Maintaining high standards of corporate governance continues to be a priority for the directors of an post. In developing its corporate governance policy, the board has sought to give effect both to the code of practice for the governance of state bodies, issued by the department of finance, and to the relevant main and supporting principles of good governance outlined in the uk corporate governance code issued by the united kingdom’s financial reporting council (the code).
While the provisions of the Code are of direct relevance only to listed companies, the Board does feel that their application, where appropriate, assists An Post in its compliance with best corporate governance practice.
The directors are accountable to the shareholders for good corporate governance and this report addresses how the Code of Practice for the Governance of State Bodies and the relevant main and supporting principles of the Code have been applied within An Post.
The Group is controlled through its Board of directors. The Board's main roles are to oversee the operation of the Group, to provide leadership, to approve strategic objectives and to ensure that the necessary financial and other resources are made available to enable those objectives to be met. The Board meets on a monthly basis and certain matters are specifically reserved to the Board for its decision.
The specific responsibilities reserved to the Board include: setting Group strategy and approving an annual budget and medium term projections; reviewing operational and financial performance; approving major capital expenditure; reviewing the Group’s systems of financial control and risk management; ensuring that appropriate management development and succession plans are in place; reviewing the environmental, health and safety performance of the Group; approving the appointment of the Company Secretary; and maintaining satisfactory communication with shareholders.
The Board has delegated the following responsibilities to management: the development and recommendation of strategic plans for consideration by the Board that reflect the longer-term objectives and priorities established by the Board; implementation of the strategies and policies of the Group as determined by the Board; monitoring of the operating and financial results against plans and budgets; prioritising the allocation of technical and human resources; and developing and implementing risk management systems.
The roles of the Chairman and the Chief Executive
The Chairman leads the Board in the determination of its strategy and in the achievement of its objectives. The Chairman is responsible for organising the business of the Board, ensuring its effectiveness and setting its agenda. The Chairman facilitates the effective contribution of all directors and constructive relations between the executive director and the other directors, ensures that directors receive relevant, accurate and timely information and manages effective communication with shareholders.
The Chief Executive has 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.
Senior Independent Director
The Board has considered the question of appointing one of its members to be a Senior Independent Director, in addition to the Chairman, but continues to believe that this recommendation of the Code is not applicable in the light of An Post’s legal structure.
Directors and Directors' Independence
All directors are appointed to the Board by the Minister for Communications, Energy and Natural Resources and their conditions of appointment and fees are set out in writing. Employee directors are elected in accordance with the Worker Participation (State Enterprises) Acts, 1977 to 1993 for a term of four years. The postmaster director is elected in accordance with Section 81 of the Postal and Telecommunications Services Act, 1983 for a term of three years. All other directors are appointed for a fixed term, usually five years.
The Board is currently comprised of fourteen directors viz: the Chief Executive, five employee directors, one postmaster director and seven non-executive directors. The names of the directors together with their biographical details are set out on pages 4 and 5. The positions of Chairman and Chief Executive are held by different people. Given its legal status as a State Company and the responsibility of its principal shareholder in the appointment of directors, the Board believes that the criteria normally used by the Board of a listed company in considering the independence of its directors do not apply in An Post’s circumstances. The Board, consequently, has not evaluated the independence of its directors against the criteria set out in the Code.
The Code requires the Chairman to hold meetings with the non-executive directors without the executive director being present. The Board has formal procedures in place in this regard.
Directors have the right to ensure that any unresolved concerns they may have about the running of the Group or about a particular course of action are recorded in the Board minutes. If they have any such concerns, they may, on resignation, provide a written statement to the Chairman, for circulation to the Board.
The directors are given access to independent professional advice at the Group’s expense where they deem it necessary to discharge their responsibilities as directors.
