Corporate Governance Statement
Last reviewed 18 June 2019
As Chairman, it gives me great pleasure to introduce our first Corporate Governance Statement. I am responsible for leading the Board and upholding high standards of corporate governance throughout the Group and particularly at Board level.
LEKOIL formally adopted apply the Quoted Companies Alliance Corporate Governance Code for Small and Mid-Size Quoted Companies (“QCA Code”), in so far as it was deemed appropriate for the Company. As the Company is listed on AIM, it is required from September 2018, to provide details of how it complies with a recognised corporate governance code on a comply or explain basis and the Board of Directors have decided to continue to apply the QCA Code. An update of the QCA Code was published in April 2018 (the “New QCA Code”), in line with the London Stock Exchange’s changes to the AIM Rules requiring all AIM-listed companies to adopt and comply with a recognised corporate governance code.
High standards of corporate governance are a priority for the Board and we recognise that there are areas where the Company’s governance structures and practices differ from the principles set out in the New QCA Code. We will undertake to review the governance structures, procedures and disclosures we make as we consider good corporate governance key in the creation of value for our shareholders and in growth for the Company over the medium to long-term. The report below demonstrates how the New QCA Code has been applied by the Board, and where we have departed from it, an explanation has been provided.
We are very strict in enforcing Closed Periods for our employees with respect to trading in shares of LEKOIL. All our employees receive regular training as well as updates on the start and end dates of blackout periods to ensure compliance with insider trading regulations.
Further information on our compliance with the New QCA Code is provided on the following link.
18 June 2019
Delivery of growth
Information on our strategy and growth plans for the business are included in the Chairman’s and CEO’s Statement on pages 2 to 9 of our 2018 Annual Report and Accounts for the year ended 31 December 2018 (the “2018 Annual Report”).
Our key objective is to create sustainable long-term value where our low-cost, Africa focused long-life asset base creates the high-margin cash flow that funds our growth, reduce our debt and deliver shareholder returns. As a responsible operator, LEKOIL manages above-ground risks with the same rigour and focus with which it manages the below-ground technical challenges of exploring for and producing oil and gas. We are committed to sustaining high levels of safety, environmental and social performance across our operations. To facilitate this, we have enacted mandatory policies and standards to guide operational responsibility and to which we hold all employees and contractors accountable. Our organisational structure makes clear the accountability of Business Delivery Teams for operational delivery in accordance with these requirements and the Corporate Centre’s accountability for structured and independent assurance. We have continued to strengthen and clarify these policies and standards to ensure compliance and robust risk management.
Obligations to our stakeholders
We are committed to communicating openly with our shareholders to ensure that our strategy is clearly understood, and we take our responsibilities in the communities we operate in very seriously and care about our environment and value our employee’s welfare highly. Details of our work in these areas, and of our business model, the key resources and relationships to the business and stakeholder feedback are contained in the Corporate Governance section.
Review of risks
The Board is responsible for setting the Group’s risk philosophy and appetite and approving the overall risk management policy.
It is responsible for maintaining a sound system of internal control that supports the achievement of its goals and objectives.
The Board is also responsible for overseeing the establishment, implementation and review of the Group’s risk management systems and, to this end, has delegated certain functions relating to risk to the Audit and Risk Committee and to management.
We have adopted a Risk Management Policy which identifies financial and internal controls; business continuity risks, corporate governance risks, security risks and health, safety and environment protection risks. It is intended that reporting is required from each functional group head or business unit leader and consists of quarterly management information reports assessing material changes within the risk profiles.
The Chief Financial Officer collates management risk reports and presents them to the Audit and Risk Committee, in the form of a Group-wide Risk Register, for consideration at least twice a year. The Audit and Risk Committee then reports on its activities and makes recommendations to the Board as appropriate.
Statements on the Group’s risk management and internal control systems and the principle risks and uncertainties facing the Group and steps taken to mitigate these risks are below.
