This report explains how we have applied the principles of good governance and code of best practice set out in the Corporate Governance Code published in April 2016 (the 'Corporate Governance Code'), which is available from the website of the Financial Reporting Council, www.frc.org.uk.
The Board considers that it has fully complied with the Corporate Governance Code during the financial year covered by this annual report. In making its determination, consideration was given to the independence of Simon Emeny, who had served ten years on the Board in June 2017, and retired as planned at the AGM in November. Further details are given in the section below headed 'Independence of Non-Executive Directors'.
After the year end, one of our independent Non-Executive Directors, Rachel Osborne, resigned as a result of her appointment to an executive role with a competitor. We have started the search for a replacement, to ensure that once our new Chief Financial Officer, Laura Carr, joins us in November, we have an equal number of executives / non-independent Directors and Non-Executive Directors as required by the Corporate Governance Code.
We share the Government's view that good governance helps companies to take better decisions, for their own long term benefit and that of the UK economy overall. Our approach, which has not changed since the flotation of the Company in 2006, is summarised below:
- We believe that good governance leads to stronger value creation and lower risks for shareholders
- It is the Board's responsibility to instil and maintain a culture of openness, integrity and transparency throughout the business, through our policies, communications and by the way in which we act
- We support corporate governance guidelines and apply them in a way that is meaningful to our business and consistent with our culture and values
- If we decide that the interests of the Company and its shareholders can be better served by doing things in a different way, we will explain the reasons why
For more information please see the copies of the presentations that we made to our major institutional investors and shareholder representatives, available in the 'Reports and Presentations' section of our website, www.dunelm.com.
Board role and composition
- Set the strategy to secure the continued growth of the Group over the long term in the interests of our shareholders, taking account of our responsibilities to colleagues, customers, the communities in which we operate and the interests of our other stakeholders
- Ensure that resources are in place to deliver the strategy
- Instil and maintain a culture of openness, integrity and transparency
- Ensure that financial and other controls and processes for risk management are in place and working effectively
- Set an effective remuneration policy
- Maintain good relationships with shareholders and all of our stakeholders
- Review progress towards strategic and operational goals and the performance of management
- Ensure that Board balance and committee membership are appropriate and effective, and fully compliant with the requirements of the Corporate Governance Code
The Board structure at the date of this report is shown below:
|Chairman - Andy Harrison|
Will Adderley Deputy Chairman
Nick Wilkinson Chief Executive Officer
Marion Sears Non-Executive Director
Liz Doherty Senior Independent Director
William Reeve Non-Executive Director
Peter Ruis Non-Executive Director
Note: Laura Carr will join the Board on 29 November 2018 to succeed Keith Down who resigned and stepped down from the Board on 24 May 2018. David Stead, Dunelm's former Chief Financial Officer has provided interim support since April 2018 although has not been appointed to the Board over this short period.We have started the search process for an additional independent Non-Executive Director, to replace Rachel Osborne who stepped down from the Board on 29 August 2018.
The Board has adopted written statements setting out the respective responsibilities of the Chairman, the Deputy Chairman and the Chief Executive Officer; these are available on the Group's website or from the Company Secretary. A summary of the names and responsibilities of the Directors is set out below:
Andy Harrison is responsible for:
- The leadership, effectiveness and governance of the Board
- Setting the agenda, style and tone of Board discussions with a particular focus on strategic matters
- Ensuring each Non-Executive Director makes an effective contribution to the Board
- Ensuring that the Directors receive accurate, timely and clear information
- Chairing the Nominations Committee
Will Adderley is responsible for:
- Maintaining a close dialogue with the Chairman and the CEO
- Contributing to the development of the Group's culture and values by promoting and visibly demonstrating the Company's long established business principles
- Assisting the CEO in strategic and operational activities as requested
- Supporting and deputising for the Chairman as required
- Member of the Nominations Committee
Senior Independent Non-Executive Director
Liz Doherty is responsible for:
- Acting as a 'sounding board' for the Chairman and an intermediary for the other Directors
- Leading the Non-Executive Directors in their annual assessment of the Chairman's performance
