Companies need to deliver growth in long-term shareholder value. This requires an efficient, effective and dynamic management framework and should be accompanied by good communication which helps to promote confidence and trust.
- Principle 1: Establish a strategy and business model which promote long-term value for shareholders
- Principle 2: Seek to understand and meet shareholder needs and expectations
- Principle 3: Take into account wider stakeholder and social responsibilities and their implications for long-term success
- Principle 4: Embed effective risk management, considering both opportunities and threats, throughout the organisation
Maintain a dynamic management framework
- Principle 5: Maintain the board as a well-functioning, balanced team led by the chair
- Principle 6: Ensure that between them the directors have the necessary up-to-date experience, skills and capabilities
- Principle 7: Evaluate board performance based on clear and relevant objectives, seeking continuous improvement
- Principle 8: Promote a corporate culture that is based on ethical values and behaviours
- Principle 9: Maintain governance structures and processes that are fit for purpose and support good decision-making by the board
- Principle 10: Communicate how the company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders
Formal adoption of the QCA Code by Mercia Technologies PLC requires us to apply the principles set out above and also to publish certain related disclosures; these can appear in our Annual Report, be included on our website or we can adopt a combination of the two approaches. Recommended locations for each disclosure are specified in the QCA Code and we have chosen to follow these.
Principle 1: Establish a strategy and business model which promote long-term value for shareholders
The board must be able to express a shared view of the company’s purpose, business model and strategy. It should go beyond the simple description of products and corporate structures and set out how the company intends to deliver shareholder value in the medium to long-term. It should demonstrate that the delivery of long-term growth is underpinned by a clear set of values aimed at protecting the company from unnecessary risk and securing its long-term future.
Evidence & disclosure
Mercia’s strategy and business model were established and set out in the Company’s IPO Admission Document. The strategy is reviewed, assessed and revised at annual strategy days and at Board meetings as required. Mercia’s strategy, business model and progress are communicated through the Company’s Annual Report – the Strategic Report section begins on page 9 of the 2018 Annual Report – which clearly explains Mercia’s business model and strategy in detail, including key challenges and execution risks.
A key strand of Mercia’s strategy is its investment policy. This is included within the AIM Rule 26 section of this website.
Principle 2: Seek to understand and meet shareholder needs and expectations
Directors must develop a good understanding of the needs and expectations of all elements of the company’s shareholder base.
The board must manage shareholders’ expectations and should seek to understand the motivations behind shareholder voting decisions.
Evidence & disclosure
Mercia invests in and seeks to understand the needs and expectations of all of its shareholder base, which includes institutional investors, retail investors, staff and several of its university partners, through a wide range of investor relations initiatives. These include:
- Mercia’s Executive Directors participate in both institutional and retail investor roadshows throughout the year and following the announcement of its annual and interim results, when it also engages with the financial press and analysts in conjunction with its Investor Relations adviser.
- The Company publishes an Investor Relations update document twice a year, which is sent to all shareholders.
- Mercia holds Capital Market Days from time to time, to which all shareholders are invited.
- The Company holds an annual gala dinner to which many of its stakeholders (including shareholders) are invited to attend. The event acts as a cost effective means of communicating the Group’s progress against its strategic objectives and feedback has always been universally positive.
- As set out above, the Chair and Senior Independent Director meet with existing institutional shareholders from time to time.
- Two way communication with corporate governance organisations such as PIRC.
- Mercia has an active social media presence which seeks to keep all stakeholder groups informed on the Group’s progress. The contact section of the website enables shareholders to make contact with the Executive Directors and ask questions.
- Mercia welcomes all attendees to its Annual General Meetings (“AGMs”) and seeks to engage with them both formally and informally on the day.
Indications of how successful these proactive initiatives have been include a material increase in the number of institutional and retail investors on the Company’s share register since IPO and the proxy voting support for every resolution proposed at each of the Company’s four AGMs since IPO.
To further understand and meet shareholder needs and expectations the Company is currently seeking the appointment of an in-house Investor Relations expert.
Principle 3: Take into account wider stakeholder and social responsibilities and their implications for long-term success
Long-term success relies upon good relations with a range of different stakeholder groups both internal (workforce) and external (suppliers, customers, regulators and others). The board needs to identify the company’s stakeholders and understand their needs, interests and expectations.
Where matters that relate to the company’s impact on society, the communities within which it operates or the environment have the potential to affect the company’s ability to deliver shareholder value over the medium to long-term, then those matters must be integrated into the company’s strategy and business model.
