Vectura's Board is committed to maintaining high standards of
corporate governance and has fully addressed the provisions of the
new Combined Code on Corporate Governance issued in
July 2003.
Statement of compliance
The Group has
been in compliance with the provisions set out in Section 1 of the
Code throughout the year, other than in relation to Provision B.1.3
concerning the granting of share options to Non-Executive Directors
(NEDs) in a prior year.
It was essential
for an emerging pharmaceutical company like Vectura to secure the
recruitment and retention of high calibre NEDs with the appropriate
experience and international perspective in the context of the
Company’s stage of development.
The principles
set out in the Combined Code cover four areas: the Board,
directors’ remuneration, accountability and audit and
shareholder relations. The following sets out how the Board has
applied such principles.
The
Board
The Code requires
every company to be headed by an effective board, which is
collectively responsible for its success. As part of its leadership
and control of the Company, the Board has an agreed list of items
that are specifically reserved for its consideration. These include
business strategy, financing arrangements, material acquisitions
and divestments, approval of the annual budget, major capital
expenditure projects, risk management, treasury policies and
establishing and monitoring internal controls. At each meeting, the
Board reviews strategy and progress of the Group towards its
objectives, particularly in respect of research and development
projects, and monitors financial progress against budget.
NEDs are
encouraged to meet without the presence of Executive Directors as
appropriate.
Division of responsibilities between Chairman and Chief
Executive
The Board has
shown its commitment to dividing responsibilities for running the
Board and running the Company’s business by appointing Jack
Cashman as Non-Executive Chairman; by naming Dr John Brown as
Senior Independent Director; by establishing an executive
management team (Vectura Executive Committee, the
“VEC”) under the leadership of the Chief Executive, Dr
Chris Blackwell; and by establishing a procedure whereby the
VEC reports formally to the Board at each Board meeting.
Board
balance
The Code requires
a balance of Executive Directors and NEDs (and in particular
independent NEDs) such that no individual or small group of
individuals can dominate the Board’s decision-taking. A
smaller company, such as Vectura, must have at least two
independent NEDs. Four of the six current Board members are NEDs.
The NEDs come from diverse business backgrounds and each has
specific expertise, materially enhancing the judgement and overall
performance of the Board. Dr J R Brown is the Non-Executive
Director with relevant financial experience.
Independence of NEDs
As explained in
the statement of compliance above, in order to assist in securing
the recruitment and retention of high calibre NEDs, the Company has
historically remunerated NEDs in the form of options to acquire
shares in the Company, in addition to fees. The Board has
determined that all its NEDs are independent.
The holding of
share options by NEDs could be, amongst other things, relevant in
determining whether a NED is independent. After detailed
consideration, the Board has determined that it does not believe
that the holding of share options by its NEDs impacts on their
independence in character and judgement. Options granted to NEDs
are not subject to any performance conditions and are now
exercisable.
Other factors
that may reflect on the independence of a NED include any material
business relationships with the Company. Dr Richards provides
advice to the Company on request on particular scientific and
technical matters within his area of expertise. The Board
considers that this arrangement does not in any way affect Dr
Richards’ independent judgement. Dr Richards is
currently a Director and shareholder in PharmaKodex Limited, a
company of which Vectura owns 20.4% of the issued share capital and
Dr Richards 1.84%. The Directors do not consider that this
arrangement compromises his independence because his
responsibilities include management of Vectura’s investment
in PharmaKodex.
The Board has
established a Remuneration Committee, a Nomination Committee and an
Audit Committee, whose make-up complies with the requirements of
the Code. In accordance with the Smith Guidance on Board
Committees, no one other than the Committee Chairman and committee
members receive automatic invitations to the meetings. The NED
members of the Board each serve on the three Board Committees, as
described below. The Board has considered the composition of the
Committees and concluded that the independence and objectivity of
the individual NEDs is in no way impaired thereby.