- Making herself available to shareholders, particularly if they have concerns that the normal channels have failed to resolve, or for which such contact would be inappropriate
- Chairing the Audit and Risk Committee
Chief Executive Officer
Nick Wilkinson is responsible for:
- Proposing the strategic objectives of the Group for approval by the Board, and delivering the strategic and financial objectives in line with the agreed strategy
- Leading the Executive Board and senior management in managing the operational requirements of the business
- Providing clear and visible leadership in business conduct
- Effective and ongoing communication with shareholders
Liz Doherty, William Reeve, Peter Ruis, and Marion Sears are responsible for:
- Constructive contribution and challenge to the development of strategy
- Monitoring operational and financial performance and scrutiny of management performance in the delivery of strategic objectives
- Oversight of financial and other controls and processes for risk management
- William Reeve chairs the Remuneration Committee
- With the exception of Andy Harrison and Marion Sears, all Non-Executive Directors chair or sit on all Board Committees
Chief Financial Officer
The Chief Financial Officer (Laura Carr from November 2018) is responsible for:
- Working with the CEO to develop and implement the Group's strategic objectives
- The financial delivery and performance of the Group
- Ensuring that the Group remains appropriately funded to pursue the strategic objectives
- Ensuring proper financial controls and risk management of the Group and compliance with associated regulation
- Investor relations activities, and communications with investors
Dawn Durrant is responsible for:
- Supporting the Chairman and the Non-Executive Directors with their responsibilities
- Advising on regulatory compliance and corporate governance
- Facilitating individual induction programmes for Directors and assisting with their development as required
- Communications with shareholders and organisation of the AGM
- Overseeing the Sustainability activities of the Group
Independence of Non-Executive Directors
As required by the Corporate Governance Code and the Listing Rules of the United Kingdom Listing Authority, the Board considers annually whether all independent Non-Executive Directors continue to exhibit independence of character and judgement prior to putting them forward for reappointment at the AGM. This was last considered in September 2018 and we confirmed that Andy Harrison was independent on appointment and that Liz Doherty, William Reeve and Peter Ruis and are independent.
The Board has treated Marion Sears as a 'non-independent' Director since September 2015 in view of her tenure of more than nine years on the Board, and her subsequent appointment as a director of WA Capital Limited in March 2016. WA Capital Limited is a private limited company established by Will Adderley (the Deputy Chairman, and a major shareholder) to act as a long term holding company for his beneficial interest in the Company and various other investments. The Dunelm Board has determined that this appointment does not affect her judgement as a Director of Dunelm, and that any potential conflict of interest has been cleared on the basis that WA Capital Limited and Will Adderley are parties to a Relationship Agreement (referred to below in the section headed 'Conflicts of Interest') which regulates their conduct.
Marion will put herself forward for reappointment at the AGM by shareholders independent of the Adderley family as well as a full shareholder vote.
As noted in the report of the Nominations Committee, Board refreshment is a continued area of focus and we consider the tenure of all Directors as part of our succession planning. Our policy on Board diversity is explained in the Nominations Committee report.
Change of Non-Executive Director responsibilities
Following the planned retirement of Simon Emeny at the AGM on 21 November 2017, Liz Doherty was appointed Senior Independent Director, and William Reeve took the Chair of the Remuneration Committee.
The Board held 11 meetings in the course of the year, one of which was dedicated to a formal review of strategy. Attendance at meetings was as follows:
* Liz Doherty was unable to attend one Board meeting in the year, however, she received papers and communicated her views in advance to Andy Harrison, Chairman. Keith Down did not attend the last Board meeting before he stepped down from the Board.
There is a schedule of matters reserved to the Board for decision or approval, which is available on the Group's website or from the Company Secretary. Examples of such matters include Group strategy and budget, Group capital structure, approval of financial results and Annual Report and financial statements, significant capital or contractual commitments, maintaining internal control and risk management and approval of significant Group-wide policies.
At each meeting, the Chief Executive Officer reports on operational performance (including health and safety) and the Chief Financial Officer reports on financial performance. There is a rolling agenda of other operational, strategic and risk topics which is regularly refreshed to reflect the most up-to-date strategy and 'live' issues in the business. The principal areas of focus discussed by the Board in 2017/18 are set out below.
