Corporate Governance

Chairman’s opening statement

The Board is focused on developing the Group for the long-term benefit of all shareholders, with well-informed and effective decision making. As part of this, the Board takes corporate governance seriously and has adopted the QCA Corporate Governance Code.

I am pleased to share with you our governance structure and the improvements that have taken place over the past year. For ease, we have structured this to align with the principles of the Code.

John Charlton
Chairman, June 2019

Principle 1: Establish a strategy and business model which promote long-term value for shareholders

The Group continues to operate under a governance structure, which is designed to be flexible and efficient in creating sustainable long-term growth in shareholder value.

Our key focus is to continue to drive the Group forward and keep us reaching for the high standards and targets we set ourselves. We do this by leveraging our strengths and the many opportunities to grow in the market. Our strategy focuses on:

  • Working with the winners – increasing revenue through organic growth with both existing and new customers, suppliers and product areas.
  • Design and innovation – developing new opportunities in new channels and adjacent product categories while expanding our presence in the growing market for celebrating events throughout the year.
  • Efficiency and scale – driving margins through investments in processes and people; and pursuing accretive M&A opportunities focused on unlocking synergies through economies of scale and strengthening our ‘one-stop-shop’ position with customers.

Further detail on the Group’s strategy and business model, as well as the key challenges faced by the Company in achieving its goals, can be found on pages 06 to 15 and 36 to 39 of the Annual Report 2019.

 

Principle 2: Seek to understand and meet shareholder needs and expectations

This year has been particularly noteworthy with the Group, as part of the acquisition of Impact Innovations, Inc., raising c£50 million from investors to support the financing of the deal. This was significantly oversubscribed and a good indication of the strong relationship between the Company and its shareholders, both existing and new.

At the start of 2019 the Company appointed Canaccord as its Nomad and Broker. Canaccord has a wide international reach and is well placed to support the Group’s ambitions for growth in the future.

Our CEO and CFO have maintained regular contact with our institutional investors as can be seen in the timeline below:

18 April 2018: Trading update
24 April 2018: Investor day
4 May 2018: Regional investor roadshow
11 May 2018: Capital market day at our business in Wales
11-20 June 2018: Preliminary results announcement followed by an investor roadshow
26 June 2018: Investor day
3 September 2018: Equity raise
5 September 2018: Annual General Meeting
14 September 2018: Investor day
17 September 2018: Extraordinary General Meeting
27-30 November 2018: Interim results announcement followed by an investor roadshow
8 January 2019: Appointment of new Nomad/Broker
22 January 2019: Trading update
24 January 2019: Investor day
30 January 2019: Capital market day at our business in Wales
1 February 2019: Investor day
26 March 2019: Capital market day at our business in Wales
27 March 2019: Investor day

Following investor meetings, the full Board receives feedback on the views and concerns of investors and regularly receives copies of investment reports from analysts.

Individual investors

In addition to our focus on institutional investors, we aim to engage with individual and retail investors on a regular basis.

Our AGM gives us the ideal opportunity to meet with individual investors faceto-face. It is important that all investors have a platform to raise questions or make comments whilst also enabling us to give visibility of, and interaction with, the Board.

All our investors are regularly kept up-to-date with announcements, circulars, videos and reports, all of which are available on the Company’s website. In September 2018 we were proud recipients of a silver award at the Corporate & Financial Awards 2018 in the category of ‘Best printed report: AIM/small cap’. The award was in recognition of our printed annual report and financial statements and is a testament to the Group’s efforts to communicate clearly and transparently with investors.

Nikky Geairns, is primarily responsible for shareholder liaison, and can be contacted at ngeairns@thedesigngroup.com. Contact details for the Company’s PR Advisers, Brokers and Registrars are also set out in the ‘Contact’ section of the Company’s website.

 

Principle 3: Take into account wider stakeholder and social responsibilities and their implications for long-term success

All of our stakeholders – our employees, customers, suppliers and communities – are vital to the success of the Group.

Employees

We invest in our people; from training and education offered throughout the Group, through to opportunities for career progression. The Group offers an environment in which our employees are encouraged to grow and deliver their very best. It’s these same opportunities which allow the Group to attract and retain the brightest talent.

