Corporate Governance

The directors of Northern Bear plc (the “Company” or “Northern Bear”) recognise the importance of good corporate governance and have adopted the Corporate Governance Code produced by the Quoted Companies Alliance (the “Code”).  Insofar as it is practicable given Northern Bear’s size and the constitution of its Board, the directors of Northern Bear (the “Directors” and together the “Board”) seek to comply with all provisions of the Code. 

The Code contains 10 broad principles for corporate governance and asks companies to provide disclosures in their annual report and accounts, and on their website, as to how they are meeting the principles and any areas where they have chosen to depart from them. 

Given that the Company’s next annual report and financial statements will not be published until 2019, we have chosen to also include disclosures relevant to the annual report on our website as far as possible.  The date that compliance with the Code was last reviewed is 25th September 2018. 

  • This statement sets out how the Company and its subsidiaries (together the “Group”) comply with the 10 principles of the Code. 

    My primary responsibility as Chair is to lead the Board effectively and to oversee the adoption, delivery and communication of the Company’s corporate governance model. 

    As Executive Chairman, my role is focused on strategic matters and hence this provides adequate separation from the day to day business to be able to make independent decisions. 

    In my view, the Board promotes a corporate culture that is based on sound ethical values and behaviours and this supports us in delivering the Company’s objectives and strategy, in particular in delivering the continued success of the Group’s existing operations.  This is supported by the application of the QCA Corporate Governance Code. 

    The Group has a relatively flat management structure with the Managing Director (“MD”) of each business reporting directly to Graham Jennings, our Group Managing Director.  Both Graham Jennings and Keith Soulsby, our Operations Director, split their time between our subsidiary companies and have regular contact with the employee base and external stakeholders.  This allows them to monitor corporate culture across the Group to ensure that it meets our shared values. 

    There are no major areas where our governance structure and practices differ from the expectations set by the QCA code, other than that given the size and nature of the Group we do not consider it necessary to have a formal Board performance evaluation process in place as suggested by Principle Seven. 

    There are no key governance related matters that have occurred during the year and there were no significant changes in governance arrangements. 

    1. Establish a strategy and business model which promote long-term value for shareholders

    Application

    The Board must be able to express a shared view of the company’s purpose, business model and strategy. It should go beyond the simple description of products and corporate structures and set out how the company intends to deliver shareholder value in the medium to long-term. It should demonstrate that the delivery of long-term growth is underpinned by a clear set of values aimed at protecting the company from unnecessary risk and securing its long-term future.

    Compliance

    Having established the Group via an acquisition strategy and subsequently restructured operations during the economic downturn through the disposal of non-core businesses, the Group now has an established portfolio of mature businesses wholly focused on the support services sector.

    There are three main operating segments within the Group, being roofing, materials handling, and building services.

    The Company intends to deliver shareholder value in the medium to long term through:

    • The continued success of its existing operations, all of which are well established businesses with strong reputations in their markets.
    • Providing new services where possible to the existing, long established customer base. Examples of businesses developed within the Group include Northern Bear Building Services, Northern Bear Safety, and Survey Drones.  Any new ventures are unlikely to be capital intensive and hence would have limited downside in the event that they do not meet expectations.
    • Further bolt-on acquisitions where appropriate, taking into account the Company’s acquisition criteria of being a well-established, consistently profitable and cash generative building services business with a strong management team committed to remaining in place. Acquisitions would also need to predictably enhance earnings and provide an attractive return on investment.

    The Board meets on a regular basis to discuss the strategic direction of the Company and any significant change in strategy will be highlighted promptly.

    1. Seek to understand and meet shareholder needs and expectations

    Application

    Directors must develop a good understanding of the needs and expectations of all elements of the company’s shareholder base.  The Board must manage shareholders’ expectations and should seek to understand the motivations behind shareholder voting decisions.

    Compliance

    The Board understands the importance of providing shareholders with clear information on the Group’s activities, financial performance and position.

