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

Dunelm Group plc – Annual report – 26 June 2021

Industry: retail

Going concern, viability and s172(1) statements (extract)

S172(1) COMPANIES ACT 2006 CONFIRMATION

STATEMENT

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. Full details are set out on pages 14 to 17 of this report and in the Corporate Governance report on pages 100 to 113, which are incorporated into this Strategic Report by reference.

Stakeholder overview (pages 14-17)

Governance & regulatory information (extract)

Board leadership and company purpose (extract)

Section 172 Companies Act 2006

SUMMARY: KEEPING SECTION 172 HIGH ON THE AGENDA

We ensure that the requirements of s172(1) Companies Act 2006 are met and the interests of our stakeholder groups are considered, challenged and debated through a combination of the following practical approaches:

  • The Board sets the Company’s purpose, ambitions and strategy and carries out an annual strategy review which assesses the long-term sustainable success of the Group and our impact on key stakeholders. Agenda items for the following year are set based on the decisions and next steps agreed at these meetings.
  • The Board’s risk management procedures identify the principal risks facing the Group, and the mitigations in place to manage the impact of these risks. Many of these relate specifically to our stakeholder groups.
  • The Company Secretary sets out the text of section 172(1) Companies Act 2006 on every Board agenda by way of a reminder, and notes the relevant factors to be considered against each agenda item, which is reflected in the minutes.
  • Standing agenda points and papers are presented at each Board meeting as detailed on page 116 for example, the Chief Executive Officer presents a Customer report, a Health and Safety report and an update on People matters at each meeting; the Company Secretary reports on sustainability matters in each meeting.
  • There are regularly scheduled in-depth Board presentations and reports: for example, investor feedback twice a year from our brokers and corporate PR advisers; an update on People matters and a ‘Colleague Dashboard’ twice a year; an annual presentation on health and safety; and annual updates on ethical trading, modern slavery and climate change/sustainability.
  • There is a formal review of many of these topics through standard Audit and Risk Committee and Remuneration Committee agenda items, as described later in this report.
  • Where a particular matter or decision requires a balance of stakeholder interests, a summary of the relevant factors is set out by stakeholder in the supporting papers that are submitted to the Board and are minuted.
  • Board members regularly attend seminars organised by external parties which provide updates on investor and governance concerns, including climate change and sustainability. The Company Secretary also regularly attends these events, and circulates a summary of relevant issues and presentations/papers with Board papers.
  • This year, to improve the Board’s awareness of issues relating to diversity and inclusion, the Board attended five training events hosted by Dunelm’s partner, Unleashed. Details are in the Nominations Committee report.
  • The Board regularly reviews the KPIs which it receives in relation to each stakeholder group and requests additional or different information which it finds relevant. For example, at the Board’s request we have developed a ‘customer lifetime value’ measure.

OUR APPROACH TO S172 REPORTING IN FY21

Each of our Directors is mindful of their duties under section 172 (s172) to run the Company for the long-term benefit of its shareholders and, in doing so, to consider the interests of its key stakeholders during its decision-making and the impact of any of its decisions on stakeholder relationships, on the Company’s reputation for high standards of business conduct, and on the environment.

Although we have taken the matters set out in s172 into consideration for many years, the Code requires us to provide specific information about how the Group and the Directors have considered them, with recent guidance encouraging greater insight into the outcome of stakeholder engagement rather than the process itself. The areas encompassed in s172 touch on everything we do, and, in reality, most of the day-to-day decision-making and stakeholder engagement is carried out at the business level by members of our Executive Board, and our senior leadership team. However, more material matters require the attention of the Board and wider discussion, and we describe on pages 14 to 17 and through case studies on pages 108 to 113 how these are considered and challenged through formal Board processes, how the Board engages with stakeholders and how it oversees how the business does so. We include cross references to other sections of this report where more information and examples can be found. The Non-Financial Information Statement on page 175 should be used to identify information relevant to s172 factors, as should the numerous operational actions and outcomes described in our Sustainability section on pages 40 to 75, resulting from significant engagement with various stakeholder groups.

To explain how our Directors carried out their duties we have set out our narrative using the headings 1-7 below.

1 Identification of stakeholders and why they are important

We set out our key stakeholders, what matters to them and why we engage with them on pages 14 to 17 of our Strategic Report. Our actions and decisions are highly likely to impact these stakeholders (and vice versa) and we cannot follow our purpose, live up to our ambitions nor deliver our strategy without them. Our relationships with them are paramount to the long-term success of our business as we have mutual beneficial interests.

