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INVESTOR RELATIONS

Corporate Governance

Corporate Governance

AIM Rule 26 and Governance

The Board is committed to achieving high standards of corporate governance, integrity and business ethics. Under AIM Rule 26 as from 28th September 2018, the Board is required to fully adopt a recognized Corporate Governance Code in its entirety or to explain where it falls short of meeting that requirement.

The Board has formally adopted the Quoted Companies Alliance code for Small and Mid-sized Quoted Companies. (“QCA”)

Responsibilities of the Chairman in relation to QCA

The Chairman takes overall responsibility for the governance of the Company and compliance to the QCA.

As part of this responsibility, the Chair must prepare a corporate governance statement which:

  • Articulates the Chair's role and demonstrate his responsibility for corporate governance.
  • Explains, at a high level, how the QCA Code is applied by the company and how its application supports the company's medium to long-term success.
  • Explains, in a clear and well-reasoned way, any areas in which the company's governance structures and practices differ from the expectations set out by the QCA Code;
  • Identifies any key governance related matters that have occurred during the year, including any significant changes in governance arrangements.

The QCA code and underlying principles

The QCA Code is based on ten principles and requires the company to explain how they apply those principles.

The 10 principles are spread across three sections. These are:

  • Deliver Growth
  • Maintain a dynamic management framework
  • Build trust.

The statements and explanations below articulates how the group abide by these underlying Governance principles, and identifies any matters of note in relation to Governance. The Governance framework is a living process and will continue to evolve as the business matures and expands. The newly appointed Chairman will bring his own aspirations and ambitions for this framework to the Group, which are based on ethical and customer outcomes. Such aspirations will include more engagement with key stakeholders, including his direct contact with key institutional shareholders on at least an annual basis, a more formal board evaluation process including an external review at least every three years, as well as seeking to engage a stakeholder feedback process.

We are pleased to have a new Chairman and an additional Non-Executive Director appointed to the Board in recent weeks. Both come with decades of solid relevant financial services experience and will invariably complement the skill set that we already have around the board-room table. In addition to the Board appointments, we have further built on our governance framework, having appointed a Group Internal Auditor earlier this year and have also taken the decision to recruit a Chief Operating Officer to join the existing executive team.

Duties and Operation of the Board

The Board is responsible to shareholders for the proper management and governance of the Group and has formal certain matters specifically reserved to it for decision. These include strategic planning, business acquisitions and disposals, authorisation of major capital expenditure and material contractual arrangements, setting policies for the conduct of business and approval of budgets and financial statements.

The roles of Chairman and Chief Executive are distinct, as set out in writing and agreed by the Board. The Chairman is responsible for the effectiveness of the Board, directing strategy and ensuring communication with shareholders. The Chief Executive is responsible for overseeing the delivery of this strategy and the day-to-day management of the Group by the senior executive team. The Board is committed to developing the corporate governance and management structures of the Group to ensure they continue to meet the changing needs of the business. The Non-Executive Directors are considered by the Board to be independent of management and free from any relationship which might materially interfere with the exercise of independent judgement. Further detail on the Board can be found in the section “Board composition, meetings, evaluation and committees” below.

The Non-Executive Directors provide a strong independent element to the Board and bring experience at a senior level of business operations and strategy. The Company Secretary is responsible for ensuring that Board procedures and applicable rules and regulations are observed.

The Chairman takes overall responsibility for the conduct of the Board, and adherence to its stated policies, including the governance framework.

Operations of the Group and three year strategy to grow shareholder value

STM strives to be the financial services provider of choice for the UK expatriate market in relation to pension and life assurance solutions. Financial intermediaries that advise this market will recognize that STM offers an unrivalled service level to both them and their clients, putting the client at the forefront of its business proposition.

It is clear that STM Group's underlying client base is primarily the UK Expatriate market and, to a lesser degree, Foreign Nationals that have worked in the UK. Our market segment has shifted from the HNWI Trust and Company sector to the Mass Affluent sector for Pensions and Life business over the last five years or so. However, our raison d'etre is the UK Expat market, and this will remain the mainstay of our business for years to come, having focused most of our business development efforts in building these distribution channels.

Expanding on the above, STM's business model is to:-

  • continue to promote its Pensions Administration and associated Life assurance products to UK expatriates and foreign nationals that have previously worked in the UK.
  • support its clients and intermediaries, STM will operate its pension administration services from a number of key jurisdictions so as to meet the client's needs.
  • strive to operate at the highest of service levels to both its clients and financial intermediaries in all jurisdictions.
  • always operate in a compliant manner with local laws and regulations.
  • rely on its network of financial intermediaries for the introduction of its business, and will continue to do so in the future. It is not proposed that STM will offer a retail product direct to the public, nor will it offer investment, financial or tax advice.
  • differentiate itself from its UK competitors by being able to understand the more complex requirements of the UK expatriate market.
  • differentiate itself from its International competitors through service levels, and a more comprehensive product / jurisdictional offering.

