The Board is committed to maintaining high standards of corporate governance and ensuring values and behaviours are consistent across the business. The Board expects steady and continuous improvement in the Group’s governance procedures.
Company purpose
The Board has defined the Company’s purpose as “Porvair aims to develop specialist filtration, laboratory and environmental technologies for the benefit of all stakeholders.” Measures of success include consistent earnings per share growth and improvement in selected ESG metrics.
The Group is directed and controlled by the Board. It provides strategic leadership and support with the aim of developing the business profitably, whilst assessing and managing the associated risks. The Board ensures that the financial management, controls and resources are in place to enable the business to meet its objectives. The Directors take collective responsibility for the Group’s performance.
The Board has a formal schedule for reviewing the Group’s operating performance and has other specific responsibilities reserved to it, which include:
- Approval of the published financial results and dividends;
- Appointments to the Board and other Board committees;
- Approval of the strategic direction of the business;
- Approval of expenditure over certain limits;
- Approval for acquisitions and disposals;
- Approval of treasury policy and significant new financing; and
- Approval of the funding policies of the defined benefit pension scheme.
The Chairman is responsible for leadership of the Board. The responsibilities of the Chairman are set out clearly in a written document approved by the Board.
The Executive Directors manage the day to day operations of the business within the framework set out by the Board. Outside the formal schedule of Board meetings, the Chairman and Non-Executive Directors make themselves available for consultation with the Executive team as necessary.
All Directors have access to the advice and services of the Company Secretary, who is responsible to the Board for ensuring that Board procedures are complied with. The Company Secretary is responsible for advising the Board, through the Chairman, on all governance matters.
The appointment and removal of the Company Secretary is a matter for the Board as a whole.
The Board has a schedule of six pre-arranged meetings during the year. In addition, such other meetings as are required are arranged to deal with specific issues or transactions.
The Board consists of five Directors; two Executive Directors and three Non-Executive Directors, including the Chairman. The Senior Non-Executive Director is available for consultation with shareholders through the Company Secretary, by written submission. The Executive Directors and the Chairman have met with the Company’s major shareholders and other potential investors on a regular basis and have reported to the Board on those meetings.
The Board considers the independence of each Non-Executive Director and assesses relationships and circumstances likely to affect each Director’s judgement. The Board considers each Non-Executive Director to be independent of management.
All of the Directors offer themselves for re-election at each Annual General Meeting. On joining the Board, a new Director receives appropriate induction including meeting with other Directors, visiting the Group’s principal operations and meeting with senior management and the Group’s principal advisers.
The Board has put in place a procedure by which any Director may take independent professional advice at the expense of the Company in furtherance of their duties as a Director of the Company. The Company maintains Directors’ and Officers’ liability insurance.
More about our Board of Directors
Evaluation
The Board undertakes a rigorous self assessment review each year to consider its own performance. The procedures included individual interviews by the Chairman with each Director, review of an assessment form and discussion of the findings at a Board meeting. The Senior Independent Non-Executive Director maintains regular contact with the other Independent Non-Executive Directors and the Executive Directors, sufficient to monitor the performance of the Chairman. The Chairman, in consultation with the Executive Directors, monitors the performance of the Non-Executive Directors.
The Chairman conducts interviews and assessments with each Director and the performance of the Executive Directors is considered in detail by the Remuneration Committee.
The Audit Committee’s role is to assist the Board by reviewing: the integrity of the Group’s financial reporting; the quality of the external and internal audit processes; the appropriateness of the Group’s internal controls; and compliance with a range of financial, governance and other compliance matters.
The Audit Committee comprised all the Independent Non-Executive Directors of the Company, with the exception of the Chair of the Group. All members of the Committee are deemed to have the necessary ability and experience to understand the financial statements. The Committee as a whole has competence relevant to the sector in which the Group operates.
Representatives of the Group’s External Auditor, RSM UK Audit LLP (“RSM”), attend meetings by invitation. Other employees of the Company may be invited to attend meetings as and when required.
The Audit Committee has an agreed timetable of meetings with agendas. The Audit Committee normally meets three times during the year. Two of those meetings are held prior to the Board meetings to approve the announcement of the Group’s interim and full year announcements. At those meetings, the Committee considers the financial reporting judgements made by management. Its deliberations are informed by accounting papers and financial reports prepared by management and reports prepared by the Group’s External Auditor. The third meeting focuses on the work that RSM plan to undertake in conducting their annual audit. To be quorate at least two members of the Committee must attend.