The Board comprises of a Non-Executive Chairman, five independent Non-Executive Directors and two Executive Directors. The Company believes that this governance structure is comparable to that of peer companies of a similar size and market capitalisation.
Corporate Governance arrangements will be an area of focus for the Board in 2019. We consider that our current Board composition is appropriate, and that we have a sufficient number of independent Non-Executive Directors. The Board is provided with information and documentation of a high standard and is supported by its Audit and Remuneration Committees.
The Board considers that currently the size of the Group does not justify the establishment of a formal nominations committee, and consequently all the Directors play an active part where any Director replacements/additions are required.
Under their appointment letters, LEKOIL may call on the Directors to spend at least 20 days per year on Company business.
The attendance record of the Directors is provided on page 18 of our 2018 Annual Report.
We believe that our Board has the appropriate balance of skills, experience and capabilities required to direct the Group. Board diversity from various perspectives is considered an important matter by the Board and membership of our Board includes one female Director and members from various backgrounds. These include sector-specific experience in the oil and gas industry, as well as more general finance, accounting and business management skills.
Details of the current Directors, their background and experience, is shown on pages 14 and 15 of our 2018 Annual Report.
The Board is supported by the Audit and Remuneration Committees, the terms of reference of which can be found in the Corporate Governance section. The Report of the Audit and Risk Committee is shown on pages 24 to 29 of our 2018 Annual Report, and the Report of the Remuneration Committee is shown on pages 30 to 33. These reports detail the work carried out by these committees during the year.
The advisers of the Company are listed on page 81 and 82 of our 2018 Annual Report and on the AIM Rule 26 section available on the following link. Their roles are financial and nominated advisor(“Nomad”), brokers to the Company and legal advice is sought as required.
The Company Secretary provides briefings to the Board on corporate governance matters, noted in particular the new rules under the New QCA Code, and organises trainings for the Directors which in the past have included training on the UK Bribery Act and Market Abuse Regulations amongst others. All Directors are expected to commit and take responsibility for their own development during their tenure.
Although the Company, due to the size of the Board and the focus on the Company’s strategic growth, has not carried out a formal Board evaluation exercise, we recognise the importance of assessing the performance of the Board and will look to carry out the exercise within the next 12 months.
The performance evaluation of the Chief Executive Officer and the Chief Financial Officer is carried out by our Remuneration Committee, using metrics set in the preceding year, to be achieved during the following year. These metrics essentially measure the extent to which the Executive Director is leading the organisation to accomplish its goals; whether they are leading the organisation to deliver results in the short- and longer-term; to what extent is the Executive Director’s leadership consistent with our values and our beliefs about what skills they need to be effective; and the implications of the performance review in terms of the Executive Director’s role, areas in which they should continue performing well, and areas in which they can improve.
Succession planning is regarded by the Board as vitally important in maintaining a ‘strong bench’ and the continued success of the business. Through regular reviews and management discussions, the Company’s future business leaders are identified, and personal development plans are put in place to harness their potential and plan for job growth and career progression. In practice, the Chairman and the Chief Executive lead on the Board nomination and appointment process. They consider the balance of skills, knowledge and experience on the Board and make appropriate recommendations for consideration by the whole Board. Each Board member is invited to meet with the candidate. This process has been used effectively for a number of years and has led the Board to remain of the view that it should continue to operate in this way rather than through a more formal nomination committee. Other senior appointments are made by the Chief Executive in discussion with the Chairman. We expect the Board evaluation process to evolve over time so that it becomes linked to succession.
We have established a vision and mission and our core values which are based on integrity, professionalism, respect, innovation and creativity, drive and team-work and collaboration. These values set the themes for our culture and guide the objectives and strategy of the Company, which is reinforced to all members of staff on a quarterly basis by the CEO during regular town-hall meetings.
A culture of ethical behaviour aligned to our values and a robust quality management system are central to how we run the business. Through clear corporate governance policies, supported by robust risk, assurance and performance management processes, we manage the opportunities and risks in our operations and respond to the concerns of our shareholders and stakeholders.
