The structure of the Board is designed to ensure that the Board focuses on strategy, monitoring the performance of the Group and governance, risk and control issues.
The following diagram shows the role of the Board and its committees and management.
The primary responsibilities of the Chief Executive Officer, the Chairman, the Senior Independent Director, the Company Secretary and the Non-Executive Directors are set out in writing and provide a system of checks and balances in which no individual has unfettered decision-making power.
Certain detailed aspects of the Board's responsibilities are delegated to the Executive Directors. The Executive Directors carry out some of these responsibilities through executive-led committees. These committees, whose roles are set out above, formally report to the Executive Directors, and may provide reports to the Board or Board committees from time to time. The Management Committee comprises the Executive Directors and ten members of management.
The reports by each Board committee are given in this Annual Report. The full terms of reference for each Board committee are available on the Company's corporate website www.ocadogroup.com
What the Board did this year
The Board's activities are structured through the year to develop and support the delivery of the Group's strategy. The Board's discussions throughout the year were focused on our strategic objectives: Driving Growth, Maximising Efficiency and Utilising Proprietary Knowledge. The Board also regularly discussed governance, risk management and the Group's financial performance. The table below sets out some of the Board's key areas of focus and discussions through the year and how these developed and support our strategy.
Strategy, performance and financing
Reporting, risk management and accountability controls
Oversight of the group's operations and technology development
People, Governance and Corporate Responsibility
Specific actions during the period
Annual strategy conference to review and set the Group's strategy. Overseeing Ocado Solutions negotiations and discussions.
Monitoring grocery retail competitor activity.
Receiving reports from senior management on trading, business performance and financing.
Reviewing major strategic initiatives including Ocado Solutions transition.
Annual review of key risks and risk appetite and reviewing reports of risk management. Review of reports on specific risk areas including OSP control environment.
Reviewing and approving the Group's regulatory announcements and reports.
Reviewing reports on health, safety and environment, litigation, investor relations and legal and company secretarial matters.
Approving the annual budget, the business plan for the Group and individual capital expenditure projects.
Receiving reports on patent protection ofthe Group's technology.
Receiving regular reports on key projects including new technologies, IT replatforming and development and ramp-up of the Andover and Erith CFCs.
Receiving report on people issues. Discussing Board composition.
Approving the Group's human rights policy and modern slavery statement.
Receiving various reports on governance and regulatory changes.
The Board's strategic/governance role
Entrepreneurial leadership to the Group with overall responsibility for driving performance through debate and constructive challenge of management.
Developing effective leadership in the Board and throughout the business and ensuring the right personnel are in place.
Overseas expansion has been an important focus for the Board during the period as a significant part of the growth strategy.
The Board is ultimately responsible for the Company's risk appetite and viability and therefore plays a key role in reviewing the risks that face that business and ensuring that it has and retains oversight of specific, high risk areas.
The Board discusses Company-specific risks and uncertainties, including the environment in which the business operates such as cybercrime and climate change.
The Board reviews the Company's viability statement and period.
A key strategy to supporting business growth is the growth of our technology business. Our strategy in Europe has driven growth in the technology business while we continue to expand our UK development centre in Hatfield.
Operational efficiency is regularly discussed and challenged at Board meetings and is considered an important driver for both growth and developing our proprietary knowledge, and therefore the Group's strategy.
The commercialisation of Ocado Solutions is a key strategy for the Group. The Board reviews IP strategy and Ocado Solutions negotiations at each Board meeting.
The Board discusses stakeholder issues through the year, including investor, customer and employee issues. The Board is updated regularly on governance matters.
The Board received updates throughout the year on recruitment and retention, and discussed the potential impact of Brexit on the Group's operations, including the impact on the Group's operational strategy.
Utilising proprietary knowledge
Please refer to How We Manage Our Risks for further information about the principal risks for the Group's strategic objectives and the key mitigating activities.
Composition of the Board
Review of Board and Board Committee Composition
As noted in the Nomination Committee Report, a number of changes were made to the composition of the Board. In making changes to the Board, the Board's review of composition took into account various considerations including length of Director tenure, Board diversity, independence and the mix of skills and experience of the Directors. Some of these considerations are outlined below.
