Approach to Corporate Governance
IQE's Board of Directors believes in maintaining high standards of corporate governance and is accountable to shareholders for the Group’s performance in this area.
The Group has chosen to apply the UK Corporate Governance Code (the “Code”) and to provide corporate governance disclosures similar to those that would be required of a premium-listed company. The Code is available on the website of the Financial Reporting Council (FRC) at: www.frc.org.uk.
The Group is headed by an effective and entrepreneurial Board that is collectively responsible for the long-term sustainable success of the Group, generating value for shareholders and contributing to wider society.
All directors act with integrity, lead by example and promote the desired culture of innovation, collaboration, valuing people, integrity, accountability and constant improvement.
The Board actively engages with the workforce including through its Employee Benefits and Pensions Governance Committee, Workers Counsels and ‘town hall’ meetings. Through this activity and engagement, the Board is satisfied that the Group’s purpose, values and strategy are aligned with a culture of innovation, collaboration, valuing people, integrity, accountability and constant improvement.
The Board regards regular communications with shareholders as one of its key responsibilities. The Chief Financial Officer, Chief Executive Officer and Chairman meet with institutional investors on a regular basis to discuss the Group’s performance, the shareholders’ views, and to ensure that the strategies and objectives of the Group are aligned and well understood.
The Chief Executive Officer, Chief Financial Officer and Chairman keep the Board fully informed of any significant matters discussed with shareholders and of shareholders’ views. Furthermore, all members of the Board receive copies of any analysts’ reports of which the Company is made aware.
The Company employs an Investor Relations Manager who supports the Directors with day-to-day investor relations. Together, they respond to investor enquiries throughout the year. In addition, all shareholders attending the AGM are given a presentation on the business and are invited to ask the Directors questions about the business.
The Chairman is available to meet with major institutional shareholders as needed throughout the year to consult on corporate governance matters and performance against the strategy. The Senior Independent Director is also available to consult on governance matters and to provide an independent view of the position and prospects of the Group.
The Non-Executive Directors, having considered the Code, are of the view that this approach to shareholder communication remains appropriate for the Group. However, should shareholders have concerns which they feel cannot be resolved through normal shareholder meetings, the Senior Independent Director and the remaining Non-Executive Directors may be contacted through the Company Secretary.
The interests of the Company’s other key stakeholders have also been considered in recent Board discussions and has influenced the Board’s decision-making. The Board continuously reviews the effectiveness of its engagement with stakeholders and the mechanisms that facilitate such engagement.
The Board comprises the Non-Executive Chairman, Mr Phil Smith, Chief Executive Officer, Mr Americo Lemos, one other Executive Director and four independent Non-Executive Directors. Mrs Carol Chesney is the Senior Independent Director.
The Board considers that the four Non-Executive Directors, Dr Drew Nelson, Ms Victoria Hull, Sir Derek Jones and Mrs Carol Chesney who have each held office for less than nine years, to be independent in accordance with the Code, and free from any business or other relationship which could materially interfere with the exercise of their independent judgement.
The Board recognises the special position and role of the Chairman under the Code, and it has approved the formal division of responsibilities between the Chairman and Chief Executive. The Chairman is responsible for the leadership of the Board and ensuring its effectiveness. The Chief Executive manages the Group and has the prime role, with the assistance of the Board, of developing and implementing business strategy.
The Board meets regularly through the year - at least six times and additionally on an ad hoc basis as is required to discharge its duties effectively. It is provided with appropriate strategic, operational and financial information prior to each meeting together with reports to enable it to monitor the performance of the Group. The number of meetings of the Board, Committees and individual attendance by Directors is set out in the annual report each year.
Under the direction of the Chairman, the Company Secretary facilitates good information flows within the Board and its Committees and between senior management and Non-Executive Directors. The Company Secretary is also responsible for advising the Board through the Chairman on all governance matters. All Directors have direct access to the advice and services of the Company Secretary who is responsible for ensuring that Board procedures are followed, and are allowed to take independent professional advice if necessary at the Company’s expense.
