Good corporate governance is a key element of our business success.
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My primary role is to lead the Board and ensure that it works effectively and collaboratively to create sustainable, long-term shareholder value.
Good corporate governance is a key element of our business success. The Board is therefore committed to ensuring that high standards of governance, values and behaviours are consistently applied throughout the Group. These elements are critical to business integrity and maintaining investors' trust in Halfords.
The Board has recently welcomed the new Chief Executive Officer, Jill McDonald, following the resignation of Matt Davies. Jill joined the Company from the McDonald's Corporation, where she was CEO, UK & President, North West Division, Europe. She brings to the Board a wealth of experience from successfully heading a large complex service-led consumer facing business. The Board very much looks forward to working with her and the Executive Team, providing appropriate guidance and independent thought and challenge for the sustainable delivery of the Group's long term strategy.
The following Corporate Governance Report contains a summary of the Company's governance arrangements and the regulatory assurances required under the UK Corporate Governance Code 2012.
I would encourage you to attend this year's AGM and meet me and the Board.
4 June 2015
Statement of Compliance with UK Corporate Governance Code
Responsibility for good governance lies with the Board. The Board is accountable to shareholders and is committed to the highest standards of corporate governance as set out in the UK Corporate Governance Code 2012 (the "Code"). The Code can be found on the Financial Reporting Council's website at www.frc.org.uk. The Board considers that throughout the period ended 3 April 2015, the Company has complied, without exception, with the provisions of the Code.
This report outlines how the Board has applied the main principles of good governance set out in the Code during the period under review.
The Board is committed to ensuring that it provides leadership to the business as a whole, having regard to the interests and views of its shareholders and other stakeholders. It is also responsible for setting the Group's strategy, values and standards. Details of the Group's business model and strategy.
The roles of Chairman and Chief Executive Officer are separate and clearly defined, with the division of responsibilities set out in writing and agreed by the Board. The definitions of the roles are available at: www.halfordscompany.com/investors/governance/division-of-responsibilities-between-the-chairman-and-chief-executive-officer.
As at the date of this report, the Board of Directors was made up of six members, comprising the Non-Executive Chairman, two Executive Directors and three Non-Executive Directors. The composition of the Board is as set out under Halfords Board and the biographies of individual Directors, including any other business commitments, are available on the Board of Directors and also at www.halfordscompany.com/investors/governance/the-board.
The Directors together act in the best interests of the Company via the Board and its Committees, devoting sufficient time and consideration as necessary to fulfil their duties. Each Director brings different skills, experience and knowledge to the Company, with the Non-Executive Directors additionally bringing independent thought and judgement. This combination seeks to ensure that no individual or group unduly restricts or controls decision-making.
Each of the Non-Executive Directors (excluding the Chairman) is considered independent of management and free of any relationship that could materially interfere with the exercise of their independent judgement. The Chairman was considered independent upon his appointment. The Board considers that each Non-Executive Director brings their own senior level of experience, gained within their field.
Key matters reserved for Board approval
Group strategy and risk management
- Approval of the Group's Strategy and Business Plan
- Approval of changes to capital structure
- Approval of any decisions to cease to operate all or any material part of the Group's business.
- Approval of extension of activities into new businesses or geographical areas
financial and internal controls
- Oversight of risk management and internal control framework
- Approval of financial statements and results announcements
- Approval of shareholder communications, circulars and Notices of Meetings
- Approval of the Auditor's remuneration and terms of engagement
- Recommendation and declaration of dividends
- Approval of major capital expenditure projects
- Approval of material contracts
EXECUTIVE DIRECTORS AND SENIOR MANAGEMENT
How We Do Business is the internal name of the formal delegated authorities document approved by the Board. It describes how day-to-day decisions are delegated to the Executive Directors, the Senior Management Team and others within the business. Each potential activity is set out by reference from whom approval must be sought and the paperwork required to evidence that approval. Where an activity is not expressly described within How We Do Business, approval must be sought from the Senior Management Team, who will apply the principles of How We Do Business to the decision. The implementation of the document is constantly monitored, with updates proposed to the Board to reflect changing practices or structures. Briefing sessions were held for all relevant Support Centre colleagues upon launch and are refreshed whenever the document is updated.
