Corporate Governance Statement
13th September 2018
The directors recognise the importance of sound corporate governance. As a company whose shares are traded on AIM, the Board has concluded that it will seek to comply with the Quoted Companies Alliance Corporate Governance Code (the QCA Code”). In addition, the directors have adopted a code of conduct for dealings in the shares of the Company by directors and employees and are committed to maintaining high standards of corporate governance. Jonathan Freeman, in his capacity of non-executive director, has assumed responsibility for ensuring that the Group has appropriate corporate governance standards in place and that these requirements are followed and applied within the Group as a whole. The corporate governance arrangements that the Board has adopted are designed to ensure that the Group delivers long term value to its shareholders and that shareholders have the opportunity to express their views and expectations for the Group in a manner that encourages open dialogue with the Board. The Board recognises that their decisions regarding strategy and risk will impact the corporate culture of the Group as a whole and that this will impact the performance of the Group. The Board is very aware that the tone and culture set by the Board will greatly impact all aspects of the Group as a whole and the way that employees behave. A large part of the Group’s activities are centred upon what needs to be an open and respectful dialogue with investee companies, whether they be directly held investments or a part of a third party portfolio of investments managed by the Group. Therefore, the importance of sound ethical values and behaviours is crucial to the ability of the Group to successfully achieve its corporate objectives. The Board places great importance on this aspect of corporate life and seeks to ensure that this flows through all that the Group does.
The Board currently consists of three directors, of which two are executive and one is non-executive. The Board continues to consider whether it would be appropriate to seek to appoint additional non-executive and/or executive directors but at this time believes that appropriate oversight of the Group is provided by the currently constituted Board. This view will continue to be reviewed by the Board. In order to ensure that there is appropriate separation of tasks the Board has not appointed a Chairman but instead appoints a chair for each Board Meeting, with the CEO being excluded from taking on this role. In addition, there is currently only one non-executive director on the Board and so the Board believes that it would not be appropriate to appoint that director as the named senior independent director as it is often the case that the non-executive director chairs the board meetings and the roles of Chairman and senior independent director are meant to be separate.
The key governance related matter that occurred during the financial year ended 30 March 2018 was the retirement of Andrew Burton as a director of the Group and from all his positions within the Group.The Board has taken the view that as there are currently only three directors on the Group Board it would not be appropriate to create a Nominations Committee to address the issues arising from ensuring a managed and successful succession planning process. Therefore, the Board as a whole was involved in the creation of the hand over plan, and ensuring its successful implementation, relating to Andrew Burton’s retirement.
The QCA Code sets out 10 principles which should be applied. These are listed below together with a short explanation of how the Group applies each of the principles:
Business Model and Strategy
The Board has concluded that the highest medium and long term value can be delivered to its shareholders by the adoption of an individual strategy for each part of the Group. For the fund management division of the Group the Board’s strategy is to close down, in a structured and responsible manner, the unprofitable parts of the fund management business and to develop further the profitable parts of the fund management business by seeking new business of a similar nature. The Board believes that over time this will generate a sustainable and profitable fund management business for the long term. The key challenge to this strategy is that the development of new fund management business is, by its nature, a process that takes some time to achieve and so it is difficult to provide shareholders with meaningful updates to progress whilst new contracts are yet to be secured. With regards to the directly held investments the Board has developed a strategy which has split the portfolio into those investments that are passive in nature (usually because the company in question has now developed its own Board of directors and corporate governance structures that mean that our active participation as a shareholder is no longer required) and those investments where our involvement is much more active. These active investments are referred to as our strategic investments and consist of companies where we continue to hold a significant percentage of the shares in the company, where we remain actively involved with the development of the company with, usually, the Group being represented on the board of the investee company, and where we believe that the possible returns are material. The key challenge to the successful development of this part of the strategy is the mis-match between the on-going short term costs to the Group of working with these strategic investments and the financial reward to the Group for this effort being of a long term nature.
Understanding Shareholder Needs and Expectations
The Board is committed to maintaining good communication and having constructive dialogue with its shareholders. The Group has close ongoing relationships with its private shareholders. In addition, all shareholders are encouraged to attend the Company’s Annual General Meeting, when they have the opportunity to raise matters with members of the Board. Investors also have access to current information on the Group though its website, www.braveheartgroup.co.uk, and via Trevor Brown, CEO who is available to answer investor relations enquiries.
