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The Board
acknowledges the need for and continued maintenance of the highest standards
of corporate governance practice and ethical conduct by all Directors
and employees of Michael Hill International Limited and its subsidiaries.
The Board endorses the overall principles embodied in the New Zealand
Institute of Directors'"Code of Proper Practice for Directors".
The Board believes that its corporate governance policies and procedures
do not materially differ from those detailed in the NZX Best Practice
Code. There have been no changes made to the Corporate Governance practices
since last year.
THE BOARD IS ACCOUNTABLE FOR THE PERFORMANCE OF THE GROUP
The Board is responsible to shareholders for charting the direction of
the Group by participation in the setting of objectives, strategy and
key policy areas. It is then responsible for monitoring management's running
of the business to ensure implementation is in accordance with the agreed
framework. The Board delegates the conduct of the day-to-day affairs of
the Company to the Chief Executive Officer within this framework.
The workings of the Board and its code of conduct are governed by the
Company's constitution and a Board Operations Manual, committed to by
all Directors. This manual sets out all the functions and operating procedures
of the Board, including charters for each subcommittee. The Board Operations
Manual also clearly sets out those matters that only the Board can make
decisions on. These include dividend payments, solvency certificates,
raising new capital, major borrowings, approval of the annual accounts,
provision of information to shareholders, major capital expenditure, and
acquisitions.
Each year, the company produces a five year plan and an operating budget
which are both reviewed and approved by the Board. Financial statements
are prepared monthly and reviewed by the Board progressively through the
year to monitor management's performance against the budget and five year
plan.
BOARD MEMBERSHIP
The Constitution currently sets the size of the Board at a minimum of
three and a maximum of eight and at least two Directors must be resident
in New Zealand. The Board currently comprises seven Directors, comprising
an Executive Chairman, a Chief Executive Offi cer, and five non-executive
Directors. The Board met on five occasions in the fi nancial year ended
30 June 2007. Profi les of the current Directors appear on page 21 of
the annual report. Under the Company’s constitution, and the NZX
Listing rules, one third of all Directors must retire every year, but
can be re-elected at an annual meeting if eligible. Newly appointed Directors
must seek re-election at the fi rst annual meeting of shareholders following
their appointment.
The
Company has no requirement for Directors to hold shares in the company
but actively encourages them to do so and all current Directors have a
substantial holding in the company.
INDEPENDENT DIRECTORS
Under the NZX Listing rules, the Company is obliged to have at least two
independent directors.
An independent Director has been defined in the NZX rules as a "Director
who is not an executive of the Issuer and who has no Disqualifying Relationship."
A Disqualifying Relationship means any direct or indirect interest or
relationship that could reasonably influence, in a material way, the Director's
decisions in relation to the Issuer.
The Company has determined that Gary Gwynne and Murray Doyle are independent
Directors under the NZX rules.
DIRECTORS' SHAREHOLDINGS - See Page 57 of the Annual Report
DIRECTORS' MEETINGS
The number of meetings held throughout the past year is detailed on the
below. The agenda for meetings is prepared by the Company Secretary in
conjunction with the Chairman and the Chief Executive Officer. Any member
of the Board may request the addition of an item to the agenda. Board
papers are circulated to Directors a week in advance of meetings.
The table
below sets out the Board and sub-committee meetings attended by Directors
during the course of the Financial Year.
THE
WORK OF DIRECTORS
Non-executive directors normally spend around 22 days per year on board
and sub-committee meetings. The length of meetings varies between one
to two days. Board meetings are held in different locations in Australia
and New Zealand.
BOARD REVIEW
During the course of the last financial year, the Chairman reviewed the
performance of the Directors and the workings of the Board. There were
no changes made to any of the Board’s processes as a result of this
review.
CHIEF
EXECUTIVE OFFICE PERFORMANCE REVIEW
The Board regularly reviews the performance of the Chief Executive Officer.This
evaluation is based on the performance of the business, the accomplishment
of strategic and operational objectives and other non quantitative measures.
BOARD COMMITTEES
The Board has established a number of sub-committees to guide and assist
the Board with overseeing certain aspects of corporate governance - the
audit process, determination of compensation issues and the structure
of the Board itself. Each sub-committee is empowered to seek any information
it requires from employees in pursuing its duties and to obtain independent
legal or other professional advice. The provision of such advice, if required,
would be arranged in consultation with the Chairman. In circumstances
where a Director was to obtain separate advice from that obtained on behalf
of the Group, that advice would normally be provided to all Directors.
AUDIT SUB-COMMITTEE
The Audit sub-committee, which is chaired by Murray Doyle and consists
of Messrs Doyle , Peters and Gwynne , met twice during the year. The function
of the Audit sub-committee is to assist the Board in carrying out its
responsibilities under the Companies Act 1993 and the Financial Reporting
Act 1993, regarding management's accountancy practices, policies and controls
relative to the Group's financial position and to review and make appropriate
inquiry into the audits of the Group's financial statements by both internal
and external auditors. This responsibility includes advising on the appointment
of the external auditor and reviewing the scope and quality of the audit.