Training

All our Business Units provide relevant and up-to-date training for employees. This year Australia invested in a new Workplace Compliance System which will see a move away from ad hoc training to a more structured training of awareness programme being utilised. Initially set up to provide key training of awareness in Bullying, Sexual Harassment, Equal Opportunity, Privacy and Social Media and the Internet, the system has the capability to include additional modules in the future.

The Design Group Academy operating in our Celebrations business in Europe is a powerful tool to train employees in the skills needed for their roles, as well as rolling out key compliance initiatives. The purpose built classroom provides a relaxed and comfortable environment in which employees can focus on their learning away from their usual work stations. In addition, they operate a separate programme for sales managers the ‘Sales Improvement Group’. In its second year of a three year programme the key emphasis is coaching and is specifically targeted to the day-to-day issues which sales managers face.

Talent

Our Business Unit Managing Directors were recently asked as part of our succession planning to highlight who the ‘Stars of the Future’ are within their businesses and share the development plans in place that underpin their progress. The information will be reviewed bi-annually by the Group’s Executive Committee. Consideration will be made as to what inter-company/Group-wide experience could be given and will also highlight ‘gaps’ that may need filling within the organisation for the future.

In the UK we run a twelve month development programme in conjunction with an external provider for individuals who demonstrate the desire and capability for future promotion. This is a tailored training programme which also includes a dedicated mentor from the senior leadership team and one-to-one coaching.

Information and feedback

Our Business Units use a variety of methods to enable effective two-way communication with employees. These range from semi-annual all-employee meetings (with web-ex facilities for remote team members) to smaller scale weekly catch ups. Comment boxes and staff surveys are also used and various alternatives in between. Local management in Australia catch up with the office and warehouse teams quarterly for pizza, service awards and a business review.

We recently reviewed the methods by which we encourage our employees, worldwide, to raise feedback and concerns. We had a number of local country-based initiatives so knew our employees were able to speak up, however, we recognised the need for an independent telephone hotline enabling employees across the world to raise concerns confidently (and anonymously should they wish). This was rolled out at the end of March and we look forward to seeing how it is utilised over the coming year.

Engagement

This year our Celebrations business in Europe redesigned its staff canteen providing comfortable seating, TV screens and table football to encourage employees to take breaks away from their desks and to mix across functions.

Each location recognises birthdays and service anniversaries. The US holds employee picnics and monthly employee events often linked to key celebrations in that month e.g. Super Bowl in January, Valentine’s day in February. Similar events are held in Australia, teams within the business are tasked with running the special events which ensure that everyone is involved.

Customers

Through recognising that each of our customers is unique and so requires a different service to satisfy their needs and expectations, we work hard to build deep and lasting relationships with our customers.

Highlights to note from the Americas:

  • Impact Innovations, Inc. was awarded ‘Supplier of the Year 2019 for Seasonal and Celebration’ by Walmart, an award which recognises outstanding service and performance. This was especially pleasing during a year of transition for Impact as they integrated into the Design Group, and recognises a cohesive team effort.
  • Due to the strength of our relationship with a major US retailer, we have been made a strategic partner and invited to participate in two key initiatives with them. In one of these initiatives, we are the only participant from the ‘Housewares’ department and just one of three suppliers involved. These initiatives demonstrate exceptional trust in our business and will lead to very close collaboration in supply chain efficiencies and in how to grow our business through innovation in all facets of serving the end consumer.

In addition we are keen to ensure that our products keep up with key developments in our markets. For example, following the news that Australia had legalised same-sex marriage at the end of December 2017, our Australian business celebrated in 2018 by launching Mr&Mr and Mrs&Mrs cards from its World Greetings brand.

Suppliers

As detailed on page 17 in the Annual Report 2019, we are committed to engaging with our suppliers fairly and lawfully and that we source responsibly. We expect our supply base to do the same.

Our businesses meet with our key suppliers regularly to maintain a regular open dialogue and to share priorities both from the Group’s perspective but also those of our suppliers. Our Purchasing Managers have daily interaction with our supplier base covering a variety of topics such as quality, service levels, sourcing of raw materials etc.