The STM board are able to express a shared view of the Group's purpose, the business model and the strategy.

The Board have adopted a three year strategy which focuses on a number of component parts, these include:-

  • to continue to focus our business in the life and pensions sector
  • an intention to increase the introducing intermediary network
  • a diversification of the pensions and life product range so as not to be so reliant on the expatriate market.
  • an intention to be seen as a more UK focussed business concentrating on expat business.
  • a drive to improve margins through efficiency and IT systems
  • to seek opportunistic acquisition targets for both QROPS integration, as well as expansion in niche areas of the Pension and Life markets.
  • a strategy of pro-actively engaging with key stakeholders, including shareholders and regulators

The above, embedded within a three year business plan, demonstrates an intention to deliver long term growth to the shareholders in a disciplined and clear manner, whilst not subjecting the company to unnecessary risk.

Communication with shareholders

The Group is committed to communicating openly and transparently with its shareholders to ensure that its strategy and performance are clearly understood. We communicate with shareholders through the Annual Report and Accounts, full year and half-year announcements, trading updates and the annual general meeting, as well as face-to face meetings with the larger shareholders. This information is also available to shareholders, investors and the public on http://www.stmgroupplc.com/html/media/media.asp

In addition to the above, it is our duty as a Board to develop a good understanding of the needs and expectations of all elements of the shareholder base. We do this by regular meetings with our institutional and larger shareholders at the time of presenting our interim and final results in the financial year, as well as on an adhoc basis. Our smaller shareholders have the ability to communicate directly with the company via our contact email as listed on http://www.stmgroupplc.com/html/contact/contact-us.asp. In addition the AGM allows attendance of any shareholder, allowing further access to the board as a whole.

The responsibility for investor relations on a day-to-day basis rests with the CEO, supported by the CFO, although it is made clear that the Chairman and non-executive directors are happy to meet institutional shareholders at their request. In addition, the new Chairman intends to meet key shareholders on at least an annual basis, this may be established through attending roadshow meetings, although shareholders are welcome to contact him to arrange ad hoc meetings as required.

The Board consider feedback by shareholder's a very important part of understanding how this key set of stakeholders view the Board's performance. Feedback is received after each presentational road show to the shareholders, via its Nomad Finncap, as to how they believe the business and its Board have performed.

The Board review any ISS reports and voting guidelines produced by third parties on at least an annual basis so as to help the Board understand the perceptions of corporate governance by these third party experts.

On a practical level, the Board, and particularly the non-executives and Chairman have had considerable interaction with the Gibraltar regulator as part of understanding their concerns in relation to certain Gibraltar based STM subsidiaries. This has led to support from the Board to the subsidiaries in ensuring that these subsidiaries meet the governance expected of them. During this time, we actively communicated key updates to the market through regulatory newswire, as well as had active dialogue with our shareholders.

Wider stakeholder and social responsibilities

The Board recognises that long term success of the Group relies upon good relations with a range of different internal and external stakeholders, not just our shareholders. The STM board identifies these various stakeholders and attempts to understand their needs, interests and expectations. These needs and interests and expectations are embedded into the company's business model and strategy, and most importantly within our code of conduct.

Our code of conduct sets out how we as a group, and as individuals throughout the business are expected to conduct ourselves when dealing with our stakeholders. The code of conduct can be found at http://info.stmgroupplc.com/our-company/our-people/.

This code requires our interaction with stakeholders to be in a fair and transparent manner in all our dealings, putting the customer at the heart of our decision making processes.

Our main internal stakeholders are our workforce. Our ability to fulfil client services efficiently and proactively is dependent on ensuring we have a motivated and talented staff resource. This can only be achieved by having a comprehensive two-way engagement between staff and management, to foster a culture or trust and good work ethics. The Group achieves this through regular staff engagement of the various operating divisions, a supportive yet mandatory training schedule, a pro-active encouragement to engage in professional qualifications, as well as an annual staff appraisal process.

Our main external stakeholders are our clients, intermediaries, regulators and suppliers, such as our banking partners. It is our duty to operate with all these parties in a correct and pro-active manner ensuring that we meet prescribed timelines for submissions of information, as well as ensuring that any communications are comprehensive. When dealing with certain types of communication and services, we intend to operate to pre-agreed service levels so that each stakeholder is able to understand what can be expected of STM.

