Dechra Pharmaceuticals PLC

Dechra Pharmaceuticals PLC

Annual Report and Accounts for the year ended 30 June 2012

Leadership

The Board

The Board is led by the Chairman, Mike Redmond, and comprises three Executive Directors and, following the resignation of Bryan Morton on 9 July 2012, two Non-Executive Directors. The biographical details of the Board of Directors are shown earlier in the Report and Accounts.

The Chairman

The primary role of the Chairman is to:

  • ensure the effectiveness of the Board in all aspects of its role;
  • facilitate the effective contribution of the Non-Executive Directors, ensuring that all decisions are subject to constructive debate and supported by sound decision making processes; and
  • lead the Board in the determination of its strategy and the achievement of its objectives.

The Chairman has a strong working relationship with Ian Page, the Chief Executive, working closely with him thereby ensuring that board decisions and strategy are implemented throughout the Group. There is a clear division of the roles and responsibilities of the Chairman and the Chief Executive. These have been defined in writing and agreed by the Board.

The Chairman, at the time of his appointment, did meet and continues to meet the independence criteria defined within the Code. During the 2011 board evaluation process one of the areas which the Board focused on was succession planning, particularly in light of the fact that the Chairman, and also the Senior Independent Director, have both held their positions for in excess of nine years. Given the changes at board level and the scale of acquisitions which have taken place over the last two years it was felt necessary to give consideration to the Chairman remaining in position for a further three years in order to oversee the induction and development of the new Non-Executive Directors. A letter was sent to the Company's top ten Shareholders outlining this proposal and, in August 2012, it was agreed by the Nomination Committee that the position of the Chairman would be reviewed again prior to the 2014 Annual General Meeting.

The Nomination Committee will continue to rigorously review the Chairman's position on an annual basis. At the most recent meeting of this Committee, it was agreed that Mike Redmond continues to lead the Board effectively and maintains his independence and integrity at all times. He provides an invaluable contribution and insight to the Board by reason of both his previous pharmaceutical experience and detailed knowledge of the Company.

Non-Executive Directors

Throughout the year the Non-Executive Directors have provided a solid, independent element to the Board ensuring that decisions are constructively challenged and debated.

As stated above, post year end, Bryan Morton resigned as a Non-Executive Director. Bryan resigned as he considered he could no longer provide the requisite time commitment required for his position on the Board and as Chairman of the Remuneration Committee due to an increase in other professional commitments. The process has now commenced to appoint a replacement for Bryan Morton and also to appoint a further Non-Executive Director with a financial background who will replace Neil Warner as Chairman of the Audit Committee on his proposed resignation at the 2013 Annual General Meeting. The Board understands the benefits of a diverse membership and is committed to ensuring that, subject to having the relevant experience and skills to sit on the Board, if possible at least one of the appointments will be female.

Senior Independent Director

Neil Warner has been our Senior Independent Director since 5 November 2010. As such he will continue to be available to Shareholders in respect of any concerns they may have where contact through the normal channels has failed to resolve the issues or for which such contact is inappropriate.

The Senior Independent Director also works with the Chairman on the process for the selection of a new Chairman and chairs the Nomination Committee when it is considering the succession of that role. Furthermore, the Senior Independent Director carries out the annual evaluation of the performance of the Chairman.

Neil Warner has held a Non-Executive Directorship with the Company since 2 May 2003. Following consultation with the Group's top ten Shareholders (as described above), it is likely that Neil Warner will stand down at the 2013 Annual General Meeting.

Chief Executive

The Chief Executive, Ian Page, has day-to-day responsibility for the management of the Group. He develops the Group strategy and, once approved by the Board, implements this throughout the business.

Ian Page is also the Non-Executive Chairman of Sanford DeLand Asset Management Limited ("Sanford"). The Board fully considered at the time of his appointment whether this would materially impact on his current time commitment as Chief Executive and whether it could give rise to any conflict. As Ian Page is not involved in any investment decision made by Sanford it was not considered that any conflict would arise nor would there be any impact on his time commitment. Further details in relation to the appointment can be found in the Remuneration Report.

Company Secretary

Zoe Goulding was appointed as Company Secretary on 2 July 2007 and acts as Secretary to the Board and its committees. The primary role of the Company Secretary is to advise the Board on matters of procedure and governance, ensuring that all required information is made available to the Board on a timely basis. Both the appointment and removal of the Company Secretary is a matter for the Board as a whole.

Corporate Governance Framework

The Board is collectively responsible for the success of the Company, ensuring that the Group is appropriately managed and achieves its strategic objectives. The Board fulfils this responsibility by monitoring the performance of the Group by:

  • assisting, in a challenging and constructive manner, the Executive Directors in the setting of objectives for Group operating performance, financial goals and strategic progress;
  • evaluating the progress of the achievement of the objectives and plans; and
  • monitoring all significant risks which face the Group.

There is a formal schedule of matters reserved to the Board. The schedule of matters covers a number of areas including the following:

Strategy and ManagementApproval and monitoring of long term objectives and strategy
Approval of the Group's operating and capital expenditure budgets
Major organisational changes
Regular reviews of business performance
Financial ReportingApproval of the Annual Report and dividend policy
Approval of development expenditure
Approval of treasury policy
Internal ControlsReview and approval of internal controls and risk management policies and processes
Corporate GovernanceBoard and Committee composition (including succession planning)
Corporate Governance matters
Approval of policies such as Health and Safety and the Business Code of Conduct

In addition, the Board also focuses on the financial controls imposed on Executive Directors to ensure that these are at the requisite levels so as not to hinder day-to-day administration of the business but to ensure adequate internal control. Below board level, operational and financial controls are imposed by Delegated Authorities. This document is reviewed on an annual basis along with the schedule of matters reserved to the Board. Where necessary these documents are updated in line with best practice ensuring that the processes remain robust.

