Corporate governance

Corporate governance involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders.

Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining and if necessary modifying those objectives, and determines the most appropriate standards for measuring and monitoring performance.

Good corporate governance should provide proper incentives for the board and management to pursue strategies that are in the best interests of the company and its shareholders, without undermining its ultimate integrity, objectivity and its high standards of operation.

At PFK we believe good corporate governance is essential to create trust and engagement between the company and investors to facilitate effective entrepreneurial and prudent management that can continue to deliver the sustainable long-term success of the Company.

This document therefore sets out the framework of our governance principles, policies and practices that add value to the business, help build its reputation and ensure its long-term continuity and success.

We uphold the fundamental principle that good corporate governance is particularly important to the shareholders as we believe that they are committed to supporting the company for the medium to long term.

In order to further enhance our corporate reputation the company is committed on a step basis to increasing transparency and accountability.

Listed below are PFK’s principles of governance which are presented on a dynamic phased approach, which takes into account the degree of openness, size and relative complexity given the nature and scale of the Company.

We firmly believe that a dynamic approach towards governance is essential, as this is only the first step of a process involving continuous and on-going review, enhancement and evolution.

These principles provide a governance roadmap for, shareholders, the board, management and other stakeholders as the development of the Company is planned over the corporate life cycle.

Policy 1: Composition of the Board

We will strive to establish the most effective board possible, which is collectively responsible for the long-term success of the company.

Key Practices

• The Board of Directors, which comprises both executive and non-executive roles, will provide the leadership of the Company and be the standard bearers of its ethos and principles.
• Directors must take decisions objectively in the best interests of the company as a whole and not be beholden to self-interested parties.
• All directors must have the highest standards of integrity, independence of mind, and possess diverse and complementary competences capable of delivering the long term and sustainable success of the company. They should be willing to challenge constructively without being divisive or self-serving.
• The board should not be so large as to be unwieldy, but should be large enough to allow for a variety of perspectives and promote an open dialogue. The balance of skills and experience should be appropriate for the requirements of the business. Changes to the board’s composition should be appropriately flexible and be manageable without undue disruption.
• The board will appoint a Chairman.
• The board will appoint a Managing Director to lead the management team, and exercise executive authority over the operation of the company.
• Appointments to the board should be made after careful examination against objective criteria.
• Care should be taken to ensure that non-executive directors have enough time available to devote to the job. This is particularly important in the case of the chairman.
• Non-executive directors should undertake that they will have sufficient time to meet what is expected of them. Their other significant commitments should be disclosed to the board before appointment and the board should be informed of subsequent changes.
• The board should satisfy itself that plans are in place for orderly succession for appointments to the board and to senior management, with the aim of maintaining an appropriate balance of skills and experience within the company and on the board.
• The period of appointment of directors should be considered against the need to attract and retain strong, experienced and knowledgeable board members. The board should balance the flexibility of open-ended appointments against the need to ensure planned and progressive refreshing of the board and its skills set at regular intervals.
• Non-executive directors may be appointed for a specified term (e.g. an initial mandate for three years, with the possible option to extend for further terms subject to shareholder approval). The maximum length of service for a non-executive director should be 12 years. Any decision to extend terms of service should balance the need for company-specific experience (which may take time to acquire) and the benefits of a progressive refreshing of the board. It should also be recognised that serving for many years on a board may affect external perceptions of a non-executive director’s independence.
• In accordance with the overriding principle of transparency, upon resignation, a non-executive director should provide a written statement to the chairman, for circulation to the board, if they have significant concerns about the running of the company.

Policy 2: Board Roles and Responsibilities, including the role of the Chairman

The primary role of the board is to set the company’s strategic objectives, and ensure that the necessary resources are in place for the company to meet its objectives in line with its wider strategy. 

Board members should be mindful of the clear distinction between executive and non-executive roles, and the difference between matters of strategy and governance and those of a purely operational nature, and set themselves clear boundaries. (For operational purposes, “management” shall be defined as executive directors and heads of department).