On appointment, all new directors take part in an induction programme when they receive information about the Group, the role of the Board and the matters reserved for its decision, the terms of reference and membership of the principal Board and Board Committees, the Group's corporate governance practices and procedures, including the responsibilities delegated to Group senior management, and the latest financial information about the Group. This will typically be supplemented by meetings with key senior executives. Throughout their period in office, the directors are continually updated on the Group's business, the competitive and regulatory environments in which it operates, corporate social responsibility matters and other changes affecting the Group and the postal industry as a whole, by written briefings and meetings with senior executives. Directors are also advised on appointment of their legal and other duties and obligations as a director, both in writing and in face-to-face meetings with the Company Secretary. They are also updated on changes to the legal and governance requirements of the Group and upon themselves as directors.
The Board has adopted and performed a formal process for the annual evaluation of its own performance and that of its principal Committees. This includes periodic external performance evaluation. The Board considers that the introduction of any further evaluation of individual directors would be inappropriate given the manner of appointment of directors, the shareholding structure and existing Board procedures.
The Company Secretary
The Company Secretary is a full time employee of An Post. The Company Secretary is responsible for advising the Board through the Chairman on all governance matters. All directors have access to the advice and services of the Company Secretary. The Company’s Articles of Association provide that the appointment and removal of the Company Secretary is a matter for the full Board.
Regular reports and papers are circulated to the directors in a timely manner in preparation for Board and Committee meetings. These papers are supplemented by information specifically requested by the directors from time to time. The directors receive monthly management accounts and regular management reports and information which enable them to scrutinise the Group's and management's performance against agreed objectives.
Relations with shareholders
The Board through the Chairman and management, maintain an ongoing dialogue with the Company’s shareholders on strategic issues. The Chairman and the Chief Executive give feedback to the Board on issues raised with them by the shareholders. All directors normally attend the Annual General Meeting and shareholders are invited to ask questions during the meeting and to meet directors after the formal proceedings have ended.
An ongoing process exists for identifying, evaluating and managing the significant risks faced by the Group. This process, which is based on the Guidance for directors, issued by the Institute of Chartered Accountants in England and Wales (the Turnbull Guidance), is periodically reviewed by the directors and has been in place throughout the accounting period and up to the date the financial statements were approved.
In accordance with the guidance of the Turnbull committee, the directors are responsible for the Group's system of internal control and set appropriate policies on internal control, seek regular assurance that enables them to satisfy themselves that the system is functioning effectively and to ensure that the system of internal control is effective in managing risks. Such a system is designed to manage rather than eliminate business risks and can provide only reasonable rather than absolute assurance against material misstatement or loss. The key risks are set out at Section 3 of the Report of the Directors (page 33).
The directors have continued to review the effectiveness of the Group's system of financial and non-financial controls during 2011, including operational and compliance controls, risk management and the Group's high level internal control arrangements. These reviews have included an assessment of internal controls by management, management assurance of the maintenance of controls, reports from the internal auditors and reports from the external auditor on matters identified in the course of its statutory audit work.
The Group views the careful management of risk as a key management activity. The Board has adopted a Risk Management Policy and a Risk Management Framework and approved the appointment of a Chief Risk Officer. The responsibilities of the Audit and Risk Committee embrace the responsibilities of a Risk Committee. Managing business risk to deliver opportunities is a key element of all activities. This is done using a simple and flexible framework which provides a consistent and sustained way of implementing the Group’s values. These business risks, which may be strategic, operational, reputational, financial or environmental, should be understood and visible. The business context determines in each situation the level of acceptable risk and controls.
Management is responsible for the identification and evaluation of significant risks and for the design and implementation of appropriate internal controls. These risks are assessed on an ongoing basis and are derived from a variety of external and internal sources. Management reports regularly to the Board on the key risks inherent in the business and on the way in which these risks are managed. Management also reports to the Board on any significant changes in the Group’s business and on any risks associated with such changes. The process used to identify and manage key risks is an integral part of the internal control environment.
The key procedures which the directors have established with a view to providing effective internal control are as follows:
Attendance at meetings of the Board, the Remuneration Committee and the Audit and Risk Committee
• A clear focus on business objectives as determined by the Board after consideration of the statutory responsibilities and risk profile of the Group’s businesses.
• A defined organisational structure with clear lines of responsibility, delegation of authority and segregation of duties designed to foster a beneficial control environment.
