The Board of Concentrated Leaders Fund Limited (CLF or the Company) is committed to having the highest standards of ethical behaviour and an effective system of corporate governance for the Company, commensurate with the size of the Company and the scope of its business operations.
In accordance with ASX Listing Rule 4.10.3, set out below are the applicable ASX Corporate Governance Council’s eight principles and recommendations of corporate governance (ASX Governance Principles) and outlined accordingly is how the Board has applied each principle and the recommendations set out within them for the financial year ended 30 June 2019.
The Company is fully supportive of the ‘if not, why not’ disclosure-based approach to governance adopted by the ASX Governance Principles and the recognition within them that there is no single model of corporate governance and that good corporate governance practice is not restricted to adopting the recommendations contained in the ASX Governance Principles. The Company’s policies and practices comply with the ASX Governance Principles except to the extent otherwise indicated.
This Corporate Governance Statement is current as at 30 September 2019 and has been approved by the Board.
Please click below to find the governance related documents in PDF.
Charters, Codes and Policies
- Board Charter
- Audit Committee Charter
- Code of Conduct
- Trading Policy
- Disclosure Policy
- Shareholder Communication Policy
- Risk and Compliance Committee Charter
Principle 1: Lay solid foundations for management and oversight
Roles & responsibilities of the Board and management
The Board of CLF operates in accordance with its Board Charter (published on the Company’s website). In carrying out its responsibilities, the Board will at all times recognise its overriding responsibility to act honestly, fairly, diligently and in accordance with the duties and obligations imposed upon it by the Company’s constitution and the law. The investment of the Company’s funds was, until 1 February 2018, carried out by Aberdeen Asset Management Limited under the terms of an Investment Management Agreement (IMA). This IMA terminated on 31 January 2018 in accordance with the Board’s determination to internalise the management of the Company’s investment portfolio. As part of this internalisation, the Company appointed a Chief Executive Officer and Chief Investment Officer and a portfolio management team, responsible for the day-to-day management of the Company’s investment portfolio and the operations of the Company.
Among other things, the Board has specific responsibility to:
- oversee and monitor the performance of the Company’s portfolio management team and monitor their performance and the performance of all external service providers;
- oversee and monitor the internal controls and legal compliance of CLF;
- monitor financial performance including approval of statutory financial reports and liaison with the auditors;
- set the ethical tone and standards of CLF;
- identify, control and monitor the significant risks faced by CLF; and
- oversee communications and reporting to shareholders.
The Board may establish committees to assist it in carrying out its responsibilities, consisting of such members as it thinks fit. The Board shall adopt charters setting out matters relevant to the composition, responsibilities and administration of such committees, and other matters the Board may consider appropriate.
An Audit Committee has been established since 1990 and a Risk and Compliance Committee was established in 2004.
The role of management is to support the Board. Management is required to report directly to the Board.
Process for appointment of a new Director
Prior to the appointment of a Director to the Board, the Board will determine what pre-appointment checks are appropriate to be undertaken in the circumstances. Relevant details in respect of each Director standing for election or re-election by shareholders are contained within the explanatory notes of the Notice of Annual General Meeting. In addition, a profile of each director is included in the Annual Report
Written agreements with Directors and Senior Executives
Each director and senior executive has signed a written agreement setting out the terms of their appointment.
Directors and key management personnel must not trade in the shares of the Company during periods when they are in possession of information that is price sensitive and would have a material impact on a decision to buy or sell shares in CLF. Under its Shareholder Communications Policy, the Company publishes its monthly net asset value and portfolio composition to the ASX. In the ordinary course of business therefore, Directors and key management personnel will be free to trade in the Company’s shares unless there is material price sensitive information in the possession of the Directors and key management personnel that has not been disclosed in accordance with the permitted exceptions to the continuous disclosure rule and would have a material effect on the portfolio or net asset value of CLF.
Further to the above, in accordance with ASX Listing Rule 12.9, CLF is required to have a trading policy in place with the content of the policy prescribed by ASX Listing rule 12.12. This trading policy is in relation to dealings in the securities of CLF by its Directors and key management personnel. This trading policy sits alongside obligations under the Corporations Act 2001 (Cth) (Corporations Act) and the ASX Listing Rules. The trading policy of CLF imposes “closed periods”. These closed periods are times when Directors and key management personnel of CLF may not trade in securities of CLF or derivative products created over CLF securities subject to certain exclusions and exceptional circumstances. The closed periods for CLF are from the close of business on the last business day of the half and full financial year of CLF up till and including the day the half and full year financial results are released to the market. The Directors and key management personnel may trade in securities of CLF on the first business day after the day the financial results are released. CLF may impose further closed periods associated with inside information.