The terms of reference of the Audit Committee are found here.
The Nomination Committee provides a transparent process and procedure for the appointment of new Directors to the Board. The Nomination Committee comprises all of the Non-Executive Directors and is chaired by the Chair of the Company. The Nomination Committee’s responsibilities include:
- Identifying and nominating candidates to fill Board vacancies;
- Evaluating the balance of skills, diversity, knowledge and experience on the Board and the leadership needs of the organisation; and
- Succession planning.
The balance of skills, diversity, knowledge and experience, the leadership of the organisation and succession planning are considered by the Committee at least annually. To be quorate at least two members of the Committee must attend.
Succession planning
The Committee monitors the length of service and the skills and experience of the Non-Executive Directors to assist in succession planning. Succession plans for the Executive Directors are routinely discussed between them and the Chair. The Committee is confident that the Board has the necessary skills and experience to contribute to the Group’s strategic direction and expects to continue to strengthen the Non-Executive Directors’ knowledge and experience of the Group’s operations in the coming year.
Succession plans for the Group’s 30 most senior executives, taking into account gender and ethnic diversity, are considered by the Committee at least once a year to identify likely succession requirements and to ensure that development plans are in place to prepare those managers expected to be able to fill more senior positions as they arise.
Board recruitment process
An external search consultancy is appointed to advise on each appointment to the Board and seek suitable candidates. In the case of Executive Directors, the Committee seeks to include candidates, if appropriate, from the existing employees. Candidates from an initial list are interviewed by the Chair and Chief Executive. Following selection by the Chair and Chief Executive, shortlisted candidates (generally no more than three) are then interviewed by the other Directors. Once a suitable candidate has been identified, the Chair of the Committee recommends to the Board that the Company make a formal offer of employment to the candidate.
The terms of reference of the Nomination Committee are found here.
The Committee recommends to the Board the framework, or broad policy, for the remuneration and long-term incentive arrangements of the Company’s Executive Directors and Chair. The Committee also has an advisory role in relation to major changes in employee benefit structures throughout the Company and the Group.
The Committee uses external published benchmark data to guide its deliberations. The remuneration of the Non-Executive Directors is set by the Executive Directors. The members of the Committee are drawn solely from the independent Non-Executive Directors. The Committee currently comprises all of the independent Non-Executive Directors of the Company. The Committee meets at least twice during the year. To be quorate at least two members of the Committee must attend.
The Committee aims to provide remuneration packages that:
- are competitive, but not excessive;
- are designed to attract, retain and motivate managers of high quality to deliver growth for the business;
- are aligned with shareholders’ interests;
- include an element of the potential reward linked to personal performance; and
- encourage the Executive Directors to accumulate shares in the Company
The terms of reference of the Remuneration Committee are found here.
Risk and internal control
The Board has overall responsibility for ensuring that the Group maintains a system of internal controls and for reviewing its effectiveness. The system is not designed to eliminate the risk that the Group’s objectives will not be achieved but to ensure that there is an ongoing process for identifying, evaluating and managing the significant risks. As with any such system, it can only provide reasonable, but not absolute, assurance against material misstatement or loss. The Group’s key procedures are as follows:
Group management and Board controls
Each operating business has its own management group which meets regularly to monitor operational matters. Each operating business is responsible for establishing its own system of internal controls and for ensuring compliance with those controls. The Divisional Director of each operating business reports to the Group Chief Executive, and clearly defined lines of responsibility have been established within this organisational structure. The senior finance executive in each operation has a dual responsibility to report within their operation to the Divisional Director and to the Group Finance Director. The Executive Directors visit all operations regularly to perform detailed reviews.
Operational controls
In addition to the Group internal control systems, each business follows control procedures set out by regulators and customer requirements. These include:
- ISO 9001 systems and controls;
- OSHA health and safety reviews;
- Quality control procedures and inspections;
- Insurance provider reviews;
- Export ITAR compliance controls;
- Customer site and product reviews;
- Aerospace/nuclear compliance and traceability;
- AS9100 compliance audits;
- EPA compliance audits; and
- GLP/FDA compliance
Operating business management has a clear responsibility for the identification of risks facing each operation, and for establishing procedures to investigate and monitor such risks. A review of each operation’s risk management is included in the normal cycle of Executive Directors’ reviews of the operations.