At Board meetings, the Chairman ensures that all Directors are able to make an effective contribution throughout meetings and every Director is encouraged to participate and provide their perspective and opinions. The Chairman always seeks to achieve unanimous decisions of the Board following due discussion of agenda items.
The Non-Executive Directors scrutinise and hold to account the performance of management and individual executive directors against agreed performance objectives. To facilitate this, the Chairman and Senior Independent Director ensure that meetings of Non-Executive Directors without the Executive Directors present are held. These include meetings of the Nominations, Remuneration and Audit & Risk Committees as described further below.
The Board has four sub committees, the Executive Committee, the Remuneration Committee, the Nominations Committee and the Audit & Risk Committee. The Board has delegated special responsibilities to these committees as follows:
(a) Executive Committee
The Executive Committee consists of the Executive Directors under the chairmanship of Dr Drew Nelson and is responsible for the development of strategy, annual budgets and operating plans linked to the management and control of the day-to-day operations of the Group.
The Executive Committee is also responsible for monitoring key research and development programmes and for ensuring that the Board policies are carried out on a Group-wide basis.
(b) Audit & Risk Committee
The Audit & Risk Committee is Chaired by Carol Chesney, Non-Executive Director, and also consists of the Non-Executive Directors, Sir Derek Jones and Sir David Grant. The Committee meets at least twice a year.
The Audit & Risk Committee’s main duties include monitoring internal controls throughout the Group, approving the Group’s accounting policies, and reviewing the Group’s interim results and full year financial statements before submission to the full Board. The Audit & Risk Committee also reviews and approves the scope and content of the Group’s annual risk assessment programme and the annual audit, and monitors the independence of the external auditors.
(c) Remuneration Committee
The Remuneration Committee consists of the four non-executive directors. Sir David Grant is Chairman of the Committee. The Committee meets when required and aims to meet at least twice a year.
The Chief Executive attends meetings of the Remuneration Committee by invitation to respond to questions raised by the Committee, but he is excluded from any matter concerning the details of his own remuneration.
The Remuneration Committee is responsible for setting salaries, incentives and other benefit arrangements of Executive Directors. It scrutinises the performance of individual Executive Directors against agreed performance objectives.
(d) Nominations Committee
The Nominations Committee consists of the four non-executive Directors and is chaired by Sir David Grant.
The Board has delegated responsibility for nominations to this Committee, which has a prime role in appointing and removing executive directors.
Terms of Reference
Terms of reference for each of the Committees are available here: Remuneration Committee, Nominations Committee and Audit & Risk Committee.
IQE has identified the following areas of non-conformance with the Code:
Provision 5: IQE has a People Forum which Senior Management use for engagement with the workforce. As new Non-Executive Directors are brought onto the Board in 2021, it is the Board’s intention to appoint a Non-Executive Director to be responsible for workforce engagement.
Provision 17: IQE does not currently maintain a succession plan for the Company Secretary or all Senior Management immediately below Board level. IQE will work to develop such plans based on merit and objective criteria. As part of its consideration of developed succession plans, the Nominations Committee will consider the linkage of its diversity objectives with company strategy and the gender balance of those in Senior Management and their direct reports.
Provision 18: The Company’s Articles of Association currently provide for a third of directors to be subject to annual re-election. The Board intends to propose and recommend the requisite changes to the Articles to provide for all directors to be subject to annual re-election at the 2021 AGM.
Provision 21: IQE undertook an evaluation of the Board during 2020. A formal evaluation of each of the Committees, Chair and individual Non-Executive Directors was not completed. IQE intends to develop a comprehensive process for annual evaluation during 2021.
Provision 33: The Remuneration Committee has responsibility for determining the policy and setting remuneration for the Executive Directors and the Chairman. It also has responsibility to recommend and monitor the level and structure of remuneration for senior management. However, the Remuneration Committee does not currently determine the policy and set the remuneration for senior management and the Company Secretary as required by the Code.
