70 Johnson Matthey / Annual Report & Accounts 2 017 4. Governance

The Corporate Governance section, introduced by our Chairman, contains details about the activities of the board and its committees during the year.

It also contains the Directors’ Report and the statement on responsibilities of directors.

Contents

72 Board of Directors 74 Letter from the Chairman 75 Getting to Know the Business 76 Corporate Governance Report 87 Nomination Committee Report 90 Audit Committee Report 97 Remuneration Report 117 Directors’ Report 121 Responsibility of Directors 71 t r o p e R

Governance c i g e t a r t S e c n a n r e v o G s t n u o c c A n o i t a m r o f n I

r e h t O 72 Johnson Matthey / Annual Report & Accounts 2 017 4. Governance Board of Directors Board Diversity

Gender

Male Female 67% 33%

Board Tenure

6–10 years 0–3 years 33

3 3–6 years

Dorothy Thompson retired as a Non-Executive Director with effect from 20th July 2016. Den Jones resigned from the board as Group Finance Director at the Annual General Meeting on 20th July 2016 and left Johnson Matthey on 31st July 2016. Anna Manz joined the board as Chief Financial Officer on 17th October 2016. Jane Griffiths was appointed as a Non-Executive Director, joining the board with effect from 1st January 2017.

Simon Farrant – General Counsel and Company Secretary Joined Johnson Matthey: 1994 Experience Appointed Company Secretary in 1999 and Group Legal Director in 2007. He is a Solicitor and Attorney and Counselo r-at-Law (State of New York). 73

Tim Stevenson, OBE – Chairman Robert MacLeod – Chief Executive Anna Manz – Chief Financial Officer t r

Appointed to board: March 2011 Appointed to board: June 2009 Appointed to board: October 2016 o p

Experience Experience Experience e R

Tim was appointed Chairman in July 2011. Tim was Robert was appointed as Chief Executive in June 2014 Anna joined Johnson Matthey as Chief Financial c i

Chairman of The Morgan Crucible Company plc from having joined Johnson Matthey as Group Finance Officer in October 2016. She was previously Group g e December 2006 to July 2012 and Chairman of Travis Director in 2009. Previously he was Group Finance Strategy Director and a member of the Executive t a r

Perkins plc from November 2001 to May 2010. He Director of WS Atkins plc and a Non-Executive Committee at plc. During 17 years at Diageo, t has also sat on a number of other boards including Director at Aggreko plc. He is a Chartered Accountant Anna held a series of senior roles, including Finance S National Express plc, Partnerships UK and Tribal PLC. with a degree in Chemical Engineering. Director Spirits North America, Group Treasurer and He was Chief Executive at Burmah Castrol plc from Finance Director Asia Pacific. Anna is a qualified Other Current Appointments e 1998 to 2000. He is a qualified barrister and is Lord management accountant with a degree in Chemistry. c Non-Executive Director at RELX PLC, RELX NV and n Lieutenant of Oxfordshire. a RELX Group plc. Other Current Appointments n r

Other Current Appointments Non-Executive Director at ITV plc. e International Experience v Director of the Emmott Foundation Limited. o

UK, US International Experience G Committees Sector Experience China, India, Ireland, Kenya, Korea, Nigeria, Remuneration Committee, Nomination Committee Chemicals, Oil and Gas, Professional Services Singapore, UK, US (Chairman) Sector Experience

International Experience Manufacturing, Media s t

Spain, UK n u

Sector Experience o c

Chemicals, Manufacturing, Oil and Gas, Retail c A

Alan Ferguson – Senior Independent Director Odile Desforges – Non-Executive Director Jane Griffiths – Non-Executive Director n

Appointed to board: January 2011 Appointed to board: July 2013 Appointed to board: January 2017 o i t

Experience Experience Experience a m

Alan was appointed a Non-Executive Director of Odile's automotive industry experience began with Jane is currently Company Group Chairman of Janssen r o

Johnson Matthey in January 2011 and as Senior the French Government's Transport Research Institute EMEA, the pharmaceutical arm of Johnson & Johnson f n

Independent Director in July 2014. He was previously and developed with Renault SA and AB Volvo. She has (J&J). Since joining J&J in 1982 Jane's roles have I

r

Chief Financial Officer and a Director of Lonmin Plc. held senior positions in purchasing, product planning, included international and affiliate strategic marketing, e h

Prior to this he was Group Finance Director of development and engineering, including as Chairman sales management, product management, general t

