The Board is committed to the principles of the revised UK Corporate Governance Code (‘the Code’) published by the Financial Reporting Council. The Code is publicly available on the Financial Reporting Council's website at: www.frc.org.uk.
JKX has a diverse Board comprising directors drawn from a wide range of professional backgrounds.
The Board comprises seven directors: a Non-Executive Chairman, two executive directors, and four Non-Executive Directors. Details of each of the current directors are provided on Our Board page.
The Board is Chaired by Paul Ostling who was previously a partner at Ernst & Young and has extensive financial experience in international groups. Paul, in consultation with the Executive Directors, sets the agenda for Board meetings.
Bernie Sucher is the Senior Independent Director ('SID'). The SID is available for discussions with other Non-Executive Directors who may have concerns which they believe have not been properly considered by the Board as a whole. He also acts as an alternative point of contact for the Executive Directors, if required, in addition to the normal channels of the Chairman and Chief Executive Officer.
A key responsibility of the SID is to ensure he is available to shareholders if they have concerns that have not been resolved by contact through the normal channels of Chairman, Chief Executive Officer or other Executive Directors, or where such contact is inappropriate.
The Board is responsible to shareholders for leading, developing and protecting the interests of the Company and delivery of sustainable financial performance and long-term shareholder value.
Matters reserved specifically for the Board are clearly laid down. Key matters reserved for the consideration and the approval of the Board are:
- setting and monitoring Group strategy
- review of Group business plans, trading performance and overhead costs
- review and approval of the annual operating and capital expenditure budgets
- approval of capital investment projects across the Group
- examination of acquisition opportunities, divestment possibilities and significant financial and operational issues
- remuneration policy (through the Remuneration Committee)
- appointments to the Board (through the Nomination Committee) and senior management, Committee membership and remuneration for directors and senior management
- review and approval of the Company’s financial statements (through the Audit Committee)
- setting any interim dividend and recommendation of the final dividend and
- ensuring that the major business risks are actively monitored and managed using robust control and risk management systems (supported by the Audit Committee).
All other authorities are delegated by the Board, supported by appropriate controls, to the Chief Executive Officer on behalf of senior management.
The Chairman, in consultation with the Executive Directors, sets the agenda for Board meetings. All directors receive comprehensive documentation prior to each meeting on the matters to be discussed to enable them to exercise their judgement in the discharge of their duties.
All directors are encouraged to participate in site visits to the Group’s operations and to meet local employees.
As well as appropriate training and briefings and access to the Company Secretary, all directors may obtain independent professional advice in respect of their duties to the board and to its committees at the Company’s expense. The Company maintains liability insurance for its directors and officers.
Chairman and Chief Executive Officer
A clear division of responsibilities at the head of the Company is demonstrated in the separation of positions of the Non-Executive Chairman, Paul Ostling, and the Chief Executive Officer, Tom Reed. Paul is responsible for the leadership of the Board and for ensuring effective communication with shareholders, Tom is responsible for leading and managing the business.
The Non-Executive Directors bring a broad range of business and commercial experience to the Company which allows them to effectively and constructively challenge the performance of the Executive Board and their strategy and monitor the performance of the senior management team in the delivery of the agreed objectives and targets.
In addition to Board meetings, the Non-Executive Directors meet in private session, both as a group and without the Chairman, at least once annually to discuss current issues affecting the Group.
Evaluation of the performance of Directors, the Board and its committees is undertaken as follows:
- the Executive Directors are evaluated by the Non-Executive Directors in informal session
- the Chairman is evaluated by the other Non-Executive Directors taking into account the views of the Executive Directors
- the Committees are evaluated by the Non-Executive Directors along with the Chief Executive, taking into account the views of the other Executive Directors
- the Non-Executive Directors, excluding the Chairman, are evaluated by the Chairman and Chief Executive, taking into account the views of the other Executive Directors and
- the Board as a whole evaluates its own performance by consolidating and discussing the reviews set out above.
It is the Board’s view that the Non-Executive Directors have sufficient time to fulfil their commitments to the Company and that no Executive Director holds a Non-Executive Directorship, nor Chairmanship, in a FTSE 100 company.
The Board has established the following standing committees:
||Alan Bigman (as Chairman), Paul Ostling, Bernie Sucher and Vladimir Rusinov
||Bernie Sucher (as Chairman), Paul Ostling, Alan Bigman and Vladimir Tatarchuk
||Paul Ostling (as Chairman), Alan Bigman and Bernie Sucher
The Audit Committee has Terms of Reference agreed by the Board and available to shareholders on request. On an on-going basis the Audit Committee:
- Monitors the integrity of the financial statements of the Group and regulatory announcements and reviews significant financial reporting judgements
- Monitors adequacy and effectiveness of the Group’s internal control, risk management and financial reporting processes
- Provides the Board with an independent assessment of the Group's accounting affairs and financial position
- Provides the Board with assurance that the Annual Report and Accounts and presented in a manner that is fair, balanced and understandable, so as to enable shareholders to assess the Group's performance, business model and strategy
- Recommends (re-)appointment of the external auditors to the Board and annually assesses their independence, objectivity, effectiveness, quality, remuneration and terms of engagement, as well as ensuring that the policy with regard to their appointment for non-audit services is appropriately applied
- Monitors the adequacy and effectiveness of the internal audit function and the Risk Committee and reviews any significant matters arising
- The Audit Committee Terms of Reference can be accessed below.
