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The Board promotes the highest standards of corporate governance within the Company through its support and application of the Principles of Good Governance set out in section 1 of the Combined Code. A summary of the Company’s system of applying the principles and the manner in which the provisions in section 1 have been complied with are set out below. Section 1 of the Combined Code sets out the main and supporting Principles of Good Governance for companies which are split into the following areas:
Each of these areas is addressed in turn.
1. Directors
A. The Board
The Company is controlled through its Board of Directors whose main roles are to:
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create value for shareholders; |
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provide leadership of the Company; |
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approve the Company’s strategic objectives; |
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ensure that the necessary financial and other resources are made available to management to enable them to meet those objectives; and |
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operate within a framework of effective controls which enables the assessment and management of principal business risks. |
The Board, which has reserved certain specific matters to itself for decision that are set out in a schedule of reserved matters, is responsible for approving overall Group strategy and financial policy, acquisition and divestment policy and major capital expenditure projects. It also appoints and removes members of the Board and Board Committees, reviews recommendations of the Audit Committee, Remuneration Committee and Nomination Committee, and the appointment of the independent auditors. It also reviews the financial performance and operation of each of the Company’s businesses. The Company has granted qualifying third-party indemnities to the Directors that remain in force at the time of this report.
The Board sets the standards and values of the Company and much of this has been embodied in the Company’s Code of Conduct and Ethics and Human Rights Policy which can be found on the Company’s website. The Code of Conduct and Ethics applies to all Directors, officers and employees, including the principal executive, financial and accounting officers, as required by section 406 of Sarbanes-Oxley, the related rules of the SEC and the rules of the NYSE. The Code of Conduct and Ethics contains provisions (Reporting of Violations) under which employees can report violations of Company policy or any applicable law, rule or regulation, including those of the SEC. US employees have the added protection of section 806 of Sarbanes-Oxley, which prohibits the discrimination by a company or others against an employee where such violations are reported. The current procedure, which is set out in Tomkins’ Code of Conduct and Ethics, provides for information to be given anonymously or by named employees under conditions of confidentiality. Those employees who come forward and give their name are assured that they will receive the full protection of section 806 of Sarbanes-Oxley and no retaliation will take place. This is of particular importance since 46% of the Company’s employees are based in the US. Furthermore, the Company ensures that the principles are applied in other jurisdictions, subject to compliance with local employment and other laws.
The Board has delegated to the Chief Executive responsibility for the day-to-day management of the Group subject to certain financial limits above which Board approval is required. The delegated authority includes such matters as operations, acquisitions and divestitures, investments, capital expenditure, borrowing facilities and foreign currency transactions.
The Board comprises a Non-Executive Chairman, four additional Non-Executive Directors and two Executive Directors who, together with their different financial, commercial, technical and operational expertise and cultures, bring with them a wide range of experience to the Company.
The Board has determined that the Non-Executive Directors, Richard Gillingwater, John McDonough, David Richardson and Struan Robertson, are independent, as they are independent of the Company’s executive management and free from any material business or other relationship with the Company (either directly or as a partner, shareholder or officer of an organisation that has a relationship with the Company). Accordingly, the Board believes that there are no such relationships that could materially interfere with the exercise of its independent judgement.
Non-Executive Directors are normally appointed for a minimum period of two years which is subject to approval by shareholders at the AGM and the appointments are renewable by agreement with the Board. The terms and conditions of appointment of Non-Executive Directors are available for inspection at the Company’s registered office during normal business hours on weekdays and will also be available for inspection at the place of the AGM from 15 minutes before the meeting until it ends. The Combined Code recommends the appointment of a senior independent Non-Executive Director, and Richard Gillingwater fulfilled this role in 2009. The roles of Non-Executive Directors are to:
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scrutinise the performance of management in meeting the agreed objectives; |
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help develop proposals on strategy; and |
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monitor the reporting of performance, including satisfying themselves as to the integrity of financial information and that financial controls and systems of risk management put in place by the Company are robust and effective. |
They meet together from time to time in the absence of management and the Chairman normally presides over such meetings.