The Board recognises that the long term success of the Group is reliant upon the efforts of the employees of the Group and its contractors, suppliers and regulators. The Board has put in place a range of processes and systems to ensure that there is close Board oversight and contact with its key stakeholders. For example, all employees of the Group participate in a structured Group-wide annual assessment process which is designed to ensure that there is an open and confidential dialogue with each person in the Group to help ensure successful two-way communication with agreement on goals, targets and aspirations of the employee and the Group. These feedback processes help to ensure that the Group can respond to new issues and opportunities that arise to further the success of employees and the Group. In addition, the Board ensures that all key relationships with, for example, customers, suppliers, the regulator and the UK Financial Conduct Authority are the responsibility of, or are closely supervised by, one of the directors or the financial controller. These relationships are addressed at the regular Board meetings with the financial controller also in attendance.
In addition to its other roles and responsibilities the Audit and Compliance Committee is responsible to the Board for ensuring that procedures are in place and are being effectively implemented to identify, evaluate and manage the significant risks faced by the Group. A risk assessment matrix sets out those risks and identifies their ownership and the appropriate controls which are in place. This matrix is updated as changes arise in the nature of risks or the controls that are implemented to mitigate them. The Audit and Compliance Committee reviews the risk matrix and the effectiveness of scenario testing on a regular basis. The following principal risks, and controls to mitigate them, have been identified:
Recruitment and retention of key staff
Reduction in operating capability
Stimulating and safe working environment
Balancing salary with longer term incentive plans
Breach of rules
Censure or withdrawal of authorisation
Strong compliance regime
Damage to reputation
Inadequate disaster recovery procedures
Inability to secure new capital or clients
Loss of key operational and financial data
Effective communications with shareholders
Secure off-site storage of data
Liquidity, market and credit risk
Inappropriate controls and accounting policies
Inability to continue as going concern
Reduction in asset values
Incorrect reporting of assets
Robust capital management policies and procedures
Appropriate authority and investment levels as set by Treasury and Investment Policies
Audit and Compliance Committee
The directors have established procedures, as represented by this statement, for the purpose of providing a system of internal control. An internal audit function is not considered necessary or practical due to the size of the Group and the close day to day control exercised by both the executive directors. However, the Board will continue to monitor the need for an internal audit function.
A Well Functioning Board of Directors
As at 1 September 2018 the Board comprised: the Chief Executive Officer, Trevor Brown; an executive director, Vivian Hallam; and a non-executive director, Jonathan Freeman. Both Vivian Hallam and Jonathan Freeman are considered by the Board to be independent. In light of Trevor Brown’s 29.8% interest in the Company, the Board does not consider him to be independent. During the year ended 31 March 2018 a previous executive director, Andrew Burton resigned from the Board on 1 September 2017. Biographical details of the current directors are set out within Principle Six below. Executive and non-executive directors are subject to re-election at intervals of no more than three years. The letters of appointment of all directors are available for inspection at the Company’s registered office during normal business hours. Since the end of the year under review, Vivian Hallam has been appointed to the Board as an executive director. The Board meets at least eight times per annum. It has established an Audit and Compliance Committee and a Remuneration Committee, particulars of which appear hereafter. The Board agreed that appointments to the Board are made by the Board as a whole and so has not created a Nominations Committee.
Appropriate Skills and Experience of the Directors
The Board currently consists of three directors and, in addition, the Group has employed the outsourced services of GBAC Limited to provide financial control and bookkeeping services and also to fulfil the role of Group Company Secretary. The Board recognises that it currently has a limited diversity and this will form a part of any future recruitment consideration if the Board concludes that replacement or additional directors are required.
Trevor E Brown MBA
Chief Executive Officer
Trevor has acted as a Chief Executive Officer, executive director and non-executive director for a wide range of companies in a number of sectors over 40 years. This has provided him with experience through the many long term economic and corporate life cycles, meaning he is qualified to assess the opportunities and risks for both the Group and its portfolio of investee companies. This wide ranging experience is kept up to date through his continued participation in a variety of businesses where the Group has a holding and in other companies that are unconnected to the Group. Trevor is also a member of the Group’s Remuneration Committee.
Trevor is also currently a director of Flying Brands plc and a non-executive Director of Strat Aero plc. Trevor joined the Board of the Group as a non-executive Director with effect from 1 April 2014 and became the Chief Executive Officer on 21 August 2015.
Vivian D Hallam MBA BSc CEng
Viv is a Chartered Mechanical Engineer and has an MBA from Aston Business School. He joined VFM in 2003 following 20 years of senior management in international advanced engineering companies, including Sarna, GKN and GEC. There he was responsible for design, development and marketing of new products for the plastics, automotive and power industries. Viv became a director of Viking Fund Managers Limited in 2004 where he managed the investment portfolios for both Viking Fund and Lachesis Fund. In 2015, he became Chief Executive Officer of Strathtay Ventures Limited, responsible for FCA compliance and managing the Group’s investment portfolio. Viv is a member of the Group’s Audit and Compliance Committee.
