Statement of Compliance with the UK Corporate Governance Code
The Board of Directors believes in high standards of corporate governance and is accountable to shareholders for the Group’s performance in this area. Furthermore, IQE is a company trading on AIM, a market operated by The London Stock Exchange plc, and since September 2018, the AIM rules expressly require companies to recognise and apply a corporate governance code of practice.
For many years, the Board of Directors has chosen to apply the UK Corporate Governance Code (the “Code”) and to provide corporate governance disclosures similar to those that would be required of a premium- listed company. The Group continued to apply the April 2016 edition of the Code during 2018 and shall apply the 2018 edition of the Code in respect of its financial year ending 31 December 2019. Each edition of the Code is available on the website of the Financial Reporting Council (FRC) at: www.frc.org.uk.
Disclosure requirements arising from changes to the Code will not take effect until 31 December 2019 annual reports. However, in order to help investors and stakeholders understand the progress being made by the Board to implement some of the changes, this statement addresses the additional requirements set out in the new Code. This statement is also structured according to the ve sections of the updated Code, namely: Board Leadership and Company Purpose; Division of Responsibilities; Composition, Succession & Evaluation; Audit, Risk and Internal Control; and Remuneration.
The Company is a smaller company for the purposes of the Code, and as such, certain provisions of the Code either do not apply to the Company or are judged to be disproportionate or less relevant in its case. Where the Company does not comply with any speci c code provision then this is highlighted and explained in this statement below.
IQE has identified the following main areas of non- compliance with the new Code:
- The Company’s Articles of Association do not provide that Directors are subject to annual re-election as prescribed by the new Code. The Board has previously considered the FRC’s guidance to companies outside the FTSE 350 to consider the annual re-election of all Directors, and considered that this would be overly burdensome for the nature of the Group. Now that the new Code removes the exemption for small companies, the Board will give due consideration to this when considering matters to be put to a vote by shareholders at the next AGM. It will also consider the requirement of the new Code to set out in the papers accompanying the resolution to elect each Director the specific reasons why their contribution is, and continues to be, important to the company’s long-term sustainable success.
IQE does not currently maintain a succession plan for the company secretary or all management immediately below Board level, but IQE is working to develop such plans based on merit and objective criteria (including the promotion of diversity of gender, social and ethnic backgrounds, cognitive and personal strengths) as required by the new Code. As part of its consideration of developed succession plans, the Nominations Committee will consider the linkage of its diversity objectives with company strategy and the gender balance of those in senior management and their direct reports.
The performance of the Directors is assessed on an ongoing basis. For example, the Chief Executive reviews the performance of the Executive Directors on a periodic basis and reports to the Remuneration Committee at least annually. However, IQE has not carried out a formal and rigorous annual evaluation of the performance of the Board, its Committees, Chair and individual Directors to the extent as required by the Code. It is intended that a formal review process will be implemented during 2019 and thereafter, but that this will probably not require external facilitation. Companies outside the FTSE 350 such as IQE are encouraged, but not required, to consider the use of externally facilitated board evaluations.
The Remuneration Committee has responsibility for determining the policy and setting remuneration for the Executive Directors and the Chairman. It also has responsibility to recommend and monitor the level and structure of remuneration for senior management. However, the Remuneration Committee does not currently determine the policy and set the remuneration for senior management and the Company Secretary as required by the Code.
Board Leadership and Company Purpose
The Group is headed by an effective and entrepreneurial Board that is collectively responsible for the long-term sustainable success of the Group, generating value for shareholders and contributing to wider society. The Strategic Report within the 2018 Annual Report sets out how the Board has recently engaged with:
- opportunities and risks to the future success of the business;
- the sustainability of the Group’s business model;
- delivery of the Group’s strategy;
- its aims of creating shareholder value and contributing to wider society.
All directors act with integrity, lead by example and promote the desired culture of innovation, collaboration, valuing people, integrity, accountability and constant improvement.
Workforce policies and procedures - including in relation to investing in and rewarding its workforce - are consistent with the company’s culture and values and support its long term sustainable success.
