Report of the Directors
Governance

Corporate Governance Report

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Leadership

What is the Role of Our Board?

The board’s role is to provide leadership of the company and direction for management. It is collectively responsible and accountable to our shareholders for the long term success of the group and for ensuring the group is appropriately managed and operates responsibly as it pursues its objectives. The board reviews the performance of management and the operating and financial performance of the group as a whole. It is responsible for ensuring that the necessary resources are provided for Johnson Matthey to meet its objectives.

The board is responsible for the following specific key areas:

Setting Strategy and Determining Risk Appetite

The board sets the group’s strategic objectives and determines the nature and extent of the significant risks the company is willing to take in order to achieve those objectives. It is also collectively responsible to Johnson Matthey’s shareholders for the achievement of those strategic objectives. The group’s strategy is discussed in detail in the Our Strategy section and details of the processes we have in place for identifying and managing risks are discussed in the Risks and Uncertainties section.

Ensuring Good Governance

The board approves the group’s governance structures and reviews its internal control and risk management framework. This is vital in ensuring these are prudent and effective and that we are able to assess, monitor and manage any risks. The board is collectively responsible to our shareholders for the group’s system of corporate governance and is ultimately accountable for the group’s activities, strategy, risk management and financial performance, for stewardship of the group’s resources and for social, environmental and ethical matters.

Decision Making

The board makes decisions on several key matters, including approval of the annual group operating and capital expenditure budgets and annual group three year plan, as well as the group strategy. In addition, it approves announcements of the group’s results, the Annual Report and Accounts, the declaration of the interim dividend and recommendation of the final dividend. The board is also responsible for considering and approving capital projects and acquisitions and disposals of assets or operations if they exceed defined thresholds.

The board makes certain types of decision but delegates others to executive management. The board has adopted a formal schedule of matters specifically reserved for its decision and this is described in the Investor Relations / Corporate Governance section of our website.

Promoting Good Behaviour

When carrying out its responsibilities, the board seeks to set, promote and demonstrably follow clear values and ethical standards for the group. It is mindful of the duties owed by directors in law, including the overriding duty for each director to act in the way he or she considers, in good faith, will be most likely to promote the success of the company for the benefit of its members as a whole, whilst balancing the interests of stakeholders.

Succession

Together, our directors determine the structure, size and composition of the board, appointments to the board, selection of the Chairman and the Chief Executive, appointment of the Senior Independent Director and membership and chairmanship of the board’s committees. The board has overall responsibility for succession planning for the Chief Executive and the other executive and non-executive directors and is involved in succession planning for senior management. Further information on the succession planning process is included below.

How does Our Board Operate?

In order to carry out its work, the board has a planned programme of agendas (referred to further under ‘What is the Role of Our Chairman’ below) to ensure all necessary matters are covered and to allow sufficient time for debate and challenge, particularly on areas such as strategy and risk, including risk appetite. The board also takes time to review past decisions where necessary. At board meetings, the board receives and considers papers and presentations from management on relevant topics. Effective review and decision making is supported by providing the board with high quality, accurate, clear and timely information including input from experts and independent advisers where necessary (see ‘Information and Support’).

The board is conscious of the need to avoid any conflicts of interest and has processes in place to safeguard against this. These are outlined under ‘Directors’ Conflicts of Interest’. The board also delegates certain specific responsibilities to board committees and these are described under ‘Board Committees’.

The board seeks to work in the best interest of Johnson Matthey and its stakeholders. As head of the board, Tim Stevenson, our Chairman, leads the directors in carrying out their duties in the most effective way.

Who are Our Chairman and Chief Executive?

Tim Stevenson is our Chairman. He joined the board in March 2011 and took up the role of Chairman in July 2011. Neil Carson has been our Chief Executive since July 2004. Tim’s and Neil’s biographies, including details of their relevant experience and other significant commitments, are set out in the Board of Directors section.

