IMI plc Corporate governance framework/media/Files/I/IMI/20170110 Final Corporate... · IMI plc...

CORPORATE

GOVERNANCE

FRAMEWORK

Corporate governance framework

IMI plc


CORPORATE

GOVERNANCE

FRAMEWORK


Contents

Page

1 Chairman’s introduction

2

2 Board profiles

5

2.1 The Board 6

2.2 The Chairman

7

2.3 The Chief Executive 9

2.4 The senior independent director 12

2.5 The non-executive directors and committee chairmen 13

2.6 Company Secretary

15

3 Schedule of matters reserved for the Board

17

4 Board and committee structure

23

5 Board committee terms of reference 25

5.1 Audit Committee 26

5.2 Nominations Committee 33

5.3 Remuneration Committee 37

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This Governance Framework has been endorsed by the Board and is published on the IMI plc website for our shareholders and other key stakeholders to see. IMI has a well-established organisational structure and robust governance processes and this embodiment of the key elements of the Board level governance arrangements is one of the foundation stones for the work of the Board and its committees.

Lord Smith of Kelvin Chairman 13 December 2016

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2 Board profiles

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2.1 The Board The Board of Directors is collectively responsible for the leadership, direction and control of the businesses and other affairs of the Group and for its long-term success. The key aspects of this broad role can be summarised as follows:

Promote the long-term success of the Company for the benefit of its members having regard to the following non-exhaustive list of factors referenced in the Companies Act when taking decisions: the likely long term consequences, the interests of employees, business relationships, environmental and community impacts, reputation and high standards of business conduct and acting fairly as between members of the Company

Act as the cornerstone of the Group’s governance framework

Set the values and standards of the Group

Ensure that the Company’s obligations to shareholders are understood and met

Provide entrepreneurial leadership within a framework of prudent and effective controls and risk management systems that generate trust among shareholders and other stakeholders

Approve the Group’s long term vision, strategy and operational business plans and budget

Ensure that appropriate executive and corporate management are in place and that the necessary financial, management and other resources are available and effectively utilised towards realising the objectives and strategy of the Group

Review executive management performance

Make direct decisions in relation to all matters which are reserved for approval by the Board, which include: reviewing the effectiveness of internal controls and the approval of significant corporate activity including acquisitions and disposals

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2.2 The Chairman The Chairman is primarily responsible for leadership of the Board, ensuring the Board and its committees are effective in all aspects of their role. The Chairman is recognised as the ultimate steward of the Company with overall responsibility for corporate governance, standards of conduct and integrity and for ensuring that the strategy and direction set by the Board is effectively implemented by the executive team.

The Chairman runs the Board and is pivotal in creating the conditions for overall board and individual director effectiveness. The role includes:

Setting the Board agenda primarily focused around strategy, accountability, risks and controls, competitive performance and value creation

Determining the nature and extent of the significant risks the Board is willing to embrace in the implementation of its strategy

Ensuring an effective decision-making process is in place, including good information, appropriate advice and adequate time, to enable well informed and high-quality decision-making

Ensuring Board committees are properly structured with appropriate terms of reference

Encouraging the active engagement of all board members in Board and committee meetings, drawing fully on their skills, experience, knowledge and, where appropriate, independence

Building effective relationships founded on mutual respect and open communication – both inside and outside the boardroom – between the non-executive directors and the executive team, in particular with regard to the identification and oversight of significant risks

Meet with the NEDs, in the absence of management, to facilitate discussions of view, issues and concerns

Develop, in particular, a productive working relationship with the CEO, providing support and advice whilst respecting executive responsibility

Provide counsel, advice and support to the Chief Executive and executive team; act as a mentor/coach where necessary, encouraging them in their ongoing development

Ensure there are effective succession planning processes for non-executive roles and for the executive management team and building a Board with a mix of people, skills and experience that is aligned with the challenges facing the businesses

Oversee the development of strategy, acting as a sounding board for the Chief Executive

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Promote a forum for open dialogue on governance and Board matters with institutional investors and representative bodies and to keep the Board informed of the same.

Support the efforts of the Chief Executive and Finance Director in relations with shareholders and ensure that all members of the Board develop an understanding of the views of major investors

Supporting and consulting with the senior non-executive director

As a support to management, network across current and prospective major customers, providing contacts or introductions, as appropriate, for operational management

Network political and professional contacts, remaining up to date on matters of corporate governance, and providing advice or guidance as appropriate

Ensure there is a properly constructed induction programme for new directors and continuing familiarisation with the businesses and senior management of the Group

Take the lead in evaluating the performance of individual directors, the Board as a whole and its committees at least once a year and, at least once every three years, evaluate the Board effectiveness assisted by external advisors and act on the results

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2.3 The Chief Executive

The primary roles of the Chief Executive are to lead the executive management team and take responsibility for (i) the running of the business and corporate affairs of the Group under the authority delegated by the Board, (ii) the development of business plans and strategy for consideration by the Board, and (iii) the implementation of Board decisions on business plans, strategy and other matters.

The Chief Executive is expected to build an effective operational management team and an appropriate organisation structure through which to direct and control the running of the businesses and the corporate activities of the Group.

The senior management team is comprised of executive directors and other key personnel and is led by the Chief Executive. The Board delegates what it regards as appropriate powers and management responsibilities to enable the Chief Executive and the management team to operate the businesses and they are responsible for implementing the plans and strategy agreed by the Board.

