UK Section 172(1) statement, board engagement with stakeholders, cross references to other disclosures

Serco Group plc – Annual report – 31 December 2021

Industry: support services

Section 172 (1) Statement

The Directors of the Company are bound by their duties under the Companies Act 2006 and, in particular, must act in the way they consider, in good faith, would most likely promote the success of the Company for the benefit of its members as a whole, taking into account the factors listed in section 172(1)(a) to (f) of the Companies Act 2006.

The following disclosure describes how the Board has had regard to those matters and forms the Directors’ statement required under section 414CZA of the Companies Act 2006.

Board Engagement with Stakeholders

The Board is committed to enhancing engagement and seeks to build honest, respectful and transparent relationships with all of the Company’s stakeholders. As with other large and complex companies, the Directors fulfil their duties partly through a governance framework which delegates day-to-day decision-making to the Executive Directors and, within defined levels of costs and impact, Divisional leadership teams. The Board recognises that such delegation needs to be much more than simple financial authorities and it covers areas such as risk, ethics, and new sector or country approaches.

The governance structure, which covers the values and behaviours expected of our employees, the standards to which they must adhere, how we engage with stakeholders and how the Board looks to ensure that we have a robust system of control and assurance processes, is designed to drive high standards of business conduct across the Group.

Our Environmental, Social and Governance (‘ESG’) Framework is structured around our key stakeholders, and the Board has continued to focus on our approach to and progress in delivering our ESG commitments. We summarise our progress and performance in the ESG Impact and Integrity section of this Annual Report on pages 39 to 76.

The Board considered the continued impact of Covid-19 on our stakeholders and the Company’s response is set out throughout the Annual Report, with more detailed information in the Our People section on pages 35 to 38.

In addition to the methods of engagement described over the following pages, the interests of our stakeholder groups are considered by the Board through a combination of:

  • Regular reports and presentations at scheduled Board and Committee meetings, including operational reports, presented by the Chief Executive Officer, and updates from the Chief Financial Officer, Chief Operating Officer, Group General Counsel and Company Secretary and other senior management on a range of matters including strategy, financial, treasury and tax matters, the approach to ESG, health and safety, assurance and controls, risk, ethics and compliance, cyber security, people matters (including employee engagement, workforce and management diversity, gender pay gap, workforce remuneration and related policies), markets, operational performance, suppliers, community, environment, and customer and investor feedback.
  • Regular briefings from Divisional management, which include details of engagement with Divisional stakeholders, strategy, performance, local market and competitor positions, operational and employee matters, and customer satisfaction and business development.
  • Attendance at virtual Divisional management conferences, Colleague ConneXion and Inclusion Hub events, and virtual and on-site contract visits. In 2021, members of the Board engaged in over 30 contract visits and events.
  • Feedback from employees through responses to the “Tell the Board” section of the annual employee engagement survey, Viewpoint. More details are provided on this below.
  • Unscheduled Board and Committee meetings if the Board needs to be informed of matters or when a decision is required before scheduled Board meetings such as Covid-19 developments, trading updates, bids or M&A opportunities.
  • A rolling agenda of matters which are considered by the Board and Committees throughout the year, including a day long strategy review which considers the strategy to be followed by the Group, which is supported by a budget for the following year and a medium-term financial plan.
  • Formal consideration of large bids, acquisitions, refinancing, share buybacks, dividends and other matters, including any factors which are relevant to major decisions taken by the Board through the year in line with the Delegation of Authority and Terms of Reference for each Board Committee.
  • Regular meetings between the Non-Executive Directors and Divisional Risk Assurance Managers and Divisional Ethics and Compliance Managers without Executive Directors or other senior management present.

The Board also engages with stakeholders through news releases and stock exchange announcements on a wide range of matters including regular trading updates, in addition to the half and full-year results reports and accompanying presentations, changes to the Board, key leadership appointments, material shareholdings, refinancing and corporate transactions, acquisitions, contract awards and losses, and operational updates from across the Group. These news releases and stock exchange announcements drive ad hoc engagement with stakeholders and are available on the Company’s website.

Details of the Group’s key stakeholders, their key concerns and how the Board engages with them are set out below.

Our Shareholders

Engagement with and receiving the support of our shareholders is a key factor in achieving our ambitions. We seek long-term relationships based on transparency, honesty and clarity – all of which are critical for building trust.

Our shareholders and debt holders are concerned with a broad range of issues, including how the Company has responded to and is affected by Covid-19, other operational and financial performance, developments in our markets for public services, the execution and delivery of our strategy, the sustainability of our business, and the impact Serco has on the communities we serve and the environment in which we operate.

The Chief Executive Officer and Group Chief Financial Officer and other members of the senior management team meet with shareholders to discuss relevant developments in the business at our post-results road shows and programme of investor meetings. We also consult with investors and fund managers to seek their views and actively engage with proxy advisers and ESG analysts to provide feedback on specific topics.