On appointment, Non-Executive Directors receive a range of information about the Company by way of an induction programme which aims to provide an understanding of the Company as a whole, including its strategy, structure, geographic spread of operations, financial position, markets, products, technologies and people, as well as their legal responsibilities as Directors and, where appropriate, any training that is necessary for them to carry out their duties effectively. The Board and its committees receive, in a timely manner, detailed information concerning the matters to be discussed at meetings to enable them to make informed decisions. The Directors have access to the advice and services of the Company Secretary (whose removal may be effected only with the approval of the Board) and can obtain independent professional advice at the Company’s expense in furtherance of their duties, if required.
The Board ordinarily meets not less than five times a year and will hold additional meetings when circumstances require. During the year ended 2 January 2010, the Board met on five occasions. Between meetings, the Chairman and Chief Executive update the Non-Executive Directors on current matters and there is frequent contact to progress the affairs of the Company. With the encouragement of the Chief Executive, the Non-Executive Directors have regular contact with senior management through their presentations at Board meetings, at strategic reviews and on other occasions.
Attendance by each individual Director at Board and principal committee meetings held during 2009
| Meetings held in 2009 |
Board
5 |
Audit
Committee
4 |
Remuneration
Committee
5 |
Nomination
Committee
2 |
Corporate Social
Responsibility
Committee
4 |
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| Meetings attended: |
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| David Newlands |
5 |
n/a |
5 |
2 |
n/a |
| Richard Gillingwater |
4 |
3 |
4 |
2 |
n/a |
| John McDonough |
5 |
4 |
5 |
2 |
4 |
| James Nicol |
5 |
n/a |
n/a |
n/a |
4 |
| Leo Quinn |
4 |
3 |
4 |
1 |
n/a |
| David Richardson |
4 |
4 |
n/a |
2 |
n/a |
| Struan Robertson |
5 |
n/a |
n/a |
2 |
4 |
| John Zimmerman |
5 |
n/a |
n/a |
n/a |
n/a |
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| n/a – not applicable (where a Director is not a member of a committee) |
All of the Directors listed above served throughout the year with the exception of Leo Quinn who resigned as a Director on 3 November 2009. During the year, other Directors have, by invitation, attended meetings of committees of which they were not a member and these details are not included in the table above. On the rare occasion when a Director cannot attend a meeting, he will normally make his views on the agenda items known prior to the meeting to the Chairman or, in respect of committee meetings, to the Chairman of the respective committee.
At the Company’s forthcoming AGM, and in accordance with the Company’s Articles of Association, David Newlands will retire from the Board by virtue of length of service and will seek reappointment.
B. Chairman and Chief Executive
There is a clear division of responsibility between the Chairman and the Chief Executive, with neither having unfettered powers of decision with respect to substantial matters. The Chairman is responsible for running the Board and ensures that all Directors receive sufficient relevant information on financial, business and corporate matters to enable them to participate effectively in Board decisions. In advance of each meeting, the Board is provided with comprehensive briefing papers on items under consideration.
The Chairman, David Newlands, is also Chairman of KESA Electricals plc and PayPoint plc. Whilst these are important appointments, the Board believes that the Chairman continues to be able to carry out his duties and responsibilities effectively for the Company. In view of this, as set out in the Remuneration Committee report, the Board renewed David Newlands’ letter of appointment for a further three years from 18 February 2009. This was felt to be appropriate in order to take advantage of his knowledge of the Company, his experience of earlier recessions, his experience in chairing Tomkins when faced with a period of unprecedented economic turmoil and finally his guidance in relation to the refinancing of the Company’s banking facilities.
The Chief Executive’s primary role is the running of the Company’s businesses and the development and implementation of strategy. The Non-Executive Directors have the opportunity to meet with the Chairman and with the Chief Executive periodically, either together or separately, to consider and discuss a wide range of matters affecting the Company, its business, strategy and other matters.