The operation of any share buy back by the Company is as directed by the Board in accordance with the Corporations Act and the Listing Rules. The operation of the buy back, including the daily purchases, are continuously announced to the ASX. As noted above, the Company also publishes its monthly net asset value (in the usual course) and provided that there is no material price sensitive information that is not generally available, Directors can accept a buy-back offer for their shares.
The Company Secretary is accountable to the Board, through the Chairman, on relevant matters to do with the proper functioning of the Board.
Given the current size of the business, CLF does not believe it is appropriate to have in place a formal diversity policy. The Chairman is responsible for the oversight of the composition of the Board to ensure the company has access to the appropriate expertise and experience.
The Board Charter provides that the Chairman shall undertake an annual review and evaluation of the Board and consider the appropriate mix of skills required to ensure its continuing effectiveness. The Chairman will also review and evaluate the performance of each Board committee and each individual Director. The review shall be conducted in such manner as the Chairman deems fit. In turn, the Board shall undertake an annual review of the performance of the Chairman to ensure that the Board’s activities continue to be efficiently organised and conducted.
A performance evaluation of the Board, its committees and individual Directors was undertaken in the reporting period ending 30 June 2019 in accordance with the process outlined above.
The Board reviews the performance of its executives on an annual basis. This review is conducted in such manner as the Board deems fit but includes a review of the following:
- appointment, duties and remuneration paid;
- performance/returns of the portfolio;
- administration duties and support functions; and
- risk controls.
During the reporting period, performance reviews for each executive were undertaken in accordance with the process outlined above. Disclosures in the remuneration report are made in relation to each reporting period as to the performance evaluations that were undertaken and the process that was followed.
Principle 2: Structure the Board to add value
Appointment and renewal
The Chairman is responsible for reviewing the membership of the Board, the nomination of Directors to the Board and the re-election of Directors to the Board. Any review or recommendation is considered by the full Board. Appropriate expertise and experience are essential attributes for any nominee. The Chairman ensures that the Board has the appropriate balance of skills, knowledge, experience, independence and diversity to enable it to discharge its duties and responsibilities effectively.
Having regard to CLF’s size, nature as an investment company and Board responsibilities, a formal nominations committee is not considered necessary. Any new directors are subject to appropriate investigation and checks prior to appointment.
Each year one-third of all executive and non-executive Directors (rounded down and based on who has been longest in office) are required to retire by rotation and may offer themselves for re-election by members at the Annual General Meeting. As further required by the Constitution (and ASX Listing Rules), each director is required to stand for re-election every 3 years.
Any Director appointed during the year is required to stand for re-election at the next Annual General Meeting of the Company.
The Board will meet as and when necessary to discharge efficiently its duties. The Board has determined that given the current nature of the business, quarterly Board meetings are appropriate. Additional meetings may be called by any Director to deal with items of special business and the Board will pass resolutions in circulation as required.
The quorum necessary for Directors to conduct business is two Directors.
Board skills matrix and independence
The Board currently has four members. Under the Company’s constitution, the number of Directors shall be not less than 3 and no more than 11.
The Board has been structured to ensure that it has the necessary skills and expertise for a company such as CLF and can effectively represent stakeholder interests. These skills and expertise include in corporate finance, legal, accounting, asset management and capital markets.
The Chairman, Mr Brian Sherman, has been a Director of the Company since inception in 1987 and was re-elected to the board most recently on 3 November 2017. Mr Sherman is responsible for leading the Board, ensuring that the Board’s activities are efficiently organised and conducted. Mr Sherman does have a substantial shareholding and is not considered by the Board to be “independent” having regard to the definition of independence set out below and based on the recommended by the ASX Corporate Governance Council.
Mr Barry Sechos is also a director of the Company and an alternate director for Mr Sherman. Mr Sechos was initially appointed to the board on 4 December 2013 and was most recently re-elected to the board on 15 November 2018. Mr Sechos is also Company Secretary of CLF and the Company’s Risk and Compliance Officer. Mr Sechos is a director of an entity related to Mr Sherman and is also not considered by the Board to be “independent”.
