Chairman’s Statement on Corporate Governance
All members of the Board believe strongly in the value and importance of good corporate governance and in our accountability to all the Company’s stakeholders, including shareholders, staff, customers and suppliers. In the statement below, we explain our approach to governance, and how the Board and its committees operate.
The corporate governance framework which the Company operates, including Board leadership and effectiveness, Board remuneration, and internal control, is based upon practices which the Board believes are proportional to the size, risks, complexity and operations of the business and is reflective of the Group’s values. The Board adopts the Quoted Companies Alliance’s (QCA) Corporate Governance Code for small and mid-size quoted companies.
The QCA Code is constructed around ten broad principles and a set of disclosures. The QCA has stated what it considers to be appropriate arrangements for growing companies and asks companies to provide an explanation about how they are meeting the principles through the prescribed disclosures.
|1 – Establishing a strategy and business model which promote long-term value for shareholders|
|2 – Seek to understand and meet shareholder needs and expectations||Shareholder communications and engagement|
3 – Consider wider stakeholder and social responsibilities and their implications for long-term success
|Shareholder communications and engagement|
4 – Embed effective risk management, considering both opportunities and threats, throughout the organisation
See this section and the ‘Principal Risks and Uncertainties’ in the 2020 Report and Accounts
|Maintain a dynamic management framework|
|5 – Maintain the board as a well-functioning, balanced team led by the Chairman||Board structure, skills and compliance|
|6 – Ensure that between them the Directors have the necessary up-to-date experience, skills and capabilities||
See this section and the Director profiles
7 – Evaluate board performance based on clear and relevant objectives, seeking continuous improvement
|Board evaluation and performance|
8 – Promote a corporate culture that is based on ethical values and behaviours
|Corporate culture, environmental and social responsibility|
9 – Maintain governance structures and processes that are fit for purpose and support good decision-making by the Board
|Board structure, skills and compliance|
10 – Communicate how the Company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders
|Shareholder communications and engagement|
The Board considers that it does not depart from any of the principles of the QCA Code.
Establishing a strategy and business model which promotes long-term value for shareholders
The mission statement of the Group is to shape the future of medicine by developing novel cancer therapies and powerful diagnostics using our proprietary Affimer® and pre|CISION™ platforms.
Our strategy is to:
- build a portfolio of novel, clinically differentiated cancer therapies leveraging the key benefits of the Affimer® and pre|CISION™ platforms;
- create a fast-paced, nimble, delivery-focused drug discovery and development organisation to transform Avacta into a clinical stage biotech with multiple clinical programmes and an exciting pre-clinical pipeline;
- establish partnerships with global pharmaceutical companies for our technology platforms and pipeline;
- grow a profitable revenue stream from Affimer® diagnostics through partnerships and licensing as well as in-house product development.
The Board believes that following the significant fund-raise during 2020 and its strong balance sheet, it has the right strategy in place to be able to deliver major value inflection points from its well-funded therapeutic programmes and from its diagnostic business’ revenue generation in the near to medium term that should drive significant future shareholder value.
Board structure, skills and compliance
The Board has a collective responsibility and legal obligation to promote the interests of the Company and to define the corporate governance arrangements. At 22 April 2021, the Board comprised three Non-executive Directors and two Executive Directors.
The division of responsibilities between the Chairman and the Chief Executive Officer is clearly defined. The Chairman’s primary responsibility is ensuring the effectiveness of the Board and setting its agenda. The Chairman is not involved in the day-to-day business of the Group. 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.
The Chairman, Dr Eliot Forster, was appointed as Chairman to the Board in June 2018. Prior to his appointment to the Board, he was not involved with any part of the Avacta Group and has been considered to be independent since his appointment. Eliot has significant experience within US and European life science companies, in particular in the therapeutics area where the Group’s Affimer® and pre|CISION™ technologies have a significant focus. Eliot’s time commitment is one to two days per month.
The Chief Executive Officer, Dr Alastair Smith, was appointed to the Board in September 2007. Alastair has 14 years’ experience as Chief Executive Officer of an AIM-listed business, having founded the business and has been responsible for the strategic development of the Group, leading fund-raising and M&A activities during this time. Alastair’s time commitment is full time.
Dr Trevor Nicholls was appointed as Non-executive Director in August 2013 and was Chairman from August 2013 to June 2018. Prior to his appointment to the Board, he was not involved with any part of the Avacta Group and has been considered to be independent since his appointment. Trevor has vast experience with life science and reagents companies and has provided significant oversight into the development of the Affimer® reagents and diagnostics proposition. During the period Trevor has been Chairman of the Remuneration Committee. Trevor’s time commitment is one to two days per month.
Paul Fry was appointed as a Non-executive Director in February 2020. Prior to his appointment to the Board, he was not involved with any part of the Avacta Group and has been considered independent since his appointment. Paul has an extensive financial background within the life sciences sector and has been Chairman of the Audit Committee since his appointment to the Board. Paul’s time commitment is one to two days per month.
