Introduction
The Company’s policy is to achieve best practice in our standards of business integrity in all our activities around the world. This includes recognising the importance of the principles of good corporate governance. As an AIM listed company Playtech is not required to follow the provisions of the UK Corporate Governance Code, but the Board seeks to do so and is committed to follow the highest standards of corporate governance throughout the Group. The Company has made significant strides in its corporate governance, and with effect from the appointment of David Mathewson to the Board on 10 June 2010, the Company has complied with the best practice provisions of Section 1 of the Combined Code on Corporate Governance (the “Code”) of June 2008 which applied during the financial year.
The Board is accountable to the Company’s shareholders for good governance and the statement set out below describes how the Group applies the principles identified in the Code.
The Board constitution and procedures
Composition
As at 4 November 2011, the Board comprises the Chairman, the Chief Executive and the Chief Financial Officer, together with two independent non-executives. Pursuant to the Code, the Chairman is not considered to be independent as he holds options in the Company. However, the remaining non-executive directors are considered by the Board to be independent of management and free of any relationship which could materially interfere with the exercise of their independent judgment. All of the currently appointed directors served throughout the financial year, with the exception of David Mathewson who was appointed in June 2010. Biographical information for current Board directors is given in Board of Directors.
In accordance with the articles of association, executive directors retire by rotation and submit themselves for re-election every three years. The Board has collectively agreed that the directors proposed for re-election in 2011 have made significant contributions to the business since their last re-election and each has a key role to play in the formulation of the Group’s future strategy.
Non-Executives
The Non-Executive directors continue to contribute their considerable collective experience and wide-ranging skills to the Board and provide a valuable independent perspective, where necessary constructively challenging proposals, policy and practices. In addition, they helped formulate the Group’s strategy. During the year, the Chairman met the other non-executives in the absence of the executive directors to re-confirm and take account of their views. All have sufficient time to fulfil their commitments to the Company.
Responsibilities
The Board meets regularly, with 10 meetings scheduled and held in 2010. It was only necessary for the Board to hold one unscheduled Board meeting, in relation to the acquisition of Virtue Fusion. Directors were provided with comprehensive background information for this meeting and all directors were available to participate. There remains in place a formal schedule of matters specifically reserved for Board consideration and approval, which includes matters related to strategy and management; acquisitions and disposals; structure and capital; financial reporting and controls; internal controls; significant changes to group operations; Board constitution, communications and performance evaluation; remuneration and delegated authorities.
In 2010, the Board remained satisfied that the roles of the Chairman, Chief Executive and other directors continued to be clearly and comprehensively defined.
The Chairman is primarily responsible for the running of the Board. He ensures that all Directors receive sufficient relevant information on financial, business and corporate issues prior to meetings. Any specific actions arising during meetings are agreed by the Board and a comprehensive follow-up procedure ensures their completion. The Chief Executive’s responsibilities focus on coordinating the Group’s business and implementing Group strategy. Regular interaction between the Chairman and Chief Executive between meetings ensures the Board remains fully informed at all times.
The principal role of the Board is the protection and advancement of shareholders’ interests. A formal schedule of matters reserved for consideration by the Board gives it responsibility for overall Group strategy, acquisition and investment policy, approval of major capital expenditure projects and consideration of significant financing matters. The Board also reviews the strategic direction of the Group, any codes of conduct, annual budgets, progress towards achievement of these budgets and any capital expenditure programmes. Any directors appointed to the Board during the year will submit themselves for re-election at the next Annual General Meeting following their appointment.
All directors are entitled to seek independent professional advice under an agreed Board procedure, which would then be organised by the Company Secretary and Legal Counsel, Paul Wright. No director sought such advice in 2010. All directors additionally have access to the services provided by the Company Secretary and Legal Counsel. The removal of the Company Secretary and Legal Counsel remains a matter for the Board as a whole.
The Company Secretary takes responsibility for organising and renewing the Directors’ and officers’ liability insurance maintained by the Company arranged through Howden Insurance Brokers Limited which has been in place throughout the year.
