As the Board acts on behalf of the company’s shareholders and is accountable to them, the Board seeks to identify the expectations of shareholders, as well as other regulatory and ethical expectations and obligations. In addition, the Board is responsible for identifying areas of significant business risk and ensuring arrangements are in place to adequately manage those risks. The Board seeks to discharge these responsibilities in a number of ways.
The responsibility for the operation and administration of the consolidated entity is delegated by the Board to the Managing Director and the Executive Management Team. The Board ensures that this team is appropriately qualified and experienced to discharge their responsibilities and has in place procedures necessary to assess the performance of the Managing Director and the Executive Management Team.
The Board is responsible for ensuring that management’s objectives and activities are aligned with the expectations and risks identified by the Board. The Board has a number of mechanisms in place to ensure this is achieved.
In addition to the audit committee referred to below, these mechanisms include the following:
Principle 2 - Structure of the Board to Add Value
The composition of the Board is determined in accordance with the following principles and guidelines:
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The Board should comprise at least six directors and should maintain a majority of independent non‑executive Directors. Following the resignation of Mr Darryl Somerville, the board has not maintained a majority of independent directors. The board has determined that the current number of directors and their mix of skills is appropriate to enable it to discharge its responsibilities without compromising the principles of independence.
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The Chairman must be an independent non‑executive Director;
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The Board should comprise directors of an appropriate range of qualifications and expertise; and
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The Board shall meet at least monthly and follow meeting guidelines set down to ensure all directors are made aware of, and have available all necessary information, to participate in an informed discussion on all agenda items.
The skills, experience and expertise of each Director in office at the date of the annual report is included in the Directors’ Report. Directors of Devine Limited are considered to be independent when they are independent of management and free from any business or other relationship that could materially interfere with, or could reasonably be perceived to materially interfere with, the exercise of their unfettered and independent judgment.
In the context of director independence, “materiality” is considered from both the Company and individual Director perspective. The determination of materiality requires consideration of both quantitative and qualitative elements. Qualitative factors considered include whether a relationship is strategically important, the competitive landscape, the nature of the relationship and the contractual or other arrangements governing it and other factors which point to the actual ability of the Director in question to act in an independent manner.
In accordance with the definition of independence above, and the materiality thresholds set, the following table identifies the independence status of each Director in office during the period and details of the duration of their term as at 30 June 2009.
To assist the directors in exercising their responsibilities, there are procedures in place to enable Directors, in furtherance of their duties, to seek independent professional advice at the company’s expense.
It is part of the responsibility of the Board to assess whether or not it continues to operate within established guidelines and with the appropriate skill mix. In order to ensure that the Board continues to discharge its responsibilities in an appropriate manner, the Chairman reviews the performance of all Directors annually and may ask Directors whose performance is considered unsatisfactory to retire. The performance of the Board and key executives is reviewed against both measurable and qualitative indicators and is aligned with the financial and non-financial objectives of Devine Limited.
Devine has not established a nomination committee as it is considered appropriate that any new appointments to the Board should be considered by the board as a whole. Where a requirement to appoint a new Director occurs, an independent consultant who is not a Director will be used to assist in the selection process if felt appropriate.
Principle 3 - Promote Ethical and Responsible Decision Making
The Company has in place a number of policies to assist staff when performing their duties by providing guidance on matters of an ethical and sensitive nature. The following are amongst a number of documents that are published on the company’s Policy and Procedures Intranet site:
- Ethical Code of Conduct
- Management Principles and Practices
- Confidential Information
- Conflicts of Interest
These policies are communicated to all new staff via an “Employee Handbook” that extracts key aspects of the policies for review by new staff as part of their induction.
The current employee handbook identifies a number of areas where staff and management need to be aware of the legal and other obligations of all stakeholders. Significant areas that affect the business include occupational health and safety, environmental considerations surrounding major developments and construction activities, and the interests of shareholders, finance providers and customers.
The Company has a Board approved policy of only allowing trading in the company’s shares by Directors, staff and their related parties, in the period of 42 days following an announcement, which is deemed to be price sensitive, being made by the Company to the Australian Stock Exchange. The Board may on occasion relax this policy to permit share trading with specific Board approval and only at times where the Board considers that the market is well informed about the Company. The Board has also determined that should any margin loans be taken out by Directors in respect to their shareholding in Devine Limited, that these loans be immediately disclosed to it by the relevant Director. In all cases, Directors, staff and their related parties are reminded that they must be satisfied that their actions comply with rules relating to insider trading.
Principle 4 - Safeguard the Integrity of Financial Reporting
An audit committee was established when the Company listed on the ASX in 1993 and has been in continuous operation since that time. It operates under a charter approved by the Board and meets at least quarterly.
The current members of the audit committee are:
- P J Ferris AM (Chairman of the Audit Committee)
- R W Parris
- G E McOrist
Details of these Directors and their attendance at audit committee meetings are set out in the Directors’ report.
It is the Board’s responsibility to ensure that an effective internal control framework exists within the entity. This includes internal controls to deal with both the effectiveness and efficiency of significant business processes, as well as the safeguarding of assets, maintenance of proper accounting records, and reliability of financial information as well as non-finance considerations. The Board has delegated the responsibility for the establishment and maintenance of a framework of internal control and ethical standards for the consolidated entity to the audit committee.
