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 endorses the highest standards in corporate governance. This report describes how Fyffes applies the principles and provisions of the Revised Combined Code on Corporate Governance which forms part of the Listing Rules of the Irish and London Stock Exchanges (“the 2003 FRC Combined Code”).
Compliance with the provisions of the 2003 FRC Combined Code
The directors confirm that throughout the financial year ended 30 December 2006, Fyffes complied with the provisions of the 2003 FRC Combined Code except that until the appointment of R B Hynes to the compensation committee on 20 March 2006, that committee comprised only two members following the retirement of D J Bergin on 31 December 2005.
D V McCann was Chief Executive of Fyffes until he was appointed Executive Chairman on 30 December 2006. The Board believes his appointment is in the best interests of the Company and its shareholders not withstanding that he would not have been deemed to be independent on appointment under the criteria of the 2003 FRC Combined Code. Fyffes engaged in an active programme of meetings with institutional shareholders and made a detailed presentation to shareholders attending the EGM on 5 December 2006 in relation to the demerger proposals. These plans, including the proposed changes in the composition of the Board, were widely supported by shareholders, with close to 100% of the proxy votes cast being in favour.
The Board of directors
Fyffes is led by a strong and effective Board of Directors.
The demerger of the Group’s General Produce and Distribution Business to Total Produce plc on 30 December 2006 gave rise to a number of significant changes in the composition of the Fyffes Board. These changes were approved by the full Board in November 2006, subject to shareholder approval of the demerger proposals at the EGM of the Company on 5 December 2006. CP McCann, R P Byrne and J F Gernon resigned from the Board of Fyffes with effect from 30 December 2006 as a result of their appointments to the roles of Executive Chairman, Chief Executive and Finance Director of Total Produce plc respectively. On the same date, D V McCann was appointed Executive Chairman, J P Tolan became Chief Executive and C Bos became Chief Operating Officer of Fyffes. T G Murphy was co-opted to the Board of Fyffes as Finance Director with effect from 2 January 2007.
Throughout 2006, the Board consisted of eleven directors - the Chairman, five other executive directors and five non-executive directors. Following the resignation of C P McCann, R P Byrne and J F Gernon on 30 December 2006 and the appointment of T G Murphy on 2 January 2007, the Board currently comprises nine directors – the Chairman, three other executive directors and the five non-executive directors. The Board has determined all of the non-executive directors to be independent. R B Hynes has been appointed to the Board of Total Produce plc and will resign as a non-executive director of Fyffes plc on 30 April 2007. G B Scanlan announced in February 2007 his intention to retire as a non-executive director on 30 April 2007. In addition to being Executive Chairman of Fyffes throughout the year until his resignation on 30 December 2006, C P McCann was also elected as Executive Chairman of Blackrock International Land plc in May 2006, following the demerger of Fyffes’ property undertaking.
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.
Effective governance is supported by the separation of the roles of the Executive Chairman and the Chief Executive, as this division of responsibilities at the head of the Group ensures a balance of power and authority. The Chairman has overall responsibility for ensuring that the Group achieves a satisfactory return on investment for shareholders; he oversees the orderly operation of the Board and ensures appropriate interaction between it, executive management and the Company’s shareholders. The Chief Executive is responsible for developing and delivering the Group’s strategy and is accountable for its overall performance and day to day management.
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.
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 advisers, directors or senior employees;
- holds cross-directorships or has significant links with other directors through involvement in other companies or bodies; or
- represents a significant shareholder.
In particular, the Board reviewed the positions of three of its members in the context of the guidance in the 2003 FRC Combined Code and determined that, despite his length of tenure on the Board in the case of GB Scanlan (prior to his decision to retire with effect from 30 April 2007); and in the case of Dr P F de V Clüver his business relationship with the Group’s General Produce and Distribution business, prior to its demerger to Total Produce plc on 30 December 2006; and in the case of J D McCourt his position as a non-executive director of Blackrock International Land plc (in which Fyffes retains a 40% shareholding); all three are independent. Like each of the other non-executive directors, they discharge their duties in a proper and consistently independent manner and constructively and appropriately challenge the executive directors and the Board. All of the non-executive directors 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
G B Scanlan continued to act in the capacity of the senior independent non-executive director throughout the year. In accordance with the guidance in the 2003 FRC Combined Code, the senior independent non-executive director, in addition to attending the AGM, is available to meet shareholders on request, in particular to deal with queries on governance matters. J D McCourt will assume responsibility for the role of senior independent non-executive director following the retirement of G B Scanlan on 30 April 2007.
