Corporate governance

Mothercare aspires to achieve high standards of Corporate Governance in order to promote the interests of investors, customers, staff and other stakeholders.

Details of the members of the Mothercare plc board are set out in the Management Board section. Ordinarily the Mothercare plc board comprises two full-time executive directors, a part-time chairman and six independent non-executive directors. Directors are subject to annual re-election by shareholders. The board is run on a "unitary" basis.

The chairman and the non-executive directors have been appointed so as to ensure that the appropriate balance is achieved between skills, experience and independence as well as their ability to advise on the range of issues, both domestic and international, that face the company from time to time.

A key responsibility of the role of the directors is ensuring that Corporate Governance compliance by the company is appropriate and reflects, so far as is possible, best practice.

In addition to their board responsibilities, the non-executive directors serve on the Nomination Committee and on the Audit and Remuneration Committees as indicated in their biographies.

Their terms of reference are:

1
Audit & risk committee
  1. Constitution
    1. Meetings of the Audit and Risk Committee (the Committee) take place at least four times in each year and otherwise as required. A meeting takes place before the Board meetings that are due to approve the half-year and full-year accounts respectively. The remaining two meetings are held to consider accounting policies, governance and other matters relating to Internal Control and Management.
    2. Outside the normal meeting schedule, the Chairman of the Committee will maintain a dialogue with key individuals involved in the Company’s governance, including the Board Chairman, the CEO, the CFO, the Group Company Secretary and the external lead audit partner.
  2. Membership
    1. Member of the Committee are appointed by the Board on the recommendation of the Nomination Committee in consultation with the Chairman of the Committee. The Committee shall comprise at least three of the independent non-executive directors.
    2. The Chairman of the Committee shall be an independent non-executive director with relevant financial experience. In the absence of the Committee Chairman, the chairman shall be whoever is appointed by the Committee to chair that meeting.
    3. The Chairman of the Board, the remaining non-executive directors and the executive directors may attend at the invitation of the Chairman of the Committee. Other non-members may be invited to attend all or part of any meeting as and when appropriate and necessary.
    4. Appointments are made by the Board and shall be for a period of up to three years extendable by no more than two additional three-year terms, so long as members continue to be independent.
    5. The Group Company Secretary (or such person appointed by the Committee) shall be secretary to the Committee.
    6. The quorum of the Committee shall be two members.
  3. Minutes of the meetings
    1. The secretary to the Committee shall minute the proceedings and resolutions of all meetings, including recording the names of those present and in attendance.
    2. The secretary shall ascertain, at the beginning of each meeting, the existence of any conflicts of interest and minute them accordingly.
    3. Minutes of Committee meetings shall be circulated promptly to all members of the Committee.
  4. Duties
    1. The Committee's role is to advise the Board in the discharge of its duties with regard to the Company's financial statements and the maintenance of proper financial records and controls.
    2. The Committee should carry out the duties below for Company, major subsidiary undertakings and the group as a whole as appropriate.  The Committee shall:
      1. monitor the integrity of the financial statements of the Company and any formal announcements relating to the Company's financial performance, reviewing and reporting to the Board on significant financial reporting issues and judgments contained in them;
      2. review and challenge the consistency of and any changes to significant accounting policies; review the methods used for significant or unusual transactions where different approaches are possible; and monitor compliance with accounting standards taking into account the views of the external auditor;
      3. where requested by the Board, review the content of the annual report and accounts and advise the Board on whether, taken as a whole, it is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s performance, business model and strategy;
      4. review the Company's internal financial controls and internal control and risk management systems as set out in more detail in these terms of reference;
      5. review the Company’s systems and controls in relation to the group’s Code of Conduct and anti-bribery policy
      6. monitor and review the effectiveness of the Company's internal audit function in the context of the overall risk management system, as set out in more detail in these terms of reference;
      7. make recommendations to the Board in relation to the appointment of the external auditor and the terms of any selection and engagement, as set out in more detail in these terms of reference;
      8. review the Company’s whistleblowing arrangements (or other arrangements for the confidential reporting by employees of concerns or possible wrongdoing) and make recommendations to the Board, as set out in more detail in these terms of reference;
      9. report to the Board, identifying any matters in respect of which it considers that action or improvement is needed, and make recommendations as to the steps to be taken;
      10. review compliance with the UK Corporate Governance Code, the UK Listing Authority’s Listing, Prospectus and Transparency Rules and any other rules as appropriate.
  5. Internal controls and risk management systems
    1. The Committee shall:
      1. Monitor and at least annually carry out a review the effectiveness of the Company's internal controls and risk management systems and make recommendations to the Board;
      2. Review and approve the statements to be included in the annual report concerning internal controls and risk management;
      3. To ensure that a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity;
      4. Review in detail at least annually the Company’s risks and actions taken to minimise risks, the policies in force, and the other sources of assurance upon which reliance is placed to mitigate risk;