We engage with these stakeholders through regular dialogue at an operational level. Our Directors are formally and regularly informed about our stakeholders and their interests, and engage with them formally as well as on a more ad hoc basis. In addition to the Group’s key stakeholders, there are others with whom our Board and/or senior management interact regularly and these are listed on page 17 in the Strategic Report.

How key stakeholders are relevant to our ambitions

Our key stakeholders are important to each strategic element of our ‘plan on a page’ as set out on page 11. However, the importance that we place on each stakeholder group in relation to our longer-term thinking is best demonstrated through our three Group ambitions, as illustrated in the table below. Each key stakeholder has a direct influence on (and interest in) our ability to work towards these ambitions. Our ambitions are aspirational and will still be relevant in the medium to long term, and each ambition is supported by Group KPIs (pages 32 and 33) which indicate the effectiveness of our engagement.

ENGAGING WITH OUR KEY STAKEHOLDERS – FROM OPERATIONAL MANAGEMENT TO BOARD OVERSIGHT

2 Engaging with stakeholders and Board oversight

Taking on board recommendations from the Financial Reporting Council (FRC) and other guidance, this year we provide more detail about how our Executive Board, senior management team and colleagues engage with stakeholders, and explain more clearly how and when our Board members have opportunities to engage directly with stakeholders. Additionally, we share how and how often important stakeholder feedback is presented to the Board for debate and discussion, and we indicate where stakeholders have access to independent reporting mechanisms. A summary of different types of engagement and frequency of engagement is set out in the table on page 105. Further information about how we manage our stakeholder relationships at the operational level can be found in our Sustainability section from pages 40 to 75.

3 Identifying and understanding key stakeholder issues

On pages 15 to 17 in our Strategic Report, we list matters that we know are important to our key stakeholders as a result of our various engagement methods. We do not formally ask our stakeholders to rank the list by importance, as this varies and we consider that our open communication and various engagement channels (as described in the table on page 105) enable us to assess this effectively enough at present.

4 Effectiveness of engagement

On pages 32 to 33 in our Strategic Report, we share Group KPIs, sustainability KPIs and other measures relating to the effectiveness of our engagement that are routinely reviewed by management and the Board. Narrative on performance against Group KPIs and targets for each measure (where available) are reported in detail on pages 32 and 33. Sustainability metrics are presented on pages 42 to 43, with commentary on pages 44 to 75. For some measures, performance is not published owing to commercial sensitivity, or simply owing to their recent adoption.

5 Impact of decisions on climate change and our environment

As a result of our engagement, we know that matters relating to climate change and the environment are considered important to all our key stakeholder groups. In the table below we summarise important climate change and other environmental issues and how these are managed and communicated to our Directors. Details of actions we are taking to understand the impact of climate change and biodiversity on our business, and to monitor and reduce our environmental impact can be found in the Carbon Reduction and TCFD section of our Sustainability section on pages 44 to 49. A case study example of how the Board has taken environmental matters into decision-making can be found on page 109.

6 Reputation for high standards of business conduct

On pages 100 to 102 in this governance report, we explain how the Board oversees and monitors our culture, including how our colleagues are expected to comply with our Code of Business Conduct, and how both colleagues and suppliers must comply with our Anti-Corruption and Anti-Bribery Policy. More importantly, we explain how our shared values and culture guide what we do and how we do things.

7 Actions/change resulting from Board engagement and discussions

When making decisions which require balance across different stakeholder interests, the Board is careful to consider each stakeholder group separately and in the context of the long-term interests of the Company. We also carefully consider whether a decision is consistent with our culture and shared values, and to ensure that we maintain the Group’s reputation. Principal decisions made by the Board during the period where different stakeholder interests were discussed and considered include:

  • Payment of a one-off ‘thank you’ bonus of £250 to all colleagues.
  • Decision to declare an interim dividend in February 2021.
  • Decision to pay rent and service charges due to landlords (albeit monthly in advance rather than quarterly for part of FY20).
  • Decisions about repayment of amounts received in FY20 and FY21 by way of government support through Covid crisis.
  • Payment of some element of bonus and LTIP relating to FY20 to Executives.
  • Decision to increase warehousing capacity and appoint a new partner to provide fulfilment services for our one-man home delivery service.
  • Increased investment to support our sustainability objectives.

On pages 108 to 110 we share three case studies that show how principal decisions made by the Board involved considerable debate and discussion and the balancing of competing interests of key stakeholders.

COLLEAGUE ENGAGEMENT IN MORE DETAIL

The Dunelm Board has always sought honest, direct feedback from our colleagues to help inform and improve the business. We have formal and informal colleague engagement and feedback channels, which reflect our ‘listening’ culture and give our colleagues many opportunities to let us know what they think. We encourage colleagues to engage personally with the business wherever feasible; an independent, confidential whistleblowing helpline is always available, but we aim for this to be used as a last resort. The vast majority of our colleagues deal with our customers and local communities every day and provide valuable insight into our business, and we value their opinions.

