Corporate Governance

(last updated 17 January 2019)

INTRODUCTION

The Board is committed to achieving, maintaining and further developing high standards of corporate governance, integrity and business ethics. Following changes to the AIM Rules for Companies implemented in September 2018 and the publication by the Quoted Companies Alliance (the “QCA”) of the QCA Corporate Governance Code 2018 (the “QCA Code”), the Board resolved to apply the new QCA Code to the Company. The new QCA Code has become the recognised benchmark for corporate governance of small to mid-sized quoted companies, particularly AIM companies, and the Board considers it to be appropriate and proportionate for the Company, given its size and scale of operations.

THE NEW QCA CODE

The Board undertakes an ongoing assessment of the QCA Code principles and of the Company’s level of compliance. The underlying philosophy of the QCA Code is very much aligned to the approach adopted by the Company in establishing and developing its business model, practices and policies over the years since the admission of its shares to the London Stock Exchange in 1995. The Board is particularly mindful of the importance of:

  • active engagement with all of its stakeholders;
  • a positive and collaborative culture throughout the Group; and
  • enhancing the quality of the experience that customers and other stakeholders have in their interactions with the Company.  

The Board seeks to strike a balance between the aims of developing prudent management policies, processes and procedures to achieve its good governance goals (on the one hand) and preserving the Group’s well-established open/collaborative culture and nurturing the entrepreneurial spirit and flair that has served the Group well over the years (on the other), without allowing either to be compromised.

The explanation of how the Company has applied the QCA Code and the further measures that it is proposing to take to enhance further its good Corporate Governance practices will be updated from time to time.   This statement provides the “signposted” disclosures required to be made by the QCA Code.

THE QCA CODE - SIGNPOSTED DISCLOSURES

The QCA Code sets out 10 key principles of good corporate governance, designed to guide companies towards delivering growth in long-term shareholder value, establishing and maintaining an efficient, effective and dynamic management framework and promoting confidence and trust amongst all stakeholders. In reporting in relation to compliance with the QCA Code, the Company will assess the position under each of these principles and disclose its means of compliance.

Principle 1: Set out the strategy and business model

The Company’s business model and strategy is explained in the Annual Report. A copy of the Annual Report for the year ended 31 August 2018 (the “2018 Annual Report”) is here.

In particular, the business model and strategy are explained in the Overview section of the Strategic Report on page 2 of the 2018 Annual Report.

The business' Key Performance Indicators (KPIs) are considered by the Board to be revenues, profit before tax, earnings per share and cash generation and these are reported on in the Annual Report and summarised in a table on page 4 of the 2018 Annual Report. The 2018 Annual Report also explains the risks and uncertainties of the business and how the Board mitigates these.

During the AGM, the strategy is discussed with the shareholders present or represented. It forms a large part of the dialogue with the shareholders and reflects the Company's commitment to good information flows, growth delivery and the promotion of long-term value for shareholders.

Principle 2: Understand and meet Shareholder expectations

During a financial year, shareholders receive either a letter informing them that the Annual Report or Interim Report are available to view and download from the investors section of the Company’s website or, if they have so elected, hard copy of such reports.

Other than in relation to the financial reports, the Company communicates with its shareholders primarily through regulatory announcements. These contain the contact details of one or both of the Company's Joint-Managing Directors and its Nominated Adviser. All announcements are issued via the London Stock Exchange and are also placed in the investors section of the Company’s website and, where appropriate, may also be sent to shareholders by post.

Over the years members of the Board have had the opportunity to meet or talk directly to the shareholders that are not involved in the running of the business, including a number of its institutional shareholders. The Board is keen to understand the needs and expectations of its shareholders. Some of the Company's larger shareholders have been investors in the Company for a number of years. Proactive Investor presentations and interviews are provided from time to time. In addition, twice-yearly meetings are arranged with major shareholders when the Company presents its results “roadshows” and these enable the Board to obtain a balanced understanding of shareholder issues and concerns.

The AGM is the other means that the Company uses to converse with its shareholders about their expectations and maintain a good flow of information.

