Corporate Governance

Directors' Statement on Corporate Governance 2009

The following statement has been extracted from the Spirent Communications plc Annual Report 2009. 

Compliance

The Board is committed to the highest standards of corporate governance set out in the Combined Code on Corporate Governance published by the Financial Reporting Council in June 2008 (the “Code”). The Board is accountable to the Company’s shareholders for good governance and this Statement, together with the Report on directors’ remuneration on pages 33 to 40, describes how the Board has applied the main principles of good governance contained within the Code during the year under review. It is the Board’s view that the Company is fully compliant.

The Board

As at 31 December 2009, the Board comprised a chairman, four independent non-executive directors, one non-executive director not classified as independent for the purposes of the Code when determining the composition of the Board or its Committees, and two executive directors, details of whom are provided on page 25.

The Board operates within a framework of controls including a formal schedule of matters specifically reserved for its decision. There is a clear division of responsibility at the head of the Company: the Chairman (Edward Bramson) being responsible for running the Board and the Chief Executive Officer (Bill Burns) being responsible for implementing strategy.

It was announced on 4 March 2010 that Mr Bramson would resign as Chairman of the Company on that day and that Alex Walker would be appointed Non-Executive Chairman of the Company. It was also announced that Edward Bramson and Gerard Eastman would retire from the Board at the 2010 AGM.

The Board discharges its responsibilities by providing leadership of the Company within a framework of prudent and effective controls, which enables risk to be assessed and managed. It sets the Company’s strategic aims, ensures that the necessary financial and human resources are in place for the Company to meet its objectives, and reviews management performance. It also defines the Company’s values and standards and ensures that its obligations to shareholders are understood and met.

The independence of each director is reviewed on appointment and at least annually. The Board determined that, within the terms of the Code, Ian Brindle, Duncan Lewis, Tom Maxwell and Alex Walker are each independent non-executive directors. As Edward Bramson and Gerard Eastman have, until September 2009, had a connected material notifiable interest in the issued Ordinary Share capital of the Company, the Board has concluded that they should not be considered independent of the Company for the period under review. Details of other professional commitments of the Chairman and non-executive directors are provided in their biographies on page 25.

In October 2008, the Company adopted new Articles of Association permitting the Board to consider and, if it sees fit, to authorise situations where a director has an interest that conflicts, or may possibly conflict, with the interests of the Company (“Situational Conflicts”). The Board has a formal system in place for directors to declare Situational Conflicts and for these to be considered for authorisation by those directors who have no connection with the matter being considered. In deciding whether to authorise a Situational Conflict, the non-conflicted directors are required to act in the way they consider most likely to promote the success of the Company and they may impose limits or conditions when giving authorisation, or subsequently, if they think this is appropriate. The Board considers the procedure to have operated effectively during the year.

Alex Walker served as the Senior Independent Non-Executive Director during the period under review. The Senior Independent Non-Executive Director is available to meet shareholders upon request if they have concerns which contact through the normal channels of the Chairman or an executive director has failed to resolve, or for which such contact would be inappropriate. Ian Brindle will become Senior Independent Non-Executive Director following Mr Walker's appointment as Non-Executive Chairman of the Company on 4 March 2010.

It is Company policy to hold at least four Board meetings a year. There were seven Board meetings during 2009. The agenda is settled by the Chairman in advance of the meeting and papers are circulated to Board members several days ahead of the meeting. Minutes of previous meetings are circulated to all Board members and, subject to their agreement, approved at the following Board meeting.

Full attendance by the Board is expected at meetings and in 2009 all directors attended all seven meetings except Duncan Lewis, who missed two meetings and Ian Brindle, Gerard Eastman and Alex Walker, who each missed one meeting due to unavoidable diary conflicts. Where the director was absent, full documentation for the meeting was issued and briefings were provided as appropriate. It was ensured that any comments on the documentation or subject matter to be considered were passed to the Board for consideration.

Certain of the matters specifically reserved for the Board’s decision have been delegated to three Committees with clearly defined terms of reference which, together with the composition of each Committee, are reviewed annually. The terms of reference for the Audit, Nomination and Remuneration Committees can be found on the Company’s website at www.spirent.com.

The Chairman is responsible for ensuring that the directors receive accurate, timely and clear information. They receive regular updates on business performance and receive presentations from the executive directors and other senior managers at Board meetings. Under the direction of the Chairman, the Company Secretary ensures good and timely information flows between the Board and its Committees and makes sure that Board procedures are complied with. The Company Secretary also updates and advises the Board on all regulatory and governance matters.

There is a policy whereby the non-executive directors and the Board Committees may take independent professional advice at the Company’s expense in order to fulfill their duties. All directors also have access to the advice and services of the Company Secretary, whose removal may only be effected with the approval of the Board.