The Board seeks to ensure that its composition, and that of its committees, is appropriate to discharge its duty effectively and to manage succession issues. To enable the Board to meet its responsibilities, it is important that the Board's composition is sufficiently diverse and reflects a broad range of experience, skills, backgrounds and perspectives. The Board's diversity policy includes a commitment to having a meaningful representation of women on the Board and in senior positions in the Company.
At the end of the period the Board had 27% female representation, but following the resignation of Alex Mahon in December 2017, this has now decreased to 20%. The Board has made significant progress in improving its gender balance in recent years. In 2009, the Board had no female representation. Despite this, the Board recognises there is further work to do to improve female participation in executive and senior management positions and to improve ethnic diversity on the Board. While it has never been, in the Board's opinion, in the best interests of the Company and its shareholders to set numerical targets for gender or ethnicity on the Board, the Board is committed to increasing the percentage of women on the Board and in senior positions in the Company. Any future Board appointments will continue to be based on objective criteria to ensure that the best individuals are appointed for the role. For more information on diversity in respect of all the Group's employees, see the Our People section. The chart in the Board of Directors illustrates the diversity of the Board in terms of gender as at the period end on 3 December 2017.
The policy also includes a commitment to engage only executive search firms who have signed up to the Voluntary Code of Conduct for Executive Search Firms. This includes Ridgeway Partners, who were engaged to help the Company secure new Non-Executive Directors for the Group. The Nomination Committee monitors these objectives.
The Board also takes into account the length of tenure of existing Directors when considering reappointment and succession planning. Ruth Anderson will have served eight years (in March 2018) as a Director. Jörn Rausing has served as a Director for over 14 years and accordingly his reappointment to the Board was subject to particular scrutiny (including the importance of maintaining Board continuity). The chart in the Board of Directors illustrates the tenure of Directors.
The Code recommends that at least half of the Board, excluding the Chairman, should comprise Non-Executive Directors determined by the Board to be independent. Since, excluding the Chairman, there were six Non-Executive Directors all determined by the Board to be independent and four Executive Directors, the Board complies with this recommendation at the end of the period. Since the retirement of Alex Mahon following the end of the period, the Board remains compliant with this requirement. The chart in the Board of Directors illustrates the composition of the Board in respect of the independence of its members as at the end of the period.
Similarly, the composition of the Audit Committee, Nomination Committee and Remuneration Committee comply in all respects with the independence provisions of the Code.
Review of Board Effectiveness
The effectiveness of the Board is important to the success of the Group, and the annual review provides a useful opportunity for the Directors to reflect on their collective and individual effectiveness and consider changes.
Internal performance review of progress
Independent, externally facilitated review.
Internal performance review.
Progress against external review assessed.
Board Effectiveness review Cycle
The Board review for 2017 was carried out internally using two questionnaires. The online questionnaires were prepared by the Company Secretary with support from an external and independent consultant, Independent Audit Limited. One questionnaire asked questions to assess performance in a range of areas including Board strategy, leadership and culture and sought to gauge the extent of perceived progress of the Board and the Board committees in the areas of development identified in the external Board review from 2016 (which had been carried out by Independent Audit Limited). An assessment of each individual Director was also carried out using a second questionnaire.
The findings of the review were evaluated by the Company Secretary and the Chairman, and a Board evaluation report was provided to the Board. The Board discussed the results of the review. The Board recognised that management and the Company Secretary had acted upon many of the recommendations identified in the 2016 review. Some of these actions were aimed at improving Board communications and included implementing an electronic Board portal for Board papers and scheduling of more informal meetings between Board members and between Directors and management. Steps were also taken to allow the Board more time for discussion of strategic issues. Directors were asked to identify areas of Board focus for 2018 and common among these were the importance of overseeing implementation of the new Ocado Solutions implementation programmes for Groupe Casino and Sobeys and our other partners.. The Board concluded that it had operated effectively throughout the year. The Chairman of each of the Board committees separately considered the Board review as it pertained to their committee. The Chairman separately reviewed the results of the individual Director performance evaluations.