The Company also facilitates communication with investor by responding to questions and enquiries sent by email to info@charactergroup.plc.uk or by post to its registered office. The members of the Board of the Company are always available to talk to the shareholders. The Board strongly believes in encouraging dialogue with its shareholders.

Principle 3: Wider Stakeholders involvement

The Company's relations with its customers, suppliers and staff are key to the success of the Group. These relations are viewed very much as partnerships and each of them is nurtured and developed on an ongoing basis.

-          Customers

With customers, the Company presents its catalogue of products at key points during the year to ensure the best opportunity to obtain orders/listings for the coming season. These presentations take place in the Company’s showrooms in the UK and/or in Hong Kong, at toy trade fairs around the world or at the customer’s premises. In between presentations, there is an ongoing dialogue with customers to seek to anticipate their requirements, inform them of developments and to ensure that their ongoing business with the Company is serviced efficiently. The management team share/road-test concepts and designs and present mock-ups and pre-productions samples and adjust the Group’s plans (or even abort them) in response to customer feedback. In the end, the Company is judged on its ability to meet its customers’ expectations of quality, value and fulfilment and the integrity, accessibility and reliability of the Group’s team (at all levels) is key to these relationships.

-           Suppliers

With suppliers, whether manufacturers, licensors of characters/brands or distribution partners, ongoing communications are key to successful and efficient business.  

With manufacturers – the management team’s ongoing communications and local presence ensure timely concept development, tooling-up and production, rigorous quality and assurance standards and supply.

With licensors – the Group has established a strong reputation for reliably delivering quality product, achieving good distribution and supporting the owner’s brand with strong marketing campaigns that ensures that the brand is protected and even enhanced though the development and sell-through of ranges of in-house designed products.

With distribution partners – the Group has gained a reputation as the route to market in the UK and Ireland for many overseas toy manufacturers. An ongoing dialogue with these partners and presence at toy fairs around the world enables the management team to gauge trends and capture items/lines at an early stage for distribution in the UK and Ireland.

-           Employees

The Company's most precious resource is its personnel. The Board believes that the Group’s strong, collaborative culture and entrepreneurial spirit has been responsible for developing good employee relations and a strong work-ethic to date, borne out by staff loyalty and retention over the years. Staff at all levels understand and embrace the business strategy and many co-author, edit or enhance that strategy as it is implemented.   Good staff communications have been and will continue to be key to growth of the business.

-           Charitable and local community engagement

We actively support and promote the activities of:

  • The Toy Trust - The British Toy and Hobby Association’s charity supporting disadvantaged and disabled children within the UK and abroad;
  • The Fence Club - a Charity founded by members of the UK Toy Trade, which raises money for a wide range of children's charities, including for support of hospices and handicapped and autistic children;
  • The Light Fund - the UK licensing industry’s charity which supports the activities of a number of charities, including The Children's Trust, Orchid Trust, Kidscape, Teenage Cancer Trust Hospital, Multiple Sclerosis Resource Centre, Guide Dogs For The Blind, Institute of Cancer Research, Medical Detection Dogs, Parkinson’s UK and Alzheimer's Society;
  • The Variety Club - best known for providing “Sunshine Coaches” to schools and organisations that provide disabled and disadvantaged children with services and support for their educational, recreational or vocational activities;
  • The Kingfisher Learning Trust – a charity that has established the Kingfisher Special School, the only school for children with complex and severe learning needs, in Oldham.

Many of our directors, staff, suppliers and customers actively engage in the fundraising work of these and other organisations, principally giving support to disabled or disadvantaged children. Over the years a number of our directors and senior executives have assumed leadership roles in the organisation and administration of these bodies. The work of these organisations tangibly enriches the lives of the young and vulnerable and is immensely rewarding for all involved and we will continue to support these wonderful initiatives.

Principle 4: Risk Management

The main risks and uncertainties affecting the business are set out in the Executive Review on page 8, and in the Corporate Governance Report on pages 16-17, of the 2018 Annual Report.

These risks are monitored on a regular basis by the Board. The Executive Review also explains how the Board deals with and mitigates these risks.

Principle 5: Well-functioning Board

The Board comprises eight Directors, two of which are considered by the rest of the Board to be independent for the reasons set out in relation to Principle 9 below. David Harris has been designated as the Senior Independent Non-Executive Director.

