Corporate Governance Code Compliance

CORPORATE GOVERNANCE – Gamma Communications plc and subsidiaries (“Gamma”)

The information contained in this document was approved by the board on 25 September 2018.

Introduction

On 23 May 2018, the board of Gamma formally decided to apply The QCA Corporate Governance Code (2018 edition) (the “QCA Code”). Gamma has adopted this code as it feels it takes key elements of good governance and applies them in a manner which is workable for the different needs of growing companies

Corporate governance principles

As a result of deciding to apply the QCA Code, the corporate governance principles which now apply to Gamma are those contained in the QCA Code. These are:

Deliver Growth

  1. Establish a strategy and business model which promote long-term value for shareholders
  2. Seek to understand and meet shareholder needs and expectations
  3. Take into account wider stakeholder and social responsibilities and their implications for long-term success
  4. Embed effective risk management, considering both opportunities and threats, throughout the organisation

Maintain a Dynamic Management Framework

  1. Maintain the board as a well-functioning, balanced team led by the chair
  2. Ensure that between them the directors have the necessary up-to-date experience, skills and capabilities
  3. Evaluate board performance based on clear and relevant objectives, seeking continuous improvement
  4. Promote a corporate culture that is based on ethical values and behaviours
  5. Maintain governance structures and processes that are fit for purpose and support good decision-making by the board

Build Trust

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

Application of the QCA Code and required disclosures

The correct application of the QCA Code requires Gamma to apply the ten principles set out above and also to publish certain related disclosures.

Disclosures

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

Gamma’s strategy is to grow its revenue and margins by:

  • exploiting existing services
  • infrastructure investment
  • introducing new services
  • developing the market

Our engaging culture feeds directly into our strategy, which will be pursued both organically and, as opportunities arise, by relevant acquisitions of products or entry into adjacent markets.   More detail on Gamma’ strategy can be found on p 22 – 27 of our Annual Report and Accounts 2017 and on our website https://www.gamma.co.uk/about-us/company/investors/strategy-and-services/

Gamma’s business model is to provide business communication products that solve customer problems and make their businesses more efficient. Gamma delivers these services from a scalable network and best in class operational and sales platforms which enables it to exploit a wide range of routes to market via indirect channel partners and direct sales teams.

Gamma’s business model can be found on p12 and 13 of our Annual Report and Accounts 2017.

 

Principle 2 – Seek to understand and meet shareholder needs and expectations 

Copies of our annual report (which includes the notice of AGM) are sent to all shareholders and copies can be downloaded from the investors section of our website www.gamma.co.uk/about-us/company/investors. Other information for shareholders is also provided on our website, including the interim results as well as the full year and half-year results presentations to the City.

Communication with shareholders is given high priority by the Board and is undertaken through press releases, general presentations at the time of the release of the annual and interim results and face-to-face meetings. The Group issues its results promptly to individual shareholders and also publishes the same on the Company’s website. Regular updates to record news in relation to the Company are also included on the website.

The executive directors are always available to meet with its shareholders and potential investors on request to discuss strategy and business evolution.  A number of such “ad hoc” meetings are carried out each year.  The Chairman also meets with shareholders separately from the executive.

In order to ensure that the members of the Board develop an understanding of the views and concerns of major shareholders there is regular dialogue with institutional shareholders, including meetings after the announcement of the Company’s annual and interim results. The Board uses the AGM to communicate with private and institutional investors and welcomes their participation.

We have an on-going programme of individual meetings with institutional shareholders and analysts following the full year and half year results presentations to the City. These meetings allow the chief executive officer and the chief financial officer to update shareholders on strategy and the group’s performance. Additional meetings with institutional investors and / or analysts are arranged from time to time. All board members receive copies of feedback reports from the investor meetings which are compiled independently by Gamma’s Nominated Advisor, thus keeping them in touch with shareholder opinion.

