Corporate Governance

Chairman’s opening statement

The Board of Design Group is focussed on developing the Group for the long-term benefit of all shareholders, with well-informed and effective decision making.  As part of this the Board takes corporate governance very seriously and, following updates to AIM Rule 26, undertook a review of the main recognised corporate governance codes.  I am proud to set out the Group’s compliance with the QCA Corporate Governance Code, as adopted by the Board in September 2018.

This report sets out in broad terms how we currently comply with the Code.  We will provide annual updates on our compliance.

John Charlton
Chairman

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

The Group continues to operate under a governance structure, which is designed to be flexible and efficient in creating sustainable long-term growth in shareholder value.

Our key focus is to continue to drive the Group forward and keep us reaching for the high standards and targets we set ourselves.  We do this by leveraging our strengths and the many opportunities to grow in the market. Our strategy focuses on:

  • Working with the winners – increasing revenue through organic growth with both existing and new customers, suppliers and product areas.
  • Design and innovation – developing new opportunities in new channels and adjacent product categories while expanding our presence in the growing market for celebrating events throughout the year.
  • Efficiency and scale – driving margins through investments in process and people; and pursuing accretive M&A opportunities focused on unlocking synergies through economies of scale and strengthening our ‘one-stop-shop’ position with customers.

Further detail on the Group’s strategy and business model, as well as the key challenges faced by the Company in achieving its goals, can be found on pages 26-33 of the Annual Report 2018.

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

The Company is committed to listening and communicating openly with its shareholders.  The full Board is briefed on the views and concerns of investors and also receives copies of investment reports from analysts.

There are a number of ways we engage with our shareholders throughout the year:

Institutional investors:

Our CEO and CFO meet at least twice a year with major investors via roadshows hosted by the Company’s Nomad & Broker.  These are primarily following the announcements of our half-year and full-year results but can also be for other reasons such as our recent fundraising activity.  In addition, during the year, we undertook regional roadshows to visit shareholders outside of London and attended investor conferences aiming to introduce new investors to the Group. We see these as a fantastic opportunity to engage with our shareholders and very much value the open dialogue that is achieved. The recent demand for our shares generated by the fundraising activity in relation to the acquisition of Impact Innovations Inc. is a good indication of the Company’s strong relationship with its shareholders.

As well as the face to face interaction, following the roadshows our Broker provides us with feedback reports so we can review any comments raised by the shareholders and react accordingly.

In November 2017, we were pleased to be nominated in the category of Best Overall Communication of the Investment Proposition at the Investor Relations Society Awards 2017. In September 2018, we have been nominated in the Best Investor Communication Award category of the AIM Awards. Such nominations are testament to the Group’s efforts to communicate clearly and transparently with investors.

Individual investors:

In addition to our focus on institutional investors, we aim to engage with individual and retail investors on a regular basis.

Our AGM gives us the ideal opportunity to meet with individual investors face-to-face. It is important that they have a platform to raise questions or make comments whilst also enabling us to give them visibility of, and interaction with, the Board.

All our investors are regularly kept up-to-date with announcements, circulars and reports, all of which are available on the Company’s website.

Nikky Geairns, is primarily responsible for shareholder liaison, and can be contacted at ngeairns@thedesigngroup.. Contact details for the Company’s PR Advisers, Broker and Registrars are also set out on the ‘Contact’ section of the Company’s website.

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

All of our stakeholders – our customers, employees, suppliers and investors – are vital to the success of the Group.

Employees:

We invest in our people; from training and education offered throughout the Group, through to opportunities for career progression. The Group offers an environment in which our employees are encouraged to grow and deliver their very best. It’s these same opportunities which allow the Group to attract and retain the brightest talent. We were delighted that our commitment to our team was recognised with a ‘Highly Commended’ award in the Employee Engagement Awards 2017, in the Company of the Year category.