The Board meets at least four times a year to discuss a wide range of matters concerning the Group, including financial results and communications with shareholders. The Directors are required to attended all of these board meetings.

The executive Directors are full-time working directors. The Non-Executive Directors do not have prescribed working hours in their appointment letters but are required to expend such time in discharging their duties as is necessary or required to fulfil their respective roles.  

For further details regarding the Board are set out in relation to Principle 9 below.

Principle 6: Experience and skills of the Directors

The skills of each member of the Board are set out in his biography (see the Directors’ biographies here).

At the present time, the Directors select their own training/refresher/updating programs, if and as required (at the Company’s cost).   The Board proposes to introduce a more structured facility for Directors to be able to obtain training on relevant new developments as considered appropriate, from time to time, and to be more pro-active in encouraging a systematic approach to updating skills and training for the Directors.  

The Company is committed to a culture of equal opportunities for all employees regardless of gender, gender identity or reassignment, age, race, religion, sexual orientation or disability. Although diversity is one of the key factors that the board will take into account when making a new appointment, any new appointment will only be made on the basis of a candidate’s merits and the skills and experience identified by the board as being desirable to complement those of the existing directors.

The Board understands the Group’s business and is able to deliver a clear strategy that is then communicated to the shareholders and other key stakeholders. The Directors also benefit from a corporate culture that they all can relate and commit to.

Principle 7: Evaluation of the Performance of the Board

The Directors consider that the size of the Company does not justify the use of third parties to evaluate the performance of the Board on an annual basis, though this will be kept under regular review.

The performance evaluation of the Board, its committees and Directors is undertaken by the Non-Executive Chairman and implemented in collaboration with the Committee Chairmen. The 2018 Board evaluation was conducted by way of a discussion between the Non-Executive Chairman and each of the Directors. The other Non-Executive Directors met separately during the year to review the Non-Executive Chairman’s performance and provide feedback to him. Following those performance evaluations, the Non-Executive Chairman confirms that the performance of the Executive and Non-Executive Directors continues to be effective and demonstrates commitment to the roles.

A more formalised approach to the process of performance evaluation of the Board, its committees and Directors is to be formulated in the coming months. The findings of that review will be considered initially by the Corporate Governance and Risk Management Committee and then by the full Board and any recommendations made or measures proposed by the Corporate Governance and Risk Management Committee discussed and, as appropriate, implemented.

The Company has not adopted a policy on succession planning. The Joint-Managing Directors, however, are required to give not less than 12 months’ notice under their contract of employment if either of them wishes to leave the Company. The Board considers succession planning as part of its regular review of Board effectiveness.

Principle 8: Corporate Culture

Character has a strong corporate identity which has been instrumental in retaining the talents that are essential to ensure the prosperity of the business.

The Group employs a total of 186 people across its locations in the UK and Asia. The team is dedicated to and focused on developing, manufacturing, marketing and distributing innovative and exciting toys that meet the high expectations that the Group’s customers and the consumer demand, both in terms of quality and value.

There is a spirit of collaboration at all levels of personnel within the Group (from the warehouse floors through to the boardroom), informed and reinforced by a strong, inclusive culture.  This sees its expression in the continuous hard work, dedication and loyalty of the Group’s personnel and in the strong and enduring bonds with the Group’s customers and suppliers. This unique team spirit underpins the strength of the Group’s model and provides the Company with the dynamics that assures the Group of its continued ability to deliver performance and results.

Principle 9: Governance Structures

The Board comprises 8 Directors, namely the Non-Executive Chair, two Non-Executive Directors and 5 Executive Directors. The Board is responsible to the shareholders for the proper management of the Company.

Biographies for each of the Directors are here. These biographies demonstrate the range and blend of experience and backgrounds available to the Board to enable it to manage the Company’s business, engage with all stakeholders and exercise informed and reasoned judgement in relation to all issues faced by the Company, whether in relation to strategy, performance, risk assessment, resources or standards of conduct, all of which are considered vital to the success of the Company.