However, while not independent, Mr Sherman and Mr Sechos’ interest in seeing the Company prosper is aligned with all shareholders. The appointment of Mr Sechos as an alternate and the terms of that appointment were approved by the Board.
Dr David Sokulsky, who was appointed to the Board on 17 May 2018, was appointed Chief Executive Officer and Chief Investment Officer on 25 October 2017, (effective 2 January 2018) and, as such, is an executive director of CLF. The Executive Director is responsible for ensuring that the portfolio management team provides a consistent and appropriate level of service.
The other Director, Mr John Martin, who was appointed to the Board on 31 July 2017 is considered by the Board to be independent.
Biographical information in respect of each Director is set out in the Company’s Annual Report.
The Board as presently constituted does not have a majority of independent non-executive directors. Importantly, however, the roles of Chairman and the Chief Executive Officer are undertaken by separate persons.
The Board as presently constituted provides an effective mixture of skills and expertise in order to achieve the company’s strategic objectives. With extensive experience providing effective corporate governance and within the financial sector – as well as a thorough and robust oversight into the portfolio management’s team-based stock selection process, the Board is currently positioned to fulfil the Company’s objective to deliver regular income and long term capital growth. Furthermore, the Board is well positioned to provide effective risk management with expertise ranging from risk management, compliance and corporate law – in addition to its risk committee. Moreover, from an investment perspective, the current Board possesses good knowledge of the portfolio management team’s investment philosophy and style.
A Director is only to be regarded as independent if:
- the Director is a non-executive Director;
- is not a substantial (5% or more) shareholder of CLF;
- an officer of, or otherwise associated directly with, a substantial shareholder of CLF;
- within the last three years the Director has not been employed in an executive capacity by CLF or an employee materially associated with a service provider;
- within the last three years the Director has not been a principal of a material professional adviser or material consultant to CLF;
- the Director is not a material supplier or customer of CLF, or an officer of, or otherwise associated directly or indirectly, with a material supplier or customer; and
- the Director has no material contractual relationship with CLF other than as a director of CLF.
Material in respect of independence above is to be judged by the Board on both a quantitative and qualitative basis. An amount of over 5% of CLF’s total shareholders’ equity is considered material for these purposes. The Board regularly assesses the independence of directors. In addition, a transaction of any amount or relationship is deemed material if knowledge of it impacts the shareholders’ understanding of a Director’s performance.
All Directors are to disclose to the Company, as soon as it is to hand, any information that may affect their independence.
Induction of Board members
All new directors have had an induction into the business of the Company prior to accepting their appointment and have received continuing information on the Company and its operations since being appointed. Directors are also given access to continuing education in relation to the Company extending to its business, the industry in which it operates, and other information required by them to discharge the responsibilities of their office.
Principle 3: Act ethically and responsibly
Code of Conduct
In addition to a policy on share trading, the Code of Conduct, together with the Company’s other corporate governance policies, is designed to ensure that the Directors, senior executives, employees and the Company act ethically and responsibly, bearing in mind the Directors’ duties under the Corporations Act and the interest of the Company’s shareholders and stakeholders. The Code of Conduct can be found in the Corporate Governance section of the Company’s website.
Principle 4: Safeguard integrity in corporate reporting
The Audit Committee is comprised of the two non-executive Directors, Mr John Martin and Mr Barry Sechos and the Executive Director, Dr David Sokulsky and is chaired by Mr John Martin (who is considered by the Board to be independent). While CLF is not a company that is required to comply with the audit committee composition requirements set out in the ASX Corporate Governance Council’s Recommendations, the Committee actively manages any potential conflicts that might arise as a result of the presence of the Executive Director. Relevant measures include the provisions relating to material personal interest under the law. However, it is considered that the Company and its shareholders benefit from the knowledge and skills that the Executive Director brings to the Committee. The qualifications of those appointed to the Committee are detailed in the Directors’ Report.