Apart from the formal review of the Board's effectiveness, the Chairman and the Non-Executive Directors met without the Executive Directors being present to discuss the performance of the Board and the Executive Directors. The Senior Independent Director and the Non-Executive Directors also met to discuss the performance of the Chairman without the Executive Directors or the Chairman being present and subsequently met with the Chairman to provide feedback. The Chairman regularly met with the Executive Directors and the Deputy Company Secretary during the period, on a range of Company matters and responsibilities.
Actual meetings attended
Possible meetings the Directors could have attended
Actual meetings attended
Possible meetings the Directors could have attended
- Robert Gorrie retired from the Board on 3 May 2017.
- Alex Mahon retired from the Board after the period end on 13 December 2017.
The attendance record of the Directors at scheduled Board meetings during the period is set out in the chart on the left. The Board scheduled eleven meetings during the period. Details of attendance at committee meetings are set out in the relevant committee report. During the period, the Non-Executive Directors held a number of meetings without the Executive Directors present.
Each Director is required under the Articles to retire at every annual general meeting (each Director may offer himself or herself for re-appointment by the members at such meeting). At the last annual general meeting on 3 May 2017, all of the current Directors (except Robert Gorrie who was retiring) stood for re-appointment, and were duly elected with a range of 97.51% to 99.95% of votes cast by shareholders in favour of re-appointment.
All Directors, with the exception of Alex Mahon who retired from the Board on 13 December 2017, will retire and seek re-election at the AGM. The explanatory notes set out in the Notice of Meeting state the reasons why the Board believes a Director proposed for re-election at the AGM should be re-appointed. The Board has based its recommendations for re-election, in part, on its review of the results from the Board evaluation process outlined above, on the reviews of the Chairman (led by the Senior Independent Director) and of the Executive Directors conducted at the meetings of the Non-Executive Directors, the Chairman's review of individual evaluations, and whether a Director has demonstrated substantial commitment to the role (including time for Board and committee meetings noted below) and other responsibilities, taking into account a number of considerations including outside commitments and any changes thereof (outlined below) during the period.
Luke Jensen, who will join the Board with effect from 1 March 2018, will seek election at the AGM. His biography is set out in the Notice of AGM.
The rules that the Company has about the appointment and replacement of Directors are described in the Directors' Report.
External Board Appointments and Conflicts
There have been a number of changes to the Directors' external appointments during the period as set out in the table below. The Chairman and the Board are kept informed by each Director of any proposed external appointments or other significant commitments as they arise. These are monitored to ensure that each Director has sufficient time to fulfil his obligations. Each Director's biographical details and significant time commitments outside of the Company are set out in the Director Biographies section.
|Director||Change in Commitment||Effective Date of Change|
|Lord Rose||Appointed Chairman of Zenith||September 2017|
|Alex Mahon||Resigned as Director of The Edinburgh International Television Festival Limited||August 2017|
|Alex Mahon||Resigned as Director of The Edinburgh Television Festival Council||August 2017|
|Alex Mahon||Resigned as Director of Bandstand Productions Ltd||September 2017|
|Alex Mahon||Appointed Chief Executive of Channel 4||October 2017|
|Alex Mahon||Resigned as Director of WATV Limited||November 2017|
- Alex Mahon retired from the Board after the period end on 13 December 2017.
Whenever a Director takes on additional external responsibilities, the Board considers any potential conflicts that may arise. The Board monitors any potential conflicts of interest. The Companies Act provides that Directors must avoid a situation where they have, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the Company's interests. Boards of public companies may authorise conflicts and potential conflicts, where appropriate, if a company's articles of association permit (which the Articles do).
