Last updated: 31 August 2018

Introduction

The new Quoted Companies Alliance Corporate Governance Code (QCA Code) makes clear it is the prime responsibility of the Chairman to ensure the Company applies the QCA Code to best advantage of all stakeholders.

Tax Systems plc, although relatively new to the AIM Market, is an established operation with a clear business model and growth strategy. Our objective is to grow initially in the area of tax compliance and then more generally in other areas of regulatory compliance. Applying sensible corporate governance practices can only help achieve our goals.

This initial iteration of how we seek to comply with the QCA Code is largely based on what we do already with a few areas where we have highlighted intended governance improvements.

A requirement of the Code is to highlight any areas where we are not in compliance and to provide our reasons why not.

The first area of non-compliance is that Paul Gibson, while a non-executive director, is a beneficiary under the Company’s share based incentive plan.

These arrangements came into force at the time of the acquisition of Tax Computer Systems Limited in 2016, which was treated as reverse takeover under the AIM Rules and were fully disclosed to investors at that time. At that time Paul’s involvement in the incentive arrangements was principally via his position as a partner of MXC Capital and his interest in the Tax Systems share based incentive plan flowed from the wider arrangements between the Company and MXC Capital LLP (“MXC”).

In August 2017 we amended our arrangements with MXC and Paul’s interest in the Tax Systems share based incentive scheme reduced by 50%.

Participation by non-executive directors in share based incentive arrangements, while against the provisions of the Code, is common for companies with shares quoted on AIM.  Of all the non-executive directors, Paul has the most directly relevant industry experience. His participation in the share based incentive scheme provides him with upside at no cash cost to the Company as the value of the Company increases. 

The arrangement suits the Company and Paul and we have no intention of amending the arrangement.

The second area of non-compliance is that Board committees include, in one case, an executive director and, in another, a non-independent non-executive director.

The starting point is that we are a small company with only three non-executive directors and two executives. To form workable committees of three or more there has to be some bending of the Code, unless we are to add bodies at extra cost just to achieve compliance.

Gavin Lyons, CEO, sits on the Remuneration Committee with Clive Carver and Linda Beal, with Gavin having no say on his own arrangements. Without Gavin’s direct input, the non-independent members of the Committee would be denied relevant opinions on the other executive directors and senior employees they are in effect judging.

Paul Gibson, while being deemed non-independent by virtue being a partner in MXC, currently the largest shareholder, is a member of the Audit and Risk Committee.

Paul’s previous experience is directly relevant to the business of the Audit and Risk Committee.  Not being able to draw on this because of his connection with MXC would deny the Company of valuable input.  In the event there is a conflict between any matter before the Audit and Risk committee and MXC Paul would not vote. To date no such circumstances have arisen.

Not to benefit from his contributions would be sacrificing the interests of the Company for no apparent benefit. Again, the above arrangements work well and we have no intention to make any changes and we will continue to involve the people we believe are the best for the Company in the interest of the Company and its shareholders.

We trust that the result of our efforts to date provide stakeholders with access to the information they need and the confidence that the Board hold corporate governance compliance in the highest regard.

Clive Carver

Non-executive Chairman

 

Principle 1 – Establish a strategy and business model which promote long-term value for shareholders.

Our goals:

As a public company we are focused on delivering value for both our shareholders and customers and have four goals that drive our business:

  • Increase shareholder value

  • Deliver our market forecasts

  • Define and deliver against our customer requirements

  • Live and breathe our culture and values

Vision:

The Company’s vision, is over the longer term, to create a software and services company specialising in regulatory compliance technology known as RegTech.

Purpose:

The reason the Company exists is to help our customers be compliant with the regulator in the most efficient manner possible and provide tangible intelligence to continuously improve both the end to end compliance process and utilisation of expert resources.

We enable customers to do this by developing and supporting innovative technology and expert service offerings. 

Strategy:

The strategy to achieve the vision, starting with the business of Tax Computer Systems Limited which was acquired in July 2016, is to enlarge the areas of activity and group profitability by way of a buy, build and partner strategy, focussed on providing essential compliance software and services to customers.