Operation of the Board
The Board meets regularly throughout the year. There are six routinely scheduled Board meetings held annually, in addition to which meetings are called as and when warranted by issues arising. The attendance of directors at Board and relevant committee meetings during the year was as follows:
| Full Board | Audit Committee | Compensation Committee | |
|---|---|---|---|
Number of meetings held in 2006 |
6 | 4 | 6 |
Directors during 2006 and positions held: | |||
C P McCann – Executive Chairman |
5 | - | - |
D V McCann – Chief Executive |
6 | - | - |
C Bos – MD Tropical Produce Division |
5 | - | - |
R P Byrne – MD General Produce Division |
6 | - | - |
J F Gernon – Finance Director |
6 | *4 | *6 |
J P Tolan – Corporate Development Director |
6 | - | - |
Dr P F deV Clüver - Non-executive |
5 | 3 | - |
R B Hynes - Non-executive |
6 | 4 | **4 |
J D McCourt - Non-executive |
6 | - | 5 |
G B Scanlan - Non-executive |
6 | 4 | 6 |
W M Walsh - Non-executive |
3 | - | - |
| * | In attendance only. |
| ** | Appointed to the compensation committee during the year - potentially attendant for 4 meetings. |
In addition to the scheduled meetings above, there were several other meetings of sub-committees specially appointed by the Board during 2006 to deal with specified matters, in particular in connection with the demerger of the Group’s Property Undertaking to Blackrock International Land plc during the first half of the year and the demerger of its General Produce and Distribution business to Total Produce plc during the second half of the year.
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 and preliminary 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 professional 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 2006.
The Memorandum and Articles of Association of the Company require that one third of the Board must, by rotation, seek re-election at the Annual General Meeting (AGM) each year, together with all new directors appointed since the previous AGM. In addition, in accordance with the guidance in the 2003 Combined Code, non-executive directors serving for more than nine years must seek reelection annually.
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 2006, 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 contribution to the effective functioning of the Board, the appropriateness of their knowledge, skill and experience levels and their commitment to their roles. The then Chairman summarised the outcome of these evaluation processes, the results of which were satisfactory, and reported them to the Board in December 2006. In addition, the non-executive directors met privately to evaluate the effectiveness of the then Chairman.
Board committees
The composition and terms of reference of the committees of the Board are as follows:
Audit committee
Full details of the composition, terms of reference and activities of the audit committee in 2006 are set out in the audit committee report on pages 34 to 36 of the Annual Report.
Nomination committee
The 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 R B Hynes, J D McCourt, D V McCann and G B Scanlan and, until his resignation on 30 December 2006, C P McCann. As noted above, the changes in the composition of the Board which arose from the demerger of the Group’s General Produce and Distribution business to Total Produce plc were of such significance that they were approved by the full Board. Consequently, the nomination committee did not separately meet during 2006.
Compensation Committee
Details 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 on pages 37 to 43 of the Annual 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, persons discharging managerial responsibilities (PDMR) and other designated senior management. Directors and PDMR require the authorisation of the Chairman before dealing in Fyffes’ shares. Directors and PDMR are prohibited from dealing during certain specified periods each year and at all other times when the Company is in possession of inside information. All share dealings by other designated senior management require the authorisation of the company secretary.
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 has embedded these structures and procedures 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 offers 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 2007 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 is given on page 44 of the Annual Report. The system of internal controls and risk management established to safeguard shareholders’ investment and the Company’s assets is set out above. The audit committee, whose composition and functions are described on pages 34 to 36 of the Annual Report, 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. Further details of the Group’s activities in this regard are set out on page 9 of the Annual Report.
Going concern
After making enquiries, the directors have a reasonable expectation that the Company, and the Group as a whole, has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.
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 39 to 40 of the Annual Report.