During the pandemic, our CEO Nick Wilkinson, our People and Stores Director Amanda Cox, and the senior management team elevated Group-wide colleague communications by increasing frequency and holding authentic, real-time and urgent communication with the workforce about operations. Our ‘Home Comforts’ internal portal worked very well for this purpose and over time the communications style was refined to separate and differentiate between subject matters. Regular operational updates by Nick were complemented by genuine two-way communication blog/chat-style discussions to provide support across the ‘Dunelm family’. These included fun activities and competitions alongside serious topics such as mental health, Pride and personal finance.

Over the last three years we have reorganised the way we collect colleague feedback to ensure we hear from all parts of the workforce and business operations in a representative way, alongside discharging our governance duties.

During FY21 we held seven National Colleague Voice (NCV) meetings. Each was attended by Nick Wilkinson, supported by the People Team and Marion Sears who is our designated Non-Executive Director (NED) for People matters. Other NEDs often attended, together with Executive Board members who led discussions around specialist topics. In April 2021, William Reeve attended to lead engagement on remuneration during which we discussed our approach to Fair Reward at all colleague levels, explained CEO and CFO compensation and asked for feedback. A description of this engagement and feedback received is included in the Remuneration Report on page 168.

We balanced listening and informing and had honest, open and useful conversations on many important topics, using our standard format for each meeting, with three main parts: an update from Nick, a ‘What’s on your mind?’ item where members feed back comments and concerns, and one ‘Big Topic’ where we communicate and seek feedback on important matters. These topics and NED attendees are set out in the table below. After each meeting feedback was summarised and presented at the next Board meeting for noting or discussion. We have elevated the importance of colleague feedback in Board decision-making and our NCV reps know that their engagement is worthwhile and can make a difference. We also continued to work with NCV representatives to refocus regional and area representative structures across the business to improve our two-way information flow. Alongside training, this has made the body more effective. New membership has also improved our representation of different colleague groups, with a good range of age, ethnicity, location, length of service and level of seniority.

SHAREHOLDER ENGAGEMENT IN MORE DETAIL

The Board, as a whole, is able to obtain 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-year 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.
  • Corporate Governance meetings with our major institutional shareholders, attended by the Deputy Chairman, Sir Will Adderley, the Non-Executive Directors and Company Secretary. All Directors will be available at the Annual General Meeting to meet with shareholders and answer their questions.
  • The Company Secretary reviews corporate governance guidelines prepared by our major institutional investors and their representatives and proxy advisers, and attends updates from professional advisers summarising shareholder expectations and voting actions. A summary of recent developments is provided to the Board at each meeting,
  • Attendance and voting at the AGM.

Feedback received is considered in relation to our strategy, capital and dividend policy, and governance priorities. For example, feedback received at investor roadshows in September 2020 was considered in respect of the decision to repay funds received from the Job Retention Scheme; and the latest approach to executive pay was considered by the Remuneration Committee when setting Board pay. Shareholder priorities have also influenced the Board’s approach to climate change and diversity and inclusion.

We last held our regular Corporate Governance meeting in January 2020. This gives the corporate governance representatives of our shareholders an opportunity to discuss a range of governance topics with the Chairman, Deputy Chairman, Non-Executive Directors and the Company Secretary. Attendees have told us that they find it a useful way to exchange views, and we agreed that the ideal frequency for these meetings is once every two years. Matters typically discussed include: overview of our purpose, strategy, shared values and culture; our corporate governance approach; how we are engaging with stakeholders; Board composition and succession planning; the work of the Audit and Risk Committee, Remuneration Committee, and Nominations Committee; and an overview of our sustainability focus areas and progress. We are planning to hold another meeting in January 2022.

Board leadership and company purpose (extract 2)

PRESERVING LONG-TERM VALUE

We have a relatively small Board whose members continue to work effectively together and are committed to promoting the long-term sustainable success of the Company, generating value for all stakeholders, including the wider contribution to the economy and society. The Board believes that good governance supports Dunelm’s purpose, shared values and strategy and is satisfied that these elements and Dunelm’s culture are aligned. For ease of reference and to avoid repetition, strategic elements, evidenced throughout our Strategic Report and in this Governance Report, are listed below:

