The Board is committed to high standards of Corporate Governance. The Board considers that the Company has, throughout the year ended 30 June 2007, complied with all the provisions set out in section 1 of the 2003 Combined Code on Corporate Governance (the Combined Code).
The Board, which operates as a single team, is currently made up of nine Directors, being the Chairman, who is part-time, three Executive and five Non-Executive Directors. The Chairman is responsible for the running of the Board. The Board considers that the balance of its constitution brings an appropriate balance of experience in judging matters of strategy, performance, resources, investor relations, internal controls and Corporate Governance.
Greg Lock was appointed as Non-Executive Chairman on 15 March 2007. Otto Schmid stepped down as Non-Executive Chairman on the same date and retired as a Director on 15 March 2007. Richard Murphy retired on 30 June 2007. The Board has also appointed William T Comfort III as Non-Executive Director on 24 August 2007.
Considering the guidance for determining independence as set out in the Combined Code, the Board considers that Chris Conway, John Alexander and Mark Wells were independent throughout the year. In addition, and after careful review, the Board has again concluded that Bruce Powell, who has served on the Board for eleven years, was independent throughout the year. In coming to this view the Board considered his expertise and independence of judgement and opinion.
| Main | Commitees | ||||
| Board | Audit | Remuneration | Nomination | ||
| Greg Lock | Non-Executive Chairman | Chairman | - |
- |
Chairman |
| Bruce Powell | Non-Executive Director and Senior Independent Director |
Member | Chairman | - |
Member |
| Chris Conway | Non-Executive Director | Member | Member | Chairman | Member |
| John Alexander | Non-Executive Director | Member | Member | Member | Member |
| Mark Wells | Non-Executive Director | Member | Member | Member | Member |
| William T Comfort III | Non-Executive Director | Member | - |
Member | Member |
| Rob Klatell | Chief Executive | Member | - |
- |
- |
| Urs Niederberger | Chief Operating Officer | Member | - |
- |
- |
| Stefan Gaiser | Finance Director | Member | - |
- |
- |
The Board meets at least eight times each year, either physically or by conference call, with additional meetings and contact between the meetings as necessary. During the Financial Year ended 30 June 2007, the Board met on nine occasions.
The attendance of individual Directors at all Board meetings is shown in the table below:
| Board meetings attended | |
| Rob Klatell | 9/9 |
| Urs Niederberger | 9/9 |
| Stefan Gaiser | 9/9 |
| Richard Murphy (retired on 30 June 2007) |
9/9 |
| Otto Schmid (retired on 15 March 2007) |
4/5 |
| Greg Lock (appointed on 15 March 2007) |
4/4 |
| Bruce Powell | 9/9 |
| John Alexander | 9/9 |
| Chris Conway | 8/9 |
| Mark Wells | 9/9 |
During the year the Chairman and Non-Executive Directors met on several occasions without the Executives present. In addition the CEO met with just the Non-Executive Directors and the Chairman on several occasions.
There is a formal schedule of matters reserved for the Board's consideration. These include:
The Directors may, at the Company's expense, take independent professional advice and receive training on appointment, and subsequently, as they see fit. In addition, all Directors have access to the advice and services of the Company Secretary, the appointment and removal of whom is a matter of the whole Board. He advises the Chairman and the Board on appropriate procedures for the management of its meetings and duties (and the meetings of the Company's principal Committees), as well as the implementation of Corporate Governance and compliance within the Group.
Prior to appointment, prospective Directors usually participate as observers to the Board. This allows the individual, as well as the existing Directors, to get to know each other prior to appointment. On appointment, the Directors take part in an induction programme. They receive information about Kofax plc, the role of the Board, matters reserved to the Board, terms of reference and membership of principal Board and management Committees, the powers delegated to Committees, the Company's Corporate Governance practices and procedures, followed by provision of the latest financial information on the Company. This is supplemented by visits to key Kofax plc locations and meetings with key senior executives. Throughout their period in office, the Directors are continually updated on Kofax plc''s business and the competitive environment in which it operates, technology matters and other changes affecting Kofax. Directors are also advised on appointment of their legal and other duties, responsibilities, and obligations as a Director of a listed company, both in writing and in face-to-face meetings with the Company's solicitors.
