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Corporate Governance

Introduction

Aggreko is committed to maintaining high standards of corporate governance. Not many public companies state that they are committed to maintaining low standards of corporate governance, so we think it is useful to state, as precisely as we are able, what we mean by this.

First, we mean that we take governance at all levels in the Company seriously, and we think about it. Second, it means that we do not slavishly follow the strictures and advice of every governance guru or 'expert' body, but we try to adopt those approaches that we believe are likely to work in the particular context of Aggreko's business and culture, and which promote the following:

  • Transparency; giving shareholders the information they need to judge whether the executive management and the Board are doing a good job on their behalf;
  • Effective decision-making, risk management and control;
  • A proper balance between Executive and Non-executive Directors;
  • Keeping the interests of the owners of the business aligned with, and at the front of the mind of, the people charged with managing the business; and
  • The ability of the Company to hear the voice of people other than shareholders who are touched by it. Principally these are regulatory and standards bodies, employees, customers, suppliers and the communities in which we operate 

being mindful of the need to keep the amount of money and time spent on activities other than those involving making money for our shareholders to an appropriate level.

Putting governance into practice

We support the UK Corporate Governance Code published by the Financial Reporting Council (the 'Code'). We consider that the Group complied with all of the provisions of the Code throughout the year ended 31 December 2012 with one exception. This exception was the provision that at least half of the Board, excluding the Chairman, should be independent Non-executive Directors. However, following the appointment of Rebecca McDonald on 1 October 2012 we consider Aggreko to be fully compliant with the Code.

Copies of the Code are publicly available at www.frc.org.uk.

The Board

The Board currently comprises a Chairman, Chief Executive, four other Executive Directors and five Non-executive Directors; their details are set out in the Board of Directors section. The Nomination Committee regularly reviews the composition of the Board to ensure that we have an appropriate and diverse mix of skills, experience, independence and knowledge of the Group.

During the year and into the early part of 2013, a number of changes have been made to the Board, particularly following the announcement in September 2012 of our new global management structure. All of the changes made in 2012 and to date in 2013 are set out below:

  • Philip Rogerson resigned from the Board as a Director and Chairman at the close of our AGM on 25 April 2012. 
  • Ken Hanna was appointed as Chairman from the close of the AGM on 25 April 2012. 
  • Diana Layfield was appointed to the Board as a Non-executive Director on 1 May 2012. 
  • Rebecca McDonald was appointed to the Board as a Non-executive Director on 1 October 2012. 
  • Bill Caplan resigned from the Board as an Executive Director and Regional Director of Europe and the Middle East on 13 November 2012. 
  • Kash Pandya resigned from the Board as an Executive Director and Regional Director of International on 31 December 2012. 
  • George Walker resigned from the Board as an Executive Director and President of North America on 31 December 2012. 
  • Debajit Das was appointed to the Board as an Executive Director to fulfil the role of Regional Director of Asia Pacific on 1 January 2013. 
  • Asterios Satrazemis was appointed to the Board as an Executive Director to fulfil the role of Regional Director of the Americas on 1 January 2013. 
  • David Taylor-Smith was appointed to the Board as an Executive Director to fulfil the role of Regional Director of Europe, the Middle East and Africa with effect from 11 March 2013.

Full details of our current Board members can be found on in the Board of Directors section. 

Role of the Board 

The Board focuses on: 

  • driving the Group's long term objectives and commercial strategy; 
  • oversight of our operations to ensure we have competent and prudent management; 
  • sound planning and adequate internal control; 
  • developing strong leadership and succession; and 
  • protecting our reputation and the strong relationships we have with customers, suppliers and employees.

We have a formal schedule of matters reserved for decision by the Board. These matters are significant to the Group as a whole owing to their strategic, financial or reputational implications. We undertook a thorough review of our corporate governance framework and associated policies during the year, which included an overhaul of the schedule of matters reserved for the Board, dividing the schedule into 10 distinct areas of responsibility. Amongst the matters reserved for decision by the Board are:

