Corporate Governance
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The Board confirms that the Company has applied the main provisions and has complied with all of the provisions set out in Section 1 of the June 2008 Combined Code on Corporate Governance during the financial year under review. The full code can be found at www.frc.org.uk.
In May 2010 the Financial Reporting Council issued a new edition of the code, named The UK Corporate Governance Code, which will apply to financial years beginning on or after 29th June 2010. Therefore the new code will be followed for the financial year beginning 1st January 2011.
The Board is committed to maintaining high standards and levels of integrity within a corporate governance framework which underpins the ethos of the Company. Constructive dialogue has continued to be built up over the year between stakeholders and has strengthened investor confidence. The Company’s governance principles have been, and will continue to be kept under review as the Directors believe that a sound corporate governance framework is key to achieving the Company’s objectives and discharging its legal and regulatory responsibilities.
The Company's going concern statement can be found in the Financial Review and is incorporated here by reference.
Back to topThe Board
The Board is collectively responsible for the success of the Company and in this capacity has over the financial year under review dispensed independent judgement in relation to, but not limited to, strategy, executive performance and retention, remuneration and succession, financial performance, the issue of any securities, significant borrowing facilities, development opportunities, investment portfolio acquisitions and disposals, corporate reputation and communication, internal control and risk management and the Board's own effectiveness. In carrying out its responsibilities, the Board takes into account the size, and complexity of the Group, and internal control measures employed to determine those formal matters reserved to the Board and those delegated to its various Committees or the Executive Directors.
The Board met eight times during the year and held one meeting solely to consider the Group's strategy. The Chairman and the Non-executive Directors met on one occasion during the year with no Executive Directors in attendance.
The Board during the financial year consisted of four Executive Directors, three Non-executive Directors and a Non-executive Chairman. The Company considers all the Non-executive Directors to be independent. The Chairman was considered independent on appointment. S C Bates joined the Board on 15th January 2010, following which there were five Non-executive Directors, until P V S Manduca stepped down as Non-executive Director on 7th May 2010.
The current ratio of Executive and Non-executive Directors is permissible for a smaller company under Code provision A.3.2. The Non-executive Directors provide a valued role by contributing to the decisions and challenging aspects of executive decisions to produce a considered and independent outcome to Board deliberations. The roles and remit of the Chairman and the Executive Directors are set out in writing and agreed by the Board.
V M Mitchell was appointed to the role of Senior Independent Director on 7th May 2010 following P V S Manduca resigning at the AGM.
As in previous years, the Board has undertaken a formal performance evaluation of the Board as a whole, its Committees and individual Directors to ensure effective contribution and maintenance of commitment. V M Mitchell chaired a meeting of the Non-executive Directors without the Chairman or Executive Directors present, at which, inter alia, the performance of the Chairman was reviewed on behalf of the Board. The evaluation was conducted by means of a questionnaire which was co-ordinated and collated by the Interim Company Secretary. The responses were considered by the Board and suggestions for improvements have been implemented.
All Directors have access to the services of the Interim Company Secretary and may seek independent professional advice as necessary, at the Company's expense, and subject to the consent of the Chairman. Upon election, or re-election, Non-executives are invited to serve for three-year fixed terms. All Non-executive Directors have confirmed that they have sufficient time to dedicate to their role. Their terms of appointment are available from the Interim Company Secretary and details of the Non-executive Directors' letters of appointment are detailed in section 1k of the Remuneration Report. Directors may receive appropriate training on introduction and whilst in office.
To promote internal communication and improve efficiency, the Board delegates responsibility for certain matters to Standing Committees which report back to the Board.
Back to topAudit Committee
The Audit Committee comprises V M Mitchell, D S Jenkins, and S C Bates. S C Bates joined as a member on 27th January 2010 and succeeded P V S Manduca as Chairman following the 2010 AGM.
The Company's Chief Executive and Finance Director attend the Audit Committee meetings by invitation. The Committee also met without Executive Directors present and S C Bates as Chairman of the Committee met separately with the auditors.
The Committee met three times during the year. A meeting was held to agree the terms of engagement, proposed approach and the fees of the annual audit. As is standard each year, two of the meetings take place prior to the issue of the preliminary full-year and interim results in order to consider any significant issues arising from the audit and review processes. The Board has determined that D S Jenkins has ‘recent and relevant financial experience’ for the purposes of the Combined Code.