Each Director is required to disclose conflicts and potential conflicts to the Chairman and the Company Secretary. As part of his or her induction process, a newly appointed Director completes a questionnaire which requires him or her to disclose any conflicts of interests to the Company. Thereafter, each Director has an opportunity to disclose conflicts at the beginning of each Board and Board committee meeting and as part of an annual review. One Director declared a potential conflict of interest in relation to a matter which was being discussed by the Board and which was appropriately authorised by the Board in accordance with its powers. None of the other Directors has declared to the Company any actual or potential conflicts of interest between any of his or her duties to the Company and his or her private interests and/or other duties, except in the case of the Executive Directors, each of whom holds the position of Director of the Company and Director of a number of Group subsidiary companies. The system in place for monitoring potential Director conflicts remained effective during the period.
Board Induction and Professional Development
Newly appointed non-executive directors follow a tailored induction programme, which includes a comprehensive overview of the Group, dedicated time with Group executives and key management personnel, visits to customer fulfilment centres and participation in van delivery routes. The Chairman and the Company Secretary are responsible for reviewing, preparing and coordinating the induction programme.
The Board and committees receive training, including in specialist areas. Training is typically arranged by the Company Secretary in consultation with the Chairman or committee chairman. The members of the Remuneration Committee received updates from the Remuneration Committee's remuneration advisers including on the new remuneration reporting market practices. Members of the Audit Committee receive written technical updates from the external auditor to keep them abreast of the latest accounting, auditing, tax and reporting developments. The Company Secretary also provides updates to the Board and the committees on governance and regulatory changes impacting the Group (for example, the requirements of the new tax strategy reporting regulations).
Information for Directors
The Chairman is responsible for ensuring that all of the Directors are properly briefed on issues arising at Board meetings and that they have full and timely access to relevant information. To enable the Board to discharge its duties, all Directors receive appropriate information from time to time, including briefing papers distributed in advance of the Board meetings.
Directors can, where they judge it to be necessary to discharge their responsibilities as Directors, obtain independent professional advice at the Company's expense. The Board committees have access to sufficient resources to discharge their duties, including external consultants and advisers.
Engagement with Shareholders
The Company is committed to keeping shareholders informed of its strategy and progress. The Chairman has overall responsibility for ensuring that the Company has appropriate channels of communication with its shareholders and is supported in this by the Executive Directors. The Company regularly meets with its large investors and institutional shareholders who, along with analysts, are invited to presentations by the Company after the announcement of the Company's results.
The Company conducts biannual investor roadshows in line with the reporting cycle and also addresses current and prospective shareholders at various investment conferences and other events, both in the UK and abroad. The Board regularly receives feedback from the Company's brokers, advisers and the Executive Directors on the views of major shareholders and the investor relations programme and also receives reports at each Board meeting on the main changes to the composition of the Company's share register.
Lord Rose, the Chairman, and the Board of Directors, are available to the Company's shareholders for discussions, and have met with various investors throughout the year to discuss matters such as strategy, corporate governance and executive remuneration. We held a number of investor days at our new CFC in Andover throughout 2017 to enable our investors to view the progress at the new site as it ramps. We also briefed shareholders on our new segmental reporting.
The Group also engages with shareholders in the event of a substantial vote against a resolution proposed at an annual general meeting. At the 2017 annual general meeting there were no such votes. The Company Secretary had consulted shareholders in recent years about the Company's remuneration issues and policies and the share allotment shareholder authorities.
At the 2016 annual general meeting, the Company's share allotment resolutions received less support than expected by management. The Company consulted the large shareholders who did not support the resolutions. The Company Secretary received feedback from the shareholders that indicated the shareholders had governance policies that were not wholly aligned with the Pre-Emption Group's Statement of Principles and Investment Association guidance. In response to shareholder feedback the Company changed its approach to share allotment authorities for the 2017 AGM. For more information on the resolutions proposed for the 2017 AGM, please refer to the Directors' Report.
Formal Reporting to Shareholders and Directors' Responsibility
The Company reports to its shareholders in a number of ways including formal regulatory news service announcements in accordance with the Company's reporting obligations, trading statements of sales performance published in March, September and December each year, the half year report, the preliminary announcement of annual results, the annual report, and investor presentations slides and videos. The Company makes available these documents, including this Annual Report and other information concerning the Company, on its corporate website. All shareholders can choose to receive an Annual Report in paper or electronic form.