The Board reviews a group register of risks and mitigation on a regular basis as part of its normal Board reporting. The Board also commissions independent reviews of the key risks facing the Group as appropriate. Full details of the Group’s risk management processes are given in the section on Principal risks and uncertainties in the Group’s report and Accounts.
The Group’s systems provide management with regular and reliable management information. The Group has a comprehensive process of annual budgets, target setting, and detailed monthly reporting. The annual budget of each operating business and the consolidated Group budget are approved by the Board as part of its normal responsibilities.
Each operation produces full monthly management accounts comprising an income statement, cash flow statement, balance sheet and a forecast for the full year. These are consolidated at a Group level. The Executive management team review the performance with the operations’ management. The Board receives copies of the monthly management accounts for each month and the performance of the Group is reviewed in detail at each Board meeting.
The Board has established a framework of controls encompassing procedures applicable to all businesses that are subject to executive review. The Group operates a self assessment process so that the operating businesses can quantify the extent of their compliance with control objectives.
Each separate accounting entity completes an annual self assessment questionnaire which highlights areas where control improvements could be made. The results of these control questionnaires are reviewed with senior management and new controls are implemented as necessary. The Group operates an internal audit cycle conducted by peer reviews by the Group’s financial controllers or other suitably experienced employees. The scope of the reviews each year is agreed in advance with the Audit Committee and the formal reports on each review are considered by the Audit Committee. In addition, the Group Finance Director conducts a cycle of reviews with each plant focused on controls, capital project reviews, environmental compliance and employee engagement.
The Audit Committee considers the Group’s internal audit arrangements to provide an acceptable level of review and to be appropriate for the current size of the business.
The Group has a formal whistleblowing procedure which gives employees the opportunity to escalate their concerns, ultimately to the Senior Non-Executive Director.
Full management accounts for each entity in the Group are consolidated each month and review and analysis is carried out on those results. These consolidated accounts form the basis of reports that are provided to Board members every month. Statutory consolidated results are prepared at each half year and full year and these are reconciled with the consolidated management accounts.
The Audit Committee and the Board have review the effectiveness of the Group’s internal controls each year and address issues as they are identified.
S172
The revised UK Corporate Governance Code (‘2018 Code’) was published in July 2018 and applies to accounting periods beginning on or after 1 January 2019. The Companies (Miscellaneous Reporting) Regulations 2018 (‘2018 MRR’) require Directors to explain how they considered the interests of key stakeholders and the broader matters set out in Section 172(1) (A) to (F) of the Companies Act 2006 (‘s172’) when performing their duty to promote the success of the Company under s172. This includes considering the interest of other stakeholders which will have an impact on the long term success of the Company.
The s172 Statement focuses on matters of strategic importance to the Group, and the level of information disclosed is consistent with the size and the complexity of the business.
Details of specific s172 matters and the principal decisions taken by the Board in relation to each financial years are described in full in the Group’s Report and Accounts commencing with the Report and Accounts for 2020.
The Board has a framework for determining the matters within its remit and has approved Terms of Reference for the matters delegated to its Committees. Certain financial and strategic thresholds have been determined to identify matters requiring Board consideration and approval and delegated authorities are set out in the Group’s reporting and accounting manual. When making decisions, each Director ensures that he/she acts in the way he/she considers, in good faith, would most likely promote the Company’s success for the benefit of all of its stakeholders.
s172(1) (A) – The likely consequences of any decision in the long term
The Directors consider the long term consequences of their decisions with reference to their understanding of the business and the markets in which it operates.
- Porvair aims to develop specialist filtration, laboratory, and environmental technologies for the benefit of all stakeholders.
- The Board reviews its strategy each year, which drives a medium term review of the likely outlook for the Group as described in the Group’s viability assessment (see page 39).
- In considering its long term development the Board will allocate capital and resources according to strategic priorities. These include:
– investments in research and development, sales and marketing and production capabilities;
– capital expenditures to boost organic growth; and
– acquisition investments to increase technical expertise or routes to market.