The Company has appointed:

  • a non-executive Chair, responsible for overseeing an effective Board – Richard King. Although not considered by the Board to be independent (due to his tenure as executive chairman until 2016), Richard is considered to be sufficiently removed from the day to day operations of the Company to retain a critical view and, as such, be in a good position to represent best the interest of all the shareholders;
  • two Joint-Managing Directors, responsible for the overall strategy of the Group and for the Group’s operations as a whole – Jon Diver and Kiran Shah;
  • a Group Financial Director, responsible for the Group’s financial controls – Kiran Shah;
  • a Managing Director of UK Operations – Joe Kissane;
  • a Managing Director of Far East Operations – Mike Hyde;
  • a Group Marketing Director – Jerry Healy;
  • two independent non-executive Directors - David Harris and Clive Crouch, who (together with the Chair) provide a balance to the Executive Directors. The Board regards David Harris and Clive Crouch as “independent” Non-Executive Directors and free from any relationship that could materially interfere with the exercise of their independent judgement. David Harris was appointed as a Non-Executive Director of the Company in May 2004. Notwithstanding his duration of service, the Directors consider that David has demonstrated the utmost regard for his independence, appropriately challenging the Board during his tenure as a director and has maintained high standards of corporate governance. Accordingly, the Board believes that David exercises independent judgement in all matters relating to the Company.

The Board is responsible for:

  • formulating, reviewing and approving the Company’s strategy, budgets, acquisition and divestment policy, major capital expenditure, overall capital structure, significant financing and operational matters and corporate actions;
  • the appointment and removal of any director; and
  • overseeing the Group’s progress towards achieving its goals.

The Board has a formal schedule of matters reserved specifically for decision by the Board. Effectively, no decision of any material consequence is made other than by the Directors and all Directors participate in the key areas of decision-making. Meetings of the Board are held not less than four times a year, with additional meetings being convened and held as and when required.

In addition, the Company appointed Kiran Shah, an executive director of the Company, as the Company Secretary in September 2017. The QCA Code requires that, where the office of Company Secretary is held by an executive director, plans should be in place to separate the role at the appropriate time. This status is kept under review by the Board and the Corporate Governance and Risk Management Committee and a separation of these roles will be implemented if/when the Board and the Corporate Governance and Risk Management Committee considers it be appropriate.

The Board has established Audit, Remuneration, Nominations and Corporate Governance and Risk Management Committees, comprised solely of non-executive Directors, though certain Executive Directors are regularly invited to attend key committees, as required by the Non-Executive Directors. Whilst these committees are not wholly comprised of independent directors, the independent directors constitute a majority in number of the directors on each committee. The Board considers that it is essential to the effective discharge by the Chair of his obligations under the QCA Code, that he is a member of each of these committees, notwithstanding that, under the QCA Code guidance, he is not considered to be independent.

  • Audit Committee

The audit committee is comprised of Clive Crouch (Chair), David Harris and Richard King.

The audit committee has the primary responsibility for monitoring the quality of internal controls to ensure that the financial performance of the Company is properly measured and reported on. The audit committee, amongst other things, examines matters relating to the financial affairs of the Company and determines the terms of engagement of the Company’s auditors and, in consultation with the auditors, the scope of the audit. It receives and reviews reports from management and the Company’s auditors relating to the half yearly and annual accounts and the accounting and the internal control systems in use throughout the Company. The audit committee has unrestricted access to the Company’s external auditors.

Given the size of the Company, the relative simplicity of its systems and the close involvement of senior management, the committee considers that there is no current requirement for an internal audit function, though this is kept under regular review.

Whilst the audit committee performs this monitoring and examination role, the ultimate responsibility for reviewing and approving the Group’s annual report and accounts and the half year reports remains with the full Board.

The audit committee has met on 2 occasions in the last 12 months and was attended by all of the members of the committee.

A copy of the terms of reference of the audit committee is here.

  • Remuneration Committee

The remuneration committee is comprised of David Harris (Chair), Clive Crouch and Richard King.

The remuneration committee reviews the performance of the Executive Directors, and such other members of the executive management as it is designated to consider, and makes recommendations to the Board in respect of the directors’ remuneration and benefits packages, including share options and other incentives and the terms of their appointment. The remuneration committee also considers recommendations to the Board on proposals for the granting of share options and other equity incentives pursuant to any employee share option scheme or other equity incentive plans in operation from time to time.