The key responsibilities of Board members are set out below:
|Chairman of the Board|
- Leadership of the Board including its operation and governance
- Builds an effective and complementary Board
- Sets the agenda, style and tone of Board discussions
- Facilitates and encourages active engagement in meetings, promoting effective relationships and open communication
- Ensures effective communications with shareholders and other stakeholders
|Group Chief Executive|
- Develops the Group objectives and strategy for Board approval
- Creates and recommends to the Board an annual budget and five year financial plan
- Successfully delivers against the financial plan and other objectives and executes the agreed Group strategy
- Identifies and executes new business opportunities and potential acquisitions or disposals
- Manages the Group's risk in line with the Board approved risk profile
|Senior Independent Director|
- Supports the Chairman in his role
- Holds meetings with the other Non-Executive Directors without the Chairman at least once a year to appraise the Chairman's performance
- Acts as an intermediary for the other Directors or as a sounding board for the Chairman if required
- Available to other Directors and shareholders with concerns that cannot be addressed through the normal channels
|Non-Executive Directors, including the Chairman|
- Evaluate and appraise the performance of Executive Directors and Senior Management against agreed targets
- Participate in the development of the strategy of the Group
- Monitor the financial information, risk management and controls processes of the Group to make sure that they are sufficiently robust
- Meet regularly with senior management
- Periodically visit retail stores, Autocentres and distribution centres
- Meet together regularly without the Executive Directors present
- Formulate Executive Director remuneration and succession planning
- Works closely with the Chairman, Group CEO and Board Committee Chairmen in setting the rolling calendar of agenda items for the meetings of the Board and its committees
- Ensures accurate, timely and appropriate information flows within the Board, the Committees and between the Directors and senior management
- Provides advice on Board matters, legal and regulatory issues, corporate governance, Listing Rules compliance and best practice
A formal schedule of matters reserved for the Board is in place and regularly reviewed. This is available at: www.halfordscompany.com/investors/governance/matters-reserved-for-the-board.
To effectively discharge these responsibilities, the Board has additionally implemented a system of delegated authorities. This enables the effective day-to-day operation of the business and ensures that significant matters are brought to the attention of management and the Board as appropriate. It is through this system that the Board is able to provide oversight and direction to the Executive Directors, the Senior Management Team and the wider business.
Matters Reserved for the Board include: Authority; Strategy and Management; Structure and Capital; Investor Relations; Audit, Financial Reporting and Controls; Nominations to the Board; Executive Remuneration and Significant Contracts.
Board Meetings and Attendance
The table below shows the attendance of Directors at the meetings of the Board and of the Audit, Nomination and Remuneration Committees during the year ended 3 April 2015. Where a Director did not attend meetings owing to prior commitments or other unavoidable circumstances, he or she provided input to the Chairman so that his or her views were known.
Board Attendance at Scheduled Meetings
|Board Member||Scheduled: 12||Scheduled: 4||Scheduled: 8||Scheduled: 2|
-Number of meetings available to the individual
-Number of meetings attended by the individual
-Number of meetings invited to attend for whole or part of the meeting
Other members of the Senior Management Team and advisors attended Board meetings by invitation as appropriate throughout the year. The Board also held a two-day Strategy meeting during the period.
At each Board meeting, the Chief Executive Officer delivers a high level update on business, before the Board moves to considering specific reports, reviewing business and financial performance, key initiatives, risks and governance. In addition, throughout the year the Senior Management Team and other colleagues deliver presentations to the Board on proposed initiatives and progress on projects.
The Board Committees are the Audit Committee, the Nomination Committee and the Remuneration Committee. Specific responsibilities have been delegated to each. Each Committee has its terms of reference approved and regularly reviewed by the Board. The terms of reference for the Committees are available on www.halfordscompany.com/investors/governance. On the following pages each Committee Chairman reports how the Committee he/she chairs discharged its responsibilities in FY15 and the material matters that were considered.