Areas of focus
- Group strategy, including our vision, goals and business plans
- Impact of Brexit
- Competitor landscape
- Digital strategy
- Furniture strategy
- Marketing strategy
- Tax strategy
|Governance and risk|
- Board succession
- Board independence, composition and diversity
- Investor feedback via advisers
- AGM voting and feedback
- Corporate governance reform
- Stakeholder engagement
- Risk reviews
- Gender pay statement
- Health and safety
- Ethical sourcing and modern slavery
- Cyber security
- The General Data Protection Regulation
- Customer insight
- Store operating model
- Format development
- Stock management
- People strategy, colleague engagement and succession planning
- Supply chain strategy
- Integration of the Worldstores business
We measure the time spent on strategy, governance and operational performance at each meeting. Over the year, the biggest part of our time was spent on strategy, followed by governance and operational performance, which the Board considers to be appropriate.
Minutes of all Board and Committee meetings are taken by the Company Secretary and circulated for approval. Any unresolved concerns raised by a Director are recorded in the minutes.
Non-Executive Director meetings
There is scheduled "Non-Executive Only" time at the end of each Board meeting, attended by the Chairman and the Non-Executive Directors. This is a useful way of exchanging views and dealing with any concerns or questions. In addition to this, the Chairman and the other Non-Executive Directors regularly have informal, individual, meetings with the Executive Directors and other senior managers in the business, usually at a store location.
The Board has three committees, an Audit and Risk Committee, a Nominations Committee and a Remuneration Committee. The terms of reference of each of these committees can be found on the Group's website and are available from the Company Secretary.
Details of the membership of the committees and of their activities during the past financial year can be found in the reports from the Chair of each of the committees.
Training and induction
Upon joining the Board, any new Director is offered a comprehensive and tailored induction programme with visits to key sites and meetings with senior managers and other colleagues.
Nick Wilkinson joined the Board as Chief Executive Officer in February 2018. Prior to this he met with all members of the Board and the Executive Board, and received a briefing from the Company Secretary on the duties of a public company director. He also had access to past Board papers and other relevant documentation. On joining the Group, he completed a comprehensive induction programme, visiting a large number of stores, all non-store sites, and meeting all of the senior management. He "shadowed" a number of colleagues in store and operational roles. He also participated in the interim results presentation and "roadshows", and held separate meetings with advisors.
Rachel Osborne joined the Board as a Non-Executive Director in April 2018. Her induction involved meetings with the Chairman, the Deputy Chairman and other Directors and the Company Secretary, as well as other members of the Executive team. She also visited a number of stores and our Stoke distribution centres. She was also given access to past Board papers and the external audit partner.
We have an open culture and Non-Executive Directors are free to make direct contact with senior management and store teams. Throughout the year all Directors have visited stores both informally and together with members of the senior management team.
The Company Secretary reports to the Board at each meeting on new legal, regulatory and governance developments that affect the Group and actions are agreed where needed. Directors attend seminars provided by independent organisations which cover a wide range of governance topics.
As part of the annual Board evaluation, any additional training or development needs are addressed by the Chairman with each Director. Please see the Directors' biographies for details of the specific skills and experience of each Director.
Each of the Directors receives a formal evaluation of their performance during the year. The Senior Independent Director appraises the Chairman, and the Chairman appraises all of the other Directors individually. In addition, the performance of the Board and committees are formally evaluated as a whole.
2017 External Board evaluation
The recommendations arising from the 2017 review conducted by Lorna Parker, an independent Board Evaluation specialist, and actions implemented in response are set out below:
|Review the structure of Board meetings and the rolling agenda again to ensure that the Board is allowing enough time for discussion of the external environment, and other "softer" matters such as people and culture.|
Rolling agenda reviewed, "people" reviews scheduled twice a year.
Culture paper considered in April and culture KPIs agreed
Agenda time allocated to a general discussion of trends and share experiences/concerns.
|Improve meeting dynamics, in particular to promote more open discussion and focused debate.||Chairman took action to facilitate this, for example by ensuring that the purpose of each agenda item was clear, and summarising the outcome at the end of the discussion.|
|Review Board papers to ensure that they reflect the rearticulated, customer-centric strategy and objectives, and contain only relevant detail and KPIs.||Regular customer report and KPI pack refocused and finance elements of the pack slimmed down.|
|Consider whether an additional Non-Executive Director should be appointed, to strengthen the overall skill base amongst the Non-Executive Directors.||Rachel Osborne appointed to replace Simon Emeny, who retired in the year. Rachel's financial expertise filled an identified skill gap. The search for a replacement for Rachel has started.|
2018 Board evaluation
The Board held a scheduled external evaluation in 2016, and a follow up by the same provider in 2017. In 2018 the Chairman led an internal evaluation, based on a discussion with each Board member focused on the following topics:
- Review of the Board's activities over the past year
- Consideration of whether the Board has the correct balance of skills and diversity to deliver the strategic objectives in future years
- Board and committee effectiveness.