The remuneration of Non-Executive Directors is a matter for the executive Directors. No Director may be involved in any decision as to his own remuneration.

The remuneration committee has met on 2 occasions in the last 12 months and was attended by all of the members of the committee.

A copy of the terms of reference of the remuneration committee is here.

  • Nominations Committee

The nominations committee is comprised of Richard King (Chair), Clive Crouch and David Harris.

The nominations committee has responsibility for reviewing the structure, size and composition (including the skills, knowledge and experience) of the Board and giving consideration to succession planning. The nomination committee also has responsibility for recommending new appointments to the Board and to the other Board committees. It is responsible for identifying suitable candidates for Board membership and monitors the performance and suitability of the current Board on an on-going basis.

The nominations committee did not meet in the last 12 months as no appointments to the Board were considered in the period.

A copy of the terms of reference of the nominations committee is here.

  • Corporate Governance and Risk Management Committee

The Corporate Governance and Risk Management Committee is comprised of Richard King (Chair), Clive Crouch and David Harris.

The primary duties and responsibilities of the Corporate Governance and Risk Management Committee include: (i) developing, monitoring and reviewing the Company’s compliance with the QCA Code and otherwise its approach to corporate governance issues; (ii) evaluating the efficiency of the Board, its committees and their respective chairmen and each Director; (iii) developing the Company’s approach to risk management issues and (iv) performing such other duties and responsibilities as may be consistent with its terms of reference.

The Corporate Governance and Risk Management Committee was constituted at a meeting of the Board held on 21 September 2018 and formal terms of reference were adopted at that time. The committee has been closely involved in the formulation of this statement and in the revisions made to it and will monitor and further revise it from time to time to reflect further progress and developments. The committee has formally met on two occasions since being constituted and was attended by all of the members of the committee.

A copy of the terms of reference of the Corporate Governance and Risk Management Committee is here.

From time to time, additional committees may also be set up by the Board to consider specific issues, if/as the need arises.

All non-executive directors of the Company who are members of these committees are entitled to seek, at the Company’s expense, independent professional advice in connection with their roles on these committees.

Bribery and Anti-corruption Policy

The Company has a robust anti-bribery and anti-corruption policy, which applies to the Board, all employees of the Company and persons associated with the Company (such as consultants and contractors), requiring the observance of a zero tolerance position on bribery and corruption. The policy provides guidance on how to recognise and deal with bribery and corruption issues and their potential consequences, while preserving acceptable boundaries of corporate hospitality and entertainment. The Company expects all employees and persons associated with the Company to conduct their day-to-day business activities in a fair, honest and ethical manner, be aware of and refer to this policy in all of their business activities worldwide and to conduct business on the Company’s behalf in compliance with it. Management at all levels are responsible for ensuring that those reporting to them, internally and externally, are made aware of and understand this policy.

Share Dealing Policy

The Company has a share dealing policy regulating trading by the Directors and other persons discharging managerial responsibilities (and their closely associated persons) which contains provisions appropriate for a company whose shares are admitted to trading on AIM (particularly relating to dealing during closed periods which will be in line with the Market Abuse Regulation). The Company will take all reasonable steps to ensure compliance by the Directors and any relevant employees with the terms of that share dealing policy.

Modern slavery

The Company’s policy on Modern Slavery is here. Management at all levels are responsible for ensuring that those reporting to them, internally and externally, are made aware of and understand this policy.

UK City Code on Takeovers and Mergers

The Company is subject to the UK’s City Code on Takeovers and Mergers.

Principle 10: Building Trust

The Company makes sure that a good flow of communication exists between the Board and all its stakeholders, including shareholders, to enable all interested parties to come to informed decision over any interaction with the Company.

The corporate website of the Company, www.thecharacter.com plays an important role in insuring that the shareholders have all the information they should require.

The notice of AGM, the Annual and Interim reports since 2005 are available on the Company's website, here.

In the future the Company’s website also includes the results of the votes cast during the AGM.