The Board incentivises such good governance and risk management measures through a set of Key Performance Indicators (“KPIs”) in our corporate scorecard, which are used to determine Executive Directors’ and employees’ variable, performance-related compensation. Our strategy in pursuing new opportunities is to target assets that will yield high margins and cash flow in the near term. Our focus is where we can apply superior technical knowledge to improve our chances of success. Commodity price is critical to the success of our business. Once a year in our planning cycle we set the long-term crude price for evaluation of future opportunities as well as projection of revenue for current production. A Low Case scenario is also determined to ensure downside protection should any major geopolitical and/or industry shift cause a major, downward revision in market price for crude.
As outlined above, corporate social responsibility, as detailed on pages 8 and 9 of our 2018 Annual Report, is very important to us as a business. LEKOIL is committed to demonstrating leadership in stewardship of the environment, employee health and safety and social responsibility. Our responsibilities and the related regulations applicable to us are also set out on the corporate social responsibility section.
The Executive Directors work in an open plan environment in the respective LEKOIL offices, which provides them with plenty of opportunities to see and hear how people interact both with their work colleagues and others outside of the business (and would enable them to address matters if they were at odds with the Company’s culture).
Our Anti-bribery and Corruption Policy is shown on the following link which is referenced in the Company’s contracts with vendors. The policy confirms that the Group has a zero-tolerance stance on bribery and repeats the Board’s expectation that everyone behaves professionally, respectfully and with integrity at all times.
The Anti-bribery and Corruption Policy along with all the other Group policies, are circulated to all staff during regular corporate governance policy training exercises and is located on the Company’s intranet website.
Experience to date suggests that the Group policies are effective and staff members are aware of them.
In order to create a more ethical organisational culture, the has adopted a combination of the following practices:
- Role models and visibility: Our senior management sets the standard as role models of acceptable behaviour for employees in the workplace. This behavioural standard when observed (by subordinates) sends a positive message for all employees.
- Communication of ethical expectations: In order to reduce ethical ambiguities, we disseminate our organisational code of ethics on our corporate intranet and regularly send email refreshers to all employees. It states LEKOIL’s core values and the ethical rules that employees are expected to follow. Members of senior management are required to model ethical behaviours as outlined in the code of ethics.
- Ethics training: We periodically run seminars, workshops, and similar ethical training programs which are used to reinforce the Company’s standards of conduct, to clarify what practices are and are not permissible, and to address possible ethical dilemmas.
- Visible rewards and sanctions: Our performance appraisals of managers include a point-by-point evaluation of how his or her decisions measure up against the organisation’s code of ethics. The appraisals include the means taken to achieve goals as well as the ends themselves. Visible rewards to be awarded to staff who act ethically and just as importantly, unethical acts are sanctioned and documented.
- Provide protective mechanisms: The Group provides formal mechanisms that allow employees to discuss ethical dilemmas and to report unethical behaviour without fear of reprimand. As result a whistle blowing policy for example, is in place and this allows staff to raise any concerns in confidence directly with the Chief Executive Officer, Chairman of the Audit Committee or the Secretary.
The Corporate Governance section sets out our approach to corporate governance, and the roles and responsibilities of the Chairman, Chief Executive and any other Directors who have specific individual responsibilities or remits (e.g. for engagement with shareholders or other stakeholder groups) are shown.
The roles and terms of reference of the Audit and Risk Committee and Remuneration Committee, and a formal written schedule of matters reserved for the Board are also shown on the Corporate Governance section.
We will be expanding our website disclosures to include more detail on the specific roles and responsibilities of the Chairman, Chief Executive and any other Directors who have specific individual responsibilities or remits (e.g. for engagement with shareholders or other stakeholder Groups).
Previous annual reports and other corporate documents, including notices of all general meetings held in the last five years, are also available on the following link.