Jonathan D Freeman BA Hons MBA
Jonathan is an experienced corporate financier and company director. He has extensive experience of quoted companies, financial services and of FCA regulated entities. This experience is important to the Group as it is both quoted on AIM and its subsidiary company, Viking Fund Managers Limited, is regulated by the Financial Conduct Authority in the UK. Jonathan also chairs the Audit and Compliance Committee and the Remuneration Committee.
Jonathan is also the senior independent non-executive Director of Futura Medical plc and chairs their Audit Committee and Remuneration Committee. He is also the non-executive Chairman of PhotonStar LED Group plc and a non-executive director of European Wealth Group Ltd. Jonathan joined the Group’s Board as an executive director with effect from 21 August 2015 and became a non-executive Director on 3 March 2016.
Evaluation of Board Performance
The performance of the directors is evaluated through the Group’s use of an annual appraisal that all members of the Group, including the Board of Directors, are required to participate in. The appraisal process is timed to be completed by the end of January in each year so that targets can then be set and agreed with each individual before the beginning of the next financial year on 1 April. For all members of the Group the appraisal process is the same, a summary of which is that pre-meeting questionnaires are completed by the participant and their line manager, there is then a meeting to go through the answers to the questionnaires and to create a first draft of targets for the following year. Where necessary, these are then developed and agreed upon. Targets will include both personal and corporate targets. The evaluation process is reviewed by the Board prior to the commencement of the annual appraisal process in order to ensure that the process remains effective and efficient. The evaluation of the directors is usually conducted during the months of January and February so that it can be completed in time for the start of the financial year that commences on 1 April. The results and recommendations that come out of the appraisals for the directors identifies the key corporate and financial targets that are relevant to each director and their personal targets in terms of both career development and training. Progress against previous targets are also assessed. The Board is constantly reviewing the appropriateness of the current staffing in relation to both the Board and senior management. This review includes an assessment of the future requirements arising as a consequence of the strategic and corporate goals that are being pursued and which are reviewed and agreed upon at the annual appraisal process.
The Board recognises that succession planning at all levels is important for the long term performance of the business. Where possible, board members actively involve staff in the strategy and management of the business. The Board considers the long term needs of the business when developing the knowledge and skills of existing staff or appointing new staff.
The Board recognises that their decisions regarding strategy and risk will impact the corporate culture of the Group as a whole and that this will impact the performance of the Group. The Board is very aware that the tone and culture set by the Board will greatly impact all aspects of the Group as a whole and the way that employees behave. A large part of the Group’s activities is centred upon what needs to be an open and respectful dialogue with investee companies, whether they be directly held investments or part of a third-party portfolio of investments managed by the Group. Therefore, the importance of sound ethical values and behaviours is crucial to the ability of the Group to successfully achieve its corporate objectives. The Board places great importance on this aspect of corporate life and seeks to ensure that this flows through all that the Group does. The Board assessment of the culture within the Group at the present time is one where there is respect for all individuals, there is open dialogue within the Group and there is a commitment to provide the best service possible to all the Group’s customers, suppliers, clients and investee companies.
The Company has adopted, with effect from the date on which its shares were admitted to AIM, a code for directors’ and employees’ dealings in securities which is appropriate for a company whose securities are traded on AIM and is in accordance with rule 21 of the AIM rules.
Maintenance of Governance Structures and Processes
Ultimate authority for all aspects of the Group’s activities rests with the Board, with the respective responsibilities of the Independent Director and Chief Executive Officer arising as a consequence of delegation by the Board. The Board has adopted two statements; the first sets out matters which are reserved to the Board and the second establishes the division of responsibilities between the Independent Director (unless a Chairman is formally appointed in which case it would be the Chairman) and the Chief Executive Officer. The Independent Director is responsible for the effectiveness of the Board, while management of the Group’s business and primary contact with shareholders has been delegated by the Board to the Chief Executive Officer. In accordance with the Companies Act 2006, the Board complies with: a duty to act within their powers; a duty to promote the success of the Company; a duty to exercise independent judgement; a duty to exercise reasonable care, skill and diligence; a duty to avoid conflicts of interest; a duty not to accept benefits from third parties and a duty to declare any interest in a proposed transaction or arrangement.