What is the Division of Responsibilities between Our Chairman and Our Chief Executive?

There is a clear division of responsibilities between the running of the board and the executive responsibility for the running of the business and no single individual has unfettered powers of decision. The Chairman’s and Chief Executive’s roles are separate and the division of responsibilities between these roles is clearly established in a written statement which was adopted by the board in April 2005. This is set out in full in the Investor Relations / Corporate Governance section of our website.

What is the Role of Our Chairman?

Tim Stevenson, the Chairman, leads the board. He is responsible for creating the conditions for, and for ensuring, an effective board and effective contributions from individual directors, particularly non-executive directors, based on a culture of mutual respect, openness, debate and constructive challenge. To achieve this, Tim facilitates and encourages open communication and constructive working relations between the executive and non-executive directors. He seeks to ensure that the executive directors are responsive to constructive challenge on their proposals by the non-executive directors. Tim is in frequent contact with Neil Carson, the Chief Executive. They meet in person or by telephone at least once a week. Tim also keeps the non-executive directors up to date with significant developments between board meetings. Tim is responsible for ensuring that Johnson Matthey maintains effective communications with our shareholders and this is discussed further under ‘Relations with Shareholders’.

As Chairman, Tim sets the board’s agenda and ensures that there is adequate time to discuss all agenda items. During the year, the board approved an annual agenda plan designed to ensure that it has the right amount of time throughout the year to discuss all necessary matters. In particular, the board has sought to ensure there is sufficient time to discuss strategy so that the non-executive directors have a good opportunity to challenge and help develop strategy proposals. Strategy is discussed in detail in the Our Strategy section. In addition, the Chairman monitors, with assistance from the Company Secretary, the information distributed to the board to ensure it is of high quality, accurate, clear and timely.

Tim met with the non-executive directors without the executives being present in November 2012 in order to review the executive directors’ performance.

What is the Role of Our Chief Executive?

Neil Carson, the Chief Executive, has day to day management responsibility for running the group’s operations, for applying group policies and for implementing the group’s strategy and policies agreed by the board. The board has given Neil the broad authority to run the company and he is accountable for, and reports to the board on, how it is performing. Neil also has a key role in the process for the setting and review of strategy. More broadly, he promotes the company’s culture and standards, including those on governance, throughout Johnson Matthey. In addition, he ensures that the executive directors’ views on business issues and employees’ views on relevant issues are shared with the board in a balanced way.

Neil Carson is supported by Robert MacLeod, the Group Finance Director, and by our other executive directors. Together they are responsible for, amongst other things, ensuring that the board receives high quality information, including on the company’s performance.

What is the Role of Our Executive Directors?

Our executive directors have specific responsibilities relating to the areas of the business they oversee (as set out in the Board of Directors section. However, as directors their duties extend beyond their own businesses to include the whole of the group’s operations and activities.

What is the Role of Our Non-Executive Directors?

The role of our non-executive directors is to scrutinise management’s performance in meeting agreed goals and objectives and to monitor how that performance is reported. They must also be satisfied with the integrity of the group’s financial information and with the robustness and defensibility of financial and non-financial controls and risk management systems.

As members of the board, the non-executive directors have a key role in constructively challenging in all areas. This is vital to the independence and objectivity of the board’s deliberations and decision making and is particularly important in helping develop proposals on strategy. The Chief Executive and the other executive directors welcome, and are responsive to, constructive challenge by the non-executive directors on their proposals. The non-executive directors’ role is then to support the decisions that have been taken and to support the executive team in their delivery. Non-executive directors also play an important part in supporting the Chairman and the executive directors in embracing and representing the company’s culture, values and standards within the board and throughout Johnson Matthey.

The non-executive directors are responsible for determining appropriate levels of remuneration for the executive directors and have a prime role in appointing and, where necessary, removing executive directors, and in succession planning. Further information on succession planning is set out below.