In relation to our clients, the interests of this key stakeholder are at the forefront of our minds, ensuring that we treat our customers fairly and in a manner that we ourselves would be expected to be treated. In cases where our clients may feel that we are not fulfilling such objectives we have a formal complaints procedure so as to ensure that any grievances are listened to in an impartial manner. The complaint procedures can be found in the relevant product literature.

During the previous year there has been extensive communication and feedback from the Gibraltar regulator in relation to certain Gibraltar based subsidiaries. This feedback, and that received as part of the recommendations from the Skilled persons review of these entities has been well received by the Group, who have pro-actively acted upon this feedback, Action points have been made as a direct result of this feedback, including the decision to recruit a Chief Operating officer at executive level, to further assist in the governance and oversight of the subsidiaries.

The Board has also acted on feedback and have recently adopted a more formal and comprehensive conflict of interest policy, as well as strengthening other policies around risk appetite and risk management.

In addition, STM has an open-door policy towards all our stakeholders and we encourage feedback, both positive and negative, so that we can improve how we do things. Such a contact form can be found at http://www.stmgroupplc.com/html/contact/contact-us.asp.

Risk management framework, principal Risks and uncertainties

The Board is ultimately responsible for the Group's risk management framework, requiring it to identify and address all relevant risks in order to execute and deliver on its strategy. Setting strategy includes determining the extent of exposure to the identified risks that the company is able to bear and willing to take.

During the past year the Group has introduced a formal risk management framework which has been embraced in the various jurisdictions in which the Group operates.

In March 2017, the Board recruited a Head of Enterprise Risk Management, as part of developing the current risk management framework.

The Board has adopted a formal risk appetite statement http://www.stmgroupplc.com/archive/governance/STM-Risk-Appetite-Statement-2017.pdf and other relevant policies. These have been cascaded down and adapted, as appropriate, and adopted by the various operating subsidiaries. Each subsidiary board maintains its own risk register, and puts in actions to effectively mitigate that risk, where applicable.

The Risk Management function oversees the implementation of these new Group policies throughout each of the jurisdictions that the Group operates in and across its whole product range. The compliance function in each of the jurisdictions provides assurance to the Group Audit & Risk Committee on regulatory and reputational risk through the completion of an annual compliance monitoring plan.

The directors of STM Group Plc confirm that they carry out an assessment of the principal risks facing the Group, including those that could threaten its business model, performance and solvency. The audit and risk committee meet at least every quarter and formally report to the board on the various risks across the Group. The review of risks is embedded within the agenda, and is thus continually reviewed as part of an ongoing process.

The Group's risk management framework and appetite is embedded in the Group (and subsidiaries') management and governance processes and is overseen by the Board.

The table below sets out the principal risks and uncertainties facing the Group and how they are currently mitigated.

Area

Description of risk

Examples of mitigating activities

Distribution and market demographics

The businesses operate primarily in the British expatriate market which is serviced by a limited number of intermediaries and product providers thus creating a competitive environment.

  • Comprehensive business development and retention team
  • Strong focus on intermediary liaison and customer experience
  • Innovative product development
  • Loyal intermediary base

Reputational risk

A circumstance could arise which would adversely impact on the Group's reputation, including adverse publicity from the activities of legislators, pressure groups and the media.

  • Subsidiary Board review of regulatory and business changes
  • Ensure high level of compliance in product and service delivery
  • Ensure customer focus is the main determinant in decision making and not share price or short-term earnings
  • Complaints are closely monitored
  • Retained financial PR and media relations consultancy to provide ongoing support and media contact.

Regulatory Risk

Loss arising from regulatory changes in the markets within which the Group operates or breach of existing laws and regulation.

 

  • Subsidiary Boards with experience in regulated businesses
  • Dedicated Compliance functions
  • Completion of an annual compliance monitoring plan
  • Head of Enterprise Risk management monitors legislative changes and supports jurisdictional compliance functions as required
  • Expert third-party legal and / or compliance advice is sought where necessary
  • All companies comply with the respective jurisdictions solvency capital requirements

Key personnel

The Group could be adversely affected if there was a loss of key personnel or an inability to recruit individual with the appropriate skills set.

  • The Group offers competitive remuneration packages including share based incentives
  • The board is committed to implementing a succession plan.
  • The Group provides appropriate training for staff and management
  • The Group promotes a favourable work environment to retain and attract staff

Cyber security, denial of service and data loss

Failure to adequately manage cyber threats could result in operational disruption, data loss and consequently reputational damage and financial loss.