  • Strategy & Management: approval of and monitoring delivery of the strategy, budgets and oversight of Group operations. 
  • Structure & Capital: approval of changes to the corporate or capital structure of the Group. 
  • Financial Reporting & Controls: approval of the annual, half-yearly and interim management statements.
  • Internal Controls: ensuring a sound system of internal control and risk management. 
  • Contracts: approval of major capital expenditure or strategically important contracts. 
  • Communications: approval of shareholder communications. 
  • Board Membership & Other Appointments: approval of Board appointments and removals and ensuring adequate succession planning is in place. 
  • Remuneration: approval of new share plans or changes to existing share plans and remuneration for the Non-executive Directors. 
  • Delegation of Authority: division of responsibilities between the Chairman and the Chief Executive and responsibilities of the Board Committees. 
  • Corporate Governance: undertaking a review of its own performance and that of its committees, the independence of the Non-executive Directors and reviewing the governance framework in place.

Roles of the Chairman, Chief Executive and Senior Independent Director

We have a defined division of responsibilities between the Non-executive Chairman, Chief Executive and Senior Independent Director, which we reviewed as part of the corporate governance review undertaken in 2012.

The Chairman is primarily responsible for leadership of the Board, ensuring its effectiveness on all aspects of its role and setting the agenda to take full account of the issues and concerns of the Board Members.

The Chief Executive is responsible for leading, managing and controlling the Company and its subsidiaries, subject to those matters which are reserved for decision by the Board, and ensuring that decisions of the Board are implemented.

The Senior Independent Director is responsible for providing a sounding board for the Chairman, serving as an intermediary for the other Directors when necessary and is available to meet with shareholders.

Non-executive Directors

Our Non-executive Directors bring a wide range of experience to the Company. David Hamill, Russell King, Diana Layfield, Robert MacLeod and Rebecca McDonald are considered by the Board to be independent as defined in the Code.

David Hamill is the Senior Independent Director and is available to meet shareholders if they have concerns which contact through the normal channels of Chairman, Chief Executive or Chief Financial Officer has failed to resolve or for which such contact is inappropriate.

The Code states that at least half of the Board, excluding the Chairman, should be independent Non-executive Directors. For reasons explained in our previous annual reports, we had preferred to operate with a maximum of ten Directors. However, as Aggreko's business has grown and we have expanded into new geographies, technologies and sectors, we felt that we should broaden the range of skills and experience held by our Non-executive Directors. Therefore, we appointed two new Non-executive Directors this year; Diana Layfield was appointed on 1 May 2012 bringing with her a wealth of experience directly relevant to Aggreko and in depth knowledge of many of our most important markets; Rebecca McDonald was appointed on 1 October 2012 with extensive knowledge of the international energy markets; she is also an experienced Non-executive Director. The Board now comprises 11 Directors; including five independent Non-executive Directors; we therefore comply fully with the Code on this point.

Induction, Development and Support 

We make sure that all new Directors receive a full, formal and tailored induction on joining the Board, as we explain in more detail below. Also we plan our Board calendar to ensure that Directors are briefed on a wide range of topics throughout the year. These topics range from those with particular relevance for our business, such as world energy demand, to more general matters such as developments in corporate governance. We recognise that our Directors have a diverse range of experience, and so we encourage them to attend external seminars and briefings that will assist them individually.

Directors have access to independent professional advice at the Company's expense where they judge this to be necessary to discharge their responsibilities as Directors and all Directors have access to the advice and services of the Company Secretary, who is responsible to the Board for ensuring that Board procedures are complied with.

During the full year we supported induction programmes for our new Non-executive Directors, Diana Layfield and Rebecca McDonald, and for our two new Executive Directors, Debajit Das and Asterios Satrazemis.

Typical Non-executive Director induction programme 
Our induction programme aims to give new Non-executive Directors a thorough grounding in Aggreko's business and a clear understanding of their roles and responsibilities. We aim to complete the induction programme within a few months of their appointment.

Newly appointed Non-executive Directors typically begin their inductions with a meeting with the Company Secretary on Directors' duties, conflicts of interest, corporate governance, Board procedures, Group policies and the use of our electronic Board packs. This is followed by a tour of our manufacturing facility in Dumbarton with the Group Chief Executive where he explains Aggreko's business models, Group strategy, markets, competition, products and corporate responsibility. Whilst at the manufacturing site, new Non-executive Directors meet with the Director of Manufacturing for an overview of the manufacturing business, our products and work into research and development. An induction meeting is also scheduled with the Chief Financial Officer to cover the business plan, budget, KPIs, financial planning, reporting and investor relations. Following this, further meetings on head office functions are scheduled with the Director of Finance, Group Treasurer, Director of Internal Audit, Chief Information Officer and Group Human Resources Director. Meetings are then scheduled with the Regional Directors of the business areas and their teams. We also arrange for new Non-executive Directors to meet the principal partner of our External Auditors.