During the course of FY18, the businesses in the UK were re-structured to bring them under one management team.  A lot of time and effort was spent ensuring that this was a positive benefit to the employees and key structures were put in place to ensure a more collaborative and collegiate working environment.

In Holland, Design Group Europe has a long-standing relationship with Alescon an organisation focussed on providing access to the labour market for local people with physical and learning disabilities.  At any one time, 30-40 individuals will be working with us in a variety of roles such as display assembly. It is a great opportunity to work with members of the local community helping them to gain new skills and experience in the workplace.

Our businesses throughout the world undertake a variety of local initiatives to support their local communities and national charities.  Examples include raising money by running marathons, sponsored head shaves and lengthy bike rides.

We are currently reviewing the methods by which we encourage our employees, worldwide, to raise feedback and concerns (including our whistle blowing mechanisms) and will implement any improvements in due course.

Customers:

Through recognising that each of our customers is unique and so requires a different service to satisfy their needs and expectations; we work hard to build deep and lasting relationships with our customers.

In the UK, following feedback from several major customers and our employees that we needed to improve the quality of our samples to deliver a stronger representation of the gift wrap finishes we offer, we embarked on a project to seek out new technologies and methods to improve our offer to our customers.

A project team was created and as a result we identified and invested in two highly specialised printing machines that enable foil, holographic, deep embossing and UV varnish finishes to be recreated and applied to our samples. We also invested in new larger and faster sample printing technology for all of our paper based products which has increased our capacity and reduced turnaround time offering a flexible and responsive service for our customers.

The quality of DGUK samples is now given very positive feedback from all of our major customers. Many of whom now use the samples in their internal marketing communications and also for external PR marketing including TV photo shoots.

Suppliers:

Through regular audits (ethical, quality and technical ) we work to ensure the factories with which we produce goods meet relevant requirements, which comply with standards set by Business Social Compliance Initiative (“BSCI”), Ethical Trading Initiative (“ETI”), Workplace Conditions Assessment (“WCA”), and Consumer Trade Partnership Against Terrorism (“CTPAT”). We are SEDEX members and we work with ‘Stronger Together’ in our commitment to respecting human rights throughout our supply base.

The UK business meets with our key suppliers every 6 months to maintain a regular open dialogue and to share priorities both from the Group’s perspective but also those of our suppliers.  Our Purchasing Managers have daily interaction with our supplier base covering a variety of topics such as quality, service levels, sourcing of raw materials etc.

Further detail on how our business model identifies the key resources and relationships on which the business relies can be found on page 26 of the Annual Report 2018.

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

The Board has overall responsibility for the establishment and oversight of the Group’s risk management framework. The Group’s risk management systems, policies and procedures are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor the risks and adherence to limits.

Risk management processes are reviewed regularly by the Audit Committee to reflect changes in market conditions and the Group’s activities. The Board’s oversight covers all controls, including financial, operational and compliance controls and general risk management. It is based principally on reviewing reports from management to consider whether significant risks are identified, evaluated, managed and controlled and whether any significant weaknesses are promptly remedied and indicate the need for more extensive monitoring.

In the past few months the Board and senior management have reviewed key policies which support risk management.  These include the Code of Conduct, anti-bribery and anti-corruption policy and others. Updated versions will be rolled out via a new Group intranet towards the end of 2018. 

Further detail on the principal risks faced by the Group and the mitigating actions taken in respect of those risks can be found on pages 30-33 of the Annual Report 2018.

Principle 5: Maintain the Board as a well-functioning, balanced team led by the Chair

For the biographies of the Board, information as to the Director’s independence and a breakdown of the Committees, along with the requisite time commitments for directors, see the Annual Report 2018 pages 36-40.

The Board met formally seven times during the 2018 financial year. Other than Lance Burn, who was unable to attend one meeting, all directors were present.  The Audit Committee met twice with one apology from John Charlton. The Remuneration Committee met three times and was fully attended.

