Corporate governance – Q&A

All UK listed companies are required to make disclosures in relation to the Combined Code on Corporate Governance. Sir Roy Gardner discusses what steps he has taken to improve the Group’s corporate governance since becoming Chairman.

Q

The first principle of the Combined Code concerns the need for an effective board. How does the Compass Group Board apply this principle?

A

The Board is ultimately responsible for the good management of the Company. The directors accept that we are collectively responsible for its success.

This is a large business operating across the globe. It is vital that we have clear lines of sight so that we can discharge our duties effectively. We have in place a framework to enable us to exercise control whilst delegating day-to-day decision making to those running the business.

I have taken a number of decisive steps to improve corporate governance. We have put in place more robust centralised controls. This gives the Board better visibility as to the performance of the Group. But the entrepreneurial flair that is essential to improve profitability and shareholder value has not been stifled.

In addition to the Nomination, Audit and Remuneration Committees I have established a Corporate Responsibility Committee. Its terms of reference are to look at all aspects of business conduct, safety, health and environmental management and responsible business practice.

The effectiveness of the Board comes from us focusing on the things that really matter. Having absolute clarity as to the distinct roles of the Board and the executive management is vital.

Q

The Combined Code principles also deal with the role of the board chairman. How do you see your role?

A

My key responsibility is to lead the Board and make sure that it is doing its job effectively.

In addition to strengthening the corporate governance controls my priority this year has been to ensure that we have a strategy that will deliver enhanced shareholder value. My role in strategy development is to probe and challenge the executive team. I do this by utilising the experience and knowledge that different directors bring to the Board.

Now that the strategy is in place the Board and I will regularly review how it is being implemented by the Chief Executive and his team.

Succession planning is also a key responsibility of the Chairman. It is vital that we have a strong Board but also a pool of talented managers that one day will be candidates for positions at the highest levels in the Group.

Finally I also play a role in shareholder communications. Investor Relations is the responsibility of the Group Chief Executive and Finance Director. However, as Chairman I maintain contact with the Group’s major shareholders. I need to know that they are happy with the performance of the business. I also need to be in a position to keep the Board informed of their views.

Q

There have been a number of changes to the membership of the Board this year. What do these changes mean to the effectiveness of the Board?

A

The overriding priority for the Nomination Committee was the appointment of a new Group Chief Executive. Our requirement was for an individual with a combination of business transformation skills, international experience and a strong track record of creating value for shareholders. We have found this combination in Richard Cousins.

The composition of the Board is also evolving. It is vital that the independent non-executive directors and executive directors have the skills and experience that reflect the needs of the business. The appointment of Sir Ian Robinson and Gary Green has begun the process of reinvigoration.

Q

A key aspect of corporate governance is the means by which a board satisfies itself that a company’s financial controls and systems of risk management are robust and defensible and that financial information is accurate and can be relied on. How does Compass Group apply this principle?

A

The Board has overall responsibility for the system of internal controls maintained by the Group. The Audit Committee, acting on behalf of the Board, is responsible for regularly reviewing their effectiveness. The Chairman of the Audit Committee reports to the Board on the Committee’s activities on a regular basis.

Each year the Board has a separate session reviewing key risks and the actions being taken to mitigate and manage them.

This year the Board has conducted a review of the effectiveness of internal controls. We have made a number of changes to make them more robust and to improve the Board’s visibility of the performance of the business. (More detailed information on the Group’s internal controls is contained in the corporate governance report of the Annual Report.)

I have established a Corporate Responsibility Committee. As part of its remit it is responsible for ensuring compliance with our Code of Ethics and investigates all issues in relation to business conduct. We have introduced confidential ‘Speak Up’ lines covering 86% of the business to enable employees to raise any concerns or alleged breaches of the Code.