Corporate Governance Code

(The information contained in this document was last reviewed on 27 September 2018) In this document, unless the context otherwise requires:

  • reference to James Cropper or to the Company is to James Cropper Plc (and reference to our, us and

we is to be construed accordingly); and

  • reference to the Group is to the group of companies of which James Cropper is the parent

Introduction

On 27 September 2018, the Board of James Cropper decided to adopt The QCA Corporate Governance Code (2018 edition) (the QCA Code). The choice of code to adopt was important to us. We wanted to be sure that we would proactively embrace whatever code we opted for and not end up with a code that could stifle us and result, on a comply or explain basis, with us describing why certain requirements were not appropriate. We believe that the QCA Code provides us with the right governance framework: a flexible but rigorous outcome-oriented environment in which we can continue to develop our governance model to support our business.

Corporate governance principles applicable to James Cropper

As a result of deciding to apply the QCA Code, the corporate governance principles which now apply to us are those contained in the QCA Code. These are:

 Corporate governance principles

  1. Establish a strategy and business model which promote long-term value for shareholders
  1. Seek to understand and meet shareholder needs and expectations
  1. Take into account wider stakeholder and social responsibilities and their implications for long-term success
  1. Embed effective risk management, considering both opportunities and threats, throughout the organisation
  1. Maintain the board as a well-functioning, balanced team led by the chair
  1. Ensure that between them the directors have the necessary up-to-date experience, skills and capabilities
  1. Evaluate board performance based on clear and relevant objectives, seeking continuous improvement
  1. Promote a corporate culture that is based on ethical values and behaviours
  1. Maintain governance structures and processes that are fit for purpose and support good decision-making by the board
  1. Communicate how the company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders

 

Application of the QCA Code and required disclosures in our Annual Report or on our website

The correct application of the QCA Code requires us to apply the principles set out above and also to publish certain related disclosures; these can appear in our Annual Report, be included on our website or we can adopt a combination of the two approaches. Recommended locations for each disclosure are specified in the QCA Code; we have chosen to follow these. An index setting out where each required disclosure can be found appears at the end of this document.

 

Chairman’s corporate governance statement

Dear shareholders,

I am incredibly proud to have been part of the James Cropper story for many years now. Its success has not come without its challenges and has been against a continually changing legal and regulatory backdrop. A constant, however, has been the need to adapt and for the governance infrastructure that supports our business to evolve accordingly.

Back in 2007

Those, like me, who were shareholders back in 2007 may well remember that James Cropper moved from the Official List to AIM in August of that year. As a result, and as was explained at the time, the Combined Code (now known as the UK Corporate Governance Code) ceased to apply directly to us; no equivalent requirement applied to companies on AIM. The Combined Code set out standards of good practice for listed companies on board composition and development, remuneration, shareholder relations, accountability and audit.

Despite the Combined Code no longer applying to us, the board remained committed to good corporate governance in the management and operation of the group’s business; it continued the good habits instilled from our time on the Official List.

 

Annual Report 2018

In our 2018 Annual Report, I stated in the Corporate Governance Statement that as a Board, we remain committed to maintaining high standards of corporate governance. The Directors place a significant emphasis on ensuring that the Group has the appropriate governance structures in place. We acknowledged the importance of the principles set out in the UK Corporate Governance Code 2016, and intended to apply this code as far as we considered appropriate given the size of the Group.

Now

In March, the London Stock Exchange introduced a new rule applicable to James Cropper as a company on AIM: going forward, we will be required to apply a recognised corporate governance code and will have to provide details of it on our website and then explain how we comply with that code and include reasons where we have departed from it. This information is to be reviewed annually and our website will need to include the date on which this was last done. This rule takes effect from 28 September 2018.

Towards the end of April, the Quoted Companies Alliance (QCA) released a new and fully updated QCA Corporate Governance Code. As a board, we considered this and its impact on the Group’s corporate governance arrangements. The Board felt that adoption of the QCA Code was more appropriate as the QCA Code adopted key elements of the UK Corporate Governance Code, policy initiatives and other relevant guidance and then applied those to the needs and particular circumstances of small and mid-sized quoted companies on a public market.