A Charter setting out matters relevant to the composition, responsibilities, and administration of the Audit Committee has been adopted and is available on the Company’s website. It provides that the Audit Committee has the following duties and responsibilities:
- the nomination, appointment, rotation and remuneration of external auditors. This includes ensuring the adequacy of existing external audit arrangements, with particular emphasis on the independence, scope and quality of the audit. To ensure that the external auditor has full access to information and that no unacceptable management or other restrictions are placed on them. To action and respond to any “management letters” sent by the external auditor to the Company;
- to review the draft half-yearly and year-end financial statement with representatives of the external auditor prior to recommending their adoption and lodgement by the Board;
- responsibility for all areas of significant financial risk and the arrangements in place to contain those risks to acceptable levels. This includes responsibility for the effectiveness of management information and other systems of internal controls relating to financial arrangements and monitoring the adequacy of management information, internal financial control systems, asset valuations and expenditure controls; and
- to review any reports relating to questionable accounting or auditing matters and to ensure that any query from shareholders relating to such matters are dealt with expeditiously.
Details of the number of times the Audit Committee met throughout the reporting period and details of the committee members’ attendance at those meetings can be accessed in the Directors’ Report within the Annual Report.
The Company is also committed to the auditor being present at the annual general meeting and available to answer any questions from shareholders.
Prior to approving the Company’s financial statements, the Board has received from the Chief Executive Officer written affirmation concerning the Company’s financial statements required by the Corporations Act as set out in the Directors’ Declaration in the 2019 Annual Report. In respect of the financial statements for the year ended 30 June 2019, the Board has also received from the Chief Executive Officer written affirmation that, in his opinion, the financial records of the entity have been properly maintained and that the financial statements comply with the appropriate accounting standards and give a true and fair view of the financial position and performance of the Company and that the opinion has been formed on the basis of a sound system of risk management and internal control which is operating effectively.
Principle 5: Make timely and balanced disclosure
CLF is committed to:
- the promotion of investor confidence by ensuring that trading in its securities takes place in an efficient, competitive and informed market;
- encouraging shareholder participation at the annual general meeting in person or by proxy;
- complying with its disclosure obligations under the ASX Listing Rules and the Corporations Act; and
- ensuring that CLF stakeholders have the opportunity to access externally available information issued by CLF.
The Board has established a written Disclosure policy to ensure compliance with the Company’s ASX Listing Rule 3.1 continuous disclosure obligations and a Shareholder Communication Policy to ensure accountability for compliance. The Disclosure Policy and the Shareholder Communication Policy are available on the Company’s website
The Company Secretary is primarily responsible for coordinating the disclosure of information to shareholders and regulators under the direction of the Board.
Principle 6: Respect the rights of security holders
Shareholders, prospective shareholders, stakeholders and other interested parties can access detailed and up to date information on the Company via the Company website www.clfund.com.au or by accessing the Company’s ASX announcements platform available at www.asx.com.au.
The Company website includes access to the Company’s:
- Board of Directors Charter
- Code of Conduct
- Trading Policy
- Disclosure Policy
- Shareholder Communications Policy
- Audit Committee Charter
- Risk and Compliance Committee Charter
CLF like many listed companies continues to embrace technology in making information and participation easier and more accessible. This includes using the technology developed by our registrar to facilitate email communication as well as online voting for general meetings of the Company.
The Board encourages full participation by shareholders at the annual general meeting to ensure a high level of Director accountability to shareholders and shareholder identification with CLF’s strategy and goals. Important issues are presented to the shareholders as single resolutions. The shareholders are requested to vote on matters such as the adoption of CLF’s remuneration report, the granting of options and shares to Directors and changes to the Constitution. The annual general meeting also provides shareholders with the opportunity to meet with representatives of the Board and management, to learn more about the Company’s activities and, particularly, to provide an opportunity to question the Board and management about any aspect of the Company’s activities.
Principle 7: Recognise and manage risk
Risk and Compliance Committee
The Board has formed a Risk and Compliance Committee of two members to oversee risks of the Company.
The Risk and Compliance Committee, is comprised of two non-executive Directors, Mr John Martin (who is considered by the Board to be independent) and Mr Barry Sechos, and is chaired by Mr Barry Sechos. The Committee receives regular reports on compliance by the Company and the risks faced by CLF and whether those risks are being managed effectively. The economic, environmental and social sustainability risks faced by CLF are reflected in the underlying holdings of the fund and these risks are manged through diversification of investments.
Details of the number of times the Risk and Compliance Committee met throughout the reporting period and details of the committee members’ attendance at those meetings can be accessed in the Directors’ Report within the Annual Report.