The Chief Executive, with the support of the executive team, has primary responsibility for communicating to the people working within the business the expectations of the Board in relation to the Company’s culture, values and behaviours, and for ensuring that the appropriate standards of governance permeate down to all levels of the organisation.

The Chief Executive shares responsibility with the Chairman for ensuring effective Board debate and decision-making and creating the conditions for all directors to express their views frankly and challenge constructively in the boardroom.

The other executive directors report to the Chief Executive and ultimately, all of the executive directors report to the Board on matters within their respective areas of responsibility. The Chief Executive should encourage other executive directors to view themselves in the boardroom as representatives of the owners of the Company, rather than as responsible purely to the Chief Executive in their executive management capacity.

The role of the Chief Executive

The Chief Executive is accountable to and reports to the Board and is responsible for the operation of the Group’s business.

1 The Chief Executive is responsible for the following, within the authority limits delegated to him by the Board: 1.1 Business strategy and management

Leading the executive directors and the senior executive team in the day to day running of the Group’s businesses, including chairing the Executive Committee

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Proposing objectives and strategy for approval by the Board having regard to the Group’s responsibilities to its shareholders, customers, employees and other stakeholders

The successful achievement of plans and objectives and execution of the strategy approved by the Board

Recommending to the Board an annual budget and longer term financial plan

Optimising as far as is reasonably possible the focus and adequacy of the Group’s resources

1.2 Investment and financing

Examining all trade investments and major capital expenditure proposed by subsidiary companies and the recommendation to the Board of those which are beyond his delegated authority

Identifying and executing acquisitions and disposals and the recommendation to the Board of those which are beyond his delegated authority

Leading geographic diversification initiatives

Identifying new business opportunities outside the current core activities

1.3 Risk management and controls

Managing the Group’s risk profile, including the compliance, environmental, health and safety performance of the businesses and appropriate risk assessments

Ensuring appropriate internal controls, risk management processes and corporate policies are in place and that they are aligned to the strategic objectives of the Group

1.4 Management strength, remuneration, evaluation and succession

Building a strong management and corporate team with appropriate skills, qualifications and experience

Consulting with the Remuneration Committee on remuneration policy, executive remuneration and terms of employment of the senior executive team

Assisting the Chairman with the annual evaluation of the other executive directors

Ensuring that succession plans are effective particularly for senior roles including executive directors

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Setting Group HR policies, including talent development and approving the appointment and termination of members of senior management below executive director level

1.5 Communication

Providing a means for timely and accurate reporting and disclosure of information, including an escalation route for issues

Oversee investor relations and keep the Board informed 2 The duties which derive from these responsibilities include:

Keeping the Chairman informed on all important matters

Regularly reviewing the operational performance and strategic direction of the Group’s business

Regularly reviewing the Group’s organisational structure and recommending changes as appropriate

Formalising the roles and responsibilities of the senior executive team, including clear delegation of authorities

Supervising the activities of subsidiary companies’ most senior executives

Developing and implementing key corporate and Group policies

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2.4 The senior independent non-executive director The role of the senior independent non-executive director

Supporting the Chairman generally and in particular as regards relations with and understanding the views of the non-executive directors

Ensuring appropriate intervention at times of conflict or failure of process at Board level

Act in the leadership role among NEDs as and when required

Meet with major shareholders as and when they request and otherwise as considered appropriate

Arrange meetings of NEDs as appropriate and at least once each year (in order to carry out an evaluation of the Chairman)

Ensure there is succession planning for the Chairman’s role and to lead the process for search and nomination in the event of a change of Chairman

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2.5 The non-executive directors and committee chairmen The role of the non-executive director

To bring an independent and external dimension to the Board’s activities and play a significant part in relation to key issues of strategy, performance, risk and people

Within the spirit of partnership and mutual respect on the unitary Board, to support as well as constructively challenge and monitor the executive team

Main responsibilities 1 To promote the success of the Company for the benefit of its shareholders as a whole 2 To protect shareholders’ interests 3 To constructively challenge and help develop proposals on strategy 4 To scrutinise the performance of management in meeting agreed goals and objectives and

monitor the reporting of performance 5 To satisfy themselves on the integrity of financial information and that financial controls and

systems of risk management are robust and defensible 6 To determine appropriate levels of remuneration of executive directors and have a prime

role in appointing and where necessary removing executive directors and in succession planning

7 To ensure that the Company acts responsibly having due regard to its reputation 8 In those areas in which the NED has particular knowledge, skill and experience, to ensure

that they have applied the necessary care, skill and diligence required of a director 9 To undertake an appropriate induction programme upon appointment and to regularly update and refresh their skills, knowledge and familiarity with the Company’s business and operations Committee chairmen Chairmen of the principal corporate governance committees (Audit, Remuneration and Nominations) will have the following responsibilities: 1. To set the agenda and run meetings of the committee in order effectively to fulfil the remit

of the committee in accordance with the governance framework 2. To liaise as appropriate with management and advisors on the scope and content of papers

for the committee and ensure the timely delivery of papers

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3. To encourage engagement and participation and where a member is unable to attend a meeting, to capture their input beforehand

