Governance Report Our governance 1. Jamie Pike 3. Clive Watson 5. Kevin Boyd Chair Independent Non-Executive Director Chief Financial Officer and Senior Independent Director 1. 2. 3. 4. 5. Further reading 2. Nicholas Anderson 4. Trudy Schoolenberg Board biographies Group Chief Executive Independent Non-Executive Director See pages 72-73 Board overview Core expertise* Nationality* Gender* 1 9 7 7 1 1 1 2 1 2 2 3 6 2 4 4 1 Engineering M&A British Dutch Male 1 2 International Product development American Irish Female Operational People 1 N.J. Anderson holds dual British and Sales and marketing Senior management American citizenship. Finance Strategy 2 J. Pike holds dual British and Irish citizenship. 66 Spirax-Sarco Engineering plc Annual Report 2018 7. Jane Kingston 9. Neil Daws Independent Non-Executive Director Managing Director, Steam Specialties Governance Report Governance 6. 7. 8. 9. 10. 6. Peter France 8. Jay Whalen 10. Andy Robson Independent Non-Executive Director Executive Director, Group General Counsel WMFTG and Company Secretary In this section Length of service* Chair’s Introduction 68 Board leadership and Company purpose 70 Board of Directors 72 5 1 Division of responsibilities 74 Composition, succession 78 and evaluation Audit, risk and internal control 82 Remuneration 90 Regulatory disclosures 120 2 Statement of Directors’ 123 Responsibilities 1 5+ years 1-3 years 3-5 years Less than 1 year *At year end. Spirax-Sarco Engineering plc 67 Annual Report 2018 Governance Report Chair’s Introduction A collective responsibility for preserving long-term value An updated Board Following the announcement of Bill Whiteley’s intention to retire as Chair in May 2018, the Board’s succession plan moved into We welcome the publication of the action. In March 2018, we welcomed Peter France as a new 2018 Corporate Governance Code, Independent Non-Executive Director, I was appointed Chair from the close of the AGM in May 2018 and Clive Watson became our which reinforces the importance Senior Independent Director. On 1st March 2019, we announced of diversity, long-term thinking the appointment of Caroline Johnstone as an Independent Non-Executive Director. Caroline’s financial, people and advisory and stakeholder engagement. skills, together with her international business experience across In preparation to report fully against a range of different industries, will be of benefit to the further development of the Group. Clive will retire at the 2019 AGM, the new Code next year, we have as this is the AGM following his ninth year as a Director, and a structured this year’s Governance separate announcement will be made regarding the new Senior Report against the new Principles, Independent Director and the new Chair of the Audit Committee. while remaining in compliance with Board biographies can be found on pages 72 to 73. the prevailing Code.” An updated Code In July 2018, the UK Corporate Governance Code 2018 (2018 Jamie Pike Code) was released which puts the relationships between Chair companies, shareholders and stakeholders at the heart of long-term sustainable growth in the UK economy. We fully support the shorter, sharper 2018 Code and we have embraced its changes in the following ways: • workforce and stakeholders: we are currently exploring the most effective methods to achieve greater Board engagement with the workforce to understand their views; • culture: we have reviewed our values to create a culture which aligns Company Values with strategy and to ensure that our Board has the right mix of skills and experience, constructive challenge and to promote diversity; we have emphasised these elements in our Board refreshment and succession planning; and 2016 Code compliance • remuneration: the 2018 Code emphasises that the Remuneration Committee should take into account workforce In running our business in 2018, we were fully compliant remuneration and related policies when setting Director with the UK Corporate Governance Code 2016 (Code) and remuneration, which we already address and will strengthen we detail our compliance, on a Code provision-by-provision throughout 2019. basis, in the Governance section on our website: www.spiraxsarcoengineering.com. An enlarged FTSE 100 company Our business has continued to grow organically and increase in size with the acquisitions of Gestra and Chromalox in 2017. Section 172 We have successfully integrated and driven performance The Directors have performed their duty under section 172 of improvement in our acquisitions. We are pleased to have entered the Companies Act 2006 (duty to promote the success of the the FTSE 100 in December 2018, as this symbolises a recognition Company). The information that fulfils the requirements of the by investors of the significant value creation delivered by the hard Strategic Report can be found on pages 1 to 65. Details of work of the entire organisation. the Group’s goals, strategy and business model are on pages 12 to 25. The information that fulfils the requirements