A Charter setting out matters relevant to the composition, responsibilities, and administration of the Risk and Compliance Committee has been adopted and is available on the Company’s website. It provides that the Committee has the following duties and responsibilities:
- to review the risk management statement formally on a yearly basis to ensure it continues to be sound and to also review all risk issues on a quarterly basis. Risks include market risk, credit risk, interest rate risk and liquidity risk. This includes, where the facts warrant, to bring the matter to the attention of the Board and to recommend the implementation of additional controls;
- as a key body of the Company’s compliance framework, the Committee is responsible for maintaining the compliance programme. This encompasses responsibility to monitor compliance by the Company of:
- the Corporations Act; and
- various company procedures;
- responsibility for monitoring the performance of external services providers e.g. Custodian, Administrator and Registrar; and
- to review compliance with the terms of any banking covenants in relation to any facility the Company may have negotiated and drawn down from time to time.
The Board conducted a review of the Company’s risk management framework during the financial year ended 30 June 2019.
The Board is ultimately responsible for the Company’s system of internal control and for reviewing its effectiveness. The Board confirms that there is an on-going process of identifying, evaluating and managing the significant risks faced by the Company.
The key components designed to provide effective internal control are outlined below:
- the Risk and Compliance Committee meets on a quarterly basis since it was constituted to review the internal controls;
- the Risk and Compliance Committee has a documented compliance programme;
- risks and internal controls and the risk management framework have been documented in the Risk Management Statement;
- the Audit Committee has responsibility for all areas of significant financial risk and arrangements are in place to contain those risks to an acceptable level;
- written agreements are in place which specifically define the roles and responsibilities of all third party service providers; and
- the portfolio management team has clearly defined investment criteria and specified levels of authority. Reports on these matters, including performance statistics and investment valuations are submitted regularly to the Board.
Principle 8: Remunerate fairly and responsibly
The Directors shall be paid out of the funds of the Company by way of remuneration for their services up to such sum as may from time to time be determined by the shareholders of the Company in a general meeting and allocated between Directors as the Board deems appropriate. Any Director who is also an employee of the Company is not entitled to receive Directors’ fees. Remuneration is currently paid only to the non-executive Directors in the form of fees and/or superannuation.
No Director receives equity remuneration from the Company. Information concerning the remuneration for each Director is set in the Company’s Annual Report.
Having regard to CLF’s size and board responsibilities in respect of remuneration, a formal remuneration committee is not considered necessary. As required under Section 300A (1) of the Corporations Act however, a Remuneration Report is contained within the Directors’ Report and the adoption of the Remuneration Report is proposed by means of an advisory only, non-binding vote at the Annual General Meeting. However, under the Corporations Act 2001, if 25% or more of the votes cast for this resolution vote against the adoption of the Remuneration Report at two consecutive AGMs, shareholders will be required to vote at the second of those AGMs on a resolution (“spill resolution”) that another meeting be held within 90 days, at which certain Directors of the Company must go up for re-election. In addition, as required by the Company’s constitution, shareholders approve the maximum aggregate amount payable to Directors.
Independent Professional Advice
All Directors are entitled to seek independent professional advice at the expense of CLF. Prior to seeking such professional advice, the relevant matter of concern to the Director should be raised for discussion with the full Board. If this is impractical, the matter(s) should be raised with the Chairman. If, after such discussions, the relevant Director’s query or concern is not satisfied, independent professional advice may be sought at the Company’s expense.
Representation on Accounts
Under the Company’s corporate governance practices, the relevant compliance officer shall provide to the Board with the half-yearly and yearly accounts with the following representations:
- the Company’s financial reports present a true and fair view in accordance with the relevant accounting standards;
- the Company’s financial reports are based on a sound system of risk management and internal control consistent with the policies adopted by the Board; and
- the Company’s risk management and internal compliance and control system is operating efficiently and effectively in all material respects.
The Board reviews the performance of the portfolio management team on an annual basis. This review shall be conducted in such manner as the Board deems fit but includes a review of the following:
- appointment, duties and remuneration paid;
- performance/returns of the portfolio;
- administration duties and support functions; and
- risk controls.
The Board considers these matters in the absence of the Executive Director.
Approved by the Board of Concentrated Leaders Fund Limited.
Dated: 30 September 2019