Board Appointments and Induction

The Board has in place a procedure for the appointment of new directors to the Board which complies with the Code.

On appointment to the Board and its Committees all directors receive an induction tailored to their individual requirements. New directors are briefed on their legal and other duties and obligations as directors of a UK listed company. Visits to different facilities and meetings with senior management are organised, as appropriate, to assist the new director in developing an understanding of how the Group operates and the key issues that it faces.

The Company’s Articles of Association require that all directors seek election by shareholders at the first annual general meeting following their appointment and that all directors seek re-election at least every three years. It was announced on 4 March 2010 that Edward Bramson and Gerard Eastman will retire at the 2010 AGM. As no other director has a letter of appointment which is due to expire before the 2011 AGM, no director is required to seek re-election at the 2010 AGM.

Performance Evaluation

Performance evaluation of the Board and its Committees was carried out during the year by directors completing questionnaires and the results being collated and analysed by the Company Secretary who prepared a report for Board discussion. The Board discussion concluded that the Board and Committees operated well and were effective.

The Chairman communicates regularly with the non-executive directors and this contact provides an ongoing opportunity to assess performance and to discuss the performance of the executive directors or any other matters. The Chairman has concluded that during the year under review the commitment and application of the non-executive directors was of a high standard including each having time to attend all Board and appropriate Committee meetings and to carry out other appropriate duties.

The Senior Independent Non-Executive Director met with the independent non-executive directors on 11 November 2009, in the absence of the Chairman, to assess the Chairman’s effectiveness. Notwithstanding Mr Bramson’s role as chairman and chief executive officer of Nautilus, Inc, the independent non-executive directors were of the opinion that Mr Bramson gave sufficient time to his role as Chairman of the Company and was effective in that role during the year under review.

Board Committees 
Audit Committee

The Audit Committee comprises Ian Brindle (Chairman), Tom Maxwell and Alex Walker, all of whom are independent non-executive directors, making the composition of the Committee compliant with the Code. The Code also requires that the Audit Committee includes at least one member who has recent, significant and relevant financial experience. The Board considers that both Ian Brindle and Tom Maxwell provide such experience. Duncan Lewis will be appointed to the Audit Committee following Mr Walker's appointment as Non-Executive Chairman of the Company.

During 2009, the Audit Committee held three meetings at which there was full attendance by Committee members. At each meeting the Company’s external auditors, the Chief Financial Officer, the Group Vice President Finance, the Head of Financial Reporting and the Company Secretary were in attendance. The Chairman and the other directors may also attend the meetings. In addition, the Committee meets with the Company's external auditors without management being present. The minutes of Committee meetings are available to all directors.

The Board has overall responsibility for the system of internal controls, including risk management, and has delegated certain of these responsibilities to the Audit Committee. During the year the Committee has monitored and reviewed risk management and internal control, reviewed the interim and full year financial statements, key accounting policies, the auditors’ report on the interim review and year-end audit and management’s responses to the issues raised. The internal audit programme and the external audit strategy and scope for 2009 were also agreed and approved. Further details of internal control and process are set out below. Regular reports on tax, treasury, legal and health and safety are presented. Further details of the Group's Ethics Policy and health and safety performance are contained in the Corporate Social Responsibility Statement on pages 22 to 24. The Chairman of the Committee reports any significant findings or identified weaknesses to the Board.

The Audit Committee has adopted a policy in relation to the provision of non-audit services by the external auditor to ensure that the provision of such services does not impair the external auditors’ independence or objectivity. Under this policy, certain non-audit services are precluded. The policy is reviewed and financial limits for non-audit services are set on an annual basis. The Committee considers that notwithstanding the non-audit services provided during the year, Ernst & Young’s objectivity as external auditors was not impaired. In recommending their re-appointment as external auditors, the Committee considered Ernst & Young’s performance, resource, quality control procedures, policy on rotating its audit partners (audit partners rotate every five years), independence and objectivity. The Committee also considered the risk of Ernst & Young withdrawing from the audit market. There are no contractual obligations that restrict the Company's current choice of external auditor.

Remuneration Committee

The Remuneration Committee comprises Alex Walker (Chairman), Ian Brindle and Duncan Lewis, all of whom are independent non-executive directors, making the composition of the Committee compliant with the Code. Tom Maxwell will be appointed to and become Chairman of the Remuneration Committee following Mr Walker's appointment as Non-Executive Chairman of the Company.

Further details about the Remuneration Committee are included in the Report on directors’ remuneration on pages 33 to 40.