4. To report committee activities and recommendations to the Board Guidance on directors’ duties Background The principal role of all directors is to manage the Company for the benefit of its shareholders. All directors are responsible for the stewardship of the Company’s assets and have a monitoring role to ensure that the necessary controls are in place and working. There is no distinction in law between executive and non-executive directors. Executive directors have specific strategic and operational accountabilities for their respective areas of responsibility. They assist the Chief Executive in carrying out his delegated authority from the Board to ensure that agreed strategies are successfully implemented and that risks are effectively assessed and managed. Although non-executive director and executive directors have as Board members the same legal duties and objectives, the time devoted to the Company’s affairs is likely to be significantly less for a non-executive director than for an executive director and the detailed knowledge and experience of a Company’s affairs that could reasonably be expected of a non-executive director will generally be less than for an executive director. These matters may be relevant in assessing the knowledge, skill and experience which may reasonably be expected of a non-executive director and therefore the legal standard of care, skill and diligence that a non-executive director may be expected to exercise. Companies Act 2006 The Companies Act 2006 introduced the statutory codification of directors’ duties. These duties are: 1 To act within powers 2 To promote the success of the Company. A director of a company must act in the way he

considers, in good faith, would be the most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard amongst other matters to:

The likely consequences of any decision in the long term

The interests of the company’s employees

The need to foster relationships with suppliers, customers and others

The impact of the company’s operations on the community and environment

The desirability of maintaining a reputation for high standards of business conduct

The need to act fairly between members of the company 3 To exercise independent judgement 4 To exercise reasonable care, skill and diligence 5 To avoid conflicts of interests

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6 Not to accept benefits from third parties; and 7 To declare interest in a proposed or existing transaction or arrangement UK Corporate Governance Code The Code is also relevant to what is expected of directors and they should all be familiar with it. Some Code provisions of particular relevance to individual directors are referenced below:

Undertake the appropriate induction and regularly update and refresh their skills, knowledge and familiarity within the Company

Dedicate the time required to be effective and discharge their duties on the Board and its committees

Where judged necessary in fulfilling their duties, to obtain appropriate independent professional advice

Where they have concerns about the running of the Company or a proposed action, ensure that these are addressed by the Board and, to the extent that they are not resolved, ensure that they are recorded in the Board minutes

Give a statement to the Board if they have such unresolved concerns on resignation

To attend the AGM

2.6 The Company Secretary Main responsibilities

1 To support the Chairman in matters of governance and in developing the Board agenda

and in ensuring the timely flow of good quality information to facilitate effective Board debate and decision-making

2 To be secretary to the Board and committees of the Board (Nominations, Audit and Remuneration)

3 To act as a confidential sounding board to the Chairman and individual directors and

provide practical support and guidance on their duty to promote the success of the Company

4 To alert directors to matters which warrant the attention of the Board to ensure that the

Company acts responsibly having due regard to its reputation 5 To provide a central source of guidance and advice on corporate governance best practice

as set out in the UK Corporate Governance Code

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6 To ensure that the procedure for the appointment of directors is properly carried out, to support their induction and assist in their ongoing professional development

7 To maintain up-to-date company records including the register of shareholders, minutes of

Board, committee and general meetings, Articles of Association and Directors’ service contracts

8 To ensure compliance with continuing obligations as a company listed on the London Stock

Exchange and Companies House filing requirements 9 To provide a high quality service for shareholders with the support of the Registrars

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3 Schedule of matters reserved for the

Board

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3 Schedule of matters reserved for the Board

Standing authority is delegated to committees of the Board and the Chief Executive. The following reflects what is reserved for the Board for its decision after delegation of such standing authorities.

3.1 Strategy and management

1 Responsibility for leadership and long term success of the Group

2 Approval of the Group’s long term objectives and strategy

3 Development and protection of the Group’s reputation, its values and business principles

4 Approval of the annual plan and capital expenditure budgets and any material

changes to them

5 Approval of the delegated authority vested in the Chief Executive

6 Oversight of the management of the Group’s operations ensuring:

Good management teams are in place at executive director level and within each of the businesses; and

Organisational and management structures and limits of authority are appropriate and clearly established

7 Oversight of performance in the light of the Group’s strategy, objectives, business plans and budgets and ensuring that any necessary corrective action is taken

3.2 Structure and capital 1 Changes relating to the Company’s capital structure including reduction of capital,

share issues (except under employee share plans) and share buy backs 2 Major changes to the Company’s corporate structure or its status as a plc 3 Major changes to the Group’s management and organisational structure 4 Any changes to the Company’s Articles of Association, listing, securities registration

or equivalent, or its registered office or principal office address 5 Major changes to the tax status of the Group

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3.3 Financial reporting and controls 1 Approval of preliminary announcements of interim and final results 2 Approval of the Annual Report and Accounts 3 Approval of the dividend policy and declaration of the interim dividend and

recommendation of the final dividend 4 Approval of any significant changes in accounting policies or practices 5 Approval of treasury matters beyond the authority level from time to time delegated to

the Chief Executive 6 Approval of any material Audit Committee recommendations regarding internal audit,

financial control matters and whistleblowing policy and procedures 3.4 Internal controls and compliance

1 Ensuring maintenance of a sound system of internal control and risk management

including:

Receiving reports on the Group’s risk and control processes to support its strategy and objectives

Reviewing strategic risk assessments and the principal risks and uncertainties facing the Group and giving consideration to risk tolerance and risk appetite

Determine whether management is monitoring the effectiveness of the Group’s internal control systems

Undertaking an annual assessment of the effectiveness of risk and control processes and considering their alignment to the achievement of the strategic objectives of the Group

Approving an appropriate statement for inclusion in the Annual Report 2 Ensuring that appropriate compliance resources and programmes are in place across

the Group and monitoring the standards of corporate conduct against those set by the Board