The BOC Group. Before joining BOC, he worked for and Chief Executive Officer of the Renault-Nissan management and clinical research. Jane is Director and O for 22 years and was Group Finance Purchasing Organization (RNPO) and most recently Chair of the J&J Corporate Citizenship Trust in EMEA, a Director from 1999 until 2005. He is a Chartered as Executive Vice President, Engineering and Quality sponsor of the J&J Women's Leadership Initiative. Accountant and sits on the Business Policy Panel of at Renault. She was appointed a Knight of the French Other Current Appointments the Institute of Chartered Accountants of Scotland. Legion of Honour in 2009. Company Group Chairman of Janssen EMEA, Director Other Current Appointments Other Current Appointments and Chair of the Johnson & Johnson Corporate Non-Executive Director and Chairman of the Audit Non-Executive Director of Safran SA, Dassault Citizenship Trust in EMEA. In addition to the above Committee at Plc, The Systèmes, Imerys and Faurecia. current appointments, Jane is Director of Johnson & PLC and Marshall Motor Holdings plc, where he is also Committees Johnson Innovation Limited and a member of the Senior Independent Director. Audit Committee, Remuneration Committee, Corporate Advisory Board of the 'Your Life' campaign. Committees Nomination Committee Committees Audit Committee (Chairman), Remuneration International Experience Audit Committee, Remuneration Committee, Committee, Nomination Committee France, Japan, Sweden, UK Nomination Committee International Experience Sector Experience International Experience South Africa, UK Aerospace, Automotive, Defence, Manufacturing, Africa, Middle East, UK Sector Experience Technology Sector Experience Automotive, Chemicals, Mining Pharmaceuticals

Colin Matthews, CBE, FREng – Chris Mottershead – Non-Executive Director John Walker – Sector Chief Executive, Clean Air Non-Executive Director Appointed to board: January 2015 Appointed to board: October 2013 Appointed to board: October 2012 Experience Experience Experience Prior to joining King’s College in 2009, Chris had a John joined Johnson Matthey in 1984 and was Colin has been Chief Executive Officer of Heathrow 30 year career at BP, most recently as Global Advisor appointed Division Director, Emission Control Airport (previously BAA), Hays plc and on Energy Security and Climate Change. Before this, Technologies in 2009 after holding a series of plc. He was also Managing Director of Transco and he was Technology Vice President for BP’s Global Gas, positions within the division in the US, Asia and Engineering Director of British Airways. Prior to this Power and Renewables businesses, and was also the Europe. He was appointed Executive Director, he worked in strategy consulting for the motor technical manager for its North Sea exploration and Emission Control Technologies in October 2013 industry and at General Electric Company. He has production activities. He is a Chartered Engineer and (division subsequently renamed Clean Air Sector also served as Non-Executive Director of plc. Fellow of the Royal Society of Arts. in April 2017). Other Current Appointments Other Current Appointments International Experience Non-Executive Chairman at Highways England and Senior Vice President of Quality, Strategy and Australia, China, France, Germany, India, Japan, Renewi plc. Innovation at King’s College and Director Malaysia, UK, US Committees of King's College London Business Limited. Sector Experience Audit Committee, Remuneration Committee Non-Executive Director of The Carbon Trust, Carbon Automotive, Chemicals (Chairman), Nomination Committee Trust Investments Limited and Imanova Limited. International Experience Committees Canada, France, Japan, UK Audit Committee, Remuneration Committee, Nomination Committee Sector Experience Aerospace, Infrastructure, Professional Services, International Experience Technology, Utilities UK, US Sector Experience At the date of approval of this annual report, Energy, Oil and Gas the Board of Directors of Johnson Matthey is as detailed above. 74 Johnson Matthey / Annual Report & Accounts 2 017 4. Governance Letter from the Chairman Good governance is fundamental to a successful company. We believe we have a governance framework which fits our needs and is effective.