Any Director appointed by the Board during the year is required, under the provisions of the Company's Articles of Association, to retire and seek re-election by shareholders at the next Annual General Meeting. The Articles also require one-third of the Board to retire by rotation each year. All Directors are required to offer themselves for re-election at least every three years.
There is a clear division of responsibilities between the Chairman and the Chief Executive which has been approved by the Board. The Chairman is responsible for leadership of the Board, ensuring its effectiveness on all aspects of its role and setting its agenda. He facilitates both the contribution of the Non-Executive Directors, and constructive relations between the Executives and Non-Executive Directors. He ensures that the Chief Executive develops a strategy with which the Board as a whole is comfortable. The Chief Executive is responsible for formulating strategy and for ensuring its delivery once agreed by the Board. He creates a framework of strategy, values, organisation and objectives to ensure the successful delivery of results, allocating decision making and responsibility to support this. In doing so, he works with the Executive Committee of the Group (ECG), which comprises of all of the Executive Directors and certain other senior executives.
This separation of responsibilities, together with the ratio of Board membership between Executive and Non-Executive Directors, ensures there is a balance of power and authority at the head of the Company. The views of all Directors are taken into account in the decision-making process.
To enable the Board to function effectively and assist Directors to discharge their responsibilities, full and timely access is given to all relevant information. In the case of Board meetings, this consists of a comprehensive set of papers, including regular business progress reports and discussion documents regarding specific matters. Senior executives are regularly invited to Board meetings and make business presentations. The Board also discusses which decisions can be delegated to senior management within the Group.
During the year the Board implemented a structured evaluation process to help assess and improve its performance. This included collective feedback and discussion of the results and agreement to areas of improvement. Each Board member was individually assessed as was the performance of the Board as a whole and of its Committees. The Non-Executive Directors, led by the Senior Non-Executive Director, conducted a review of the performance of the Chairman (from appointment in March to year end) and this was discussed subsequently with him. In all cases the objectives were to address areas needing improvement.
The Board has delegated certain responsibilities to Board Committees, which operate within clearly defined terms of reference, reporting regularly to the Board. These are as follows:
The Audit Committee assists the Board in reviewing the reporting of financial and non-financial information to shareholders, the system of internal control and risk management, and the audit process. The Committee comprises four Non-Executive Directors, chaired by Bruce Powell, who has recent relevant experience as Finance Director of ApaTech Ltd. and deltaDOT Ltd., and meets formally at least four times a year. It met five times during the Financial Year ended 30 June 2007 and all members were in attendance with the exception of one meeting which was missed by Chris Conway. The Chief Executive, Finance Director and external auditors attend these meetings as required by the Committee.
The purpose of the Committee is to assist the Board in the discharge of its responsibilities for financial reporting and corporate control and to provide a forum for reporting by the external auditors. The responsibilities of the Committee include:
In addition the Finance Director attended all meetings, the Chief Executive attended two meetings and the external auditors attended all of the meetings. During the year the Committee undertook the following activities at these meetings:
The Committee reviewed the nature and amount of non-audit work undertaken by Ernst & Young LLP (EY) in the current year, this being the first year with EY as auditors, to satisfy itself that there is no impact on their independence. In some cases, the nature of the advice may make it more timely and cost-effective to select EY who have already developed a good understanding of the Group. Details of this year's fees are given in note 5 to the accounts. EY are also subject to professional standards which safeguard the integrity of the auditing role they perform on behalf of the shareholders. There is a formal policy in place for the provision of non-audit services by the auditors. This policy prohibits the provision of certain services and requires that others are subject to prior approval.
The Remuneration Committee comprises four Non-Executive Directors, is chaired by Chris Conway, and meets formally at least three times a year. It met four times during the Financial Year ended 30 June 2007 and all members were in attendance.
The Nomination Committee keeps under review the Board structure, size and composition; proposes to the Board suitable candidates for appointment as Directors of the Group, and considers Board succession plans. The Committee comprises all Non-Executive Directors, is chaired by Greg Lock (Otto Schmid prior to 15 March 2007), and meets as required. It met three times during the Financial Year ended 30 June 2007 and all members were in attendance. Otto Schmid did not participate in the Nomination Committee search for a new Chairman.