3.5 Major corporate transactions and expenditure proposals and other matters beyond

the delegation of authority of the Chief Executive 1 Any bid or any approach regarding a possible bid to acquire a significant interest in

the Company including any proposal for active participation by any director of the Company in any such possible transaction

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2 Approval of any corporate transaction, expenditure proposal or other operational matter beyond the level of authority from time to time delegated to the Chief Executive

3.6 Communication

1 Approval of resolutions and corresponding documentation to be put forward to

shareholders at a general meeting 2 Approval of all circulars, prospectuses and listing particulars 3 Approval of regulatory announcements concerning matters decided by the Board

including dividends, results, interim management statements and trading updates

3.7 Board membership and other appointments 1 Changes to the structure, size and composition of the Board, assisted by the

Nominations Committee 2 Ensuring adequate succession planning for the Board and senior management,

assisted by the Nominations Committee 3 Appointments to the Board, assisted by the Nominations Committee 4 Selection of the Chairman of the Board and the Chief Executive, assisted by the

Nominations Committee (or any ad hoc committee formed to recommend a new Chairman)

5 Appointment of the senior independent director, assisted by the Nominations

Committee 6 Membership and chairmanship of Board committees, assisted by the Nominations

Committee

7 Continuation in office of directors at the end of their term of office, when they are due to be re-elected by shareholders at the AGM and otherwise as appropriate, assisted by the Nominations Committee

8 Continuation in office of any director at any time, including the suspension or

termination of service of an executive director as an employee of the Company, assisted by the Nominations Committee

9 Appointment or removal of the Company Secretary 10 Decisions, or where appropriate recommendations to shareholders, regarding the

appointment, reappointment or removal of the external auditor, assisted by the Audit Committee

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3.8 Remuneration

1 Approval of the Remuneration report

2 Determining the remuneration of the non-executive directors other than the Chairman (the remuneration of the other non-executives is outside the remit of the Remuneration Committee and would normally be decided by the Board without participation by the non-executives)

3 Approval of new share incentive plans or major changes to existing plans, to be put to

shareholders as appropriate, assisted by the Remuneration Committee

3.9 Corporate governance matters

1 Material changes to the Corporate Governance Framework including board roles, Board committee remits and other elements of this document

2 Undertaking a formal and rigorous review annually of its own performance and that of

its committees (the Chairman is to arrange evaluations for individual directors and the senior independent non-executive will do so in relation to the Chairman)

3 Determining the independence of non-executive directors

4 Review of the Group’s overall corporate governance arrangements and approval of

reports on compliance with applicable corporate governance codes, securities laws and regulations and other relevant standards

3.10 Advisors

Approval of the appointment or removal of the Company’s principal standing advisers, who are its auditor, brokers, actuaries and registrar.

3.11 Litigation and regulatory proceedings

Prosecution, defence or settlement of litigation or regulatory proceedings: i potentially involving above £30 million, or

ii to which any current or former director or officer of the Company is a party, or iii which is otherwise material to the interests of the Group 3.12 Directors’ indemnification and insurance

Approval of the principal terms of directors and officers insurance for the Company, any express indemnities to be given to directors and any other decision regarding indemnification of directors.

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3.13 Pensions

Approval of any new pension arrangements which are material to the Group and any change to existing arrangements which is material to the Group (for the avoidance of doubt, new or amended pension arrangements for persons whose remuneration is determined by the Remuneration Committee must be approved by it and, if material to the Group, by the Board)

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Executive Committee

Chief Executive

Nominations

Committee

Remuneration

CommitteeAudit

Committee

Board of Directors

Board

committees

Management

committees

Board committees

Management committees

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5 Board committee terms of reference

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5 Board committee terms of reference 5.1 Audit Committee 5.1.1 Membership

1 The committee is a sub-committee of the Board, which has set these terms

of reference, and shall comprise a chairman and at least two other members. All members of the committee (including its chairman) shall be independent non-executive directors of the Company appointed to the committee by the Board, taking into account the recommendations of the Nominations Committee

2 The Board shall, taking into account the recommendations of the

Nominations Committee, appoint the committee chairman. In the absence of the committee chairman, the remaining members present shall elect one of their number in attendance to chair the meeting

3 The committee may ask the auditor or the Chairman, Chief Executive,

Finance Director, Director of Risk and Compliance, Group Controller and any director or employee to attend for part of any meeting by invitation. The committee shall conduct at least two meetings each year (or part thereof) alone with the external auditor

5.1.2 Secretary

The Company Secretary or, in his absence, a person agreed by those present at the meeting shall act as the secretary of the committee.

5.1.3 Quorum and conflicts of interest

1 The quorum necessary for the transaction of business shall be two. A duly convened meeting of the committee at which a quorum is present shall be competent to exercise all or any of the authorities, powers and discretions vested in or exercisable by the committee

2 Members of the committee shall disclose to and seek approval from the

Board in respect of potential conflicts of interest and will comply with relevant Requirements, including provisions of the Company’s Articles of Association, at meetings of the committee as well as at meetings of the Board

5.1.4 Frequency of meetings

1 The committee shall meet not less than three times a year and at such other times as may be requested by the committee chairman or any other member of the committee or the external auditor

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2 Meetings will normally be arranged to take place prior to the March and

August Board Meetings where financial statements are to be approved, and in June and December of each year

5.1.5 Notice of meetings

Notice of each meeting confirming the venue, time and date together with an agenda of items to be discussed, shall be forwarded to each member of the committee normally at least five days prior to the date of the meeting.