The Company reports its quarterly trading performance, including information on the growth of the Group's revenue, average order numbers and size and its cash and borrowings position. The Company believes that it is important to update the market on a quarterly basis due to the importance shareholders place on receiving regular updates about sales and the current competitive pressures in the UK grocery market. The Group's rate of sales growth is key to understanding the extent to which it is achieving one of its key strategic objectives, driving growth. The Directors take responsibility for preparing this Annual Report and make a statement to shareholders to this effect. The statement of Directors' responsibility in the Directors' Report of this Annual Report is made at the conclusion of a robust and effective process undertaken by the Company for the preparation and review of this Annual Report. The Directors believe that these well-established arrangements enable them to ensure that the information presented in this Annual Report complies with the disclosure requirements including those in the Companies Act, and is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position, performance, business model and strategy. In addition to this Annual Report, the Company's internal processes cover (to the extent necessary) the preliminary announcement, the half year report, trading statements and other financial reporting.
The Company's internal processes in the preparation and review of this Annual Report (and other financial reporting) include:
- review of and feedback on iterations of this Annual Report by the Executive Directors and the full Board;
- focused review of specific sections of this Annual Report by the relevant Board committees;
- Audit Committee review of a management report on accounting estimates and judgements, auditor and management reports on internal controls and risk management, accounting and reporting matters and a management representation letter concerning accounting and reporting matters (for further information see the Accountability - Audit Committee Report);
- Board and Audit Committee review of a supporting paper specifically highlighting the parts of this Annual Report that best evidenced how this Annual Report was fair, balanced and understandable;
- paper from the Company Secretary highlighting how reporting, regulatory and governance issues had been addressed in this Annual Report;
- Board and Audit Committee review of management reports on assessments on going concern and viability;
- the Audit Committee regularly reporting to the Board on the discharge of its responsibilities;
- input from both internal and external legal advisers and other advisers to cover relevant regulatory, governance and disclosure obligations;
- discussions between contributors and management to identify relevant and material information;
- detailed debates and discussions concerning the principal risks and uncertainties;
- checking of factual statements and financial information against source materials;
- specific Board review of Directors' belief statement and key statements; and
- separate approval by the Group General Counsel, the Board committees and the Board.
The statement by the external auditor on its reporting responsibilities is set out in the Independent Auditor's report.
In addition to this Annual Report, the Group provides other statements to its shareholders regarding the Group and its operations, including the modern slavery statement and tax strategy statement. Simultaneously with the publication of this Annual Report the Group will publish its first gender pay reporting statement and in due course, the Group will publish its supplier payments statement. For further information on the Group's activities in these areas see the Strategy Report.
The Company's Annual General Meeting
Shareholders will have the opportunity to meet and question all of the Directors at the AGM, which will be held at 10 am on 2 May 2018 at Peterborough Court, 133 Fleet Street, London, EC4A 2BB.
A detailed explanation of each item of business to be considered at the AGM is included with the Notice of Meeting, which will be sent to the shareholders before the AGM. Shareholders who are unable to attend the AGM are encouraged to vote in advance of the meeting, either online at ocadoshares.com or by using the proxy card which will be sent with the Notice of Meeting (if sent by post) or can be downloaded from the Company's corporate website.
At last year's annual general meeting, all resolutions were passed with votes in support ranging from 81.17% to 100%.
Compliance with the Code
This Statement of Corporate Governance explains how the Company applies the main principles and complies with all relevant provisions set out in the UK Corporate Governance Code 2016 issued by the Financial Reporting Council (the "Code"), as required by the Listing Rules of the Financial Conduct Authority and meets other relevant requirements including provisions of the Listing Rules and the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority.