Board Committees
The Board delegates clearly defined powers to its Audit, Remuneration, Risk and Nomination committees. The minutes of each committee are circulated to and reviewed by the Board. The Company Secretary is secretary to each of the committees. The Terms of Reference for each of the committees are available to view on the Company’s website.
Audit Committee
The Audit Committee is chaired by Alan Jackson, who has recent relevant financial experience, and the remaining member of the committee is Roger Withers. Prior to the appointment of Alan Jackson, the committee was chaired by David Mathewson. There were three committee meetings during the financial year, all previously scheduled. The external auditor, BDO LLP, attended each meeting and separately met with the Chairman and the members of the committee.
The primary responsibilities delegated to, and discharged by, the committee included: monitoring the effectiveness of internal control and associated functions; approving and amending Group accounting policies; reviewing and ensuring the integrity of interim and annual financial statements before submission to the Board; monitoring and approving the scope and costs of audit; and ensuring audit independence by approving significant non-audit services provided by the auditor in accordance with the appropriate committee policy. A summary of non-audit fees incurred during 2011, including due diligence, tax advisory and tax compliance work, is included in note 5 to the financial statements.
Remuneration Committee
The Remuneration Committee is comprised of two Non-Executive Directors and is chaired by Roger Withers. The committee operates within agreed terms of reference and met four times in 2010.
The committee considers the terms and conditions of employment and overall remuneration of the Executive Directors, the Company Secretary and key members of executive management regarding share options, salaries, incentive payments and performance-related pay. The Board determines the remuneration of Non-Executive Directors.
No Director is involved in any decisions as to his/her own remuneration.
The committee takes advice from both inside and outside the Group on a range of matters, including the scale and composition of the total remuneration package payable to people with similar responsibilities, skills and experience in comparable companies that have extensive operations outside the UK.
Risk Committee
The Risk Committee is chaired by Alan Jackson and comprises of the two Non-Executive Directors, the CFO, the COO, the General Legal Counsel and the Chief Security Officer, Jochanan Sommerfeld. Other executives may be invited to attend all or part of the meetings. The committee met three times in 2010 to initiate a review of the Company’s risk register and to consider the revised risk register and the mitigating actions undertaken by the senior management team to manage these risks.
The primary responsibilities delegated to and discharged by the committee include identifying, managing and mitigating key risks to the achievement of the Company’s objectives; reviewing the most significant risks to the achievement of objectives; monitoring resolution of committee recommendations; monitoring incidents and remedial activity and agreeing on behalf of the Board and continually reviewing a risk management strategy and relevant policies for the Company.
Nomination Committee
The Nomination Committee is comprised of two Non-Executive Directors and is chaired by Roger Withers. The committee met twice in 2010 to consider candidates for additional Non-Executive Directors, as well as to consider the executive search for a permanent Chief Financial Officer, and engaged outside recruitment consultants to assist in the search for all these roles. In the future the committee will continue to meet whenever necessary during the year, and not less than twice a year.
The primary responsibilities delegated to, and discharged by, the committee included: regularly reviewing the composition of the Board; the consideration of succession planning and the development of associated policies; and the identification and recommendation of candidates to join the Board whenever deemed appropriate. Thorough appointment processes and policies have been developed by the committee, involving the development of objective criteria, creation of precise job specifications taking into account existing board expertise, the use of external search consultancies and appropriate interviewing. These processes and policies were followed in respect of the appointment of Barry Gibson and David Mathewson in 2010.
Evaluation
The Board is committed to an ongoing evaluation process of itself and its committees to assess their performance and identify areas in which their effectiveness, policies and processes might be enhanced. The Chairman and the Chief Executive Officer, in discussion with the senior Non-Executive Director, intend to undertake a review of the performance of individual Directors. The senior Non-Executive Director will consider the performance of the Chairman, taking into account the views of the Executive Directors.
Newly appointed directors can expect a detailed and systematic induction on joining the Board. They meet various members of senior management and familiarise themselves with all core aspects of the Group’s operations. On request, meetings can be arranged with the major shareholders. David Mathewson and Barry Gibson underwent a thorough induction on joining the Board, involving visits to the Company’s operations in Israel and Estonia. In 2010, the Board also conducted a site visit in Sofia, Bulgaria to view the Company’s operations conducted from that location.
