As chairman of Orchard, it is my responsibility to ensure that the board is performing its role effectively and has the capacity, ability, structure and support to enable it to continue to do so.
We believe that a sound and well understood governance structure is essential to maintain the integrity of the group in all its actions, to enhance performance and to impact positively on our shareholders, staff, customers, suppliers and other stakeholders.
After due consideration, Orchard has adopted the QCA Corporate Governance Code (“the Code”) as the benchmark for measuring our adherence to good governance principles. These principles provide us with a clear framework for assessing our performance as a board and as a company, and the report below shows how we apply the Code’s ten guiding principles in practice.
Principle 1: Establish a strategy and business model which promote long-term value for shareholders
The board has established a strategy and business model which promote long-term value for shareholders and security for its other stakeholders (staff, customers, suppliers and government).
Our strategy is set out in the Summary of Summary of Strategy and on page six of our 2018 annual report.
In short, Orchard Funding Group plc borrows from its bankers and uses this together with its own reserves, to lend to its customers. There is a strict underwriting procedure, recourse guarantees and the final lending decision is made by the CEO. This has meant that stakeholder assets are given a high level of protection. The group has applied for a banking license which will necessitate changes in control and monitoring money borrowed by the company from non-institutional lenders. See the section Business Model on the website and on page six of our 2018 annual report for more detail.
- The executive strategy team are the board. Any potential changes in strategy are developed by the executive directors and brought to the board for discussion.
- A recent example of implementations from our board strategy discussion was the application for a bank license to the Prudential Regulatory Authority and the Financial Conduct Authority to obtain a bank license for Orchard Funding Group. We did this to ensure that the company is no longer wholly reliant on 3rd party banks for its funding requirements, to reduce the company’s cost of funds and to enable the company to increase its lending in its target markets. The company anticipates receiving the bank license during the financial year to 31 July 2019. In this instance we identified a key risk in the business and considered the best way to make it an opportunity for the future.
Principle 2: Seek to understand and meet shareholder needs and expectations
The CEO and/or CFO meet with key shareholders twice a year at roadshows and explain what is happening with the group, getting valuable feedback on how they view our plans. In addition details of our financial reports and AGM details are sent to all shareholders and these, together with results of votes and details of corporate governance committees are included on the website under the section Board Sub-committees. Staff are made aware of the group’s plans and achievements directly by the CEO.
The board is kept informed of the views of shareholders and other stakeholders at each board meeting through a report from the CEO together with formal feedback on shareholder’s views gathered and supplied by the company’s advisers. The views of private and smaller shareholders, typically arising from the AGM or from direct contact with the company, are also communicated to the board on a regular basis. Shareholder inquiries should be directed to the CEO, Ravi Takhar, on 01582 346248 or by e-mail to Ravi@Bexhilluk.com.
Principle 3: Take into account wider stakeholder and social responsibilities and their implications for long-term success
The board is mindful of the fact that the long term success of the group relies upon maintaining successful relationships with a range of different stakeholders, both internal and external. We identify our key stakeholders to be our employees, regulators, customers, suppliers and partners.
We value our staff and, in addition to good rates of pay and bonuses, we provide health club membership and childcare provision for any staff who wish it. We encourage staff to discuss, with the CEO, any issues or problems that they may have, in addition to any ideas or views that they may have; the CEO is regularly in the same room as them, being an open office environment. There are also monthly staff meetings at which staff are, again, encouraged to provide their views. These views are brought to the board as part of our board meetings. This fosters a culture of engagement with all aspects of the business and innovation in what we do, leading to a motivated workforce. The group is a socially responsible entity. Where possible, we employ from the local area. We therefore contribute to the economy of the local community.