Ongoing

Under my leadership, it is the responsibility of each member of the Board, individually and collectively, to ensure that good standards of corporate governance are embraced throughout the Group. As a board, we set clear expectations concerning the Group’s culture, values and behaviours. By way of example, each person starting employment within the Group receives a bundle of booklets designed to support them through their induction - this not only covers health, safety & environmental responsibilities, policies & procedures and conditions of employment but also leadership competencies, our vision and values and community relationships. We firmly believe that by encouraging the right way of thinking and behaving across all our people, our corporate governance culture is reinforced, enabling us to conduct business sustainably and responsibly and deliver value for our shareholders. We accept that simply setting expectations is insufficient and so the Board understands how important it is that it leads by example:  it is therefore regularly seen out and about engaging with staff, customers and others, and the executive team, in particular, communicates regularly with staff through briefing meetings. Together, these lead the Board to believe that the group has a healthy corporate culture throughout the business.

Shareholder engagement

I am ever mindful of the need to ensure that we regularly engage with you, our shareholders. With this in mind I felt it was important to make you aware of our adoption of the QCA Code to continue to ensure that good corporate governance is maintained throughout the Group.

Mark Cropper

Chairman

 

Website disclosures

Principle 2

Seek to understand and meet shareholder needs and expectations Disclosure

Explain the ways in which the company seeks to engage with shareholders and how successful this has been. This should include information on those responsible for shareholder liaison or specification of the point of contact for such matters.

Copies of our Annual Report (which includes the notice of AGM) are sent to all shareholders and copies of both the Annual Report and Interim Report can be downloaded from the financial section of www.cropper.com - alternatively, they are available on request by writing to the Company Secretary at James Cropper Plc, Burneside Mills, Kendal, Cumbria. LA9 6PZ. Other information for shareholders (and other interested parties) is also provided on our website, including the preliminary and half-year results presentations to the City.

We have an on-going programme of individual meetings with institutional shareholders and analysts following the preliminary and half-year results presentations to the City. These meetings allow the Chief Executive and the Group Financial Director to update shareholders on strategy and the group’s performance. Additional meetings with institutional investors and / or analysts are arranged from time to time. All board members receive copies of feedback reports from the City presentations and meetings, thus keeping them in touch with shareholder opinion.

Mark Cropper and Patrick Willink are the key contacts with the Company’s family shareholders.

Dr Andrew Hosty, was recently appointed as the Senior Independent Director, and the other non-executive directors are all willing to engage with shareholders should they have a concern that is not resolved through the normal channels.

The Company Secretary can also be contacted by shareholders on matters of governance and investor relations.

The Board supports the use of the AGM to communicate, in particular, with private investors. The meeting is well attended and all shareholders are given the opportunity to ask questions and raise issues; this can be done formally during the meeting or informally with the directors after it.

At the AGM, separate resolutions are proposed on each substantially separate issue. For each resolution, proxy appointment forms are issued which provide voting shareholders with the option to vote in advance of the AGM if they are unable to attend in person. All valid proxy votes received for the AGM are properly recorded and counted by Link Asset Services, our registrars. Voting at the AGM is by a show of hands unless a poll is called for - in this regard, the Chairman is aware of the possible need to exercise his powers as Chairman and demand a poll to ensure that the vote represents the voting intentions of those shareholders who have appointed the Chairman as proxy as well as those present at the meeting.

Principle 3

Take into account wider stakeholder and social responsibilities and their implications for long-term success Disclosure

Explain how the business model identifies the key resources and relationships on which the business relies.

Explain how the company obtains feedback from stakeholders and the actions that have been generated as a result of this feedback (e.g. changes to inputs or improvements in products).