The Company's obligation is to state whether it has complied with the relevant provisions of the Code, or to explain why it has not done so (up to the date of this Annual Report). The Company has applied the principles and complied with the provisions of the Code, except for provisions A.1.2, D.1.1 and Schedule A and D.2.2. These areas of non-compliance are explained below.
|A.1.2||Senior Independent Director||During the period, Alex Mahon was the Senior Independent Director of the Company. As explained in the Nomination Committee Report, following her resignation after the period end, the Company has not yet appointed a successor Senior Independent Director.|
|D.1.1 and Schedule A||Design of performance-based remuneration||As explained in the Directors' Remuneration Report, Directors are not required to retain shares from share incentive schemes for a period after leaving the Company.|
|D.2.2||Senior management remuneration||As explained in the Directors' Remuneration Report, the Remuneration Committee monitors, but does not make recommendations concerning, the level and structure of remuneration for senior management of the Company.|
The Company aims to explain how its practices are consistent with the principle to which the particular provision relates, contribute to good governance and promote delivery of business objectives. The Company's disclosures on its application of the main principles can be found as follows:
|Section||Principle||Section of Annual Report|
|Leadership||Every company should be headed by an effective board which is collectively responsible for the long-term success of the company.||Board of Directors|
Composition of the Board
|There should be a clear division of responsibilities at the head of the company between the running of the board and the executive responsibility for the running of the company's business. No one individual should have unfettered powers of decision.||Board structure|
|The chairman is responsible for leadership of the board and ensuring its effectiveness on all aspects of its role.||Board structure|
|As part of their role as members of a unitary board, non-executive directors should constructively challenge and help develop proposals on strategy.||Board structure|
Board responsibilities and actions
|Effectiveness||The board and its committees should have the appropriate balance of skills, experience, independence and knowledge of the company to enable them to discharge their respective duties and responsibilities effectively.||Board of Directors|
|There should be a formal, rigorous and transparent procedure for the appointment of new directors to the board.||Director election|
|All directors should be able to allocate sufficient time to the company to discharge their responsibilities effectively.||External Board Appointments and Conflicts|
|All directors should receive induction on joining the board and should regularly update and refresh their skills and knowledge.||Board Induction and Professional Development|
|The board should be supplied in a timely manner with information in a form and of a quality appropriate to enable it to discharge its duties.||Information for Directors|
|The board should undertake a formal and rigorous annual evaluation of its own performance and that of its committees and individual directors.||Review of Board Effectiveness|
|All directors should be submitted for re-election at regular intervals, subject to continued satisfactory performance.||Director election|
|Accountability||The board should present a fair, balanced and understandable assessment of the company's position and prospects.||Strategic Report|
How We Manage Our Risks
Going concern statement, Viability statement
|The board is responsible for determining the nature and extent of the principal risks it is willing to take in achieving its strategic objectives. The board should maintain sound risk management and internal control systems.||How We Manage Our Risks|
|The board should establish formal and transparent arrangements for considering how they should apply the corporate reporting, risk management and internal control principles and for maintaining an appropriate relationship with the company's auditor.||Audit Committee Report|
|Remuneration||Executive directors' remuneration should be designed to promote the long-term success of the company. Performance-related elements should be transparent, stretching and rigorously applied.||Directors' Remuneration Report|
|There should be a formal and transparent procedure for developing policy on executive remuneration and for fixing the remuneration packages of individual directors. No director should be involved in deciding his or her own remuneration.||Directors' Remuneration Report|
|Relations with shareholders||There should be a dialogue with shareholders based on the mutual understanding of objectives. The board as a whole has responsibility for ensuring that a satisfactory dialogue with shareholders takes place.||Engagement with shareholders|
|The board should use general meetings to communicate with investors and to encourage their participation.||Engagement with shareholders|
Certain parts of this Statement of Corporate Governance have been reviewed by the Company's external auditor, Deloitte, for compliance with the Code, to the extent required.
Further information on the Code can be found at
Board Approval of the Statement of Corporate Governance
This separate Statement of Corporate Governance is approved by the Board and signed on behalf of the Board by its Chairman and the Group General Counsel and Company Secretary.
Group General Counsel and Company Secretary
Ocado Group plc, Registered in England and Wales, number 07098618
6 February 2018