Tony Gardiner was appointed as an Executive Director in January 2016 and fulfils the role of Chief Financial Officer for the Group. Tony has over 25 years’ experience in senior financial and operational roles across small and large organisations and has previously served as CFO in an AIM-listed business. In addition to this role, Tony is also Company Secretary and provides advice and guidance to the Board and Non-executive Directors. The Board acknowledges that best corporate governance practice would not combine the role of an Executive Director and Company Secretary; however, given the relative size of the Group at this stage, the Board is comfortable with Tony performing both roles but will review the position as the Group grows. Tony’s time commitment is full time.
The Board met regularly throughout the year, largely via video conferencing methods, with ad hoc meetings also being held. The role of the Board is to provide leadership of the Company and to set strategic aims but within a framework of prudent and effective controls which enable risk to be managed to acceptable levels. The Board has agreed the Schedule of Matters reserved for its decision, which includes ensuring that the necessary financial and human resources are in place to meet its obligations to its shareholders and others. It also approves acquisitions and disposals of businesses, major capital expenditure, annual financial budgets and recommends interim and final dividends. It receives recommendations from the Audit Committee in relation to the appointment of an auditor, their remuneration and the policy relating to non-audit services. The Board agrees the framework for Executive Directors’ remuneration with the Remuneration Committee and determines fees paid to Non-executive Directors. Given the relative size of the Company, there is currently no separate Nomination Committee and the Board, with advice from the Remuneration Committee, takes responsibility for any recruitment of Executive and Non-executive Directors, together with succession planning. Board papers are circulated before Board meetings in sufficient time to allow meaningful review and preparation by all Board members.
Conflicts of interest
Each Director has a duty to avoid situations in which he has or can have a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the Group. The Board requires each Director to declare to the Board the nature and extent of any direct or indirect interest in a proposed transaction or arrangement with the Group and the Company Secretary maintains a register of Directors’ other interests. The Board has power to authorise any potentially conflicting interests that are disclosed by a Director.
Board evaluation and performance
The performance of the Board is evaluated on an ongoing basis informally with reference to all aspects of its operation including, but not limited to: the appropriateness of its skill level; the way its meetings are conducted and administered (including the content of those meetings); the effectiveness of the various Committees; whether corporate governance issues are handled in a satisfactory manner; and, whether there is a clear strategy and objectives.
A new Director, on appointment, is briefed on the activities of the Company. Professional induction training is also given as appropriate. The Chairman briefs Non-executive Directors on issues arising at Board meetings if required and Non-executive Directors have access to the Chairman at any time. Ongoing training is provided as needed. Directors are continually updated on the Group’s business by means of Board presentations on risk and compliance matters as well as issues covering pensions, social, ethical, environmental and health and safety.
In the furtherance of their duties or in relation to acts carried out by the Board or the Company, each Director has been informed that they are entitled to seek independent professional advice at the expense of the Company. The Company maintains appropriate cover under a Directors and Officers insurance policy in the event of legal action being taken against any Director.
Each Director is appraised through the normal appraisal process. The Chief Executive is appraised by the Chairman, the executive Board members by the Chief Executive and the non-executive Board members by the Chairman. The Senior Independent Director seeks the views of all the Directors on the performance of the Chairman and discusses their combined views with him. Each Director has access to the services of the Company Secretary if required.
The Non-executive Directors are considered by the Board to be independent of management and are free to exercise independence of judgement. The Non-executive Directors have never been employees of the Company nor do they participate in any of the Company’s pension schemes or bonus arrangements. They receive no remuneration from the Company other than the Directors’ fees. Dr Eliot Forster, shortly after his appointment to the Board in 2018, received an award of share options, which were equivalent to one year’s fee for his services as Chairman. The share options vest equally over a three-year period and do not carry any performance obligations (further details are provided within the Remuneration Report). The Board and Company’s advisors do not consider the share options, given their relatively low value in relation to Dr Forster’s fee for his services and his income from other roles outside of the Avacta Group, to impact his independence.
Directors are subject to re-election at the Annual General Meeting following their appointment. In addition, at each Annual General Meeting one third (or whole number less than one third) of the Directors will retire by rotation.
As the Group evolves and develops the composition of the Board will change to reflect the priorities of the Group. There are currently no female or ethnic minority Board members, however the Group is satisfied that as further Directors are added to the Board that there will be no limitation of opportunities due to diversity (including gender).
The table below shows the number of Board meetings and Committee meetings held during the period and the attendance of each Director.
The Audit Committee (‘the Committee’) is established by and is responsible to the Board.
Paul Fry is the Chair of the Committee and is considered to be an independent Non-executive Director. Paul is a member of the Chartered Institute of Management Accountants and brings significant breadth of recent and relevant financial experience including his current role as Chief Financial Officer of Vectura plc, which is listed on the Main Market of the London Stock Exchange. The other current members of the Committee – Eliot Forster, Trevor Nicholls are both Non-executive Directors – have gained wide experience in regulatory, commercial and risk issues.