5.1.6 Minutes of meetings 1 The secretary shall minute the proceedings and resolutions of all meetings of

the committee, including recording the names of those present and in attendance

2 The secretary should ascertain, at the beginning of each meeting, the existence

of any conflicts of interest and minute them accordingly 3 Minutes of committee meetings shall be circulated promptly to all members of

the committee, the Chairman and other members of the Board and the external auditor. At the direction of the chairman of the committee minutes may be withheld or reduced as appropriate before being made available to any director who may have a conflict of interest in relation to the business of the relevant meeting

5.1.7 Annual General Meeting

The chairman of the committee shall attend the Annual General Meeting prepared to respond to any shareholder questions on the committee’s activities.

5.1.8 Authorities 1 The committee shall be provided with sufficient resources to undertake its

duties

2 The committee is authorised by the Board to obtain internal and external legal or other professional advice, including the advice of independent consultants

3 The committee shall have access to the services of the Company Secretary

on all committee matters 4 The committee is authorised to investigate any activity within the scope of its

duties and to intervene if the committee considers it appropriate and/or if the Board instructs it to do so

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5 The committee is authorised to seek any information it requires from any

employee, consultant or contractor of the Group in order to perform its duties 6 The committee shall have authority to commission any reports or surveys

which it deems necessary to help it fulfil its obligations

7 The committee may delegate such of its duties and responsibilities to any one or more members of the committee as it may deem appropriate having regard to the purpose of the committee

5.1.9 Duties 5.1.9.1 Financial reporting

The committee shall act in an oversight role and in that capacity shall:

monitor the integrity of the financial statements of the Company and its Group, including annual accounts and preliminary results’ announcements, interim management reports, interim management statements and any other formal announcement relating to its financial performance, reviewing significant financial reporting issues and judgements which they contain. The committee shall also review summary financial statements, significant financial returns to regulators and any trading updates or other announcements which contain price sensitive disclosure of financial results; and

review and challenge where necessary:

o the consistency of, and any changes to, accounting policies both on a year on year basis and across the Company and its Group. This will include consideration of the potential impact of changes in accounting principles and making recommendations to the Board as to the time and manner of their adoption by the Company and its Group;

o the methods used to account for significant or unusual transactions

where different approaches are possible; o whether the Company has followed appropriate accounting standards

and made appropriate estimates and judgements, taking into account the views of the external auditor;

o the clarity of disclosure in Company and Group’s financial reports and

the context in which statements are made; and o all material information presented with the financial statements, such

as the business review, financial review and the corporate governance statement (insofar as it relates to the audit and risk management).

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consider the Annual Report and accounts and advise the Board on whether taken as a whole it is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s performance, business model and strategy

consider the appropriateness of the going concern statement and the viability statement in the Annual Report and Accounts

review the annual financial statements and periodic actuarial valuations of the principal pension funds of the Group where not reviewed by the Board as a whole

5.1.9.2 Internal control and risk assessment The committee shall:

keep under review the effectiveness of internal financial controls and risk management systems and report to the Board its views and any recommendations for improvement

review and assess the action taken by management to monitor the effectiveness of internal financial controls

review statements on internal financial control in the draft Annual Report prior to endorsement by the Board

5.1.9.3 Internal audit

The committee shall:

monitor and review the effectiveness of internal audit process and function in the context of the overall risk management system

approve the appointment and removal of the head of the internal audit function with a view to ensuring that the head of the internal audit function has adequate standing and is free from management or other restrictions

consider and approve the remit of the internal audit function and ensure it has adequate resources and appropriate access to information to enable it to perform its function effectively

review and assess the annual plan for internal audit

review reports on the Company and the Group from the internal audit function

review and monitor management’s responsiveness to the findings and recommendations of the internal audit function

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meet the head of internal audit at least once a year, without executive directors being present, to discuss their remit and any issues arising from the internal audits carried out. In addition, the head of internal audit shall be given the right of direct access to the chairman of the committee and to the Board

review the relationship and co-ordination of the internal audit process with the external auditor

5.1.9.4 External audit


consider and make recommendations to the Board in relation to the appointment, re-appointment and removal of the Company’s external auditor and the terms of any appointment including auditor remuneration and liability

oversee the tender and selection process for the appointment of a new auditor and if the auditor resigns the committee shall investigate the issues leading to this and decide whether any action is required

assess periodically the risks associated with the possible withdrawal of the external auditor from the market and consider whether any mitigating action is appropriate

ensure that key partners within the appointed firm are rotated from time to time in accordance with best practice

approve the annual audit plan and the scope of the audit engagement. The committee shall approve the interim review plan and the scope of the auditor’s engagement in relation to the auditor’s review of the interim financial statements. The committee shall meet with the external auditor at the planning stage, where the scope of the audit (or, in the case of the interim financial statements, the review by the auditor) will be considered, and again post audit (or in the case of the interim financial statements, after the review by the auditor) at the reporting stage

seek to ensure that there is an appropriate assurance process in place in relation to the disclosure of relevant audit information to the auditor by directors and officers of the Company

review the findings and effectiveness of the external audit including (but not limited to): o consideration of any major issue which arose during the audit;

o any material accounting and audit judgements;

o errors and levels of errors identified during the audit;

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o any requirement for a representation letter; and

o the auditor’s report to the committee and any management letter to the Company and management’s response to the auditor’s findings and recommendations.