For generations James Cropper has prized our relationships with stakeholders, be they customers, suppliers, bank, advisers, shareholders, pensioners or employees. Indeed we measure the longevity of these by the decade. What is changing, however, is the depth and scales of many. In recent years more and more of our growth has been underpinned by close collaborations with global corporations in sectors ranging from luxury retail to aerospace. All value us for our creativity and agility, often beyond what is possible within very large organisations, and we value them for the challenge and magnitude of potential they bring us.

 

Whilst we have long believed that ‘no man is an island’, this year is testimony that the same is true for business. James Cropper owes its 173 year history of success to the partnerships it has fostered with customers, suppliers and the local community. It is this collaborative attitude which allows us to claim a 40 year partnership with one customer and a 100 year working relationship with a supplier, and at the same time creating new partnerships with new brands.

The highlights of the Group’s performance this year have been supported by partnerships; but they have also been driven by our collaborative approach to people, innovation and sustainability.

 

People

When it comes to recruiting our people, we have a clear strategy: we look for the absolute best. As a Group with global reach and ambition, a fantastic heritage and a focus on world-class innovation, diversity and equality are not just nice to haves, they are an essential part of securing the future of our business.

We see the relationship we have with each of our people as a partnership. We believe this approach underpins our low staff turnover and outstanding record of long term service. The result is a wealth of knowledge and skills staying in the business that are fundamental to our capacity for growth.

Innovation

This year the spotlight on James Cropper’s position as an innovator has been particularly bright. Over the course of the year, our CupCyclingä facility began upcycling used coffee cups into premium paper products in a closed loop partnership. Our 3D Products business has evolved from producing the inlays for packaging to providing full packaging solutions that are 100% plastic-free, broadening opportunities significantly. In addition, TFP has worked with clients to develop composite fuel pipes designed to replace metallic equivalents, saving weight and therefore fuel consumption for the aerospace industry.

Sustainability

The culture of sustainability runs deep at James Cropper but working with our people, suppliers and community to ensure we continue to do better every day is key. Whether it’s the use of renewable energy or investing in innovative processes to meet recycling challenges, we are always making change. James Cropper was highlighted as an example of best practice when Business in the Community, founded by HRH The Prince of Wales, chose to hold a summit at our mill. There, a group of cross sector leaders met in the spirit of collaboration to discuss some of the key challenges and opportunities related to bringing waste back into value chains. Our processes and products were used as inspiration, notably our used coffee cup recycling and our capability to create beautiful plastic-free packaging.

Our activities across innovation, sustainability and investment in our people provides a solid foundation and vehicle for long-term commercial success. These core principles will remain at the heart of our growth strategy for the years ahead.

The group’s stakeholders include shareholders, members of staff, customers, suppliers, regulators, industry

bodies and creditors (including the group’s lending banks). The principal ways in which their feedback on the group is gathered are via meetings, conversations and email.

The Group conducts employee surveys to get employee feedback on all aspects of employment with the Group and employee representatives meet in forums to discuss business related issues. Regular Group – wide employee briefings are undertaken, with an opportunity for employees to give feedback. In addition, departmental briefings are held monthly and regular meetings held with the Union reps. The Group encourage feedback from employees at any time.

The Group encourages feedback from our customers and suppliers through account managers and engagement with individual customers.  The business routinely holds meetings with its supporting banks, and other professional advisers. Communications can and are regularly received from a variety of stakeholders and interested parties via info@cropper.com.

Principle 7

Evaluate board performance based on clear and relevant objectives, seeking continuous improvement Disclosure

Include a more detailed description of the board performance evaluation process / cycle adopted by the company. This should include a summary of:

  • The criteria against which board, committee, and individual effectiveness is considered;
  • How evaluation procedures have evolved from previous years, the results of the evaluation process and action taken or planned as a result; and
  • How often board evaluations take

Explain how the company approaches succession planning and the processes by which it determines board and other senior management appointments, including any links to the board evaluation process.

The Chief Executive currently conducts bi-annual performance reviews of the Executive Directors, supported by monthly 1:1 meetings and the Chairman, on behalf of the Board, reviews annually the performance of the other Directors, the Board as a whole, and the Committees, in collaboration with the committee chairmen.

