Corporate Governance – Overview
Application of the Combined Code principles
Fyffes plc (“Fyffes”) is firmly committed to business integrity, high ethical values and professionalism in all its activities and operations. As an essential part of this commitment, the Board strives toward high standards in corporate governance. In December 2006, following the demerger of its General Produce and Distribution business, Fyffes plc delisted from the official lists of the Irish and London Stock Exchanges and relisted instead on their IEX and AIM markets in January 2007. Companies listed on IEX and AIM are not obliged to comply with Revised Combined Code on Corporate Governance which forms part of the Listing Rules of the Irish and London Stock Exchanges (“the 2006 FRC Combined Code”). Fyffes, however, has endeavoured to continue to apply the principles and provisions of the 2006 FRC Combined Code and this report sets out the extent to which it has done so.
The Board of directors
Fyffes is led by a strong and effective Board of directors.
J P Tolan resigned as Chief Executive on 30 April 2008. He has remained on the Board as a non-executive director. Since that date, the Board comprised the Chairman, two other executive directors and four non-executive directors. The Board has determined all of the non-executive directors, with the exception of J P Tolan, to be independent.
All of the directors have fiduciary responsibilities to the shareholders. In addition, the executive directors are responsible for the operation of the business while the non-executive directors bring independent objective judgement to bear on Board decisions by constructively challenging management and helping to develop the Group’s strategic objectives.
Each of the executive directors has extensive knowledge of the fresh produce industry, in addition to wide-ranging business skills and commercial acumen. All of the directors bring an objective judgement to bear on issues of strategy, performance, resources (including key appointments) and standards of conduct. Board members are selected because of their pertinent experience and appropriate training is available to them whenever necessary. On appointment, new directors receive a full, formal and tailored induction into the Group’s activities and into the operation and procedures of the Board.
Following the resignation of J P Tolan as Chief Executive on 30 April 2008, the Executive Chairman, David McCann, assumed overall responsibility for the role of Chief Executive, which he previously held from 1995 to 2006, with the remaining executive directors and other senior personnel also taking on additional responsibilities.
Independence of non-executive directors
The Board has evaluated the independence of each of its non-executive directors. Following this assessment, the Board has determined that, throughout the reporting period, all of its non-executive directors, who are appointed for specified terms of office were independent, with the exception of J P Tolan, the former Chief Executive.
In arriving at its conclusion, the Board considered many factors including, inter alia, whether any of the non-executive directors:
- has been an employee of the Group within the last five years;
- has, or had within the last three years, a material business relationship with the Group;
- receives remuneration from the Group other than a director’s fee;
- has close family ties with any of the Group’s advisors, directors or senior employees;
- holds cross-directorships or has significant links with other directors through involvement in other companies or bodies;
- has served more than nine years on the Board; or
- represents a significant shareholder.
The Board has determined that in the case of:
- Dr P F deV Clüver, notwithstanding his business relationship with the Group’s General Produce and Distribution business prior to its demerger on 30 December 2006 and the fact that he has served nine years as a director;
- J D McCourt, notwithstanding his position as a non-executive director of Blackrock International Land plc, in which Fyffes retains a 40% shareholding; and
- J M O’Dwyer, notwithstanding his position as a consultant with Arthur Cox Solicitors, the Group’s legal advisors;
all three are independent of management and that they discharge their duties in a proper and consistently independent manner. They consistently and appropriately challenge the executive directors and the Board and bring an unfettered perspective to their advisory and monitoring roles. The terms and conditions relating to the appointment of the non-executive directors are available from the company secretary.
Senior non-executive director
J D McCourt acted in the capacity of senior independent non-executive director throughout the year.