The
Remuneration Committee
The Code requires
that the Remuneration Committee consists of at least two
independent NEDs. Dr Foden has chaired the Remuneration
Committee since 18 January 2007, its other members being Dr Brown
(Chair up to and including 17 January 2007), Mr Cashman and Dr
Richards. The Committee has responsibility for making
recommendations to the Board on the Company’s policy on the
performance evaluation and remuneration of directors and for
determining, within agreed terms of reference, specific
remuneration packages for each of the directors and members of the
Vectura Executive Committee, including pension rights, any
compensation payments and the implementation of executive incentive
schemes. The Committee plans to meet at least three times a
year.
The
Nomination Committee
The Nomination
Committee leads the process for Board appointments and makes
recommendations to the Board. The Code recommends that a majority
of members of the Nomination Committee are independent NEDs. Dr
Brown chairs the Nomination Committee and its other members are
Mr Cashman, Dr Foden and Dr Richards. The Nomination
Committee meets at least once a year, or more if necessary, and has
responsibility for considering the size, structure and composition
of the Board, retirements and appointments of additional and
replacement Directors and making appropriate recommendations to the
Board.
The
Audit Committee
The Code
recommends that the Board should establish an Audit Committee of at
least three independent NEDs, one of whom has recent and relevant
financial experience. The Company complies with these
recommendations. Dr Brown is Chairman of the Committee, the other
members being Dr Foden and Dr Richards. In compliance with the
Code’s recommendation that the Chairman should not sit on the
Audit Committee. Mr Cashman resigned from the Committee upon
the appointment of Dr Foden in January 2007. The Audit
Committee intends to meet not less than three times a
year. The Audit Committee is responsible for making
recommendations to the Board on the appointment, reappointment and
removal of the external Auditors and assesses annually the
qualification, expertise, resources, remuneration and independence
of the Auditors, as well as the effectiveness of the audit
process.
Any non-audit
services that are to be provided by the external auditors are
reviewed in order to safeguard Auditor objectivity and
independence. The Board can confirm that there have been no
significant non-audit services that are considered to have impaired
the objectivity and independence of the external Auditors.
The Audit
Committee focuses particularly on compliance with legal
requirements, accounting standards and the Code, and on ensuring
that an effective system of internal financial controls is
maintained. The ultimate responsibility for reviewing and approving
the financial statements in the Interim and Annual Reports remains
with the Board. Written terms of reference are modelled on the Code
provisions and set out the main roles and responsibilities of the
Audit Committee. The Audit Committee reports to the Board,
identifying any need for action or improvement on any of these
terms of reference and making recommendations as to the steps to be
taken. The Board reviews the effectiveness of the Audit
Committee.
The Audit
Committee meets with the external Auditors at least once a year
without management present and its Chairman keeps in touch, as
required, with the key people involved in the Company’s
governance, including the Board Chairman, the Chief Executive, the
Chief Financial Officer and the external audit lead partner. All
Audit Committee members understand the role of the Audit Committee,
its terms of reference, their expected time commitments and have
the necessary overview of the Company’s business, financial
dynamics and risk.
The Audit
Committee reviews arrangements by which staff of the Company may,
in confidence, raise concerns about possible improprieties in
matters of financial reporting or other matters. The Audit
Committee’s objective is to ensure that arrangements are in
place for the proportionate and independent investigation of such
matters and for appropriate follow-up action.
The Audit
Committee reviews the financial integrity of the Group’s
financial statements, including relevant corporate governance
statements prior to Board submission.
Timeliness and quality of Board information
The Board has
sought to ensure that directors are properly briefed to help them
make an effective contribution at the meetings by establishing
procedures for distributing Board agendas and papers in a timely
manner in advance of meetings. The Board has at least six scheduled
formal meetings per year (approximately every two months), with
additional meetings when circumstances and urgent business
dictate.
In addition, the
executive directors ensure regular informal contact is maintained
with non-executive directors. The Board makes full use of
appropriate technology as a means of updating and informing all its
members.
Transparency of Board appointments
There are formal, rigorous and transparent procedures for the
appointment of new directors to the Board. Short-listed candidates
are interviewed by the Chairman of the Board and at least one other
member of the Nomination Committee and evaluations of all
appropriate candidates are circulated to all members of the
Nomination Committee for consideration and approval prior to
candidate recommendation to the Board.