Over the summer, the Board undertook a Board Evaluation exercise to review the effectiveness of its performance as a unit, as well as that of its committees, Chairman and Non-Executive Directors.

The QCA Code states “the Board should regularly review the effectiveness of its performance as a unit, as well as that of its committees and the individual directors”. The review involved the completion of a questionnaire on an anonymous basis – anonymity is intended to encourage more open and constructive comment. The purpose of the questionnaire was to help the Board assess how well it has performed over the last twelve months and to improve efficiency for the future. In particular, the process provided an opportunity for non-executive directors, through their exposure on boards of other major companies in the UK and overseas to draw on their experience to suggest areas of best practice.  The procedure also provided an opportunity for directors to raise any concerns about procedures and governance issues.  Such information is important to the Chairman in his role of assessing the strengths and weaknesses of the Board and addressing balance and skills.

The areas covered under the evaluation exercise were:

  • Role of Directors and the Board
  • Non-Executive Directors
  • Executive Directors
  • Board Meetings
  • Committees of the Board
  • Monitoring Performance
  • Leadership and Culture
  • Corporate Governance
  • Corporate Social Responsibility
  • Any Additional Comments

All Board members were asked to provide a rating (on a scale of 1-5) across a variety of criteria under each area covered. Completed questionnaires were then submitted to the Company Secretary who collated and consolidated the responses so that the Chairman could report back to the Board and the Board could have an open follow up discussion. The resulting discussion then led to actions being agreed for areas that required improvement.

This was the first year that this process had been undertaken for these Board members and is expected to be undertaken annually.

Succession planning is regarded by the Board as vitally important in maintaining the continued success of the business. Through regular reviews and management discussions, the Group’s future business leaders are identified and personal development plans put in place to harness their potential and plan for job growth and career progression.

In practice, the Chairman and the Chief Executive lead on any board nomination and appointment process, in conjunction with the nominations committee. The balance of skills, knowledge and experience on the board are reviewed and appropriate recommendations for consideration are made. Other senior appointments are made by the Chief Executive in discussion with the Chairman and other appropriate Directors.

Principle 8

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

Disclosure

Explain how the board ensures that the company has the means to determine that ethical values and behaviours are recognised and respected.

As a board, we set clear expectations concerning the Group’s culture, values and behaviours. By way of example, each person starting employment within the Group receives a bundle of booklets designed to support them through their induction - this not only covers health, safety & environmental responsibilities, policies & procedures and conditions of employment but also leadership competencies, our vision and values and community relationships. We firmly believe that by encouraging the right way of thinking and behaving across all our people, our corporate governance culture is reinforced, enabling us to conduct business sustainably and responsibly and deliver value for our shareholders. We accept that simply setting expectations is insufficient and so the Board understands how important it is that it leads by example:  it is therefore regularly seen out and about engaging with staff, customers and others, and the executive team, in particular, communicates regularly with staff through briefing meetings. Together, these lead the Board to believe that the group has a healthy corporate culture throughout the business.

Clear statements of behaviour are issued by the board. The Group also has an anti-bribery policy which confirms that the Group has a zero tolerance stance on bribery and they repeat the Board’s expectation that everyone behaves at all times honestly, professionally, fairly and with integrity. The policy is circulated to everyone within the Group.

The group’s published slavery and human trafficking statement (see http://www.cropper.com/corporate-governance/modern-slavery-act.php) also explains to the outside world that we seek to conduct our business honestly and with integrity at all times and that we recognise that it is not acceptable to put profit above the welfare and wellbeing of our employees and those working on our behalf. Steps to combat modern slavery are therefore taken seriously, and efforts to prevent abuses are fully embedded cross-departmentally throughout our organisation to ensure we play our part in helping to stamp out slavery and human trafficking.

The Group also has a whistleblowing policy in place. This allows staff to raise any concerns in confidence directly with a director or Head of Human Resources.