We review the background of our suppliers and will not use any supplier which, as far as we are aware, breaches our own high standards as regards human rights. We are an ethical business and this can only be good for future growth. While we always look for value for money from our suppliers, we never attempt to use our buying power to impose unfairly low prices. Our suppliers are happy to deal with us and this makes for continuity of supply, benefiting the group overall. We are in contact with our suppliers to the extent that is necessary (e.g. regular suppliers will be contacted more frequently than those which are dealt with, say, on an annual basis. Should any supplier have an issue with us, the staff member receiving details of the issue first tries to resolve the matter. If this is not possible it is passed to a director of whichever operating subsidiary to which the query relates. If it cannot be dealt with at that level it is passed to the CEO. In all cases we try to resolve any problems with suppliers to the benefit of both parties.
In addition to the rules which come from being a company, employer and listed on AIM, our operating subsidiaries are regulated by the Financial Conduct Authority (FCA). Our customers therefore know that they have a high level of protection when dealing with us. The company works closely with the FCA and acts on any feedback from the FCA at board level. Regulation is always an item on the agenda at board meetings. A recent example of where the company has acted on feedback from the FCA is in relation to the appointments of Mr Rajiv Agarwal as Director of Legal and Compliance as well as the appointment of Mr Harsukh Soni, who will be appointed as CFO upon the banking application being approved and subject to receiving regulatory approval.
We are in regular contact with our partners (these are the brokers and professional that we deal with – see the section on Business Model and we carry out a variety of checks on them, on an ongoing basis. This gives us an extra layer of protection from bad debts. As part of our contact process, obtain feedback from our partners as to where our systems can be improved, whether they are getting sufficient help and support and how we can do more for them. As a direct result of their responses, our IT systems have been further enhanced and our delivery processes streamlined.
Principle 4: Embed effective risk management, considering both opportunities and threats, throughout the organization
Effective risk management is key to what we do. In addition to the strict underwriting procedure mentioned earlier, we have a process to identify both key and other risks, maintain a risk register and act quickly and decisively where any issues are raised. All staff go through an induction process during which they have explained to them the risks which they may come across (potential debtor default, IT problems and how they need to conduct themselves), including buying shares in the company), how to identify these risks and what to do if they suspect that there is an issue. Their first course of action is to report this to the head of operations who is also a director of both operating subsidiaries Our key risks are credit risk, liquidity risk, cash flow interest rate risk, IT risk and conduct risk. See the section on Principal Risks and Uncertainties.
Principle 5: Maintain the board as a well-functioning, balanced team led by the chairman
The board consists of two executive directors and three non-executive, independent directors (including the chairman). Gary Jennison has a great deal of experience at both board level and in the banking sector. All directors have the experience necessary to carry out their functions . Before appointment by the board, proposed directors produce a brief CV and are interviewed to establish if they have the necessary skills and will fit in with the ethos of the group. Directors ensure that they keep up to date with relevant regulation and legislation through courses, reading and interaction with those making the rules and regulations. Each director is told what the job entails and what is expected of him/her. Currently, given the size of the group, director evaluations are informal and take place as part of board meetings. This will change when and if the banking license is granted, to a more formal approach.
Prior to each board meeting the directors receive a detailed board pack which includes:
Board meeting Agenda
Minutes from previous board meeting
Board pack which includes financial summary, update on each part of the business, strategy execution update and risk assessment update
Existing and new business review
Paper as required for additional items requiring board attention (e.g. change in strategy).
All directors are subject to election by shareholders at the first AGM immediately following their appointment and thereafter are subject to re-election at intervals of no more than three years.
Short biographies of the group’s directors and details of their roles are set out in the section Board of Directors.
The board has three sub-committees – an audit committee, a remuneration committee and a nominations committee. The executives take no part in the audit or remuneration committees to ensure their independence.
Details of the work of these committees and their terms of reference are shown in the section Board Sub-committees.
Details of matters reserved for the board decisions are shown under Matters reserved for the Board.
The roles of the chairman and CEO are detailed under Description of Roles of Chairman and CEO.
