The following statement sets out the Company’s application in the year to 31st December, 2007 of the Combined Code on Corporate Governance issued by the Financial Reporting Council (FRC) in June 2006 (the ‘Combined Code’). In the opinion of the Board, the Company has complied with the principles and the relevant provisions in section 1 of the Combined Code in all respects throughout the year except where stated otherwise.
The Board
Corporate governance of Candover is achieved through its Board which, at the end of the year, comprised five directors, all of whom were non-executive. There were a number of changes to the composition of the Board during the year and there have been further changes since the year-end. Nico Lethbridge, who had been a director since January 2003, died on 16th August, 2007. Stephen Curran, who joined the Board in 1982 and is a former chief executive and executive chairman of the Company, retired from the Board on 6th December, 2007. Lord Jay became a director on 1st January, 2008. Nicholas Jones will join the Board on 14th April, 2008.
Brief biographical details of the directors currently in office appear in the board of directors section, and in the case of Nicholas Jones, in the report of the directors section. The interests of the current directors in the share capital of the Company are shown in note 18.
The Board typically meets five times a year, although there were eight meetings during 2007. There is a formal schedule of matters reserved for decision by the Board including corporate strategy, review of the Company’s management agreement with Candover Partners Limited (together with monitoring of performance thereunder), and approval of the annual budget, the report and accounts, the payment of dividends and the valuation of the Company’s investments. All regular meetings during 2007 were attended by all directors with the exception of the April meeting, which Jimmy West was unable to attend. An additional meeting was held in October attended by Gerry Grimstone and Richard Stone.
In line with the requirements of the Combined Code, the Board reviews its own performance annually using a predetermined template, designed to act as a tool to facilitate the evaluation process. The assessment covers the functioning of the Board as a whole, and includes a review of the effectiveness of the Board committees. In addition, the Chairman reviews with each of the directors their individual performance, contribution and commitment to the Company and any further development of skills that may be required. Following discussions with the other directors, the Senior Independent Director reviews the performance of the Chairman. The Board considers the results of the performance evaluation when making its recommendations regarding the election and re-election of directors. The Board does not consider it necessary to employ the services, or to incur the additional expense, of an external third party to conduct the evaluation process as an appropriate mechanism is already in place. A review was undertaken in January 2008 and the Board concluded that its performance, and that of its committees, Chairman and directors, was satisfactory.
Chairman
Gerry Grimstone served as non-executive Chairman throughout the year. A job specification for the role of non-executive Chairman has been approved by the nominations committee.
Board committees
The Board is supported in its decisions by three principal committees, which are described below. The terms of reference of each committee are available on the Company’s website.
The audit committee
The audit committee, chaired by Chris Russell, comprises five directors, as shown in the board of directors section. Nico Lethbridge was a member of the committee until his death on 16th August, 2007. Lord Jay became a member of the committee on 1st March, 2008. All other members served on the committee throughout 2007. The Board is satisfied that the chairman of the audit committee has recent and relevant financial experience, as do other members of the committee.
The audit committee carries out a number of duties, including reviewing the interim and annual accounts, the effectiveness of the systems of accounting and internal financial control and the systems of risk management, and seeking to ensure that arrangements are in place for the staff to whistle-blow on financial reporting or other matters in so far as they may affect the Company. Further information on the committee’s remit is given in this section.
Meetings of the audit committee are held at least three times a year, and are attended by the external auditor. Four audit committee meetings were held during 2007. All members attended all meetings, with the exception of the September meeting which Richard Stone was unable to attend. The committee’s terms of reference were updated in June 2007.
The remuneration committee
The remuneration committee, chaired by Richard Stone, comprises six directors. Its members are shown in the board of directors section. Nico Lethbridge was a member of the committee until his death on 16th August, 2007. Lord Jay became a member of the committee on 1st March, 2008. All other members served on the committee throughout 2007.
This committee supports the Board in determining the level of the remuneration of the Chairman, and reviews the remuneration policy applicable to senior management. The full report of the committee is set out in the directors’ remuneration report.
The remuneration committee met four times during 2007. All members were present at each meeting, with the exception of the September meeting, which Richard Stone was unable to attend, and the November meeting, which Jimmy West was unable to attend.
The nominations committee
In considering Board appointments, the Board is supported by a nominations committee whose remit includes reviewing the structure, size and composition of the Board, satisfying itself that plans are in place for orderly succession for appointments to the Board and identifying appropriate candidates. A job specification for the non-executive director role has been approved by the nominations committee. The nominations committee will generally use an appropriate external search consultancy to identify suitable candidates, and employed the services of Whitehead Mann to assist with the recent recruitment of both Lord Jay and Nicholas Jones. All Board appointments are subject to final approval of the Board and election or re-election at a general meeting of shareholders.