During 2021, we asked for feedback on our ESG reporting from our top 20 investors and those comments have been taken into account in this year’s Annual Report and Accounts along with feedback received from shareholders and shareholder representative bodies. Following the announcement of his appointment, our Chairman, John Rishton, undertook a governance roadshow in January 2021 and met with a number of our top investors. The key themes of discussion were ESG, succession, growth and strategy. We repeated the governance roadshow in 2022 and the Chairman was joined by the Remuneration Committee Chair and the Group General Counsel and Company Secretary and further meetings with investors are planned.

In December 2021, we held a Capital Markets Day event. It was attended by the Chief Executive Officer and Group Chief Financial Officer, the Chairman, a number of the Non-Executive Directors, the Executive Committee and members of the Divisional and Group senior management teams. This included a series of presentations and Q&A sessions to provide an update and greater insight into the Group’s strategy, business operations, and financials.

The Chief Executive Officer and Group Chief Financial Officer and other members of the senior management team also meet regularly with our debt investors, including lending banks and US private placement note holders, and bi-annual update calls or meetings are arranged with our debt investors after the half year and final results announcements.

The feedback received from the meetings with shareholders and debt investors is provided to the Board as part of the rolling agenda of matters to be considered by the Board and Committees throughout the year.

The Board also sees and discusses the feedback received from proxy and ESG analysts on the Annual Report, the proposals put to the Annual General Meeting and a range of ESG matters.

The AGM provides the Board with an opportunity to communicate with private and institutional investors. Due to the restrictions in place in force in the UK at the time of the 2021 AGM due to Covid-19, the AGM again took place as a closed meeting. Although it was not possible for the Board to meet with our shareholders in person at the 2021 AGM, all shareholders were invited to submit questions to the Board via email prior to the meeting.

Further relevant details are referred to elsewhere in this report:

  • Key Performance Indicators on pages 32 to 34.
  • Further ESG items and details on our ESG performance and data are set out in the ESG Impact and Integrity section on pages 39 to 76.
  • Details of notifiable interests in the shares of the Company are provided on page 177 of the Directors’ Report.

Our People

Our people are at the heart of our business and, as a Company, we are the sum of the efforts, energy and values of our people, who are critical to achieving our mission of improving the lives of citizens and service users around the world.

Through our annual Group-wide engagement survey, Viewpoint, and more frequent targeted ‘pulse’ surveying in selected parts of the business, we know that our people are happy working with Serco and would recommend Serco as a great place to work. Each year our colleagues provide their views on a wide range of topics so we can better understand their perspectives and experiences working with us. Currently we are focussing on two main areas: creating career opportunities; and providing channels for colleagues to feel heard. There were 12,609 “Tell the Board” comments submitted and, as in previous years, compensation and recognition were key areas to be prioritised. In addition to this, colleagues indicated that they would like the Board to focus on the journey out of Covid-19 with a key emphasis on the next phase of the business and personal wellbeing.

During the year, the Board endorsed the launch of the Serco People Fund, which is an independent charity and embraces Serco’s value of Care, providing support to current and retired colleagues and their families in times of need and when facing extraordinary financial challenges. Dame Sue Owen, Non-Executive Director and the Employee Voice representative on the Board, updates the Board on feedback received from our people at virtual engagement activities held throughout the year as part of the Employee Voice and Colleague ConneXions initiatives. Other members of the Board, the Executive Committee and leadership teams participated in a number of these virtual engagement activities and Serco Inclusion Hub events arranged by our employee networks: Serco Inspire, Serco Unlimited, Serco Embrace and In@Serco. Reports on the activities of each network are received by the Board through the regular People reports provided by the Group Chief Operating Officer and the Board conducts a focused review of the output of the Viewpoint survey every year.

Further relevant details are referred to elsewhere in this report:

  • Our People Report, available on the Company’s website
  • ESG Impact and Integrity section on pages 39 to 76.
  • Employee engagement metrics as part of the Key Performance Indicators on page 34.

Our Customers

As an international B2G business, our customers are many and varied, consisting of local, regional and national governments and agencies, those receiving our services at a contract level and those who use the services we provide on behalf of our customers.

Our business is built on our ability to retain existing and win new customers. As such, understanding, engaging with and responding to customer needs is a critical priority. While the demands vary significantly, at the most basic level our customers seek to procure from us quality public service delivery, at a price they feel represents good value for money. This requires us to have both a deep understanding of their sector specific needs, and the technical and commercial ‘know how’ to deliver public services more efficiently.

In addition, there are significant regional and sector specific concerns that vary enormously and which also change over time. For example, nationalisation remains an issue for customers in the Middle East, and social value outcomes are core to most UK bids, and the importance of supporting indigenous communities has been a feature of many bids in the Middle East, Americas and AsPac Divisions. It is critical that we maintain a detailed appreciation of these concerns so that we can respond accordingly.

The Chief Executive Officer and Group Chief Financial Officer have continued to meet directly with different customers across all our regions although this has been more challenging due to Covid-19. The Divisional Performance Reviews, which are made available to the Board, also contain details on customer issues and engagement.