Communication with Investors
Primary responsibility for effective communication with shareholders lies with the Chairman, but all the Company’s Directors are available to meet with shareholders throughout the year. In particular the Executive Directors prepare a general presentation for analysts and institutional shareholders following the interim and preliminary announcements. Further presentations are also prepared following significant acquisitions and whenever the Board considers it beneficial to the shareholders to do so.
In June 2010 the Company held its first investor day, with presentations and demonstrations of the Company’s capabilities designed to give greater understanding of the Company’s products and operations, which was attended by more than 60 analysts and investors. Further such investor days are planned and Ross Hawley, our Director of Investor Relations, undertook numerous meetings with shareholders and potential shareholders throughout the year.
The Company endeavours to answer all queries raised by shareholders promptly.
Shareholders are encouraged to participate in the Annual General Meeting at which the Chairman will present the key highlights of the Group’s performance. The Board will be available at the Annual General Meeting to answer questions from shareholders.
Internal control
In presenting this report, and having monitored, reviewed or approved all shareholder communications in 2010 and since the end of the financial year, the Board is confident that it has presented a balanced and understandable assessment of the Company’s position and prospects.
The Company has established an internal audit function responsible for reviewing, reporting and monitoring improvements in internal control performance across its operations. This function is conducted by Icarus Wyatt Consulting Limited who were appointed to undertake the internal audit function, commencing with a full risk assessment of the Company. Following the assessment, they have assisted in the implementation of a key control register against which they will monitor the Company’s key risk processes and provide an ongoing independent assurance that these key processes are effective.
The system of internal controls and audit is designed to ensure local legal and regulatory compliance and manage, rather than eliminate, the risk of failure to achieve business objectives. It can therefore only provide reasonable and not absolute assurance against material misstatement or loss.
The Group has a widely publicised Code of Conduct, a specific delegated authorities framework, and a dedicated Compliance function, to ensure that the Company meets with all applicable regulatory requirements wherever it operates. Performance across the Group is also closely scrutinised against budget and forecasts. These initiatives help establish and promote an improved control environment and working practices. In addition, the Company has initiated a Corporate Social Responsibility programme to identify the key non-financial risk areas on a Group-wide basis. Further details of the programme are set out in Corporate Social Responsibility section.
The Group operates in a fast changing business environment. In addition to the threats and challenges faced by most enterprises, the current areas of principal risks and uncertainties, as identified by the Risk Committee, are set out in this report. This list is not presumed to be exhaustive, or presented in any order of priority, and by its very nature is subject to change.
Investor Relations (IR) and Communications
The Company has well-established IR procedures and processes, which support a structured programme of communications with existing and potential investors and analysts. Executive directors and members of the IR team regularly meet or are in contact with existing and potential institutional investors from around the world, ensuring that group performance and future strategy is effectively communicated, within regulatory constraints. Other representatives of the Board and senior management meet with investors from time to time. The IR team provides regular reports to the Board on related matters, issues of concern to investors, and analyst views and opinions.
Whenever required, the executive directors and the Chairman communicate with the Company’s brokers to confirm shareholder sentiment and to consult on governance issues.
During 2010, various regulatory announcements were released informing the market of acquisitions, important customer contracts, financial results, the results of annual general meetings and board changes. Copies of these announcements, together with other IR information and documents, are available on the investors tab on the Group website.
Independence of auditors
The Board undertakes a formal assessment of the auditors independence each year, which includes:
- a review of non-audit related services provided by the Company and related fees;
- discussion with the auditors of a written report detailing all relationships with the Company and any other parties which could affect independence or the perception of independence;
- a review of the auditor’s own procedures for ensuring independence of the audit firm and partners and staff involved in the audit, including the rotation of the audit partner;
- obtaining written confirmation from the auditors that they are independent; and
- a review of fees paid to the auditors in respect of audit and non-audit services.