The Company (and thereby its group (the “Group”)) is ultimately managed by the directors of the Company (the “Directors”), who (individually and as a group) are responsible for running the Company for the benefit of its shareholders in accordance with their fiduciary and statutory duties.
The Board comprises, the Executive Chairman; Sebastian Morley, the Chief Executive Officer; Roberto Fiorentino, two Executive Directors and two Non-Executive Directors.
The Biographies of the Directors are set in the annual report which is available on the Group website, www.cssgplc.com. These show the range of business and financial experience upon which the Board is able to call.
The Board’s goal is to ensure that its membership should be balanced between Executives and Non-Executives and have the appropriate skills and experience and knowledge of the business. The Board recognises the special position and role of the Chairman under the Code, and has approved the formal division of responsibilities between the Chairman and Chief Executive.
The Chairman is responsible for the leadership of the Board and ensuring its effectiveness, and the Chief Executive manages the Group and has the prime role, with the assistance of the Board, of developing and implementing business strategy.
One of the roles of the Non-Executive Directors under the leadership of the Chairman is to undertake detailed examination and discussion of the strategies proposed by the Executive Directors, so as to ensure that decisions are in the best long-term interests of shareholders and take proper account of the interests of the Group’s other stakeholders.
The Chairman ensures that meetings of Non-Executive Directors without the Executive Directors are held.
The Board consider none of the Non-Executives to be truly independent in accordance with the QCA Code, and free from any business or other relationship which could materially interfere with the exercise of their independent judgement.
However, the QCA guidelines acknowledge for growing companies it may not be possible for boards to meet the definition of “independence” for Non-Executive Directors, however it sets out that it is important for the board to foster an attitude of independence of character and judgement, and the fact that a Director has served for more than nine years does not automatically affect independence, although concurrent tenure with management could hinder the ability to be objective.
Based on the QCA guidelines the board conclude that the Non-Executives are however independent in terms of character and judgement in how they execute their role as Non-Executive Directors.
The Board is mindful of the threat to independence and actively manages the potential risk to ensure that the Non-Executives provide the independent constructive challenge to help develop the Board’s proposals on strategy.
The Board has three standing committees (the “Committees”): the Audit Committee, the Remuneration Committee and the Executive Committee. The Terms of Reference for each of the Committees are available on the Company’s website.
The Board does not have a formally-established nominations committee however one would be formed prior to any nominations for appointment to the Board. Furthermore any nominations are considered and recommended by the full Board (and are subject to a shareholder vote at the next Annual General Meeting).
Rules concerning the appointment and replacement of Directors of the Group are contained in the Articles of Association (“Articles”). Amendments to the Articles must be approved by a special resolution of shareholders. Under the Articles, all Directors are subject to election by shareholders at the first Annual General Meeting following their appointment, and to re-election thereafter at intervals of no more than three years.
COMMITTEES OF THE BOARD
The Executive Committee consists of the Executive Directors under the chairmanship of Sebastian Morley and is responsible for the development of strategy, annual budgets and operating plans linked to the management and control of the day-to-day operations of the Group.
The Executive Committee is also responsible for monitoring key commercial opportunities and relationships, day to day stakeholder engagement and for ensuring that the Board policies are carried out on a Group-wide basis.
The Audit Committee consists of the Non-Executive Directors; Nicholas Hewson and Charles McMicking. The Committee meets at least twice a year under the Chairmanship of Mr Hewson who the Board has evaluated to have relevant financial experience.
The Chairman of the Audit Committee is not deemed independent by virtue of his length of service and that he has previously held an Executive position. However, given the appointment of a new Executive Group Finance Director in 2016 and the fact that the Board considers that Mr Hewson fulfils the role with of independence of character and judgement, the Board has concluded that it is appropriate to retain the financial experience and knowledge of the business possessed by Mr Hewson in his role as Chairman of the Audit Committee.
The Audit Committees duties include monitoring internal controls throughout the Group, approving the Group’s accounting policies, and reviewing the Group’s interim results and full year financial statements before submission to the full Board. The Audit Committee also reviews and approves the scope and content of the Group’s annual risk assessment programme and the annual audit and monitors the independence of the external auditors.