Feedback is an essential part of all control mechanisms. Systems need to be in place to solicit, consider and act on feedback from all stakeholder groups.
Evidence & disclosure
Mercia’s Annual Report identifies its key stakeholders within the Corporate & Social Responsibility section. As a business model that relies on maintaining good connections with all of its stakeholder groups, including regional councils and the wider community in which its nine offices are located, the Company seeks to proactively minimise its impact on the environment through a number of initiatives.
The importance of and nature of its stakeholder relationships is that if it were not regarded as a trusted and socially responsible organisation, its reputation would suffer, leading to lower deal flow, fewer fund mandate wins and lower staff retention rates. Feedback would therefore be evidential from reductions in all three of these key business drivers and it is for this reason that the Company maintains an active and responsive dialogue with each of these key stakeholder groups. There are mechanisms in place to obtain feedback from internal stakeholders e.g. employee feedback surveys, 360 reviews, formal and informal staff gatherings.
As a people-centric business, all of the Company’s staff are office based and much of their ‘day job’ involves communication/meetings with both external third parties and Mercia staff based at other offices. Minimising the environmental impact of these activities is actively encouraged through the Group’s:
Employment policies e.g. travel, use of public transport, working from home
Cycle to work scheme
Roll out of Zoom web-based meeting facility
Other social impact initiatives currently include a drive to reduce the use of plastic water containers throughout the Group’s offices.
Principle 4: Embed effective risk management, considering both opportunities and threats, throughout the organisation
The board needs to ensure that the company’s risk management framework identifies and addresses all relevant risks in order to execute and deliver strategy; companies need to consider their extended business, including the company’s supply chain, from key suppliers to end-customer.
Setting strategy includes determining the extent of exposure to the identified risks that the company is able to bear and willing to take (risk tolerance and risk appetite).
Evidence & disclosure
The Group’s approach to risk management together with the principal risks and uncertainties applicable to Mercia, their possible consequences and mitigation are set out in the Principal Risks & Uncertainties section of the Company’s Annual Report. Mercia’s Board reviews, evaluates and prioritises risks to ensure that appropriate measures are in place to effectively manage and mitigate those identified – both risk tolerance (focusing on Mercia-specific internal, external and strategic risks) and risk appetite (specifically in terms of the Group’s investing policy).
As a Group operating in a highly regulated market investing third parties’ money, the Board has from day one embedded effective risk management within Mercia’s culture, in order to facilitate the execution of its business strategy. It has established a Risk Management Framework, led by the Chief Financial Officer and Group Compliance Director, who have responsibility in terms of monitoring and reporting on the Group’s principal risks together with their mitigation. The Group Compliance Director reports to the Board at each Board meeting on the continuing function of the Group’s FCA related and general compliance control environment. Internal audits are conducted throughout the year in respect of the Group’s investment activities and reported on to the Audit Committee by the Group Compliance Director. As with many companies, Mercia’s Audit Committee remit is also evolving to encompass not just financial risks but the Group’s overall risk framework.
Maintain a dynamic management framework
Principle 5: Maintain the board as a well-functioning, balanced team led by the chair
The board members have a collective responsibility and legal obligation to promote the interests of the company, and are collectively responsible for defining corporate governance arrangements. Ultimate responsibility for the quality of, and approach to, corporate governance lies with the chair of the board.
The board (and any committees) should be provided with high quality information in a timely manner to facilitate proper assessment of the matters requiring a decision or insight.
The board should have an appropriate balance between executive and non-executive directors and should have at least two independent non-executive directors. Independence is a board judgement.
The board should be supported by committees (e.g. audit, remuneration, nomination) that have the necessary skills and knowledge to discharge their duties and responsibilities effectively.
Directors must commit the time necessary to fulfill their roles.
Evidence & disclosure
The Governance section of Mercia’s Annual Report details the composition of its Board and Committees. These are also included within the Investor Relations section of its website, under the “Meet the Board” and “Organisational Structure” pages.
At the heart of all successful businesses are balanced teams. Mercia’s Board comprises three Executive and five Non-executive Directors, each with proven listed company and/or corporate growth success, combining shareholder value creation with good corporate governance at their core.