of the An opportunity to reflect Governance Report can be found on pages 66 to 123. Recent Board changes and the publication of the 2018 Code provided the opportunity to reaffirm our individual and collective responsibilities as a Board and to test our understanding of what Fair, balanced and understandable good governance means to us and why it is important. In accordance with the Code, the Directors confirm that they consider the Annual Report, taken as a whole, is fair, Further reading balanced and understandable and provides the information All governance-related policies and procedures are necessary for shareholders to assess the Group’s available to view and download: performance, business model and strategy. www.spiraxsarcoengineering.com/Governance/Pages/policies- procedures.aspx 68 Spirax-Sarco Engineering plc Annual Report 2018 Key Board activities 2018 • external and internal communications issued; During 2018, we paid particular attention to succession planning • Brexit project charters updated; for the Board with the appointments set out earlier in this section. • Brexit Contingency Plan finalised and issued; and We also focused on our Values, culture, strategic risks and • quarterly reviews and updates. opportunities, including Brexit and diversity. We are preparing for “no deal” Brexit and the application of tariffs for goods moving in and out of Europe. However, we are Revising Values poised to take advantage of opportunities that are presented and We reviewed and revised our Values. Values are the guiding to mitigate any adverse trading impact on the Group. principles that we use across the Group to underpin decision-making, guide our conduct and define our culture going 93% of our sales revenues are generated outside of the UK, forward. By working together with these Values, every day, we while close to a third of our cost of goods sold is manufactured build a sustainable business that is more successful and a better in the UK. Therefore, a devaluation of sterling would produce place to work. translational and transactional net benefits for the Group. Assessing and monitoring culture Diversity Our culture is one of the main reasons for our measured As a Group we are committed to gender diversity and to Report Governance progress and success. As we grow it is vital that we retain such a achieving a minimum target of 33% female representation successful culture. The refreshing of our Values was designed to on the Board, the Group Executive and their direct reports. create a culture which aligns Company Values with strategy. We ensure that this target is taken into account in our succession planning and recruitment. Our Group Diversity and In considering methods to achieve greater Board engagement Inclusion Policy has been published on the Group’s website. with the workforce, one of our objectives will be to ensure that the With the appointment of Caroline Johnstone as an Independent Board is able to gauge and monitor our culture and to ensure it is Non-Executive Director, at the time of publication we have 30% both embedded and retained in our Company. representation on our Board. Evaluating risks and opportunities We also attach importance to ensuring that our people can At the Board meeting at Gestra, Bremen in June 2018 we progress to the highest levels in their business careers regardless considered the business risks arising from our strategy for growth. of their socio-economic background, race or sexual orientation. The key risks included channel conflicts, increased reliance on We accept Sir John Parker’s recommendation that our Board sales engineers and increased exposure to large projects. In each should have at least one director from an ethnic minority case we addressed the actions that we are taking to mitigate the background by 2021. risk under the auspices of a steering committee. Focus for 2019 This strategic risk review complements the work of the Risk We would like to consolidate our position as part of the Management Committee in relation to the principal risks affecting FTSE 100 through both organic and inorganic growth. We see the Group, and the effective management and mitigation of those many opportunities to build on our success and we look forward risks, as explained on pages 28 to 33. to realising and sharing these with our shareholders through our Brexit strategic plan. On 24th June 2017, following the Referendum vote to exit the I look forward to reporting on our progress. EU, an emergency steering committee meeting was called to implement our Brexit Contingency Plan. Since then the following Jamie Pike actions have taken place: Chair Board engagement case study Revised Values Our revised Values are: • Collaboration – we are more successful when we trust each other and work together. • Customer focus – customers are the heart of our business. • Excellence – we approach challenges with passion, aiming for excellence in everything we do. • Respect – everyone matters, both inside and outside our Company.