The Chairman collated views and these were discussed by the Board. The following actions were agreed:
- Nominations Committee and Board to review the Board succession plan in the light of recent Board changes, likely NED rotations and the ongoing strategic plans for the business
- Further review of Board packs to give greater focus and remove unnecessary detail
- People Director to be requested to provide more visibility of diversity throughout the business to enable the Board to consider how to measure and promote this.
These actions will be progressed during the year and we will report back on them in next year's report.
s172 Companies Act 2006
As a Board we have always taken decisions for the long term, and collectively and individually our aim is always to uphold the highest standards of conduct. We expect all of our colleagues, at every level of the business, to do the same. Similarly, we understand that our business can only grow and prosper over the long term if we understand and respect the views and needs of our customers, colleagues and the communities in which we operate, as well as our suppliers and the shareholders to whom we are accountable. This is reflected in our "Business Principles", and our Sustainability report sets out more detail on how we manage our relationships with them.
The Company Secretary sets out the text of s172 Companies Act 2006 on every Board agenda, and as we receive presentations and make decisions, we ensure that the impact on any of these groups is considered. At our meeting in April, we spent time examining how we engage with them. A summary of this is set out below. We will formally review this at least once a year to consider whether there are ways that the Board's engagement can be improved to help us operate more effectively.
How the Board engages with its stakeholders
|How the Board engages||Why we engage||Issues relevant to|
Customer insight report in Management and Board packs, which includes customer satisfaction scores.
Customer KPIs reported in Management and Board packs.
CEO / Deputy Chairman reply personally to a number of high level customer contacts.
Management and Directors visit stores regularly.
We want to be the customer's chosen partner for creating a home they love – the Home of Homes.
We welcome all customers, whatever their age, taste or budget, and offer them the widest range of products for their homes, whenever and however they want to shop.
Product range, price and quality.
Convenience and accessibility.
Responsible use of personal data.
Ethics and corporate responsibility.
Designated "Non-Executive" director has Board responsibility for championing the interests of colleagues.
Regional and National Colleague Councils in place, feedback goes to the Executive Board and is acted on.
Designated NED attends two National Colleague Council meetings a year.
Annual Board discussion with Colleague Council representatives.
"Always on" engagement mechanism, and full engagement survey twice a year.
Colleague KPIs in Management and Board packs.
Annual conference for Store managers and senior support colleagues, attended by Chairman, Chief Executive Officer, Chief Financial Officer and Company Secretary.
Exec Board and Directors visit stores and other sites regularly.
Weekly and monthly "huddles" held, and Gazette magazine published quarterly.
Independent whistleblowing helpline.
We believe that a to be a great place to shop, Dunelm also needs to be a great place to work – we can only deliver great products and services to our customers through the hard work and commitment of our colleagues.
Fair pay and benefits.
Diversity and inclusion.
Training, development and career opportunities.
Health and safety.
Responsible use of personal data.
Environment and community.
Annual supplier conference held, attended by the Chairman and Executive management.
Supplier presentation to the Group Board.
Key suppliers attend the annual colleague conference.
Chief Executive Officer and Deputy Chairman meet regularly with key suppliers.
Annual Board presentation on ethical trading / modern slavery.
Supplier payment terms reported to the Board and published.
We do not manufacture the vast majority of the products that we sell; therefore we need to maintain relationships with suppliers and manufacturers worldwide who can meet our high standards.
Suppliers must demonstrate that they operate in accordance with recognised standards that uphold human rights and safety, prohibit modern slavery and promote sustainable sourcing.
Fair trading terms.
Ethics and slavery.
Company Secretary chairs the Sustainability Committee, which considers matters relating to the environment, community and other topics.
Annual report to the Exec Board.
|We are committed to minimising the impact of our business operations on the environment. It is also important to our colleagues, customers and shareholders.|
Packaging materials (e.g. plastic) and minimisation.