Board
performance evaluation
Directors are
subject to election by shareholders at the first opportunity after
their appointment, and to re-election thereafter at intervals of no
more than three years. The Board has a process for evaluation of
its own performance and that of its committees and individual
Directors, including the Chairman. These evaluations are carried
out on a regular basis throughout the year. The performance of Dr
Foden and Dr Brown, who are being proposed for re-election at
the AGM, has been so evaluated and it has been determined that they
continue to perform effectively and show full commitment to their
roles on the Board. All directors have service agreements with
indefinite terms.
Accountability and audit
The Board is
required by the Code to present a balanced and understandable
assessment of the Group’s position and prospects. In relation
to this requirement reference is made to the Statement of
Directors’ Responsibilities for preparing financial
statements. The independent auditors’ report includes a
statement by the auditors about their reporting
responsibilities.
Maintenance of a sound system of internal
control
The Board has
overall responsibility for the Group’s system of internal
control and for reviewing its effectiveness. The Group’s
internal controls are regularly reviewed as part of the risk
management process. 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. The concept of reasonable assurance
recognises that the cost of a control procedure should not exceed
the expected benefits.
Risk
assessment review
An ongoing
process for identifying, evaluating and managing the significant
risks faced by the Group is in place. The effectiveness of the
Group’s internal control system has been reviewed by the
Board during the year. The Audit Committee’s terms of
reference include the review of the Group’s internal
financial control systems and it recommends to the Board any
improvements required. The Audit Committee considers the need for
an internal audit function annually and has concluded that, given
the size of the Group’s operations at this time, it is not
necessary. The Board carries out reviews of the non-financial
control systems.
Key
internal controls
The Group’s
organisational structure has clearly established responsibilities
and lines of accountability. Employees are required to follow
clearly laid-out internal procedures and policies appropriate to
the business and their position within the business.
The Group
endeavours to appoint employees with appropriate skills, knowledge
and experience for the roles they undertake.
The Board has
shown its commitment to formal and transparent arrangements for
internal control by, amongst other things, reviewing the
Group’s arrangements for its employees to raise concerns, in
confidence, about possible wrongdoing (formalised in a grievance
procedure and whistle-blowing policies circulated to all
employees).
Documented
quality procedures are in place to ensure the maintenance of
regulatory compliance. These are subject to periodic review to
ensure current standards of quality compliance are maintained. A
quality group monitors compliance with Good Laboratory Practice
(GLP), Good Clinical Practice (GCP) and Good Manufacturing Practice
(GMP) through the implementation of a compliance programme for
in-house and contracted-out activities.
The Group has set
up a formal Health and Safety Committee, comprising appropriate
members of management and other employees, to be responsible for
these issues.
The Group has
formal procedures to ensure appropriate security of documents and
proprietary information.
The Group has
reviewed its portfolio of insurance policies with its insurance
broker to ensure that the policies are appropriate to the
Group’s activities, size and exposures.
A comprehensive
budgeting system allows managers to submit detailed budgets, which
are reviewed and amended by Executive Directors prior to submission
to the Board for approval. At the end of each quarter a forecast is
prepared in the same level of detail as the budget. Actual results
against budget and forecast, highlighting variances, are prepared
for managers and the Board.
Shareholder relations
The Company
reports formally to shareholders twice a year by way of the interim
and annual reports. Separate announcements of all material events
are made as necessary by press releases that are posted on the
Company’s website and automatically sent to all shareholders
who are Vectura registered website users. These are the main
mechanisms by which the Board seeks to present a balanced and
understandable assessment of the Company’s position and
prospects. All periodic reports and accounts are mailed to
shareholders.
Regular
communications are maintained with institutional shareholders and,
in particular, presentations are given to shareholders when the
half- and full-year financial results are announced.
Dr Brown, as
Senior Independent Director, is contactable by shareholders through
a link on this website. In addition, all NEDs have developed
an understanding of the views of shareholders through corporate
broker briefings and review of issued analyst notes.
Constructive use of the AGM
The Board seeks
to use the AGM (together with other forums) to communicate with
investors and encourage their participation by arranging business
presentations and inviting shareholder questions. The Chairmen of
the Audit, Nomination and Remuneration Committees are present at
the AGM to answer questions through the Chairman of the Board.