Historically, AorTech did not comply with the UK Corporate Governance Code but sought to draw upon best practice. The past year has been one of significant change for AorTech; historic litigation has been satisfactorily concluded, a new strategy developed, a fundraising successfully completed to finance the strategy and a strengthening of the Board with three recent appointments.
These recent changes are a new chapter in AorTech’s development with the objective of delivering long term shareholder value.
In March 2018, the London Stock Exchange introduced a new rule applicable to AorTech as a company whose shares are admitted to trading on AIM: going forward, we are required apply a recognised corporate governance code and will have to provide details of it on our website, explain how we comply with that code and include reasons where we have departed from it.
The Board of AorTech recognises the importance of good corporate governance and has chosen to adopt the Quoted Companies Alliance Corporate Governance Code (the ‘QCA Code’). As Chairman, it is my responsibility, working with my fellow board colleagues, to ensure that good standards of corporate governance are embraced throughout the Group. I believe that the adoption of the QCA Code will assist AorTech in communicating better with shareholders to help promote confidence and trust.
To see how AorTech addresses the key governance principles defined in the QCA Code, please refer to the table below. Further information on compliance with the QCA Code will be provided in our annual report for the year ending 31 March 2019.
Bill Brown, Executive Chairman
This disclosure was last reviewed and updated on 13 September 2018
The Principles of the Quoted Company Alliance (QCA) Code
|QCA Code Principle||Application||AorTech Disclosure|
|1. Establish a strategy and business model which promote long-term value for shareholders||The board must be able to express a shared view of the company’s purpose, business model and strategy. It should go beyond the simple description of products and corporate structures and set out how the company intends to deliver shareholder value in the medium to long-term. |
It should demonstrate that the delivery of long-term growth is underpinned by a clear set of values aimed at protecting the company from unnecessary risk and securing its long-term future.
|The AorTech Board conducted a thorough strategy review earlier this year which culminated in the recent successful fundraising and adoption of a new growth business model.|
This strategy is set out in the Strategic Report section of the Company’s Annual Report and Accounts for the year to 31 March 2018, available on the website www.AorTech.net.
Additionally, the Company’s shareholder circular dated 22 May 2018, also available on the website, provides additional details of the strategy and plans for delivery of long-term growth to shareholders and risk factors associated with executing this plan.
|2. Seek to understand and meet shareholder needs and expectations||Directors must develop a good understanding of the needs and expectations of all elements of the company’s shareholder base.|
The board must manage shareholders’ expectations and should seek to understand the motivations behind shareholder voting decisions.
|AorTech is currently developing new medical devices incorporating our world class biomaterial, ElastEonTM. The Board is focused on the successful development of these products and understands that shareholders expect capital growth from the execution of the Company’s clearly defined strategy.|
AorTech encourages two-way communication with both its institutional and private investors and responds promptly to all queries received. The Chairman talks regularly with the Group’s major shareholders and ensures that their views are communicated fully to the Board.
The Board recognises the AGM as an important opportunity to meet with the Company’s private shareholders. The Directors are available to listen to, and answer questions from, shareholders, both formally as part of the meeting and informally immediately following the AGM.
Where voting decisions are not in line with its expectations, the Board will engage with those shareholders to understand and address any issues. The Company Secretary is the main point of contact for such matters.
|3. Take into account wider stakeholder and social responsibilities and their implications for long-term success||Long-term success relies upon good relations with a range of different stakeholder groups both internal (workforce) and external (suppliers, customers, regulators and others). The board needs to identify the company’s stakeholders and understand their needs, interests and expectations.|
Where matters that relate to the company’s impact on society, the communities within which it operates or the environment have the potential to affect the company’s ability to deliver shareholder value over the medium to long-term, then those matters must be integrated into the company’s strategy and business model.
Feedback is an essential part of all control mechanisms. Systems need to be in place to solicit, consider and act on feedback from all stakeholder groups.
|AorTech’s business model of exploiting the substantial IP in its biostable polymers is built upon key relationships with a number of stakeholders and/or partners that will be instrumental in assisting AorTech delivering upon its objectives.|
These relationships include:
2. Product Development Partners
3. Regulatory and Quality Assurance
AorTech is in close and regular contact with all of these stakeholders or partners and receives regular reports and feedback on progress of developments and any problems arising.