As chairmen of our Audit Committee and our Management Development and Remuneration Committee respectively, Alan Ferguson and Michael Roney fulfil important leadership roles.

What is the Role of Our Senior Independent Director?

Michael Roney has been our Senior Independent Director since July 2011.

As Senior Independent Director, Michael’s role is to provide a sounding board for Tim Stevenson, to act, when necessary, as a focal point and intermediary for the concerns of the other non-executive directors and to ensure that any key issues that are not being addressed by the Chairman or the executive management are taken up. Tim has a regular dialogue with Michael regarding current issues. Although no such issues have arisen in the year, should any significant issues arise which threaten the stability of Johnson Matthey or its board, it is recognised that Michael, as the Senior Independent Director, may be required to work with the Chairman or others or to intervene to resolve them.

Michael is available to shareholders should they have concerns which have not been resolved from contact through the normal channels of Chairman, Chief Executive or other executive directors or if the normal channels may be inappropriate. He is available to attend meetings with major shareholders to listen to their views in order to help develop a balanced understanding of their issues and concerns.

In his role as Senior Independent Director Michael is responsible for leading the annual appraisal of the Chairman’s performance and this is discussed further under ‘Review of the Chairman’s Performance’. The Senior Independent Director plays an important role by ensuring there is an orderly succession process for succession to the chairmanship of Johnson Matthey.

What is the Role of Our Company Secretary?

Simon Farrant is our Company Secretary and was appointed in May 1999. He is secretary to the board and all of its committees and his biography is set out in the Board of Directors section.

Simon reports to Tim Stevenson on board governance matters and, together with Tim, he keeps the efficacy of the company’s and the board’s governance processes under review and considers improvements. He is also responsible to the board for compliance with board procedures. He is responsible, through Tim, for advising and keeping the board up to date on all legislative, regulatory and governance matters and developments. Under Tim’s direction, Simon’s responsibilities include ensuring good information flows within the board and its committees and between senior management and non-executive directors. He also facilitates induction and assists with professional development as required. Simon’s advice, services and support are available to each director.

Board Meetings

Our board meets regularly throughout the year in order to effectively discharge its duties. During the year it met six times. It has also met once between 31st March 2013 and the date of approval of this annual report.

In 2011 the board agreed to reduce the number of meetings it holds each year from seven to six. The efficacy of this change has been kept under review and, following the board evaluation process for 2012/13, the board confirmed that it will continue with six meetings per year.

During the year, the board visited two sites:

The board did not meet outside the UK during the year, although it had done so during the previous year when it met in Philadelphia, USA and visited Fine Chemicals’ API manufacturing facility at Riverside, Conshohocken, Pennsylvania. The board is planning to hold a board meeting in Shanghai, China later this calendar year.

Board Committees

Our board has three committees:

Click here to read the Nomination Committee Report, the Audit Committee Report and the Remuneration Report, which describes the work of the MDRC.

The reporting framework of the board committees and of the Chief Executive’s Committee and its sub-committees is shown below.

The board ensures that its committees are provided with sufficient resources to undertake their duties, including access to the services of the Company Secretary as required. Each board committee has the authority to seek any information that it requires from any officer or employee of the company or its subsidiaries. Each committee is also authorised by the board to take independent advice (including legal or other professional advice), at the company’s expense, as it considers necessary to enable it to fulfil its duties. Each committee may request information from, or commission investigations by, external advisers. The board committees formally report to the board on their proceedings after each meeting and generally on all matters and activities for which they are responsible through the committee chairmen and via committee minutes.

Board Committee Membership

Each independent non-executive director is a member of each board committee. No one other than the board committee chairmen and members is entitled to be present at a meeting of the Nomination Committee, the Audit Committee or the MDRC. Others may attend, but only by invitation. Executive directors are not members of the board committees. The Company Secretary is secretary to each of the board committees.

Alan Ferguson was appointed as Chairman of the Audit Committee in July 2011. Michael Roney took over the chairmanship of the Management Development and Remuneration Committee, also in July 2011.