The terms of reference of the Audit Committee include the following responsibilities:
- To monitor and be satisfied with the truth and fairness of the Company’s financial statements before submission to the Board for approval, ensuring their compliance with the appropriate accounting standards, the law and the Listing Rules of the Financial Services Authority
- To monitor and review the effectiveness of the Company’s system of internal control
- To make recommendations to the Board in relation to the appointment of the external auditor and their remuneration, following appointment by the shareholders in the Annual General Meeting, and to review and be satisfied with the auditor’s independence, objectivity and effectiveness on an ongoing basis
- To implement the policy relating to any non-audit services performed by the external auditor
The Board is responsible for risk management and reviewing the internal controls systems. The internal control systems are designed to manage rather than eliminate the risk of failure to achieve business objectives, and can only provide reasonable, and not absolute assurance against material misstatement or loss. Given the relative size of the Group, there is not currently a separate internal audit function.
The Group highlights potential financial and non-financial risks which may impact on the business as part of the risk management procedures in the form of a Risk Register. The Board receives these regular reports and monitors the position at Board meetings. There are ongoing processes for identifying, evaluating and mitigating the significant risks faced by the Group, which are reviewed on a regular basis. The review process involves a review of each area of the business to identify material risks and the controls in place to manage these risks given the rapid acceleration of production, regulatory and supply chain considerations within the Diagnostics division and the preparations for Avacta’s first clinical trials in the Therapeutics division. The process is undertaken by the Chief Financial Officer and senior managers with responsibility for specific controls. Where any significant weakness or failing is identified, implementation of appropriate remedial action is completed following approval by the Board.
The Group maintains appropriate insurance cover in respect of actions taken against the Directors because of their roles, as well as against material loss or claims against the Group. The insured values and type of cover are comprehensively reviewed on a periodic basis.
The Remuneration Committee is chaired by Trevor Nicholls and the other current members of the Committee are Eliot Forster and Paul Fry are both Non-executive Directors. The Committee meets at least once a year with the Chief Executive and Chief Financial Officer in attendance as appropriate.
The terms of reference of the Remuneration Committee include the following responsibilities:
- To determine the framework and policy, together with the individual packages of the remuneration of the Executive Directors and certain other senior executives of the Group
- To determine targets for performance-related pay schemes
- To review employee benefit structures
- To produce an annual report of the Committee’s remuneration policy
Shareholder communications and engagement
Responsibility for investor relations sits with the Chief Executive Officer, supported by the Chief Financial Officer and input from other members of the Senior Management Team as required.
The Company is committed to communicating openly with its shareholders to ensure that its strategy and performance are clearly understood. We communicate with shareholders through the Annual Report & Accounts, full-year and half-year announcements, trading updates and the Annual General Meeting, and we encourage shareholders’ participation using technology platforms such the Investor Meet Company.
A range of corporate information (including the Annual Report & Accounts) is also available to shareholders, investors and the public on our website, www.avacta.com. The Company uses intermediaries such as Vox Markets and Directors Talk to ensure that key updates provided via RNS releases are relayed to as many shareholders as possible. The Directors encourage the participation of all shareholders, including private investors, at the Annual General Meeting and, as a matter of policy, the level of proxy votes (for, against and vote withheld) lodged on each resolution is declared at the meeting and published on the Company’s website.
The Chief Executive Officer and Chief Financial Officer meet regularly with institutional shareholders to foster a mutual understanding of objectives and communicate back to the Board. The Chairman and Senior Independent Director are also available to discuss governance and other matters directly with major shareholders.
The Company also holds science days, where investors and significant private shareholders are provided with an update on the Group’s scientific activities by members of the Board and Senior Management Team.
Share dealing code
The Company has adopted a code on dealings in relation to the securities of the Group. The Company requires the Directors and other relevant employees of the Group to comply with the Share Dealing Code and takes proper and reasonable steps to secure their compliance.
Corporate culture, environmental and social responsibility
The Executive Directors provide regular updates to staff, most of whom are either shareholders or holders of share options, on the progress of the Group. These updates follow key events within the financial reporting calendar and aim to give staff the same level of insight provided to institutional shareholders and analysts, providing details of the business objectives, strategy and business model, together with sharing of technical progress across the various teams within the Group. Senior management work across all the Group’s facilities and actively seek regular feedback from staff to ensure that the strategy and aims of the Group are readily understood.
The Board recognises the importance of considering corporate social responsibility in operating the business and the impact of its activities relating to health, safety and environmental issues. Due to the nature of the Group’s divisions, it has a low environmental impact, and it seeks to minimise any environmental impact of its operations and complies with relevant regulations and legislation.
The Group has well-defined health and safety policies and procedures, complying with current legislation and safeguarding staff, contractors and visitors. All Group sites have been regularly assessed as we have worked through the COVID-19 pandemic to ensure that facilities are COVID-safe, with the levels of staff on site carefully managed to ensure a safe and secure working environment for those staff who have been unable to work from home. Alastair Smith is the Executive Director responsible for health and safety, chairing quarterly Group meetings and reporting on health and safety matters to the Board. The Group’s policies and procedures form a part of staff induction and training programmes. Regular internal safety audits are carried out and no significant issues have been identified by these audits.
Dr Eliot Forster
22 April 2021