UK Corporate Governance Code
The UK Corporate Governance Code sets out standards of good practice in relation to board leadership and effectiveness, remuneration, accountability and relations with shareholders. The UK Corporate Governance Code recommends that for a company in the FTSE 350 (which are the standards to which the DFS Furniture plc (the “Company” or “DFS”,) intends to meet) at least half the Board, excluding the chairman, should be ‘independent’ non-executive directors, being individuals determined by the Board to be independent in character and judgement and free from relationships or circumstances which may affect, or could appear to affect, the director’s judgement. It also recommends that a FTSE 350 company’s remuneration and audit committees should comprise at least three ‘independent’ non-executive directors, and that its nomination committee should comprise a majority of ‘independent’ non-executive Directors.
The company intends to be fully compliant with all applicable requirements of the UK Corporate Governance Code, save as set out below. It reports to Shareholders on compliance with the UK Corporate Governance Code in accordance with the Listing Rules.
Board composition and independence
The DFS board of directors (the “Board”) is committed to the highest standards of corporate governance. The UK Corporate Governance Code recommends that at least half of the Board (excluding the Non-Executive Chairman) should comprise independent non-executive directors, who should be independent in character and judgement and free from relationships or circumstances which are likely to affect, or could appear to affect, their judgement. The Board comprises seven members, including the Non-Executive Chairman, three Independent Non-Executive Directors, two Executive Directors and one Non-Executive Director, Andy Dawson who, by virtue of his employment by an affiliate of our majority shareholder, is not deemed to be independent for the purposes of the UK Corporate Governance Code. The Board intends that in the future at least half of its members should be independent non-executive directors. To achieve this objective, a fourth Independent Non-Executive Director may be appointed to the Board, although such person has not been identified at present.
The Board does not fully comply with the UK Corporate Governance Code as the Company’s Non-Executive Chairman, Richard Baker, is, for the purposes of the UK Corporate Governance Code, not considered to have been independent on his appointment as Chairman due to his role as an Operating Partner at Advent. Richard does not act on behalf of Advent in respect of its (now historical) investment in DFS, nor does he receive any remuneration from Advent in respect of his role at DFS. The Board is unanimously of the opinion that he is an extremely valuable asset to the Company bringing a wealth of experience in public companies and a keen understanding of retail businesses, as well as being independent in character and judgement.
The UK Corporate Governance Code recommends that the Board appoint one of the independent non-executive directors to be the senior independent non-executive directors (‘‘SID’’). The SID should be available to shareholders if they have concerns that the normal channels of chairman, chief executive officer or other executive directors have failed to resolve or for which such channels of communication are inappropriate. The Company’s SID is Luke Mayhew.
As envisaged by the UK Corporate Governance Code, the Board has established Audit, Remuneration and Nomination Committees.
The Audit Committee has responsibility for, among other things, the monitoring of the Company and its subsidiaries’ financial integrity of the financial statements and the involvement of its auditors in that process. It focuses in particular on compliance with accounting policies and ensuring that an effective system of internal financial controls is maintained. The ultimate responsibility for reviewing and approving the annual report and accounts and the half-yearly reports remains with the Board. The Audit Committee will normally meet at least three times a year at the appropriate times in the reporting and audit cycle.
The terms of reference of the Audit Committee cover such issues as membership and the frequency of meetings, together with requirements for quorum and notice procedure and the right to attend meetings.
The responsibilities of the Audit Committee covered in the terms of reference include external audit, internal audit, financial reporting and internal controls and risk management. The terms of reference also set out the authority of the committee to carry out its responsibilities.
The UK Corporate Governance Code recommends that, for companies in the FTSE 350, the Audit Committee comprises at least three members who are Independent Non-Executive Directors and includes one member with recent and relevant financial experience. The Audit Committee’s terms of reference require that its composition comply with these recommendations. The Audit Committee currently comprises three members who are all Independent Non-Executive Directors (Luke Mayhew, Gwyn Burr and Julie Southern). The committee is chaired by Julie Southern.
The Remuneration Committee has responsibility, subject to any necessary Shareholder approval, for the determination of the terms and conditions of employment, remuneration and benefits of each of the Executive Directors and certain other senior executives, including pension rights and any compensation payments, and recommending and monitoring the level and structure of remuneration for senior management and the implementation of share option or other performance-related schemes. The Remuneration Committee will meet at least twice a year.
The terms of reference of the Remuneration Committee cover such issues as membership and frequency of meetings, together with the requirements for quorum and notice procedure and the right to attend meetings. The responsibilities of the Remuneration Committee covered in its terms of reference include determining and monitoring policy on and setting levels of remuneration, termination, performance related pay, pension arrangements, reporting and disclosure, share incentive plans and remuneration consultants. The terms of reference also set out the reporting responsibilities and the authority of the committee to carry out its responsibilities.
The UK Corporate Governance Code recommends that, for companies in the FTSE 350, the Remuneration Committee comprises at least three members who are Independent Non-Executive Directors, one of whom may be the Chairman (but who may not chair the Remuneration Committee). The terms of reference of the Remuneration Committee require that its composition comply with these requirements. The Remuneration Committee currently comprises three members, who are all Independent Non-Executive Directors (Luke Mayhew, Gwyn Burr and Julie Southern). The committee is chaired by Gwyn Burr.
The Nomination Committee is responsible for considering and making recommendations to the Board in respect of appointments to the Board, the Board committees and the chairmanship of the Board committees. It is also responsible for keeping the structure, size and composition of the Board under regular review, and for making recommendations to the Board with regard to any changes necessary.
The Nomination Committee’s terms of reference deal with such issues as membership and frequency of meetings, together with the requirements for quorum and notice procedure and the right to attend meetings. The responsibilities of the Nomination Committee covered in its terms of reference include review of the Board composition, appointing new Directors, re-appointment and re-election of existing Directors, succession planning taking into account the skills and expertise that will be needed on the Board in the future, reviewing time required from Non-Executive Directors, determining membership of other Board committees and ensuring external facilitation of the evaluation of the Board. The Nomination Committee will meet at least twice a year.
The UK Corporate Governance Code recommends that a majority of the members of the Nomination Committee should be Independent Non-Executive Directors. The terms of reference of the Nomination Committee require that that its composition complies with these requirements. The Nomination Committee comprises four members, three of whom are Independent Non-Executive Directors (Luke Mayhew, Gwyn Burr and Julie Southern), and one is the Chairman (Richard Baker). The committee is chaired by Richard Baker.
The Company’s remuneration strategy is to provide a remuneration framework that will:
- attract, motivate and retain executives and senior management in order to deliver the Company’s strategic goals and business outputs;
- encourage and support a high performance sales and service culture, ensuring good customer outcomes;
- reward delivery of the Company’s business plan and key strategic goals;
- adhere to the principles of good corporate governance and appropriate risk management; and
- align employees with the interests of Shareholders and other external stakeholders and encourage widespread equity ownership across DFS.
It is intended that salaries and packages that DFS will pay will be broadly in line with those of UK listed companies of a similar size and complexity.
The Company requires the Directors and other persons discharging managerial responsibilities within DFS to comply with the Model Code, and takes all proper and reasonable steps to secure their compliance. Such steps include a code for dealings in securities applicable to relevant individuals and the monitoring of such individuals’ compliance with that code.