Tim Stevenson Chairman

This section of the annual report describes our corporate governance Succession Planning and Diversity structures and processes and how they have been applied throughout Ensuring that the group employs a process of thoughtful, strategic the year ended 31st March 2017. and practical succession planning is a key role for the board in nurturing our culture, sustaining our operating model and delivering My Role as Chairman our strategy. The board itself needs to be refreshed over time, My most important role is to ensure that Johnson Matthey has a drawing on an appropriately diverse talent pool. We recognise the board which works effectively under my leadership. I believe we benefits of bringing greater diversity throughout the organisation have an effective board. We report on pages 82 to 84 on our board and in the boardroom. I am pleased that we now have real and committee review, which we conducted internally this year. momentum in this area. We explain our approaches to this I see open and constructive evaluation as integral to improving component of board effectiveness in this report. our effectiveness. Our governance arrangements continue to be right for the The UK Corporate Governance Code company. They effectively support our strategy and business model We are reporting this year against the 2014 version of the UK and will enable us to respond to any challenges we may face. For me, Corporate Governance Code and against the additional provisions in ensuring the right dynamics of the board is vital. I am pleased to say the 2016 revised version of the Code. We report on how we have that overall we have strong contributions and challenge from all our applied the Code’s main principles and complied with its relevant directors in an open and constructive atmosphere. This is in large provisions. Except in one respect (which is explained on page 86), part created by having a board comprising directors with a broad Johnson Matthey has complied with all relevant provisions range and balance of skills, expertise and attributes. As Chairman, throughout the year ended 31st March 2017 and from that date I lead the setting of the board’s agenda and I pay considerable up to the date of approval of this annual report. attention to ensuring we have a plan which allows for appropriate time to discuss all necessary items, particularly the development of strategy and the consideration of risk. A key part of the board’s role is to take effective steps in shaping and embedding a healthy corporate culture throughout our organisation. This is fundamental to being able to build sound governance behaviours and practices, all of which support the Tim Stevenson success of our company. We describe the board’s activities in the Chairman year on pages 78 and 79.

Risk Management Risk management is an important part of our wider discussion of strategy and our operating model. In this report, we aim to demonstrate how our strategy is underpinned by a robust risk management framework. 75

Getting to Know t r o p e R

the Business c i g

In order for our directors, particularly our While the majority of our board meetings Our Non-Executive Directors also e t a

Non-Executive Directors, to effectively are held at our City office in London, the undertake visits to our sites independent r t discharge their responsibilities, it is critical board holds two board meetings each of the Executive Directors, either individually S that they understand our business. year at operational sites. The board always or collectively, to further enhance their

At each board meeting we review tours the site and management present to knowledge and understanding, meeting e c n

the delivery against strategy of our divisions, them on the business, its challenges and with management and other employees. a n either focusing on the whole division or successes. These visits enable the board to see During the year, for example, some of our r e v businesses within it. These sessions are our operations on the ground and to meet the Non-Executive Directors visited our battery o attended by the relevant division director teams that are making them successful. They materials manufacturing facility at Candiac, G and, where appropriate, other divisional are a useful opportunity for the board to hear Canada, while others visited our Fine senior management. They give the board about customers, business issues, risks and Chemicals’ operations at Devens near s

an excellent opportunity to hear about, strategy as well as environment, health and Boston, US, to hear more about the site t n

discuss and challenge the strategic direction safety developments and the business’ and the business. u o of our business. sustainability and manufacturing efforts. Tim Stevenson and the majority of our c c

Throughout the year, the board also During 2016/17, board meetings were Non-Executive Directors also attended for A reviews our key functional areas. These held at our manufacturing site at Royston, part of the 2016 company conference, which reviews are attended by the relevant UK (April 2016) and in Philadelphia, US gave them an opportunity to get a feel for the n o functional head and, where appropriate, (October 2016). At Royston, the board visited group’s culture, hear more about the group’s i t other senior functional management. They Emission Control Technologies to learn more priorities in action and meet employees from a m enable the board to assess the strength of about manufacturing operations and capital across all our divisions and functions. r o f

these functions in their ability to support projects. During the US visit the board toured All of the above activities enable the n I delivery of the group’s strategic objectives. our Precious Metal Products’ Services business Non-Executive Directors to continue to r e h

Last year, we introduced business at West Deptford, the focus being on our develop and refresh their knowledge and t

‘teach-ins’ for our board. These are half day platinum group metal recycling and refining understanding of our businesses, the markets O sessions, separate from board meetings, which operations. The board also visited our Fine in which we operate and our key relationships. are attended by a range of managers from Chemicals’ Active Pharmaceutical Ingredient They are also important for building links with the relevant business. They are designed to Manufacturing business’ facility at Riverside. our employees. Through these, the board give the board a more in depth insight into Areas of focus included our business’ develops a sound and balanced insight into the our businesses and their customers than is manufacturing operations, customers group, which supports it in its role to provide possible during board meetings. This deeper and partners. entrepreneurial leadership and set strategy. understanding enhances the Non-Executive This has been particularly important this year Directors’ ability to challenge, debate and as we have reviewed our strategy, as explained contribute to divisional strategy at board by Robert MacLeod on pages 6 and 7. meetings. A teach-in was held during the year on Process Technologies at its facility in Paddington, London (September 2016).