Following each meeting of a Committee, the Committee Chairman reports to the Board. Whilst not entitled to attend, other Directors, professional advisers and members of senior management attend when invited to do so. The Auditor attends Audit Committee meetings by invitation. No person is present at Nomination Committee or Remuneration Committee during discussions pertinent to them. The Company Secretary acts as the secretary to each Committee.
A Disclosure Committee, made up of a minimum of two Directors, approves the final wording of market announcements prior to release. There were five Disclosure Committees during the period.
The day-to-day treasury needs of the Group are managed by the Treasury Committee, chaired by the CFO and whose other members are senior members of the finance and treasury teams.
The Board may establish other ad hoc committees of the Board to consider specific issues from time to time. No such committees were formed during the year.
The Board is the principal decision-making forum for the Group, setting the strategic direction and ensuring that the Group manages risk effectively. The Board is accountable to shareholders for financial and operational performance.
See examples of Matters Reserved for the Board. A complete list is available on the company's website www.halfordscompany.com
To ensure that the Board has the skills, knowledge and experience to be effective in discharging its responsibilities and to have oversight of all governance matters
Making appropriate recommendations to maintain the balance of skills and experience of the Board by considering:
- the size, structure and composition of the Board; and
- Senior management succession plans, retirements and appointments of additional and replacement Directors.
More information on diversity in the Group can be found in the Directors' Report and the Nomination Committee Report
Read more within the Nomination Committee Report
To provide effective governance over the Group's financial reporting processes including the internal audit function and external Auditor and to maintain oversight of the Group's systems of internal control and risk management activities
The Audit Committee's responsibilities include:
- making recommendations to the Board on the appointment/removal of the external Auditor, the terms of engagement and fees;
- reviewing and monitoring the integrity of the Company's financial statements, including its annual and interim reports and preliminary results announcements and any other formal announcement relating to its financial performance, and then recommending the same to the Board;
- assisting the Board in achieving its obligations under the Code in areas of risk management and internal control; and
- focusing particularly on compliance with legal requirements, accounting standards and the Listing Rules.
Read more within the Audit Committee Report
To ensure that a Board policy exists for the remuneration of the CEO, the Chairman, other Executive Directors and members of the executive management.
The Remunerations Committee's responsibilities include:
- recommending to the Board the total individual remuneration package of Executive Directors and members of the executive management;
- recommending the design of the company share incentive plans to the Board, approving any awards to Executive Directors and other executive managers under those plans and defining any performance conditions attached to those awards;
- determining the Chairman's fee, following a recommendation from the CEO; and
- maintaining an active dialogue with institutional investors and shareholder representatives
Read more within the Remuneration Committee Report
- Represents the Committee at the close of period. Since the close of the period, Matt Davies has resigned and Jill McDonald, successor CEO, has replaced him on the Committee.
The Nomination, Audit and Remuneration Committees’ full Terms of Reference are available on the Company’s website or on request from the Company Secretary
The Chairman seeks to resolve any concerns raised by the Board, whether raised in a Board meeting or in another forum. Where raised and unresolved in a Board meeting, the unresolved business can be recorded on behalf of a Director in the minutes of the relevant meeting. A resigning Non-Executive Director would also be able to raise any concerns in a written letter to the Chairman, who would bring such concerns to the attention of the Board. No such concerns have been raised throughout the period.
The Independent Non-Executive Directors bring a wide range of experience and expertise to the Group's affairs and carry significant weight in the Board's decisions. The Independent Non-Executive Directors are encouraged to challenge management and help develop proposals on strategy. In compliance with the requirements of the Code for at least half of the Board, excluding the Chairman, to be independent, the Company confirms that 60% of its Board are independent.
The Board considers David Adams, Claudia Arney and Helen Jones to be independent in character and judgement in accordance with the requirements of the Code. The Chairman, Dennis Millard, was considered independent on his appointment.
skills and experience of the board — moving us through the gears
The below graphic illustrates the number of Directors on the Board who have the relevant skills and experience listed to the right.
* Individual Directors may fall into one or more categories.
