UK Corporate Governance, s.172 statement, designated non-exec for colleagues, culture

Dunelm Group plc – Annual report – 27 June 2020

Industry: retail

CORPORATE GOVERNANCE REPORT (extract 1)

BOARD LEADERSHIP AND COMPANY PURPOSE (extract 1)

SECTION 172 COMPANIES ACT REPORT

The Board of Directors confirms that during the year under review, it has acted to promote the long-term success of the Company for the benefit of shareholders, whilst having due regard to the matters set out in section 172(1) (a) to (f) of the Companies Act 2006, being:

  • The likely consequences of any decision in the long term.
  • The interests of the Company’s employees.
  • The need to foster the Company’s business relationships with suppliers, customers and others.
  • The impact of the Company’s operations on the community and the environment.
  • The desirability of the Company maintaining a reputation for high standards of business conduct.
  • The need to act fairly as between members of the Company.

Each of the Directors is mindful of their duties under section 172 (s172) to run the Company for the benefit of its shareholders, and in doing so, to take into account the long-term impact of any decisions on stakeholder relationships and the impact of its activities on its reputation for high standards of business conduct. We can only grow and prosper sustainably if we conduct ourselves in a responsible manner and have positive relationships with all of our stakeholders. This has been more evident than ever through the Covid-19 crisis, as we balanced both short and long-term considerations, the need to preserve our financial stability, to protect our most vulnerable stakeholders, and to contribute to the national effort to combat the virus. Throughout the crisis we listened carefully to our customers, colleagues, suppliers and shareholders, and drew on their support and commitment as we protected and started to rebuild our business. More details are set out in the case study on pages 90 to 91 and in the Strategic Report, particularly on pages 8 and 9.

Although we have taken the matters set out in section 172 into consideration for many years, the Code now requires us to provide more specific information about how the Group and the Directors have considered them. The areas which are encompassed in s172 touch on everything we do, and our Strategic Report contains many examples of how this operates in practice. Most of the day-to-day decision making and stakeholder engagement is carried out by Executive Directors and members of our Executive Board and senior leadership team at the business level, but more material matters require the attention of the Board, and we describe below how they are considered through formal Board processes, and how the Board engages with stakeholders and oversees how the business does so. There are also cross references to other sections of this report where more information and examples can be found. The Non-Financial Information Statement on pages 158 to 159, should also be used to identify information relevant to s172 factors.

EFFECTIVE ENGAGEMENT WITH OUR STAKEHOLDERS

As a Board, we must always seek and be open to feedback from anyone affected by our activities. This enables the Board to understand the impact of its decisions on key stakeholders, but also ensures that we are aware of any significant changes in the market or the external environment, including the identification of emerging risks, which can be fed into our strategy discussions and our risk management process.

In last year’s Annual Report and Accounts, we summarised how and why the Board engages with our shareholders and what each stakeholder group expects from us. This year, on pages 90 to 98 we have included information about the effect that our stakeholder engagement has on principal decisions taken during this last reporting year. Further information about how we manage and measure our stakeholder relationships can be found in our Sustainability Review from page 32.

CUSTOMERS

We listened to our customers throughout the crisis, through direct contact and social media. We also monitored consumer sentiment closely. This was factored into our decisions to close and re-open our customer-facing operations. While our stores were closed, we reduced the minimum charge for standard home delivery. We introduced a contactless delivery service, and prioritised improvements to our website that would enhance our customer browsing and purchase experience. We also introduced a convenient and free ’deliver to car’ Click & Collect collection service from our stores, video-based consultations for our Made to Measure curtains and blinds service so that customers could order from their own homes, and a ’virtual shopping’ experience, offering a video-based personal shopping appointment with a store colleague helping select products on the customer’s behalf.

SUPPLIERS

We have worked with a number of our suppliers for many years, and any loss of our sales impacts their business. We decided early on that we would continue to pay suppliers in full, to agreed terms. We communicated regularly with our suppliers, and a number of them supported ourselves and our customers throughout the period of our store closure by increasing the number of home deliveries direct to our customers.

SHAREHOLDERS

Until the end of March 2020, sales in our stores represented over 80% of our turnover, which have a high level of fixed costs. As soon as our stores closed, we took immediate steps to preserve the cash resources of the business. We reduced capital expenditure and non-essential operating costs. In addition, the Chairman and the Non-Executive Directors agreed to waive their fees for three months, and the Executive Directors, the Company Secretary and all members of the Executive Board voluntarily accepted a salary reduction of at least 20% for the same period (the CEO took a 90% salary reduction). The Board also decided to revoke the interim dividend payment that had been declared in February. In doing so we carefully considered the interests of our shareholders, many of whom include pensioners and pension funds, and colleagues. The decision was fully supported by our majority shareholders, the Adderley family.