 

By achieving the above, we will inevitably increase shareholder value.

 
Key challenges and how they will be addressed:

The Company has identified the following key challenges:

  • Generating organic growth

  • Cash generation and reduction of debt

  • Value enhancing acquisitions

  • Operational scalability and efficiency

  • Management of risk

These challenges are addressed through a detailed target operating model with KPIs defined for each one of the above areas. These are monitored monthly and regularly reported to the Board.

 

Principle 2 – Seek to understand and meet shareholder needs and expectations.

Tax Systems is committed to open communication with all its shareholders.

Copies of the Annual Report and Accounts are issued to all shareholders who have requested them and copies are available on the Group’s investor website www.taxsystems.com. The Group’s interim results are also made available on the Company’s website. The Group makes full use of its investor website to provide information to shareholders and other interested parties.

The Board reviews proxy voting reports and any significant dissent is discussed with relevant shareholders and, if necessary, action is taken to resolve any issues. In compliance with best practice, the level of proxy votes (for, against and vote withheld) lodged on each resolution will be declared at all future general meetings and subsequently announced.

Shareholders are given the opportunity to raise questions at the Annual General Meeting and the Directors are available both before and after the meeting for further discussion with shareholders.

The CEO and CFO are primarily responsible for updating the market with developments. Meetings via the Company’s broker are offered to major institutional shareholders to discuss strategy, financial performance and investment activity immediately after the full year and interim results announcements. All the Non-Executive Directors are available to meet with major shareholders if such meetings are requested. Feedback from such meetings with shareholders is provided to the Board to ensure the Directors have a balanced understanding of the issues and concerns of major shareholders. Trading updates and press releases are issued as appropriate and the Company’s broker provides briefings on shareholder opinion and compiles independent feedback from investor meetings.

The Board receives share register analysis reports to monitor the Company’s shareholder base and help identify the types of investors on the register.

 

Principle 3 – Take into account wider stakeholder and social responsibilities and their implications for long-term success. 

The Company regards its shareholders, employees, customers, suppliers and advisors and others that  form the wider stakeholder group.

Management prioritises its relationships with customers and staff and effort is directed to ensuring they are managed appropriately. Regular reviews are undertaken to ensure any issues are addressed promptly.

The Company records customer service levels. There is a feedback system in place for service levels and issues raised can be addressed.

The Company’s internal stakeholders are its employees. The Group is committed to employment policies which follow best practice, based on equal opportunities for all employees, irrespective of sex, gender reassignment, race, disability, sexual orientation, pregnancy and/or maternity, marital or civil partner status, religion or belief or age.

Employee involvement in the Group is encouraged, as achieving a common awareness on the part of all employees of the financial and economic factors affecting the Group plays a major role in maintaining good relations with them. A regular forum in which the CEO updates employees on the Company’s progress and new initiatives, offers an opportunity for them to raise queries or issues.

 

Principle 4 – Embed effective risk management, considering both opportunities and threats, throughout the organisation. 

The Board has established a risk register relating to the Company’s business. At least twice a year, it meets to consider the appropriateness of the risks identified and the mitigating action taken by management on a risk by risk basis focusing on those deemed most critical.

For further details of the Company’s approach to risk and its management, please refer to the Risk Management and Principal Risks section of the Strategic Report and to the Report of the Audit and Risk Committee in the Corporate Governance section of Annual Report and Accounts.

 

Principle 5 – Maintain the Board as a well-functioning, balanced team led by the chair. 

The Board, chaired by Clive Carver, comprises two executive and three non-executive directors and it oversees and implements the Company’s corporate governance programme. As chairman, Clive is responsible for the Company’s approach to corporate governance and the application of the principles of the QCA Code. Clive Carver and Linda Beal are the Company’s independent directors. Further details pertaining to the Board and the roles carried out by each member are set out in the Corporate Governance section of the Annual Report and Accounts.

Each Board member commits sufficient time to fulfill their duties and obligations to the Board and the Company. They attend monthly Board meetings and join ad hoc Board calls and offer availability for consultation when needed.