      5. Review any significant litigation not in the ordinary course of business.
  6. Whistleblowing and fraud
    1. The Committee shall:
      1. Review the Company's arrangements for its employees to raise concerns, in confidence, about possible wrongdoing in financial reporting or other matters.  The Committee shall ensure that these arrangements allow proportionate and independent investigation of such matters and appropriate follow up action.
      2. Review the Company's procedures for detecting fraud.
      3. Review the Company’s systems and controls for the Group’s Code of Conduct and anti-bribery policy, and ethical behaviour generally, and receive reports on non-compliance
      4. If it identifies evidence of fraud or any illegal act, procure that such matters are reported to the Chairman, Chief Executive and the Board.
  7. Internal audit
    1. The Committee shall:
      1. Monitor and review the effectiveness of the Company's internal audit function in the context of the Company's overall risk management system;
      2. Approve the appointment and removal of the Head of Internal Audit;
      3. Consider and approve the remit of the internal audit function and ensure it has adequate resources and appropriate access to information to enable it to perform its function effectively and in accordance with the relevant professional standards and ensure the function has adequate standing and is free from management or other restrictions;
      4. Review and assess the annual internal audit plan and be advised of reasons for any change or delay in the programme;
      5. Review reports on the Company from the internal auditors on a timely basis;
      6. Review and monitor management's responsiveness to the findings and recommendations of the internal auditor.
  8. External audit
    1. The Committee shall:
      1. Consider and make recommendations to the Board, to be put to shareholders for approval at the AGM, in relation to the appointment, re-appointment and removal of the Company's external auditor.
      2. Oversee the selection process for new auditors and if an auditor resigns the Committee shall investigate the issues leading to this and decide whether any action is required.
      3. Oversee the relationship with the external auditor including (but not limited to):
        • Approving the scope of the audit and the statutory audit fee and any fees for non-audit services and that the level of fees is appropriate to enable an adequate audit to be conducted.
        • Approval of their terms of engagement, including any engagement letter issued at the start of each audit and the scope of the audit.
        • Assessing annually their independence and objectivity taking into account relevant UK professional and regulatory requirements and the relationship with the auditor as a whole, including the provision of any non-audit services.
        • Satisfying itself that there are no relationships (such as family, employment, investment, financial or business) between the auditor and the Company (other than in the ordinary course of business).
        • Agreeing with the Board a policy on the employment of former employees of the Company's auditor, then monitoring the implementation of this policy.
        • Monitoring the auditor's compliance with relevant ethical and professional guidance on the rotation of audit partners, the level of fees paid by the Company compared to the overall fee income of the firm, office and partner and other related requirements including being solely responsible for influencing (either as a Committee or acting through its Chairman and consulting with such persons as it deems appropriate) the appointment of the audit engagement partner.
        • Assessing annually the qualifications, expertise and resources of the auditor and the effectiveness of the audit process which shall include a report from the external auditor on their own internal quality procedures.
        • review co-ordination with the activities of the internal audit function.
        • considering the risk of the withdrawal of the Company's present auditor from the market.
          • Meet regularly with the external auditor, including once at the planning stage before the audit and once after the audit at the reporting stage. The Committee shall meet the external auditor at least once a year, without management being present, to discuss their remit and any issues arising from the audit
          • Review and approve the annual audit plan and ensure that it is consistent with the scope of the audit engagement
          • Review the findings of the audit with the external auditor. This shall include but not be limited to, the following;
          • A discussion of any major issues which arose during the audit.
          • Any accounting and audit judgements.
          • Level of errors identifies during the audit.
          • The Effectiveness of the audit.
    2. The Committee shall:
      1. Develop and implement a policy on the authorisation by the Committee (either acting as a committee or acting through its Chairman and consulting with such persons as it deems appropriate) of the supply of non-audit services by the external auditor, taking into account any relevant ethical guidance on the matter.
  9. Reporting responsibilities
    1. The Committee chairman shall report to the Board on all matters within its duties and responsibilities and on how it discharged its duties including but not limited to the significant issues considered in relation to the financial statements, its assessment of the effectiveness of the external audit process and external auditor.
    2. The Committee shall compile a report on its activities to be included in the company's annual report. the report should include an explanation of how the Committee addressed the matters above and having regard to all other requirements set out in the Code.
  10. Other matter
    1. The Committee is authorised by the Board to investigate any activity within the terms of reference, and to seek information from employees as required. It shall have access to sufficient resources in order to carry out its duties, including access to the company secretariat as required.  It is also authorised to obtain outside legal or other independent professional advice and to secure the attendance of outsiders with relevant experience and expertise if necessary.
    2. The Committee shall, at least annually, review its constitution and terms of reference to ensure it is operating at maximum effectiveness and recommend any changes it considers necessary to the Board