    The Group’s website contains copies of all RNS announcements made to shareholders.  We have also recently launched an email news feed via our website to provide more regular operational updates on our subsidiary businesses in order to provide a broader picture of our activities.

    The Board communicates regularly on an informal basis with significant shareholders.  The Company lists contact details on both its website and all RNS announcements should any shareholders wish to communicate with the Board and we will always endeavour to respond promptly to such queries.  The annual general meeting provides a further opportunity to communicate with shareholders via an informal open Q&A session following the formal business of the meeting.

    Having sought feedback from the shareholder base, the large majority of shareholders are happy with this approach and the level of communication provided.  We do keep our process for shareholder engagement under regular review based on feedback received and will continue to do so in the future.

    We note that significant numbers of votes have been cast at recent annual general meetings and that the votes have been overwhelmingly in favour of the resolutions proposed.  Should any significant votes be cast against a resolution the Board would always seek to engage with shareholders to understand the reasons for this. 

    1. Take into account wider stakeholder and social responsibilities and their implications for long-term success

    Application

    Long-term success relies upon good relations with a range of different stakeholder groups both internal (workforce) and external (suppliers, customers, regulators and others). The Board needs to identify the company’s stakeholders and understand their needs, interests and expectations.

    Where matters that relate to the company’s impact on society, the communities within which it operates or the environment have the potential to affect the company’s ability to deliver shareholder value over the medium to long-term, then those matters must be integrated into the company’s strategy and business model.

    Feedback is an essential part of all control mechanisms. Systems need to be in place to solicit, consider and act on feedback from all stakeholder groups.

    Compliance

    The Directors recognise that the Group requires strong relationships with all key stakeholders, including its employees, customers, suppliers, and all other external stakeholders.

    The Board has always highlighted that the Group’s loyal, dedicated and skilled workforce is a key part of our success.  To maintain this, we seek to continually invest in our workforce, regardless of short term economic conditions, through training new operatives and apprenticeship schemes.

    Ensuring our employees’ safety is critical to the Group and our in house safety business, Northern Bear Safety, ensures compliance with relevant standards and monitors performance on an ongoing basis.

    The Group has a relatively flat management structure with the MD of each business reporting directly to Graham Jennings, our Group Managing Director.  Both Graham and Keith Soulsby, our Operations Director, split their time between our Group companies and have regular contact with the wider employee base.  The Board considers that this provides an appropriate mechanism for employee feedback.

    The Group’s responsibilities to the wider stakeholder base including customers, suppliers, shareholders and regulators, are also recognised and regular communication is maintained in order to understand their needs, interests and expectations.

    The Directors are aware of the Company and its subsidiaries’ responsibilities to the communities within which they operate and take this very seriously.  The Group’s principal charity is St Oswald’s Hospice and regular events, including an annual golf day, have been held to raise funds.  Our subsidiaries also have discretion to support charities and community organisations in their local areas and regularly do so.

    The environmental impact of the Group’s activities is carefully considered, and the maintenance of high environmental standards is a priority.

    1. Embed effective risk management, considering both opportunities and threats, throughout the organisation

    Application

    The Board needs to ensure that the company’s risk management framework identifies and addresses all relevant risks in order to execute and deliver strategy; companies need to consider their extended business, including the company’s supply chain, from key suppliers to end-customer.

    Setting strategy includes determining the extent of exposure to the identified risks that the company is able to bear and willing to take (risk tolerance and risk appetite).

    Compliance

    The Board recognises the need to maintain a suitable risk management framework to identify, assess and manage all relevant risks to the Group’s business.

    The strategic report in the latest annual report and accounts provides a detailed statement of risks relating to the Group’s business and, where possible, any actions taken to mitigate them.

    The key risks discussed are:

    • Sector demand
    • Competition
    • Key clients
    • Dependence on personnel
    • Health and safety performance
    • Insurance cover
    • Underperformance of acquired businesses
    • Financial instruments, including credit risk, liquidity risk, and market risk
    • Macro-economic environment and British exit from the European Union

    With the exception of the last item, the Board considers the remainder of the list to be inherent to the Group’s businesses.