The Board actively engages with the workforce including through its Employee Benefits and Pensions Governance Committee, Workers Counsels and ‘town hall’ meetings. Through this activity and engagement, the Board is satisfied that the Group’s purpose, values and strategy are aligned with a culture of innovation, collaboration, valuing people, integrity, accountability and constant improvement.
As required under its Terms of Reference and the Code applicable to 31 December 2018, the Audit and Risk Committee recently reviewed and refreshed a policy on whistleblowing that is applicable across the Group’s global operations. This sets out the means by which the workforce should raise concerns and how they may do so in confidence and if they wish, anonymously. Pursuant to the requirements of the new Code, moving forward, the full Board shall not only consider reports arising from its operation, but will also routinely review the arrangements in place for the proportionate and independent investigation and follow-up action as set out in the whistleblowing policy.
The Board regards regular communications with shareholders as one of its key responsibilities. The Chief Financial Officer, Chief Executive Officer and Chairman meet with institutional investors on a regular basis to discuss the Group’s performance, the shareholders’ views, and to ensure that the strategies and objectives of the Group are aligned and well understood.
The Chief Executive Officer and Chairman keep the Board fully informed of any significant matters discussed with shareholders and of shareholders’ views. Furthermore, all members of the Board receive copies of any analysts’ reports of which the Company is made aware.
The Company employs an Investor Relations Manager who supports the Directors with day-to-day investor relations. Together, they respond to investor enquiries throughout the year. In addition, all shareholders attending the AGM are given a presentation on the business and are invited to ask the Directors questions about the business.
The Committee Chairs engage with shareholders on significant matters related to their areas of responsibility at AGMs and other shareholder meetings as required.
The Investor Relations Manager also maintains the Group’s website, which provides details of the Group’s business including its strategy, technologies, operations and products. The website has a separate investor relations section that provides news about the Group, share price information, and financial reports including the annual and interim reports. Hard copies of annual reports are also available by request. The website can be found at www.iqep.com.
The Company will advise shareholders attending the AGM of the number of proxy votes lodged in respect of each resolution, split between ‘For’, ‘Against’, ‘at the Chairman’s discretion’ and 'abstentions'. These are advised after the resolutions have been dealt with on a show of hands, providing that a poll has not been called for or is required. In accordance with the recommendations of the new Code, when announcing results of votes where 20% or more have been cast against the board recommendations for a resolution, the Company will explain what actions it intends to take to consult shareholders in order to understand the reasons behind the result. An update on the views received from shareholders and actions taken will then be published no later than six months after the shareholder meeting. A final summary on what impact the feedback has had on the decisions the board has taken and any actions or resolutions now proposed will be included in the annual report and if applicable, in the explanatory notes to the resolutions at the next shareholder meeting.
The Chairman is available to meet with major institutional shareholders as needed throughout the year to consult on corporate governance matters and performance against the strategy. The Senior Independent Director is also available to consult on governance matters and to provide an independent view of the position and prospects of the Group.
The Non-Executive Directors, having considered the Code, are of the view that this approach to shareholder communication remains appropriate for the Group. However, should shareholders have concerns which they feel cannot be resolved through normal shareholder meetings, the Senior Independent Director and the remaining Non-Executive Directors may be contacted through the Company Secretary.
The interests of the company’s other key stakeholders have also been considered in recent Board discussions and has influenced the Board’s decision-making. The Board continuously reviews the effectiveness of its engagement with stakeholders and the mechanisms that facilitate such engagement.
Under Article 117 of IQE Plc’s Articles of Association, if a Director or a person closely connected to them has an interest in a transaction or arrangement of the Company, such Director is required to declare such interest in accordance with Company Law. Save in certain defined circumstances described in Article 118, a Director should not be counted for quorum or voting purposes in respect of any transaction or arrangement where they have an interest. The Directors give due consideration to any circumstances in which a potential conflict of interest may arise or may be perceived to arise, including in connection with significant shareholdings and ensure that the influence of third parties does not compromise or override independent judgement. For example, in the context of discussions concerning IQE’s joint venture with Cardiff University in 2018, Sir Derek Jones noted he has provided services to Cardiff University. Upon the raising of this, there was no concern amongst the Directors that there was a conflict of interest.
