CORPORATE GOVERNANCE STATEMENT
(last updated 19 January 2024)
INTRODUCTION
The Board continues to be committed to achieving, maintaining and further developing high standards of corporate governance, integrity and business ethics. The Company applies the Quoted Companies Alliance’s (the “QCA”) Corporate Governance Code 2018 (the “QCA Code”) in all matters relating to the Company’s corporate governance. The QCA Code is the recognised benchmark for corporate governance of small to mid-sized quoted companies and the Board considers it to be appropriate and proportionate for the Company, given its current size and scale of operations.
THE QCA CODE
The Board undertakes an ongoing assessment of the QCA Code principles and of the Company’s level of compliance. The underlying philosophy of the QCA Code is very much aligned to the approach adopted by the Company in establishing and developing its business model, practices and policies over the years since the admission of its shares to the London Stock Exchange in 1995. The Board is particularly mindful of the importance of:
- active engagement with all of its stakeholders;
- a positive and collaborative culture throughout the Group; and
- enhancing the quality of the experience that customers, suppliers and other stakeholders have in their interactions with the Company.
The Board seeks to strike a balance between the aims of developing prudent and effective management policies, processes and procedures to achieve its good governance goals (on the one hand) and preserving the Group’s well-established open/collaborative culture and nurturing the entrepreneurial spirit and flair that has served the Group well over the years (on the other), endeavouring to ensure that the pursuit of these aims does not allow for either to be compromised.
THE QCA CODE - SIGNPOSTED DISCLOSURES
The QCA Code sets out 10 key principles of good corporate governance, designed to guide companies towards delivering growth in long-term shareholder value, establishing and maintaining an efficient, effective and dynamic management framework and promoting confidence and trust amongst all stakeholders. In this statement on Corporate Governance and/or otherwise as “signposted” in this statement, the Company will provide disclosures and explanations about how the Company is, to the extent that the Board considers it to be appropriate, meeting and applying each of these principles and provide explanations, as required, for the approaches taken.
Principle 1: Establish a strategy and business model which promote long-term value for shareholder
The Company’s business model and strategy is explained in the Annual Report. A copy of the Annual Report for the year ended 31 August 2023 (the “2023 Annual Report”) is here and, in particular, the Overview section of the Strategic Report on page 2 of the 2023 Annual Report. This strategy is commented on further in the Chair’s Corporate Governance Report on page 26 of 2023 Annual Report.
Principle 2: Seek to understand and meet Shareholder needs and expectations
During a financial year, shareholders receive either a letter informing them that the Annual Report, the Interim Report and any Circular letter to shareholders published by the Company is available to view and download from the investors section of the Company’s website or, if they have so elected, hard copy of such reports or documents. In addition, shareholders and other interested parties are able to register at the Company’s website here
to receive alerts when announcements are issued by the Company and/or to receive other information about the Group’s products and services.
Other than in relation to the financial reports, the Company communicates with its shareholders primarily through regulatory announcements. These contain the contact details of one or both of the Company's joint-managing directors and its Nominated Adviser. All announcements are issued via the London Stock Exchange and are also placed in the investors section of the Company’s website and, where appropriate, may also be sent to shareholders by post.
Over the years, members of the Board have had the opportunity to meet or talk directly to the shareholders that are not involved in the running of the business, including a number of its institutional shareholders. The Board is keen to understand the needs and expectations of its shareholders. Some of the Company's larger shareholders have been investors in the Company for a number of years. Proactive Investor presentations and interviews are provided from time to time. In addition, twice-yearly meetings are arranged with major shareholders when the Company presents its results “roadshows” and these enable the Board to obtain an understanding of shareholder objectives and concerns.
The AGM is the other means that the Company uses to converse with its shareholders about their expectations and maintain a good flow of information. Regretfully, due to the COVID-19 restrictions, the 2021 and 2022 AGMs were not conducted as in-person meetings and directors did not have the customary opportunity to engage directly with shareholders in this way. Fortunately, the 2023 AGM saw a return to in-person meetings with remote attendance also being facilitated.