    The Group’s strategy is regularly reviewed along with the key risks impacting it as part of the Board’s annual business planning and budgeting process, where detailed operational budgets are prepared for each subsidiary and approved by the Board.  The Group’s performance against its strategy and the associated risks is also monitored through preparation and review of monthly management accounts and associated KPI reports.  Accepting that no systems of control can provide absolute assurance against material misstatement or loss, the Directors believe that the established systems for internal control within the Group are appropriate to the business. 

    1. Maintain the Board as a well-functioning, balanced team led by the Chair

    Application

    The Board members have a collective responsibility and legal obligation to promote the interests of the company, and are collectively responsible for defining corporate governance arrangements. Ultimate responsibility for the quality of, and approach to, corporate governance lies with the chair of the Board.

    The Board (and any committees) should be provided with high quality information in a timely manner to facilitate proper assessment of the matters requiring a decision or insight.

    The Board should have an appropriate balance between executive and non-executive directors and should have at least two independent non-executive directors. Independence is a Board judgement.

    The Board should be supported by committees (e.g. audit, remuneration, nomination) that have the necessary skills and knowledge to discharge their duties and responsibilities effectively.

    Directors must commit the time necessary to fulfil their roles.

    Compliance

    Board structure and independence

    The Board comprises six directors, being the Chair (Steve Roberts), the Group Managing Director (Graham Jennings), the Finance Director (Tom Hayes), the Operations Director (Keith Soulsby), and two Non-Executive Directors (Ian McLean and Howard Gold).

    The QCA code notes that independence is a Board judgement.  We note that the circumstances which may be relevant to this decision can include the length of service on the Board.  Ian and Howard have both been non-executive Directors for more than ten years and hence this has been given due consideration.

    On balance, the Board’s view is that Ian and Howard have a wealth of commercial and professional experience from careers in the City and the legal profession and both have consistently demonstrated that they are prepared to challenge Board decisions and to ask searching questions as required.  Consequently, both Non-Executive Directors are considered to be independent for corporate governance purposes.

    Further, their knowledge of the Group is a big advantage in fulfilling their roles, and the Board sees a significant benefit in retaining their experience to support the Executive Directors in delivering the Group’s strategy.

    Time commitment required

    • Group Managing Director and Group Operations Director – full time roles
    • Executive Chairman and Finance Director – variable with time commitment dependent on both the Group’s strategic and operational activities
    • Non-executive Directors – attendance at Board meetings, Annual General Meeting, Audit and Remuneration Committee meetings, and ad-hoc support as required

    Board and other meetings

    Board meetings are held every 1-2 months, and in the past 12 months a total of six meetings were held.

    The attendance record of each Director over the past 12 months was:

      Total meetings Attended
    Steve Roberts 6 5
    Graham Jennings 6 6
    Tom Hayes 6 5
    Keith Soulsby 6 5
    Ian McLean 6 6
    Howard Gold 6 4

    The Group is managed operationally via regular informal Executive Directors’ meetings, as well as monthly Managing Directors meetings for all subsidiary Managing Directors chaired by Graham Jennings.

    The Board considers that this structure of meetings provides an appropriate balance between operational and strategic management and that it allows Board meetings to focus on the latter.

    Committees

    The Board is supported by an Audit committee and a Remuneration committee.  The roles of these committees are discussed in more detail in comments on principle nine.

    Audit committee

    The Group’s Audit Committee typically meets three times per year, being at the audit planning stage, prior to finalisation of the Group’s annual report and financial statements, and prior to release of the interim report and financial statements.  In the last 12 months there were three Audit Committee meetings as above.

    Remuneration committee

    The Remuneration Committee meets at least annually and usually following the financial year end and prior to the agreement of annual bonus payments.  Other meetings are held as required, for example to approve any issue of share options.  In the last 12 months there was one Remuneration Committee meeting. 