  • Purpose: In 2021, we launched our new purpose ‘To help create the joy of truly feeling at home. Now and for the generations to come’. Pages 2 to 3.
  • Our shared values and how they align with our purpose, ambition and strategy are detailed opposite and on page 11. In the Strategic Report on pages 28 to 31 we explain our strategy, focus areas and objectives.
  • Our sustainable business model, with an overview of the resources and relationships in place to meet our objectives (and how we share value, contribute to wider society and balance the interests of different stakeholders), is described on pages 28 to 29 and in our report under s172 Companies Act 2006 on pages 103 to 113.
  • Key performance indicators, which are used to measure performance against objectives, including those used to determine bonus and long-term remuneration, can be found on pages 32 and 33.
  • On page 95 in this report, we reiterate how our practical approach to governance supports our strategy and long-term business model.
  • Opportunities and risks to the future success of the business have been considered and addressed and are set out on pages 76 to 88. Details of the Group’s risk management framework, systems and controls and internal control framework are also set out in the same section. This year risks and opportunities related to climate change were discussed in detail, leading to a new climate change governance structure, which is set out in our first report under the Task Force on Climate-related Financial Disclosures (TCFD) on pages 48 to 51.

OUR PURPOSE, STRATEGY, CULTURE AND SHARED VALUES

Our purpose, which we rearticulated this year, is ‘To help create the joy of truly feeling at home. Now and for the generations to come’, was formally adopted in July 2021.

Our purpose explains why we do what we do (i.e. why we exist within the UK homewares market, our long-lasting/sustainable approach and what we seek to achieve). On page 3 we explain the different elements of our new purpose, and on page 2 our CEO, Nick explains how and why it came about – including extensive research and engagement with our colleagues and other stakeholders – and how we intend to communicate it. Our new purpose has already been integrated into the presentation of our strategic plan (page 11) and business model (pages 28 to 29), demonstrating how our purpose, proposition, foundations, strategic focus areas and shared values interlink and are being communicated to internal and external stakeholders. Our purpose also sits at the heart of our sustainability reporting (pages 40 to 75).

Our purpose, ambitions, proposition and foundations are all underpinned by our shared values. These describe how all colleagues in the Company are expected to act and influence our culture. Our Board and senior leadership team role model our shared values which have evolved over time from the business principles formulated by Sir Will Adderley, our Deputy Chairman, over a decade ago, and continue to encapsulate the values of the Company’s founders, the Adderley family. We have been pleased that the evolution of our shared values has never required wholesale alterations – an indication of their strength and importance to the business.

At our Board’s strategy days, our five-year plan and the strategic elements which will deliver the objectives described in it, were debated and challenged in the context of our purpose and shared values.

Our shared values are: Act like owners, Keep listening and learning, Long-term thinking, and Stronger together. They shape how we think, how we respect and treat our stakeholders and how we work together. Our shared values are also reflected in our Code of Business Conduct, our Anti-Bribery Policy, our Ethical Code of Conduct and other policies and such as our Tax Strategy. They are also an important expression of how we look after our colleagues – from employee representation through our National Colleague Voice (NCV) (see pages 111 and 112) to further initiatives in health and wellbeing, and diversity and inclusion. All colleagues learn about our purpose and shared values on induction, they form part of our communications, and colleagues are appraised against them. This year, our revised purpose and shared values were a focus topic for colleague engagement with the National Colleague Voice and more widely throughout the organisation, and colleague feedback was incorporated into our work to ensure that they truly reflect our culture.

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. Colleagues are able to (and do!) speak openly to all Board members and Executives and to feed back ideas of how we can do better.
  • 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. These inform Board and Committee decisions on talent management, share incentives and executive pay, and form part of the assessment of the performance of the Executives.
  • Our Chief Executive, Nick Wilkinson, and at least one of our Non-Executive Directors (by rotation) engages formally at monthly meetings 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. Each meeting includes a ‘Big Topic’ where members are encouraged to feed back views and ideas, and Marion reports back to the Board after each meeting. Further details are set out on page 111.
  • We engage with other stakeholders, as described in the s172 Companies Act section of this Corporate Governance Report.
  • We review a set of ‘culture’ KPIs once a year alongside our risk register. These are set out below:

— Customer NPS, recommendation, satisfaction

— Colleague eNPS, home-grown talent, labour turnover, gender pay gap

— Product Ethical audits completed, ethical audit scores, ethical policy breaches, product recalls

— Safety RIDDORs, accident/footfall rate

— Compliance Prosecutions, reportable data breaches, Bribery Act training completed,

whistleblowing reports

  • As an overall proxy for measuring ‘culture’ we use our colleague engagement (eNPS) – a Group KPI, which is also a remuneration measure (annual bonus) for our CEO and

CFO and all members of the Executive Board.

During the year, and at the formal reviews in September 2020 and September 2021, 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.