Principle 2 – Structure the Board to add value

The ASX Corporate Governance Council states that a company should “have a board of an appropriate size, composition, skills and commitment to enable it to discharge its duties effectively.

Board Membership

The members of the Board and details regarding their appointment, removal, term of office, attendance at Board meetings and other Committee meetings, skills and experience are detailed in the Directors’ Report section of this Annual Report.

Board Composition

Guidance on the composition of the Board states that:

  • The Board should be comprised of not less than three Directors (and not more than ten in accordance with the current Constitution of OrotonGroup);
  • The Board should be comprised of Directors with a broad range of expertise and proven ability to make a contribution to strategy and policy, and be able to participate fully in the oversight and guidance of management;
  • The term of any appointment is subject to continuing shareholder approval;

Details of the Board’s approach to selection and re-appointment of directors is included under Principle 1 above. 

Following the receipt of Mr Weiss’ intention to resign, the Board undertook a review of its skills and expertise mix and was satisfied with the current mix of the Board.

The Board is committed to continuously assess the appropriateness of the mix of its skills.  The table below provides a summary overview of the key skills and experience of the Board on a collective basis.

Skill/Experience/Knowledge/Expertise Number of Directors
Leadership (including Executive and Non-Executive roles in listed and Non-listed Companies) 5
Governance including membership or Chair of Audit, Risk Management, Remuneration and Nomination Committee's of listed and Non-listed companies 5
International experience or knowledge or expertise in Asia region and global markets 4
Strategy experience or Knowledge or Expertise in: 1) Retail 2) Growth and Business diversification 3) Mergers, Acquisitions 4) Strategic Development and implementation 5
Possessing experience, expertise, knowledge in the broad aspects of business acumen incorporating the following:  
Financial, Risk, Workplace Health and Safety 5
Legal, Compliance 4
Ecommerce and Marketing 4
Production and Distribution 4
HR, Remuneration, Diversity and Corporate Social Responsibility 5
Investor Relations 5

The Board of OrotonGroup:

The Board of OrotonGroup is comprised of four Non-Executive Directors and one Executive Director (including the Chairman). The following table shows the detail of the recent election of each of the Directors of OrotonGroup.

Director Year
appointed to OrotonGroup Ltd
Term in office Non-executive Independent Last elected Seeking election or re-election in 2016
John P Schmoll (Non-Executive Chairman) 2005 11 years Yes Yes 2014 Yes
Mark Newman 2013 3 years No No Not Required No
Ross B Lane 1993 23 years Yes No 2013 Yes
Maria Martin 2015

1 Year

Yes Yes 2015 No
J Will Vicars 2001 15 years Yes No 2015 No

Chairman of the Board

The Non Executive Chairman is responsible for the management of the affairs of the Board and represents the Board in periods between Board Meetings. The Non-Executive Chairman of the Board is an Independent Director, and is elected by the Board.

Term of office

The Directors believe that limits on tenure may cause loss of experience and expertise that are important contributors to the efficient working of the Board. As a consequence, the Board does not support arbitrary limits on tenure and regards nominations for re-election as not being automatic but is based on the needs of OrotonGroup.

The Constitution sets out the rules to which OrotonGroup must adhere and which include rules as to the nomination, appointment and re-election of Directors. Historically one third of the Directors (excluding the Managing Director) retire and stand for re-election each year at the Annual General Meeting. Directors appointed during the year by the Board stand for re-election at the next Annual General Meeting.

Director Independence

OrotonGroup acknowledges that the ASX Corporate Governance Council’s best practice recommendation 2.4 require the majority of the Board to be independent. In assessing the criteria for independence the board has adopted specific principles in relation to Directors’ independence. These state that when determining independence, a Director must be a Non-Executive and the Board should consider whether the Director:

  • Is a substantial shareholder of the Consolidated Entity or an officer of, or otherwise associated directly with, a substantial shareholder of the company;
  • Is or has been employed in an executive capacity by the Consolidated Entity within three years before commencing to serve on the board;
  • Within the last three years has been a principal of a material professional adviser or a material consultant to the Consolidated Entity member, or an employee materially associated with the service provided;
  • Is a material supplier or customer of the Consolidated Entity, or an officer of or otherwise associated directly or indirectly with a material supplier or customer;
  • Has a material contractual relationship with the Consolidated Entity other than as a Director;
  • Is free from any business or other relationship which could, or could reasonably be perceived to materially interfere with the Director’s independent exercise of their judgement.

Materiality for these purposes is determined on both quantitative and qualitative bases. An amount of over 5% of annual turnover of the company or Consolidated Entity or 5% of the individual Directors’ net worth is considered material for these purposes. In addition, a transaction of any amount or a relationship is deemed material if knowledge of it may impact the shareholders’ understanding of the Director’s performance.

Independent Directors of OrotonGroup are those not involved in the day to day management of the company and are free from any real or reasonably perceived business or other relationship that could materially interfere with the exercise of their unfettered and independent judgement.

In accordance with the definition of independence and the materiality thresholds above, it is the Board’s view that Mr John P Schmoll and Ms Maria Martin are both independent Directors, free from any business or any other relationship that could materially interfere with, or could reasonably be perceived to interfere with, the independent exercise of the Directors’ judgement and each is able to fulfil the role of an independent Director for the purposes of the ASX recommendation.