Key Highlights:

  • Giles Willits joined the Board as CFO in January 2018 bringing with him more than 20 years’ experience in senior leadership and financial roles.
  • The Board carried out an in-depth review of 2018/19 budgets, annual operating plans and strategic objectives with the Executive Directors. This took place over two days during March 2018.
  • During October 2017 the full Board spent a week visiting our businesses in USA, meeting with the senior management teams and discussing strategic objectives over the next three years.
  • The Board spent 3 days in Memphis, USA in August 2018 visiting the senior management of Impact Innovations Inc, receiving presentations as to the company’s history and vision for the future and the proposed integration into the Group.

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

The Board is comprised of the Non-Executive Chairman, the Non-Executive Deputy Chairman, Two further Non-Executive Directors and three Executive Directors.

For the biographies of the Board see the Annual Report 2018 pages 36-37.  In addition the Board bring a wealth of skills and experience to the governance of the Group:

John Charlton (Chairman) contributes a significant in-depth knowledge of the international greetings, card, gift packaging, stationery and social expression gift market, gained over 30 years as the Chief Executive of one of the leading suppliers in this industry..

Anders Hedlund (Non-Executive Deputy Chairman) founded the Group in 1979 and brings significant industry knowledge to the Board.

Paul Fineman (CEO) brings over 35 years experience in the card, gift wrap and stationery industry with a particular emphasis on innovation and entrepreneurship.

Giles Willits (CFO) has undertaken a number of key financial roles over 20 years covering retail and entertainment sectors. He brings particular skills and experience in M&A.

Elaine Bond (Non-Executive Director) brings significant operations experience gained over many years in the card, gift wrap and stationery industry.

Lance Burn (Executive Director and MD of DGUK) brings a wealth of international experience managing businesses both in the UK and abroad across a number of industry sectors. He has important skills in business integration and overseas operations.

Mark Tentori (Non-Executive Director) is a Chartered Accountant and has held a number of CFO and COO positions across a wide range of sectors.  

The Group appointed Joy Laws as Group General Counsel and Company Secretary in June 2018.  She will play an important role in the governance and administration of the Group advising the Board on procedures, corporate governance, changes in legislation, strategy and decision making.

The Board have access to the Deloitte Academy which gives each director (executive and non-executive) access to a wide-ranging programme of technical briefings, education, bespoke training and peer-to-peer networking opportunities.  This is a useful resource to ensure that they keep abreast of market trends in board governance, legislative reform and keep their skills up-to-date.

The Board are keen to obtain external, specialist advice when necessary.  An example of this is when the Remuneration Committee recently appointed Deloitte Llp to provide remuneration advice in relation to employee benefit schemes.

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

In March 2018 the Audit Committee conducted a self-assessment based on a framework document from an external adviser.  Members were asked to rate the performance of the Audit Committee based on their own perceptions of the committee as a whole.  

Topics covered were: a) creating an effective audit committee; b) running an effective audit committee; c) professional development; d) overseeing financial reporting; e) overseeing risk management and internal control; f) overseeing external audit; g) overseeing internal audit and h) comparison of the audit committee against other audit committees of which the members may have experience.

Responses were collated and reviewed and the outcomes will be brought to subsequent Board meetings.  An example of one of the outcomes was the desire to look into professional development opportunities for the members.

Over the coming year, our new Group General Counsel and Company Secretary will be reviewing the board evaluation process and will ensure that self-assessments will take place for the Board and the other committees.

The Nomination Committee is responsible for identifying and nominating, for the approval of the Board, candidates to fill Board vacancies as and when they arise as well as putting in place plans for succession for Directors and Senior Executives, in particular with respect to the Chairman and the Chief Executive Officer.

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

The Board helps to promote a culture of respect, integrity, openness, honesty and fulfilment within each of the businesses in our Group. We believe strongly in these objectives and we endeavour to practise these in the way that we communicate with our customers, suppliers, shareholders, advisers and of course all our teams employed in the Group.