7 September 2016

2
Remuneration committee
  1. Constitution
  2. The Remuneration Committee is responsible for setting the remuneration policy for all executive directors and the Company’s chairman and senior management. It meets at least three times a year with other meetings scheduled as required.

  3. Membership
  4. 2.1 The Committee comprises at least three members, all of whom are independent non-executive directors. The chairman of the board serves on the Committee, does not chair it, and was considered independent on appointment as chairman.

    2.2 Members of the Committee are appointed by the board on recommendation of the Nomination Committee and in consultation with the chairman of the Remuneration Committee.

    2.3 Only members of the Committee have the right to attend committee meetings and other individuals may be invited to attend for all or part of any meetings as and when appropriate and necessary.

    2.4 Appointments to the Committee are made by the board and shall be for a period of up to three years extendable by no more than two additional three-year terms, so long as members (other than the chairman of the board) continue to be independent.

    2.5 The Secretary of the Committee is whoever is appointed by the Committee to that position.

    2.6 The quorum for meetings is two.

  5. Duties
  6. 3.1 To determine and advise the board on the framework or broad policy for the remuneration of the chief executive and the chairman of the Company, including pension rights and any compensation payments. It also monitors and ratifies the levels and structure of remuneration for other members of senior management.

    3.2 To set the remuneration for all executive directors, the chairman and the company secretary. The remuneration of non-executive directors is a matter for the chairman and executive members of the board. No director or manager is involved in any decisions as to his or her own remuneration.

    3.3 To determine the total individual remuneration package of each executive director including, where appropriate, bonuses, incentive payments and performance-based incentives. In determining such packages and arrangements the committee gives due regard to relevant legal and regulatory requirements, appropriate codes of practice and associated guidance.

    3.4 To determine targets and monitor performance against those targets for any performance-related pay schemes operated by the Company.

    3.5 The Committee shall have full authority to appoint remuneration consultants, and be exclusively responsible for establishing the selection criteria, and to commission or purchase any reports, surveys or information which it deems necessary at the expense of the company but within any budgetary restraints imposed by the board.

    3.6 Approve the design of and determine targets for any performance-related pay schemes operated by the Company and approve the total annual payments made under such schemes.

    3.7 Review the design of all share incentive plans for approval by the board and shareholders. For any such plans, determine each year whether awards will be made, and if so, the overall amount of such awards, the individual awards to executive directors, company secretary and other designated senior executives and the performance targets to be used.

    3.8 Ensure that contractual terms on termination, and any payments made, are fair to the individual and the company, that failure is not rewarded and that the duty to mitigate loss is fully recognised.

    3.9 To oversee any major changes in employee benefit structures throughout the company or group.

    3.10 To agree the policy for authorising claims for expenses from the directors.

  7. Reporting responsibilities
  8. 4.1 To ensure that provisions regarding disclosure of information, including pensions, as set out in the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 and the Code, are fulfilled and produce a report of the company’s remuneration policy and practices to be included in the Company’s annual report and accounts and put to shareholders at the AGM. If remuneration consultants have been appointed, they should be identified in the annual report.

    4.2 To ensure that the Company maintains contact as required with its principal shareholders about remuneration.

  9. Other matters
  10. The Committee shall:

    5.1 have access to sufficient resources in order to carry out its duties, including access to the company secretariat as required.

3
Nomination committee
  1. Constitution

    The Nomination Committee meets at least once a year with other meetings scheduled as required and makes proposals for appointments to the board and carries out the selection process.

  2. Membership
  3. 2.1 The Committee comprises at least three members, the majority of whom are independent non-executive directors.

    2.2 Only members of the Committee have the right to attend committee meetings and other individuals may be invited to attend for all or part of any meetings as and when appropriate and necessary.

    2.3 Appointments to the Committee are made by the board and shall be for a period of up to three years extendable for further periods of up to three years, provided the director still meets the criteria for membership of the Committee.

    2.4 The Committee chairman should be either the chairman of the board or an independent non-executive director, or in the absence of the committee chairman, whoever is appointed by the Committee to that position for the meeting. The chairman of the board shall not chair the Committee when it is dealing with the matter of succession to the chairmanship.