The committee shall oversee the relationship with the external auditor including (but not limited to): o assessing annually their independence and objectivity taking into

account relevant professional and regulatory requirements and the relationship with the auditor as a whole, including the provision of any non-audit services and considering whether that relationship appears to impair the auditor’s independence and objectively having regard to the views of the external auditor, management and internal audit

o approval of their terms of engagement, including any engagement letter issued at the start of each audit (or interim review) and the scope of the audit (or interim review)

o approval of their remuneration and assessment of whether the

level of fees is appropriate to enable an adequate audit to be conducted

o satisfying itself that there are no relationships (such as, financial,

business, employment or family and other personal relationship) with the Company which could affect the auditor's independence and objectivity taking account of audit or ethical standards

o agreeing with the Board a policy on the employment of former

employees of the Company’s auditor, and monitoring the implementation of this policy

o monitoring the auditor’s compliance with relevant ethical and

professional guidance on the rotation of audit partners, the level of fees paid by the Company compared to the overall fee income of the firm and other related requirements

o assessing annually their qualifications, expertise and resources

and the effectiveness of the audit process which shall include a report from the external auditor on their own internal quality procedures and consideration of the auditor's annual transparency report where available

o continuous development and implementation of the policy on the

engagement of the audit firm in relation to non-audit services, taking into account all relevant circumstances and ethical guidance and best practice in this connection

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o seeking to ensure co-ordination with the activities of the internal audit function

5.1.9.5 Whistleblowing and fraud

The committee will review arrangements for employees to raise concerns, in confidence, about possible wrongdoing in financial reporting or other matters and ensure there are proportionate and independent procedures for handling allegations from whistleblowers and taking appropriate follow up action

The committee will review the Company's mitigation action plan in relation to fraud and procedures for detecting fraud

5.1.10 Reporting responsibilities

1 The chairman of the committee or his nominee shall report formally to the Board on its meetings and all matters within its duties or responsibilities

2 The committee shall make whatever recommendations to the Board it deems

appropriate in relation to any matters within its remit or arising in the course of its work

3 The committee shall prepare a report on its work for approval by the Board

and inclusion in the Annual Report 4 In the event that the Board does not accept a recommendation of the

committee, and the matter is not resolved to the satisfaction of the committee, it shall be included in the report on the committee’s work in the Annual Report

5 The committee report to be included in the Annual Report should explain to

shareholders how it reached its recommendation to the Board on the appointment, re-appointment and removal of the external auditor. This explanation should normally include:

Any contractual obligations that acted to restrict the Audit Committee’s choice of external audtiors

When the audit was last subject to tender

When the current auditor was appointed

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5.1.11 Other matters

1 The committee acts in an oversight role and does not have managerial responsibility for the preparation of the financial statements or otherwise in respect of its supervisory activities or the recommendations it makes and it is the responsibility of management to take appropriate actions.

2 The committee shall give due consideration to laws and regulations,

relevant requirements of the UK Listing Authority and the provisions of the UK Corporate Governance Code, in each case, as may be amended from time to time.

3 The committee shall oversee any investigation of material financial

irregularity or breach of internal financial controls which are within its terms of reference and ensure there is proportionate and independent investigation of any suspected financial improprieties and an appropriate response including where appropriate improvements in the financial control environment.

4 At least once a year, the committee shall review its own performance,

constitution and terms of reference to ensure it is operating effectively and make or recommend any changes it considers necessary or desirable to the Board for approval, as and when appropriate.

5.2 Nominations Committee

5.2.1 Membership

The committee is a sub-committee of the Board, which has set these terms of reference, and its members shall be appointed by the Board and shall comprise the Company Chairman and at least two other directors provided always that all of the other members of the committee shall be independent non-executive directors.

The Company Chairman shall be the committee chairman. In the absence of the committee chairman, the remaining members present shall elect one of their number to chair the meeting.

The committee shall conduct at least part of each meeting alone but may ask any director or senior manager to attend for part of any meeting by invitation, as and when appropriate.

5.2.2 Secretary

The Company Secretary or, in his absence, a person appointed by those present, shall act as the secretary of the committee.

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The quorum necessary for the transaction of business shall be at least two members. A duly convened meeting of the committee at which a quorum is present shall be competent to exercise all or any of the authorities, powers and discretions vested in or exercisable by the committee.

Members of the committee shall disclose to and seek approval from the Board in respect of potential conflicts of interest and will comply with relevant requirements including provisions of the Company’s Articles of Association at meetings of the committee as well as at meetings of the Board.


The committee shall meet not less than twice a year and at such other times may be requested by the committee chairman or any other member of the committee.

5.2.5 Notice of meetings Notice of each meeting confirming the venue, time and date together with an

agenda of items to be discussed, shall be forwarded to each member of the committee, normally at least five days prior to the date of the meeting.

5.2.6 Minutes of meetings

The secretary shall minute the proceedings and resolutions of all meetings of the committee, including recording the names of those present and in attendance.

The secretary should ascertain, at the beginning of each meeting, the existence of any conflicts of interest and minute them accordingly.

Minutes of committee meetings shall be circulated to all members of the committee and to the Chairman of the Board and made available on request to other members of the Board. At the discretion of the chairman of the committee Minutes may be withheld or edited out as appropriate before being made available to any director who may have a conflict of interest in relation to the business of the meeting.

5.2.7 Annual General Meeting

The chairman of the committee shall attend the Annual General Meeting prepared to respond to any shareholder questions on the committee’s activities.