The Audit Committee acts to ensure that the financial performance of the Group is properly recorded and monitored, in fulfilling their role they meet annually with the auditors and review the reports from the auditors relating to accounts and internal control systems.
The Group does not have an independent Internal Audit function, as it is not considered appropriate given the scale of the Group’s operations, however the Group operates internal peer reviews, with a scope of evaluating and testing the Group’s financial control procedures, to standardise processes around best practice. Any significant issues are reported to the Chairman of the Audit Committee, and shared with the external auditors as appropriate.
The Group Finance Director and the external auditors attend meetings of the Audit Committee by invitation. The Committee may also hold separate meetings with the external auditors, as appropriate.
The Remuneration Committee consists of the Non-Executive Directors; Charles McMicking and Nicholas Hewson. The Committee meets at least twice a year under the Chairmanship of Mr McMicking.
The purpose of the committee is to review the performance of the full time Executive Directors and to set the scale and structure of their remuneration and the basis of their service agreements with due regard to the interests of the shareholders. In fulfilling this responsibility, the Remuneration Committee is responsible for setting salaries, incentives and other benefit arrangements of Executive Directors and overseeing the Group’s employee share scheme.
Members of the Remuneration Committee do not participate in decisions concerning their own remuneration.
FREQUENCY OF MEETINGS
The Board meets at least nine times a year and relevant information is distributed to Directors in advance of the meetings. The Board makes decisions on all material matters including long term and commercial strategy, annual operating and capital budgets, capital structure and financial and internal controls.
The Group has a formal schedule of matters reserved to the Board which is periodically reviewed and approved by the Board.
EVALUATING BOARD PERFORMANCE
The Board has a number of sources of information from which it judges its own performance and that of the individual Directors, these include but are not limited to:
- financial performance indicators including, revenue, order book, gross margin, net margin, earnings per share and cash flow;
- the Company’s share price;
- reports from external auditors;
- shareholder feedback;
- customer feedback; and
- employee feedback.
All these factors are considered, and action taken to improve performance as appropriate.
The Board formally evaluates its own performance (whether itself or by engaging external consultants) not less than once a year.
COMMUNICATION WITH SHAREHOLDERS
The Board attaches great importance to providing shareholders with clear and transparent information on the Group’s activities, strategies and financial position, in addition to having regard to its obligations as a quoted public company and the AIM Rules.
The Group holds meetings with significant shareholders on a regular basis and regards the Annual General Meeting as a good opportunity to communicate directly with shareholders via an open question and answer session.
The Group lists contact details on its website should shareholders wish to communicate with the Board. All announcements and results, including those released via RNS and RNS Reach, are available on the Group’s website.
RISK MANAGEMENT AND INTERNAL CONTROLS
The Board reviews and approves an Annual Budget and Business Plan prior to the start of each financial year. This includes reviewing the key strategic, operational and financial objectives for the year, together with a detailed financial budget.
The Executive Committee is accountable to the Board for delivery of the Annual Business Plan. The Executives report performance against the plan on a monthly basis, which includes detailed analysis of budgetary variances and updated financial projections.
Each Executive Director is responsible for identifying and managing the risks relating to their respective areas of responsibility, including the risks relating to strategy, the Annual Business Plan, and day-to-day business.
To provide a framework for the delivery of the Group’s strategy and plans, the Executive Committee has developed an organisational structure with clear roles and responsibilities, and clear lines of reporting.
In addition to day-to-day risk management, the Executive Directors formally assess the major business risks and evaluate their potential impact on the Group.
These risks and the reporting of the risk assessment is included in the annual report and accounts within the strategic report.
CITY CODE ON TAKEOVERS AND MERGERS
The Company is subject to the City Code on Takeovers and Mergers
QCA CORPORATE GOVERNANCE CODE
As an AIM company, the Company is not required to comply with the Financial Reporting Council’s UK Corporate Governance Code (the “Code”). Notwithstanding that, the Board seeks to achieve compliance with the Code wherever appropriate and proportionate, having regard to the size of the Group and the resources available to it.
