Achieving Flexibility Together
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CORPORATE GOVERNANCE ACHIEVING FLEXIBILITY TOGETHER In compliance with the Financial Reporting Council’s UK Corporate Governance Code, the company has prepared the Corporate Governance Report that follows. CORPORATE GOVERNANCE 56 Chairman’s introducion to Corporate governance 58 Board of Directors 60 Corporate governance 69 Report of the Audit and Compliance Committee 72 Report of the Nominations Committee 75 Report of the Safety Committee 76 Report of the Remuneration Committee www.iairgroup.com 55 25/02/2016 12:16 CHAIRMAN’S INTRODUCTIONINTRODUCTION TO TO CORPORATE GOVERNANCE CORPORATE GOVERNANCE Throughout this period our approach to governance and the composition and function of the Board have evolved considerably. Above all we have tried to create the right internal governance structure to support our dynamic and highly successful business model, led by a holding company and formed of independent airlines with their own brands and operations. The Group was born as the product of a merger of two companies, with structures inevitably complex due to airline- specific regulations and the particular circumstances of both companies. Since then, the Group has grown to include two new airlines and has evolved as a distinct entity to those originally merged companies. Our job as a Board has been to look progressively at ways to adapt to this new born entity and to its strategy and culture, simplifying the initial structures so that we have the flexibility that this dynamic business needs. I’m “As this report testifies, the last five pleased to report that this work has been largely very successful. years have been a momentous time for Proof of that fact came during the year with the successful International Airlines Group and all its acquisition and integration of Aer Lingus, our fourth operating operating companies and, as you’d expect, airline alongside British Airways, Iberia and Vueling. that has meant significant changes in our The relative ease with which this transaction was handled, corporate governance structure and the not only underlined the power of our business model, but showed that our governance structures have matured profile of the Board.” considerably and that we really have achieved that desired level of management flexibility, balanced by effective Board Antonio Vázquez oversight, within the Group. Chairman There is always room for improvement, of course, and we continue to look for ways to refine and improve our structures. But I’m delighted that our latest internal review of performance – in which I spoke, at length, to each member of the Board – produced the most positive feedback we have had since IAG’s incorporation. This exercise is a very useful way to assess our achievements and a great tool for planning necessary future developments. A major highlight of the year was the first dividend payment to our shareholders, a very satisfying achievement for the Group. The fact that we have been able to deliver on this promise on schedule again illustrates well how our governance structures are supporting the strategy and performance of the Group. Succession planning As we indicated last year, the Board’s Nominations Committee is continuing to work on succession planning – a task which is obviously of huge importance to the Group as it develops and grows. This work is happening at two levels. From a Board perspective, our task is to ensure that we have the right balance of directors, with a blend of appropriate experience, skills and profile. We must also ensure that timely plans are in place to recruit new members to the Board, either in the normal process of refreshment or in emergency situations. 56 INTERNATIONAL INTERNATIONAL AIRLINES AIRLINES GROUP GROUP AnnualAnnual Report Report and and Accounts Accounts 2015 2015 CORPORATE 25/02/2016 12:16 GOVERNANCE CHAIRMAN’S INTRODUCTION TO CORPORATE GOVERNANCE Throughout this period our approach to governance and But the Board also plays a key role in supporting the We’re pleased our remuneration policy was approved on a the composition and function of the Board have evolved Management Committee in its plans for succession within its binding vote for the first time in 2015. We continue to ensure considerably. Above all we have tried to create the right own ranks and within our operating companies. A key objective that we meet both the Spanish and UK requirements in this internal governance structure to support our dynamic and is to put schemes in place that will reward talented people within area and do all we can to adequately address any concerns our highly successful business model, led by a holding company the business, giving them opportunities to progress and build on shareholders may have. Similarly the Audit and Compliance and formed of independent airlines with their own brands their skills. This work is led by our Group Chief Executive, fully Committee has put a special focus on the Group’s enterprise and operations. supported by the Board. risk management system during 2015 to make sure we comply with governance standards in both Spain and the UK. The Group was born as the product of a merger of two In 2015, this was a particular priority as we contemplated companies, with structures inevitably complex due to airline- significant changes in the leadership of our operating One other significant change during the year was the adoption specific regulations and the particular circumstances of both companies and we are particularly pleased with how this of a new Group policy on sustainability, which will now be companies. Since then, the Group has grown to include two process went. The changes will see Vueling’s Chairman and supervised by the Audit and Compliance Committee. The IAG new airlines and has evolved as a distinct entity to those CEO, Alex Cruz, take over the leadership of British Airways Management Team is committed to developing common originally merged companies. Our job as a Board has been to on the retirement of Keith Williams. Steve Gunning moves into Group practices and standards so that we can more effectively look progressively at ways to adapt to this new born entity and the CFO role at British Airways, while Drew Crawley moves the share best practice, on such issues as noise and CO2 reduction, to its strategy and culture, simplifying the initial structures so other way to succeed Steve as CEO of our Cargo business. between our operating airlines. We already take a lead role that we have the flexibility that this dynamic business needs. I’m in improving the environmental performance of our industry. Although we are always willing to recruit people with the “As this report testifies, the last five pleased to report that this work has been largely very successful. But these changes will, I am convinced, make our approach, right skills from outside the business, these moves clearly internally and externally, all the more coherent. years have been a momentous time for Proof of that fact came during the year with the successful illustrate the wealth of talent we have within the Group and International Airlines Group and all its acquisition and integration of Aer Lingus, our fourth operating that our structures offer us the chance to create continuity Looking ahead operating companies and, as you’d expect, airline alongside British Airways, Iberia and Vueling. even at times of great change. My fellow Board directors and I regularly meet with shareholders that has meant significant changes in our The relative ease with which this transaction was handled, Board changes and investors, not only at formal events like our AGM and Capital Markets Day, but also through regular road shows and more corporate governance structure and the not only underlined the power of our business model, but The Board has, as I’ve said, been gradually refreshed in recent informal meetings. profile of the Board.” showed that our governance structures have matured years and I am indeed fortunate to have the support of such a considerably and that we really have achieved that desired superb group of colleagues. There were no new additions to the Since the early days of IAG I have seen our relationship with the level of management flexibility, balanced by effective Board Board in 2015. However, Jose Pedro Pérez-Llorca did not stand investment community grow stronger and stronger. Back in 2011, Antonio Vázquez oversight, within the Group. Chairman for re-election at our shareholder’s meeting in June, meaning some investors doubted we could fulfil our ambitious plans for There is always room for improvement, of course, and we continue that the number of directors on the Board has gone down from the business, but their perception of the business has now to look for ways to refine and improve our structures. But I’m 13 to 12. We feel this is an appropriate number for our Board given become very positive. the current circumstances and the characteristics of the Group. delighted that our latest internal review of performance – in which They understand the unique strength of our business model – I spoke, at length, to each member of the Board – produced the There were, however, several changes in the make-up of our they’ve watched it in action. They’ve seen us not just meet our most positive feedback we have had since IAG’s incorporation. committees. In June, Sir Martin Broughton took over the targets for the business, but exceed them. And they’ve seen us This exercise is a very useful way to assess our achievements Chairmanship of the Nominations Committee from me in deliver on our promises, not least our determination to introduce and a great tool for planning necessary future developments. accordance with changes in Spanish governance requirements.