At the AGM, separate resolutions are proposed on each substantially separate issue. For each resolution, proxy appointment forms are issued which provide voting shareholders with the option to vote in advance of the AGM if they are unable to attend in person. All valid proxy votes received for the AGM are properly recorded and counted by the Company’s registrars. Voting at the AGM is by a show of hands unless a poll is called for – in this regard, the chairman is aware of the possible need to exercise his powers as chairman and demand a poll to ensure that the vote represents the voting intentions of those shareholders who have appointed the chairman as proxy as well as those present at the meeting. As soon as practicable after the AGM has finished, the results of the meeting are released through a regulatory news service. The announcement also provides, for information, details of the total number of votes in favour of each resolutions. At last year’s AGM, all resolutions put to shareholders were duly passed.

 

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

Gamma’s business model identifies that our strengths are:

  • People with the right expertise
  • Outstanding customer service
  • Network availability and resilience
  • Innovative services driven by customer and end user feedback
  • Commercial strength and stability underpinned with a strong balance sheet
  • Consistent market strategy

These strengths are underpinned by our strong culture. Gamma recognises that our culture has been instrumental in the growth and success of the business to date. Gamma encourages development of existing staff and ensures that there are learning opportunities for everyone. The investment and focus on staff leads to low churn compared to the industry and enables us to offer good customer service through knowledgeable and experienced staff.

An annual staff survey is performed and the results reviewed and addressed. The CEO and HR Director lead a programme on culture and investment in staff.  We encourage diversity within the workplace and are working hard to ensure that women are able to have a rewarding career in our industry.

Customers (both direct and channel partners) are a key relationship for the company and the company prides itself on its high standard of customer service. The company uses the net-promoter score as a measure of customer satisfaction as well as engaging with customers for input and feedback.

Other key relationships include suppliers, regulators and shareholders. The business relies on a number of suppliers to provide elements of its products and services and develops strong relationships with the suppliers. The company works closely with the regulatory bodies to ensure that they continue to remain compliant and also to shape policy to the benefit of the consumer.

 

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

As with any business, Gamma is exposed to a number of different risks. Whilst some are clear and straightforward to manage, others are less apparent and may be outside of Gamma’s direct control.

Gamma’s risk management process is:

  • Identification –  Risks recorded in controlled risk registers
  • Evaluation – Risk exposure is reviewed and prioritised
  • Monitoring – Risks are analysed for impact and probability
  • Mitigation – Risk owners identified and action plans implemented. Robust mitigation strategy subject to regular and rigorous review.

In recognition of the importance of the Group’s services to the business market and the changing nature of threats, during 2017 the Board appointed a Committee to consider non-financial risk under the chairmanship of Martin Lea, Independent Non-Executive Director.  Financial risks are considered by the audit committee who will also engage external firms of accountants from time to time to review controls in place in specific risk areas.

Risk management is seen as critical at all levels of the business.  In all areas of the business, staff are encouraged to identify and report new risk areas as they arise.  This enables us to build contingency options into our plans and processes. To this end, Gamma operates a robust and established structure for the identification, evaluation, monitoring and mitigation of the potential risks to its performance. There is a comprehensive operational governance structure, with regular and documented meetings to track risks through the four stages noted above. Each generic area of risk (for example risk relating to a security breach) has clearly assigned accountability at Director-level within the management team, with reporting lines to the CEO, the Risk Committee and ultimately the Board.

Gamma has a series of policies regarding anti-corruption/anti- bribery, human rights, the environment and social matters, but the Board does not consider there to be significant risks in this area.

The principal risks to the business are listed with a short description of their potential impact and what is being done to mitigate them on p30 and 31 of our Annual Report and Accounts 2017. This is not an exhaustive list and, as described, the risk profile of the business is constantly evolving.

The highest three risks which we have identified are as follows –

  • Security Breach
  • Network Performance
  • Reputational

The impact and mitigating actions against these risks are set out in the Annual Report.

 

5. Maintain the board as a well-functioning, balanced team led by the chair

Independence

The Board comprises seven Directors, two of whom are Executive Directors and five of whom are Non-Executive Directors, reflecting a blend of different experience and backgrounds. Of the Non-Executive Directors, the Group regards Richard Last, Alan Gibbins and Martin Lea as Independent Non-Executive Directors within the meaning of the UK Corporate Governance Code 2014.