The audit committee is responsible for nomination of the external auditor and reviewing the adequacy, scope and quality of the annual statutory audit and half year statutory review. The committee has considered the issue of independence of the statutory auditor and is satisfied that the appointment and conduct of the statutory auditor and the practices and procedures adopted are appropriate with respect to auditor independence.
The committee also provides the Board with additional assurance regarding the reliability of financial information including the financial statements. The Managing Director and Chief Financial Officer (CFO) have made the following certifications to the Board:
- That the company’s financial reports are complete and present a true and fair view, in all material respects, of the financial condition and operational results of the company and group and are in accordance with relevant accounting standards.
- That the above statement is founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the Board, and that the company’s risk management and internal compliance and control processes are operating efficiently and effectively in all material respects.
The company’s full time internal auditor, the external auditors and the CFO attend each meeting of the committee. In accordance with the committee’s charter, the internal and external auditors are provided with an opportunity to discuss matters with the committee in the absence of management at each meeting. The audit committee has authority, within the scope of its responsibilities, to seek any information it requires from any employee or external party.
Principle 5 - Make Timely and Balanced Disclosures
The Board of Directors aims to ensure that the shareholders, to whom they are accountable, are informed of all information necessary to assess the performance of the Company. Information is communicated to shareholders through:
- The annual report, which is made available to all shareholders;
- The half-yearly report and shareholder bulletin distributed to all shareholders;
- The Annual General Meeting and other meetings so called to obtain approval for Board action as appropriate; and
- Media releases and continuous disclosure announcements made through the ASX and reporting to shareholder from time to time on the performance of the Company.
Copies of this information are available on the company’s web site - www.devine.com.au under “Investor Relations”.
Principle 6 - Respect the Rights of Shareholders
Key financial reports including the half year shareholders bulletin and annual reports are made available to shareholders to provide them with information relevant to the operation of the Company. Additional information, including these reports, is maintained on the company’s investor relations web site. The company’s external auditor has been invited to attend the AGM in the past and, as now required by the corporations law, will continue to be in attendance at future meetings to field questions from shareholders.
Principle 7 - Recognise and Manage Risk
A significant number of activities exist within the building industry that require active monitoring and control. Devine has updated its risk management policies and procedures and is constantly monitoring its exposure to risk. Formal risk reporting processes for both Strategic and Tactical / Operational risk areas have been implemented and incorporate processes that already exist for major projects and which require risk assessments to be included in proposals submitted to the Board. The development of risk management processes within new business activities will occur over time.
As part of this constant monitoring and review process, the company has recently undertaken a review of its risk exposures within its Housing and Land Division and identified potential new risk areas and reclassified and rated a number of previously identified risk exposures. The company has established a program to review and update the potential areas of risk in relation to its Property Development and Construction Divisions and when completed, this will facilitate the restatement of its overall risk heat chart for the Consolidated Group.
Internally, the implementation of risk management processes is resourced with the assistance of the company’s full timeinternal auditor. This assists in ensuring that significant risk areas and associated key controls are included in internalaudit reviews and facilitate reporting on the effectiveness of those controls to the audit committee and ultimately the Board.
Management reports to the board on the company’s key risks and the extent to which it believes these risks are being adequately managed. The reporting on risk by management is a standing agenda item at monthly board meetings.
Principle 8 - Remunerate Fairly and Responsibly
The Board is responsible for determining and reviewing compensation arrangements for the Directors as well as the two Executive Directors and the senior management team. A remuneration committee is in place to assist the board when reviewing Executive Director and senior executive remuneration.
The current members of the remuneration committee are:
- D J Ridley (Chairman of the Remuneration Committee)
- P J Ferris AM
- V A Vella
- D H T Devine (executive remuneration only)
It is the company’s objective to provide maximum stakeholder benefit from the retention of a high quality board and executive team by remunerating Directors and senior executives fairly and appropriately and with reference to relevant employment market conditions. To assist in achieving this objective, the remuneration committee links the nature and amount of the executive Directors’ and senior executives’ emoluments to the company’s financial and operational performance. The expected outcomes of the remuneration structure are:
- To provide satisfactory returns to shareholders
- Retention and motivation of key executives
- Attraction of quality management to the Company
- Performance incentives which allow executives to share the rewards of success
Details on the amount of remuneration and all monetary and non-monetary components for each of the five highest paid (non-Director) executives, specified executives, key management personnel, and all Directors during the year, are provided in the Directors’ Report.
When considering the entitlement by key management personnel to the receipt of bonuses, options and other incentive payments, discretion is exercised by the Board in relation to the payment of these benefits, having regard to the overall performance of the consolidated group and the performance of the relevant operating division.
The share based compensation plan rules do not contain a restriction on removing the ‘at risk’ aspect of the instruments granted to executives, as required by Corporate Governance principle 8.3. The Board considers that the opportunity to enter into such arrangements, given the nature of the performance hurdles is extremely limited.
The actual performance of the consolidated group and operating divisions is measured against performance targetsestablished at the start of the year and approved by the board. There is no scheme to provide retirement benefits, other than statutory superannuation, to non-executive directors.