Mercia’s Executive Directors have a highly complementary skill set, which is essential to realise the growth potential of the Mercia Model. All the Non-executive Directors are considered to be independent by Mercia. All Directors retire by rotation in accordance with the Company’s Articles of Association and must be re-elected at the Company’s AGM. Non-executive Directors’ letters of engagement stipulate the time commitment expected of them (typically a minimum of 24 days per year) and the anticipated term of appointment (reviewed formally every three years and on an ongoing basis as part of the review of the composition of the Board against the strategy of the Company).
All of the Directors (both Executive and Non-executive) are committing the time necessary to fulfill their roles. All of the Non-executive Directors currently sit on all of the Committees (Audit, Nominations, Remuneration), although the effectiveness of this is currently under review. The Board meets formally at least eight times a year. During 2017/18, the Board met nine times, the Audit and Nominations Committees both met three times and the Remuneration Committee (which meets at least twice a year) met several times.
A schedule of matters specifically reserved for the Board, as well as the current terms of reference for each Committee are available to view in this section of the Company’s website. The terms of reference for the Audit Committee are currently under review to better reflect their evolving scope of oversight. Expanded terms of reference will be adopted at the next meeting in November 2018.
The Annual Report discloses Directors’ attendance records for all Board meetings but has not historically done so for the Committee meetings. The composition of all three Committees is currently under review and once that review is completed, future attendance will be reported in the Annual Report.
Principle 6: Ensure that between them the directors have the necessary up-to-date experience, skills and capabilities
The board must have an appropriate balance of sector, financial and public markets skills and experience, as well as an appropriate balance of personal qualities and capabilities. The Board should understand and challenge its own diversity, including gender balance, as part of its composition.
The board should not be dominated by one person or a group of people. Strong personal bonds can be important but can also divide a board.
As companies evolve, the mix of skills and experience required on the board will change, and board composition will need to evolve to reflect this change.
Evidence & disclosure
Mercia’s Annual Report includes a biography of each Board member within the Governance section. These are also included within the Investor Relations section of its website, under “Meet the Board”. These list current and past roles of each Board member and also describe the relevant business experience that each Director brings to the Board, plus their academic and professional qualifications.
The biographies show the balanced blend of skills and experience required to enable to Mercia to execute its strategic objectives within a corporate governance framework which has been tailored to its business activities. There is depth in venture investing, entrepreneurial business building, financial expertise and legal/corporate governance expertise – and all Directors have proven successful track records in their chosen fields. The gender balance of the Board is self-evident in the 2018 Annual Report, and for the Group as a whole. There has not historically been any disclosure demonstrating how each Director keeps his/her skillset up-to-date, but there will be in the 2019 Annual Report.
The Governance section of the Annual Report describes and explains where external advisers have been engaged (e.g. by the Remuneration Committee in 2016). Internal advisory responsibilities, such as the roles performed by the Company Secretary and the Senior Independent Director, in advising and supporting the Board have not hitherto been described in detail in previous Annual Reports, but will be in the 2019 Annual Report.
Principle 7: Evaluate board performance based on clear and relevant objectives, seeking continuous improvement
The board should regularly review the effectiveness of its performance as a unit, as well as that of its committees and the individual directors.
The board performance review may be carried out internally or, ideally, externally facilitated from time to time. The review should identify development or mentoring needs of individual directors or the wider senior management team.
It is healthy for membership of the board to be periodically refreshed. Succession planning is a vital task for boards. No member of the board should become indispensable.
Evidence & disclosure
The Governance section of the Annual Report describes the function of the Board and its Committees. The Nominations Committee’s duties include, inter alia, to regularly review the structure, size, composition (including the skills, knowledge, experiences and diversity) of the Board and make recommendations to the Board with regard to any changes. The Committee’s remit also includes succession planning, leadership needs and conducting periodic performance evaluation exercises.
An externally facilitated Board evaluation and effectiveness review was undertaken during 2016/17 and its results were considered carefully by both the Committee and Board as a whole.
The outputs of that review included a change in the composition of the Committees, to include all Non-executive Directors, and initiated further consideration of the Board’s composition, including Board diversity and the ratio of Executive to Non-executive Directors.
Since that review, a number of Board changes have occurred including:
- An increase in the number of Non-executive Directors to five, in part to enhance the Board’s entrepreneur/venture experience
- A decrease in the number of Executive Directors to three
- A doubling of the number of female directors to two
- A new Chief Investment Officer
- A new Audit Committee Chair
The composition of the three Committees is currently under review.
