The following information is taken as an extract from the 2006 Annual Report, published in May 2007.
Application of the Principles of Good Governance
The Board has reviewed the requirements of the Combined Code, as issued by the Financial Reporting Council. The ways in which the Company applies and complies with the principles of the Code are described below and, in respect of remuneration, on pages 27 to 34 of the Annual Report.
The Board
At 31 December 2006, the Board consisted of three executive directors and three non-executive directors, including a senior independent non-executive director. The names of the six current directors and their respective responsibilities are shown here. Paul Scherer retired as a non-executive director on 3 April 2006.
The Board considers each of the three non-executive directors to be independent in character and judgement and does not consider that there are any relationships or circumstances which affect, or could appear to affect, their independent judgement. Prior to his retirement from the Board of Bloomsbury on 3 April 2006, one of the non-executive directors, Paul Scherer, had held in the last three years the position of non-executive chairman of a literary agency with which the Group has an ongoing trading relationship. He retired from this position in May 2004. He had also been on the Board of Bloomsbury for over twelve years. In the opinion of the Board neither his holding the chairmanship of the literary agency nor his length of service ever impaired his independence.
The Board operates both formally, through Board and Committee meetings, and informally, through regular contact amongst directors. High level decisions on such matters as strategy, financial performance and reporting, dividends, risk management, major capital expenditure, acquisitions and disposals are reserved for the Board or Board Committees. For its regular formal meetings, the Board receives appropriate information in advance from the management.
The directors can obtain independent professional advice at the Company’s own expense in the performance of their duties as directors.
The Board formally approves the appointment of all new directors put forward by the Nominations Committee (see below). All directors are required to submit themselves for re-election at the first Annual General Meeting following their appointment and subsequent to this submit themselves for re-election at the Annual General Meeting on a rotational basis, which ensures that each director is submitted for re-election approximately every three years.
Proposals to re-elect directors are set out in the Directors’ Report on page 35 and in the Notice of the Annual General Meeting on page 86 of the Annual Report.
Board Committees
Remuneration Committee
The Remuneration Committee comprised at 31 December 2006 the three non-executive directors, Charles Black (its Chairman), Michael Mayer and Jeremy Wilson. Paul Scherer retired from the Board of the Company, and therefore from this Committee, on 3 April 2006. The statement of the remuneration policy developed by the Committee and details of each director’s remuneration are given within the Directors’ Remuneration Report set out on pages 27 to 34 of the Annual Report.
The terms of reference of the Remuneration Committee are available here.
Audit Committee
The Audit Committee comprises the three non-executive directors, Charles Black (its Chairman), Michael Mayer and Jeremy Wilson. Paul Scherer was a member of the Committee until he retired from the Board of the Company, and therefore from this Committee, on 3 April 2006. The Audit Committee operates under terms of reference agreed by the whole Board and meets with the external auditors to consider the Company’s financial reporting in advance of its publication, and with the internal auditors to consider the internal audit programme, feedback and reports.
The terms of reference of the Audit Committee are available here
Nominations Committee
The membership of the Nominations Committee comprises Nigel Newton (its Chairman), Liz Calder and the three non-executive directors, Charles Black, Michael Mayer and Jeremy Wilson. Paul Scherer was a member of the Committee until he retired from the Board of the Company, and therefore from this Committee, on 3 April 2006. The Committee meets as required and operates under terms of reference agreed by the whole Board, and which are available here.
Board Evaluation
During the year a formal Board evaluation process was initiated. Designed to provide a mechanism to assess individual director and overall Board and Committee performance, the evaluation has two stages:
Stage One: Self Evaluation
A self assessment completed by each director and reviewed by the Chairman (or in the case of the Chairman’s self evaluation, by the Vice Chairman, who involves the other non executive directors as necessary). The reviewer determines follow-up action required including face to face meetings, training and development or the implementation of new processes or procedures. This may also generate items for discussion in Stage Two. Commenced in December 2006, Stage One was completed in Spring 2007.
Stage Two: Board/Committee Evaluation and Communication
Conducted within a Board forum environment and prompted by key pre-determined questions (including any items generated from Stage One of the process), the Board examines separately the performance of the Board, the Board Committees and Board Communication. The forum is minuted and action points noted. Stage Two was also completed in Spring 2007.
Shareholder Communications
The Board’s assessment of the Company’s position and prospects are set out in the Chairman’s Statement on pages 3 to 15, the financial Review on pages 16 to 19 and where not covered in those reports, the Business Review as contained in the Directors’ Report on pages 35 to 41 of the Annual Report.
The executive directors meet regularly with institutional shareholders to discuss the Company’s performance and future prospects. The views of institutional shareholders are canvassed and subsequently reported back to the Board. The Annual General Meeting is used as a forum for communication with private shareholders.
Compliance With The Combined Code
The Board considers that the Company has complied throughout the year ended 31 December 2006 with the Combined Code except in relation to the following matters:
Provision A.2.1
The Chairman is also the Chief Executive of the Group. Given the nature of the Company and the central role played by Nigel Newton in the continuing development of the business which he founded, it is considered that there is a benefit not to have these roles divided. The Board believes that, given the presence of a Vice Chairman, who is also senior independent non-executive director, an equal number of independent non-executive directors to executive directors on the Board, and each director having equal voting rights, a balance of power and authority is ensured on the Board so that no one individual has sole decision making powers. The balance and composition of the Company’s Board, however, is periodically considered in formal monthly Board meetings, strategic reviews and as part of the Board Evaluation process set out above.