Represents the Board at the close of the period.
Balance of Non-Executive Directors: Executive Directors
Length of tenure
0-3 years: 2
3-6 years: 4
- Represents the Board at the close of the period. Bill Ronald and Keith Harris retired during the period on 31 May 2014.
- Since the close of the period and the date of this report, Matt Davies has resigned as CEO and been superseded by Jill McDonald, making the gender ratio 3:3.
Directors' Induction training
The Board considers that it is the background and experience brought to the Board by each individual that best secures and demonstrates its diversity. The principle that candidates are considered "on merit and against objective criteria, and with due regard for the benefits of diversity on the Board, including gender" is established in the Terms of Reference of the Nomination Committee.
No fixed quota is applied to decisions regarding recruitment, rather the Nomination Committee considers capability and capacity to commit the necessary time to the role in its recommendations to the Board. The intention is the appointment of the most suitably-qualified candidate to complement and balance the current skills, knowledge and experience on the Board, seeking to appoint those who will be best able to help lead the Company in its long-term strategy. Following Jill McDonald's appointment, 50% of the Board is female, already exceeding the EU's 2020 guideline of 40%.
The Board is well-placed by the mixture of skills, experience and knowledge of its Directors to act in the best interests of the Company and its shareholders.
Appointments to the Board
At the end of April, Matt Davies resigned as the Group Chief Executive Officer after two and a half years on the Board. As reported in the Nomination Committee's report, a thorough search was conducted to identify suitable candidates, both internally and externally to succeed him in this role. Upon the recommendation of the Nomination Committee, Jill McDonald joined the Board on 11 May 2015 as Chief Executive Officer. Jill was formerly CEO, UK & President, North West Division, Europe for McDonald's Corporation. She brings with her significant corporate, operational and brand management experience.
Succession planning is not, however, confined to the Board itself and the Board pays a close interest in identifying and cultivating leaders of the future from within the business.
All new Directors receive an induction tailored to their individual requirements, to include briefings on the activities of the Group and visits to operational sites. They also meet all of the Company's other Directors and Senior Executives. This facilitates their understanding of the Group and the key drivers of the business' performance. Jill McDonald is currently undertaking a full induction programme as prepared by the Chairman, with the assistance of the Company Secretary. Upon joining she was provided with background materials covering the operational and organisational structure of the business, as well as the strategic aims and key initiatives of the Company. Over the coming two months she will hold one-to-one meetings with all members of the Senior Management Team, as well as undertaking extensive Retail store, Autocentre and distribution centre visits, meeting colleagues from across the Group.
Training and Development
All current Directors have various opportunities for on-going development and support via:
- A programme of Support Centre, distribution centre, Retail store and Autocentre visits;
- Reviews with the Chairman to identify any training and development needs;
- Advice on governance, relevant legislative changes affecting the business or their duties as Directors from the Company Secretary;
- Access to independent professional advice at the Company's expense; and
- Membership of the Deloitte Academy, a training and guidance resource for boards and directors.
It is important to regularly review the effectiveness of the Board and its Committees. Despite undertaking an external review in the last period, the Company decided to repeat the exercise, engaging the services of an external facilitator, Lintstock Limited. Owing to changes within the make-up of the Board, the decision was taken to delay slightly, performing the assessment in April 2015.
The assessment considered topics under the headings:
- Board Composition, Expertise & Dynamics;
- Time Management;
- Board Support;
- Board Committees;
- Strategic Oversight;
- Risk Management and Internal Control;
- Succession Planning; and
- Priorities for Change.
Following this review, the Chairman is satisfied that the Board and its Committees are performing effectively and that there is the appropriate balance of skills, experience, independence and knowledge of the Group to enable the Directors to discharge their respective duties and responsibilities effectively. The Board will continue to take proactive steps to address recommended improvements.
The three most significant actions to be taken as a result of the assessment are set out below:
- Following the change of the CEO and forthcoming change of the CFO, the composition of the Board and its Committees and the background and expertise of their members will be reviewed, to ensure that they have the appropriate expertise to deliver the Group's strategy;
- The Board will develop new innovative ways of considering and setting future strategy and direction; and
- The NEDs will meet more frequently, without the Executives, through a series of scheduled formalised meetings.