Capital Board and markets day committee meetings feedback

Facility tours Divisional and Getting to know functional reviews the business

Divisional teach-ins Meeting our people

Company conference 76 Johnson Matthey / Annual Report & Accounts 2 017 4. Governance Corporate Governance Report Introduction UK Corporate Governance Code Our board of directors is responsible to our shareholders for ensuring the sound running The UK Corporate Governance Code (the Code) contains broad principles and specific of the company. This can only be achieved if provisions which set out standards of good practice in relation to leadership, effectiveness, the board is supported by appropriate and remuneration, accountability and relations with shareholders. This Corporate well managed governance processes. The key Governance Report is structured to report against the 2014 version of the Code (as well as elements of these are described in this the provisions of the 2016 revised version of the Code) by reference to each of these key Corporate Governance Report. areas. Together with the Nomination Committee Report, the Audit Committee Report and the Remuneration Report, it describes how we have complied with the relevant provisions of the Code and applied its main principles during the year.

Leadership day to day management of the business is identified certain matters which only it can delegated to the Chief Executive who is approve. These are set out in a schedule Governance Framework supported by the Group Management of matters reserved for the board. The Committee (GMC). The GMC is supported Chairman’s and Chief Executive’s roles are The group’s principal decision making body by three sub-committees – the Group Policy separate and this division of responsibilities is the board. It has responsibility for setting and Compliance Committee, the Finance and is clearly established in a written statement. the group’s strategic direction and for Administration Committee, and the Contracts Further information is set out on our website. ensuring that the group manages risk Review Committee. effectively. The board is accountable to There is a clear division of > Read more on page 77. shareholders for the group’s financial and responsibilities between the running of operational performance. Responsibility for the board and the executive responsibility implementing operational decisions and the for running the business. The board has Go online: www.matthey.com/ investor/governance

Board Meetings Each year the board agrees an annual agenda plan. This year, in particular, the board has sought to ensure there is sufficient time to discuss strategy so that the Non-Executive Directors have the opportunity to challenge and help develop strategy proposals. Our board usually meets formally six times a year. These are shown below for this year.

Date of board meeting Location Additional activities

7th April 2016 Royston, UK Tour of Emission Control Technologies’ plant 31st May 2016 London, UK – 19th July 2016 London, UK – 4th October 2016 West Deptford Tour of Precious Metal Products’ and Riverside, US Services and Fine Chemicals’ sites 15th November 2016 London, UK – 31st January 2017 London, UK –

During the year, board members also participated in two scheduled conference calls to give the Executive Directors the opportunity to update the Non-Executive Directors on key matters between board meetings. Our Governance Framework 77

Chairman Board Executive Directors Tim Stevenson Membership Robert MacLeod Key responsibilities Nine directors (Chairman, three Executive Anna Manz John Walker • Leads the board. Directors and five independent Non-Executive Directors). • Ensures an effective board, including Key responsibilities effective contribution from the directors. Role • Have specific executive responsibilities. • Ensures that Johnson Matthey maintains • Provides entrepreneurial leadership • Discharge duties in respect of the group effective communications with its of the company and direction for as a whole. management. shareholders. t r

• Has collective responsibility and o

accountability to shareholders for the long p e

term success of the group. R

Senior Independent Director Non-Executive Directors c • Reviews the performance of management i Alan Ferguson Odile Desforges g

and the operating and financial e Alan Ferguson t Key responsibilities performance of the group. a r • Sets strategy. Jane Griffiths t • Provides a sounding board for the Chairman. S Colin Matthews • Determines risk appetite. • Acts, if necessary, as a focal point and Chris Mottershead intermediary for the other directors. • Ensures that appropriate risk management

Key responsibilities e

• Ensures that any key issues not addressed and internal control systems are in place. c

• Constructively challenge the Executive n

by the Chairman or the executive • Sets the company’s values and standards. a

Directors in all areas. n management are taken up. • Ensures good governance and promotes r e

• Available to shareholders should they have good behaviour. • Scrutinise management’s performance. v • Help develop proposals on strategy. o concerns. G • Leads the annual appraisal of the • Satisfy themselves on the integrity of Chairman’s performance. financial information and on the • Ensures an orderly succession process effectiveness of financial controls and risk management systems.

for succession to the chairmanship of s • Determine appropriate level of t

the company. n

remuneration for executive directors. u o c c A Chief Executive Company Secretary Robert MacLeod Simon Farrant n o i

Key responsibilities Key responsibilities t • Has day to day responsibility for running the group’s operations. • Acts as secretary to the board and its committees. a m

• Recommends to the board and implements group strategy. • Together with the Chairman, keeps the efficacy of the company’s and r o • Applies group policies. the board’s governance processes under review. f n I • Has responsibility for compliance with board procedures. • Promotes the company’s culture and standards. r • Provides advice on corporate governance issues. e h t O