• A risk management process which considers the strategy and development of the business in the context of the annual budget process when financial plans and performance targets are set and reviewed by the Board in light of the Group’s overall objectives.
• A reporting and control system which ensures that individual businesses report to the Board on an ongoing basis on their progress in achieving objectives. The system for reporting covers both operational and financial performance, occurs on a timely basis and ensures that budgetary variances are examined and addressed promptly.
• The preparation and issue of financial reports, including the consolidated annual accounts is managed by the Group Finance department. The Group’s financial reporting process is controlled using documented accounting policies and reporting formats issued by the Group Finance department to all reporting entities (including subsidiaries) within the Group in advance of each reporting period end. The Group Finance department supports all reporting entities with guidance in the preparation of financial information. This process is supported by a network of finance managers throughout the Group, who have responsibility and accountability to provide information in keeping with agreed policies, including the completion of reconciliations of financial information to processing systems. Its quality is underpinned by arrangements for segregation of duties to facilitate independent checks on the integrity of financial data. The financial information for each entity is subject to a review at reporting entity and group level by senior management. The annual accounts are reviewed by the Board Audit and Risk Committee in advance of being presented to the Board for their review and approval.
• An internal audit function which monitors compliance with policies and the effectiveness of internal control within the Group’s businesses. The working of the internal audit function is focused on the areas of greatest risk to the Group.
• The Board Audit and Risk Committee, which approves internal and external audit plans and deals with significant control issues raised by internal and external auditors.
Ten Board meetings were held during the year ended 31 December, 2011 and the attendance record of each director is set out in the following table:
||Eligible to attend
The remuneration of the Chief Executive is determined in accordance with the guidelines issued by the Department of Public Expenditure and Reform for determining the remuneration of Chief Executive Officers of Commercial State Bodies and is subject to the approval of the Remuneration Committee of the Board of An Post and the Minister for Communications, Energy and Natural Resources. The objective is to maintain the remuneration of the Chief Executive at a level which is attractive to the individual while, at the same time, representing value for money for the Group. A proportion of the Chief Executive's remuneration is performance related and therefore, linked to the Group and individual objectives. Fees for all directors are determined by the Minister for Communications, Energy and Natural Resources with the approval of the Minister for Public Expenditure and Reform.
The disclosures made in these financial statements relating to directors' emoluments and pension information are those required under the Code of Practice for the Governance of State Bodies.
Four meetings of the Remuneration Committee were held during the year ended 31 December 2011 and the attendance record of each director, eligible to attend, is set out in the following table:
||Eligible to attend
The Remuneration Committee is currently comprised of three non-executive directors and the Chief Executive. John Fitzgerald acts as Chairman of the Committee. The Chief Executive absents himself from meetings when matters relating to his own remuneration are being considered. When necessary, non-Committee members are invited to attend. The Committee's principal responsibilities are:
• to determine, on behalf of the Board, the remuneration and other terms and conditions of employment of the Chief Executive, subject to compliance with Government Policy relating thereto;
• to determine, on behalf of the Board, the pay structures and terms and conditions of other senior personnel (as identified by the Chairman of the Board);
• to be informed of significant developments in industrial relations and to review industrial relations policies to ensure the strategy is consistent with the achievement of the business plans of An Post and, on behalf of the Board, to take decisions on such matters;
• to act, on behalf of the Board, and take all decisions related to pay and pay related matters, as the Chairman of the Board shall determine; and
• to act, on behalf of the Board, and take all significant decisions on matters such as remuneration policy, benefits, staff grading, third party recommendations and related issues.
Audit and Risk Committee
Eight meetings of the Audit and Risk Committee were held during the year ended 31 December 2011 and the attendance record of each director, eligible to attend, is set out in the following table:
*One meeting was held at short notice
||Eligible to attend
In 2011 the Audit and Risk Committee was comprised of three non-executive directors. James Hyland was Chairman of the Committee until his retirement from the Board in December 2011. When necessary, non-Committee members are invited to attend. Under its terms of reference, the Committee is to assist the Board in fulfilling its responsibilities by providing an independent review of financial reporting, by satisfying itself as to the effectiveness of the Company’s internal controls and as to the sufficiency of the external and internal audits.
