Corporate governance and corporate accountability (Rolls Royce plc)
Introduction
A committee chaired by Nigel Turnbull wrote the Turnbull report. The report contains guidelines for companies listed in the London Stock Exchange (Turnbull Report 2003). The guidelines inform the directors of these companies of the requirements of the UK Combined Code. The Code was formulated to instruct directors and senior managements on how ensure quality reporting of the finances of the organization. This paper examines the compliance of Rolls Royce plc with the recommendations of the Turnbull report. It also outlines how the board of directors in the company has fulfilled its regulatory obligations.
The Board
In 2011, the Roll’s Board had 12 meetings. Out of the 12 meetings, 7 had been scheduled while, in 5 meetings, the members received short notices to discuss urgent issues. The figure below shows the committee and Board attendance of meetings held in 2011.
Figure 2: Attendance 2011
Currently, the Group has 15 directors. The Group has both executive and non-executive directors. The executive directors are responsible for managing the operations of the business throughout the year. The non-executive directors do not take part in managing the company. Executive directors receive service contracts after appointment while nonexecutive directors appointment letters that contain the conditions of their jobs. The experience of the Board of directors is essential is essential in ensuring the Company’s effectiveness and prevent individual dominance in decision-making. Non-executive directors serve for three years; the Board decides whether to extend their terms (Rolls-Royce Holdings plc 2012).
Independence of non-executive directors
The company’s committee in charge of nominations monitors the performance and composition of the Rolls Royce Board of directors. According to the Turnbull report, the board should review the independence of its non-executive directors at the end of each year. According to the 2011 review, the Board found that all the non-executive directors of the company were independent in judgment and character. The requirements of the code do not require that the Chairman be subjected to the independence test. However, this changed when the current Chairman, Sir Simon Robertson, met the independence conditions before his 2005 appointment (Rolls-Royce Holdings plc 2012).
Rolls Royce (Rolls) has continuously reviewed the structure of its Board committee. In the 2012, the Board agreed that the company should have a safety committee. One of the requirements of the Code is that all directors in the board should seek for re-election during an annual general meeting (AGM). All the directors of Rolls sought for re-election at the end of 2012. However, Rolls had announced that Sir Peter Gregson retired and did not seek to be re-elected. Sir Gregson was the Rolls non-executive director who served for the longest time (since 1977). The code requires careful consideration of the independence of any director who serves a listed company for at least 9 years. Rolls valued the experiential knowledge that Sir Gregson had brought into the company. In 2011, Rolls complied with requirements of the Turnbull Report and the Code with the exception shown in the figure below (Rolls-Royce Holdings plc 2012).
Figure1: Exception of compliance
Source: Rolls-Royce Holdings plc (2012)
The Roles of the Board
The Board’s Chairman is its leaders and makes sure that it is effective in fulfilling all its roles. The Chief Executive oversees the Group’s management and operations. According to the UK Corporate Governance Code (2012), the Chief Executive is the custodian of the Group’s business plan and strategy. The Board agrees on how the Chairman and Chief Executive share Group responsibilities. The main role of the Board is that it should ensure the strategy generates success in the long-term. The Board ensures that the risk profile of Rolls is acceptable and provides value for investors. The Board approves all matters that affect the Group’s risk profile and other items like capital investments, strategic plan, and shareholder payments. Each year the Board approves the how roles and responsibilities are to be shared between the Executive and the Board. The Board delegates authority to the Executive to run the Group on behalf of investors (Datamonitor, 2012).
Induction and training of directors
White (2012) notes that directors are appointed in the Boards of companies listed in the London Stock Exchange; they should receive induction and a pack of information detailing all aspects of the company. Existing directors also serve as mentors and trainers of newly appointed directors. The executive team of Rolls has a training program that allows all directors to learn how the business is progressing. All directors have access to the Secretary of the company. Additionally, there is a provision that allows directors to have independent advice at the expense of the company (Rolls-Royce Holdings plc 2012).
Shareholder relations
The company’s department of Investor Relations is responsible for communicating the financial performance and business strategy to shareholders. The Secretariat coordinates the communication of issues of general administration to shareholders. The main sources of the Company’s information available to shareholders are its official website and the Annual Report. The website of the company also has other information concerning the Group’s financial data, business strategy, presentation materials, and data on the services and products of the Company (Rolls-Royce Holdings plc 2012). The company has a program for investor relations, which includes various events throughout the year and series of group and one-to-one meetings. These events are for the purpose of outlining issues or making announcements that the Group feels warrants further clarification or explanation. During the meeting, shareholders have an opportunity to meet the Executive to discuss various topics. In 2011, the Group organized more than 350 meetings and approximately 1200 shareholders attended. The Chief Executive attended 50 and 30 meetings, respectively (Rolls-Royce Holdings plc 2012).
Annual General Meeting
In 2012, the Annual General Meeting (AGM) took place on May 2 from 11:00 am. The proceedings of the AGM are available at the website of the Group. The company also uses different channels to announce the meeting to shareholders. Those who are not in a position to attend complete a form and return it to the company’s registrar. The Group has also agreed to allow online communication and so shareholders can vote on the business strategy of the Group over the internet. For the 2012 meeting, the Group confirmed that it sent notices to its shareholders 20 days prior to the meeting. For shareholders who have agreed to receive online notices, the Company sends them emails of notification (Rolls-Royce Holdings plc 2012)
Conclusion
The Turnbull report informs the board of directors on how they should ensure the company is governed effectively and transparently. In the case of Rolls Royce, the Board of directors has played a crucial role in ensuring effective governance. The non-executive directors of the Group provide necessary regulation that checks the activities of the executive. In addition, the Board also has various committees such as risk and ethics, nominations, remuneration, audit, and safety committees, which ensure compliance with the UK Governance code and recommendations of the Turnbull report.
References
Datamonitor: Rolls-Royce Group plc, 2012, Rolls Royce SWOT Analysis, 1-10.
Rolls-Royce Holdings plc, 2012, Annual report 2011. Viewed January 13 2013 <http://www.rolls-royce.com/Images/rr_2012_plc_tcm92-35764.pdf>
Turnbull Report, 2003, Essential Director, 188.
UK Corporate Governance Code, 2012. Retrieved January 12 2013, from
<http://www.frc.org.uk/getattachment/a7f0aa3a-57dd-4341-b3e8-ffa99899e154/UK-Corporate-Governance-Code-September-2012.aspx>
White, PA 2012, ‘Airworthiness Directives; Rolls-Royce Deutschland Ltd & Co KG Turbofan Engines’, Federal Register, 77, 179: 56756-56759.