C. Board Committees
The Board has established a number of committees and receives reports of their proceedings. Each committee has its own delegated authority as defined in its terms of reference which are reviewed periodically by the Board. The Board is satisfied that its committees have written terms of reference which conform with best corporate governance practice. The terms of reference for all Board committees can be found under ‘Governance’ in the ‘Responsibilities’ area of the Company’s website, or a copy can be obtained by application to the Company Secretary at the Company’s registered office.
The Board appoints the chairmen and members of all Board committees upon the recommendation of the Nomination Committee. The Company Secretary is secretary to all Board committees. The committees, their membership and a brief description of their duties are set out below.
Directors’ membership of committees
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Audit |
Nomination |
Remuneration |
Corporate
Social
Responsibility |
Disclosure |
General
Purposes |
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| David Newlands |
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C |
M |
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C |
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| James Nicol |
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M |
M |
C |
| John Zimmerman |
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M |
M |
| Richard Gillingwater |
M |
M |
M |
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| John McDonough |
M |
M |
C |
M |
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| David Richardson |
C |
M |
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| Struan Robertson |
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M |
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C |
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Audit Committee
Details of the Audit Committee and its work can be found in the Audit Committee report.
Nomination Committee
The Nomination Committee makes recommendations to the Board on all proposed appointments of Directors through a formal and transparent procedure. The Committee meets as and when required.
In accordance with the Company’s Articles of Association, Directors are subject to reappointment at the AGM immediately following the date of their appointment. Thereafter they have to seek reappointment no later than the third AGM following their previous reappointment. The Nomination Committee is required to consider new appointees and examine any possible sources of potential conflict. The Committee and the Board are aware of and support the principles set out in section A.4 of the Combined Code relating to appointments to the Board.
Corporate Social Responsibility Committee
The Corporate Social Responsibility Committee meets at least three times a year. The Committee is chaired by an independent Non-Executive Director and its membership also includes the Chief Executive. Its principal role is to determine, on behalf of the Board, the framework or broad policy and objectives on CSR and, in particular, in the areas of health, safety and the environment and propose any amendments to existing policies for approval by the Board. It also reviews management’s performance in the achievement of HSE objectives and reviews HSE reports produced by business units for compliance with all local health, safety and environmental codes of practice, legislation and relevant industry practice.
More details of the work of the Corporate Social Responsibility Committee can be found in the Corporate Responsibility Report to shareholders available on the Company’s website.
Remuneration Committee
Details of the Remuneration Committee and its work can be found in the Remuneration Committee report.
Disclosure Committee
The Disclosure Committee meets as and when required for the purpose of, inter alia, reviewing and approving for release all price-sensitive information relating to the Company and compliance with the Disclosure and Transparency Rules of the UKLA and disclosure obligations under SEC rules.
General Purposes Committee
The General Purposes Committee meets as and when required. It comprises Executive Directors and deals principally with day-to-day matters of a routine nature and matters delegated to it by the Board.
D. Board, Committee and Chairman evaluations
Under the direction of the Senior Independent Director, Richard Gillingwater, evaluations of the effectiveness of the Board, its Committees and Chairman were conducted during the year. The evaluation processes drew on the experiences of the previous evaluations of the Board and its Committees.
Board
The positive aspects of the Board included a Chairman and Chief Executive who worked well together and whose skills were complementary. Areas of strength included the consideration, assessment of and compliance with, good Corporate Governance. An area targeted for future improvement was an appropriate level of updating and involvement outside formal meetings.
Progress against the 2008 suggestions for improvement
Following discussions on senior management succession planning and talent development across the Company, good progress had been made, and it is now going to be embedded in an annual Board meeting to deal solely with these issues. In addition to this meeting, another Board meeting has been scheduled in 2010 to deal with matters falling outside the usual quarterly reporting or strategy meetings.
The call for more time for longer-term objectives and planning was addressed at the 2009 Strategy meeting which was regarded as the most comprehensive yet, and it was felt that as a result, the Company had been very well focused on surviving the downturn. Last year’s suggestion of the provision of more location visits in order to improve non-executive understanding had been delayed by cost and travel constraints but two site visits have been arranged in 2010 to deal with this.