Emissions from company vehicles.
Charity Committee in place to spearhead charitable and community activity, reports to the Exec Board and the Board.
A representative of the company-sponsored charity attends the annual company conference.
Charitable activity reported in the "Gazette".
|We aspire to be responsible members of our community as it reflects our principle to do the right thing. It is also important to our colleagues, customers and shareholders.|
|Shareholders and potential shareholders|
Annual report and accounts
Results announcements and presentation.
Shareholder and analyst meetings with management, followed up by feedback from brokers and financial PR consultants.
Capital Markets presentation.
Regular Corporate Governance presentation.
Engagement via the Company Secretary.
|Continued access to capital is important for our business. We work to ensure that our shareholders and their representatives have a good understanding of our strategy business model, opportunity and culture.|
Long term value creation.
Ethics and corporate responsibility.
Engaging with our colleagues
Dunelm is a very open business and our colleagues are seldom reluctant to share their views with us! Members of the Board and our leadership team are expected to spend time in store and at other Group locations, and actively seek their opinions on how we can improve. We have an "always on" colleague feedback system, and management review this and respond. We also have a twice yearly engagement survey, the results of which are fed back to managers, the Executive Board, and the People Director covers this as part of her regular presentations to the Board. We have Regional and National Colleague Councils, and this year we have designated Marion Sears as our "Designated Non-Executive Director" for colleague purposes. Marion attended the National Colleague Council meetings in April and September and fed back to the Board afterwards. National Colleague Council members will be meeting with the Board in November.
Investor relations and understanding shareholder views
The table above summarises how we communicate with our shareholders. The Chief Executive Officer and the Chief Financial Officer report back to the Board after the investor roadshows. The Group's brokers and financial PR advisers also provide a written feedback report after the full and half year results announcements and investor roadshows to inform the Board about investor views, and in addition Non-Executive Directors attend a selection of investor meetings.
In January 2018, we held one of our regular Corporate Governance meetings, attended by Will Adderley, the Non-Executive Directors, the Company Secretary and myself, to which our major institutional shareholders were invited. This gives the corporate governance representatives of our shareholders an opportunity to discuss with us a range of governance topics. Matters discussed included Board composition, the work of the Audit and Risk Committee, remuneration, risk, cyber security, human rights and the environment. We are planning to hold another meeting in January 2019.
Our corporate website contains useful shareholder information, copies of presentations and policies in relation to governance and sustainability. Please see www.dunelm.com.
All Directors will be available at the Annual General Meeting to meet with shareholders and answer their questions.
Culture and the Board
Dunelm has an open and straightforward culture, with a strong moral compass, reflecting the values instilled by the Adderley family. The Board has always been cognisant of the need to retain this culture as the business grows and becomes more complex. "Culture" is one of our "principal risks", which are monitored formally by the Executive Board and the Board twice a year. The Board has defined the Group's "purpose", namely "to help everyone create a home they love – the "Home of Homes". This is supported by five business goals, underpinned by our business principles, which define how we will act towards others. Further details of this are set out in the Strategic Report. Members of the Board and the leadership team are expected to act as role models for our business principles, and all colleagues are appraised against them.
Board members monitor adherence to the culture in a number of ways, including by visiting Group locations and interacting with colleagues and advisors to the Group as part of their Board duties. The Board also reviews a number of "culture" indicators, such as colleague and customer satisfaction scores, accident statistics, internal audit reports, whistleblowing data, and regulatory enforcement. During the year, a "culture scorecard" has been developed, bringing this data together, and was formally reviewed by the Board in September. This will be repeated at least once a year going forward.
Share buyback and Rule 9 waiver
In April 2016, Will Adderley, our Deputy Chairman and a major shareholder, disposed of part of his shareholding. As his shareholding is now below 30%, and the combined Adderley shareholding is above 50%, we are no longer required to seek a Rule 9 waiver at the AGM to support our policy to buy back shares to satisfy employee share option entitlements, so long as this situation remains the case after the Company share purchase. The Rule 9 waiver vote caused a policy difficulty for a number of our institutional shareholders, which can now be avoided.