Principle 9

Maintain governance structures and processes that are fit for purpose and support good decision-making by the board

Disclosure

In addition to the high level explanation of the application of the QCA Code set out in the chair’s corporate governance statement:

  • Describe the roles and responsibilities of the chair, chief executive and any other directors who have specific individual responsibilities or remits (e.g. for engagement with shareholders or other stakeholder groups).
  • Describe the roles of any committees (e.g. audit, remuneration and nomination committees) setting out any terms of reference and matters reserved by the board for its
  • Describe which matters are reserved for the board.
  • Describe any plans for evolution of the governance framework in line with the company’s plans for growth.


Roles and responsibilities of the chair, chief executive and any other directors who have specific individual responsibilities or remits (e.g. for engagement with shareholders or other stakeholder groups)

Mark Cropper, as Chairman, is responsible for leading an effective board, fostering a good corporate governance culture and ensuring appropriate strategic focus and direction.

The Chief Executive, Phil Wild, has overall responsibility for proposing the strategic focus to the Board, implementing the strategy once it has been approved and managing the group’s business.

Dr Andrew Hosty, the senior independent director, and the other non-executive directors are all willing to engage with shareholders should they have a concern that is not resolved through the normal channels.

Mark Cropper and Patrick Willink are the key contacts with the company’s family shareholders.

All of the executive directors have particular roles and areas of responsibility (Phil Wild: Chief Executive, Steve Adams: Managing Director of Paper Division, Isabelle Maddock: Group Finance Director, Martin Thompson: Managing Director of Technical Fibre Products Division, Dave Watson: Chief Operations Officer and Patrick Willink: Chief Technology Officer) As such, they continually engage with the group’s stakeholders, whether these be shareholders, members of staff, customers, suppliers, regulators, industry bodies and creditors (including the group’s lending banks). As one would expect, there is a degree of overlap here, with individual roles and responsibilities touching many areas of the business.

Roles of any committees (e.g. audit, remuneration and nomination committees)

Executive Committee: it is responsible for the daily running of the Group and the execution of approved policies and the business plan.

Audit Committee: its primary responsibility is for monitoring the quality of internal controls, ensuring that the financial performance of the Group is properly measured and reported on and reviewing reports from the Group’s auditors relating to the Group’s accounting and internal controls. Jim Sharp is the Chairman of the Audit Committee.

Remuneration Committee: its primary function is to review the performance of the Executive Directors and determine their terms and conditions of service, including their remuneration and the grant of options. David Wilks is the Chairman of the Remuneration Committee.

Nomination Committee: identifies and nominates, for approval by the Board, candidates to fill Board vacancies as and when they arise. Mark Cropper is the Chairman of the Nomination Committee.

Pension Committee: its primarily responsible for reviewing and approving the objectives of the James Cropper Plc Pension Schemes. It monitors performance of the Schemes and considers recommendations and reports from management in relation to policy and strategy concerning pensions and investment matters. Isabelle Maddock is Chairperson for the Pension Committee.

The terms of reference for the committees can be found in the Corporate Governance section of www.cropper.com.

Matters reserved for the board

The board has a formal written schedule of matters reserved for its review and approval; this schedule includes those matters described in the following table.

 

Category

Examples

Structure and capital

  • Changes relating to the Group’s capital structure, including share issues
  • Approval of all circulars and listing particulars to the financial markets
  • Major changes to the Group’s corporate structure
  • Any changes to the Company’s listing or its status as a Plc
  • Corporate acquisitions, disposals and investments
  • Approval of treasury policies and bank borrowing facilities

Strategy

  • Responsible for determining the long term objectives and commercial strategy of the Group
  • Responsible for the overall management of the Group and ensuring the Company’s organisational structure is appropriate for the chosen strategies
  • Setting the values and standards for the Group
  • Approval of policies relating to health and safety, environment, treasury and corporate social responsibility

Management

  • Ensure maintenance of sound systems of internal control and risk management
  • Major changes in the rules of the Company pension schemes
  • Political donations
  • Receiving reports from Board sub-committees and discussing their recommendations

Financial reporting and controls

  • Approval of preliminary announcements of interim and final results
  • Approval of press releases concerning matters decided by the Group Board


Plans for evolution of the governance framework in line with the company’s plans for growth

Nothing at present.

