Corporate Governance Statement
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 adopt the Quoted Alliance’s 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 the highest standards of corporate governance.
Jonathan Freeman, in his capacity as non-executive director and Chairman, 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 is centred upon open and respectful dialogue with customers and suppliers. 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 nonexecutive 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. The Board has a Chairman with the CEO being excluded from taking on this role.
Application of the QCA Code
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. Where the Group does not fully apply each principle an explanation as to why has also been provided:
Principle One: Business Model and Strategy
The Board has adopted a strategy for each business unit as outlined in the 2017 annual report www.photonstarled.com/investorrelations/annual_and_half_yearly_reports/ .
Principle Two: Understanding Shareholder needs and Expectations
The Board is committed to maintaining good communication and having a constructive dialogue with its shareholders. Institutional shareholders and analysts have the opportunity to discuss issues and provide feedback at meetings with the Company. In addition, all shareholders are encouraged `to attend the Company’s Annual General Meeting and any other General Meetings that are held throughout the year. Investors also have access to current information about the Group on the Company’s website.
Principle Three: Stakeholder Responsibilities
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 resources and relationships. 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 and suppliers are the responsibility of, or are closely supervised by, one of the directors or the financial controller.
Principle Four: Risk Management
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. The risk assessment matrix below sets out those risks, and identifies their ownership and the controls that 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 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 or product requirements
Withdrawal of product authorisation
Strong product compliance regime
Damage to reputation
Inadequate disaster recovery procedures
Inability to secure new customers
Loss of key operational and financial data
Effective communications with shareholders
Secure off-site storage of data
Liquidity, market and credit risk
Inability to continue as a going concern
Robust financial controls and procedures throughout the Group
The directors have established procedures for the purpose of providing a system of internal control. In addition there are a range of Group policies that are reviewed at least annually by the Board and a programme of training and then confirmation of understanding that all employees of the Group are required to undertake each year. These group policies cover matters such as share dealing and insider legislation and expenses. The Board currently takes the view that 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 the executive directors. However, the Board will continue to monitor the need for an internal audit function. The annual review of internal control and financial reporting procedures did not highlight any issues warranting the introduction of an internal audit function. It was concluded, given the current size and transparency of the operations of the Group, that an internal audit function was not required.
Principle Five: A Well-Functioning Board of Directors
The Board is currently comprised of Jonathan Freeman as the Chairman together with John Treacy and Martin Lampshire as non-executive directors. The time commitment formally required by the Group is an overriding principal that each director will devote as much time as is required to carry out the roles and responsibilities that the director has agreed to take on. Details of the current directors are set out under ‘Board of Directors’ on the Investor relations page of the Group’s website http://www.photonstarled.com/investorrelations/ .
Executive and non-executive directors are subject to re-election intervals as prescribed in the Company’s Articles of Association. At each Annual General Meeting one-third of the Directors, who are subject to retirement by rotation shall retire from office. They can then offer themselves for re-election. The letters of appointment of all directors are available for inspection at the Company’s registered office during normal business hours. The Executive Directors are employed under service contracts requiring six months’ notice by either party. Non-Executive Directors and the Chairman receive payments under appointment letters which are terminable by three months’ notice by either party. The Non-Executive Directors receive a fee for their services as a director which is approved by the Board, being mindful of the time commitment and responsibilities of their roles and of current market rates for comparable organisations and appointments. In addition, non-executive directors are also reimbursed for travelling and other incidental expenses incurred on Group business.
The Board encourages the ownership of shares in the Company by Executive and Non-Executive Directors alike and in normal circumstances does not expect Directors to undertake dealings of a short-term nature. The Non-Executive Directors are encouraged to receive a proportion of their remuneration in the form of shares. The quantum of the shares is agreed with the individual and the method of delivering the agreed number of shares is either by the issue of new shares by the Company or by the payment of cash to the individual who undertakes to use the funds to purchase shares in the market as soon as this is possible and with regards to the close periods that the Company may be in. The Board considers ownership of Company shares by Non-Executive Directors as a positive alignment of their interest with shareholders. The Board will periodically review the shareholdings of the Non-Executive Directors and will seek guidance from its advisors if, at any time, it is concerned that the shareholding of any Non-Executive Director may, or could appear to, conflict with their duties as an independent Non-Executive Director of the Company or their independence itself.
The Board has established an Audit Committee and a Remuneration Committee and has agreed that appointments to the Board are made by the Board as a whole and so has not created a Nominations Committee. The Board retains full control of the Group with day-to-day operational control delegated to Executive Directors. The full Board meets monthly and on any other occasions it considers necessary.