The Company also facilitates communication with investors by responding to questions and enquiries sent by email to info@charactergroup.plc.uk or by post to its registered office or other offices. The members of the Board are always available to enter into discussion with the Company’s shareholders and strongly believes that an ongoing dialogue with its shareholders is key to maintaining a healthy level of transparency.
Jon Diver and Kiran Shah (the Company's joint-managing directors) are primarily responsible for shareholder liaison.
Principle 3: Take into account wider stakeholder involvement and social responsibilities and their implications for long-term success
The Company's relations with its customers, suppliers, staff and trade associations are key to the success of the Group. These relations are viewed very much as partnerships and each of them is nurtured and developed on an ongoing basis. A detailed review of the relationships upon which the Group’s business relies, how feedback is obtained from stakeholders and the actions generated as a result of that feedback is given in the Group’s ESG Report on pages 13 – 20 of the 2023 Annual Report.
Principle 4: Embed effective risk management, considering both opportunities and threats, throughout the organisation
The main risks and uncertainties affecting the business are set out in the 2023 Annual Report in the section entitled “Principal Risks and Uncertainties” (on pages 9 and 10) and in the Corporate Governance Report (on page 26 of the 2023 Annual Report).
These risks are monitored on a regular basis by the Board. The Executive Review also explains how the Board seeks to deal with and mitigate these risks.
Principle 5: Maintain the board as a well-functioning, balanced team led by the chair
Details of the Board are set out under the heading “The Board” in the Corporate Governance Report (on pages 26 – 27 of the 2023 Annual Report). Since the publication of the 2023 Annual Report, Richard King has stepped down as the Company’s non-executive chair and as a director of the Company and Carmel Warren has been appointed as the Board’s chair in his place, such resignations and appointment becoming effective on 19 January 2024.
Principle 6: Ensure that between them the directors have the necessary up-to-date experience, skills and capabilities
The list and functions of the directors is set out on page 23 of the 2023 Annual Report and details of the skills of each member of the Board are set out in her/his biography (see the directors’ biographies here). Further information related to the training of the directors is set out in the Corporate Governance Report (on page 29 of the 2023 Annual Report).
Principle 7: Evaluate board performance based on clear and relevant objectives, seeking continuous improvement
The directors consider that the size of the Company does not justify the use of third parties to evaluate the performance of the Board, though this will be kept under regular review.
The annual performance evaluation of the Board and its committees was conducted in October/November of this year. The evaluation is based on responses given by each of the directors to a detailed questionnaire, which seeks to probe many aspects of the role and effectiveness of the Board and its constituents. Before being deployed this year, a review of the questions on the form was undertaken and amendments made to focus on areas where it was considered that the evaluation process should particularly examine. The initial part of the evaluation required each director to complete the form, grading the Board on a scale to enable overall aggregate scoring and, where possible, comparison against previous year’s evaluations. In addition, the directors were invited to volunteer any additional comments, as considered necessary or appropriate. A report was compiled from the responses given, with no attribution given for the responses or comments received. The report was then considered by each of the directors and discussed at the November 2023 meeting of the Board. This process has identified areas where governance and/or practices may be strengthened, whilst ensuring that essential culture and strengths of the business are preserved.
Individual evaluations of the directors (other than the Chair) were undertaken by the then Chair in October 2023. Again, this was based on a questionnaire and, before deployment, the questionnaire was reviewed and updated/revised. Initially, the Chair completed an evaluation questionnaire and provided written comments in respect of each director. The Chair then shared his completed evaluation for each of the directors with those directors and gave each of them the opportunity to respond to that evaluation and to initiate a one-on-one dialogue. This is intended to prompt an ongoing conversation between the Chair and the individual directors, providing a platform to share views on aspects of each director’s role and performance and encourage each director to further direct, develop and grow his/her skills and contributions to the Board’s discharge of its functions.
The evaluation of the then Chair was undertaken by the other non-executive directors in September 2023. In much the same way as the other individual director evaluations, such other non-executive directors each completed an evaluation questionnaire and otherwise volunteered written comments in respect of the Chair. Those completed responses were then provided to the Chair and he was given the opportunity to respond to and or to discuss those evaluations with non-executive directors.