The current membership of the board committees as at the date of approval of this annual report is shown below:

  Nomination Committee Audit Committee MDRC
Tim Stevenson Chairman Invited to attend Member
Neil Carson Invited to attend Invited to attend Invited to attend
Alan Ferguson Member Chairman Member
Robert MacLeod Invited to attend
Colin Matthews Member Member Member
Larry Pentz
Michael Roney Member Member Chairman
Bill Sandford
Dorothy Thompson Member Member Member

When deciding the chairmanship and membership of board committees, the board takes into account the value of ensuring that committee membership is refreshed and seeks to ensure that undue reliance is not placed on particular individuals.

What are the Board Committees’ Terms of Reference?

Each board committee has written terms of reference which have been approved by the board and are reviewed periodically to ensure that they comply with the latest legal and regulatory requirements and reflect developments in best practice.

The terms of reference of each of our three board committees can be found in the Investor Relations / Corporate Governance section of our website, or may be obtained from the Company Secretary. The terms of reference are summarised below:

NOMINATION COMMITTEE  
Responsibilities Advising the board and making recommendations to the board on the appointment and, if necessary, the removal of executive and non-executive directors.
Membership All the independent non-executive directors and the group Chairman.
Chairman The group Chairman, Tim Stevenson (the group Chairman may not chair the committee when it is dealing with the matter of succession to the chairmanship of the company).
Attending by
invitation
The Chief Executive, the Group Director, Human Resources and external advisers when appropriate.
Quorum Two members, each of whom must be independent non-executive directors.
Number of meetings per year As required.
Committee report Nomination Committee Report
AUDIT COMMITTEE  
Responsibilities

Financial Reporting

  • Monitoring the integrity of the group’s reported financial information and reviewing significant financial reporting issues and judgments which they contain.
 

Internal Control and Risk Management Systems

  • Keeping under review the adequacy and effectiveness of the group’s internal financial controls and internal control and risk management systems.
  • Reviewing the company’s procedures for handling allegations from whistleblowers.
 

Internal Audit

  • Monitoring and reviewing the effectiveness of the group’s internal audit function and approving the appointment and removal of the head of the internal audit function.
  • Considering and approving the remit of the internal audit function.
  • Reviewing and approving the annual internal audit plan.
  • Reviewing internal audit reports.
 

External Audit

  • Considering and making recommendations to the board, to be put to shareholders for approval at the annual general meeting, in relation to the appointment, reappointment and removal of the external auditor.
  • Overseeing the relationship with the external auditor including approving its fee for audit services and its terms of engagement, assessing annually the effectiveness of the audit process and the independence and objectivity of the external auditor, taking into account the provision of any non-audit services.
  • Developing and implementing a policy on the supply of non-audit services by the external auditor and keeping this policy and any fees paid to the external auditor in respect of the supply of non-audit services under review.
  • Meeting regularly with the external auditor, including at least once a year, without management being present, to discuss its remit and any issues arising from the audit.
  • Reviewing and approving the annual external audit plan and reviewing the findings of the audit with the external auditor.
Membership

All the independent non-executive directors, at least one of whom is required to have recent and relevant financial experience. The group Chairman is not a member.

Chairman

Alan Ferguson. The chairman of the committee is required to be an independent non-executive director.

Attending by invitation

The group Chairman, the Chief Executive, the Group Finance Director, the Head of Internal Audit and Risk and representatives from finance and other group functions as and when appropriate and necessary. The external auditor is invited to attend on a regular basis. The chairman of the committee may request the attendance of others at meetings including external advisers and, if so requested, executive directors will also make themselves available.

Quorum

Two members.

Number of meetings per year

At least four per year at appropriate times in the reporting and audit cycle and otherwise as required.