Our Performance Management systems and processes are designed to direct and influence behaviours. Our Senior Executives cascade our ethical values down throughout the wider organisation.

Feedback from all stakeholders in the business, as set out in Principle 3, allows the Board to assess the state of its corporate culture, as well as performance against the Company’s internal targets.

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

There is a distinct and defined division of responsibilities between the Chairman and the Chief Executive Officer (CEO).

The Chairman is primarily responsible for the effective working of the Board in conjunction with management, and the CEO is responsible for the operational management of the business and for the implementation of the strategy agreed by the Board.

The Board has three Committees – Remuneration, Audit and Nomination. Each of these committees comprises the Chairman and our two Non-Executive Directors: Elaine Bond and Mark Tentori. Elaine chairs the Remuneration Committee, Mark the Audit Committee, and John Charlton the Nomination Committee.

The Nominations Committee is responsible for filling Board vacancies, reviewing the Board composition and the roles of Board members.

The Audit Committee satisfies itself on the integrity of financial information and that controls and risk management systems within our businesses are robust and defensible. The Committee meets as required during the year and at least twice with the Group’s external auditor. Its role is to review the interim and final financial statements for approval by the Board, to ensure that operational and financial controls are functioning properly, and to provide the forum through which the Group’s external auditor reports to the Board.

The Remuneration Committee determines appropriate levels of remuneration and compensation for Executive Directors. The Committee meets as required during the year and is closely involved in agreeing the positions within our senior management team that should participate in our Long Term Incentive Plan (“LTIP”), together with the level of awards. The Remuneration Committee is also responsible for agreeing the performance criteria for annual bonuses and LTIP for Executive Directors and senior management.

The Terms of Reference for each committee are currently being reviewed and will be uploaded to the website in due course, along with a summary of matters reserved for the board.

In addition to the main Board and committees, the Executive Committee (ExCOM) was established in 2017.  This consists of the Managing Directors of the main Group businesses across the world. It plays an important role in both feeding key matters to the Board to enable well-informed decision making and cascading Board initiatives to the wider businesses. It meets four times a year to discuss matters such as agreeing policy guidelines for business divisions based on an approved Group strategy, recommending objectives and strategy for the Group, and ensuring the control, co-ordination and monitoring within the Group of risk and internal controls, to name a few.

The Board intends to keep all aspects of corporate governance under review, with the governance framework developing further as the Company continues to grow.

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

During FY18, the Board (itself or via the Board Committees) worked hard to strike that essential balance between achieving the Group’s short-term objectives and longer-term growth and development.  Key activities included:

  • Monitoring and review of the financial performance of the Group on an ongoing basis including capital expenditure proposals and significant projects;
  • Review of the interim and annual results including supplementary papers;
  • Review of  the effectiveness of the Company’s  internal financial controls, general internal controls and risk management systems;
  • Monitoring  and review of  the effectiveness of the Business Assurance function;
  • Overseeing the relationship with the external auditor;
  • Approval of the strategy, three year plans and budget;
  • Review of the Group risk register;
  • Approval  of changes to remuneration for Chairman, CEO, CEO direct reports;
  • Approval of LTIP Scheme for FY17-20 Scheme;
  • Approval of annual bonus payments and targets for the following financial year;
  • Discussing the integration of the UK businesses.
  • Appointing Giles Willits as CFO and Joy Laws as Group General Counsel & Company Secretary;
  • Assessing and approving the acquisition of Impact Innovations Inc.

The Annual Report is a key tool for demonstrating to shareholders how the Group is governed and provides an overview of core activities over the past financial year.  In our Annual Report for 2018, we describe the high level work of our Committees and provide a Remuneration Committee Report which goes into further detail, along with the Independent auditor’s report.  The Board intends to also include an Audit Committee report in future Annual Reports.

Our historical Annual Reports and notices of general meeting, along with all other documents sent to shareholders, can be found here.