In order to ensure that there is appropriate separation of tasks the Board has not appointed a Chairman but instead appoints a chair for each Board Meeting, with the CEO being excluded from taking on this role. In addition, there is currently only one non-executive director on the Board and so the Board believes that it would not be appropriate to appoint that director as the named senior independent director as it is often the case that the non-executive director chairs the board meetings and the roles of Chairman and senior independent director are meant to be separate.
The Board has adopted guidelines for the appointment of non-executive directors which have been in place and which have been observed throughout the year. These provide for the orderly and constructive succession and rotation of the Chairman (if one is in place) and non-executive directors insofar as both the Chairman and non-executive directors will be appointed for an initial term of three years and may, at the Board’s discretion believing it to be in the best interests of the Company, be appointed for subsequent terms. The Chairman may serve as a non-executive director before commencing a first term as Chairman.
Audit and Compliance Committee
The Audit and Compliance Committee currently comprises Jonathan Freeman (Chairman) and Vivian Hallam. This committee has primary responsibility for monitoring the quality of internal controls and ensuring that the financial performance of the Group is adequately measured and reported. The Committee receives reports from the executive management and auditors relating to the annual accounts, as well as the accounting and internal control systems in use throughout the Group. The Audit and Compliance Committee meets not less than twice in each financial year and has unrestricted access to the Group’s auditors.
There were three Audit Committee meetings during the year ended 31 March 2018. The Committee met to review the Interim Report and the Annual Report to consider its suitability and monitor the internal control processes and to review the valuations for the portfolio of directly held investments. The independence and effectiveness of the external auditor was reviewed, and the Audit Committee also discussed with the auditors their independence and objectivity, the Annual Report, any audit issues arising, internal control processes, the auditor’s reappointment, fees and various other matters.
The Remuneration Committee currently comprises Jonathan Freeman (Chairman) and Trevor Brown. The Remuneration Committee reviews the performance of the executive directors and employees and makes recommendations to the Board on matters relating to their remuneration and terms of employment. The Remuneration Committee also considers and approves the granting of share options pursuant to the Share Option Scheme (the ‘Scheme’) and the award of shares in lieu of bonuses pursuant to the Group’s Remuneration Policy. During the year ended 31 March 2018 the Remuneration Committee met once.
The Remuneration Committee follows the UK FCA’s Remuneration Code. The Committee is responsible for implementing and maintaining a remuneration policy which ensures that executive directors, other Group Company directors, senior management and other employees are remunerated in such a manner as to ensure that (i) they are fairly rewarded in a manner which secures and retains the skilled and experienced individuals the Group requires to ensure its corporate objectives, including an increase in shareholder value are achieved; (ii) conflicts of interest are minimised and that the interests of staff are aligned with the long term interests of the Group; and (iii) remuneration is consistent with and promotes sound and effective risk management and does not encourage risk taking that exceeds the level of tolerated risk set by the Board and is in line with the business strategy, objectives, values and long-term interests of the Group. The Committee is committed to ensuring compliance with the FCA’s Remuneration Code.
Determination of Directors’ and Senior Management’s Salaries
The Remuneration Committee believes that the interests of the executive directors, other Group Company directors, senior management and staff and those of the shareholders and other stakeholders are best aligned by a remuneration policy that provides a base salary together with awards under the Group’s Share Option Scheme and/or the award of bonuses paid for through the issue of shares. The Remuneration Committee reviews and determines annually directors’ and senior management’s salaries in relation to the tasks and responsibilities involved and the level of comparable salaries in the market place. In particular, the Committee seeks to ensure that salaries are competitive. In its final determination of salaries, the Committee’s conclusions are set within what is affordable. During the year contributions continued in respect of pension arrangements for one Director of Viking.
Executive Director Service Agreements
Each of the executive directors has a service agreement with the Group. These agreements can be terminated by either party giving the other written notice at any time. Payments on termination are restricted to the value of the salary for the notice period.
The fees payable to the non-executive directors are first reviewed by the Committee, taking into account market rates, following which it submits recommendations to the Board for approval. The non-executive director has agreed a letter of appointment which sets out his duties, responsibilities and fees.
The Board is committed to maintaining good communication and having constructive dialogue with its shareholders. The Group has close ongoing relationships with its private shareholders. Institutional shareholders and analysts have the opportunity to discuss issues and provide feedback at meetings with the Group. In addition, all shareholders are encouraged to attend the Group’s Annual General Meeting. Investors also have access to current information on the Group though its website, www.braveheartgroup.co.uk, and via Trevor Brown, CEO who is available to answer investor relations enquiries.