    1. Ensure that between them the directors have the necessary up-to-date experience, skills and capabilities

    Application

    The Board must have an appropriate balance of sector, financial and public markets skills and experience, as well as an appropriate balance of personal qualities and capabilities. The Board should understand and challenge its own diversity, including gender balance, as part of its composition.

    The Board should not be dominated by one person or a group of people. Strong personal bonds can be important but can also divide a Board.

    As companies evolve, the mix of skills and experience required on the Board will change, and Board composition will need to evolve to reflect this change.

    Compliance

    Details of the current Directors, their roles and backgrounds are set out on the Company’s website in the Investor Relations section.

    The Board considers that the Directors have, collectively, an appropriate mixture of strategic, operational, financial, public markets, and legal experience for a business of this size and nature in order to deliver the Group’s strategy for the benefit of shareholders.

    The Directors keep their skill sets up to date through a mixture of commercial and operational experience and technical updates as required.  Steve Roberts and Tom Hayes are chartered accountants and are also required to comply with the ICAEW’s continuing professional development policy.

    The Company Secretary, Wendy Edgell, assists the Chair and the Board in preparing for and running effective Board meetings, including the timely dissemination of appropriate information.  Wendy also keeps up to date with relevant legal, statutory and regulatory requirements and advises the Board accordingly.

     

     

    1. Evaluate Board performance based on clear and relevant objectives, seeking continuous improvement

    Application

    The Board should regularly review the effectiveness of its performance as a unit, as well as that of its committees and the individual directors.

    The Board performance review may be carried out internally or, ideally, externally facilitated from time to time. The review should identify development or mentoring needs of individual directors or the wider senior management team.

    It is healthy for membership of the Board to be periodically refreshed. Succession planning is a vital task for Boards. No member of the Board should become indispensable.

    Compliance

    The Board undertakes regular internal monitoring of collective and individual performance using agreed key performance indicators and detailed financial reports.

    The key performance indicators used include financial measures such as revenues, gross margins, operating profit, and cash flow from operations.  The primary non-financial key performance indicators relate to three Health & Safety areas which are site activities, documentation, and environmental.

    Given the size and nature of the Group, we do not consider it necessary to have a formal Board performance evaluation process in place as suggested by Principle Seven of the Code.

    Succession planning is an important part of our business and we regularly engage with all Group and subsidiary Directors as to their plans for the medium to long term in order to plan effectively for any departures.  The Board regularly considers the need for the periodic refreshing of its membership.  Recent examples of management transitions in the Company’s subsidiaries include Jennings Roofing, Wensley Roofing, and A1 Industrial Trucks. 

    1. Promote a corporate culture that is based on ethical values and behaviours

    Application

    The Board should embody and promote a corporate culture that is based on sound ethical values and behaviours and use it as an asset and a source of competitive advantage.

    The policy set by the Board should be visible in the actions and decisions of the chief executive and the rest of the management team. Corporate values should guide the objectives and strategy of the company.

    The culture should be visible in every aspect of the business, including recruitment, nominations, training and engagement. The performance and reward system should endorse the desired ethical behaviours across all levels of the company.

    The corporate culture should be recognisable throughout the disclosures in the annual report, website and any other statements issued by the company.

    Compliance

    The Board aims to promote a corporate culture across all aspects of our business that is based on sound ethical values and behaviours, and believes that this is critical to our continued success.

    Our businesses are all well established in their respective markets and sustaining this is dependent on how they interact with all stakeholders, including customers, suppliers, employees and regulators.  Any unethical behaviour would have an adverse impact on the future success of our companies.

    As previously mentioned the Group has a relatively flat management structure and both Graham Jennings and Keith Soulsby are closely involved with our subsidiary companies and stakeholders.  This allows them to monitor corporate culture across the Group to ensure that it meets our shared values. 

    1. Maintain governance structures and processes that are fit for purpose and support good decision-making by the Board

    Application

    The company should maintain governance structures and processes in line with its corporate culture and appropriate to its:

    • size and complexity; and
    • capacity, appetite and tolerance for risk.