Detailed Board packs include information on all business units and financial performance and are circulated ahead of Board meetings. Key issues are highlighted and explained, providing Board members with sufficient information to enable a relevant discussion in the Board meeting. Every other month, members of the Company’s senior management present to the Board to update them on issues and developments.

The Board is supported by its Audit and Risk Committee and its Remuneration and Nomination Committee. The number of Board and Committee meetings held throughout the course of the financial year and further details of these committees are set out in the Corporate Governance section of the Annual Report and Accounts

 

Principle 6 – Ensure that between them the directors have the necessary up-to-date experience, skills and capabilities. 

The Corporate Governance report included in the Annual Report and Accounts identifies each member of the Board and describes the relevant experience, skills and qualities they bring. The Chairman believes that, as a whole, the Board has a suitable mix of skills and competencies covering all essential disciplines bringing a balanced perspective that is beneficial both strategically and operationally and will enable the Company to deliver its strategy.

The Board consists of two executive directors and three non-executive directors, two of whom are independent and comprises four men and one woman, ranging in age from 40 to 57 years old. The nature of the Company’s business requires the Directors to keep their skillset up to date. Updates to the Board on regulatory matters are given by Company’s professional advisers when appropriate.

In addition to the support provided by the Company’s retained professional advisers (Nomad, lawyers, auditor and M&A advisor), external consultants have been engaged to advise on a number of matters including research and development tax credits and intellectual property management.

External advisers attend Board meetings as invited by the Chairman to report and/or discuss specific matters relevant to the Company and the markets in which they operate.

 

Principle 7 – Evaluate Board performance based on clear and relevant objectives, seeking continuous improvement.

Board performance effectiveness process

The assessment of the Board’s performance has to date been largely focused on the achievement of the Company’s strategic and financial objectives. Disclosure in the Annual Report and Accounts 2017 does not fully comply with new standards of the 2018 QCA Code and will be addressed in the Annual Report and Accounts for 2018.

Post management recommendation, each executive Board member is subject to a six monthly review by the Remuneration and Nomination Committee based on the performance of the Group as a whole and their personal contribution. The outcome of these reviews feeds directly into the award of bonuses. It is proposed that the Company adopts annual evaluation for non-executive director performance and contributions utilising external consultants, although there is no current intention that such non-executive directors receive regular bonus payments. The performance of the Board as a whole may be judged in part by the attainment of financial measures including adjusted EBITDA, operating cash flow and net debt.

Succession planning and Board appointments

The Remuneration and Nomination Committee meets as and when necessary to consider the appointment of new executive and non-executive directors, although the Board as a whole takes responsibility for succession planning. Board members all have appropriate notice periods so that if a Board member indicates his/her intention to step down, there is sufficient time to appoint a replacement, whether internal or external.

Each director is required to offer themselves for re-election at least once every three years as per the Company’s articles of association. The Chairman is currently the longest serving Board member having been appointed in 2016.

Board appointments are made after consultation with advisers including the Nomad who undertakes due diligence on all new potential Board candidates.

 

Principle 8 – Promote a corporate culture that is based on ethical values and behaviours 

The Board recognises that core values provide a framework which influences every level of the Company. The Chief Executive Officer takes the lead in developing the corporate culture and encourages all employees to contribute to the evolution of such strategy as achieving a common awareness plays a major role in maintaining good employee relations. The core values are displayed prominently in the Company’s head office. In his regular forum with employees, the Chief Executive Officer discusses leadership and training which are integrated with the Company’s culture. The Human Resources team promotes the Company’s values which underpin conditions of employment. The Board believes that the strong culture which is evident within the Company creates a thriving environment and helps to build a team atmosphere.

The Group is committed to employment policies which follow best practice, based on equal opportunities for all employees, irrespective of sex, gender reassignment, race, disability, sexual orientation, pregnancy and/or maternity, marital or civil partner status, religion or belief or age.

The Company’s environmental and health and safety policies are referred to in the Corporate Governance section of the Annual Report and Accounts and as follows:

Environmental policy

The Group acknowledges the importance of environmental matters and where possible uses environmentally friendly policies in its offices, such as recycling and energy-efficient practices.

