corporate governance
The Directors support the highest standards of corporate governance in accordance with the principles and code of best practice as set out in the Combined Code on Corporate Governance issued in June 2008 (the Combined Code).
The Board considers that it has complied throughout the year ended 30 September 2009 with the provisions for companies set out in Section 1 of the Combined Code, to the extent that they apply to the Company.
The Board of Directors
The Board comprises seven Non-executive Directors, all of whom are considered independent of management and four Executive Directors. As set out in their biographies, the Directors have significant experience of the management and development of a biopharmaceutical group and of pharmaceutical research and development.
There is a strong independent non-executive element to the Board, which maintains independent judgement in respect of strategy, performance and standards of conduct. As in the prior year, certain Non-executive Directors hold shares in the Company.
In accordance with the Articles of Association, at each AGM any Director who has served for three years, and one third of the other Directors (or if their number is not a multiple of three the number nearest to but not exceeding one third) must retire from office by rotation.
In accordance with Combined Code provision A.6, the performance of the Board and the Committees is reviewed annually.
The Board retains overall responsibility for, and control of, the Group. Management is conducted by the Chief Executive Officer and the Executive Directors who, together with other senior managers, form the senior management team. By these means, a direct and ongoing link exists between the determination of strategy by the Board and the execution of Group policies by the Group’s employees.
The roles of the Chairman and Chief Executive Officer
There is a clear division of responsibilities between the Chairman and Chief Executive Officer. The Chairman, Mr Rodger Pannone, is primarily responsible for the workings of the Board. The Chief Executive Officer, Prof Mark Ferguson, has responsibility for implementing the strategy of the Board and managing the day-to-day business activities of the Group.
The role of the Senior Independent Director
The Combined Code recommends that the Board of Directors should appoint one of its Independent Non-executive Directors to be the Senior Independent Non-executive Director. The Senior Independent Non-executive Director should be available to shareholders if they have concerns that contact through the normal channels has failed to resolve or for which such contact is inappropriate. Dr Barrie Thorpe has been designated as the Senior Independent Non-executive Director. In addition he chairs the Nomination Committee and sits on the Remuneration Committee.
Board meetings
The Board meets regularly with meeting dates agreed for each year in advance. There is a formal schedule of matters reserved for Board consideration and approval, as appropriate. The schedule covers senior appointments, business strategy, budgets, corporate governance issues, substantial transactions, contracts and commitments, financing, health and safety, treasury and risk policies and the approval of certain documents and announcements including the Annual Report. There is frequent contact between Executive and Non-executive Directors and each Director is supplied on a timely basis with financial and operational information sufficient for the Board to discharge its duties. All Directors have access, as required, to independent professional advice.
In the year between 1 October 2008 and 30 September 2009 the Board met six times. With the exception of Dr Arthur Rosenthal (absent from two meetings) and Dr Sharon O’Kane, Dr David Feigal and Lord Leslie Turnberg (absent from one meeting each), all other Board meetings were attended by all Directors.
In accordance with the requirements of the Combined Code, the Board has established and delegated certain responsibilities to three Board Committees, which all comprise solely of Non-executive Directors and operate within defined terms of reference and constitution. These Committees have written terms of reference which are available on the Renovo website (www.renovo.com).
The Remuneration Committee
The Remuneration Committee comprises five Non-executive Directors: Dr Arthur Rosenthal (Chairman), Dr David Ebsworth, Dr Barrie Thorpe Mr John Goddard and Mrs Susan Taylor who joined the Committee following her appointment to the Board in November 2008. The Chief Executive Officer and Chairman of the Company are invited to attend meetings of the Committee when the Committee Chairman deems it appropriate.
The Company considers that all members of the Committee are independent and free from any business or other relationship which could interfere with the exercise of their independent judgement.
The Committee has responsibility for determining the remuneration packages for all Executive Directors and ensuring that levels of remuneration are sufficient to attract, retain and motivate Directors of the quality required to run the Company successfully. The Committee is asked to consider that a significant proportion of Executive Directors’ remuneration should be structured so as to link rewards to corporate and individual performance.
The Committee approves the design of, and determines targets for, any performance related pay schemes operated by the Company and approves the total annual payments made under such schemes. It also approves all long-term incentive and option schemes and approves all grants under such schemes for ratification by the Board. With regard to general employees it is responsible for approving overall bonus payments and the terms of salary reviews proposed by the Executive Directors.
