The purpose of our Board and corporate governance framework is to safeguard the interests of stakeholders by addressing the principal versus agent issues inherent in a company with public stock ownership. Our guiding principle is to approach these issues from the point of view of an owner with a long-term time perspective. We try to make any required trade-off between:
a) the interests of owners, agents and employees; and
b) the short and the long-term.
With this perspective in mind, a long-term owner will want a company built on the principles of sustainability, quality and highest ethical grounds – with the ultimate goal of getting a shareholder return at a rate aligned with the risk profile of the company. We approach Corporate Governance with two perspectives:
a) a principles-based approach – this is the formal side of Corporate Governance; and
b) a spirit-based approach.
In terms of a rule-based approach, as an AIM listed company, IDS is for the second year required to follow the principles of a recognised corporate governance code. IDS has chosen to use the QCA Corporate Governance Code (‘QCA code’) released in April 2018 as the recognised code to be applied.
Principles-based approach: IDS and the QCA code
Click here to see how IDS has approached each of the ten QCA Code principles, explaining how each of these has been applied, and in the event that IDS has not complied, an explanation is given as to why (‘comply or explain’).
In addition to the compliance with the QCA Code, IDS has implemented the following additional principles to strengthen its corporate governance framework.
Share ownership by Non-executive Directors
The Board believes that investment by the Non-executive Directors in the company they work for leads to a better alignment of interests between Non-executive Directors and shareholders.
Through their investment, the Non-executive Directors signal that they believe in the long-term success of the Company. Moreover, it is an additional incentive to look after long-term value creation for shareholders. Thus new Board members are encouraged to invest at least one years’ compensation into IDS shares. The share ownership of the Non-executive Directors in the company is set out in the Directors’ Remuneration Report on page 50 of the Annual Report and Accounts 2020. When valued at the year end share price of £2.05, all the Non-executive Directors have invested at least one year’s compensation in IDS shares.
The philosophy of share ownership for all directors to ‘have skin in the game’ has also led the Company to implement a Co-investment Plan as the long-term incentive for the Executive Directors and senior management instead of a plain-vanilla options scheme, which lets participants benefit from the upside, but without any downside risk. Both Executive Directors have invested in this plan during the year.
When agenda-setting, the Chairman coordinates with the Executive Directors and the other Non-executive Directors to agree a meaningful rotation of long-term topics. Themes covered include the COVID-19 risk, People/Talent and Culture, Corporate Development, our progress in key areas where we can generate significant growth and updates on the Research and Development portfolio. The purpose of such agenda-setting is to ensure the Board also focuses on long term topics, and not solely on the shorter-term issues which often monopolise the workload of the management team.
The board has considered the applicability of the going concern basis in the preparation of the financial statements included in the Annual Report and Accounts 2020. This included a consideration of the Group’s cash reserve amounting to £27.6m at 31 March 2020 and internal forecasts of the financial results which have been adjusted to reflect the estimated impact of the COVID-19 pandemic on revenues during FY2021. Even when considering an extreme worst case scenario, which assumes revenues in FY2021 are 35% below our plan , the Group still has significant cash reserves available one year from the date of approval of the Annual Report and Accounts 2020. The Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operations for the foreseeable future. For this reason, they have adopted the going concern basis in the preparation of the financial statements included int he Annual Report and Accounts 2020.