Health and safety

The Group aims to provide and maintain a safe working environment for all colleagues and visitors to its premises, and to comply with all relevant UK health and safety legislation. Health and safety matters are delegated to representatives within the business, who can raise any issues arising via a number of means, including the corporate risk register whose highest rated risks are reviewed periodically by the Board.

 

Principle 9 – Maintain governance structures and processes that are fit for purpose and support good decision-making by the Board. 

The executive members of the Board have overall responsibility for managing the day to day operations of the Company and the Board as a whole is responsible for monitoring performance against the Company’s goals and objectives. The Corporate Governance report in the Annual Report and Accounts sets outs individual Board members’ specific responsibilities, contributions and skills.

The roles of the Audit and Risk Committee and the Remuneration and Nomination Committee are set out in the Corporate Governance section of the Company’s website as follows: https://www.taxsystems.com/corporate-governance as well as in the Corporate Governance report in the Annual Report and Accounts.

 

Principle 10 – Communicate how the company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders.

The Company maintains a regular dialogue with stakeholders including shareholders to enable interested parties to make informed decisions about the Company and its performance. The Board believes that transparency in its dealings offers a level of comfort to stakeholders and an understanding that their views will be listened to.

The Board already discloses the result of general meetings by way of announcement and discloses the proxy voting numbers to those attending the meetings. In order to improve transparency, the Board has committed to announcing proxy voting results in future. In the event that a significant portion of voters have voted against a resolution, an explanation of what actions it intends to take to understand the reasons behind the vote will be included.

The roles and responsibilities of the committees supporting the Board are set out in the Corporate Governance section of the Annual Report and Accounts.

 

Committees

The board has established two standing committees, the Audit and Risk Committee and the Remuneration and Nomination Committee. Clive Carver is chairman of the Remuneration and Nomination Committee and Linda Beal of the Audit and Risk Committee

Formal agenda and reports are provided to the Board on a timely basis in advance of Board and Committee meetings and the Chairman ensures that all Directors are properly briefed on issues to be discussed at Board meetings. Directors are able to obtain further advice or seek clarity on issues raised at the meetings from within the Company or from external sources.

A summary of responsibilities for each Committee is shown below.


Audit and Risk Committee
Role and responsibilities

The Audit and Risk Committee is responsible for monitoring the integrity of the Company’s financial statements, reviewing significant financial reporting issues, reviewing the effectiveness of the Company’s internal control and risk management systems, monitoring the need for or the effectiveness of the internal audit function and overseeing the relationship with the Auditor (including advising on their appointment, agreeing the scope of the audit and reviewing the audit findings). The Audit and Risk Committee also reviews the nature and amount of non-audit work undertaken by the Auditor, if any, to satisfy itself that there is no effect on its independence. The Committee is satisfied that the Auditor is independent.


Composition of the Audit and Risk Committee

The Committee comprises Clive Carver, Paul Gibson and Linda Beal, and is chaired by Linda Beal. The Committee meets at least twice a year at appropriate times in the reporting and audit cycle and otherwise as required. The Chief Executive Officer and the Finance Director may if invited attend meetings of the Committee. The Committee also meets regularly with the Company’s Auditor.

 

Remuneration and Nomination Committee
Role and responsibilities

The Remuneration and Nomination Committee is responsible for determining and agreeing with the Board the framework for remuneration of Executive Directors and other designated senior executives and, within the terms of the agreed framework, determining the total individual remuneration packages of such persons, including, where appropriate, bonuses, incentive payments and share options or other share awards.

The remuneration of Non-Executive Directors will be a matter for the Executive Directors. No Director will be involved in any decision as to his or her own remuneration.


Composition of the Remuneration and Nomination Committee

The Remuneration and Nomination Committee comprises Clive Carver, Gavin Lyons and Linda Beal, and is chaired by Clive Carver. The Remuneration and Nomination Committee meets at least twice a year and otherwise as required.

 

For nominations, the Committee meets as and when necessary to consider the appointment of new executive and non-executive directors.