It is within the Committee's remit to recommend the appointment of the external auditors, advise on the Group’s accounting policies and monitor the treatment of areas of major judgement in the Group’s financial statements. Furthermore, it acts as a conduit between the Board and the external auditors.
Apart from conducting the annual audit, Pricewaterhouse-Coopers LLP was also engaged during the year to conduct a review of the interim results to 30th June 2010 and provided tax advisory, compliance and planning services at a total cost of £694,000. This figure also incorporates the substantial compliance work undertaken in relation to the Placing and Rights Issue which PricewaterhouseCoopers LLP are best placed to undertake as the Company's auditor. PricewaterhouseCoopers LLP also provided due diligence support on the acquisition of the Henry Davidson Developments Group and the Manchester Arena Complex. An analysis of the non audit fees can be found in note 4 to the financial statements. During the year a non audit services policy was approved and adopted by the Committee providing for added control measures around the instruction of the auditors to undertake non audit work. Given the clear efficiencies and value-added benefits to the Company of combining the audit and consultancy roles, additional scrutiny was placed on the independence and objectivity of PricewaterhouseCoopers LLP. The Audit Committee was satisfied as to their independence and accordingly recommend their re-appointment as auditors. This was subsequently ratified by the Board and accordingly the re-appointment of PricewaterhouseCoopers LLP as auditors will be proposed at the forthcoming Annual General Meeting. PricewaterhouseCoopers LLP has been the independent auditors of Development Securities PLC since 2008.
Back to topNomination Committee
The Nomination Committee comprises D S Jenkins as Chairman, V M Mitchell and M H Marx. As from 7th May 2010, V M Mitchell became a member following P V S Manduca's resignation. The Nomination Committee has reviewed the size, structure and composition of the Board and devises and implements succession plans for appointments to the Board, which are fulfilled through an effective search, interview and evaluation process based upon objective criteria.
The Nomination Committee meets as necessary. In the year under review it met twice, once to discuss and recommend the election of S C Bates and the re-election of those Directors retiring by rotation at the 2010 Annual General Meeting. A second meeting discussed succession planning in respect of two of the Non-executive Directors who will soon be reaching nine years of service on the Board. At a meeting held in February 2011 the Committee approved the retirement by rotation of C J Barwick and the voluntary re-election of the whole Board in accordance with best practice in connection with the recent Rights Issue.
Back to topRemuneration Committee
The Remuneration Committee comprises M S Soames as Chairman, V M Mitchell and D S Jenkins. The Committee is authorised to determine remuneration policy, details of which can be found in the Remuneration Report.
The policy includes the exercise of powers to grant options under the Group's option schemes to the Executive Directors and senior managers and awards under the Performance Share Plan. In addition the policy specifies the framework for determining the annual bonus, awards under the Development Profit Plan, Joint Venture Profit Plan, Strategic Profit Plan, the Investment Growth Plan and ad hoc bonuses for exceptional contributions.
| Board | Audit Committee |
Nomination Committee |
Remuneration Committee | |
|---|---|---|---|---|
| Number of meetings | 8 | 3 | 2 | 4 |
| D S Jenkins | 8 | 3 | 2 | 4 |
| M H Marx | 8 | — | 2 | — |
| G Prothero | 7 | — | — | — |
| C J Barwick | 8 | — | — | — |
| M S Weiner | 7 | — | — | — |
| P V S Manduca* | 3 [3] | 1 [1] | 1 [1] | — |
| V M Mitchell | 8 | 3 | 2 | 4 |
| M S Soames | 8 | — | — | 4 |
| S C Bates | 8 | 3 | — | — |
Approvals Committee
The Approvals Committee comprises two Executive Directors and a minimum of two Non-executive Directors. Its remit is to permit the approval of transactions between £2.0 million and £5.0 million, which are then reported to the Board. Transactions below £2.0 million are delegated to the relevant Executive Directors responsible and those above £5.0 million are under the remit of the Board.
The terms of reference of the Audit, Nomination and Remuneration Committees, as determined by the Board, are available upon request from the Interim Company Secretary and are also published on the Company's website.
The above table sets out the attendance of the Directors at the meetings of the Board and the Audit, Nomination and Remuneration Committees held during 2010.
