Governance

Introduction

Good corporate governance is fundamental to the way 3i, and its investee companies, conduct business. Particularly in the current volatile economic and political environment, effective oversight of strategy, people and risk management are vital to the delivery of long-term, sustainable value to the Group’s stakeholders. The Board must also remain responsive to the evolving regulatory environment and changing societal expectations of business.

The Board is responsible to shareholders for the overall management and oversight of the Group to ensure its long-term success. In particular, the Board is responsible for approving the Group’s strategy, setting the Group’s risk appetite, monitoring performance, and maintaining an effective system of risk management and internal controls.

The Board is also responsible for ensuring that the Group has the necessary people, resources and structures to deliver the strategy.

Board and Committee structure

The Board is responsible for ensuring that there is an effective organisational and reporting structure in place such that there are clear reporting lines within the Group and well defined roles and responsibilities. This is to ensure that the right decisions are being made with involvement from the right people.

The Board is assisted by various Principal Committees of the Board which report to it regularly. This committee structure is outlined in the diagram below. The Board reviews membership of these Committees regularly and aims to ensure that undue reliance is not placed on particular Directors. These Board Committees have clearly defined terms of reference.

Day-to-day management of the Group is the responsibility of the Chief Executive. To assist him in this role, the Chief Executive has established a number of additional management Committees which are outlined below.

Division of responsibilities

Role of the Chairman
  • Leads the Board in setting its agenda, agreeing strategy, monitoring financial and operational performance, and establishing the Group’s risk appetite.
  • Organises the business of the Board, ensuring its effectiveness, and maintains an effective system of internal controls.
  • Ensures that non-executive Directors receive relevant and accurate information to facilitate an open and effective discussion. This includes ensuring that the non-executive Directors receive regular reports on shareholders’ views on the Group.
  • Responsible for the composition of the Board and facilitates the effective contribution of non-executive Directors and constructive relationships between Executive and non-executive Directors.
 
Role of the Chief Executive
  • Direct charge of the Group on a day-to-day basis and is accountable to the Board for the financial and operational performance of the Group.
  • Leads the Executive Committee to develop and implement the Group’s strategy and manage risk and the internal control framework.
  • Chairs the Investment Committee to review the acquisition, management and disposal of investments.
  • Reports to the Board on financial and operational performance, risk management and progress in delivering the strategic objectives.
  • Regularly engages with shareholders and other key stakeholders on the Group’s activities and progress.
 
Role of non-executive Directors
  • Scrutinise the performance of management in meeting agreed objectives and monitor the reporting of performance.
  • Seek assurance on the integrity of the financial information and that financial controls and systems of risk management are robust and defensible.
  • Determine appropriate levels of remuneration for Executive Directors and Executive Committee and have a prime role in appointing Directors and in succession planning.
  • Constructively challenge and help develop proposals on strategy; this occurs at meetings of the Board, and in particular at the annual review meeting to discuss ongoing strategy, the most recent of which took place in December 2016.

How the Board operates

The Board and its Committees meet regularly, operating to an agreed timetable. Meetings are usually held in London.

Directors are expected to attend all the regular scheduled meetings of the Board and  the Committees on which they serve, and to devote enough time to perform their duties.

Attendance at Board and Committee meetings during the year to 31 March 2017 is shown on page 63 of the Annual Report and Accounts 2017. Before each Board and Committee meeting, relevant reports and papers, including financial performance data and detailed updates on the progress and implementation of the strategic plan where appropriate, are circulated to Directors. The Board is able to discuss these reports and updates and to challenge directly the Executive Directors and other senior management, who attend all or part of the Board meetings where relevant.

The principal matters considered by the Board during the year (in addition to matters formally reserved to the Board) included:

  • The Group’s strategic plan, related KPIs and annual budget;
  • Regular reports from the Chief Executive
  • Sale of the Group’s Debt Management business;
  • Reviews of and updates on the Group’s Private Equity, Infrastructure and Debt Management businesses;
  • Regular reports from the Board’s Committees;
  • Remuneration and pension matters including remuneration philosophy and strategy;
  • The recommendations of the Valuations Committee on valuations of investments;
  • The Annual report and accounts, Half-yearly report and quarterly performance updates;
  • Dividend policy and dividends;
  • Reports on regulatory matters including significant regulation affecting the Group’
  • Review of balance sheet strategy;
  • Organisational capability and succession plans, and;
  • Increase in the valuation of Action in June 2016.

The Board has a formal schedule of matters reserved to it and its duly authorised Committees for decision. Matters delegated by the Board to management include implementation of the Board approved strategy, day-to-day management and operation of the business, the appointment and remuneration of staff below the Executive Committee and the formulation and implementation of risk management policies and processes.

Performance and evaluation

During the year, the Board conducted its annual evaluation of its own performance and that of its committees and individual Directors. The evaluation had been externally facilitated in the previous year by Lintstock Limited, On this occasion, the process was conducted internally by the Chairman with support from Lintstock Limited. The Chairman held one-to-one interviews with Directors informed by the results of a questionnaire prepared by Lintstock Limited which was completed by all Board members and the Company Secretary. He reported the results of the evaluation to the Board and proposed an action plan for discussion and agreement. Overall, the evaluation concluded that the Board continued to perform well, but some areas for further improvement were identified and agreed. It also identified for further Board attention matters seen as the top strategic issues to be faced over the next three to five years.

The topics covered by the evaluation included:

  • consideration of Board composition;
  • Board dynamics;
  • time management and Board support;
  • the performance of the Board’s Committees;
  • the Board’s strategic and operational oversight;
  • risk management and internal controls;
  • succession planning and human resources management; and
  • priorities for change.

During the review Directors identified areas for further broadening of the Board’s expertise through recruitment as opportunities arise. Priorities for the Board for the coming year were agreed.  Areas requiring greater time for Board discussion and areas for additional Board reporting were also agreed.

In his role as Senior Independent Director, Mr J P Asquith led a review by the Directors of the performance of the Chairman and subsequently reported back to the Board and provided feedback to the Chairman.

A succession and contingency plan for executive leadership is prepared by management and reviewed periodically by the Board. The purpose of this plan is to identify suitable candidates for succession to key senior management positions, agree their training and development needs, and ensure the necessary human resources are in place for the Company to meet its objectives.