Provision C.3.4
During 2007 the Company is putting in place, as required by the Combined Code, arrangements for staff to raise questions about financial reporting, and for the Company to look into and follow these up as necessary.
Internal Control
The Combined Code introduced the requirements for the directors to review on an ongoing basis the effectiveness of the systems of internal control, including financial, operational, compliance and risk management. The Board acknowledges that it has overall responsibility for the Group’s system of internal control and for monitoring its effectiveness.
Audit Committee
The Audit Committee comprises the three non-executive directors, Charles Black (its Chairman), Michael Mayer and Jeremy Wilson. Paul Scherer was a member of the Committee until he retired from the Board of the Company, and therefore from this Committee, on 3 April 2006. All members of the Committee have significant financial experience due to the senior positions they hold or have held in the past.
The Audit Committee reports to the Board on any matters which it considers that action or improvement is needed, and makes recommendations as to the steps to be taken. In particular the Committee is responsible for:
- ensuring that the financial performance of the Group is properly monitored and reported;
- monitoring the formal announcements relating to financial performance;
- meeting the external auditors and reviewing reports prepared by the external auditors and management relating to accounts and internal control systems;
- appointing internal auditors, agreeing the internal audit plan and meeting with them to review reports and consider future internal audit strategy; and
- making recommendations to the Board in respect of external auditor appointment and remuneration.
The effectiveness of the internal controls systems for the period covered by the accounts has been examined. The examination comprised a detailed review of internal controls with any significant findings or identified risks being closely examined so that appropriate action can be taken. Although there was no formal internal audit programme during the year, the accounting functions were subject to periodic internal review.
Given the increasing size of the Group, the Audit Committee took the decision during 2005 to implement a formal internal audit programme. Initial steps were taken in 2005, including reviewing the resource necessary, following which the Audit Committee decided to engage an experienced external provider of internal audit services. KPMG LLP were appointed to the role in December 2006. Since their appointment they have worked with the Company to develop a risk-based internal audit programme for 2007 and beyond.
Key Controls and Procedures
The Board maintains full control and direction over appropriate strategic financial, organisational and compliance issues, and has put in place an organisational structure with defined lines of responsibility and delegations of authority.
The annual budget and forecasts are reviewed by the Board prior to approval being given. This includes the identification and assessment of the business risks inherent in the Group and the publishing sector as a whole along with associated financial risks.
The system of internal financial control is designed to provide reasonable, but not absolute, assurance against material mis-statement or loss. The key procedures include:
- detailed budgeting programme with an annual budget approved by the Board;
- regular review by the Board of actual results compared with budget and forecasts;
- regular reviews by the Board of year end forecasts;
- established procedures for acquisition of books for future publication, capital expenditure and expenditure incurred in the ordinary course of business;
- detailed budgeting and monitoring of costs incurred on the development of reference databases;
- established procedures for credit evaluation of new and existing customers with credit insurance on material customer accounts;
- reporting to, and review by, the Board of changes in legislation and practices within the publishing sector and accounting and legal developments pertinent to the Group;
- appointing experienced and suitably qualified staff to take responsibility for key business functions to ensure maintenance of high standards of performance; and
- an internal audit programme for 2007 and beyond .
Auditor Independence
The Audit Committee also undertakes a formal assessment of the external auditors’ independence each year which includes:
- confirmation of the external auditors’ objectivity and independence in the provision of non-audit services provided to the Group by the use of separate teams to provide such services where appropriate;
- discussion with the external auditors of a written report detailing relationships with the Company and any other parties that could affect independence or the perception of independence;
- a review of the external auditors’ own procedures for ensuring independence of the audit firm and partners and staff involved in the audit, including the regular rotation of the audit partner; and
- obtaining written confirmation from the external auditors that, in their professional judgement, they are independent.
An analysis of the fees payable to the external audit firm in respect of both audit and non-audit services during the year is set out in Note 2 to the accounts.
Risk Management
The Board has a committee to deal with the recommendations of the Turnbull Committee on Risk Management. Nigel Newton and Colin Adams represent the Board on the Risk Management Committee, which meets to assess the risks facing the business. As a result of this exercise, the existing controls are reviewed and new controls implemented where appropriate in those areas where risks are judged to have the greatest likelihood and impact. A full review of the Group’s Risk Register setting out the risks facing the business and the controls in place was conducted by the Risk Management Committee during 2006. Consequently the directors believe that the Group was compliant with the Turnbull Guidelines throughout the year and since the year end.
Principal Risks and Controls
As described above, the Company understands the important role Risk Management plays in underpinning the Group’s current performance and future success. The total avoidance of risk in a business environment is impossible, however actions are taken and processes are put in place to manage and mitigate exposure. Material risks to the business fall into the following three categories:
Title Acquisition Risk
Increased pressures from authors’ agents for higher advances have the potential to reduce margins when those advances remain unearned. When considering a title acquisition, an initial purchase evaluation process is carried out and signed off at a senior level. There is also a system of continuous review, analysis and feedback on title performance to better inform future acquisitions.
Market Risk
The principal market risk in book publishing is that consumers may not buy a book which has been sold to retailers, and that such unsold books are returned for credit. Also customers are seeking to price promote many titles which can reduce margins. The steps taken to grow revenues are as outlined in the Chairman’s Statement.
Business Continuity Risk
The security and robustness of our systems, in particular our IT systems, are important in all aspects of our business, whether in respect of the editorial and production processes, publicity, marketing and sales, or in respect of stock monitoring and order fulfilment. IT processes are continually updated and security improved, with daily offsite backup of electronic files. The performance of our key print and distribution suppliers is regularly monitored.
Internal Audit
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