The medical device industry is highly regulated and the Company’s partners operate under quality management systems that ensure full documentation is not only in place but subject to potential audit by regulatory bodies.
|4. Embed effective risk management, considering both opportunities and threats, throughout the organisation||The board needs to ensure that the company’s risk management framework identifies and addresses all relevant risks in order to execute and deliver strategy; companies need to consider their extended business, including the company’s supply chain, from key suppliers to end-customer.|
Setting strategy includes determining the extent of exposure to the identified risks that the company is able to bear and willing to take (risk tolerance and risk appetite).
|On pages 7 and 8 of the Company’s Annual Report and Accounts for the year ended 31 March 2018, the risks to the business are identified and how these are mitigated and the change in the identified risk over the last reporting period.|
The Board is responsible for reviewing and evaluating risk and the Executive Directors meet at least monthly to review ongoing trading performance, discuss budgets and forecasts and any new risks associated with ongoing product development.
Maintain a Dynamic Management Framework
|QCA Code Principle||Application||AorTech Disclosure|
|5. Maintain the board as a well- functioning, balanced team led by the chair||The board members have a collective responsibility and legal obligation to promote the interests of the company, and are collectively responsible for defining corporate governance arrangements. Ultimate responsibility for the quality of, and approach to, corporate governance lies with the chair of the board.|
The board (and any committees) should be provided with high quality information in a timely manner to facilitate proper assessment of the matters requiring a decision or insight.
The board should have an appropriate balance between executive and non-executive directors and should have at least two independent non- executive directors. Independence is a board judgement.
The board should be supported by committees (e.g. audit, remuneration, nomination) that have the necessary skills and knowledge to discharge their duties and responsibilities effectively.
Directors must commit the time necessary to fulfill their roles.
|The Company is controlled by the Board of Directors. William Brown, the Executive Chairman, is responsible for the running of the Board and has executive responsibility for running the Group’s business and implementing Group strategy.|
AorTech is aware that unless there are justifiable and explained circumstances, the chair should not also fulfill the role of chief executive. The strategic review and business model adopted by AorTech has resulted in no need for a full executive team as much of the business activities are undertaken by business partners. This, together with the specific areas of expertise and active involvement of the non-executive directors in development projects, means that splitting the role of Chairman and Chief Executive at this time would not be the best use of the Company’s resources. It is however accepted by the Board that as the Company develops this issue will be normalised.
All Directors receive regular and timely information regarding the Group’s operational and financial performance. Relevant information is circulated to the Directors in advance of board meetings. All Directors have direct access to the advice and services of the Company Secretary and are able to take independent professional advice in the furtherance of their duties, if necessary, at the Company’s expense.
The Board comprises two Executive Directors and four Non-Executive Directors. The Board considers that all Non-Executive Directors bring an independent judgement to bear notwithstanding the varying lengths of service.
The Board has a formal schedule of matters reserved to it and is supported by the Audit, Remuneration and Nominations Committees. The Schedule of Matters Reserved and Committee Terms of Reference are available on the Company’s website.
|6. Ensure that between them the directors have the necessary up-to-date experience, skills and capabilities||The board must have an appropriate balance of sector, financial and public markets skills and experience, as well as an appropriate balance of personal qualities and capabilities. The board should understand and challenge its own diversity, including gender balance, as part of its composition.|
The board should not be dominated by one person or a group of people. Strong personal bonds can be important but can also divide a board.
As companies evolve, the mix of skills and experience required on the board will change, and board composition will need to evolve to reflect this change.
|Until recently, the Company did not have a formal Nominations Committee. The Board as a whole as part of the strategy review identified the key additional skills and experience required to help facilitate the implementation of the Company’s strategy which led to the appointment of three new Non-Executive Directors. A Nominations Committee comprising the Chairman and all of the Non-Executive Directors has now been established. |
The Board recognises that it is healthy for membership of the Board to be periodically refreshed and 50 per cent. of the Board are recent appointments.
The Nominations Committee is chaired by the Company’s Chairman. Meetings are arranged as necessary. The Committee is responsible for nominating candidates (both executive and Non-Executive) for the approval of the Board to fill vacancies or appoint additional persons to the Board.
All Directors receive induction on joining the Board covering the Group’s operations, goals and strategy, and their responsibilities as directors of the Company. The Company supports the Directors in developing their knowledge and capabilities.
The Board has established a procedure for Directors in the furtherance of their duties to take independent professional advice, if necessary, at the Company’s expense.
All Directors are subject to election by shareholders at the first opportunity after their appointment. In accordance with the Company’s Articles of Association, all Directors are required to retire by rotation and shall be eligible for re-election. The terms and conditions of appointment of the non-Executive Directors are available for inspection upon request.
The terms of reference of the Nominations Committee have been placed on the Company’s website.