Committee report Audit Committee Report
THE MANAGEMENT DEVELOPMENT AND REMUNERATION COMMITTEE (MDRC)
Responsibilities
  • Determining on behalf of the board fair remuneration for the Chief Executive, the executive directors and the group Chairman.
  • Assisting the board in ensuring that the current and future senior management of the group are recruited, developed and remunerated in appropriate fashion.
  • Determining the remuneration and terms and conditions of employment (including in respect of pension entitlement) of the Chief Executive and the executive directors and the remuneration and terms of appointment of the group Chairman.
  • Reviewing the proposals of the executive for recommendation to the board on share option schemes, executive bonus / incentive schemes and employee share participation schemes.
  • Reviewing training, development and succession plans for senior management of the company.
  • Reviewing the disclosure to be made of directors’ remuneration in the annual report.
Membership

All the independent non-executive directors and the group Chairman.

Chairman

Michael Roney. The chairman of the committee is required to be an independent non-executive director.

Attending by invitation

The Chief Executive, the Group Director, Human Resources (except when their own performance and remuneration are discussed) and external advisers when appropriate.

Quorum

Two members.

Number of meetings per year

At least two per year and at such other times as required.

Committee report Remuneration Report

Board and Committee Attendance

The attendance of members at board and board committee meetings in the year ended 31st March 2013 was as follows:

  Board Nomination Committee Audit Committee MDRC
  Eligible to
attend
Attended Eligible to
attend
Attended Eligible to
attend
Attended Eligible to
attend
Attended
Tim Stevenson 6 6 6 6 51 4 4
Neil Carson 6 6 61 51 41
Alan Ferguson 6 6 6 6 5 5 4 4
Sir Thomas Harris 2 2 2 12 2 2 2 2
Robert MacLeod 6 6 51
Colin Matthews 4 4 3 3 3 3 2 2
Larry Pentz 6 6
Michael Roney 6 6 6 6 5 5 4 4
Bill Sandford 6 6
Dorothy Thompson 6 53 6 53 5 33 4 33

Notes

1
Includes meetings attended by invitation for all or part of meeting.
2
Sir Thomas Harris did not attend the meeting of the Nomination Committee on 31st May 2012, at which the appointment of an additional non-executive director following his prospective retirement from the board was discussed.
3
Dorothy Thompson was unable to attend (i) the Audit Committee meeting on 24th July 2012 due to a coinciding commitment at Drax Group plc where she is Chief Executive and (ii) the meetings of the board, the Nomination Committee, the Audit Committee and the MDRC on 26th and 27th March 2013 due to illness.

Where directors are unable to attend a board or board committee meeting, they communicate their comments and observations on the matters to be considered in advance of the meeting via the group Chairman, the Senior Independent Director or the relevant board committee chairman for raising as appropriate at the meeting.

Individuals’ attendance at board and board committee meetings is considered, as necessary, during the one to one meetings conducted by the Chairman with directors as part of the formal annual review of their performance. Further information on performance evaluation is given under ‘Evaluation of the Board, Board Committees and Directors’.

The Chief Executive’s Committee

Neil Carson, the Chief Executive, is assisted in his responsibilities by the Chief Executive’s Committee (CEC). The CEC is a management committee, chaired by Neil, which is responsible for recommending strategic and operating plans to the board and makes recommendations on matters reserved to the board where appropriate. It is responsible for the executive management of Johnson Matthey’s businesses.

During the year the CEC comprised 11 members: the Chief Executive; the Group Finance Director; the two other executive directors; the four division directors who did not sit on the board; the Group Director, Corporate and Strategic Development; the Group Director, Human Resources and Environment, Health and Safety; and the Company Secretary / Group Legal Director.

The CEC meets formally every other month and informally as needed on other occasions. The CEC met six times during the year.

The CEC has a number of sub-committees as referred to above.

During the year, the board toured Johnson Matthey’s Technology Centre at Sonning Common, UK.

The board also visited Johnson Matthey’s Fuel Cell business in Swindon, UK.

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