Operation of the Board
| Full Board | Audit Committee | Compensation Committee | |
|---|---|---|---|
Number of meetings held in 2008 |
8 | 3 | 3 |
Directors and positions held: | |||
D V McCann – Executive Chairman |
8 | - | *2 |
C Bos – Chief Operating Officer |
6 | - | - |
T G Murphy – Finance Director |
7 | *3 | - |
J D McCourt – Non executive |
8 | 3 | 3 |
Dr P F Clüver – Non executive |
6 | 3 | - |
J M O’Dwyer – Non executive |
7 | - | 3 |
J P Tolan – Non executive** |
6 | - | - |
| * | In attendance only. |
| ** | Resigned as Chief Executive on 30 April 2008 |
In addition to the scheduled meetings above, there were a number of other meetings of sub-committees specially appointed by the Board during 2008 to deal with specified matters.
The Board and its committees are supplied with relevant, timely and accurate information for review prior to each meeting to enable them to discharge their duties. The Board has identified and formally adopted a schedule of key matters that are reserved for its decision, including the annual fiscal and capital budgets, interim, preliminary and final results announcements, interim and final dividends, the appointment or removal of directors and the company secretary, circulars to shareholders, Group treasury policies and capital expenditures and acquisitions in excess of €20 million. Certain other matters are delegated to Board committees, the details of which are set out below.
There is an agreed Board procedure enabling directors to take independent advice, in the furtherance of their duties, at the Company’s expense. Each Board member has access to the impartial advice and services of the company secretary, who is responsible to the Board for ensuring that appropriate procedures are followed. The Company maintained directors’ and officers’ liability insurance throughout 2008.
The Memorandum and Articles of Association of the Company require that one third of the Board must, by rotation, seek reelection at the Annual General Meeting (AGM) each year, together with all new directors appointed since the previous AGM. There is open communication between senior executive management and Board members.
Evaluation of performance of the Board, its committees and individual directors
Towards the end of 2008, the Board undertook its annual evaluation of its own performance and that of its committees and of each individual director throughout the year. In assessing the performance of the Board, the directors considered such matters as the appropriateness of its composition, its effectiveness in developing Group strategy, its contribution to managing the Group’s business and operational risks, its response to developing issues and its communications with the Group’s stakeholders. In assessing the performance of the committees of the Board, the directors considered the appropriateness of their composition and terms of reference, their effectiveness in fulfilling their roles and their interaction with the Board. The assessment of the performance of individual directors included consideration of their commitment to their roles. The Chairman summarised the outcome of these evaluation processes, the results of which were satisfactory, and reported them to the Board in December 2008. In addition, the non-executive directors met privately to evaluate the effectiveness of the Chairman, the result of which was also satisfactory.
Board committees
The composition and terms of reference of the committees of the Board are as follows:
Audit committeeFull details of the composition, terms of reference and activities of the audit committee in 2008 are set out in the audit committee report.
Nomination committeeThe terms of reference of the nomination committee are to evaluate the balance of skills, knowledge and experience of the Board, to consider the need for any new or additional appointments, where necessary to prepare a list of potential candidates and to forward the names of potential candidates to the Board for its consideration and, if appropriate, approval. The members of the nomination committee during the year were D V McCann and J D McCourt.
Compensation committeeDetails of the composition and terms of reference of the compensation committee, which has responsibility for the remuneration of the executive directors and senior management, are set out in the compensation committee report.
Procedures in relation to share dealing
In accordance with the terms of the Model Codes of the UK Listing Authority and the Irish Stock Exchange, Fyffes has a policy on regulating dealing in securities by its directors and other designated senior management. Directors and the company secretary require the authorisation of the Chairman before dealing in Fyffes’ shares. Transactions in Fyffes’ shares by the Chairman require the authorisation of the senior independent non-executive director. All share dealings by other designated senior management require the authorisation of the company secretary. Directors and other designated senior management are prohibited from dealing during certain specified periods each year and at all other times when the Company is in possession of inside information.
Internal controls and the management of risk
The Board is ultimately responsible for the overall system of internal controls applied in the Company and its subsidiaries and for reviewing the effectiveness of these controls. The system is designed to manage risks that may impede the achievement of the Group’s business objectives rather than to eliminate these risks. The internal controls system is designed to provide reasonable assurance (but not absolute assurance) against material misstatement or loss.