During the year, the Nomination Committee met and made recommendations to the Board regarding the:
The attendance of individual committee members at Nomination Committee meetings is shown in the table below:
| Scheduled Nomination Committee meetings attended | |
| Otto Schmid (retired on 15 March 2007) |
- |
| Greg Lock (appointed on 15 March 2007) |
1/1 |
| Bruce Powell | 3/3 |
| John Alexander | 3/3 |
| Chris Conway | 3/3 |
| Mark Wells | 3/3 |
The Chairman will have initial meetings with candidates and recommend a short-list of individuals who then meet with other Nomination Committee members and the Executive Directors. The Nomination Committee then meet and decide which candidate, if any, will be invited to join the Board. For the recruitment of Greg Lock the Nomination Committee appointed an outside search firm to facilitate the search process.
The Company is committed to maintaining good communications across its entire shareholder base, whether institutional investors, private or employee shareholders. This is achieved principally through annual and quarterly reports, and other trading statements, as well as via the Annual General Meeting. Normal shareholder contact is the responsibility of the Chief Executive, the Finance Director and Kofax plc's Investor Relations department.
The Chairman and Senior Independent Director are available to discuss matters with institutional shareholders where it would be inappropriate for those discussions to take place with either the Chief Executive or the Finance Director.
Regular dialogue and presentations take place throughout the year with institutional investors, buy-side and sell-side analysts. Shareholders have the opportunity to meet and question the Board at the Annual General Meeting, which will be held in London on 13 November 2007. There will be a business presentation by the Chief Executive and the Finance Director. The Company seeks to ensure that the Chairmen of the Audit, Remuneration and Nomination Committee are available to answer questions. The results of the proxy voting will be disclosed at the meeting after the shareholders have voted on each resolution on a show of hands.
In addition, the Board receives reports from the Company's broker and public relations agency several times a year that communicate feedback from institutional shareholders and analysts.
The Company's website at www.kofax.com contains both corporate and customer information, updated on a regular basis.
Internal Control and Risk Management: The Board has overall responsibility for the Group's approach to assessing risk and the systems of internal control, and has delegated responsibility for reviewing its effectiveness to the Audit Committee. This includes financial, operational and compliance controls and risk management procedures. The role of executive management is to implement the Board's policies on risk and control, and present assurance on compliance with these policies. This process, regularly reviewed by the Directors, is carried out in conjunction with business planning and is documented in a risk register.
Because of the limitations that are inherent in any system of internal control, this system is designed to manage, rather than eliminate the risk of failure to achieve the Group's business objectives. Accordingly, it can only provide reasonable but not absolute assurance against material misstatement or loss.
Risk Assessment: The Board has established an ongoing process for identifying, evaluating and managing the significant risks faced by the Group. This process, which is regularly reviewed by the Board and accords with the Turnbull guidance, was in place throughout the year under review and has continued up to the date of these accounts. A key control procedure is the day-to-day involvement of executive members of the Board and Group management in all aspects of the business and their attendance at regular management meetings of the operating companies at which performance against plan and business prospects are reviewed. The Board notes that this can only provide reasonable assurance and not absolute assurance against material misstatement or loss.
Internal Control: Whilst the Board maintains full control and direction over appropriate strategic, financial, organisational and compliance issues, it has delegated to executive management the implementation of the systems of internal control within an established framework.
The Board has put in place an organisational structure with formally defined lines of responsibilities and delegation of authority. There are also established procedures for planning, capital expenditure, information and reporting systems, and for monitoring the Group's business and their performance.
Other key features and the processes for reviewing effectiveness of the internal control system are described below:
The Directors have this year again considered the need for a full time internal audit function in light of the nature of its business and the complexity of transactions. In view of the size, complexity and geographic diversity of the Group an internal audit function was established towards the end of the Financial Year. All business units within Kofax plc will be subject to internal audit on a rolling programme approved by the Audit Committee.
The Board, with the assistance of the Audit Committee, has conducted its annual review of the effectiveness of the systems of internal control based on a review of significant risks identified, the results of external audits and reports from management.
The Directors are satisfied that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Financial Statements.
2 October 2007
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