New IT developments within the Group will bring a focus on online transactions.

  • Periodic testing to identify vulnerabilities and deliver improvements
  • Daily back-up and secure storage of all systems to minimize data loss
  • Detailed disaster recovery and business continuity plans in place.

 

Financial risks

The Group has exposure to the following financial risks:

  • Credit risk
  • Liquidity risk
  • Market risk
  • Interest rate risk
  • Currency risk

These risks are addressed within Note 22 of the financial statements http://www.stmgroupplc.com/html/investor/annual_report.asp

Board composition, meetings, evaluation and committees

The board members have a collective responsibility and legal obligation to promote the interests of the group, and are collectively responsible for defining corporate governance arrangements. Ultimate responsibility for the quality of, and approach to, corporate governance lies with the Chairman/Chair of the board.

The Board comprises two executive and four independent non-executive directors (including the Chairman) and the Board committees are comprised only of non-executive directors. The independence of directors will be assessed periodically as part of the external evaluation process of the Board and its individual members. All non-executive directors have been appointed from outside of the STM Group, and have no beneficial interest in the Group, and are thus deemed truly independent. In addition all non-executive directors are professionals in their respective fields and have their own institutional ethics and guidelines to abide by.

The Company advertised the recent Board positions of Chairman and Non-Executive Director and used external recruitment consultant to help assess candidates in accordance with the Company's criteria. The current Board composition and profiles of the individual board members can be seen at http://www.stmgroupplc.com/html/company/board.asp). These profiles include a synopsis of the skills that each member brings to the Board.

The STM board have, in their opinion, an appropriate balance of sector, financial and public market skills and experience, as well as an appropriate balance of personal qualities and capabilities to successfully execute the Group's strategy. The Board fully supports and funds any training, formally or otherwise, that is required by any individual board member so as to ensure that their knowledge and experience remains relevant and effective.

All members of the board have relevant experience which they bring to the business. One executive director is female the other executive director is male, as are all the NEDs.

A formal external evaluation of the Board will be conducted every three years commencing in 2019, with an internal process being in place for the other years. STM are developing a process to evaluate the various members of the board and of the board effectiveness as a unit. This will encompass the completion of a questionnaire about the effectiveness of the board, and a self-assessment of their own contributions which will then be returned to the chairman. It is envisaged that this will then be used by the chairman for one-to-one discussions, followed by a collective de-brief.

To date, board evaluation has been carried out internally, and in an informal manner.

A table of the attendance record for the previous year to 31st August 2018 is shown below.

  Board meetings * Audit and Risk Committee Remuneration Committee*
  Held Attended Held Attended Held Attended
Executive Directors:            
Alan Kentish 9 8        
Therese Neish 9 9        
             
Non - Executive Directors            
Mike Riddell (Resigned 23 May 2018) 9 9 5 5 5 2
Malcolm Berryman 9 8 5 5 5 5
Robin Ellison 9 8 5 4 5 5

The Board meets at least four times during the year. To enable the Board to discharge its duties, all directors receive appropriate and timely information. Briefing papers are distributed to all directors in advance of the Board meetings.

At Board meetings, the agenda normally comprises a review of the management financial statements, a CEO review of operations, a review of acquisitions and an update on the progress of the Group's other strategic objectives.

The Board recognises that the executive team currently comprises only two individuals, and that as part of building a more robust structure has taken the decision to recruit a Chief Operating Officer. This will give more depth to the Board, but it is also recognised that this will give a roadmap for succession planning within the Group.

The Board has established an Audit and Risk Committee and a Remuneration Committee both with formally delegated duties and responsibilities. Both committees comprise Malcolm Berryman, as the Chairman, Robin Ellison and Graham Kettleborough, in addition Duncan Crocker is a member of the Remuneration Committee. These committees will meet prior to the main board meetings so that any decisions flowing out from them can be reported to the Board, where appropriate.

Audit & Risk Committee

The Audit & Risk Committee reviews the integrity of the financial statements of the Group, announcements relating to financial performance, accounting policies, the application of critical accounting judgements and practices, the operation of internal controls, the effectiveness of the financial reporting policies and systems and has delegated power from the Board to exercise the power from shareholders to agree fees for external auditors. It is responsible each year for satisfying itself on the independence and objectivity of external auditors. The Audit Committee meets at least four times a year.

The Audit & Risk Committee reviews the Group's risk appetite and framework, its policies, methodologies, systems, processes and procedures and the monitoring of all these areas (through a three lines of defence model, the first line being the business systems and controls in place to prevent and detect errors, the second provided by compliance monitoring and the third by internal and external audit review).