The Committee is responsible for monitoring the effectiveness of the external audit process and making recommendations to the Board in relation to the appointment, re-appointment and remuneration of the external auditor. It is responsible for ensuring that an appropriate relationship between the Group and the external auditor is maintained, including reviewing non-audit services and fees. As a result of regulatory or similar requirements, it is necessary to employ the Group’s external auditor for certain audit related and non-audit services.
In order to maintain the independence of the external auditor, the Audit and Risk Committee has determined policies as to what audit related and non-audit services can be provided by the Group's external auditors and the approval process related to these services. Under these policies, work of a consultancy nature will not be offered to the external auditor unless there are clear efficiencies and value-added benefits to the Group while ensuring that the objectivity and independence of the external auditor is maintained. The Audit and Risk Committee monitors the level of fees paid to the external auditor.
The Committee reviews annually the Group’s systems of internal control and the processes for monitoring and evaluating the risks facing the Group.
The Committee also assists and, where relevant, makes recommendations to the Board on the discharging of its responsibilities in relation to security. The Committee meets with management, as well as privately with the external auditor. In February 2012, the Board approved the appointment of Mr. James Wrynn as Chairman of the Committee subject to approval by the Central Bank of Ireland and increased the number of non-executive directors on the Committee to four.
In 2011, the Audit and Risk Committee discharged its responsibilities by:
• reviewing the Group's draft financial statements for 2010 prior to Board approval and meeting and reviewing with the external auditor their reports thereon;
• reviewing the appropriateness of the Group's accounting policies;
• reviewing the potential impact on the Group's financial statements of significant matters arising during the year;
• reviewing the resources of internal audit, approving the internal audit plans, reviewing internal audit reports and dealing with significant control issues raised by the internal auditor;
• reviewing the audit fee and non-audit fees payable to the Group's external auditor;
• reviewing the external auditors’ plan for the audit of the Group's financial statements for 2011, confirmations of auditor independence and the proposed audit fee, and approving the terms of engagement for the audit on behalf of the Board;
• reviewing an external report, specially commissioned by management during the year in light of an identified incident of loss at a retail branch, and monitoring implementation of the recommendations of that report;
• reviewing the Risk Management Policy and the Risk Management Framework;
• reviewing the key risks to the business and considering the adequacy of the Group’s system of risk identification and assessment;
• reviewing an annual report on the Group's systems of internal control and its effectiveness, reporting to the Board on the results of the review and receiving regular updates on key risk areas of financial control;
• reviewing security policies and procedures for the protection of staff, postmasters and customers and for safeguarding assets and the implementation of and compliance with those policies and procedures.
The Group operates procedures to ensure that appropriate arrangements are in place for employees to be able to raise, in confidence, matters of possible impropriety, with suitable subsequent follow-up action. Reporting channels have been created whereby perceived wrongdoing may be reported via post, telephone and email, anonymously if preferred.
As all the authority regarding the appointment of directors is vested in the Minister for Communications, Energy and Natural Resources, with the consent of the Minister for Public Expenditure and Reform, the matter of constituting a Nomination Committee does not require consideration by the Board.
As noted above, in developing its corporate governance policy, the Board has sought to give effect both to the Code of Practice for the Governance of State Bodies, issued by the Department of Finance, and to the relevant main and supporting principles of good governance outlined in the Code issued by the United Kingdom's Financial Reporting Council. The directors confirm that the Group has been in compliance with the Code of Practice for the Governance of State Bodies and the relevant main and supporting principles of the Code throughout the financial year under review, with the exception of a number of areas noted above where voluntary compliance with provisions of the Code is not, given the manner of appointment of directors, the legal and shareholding structure of the Company and existing Board procedures, considered appropriate.
The directors have reviewed the Group's business plan and other relevant information and have a reasonable expectation that the Group will continue in operational existence for the foreseeable future. For this reason, the directors continue to adopt the going concern basis in preparing the financial statements.
On behalf of the Board
John Fitzgerald, Chairman
Donal Connell, Director
22 March, 2012