Meetings and attendance
The following table summarises the number of board and audit committee meetings held during the period covered by the 2018 annual report and subsequently to the date of this statement, and the attendance record of individual directors at those meetings. Attendance includes conference calls and e-mails. The remuneration committee and nomination committee did not meet
Principle 6: Ensure that between them the Directors have the necessary up-to-date experience, skills and capabilities
Although there is no specific requirement that new directors understand our business in depth, there are certain qualities which are essential:
Business judgment – the ability to attend to sufficient relevant detail; to learn lessons from the past with an open mind; to bring to the company experience from outside the organization; to make reasoned decisions in the absence of information.
Commercial awareness – financial awareness; an understanding that profitability is paramount; awareness of good business practice.
Leadership – the ability to guide; to ensure that staff and other directors are aware of their individual reaponsibilities; personal projection (both inside and outside the organization).
There is no formal policy for diversity within the board. The group is relatively new and the excutive directors were already in place on flotation. The non-executive directors have either come from advice by our nominated advisers or were people whom our CEO knew to be best for the task. As time goes on the board will evolve and look at this area in more depth. The operating subsidiaries each have two female and one male director at present.
Directors are appointed having already been directors of financial services companies. There is therefore the knowledge that they are aware of the general roles of directors and understand what we do. We are a small group and our business is relatively simple. Where we are considering new processes or markets, the operation and implications of these are explained to the board by the CEO. As the group evolves there will, again, be more formal continuing development for directors.
No significant matters of a corporate governance nature arose during the period covered by the 2018 Annual Report nor subsequently to the date of this statement on which it was considered necessary for the board or any of its committees to seek external advice, although the board consults with its nominated adviser and other professional advisers on routine matters arising in the ordinary course of its business.
The CFO is also company secretary
The current CFO is also the company secretary. The board feel that, at present, both roles can be filled successfully by the same person who has the requisite skills and time to do so. This situation is reviewed regularly by the CEO and, if he feels that circumstances have altered, will put this to the full board. Given the size of the group and the straightforward nature of its business, both roles can be combined efficiently and economically.
Principle 7: Ensure that between them the Directors have the necessary up-to-date experience, skills and capabilities
As has been stated already, the group is small and the board of directors small in number commensurate with what is necessary for good governance. The informal process of evaluation mentioned in Principle 5 is to consider what each board members has been tasked with and whether they have been effective. As part of the board pack mentioned in Principle 5, all directors are specifically asked to disclose conflicts of interest. Should any arise, they will not be included in discussions on that subject, nor, of course, be permitted a vote.
In addition, the overall effectiveness of the board is measured by how the company has performed against targets and how it responds to regulation. There have been no problems in these areas. Once again, as the group evolves there will be a more formal approach to evaluation of board performance, .
Principle 8: Promote a culture that is based on ethical values and behaviors
All staff go through an induction process during which they have explained to them our values, what is expected of them and how they need to conduct themselves. The group operates out of one office in Luton so it is relatively easy to monitor compliance with our values. Should any member of staff have an issue with unethical practices which come to their attention, they would report this to the head of operations. There have been no such issues.
Our culture is an integral part of our strategy. We are in a regulated industry and ethical behavior is of paramount importance. Operating in a principled manner enhances our reputation in the market and our partners know this.
Principle 9: Maintain governance structures and processes that are fit for purpose and support good decision-making by the board
The board believes that current structures are sufficient for the size and complexity of Orchard Funding. It will monitor the requirements of this code on an annual basis and revise its governance framework as appropriate as the group evolves.
Principle 10: Communicate how the company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders
The only committee which met during the year was the audit committee.
The audit committee met prior to the 2018 audit to the audit plan sent by the auditors.
In summary, there were no key audit issues identified but there were 3 areas of focus: non-compliance with FCA regulations, impairment of loan book and management override of controls. The audit committee considered these matters and confirmed that they were were happy with the audit plan.
The audit committee reviewed whether the auditor had provided significant non-audit services. There were none during the year.
Details of the approach are shown on pages 18 and 19 of the 2018 annual report.
The company engages with its significant shareholders by means of roadshows. The main contact with other shareholders is through our website and by means of the AGM. AGM notices and minutes are shown on the website, under Shareholder circulars. Shareholders are invite to the AGM to vote in person or by proxy.