Maria Martin was a partner of PwC until March 2013. PwC has been the audit firm for OrotonGroup since 2000, although Maria was never involved in the audit of OrotonGroup. The Board is of the opinion that this former relationship does not compromise Maria’s independence, as it does not meet the definition of a material business relationship as defined above.  In addition the Board has considered the length of time since Maria was a partner of PwC.

The following Directors are not independent:

  • Mr Ross B Lane (Non-Executive Director) due to substantial shareholdings;
  • Mr J Will Vicars (Non-Executive Director) due to substantial shareholdings;
  • Mr Mark Newman (Chief Executive Officer and Managing Director) due to role in OrotonGroup Limited.

 

Regardless of whether directors are defined as independent, all Directors are expected to bring independent views and judgement to Board deliberations. The Board regularly assesses the independence of each Director.

Majority independence and commitment of Board

Currently, three of the five Directors are not independent and therefore the Group is not compliant with recommendation 2.4. These interests have been disclosed in the Directors’ Report.

Notwithstanding this, the board supports the comments made by the ASX Implementation Review Group (“IRG”) that:

“Other board structures which do not include a majority of independent Directors may also provide an acceptable level of objectivity. The IRG does not believe that an individual Director will necessarily be unwilling or unable to safeguard shareholders’ interests or will necessarily lack objectivity or independence of mind, simply because they are not deemed to be ‘independent’. Safeguarding shareholder interests is a fundamental duty of all Directors.”

In respect of the Board of OrotonGroup:

  • Non-Executive Directors spend approximately 30 days each year on Board business and activities including, Board and Committee meetings, visits to operations and meeting employees, customers, business associates and other stakeholders;
  • The Chairman regularly meets with the Managing Director to review key issues and performance trends affecting the business of OrotonGroup;
  • The number of meetings of the company’s board of Directors and of each board committee held during the year ended 30 July 2016, and the number of meetings attended by each Director is disclosed in the Directors’ report;
  • The commitments of non-executive Directors are considered by the nomination committee prior to the Directors’ appointment to the board of the company and are reviewed each year as part of the annual performance assessment;
  • The Chair of the two Board committees, being the Audit Committee and the People and Organisation Committee, is an independent non-executive Director.
  • Each Board meeting includes some discussion of issues by the Non Executive Directors without the Executive Director

Board Induction

Newly appointed Directors undergo a practical induction in the form of meetings with the Chairman, the Board, the CEO and senior management and are provided with relevant Company information.

Conflict of Interest

In accordance with the Corporations Act 2001 (Clth) and OrotonGroup’s Constitution, Directors must keep the Board advised on an ongoing basis, of any interest that could potentially conflict with those of OrotonGroup. Where the Board believes that a significant conflict exists, the Director concerned does not receive the relevant Board papers and is not present at the meeting while the item is considered.

Access to information

Management supplies the Board with information that enables them to effectively and efficiently fulfill their responsibilities. The Board has access to OrotonGroup’s Company Secretary and independent professional advice.

Independent Professional Advice

Each Director has the right to seek independent professional advice at the expense of OrotonGroup. Prior written approval of the Chairman is required, which will not be unreasonably withheld. All Directors are made aware of the professional advice sought and obtained.

Board Committees

The Board has established a number of committees to assist in the execution of its duties and to allow detailed consideration of complex issues. Current committees of the board are:

  • The People and Organisation Committee (as detailed below);
  • The Audit Committee (the details of this committee are discussed in Principle 4- Safeguard Integrity in Corporate Reporting).

Minutes of committee meetings are tabled at the subsequent board meeting for review and approval.

People and Organisation Committee

The People and Organisation Committee provide additional support for the human resources strategy of OrotonGroup. It assists the Board by ensuring that the appropriate people, people related strategies, policies and procedures are in place to support OrotonGroup’s vision and values, and its strategic and financial goals.

People and Organisation Committee Charter

The Charter ensures that OrotonGroup:

  • Has an appropriate human resources strategy that is aligned to the overall business strategy and which supports OrotonGroup’s vision and values;
  • Has remuneration policies and practices that are observed, and that enable OrotonGroup to attract and retain people at all levels who will create value for shareholders;
  • Fairly and responsibly rewards Directors, management and staff, taking into consideration the performance of OrotonGroup, the creation of value for shareholders, the performance of the individual and the external remuneration environment;
  • Plans and implements the development and succession of Board members, management and staff.

The Committee seeks advice and guidance, as appropriate, from the Managing Director. It may also seek advice from external experts, as appropriate.

Members of the People and Organisation Committee:

  • Maria Martin – Independent Non-Executive Director and Chair of the People and Organisation Committee
  • John P Schmoll - Independent Non-Executive Chairman of the Board;
  • Ross B Lane - Non-Executive Director;

Sam Weiss was a member of the People and Organisation Committee until his resignation on 27 November 2015.  In addition, Will J Vicars was a member of the People and Organisation Committee until 30 August 2016 when he resigned from the People and Organisation Committee, to ensure there was a majority of independent directors on the Committee.

Details of membership, member qualifications and attendance are contained in the Directors’ Report.

As a consequence of the above changes in membership of the People and Organisation Committee during the period, the People and Organisation Committee did not have a majority of independent Directors for the full year ended 30 July 2016 and therefore the Group was not compliant with recommendation 8.1. Regardless of whether Directors are defined as independent, all Directors are expected to bring independent views and judgement to People and Organisation Committee deliberations.

Notwithstanding this, the situation has now been addressed and the People and Organisation Committee now has a majority of independent Directors.