The nominations committee, which is chaired by Antony Hichens, comprises four directors and the present members of the committee are shown in the board of directors section. Nico Lethbridge was a member of the committee until his death on 16th August, 2007. Richard Stone became a member of the committee on 4th September, 2007.
The nominations committee met once during 2007, when all members were present, and dealt with other business by means of written resolutions. The committee’s terms of reference were updated in March 2008.
Board balance
There are currently six non-executive directors on the Board, although there were seven for most of 2007 and only five in office at the year-end. Nicholas Jones will join the Board on 14th April, 2008, increasing the number of directors to seven.
The Board considers its composition appropriate to the Company’s status as an investment trust. The non-executive directors are considered to be of sufficient calibre and experience to bring significant influence to bear on the decision-making process. In the view of the Board, no non-executive director has any relationships that could materially interfere with their independent judgement. It is therefore the Board’s view that all non-executives are independent, although two of them (Jimmy West and Antony Hichens) have exceeded the nine year period of service envisaged by the Combined Code as being potentially relevant to the determination of a non-executive director’s independence. In this regard, the Board acknowledges the Association of Investment Companies’ guidelines on corporate governance, which do not recommend that long-serving directors be prevented from forming part of an independent majority. In addition, in compliance with the Combined Code, both Jimmy West and Antony Hichens have submitted themselves for re-election at each annual general meeting since May 2004.
Jimmy West became the Senior Independent Director in May 2006 and will retire from the Board at the forthcoming Annual General Meeting on 14th May, 2008. Subject to being reappointed at the Annual General Meeting Anthony Hichens will become the Senior Independent Director with effect from 14th May, 2008.
Supply of information
The Chairman ensures that all directors are properly briefed on issues arising at Board meetings. The Candover management provides the Board with appropriate and timely information in order that the Board may reach proper decisions. Its members can, if necessary, obtain independent professional advice at the Company’s expense.
Directors’ training
Training is available to all directors, particularly new directors, on issues relevant to their role. As part of the annual Board evaluation process directors are asked if there are any areas of knowledge or skill which they would like to develop further. A formal induction process exists for new non-executive directors.
Election and re-election of directors
The principle set out in the Combined Code is that all directors should be subject to election by shareholders at the first Annual General Meeting after their appointment, and to re-election thereafter at intervals of no more than three years. The Combined Code requires that the non-executive directors are appointed for specific terms. At Candover, directors are appointed, elected and re-elected subject to retirement by rotation in accordance with the Company’s Articles of Association, with all directors being required to submit themselves for re-election at least every three years. All non-executive directors appointments are terminable at will. The details of non-executive directors’ letters of appointment are set out in the directors’ remuneration report.
Relations with shareholders
Dialogue with institutional shareholders
The Board is willing to enter into a dialogue with institutional shareholders based on a mutual understanding of objectives, subject to its duties regarding equal treatment of shareholders and the dissemination of inside information. Brokers’ reports on the Company are circulated to non-executive directors.
The Senior Independent Director is available to be contacted by shareholders in situations where contact through the Chairman is felt to be inappropriate.
Constructive use of the Annual General Meeting
The Board uses the Annual General Meeting to communicate with investors and encourages their participation by ensuring that senior Board members attend, including the chairmen of the audit, remuneration and nominations committees (Chris Russell, Richard Stone and Antony Hichens respectively), to answer shareholders’ questions.
Voting policy
As Candover’s investee companies are principally unlisted companies in which Candover, together with the third party funds managed by Candover, is a significant shareholder, Candover would usually be a party to all issues requiring shareholder approval and would always expect to vote on such issues.
It is the Company’s policy with regard to all its investments either made by the Company alone or alongside third party funds to vote in a prudent and diligent manner after careful review of each investee company’s proxy statement on an individual basis. Candover’s voting decision is based on its reasonable judgement of what will best serve the financial interests of the Company’s shareholders and third party investors and Candover will not subordinate the economic interests of its shareholders and third party investors to any other entity or interested party in determining such a vote.
Accountability and audit
Financial reporting
The directors are required to explain their responsibility for the financial statements and this statement is given in this section. The auditors review the Company’s compliance with the provisions of the Combined Code and compliance with the rules of the Financial Services Authority (FSA), the regulatory authority that regulates Candover Partners Limited, and are also required to report on their audit of the financial statements. Their report is shown in the auditor’s report section
The Board seeks to give a balanced and clear assessment of the Group’s position and prospects. Further information is given in the Chairman’s statement and the operational and financial reviews.
Going concern
Under the Combined Code the directors are required to satisfy themselves that it is reasonable to presume that the Company is a going concern.
