Corporate governance is something that touches all aspects of our business and affects all of our employees in many different ways. Whitbread is committed to maintaining high standards in this area to ensure that the Company is managed with integrity and transparency.
Although corporate governance flows through all of our operations, the Board takes responsibility for leading on high standards of accountability and ethical behaviour. The 2010 UK Corporate Governance Code (‘the Code’) was applicable in 2012/13 and is the standard against which we measured ourselves. In order to ensure our compliance we undertook a thorough review of our arrangements including our:
• overall compliance with the Code with respect to business and corporate practices;
• matters reserved to the Board; and
• terms of reference for each of the three Board committees.
The results of this review were presented at the January Board meeting and formally adopted by the Board. We are pleased to report that the Company complied with all the provisions of the Code throughout the financial year.
The 2012 Corporate Governance Code (‘the 2012 Code’) will apply to the Company in 2013/14, but we have decided to adopt some of the new principles and provisions early to ensure that we maintain our high standards.
During the year, other key activities have included:
• an internal evaluation of the Board;
• a talent review and succession plan for key executive roles; and
• the appointment of two new executive directors.
Diversity and equality have always been core values at Whitbread. The Board believes that diversity is highly important, not only for board effectiveness but for the effectiveness of the Company as a whole. Whitbread appoints members of the Board on the basis of qualification and merit and does not discriminate on any grounds. We are committed to an active policy of equal opportunities and embrace diversity at all levels.
Maintaining high standards of corporate governance is key to supporting our financial performance and protecting your Company. Simon Barratt, our General Counsel and Company Secretary, provides further details below on how Whitbread complied this year in the following areas:
• the Board;
• shareholder relations;
• internal control; and
• Board committees.
Corporate governance is an area that continues to change and develop. Next year we will be reviewing the way in which the Audit Committee reports to the Board on how it has carried out its responsibilities and developing the new form of remuneration report.
We keep all developments under review and will always aim for a level of governance that is appropriate and relevant to the Company.
Who is on the Board of directors?
There are 13 members of the Board including the Chairman, Chief Executive and Senior Independent Director.
Two new directors have been appointed during the course of the year. In November 2012, Nicholas Cadbury was appointed to the Board as the new Group Finance Director and Louise Smalley joined the Board as Group Human Resources Director. While each of Nicholas and Louise have expertise within their function, they also use their experience to contribute to wider debates at Board level including on operational matters.
As you can see below, we have provided information on the mix of skills and experience represented on the Board. The Board brings together individuals with a diverse range of experience, which contributes to a positive culture of mutual respect and constructive challenge.
What were the key activities of the Board this year?
The Board generally holds meetings at monthly intervals during the year and on an ad hoc basis as and when required. Ten meetings were held last year.
A set of Board papers, including monthly financial and trading reports, is circulated in advance of each meeting so that directors have sufficient time to review them and arrive at the meeting fully prepared.
The agenda for each Board meeting is agreed with the Chairman and the Chief Executive so that current events and potential future issues can be discussed alongside the regular reports.
At each meeting, the Board starts with a review of the minutes from the previous meeting, matters arising and progress on action points. This is followed by reports from the Chief Executive, the Finance Director and the Managing Directors of Whitbread Hotels & Restaurants and Costa describing the operational and functional performance. Reports from thespecific parts of the business and new business opportunities are presented before a review of the secretariat report which sets out any updates on best practice and corporate legislation.
The Board has a rolling agenda which sets out matters to be considered throughout the year. This allows all directors to contribute to the setting of the agenda. Having a rolling agenda ensures that there is a structured approach to the consideration of recurring issues with such items being evenly spread across the calendar. The rolling agenda is structured such that the Board gives its attention to each area of the business in turn so that a strong understanding of the entire Company is maintained.
There is a schedule of matters reserved exclusively to the Board. These matters include:
• approval of Group financial statements and the preliminary announcement of half and full–year results;
• changes relating to the Group’s capital structure;
• the annual budget and the Group’s business plan;
• approving acquisitions and disposals valued at over £12 million;
• interim dividends and recommendation of final dividends;
• establishment of Board committees, terms of reference
and membership of Board committees; and
• maintaining sound risk management and internal control systems,
How and why did the Board appoint new executive directors this year?