    2.5 The Secretary of the committee is whoever is appointed by the Committee to that position.

    2.6 The quorum for meetings is two.

  4. Duties

    The Committee should carry out the duties below for the parent company, major subsidiary undertakings and the group as a whole as appropriate.

    The Committee shall:

    3.1  review and make recommendations to the board on the structure, size and composition of the board and Executive Committee and make recommendations to the board with regard to any changes including nominating candidates to fill board vacancies;

    3.2  review succession planning for directors and other senior executives taking into account the challenges and opportunities facing the company and the skills and expertise needed on board in the future;

    3.3  consider candidates from various sources, a wide range of backgrounds giving due regard to benefits of diversity on the board including gender and taking care that appointees have enough time to devote to the position;

    3.4  for the chairman, other significant commitments should be disclosed prior to appointment and to the board as they arise;

    3.5  ensure that non-executive directors receive formal letters of appointment that provide clear parameters of expectation in time commitment, committee service and other involvement;

    3.6  review the results of the board evaluation process that relate to the composition of the board.

    Make recommendations to the board on:

    3.7  plans for succession for both executive and non-executive directors;

    3.8  the re-appointment of any non-executive director at the conclusion of their specified term of office;

    3.9  the re-election by shareholders of directors under the annual re-election provisions of the Code;

    3.10  any matters relating to the continuation in office of any director at any time; and the appointment of any director to executive or other office other than the positions of chairman and chief executive, the recommendation for which would be considered at a meeting of the board.

  5. Reporting

    4.1 the committee chairman shall report to the board on its proceedings after each meeting on all matters within its duties and responsibilities;

    4.2 the committee shall make whatever recommendations to the board it deems appropriate on any area within its remit where action or improvement is needed;

    4.3 the Committee shall make a statement in the annual report detailing its terms of reference, the authority delegated to it by the board, its activities during the year (including membership of the committee) and/or external advisers used in any recruitment during the year and, if so, whether it has any connection with the Company. The report should include the Company's policy on diversity including gender;

    4.4 the committee chairman should attend the annual general meeting to answer any shareholder questions on the committee's activities.

  6. Other matters

    The Committee shall:

    5.1 have access to sufficient resources in order to carry out its duties, including access to the company secretariat as required;

    5.2 give due consideration to laws and regulations, the provisions of the Code and the requirements of other applicable rules as appropriate;

    5.3 arrange for periodic reviews of its own performance and, at least annually, review its constitution and terms of reference to ensure it is operating at maximum effectiveness and recommend any changes it considers necessary to the board for approval.

4
Non-executive directors letter of engagement

Upon appointment NEDs are issued a letter of engagement. As an ongoing commitment to corporate governance, the terms of this letter are summarised as follows:

  • NEDs are appointed for an initial term of three years. The appointment is terminable on one month's notice, by either party.
  • Appointments are subject to the ratification by the shareholders at the next annual general meeting.
  • NEDs are expected to provide leadership and an independent objective judgement on issues of strategy, performance and resources relating to the company, including key appointments, assist in resolving conflicts of interest and are free to question any executive decision.
  • Duties and responsibilities include attending all board meetings and general meetings, to serve on audit, remuneration and nomination committees and visit operating sites, as appropriate.
  • The appointment, retirement and disqualification of NEDs are governed by the company's articles of association, however, the company may terminate the appointment, without payment of compensation, if the NED accepts a position, without prior board approval, which the Board consider presents a conflict with the interests of Mothercare. In the event a NED fails to secure re-appointment as a director in accordance with the retirement by rotation procedure at the company's annual general meeting, the company is entitled to terminate the NED appointment with immediate effect.
  • NED fees are paid quarterly in arrears. They are also reimbursed the cost of all reasonable out-of-pocket expenses incurred as a result of company business. NEDs salaries are disclosed in the Annual report.
  • NEDs agree that during the 12 months following the termination of their appointment that they will not enter the employment, or become an officer or consultant to any firm or company that is or is about to become a business competitor of Mothercare.
  • That all share dealings in the company's shares comply with the Model Code for Directors' Dealings issued by the UK Listing Authority and agree to consult with the Chairman prior to any dealing in the company's shares.
  • NEDs are entitled to full access, advice and services of the Company Secretary and advisers to the company. They are made aware of the agreed procedure, in accordance with the recommendations in the Best Practice Provisions, to enable NEDs to take independent professional advice at the company's expense in the furtherance of their duties.

Specific contracts in relation to individuals are available for inspection by shareholders at the Company's registered office and before and after the annual general meeting.