In accordance with AIM rule 26 the company has adopted the QCA code and has explained below how it has adopted and complied with the QCA code.
1. ESTABLISH A STRATEGY AND BUSINESS MODEL WHICH PROMOTES LONG-TERM VALUE FOR SHAREHOLDERS
A Board must be able to express a shared view of the company's purpose, business model, and strategy, which sets out how a 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
The strategy and business model of the Group is expressed more clearly in the Chairman’s Statement and the Strategic Report attached to the Report and Financial Statements (the Accounts) of the Group. In summary, the Group seeks to build a recognised brand that is synonymous with the provision of the highest level of security services. The Group is stringently focused upon delivering outstanding service delivery for all our clients, and in such a way that in time our clients can have all their security needs met by one service provider, ourselves. The values we adopt are largely driven by our ex-military ethos, and we pride ourselves on endeavouring to engage employees that can deliver a capable, well trained highly motivated service, with as many as possible with a military background. We believe that this approach will deliver market leading full-service security offerings to the top end of the corporate and residential markets, as well as leading public service providers such as utilities, hospitals and schools. The business has a reasonable appetite for risk and we actively engage in developing new technologies to assist our service provisions even where such new technologies have a long development phase. One example of the success of this has been our Fastvein project, harnessing very high technology from partner suppliers with our own in-house software capabilities. Our markets are highly regulated, audited and accredited by a number of regulatory bodies, including the SIA, NSI and CHAS, all of which require our Board and operational employees to be personally regulated, thus adding to the maintenance of the values and standards we operate to. This strategy is aimed to deliver long-term value for shareholders.
2. SEEK TO UNDERSTAND SHAREHOLDER NEEDS AND EXPECTATIONS
Directors must develop a good understanding of the needs and expectations of all elements of a company’s shareholder base. The Board must manage shareholders expectations and it should seek to understand the motivations behind shareholder voting decisions
The Board is aware of the need to protect the interests of minority shareholders, and balancing these interests with those of the more substantial shareholders. The Board attaches great importance to providing shareholders with clear and transparent information on the Group’s activities, strategy and financial position. Details of all shareholder communications are provided on the Group’s website, with copies of the accounts of the Group and other regulatory communications going back to the earliest days of the existence of the company on the AIM market. Additionally, the Board holds regular one-to-one meetings with larger shareholders and regards the Annual General Meeting as a good opportunity to understand the voting decisions and debate the expectations of shareholders via an open question and answer session. The Company lists contact details on its website and on all announcements released via RNS, should shareholders wish to communicate directly with the Board or its advisers.
3. TAKE INTO ACCOUNT WIDER STAKEHOLDER AND SOCIAL RESPONSIBILITIES AND THEIR IMPLICATIONS FOR LONG-TERM SUCCESS
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 a company's stakeholders and understand their needs, interests and expectations. Feedback is an essential part of all control mechanisms. Systems need to be in place to solicit, consider and act on feedback from all the stakeholder groups
The Directors are aware of the impact the business activities have on the communities in which the company’s businesses operate. The company’s responsibilities to stakeholders including staff, suppliers and customers and wider society are also recognised as important to the delivery of the Company’s business objectives. The Board endeavours to create a platform for delivering a high-quality service and this requires us to utilise best in class suppliers (such as Hitachi, Assa Abloy, and Bosch), for customers who appreciate and therefore pay for a higher level of service, and a workforce that is trained to the highest standards to give of its best at all times. We operate within the ‘high compliance’ segment of the SIA approved contractor scheme (ACS), which ensures that the regulatory standards we set ourselves are rigorous and necessary in a highly fragmented security market, where mistakes are invariably costly in every sense, to all our stakeholders. We expect to get it right first time, because getting it wrong in a security environment can have consequences that far outweigh the cost. We constantly solicit feedback, much of which is on the website of the Company in terms of customer experiences, and supplier confidence in us and in our operations. Our feedback from our staff is best expressed by our staff turnover which for our industry is exceptionally low. The Director’s Report in the Accounts reports further on the Company’s attitude to Employment for disabled persons, employee involvement in Group operations, Charitable donations where appropriate, and Group policies on the environment. The Board has regard to the feedback of relevant stakeholders in its decision-making and the formulation of strategy.