The Company Secretary supports the Chairman in addressing the training and development needs of the Directors.
|7. Evaluate board performance based on clear and relevant objectives, seeking continuous improvement||The board should regularly review the effectiveness of its performance as a unit, as well as that of its committees and the individual directors.|
The board performance review may be carried out internally or, ideally, externally facilitated from time to time. The review should identify development or mentoring needs of individual directors or the wider senior management team.
It is healthy for membership of the board to be periodically refreshed. Succession planning is a vital task for boards. No member of the board should become indispensable.
|The Nominations Committee will undertake a review of the effectiveness of the Board’s performance once each member has gained sufficient experience upon which to judge and contribute to the evaluation of performance.|
The Board has recently doubled in size with the newly appointed members bringing additional skills and areas of expertise. The review process will be undertaken at the time of concluding the Company’s annual report and accounts for the year ending March 2019.
The Board has recognised the reliance upon the two Executive Directors and, as the business develops, the opportunity will be taken to expand the executive team.
|8. Promote a corporate culture that is based on ethical values and behaviours||The board should embody and promote a corporate culture that is based on sound ethical values and behaviours and use it as an asset and a source of competitive advantage.|
The policy set by the board should be visible in the actions and decisions of the chief executive and the rest of the management team.
Corporate values should guide the objectives and strategy of the company.
The culture should be visible in every aspect of the business, including recruitment, nominations, training and engagement. The performance and reward system should endorse the desired ethical behaviours across all levels of the company.
The corporate culture should be recognisable throughout the disclosures in the annual report, website and any other statements issued by the company.
|AorTech operates in the medical device field where human life is dependent upon its products. As such, sound ethical values and behaviours are not only an asset to the Company, but a requirement under the regulatory standards under which its products are required to be designed, tested and manufactured.|
AorTech is still a very small company so the actions of its executives are highly visible and reflect directly upon the Company. The Company operates through a number of partnerships and it seeks to work with other businesses that portray similar business ethics and values and have the capabilities of operating under strict regulatory environments.
|9. Maintain governance structures and processes that are fit for purpose and support good decision- making by the board||The company should maintain governance structures and processes in line with its corporate culture and appropriate to its:|
• size and complexity; and
• capacity, appetite and tolerance for risk.
The governance structures should evolve over time in parallel with its objectives, strategy and business model to reflect the development of the company.
|Bill Brown, as Executive Chairman, is responsible for leading an effective board, fostering a good corporate governance culture and ensuring appropriate strategic focus and direction as well as overall responsibility for proposing the strategic focus to the Board, implementing the strategy once it has been approved and managing the Group’s business. |
The non-executive directors are all willing to engage with shareholders should they have a concern that is not resolved through the normal channels.
John McKenna, an Executive Director of the Company. has responsibility for advising on design inputs to new product development, establishing a sales and marketing network and managing Key Opinion Leaders.
David Richmond, a Non-Executive Director of the Company, has responsibility for development and manufacture of patches and grafts.
John Ely, a Non-Executive Director of the Company, has responsibility for the design and oversight of the regulatory process for the Company’s Heart Valve project.
Geoff Berg, a Non-Executive Director of the Company, provides advice on surgical matters regarding the design and ultimate implantation of the Company’s devices.
The Company has appointed three principal committees, Audit, Remuneration and Nominations. The function, composition and terms of reference are set out in the Board and Committees section of www.aortech.net.
Certain matters are reserved for the Board which include:
1. Setting strategy
2. Capital structure
3. Financial reporting and controls
4. Borrowing powers
5. Acquisition and disposals
6. Shareholder resolutions and circulars
7. Board composition
8. Remuneration policies
9. Corporate governance
10. Capital markets compliance
|QCA Code Principle||Application||AorTech Disclosure|
|10. Communicate how the company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders.||A healthy dialogue should exist between the board and all of its stakeholders, including shareholders, to enable all interested parties to come to informed decisions about the company.|
In particular, appropriate communication and reporting structure should exist between the board and all constituent parts of its shareholder base. This will assist:
• the communication of shareholders’ views to the board; and
• the shareholders’ understanding of the unique circumstances and constraints faced by the company.
It should be clear where these communication practices are described (annual report or website).
|The Company encourages two-way communication with both its institutional and private investors and responds promptly to all queries received. The Chairman talks regularly with the Group’s major shareholders and ensures that their views are communicated fully to the Board.|
The Board recognises the AGM as an important opportunity to meet private shareholders. The Directors are available to listen to the views of shareholders and answer any questions immediately following the AGM.
Updated: 27 September 2018.