Principle Six: Appropriate Skills and Experience of the Directors
The Board currently consists of three directors and, in addition, the Group uses the services of CFO Solutions Limited for ad hoc financial advisory services and also to act as the 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. Jonathan Freeman is currently the Company's only independent non-executive director. The Company acknowledges that the guidance in the QCA Code is for a company to have at least two independent non-executive directors. However, the Directors are satisfied that the Company's board composition is appropriate given the Company's size and stage of development. The Directors shall keep the position under regular review and to the extent additional independence is felt to be required on the Board, it shall be sought.
Principle Seven: Evaluation of Board Performance
Internal evaluation of the Board, its Committees and individual directors is seen as an important next step in the development of the board. This will be undertaken on annual basis in the form of peer appraisal, questionnaires and discussions to determine the effectiveness and performance in various areas as well as the directors’ continued independence. The criteria against which effectiveness is considered will be aligned to the strategy of the Group and management forecasts and budgets that are already in place.
Succession planning for the Board and senior management is undertaken by the board as a whole rather than via a Nominations Committee. The strategy and budgets that are set out for the Group provide a forecast of the board and senior management requirements and allow for the recruitment forecasts to be continually updated.
Principle Eight: Corporate Culture
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 addressing customer and market needs. 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.
Principle Nine: 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 Chairman 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 Chairman and the Chief Executive Officer. The Chairman 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.
The Audit Committee currently comprises Jonathan Freeman (Chairman) and is also attended by CFO Solutions Limited. It meets as required and specifically to review the Interim Report and Annual Report, and to consider the suitability and monitor the effectiveness of internal control processes. There were two meetings of the Audit Committee during 2017. The Audit Committee also reviews the findings of the external auditor and reviews accounting policies and material accounting judgements. The independence and effectiveness of the external auditor is reviewed annually. The possibility of undertaking an audit tender process is considered on a regular basis. In addition the Audit Committee meets at least once year with the auditor to discuss their independence and objectivity, the Annual Report, any audit issues arising, internal control processes, appointment and fee levels and any other appropriate matters.
The Remuneration Committee comprises Jonathan Freeman as Chairman. The purpose of the Remuneration Committee is to ensure that the Executive Directors and other employees are fairly rewarded for their individual contribution to the overall performance of the Group. The Committee considers and recommends to the Board the remuneration of the Executive Directors and is kept informed of the remuneration packages of senior staff and invited to comment on these. There was one Remuneration Committee meeting during 2017. The Board retains responsibility for overall remuneration policy. Executive remuneration packages are designed to attract and retain executives of the necessary skill and calibre to run the Group. The Remuneration Committee recommends to the Board the remuneration packages by reference to individual performance and uses the knowledge and experience of the Committee members, published surveys relating to AIM companies, the lighting industry and market changes generally. The Remuneration Committee has responsibility for recommending any long-term incentive schemes.
The Remuneration of Executive Directors and Employees is via three categories:
1. Basic salaries and benefits in kind: Basic salaries are recommended to the Board by the Remuneration Committee, taking into account the performance of the individual and the rates for similar positions in comparable companies. Certain benefits in kind are available to certain senior staff and Executive Directors.
2. Share options: The Company operates approved and unapproved share option schemes for Executive Directors and other employees to motivate those individuals through equity participation. Exercise of share options under the schemes is subject to specified exercise periods and compliance with the AIM Rules. The schemes are overseen by the Remuneration Committee which recommends to the Board all grants of share options based on the Remuneration Committee’s assessment of personal performance and specifying the terms under which eligible individuals may be invited to participate. It is intended that the performance related elements of remuneration form a significant proportion of the total remuneration package of Executive Directors and be designed to align their interests with those of shareholders. In this development phase of the Group the Remuneration Committee currently considers that the best alignment of these interests is through the continued use of incentives for performance through the award of share options.
3. Bonus Scheme: The Group has a discretionary bonus scheme for staff and Executive Directors which is specific to each individual and the role performed by that individual within the Group. Reviews are held in March of each year for implementation from 1 April to enable the Group’s performance over the preceding year and the strategy for the forthcoming year to be considered.
Non-executive Directors: 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 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. 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.
Principle Ten: Shareholder Communication
The Board is committed to maintaining good communication and having constructive dialogue with its shareholders. Institutional shareholders and analysts have the opportunity to discuss issues and provide feedback at meetings with the Company. In addition, all shareholders are encouraged to attend the Company’s Annual General Meeting or any other General Meetings that are held throughout the year. Investors also have access to current information on the Company though its website, www.photonstarled.com .