The audit sub-committee has the responsibility of monitoring the Group's
Risk Management practices and procedures to ensure that policies and processes
exist to effectively identify, manage and monitor principle business risks.
The Group's auditors, both internal and external, along with other relevant
senior executives, attend all meetings and may discuss any matters in
connection to audits, the Group's risk and control environment or any
other matters relating to the Group's financial and non-financial affairs.
This committee also approves any non audit work carried out by the Company's
auditors, and ensures that the lead partner in the audit firm is rotated
every five years. The committee will also approve all major accounting
policy changes.
At least once a year, the Chairman and non-executive Directors on this
Committee meet with the external auditors privately without the presence
of Company executives.
REMUNERATION SUB-COMMITTEE
This sub-committee, chaired by Wayne Peters, comprises all Directors except
Mike Parsell. The function of the Remuneration sub-committee is to determine
the Chief Executive's and Senior Management's remuneration. This role
also includes responsibility for share option schemes, incentive performance
packages, and fringe benefit policies. The sub-committee also advises
on proposals for significant company wide remuneration policies and programs.
In carrying out this role, the sub-committee operates independently of
Senior Management of the Company, and obtains independent advice on the
appropriateness of the remuneration packages. The committee met on two
occasions during the year.
This sub-committee also has the responsibility to review the performance
of the Chief Executive Officer on an annual basis.
The committee has continued to structure Senior Management bonuses around
a return on capital employed basis, to emphasise efficient use of capital.
NOMINATIONS SUB-COMMITTEE
This sub-committee, chaired by Michael Hill, consists of the non-executive
Directors and Michael Hill. The function of the subcommittee is to make
recommendations to the Board regarding the most appropriate Board structure.
It also advises on the appointment of additional Directors. Board membership
is reviewed periodically to ensure the Board has an appropriate mix of
qualifications, skills and experience. External advisors may be used to
assist this process.
Any person who is to be considered as a Director of the Company must attend
three Board meetings in the capacity of a Consultant before being eligible
for appointment as a Director.
Emma
Hill was appointed a Director by the Board in February 2007.
SHARE TRADING BY DIRECTORS
The Directors named below have disclosed to the Board under Section 148
of the Companies Act 1993, particulars of the following acquisitions or
dispositions of relevant interests in the ordinary shares of the company
during the year. The relevant interest acquired or disposed of includes
beneficial ownership.
NON-EXECUTIVE
DIRECTORS' FEES
Fees for non-executive directors are based on the nature of their work
and their responsibilities. The Company is now a truly global company
with 74% of the Group’s stores in Australia and Canada. Shareholders
at the Annual Meeting in November 2004 approved a maximum amount of $250,000
to be paid to Directors. Each NZ resident Director is currently paid $60,000
per annum and our Australian resident Director A$60,000 per annum. No
equity incentives are offered to non-executive Directors. A resolution
is being put to the Annual meeting on 8th November 2007 to increase the
aggregate amount to be paid to non executive directors to NZ$395,000.
Under
the Company’s new constitution adopted in November 2004, shareholders
will now be required to approve all retirement benefits for directors
other than for directors who were in office on or before 1 May 2004 and
who have continued to hold office. It is not the intention to pay any
such retirement allowances.
SHARE
PURCHASE SCHEME
The Company has a Share Purchase Scheme for Management in operation. The
scheme was designed to encourage Store Managers, Regional Managers and
other senior employees of the Company to purchase shares in the Company.
In order to provide a pool of shares for eligible employees to purchase,
the Company from time to time will buy Michael Hill International shares
on the New Zealand Stock Exchange.
The rules of the scheme provide for the Company to on sell shares to purchasing
employees at a 10% discount to the weighted average price for the ordinary
shares during the 10 working day period ending 2 working days immediately
prior to the date on which the Company offers shares to the employees.
The discount is deemed to be “financial assistance” under the
Companies Act 1993.
The Trustees
of the scheme hold the shares for a restrictive period of one year, which
is to promote the concept of encouraging long-term investing in the Company.
The company holds a further 75,654 shares which are held as “Treasury
Stock” and will be used for the next issue of shares under the scheme
in September 2007.
SHARE OPTIONS
There were no new options issued to staff during the year. There are 200,000
options outstanding to employees as at 30 June 2007. Further information
on options outstanding to employees are included in note 25 to the Financial
Statements on page 57 of the annual report.
COMMUNICATION
WITH SHAREHOLDERS
Michael Hill International places high importance on communication with
shareholders. A half year and annual report is published each year and
posted on the MHI website.
Announcements
to the New Zealand Stock Exchange and the media are also posted on the
website as are copies of presentations for Analysts which are done once
a year in conjunction with the release of the annual results for the year.
The Company Secretary takes primary responsibility for communications
with the New Zealand Stock Exchange in relation to listing rule obligations
and disclosure obligations. Shareholders may raise matters for discussion
at Annual meetings and have the ultimate control in corporate governance
by voting Directors on or off the Board.
