The directors recognise the value and importance of good corporate governance, and are committed to drawing upon best practice and maintaining high standards. Further to AIM Rule 26, the Board has determined to follow the QCA Code, published by the Quoted Companies Alliance, which sets out a minimum best practice standard for small and mid-size quoted companies, particularly AIM companies.
Companies whose securities are traded on the Alternative Investment Market (“AIM”) market of the London Stock Exchange are not required to comply with the principles and provisions of the UK Corporate Governance Code 2018 (“Code”).
For example, the Company does not comply with:
- FCA Listing Rule 9.8.6R (which includes the ‘comply or explain’ requirement).
- FCA Disclosure Guidance and Transparency Rules (“DTR”) Section 7.2 (which set out certain mandatory disclosures).
- Competition and Markets Authority’s Final Order 1 (for UK incorporated FTSE 350 companies only).
The following information is provided to describe how the Company applies the principles in the QCA Code and explain any departures from the specific provisions of that code. The date of the latest review was 8 February 2023.
The QCA’s Ten Principles of Corporate Governance
The ten principles of corporate governance set out under three headings in the QCA Code – Deliver Growth, maintain a Dynamic Management Framework, and Build Trust – and are applied by the Company are as follows:
1. Establish a strategy and business model which promote long-term value for shareholders.
The Board is responsible to shareholders for setting the Company’s strategy and overseeing its execution, and for the overall management, control and performance of Velocys’ business. Velocys’ strategy and business model can be found in the Chairman’s and CEO’s reports on pages 6 to 8 of the 2021 Annual Report and Accounts.
2. Seek to understand and meet shareholder needs and expectations.
The Board considers effective communication with shareholders to be very important, and encourages regular dialogue with investors.
At the Company’s Annual General Meeting, the whole board including the Chairman and Chief Executive Officer are normally available before and after the meeting for further discussions with shareholders. Due to the UK Government COVID-19 measures in force, it was not practical for shareholders to attend the 2020 and 2021 AGMs, however the 2022 AGM was held in person. The Chief Executive Officer and the Chief Financial Officer attend meetings with shareholders and analysts on various occasions during the year, primarily following the Company’s Annual Results and Interim Results announcements. Relevant feedback from shareholder discussions is advised to the Board. Other members of the Board including the Chairman and the Chair of the Remuneration Committee have also either met or consulted with shareholders from time to time. The Board considers that their policy on shareholder engagement has resulted in the considerable support demonstrated by major shareholders since the Company was originally admitted to AIM in 2006.
The Board responds promptly to questions received, which may be sent to email@example.com.
3. Take into account wider stakeholder and social responsibilities and their implications for long-term success.
Velocys is committed to being a good employer and endeavours to train staff well, to pay them fair market value and to maintain a safe environment in which they can work. We are also committed to equal opportunities for all our employees. In addition, as an advanced biofuels company, we have a duty to limit the environmental impact of our own operations, and are careful to monitor and improve their environmental impact. Velocys is committed to the principles of the Modern Slavery Act 2015 and the abolition of modern slavery and human trafficking and has adopted a Modern Day Anti-Slavery Statement. Further information on our corporate social responsibility and KPI’s can be found on pages 12-15 of the 2021 Annual Report and Accounts.
There is an ongoing dialogue with our technology partners, customers, suppliers and other stakeholders which is continuously fed back into our knowledge base in relation to projects under development and, where relevant, integrated into the Company’s strategy and business model.
4. Embed effective risk management, considering both opportunities and threats, throughout the organisation.
The Company employs directors and senior personnel with the appropriate knowledge and experience for a business active in its field of operations, and undertakes regular risk assessments and reviews of its activities.
The Risk & Sustainability Committee was established in July 2021 and is responsible for reviewing all of the Company’s principal risk management policies and for the ongoing development of a Group Risk Register. These responsibilities were formerly covered by the Audit & Risk Committee (now renamed the Audit Committee) which continues to be primarily responsible for internal financial controls and financial risks. Further information on Risk Management can be found on page 16 of the 2021 Annual Report and Accounts. The Risk Register is reviewed, updated as required and approved by the Board on a quarterly basis.
The principal risks and uncertainties that are considered to have a potentially material impact on the Company’s long-term performance and delivery of its strategy are set out on pages 16 to 19 of the 2021 Annual Report and Accounts.
Maintain a Dynamic Management Framework
5. Maintain the board as a well-functioning, balanced team led by the chair.
The Board comprises a Chairman and three part-time non-executive Directors with relevant experience to complement the two full time executive directors and to provide an independent view to the executive directors. Details of the Board can be found here. A time commitment of up to 4 days a month is expected of the non-executive directors. Further information on the number of meetings of the Board and the committees and the attendance of each director can be found on page 23 of the 2021 Annual Report and Accounts.
At the time of Philip Holland’s appointment as Chair, he met the independence criteria set out in the UK Corporate Governance Code. Thereafter the test of independence is not appropriate in relation to the chair. The Board regards each of the other non-executive directors as being fully independent.