COMMUNITY AND CHARITY

Our dedicated charity, Macmillan Cancer Support, suffered a financial shortfall as a result of the crisis. The money that we would normally have collected on their behalf from donations in store, plastic bag sales and from colleague activities also diminished. We have decided to make an additional corporate donation of £105,000 to Macmillan Cancer Support to make up the shortfall to our target of increasing funds raised for charity by 10% in the year. This is in addition to goods with a retail value of £74,000 donated through the Covid-19 crisis, as described below. Colleagues on furlough also volunteered to help self-isolating Macmillan Cancer Support patients.

In addition to our support for Macmillan Cancer Support, we set up local Facebook groups around our stores, to co-ordinate assistance, distribute our hampers and care packs, and provide a social network to combat loneliness and isolation. We were also proud to be able to support the NHS and social carers, by manufacturing surgical gowns for two hospital trusts, and cloth masks for a Leicester hospital to cover the surgical masks in a children’s ward to make them less scary; donating furniture for the family room at the Nightingale Hospital in London; and providing a 15% discount to NHS and social care workers via the Blue Light app. Colleagues also sewed wash bags for scrubs to be donated to NHS workers.

SUMMARY OF HOW THE BOARD ENGAGES WITH OUR STAKEHOLDERS HOW THIS AFFECTS KEY DECISION-MAKING

SHAREHOLDER ENGAGEMENT IN MORE DETAIL

The Board, as a whole, is able to attain a clear understanding of the views of Dunelm shareholders through various means of engagement and feedback channels:

  • The Chief Executive Officer and the Chief Financial Officer report back to the Board after the investor roadshows.
  • The Group’s brokers and financial PR advisers also provide a written feedback report after the full and half year results announcements and investor roadshows to inform the Board about investor views, and in addition Non-Executive Directors attend a selection of investor presentations.
  • Our Chair and Committee Chairs are available to shareholders and respond on matters relating to their responsibilities where requested. During the year we conducted a consultation exercise in relation to our revised Remuneration policy, and views and concerns were very useful in helping to endorse and refine our thinking.
  • Corporate Governance meetings with our major institutional shareholders, attended by the Deputy Chairman, Will Adderley, the Non-Executive Directors and Company Secretary. Details of this year’s meeting are in the box adjacent.
  • All Directors will be available at the Annual General Meeting to meet with shareholders and answer their questions.

COLLEAGUE FEEDBACK CHANNELS

We have a twice-yearly engagement survey, the results of which are fed back to managers, the Executive Board, and the People Director covers this as part of her regular presentations to the Board. Improvement in colleague engagement is a Group KPI (see page 19). We also have a ‘colleague scorecard’ bringing together key colleague measures, including engagement, retention and gender pay. This is reviewed by the Board at least twice a year. Through the Covid-19 crisis we realised that we needed to have a more immediate way of engaging with colleagues, many of whom were on furlough, and so we set up a colleague ‘blog’ and dedicated resource to answering questions. We also held a weekly CEO video-conference where colleagues could submit questions and these were answered by the CEO or other senior colleagues who participated in the call, and feedback was monitored afterwards.

Our Audit and Risk Committee has approved a policy which allows employees to raise legitimate concerns in confidence without fear of discrimination, including access to an independent whistleblowing helpline. A copy of our policy is available on our corporate website corporate. dunelm.com. Management responds to concerns, takes corrective action, if required, and the Board receives monthly reports detailing the contacts made to the helpline.

BOARD LEADERSHIP AND COMPANY PURPOSE (extract 2)

HOW THE BOARD MONITORS OUR CULTURE

The Board regularly monitors the culture of the business in a number of ways:

  • Through interaction with Executives, members of the leadership team, and other colleagues in Board meetings and on visits to stores and other Company locations.
  • Through regular Board agenda items and supporting papers, covering ‘culture indicators’ such as risk management, internal audit reports and follow-up actions, customer engagement, health and safety, colleague engagement and retention, Glassdoor scores, whistleblowing and regulatory breaches.
  • We review a colleague scorecard at least twice a year, looking at a range of colleague indicators, including engagement, retention, absence, gender pay, diversity, workforce composition and demographics.
  • We engage formally with the colleague representative body, the National Colleague Voice, as well as informally through site visits. Marion Sears, as designated NED for colleague matters, provides a direct, regular and formal route of contact with colleagues.
  • We engage with other stakeholders, as described in the Corporate Governance Report.
  • We review a set of ‘culture KPIs’ once a year alongside our risk register.

During the year, the Board was satisfied that the policy, practices and behaviour of the Board and Dunelm colleagues aligned with the Company’s purpose, values and strategy and that no correction was required by management.