CONTINUOUS DISCLOSURE
POLICY
With the introduction of the new NZX continuous disclosure rules from
December 2002, the Board has adopted the following procedure:
- At each Board meeting,
a standard agenda item is now considered
-"Does the Company have anything to disclose?" The Board considers
the information in its possession and decides appropriately whether
any information needs to be disclosed to the market.
- Between Board meetings,
management will bring to the attention of the Directors any information
they believe should be disclosed to the market for their consideration.
- The Company now
discloses revenue figures for the group to the market for the first
and third quarters in advance of the earnings announcement. For the
second and fourth quarters, sales figures are released with the earnings
results. In the all important Christmas trading period, an announcement
on sales alone for the second quarter without reference to profitability
could result in misinterpretation by the market.The Board considers
it sensible to combine the sales and earnings release for the second
and fourth quarters in order that the market understands how sales translated
into earnings.
- In the 12 months
ended June 2007, the Company has made the following disclosures to NZX
under the continuous disclosure rules:
The Company believes
it has complied with the NZX Continuous disclosure rules.
EXTERNAL AUDIT INDEPENDENCE POLICY
The Group has adopted the following policy to ensure that audit independence
is maintained, both in fact and appearance, such that Michael Hill International's
external financial reporting is viewed as being highly reliable and credible.
The policy covers the following areas:
- Provision of non
audit services by the external auditors
- Fees and billings
by the auditors
- Hiring of staff
from the audit firm
PROVISION OF NON
AUDIT SERVICES BY THE EXTERNAL AUDITING FIRM
Our external auditing firm should not undertake any role not permitted
under IFAC (International Federation of Accountants) regulations regarding
independence of auditors. Under the IFAC guidelines, the table below sets
out the type of non audit work that Michael Hill International will allow
its external auditing firm to perform.
BOOKKEEPING
Prohibited, other than in emergency situations. Managerial decision
making prohibited.
VALUATIONS
Prohibited.
TAX SERVICES
Permitted, as not seen to threaten independence
PROVISION OF IT SYSTEMS
Design and implementation of financial IT systems prohibited.
STAFF SECONDMENT FROM AUDITORS
These are permitted with safeguards. No management decision making.
Signing agreements or discretionary authority to commit MHI is not allowed.
LITIGATION SUPPORT SERVICES
Permitted with safeguards.
LEGAL SERVICES
Permitted where immaterial to the financial statements.
EXECUTIVE SEARCH AND SELECTION
Permitted with safeguards. Making selection for MHI prohibited.
CORPORATE FINANCE Permitted with safeguards. Promoting, dealing in or
underwriting MHI Securities prohibited.
The safeguards put
in place will be specific to the circumstances of each case. The general
rule to be applied is whether an independent third party would consider
the safeguards reasonable.
FEES AND BILLINGS
All audit and non audit fees to be reported to the Audit committee annually.
Non audit fees greater than $25,000
should be reviewed by the Chief Financial Offi cer and reported
to the Audit committee for approval. (For the 2006/07 fi nancial
year audit fees amounting to $309,000 and fees for other
professional services amounting to $235,000 were paid to
PricewaterhouseCoopers.)
HIRING OF STAFF FROM THE EXTERNAL AUDITING FIRM
The hiring by Michael Hill Jeweller of any partner or audit manager must
first be approved by the Chairman of the Audit committee. There are no
other restrictions on the hiring of staff from the audit firm.
Michael Hill International
Limited is committed to the management of risk throughout its operations
in order to protect our employees, assets, earnings and reputation.
RISK MANAGEMENT
PROCESS
The Board of Directors
are responsible for Risk Management which starts each year with the development,
review and approval of a strategic plan incorporating assessment of opportunities
and risks associated with these opportunities.
These strategic plans are reviewed and discussed at each board meeting
to ensure risks associated with the approved plans and projects are reviewed
and managed.
A formal risk management workshop by the group executives is planned each
year to update the risk register which is included in the Audit Sub-Committee
agenda.
BUSINESS CONTINUITY PLAN
The Group has an existing Business Continuity Plan which will be reviewed
in the coming year and updated accordingly.
INSURANCE PROGRAM
The Group has a comprehensive global insurance program which supports
the risk management process. This program is reviewed annually to ensure
it reflects the groups' exposures and risk profile.
INTERNAL AUDIT
The Group has an Internal Audit function that is responsible for developing
a comprehensive continuous audit program and for performing internal audit
reviews which support the Groups Risk Management process. The internal
auditors have a direct communication line to the Board Audit Sub-Committee
should they deem it necessary to report any matter to the Sub-Committee.The
Internal Audit Manager attends the Audit Sub-Committee meetings and presents
their report.
CODE OF ETHICS
Our Board of Directors believes that good risk management is supported
by the highest standards of corporate behavior towards our employees,
customers and other stakeholders.The Code of Ethics is a guide to help
our Directors and employees live up to high ethical standards and responsibilities
towards our fellow employees, customers and other stakeholders.
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