The Board has reviewed whether our policy to purchase shares in the market to satisfy share option entitlements (as opposed to issuing shares) is still appropriate; we believe that it is in the interests of our shareholder base as a whole as it avoids dilution of shareholdings, and it is supported by the majority of our institutional shareholders. I would like to reassure shareholders again that shares bought back by the Company will be held in treasury and used only to satisfy share option entitlements, and not cancelled. The Company did not purchase any of its own shares during the financial year.
The Group's significant shareholders are listed in the Directors' Report and voting rights are stated in the Directors' Report.
Conflicts of interest
The Companies Act 2006 allows the Board of a public company to authorise conflicts and potential conflicts of interest of individual Directors where the Articles of Association contain a provision to that effect. The Company's Articles of Association give the Board this authority subject to the following safeguards.
- Directors who have an interest in matters under discussion at a Board meeting must declare that interest and abstain from voting
- Only Directors who have no interest in the matter being considered are able to approve a conflict of interest and, in taking that decision, the Directors must act in a way they consider, in good faith, would be most likely to promote the success of the Company
- The Directors are able to impose limits or conditions when giving authorisation if they feel this is appropriate
All Directors are required to disclose any actual or potential conflicts to the Board and the following existing matters have been considered and approved:
- Will Adderley is a major shareholder and connected to other major shareholders. Authorised on the basis that Will continues to abide by the terms of the Relationship Agreement entered into between himself, other major shareholders and the Company on flotation of the Company in 2006
- Marion Sears is a director of WA Capital Limited, a private limited company established by Will Adderley to act as a long term holding company for his beneficial interest in the Company and various other investments. Authorised on the basis that WA Capital Limited is party to the Relationship Agreement referred to above
Any actual or potential conflicts are considered by the Board and any authorisations given are recorded in the Board minutes and reviewed annually by the Board.
Conflicts that have been disclosed are reviewed annually by the Board.
The Board considers that its procedures to approve conflicts of interest and potential conflicts of interest are operating effectively.
Appointment and removal of Directors
The Articles of Association of the Company provide that a Director may be appointed by ordinary resolution of the Company's shareholders in general meeting, or by the Board so long as the Director stands down and offers him or herself for election at the next Annual General Meeting of the Company. The Articles also provide that each Director must stand down and offer him or herself for re-election by shareholders at the Annual General Meeting at least every three years. The Board has decided to adopt the requirement of the Corporate Governance Code, that all Directors should stand down and offer themselves for re-election at each Annual General Meeting.
Directors may be removed by a special resolution of shareholders, or by an ordinary resolution of which special notice has been given in accordance with the Companies Act 2006. The Articles also provide that the office of a Director shall be vacated if they are prohibited by law from being a Director, or is bankrupt; and that the Board may resolve that his or her office be vacated if he or she is of unsound mind or is absent from Board meetings without consent for six months or more. A Director may also resign from the Board.
The Nominations Committee makes recommendations to the Board on the appointment and removal of Directors.
In accordance with the Corporate Governance Code, all Directors will retire from the Board and offer themselves for re-election at the Annual General Meeting. Non-Executive Directors will also be subject to a separate vote by shareholders independent of the Adderley family as required by the Listing Rules of the United Kingdom Listing Authority.
Powers of Directors
The business of the Company is managed by the Board, which may exercise all of the powers of the Company, subject to the requirements of the Companies Act, the Articles of Association of the Company and any special resolution of the Company. As stated above, the Board has adopted internal delegations of authority in accordance with the Code and these set out matters which are reserved to the Board or committees and the powers and duties of the Chairman and the Chief Executive Officer respectively.
At the Annual General Meetings of the Company from 2007 onwards, the Board has sought and been given authority to issue shares and to buy back and reissue shares. Similar resolutions are being tabled at the 2018 Annual General Meeting. Any shares bought back would be held in treasury for reissue to employees who exercise options under one of the Group's share incentive schemes. For further details see the Notice of Annual General Meeting which accompanies this report.
Advice and insurance
All Directors have access to the advice and services of the Company Secretary. In addition, Directors may seek legal advice at the Group's expense if they consider it necessary in connection with their duties.
The Group purchases Directors' and Officers' liability insurance cover for its Directors.
Articles of Association
The Company's Articles of Association may only be amended by a special resolution of shareholders.
Governance and risk
Details of the Group's risk management framework, systems and controls and internal control framework are set out in the Principal Risks and Uncertainties.
This report was reviewed and approved by the Board on 12 September 2018.