Audit Committee Nomination Committee Remuneration Committee Membership Membership Membership Five independent Non-Executive Directors. Five independent Non-Executive Directors and Five independent Non-Executive Directors and Chaired by Alan Ferguson. the group Chairman. the group Chairman. Role Chaired by Tim Stevenson. Chaired by Colin Matthews. Assists the board in carrying out its oversight Role Role responsibilities in relation to financial reporting, • Considers structure, size, composition • Sets remuneration policy for executive internal controls and risk management and in and succession needs of the board. directors and the Chairman and determines maintaining an appropriate relationship with our • Oversees succession planning for senior the application of that policy. external auditor, including recommending executives. • Reviews and monitors the level and structure reappointment or a requirement to tender. of remuneration for senior executives.

Disclosure Committee Ethics Panel Membership Membership The Chief Executive, Chief Financial Officer and the Company Secretary. The Company Secretary and three executive heads of functions. Chaired by Robert MacLeod. Chaired by Simon Farrant. Role Role To identify and control inside information or information which could To oversee the concerns raised pursuant to the speak up policy, including become inside information, and to determine how or when that the effective review and investigation of these concerns. information is disclosed in accordance with applicable legal and regulatory requirements.

Group Management Committee Membership Chief Executive, Chief Financial Officer, Sector Chief Executives, Chief HR Officer, Chief Technology Officer, General Counsel and Company Secretary. Role Has responsibility for the executive management of the group’s businesses. Recommends strategic and operating plans to the board.

Group Policy and Compliance Finance and Administration Contracts Review Committee Committee Committee Chaired by John Walker. Chaired by Anna Manz. Chaired by Simon Farrant. Role Role Role Provides leadership, oversight and assurance Has responsibility for certain of the group’s Reviews contract and litigation risk for in relation to certain environment, health and finance and corporate restructuring matters. the group. safety, sustainability, human resources and ethics and compliance matters. 78 Johnson Matthey / Annual Report & Accounts 2 017 4. Governance

During the year, the board focused on a number of specific areas which are outlined in the following table. Links to the group’s 12 principal risks (below) are also highlighted in the table.

1 Existing Market Outlook 2 Future Revenue Growth 3 Maintaining our Competitive Advantage 4 Environment, Health and Safety 5 Sourcing of Strategic Materials 6 People 7 Security of Metal and Highly Regulated Substances 8 Intellectual Capital Management 9 Failure of Significant Sites 10 Ethics and Compliance 11 Business Transition 12 Product Quality

Principal Board Activities

Activities Key outcomes Page reference Link to principal risks

Strategy • Reviewed proposed strategic plans in detail. Approved refreshing of strategy. 6 1 2 3 4 5 6 7 8 9 10 11 12 • Reviewed Battery Technologies (including Approved strategy. 42 1 2 3 battery materials) strategy. • Reviewed Precious Metal Products’ strategy. Approved strategy. 38 1 3 7 • Considered Process Technologies’ Elements of plan challenged for further review. 34 1 3 strategic planning. • Reviewed Emission Control Approved strategy and reviewed investment 30 1 3 Technologies’ strategy. opportunities to support growth. • Reviewed innovation. Endorsed the approach being taken to develop the 13 1 2 3 research and development portfolio and the growth initiatives to build on technical competences. • Considered sustainability goals beyond 2017 . Approved the sustainable business goals to 2025. 51 3 4 5 6 • Reviewed brand proposals. Considered brand refresh and the programme of delivery 6 3 6 11 to support Johnson Matthey’s 200th anniversary. • Reviewed the implications of the UK Assessed areas of potential impact and identified 18 1 2 4 5 leaving the EU. issues of unique importance to Johnson Matthey. 6 8 11 12 • Received a half day deep dive teach-in on Helped to facilitate board strategic review 75 1 8 Process Technologies. and discussion.

Environment, Health and Safety (EHS) • Reviewed EHS performance at each Reviewed significant incidents including management 61 4 board meeting. response and actions and the outcomes of safety audits. • Considered significant EHS incidents. Reviewed progress on the launch of a new • Reviewed key areas of focus and effectiveness EHS reporting tool. 62 4 of EHS reporting and management processes . 79

Activities Key outcomes Page reference Link to principal risks t r o

Risk and Governance p e R

1 2 3 4 5 6

• Reviewed board’s responsibilities in Agreed processes. 16 c 7 8 9 10 11 12 i relation to risk assessment and monitoring of g e t

risk management and internal control systems. Assessed and agreed principal risks and the a r • Reviewed principal risks, mitigating actions, management and mitig