The Audit & Risk Committee has primary responsibility for the Group's Risk Appetite Statement which sets out the Group's attitude to risk and the limits of acceptable risk taking. The Committee establishes the high level qualitative Risk Appetite Statement for the Group and requires the Subsidiaries to link their own Risk Appetite to the Group version. The subsidiaries are required to identify and manage Key Risk Indicators. The statement is subject to annual review by the Risk Committee and the Group Board. The Committee makes recommendations to the Board in respect of all risks faced by the Group outside of its declared risk appetite.

The Audit & Risk Committee is responsible for the Risk Framework with all risks identified being recorded in the Corporate Risk Register and reviewed by the Committee on a biannual basis.

The terms of the Audit and Risk committee can be found at http://www.stmgroupplc.com/archive/governance/STM-Audit-Risk-Committee-TOR.pdf

Remuneration Committee

The Committee meets at least twice in each year and at such other times as the Chairman of the Committee sees fit. The Chairman of the Committee is appointed by the Board. The quorum for the Committee is two.

The duties of the Committee are to:

  • determine and agree with the Board the policy for the remuneration of the Chairman, Executive Directors and other members of the Group Executive team;
  • determine individual remuneration packages including bonuses, incentive payments, share options and any other benefits;
  • determine the contractual terms on termination and individual termination payment;
  • be informed of and advise on changes in benefit structures in the Group; and
  • agree the policy for approving expense claims of the Chief Executive and the Chairman of the Board.

The terms of the Remuneration committee can be found at http://www.stmgroupplc.com/archive/governance/STM-Remuneration-Committee-TOR.pdf

The Directors do not consider that, given the size of the Board, it is necessary at this stage to have a nomination committee.

Corporate culture based on ethical values and behaviours.

The Board must promote a corporate culture that is based on sound ethical values, standards and behaviours. This culture is visible in the board's actions and decisions, as well as those of the executives and senior management team. These corporate values guide the objectives and strategy of the business. These corporate values form the backbone of our Code of Conduct policy for the business.

The Board have adopted a code of conduct which has been rolled out to all staff throughout the business. The code of conduct is available on this weblink. http://info.stmgroupplc.com/our-company/our-people/. Our long-term growth expectations are underpinned by the principles within this code of conduct.

The Group is promoting a culture of a good customer experience and that a fair customer outcome is at the heart of the decision making process, aligned to a positive and pro-active relationship with our stakeholders.

This culture has been communicated to all members of the business and is reinforced by the training program which all staff participate in. This starts with the code of conduct forming part of any new member of staff's induction program, and the application of the code of conduct is considered as part of all STM employees' annual appraisal process.

It is intended that during 2019, a staff satisfaction survey will be included within the appraisal process.

It is important for the Board to ensure that any acquisitions, both past and future, are instilled with the same corporate values and culture that STM aspires to. In this regard any new company joining the Group will receive an induction to STM and its code of conduct and principles which would be required to be adopted by all members of staff. This has been successfully implemented in the integrations of both Harbour Pensions Limited and the London & Colonial Holdings Group.

Communication and adherence to the QCA Code

A healthy dialogue between the STM board and all of its stakeholders, including shareholders, is paramount in enabling all interested parties to come to informed decisions about the STM Group. The Board will attempt to ensure that this happens at all times.

In particular it is imperative that appropriate communication and reporting structures exist between the board and all constituent parts of the shareholder base, and how the Board achieve that is addressed above. Announcements relating to Annual Reports and Notices of AGMs can be found at http://www.stmgroupplc.com/html/media/media.asp

Furthermore, the Board will always publish the results of any voting decisions by the shareholders; this will primarily be at the Annual General Meeting. The latest voting decisions are published on the website at http://www.stmgroupplc.com/html/investor/shareholder_profile.asp. Where there is significant divergence of voting opinion then the Board commits to analysing such divergence to understand the various opinions of the shareholders.

If the Board believe that at any time it is not meeting the principles of the Quoted Companies Alliance code for Small and Mid-sized Quoted Companies then it will publish such information within this section of the STM website, and the reasons why it is not abiding by such principle(s).

This QCA Statement was reviewed and approved in September 2018.

Duncan Crocker

Chairman

 

Page last up-dated: 19 October 2018

 

"STM Group PLC strives to be the provider of choice for cross-border investors, entrepreneurs and expatriates by offering clear, innovative and impartial financial and commercial solutions which help clients protect and grow their investments."