In compliance with the Code and the Company's Articles of Association, all Directors on the Board as at 4 June 2015, will seek re-election at the Company's AGM. Jill McDonald will seek election for the first time.
Directors and their Other Interests
Each Director is required to notify the Company of any situation in which he or she has, or could have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the Company (a situational conflict). None was notified during the period.
All Directors are aware of the need to consult with the Company Secretary should any possible situational conflict arise, so that prior consideration can be given by the Board as to whether or not such conflict will be approved.
Details of the Directors' service contracts, emoluments, the interests of the Directors and their immediate families in the share capital of the Company and options to subscribe for shares in the Company are shown in the Directors' Remuneration Report.
Internal Control and Risk Management
Overall responsibility for the system of internal control and reviewing its effectiveness rests with the Board. This involves ensuring that there is a process to identify, evaluate and manage any significant risks that may affect the achievement of the Group's strategic objectives.
The Board has conducted an annual review of the effectiveness of the systems of internal control during the year, under the auspices of the Audit Committee. The Audit Committee provides the Board with an independent assessment of the Group's financial position, accounting affairs and control systems. In addition, the Board receives regular reports on how specific risks that are assessed as material to the Group are being managed. For further information on the Company's compliance with the Code provisions relating to the Audit Committee and Auditor please refer to the Audit Committee report.
The risk management and internal control system is designed to manage, rather than eliminate, the risk of failing to achieve business objectives and can provide only reasonable, and not absolute, assurance against material misstatement or loss. The Board's policy on internal control is implemented by management through a clearly defined operating structure with lines of responsibility and delegated authority.
An on going process for identifying, evaluating and managing the significant risks faced by the Group and assessing the effectiveness of related controls has been established by the Board to ensure an acceptable risk/reward profile across the Group. The process has been in place throughout the period ended 3 April 2015, and up to the date of approving the Annual Report and Financial Statements.
Our process for identifying, evaluating and managing the significant risks faced by the Group and assessing the effectiveness of related controls routinely identifies areas for improvement, but the Board has neither identified nor been advised of any failings or weaknesses that it has determined to be material or significant.
The Board considered its appetite for risk in relation to the top 30 risks, determining that the risks and mitigating actions were appropriate to the level of risk that was both acceptable to, and incumbent within, a listed business. More information on the Company's key risks and uncertainties is shown in Risks and Uncertainties.
Relations with Shareholders
The Board is committed to effective communications between the Company and its shareholders and, accordingly, has a strong Investor Relations programme that seeks to actively engage with shareholders.
This programme includes formal presentations of full year and interim results. These presentations, along with the Annual Report and Accounts, are the primary means of communication during the year with all of the Company's shareholders. Additionally, the Chairman, the Chief Executive Officer and the Chief Financial Officer have met with analysts and institutional shareholders during the period to keep them informed of significant developments and help maintain a balanced understanding of their issues and concerns. Their views and feedback, as well as market perceptions gathered, are regularly communicated to the Board via a monthly report by the Investor Relations Officer. The Company Secretary also brings to the attention of the Board any material matters of concern raised by the Company's shareholders, including private investors.
The primary method of communication with shareholders is by electronic means, helping to make the Company more environmentally friendly. Information available on the Company's website includes current and historic copies of the Annual Report and Accounts, full and half-year financial statements, market announcements, corporate governance information, the Terms of Reference for the Audit, Nomination and Remuneration Committees and the Matters Reserved for the Board.
The Annual General Meeting gives all shareholders the opportunity to communicate directly with the Board and their participation is welcomed. The Chairmen of the Remuneration, Nomination and Audit Committees will be present at the AGM and will be in a position to answer questions relevant to the work of those Committees. It is the Company's practice to propose separate resolutions on each substantial issue at the AGM. The Chairman will advise shareholders on the proxy voting details at the meeting.
By order of the Board
Group Company Secretary
4 June 2015