Board Meetings

Following a review of the number of scheduled board meetings it was agreed to reduce these from eleven to nine per year. The board meetings are generally held at NVS, Stoke-on-Trent, with the intention that at least one meeting a year is held at another operational site within the Group. During the year four additional meetings were required to discuss the acquisition of Eurovet.

Attendance at the board and nomination committee meetings during the year to 30 June 2012 was as follows (details of attendance at the audit and remuneration committee meetings are provided in the Audit Committee Report and Directors' Remuneration Report respectively):

NameBoard
(14 Meetings)
Nomination
(1 Meeting)
Mike Redmond141
Bryan Morton121
Dr Chris Richards121
Neil Warner131
Ian Page14n/a
Simon Evans14n/a
Ed Torr13n/a

Note: n/a denotes that the Director is not a member of this committee, but may attend by invitation.

It is understood that there may be situations, either due to prior commitments or circumstances beyond their control, which mean a Director is unable to attend a board or committee meeting. In this situation the board pack is still provided allowing the Director to raise any queries/discussion points either through the Chairman or Company Secretary, allowing their views to be fully discussed at the meeting. Post the meeting any Director who was unable to attend is provided with the opportunity to discuss the meeting with either the Chairman, Company Secretary or any Executive Director.

Following the board meetings the Company Secretary ensures that an accurate record of the meeting is made which is circulated to the Board as soon as possible after the meeting. Should Directors have concerns of any nature which cannot be resolved within the board meeting, they have the right to ensure their view is recorded in the minutes. On resignation, should a Non-Executive Director have any concerns, the Chairman would invite him to provide a written statement for circulation to the Board.

The Board believes in the necessity for challenge and debate in board meetings and considers that the existing board dynamics and processes encourage honest and open debate with the Executive Directors. The Board believes that the decision making process is inclusive and is not dominated by any one individual or group of individuals.

Board Meeting Agenda and Papers

The Directors are supplied in a timely manner with all relevant documentation and financial information to assist them in the discharge of their duties. Prior to all board meetings an agenda and supporting documentation are circulated to the Board. Every meeting agenda comprises reports from the following individuals:

  • Chief Executive;
  • Group Finance Director;
  • Managing Director and Finance Director of each Business Unit;
  • Group HR Director; and
  • Product Development and Regulatory Affairs Director.

In addition, twice a year the Board receives detailed health, safety and environmental reviews encompassing all operating segments plus activities of the Transport Risk and Sustainability Committees. Three times a year the Board receives a full risk assessment review for discussion; this is following detailed risk reviews within each of the business units. Other ad hoc material relating to specific projects, legal and regulatory matters is included as necessary. The reports ensure that the Board is updated on all major items of strategic planning, business performance, personnel, investments and significant policy issues. This allows the Board to continuously monitor the progress of the business and provides transparency across all areas within the Group.

As reported in the 2011 Annual Report, after a comprehensive review of the Group strategy, it was decided to reduce the number of board meetings attended by the senior management team from a quarterly basis to specific meetings. An annual strategic agenda was drawn up and approved by the Board. This agenda ensures that key strategic objectives are discussed on a regular basis. A list of operational areas such as business development, marketing, product development, human resources and IT are now diarised as agenda items for strategic consideration at future board meetings. Additionally, every six months, a comprehensive review of the Group strategy is carried out. This agenda provides the Board with an opportunity to speak with the senior managers on a one to one basis and gain a more in-depth understanding of their area of responsibility. During the year the following business presentations have been made:

Date of MeetingPresentation SubjectDelivered by
July 2011Oracle implementation within ManufacturingKirsty Ireland (Dechra Manufacturing Finance Director)
October 2011Product Development Pipeline UpdateSusan Longhofer (Product Development and Regulatory Affairs Director)
December 2011NVS — ERP system post implementation update
Human Resources Update (including update on the implementation of the Performance Development Review process and also succession planning)
Martin Riley (NVS Managing Director)
Barbara Johnson (Group HR Director)
January 2012Manufacturing Update (with an additional focus on supply chain management)Mike Annice (Managing Director, Dechra Manufacturing)

On a regular basis the Chief Executive and Group Finance Director attend the board meetings of the businesses which make up the operating segments (in relation to the US these meetings are generally held by video conference). The meetings are chaired by the Chief Executive allowing him and the Group Finance Director the opportunity to obtain detailed information on the businesses' strategic, operational and financial progress including any issues potentially preventing the achievement of those targets. Key operational information obtained from these meetings is then fed back to the Board.

The Chief Executive along with the Product Development and Regulatory Affairs Director also chairs at least two product development meetings per year. Representatives from marketing and manufacturing departments generally attend the meeting thereby allowing the product pipeline to be comprehensively reviewed.

The Chairman and the Non-Executive Directors meet prior to each board meeting which allows them time to review and discuss any matters arising from the agenda without the Executive Directors being present. The Chairman also meets regularly with the Chief Executive outside of the scheduled board meetings.

The Board has also formally delegated specific responsibilities to board committees, including the Audit, Remuneration and Nomination Committees. The terms of reference for each of these committees are available on the Company's website at www.dechra.com or on request from the Company Secretary. The Board also appoints committees on an ad hoc basis to approve specific projects as deemed necessary.

The Company maintains an appropriate level of Directors' and Officers' insurance in respect of legal action against Directors.

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