Key Practices

a. Overall Responsibilities of the Board

• The board is responsible for monitoring and evaluating the management performance of the executive team.
• The board will develop the strategic development process and approve its approach and programme of delivery.
• The board should set the company’s values and standards and ensure that its obligations to its shareholders and other stakeholders are understood and communicated to those parties by the most effective means possible.
• The board will ensure that the company complies with its articles of association as well as any relevant legal and regulatory requirements as well as adhering to the professional standards of its authorising body.
• The Board will oversee a formal schedule of matters specifically reserved for the board’s decision and specific roles for the chairman.
• The board will meet sufficiently regularly to discharge its duties, and be supplied in a timely manner with appropriate information.
• Regular consideration will be given to the appropriate organisation of board meetings.
• All directors will receive induction on joining the board.
• Where directors have concerns regarding the running of the company or proposed actions, these should either be raised at board meetings to ensure their concerns are aired and recorded in the board minutes as appropriate.

b. Specific responsibilities of the Non-Executive Directors

• Non-executive directors should constructively challenge and help develop proposals on strategy.
• Non-executive directors should monitor the performance of management.
• Non-executive directors should satisfy themselves as to the integrity of any financial information issued by the company, despite the collective responsibility of the whole of the board of directors and the company’s auditors. They should also ensure in confidential consultation with the company’s auditors that financial controls and systems of risk management are appropriately robust and defensible.
• Non-executive directors should assume primary responsibility for determining appropriate levels of remuneration of executive directors. They should also play a leading role in appointing, and where necessary removing, executives, and in succession planning.

c. A schedule of matters reserved for the board

• Definition of corporate goals, strategy, and structure.
• Responding to shareholders and third parties.
• Supervising and controlling company progress.
• Supervising the managing director.
• Approval of corporate plans.
• Approval of operating and capital budgets.
• Approval of major corporate actions (e.g. acquisitions, disposals, commencing or terminating of business activities).
• Approval of financial statements.
• Approval of borrowings together with the granting of security or other creditor guarantees over the assets of the company.
• Policy on external communications.
• Definition of authorities delegated to management (see below).
• Nomination and dismissal of the managing director and on his remuneration.
• Approving the nominations for appointment to the Board of Directors.
• Consulting with the managing director on matters relating to senior manager positions including appointments and terminations.

d. The role of the chairman

• The chairman is responsible for leadership of the board, ensuring its effectiveness on all aspects of its role and setting its agenda.
• The chairman should facilitate the effective contribution of non-executive directors and ensure constructive relations between all directors, including the availability of confidential meetings if required. The chairman may decide at any time to hold meetings with the non-executive directors without the executive directors present.
• The chairman is responsible for ensuring that the directors receive accurate, timely, and clear information.
• The chairman has responsibility for the effectiveness of communication between shareholders and the board.
• The chairman should be recognised as the primary means of ensuring that the views of shareholders are communicated to the board as a whole, supported by other members of the board as necessary.
• The chairman is to set the agenda of the Annual (and any Extraordinary) General Meetings.
• The chairman will ensure that the directors periodically update knowledge and familiarity with the company required to fulfil their role on the board.

Policy 3: Remuneration of the Board

Levels of remuneration should be sufficient to attract, retain, and motivate executive and non-executive members of the quality and professional stature required to run the company successfully.

Key practices

• Levels of remuneration for non-executive directors should reflect the time commitment and responsibilities of the role.
• The board should develop a formal executive remuneration policy and a transparent procedure for implementing the policy, e.g. in terms of fixing the remuneration packages of individual executive and non-executive directors.
• No one should be involved in deciding on his or her own remuneration.
• Boards should compare the remuneration of their executives and non-executives with that of other relevant comparable companies and that of principals in professional sectors.
• Executive remuneration should be designed to align their interests with those of shareholders and other key stakeholders, and give these executives incentives to perform at the highest levels.
• The board should consider the financial implications of early termination of executives’ terms of office including contractual notice periods and requests for periods of “garden leave”.

Policy 4: The role of Self Assessment

The board should undertake a periodic appraisal of its own performance and that of each individual director.