Fyffes operates a vigorous internal audit function under the direction of the audit committee. Both the internal audit and risk management functions facilitate each other and, together with divisional management, they provide the Board with distinct sources of reasonable assurance as to the effectiveness of the system of internal controls that underlies the Group’s control environment.
Risk management within Fyffes is co-ordinated by the executive risk committee which directs the implementation of the process consistently throughout the Group and reviews the relevant findings. The committee periodically advises the audit committee of its conclusions which, in turn, reports these findings to the Board at least annually enabling corrective initiatives to be undertaken where appropriate. The executive risk committee assesses the key risks facing the Group and assists the Board in fulfilling its responsibility as to the manner in which risk is recognised, assessed and managed on an ongoing basis. The members of the committee during the year included the Group finance director, the head of internal audit, the company secretary and a number of other senior personnel.
Key risks that might impair the business from achieving its objectives are identified and assessed by conducting detailed reviews with executive managers at divisional level. Divisional management is thereafter charged with the cost efficient mitigation of the risks within their areas of responsibility. Risk evaluation and recommendations for strategic change are reviewed by the executive risk committee which reports its findings to the audit committee for its consideration. The Board also conducts its own risk identification and assessment so that it itself is sufficiently aware of the principal threats to which the Group may be exposed.
The Board, through the audit and executive risk committees, has reviewed and updated the process for identifying and evaluating the significant risks affecting the business and the policies and procedures by which these risks are managed effectively. The Board is satisfied that these structures and procedures are embedded throughout the Group and considers them to be a robust and efficient mechanism for creating a culture of risk awareness at every level of management.
The directors regard the process of risk management as a positive medium for change, adding value in the interests of shareholders by utilising sound and considered judgement, while simultaneously making the organisation alert to best management practices.
Communications with shareholders and Annual General Meeting (AGM)
Communication with shareholders is given a high priority by Fyffes. There is regular dialogue and meetings with institutional shareholders, including general presentations after the release of the annual and interim results. Feedback from contact with shareholders is given to the Board at regular intervals. The Group publishes its preliminary and interim results presentations on the Company’s website (www.fyffes.com). Stock Exchange announcements in respect of trading updates and corporate activity are similarly published on the website.
A business presentation provided at the Group’s AGM followed by a question and answer forum affords shareholders the opportunity to question the Board. The AGM is valued by the Board as an occasion where individual shareholders’ views and suggestions can be noted and considered by the directors.
Details of proxy voting are announced in respect of each resolution considered at the AGM or any EGM. As in previous years, the Company will arrange for the Notice of the 2009 AGM and related papers to be sent to shareholders at least 20 working days before the meeting.
Accountability and audit
The contents of the operating and financial review, the directors’ report and financial statements (in addition to official Company press releases, Stock Exchange announcements and interim results issued during the period) have been reviewed in order to ensure a balanced presentation, so that the Group’s position and prospects may be properly appreciated by shareholders. A summary of directors’ responsibilities in respect of the financial statements. The system of internal controls and risk management established to safeguard shareholders’ investment and the Group’s assets is set out above. The audit committee has considered, in conjunction with the external auditor, the accounting policies adopted in the financial statements and has evaluated the internal controls that have been established within the Group.
Environmental management, corporate responsibility and ethical trading initiatives
The European Commission has previously published recommendations governing the recognition, measurement and disclosure of environmental issues in the annual reports of companies. Although the provisions of the recommendations are not binding on Fyffes in the conduct of its business across the world, the Group recognises its social responsibility and endorses the growing trend towards environmental accountability.
The Group actively promotes best business practices and standards that seek to enhance the health, education and conditions of workers and their families and to universally encourage the use of sustainable farming methods by its suppliers.
Directors’ remuneration
The disclosures regarding directors’ remuneration have been drawn up in accordance with the Listing Rules of the Irish Stock Exchange and are set out on pages 34 to 40 of our Annual Report 2008.