In July 2021 two new Non-Executive Directors, Ann Markey and Tom Quigley, were appointed. In September 2021 Sandy Shaw stood down from the Board.
The roles of the Chair and the Chief Executive Officer are separated, with clear written guidance to support the division of responsibilities. The role of the Senior Independent Director is also clearly set out.
The Chair is principally responsible for leadership and effectiveness of the Board, for corporate governance matters, setting the Board agenda, ensuring adequacy of information flow to the Board, that due consideration is given to strategic issues, and promoting a culture of openness of debate at Board level, and between directors and the Executive Committee. The Chief Executive Officer is primarily responsible for the management of the business and implementation of the Company’s strategy and policies, maintaining a close working relationship with the Chair, and leading the Executive Committee.
Darran Messem was appointed Senior Independent Director on 30 September 2021, in place of Sandy Shaw.
6. Ensure that between them the directors have the necessary up-to-date experience, skills and capabilities.
The Board includes individuals with a deep knowledge of markets worldwide and relationships at the highest level of industry. The Board believes that, as a whole, it contains the necessary mix of experience, skills, personal qualities (including gender balance) and capabilities to deliver the strategy of the Company for the benefit of the shareholders over the medium to long term. This is an area which is maintained under constant review. Full details of the directors and their relevant skills are set out on page 24 of the 2021 Annual Report and Accounts.
Internal Advisory Responsibilities
The Company Secretary, through the Chair, is responsible for advising the Board on governance matters, and for ensuring that Board procedures are followed and that the Company complies with applicable rules and regulations. All directors have access to the advice and services of the Company Secretary. An agreed procedure exists for directors in the furtherance of their duties to take independent professional advice. During 2021, no director sought independent legal advice pursuant to the policy.
The Company regularly reviews the ongoing training requirements of directors as part of the annual board evaluation process. Directors keep their personal skillsets up to date through a combination of industry contact, reading of relevant material and, where appropriate, training courses. The Board has agreed that relevant training courses should be made available to Directors, and a formal record of training has been implemented.
There is a process for ensuring that any new director receives advice, including from the Company’s nominated adviser and external lawyers where appropriate, on his/her responsibilities as a director of an AIM company. The Board ensures that any new appointee benefits from an induction programme.
7. Evaluate board performance based on clear and relevant objectives, seeking continuous improvement.
An annual evaluation of the Board and its committees is carried out by the Company Secretary, taking the form of comprehensive questionnaires which provide all directors with an opportunity to score (1=Dissatisfied; 5= Satisfied) their opinion on a series of questions in relation to inter alia the constitution, execution and performance of the Board and the four Board sub-committees, and to comment on procedures or any relevant matters. Average scores for each question are measured against relevant scores in the previous two years to help identify trends, and are also assessed in absolute terms. The scoring and any comments are assimilated into a report on an unattributed basis and the results of the evaluation are considered by the Board and each sub-committee in open session.
Where appropriate, actions arising from such reviews are implemented. Previous evaluations have resulted in improvements to timing and quality of management information; the provision to the Board of more detailed information on individual projects; improvements to the structure and workings of committees; the placing of a greater emphasis on strategic initiatives/business risk; and an increased emphasis on Director training. Following the 2021 Board evaluation, the Board has agreed to make further detailed improvements to assist the smooth functioning of Board and committee meetings. In addition, greater focus will be placed on risk management; on developing/monitoring Company strategy and annual performance objectives; and developing an investor engagement plan.
An annual performance evaluation of the Chairman is carried out, led by the Senior Independent Director, and takes into account the views of all directors.
Succession planning at Board and committee level is formally reviewed on an annual basis, and the Board has reviewed a succession plan for all Board members and senior management. In accordance with best practice, all directors are proposed for re-appointment at the Annual General Meeting, and due consideration is given by the Nomination & Governance Committee as to whether individual directors are recommended for re-election.
8. Promote a corporate culture that is based on ethical values and behaviours.
The Board believes that the business culture is consistent with the Company’s objectives, strategy and business model as set out in the strategic report and the description of principal risks and uncertainties.
The Board ensures that the Company has the means to determine that ethical values and behaviours are recognised and respected through the adoption of appropriate policies, including an Anti-corruption and bribery policy; a Whistle-blowing policy; a Diversity Inclusion Policy; and a Modern Day Anti-Slavery Statement.
In addition, in response to the Market Abuse Regulations (“MAR”) which came into force on 3 July 2016, and which apply to AIM companies, the Company has adopted a Share Dealing Policy and Dealing Code which apply to all directors and employees of the Company.
9. Maintain governance structures and processes that are fit for purpose and support good decision-making by the board.
The Board meets at least six times a year with a formal schedule of matters reserved for its decision. The Board has also established a schedule of delegated authorities, which are reviewed to ensure they are commensurate with the level of the Company’s development. The governance structure in place is considered to be appropriate for the foreseeable future but will be evolved in line with the Company’s plans for growth.