After making enquiries, and on the basis of the strength of its balance sheet, the directors are of the opinion that the Company has adequate resources to continue in operational existence for the foreseeable future. The Board is therefore of the opinion that the going concern basis should continue to be adopted in the preparation of the financial statements.
Internal control
Under the terms of the Combined Code the Board is required to review the effectiveness of Candover’s internal controls including its financial, operational and compliance controls and risk management. The Board continues to apply the procedures necessary to comply with the requirements of the Turnbull Committee guidelines ‘Internal Control – Guidance for Directors on the Combined Code’.
Candover’s system of internal control includes, inter alia, the overall control environment, the procedures for identification and evaluation of business risk, the control procedures themselves and the review of these internal controls by the audit committee on behalf of the Board. Each of these elements that make up the Company’s system of internal control is explained in further detail below:
Control environment – Candover is dependent upon the quality and integrity of the Company’s management and staff and highly qualified and able staff have been selected at all levels. The long service record of many senior Candover executives helps to ensure that knowledge and experience is retained within the Company and passed on to new employees, thereby providing continuity and renewal. New executives are recruited when appropriate in order to aid the Company’s development and growth.
Appropriate members of staff are aware of the internal controls and are also accountable for collectively operating the system of internal controls.
Management are supported by the Board of non-executive directors who, in conjunction with the Company’s auditors, Grant Thornton UK LLP, and the auditors of the managed funds, KPMG LLP, carry out an external review of the Company’s financial controls and also those of the funds which Candover manages. KPMG LLP and Grant Thornton UK LLP carry out their review only to the extent necessary to give their UK LLP audit opinions.
Identification and evaluation of business risk – The key business risk at Candover remains the identification and evaluation of our investments and this is achieved by a comprehensive study of potential investments by executives in co-operation with outside resources provided by market research specialists, lawyers and accountants. An investment report is then prepared and, in the case of an investment by one of the managed funds, is sent to the Board of Candover Partners Limited or an appropriate committee for their decision as to whether or not to proceed; and in the case of other investments, a report is sent to the Board of Candover Investments plc or an appropriate sub-committee of the Board.
The responsibility for identification of other business risks is delegated to senior management, who advise the Board of any material risks.
Control procedures – The main areas of control relate to the investments that Candover makes and the financial controls that enable the Board to meet its responsibilities for the integrity and accuracy of the Group’s accounting records.
The Board delegates responsibility for the effectiveness of such controls to senior management, who in turn ensure the completion of the required procedures. These key procedures involve:
Although no system of internal control can provide absolute assurance against material misstatement or loss, the Company’s system is designed to assist the directors in obtaining reasonable assurance that problems are identified on a timely basis and dealt with appropriately.
Audit committee and auditors
The Board has delegated authority for reviewing the effectiveness of the Group’s internal controls to its audit committee. The audit committee receives monitoring reports on a six-monthly basis from the Company Secretariat with regard to the operational aspects of internal controls over the areas of key risk identified, which include FSA regulatory matters. The chairman of the audit committee reports on the review of internal controls and any matters arising to the Board at the following Board meeting. Using the above process, the effectiveness of the Company’s internal controls has been reviewed in respect of the year ended 31st December, 2007.
As required by the Combined Code, the audit committee has reviewed the need for an internal audit function. Due to the size of Candover, it does not consider an internal audit function appropriate, although this is kept under review. However, a number of internal checks are carried out in accordance with the requirements of the FSA as well as those checks required to be made to enable the Board to report in compliance with the Internal Controls Guidelines, the efficiency of which is regularly reviewed.
The audit committee considers the scope and effectiveness of the Company’s external auditors. The Company’s auditors, Grant Thornton UK LLP, also provide non-audit services to the Company, as referred to in note 2. These services relate mainly to tax advice and do not, in the Board’s opinion, compromise the independence of Grant Thornton UK LLP’s audit team. The audit committee has a policy on the provision by the auditors of non-audit services. This policy recognises three categories into which non-audit services may fall, namely work from which the external auditors are excluded, work for which the auditors can be engaged without referral to the audit committee, and work for which a case-by-case decision by the audit committee is necessary.
Statement of directors’ responsibilities
The directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and International Financial Reporting Standards as adopted by the European Union.
Company law requires the directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group for that period. In preparing these financial statements, the directors are required to:
The directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the financial statements comply with the Companies Act 1985 and (where applicable) 2006. They are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Pursuant to section 234ZA (2) of the Companies Act 1985 each of the directors confirms that (a) so far as he is aware, there is no relevant audit information of which the Company’s auditors are unaware; and (b) he has taken all steps that he ought to have taken as a director to make himself aware of any relevant audit information and to establish that the auditors are aware of that information.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
By order of the Board
Andrew Moberly
Company Secretary
31st March, 2008