With the 2015 strategy having been implemented, with significant achievements and progress across the business, a detailed strategy review was conducted involving all parts of the business and carried out over several months in 2021. As in previous years, this process culminated in a day-long Board Strategy Day during which the Board debated current and future customer requirements at length. Further information about the outcome of the 2021 strategy review is provided on pages 18 and 19.

The Serco Institute, often in conjunction with customers, looks at macro societal issues and the research and development of public service solutions. Updates on the work of the Serco Institute are provided to the Board by the Group Strategy Director and a number of the Board have attended Serco Institute events. The Serco Institute conducts research, holds events and produces research papers, articles and thought pieces on a number of areas including:

  • Delivering Better Services for the Public: How competition and choice can improve public service delivery in the UK
  • People Powered Public Services: Monitoring Australian Opinion
  • Competitive Tension: The value of contestable public services in a post-pandemic world (Australia)
  • People Powered Public Services: Monitoring UK opinion
  • What’s heading down the tracks? The Future of Passenger Rail in Britain
  • Transformation, digitisation & happiness: Public opinion on UAE government services
  • Transformation, digitisation & happiness: Public opinion on government services in Saudi Arabia
  • Vaccine Passports & UK Public Opinion

Further relevant details are referred to elsewhere in this report:

  • Pipeline and Order Book metrics as part of Key Performance Indicators on page 33.
  • Divisional Reviews on pages 27 to 31.
  • Principal Risks on pages 95 to 104 and in particular the risks of contract non-compliance, failure to act with integrity and failure to grow profitably.
  • The Serco Institute website at

Our Suppliers

Suppliers have an important role to play in Serco being a leading international provider of public services. We aim to build honest, respectful and transparent relationships with suppliers which have high levels of regulatory compliance and share our ethical standards and commitment to sustainability throughout the supply chain.

Our suppliers are concerned with the ease of doing business with Serco, responsible business practices, conduct and ethics, driving innovation, building long-term relationships, fair business terms and receiving prompt payment.

The Chief Executive Officer and Group Chief Financial Officer engage directly with key suppliers and the Board is regularly briefed on operational matters and on the management and assessment of suppliers by Divisional senior management, the Group Director Enterprise Risk, the Group Director Business Compliance and Ethics and the Director of Procurement.

The Board received a presentation on cyber security from a key supplier during the year which gave the Board an opportunity to receive feedback and engage directly with the supplier.

During the year, the Board has overseen the launch of the Serco Sustainable Procurement Charter, which was well received by suppliers, and were supportive of the assessment of current procurement practices against the ISO20400 framework (the standard for sustainable procurement). In addition, as part of the annual risk review process, the Group Risk Committee considered the definition of the principal risk , Significant Failure of the Supply Chain, and expanded the risk to encompass the broader risk from the supply chain.

Further relevant details are referred to elsewhere in this report:

  • ESG Impact and Integrity section on pages 39 to 76.
  • Principal Risks on pages 95 to 104, in particular the significant failure of the supply chain.

Our Communities and Environment

Our communities comprise those living and working in close proximity to our operations, those for whom we provide services on behalf of our government customers and those who represent the needs of the communities we operate in, including charities, independent bodies and local government.

Operating amongst and on behalf of our communities, we strive to maintain a deep understanding of the complex social challenges that impact them, whilst recognising our responsibility to contribute to the sustainability and wellbeing of society and the economy wherever we operate.

We are also committed to building climate resilience and limiting the impact of our operations on the environment through more sustainable business practices for our customers and stakeholders, including our communities through our strategic themes of carbon and climate resource efficiency and environmental protection. We are committed to addressing the environmental and climate emergencies and supporting the net zero carbon ambitions of our clients and wider society. Alongside our customers and other stakeholders, we recognise that environmental sustainability is a critical factor in the wellbeing of society. In 2020, the Board endorsed a new standalone Group Strategy for Environment, inclusive of carbon reduction targets, to sharpen focus and direction on delivering longer-term Group Environment, Energy and Sustainability commitments in our operations and supply chain. To address key challenges and opportunities over the next ten years, with oversight from the Board through the Corporate Responsibility Committee, we are focusing on enhancing understanding of our environmental and climate risks and opportunities; evolving our business lifecycle process to capture and cost carbon and environmental risks; reducing business travel, emissions and carbon; measuring and reducing the impact of our supply chain; and embedding environmental behaviours in Group culture.

Our communities are primarily concerned with the impact of our operations on society, the economy, and the environment and knowing that we operate and conduct our business as a respectful and responsible neighbour.

Members of the Board had the opportunity to meet with users of the services we provide on behalf of our customers during contract visits and the work of the Serco Institute and the Serco Foundation informs reports from management as part of the rolling agenda of matters considered during the year. The Director, Business Compliance & Ethics, Director, Health, Safety and Environment and the Group Head of Environment, Energy and Sustainability provide regular updates on ethics and business conduct matters, the Speak Up service and environmental strategy.

Further relevant details are referred to elsewhere in this report:

Decision-making in practice

A summary of how the Board applied the factors listed in section 172(1)(a) to (f) of the Companies Act 2006 when making principal decisions during the year is provided below.