As stated in the 2011/12 Annual Report and Accounts, when Christopher Rogers was appointed Managing Director of Costa Coffee, it was necessary for the Board to appoint a new Group Finance Director. The Nomination Committee began by considering the specification of a Group Finance Director and any additional skills and experience that required increased representation on the Board. The Committee then prepared a description of the capabilities required. An external search consultant, Spencer Stuart, was engaged and a number of candidates were identified. Selected candidates met with the Nomination Committee and further interviews led to the appointment of Nicholas Cadbury as the new Group Finance Director. A review of Board composition and the importance of the
40,000 team members to the success of the Company led to the conclusion that the Company would benefit from the appointment of the Group HR Director to the Board. The appointment of Louise demonstrates the importance of people development and talent planning at Whitbread.
How does the Board keep up to date with new developments?
A monthly report, prepared by the Company Secretary, is presented at each Board meeting. This report provides updates on corporate legislation and best practice on matters including corporate governance.
Formal training events were attended by Board members during the year on a range of issues including: workshops on succession planning, remuneration and corporate governance. Investor relations and market updates were also considered by the Board. The Company’s auditor also prepared a paper for the Board on the key developments in accounting and governance practice.
All directors have access to independent professional advice at the Company’s expense. Directors serving on Board committees confirmed they are satisfied that they receive sufficient resources to enable them to undertake their duties effectively. Each director has access to the Company Secretary for advice on governance.
How does the Board identify and consider directors’ conflicts of interest?
Directors are required to disclose any conflicts of interest immediately as and when they arise throughout the year. In addition, a formal process is undertaken each year in February when each director confirms to the Board details of their external interests including any other directorships which they hold.
These are assessed by the Board to determine whether the director’s ability to act in the best interests of the Company could be compromised. If there are no such potential or actual conflicts, the external interests are authorised by the Board. All authorisations are for a period of 12 months. No director is counted as part of a quorum in respect of the authorisation of his or her own conflict situation.
It is recognised that all organisations are potential customers of Whitbread and, in view of this, the Board has authorised
How is the independence of directors assessed?
The Board has a majority of independent non–executive directors. Independence is assessed annually against the Code. None of the provisions listed in the Code which may compromise independence apply to any of Whitbread’s non–executive directors. As such, the Board concluded that all of the non–executive directors are independent.
Does the Company have appropriate insurance cover in respect of legal action against its directors?
The Company has appropriate directors’ and officers’ liability insurance in place. In addition to this, the Company provides an indemnity for directors against the costs of defending certain legal proceedings. These are reviewed periodically.
What are each of the Board members responsible for?
All Board members have responsibilities in the areas of strategy, performance, risk and people. Specific duties of the Chairman and Chief Executive can be accessed by clicking here (PDF, 36kB)
The role of the Senior Independent Director
The Senior Independent Director provides a sounding board for the Chairman and supports him in the delivery of his objectives. The Senior Independent Director is available to shareholders if they have concerns which the normal channels have failed to resolve or which would be inappropriate to raise with the Chairman or the executive team. He also leads the evaluation of the Chairman on behalf of the other directors.
The role of the executive directors
The executive directors are responsible for the day–to–day running of the business and for implementing the operational strategic plans of the Company.
The role of the non–executive directors
The non–executive directors play a key role in constructively challenging and scrutinising the performance of the management of the Company.
How is performance evaluated?
Board and committees:
An annual evaluation of the Board and committees is carried out. Last year an external evaluation was held and this year it was conducted internally.
This year’s evaluation had two aspects:
• each director completed a formal questionnaire on the performance of the Board and each of the Board committees; and
• the Chairman met or spoke to all directors on a one-to-one basis.
The conclusions of the review were that the directors were aligned in their view that the Board functioned well and received appropriate information to consider the main strategic items.
Areas of discussion were:
• the presentation of the WINcard at Board meetings; and
• contact with the Whitbread Hotels & Restaurants International Board.
In response to last year’s evaluation, the following action has been taken:
• an annual update on relevant regulatory, accounting and legal issues from the auditor;
• a planning and review meeting of the Nomination Committee is held on an annual basis; and
• meetings have been held at different Company sites, and in November 2013 the Board will travel to India and the Middle East to attend a Board meeting and review new developments in these markets.
In accordance with the Code, we intend to have an externally facilitated evaluation of the Board at least every three years.
The Chairman has one–to–one meetings with each director to discuss their performance.
Each year the Senior Independent Director meets with the non–executive directors without the Chairman present to discuss the performance of the Chairman. The Senior Independent Director also speaks with the executive directors to gain their views before discussing the results with the Chairman.
How does the Company interact with shareholders?
The Company communicates with both institutional and private shareholders through the following means:
• the Company’s website (www.whitbread.co.uk), where information and news is regularly updated;
• the Annual Report, which sets out details of the Company’s strategy, business models and performance over the past financial year and plans for future growth;
• the Annual General Meeting, where all shareholders have the opportunity to vote on the resolutions proposed and to put questions to the executive team; and
• presentations of full and half–year results to analysts and shareholders and these are available on the Company’s website.