Time commitment

The executive directors are expected to devote substantially the whole of their time, attention and ability to their duties, whereas, as one would expect, the non-executives have a lesser time commitment.  The non-executive directors are required to spend sufficient time in the business to discharge their responsibilities.  Typically this is 50-60 days per year for the Chairman, 25-30 days per year for Independent Non-Executives with chair of committee responsibilities and 16-20 days for Non-Independent Non Executives. The Chairman and Non-Executive Directors have other third party commitments including directorships of other companies. The Company is satisfied that these associated commitments have no measurable impact on their ability to discharge their responsibilities effectively. The Executive Directors are permitted to have third party commitments with the permission of the Chairman.  At present the CEO has one non-executive role and the CFO has no external commitments.

Board meeting Audit Committee Remuneration Committee Nomination Committee Risk Committee
Executive Directors
Bob Falconer 10/11 N/A N/A N/A N/A
Andrew Belshaw 10/11 N/A N/A N/A N/A
Non-Executive Directors
Richard Last (Independent) 11/11 3/3 5/5 2/2 1/1
Alan Gibbins (Independent) 11/11 3/3 5/5 2/2 1/1
Martin Lea (Independent) 11/11 3/3 5/5 2/2 1/1
Wu Long Peng 9/11 N/A N/A 2/2 1/1
Andrew Stone 7/11 N/A N/A 2/2 1/1

During 2017, certain Directors who were not Committee members attended meetings of the Audit Committee and Remuneration Committee by invitation. These details have not been included in the table. Where a Director is unable to attend meetings of the Board or of Board Committees, such Director is invited to review the relevant papers for the meetings and provide his comments to the Board or the Board Committees in advance of such meetings.

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

Board of Directors

Richard Last – Chairman and Independent Non-Executive Director

Andrew Taylor – Chief Executive Officer – appointed to the board 4 April 2018 taking over as CEO on the 23 May 2018 from Bob Falconer

Andrew Belshaw – Chief Financial Officer

Alan Gibbins – Independent Non-Executive Director

Martin Lea – Independent Non-Executive Director

Andrew Stone – Non-Independent Non-Executive Director

Wu Long Peng – Non-Independent Non-Executive Director

 

Experience, skill and personal qualities and capabilities

Gamma has an experienced Board which blends industry expertise with public company experience. The Board also has a good knowledge of our product set and high level relationships with our key customers and suppliers. The members of the board bring with them different experience, skills and personal quantities. Richard Last is an experienced Chairman with a wealth of experience with public companies. Alan Gibbins is a qualified accountant with extensive experience of public company reporting and financial services. Martin Lea has significant industry experience having over 20 years’ experience leading businesses within the support services, telecommunications and network, integration and service sectors. Andrew Stone and Wu Long Peng represent major shareholders and their views and requirements.    Further information can be found on p44 and 45 of our Annual Report and Accounts 2017. The board is aware of the lack of gender balance and will consider this with future appointments.

 

Training and Development

New Directors receive induction on their appointment to the Board which covers the activities of the Group and its key business and financial risks, the terms of reference of the Board, and its Committees, and the latest financial information about the Group.

The board ensure that they keep their skills up to date. They are made aware of accounting, regulatory, governance and GDPR changes via papers to the board, presentations and external documents. An annual review of compliance with the AIM Rules is also performed.

 

External Advice on a significant matter

During 2017, the Board did not have significant matters which required external advice (save for those discussed below).

The Board has at its disposal a number of advisors including Investec (our Nominated Advisor and Broker) and Tulchan (our retained Financial PR firm).  In addition the Board is able to seek advice from a number of professional service organisations on specific matters.

 

Engagement of External Advisors

The Audit Committee commissioned an internal audit by KPMG of the billing systems, the report on which was received in 2017 with no significant matters found. During the year a limited exercise was commissioned by Gamma from PwC to review controls over physical stock. This has resulted in a number of control improvement recommendations which are being implemented.