Where Directors have any concerns about the operation of the Board or the management of the company that cannot be resolved, their concerns are recorded in the minutes of Board Meetings. On resignation, a Non-Executive director should provide a written statement to the Chairman for circulation to the Board, if they have any such concerns.
Division of Responsibilities
The Board comprises the Non-Executive Chairman, Mr Phil Smith, the President and Chief Executive Officer, Dr Drew Nelson, one other Executive Director and three independent Non-Executive Directors.
The Board considers that the four Non-Executive Directors, Sir David Grant, Mr Phil Smith, Sir Derek Jones and Mrs Carol Chesney who have each held office for less than nine years, to be independent in accordance with the Code, and free from any business or other relationship which could materially interfere with the exercise of their independent judgement.
The Board recognises the special position and role of the Chairman under the Code, and it has approved the formal division of responsibilities between the Chairman and Chief Executive. The Chairman is responsible for the leadership of the Board and ensuring its effectiveness. The Chief Executive manages the Group and has the prime role, with the assistance of the Board, of developing and implementing business strategy.
The Board meets regularly through the year - at least six times and additionally on an ad hoc basis as is required to discharge its duties effectively. It is provided with appropriate strategic, operational and financial information prior to each meeting together with reports to enable it to monitor the performance of the Group. The number of meetings of the Board, Committees and individual attendance by Directors is set out in the annual report each year.
Under the direction of the Chairman, the Company Secretary facilitates good information flows within the Board and its Committees and between senior management and Non-Executive Directors. The Company Secretary is also responsible for advising the Board through the Chairman on all governance matters. All Directors have direct access to the advice and services of the Company Secretary who is responsible for ensuring that Board procedures are followed, and are allowed to take independent professional advice if necessary at the Company’s expense. Pursuant to Article 134 of IQE Plc’s Articles of Association, both the appointment and removal of the Company Secretary is a matter for the whole board.
At Board meetings, the Chairman ensures that all Directors are able to make an effective contribution throughout meetings and every Director is encouraged to participate and provide their perspective and opinions. The Chairman always seeks to achieve unanimous decisions of the Board following due discussion of agenda items.
The Board has a formal schedule of matters referred to it for decision, this list includes appropriate strategic, financial, organisational and compliance issues, including the approval of high level announcements, circulars, reports and accounts and certain strategic and management issues. Examples of such items include, but are not limited to:
- the approval of interim and annual results,
- the approval of the annual budget,
- approval of acquisitions or disposals,
- approval of major items of capital expenditure,
- approval of changes to corporate or capital structure,
- financial issues, including changes in accounting policy, the approval of dividends, bank facilities and guarantees, and
- the approval of significant contracts.
The Non-Executive Directors scrutinise and hold to account the performance of management and individual executive directors against agreed performance objectives. To facilitate this, the Chairman and Senior Independent Director ensure that meetings of Non-Executive Directors without the Executive Directors present are held. These include meetings of the Nominations, Remuneration and Audit & Risk Committees as described further below.
One of the roles of the Non-Executive Directors is to undertake detailed examination and discussion of the strategies proposed by the Executive Directors to ensure that decisions are in the best long-term interests of shareholders and take proper account of the interests of the Group’s other stakeholders.
The Non-Executive Directors have not formally met without the Chairman present to appraise the Chairman’s performance. However, this was not specifically required under the Code as applicable in the year ending 31 December 2018.
When making new appointments, the Board takes into account other demands on Directors’ time and significant appointments are required to be disclosed with an indication of the time involved. Pursuant to the new Code, since 1 January 2019, additional external appointments should not be undertaken without prior approval of the Board, with the reasons for permitting significant appointments explained in the annual report. No full time Executive Director has more than one non-executive directorship in a FTSE 100 company or other significant appointment.
The Board has four sub committees, the Executive Committee, the Remuneration Committee, the Nominations Committee and the Audit & Risk Committee. The Board has delegated special responsibilities to these committees as follows:
(a) Executive Committee
The Executive Committee consists of the Executive Directors under the chairmanship of Dr Drew Nelson and is responsible for the development of strategy, annual budgets and operating plans linked to the management and control of the day-to-day operations of the Group.