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5.2.8 Authorities

The committee shall be provided with sufficient resources to undertake its duties

The committee is authorised by the Board to obtain internal and external legal or other professional advice, including the advice of independent consultants

The committee shall have access to the services of the secretary on all committee matters

The committee is authorised to investigate any activity within the scope of its duties and to intervene if the committee considers it appropriate and/or if the Board instructs to do so

The committee is authorised to seek any information it requires from any employee, consultant or contractor of the Group in order to perform its duties

The committee shall have authority to commission any reports or surveys which it deems necessary to help it fulfil its obligations

The committee may delegate such of its duties and responsibilities to any one or more members of the committee as it may deem appropriate having regard to the purpose of the committee

5.2.9 Duties


lead the process for Board appointments

regularly review the structure, size and composition of the Board and make recommendations to the Board with regard to any adjustments that are deemed necessary or desirable

evaluate the balance of skills, knowledge and experience on the Board and, in the light of this, prepare a description of the role and capabilities required for a particular appointment

be responsible for identifying and nominating for the approval of the Board, candidates for appointment to the Board, as and when may be appropriate as a result of any actual or expected vacancy or a recommendation to appoint additional directors, assessing candidates based on merit taking into account objective criteria and the benefits of diversity, including gender diversity on the Board

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satisfy itself with regard to succession planning, that the processes and plans are in place in relation to both Board and senior management appointments for the next most senior level positions below executive director, and give consideration to succession planning, taking into account the challenges and opportunities facing the Company, and what skills and expertise are therefore needed on the Board in the future assessing candidates based on merit taking into account objective criteria and the benefits of diversity, including gender diversity on the Board

ensure before appointment that a candidate will have sufficient time to undertake the role and review their commitments

keep under review the other significant commitments of each director

instruct the secretary to write to any new appointees, detailing the role and time commitments including service on the committees and other work outside Board meetings and proposing an induction plan produced in conjunction with the Chairman of the Company

respect the roles of the Remuneration Committee and the Board and liaise with them as appropriate with regard to issues of remuneration and terms of appointment and/or employment for prospective directors

review on an annual basis the time required from the non-executive directors in fulfilling their duties (annual performance evaluation will assess whether the non-executive directors are spending adequate time on their duties)

at least once a year, review its own performance, constitution and terms of reference to ensure it is operating effectively and make or recommend any changes it considers necessary or desirable to the Board, as and when appropriate

The committee shall also make recommendations to the Board concerning:

plans for succession for both executive and non-executive directors and in particular for the key roles of Chairman and Chief Executive

the renewal of the appointment of the incumbent Chairman but, in the event that a new person is to be appointed, the process of search, selection and recommendation shall be led by the senior independent non-executive director (who shall chair a special purpose committee for this purpose if one is established by the Board)

the appointment and re-appointment of the senior independent non-executive director

the re-appointment of any non-executive director at the conclusion of his or her specified term of office

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the re-election by shareholders of any director required to stand for re-election under the provisions in the Company’s Articles of Association

any issues or concerns it may have relating to the continuation in office as a director of any person at any time and any suspension or termination of service of any executive director as an employee

any new appointment as a director or any new appointment to executive or other office except as regards the position of Chairman of the Company (see the second bullet point in this list)

the composition and selection of the chairmen and other members of the Audit Committee and the Remuneration Committee

the continuation in service of any director upon reaching the age of 65

5.2.10 Reporting responsibilities

The chairman of the committee or their nominee shall report formally to the Board on its meetings and all matters within its duties and responsibilities

The committee shall make whatever recommendations to the Board it deems appropriate in relation to any matters within its remit or arising in the course of its work

The committee shall prepare a report on its work for approval by the Board and inclusion in the Annual Report

5.3 Remuneration committee 5.3.1 Membership

The committee is a sub-committee of the Board, which has set these terms of reference, and shall be comprised of independent non-executive directors appointed by the Board, taking into account the recommendations of the Nominations Committee

The Board shall, taking into account the recommendations of the Nominations Committee, appoint the committee chairman. In the absence of the committee chairman, the remaining members present shall elect one of their number in attendance to chair the meeting save that the chairman of the Company may not chair the committee

The committee may, as required, conduct at least part of each meeting alone and may ask the Chief Executive and any director or senior manager to attend for part of any meeting by invitation, as and when appropriate

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5.3.2 Secretary

The Company Secretary or, in his absence, a person agreed by those present at the meeting shall act as the secretary of the committee


The quorum necessary for the transaction of business shall be two. A duly convened meeting of the committee at which a quorum is present shall be competent to exercise all or any of the authorities, powers and discretions vested in or exercisable by the committee

The Company Chairman will not take part or be counted towards a quorum in relation to any discussion of his own remuneration

Members of the committee shall disclose to and seek approval from the Board in respect of potential conflicts of interest and will comply with relevant requirements including provisions of the Company’s Articles of Association at meetings of the committee as well as at meetings of the Board


The committee shall meet not less than twice a year and at such other times as may be requested by the committee chairman

5.3.5 Notice of meetings

Notice of each meeting confirming the venue, time and date together with an agenda of items to be discussed, shall be forwarded to each member of the committee, normally at least five days prior to the date of the meeting

5.3.6 Minutes of meetings

The secretary shall minute the proceedings and resolutions of all meetings of the committee, including recording the names of those present and in attendance

The secretary shall ascertain, at the beginning of each meeting, the existence of any conflicts of interest and minute them accordingly