In September 2016, the Company engaged h2glenfern, a remuneration advisory practice, to undertake a benchmarking exercise for use in considering the remuneration levels of the Executive and Non-Executive Directors. The Committee would normally expect to undertake such an exercise every three years.

The nomination committee worked with an executive search firm in the search for a successor to Bob Falconer, CEO who had indicated his desire to retire.

Internal advisory responsibilities

All Directors have access to the advice and services of the Company Secretary, who is responsible to the Board for ensuring that Board procedures are followed and that applicable rules and regulations are complied with. In addition, the Company Secretary will ensure that the Directors receive appropriate training as necessary. The appointment and removal of the Company Secretary is a matter for the Board as a whole. All Directors are supplied with information in a timely manner in a form, and of a quality, appropriate to enable them to discharge their duties.

 

7. Evaluate board performance based on clear and relevant objectives, seeking continuous improvement

Board performance effectiveness process

The Company has a formal process of annual performance evaluation for the Board and its Committees. The Board and its Committees are satisfied that they are operating effectively.

A performance evaluation of the Board and the Board Committees will continue to be conducted annually and the method for such review will continue to be reviewed by the Board in order to optimise the process.  The Board will shortly start to review the performance of individual Directors.

Board performance evaluation

At present the evaluation of the Board (and also the committees) has been carried out by means of a questionnaire circulated by the Company Secretary.  Results are collated and discussed.

In future the Board is considering use of a third party to assist with this evaluation.

Board performance evaluation process/cycle

The performance review described above is carried out annually.

Approach to succession planning

Succession planning is regarded by the board as vitally important to the continued success of the business. Through regular reviews and management discussions, the company’s future business leaders are identified and personal development plans are put in place to harness their potential and plan for job growth and career progression.

Where a new appointment to the Board is required, the nomination committee (which is chaired by the Chairman) considers the balance of skills, knowledge and experience on the board and makes appropriate recommendations for consideration by the whole board.

Other senior appointments (which are not Board positions but which are vital to the running of the business) are made by the chief executive in discussion with the chairman.

 

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

Our engaging culture feeds directly into our strategy. Our culture has been instrumental in the growth and success of the business to date. Further information can be found p22-27 of our Annual Report and Accounts 2017.

The board promotes a corporate culture that is based on sound ethical values and behaviours. The board has a clear understanding of the culture of the business. The board is constantly working to ensure the annual report provides a clear understanding of the culture of the business. The corporate values are at the heart of everything that Gamma does.  Every new employee undergoes an induction programme which (amongst other things) sets out the values of the business.  Regular communication from the CEO via e-mail, conference call and “town hall” meetings sets the agenda for behaviour in the business.

In particular, Gamma is committed to protecting the environment and was the first network in the UK to be certified as Carbon Neutral.

An annual staff survey is performed and the results reviewed and addressed. The CEO and HR Director lead a programme on culture and investment in staff.  Gamma is also committed to diversity in the workplace and has programmes in place to encourage women to develop and reach their full potential in an industry which has historically been male dominated.  Gamma also runs an apprenticeship programme which encourages applications from young people of all backgrounds.

The policies set by the board in this area are reflected in the actions and decisions of the chief executive and the rest of the management team.

Where employees are concerned that these policies are not being followed we maintain a formal whistleblowing policy and a less formal (but nonetheless important) process whereby employees can contact the CEO on an anonymised basis.

The company prides itself on its high standard of customer service. The company uses the net-promoter score as a measure of customer satisfaction as well as engaging with customers for input and feedback. The company deals fairly with its customers, encourages openness and has a collaborative approach.

 

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

Roles and responsibilities of the directors

Richard Last, as chairman is responsible for leading the board as well as being chairman of the Nomination committee and a member of the audit committee, remuneration committee and risk committee.

Andrew Taylor, appointed to board on 4 April 2018 and taking over as Chief Executive Officer from Bob Falconer, is responsible for proposing the Group’s strategy to the board and then implementing this along with being responsible for day to day running of the business.