The Group seeks to balance the short term costs of these investments with their likely future benefit.
s172(1) (E) – The desirability of the company maintaining a reputation for high standards of business conduct
- All of the Group’s operations maintain ISO9001 quality standards as a minimum, with certain plants conforming to quality standards specific to their market (e.g. Aerospace).
- The Board monitors compliance with local laws and standards and has policies on Modern Slavery, Anti-bribery and corruption, and human rights.
- Remuneration arrangements for senior management are tied to Group corporate and social responsibility standards which specify four areas of focus: business integrity and ethics; people; HSE performance; and relationships and community impact.
The success of the Group depends on developing and maintaining good relations with all stakeholders.
s172(1) (B) – The interests of the company’s employees.
Employees are fundamental to our business. Success depends on attracting, retaining and motivating employees by providing:
- Fair pay and benefits;
- Training and development opportunities;
- A workplace environment with a high regard for health and safety procedures;
- A broad range of roles in engineering, manufacture, sales and administration;
- Formal and informal communication processes; and
- Staff development solely on the basis of ability.
Our employees reflect the ethnic diversity of the local population close to each plant.
We operate in accordance with local laws, customs and with due regard for human rights.
The Directors recognise that our pensioners, though no longer employees, also remain important stakeholders.
In their decision making the Directors are careful to properly consider the interests of all stakeholders.
s172(1) (C) – The need to foster the company’s business relationships with suppliers, customers and others
Delivering our strategy requires mutually beneficial relationships with suppliers, customers and regulatory bodies. The Board expects all such relations to be conducted appropriately and in conformity with Group policies.
Relationships with customers
- Because of the nature of its products the Group typically has long customer relationships.
- Most new product introductions are developed with existing customers as a means of deepening the relationship with a valued client.
- Senior management will engage personally with all key commercial contacts to ensure good communications.
- The Group rarely makes significant changes to its terms and conditions, valuing stability in its commercial relationships.
Relationships with suppliers
- The Group typically has long relationships with its suppliers.
- The Board considers supplier resilience as a critical strategic risk and reviews key supply arrangements in its risk management process.
- The Group works closely with its suppliers to ensure that the quality and delivery standards are met.
- Senior management will engage personally with all key commercial contacts to ensure good communications.
- The Group rarely makes significant changes to its terms and conditions, valuing stability in its commercial relationships.
Relationship with Group Operating Companies
- The Board has overall responsibility for the control and management of Group strategy and performance.
- The Group believes in giving management teams autonomy such that most decisions can be made close to the stakeholders affected. Only when it is more efficient are activities managed centrally.
- The Board has established a framework of controls encompassing procedures applicable to all businesses that are subject to executive review.
Relationship with regulatory bodies
The Board encourages its operations to engage constructively with regulatory bodies and to maintain regulatory approvals through the relevant audit processes.
s172(1) (D) – The impact of the company’s operations on the community and the environment
- The development of safe and responsible operations is fundamental to the Group’s purpose.
- The Board regularly reviews reports on the Group’s impact on the environment.
- The Board regularly reviews reports on the Group’s community involvement projects.
- All Group operations draw staff, ancillary services and supplies from the local economies wherever practical.
- The Board monitors key environmental metrics including carbon intensity; waste/landfill; and use of renewable fuels.
s172(1) (F) – The need to act fairly as between members of the company
- The Board maintains a regular dialogue with its members through meetings with investors, its AGM and comments received in relation to its regulatory releases and publications.
- The Board publishes results promptly, usually within 10 weeks for year end results and 5 weeks for interim results.
- The Board provides briefings to analysts and media outlets, who in turn provide an independent perspective on the Company for the benefit of their clients and readers.
- The Board uses judgement and analysis of information gained through this information exchange to act fairly as between the Company’s members.
- The Board seeks to provide shareholders with informative and comprehensive communications.
- The Executive Board members meet regularly with our key investors to discuss Group performance and to hear their views.
- Board members make themselves available to meet with shareholders and potential investors when requested
Compliance with the Code
The Board complies with all aspects of the 2018 UK Corporate Governance code. The 2018 UK Corporate Governance code has applied to the Group from 1 December 2019.