Provision 36: Share options granted to the Executive Directors under IQE’s LTIP are subject to total vesting and holding periods of 3 ¼ years. In addition, Executive Directors are subject to a minimum holding requirement equal to 200% of their base salary and will have a post-employment shareholding requirement for 2 years. The minimum holding will be equal to 200% of base salary in the first-year post-employment, reducing to 100% of base salary in the second year. A copy of the 2018 UK Corporate Governance Code is available at ww.frc.org.uk.
The Board has delegated specific responsibilities to the following committees:
Role of the committee
The Audit & Risk Committee is responsible for monitoring the effectiveness of IQE’s financial reporting, internal controls and risk management systems and processes and the integrity of IQE’s external auditors.
- Reviewing the effectiveness of IQE’s financial reporting, internal control policies and procedures for the identification, assessment and reporting of risk
- Reviewing significant financial reporting issues and judgements
- Monitoring the integrity of IQE’s financial statements and any formal announcements relating to IQE’s Financial performance
- Keeping the relationship with the external auditors under review, including their terms of engagement, fees and independence
- Reviewing and monitoring the need to establish a dedicated internal audit function
- Advising the Board on whether the Committee believes the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess IQE’s performance, business model and strategy
- Conducting the tender process and making recommendations to the Board, about the appointment, reappointment and removal of the external auditor, and approving the remuneration and terms of engagement of the external auditor
- Reviewing and monitoring the external auditor’s independence and objectivity
- Reviewing the effectiveness of the external audit process, taking into consideration relevant UK professional and regulatory requirements
- Developing and implementing policy on the engagement of the external auditor to supply non-audit services, ensuring there is prior approval of non-audit services, considering the impact this may have on independence, considering the relevant regulations and ethical guidance in this regard, and reporting to the board on any improvement or action required
- Reporting to the Board on how it has discharged its responsibilities
Carol Chesney – Chair
Carol Chesney is chair of the Audit & Risk Committee. Carol is a Chartered Accountant and has also held a number of senior finance roles. The Board is satisfied that Carol is the Committee member with recent and relevant financial experience as required by the UK Corporate Governance Code 2018. The Board is also satisfied that the Committee as a whole has a mix of experience and competencies to assess the issues facing the Group within the semiconductor industry.
Role of the committee
The Remuneration Committee has responsibility for determining the policy for Executive Director remuneration and setting remuneration for the Chair and Executive Directors.
- Recommending the remuneration policy for Executive Directors, whilst considering policies for employees below the Board
- Approving the principles of IQE’s LTIP and the parameters, including performance conditions, for the annual award of share options under the LTIP
- Maintaining appropriate dialogue with shareholders on remuneration matters
- Preparing the annual remuneration report to shareholders to show how the remuneration policy has been implemented.
David Grant – Chair
Role of the committee
The Nominations Committee is responsible for leading the process in the selection and appointment of directors and for ensuring plans are in place for an orderly succession of Board and Senior Management positions.
- Review the structure, size and composition (including the skills, knowledge, experience and diversity) of the Board and make recommendations to the Board with regard to any changes
- Identify, evaluate and recommend candidates for appointment as directors
- Succession planning for directors and other senior management
- Review developments in law, regulation and best practice relating to corporate governance and make recommendations to the board on appropriate action
Phil Smith – Chair
Role of the committee
The Environment, Social and Governance Committee is responsible for monitoring the execution of IQE’s Environment, Social and Corporate Governance strategy and for overseeing the communication of IQE’s Environment, Social and Corporate Governance activities with internal and external stakeholders.
- Ensure that IQE has a fit-for-purpose Environmental, Social and Corporate Governance strategy and for driving momentum behind the development and implementation of that strategy
- Be responsible for communicating IQE’s position on Environmental, Social and Governance issues
- Ensure that the strategy meets IQE’s short and long term business objectives
- Review the effectiveness of the strategy and the governance for its successful delivery
- Review progress against the objectives set out in the strategy
- Approve projects developed in response to the strategy
- Approve ESG reporting and specifically any reporting and data included in IQE’s Annual Report
- Report to the Board about the Committee’s work and progress against the strategy
Phil Smith – Chair