The minutes of the Audit, Risk & Sustainability, Remuneration and Nomination & Governance Committees are circulated to the Board. The Committee Chairs also report to the Board on the outcome of committee meetings at the subsequent Board meeting. All of the committees annually review and re-adopt their terms of reference. The committees have the following roles:
The members of the Audit Committee with effect 30 September 2021 are Ann Markey** (Chair), Darran Messem and Tom Quigley**. Sandy Shaw was also a member until she retired on 30 September 2021. Ann Markey was appointed Committee Chair on 30 September 2021 in place of Darran Messem. Meetings are held not less than four times a year, and are based on the work programme set out in the Audit Committee Guide published by the QCA.
** Appointed as Committee member 26 July 2021.
Under its Terms of Reference, which can be found here, the Audit Committee reviews inter alia the Company’s audit planning, risk management systems and processes and effectiveness of internal controls, accounting policies and financial reporting, provides a forum through which the external auditors report, and reviews and monitors their independence and the provision of additional services. It normally meets at least once a year with the external Auditors without executive directors present.
Further information is set out in the Audit Committee report, which can be found on page 28 of the 2021 Annual Report and Accounts.
Risk & Sustainability Committee
The former Audit & Risk Committee was renamed the Audit Committee on 26 July 2021, on which date the Company established a Risk & Sustainability Committee. The members of the Risk & Sustainability Committee are Darran Messem (Chairman), Philip Holland, Ann Markey and Tom Quigley.
Meetings are held not less than four times a year.
Under its Terms of Reference, which may be found here, the Risk & Sustainability Committee advises the Board inter alia on the Company’s overall risk appetite, tolerance and strategy, and on the principal and emerging risks the Company is willing to take in order to achieve its long-term strategic objectives; the likelihood and the impact of principal risks materialising, and the management and mitigation of principal risks to reduce the likelihood of their incidence or their impact; and the risk aspects of proposed changes to strategy and strategic transactions including acquisitions or disposals.
Risks will be specific to the Company’s circumstances as identified from time to time and include but are not limited to the following:
- Health & Safety
- Geo and local political and economic risk
- Operational risk
- Business Continuity
- Environmental and climate change
- Legal & Statutory
- Human Resources
Note: The Audit Committee continues to be primarily responsible for monitoring financial risks.
The members of the Remuneration Committee are Tom Quigley **(Chair), Philip Holland** and Darran Messem. Tom Quigley was appointed Committee Chair on 30 September 2021 in place of Sandy Shaw who retired as a member and chair on that date. Meetings of the Committee take place not less than three times a year.
**Appointed as Committee member on 26 July 2021.
Due regard is paid to the Investment Association Principles of Remuneration. At the 2022 AGM, a resolution was passed by shareholders to approve the Directors’ Remuneration Report set out on pages 31 to 35 of the 2021 Annual Report and Accounts.
The committee reviews, inter-alia, the performance of executive directors and senior managers, setting the scale and structure of their remuneration and the basis of their service agreements, having due regard to the interests of shareholders. The committee also determines the allocation of share options to executive directors and senior managers. No executive director has a service agreement exceeding one year.
The remuneration of the non-executive directors is a matter for the Chairman and the Company’s executive directors. Under its Terms of Reference, which can be found here, no director is permitted to participate in decisions concerning his or her own remuneration.
Nomination & Governance Committee
The members of the Nomination & Governance Committee are Philip Holland (Chairman), Darran Messem (Senior Independent Director) and Henrik Wareborn (Chief Executive Officer)**. Sandy Shaw was a member of the committee until she stood down on 30 September 2021. The committee met five times during 2021. Among its duties it reviews the composition of the Board and its succession planning, the Board evaluation process and the findings from recent evaluations, director performance and recommendations for re-elections at the AGM, and considerations of director independence under the corporate governance code. The Terms of Reference can be found here.
**Appointed as Committee member 26 July 2021.
Further information is set out in the Nomination & Governance committee report, which can be found on page 30 of the 2021 Annual Report and Accounts.
10. Communicate how the company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders.
The Board considers effective communication with shareholders to be very important, and encourages regular dialogue with investors. Directors regularly attend meetings with shareholders and analysts throughout the year, and the Board responds promptly to questions received. Shareholders will be given at least 21 days’ notice of the Annual General Meeting, at which they have the opportunity to raise questions of the Board on the Company’s developments and performance although special arrangements were made in respect of the 2021 Annual General Meeting in light of the continuing COVID-19 health and safety requirements. Details of the arrangements for the 2022 Annual General Meeting are set out in the Company’s notice of 2022 AGM which can be found here.
Further information is shown under QCA Principle 2 above.
Copies of the Annual Report and Financial Statements are issued to all shareholders and copies are available on the Company’s website www.velocys.com, which provides information to shareholders and other interested parties. The website contains full details of the Company’s business activities, press releases and links to the London Stock Exchange website for share price information, share trading activities and graphs, as well as Regulatory News Service (RNS) announcements. The Company Secretary also deals with shareholder correspondence, and may be contacted at firstname.lastname@example.org.