The directors believe that these evaluation processes have been very informative and will benefit the Board and its constituents going forward. Whilst these processes make it clear that there will always be room for improvement, it is believed that the performance of the executive and non-executive directors continues to be effective and demonstrates commitment to the roles and the Board, as a whole, believes that the Board and its committees are operating satisfactorily and continue to have a positive direction of travel.
Succession planning continues to be a point of focus for the Board and, in particular, the Nominations Committee of the Board, which has a central role to play in this area. It is recognised that plans need to be further developed to manage this important aspect of the Board’s responsibilities to ensure the continued efficiency of the operation of the Board, the further development of the Group’s strategy, the mentoring of its existing talent and the attraction of new valuable team members to the Group’s ranks.
Principle 8: Promote a corporate culture that is based on ethical values and behaviours
Character has a strong corporate identity which has been instrumental in nurturing and retaining the talents that are essential to ensure the development and prosperity of the business.
The Group employs a total of 209 people across its locations in the UK, Scandinavia and Asia. The team is dedicated to and focused on developing, manufacturing, marketing, selling and distributing innovative, engaging and exciting toys that meet the high expectations that the Group’s customers and the consumer demand, in terms of quality, value and sustainability.
There is a spirit of collaboration at all levels of personnel within the Group (from the warehouse floor through to the boardroom), informed and reinforced by a strong, inclusive culture. This sees its expression in the continuous hard work, dedication and loyalty of the Group’s personnel and in the strong and enduring bonds with the Group’s customers and suppliers. This strong team spirit underpins the strength of the Group’s model and provides the Company with the dynamics that assures the Group of its continued ability to deliver performance and results.
Principle 9: Maintain governance structures and processes that are fit for purpose and support good decision-making by the board.
The Board and governance structures for the Group are detailed under the heading “The Board” in the Chair’s Corporate Governance Report (on pages 26 – 27 of the 2023 Annual Report). Plans and developments affecting this framework for the Company’s governance will be reported in this section, as and when they are adopted or take effect. In this regard, you are directed to the comments in relation to Principle 5 above which detail board changes that have taken effect since the publication of the 2023 Annual Report.
Biographies for each of the directors are here. These biographies demonstrate the range and blend of knowledge, experience and backgrounds available to the Board to enable it to manage the Company’s business, engage with all stakeholders and exercise informed and reasoned judgement in relation to all issues faced by the Company, whether in relation to strategy, performance, risk assessment, resources, the environment, social responsibility or standards of conduct, all of which are considered vital to the success of the Company.
The Company has appointed:
- an independent non-executive Chair, responsible for overseeing an effective Board – Carmel Warren. Carmel is considered to be sufficiently removed from the day to day operations of the Company to retain an objective view and to challenge management and, thereby, is well able to represent the interests of all the shareholders;
- two joint-managing directors, responsible for the overall strategy of the Group and for the Group’s operations as a whole – Jon Diver and Kiran Shah;
- a Group financial director, responsible for the Group’s financial controls – Kiran Shah;
- a managing director of UK Operations – Joe Kissane;
- a Group marketing director – Jerry Healy;
- two further independent non-executive directors - Clive Crouch (senior non-executive director) and Jonathan Shearman and one further non-executive director – Mike Hyde who, although not viewed as independent (due to his previous executive role with the Group), are, along with the Chair, considered to provide a balance to the executive directors.
The Board is responsible for:
- formulating, reviewing and approving the Company’s strategy, budgets, acquisition and divestment policy, major capital expenditure, overall capital structure, significant financing and operational matters and corporate actions;
- the appointment and removal of any director; and
- overseeing the Group’s progress towards achieving its goals.
Effectively, no decision of any material consequence is made other than by the directors and all directors participate in the key areas of decision-making.
Ray Smyth, a solicitor and the Company’s full-time General Counsel, is the Company Secretary.
The Board has established Audit, Remuneration and Nominations Committees, comprised solely of independent non-executive directors, though certain executive directors are regularly invited to attend key meetings, as required by the non-executive directors.
The audit committee is comprised of Carmel Warren (Chair), Clive Crouch and Jonathan Shearman.