Andrew Belshaw, Chief Financial Officer, is responsible for the preparation of the Group’s budget along with measuring performance. He is responsible for developing strong relationships with key stakeholders including investors, analysts and banks.

Alan Gibbins, Independent Non-Executive Director, is chair of the audit committee as well as being a member of the nomination committee, remuneration committee and risk committee.

Martin Lea, Independent Non-Executive Director, is chair of the remuneration committee and the risk committee as well as being a member of the audit committee and nomination committee.

 

Roles of the committees

Main Board: to promote the long term success of the Company and sustainably grow shareholder value. The Board has responsibility for the management, direction and performance of the Group and for ensuring that appropriate resources are in place to achieve its strategy. The Board directs and reviews the Group’s operations within an agreed framework of controls.  This allows risk to be assessed and managed within agreed parameters. The Board has established Audit, Nomination, Remuneration and Risk Committees with formally delegated duties and responsibilities.

Audit committee: The Committee works within a framework of approved terms of reference. Its key objectives are to provide effective governance over Gamma’s financial reporting, including the adequacy of disclosures made in the financial statements; to review the performance of the external auditors; to provide oversight of the Group’s systems of internal financial control; and to report to the Board on these matters. Further details can be found on p50 -52 of our Annual Report and Accounts 2017.

Remuneration Committee: The Committee is primarily responsible for determining and agreeing with the Board the broad policy for the remuneration and employment terms of the Executive Directors, Chairman and other senior executives and, in consultation with the CEO, for determining the remuneration packages of senior executive managers. The Committee is also responsible for the review of, and making recommendations to the Board in connection with, share incentive plans and performance related pay schemes and their associated targets, and for the oversight of employee benefit structures across the Group. The Committee’s full terms of reference are reviewed regularly and approved by the Board. Further details can be found on p53 -61 of our Annual Report and Accounts 2017.

Nomination Committee: The Nomination Committee assists the Board in discharging its responsibilities relating to the composition and make-up of the Board and any Committees of the Board. It is also responsible for periodically reviewing the Board’s structure and identifying potential candidates to be appointed as Directors or Committee members as the need may arise. The Nomination Committee is responsible for evaluating the balance of skills, knowledge and experience and the size, structure and composition of the Board and Committees of the Board, retirements and appointments of additional and replacement Directors and Committee members and will make appropriate recommendations to the Board on such matters. The Company’s policy is to attract and develop a highly qualified and diverse workforce, to ensure that all selection decisions are based on merit and that all recruitment activities are fair and non-discriminatory. We continue to focus on encouraging diversity of business skills and experience, recognising that Directors and managers with diverse skills sets, capabilities and experience gained from different backgrounds enhance the Group.

Risk Committee: The Risk Committee was formed in December 2017 to assist the Board in its duty to carry out a robust assessment of the principal non-financial risks facing the Company (financial risk is considered by the Audit Committee). Its main function is to review the risk register prepared and maintained by management and to re-confirm that the principal risks have been identified and (where appropriate) mitigated. The Committee has identified six ongoing risk areas – Operational, Suppliers, Market Landscape, Legal and Regulatory, Key Personnel and Reputational. In addition, the Committee will consider the risk that Brexit poses to the Company. The purpose of the Committee is to manage rather than eliminate risk and therefore it cannot provide absolute assurance against any one risk. The role of the Committee will be to review reports from management to consider whether significant risks are identified, evaluated, managed and controlled and whether any significant weaknesses are promptly remedied. It will also indicate a need for more extensive monitoring.