4. EMBED EFFECTIVE RISK MANAGEMENT, CONSIDERING BOTH OPPORTUNITIES AND THREATS, THROUGHOUT THE ORGANISATION
The Board needs to ensure that the companies 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 a 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) The Board has established an audit committee which also serves as a risk management committee, a summary of which is set out in the Strategic Report and in the Directors’ Report in the Accounts, and on the website. Please see terms of reference for the committees here. The Company has an established internal audit function led by the group Finance Director, reporting to the Chairman and Board, in order systematically to review each area of its business and monitor the effectiveness of internal financial controls. Additionally, we only work with accredited suppliers able to satisfy our customer requirements for locking systems for instance that are best in class, and CCTV equipment that is the highest definition, and additionally we can only employ security professional who have passed SIA and other regulatory standards and had all the necessary prior history clearances before SIA accreditation for instance can be effective. Added to all this, we aim to employ primarily ex-military personnel and indeed two executive directors are themselves ex-military, trained in the appreciation of and the effective amelioration of risk. We have further considered areas of single point dependency within our divisions, examining key management positions, infrastructure, political issues including Brexit, loss of major contracts, staffing and supplier failure, technology failure and cyber-attack, health and pandemic risk as well as fire, weather and reputation risk protection. We provide regular training programmes to support our business continuity plans so that our business is prepared for and resilient to emergency and crisis situations.
We anticipate being ISO 22301 accredited by end FY 18/19. This ISO deals with societal security, business interruption, effectively ensuring business continuity, ensuring that we have a policy for such, defining roles and responsibilities, combining planning, implementation, and operation, then performance assessment, management review and improvement. Our documentation processes are auditable, evidencing our commitment to these processes. The Group receives regular feedback from its external auditors on the state of its risk management and internal controls. The Board does not consider it to be appropriate to have its own internal audit function at the present time, given the Group’s size and nature of its business. The Board recognises that it needs to improve its diversity and this will be addressed through succession planning and future appointments.
5. MAINTAIN THE BOARD AS A WELL-FUNCTIONING, BALANCED TEAM LED BY THE CHAIR
Board members have collective responsibility and a 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 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 it should have at least two independent non-executive directors. Independence is a Board judgement. The Board should be supported by the appropriate committees that have the necessary skills and knowledge to discharge their duties and responsibilities effectively. Directors must commit the time to fulfil their roles.
The Board, the identities and biographies, the Board committees and the timing of Board meetings and a detailed summary of attendances at those meetings is considered in the Strategic Report and the Directors’ Report in the Accounts. The Board consists of an executive chairman, the CEO, two additional executive directors and two non-executive directors. The quality and timeliness of the information the Board considers is itself also detailed elsewhere in the Accounts, notably the Risk Management and Internal Controls sections of the Strategic Report. The Board considers that both its non-executive directors are independent and provide rigorous challenge to the executive directors when necessary as well as support as needed, giving a balance to the Board. Nevertheless, new regulations on time served by a non-executive, changes to over-Board criteria, and the recent substantial increase in volume of the turnover of the business has encouraged the Board to consider whether or not changes to the non-executive team might be worthy of consideration in the coming FY 2018/19.
6. ENSURE THAT BETWEEN THEM THE DIRECTORS HAVE THE NECESSARY UP-TO-DATE EXPERIENCE, SKILLS AND CAPABILITIES
The Board must have an appropriate balance, 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 a Board will change, and Board composition will need to evolve to reflect this change
Directors who have been appointed to the Company have been chosen because of the skills and experience they offer. Full biographical details of all Directors are included within this website. The Board recognises that balance of capabilities and capacities within itself, as well as the necessity for all Board members to remain up to speed on relevant industry changes are vital to the proper functioning of a leadership team in any organisation. Board changes were made in the previous two financial years of the Company so as to give better effect to the strategic direction of the Group and these actions have proven to be successful. The Board makes a specific effort to say in meetings what needs to be said, and a culture of openness and honesty is encouraged both on the Board and throughout the Group.