Committees
In general the committees were judged to be working well and working under clear terms of reference. The Audit Committee had active member contribution and proactivity on the part of the responsible executives for key issues and scored highly on actively engaging with the external auditors and demonstrating an appropriate degree of involvement in the work of internal audit and its findings and its relationship with the external auditors.
Positive aspects of the Remuneration Committee included giving its members prior notice of major remuneration developments and the provision of access to resources, including independent professional advice. It was noted that the Board and Remuneration Committee were much more involved in understanding and reviewing Executive and management’s personal objectives, performance and compensation.
Positive aspects of the CSR Committee included the promotion of constructive debate with appropriate involvement outside formal meetings. Tomkins was felt to be a leading plc on CSR.
Miscellaneous suggestions in relation to all Committees included a recommendation that the Board and Committees should specifically review the quality and content of papers and supporting processes at least annually and also conduct an effective review of the respective Terms of Reference annually.
Chairman
Feedback identified areas of strength, such as encouraging shareholder participation at the AGM and the Chairman’s ability to work with the Chief Executive, both of which received maximum scores. The Chairman’s market understanding and grasp of internal Company matters received favourable comments and it was felt that he provided good counsel and advice to the Group, especially during the downturn.
Finally, the Senior Independent Director discussed the Chairman’s performance with the Non-Executive Directors and with the Chairman.
2. Remuneration
See the Remuneration Committee report.
3. Accountability and audit
A. Financial reporting
In the Directors’ Report, the Board seeks to provide a detailed understanding of each business of the Group, together with a balanced and understandable assessment of the Group’s position and prospects.
B. Internal control
Further information on the internal control environment within which the Group operates may be found in the Directors’ statement in internal control.
C. ‘Whistleblower’ reporting procedures
Under section 301 of Sarbanes-Oxley, all SEC-registered companies, including non-US companies such as Tomkins, acting through the Audit Committee of the Board, must provide a procedure for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal controls or auditing matters. The Audit Committee and the Board have established a procedure for the confidential and anonymous submission by employees of concerns regarding these matters.
4. Shareholder relations
The Company places a high degree of importance on maintaining good relationships and communications with both institutional and private investors and ensures that shareholders are kept informed of significant Company developments.
To assist members of the Board to gain an understanding of the views of institutional shareholders, at each of its meetings the Board receives an Investor Relations Report which covers a wide range of matters including a commentary on the perception of the Company and views expressed by the investment community, media reports, share price performance and analysis. Analysts’ reports and estimates are also made available to all Directors. The announcement of interim management statements, half-year and full-year results provides opportunities for the Company to answer questions from institutional shareholders covering a wide range of topics. The Chairman, Chief Executive, Finance Director and Investor Relations staff hold an ongoing dialogue with institutional shareholders to ensure the mutual understanding of objectives. The Chief Executive and other senior executives participate in industry conferences which are attended by existing and potential shareholders. The Company exercises care to ensure that all price-sensitive information is released to all shareholders at the same time, as required by the Listing Rules of the UKLA and consistent with the SEC Regulation FD in the US.
The Company’s website provides shareholders and potential investors with information about the Company, including annual and half-yearly reports, recent announcements, investor presentations, share price information, Group policies, corporate responsibility and governance matters. Shareholders are also able to put questions to the Company via its website.
Shareholders also have the opportunity to attend the AGM to put questions to the Board. Full details of the 2010 AGM are contained in the Notice of Meeting. It is the Company’s practice to send the Notice of Meeting and related papers to shareholders at least 20 working days before the AGM and to propose separate resolutions on each substantially separate issue.
The Board notes that section 2 of the Combined Code seeks to encourage more active participation by institutional shareholders, including entering into a dialogue with companies and making considered use of their votes – principles which the Company supports.
Substantial shareholdings
Voting rights notified under the Disclosure and Transparency Rules of the UKLA at 26 February 2010 are set out in the table below.