The Executive Committee is also responsible for monitoring key research and development programmes and for ensuring that the Board policies are carried out on a Group-wide basis.
(b) Audit & Risk Committee
The Audit & Risk Committee consists of the Non-Executive Directors, Sir Derek Jones, Mr Phil Smith and Sir David Grant. The Committee meets at least twice a year under the chairmanship of Sir Derek Jones.
The Audit & Risk Committee’s main duties include monitoring internal controls throughout the Group, approving the Group’s accounting policies, and reviewing the Group’s interim results and full year financial statements before submission to the full Board. The Audit & Risk Committee also reviews and approves the scope and content of the Group’s annual risk assessment programme and the annual audit, and monitors the independence of the external auditors.
(c) Remuneration Committee
The Remuneration Committee consists of the three non-executive directors. Mr Phil Smith and Sir Derek Jones, who joined the Committee at the beginning of 2018. Sir David Grant is Chairman of the Committee. The Committee meets at least twice a year.
The Chief Executive attends meetings of the Remuneration Committee by invitation to respond to questions raised by the Committee, but he is excluded from any matter concerning the details of his own remuneration.
The Remuneration Committee is responsible for setting salaries, incentives and other benefit arrangements of Executive Directors. It scrutinises the performance of individual Executive Directors against agreed performance objectives.
(d) Nominations Committee
The Nominations Committee consists of the three non-executive Directors and is chaired by Sir David Grant. Mr Phil Smith and Sir Derek Jones joined the Committee at the beginning of 2018.
The Board has delegated responsibility for nominations to this Committee, which has a prime role in appointing and removing executive directors.
The Chairman and Chief Executive attend meetings of the Nomination Committee by invitation. Terms of reference for the Remuneration Committee, Nominations Committee and Audit & Risk Committee are available from the Company Secretary.
Composition, Succession and Evaluation
Rules concerning the appointment and replacement of Directors and Secretaries of the Company are contained in the Articles of Association (“Articles”). Amendments to the Articles must be approved by a special resolution of the shareholders.
Under the Articles, all Directors are subject to election by shareholders at the first Annual General Meeting following their appointment, and to re-election thereafter at intervals of no more than three years.
The Articles provide that the Company Secretary shall be appointed by the Directors for such term, at such remuneration and upon such conditions as they may think fit and any Company Secretary so appointed may be removed by them. If thought fit, two or more persons may be appointed as joint company secretaries or an assistant or deputy company secretary may be appointed by the Directors. Any person so appointed by the Directors may also be removed by the Directors.
The Nominations Committee (which consists of the three Non-Executive Directors) reviews the Board structure, leads the process for Board appointments and makes recommendations to the Board, including on succession planning. Due consideration is given to the length of service of the Board as a whole and the need to ensure its membership is regularly refreshed.
All Directors are appointed by the Board following a formal, rigorous and transparent selection process and recommendation by the Nominations Committee. Board appointments are made on merit, against criteria identified by the Nominations Committee having regard to the benefits of diversity on the Board, including gender.
Pursuant to its Terms of Reference (available from the Company Secretary and at www.iqep.com), the Nominations Committee is required to give full consideration to succession planning for Directors and other senior executives in the course of its work, taking into account the challenges and opportunities facing the company, and the skills and expertise needed on the Board in the future.
The Nominations Committee meets regularly during the year and is instrumental in determining the requirement and process for the identification and subsequent appointment of Directors. The Nominations Committee evaluates the balance of skills, knowledge and experience on the Board and, in the light of this evaluation, prepares a description of the role for new appointments. In identifying potential candidates for positions as Non-Executive Directors, the Committee has full regard to the principles of the Code regarding the independence of Non-Executive Directors. The terms and conditions of appointment of the Non-Executive Directors are available for inspection upon request to the Company Secretary.
The Nominations Committee is responsible for the Board’s policy on diversity. The Board recognises the benefits of diversity. Diversity of gender, social and ethnic backgrounds, cognitive and personal strengths, skills, international and industry experience and knowledge are amongst many other factors taken into consideration when seeking to appoint new Directors to the Board. Notwithstanding the foregoing, all Board appointments will always be made on merit.