Principle 10

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

 

Disclosure

Disclose the outcomes of all votes in a clear and transparent manner.

Where a significant proportion of votes (e.g. 20% of independent votes) have been cast against a resolution at any general meeting, the company should include, on a timely basis, an explanation of what actions it intends to take to understand the reasons behind that vote result, and, where appropriate, any different action it has taken, or will take, as a result of the vote.

Include historical annual reports and other governance-related material, including notices of all general meetings over the last five years.

 

Clear and transparent disclosure of voting outcomes

With effect from the AGM to be held in July 2019, as soon as practicable after any general meeting has concluded, the results of the meeting will be released through a regulatory news service and a copy of the announcement will be posted on the Company News page within the investors section of www.cropper.com. The announcement will also provide, for information, details of the total number of voting shares in issue and the number of shares in respect of which valid proxy appointments were received; a table will be included showing the number of votes for and against each resolution and also the number within the chairman’s discretion - excluded from the table will be abstentions / votes withheld and proxy appointments received from holders who appointed someone other than the chairman of the meeting as their proxy.

Explanation of actions where a significant proportion of votes (e.g. 20% of independent votes) is cast against a resolution at any general meeting

The company would do this if it became relevant. For information, in the last 10 years no such proportion has been cast against any resolution put to shareholders.

Inclusion of historical annual reports and other governance-related material, including notices of all general meetings over the last five years.

The investors section of www.cropper.com includes this information and more. Notices of the annual general meetings held in the last five years are contained within the relevant Annual Reports. No other general meetings have been held within the last five years.

 

Index

Set out in the following table is a list of the disclosures required to be published by us under the QCA Code. The table also indicates where each disclosure appears in our Annual Report or in this document. As explained on page 1 of this document, the disclosures appear in the locations recommended in the QCA Code. Unless stated otherwise, reference to a page is to a page in this document.

 

Principle

Principle

Location

1

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

Group strategy is explained in our Strategic Report section (pages 5-56) of our 2018 Annual Report.

2

Seek to understand and meet shareholder needs and expectations.

Page 3

3

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

Page 4-5

4

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

Our 2018 Annual Report – Risk Management Section (pages 20-26)

5

Maintain the Board as a well-functioning, balanced team led by the Chair.

Our 2018 Annual Report – “Two of the non-executive directors, although deemed not to be independent under the Code, are considered by the Board to be independent in both character and judgement and provide unequivocal counsel and advice to the Board. The appointment of a new non-executive director to the Board will bring greater independence, counsel and advice.”  (page 61)

“Any non-executive directors with service greater than nine years are subject to re-election at each AGM” (page 62) 2018 Annual Report

Time commitment of Directors – page 62 of our 2018 Annual Report

Board and committee meetings – page 61 of our 2018 Annual Report

Board composition – page 62 of our 2018 Annual Report

6

Ensure that between them the Directors have the necessary up-to date experience, skills and capabilities.

Refer to our Board of Directors in our 2018 Annual Report for details about all Directors (pages 58-59)

For professional; development and professional advice refer to page 62 of our 2018 Annual Report

No external advice was sought on a significant matter during FY2017/18

7

Evaluate board performance based on clear and relevant objectives, seeking continuous improvement.

Pages 5-6

8

Promote a corporate culture that is based on ethical values and behaviours.

Company values – page 46 of 2018 Annual Report

Corporate Governance Statement – pages 60-63 of our 2018 Annual Report.

Pages 6 - 7

9

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

Pages 7-8

10

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

Remuneration Committee report included on pages 64-69 of our 2018 Annual Report

No Audit Committee Report included in our Annual Report but plan to include in our 2019 Annual Report onwards.

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