Asterios Satrazemis and Debajit Das were appointed to the Board from within the business. Since both already had extensive knowledge of Aggreko, their induction focussed on their new roles and responsibilities as members of the Board.

Board Committees

The Board has standing Audit, Ethics, Nomination and Remuneration Committees. The memberships, roles and activities of these Committees are detailed in separate reports: Audit Committee, Ethics Committee, Nomination Committee and Remuneration Committee.

Each Committee reports to, and has its terms of reference approved by, the Board and the minutes of the Committee meetings are circulated to, and reviewed by, the Board. The terms of reference of the standing Committees of the Board were updated as part of the governance review undertaken in 2012, and are available on our website at http://ir.aggreko.com/committee-terms-of-reference.

Executive Committee
The Chief Executive chairs the Company's Executive Committee, which comprises the Executive Directors, together with the heads of the main Group functions. Following the announcement of the reorganisation of the Group in September, these individuals are: the Group Human Resources Director, the Chief Information Officer, the Group Sales & Marketing Director, the Group Operations Director, the Group Commercial Director, the Group Business Development Director and the Group Legal Director & Company Secretary. The role of the Executive Committee is to support the Chief Executive and as such it has no formal terms of reference.

Board meetings

The Board generally meets at least six times each year. At each meeting, the Board receives certain regular reports, for example covering current trading, treasury, and environment, health and safety. At particular points in the year, the Board reviews budgets, capital expenditure, risks and financial statements. The Board also has regular updates on strategy and reviews other topics, in particular to cover some of the principal risks and uncertainties facing the business, as identified in the Principal Risks and Uncertainties section, or to address the issues raised in the previous year's Board evaluation. Each year we also review the senior management succession plan for the Group, with the Group Human Resources Director providing a briefing on senior management moves and each Executive Director leading a discussion on the succession plan for his region or function. In addition, each Regional Director gives a detailed annual presentation on the performance of his region. The Board also receives reports on what others think about us; gets copies of investor and analyst feedback, customer satisfaction metrics, and the results of employee surveys.

The Board generally meets in central London or at the Group head office in Glasgow, but at least one meeting each year is held at one of the Group's other locations, which gives the Directors the opportunity to review the operations and meet local management. In June 2012, the Board visited the London 2012 Olympic Site.

Board Activities in 2012

Some of the key activities that the Board has covered over the past year are:

  • Leadership
    – Overseeing the expansion of the Local Business through the Poit Energia acquisition, a leading provider of temporary power solutions in South America.
    – Updating the 5 year Group strategy, setting new goals and priorities for the business.
    – Approving investment in new fleet.
    – Close monitoring of the preparation and delivery of the 2012 London Olympics.
  • Effectiveness
    – Appointed 2 new Non-executive Directors.
    – Overseeing the restructuring of the regional business units.
    – Focussing on succession within the business, reviewing and identifying talented individuals for current and future succession.
  • Accountability
    – Reviewing corporate governance policies and Board Committee terms of reference.
    – Assessing the effectiveness of the framework of delegated authorities.
    – Managing the risks of our operations and business functions in overseas countries.
  • Relations with shareholders
    – Engaging with shareholders at the AGM at our new factory in Dumbarton, where shareholders received a presentation and tour around the new facility.
    – Completing the return of capital to shareholders.

The attendance of Directors at meetings during 2012 is set out in the table below.

The Chairman holds meetings with the Non-executive Directors without the Executive Directors present, and at least once a year the Senior Independent Director chairs a meeting of the Non-executive Directors without the Chairman present.