Between 1 October 2008 and 30 September 2009, the Committee met seven times to discuss and agree remuneration principles and policies, including reviewing the competitiveness of remuneration of its Executives and the appropriateness of the Company’s incentive arrangements. With the exception of Dr Rosenthal who missed one unscheduled additional meeting, Messrs Rosenthal, Ebsworth, Thorpe and Goddard attended all of the meetings. Mrs Susan Taylor attended all four meetings following her appointment. Further details of the activities of the Remuneration Committee during the year are provided in the Directors’ Remuneration Report.
The Audit Committee
The Audit Committee consists of three Non-executive Directors: Mr John Goddard (Chairman), Dr David Ebsworth, and Lord Leslie Turnberg. The Chief Financial Officer of the Company is invited to attend meetings of the Committee when the Committee Chairman deems appropriate and at the Committee’s invitation or request, the Chief Executive Officer, other Directors or senior managers may also attend meetings. The Group considers that the members of the Committee possess relevant recent financial experience. The Committee monitors the integrity of the Group financial statements and any formal announcements relating to the Group’s financial performance, reviewing significant financial reporting judgements contained therein. The Committee also reviews the Group’s internal financial controls and risk management systems. It reports to the Board any matters where it considers action or improvement is needed and makes recommendations as to the steps to be taken.
In line with best practice, the Group will periodically consider how the audit requirements of the Group are best served in the context of the business need and the prevailing external environment and, against the background of this review, will from time to time undertake a formal tendering programme. The Audit Committee has unanimously recommended to the Board that a resolution for the re-appointment of Deloitte LLP as the Group’s external auditor be proposed to shareholders at the forthcoming AGM. The Audit Committee is satisfied that, notwithstanding the length of tenure of Deloitte LLP, the firm meets the independence criteria under the relevant statutory, regulatory and accounting standards.
The Committee approves all non-audit services provided by the Group’s auditors. As part of this approval process, the Committee ensures that any provision of non-audit services does not impact the auditors’ objectivity and independence. The Committee also reviews arrangements by which staff of the Group may raise concerns about possible improprieties and annually reviews the need for an internal audit function. The Committee met four times in the year between 1 October 2008 and 30 September 2009. All members of the Committee were present at each meeting.
The Nomination Committee
The Nomination Committee comprises three Non-executive Directors: Dr Barrie Thorpe (Chairman), Lord Leslie Turnberg and Mr Rodger Pannone. The Chief Executive Officer of the Company is invited to attend meetings of the Committee when the Committee is discussing matters related to Executive management and such other matters as the Committee Chairman deems appropriate.
The Committee has responsibility for considering the composition and performance of the Board of Directors, retirements and appointments of Directors and making appropriate recommendations to the Board. The Committee is also tasked with ensuring that plans are in place for orderly succession to Board and senior management positions, so as to maintain an appropriate balance of skills and experience within the Company.
The Nomination Committee met twice formally in the year between 1 October 2008 and 30 September 2009 and all members of the Committee were present at both meetings. Several informal discussions between Committee members also took place during the year especially in relation to the changes in the Executive and Non-executive membership of the Board.
During the year the Committee led the process, assisted by an external recruitment consultant to assess a range of candidates, of the selection and recruitment of Mr David Blain as Chief Financial Officer following his period as Interim Chief Financial Officer.
As a major component of its activity, the Committee led and co-ordinated the changes to the Executive and Non-executive Directors that were announced during the year.
Composition of Committees after the forthcoming AGM
From 10 February 2010, the Committee members will be as follows:
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The Remuneration Committee |
The Audit Committee |
The Nomination Committee |
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Chairman |
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Dr Barrie Thorpe |
Mr John Goddard |
Dr Barrie Thorpe |
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Mr John Goddard |
Lord Leslie Turnberg |
Lord Leslie Turnberg |
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Mrs Susan Taylor |
Mrs Susan Taylor |
Mr Rodger Pannone |
Other Board activities
The operation of the Board was also reviewed after receiving feedback from all Board members. As a result, a Science Committee was established, chaired by Leslie Turnberg, to enable more detailed review of the Company’s Research and Development programme on behalf of the Board. The role of the Board in guiding Company strategy was also strengthened. The Non-executive Directors also met at the end of each Board meeting without the Executive Directors present to consider the meeting and specific matters in private. Succession to Executive Director and senior management positions in the Company was also formally reviewed during the year.