The audit committee has the primary responsibility for monitoring the quality of internal controls to ensure that the financial performance of the Company is properly measured and reported on. The audit committee, amongst other things, examines matters relating to the financial affairs of the Company and determines the terms of engagement of the Company’s auditors and, in consultation with the auditors, the scope of the audit. It receives and reviews reports from management relating to the half yearly and from the Company’s auditors relating to the annual accounts and the accounting and the internal control systems in use throughout the Group. The audit committee has unrestricted access to the Company’s external auditors.
Given the size of the Company, the relative simplicity and coherence of its systems and the close involvement of senior management, the committee considers that there is no current requirement for an internal audit function, though this is kept under regular review.
Whilst the audit committee performs this monitoring and examination role, the ultimate responsibility for reviewing and approving the Group’s annual report and accounts and the half year reports remains with the full Board.
In addition, the Audit Committee is responsible for developing the Company’s approach to risk identification and management.
The audit committee has met on 4 occasions in the last 12 months and those meetings were attended by all members of the committee.
A copy of the terms of reference of the audit committee is here.
The remuneration committee is comprised of Jonathan Shearman (Chair), Clive Crouch and Carmel Warren.
The remuneration committee reviews the performance of the executive directors, and such other members of the executive management as it is designated to consider and makes recommendations to the Board in respect of the directors’ remuneration and benefits packages and the terms of their appointments. The remuneration committee also considers recommendations to the Board on proposals for the granting of share options and other equity incentives pursuant to any employee share option scheme or other equity incentive plans in operation from time to time.
The remuneration of non-executive directors is a matter for the executive directors. No director may be involved in any decision as to his own remuneration.
The remuneration committee has met on 2 occasions in the last 12 months and those meetings were attended by all members of the committee.
A copy of the terms of reference of the remuneration committee is here.
The nominations committee is comprised of Clive Crouch (Chair), Carmel Warren and Jonathan Shearman.
The nominations committee has responsibility for reviewing the structure, size and composition (including the skills, knowledge and experience) of the Board and giving consideration to succession planning. The nomination committee also has responsibility for recommending new appointments to the Board and to the other Board committees. It is responsible for identifying suitable candidates for Board membership and monitors the performance and suitability of the current Board on an on-going basis.
The nominations committee meet on 1 occasion in the last 12 months and that meeting was attended by all members of the committee.
A copy of the terms of reference of the nominations committee is here.
From time to time, additional committees or working groups may also be set up by the Board to consider specific issues, if/as the need arises, and to report to the Board.
All non-executive directors of the Company who are members of these committees are entitled to seek, at the Company’s expense, independent professional advice in connection with their roles on these committees.
Bribery and Anti-corruption Policy
The Company has a robust anti-bribery and anti-corruption policy, which applies to the Board, all employees of the Company and persons associated with the Company (such as consultants, suppliers and contractors), requiring the observance of a zero-tolerance position on bribery and corruption. The policy provides guidance on how to recognise and deal with bribery and corruption issues and their potential consequences, while preserving acceptable boundaries of corporate hospitality and entertainment. The Company requires all employees and persons associated with the Company to conduct their day-to-day business activities in a fair, honest and ethical manner, be aware of and refer to this policy in all of their business activities worldwide and to conduct business on the Company’s behalf in compliance with it. Management at all levels are responsible for ensuring that those reporting to them, internally and externally, are made aware of and understand this policy.
Share Dealing Policy
The Company has a share dealing policy regulating trading by the directors and other persons discharging managerial responsibilities (and their closely associated persons) which contains provisions appropriate for a company whose shares are admitted to trading on AIM (particularly relating to dealing during closed periods which are consistent with the requirements of the UK Market Abuse Regulation). The Company will take all reasonable steps to ensure compliance by the directors and any relevant employees with the terms of that share dealing policy.
Modern slavery
The Company’s policy on Modern Slavery is here. Management at all levels are responsible for ensuring that those reporting to them, internally and externally, are made aware of and understand this policy.
UK City Code on Takeovers and Mergers
The Company is subject to the UK’s City Code on Takeovers and Mergers.
Principle 10: Communicate how the company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders
The notices of AGM, the Annual and Interim reports and all circulars issued by the Company since 2001 are available on the Company's website, here.
The report of the polls taken at AGM held on 19 January 2024 is here.