IQE and its Nominations Committee do not usually use open advertising and/or an external search consultancy for the appointment of the Chair and Non-Executive Directors, but does so when appropriate and in such event will include a statement about any connection it has with Company or individual Directors in the annual report.
By way of induction to the Group, new Directors meet with the existing members of the Board, senior managers and business function leaders as appropriate and at least annually all Directors receive presentations from senior managers and business function leaders and receive professional independent training and advice as necessary from time to time at the Company’s expense.
Audit, Risk and Internal Control
The Board views maintaining high standards in its governance and management of the affairs of the Group as a fundamental part of discharging its stewardship responsibilities. Accordingly, both the Board and the Audit & Risk Committee continue to keep under review the Group’s whole system of internal control, which comprises not only financial controls, but also operational controls, compliance and risk management. This process accords with the Guidance on Risk Management, Internal Control and Related Financial and Business Reporting.
The Audit & Risk Committee consists of three independent Non-Executive Directors named above. The Board is satisfied that the Audit Committee has competence relevant to the sector in which the company operates.
The main responsibilities of the Audit & Risk Committee are as follows:
- reviewing the effectiveness of the Company’s financial reporting, internal control policies and procedures for the identification, assessment and reporting of risk;
- reviewing significant financial reporting issues and judgements;
- monitoring the integrity of the Company’s financial statements and any formal announcements relating to the company’s financial performance;
- keeping the relationship with the auditors under review, including their terms of engagement, fees and independence;
- monitoring the role and effectiveness of the internal audit;
- advising the Board on whether the Committee believes the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s performance, business model and strategy;
- conducting the tender process and making recommendations to the board, about the appointment, reappointment and removal of the external auditor, and approving the remuneration and terms of engagement of the external auditor;
- reviewing and monitoring the external auditor’s independence and objectivity;
- reviewing the effectiveness of the external audit process, taking into consideration relevant UK professional and regulatory requirements;
- developing and implementing policy on the engagement of the external auditor to supply non-audit services, ensuring there is prior approval of non-audit services, considering the impact this may have on independence, taking into account the relevant regulations and ethical guidance in this regard, and reporting to the board on any improvement or action required; and
- reporting to the board on how it has discharged its responsibilities
The Audit & Risk Committee meets regularly during the year. The meetings are also attended by senior members of the finance team and representatives of the Group’s external auditors by invitation. At meetings attended by the external auditors, time is allowed for the Audit & Risk Committee to discuss issues with the external auditors without management being present.
The Board reviews the effectiveness of the Group’s risk management and internal controls on a continuing basis and has recently extended the Terms of Reference of the Audit Committee so that the Committee now has extended oversight for such matters. Terms of reference for the Audit & Risk Committee are available from the Company Secretary or on the corporate website (www.iqep.com).
The Work of the Audit & Risk Committee is set out in the Audit & Risk Committee Report. The Board and its Audit & Risk Committee’s recent consideration of risk management and internal controls is described further in the Strategic Report published in the 2018 Annual Report.
The Board’s robust assessment of the Company’s emerging and principal risks and a description of the procedures it has in place to identify and manage risks is set out in the Strategic Report published in the 2018 Annual Report.
The Board’s most recent considerations of the adoption of the going concern basis of accounting and its assessment of the long term viability of the business are set in the Strategic Report published in the 2018 Annual Report.
The Group’s policy and practices on Directors’ remuneration and the activities of the Remuneration Committee are described in the Director’s Remuneration Report published in the 2018 Annual Report.
The Executive Directors have responsibility for determining the remuneration of senior management and the company secretary in accordance with policies developed through consultation with the Group’s Human Resources advisers and Remuneration Committee. As with all employees, senior management are eligible to receive share option awards and to an annual bonus (each subject to personal as well as Group financial performance). Further information in relation to IQE’s Bonus Plan and Share Option Plan are provided in the Strategic Report published in the 2018 Annual Report.
Directors exercise independent judgement and discretion when authorising remuneration outcomes, taking account of Company and individual performance as well as wider circumstances. Directors do not participate in decisions concerning their own remuneration.
This page was last updated on 22.08.2019.