The meetings may, by invitation, be attended by the Chief Executive, the Chief Financial Officer, the Head of Compliance and representatives from the external auditors. The Audit Committee Chairman maintains contact with those other attendees throughout the year.
The Audit Committee maintains an objective and professional relationship with the Company’s auditors, PricewaterhouseCoopers LLP, who have been auditors to the Group since 2006, and meets in private session with them on a periodic basis. Following a competitive tender process in June 2011, PricewaterhouseCoopers LLP were reappointed as the Company’s auditors.
From time to time, the auditor is requested to perform non-audit engagements for the Group. In such instances the continued objectivity and independence of the auditors in their capacity of auditor is an objective of the Group. To meet this objective the Audit Committee is delegated the role of vetting the appointment of the auditor on specific engagements including considerations of materiality and, where necessary, requiring a competitive tender for such work.
The Company promotes a culture of openness and encourages staff to raise any concerns of possible improprieties in matters of financial reporting or other matters, if necessary in confidence. The Audit Committee has reviewed arrangements for such concerns to be raised, investigated and if necessary followed up.
The Remuneration Committee currently comprises Non-Executive Directors. The Chief Executive attends meetings by invitation, except where his own remuneration is being discussed.
The Remuneration Committee, which has terms of reference agreed by the Board and available to shareholders on request, meets at least twice a year, to assist the Board in determining the remuneration arrangements and contracts of the Directors and senior employees.
The Remuneration Committee employs the services of Kepler as remuneration consultants on an as required basis. Kepler have no other connection with the Company.
No Director is involved in deciding his own remuneration.
The Remuneration Committee has reviewed the Code, specifically Section D that addresses the level, make up and procedural aspects of remuneration. The Remuneration Committee considers that it complies with all the provisions and practices identified.
The Nomination Committee meets as it determines is appropriate and generally meets once a year and more frequently if required. The Committee is responsible for reviewing and recommending to the Board suitable candidates for appointment as Directors of the Company.
The Committee reviews the structure, size and composition (including the skills, knowledge and experience) required on the Board and considers succession planning. For the appointment of new directors to the Board there is a formal, rigorous and transparent procedure, which is based on merit and against objective criteria. Proposals for new Board members are submitted to the full Board for approval.
In making appointments to the Board, the Nomination Committee considers the skills, experience and knowledge of the existing Directors and assesses which of the potential candidates would most benefit the Board with due regard to the benefits of diversity, including gender diversity. It considers the potential candidate’s knowledge and experience of eastern and central European markets, the oil and gas industry in that region, capital markets and the regulatory environment, and in the case of Non-Executive Director appointments, they have sufficient time to devote to the role.
The Chairman ensures that any new Directors are provided with a full induction on joining the Board. The letters of appointment of each Non-Executive Director are available for inspection at the registered office of the Company.
Separate to the Nomination Committee, the Board discusses the skill set and experience of the individual Board members, the need for additional appointments, succession planning and the need for progressive refreshing of the Board.
The Board is responsible for identifying and evaluating the major business risks faced by the Company and for determining and monitoring the appropriate course of action to manage these risks. The Audit Committee monitors the integrity of the financial statements and announcements, reviews the Company’s internal control processes and risk management systems and reports its conclusions to the Board.
A system of internal control 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 miss-statement or loss.
The Board is responsible for the Company’s systems of internal control and risk management.
The Company’s procedures, policies and systems are appropriate and suitable to enable the Board to safeguard shareholders’ investment and the Company’s assets, and comply with Turnbull Guidance.
Following the growth in the size and geographic spread of the Group’s operations, in early 2013 the Audit Committee engaged an international external firm to report on the adequacy of the Group's procedures and controls in Russia and Ukraine and to assist with the implementation of the Group's internal audit function.
This has strengthened the finance and operational functions in these key operating subsidiaries.
Internal control and risk management
The Board is responsible for identifying and evaluating the major business risks faced by the Company and for determining and monitoring the appropriate course of action to manage these risks. The Audit Committee reviews the Company's internal control processes and risk management systems and reports its conclusions to the Board.
The Risk Committee was established in 2012 and has embedded processes and reporting capabilities that provide us with an appropriate risk framework which continues to develop.
The key elements of the risk management process are:
- Risk identification - risks faced by the Group are identified by senior management and risk owners, who periodically review the risks to ensure that the risk management processes and controls in their area are appropriate and effective, and that new risks are identified.
- Risk assessment - the consequence and likelihood of each risk materialising is assessed. Risk register are used to document the risks identified, the level of severity of its impact and probability of occurrence, ownership and mitigation measures for each risk.
Risks are then logged and the Risk Register is reviewed by the Risk Committee at least three times per year.
The Audit Committee monitors the adequacy and effectiveness of the Group's internal control, risk management and financial reporting processes on behalf of the Board.
The Risk Committee assists the Executive Directors in the operation and implementation of the risk management processes and provides a source of assurance to the Audit Committee that the process is operating effectively.
The Company maintains an effective and reliable accounting and management information system. The Board receives a monthly report that monitors: actual performance against budget and forecast for oil and gas production; sales and costs; and provides the Board with information on issues including debtors, the cash position, cash flow forecasting and the financial implications of key sensitivities including changes in commodity prices, production and exchange rates.
In light of the recent challenging economic times our continued focus on good corporate governance helps us to identify and resolve any issues before they become major problems.
Each year the Board approves the Group’s annual budget with key risk areas identified. The preparation of the annual Group budget is a multi-stage comprehensive process led by the Finance Director assisted by the group financial controller who works closely with local finance directors for operating subsidiaries in Russia and Ukraine and other senior management with specific responsibilities for our Hungarian, Slovakian and other operations.
Performance is monitored through the monthly reporting to the Board of variances from the budget. Relevant action is taken by the Board throughout the year based on updated forecasts which are prepared using current information on the key risk areas and sensitivities.
Corporate accounting and procedures manual
Responsibility levels are communicated throughout the Group as part of the corporate accounting and procedures manual. This sets out, inter alia, the general ethos of the Group, delegation of authority and authorisation levels, segregation of duties and control procedures together with accounting policies and procedures. The manual, which includes policies common to all Group companies along with company specific procedures and controls is reviewed regularly and updated as required.
The application of internal financial control and operational procedures in our overseas operations are reviewed regularly and updated as necessary during frequent visits to the overseas offices by Head Office staff.
Quality and integrity of personnel
The integrity and competence of personnel is ensured through high recruitment standards and subsequent training courses. High quality personnel are seen as an essential part of the Group’s control environment. The ethical standards expected of staff are communicated through the corporate accounting and procedures manual.
For each capital intensive project there is a rigorous project analysis and risk and return appraisal completed using technical, financial, commercial, and operational specialists across the Group.
We employ a sub-surface technical team in our London Head Office to monitor, assess, appraise and oversee all on-going Group projects and potential opportunities. This has improved our ability to identify the potential risks, rewards and value in new capital intensive opportunities and to efficiently utilise the available resources to maximise returns from our existing portfolio of oil and gas assets.
Capital investment is regulated by the budgetary process and pre-defined authorisation levels.
For expenditure beyond specified levels, detailed written proposals are required to be submitted to the Board. Capital expenditures are reviewed with major overruns in terms of cost and time being investigated.
The authority of the directors is required for key treasury matters including changes to equity and loan financing, interest rate and foreign currency policy including foreign currency hedging, oil price hedging, cheque signatories and opening of bank accounts.
The internal financial control situation is reported to the Audit Committee, which reviews the effectiveness of the system of internal financial controls as it operates and reports its conclusions to the Board.
Communication with shareholders
The Board places considerable importance on communication with shareholders and is proactive in obtaining an understanding of shareholder preferences. A number of formal communication channels are used to account to shareholders for the performance of the Group, which include the Annual Report and Accounts, AGMs and periodic reports to the London Stock Exchange. Presentations given at appropriate intervals to representatives of the investor community are available to all shareholders to download from the Group’s website (www.jkx.co.uk).
Extensive information about the Group’s activities is provided in the Annual Report and Accounts and the Half-yearly Report which are sent to shareholders. Enquiries from individuals on matters relating to their shareholding and the business of the Group are welcomed and are dealt with in an informative and timely manner. Shareholders are encouraged to attend the Annual General Meeting to discuss the progress of the Group.
Conflicts of Interest
The Company complies with the provisions on conflicts of interest in the Companies Act 2006. The Company has in place procedures for the disclosure and review of any conflicts, or potential conflicts, of interest which the Directors may have and for the authorisation of such conflict matters by the Board. In deciding whether to authorise a conflict or potential conflict the Directors must have regard to their general duties under the Companies Act 2006. The procedure operates to ensure the disclosure of conflicts, and for the consideration and if appropriate, the authorisation of them by Non-Conflicted Directors.
The authorisation of a conflict matter, and the terms of authorisation, may be reviewed at any time by the Board. The Nomination Committee supports the Board in this process, both by reviewing requests from Directors for authorisations of situations of actual or potential conflict and making recommendations to the Board and by reviewing any situations of actual or potential conflict that have been previously authorised by the Board, and making recommendations regarding whether the authorisation remains appropriate.
The Board comprises five men.
The Board supports the longer term aspirations of Lord Davies’s report regarding gender diversity on appointment of directors to boards. Gender is only one aspect of diversity, and there are many other attributes and experience that can improve the board’s ability to act effectively. We will continue to search for the highest quality people with the most appropriate experience for the requirements of the business, be they men or women.
The Board closely monitors and manages its liquidity risk. Cash flow forecasts are regularly produced and sensitivities run for different scenarios including, but not limited to, changes in commodity prices, different production and tax rates in relation to the Group’s producing assets and delays to development projects.
Please see our Risk Management Policy statement.