Corporate Governance

The Board is committed to high standards of corporate governance throughout the Group and seeks to ensure that appropriate procedures are in place and kept under regular review.

Synergy is quoted on AIM. AIM companies are not required to comply with the Combined Code. Nevertheless, the Board operates within a corporate governance framework consistent with the provisions of the Code insofar as, in the Board’s opinion, such provisions are appropriate to a company of Synergy’s size. The following statements set out the principles and methods to which they adhere. The statement of directors’ responsibilities for preparing the financial statements is set out on page 25 of the Annual Report.

Board

The Board generally meets monthly and mainly reviews strategy, direction and financial and operational performance. The Board met 12 times last year. The Board comprises six directors, three executive and three non-executive, and is chaired by S G Wilson. The Board considers that S G Wilson, D K Nichol and R E Lerwill are independent non-executive directors. D K Nichol is the senior independent non-executive director. D K Nichol has an allocation of 15,000 share options under the Company’s unapproved scheme. However, these are not regarded by the Board as having an impact on his independence.

The Board has a formal schedule of matters reserved to it for decision, but also delegates specific responsibilities to Board committees. Directors receive Board and committee papers several days in advance of Board and committee meetings and also have access to the advice and services of the Company’s advisors. The Board adopts a procedure whereby directors may, in the furtherance of their duties, take independent professional advice on any matter at the Company’s expense.

During the course of the year, the Board initiated through Grant Thornton, a comprehensive evaluation of its own performance and that of its committees and individual directors. The aim of the evaluation was to enable each member of the Board to improve his understanding of the views of his fellow directors; to understand how the directors perceive current performance; to identify possible actions to improve the Board performance overall; and to receive personal feedback on his contribution to the Board. Each director was required to complete a questionnaire and invited to make additional comments. The completed questionnaires were returned to Grant Thornton who then reported the results to the Chairman for dissemination to the Board. It is proposed that the Chairman will henceforth be responsible for ensuring that directors continually update their skills, knowledge and familiarity with Synergy. Given the growth of the Group, the Board will focus its attention on strategic and governance matters and delegate more of the operational responsibilities to a committee of senior executives, the “Senior Executive Board”.

New directors receive a full and formal induction, but this does not include a formal offer for major shareholders to meet new non-executive directors, although they can if they wish.

The non-executive directors have not (as required by the Combined Code) held formal annual meetings to appraise the Chairman’s performance, although this is under review.

Board Committees

Remuneration Committee

The Remuneration Committee makes recommendations to the Board, within agreed terms of reference, on the Company’s framework of executive remuneration and cost. It also determines on the Board’s behalf the executive directors’ remuneration by reference to individual performance and market data.

The Committee is chaired by D K Nichol and also comprises the non-executive directors S G Wilson and R E Lerwill. The Committee met twice last year.

Audit Committee

The Audit Committee is chaired by R E Lerwill and also comprises the non-executive directors S G Wilson and D K Nichol. The Committee met three times last year. Executive directors are invited to attend meetings when considered appropriate. The Committee has direct access to the Group’s auditors and liaises with executive management to review the effectiveness of internal controls. The Committee is responsible for: reviewing the half year and annual financial statements prior to submission to the Board; monitoring the Group’s systems of internal control; reviewing the audit plan and scope, the independence and objectivity of the auditors, and procedures for identifying where it is appropriate to allot non-audit fees to the auditors.

The Audit Committee oversaw the tendering process that led to the proposed appointment of a new firm of auditors, KPMG Audit Plc, and the ultimate decision regarding the appointment of the auditors was made by it.

Nominations Committee

The Committee comprises all of the non-executive directors, namely S G Wilson, D K Nichol and R E Lerwill. The Committee meets as and when necessary for the appointment of new directors and senior executives.

Internal control

The Board has overall responsibility for the Company’s system of internal control and for reviewing its effectiveness. The risk management process and systems of internal control are designed to manage rather than eliminate the risk of failures to achieve the Company’s objectives. It should be recognised that such systems can only provide reasonable and not absolute assurance against material misstatement or loss.

The Group does not have an internal audit function, although this is regularly reviewed by the Board. The Board considers that the current control environment is adequate given the Group’s size and range of businesses and that this together with standardised reporting renders an internal audit function unnecessary at the present time.

During the year, Synergy has established a Group Finance function that reports to the Group Finance Director and is independent of the business units to ensure objectivity and control when preparing Group financial information.

Assessment of business risk

A system of business risk identification, assessment and evaluation is in place within the management process throughout the Group through a formal risk management framework. Strategic risks are regularly reviewed by the Board. On a monthly basis the Board is provided with metrics to assess the incidence of operational risk events. Such risk events include occasional incidents where services have been delivered below the Group’s operating standards. Any risk events of a significant nature are reported in detail to the Board.

The Board has established a risk management reporting framework with a senior manager responsible for co-ordinating and overseeing the Group’s risk management processes across all of its businesses.

Control environment

The Group’s operating procedures include a comprehensive system for reporting financial and non-financial information to the Board, including:

the definition of authorisation limits, both financial and otherwise;
a review of annual budgets and forecasts;
a review of monthly management accounts at Group and operational level, including financial performance, together with balance sheet and cash flow analysis. The KPIs and other reports provided are further explained in the Finance Director’s report under Systems and reporting procedures;
a risk management report for each Board meeting, focusing on any new risks arising and management of existing risks.

Control procedures

Detailed operational procedures that embody key controls have been developed for each of the Group’s operating businesses.

The implications of changes in law and regulations are taken into account within those procedures.

Monitoring process

There are clear procedures for monitoring the system of key controls. The significant components are:

cyclical and random reviews of operational and financial controls by the Group’s quality manager, the director of IT, senior finance managers and reviews by the newly-established Group finance team;
review by the Audit Committee of the process for identifying and assessing risks and of the effectiveness of controls via the work of external audit and direct access to Group and operational managers.

The Board confirms that it has considered the effectiveness of the Group’s system of internal controls described above for the financial year and up to the date of this Report and considers it to be sufficient.

Relations with shareholders

Business at the Company’s Annual General Meeting will cover the Annual Report and financial statements, re-election of directors, the reappointment of the auditors and the authorisation of the directors to set the auditors’ fees.

Full details and an explanation of these resolutions are set out in the Notice of Meeting and Report of the directors. Voting at the Annual General Meeting is by way of a show of hands by members present at the meeting, unless a poll is validly demanded. After each vote by show of hands, the level of proxies lodged on each resolution and the balance of proxy votes for and against the resolution is announced. Where possible, all directors attend and are available to answer shareholders’ questions.

It is the Company’s policy to post the Annual Report and Notice of Annual General Meeting, giving at least 21 clear days’ notice as required by its Articles of Association.

The Chief Executive and Group Finance Director & Company Secretary are responsible for ensuring effective communications with shareholders. Apart from the Annual General Meeting, the Company communicates with its shareholders by way of the Annual report and financial statements. In addition, the Company communicates with its institutional shareholders through a combination of analysts briefings throughout the year but particularly at the interim and year-end results stage. The Company recognises the importance of maintaining a regular dialogue with shareholders to ensure that the company’s strategy and performance is understood. D K Nichol, the senior independent director, has not to date attended meetings with shareholders. However, he would carefully consider any such request from a shareholder to do so.

All results, statements and Company announcements are accessible to all shareholders via the Group’s website, www.synergyhealthcare.plc.com