and mitigations, led by the Audit Committee Chairman.
- A programme to ensure a good level of contact between the Board, and Non-executive Directors in particular, and subsidiaries through visits and meetings with subsidiary Managing Directors.
Board succession planning is a matter for the Remuneration & Appointments Committee who identify any suitable internal candidates and consider any relevant recommendations from appropriate external advisers.
The board should embody and promote a corporate culture that is based on sound ethical values and behaviours and use it as an asset and a source of competitive advantage.
The policy set by the board should be visible in the actions and decisions of the chief executive and the rest of the management team. Corporate values should guide the objectives and strategy of the company.
The culture should be visible in every aspect of the business, including recruitment, nominations, training and engagement. The performance and reward system should endorse the desired ethical behaviours across all levels of the company.
The corporate culture should be recognisable throughout the disclosures in the annual report, website and any other statements issued by the company.
The Group has a strong ethical culture, supported by our ethical policy as published on our website (www.cohortplc.com). We see a company as a social unit with an economic output and the success of our social unit depends on the values of honesty, trust, loyalty and working together, with a healthy balance of competition and cooperation, just as in any other unit of society. We try to run our businesses this way.
The Board, through the Group Executive, undertakes regular reviews and audits in certain specific areas of risk, namely:
The Group has an anti-bribery policy and each of its businesses has implemented that policy and adequate procedures described by the Bribery Act 2010 (the Act) to prevent bribery. Each business within the Group reports annually to the Board on its compliance with the policy and procedures. The Cohort Chief Executive is the Board member responsible for the Group’s compliance. As part of its procedures, the Group has implemented training in respect of compliance with the Act for its employees.
The Group’s anti-bribery policy is reviewed at least every two years or more often if necessary. The policy was last reviewed and updated in April 2019.
The Group introduced, in January 2019, a new Information Security Policy (ISP), replacing its previous Security Policy Framework.
The ISP encompasses our responsibilities in respect of the General Data Protection Regulation (GDPR) and other non-personal information we handle.
The ISP covers the physical and cyber security of our information including that held on behalf of third parties. It also addresses business continuity and disaster recovery procedures.
Each business within the Group reports annually to the Board on its compliance with the ISP and this compliance is audited by an internal team of information assurance and cyber experts from MASS. MASS’s own ISP is audited externally. Audits for the year ended 30 April 2019 were undertaken in May 2019.
The Group’s ISP is frequently reviewed, taking account of best practice and requirements in government and industry.
The Group has an anti-slavery policy to address the aspects of modern slavery as set out in the Modern Slavery Act 2015 (the MSA). In accordance with the requirements of the MSA, the Group and each UK member of the Group have published a statement on their respective websites setting out the steps the Group and they have taken to ensure that slavery and human trafficking are not taking place in their respective businesses and supply chains. The Group’s Portuguese subsidiary, EID, has in place an anti-slavery policy which is aligned with the Group’s policy.
The Group’s anti-slavery policy was first adopted in April 2016 and will be reviewed at least every two years or more often as necessary.
Our modern slavery statement and details regarding its preparation can be found here.
The company should maintain governance structures and processes in line with its corporate culture and appropriate to its:
- size and complexity; and
- capacity, appetite and tolerance for risk.
The governance structures should evolve over time in parallel with its objectives, strategy and business model to reflect the development of the company.
The Board discharges its duties through the following management structure:
The Cohort Board meets at least seven times per calendar year, in addition to business and strategic reviews which are not recorded as formal Board meetings. The Board also holds regular ad hoc discussions to consider particular issues. We aim as a Board to visit each of the subsidiaries at least once a year. The Chairman and the individual Non-executive Directors also make visits to keep up to date with business issues at the subsidiaries. This is important in a decentralised group like Cohort. The Chairman and the Non-executive Directors meet at least once a year without the Executive Directors present.
The Board receives a monthly Board pack comprising individual reports from each of the Executive Directors and the subsidiary Managing Directors, together with any other material necessary for the Board to hold fully informed discussions to discharge its duties, including the review of Company strategy to ensure this aligns with creating shareholder value. It is the Board’s responsibility to formulate, review and approve the Group’s strategy, budgets, major items of expenditure and commitment, major contract bids, acquisitions and disposals. A full schedule of the matters reserved for the Board can be viewed here.
The Group Executive Committee meets at least four times per calendar year, comprising Cohort Executive Directors and subsidiary Managing Directors.
There are monthly Executive Management meetings involving the senior management of each subsidiary. Cohort Executive Directors attend subsidiary Executive Management meetings on a regular basis. The Non-executive Directors and the Chairman occasionally attend subsidiary Executive Management meetings.
The Board has also established two committees, namely:
- The Audit Committee – ToR
The Audit Committee consists of two independent Non-Executive Directors, Jeff Perrin (Chair) and Edward Lowe, in accordance with the Code. The Audit Committee’s role is set out within the Audit Committee Report on page 44.
- The Remuneration & Appointments Committee – ToR
The Remuneration Committee has two Independent Non-executive Directors as members, one serving as Chairman. Nevertheless, the composition of the Remuneration & Appointments Committee is not in accordance with the Code, which requires that only independent Non-executive Directors should sit on it. Cohort is not a large company and we want to make the best use of the skills we have. Both Stanley Carter and Nick Prest have considerable experience in dealing with remuneration matters, as well as substantial shareholdings in the Company, and the collective view of the Board is that the present composition of the Committee benefits the Company and its shareholders.
A healthy dialogue should exist between the board and all of its stakeholders, including shareholders, to enable all interested parties to come to informed decisions about the company.
In particular, appropriate communication and reporting structures should exist between the board and all constituent parts of its shareholder base. This will assist:
- the communication of shareholders’ views to the board; and
- the shareholders’ understanding of the unique circumstances and constraints faced by the company.
The Board communicates how the Company is governed and how it is performing by maintaining a dialogue with shareholders and other stakeholders through the mechanisms described on pages 39 to 40.
The Company uses the Annual Report and Accounts, the AGM, the Interim Report, the website (www.cohortplc.com), social media, webcasts and email news alerts to provide information to shareholders. The Company also meets with its institutional shareholders and analysts and receives feedback from its institutional shareholders, via its Nomad, Investec, on a regular basis.
Further disclosures required under QCA Principle 10 can be found below: