Corporate Governance Statement
The Board recognises that good standards of corporate governance help Sterling Energy PLC (“Sterling” or the “Company”) to achieve its strategic goals and is vital for the success of the Company. The Company adopts proper standards of corporate governance and follows the principles of best practice set out in the Quoted Companies Alliance Governance Code (2018) (“QCA Code”) as far as is appropriate for the size and nature of the Company and the Group. Set out below are the ten guiding principles of the QCA Code and how the Company applies those principles within its business as well as identifying those areas where the Company will make future changes to more fully comply with the Code.
The Company is also subject to the City Code on Takeovers and Mergers.
Principle 1: Establish a strategy and business model which promote long-term value for shareholders
The Chairman’s statement on p5 of the Report and Financial Statements 2017 (“Annual Report”) sets out the strategy to promote the long-term success of the Company. The Chief Executive’s Review contained a statement regarding Shareholder alignment and strategy at p7 of the Annual Report. Further details of the Company’s strategy and business model can be found on its website at page About us and page Operations.
Principle 2: Seek to understand and meet shareholder needs and expectations
The Board attaches great importance to providing shareholders with clear and transparent information on the Group’s activities, developments and financial position. Details of all shareholder communications are provided on the Company’s website on the Investors page and regular shareholder communications are made through RNS providing updates to shareholders on matters of material substance and of a regulatory nature.
The largest shareholder, Waterford Finance and Investment, has board representation via Michael Kroupeev, the non-executive Chairman and one other non-executive Director is also a shareholder representative and not considered independent. The Board typically hold meetings with institutional investors and other large shareholders following the release of interim and final financial results. Despite the above, the Board notes that all shareholder are to be treated equally, with access to the same information.
The AGM, which is held at a central London location, provides a good opportunity for all shareholders, particularly private shareholders, to communicate directly with the Board via an open question and answer session and all shareholders are given the opportunity to ask questions of the Board. The resolutions put to a vote at the AGM can be found in the Notice of AGM and details of the proxy votes received by the Company for each resolution put to the AGM are published via RNS following the AGM.
Contact details are on the Company’s website and contact details of the Company and the Company’s advisors are contained on all announcements released via RNS should shareholders wish to communicate with the Board. The Chairman and CEO, where appropriate, typically respond to shareholder queries directly (whilst maintaining diligence on Market Abuse Regulations restrictions on insider information and within the requirements of the AIM Rules for Companies).
Leo Koot, the Senior non-executive Director is available to discuss any matter shareholders might wish to raise should the normal channels of contact be inappropriate. The Company Secretary can also be contacted by shareholders on matters of governance and investor relations.
The Annual Report is considered a key area of communication with shareholders by the Board and is sent to all shareholders and can be downloaded from the website here. Copies of all the Annual Reports and interim financial statements for the last 5 years are available on the website as well as other investor presentations.
Principle 3. Take into account wider stakeholder and social responsibilities and their implications for long-term success
The Board recognises its primary responsibility under UK Corporate law to promote the success of the Company for the benefit of its members as a whole. The Board also understands it has a responsibility towards employees, partners and the communities in which Sterling operates.
The Group is committed to conducting its business in a responsible and sustainable way. The Group has corporate, environmental and social responsibilities to the indigenous communities in the areas in which it operates, to its partners, to its employees and to its shareholders. In pursuing its business objectives it undertakes not to compromise its Corporate Social Responsibility with any of these stakeholders. More detail of the Company policies with respect to HSSE (Health, Safety, Security and Environment), corporate responsibility, business integrity, community responsibility and employees can be found at p22 – p 23 of the Annual Report.
Sterling is committed to operating in a safe, ethical and responsible manner, respecting the environment, our staff, contractors and the communities in which we work. This is at the heart of our working practices and each M&A opportunity evaluated considers these aspects.
In parallel with consideration of M&A opportunities, the overarching focus for management has been on continued cash preservation and to that end the Company moved to a smaller and more cost-effective office space in Holborn with the intention of further G&A cost savings materialising in 2018.
Principle 4. Embed effective risk management, considering both opportunities and threats, throughout the organisation
The Board is responsible for putting in place and communicating a sound system to manage risk and implement internal control. Led by the Chairman the Board determines the Company’s appetite for risk and reviews the risks facing Sterling on an on-going basis and formally, at least annually. The principle risks and uncertainties facing the Company are set out in the Annual Report on pages 19 – 23. In addition the Board considers a more detailed range of opportunities and threats balanced against potential risks and returns to the Company.
Principle 5: Maintain the Board as a well-functioning, balanced team led by the Chair
Details of the Board of Directors can be found on p26 of the Annual Report. Since the publication of the Annual Report Eskil Jersing (who had tendered his resignation as CEO) has left the Company and David Marshall was appointed as CEO on 6 June 2018. David’s biography and career history can be found here.
The Board is comprised of one executive director and three non-executive directors. Of the three non-executive directors, only Leo Koot is considered to be independent although each of the non-executive directors bring challenge and support to the executive director. Given the current stage of development of the Company’s operations and its focus on completing a material, transformative M&A transaction, the Board consider the current composition to be appropriate for the Company at this time. Board composition is regularly reviewed to consider the balance of skills, personal qualities and diversity as well as a focus on succession planning as and when the Company completes an M&A transaction, whereupon the balance of skills, experience and knowledge will be reconsidered.
The Board and each of the Board Committees are provided with timely and accurate information sufficiently ahead of each Board meeting to enable Board and Committee members to have sufficient time to review and analyse the information provided. The Board meets monthly and the Committees meet on a less regular basis with the Audit Committee meeting at least twice a year, the Remuneration Committee meeting at least once a year and the Nomination Committee meeting as required. In addition, as required, the Board holds conference calls to discuss urgent matters.
The Chief Executive is a full-time position. Non-executive Directors are expected to commit sufficient time to ensure they are fully briefed in the Company’s affairs, have reviewed the Board pack provided ahead of meetings as well as attending Board meetings. Non-executive Directors are also required to attend ad-hoc calls of the Board as well as other Company business when required and liaise with the executive Director and other members of the team between Board meetings as needed. The time commitments of each of the Directors was discussed with each director prior to appointment and each director was required to confirm they had sufficient time to fulfil the role before accepting the appointment.
Further details of board meetings and Board committee meetings can be found on p28 of the Annual Report.
Principle 6: Ensure that between them the Directors have the necessary up-to-date experience, skills and capabilities
The skills and experience of the Board are set out in each of their biographical details on p26 and p27 of the Annual Report and on the Company’s website here. The Board has significant industry, financial, public markets and governance experience coming from a diverse range of backgrounds and bringing a mix of experience, skills and personal qualities to deliver the Company’s strategy and put into effect the Company’s business plan.
As stated above Board composition is regularly reviewed to consider the balance of skills, personal qualities and diversity. There are currently no women appointed to the Board and the Board is mindful of the issue of gender balance on the Board however appointments are made based on ensuring the candidate offers the required skills, knowledge and experience to the Board as a whole.
Each Director takes their continuing professional development seriously and undertakes training from relevant professional and industry bodies in the form of attending seminars, conferences and continual updates of knowledge and industry practice. Each Director and the employees of the Company are required to undertake Anti-Bribery and Corruption training on an annual basis.
As well as providing training on compliance with the AIM Rules on induction, the Company’s Nomad provides regular updates to Board members in the areas of governance and AIM Regulations. The Directors have access to the Company’s other advisers as required including the Company Secretary, legal advisers and auditors and have the authority to obtain external advice as deemed necessary.
David Marshall who was appointed to the Board in June 2018 is following an induction programme tailored to his existing knowledge and experience.
Principle 7: Evaluate board performance based on clear and relevant objectives, seeking continuous improvement.
Performance evaluation takes place annually for individual Directors, the Board and its Committees and includes assessing the effectiveness of the Board as a whole. The evaluation of the performance of Directors is carried out using peer appraisal questionnaires which combine business and personal performance and includes discussions with the Senior Independent Director and the Senior Independent Director with the Chairman. Aspects of performance include attendance and participation at Board meetings, quality of involvement in Committees, commitment and effectiveness of their contribution to Board activities (including the AGM and shareholder communications), the adequacy of training and non-executive Directors’ independence. The process is conducted and reviewed by the Senior Independent Director, on behalf of the Nominations Committee; the Company Secretary is advised of its completion. The performance of the Chairman is reviewed annually in a meeting of the non-executive Directors, led by the Senior Independent Director. This review considers the view of the executive Director.
Board composition is regularly reviewed to consider the balance of skills, personal qualities and diversity as well as a focus on succession planning as and when the Company completes an M&A transaction whereupon the balance of skills, experience and knowledge will be reconsidered.
Principle 8: Promote a corporate culture that is based on ethical values and behaviours
The highest ethical standards are a cornerstone of the Group’s business. The Group is committed to conducting its business with integrity, honesty and fairness. All business activities are reviewed to ensure they meet these standards. The Group also seeks to ensure that similar standards are applied by its business partners, contractors and suppliers. All members of staff are individually accountable for their actions to ensure that they apply and maintain these standards.
The Directors are mindful of the industry that the business operates in and of the impact of the Company’s business on its employees, contractors, the environment and on the wider community. In particular, the importance of delivering success in a safe environment is not undermined.
The Company policies with respect to HSSE (Health, Safety, Security and Environment), corporate responsibility, business integrity, community responsibility and employees are set out on pages 22-23 of the Annual Report. All relevant policies are available to staff on the staff share point site. Training is provided in relation to key Company policies. Policies are reviewed at least annually and more significant policies are reviewed on a more regular basis.