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Number
of shares |
Voting rights
% of total |
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| Schroders plc |
87,374,018 |
9.90 |
| BlackRock, Inc. |
45,533,620 |
5.16 |
| Massachusetts Financial Services Company |
44,391,657 |
5.03 |
| Sprucegrove Investment Management Limited |
43,969,223 |
4.98 |
| Invesco Ltd (through AiM Trimark, Powershares etc.) |
43,431,651 |
4.92 |
| Aberdeen Asset Management PLC |
42,965,662 |
4.87 |
| Legal & General Group plc |
35,075,908 |
3.97 |
| Norges Bank |
27,500,712 |
3.12 |
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Shareholder rights
The Company’s issued share capital is comprised of ordinary shares of 9 cents each. Ordinary shareholders have no entitlement to share in the profits of the Company, except for dividends that have been declared and in the event of the liquidation of the Company. Ordinary shareholders have the right to attend, and vote at, general meetings of the Company or to appoint a proxy to attend and vote at such meetings on their behalf. On a poll, ordinary shareholders have one vote for every share held.
Details of the Company’s share capital, including rights and obligations, are set out in note 38 to the consolidated financial statements and details of purchases of its own shares are set out in Shareholder information.
The Company’s authorised share capital previously included deferred shares of £1 each. When the Company redenominated its ordinary shares from sterling to US dollars, it was required by law to have a minimum share capital of £50,000 denominated in sterling. The deferred shares were issued to meet this requirement, which was removed on the implementation of section 542 of the Companies Act 2006 on 1 October 2009. Accordingly, the Company bought back and cancelled the deferred shares on 16 December 2009. The deferred shares were not listed on any investment exchange and had extremely limited rights such that they effectively had no value.
Significant agreements and change of control
The Group has issued bonds totalling £400 million. The terms of the bonds entitle the holders to require redemption where there is a change of control of the Company combined with a ratings downgrade. In addition, under the Group’s £400 million credit facility and under the $450 million credit facility that will replace it in August 2010, the lenders are entitled, on a change of control, to require prepayment of amounts outstanding.
Compliance statement
Except where indicated in relation to the Company’s share schemes, the Company complied throughout the year ended 2 January 2010 with all the provisions set out in section 1 of the Combined Code. The internal control report and certifications of the Chief Executive and Finance Director required under sections 302 and 906 of Sarbanes-Oxley, and the related rules of the SEC, will be filed as exhibits to the Company’s Form 20-F. Pursuant to section 303A of the listing standards of the NYSE, the Foreign Private Issuer Annual Written Affirmation was sent to the NYSE in June 2009, affirming without qualification that Tomkins has complied with the requirements laid down by the NYSE with such exceptions as are permitted for Foreign Private Issuers, as described below. A general summary of the significant ways in which the Company’s corporate governance differs from that followed by domestic US companies under the NYSE’s listing standards, as required by section 303A.11 is as follows:
Compensation of the Chief Executive
Under section 303A.05(b), the compensation committee must have a written charter that addresses the committee’s purpose and responsibilities which, inter alia, has responsibility to ”review and approve corporate goals and objectives relevant to Chief Executive compensation, evaluate the Chief Executive’s performance in light of those goals and objectives, and, either as a committee or together with the other independent directors (as directed by the board), determine and approve the Chief Executive’s compensation level based on this evaluation.”
The Remuneration Committee of Tomkins has been delegated by the Board the authority to ”…review and determine the total individual remuneration packages of each Executive Director for approval by the Board.”
Re-appointment of independent auditors
The Company’s practice, in accordance with UK company law and the Combined Code in relation to the appointment and termination of the independent auditors, is that a recommendation is made by the Audit Committee to the Board, which will then make a recommendation to shareholders in general meeting. This differs from the procedure in the US, where the independent auditors are accountable to the audit committee, which has the authority to appoint or dismiss the independent auditors without reference to shareholders.
Corporate governance guidelines
Under NYSE rules, a listed company should have a nomination/corporate governance committee whose responsibility includes developing and recommending corporate governance guidelines to the Board and to oversee the evaluation of the Board and management.
It is not the Company’s practice for the Nomination Committee to have responsibility for developing corporate governance principles, this being a matter for the entire Board. This is a common approach amongst UK listed companies. The evaluation of the Board, its Committees and Directors, is overseen by the Senior Independent Director. |
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