This year saw the creation of a new role, Global Procurement Managing Director. The intention is to develop our supply chain to be a more cohesive, transparent and joined up organisation, collaborating closely, where there are tangible Group benefits, sharing data, ideas, products and best practice, combined with a continued focus on driving country-based success. An individual was appointed in February 2019, reporting to the Group’s Executive Committee, and their focus will include:

  • data quality, ease of access and transparency;
  • third party manufacturing base;
  • supplier on-boarding;
  • managing Group business with suppliers; and
  • ensuring best practice and compliance across the supply chain.

Communities

Our businesses throughout the world undertake a variety of local initiatives to support their local communities and national charities. See our social responsibility section on page 17 of the Annual Report 2019 for some examples.

Further detail on how our business model identifies the key resources and relationships on which the business relies can be found on page 7 of the Annual Report 2019.

 

Principle 4: Embed effective risk management, considering both opportunities and threats, throughout the organisation

The Board has overall responsibility for the establishment and oversight of the Group’s risk management framework. The Group’s risk management systems, policies and procedures are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor the risks and adherence to limits.

Risk management processes are reviewed regularly by the Audit Committee to reflect changes in market conditions and the Group’s activities. The Board’s oversight covers all controls, including financial, operational and compliance controls and general risk management. It is based principally on reviewing reports from management to consider whether significant risks are identified, evaluated, managed and controlled and whether any significant weaknesses are promptly remedied and indicate the need for more extensive monitoring.

In the past few months the Board and senior management have reviewed key policies which support risk management. These include the Code of Business Conduct, Anti-bribery & Corruption policy and Whistleblowing. Updated versions have been rolled out to the senior management teams across the business, with a wider roll out planned to all employees in 2020.

Further detail on the principal risks faced by the Group and the mitigating actions taken in respect of those risks can be found on pages 36 to 39 of the Annual Report 2019.

 

Principle 5: Maintain the Board as a wellfunctioning, balanced team led by the Chair

The Board consists of three Executive Directors and four Non-Executive Directors (including the Chairman). For the biographies of the Board, click here

There were no changes to the composition of the Board during the year.

The Board met formally seven times during the 2019 financial year. All Directors were present. In addition the Board met for a strategy day, two separate days focused on M&A and carried out an in-depth review of the 2020 budgets, annual operating plans and strategic objectives with the Executive Directors. Prior to the acquisition of Impact Innovations, Inc. the Board spent three days in Memphis, USA in August 2018 visiting the senior management, receiving presentations as to the company’s history and vision for the future and the proposed integration into the Group.

The Audit Committee met three times and the Remuneration Committee met four times, all were fully attended.

The Group appointed Joy Laws as Group General Counsel and Company Secretary in June 2018. She plays an important role in the governance and administration of the Group advising the Board on procedures, corporate governance, changes in legislation, strategy and decision making.

Independence

Anders Hedlund, who founded our Group, is a Nominee Non-Executive Director. Anders Hedlund is considered not to be independent, because as founder, he has served on the Board since the Company’s inception, his family hold significant interests in the shareholding of the Company and he also fulfils a consultancy role within one of the Group’s businesses. As reported in the financial statements, there are also some related party transactions between certain of the subsidiaries within our Group and companies under the ultimate control of the Hedlund family.

Following a review by the Board, all of the other Non-Executive Directors are considered to be independent.

 

Principle 6: Ensure that between them the Directors have the necessary up-to-date experience, skills and capabilities

The Board is kept informed on an ongoing basis by the Company Secretary about their duties and any update in relation to legal and governance requirements for the Group.

In addition, the Board has access to the Deloitte Academy which gives each Director (Executive and Non-Executive) access to a wide-ranging programme of technical briefings, education, bespoke training and peer-to-peer networking opportunities. This is a useful resource to ensure that they keep abreast of market trends in board governance, legislative reform and keep their skills up to date.

The Board is keen to obtain external, specialist advice when necessary. An example of this is when the Remuneration Committee recently appointed Deloitte LLP to provide remuneration advice in relation to employee benefit schemes.

 

Principle 7: Evaluate Board performance based on clear and relevant objectives, seeking continuous improvement

In November 2018 the Remuneration Committee conducted a selfassessment based on an external template which was adapted to incorporate the guidance contained in the QCA Remuneration Committee Guide. Members were asked to rate the performance of the Remuneration Committee based on their own perceptions of the committee as a whole.