Back to topRelations with shareholders
The Executive Directors have regular dialogue with institutional shareholders. The Chairman, Senior Independent Director and Non-executive Directors are available at any time to meet with them. No shareholders asked to meet with V M Mitchell or P V S Manduca, the Senior Independent Directors during the year. The Company's Annual General Meeting provides an opportunity to respond to shareholders’ appropriate questions. Directors are introduced to shareholders at the Annual General Meeting, including the identification of Non-executives and Committee Chairmen. The Company’s website is updated at the same time as the Regulated Information Service, to provide additional information dissemination for shareholders. Shareholders are also invited to free subscription of the Company's e-mail news alert service on the Company's website.
Back to topInternal control
The Directors acknowledge their responsibility for reviewing the effectiveness of the Group's system of internal control to safeguard shareholders' investments and protect the Company’s assets. The operational, financial and compliance risk controls are designed to manage risk rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. The Board has conducted a thorough risk assessment of the business, identifying risks, their potential impact, likelihood of occurrence, controls and mitigating actions, together with early warning systems and further actions which need to be implemented.
Detailed below is a description of the Group's internal control and risk management used in the process of preparing the consolidated financial statements.
The regular process of identifying, evaluating and managing significant corporate risks has been delegated by the Board to a Risk Committee, consisting of M H Marx as Chairman, C J Barwick, M S Weiner, G Prothero and three senior managers, R C McCubbine, D P Redstone and D A K Trench. It has been agreed that from 1st January 2011 there will be at least one Non-executive Director in attendance at meetings of the Risk Committee.
The Committee meets quarterly during the year to ensure that the Group's risk management procedures are comprehensive and appropriate for the current economic climate, regulatory requirements and business operations. The Committee's remit includes all of the Group’s subsidiaries and those joint ventures and associates which are administered by the Company. Those joint ventures and associates not internally administered do not form part of the review process and in such circumstances, the Committee maintains a current schedule of risks, their likelihood of occurrence and prospective impact which it assesses for completeness at each meeting. The minutes of the Committee’s deliberations are reviewed by the Board. In addition to the activities of the Risk Committee, a risk-evaluation on each significant prospective development, investment or joint venture opportunity is evaluated by the Board, and for development opportunities, the risks are evaluated by an internal independent Project Review Committee. The Executive Directors regularly evaluate the Group's risk-weighted development exposure, which is then considered by the Board. All necessary actions have been or are being taken to remedy any weaknesses acknowledged from the quarterly reviews. No significant failings were identified over the year.
A 'whistle blowing policy' has been prepared and issued to all staff in the Group, outlining arrangements by which they may, in confidence, raise concerns about possible improprieties in matters of financial reporting or other issues.
During the financial year under review the Company appointed H W Fisher as its internal auditors, to carry out a review of the control processes employed in specific areas of the business.
In recent years the Directors have procured a number of internal audit reports from an external service provider, instructed ad hoc on specific issues. During 2010 the Directors decided that, in view of the Company’s increasing size and complexity, it is appropriate to formalise this role into a continuous service. Accordingly H W Fisher has been appointed as the Group’s internal auditor, reporting to the Audit Committee.
The Board has conducted a review of the effectiveness of the system of internal control for the year ended 31st December 2010 and to the date of this report, and considers that there is an ongoing process for identifying, evaluating and managing the Group's significant risks including financial, operational and compliance controls and a risk management system; that has been in place for the year ended 31st December 2010 and up to the date of approval of these financial statements, that it is regularly reviewed by the Board, and that there is a sound system of internal control which accords with the Turnbull Guidance.
Back to topStatement of Directors' responsibilities
The Directors are responsible for preparing the Annual Report, the Remuneration Report and the Financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under this law, the Directors have prepared the Group financial statements in accordance with International Financial Reporting Standards (IFRS's) as adopted by the European Union, and the Parent Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the Directors must not approve the Financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for the period. In preparing these Financial statements, the Directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and accounting estimates that are reasonable and prudent;
- state whether IFRS's, as adopted by the European Union and applicable UK Accounting Standards, have been followed, subject to any material departures disclosed and explained in the Group and Parent Company financial statements respectively; and
- prepare the Financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the Financial statements and the Remuneration Report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Each of the Directors, whose names and functions are listed in the Remuneration Report confirm that, to the best of their knowledge:
- the Group financial statements, which have been prepared in accordance with IFRS's as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and
- the Report of the Directors incorporating the Summary page, the Chairman’s Statement, Chief Executive's Statement, the Business Model, Operating Review, Financial Review, Corporate Responsibility and Board of Directors includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.
By order of the Board
V M Mitchell
Senior Independent Director
1st March 2011