Key practices

• Appraisal techniques utilised by the board should consider both group and individual performance and will reflect the size and complexity of the company at the time. The chairman should also use the appraisal process to obtain feedback on the effectiveness their management of the board.
• Group appraisal should examine how the board operates as a collective decision-making body; individual appraisal should aim to show whether each director continues to contribute effectively and to demonstrate commitment to the role (including commitment of time).
• The chairman should act on the results of the appraisal by recognising the strengths and addressing the weaknesses of the board and, where appropriate, proposing new members be appointed to the board or seeking the resignation of directors.
• Attention should also be paid to the assessment of the collaboration with the executive management.

Overall Policy

There should be an open and transparent dialogue between the board and the shareholders based on a mutual understanding of objectives. The board as a whole takes a responsibility for ensuring that a satisfactory dialogue with shareholders takes place. The board are committed to treating all shareholders equally.

Key practices

• The board should keep in touch with shareholder opinion by the most practical methods.
• The relationship with the shareholders is viewed as a continuous process by both the management and executive and not limited to the annual general meeting.
• The board should present a balanced and understandable assessment of the company’s position and prospects for external stakeholders, and establish a suitable programme of stakeholder engagement.
• The board should publish an annual report that is tailored to the needs of its shareholders and its other stakeholders.
• The Board will support management to achieve the Company strategic objectives without encouraging short termism or the divulgence of short term decisions in so far as they are consistent with the Company’s strategic vision.

Overall Policies

The board is responsible for risk oversight and should maintain a sound system of internal & external controls both financial and otherwise, to safeguard shareholders’ investment and the company’s assets. 

The board will establish appropriate board committees to allow a more effective and transparent discharge of its duties, and ensure that the company’s committee structure should be updated and enhanced as appropriate and proportionate to its needs.

Key practices

• The board will conduct on-going reviews to identify the main risks facing the company and document those as appropriate (It should satisfy itself that all material risks are being appropriately managed and consult with external parties (such as its auditors) when the need arises.
• The board via its management team will assess all company operating procedures in accordance with general accepted internal control principles of authorisation, performance assessment and comparison, information technology security and controls, integrity and accuracy of financial information, management control and physical safeguards, and the protection of company assets.
• The board in consultation with the company’s auditors, should periodically assess the need to establish a formal internal control and risk management function within the company.
• The board should establish formal and transparent arrangements for applying financial reporting standards in accordance with Generally Accepted Accounting Practises (GAAP) and internal control principles, and for maintaining an appropriate relationship with the company’s auditors.

Policy for Board Committees

A key feature of delivery of the company’s principle of internal control and risk management strategy will be the appointment of appropriate committees.

In its present form, the board has established both a remuneration committee and audit committee. Other committees may be established if required in circumstances dictate.

The board should define the terms of reference to its committees, explaining their role and the advisory authority delegated to them by the board. (These terms of reference will be reviewed by the board on a periodic basis.)

The Committees will be provided with sufficient resources to undertake their duties non-executive directors playing a significant role in their constitution.

a. The role of the Audit Committee (made up of non-executive directors, with at least one individual having expertise in financial management).

• Liaison with external auditors.
• Oversight of internal controls in consultation with the auditors.
• Approval of financial statements and other significant documents prior to agreement by the full board.

b. The Role of the Remuneration Committee (made up entirely of non-executive directors)

• Formulate a remuneration policy that should have the aim of attracting and retaining appropriate talent, and for deciding the forms that remuneration should take.
• Maintain an awareness of competitive basic salaries being offered in comparable business in the area, and the availability of fringe benefits combined with any performance-related rewards such as bonuses linked to medium and long-term targets, LTIP’s, shares, share options and pension benefits.
• Be mindful that executive remuneration packages should be structured in a manner that will motivate the recipients to achieve the long-term objectives of the company and discourage any counter-productive actions to achieve short term gains.
• Be mindful of the need to attract and retain people of the right calibre, taking into account the availability of an appropriate skills base in conjunction with the recruitment challenges specific to the company’s geographical location.
• Set the specific levels of remuneration and benefits of the executive directors in office at the time.