It is my pleasure to introduce the 2018 corporate governance report, my first since being appointed Chairman on 1 June 2018. Since becoming Chairman I have familiarised myself with the operation and culture of the Group, I received a comprehensive induction on my appointment which included meeting with a number of senior management. I have also attended a number of offices and sites and witnessed first-hand the skill, professionalism and hard work of the Company’s employees. During these visits I had the opportunity to meet some of our customers. I also met with a number of the Company’s advisors and many of our largest shareholders to listen to their views on the Company.
The culture at Persimmon is one of hard work with a drive for excellence. Management lead by example and all employees work to achieve high standards in all areas of the business. The Group has an entrepreneurial spirit within a structure of centralised control and a meritocratic environment.
The operational and financial performance of the business was strong in 2018. This is in no small part due to the skill and dedication of the senior management team, our employees and wider workforce.
The vesting of awards under the Company’s 2012 Long Term Incentive Plan (“2012 LTIP”) attracted significant attention. Despite the Executive Directors agreeing to substantially reduce their awards and increase the holding periods attaching to certain of the shares they acquire under the 2012 LTIP, there was continuing distraction around the scale of Jeff Fairburn’s remuneration resulting from the 2012 LTIP. Consequently, the Board agreed that there should be a change of leadership and Jeff Fairburn left the business on 31 December 2018. Dave Jenkinson, previously Group Managing Director, was appointed Interim Group Chief Executive.
The Nomination Committee appointed an executive search firm, Egon Zehnder, to assist with the search for a permanent Group Chief Executive. The search has now concluded with the appointment of Dave Jenkinson as Group Chief Executive from 26 February 2019. We conducted a thorough search, both within the housebuilding sector and more widely. It was clear to the Board that Dave is the best candidate for the role.
The work of the Nomination Committee during 2018 included focus on succession planning. The Committee considered succession in relation to the 2012 LTIP participants and formalisation of succession plans throughout the Group. Since the vesting of the 2012 LTIP there has been no discernible increase in senior management turnover.
The Board understands the importance of diversity, both on the Board and within our workforce. During 2018 the Group established a Gender Diversity Panel, made up of four of the Group’s most senior female employees. The Panel’s remit is to make recommendations to the Board on how the Group can increase the number of young women coming into the business and for improving the progression of females into senior roles.
The Audit Committee carried out its regular oversight activities in the year, reviewing the Group’s financial reporting, reviewing the effectiveness of external audit and monitoring the Group Risk function. The Committee also conducted an in-depth review of the Group’s Risk Register and Principal Risks and conducted a review of the Group’s Viability Statement. Further information can be found in the Audit Committee report on page 65 of the 2018 Annual Report.
The work of the Remuneration Committee during the year included agreeing the details of the surrender of shares and extension of holding periods of awards that vested under the 2012 LTIP. At the 2018 AGM 48.5% of shareholders voted against the 2017 Remuneration Report and 30.9% of shareholders abstained from the vote. The Board recognised that a sizeable number of shareholders remained concerned over the level of remuneration that ultimately resulted from the vesting of 2012 awards. The Board conducted extensive engagement with major shareholders in 2018 to listen to and understand their views. The Remuneration Committee has a new Chairman and during the year both myself and Rachel Kentleton were appointed to the Committee.
During 2018 no member of the Board received a salary or fee increase and Executive Directors did not participate in annual bonus awards. Dave Jenkinson has agreed that there will be no change to his remuneration upon his appointment as Group Chief Executive, his remuneration was also unchanged on his appointment to Interim Group Chief Executive. Jeff Fairburn’s settlement terms were the minimum permissible. Further details of the Remuneration Committee’s work in the year and on how the current remuneration policy will be implemented in 2019 are set out in the Remuneration Report on pages 71 to 85 of the 2018 Annual Report.
The Board and its committees undertake a performance evaluation each year. The evaluation in 2018 was externally conducted by Clare Chalmers, who is a highly experienced and independent provider of board evaluations. Ms Chalmers has no other connections to the Group. The evaluation involved individual interviews with all Board members and the Company Secretary and Ms Chalmers also attended the Group’s Strategy Meeting to understand how the Board members operate together. I consider that the evaluation was thorough and provided valuable insight for the Board. The Board will implement recommendations made by the external evaluation.
The Financial Reporting Council published an updated UK Corporate Governance Code in 2018, which is applicable to accounting periods starting on or after 1 January 2019. During the year the Board worked towards ensuring the Company’s compliance with the new Code. In particular:
- We have recently established an Employee Engagement Panel. The Board looks forward to working with the Panel during 2019 and beyond;
- The Remuneration Committee has agreed the members of the senior management team it will have remuneration responsibility for; and
- The Board has reviewed its agreed values and culture for the Group and how it will assess and monitor the alignment of behaviour throughout the business with the agreed culture.
Maintaining good relations with our stakeholders is important to the Board and to the success of the Company. With that in mind, and in light of the new 2018 UK Corporate Governance Code, we have set out how we engage with our stakeholders on pages 54 and 55 of the 2018 Annual Report.
The UK Corporate Governance Code 2016 was applicable to the financial year ending 31 December 2018. I am pleased to report that the Company has complied with the UK Corporate Governance Code 2016.