In addition, all shareholders are able to contact the Company via the website, email, telephone or post to raise issues.
The Company also takes opportunities to interact more directly with institutional and private shareholders.
• the Chief Executive, Group Finance Director and Director of Investor Relations held meetings with institutional investors following the full–year and interim results;
• the Chairman met institutional shareholders on request;
• the Board received updates on the views of major shareholders from the Company’s brokers; and
• Investor Days will take place in July and December this year.
• live webcast presentations of the annual and interim results; and
• electronic communications with shareholders including use of the online share portal.
How are shareholders able to participate in the AGM?
In accordance with the Code, the Notice of AGM and related papers are sent to the shareholders at least 20 working days before the meeting. The Company proposes a separate resolution on each substantially separate issue including a specific resolution to approve the report and accounts. For each resolution, proxy appointment forms provide shareholders with the option to vote in advance of the AGM if they are unable to attend in person. All valid proxy votes received for the AGM are properly recorded and counted by Whitbread's registrars.
As in previous years, all voting by shareholders will be by poll using electronic handsets. The voting results, including proxy votes received, will be displayed on a screen at the end of the meeting. In addition, the audited poll results will be disclosed on the website following the meeting, and announced through the regulatory news service.
How does the Company maintain adequate systems of internal control?
The Board is responsible for the Group’s systems of internal control and risk management, and for reviewing their effectiveness. These systems are designed to manage rather than eliminate risk of failure to achieve business objectives. They can only provide reasonable, and not absolute, assurance against material misstatement or loss.
The Board has established an ongoing process for identifying, evaluating and managing the Group’s significant risks. This process was in place throughout the 2012/13 financial year. The process is regularly reviewed by the Board and accords with the internal control guidance for directors in the Code.
• The Board identifies the principal risks of the Company on a regular basis and throughout the year it reviews the actions in place to mitigate the risks together with assurance and monitoring activity. The analysis covers health and safety, financial, market, operational and reputational risks which the Company may face as well as specific areas identified in the business plan and budget process.
• Each of the businesses also carries out its own risk analysis together with PwC as operational auditor and this is reviewed regularly by the management boards.
• All major capital and revenue projects, together with significant change programmes, include the consideration of the risks involved and an appropriate action plan.
• The scope of the audit agreed with Ernst & Young will identify the specific financial risks facing the Group.
• The Company reviews and confirms its compliance with the Corporate Governance Code on an annual basis.
• The matters reserved to the Board require that major projects and programmes must have specific Board approval.
• Limits of delegations and authority are prescribed to ensure that the appropriate approvals are obtained if Board authority is not required to ensure appropriate segregation of tasks.
• Group financial policies controls and procedures are in place and regularly reviewed and updated.
• The Whitbread Code of Conduct, setting out required levels of ethics and behaviour, is communicated to employees.
• The Code of Conduct makes reference to specific policies and procedures which have to be followed.
• Management is responsible for ensuring the appropriate maintenance of financial records and processes that ensure that financial information is relevant, reliable, in accordance with applicable laws and regulations and is distributed both internally and externally in a timely manner.
• A review of the financial statements is completed by management to ensure that the financial position and results of the Group are appropriately reflected.
• All financial information published by the Group is subject to the approval of the Audit Committee and the Board.
• An annual review of internal controls is undertaken by the Board with the assistance of the Audit Committee.
• The Board, with the assistance of the Audit Committee, approves an audit programme which ensures that the significant areas of risk identified are independently reviewed within at least a three–year period.
• The programme and the results of the audits are regularly assessed during the year.
• The Audit Committee reviews the major findings from both the operational and external audits.
• PwC, as operational auditor, has been appointed to carry out the independent audits. Its reports are reviewed by the Audit Committee and on a monthly basis by the management team to ensure that the actions required to address issues identified are implemented.
• PwC reports annually to the Audit Committee on the effectiveness of operational and financial controls across the Group.
• Ernst & Young review and report on the significant issues identified in their audit report and liaise with PwC in covering the agreed areas of risk throughout the year.
• An internal control evaluation process is overseen by the management team which assesses the level of compliance with the controls, policies and processes and the results are reviewed and tested on a sample basis by PwC.
• Post–completion reviews of major projects and investments are carried out and reported on to the Board.
The Board is supported by three committees; the Audit Committee, the Nomination Committee and the Remuneration Committee. Their terms of reference are reviewed annually and updated in line with best practice. They have been updated in 2013 to reflect certain of the changes in the 2012 Code.