Matters reserved for the board

Area Examples
Strategy and Management Approval of the Group’s long-term objectives and commercial strategy; Approval of the annual operating and capital expenditure budgets; Approval of any significant extension of the Group’s activities into new business or geographic areas; Any decision to cease to operate all or any material part of the Group’s business
Structure and Capital Changes relating to the Group’s capital structure including reduction of capital, share issues (except under employee share plans) and share buy backs, or material changes to the company’s level of debt; acceptance of any banking debt facilities.
Financial Reporting and Controls Approval of the half-yearly report, interim management statements and any preliminary announcement of the final results; Approval of the Annual Report and Accounts, including the Corporate Governance statement and Remuneration report; Approval of the dividend policy.
Internal Controls Ensuring maintenance of a sound system of internal control and risk management
Contracts Major capital contracts; contracts of the company not in the ordinary course of business; major investments
Communication Approval of resolutions and corresponding documentation to be put forward to shareholders at a general meeting; approval of all circulars, prospectuses and listing particulars
Board Membership & Other Appointments Changes to the structure, size and composition of the Board, following recommendations from the Nomination Committee; ensuring adequate succession planning for the board and senior management so as to maintain an appropriate balance of skills and experience within the company and the board
Remuneration Determining the remuneration policy for the Directors, Company Secretary and other senior executives; determining the remuneration of the Non-Executive Directors, subject to the Articles of Association and shareholder approval as appropriate.
Delegation of Authority The division of responsibilities between the Chairman, the Chief Executive Officer and other Executive Director(s), which should be clearly established, set out in writing, and agreed by the board; establishing board committees and approving their terms of reference, and approving material changes thereto.
Corporate Governance Matters Undertaking a formal and rigorous annual review of its own performance, that of its committees and individual directors, and the division of responsibilities; Considering the balance of interests between shareholders, employees, customers and the community; review of the Group’s overall corporate governance arrangements.
Policies Approval of policies, including: Bribery prevention Policy; Health & Safety Policy; Data Protection Policy; Share Dealing Code; Whistle blowing policy

Plans for evolution of the governance framework

There are no current plans for the evolution of the governance framework.

 

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

Work undertaken by the board committees

Audit Committee – the Committee’s activities have focussed on financial reporting and the related statutory audit; the assessment of internal financial controls; and on the Group’s preparation for the future implementation of IFRS 15 (Revenue from Contracts with Customers), IFRS 16 (Leases) and IFRS 9 (Financial Instruments). Further details can be found on p51 and 52 of our Annual Report and Accounts 2017

Remuneration committee – the Committee met five times in 2017 in order to conduct the following main items of business: agree the annual Remuneration Committee report; review the Chairman’s fees; set senior executive bonus targets for 2017; review and approve proposals for the 2018 all employee SAYE share scheme; approve senior executive bonus payments relating to 2016; approve the 2017 LTIP and CSOP awards and set LTIP targets; review the projected dilution impact and cost of various share schemes; conduct the annual review of Remuneration Committee terms of reference; consider the Company annual salary review and any changes to overall Company remuneration structure and review Executive Directors and other senior executive salaries and bonus structures.

 

Audit Committee report

The audit committee report can be found on p50-52 of our Annual Report and Accounts 2017

 

Remuneration Committee report

The remuneration committee report can be found on p53-61 of our Annual Report and Accounts 2017

 

Omitted disclosures

The Annual Report and Accounts 2017 does not include all required disclosures due to the timing of the adoption of the code however all areas are disclosed in this Report and will be included in the Annual Report and Accounts 2018

 

Disclosure of AGM voting outcome

As soon as practicable after the AGM has finished, the results of the meeting are released through a regulatory news service.  The announcement also provides, for information, details of the total number of votes in favour of each resolutions. At last year’s AGM, all resolutions put to shareholders were duly passed.

At the most recent AGM, more than 20% of the voting shareholders opposed the re-appointment of Richard Last as Chair.  Upon discussion with those holders it was clear that a number of investors felt that Richard had too many chairmanships and was therefore unable to devote the appropriate level of time to Gamma.  Whilst the Board felt that Richard’s other interests had not compromised his ability to perform his role, Richard has nonetheless reviewed his other commitments and has already taken steps to address the concerns by standing down from one fully listed and one AIM listed company which have been recently announced in their interim results.

Historical annual reports and other governance- related material

These can be found in the investors section on the website https://www.gamma.co.uk/about-us/company/investors/financial-results-and-shareholder-communications.  These reports are available from October 2014 which was when the company listed.