Minutes of committee meetings shall be circulated to all members of the committee and made available on request to other members of the Board. At the direction of the chairman of the committee minutes may be withheld or redacted as appropriate before being made available to any director who may have a conflict of interest in relation to the business of the relevant meeting

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5.3.7 Authorities

The committee shall be provided with sufficient resources to undertake its duties

The committee is authorised by the Board to obtain internal and external legal or other professional advice, including the advice of independent remuneration consultants, as well as information about remuneration practices elsewhere. The committee may, if it thinks fit, supply to others information about the Company's remuneration practices and secure the attendance at meetings of third parties with relevant experience and expertise, at the Company's expense

The committee shall have access to the services of the secretary on all committee matters

The committee is authorised to investigate any activity within the scope of its duties and to intervene if the committee considers it appropriate and/or if the Board instructs it to do so

The committee is authorised to seek any information it requires from any employee, consultant or contractor of the Group in order to perform its duties

The committee shall have authority to commission any reports or surveys which it deems necessary to help it fulfil its obligations

The committee may delegate such of its duties and responsibilities to any one or more members of the committee as it may deem appropriate having regard to the purpose of the committee

5.3.8 Duties


determine the policy for the remuneration of the Chairman of the Company, the Chief Executive and other executive directors and the Company Secretary and monitor the ongoing appropriateness and relevance of the remuneration policy

determine the structure and targets for any performance related elements of remuneration for the executive directors and Company Secretary and approve computations and payments to be made in connection therewith and ask the Board, when appropriate, to seek shareholder approval for any long term incentive arrangements or significant changes to existing arrangements

determine all elements of the remuneration of the Chairman of the Company and the individual remuneration package of each executive director and the Company Secretary, but not limited to, basic salary, benefits in kind, bonuses, long term incentive arrangements, save as you earn share option plans and other employee share plans and pension arrangements

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ensure that all elements of directors’ remuneration are in line with the latest shareholder approved remuneration policy or changes to that policy approved by shareholders

determine the policy for and structure of pension arrangements for executive directors and the Company Secretary

determine any shareholding requirements for the Chairman of the Company and the members of the Executive Committee and Divisional Managing Directors and review dealings in IMI shares planned by members of the Executive Committee and Divisional Managing Directors

monitor the remuneration of the next most senior tier of management below executive director level (delineated as agreed with the Board from time to time and including if appropriate senior employees of any material joint ventures)

determine the policy on termination payments and compensation commitments, approve individual proposals for termination packages in relation to the executive directors, the Company Secretary and the next most senior tier of management below executive director level and approve disclosures in respect of termination packages for executive directors

determine the terms of the service agreement for each executive director and the Company Secretary and the next most senior tier of management below executive director level

review the design and development of all share incentive plans requiring approval by the Board and/or shareholders, including the design and development of long-term incentive plans (including any deferred share matching plan) applicable to executive directors and all-employee share plans (the "Share Plans") and make recommendations to the Board as to the adoption of Share Plans and any amendments to the terms of such Share Plans

for all Share Plans, determine each year, whether awards will be made, and, if so, the overall amount of such awards (and costs) and the individual awards to executive directors and other senior management whose remuneration packages are determined by the committee

subject to delegation of authority by the Board, determine whether the disclosure of any information on performance conditions would be commercially sensitive

exercise all powers under the rules of the Share Plans, including the power to delegate to any committee or individual appointed to administer or implement the Share Plans subject to reasonable supervision of the same

be aware of and oversee any major changes in employee benefit structures where these are material to the Group

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consult with the Chairman of the Company and the Chief Executive regarding the remuneration of other executive directors

liaise with the Nominations Committee and the Board as appropriate with regard to issues of remuneration and terms of appointment and/or employment for directors

to review the nature and level of travel, accommodation and other expenses incurred by the directors for business purposes and to determine the expense approval policies for the directors

in setting and structuring such packages and arrangements, give due regard to the UK Corporate Governance Code as well as the UK Listing Authority’s Listing Rules and to relevant guidance and best practice, in each case, as may be amended from time to time

in determining such packages and arrangements, be sensitive to pay and employment conditions across the Group

consider and review the risk implications in respect to the design, implementation and operation (including payout) of remuneration arrangements across the Group and undertake an annual review to confirm that the Group's remuneration policies and practices remain compatible with its risk policies and systems

be responsible for selecting, appointing and setting the terms of reference for any remuneration consultants who advise the Committee

at least once a year, review its own performance, constitution and terms of reference to ensure it is operating effectively and make or recommend any changes it considers necessary or desirable, as and when appropriate

5.3.9 Reporting

The committee chairman shall report to the Board on its proceedings after each meeting on all matters within its duties and responsibilities and shall, annually, report to the Board on the issues arising from its work in the preceding financial year

The committee shall submit for approval by the Board and shareholders a Directors’ Remuneration Policy (to be included in the Annual Report and Accounts as appropriate) at least every three years and otherwise as thought necessary or desirable

The committee shall submit for approval by the Board and shareholders an annual report on remuneration to be included in the Annual Report and Accounts) which should include, inter alia, the information on directors' remuneration required to be disclosed by the Companies Act (including regulations made thereunder), the UK Corporate Governance Code, the UK

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Listing Authority's Listing Rules and any other relevant statutory, regulatory or governance codes

5.3.10 Annual General Meeting The chairman of the committee shall attend the Annual General Meeting prepared to respond to any shareholder questions on the committee’s activities.

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