The Board recognises that it needs to improve its diversity and this will be addressed through succession planning and future appointments.
7. EVALUATE BOARD PERFORMANCE BASED ON CLEAR AND RELEVANT OBJECTIVES, SEEKING CONTINUOUS IMPROVEMENT
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
At the highest level, the Board judges its own performance by reference to the Company’s progress against the targets set out in the Company’s strategic plan. The Board is rigorous in reviewing the performance of each of its directors and where there are actions that need to be taken, the Board is proactive in carrying out what needs to be done to ensure the Board remains balanced with the necessary skills and experience. The Board is in the process of considering succession planning, so that each division has a leader and a number two, able, effectively, to step into the shoes of the leader, as necessary. The Company is not associated with any one member of the Board, and recently took external advice on specific remuneration matters, externally facilitating the process of managing the strategic goals of the business by division, and the risks and rewards attaching thereto. Discussions between Board members about key development needs of individual directors are encouraged and debated. The Company undertakes regular monitoring of personal and corporate performance using agreed key performance indicators and detailed financial reports. Responsibility for assessing and monitoring the performance of the executive directors lies with the Chairman and the independent non-executive director. The Board and the Remuneration Committee evaluate the Board performance, including but not limited to Board balance, Board skills and remuneration, to ensure that the Board is fit for purpose and is appropriate for the Group’s ongoing development and growth.
8. PROMOTE A CORPORATE CULTURE THAT IS BASED ON ETHICAL VALUES AND BEHAVIOURS
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 policies 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 the 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
The Board is committed to embodying and promoting a sound corporate culture and has endorsed various policies which require ethical behavior of staff and relevant counterparties (such as those mandating anti-corruption, anti-counterfeiting, fair treatment and equality of opportunity). The Board wishes to promote a can-do culture across the Group, whereby a customer need can be fulfilled, no customer request is too much, and this is how the Group aims to deliver outstanding service delivery. This is not done at any cost, and Group is strict on maintaining margin in a low margin industry, where differentiating the offer is key. Our marketing strategy is assertive and where necessary aggressive in a very fragmented industry yet with some entrenched relationships where our future customers have not yet come to appreciate our unique offering. The Group uses social media where necessary to promote the culture of ‘can-deliver’, both internally and externally, and monitors the culture and attitude of the staff with regular surveys and staff meetings. The Board and management conduct themselves ethically at all times and promote a culture in line with the standards set out on the website.
9. MAINTAIN GOVERNANCE STRUCTURES AND PROCESSES THAT ARE FIT FOR PURPOSE AND SUPPORT GOOD DECISION-MAKING BY THE BOARD
The company should maintain governance structures and processes in line with its corporate culture and appropriate to its size and complexity, and its 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
The Company’s Corporate Governance Statement (available on the Website) explains the structures which are in place at Board and Committee level and how these interact, including the roles which individual Directors fulfil on the Board. The Board meets once a month, in person or where necessary by conference call, and considers monthly accounts and operational matters, and in addition the audit and remuneration committees of the Board meet when necessary to consider assurance and risk, and the adequacy of the reward structures of the Group. With a Board of this size, separate Nominations and other committees are not considered necessary, nor is the appointment of any one non-executive director as a Senior Independent Director. Beneath the Board, there is an operational governance framework which facilitates the effective management of the business by the executive directors. Further details are contained in the annual report and accounts, available on the website. The organisational structure is kept under review and evolves as the needs of the business change as it grows and develops.
10. COMMUNICATE HOW THE COMPANY IS GOVERNED AND IS PERFORMING BY MAINTAINING A DIALOGUE WITH SHAREHOLDERS AND OTHER RELEVANT STAKEHOLDERS
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)
The Board attaches great importance to providing shareholders with a clear and transparent information on any group activities, strategy, and financial position. The communication between the Company and its shareholders are explained in the disclosure above against principle 2. Details of all shareholder communications are provided on the group website. The Board holds regular meetings with the larger shareholders and regards the annual general meeting as a good opportunity to communicate directly with shareholders via an open question and answer session. The company lists contact details on its website and on all announcements released via RNS, should shareholders wish to communicate with the Board.