Attendance at meetings in 2012

 

Board meetings

Audit
Committee

Remuneration Committee

Ethics
Committee

Nomination Committee

Bill Caplan1

5(6)

–

–

–

–

Angus Cockburn

7(7)

–

–

–

–

David Hamill

7(7)

3(3)

4(4)

3(3)

6(6)

Ken Hanna

7(7)

1(1)

4(4)

3(3)

6(6)

Russell King

7(7)

3(3)

4(4)

–

6(6)

Diana Layfield2

4(4)

–

–

2(2)

–

Robert MacLeod

7(7)

3(3)

4(4)

–

6(6)

Rebecca McDonald3

2(2)

–

0(0)

–

–

Kash Pandya

7(7)

–

–

–

–

Philip Rogerson4

3(3)

–

–

1(1)

2(2)

Rupert Soames

7(7)

–

–

–

6(6)

George Walker

7(7)

–

–

–

–
Figures in brackets denote the maximum number of meetings that could have been attended.
1 Resigned from the Board on 13 November 2012.
2 Appointed to the Board on 1 May 2012.
3 Appointed to the Board on 1 October 2012, appointed to the Remuneration Committee 13 December 2012.
4 Resigned from the Board on 25 April 2012.

Election of Directors

In accordance with the Code, all members of the Board will be offering themselves for re-election or election (in the case of our new Directors) at the 2013 Annual General Meeting. It is part of the Chairman's role to discuss the time commitment and contribution of each Non-executive Director as part of his or her individual appraisal, and the Nomination Committee unanimously recommends the reappointment of each of the Directors.

All of the Directors have service agreements or letters of appointment and the details of their terms are set out in the Remuneration Report. No other contract with the Company or any subsidiary undertaking of the Company in which any Director was materially interested subsisted during or at the end of the financial year.

Board performance evaluation

In 2011 we conducted our annual evaluation of Board and Committee performance through an independent external consultancy. This year the process was conducted personally by Ken Hanna shortly after his appointment as Chairman, through individual meetings with each member of the Board. Following this process we agreed to implement a number of improvements to our processes. These included: a Board strategy day to augment the regular strategy discussions at Board meetings; a complete review of our governance framework, including division of responsibilities, committee terms of reference and delegated authorities and more opportunities to meet senior managers below Board level. Good progress has already been made in the implementation of these improvements: an off-site strategy day was held with all Board Members in October 2012 and the governance review was completed, with new Terms of Reference for the Committees, updated role statements and delegated authorities adopted by the Board in July 2012.

We have reviewed the interests declared by Directors which could conflict with those of the Company, and we are satisfied that the Board's powers to authorise potential conflicts are operating effectively.

Relations with shareholders

Understanding differing opinions is a key part of driving our business forward and we are very interested in understanding the views of our shareholders. The Company has a well-developed investor relations programme which is managed by the Chief Executive, Chief Financial Officer and Director of Finance. The Board receives regular updates on the views of shareholders through briefings from the Chairman, Chief Executive and Chief Financial Officer as well as reports from the Company's brokers and the Company's investor relations advisers. In addition, the Senior Independent Director is available to meet shareholders if they wish to raise any issues separately.

We formally speak to the market six times a year with Interim Management Statement Updates in April and October, Pre-close Updates for the Half Year and Full Year in June and December, and the formal production of reports at the Half Year Interim Report in August and the Full Year Report and Accounts in March. The formal reporting is underpinned by a number of other activities: on the day that the results are released in August and March we present to analysts and investors in London, these presentations are also broadcast live through our investor website and are available to view after the event on our website. The Interim Management Statements are also supported on the day of their release with a conference call open to all analysts and investors and Pre-close Updates are supported with one-to-one meetings with analysts.

In 2012 we held over 250 one-to-one meetings with investors. These meetings are conducted by at least one of the Chief Executive, Chief Financial Officer or Director of Finance and where appropriate, senior members of the regional teams are also invited to allow investors to gain a broader perspective on the business. These meetings occur in a number of different locations around the world to reflect the global nature of our shareholder base. This year we held meetings in London, Edinburgh, New York and Paris for major shareholders and also visited investors on the West Coast of the USA, Germany, Italy, Sweden, Denmark, Canada, Australia and Japan. In September we also invited analysts to our new manufacturing facility in Dumbarton so that they could tour the new factory; this event was timed to follow the announcement of our new global management structure so that analysts would have the opportunity to address any specific questions on the new structure directly to the Directors.