Nomination Committee

The Nomination Committee comprises Edward Bramson (Chairman), Ian Brindle, Gerard Eastman, Duncan Lewis, Tom Maxwell and Alex Walker and meets at least once each year. During 2009 the Nomination Committee held one meeting which all Committee members attended, except Duncan Lewis, who had an unavoidable diary conflict. The Nomination Committee is responsible for reviewing the composition and structure of the Board and for identifying and recommending candidates for executive and non-executive positions, based on the required role and capabilities which have been specified for the appointment. Executive search consultants are used by the Nomination Committee to assist this process as appropriate. As the majority of members are independent non-executive directors, the composition of the Committee is compliant with the terms of the Code. Alex Walker will become Chairman of the Nomination Committee following Mr Bramson's resignation as Chairman of the Company.

Relations with Shareholders

Communication with all shareholders is given a high priority and a number of methods are used to promote greater understanding and dialogue with investment audiences. Dialogue with institutional investors is conducted on a regular basis by the Chairman, the Chief Executive Officer and the Chief Financial Officer.

The Company has an established cycle of communication based on its financial reporting calendar. This includes the Preliminary Results in February/March, Annual Report in March, Annual General Meeting and Interim Management Statement in May, Half-year Results in August and the Interim Management Statement in November.

The Chairman, Chief Executive Officer and Chief Financial Officer ensure that the views expressed at meetings with institutional shareholders are communicated effectively to the Board as a whole so that any issues or concerns are fully understood.

Electronic Communications

The Company promotes the use of electronic communication. All stock exchange announcements and presentations to shareholders are made available on our website, together with webcasts of our annual and half-year financial results. Our website also contains up to date corporate governance information including terms of reference for the three Board Committees, the terms and conditions of appointment of non-executive directors, the Company’s Ethics Policy and Articles of Association.

At its 2008 AGM the Company passed a resolution allowing it to communicate with shareholders by means of the Company’s website and an invitation to opt out of receiving mailings solely by electronic communication was sent to shareholders with the 2009 AGM documentation. Shareholders who have purchased their shares since that invitation was distributed in March 2009 but who wish to receive company mailings electronically should notify the Company’s registrar, Equiniti, on 0871 384 2126 or via www.shareview.co.uk. In line with this policy, the Company's Half-year Results will in future only be available on the Company's website at www.spirent.com.

Electronic communications provide significant benefits for shareholders and the Company in terms of timeliness of information, reduced environmental impact and cost and the Board would encourage investors to participate in the programme.

Pensions Governance

The Group’s principal pension and retirement schemes are in the UK and the US. Scheme funds are held separately from those of the Group and are administered by trustees (which include employees and independent bodies). The schemes do not lend money or lease any assets to the Group.

Internal Control

The Board has overall responsibility for the Group’s system of internal control. The Board, assisted by the Audit Committee, has reviewed the effectiveness of this system and this review did not reveal any significant issues or weaknesses. The Board confirms that this process was in place throughout the year under review and up to the date of approval of these financial statements. The primary aim is to operate a system which is appropriate to the business and which can, over time, increase shareholder value whilst safeguarding the Group’s assets. The system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss.

Process

Day to day responsibility for effective internal control and risk monitoring rests with senior management at business unit level. The Board and the Audit Committee continue to agree that currently there is no need for a dedicated internal control department. Responsibility for internal control rests with the Group Vice President Finance and North America Vice President Finance. Both of these senior finance managers are independent of any business unit and play a key role in providing an objective view and continuing assessment of the effectiveness of the internal control systems throughout the Group. The Group consists of a limited number of entities which can comfortably be covered by the two senior finance managers. As stated above, the Group Vice President Finance attends all Audit Committee meetings to give an update on any internal control issues arising and any outstanding remedial actions.

The Group’s system of risk management comprises an integrated risk management strategy of regular self-assessment of all business units. Significant risks are regularly reviewed by the Audit Committee and by the Board.

Management and specialists within the finance department are responsible for ensuring the appropriate maintenance of financial records and processes that ensure all financial information is relevant, reliable, in accordance with the applicable laws and regulations, and distributed both internally and externally in a timely manner. A review of the consolidation and financial statements is completed by management to ensure that the financial position and results of the Group are appropriately reflected. All financial information published by the Group is subject to the approval of the Audit Committee.

In addition to this process, the following key elements are critical to the overall internal control environment:

• an organisational structure with clear operating procedures, defined lines of responsibility and delegated levels of authority;
• an ethics policy (which has been approved by the Board), which sets standards of professionalism and integrity for all employees and operations. The Ethics Policy also includes “whistleblowing” procedures whereby employees may report, in confidence, suspected wrongdoings;
• a comprehensive strategic planning, financial control and budgeting system which is properly documented and regularly reviewed; and
• a disciplined acquisitions and divestments due diligence process and post acquisition integration programme.