The next externally facilitated Board effectiveness review will take place in early 2019 and the results will be set out in the 2019 Annual Report. The review’s terms of reference will include:
- The criteria against which Board, Committee, and individual effectiveness is considered
- How the Company approaches succession planning and the processes by which it determines Board and other senior management appointments, including any links to the Board evaluation process
From an Executive Director perspective, annual performance appraisals take place against a set of group and individual objectives.
Principle 8: Promote a corporate culture that is based on ethical values and behaviours
The board should embody and promote a corporate culture that is based on sound ethical values and behaviours and use it as an asset and a source of competitive advantage.
The policy set by the board should be visible in the actions and decisions of the chief executive and the rest of the management team. Corporate values should guide the objectives and strategy of the company.
The culture should be visible in every aspect of the business, including recruitment, nominations, training and engagement. The performance and reward system should endorse the desired ethical behaviours across all levels of the company.
The corporate culture should be recognisable throughout the disclosures in the annual report, website and any other statements issued by the company.
Evidence & disclosure
Within the Annual Report, the Chair’s statement includes specific reference to people and culture, including the development of a One Mercia culture in 2017/18. A ‘One Mercia’ booklet has recently been developed and provided to all staff. This sets out Mercia’s purpose, values and culture. A summary of its content is shown earlier in this section of the Company’s website.
The Corporate and Social Responsibility section of the Strategic Report includes a section on business ethics. The Remuneration Report refers to the Executive Directors’ KPIs – those for 2018/19 include Mercia’s cultural values.
The appointment during 2018 of a Chief Operating Officer is in part to ‘stitch the business together’ from a purpose, values, culture, processes and people perspective, including developing an enhanced staff engagement initiative built around What We Do Days, State of the Business updates, 360 reviews and more recently, Performance Development Reviews. All of these people and talent initiatives have the promotion of a corporate culture that is based on ethical values and behaviours at their core, which are fully understood and respected by all. The Chief Operating Officer reports monthly to the Board on progress with each of these important initiatives.
The 2019 Annual Report will include further details on how Mercia’s culture is consistent with the Group’s objectives, strategy, business model and approach to risk management.
Principle 9: Maintain governance structures and processes that are fit for purpose and support good decision-making by the board.
The company should maintain governance structures and processes in line with its corporate culture and appropriate to its size and complexity; and capacity, appetite and tolerance for risk.
The governance structures should evolve over time in parallel with its objectives, strategy and business model to reflect the development of the company.
Evidence & disclosure
The Investor Relations area of Mercia’s website includes, within the AIM Rule 26 page, a Corporate Governance section which, in addition to the high-level explanation of the application of the QCA Code, describes the composition of the Board and its Committees, together with a brief biography of each Board member.
The roles of Committees are described, along with their terms of reference and matters reserved by the Board for its consideration.
As a regulated business, Mercia’s corporate governance framework will continue to evolve as the Group progresses. Such evolution will be driven by both the needs of the business and any regulatory changes.
The roles and responsibilities of the Chair, Chief Executive Officer and any other Directors who have specific individual responsibilities or remits (e.g. for engagement with shareholders or other stakeholder groups) have not thus far been described in detail but will be in the 2019 Annual Report.
Principle 10: Communicate how the company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders
A healthy dialogue should exist between the board and all of its stakeholders, including shareholders, to enable all interested parties to come to informed decisions about the company.
In particular, appropriate communication and reporting structures should exist between the board and all constituent parts of its shareholder base. This will assist the communication of shareholders’ views to the board; and the shareholders’ understanding of the unique circumstances and constraints faced by the company.
It should be clear where these communication practices are described (annual report or website).
Application & disclosure
The Governance section of Mercia’s Annual Report includes disclosure of Board Committees, their composition and where relevant, any work undertaken during the year. It includes a detailed Remuneration Report.
Mercia’s website includes all historic Annual Reports and other governance-related material, including notices of all AGMs over the last four years. These can be found in the Investor Relations section, under Regulatory News. This section of the website also includes the results of all AGMs.
To date, none of the resolutions proposed at Mercia’s AGMs have resulted in a material proportion of votes (e.g. 20% of independent votes) having been cast against them, but were this to happen the Company would announce this in a timely basis, including an explanation of what actions it intended to take to understand the reasons behind such a vote result and, where appropriate, any action it had taken, or would take, as a result of the vote.
The 2019 Annual Report will contain expanded reports on the activities of the Audit and Nominations Committees.