A whistleblowing policy is in place which enables employees to make anonymous reports directly to the Senior Independent Director. The Company has a zero-tolerance approach to bribery and corruption and has an anti-bribery and corruption policy in place to protect the Company, its employees and those third parties to which the business engages with. The policy is provided to staff upon joining the business and training is provided to ensure all employees within the business are aware of the importance of preventing bribery and corruption. Annually staff are provided with refresher courses to ensure that the issues of bribery and corruption remain at the forefront of people’s minds.
Principle 9: Maintain governance structures and processes that are fit for purpose and support good decision-making by the Board
The Board retains collective responsibility for the success of the Company and is ultimately accountable for good governance and for monitoring and guiding the executive team. No one individual has unfettered powers of decision.
The Chairman leads the Company’s approach to key areas for the Company including corporate governance, corporate culture and risk appetite. The corporate governance framework of the Company will be reviewed as and when the Company completes an M&A transaction and appropriate governance will be developed to reflect the Company, its assets and its corporate structure following any such transaction.
The Chairman is responsible for ensuring that the Board effectively discharges their responsibilities and is also responsible for facilitating effective board meetings with full and constructive contribution from each member of the Board.
Each of the Directors has extensive knowledge of the oil and gas industry combined with general business and financial skills and public market skills. All the Directors bring judgement to bear on issues of strategy, performance, resources, key appointments and standards. The Board meets regularly throughout the year and high-quality information is supplied to the Directors on a timely basis to enable them to discharge their duties effectively.
The Chairman is the main contact point for shareholders and other stakeholder groups. The CEO works closely with the Chairman and the other non-executive directors to lead the performance of the Company and is tasked with delivering the strategy and business plan as determined by the Board as well as being tasked with the financial performance of the Company.
A formal schedule of matters specifically reserved for the Boards decision include strategic planning, business acquisitions and disposals, authorisation of major capital expenditure and material contractual arrangements, changes to the Group’s capital structure, setting policies for the conduct of business, approval of budgets, remuneration policy of Directors and senior management, and taking on debt and approval of financial statements. Other matters are delegated to the Committees of the Board and executive Director, supported by policies for reporting to the Board.
Leo Koot is the Senior Independent Director and is available to all stakeholders should it be more appropriate to liaise with him rather than the Chairman.
Leo Koot is the Chair of the Audit Committee and the Remuneration Committee. Ilya Belyaev sits on the Audit Committee and the Remuneration Committee.
Michael Kroupeev is the Chair of the Nominations Committee which all Directors sit on.
The Audit Committee is responsible for making recommendations to the Board on the appointment of the auditors and the audit fee and for ensuring that the financial performance of the Group is properly monitored and reported. In addition, the Audit Committee will receive and review reports from management and the auditors relating to the interim report, the Annual Report and the financial accounts and the internal control systems of Sterling. The terms of reference for the Audit Committee can be downloaded here.
The Remuneration Committee is responsible for the review and recommendation of the scale and structure of remuneration for the Executive Director and senior management, including any bonus arrangements or the award of share options with due regard to the interests of shareholders and the performance of Sterling. The terms of reference for the Remuneration Committee can be downloaded here.
The Nominations Committee is responsible for identifying and nominating members of the Board, recommending Directors to be appointed to each committee of the Board, and the chair of each such committee. The Nominations Committee will also arrange for evaluation of the Board. The terms of reference for the Nominations Committee can be downloaded here.
The executive Director is not a member of the Company’s Audit Committee or Remuneration Committee, however, where appropriate, he and other employees of Sterling may be invited to attend meetings to provide a suitable context for its discussions.
Sterling has adopted and operates a share dealing code governing the share dealings of the Directors and employees of the Company with a view to ensuring compliance with the AIM Rules and the Market Abuse Regulation.
The largest shareholder, Waterford Finance and Investment Limited, has board representation via Michael Kroupeev, the non-executive Chairman. A relationship agreement is in place between Sterling and Waterford Finance and Investment Limited which hold approximately 29.5% of the entire issued share capital of the Company. Waterford Finance and Investment Limited is an oil and gas focused vehicle specialising in the financing of oil, gas and other energy related projects in emerging markets and was founded by Michael Kroupeev, Chairman.
The Company has an approved NED LTIP in place, however all options were forfeited by the then Non-executive Directors on leaving the Group in 2016. There have been no options granted under the plan since 2012 and the Board do not intend to grant further options under this approved NED LTIP at this time.
Principle 10: Communicate how the Company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders
The Board recognises that meaningful engagement with all stakeholders is vital to the continued success of the Company.
At the last AGM no significant votes (identified as 20% of independent votes) were cast against any resolution. Nearly 10% of votes were cast against resolution 8 at the last AGM and the Board has engaged with shareholders to understand their concerns surrounding this resolution. Those concerns have been noted and the Board does not intend to seek share buyback authority to the same quantum at the next AGM.
The result of the AGM is announced via RNS and the proxy votes cast are included in that RNS here.
The Annual Report includes the Audit Committee Report (p29), the Remuneration Committee Report (p32) and the Nomination Committee Report (p31) here.