The UK Listing Authority requires all listed companies to disclose how they have applied the principles and complied with the provisions of the Combined Code (“the Code”).
Application of the Code’s Principles
The board attaches great importance to the matters set out in the Code and observes its principles. It should be noted that, as an investment trust, most of the Company’s day to day responsibilities are delegated to third parties and the directors are all non-executive. Thus not all the provisions of the Code are directly applicable to the Company.
The Board and Committees
The board currently consists of five non-executive directors, all of whom are independent of the Company’s investment manager. Their biographies, set out here, demonstrate a breadth of investment, property and professional experience. The board meets six times a year and deals with the important aspects of the Company’s affairs, including the setting and monitoring of investment strategy and the review of investment performance. Between these meetings there is regular contact with the investment manager. The investment manager takes decisions as to the purchase and sale of individual investments within certain limits prescribed by the board. The investment manager also ensures that all directors receive, in a timely manner, all relevant management, regulatory and financial information. Representatives of the investment manager attend each board meeting enabling directors to probe further on matters of concern or seek clarification on certain issues. Matters specifically reserved for decision by the full board have been defined and a procedure adopted for directors, in the furtherance of their duties, to take independent professional advice at the expense of the Company. The directors have access to the advice and services of the Corporate Company Secretary (through its appointed representative) who is responsible to the board for ensuring that board procedures are followed and that applicable rules and regulations are complied with. The Chairman of the Company is an independent non-executive director. A senior non-executive director has not been identified as the board considers that all the directors have different qualities and areas of expertise on which they may lead where issues arise and to whom concerns can be conveyed. When a director is appointed he or she receives an introductory briefing, which is held by the investment manager. Changes in directors’ responsibilities are advised as they arise. The board has not established a nominations committee to make recommendations on the appointment of new directors as it considers itself to be a small board. The board as a whole considers nominations made in accordance with an agreed procedure. In accordance with the AITC recommendation, a management engagement committee, with defined terms of reference, has been established. This consists of all the independent non-executive directors and meets when necessary to review and discuss the terms of the appointment of the investment manager. There is also an audit committee consisting of all the independent non-executive directors with defined terms of reference. This committee is responsible for review of the annual accounts and interim report, terms of appointment of the auditors together with their remuneration as well as the non-audit services provided by the auditors. It also meets with representatives of the investment manager and receives reports on the quality and effectiveness of the accounting records and management information maintained on behalf of the Company. In accordance with the Articles of Association new directors stand for election at the first Annual General Meeting following their appointment and then at every third Annual General Meeting.
The board as a whole considers directors’ remuneration and therefore has not appointed a separate remuneration committee. As the Company is an investment trust and all directors are non-executive, the Company is not required to comply with the principles of the Code in respect of executive directors’ remuneration. Directors’ fees are detailed in the Directors’ Remuneration Report set out in the Report and Accounts; no fees are paid by the subsidiaries.
Accountability and Audit
The Statement of Directors’ Responsibilities in respect of the Accounts is set out in the Report and Accounts. The board has delegated contractually to external agencies, including the manager, the management of the investment portfolio, the custodial services (which include the safeguarding of the assets), the day to day accounting, company secretarial and administration requirements and the registration services. Each of these contracts was entered into after full and proper consideration by the board of the quality and cost of the services offered, including the control systems in operation in so far as they relate to the affairs of the Company. The board receives and considers regular reports from the manager and ad hoc reports and information are supplied to the board as required. In addition, the Chairman attends meetings of all the chairmen of the investment trust companies managed by the manager; these meetings provide a forum to discuss industry matters and the Chairman reports on them to the board. The manager has established an internal control framework to give reasonable assurance on the effectiveness of the internal controls operated on behalf of its clients. The effectiveness of these controls is assessed by the manager’s compliance and risk department on an ongoing basis.
The board has established an ongoing process for identifying, evaluating and managing the significant risks faced by the Company. This process is subject to regular review by the board and accords with the Internal Control Guidance for Directors on the Combined Code published in September 1999 (“the Turnbull guidance”). The process was fully in place up to the date of approval of this annual report and has operated throughout the year under review. The board is responsible for the Company’s system of internal control and for reviewing its effectiveness. However, such a system is designed to manage rather than eliminate the risks of failure to achieve the Company’s business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. The Board, assisted by the manager, undertook a full review of the Company’s business risks and these are analysed and recorded in a risk map. The board receives each quarter from the manager a formal report which details the steps taken to monitor the areas of risk, including those that are not directly the responsibility of the manager, and which reports the details of any known internal control failures. Steps will continue to be taken to embed the system of internal control and risk management into the operations and culture of the Company and its key suppliers. The Company does not have an internal audit function; it delegates to third parties most of its operations and does not directly employ any staff. The board will continue to monitor its system of internal control in order to provide assurance that it operates as intended and the directors will review from time to time whether a function equivalent to an internal audit is needed.
Exercise of Voting Powers
The Company has approved a corporate governance voting policy which accords with current best practice whilst maintaining a primary focus on financial returns.
Relations with Shareholders
The investment manager has a programme of meetings with institutional shareholders and reports back to the board on these meetings. The board is very conscious that the Annual General Meeting is an event which private shareholders are encouraged to attend and participate in. The investment manager makes a presentation to the meeting and proxy votes are relayed. The board has arranged for twenty working days’ notice of the Annual General Meeting to shareholders as required under Code Provision C.2.4.
Socially Responsible Investment
Good corporate governance extends to a company’s policies on the environment, employment, human rights and community relationships. Corporations are playing an increasingly important role in global economic activity and the adoption of good corporate governance enhances a company’s economic prospects by reducing the risk of government and regulatory intervention and any ensuing damage to its business or reputation. The Company’s policy is to examine and monitor the policies and actions of the companies in which it invests. Its overriding objective remains the maximisation of shareholders’ total return.
The Company has adopted an environmental policy in respect of its investments. The annual statements of the companies in which it invests are reviewed and their environmental statement considered. In respect of the direct property portfolio, there is an environmental assessment prior to purchase to identify possible contamination or materials considered environmentally harmful. Remedial action is taken where appropriate. Tenants are encouraged to pursue their own environmental procedures.
Statement of Directors’ Responsibilities
The directors are required by UK company law to prepare accounts for each financial year that give a true and fair view of the state of affairs of the Company and the Group as at the end of the financial year and of the net revenue of the Group for that period. The directors confirm that suitable accounting policies have been used and applied consistently and that reasonable and prudent judgements and estimates have been made in the preparation of the accounts. The directors also confirm that applicable accounting standards have been followed and that the accounts have been prepared on a going concern basis. The directors are responsible for keeping proper accounting records, for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Terms of Reference