    The governance structures should evolve over time in parallel with its objectives, strategy and business model to reflect the development of the company.

    Compliance

    Roles and responsibilities for directors, and matters reserved for the Board

    The Board is collectively responsible for decision making on strategic matters.  This includes the following key areas:

    • Capital structure – determining an appropriate level of debt to equity funding, and maintaining suitable bank facilities for day to day working capital requirements;
    • Capital allocation – allocation of shareholders’ funds between investment in existing operations, acquisitions, dividends, share buy-backs, and debt repayments;
    • Commercial and operational strategy – supporting the Group’s businesses in commercial decisions including contract tendering, recruitment, and procurement;
    • Compliance – including health and safety, industry requirements, HR and legal matters; and
    • Liaising with funders and other external stakeholders.

    Specific individual responsibilities include (but are not limited to):

    Director Role Responsibilities
    Steve Roberts Executive Chairman Shareholder relations
    Acquisitions and disposals
    Graham Jennings Group Managing Director Operational management
    Budgeting
    Insurance
    Procurement
    Keith Soulsby Operations Director Operational management
    Human Resources
    Health & Safety
    Tom Hayes Finance Director PLC reporting
    Bank facilities and treasury
    Stock exchange compliance
    Ian McLean Non-executive Director Audit committee
    Remuneration committee
    Howard Gold Non-executive Director Audit committee
    Remuneration committee

     

    Committees

    Audit committee

    This committee receives and reviews reports on the financial management of the Group and the assessment of operational risks.  The members of this committee are the two non-executive Directors, Howard Gold and Ian McLean, with the executive directors in attendance as required. Submissions to the committee are from management and the Group’s auditors to whom the committee has unrestricted access.

    Remuneration committee

    The members of the remuneration committee are Howard Gold and Ian McLean.  This committee considers the remuneration of the executive directors together with the terms of their service contracts. The committee then makes recommendations to the Board regarding the remuneration of employees and directors. Finally, the committee approves the issue of options under share option schemes.

    Nomination committee

    The Company uses the whole Board to consider matters of nomination and succession, which is considered appropriate given the Group’s current size and nature.

    Evolution of governance framework

    The Board considers that the current governance framework is appropriate for the Company and Group’s current stage of development.  Should the Group increase in size significantly, then the framework will be reviewed and expanded as required.

     

    1. Communicate how the company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders

    Application

    A healthy dialogue should exist between the Board and all of its stakeholders, including shareholders, to enable all interested parties to come to informed decisions about the company.

    In particular, appropriate communication and reporting structures should exist between the Board and all constituent parts of its shareholder base. This will assist:

    • the communication of shareholders’ views to the Board; and
    • the shareholders’ understanding of the unique circumstances and constraints faced by the company.

    It should be clear where these communication practices are described (annual report or website).

    Compliance

    The Board seeks to maintain relationships with all key stakeholders as covered in detail in the commentary on principles 2 and 3.

    Committees

    The Audit Committee and Remuneration Committee operate as set out in commentary on principles five and nine.  Reports from both committees will be included in the Company’s next annual report and financial statements.

    Annual general meeting (“AGM”)

    At the last five AGMs, votes were conducted via a show of hands from those present, and all resolutions were unanimously passed with the exception of the last meeting on 20th August 2018.  At that meeting all votes were unanimously in favour with the exception of resolution seven “To authorise the Directors to declare and pay a special dividend for the year ended 31st March 2018” where there were five votes in favour and one abstention.

    Proxy votes were available if required and a large majority of proxy votes were in favour of all resolutions.   There has not been a single resolution over the past five AGMs where a significant proportion of votes (20% or more of independent votes) has been cast against.

    Historical annual reports and governance-related material

    Copies of historical annual reports, notices of AGM, and proxy forms are available on the Company’s website covering at least the past five years.

    Omitted disclosure

    Given the size and nature of the Group, we do not consider it necessary to have a formal Board performance evaluation process in place as suggested by Principle Seven of the Code.  Accordingly, we have not published any disclosure information in respect of this.