As in previous years, the performance of the Company Chairman was formally appraised by the Non-executive Directors led by Dr Barrie Thorpe. Mr Rodger Pannone also led a review of the performance of the Board as a whole and appraised the performance of each individual Non-executive Director. He also formally appraised the performance of the Chief Executive Officer who in turn reviewed the performance of the Executive Directors. The identified training needs for individual Directors have largely been the need for induction of the new Directors. Mrs Susan Taylor also attended the Institute of Directors’ Non-executive Directors seminar as part of her induction process.
Relations with shareholders
Renovo attaches a high priority to effective communication with both private and institutional shareholders. The Annual Report contains a full Business Review and a description of the candidate products and of the research and development portfolio. An interim Business Review is also provided with the half-year report sent to all shareholders. With these documents and the Group’s press releases, the Board seeks to present a balanced and understandable assessment of the Group’s position and prospects. The Group’s website (www.renovo.com) provides extensive further information about the Group.
The AGM is the principal forum for dialogue with private shareholders. A business presentation is made by the Chief Executive Officer and there is an opportunity for shareholders to put questions to the Directors. Renovo maintains regular contact with institutional shareholders through a programme of one-to-one visits, Group meetings and briefings. The Chairman and Non-executive Directors also meet with major shareholders, in the absence of Executive Directors, to obtain feedback, if appropriate.
Internal control
The Board has applied principle C.2 of the Combined Code by establishing a continuous process for identifying, evaluating and managing the significant risks the Group faces. The Board regularly reviews the process, which has been in place from the start of the year to the date of approval of this report and which is in accordance with revised guidance on internal control published in October 2005 (the Turnbull Guidance).
The Board is responsible for the Group’s system of internal control and for reviewing its effectiveness. Such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives, and can only provide reasonable and not absolute assurance against material misstatement or loss.
In compliance with Provision C.2.1 of the Combined Code, the Board regularly reviews the effectiveness of the Group’s system of internal control. The Board’s monitoring covers all controls, including financial, operational and compliance controls and risk management. It is based principally on reviewing reports from management to consider whether significant risks are identified, evaluated, managed and controlled and whether any significant weaknesses are promptly remedied and indicate a need for more extensive monitoring. The Audit Committee assists the Board in discharging its review responsibilities.
During the course of its review of the system of internal control, the Board has not identified nor been advised of any failings or weaknesses which it has determined to be significant. Therefore a confirmation in respect of necessary actions has not been considered appropriate.
A separate Audit Committee statement provides details of the role and activities of the Committee and its relationship with external auditors.
Internal audit
The Group does not consider that an internal audit function is appropriate given the current scale and structure of its operations. As required by the Combined Code, the Board reviews the need for an internal audit function each year.
Business risk
Although the Group’s drug development programme is progressing well, all of its drug candidates remain subject to further clinical testing and regulatory approval. Management actions to mitigate this risk include liaison with the regulatory authorities and careful planning of the trials as described in the Chief Executive Officer’s Review.
Financial risk factors
The Group’s relatively simple structure, principally operating in the UK, and the lack of debt financing, reduces the range of financial risks to which it is exposed. Monitoring of financial risk is part of the Board’s ongoing risk management, the effectiveness of which is reviewed annually. The Group’s agreed policies are implemented by the Chief Financial Officer, who submits reports at each Board meeting. The Group has not, to date, used derivative transactions and it is the Group’s policy not to undertake any trading in financial instruments.
Foreign exchange risk
An element of the Group’s expenditures are in foreign currency, mainly US Dollars and Euros. While the Group has had net outflows of foreign currency it has managed short-term fluctuations in exchange rates by holding, where appropriate, US Dollars in interest bearing deposits. As the Group’s business matures, the amount of foreign currency income and expenditure is expected to increase and more sophisticated hedging of foreign currency transactions may be introduced.
Interest rate risk
The Group does not have any committed borrowing facilities, as its cash balances are sufficient to finance its current operations. Consequently, there is no material exposure to interest rate risk.
Credit risks
The Group’s policy is to place funds with financial institutions rated at least AA long-term (Fitch IBCA/Standard & Poors) or Aa (Moodys) and A1/Prime 1/F1 short-term (Standard & Poors/Moodys/Fitch IBCA). The Group does not allocate a quota to individual institutions but seeks to diversify its investments, where this is consistent with achieving competitive rates of return.
Cash flow and liquidity risk
The Group presently relies on its invested funds rather than trading receipts to meet its commitments. The maturity profile of its investments is structured to ensure that sufficient liquid funds are available to meet current operating requirements. The Directors do not consider that there is presently a material cash flow or liquidity risk.
Derivative financial instruments and hedging
There were no derivatives at 30 September 2008 or 30 September 2009.