We also enjoy meeting and engaging in lively debate with shareholders at the Company's Annual General Meeting. In 2012, the Annual General Meeting coincided with the official opening of our new manufacturing facility in Dumbarton, and we decided to hold the Annual General Meeting at the factory so that shareholders could take a guided tour and attend the official opening ceremony with HRH The Princess Royal. The 2013 Annual General Meeting will be held in Glasgow on Thursday, 25 April 2013. Further details of the meeting are set out in the Remuneration Report and in the letter from the Chairman and notice of meeting sent with this report. Shareholders unable to attend are encouraged to vote using the proxy card mailed to them or electronically as detailed in the Notice of Meeting.

Internal control

The Board has applied Principle C.2 of the Code by establishing a continuous process for identifying, evaluating and managing the risks that are considered significant by the Group in accordance with the revised Turnbull Guidance on Internal Control published by the Financial Reporting Council. This process has been in place for the period under review and up to the date of approval of the Annual Report and Accounts. The process is designed to manage rather than eliminate risk, and can only provide reasonable and not absolute assurance against material misstatement or loss. The Board's monitoring framework covers a wide range of controls, including financial, operational and compliance controls together with risk management. It is based principally on reviewing reports from management and considering whether significant risks are identified, evaluated, managed and controlled and ensuring that any significant weakness thus identified is promptly remedied. The Board continues to enhance and strengthen the procedures for identifying and monitoring key areas of risk. We have formatted the registers to provide clearer visibility on the highest rated risks; we now provide a comparison to previous registers to show risk trending and also provide a high level narrative explaining key changes from the previous register. Internal Audit provide assurance to the Audit Committee on the operation of controls which have been identified to address risks on the Group Risk Register.

The Board also considers financing and investment decisions concerning the Group and monitors the policy and control mechanisms for managing treasury risk. The Group insurance programme is reviewed by the Board, which also approves self-insured exposures.

During each financial year the Audit Committee reviews the external and internal audit work programmes and considers reports from internal and external auditors on the system of internal control and any material control weaknesses. It also receives responses from management regarding the actions taken on issues identified in audit reports. The full report can be viewed in the Audit Committee section.

Performance reporting and information

The Group has in place a comprehensive financial review cycle, which includes a detailed annual budgeting process, where business units prepare budgets for approval by the Board. The Group uses a large number of performance indicators to measure both operational and financial activity in the business. Depending on the measure; these are reported and reviewed on a daily, weekly or monthly basis. In addition management in the business receive a weekly and monthly pack of indicators which are the basis of regular operational meetings, where corrective action is taken if necessary. At Group level a well-developed management accounts pack including income statements, balance sheets and cashflow statement, as well as key ratios related to capital productivity and customer satisfaction scores, is prepared and reviewed monthly by management. As part of the monthly financial reporting process a forecast of the current year numbers is carried out. To ensure consistency of reporting the Group has a global ERP system and a global consolidation system as well as a common accounting policies and procedures manual. Management monitor the publication of new reporting standards and work closely with the external auditors in evaluating the impact of these standards.

Review of effectiveness of internal control

In compliance with Provision C.2.1 of the Code, the Board reviews the effectiveness of the Group's system of internal control.

On an annual basis the Audit Committee receives a formal review that is designed to assess the application of the principal financial and operational controls operated by the Group. The review, which is based on self-assessment by senior operational management, is carried out using a risk review and control questionnaire and is intended to complement the internal and external audit procedures. There is also a comprehensive procedure for monitoring all significant risks and key risks have been identified on the Group Risk Register. The Board has considered the probability of those risks occurring and their impact, as well as the actions that would be taken in response to them if they did occur.

The Board has undertaken a specific assessment of internal control for the purpose of this Annual Report. This assessment considered all significant aspects of internal control during the year ended 31 December 2012. Accordingly, the Board is satisfied that the Group continues to have an effective system of internal control.

Corporate Social Responsibility

The Board has set policies for the Group to ensure that it operates worldwide in a safe, ethical and responsible manner, which protects the environment as well as safeguarding the health and safety of its employees, its customers and the communities in which it operates. These policies are intended to recognise, evaluate and manage responsibly environmental, health and safety risks through implementation of a comprehensive Global Environmental, Health and Safety Management System that standardises best operating practices, objectives, data collection, reporting, audits, performance indicators and goals. These policies are set out in more detail in the Corporate Social Responsibility section.