Topics covered were: a) roles and responsibilities; b) terms of reference and planning; c) meetings – content and running of; d) skill set of members; and e) shareholder interaction.

Responses were collated and reviewed and no significant concerns were raised.

In January 2019 the Board conducted a self-assessment. The questionnaire was split into ten sections with each section based on the principles set out in the QCA Corporate Governance Code. There was an additional section allowing the Directors to give their thoughts on areas such as the main achievements of the Board over the previous three years, and the main strengths and weaknesses of the Board. Following completion of the questionnaire, the Chairman held oneto-one meetings with each Director and the Company Secretary.

The Chairman concluded the evaluation by highlighting the mix of skills which exist on the Board. Key observations and actions arising from the evaluation were:

  • a reminder that the agenda should retain its strategic focus whilst empowering the Executive Committee to deliver the strategy; and
  • the members to look into training opportunities.

The Nomination Committee is responsible for identifying and nominating, for the approval of the Board, candidates to fill Board vacancies as and when they arise as well as putting in place plans for succession for Directors and Senior Executives, in particular with respect to the Chairman and the CEO.

 

Principle 8: Promote a corporate culture that is based on ethical values and behaviours

The Board helps to promote a culture of respect, integrity, openness, honesty and fulfilment within each of the businesses in our Group. We believe strongly in these objectives and we endeavour to practise these in the way that we communicate with our customers, suppliers, shareholders, advisers and of course all our teams employed in the Group.

Our performance management systems and processes are designed to direct and influence behaviours. Our Senior Executives cascade our ethical values down throughout the wider organisation.

Feedback from all stakeholders in the business, as set out in Principle 3, allows the Board to assess the state of its corporate culture, as well as performance against the Group’s internal targets.

This year we created a Groupwide Code of Business Conduct in recognition of our growing size and the need for consistent behaviours across the Group. This has been rolled out to the senior management teams across the businesses with an all-employee roll out to follow in the first quarter of the financial year ending March 2020.

The Board recognised that the principles contained in the Code of Business Conduct were underpinned by a set of values already present within the Group.

The Group Values Statement is as follows:

Our Values

  • To strive for excellence in all we do
  • To behave ethically and with integrity
  • To focus on our customers and to ‘go the extra mile’
  • To be open to feedback, ideas and to positive change and promote fulfilment and fun
  • To be good ‘citizens’ within our communities and take responsibility for our impact on our planet
  • To be innovative and entrepreneurial
  • To treat everyone with dignity and respect
  • To be a team that succeeds together and aims to be an ‘employer of choice’

And, for our corporate policies and practices to be consistent with these values.

We encourage our employees to get involved in local community initiatives – see page 17 of the Annual Report 2019 for some great examples.

 

Principle 9: Maintain governance structures and processes that are fit for purpose and support good decision-making by the Board

There is a distinct and defined division of responsibilities between the Chairman and the CEO.

The Chairman is primarily responsible for the effective working of the Board in conjunction with management, and the CEO is responsible for the operational management of the business and for the implementation of the strategy agreed by the Board.

The Board is responsible for setting the vision and strategy for the Company, working closely with the executive management team to deliver a successful business model for our shareholders and other stakeholders.

The Group Delegation of Authority policy sets out the matters that are reserved to the Board for approval. These include:

  • Matters relating to the Company’s legal purpose and position and its status as a public listed company;
  • Changes in governance, strategy and significant changes in internal controls; and
  • Significant financial or contractual commitments and decisions.

The Board has three committees – Remuneration, Audit and Nomination. Each of these committees comprises the Non-Executive Chairman and our two independent Non-Executive Directors; Elaine Bond and Mark Tentori. Elaine chairs the Remuneration Committee, Mark the Audit Committee, and John Charlton the Nomination Committee.

The Nomination Committee is responsible for filling Board vacancies, reviewing the Board composition and the roles of Board members.

The Audit Committee satisfies itself on the integrity of financial information and that controls and risk management systems within our businesses are robust and defensible. The Committee meets as required during the year and at least twice with the Group’s external auditor. Its role is to review the interim and final financial statements for approval by the Board, to ensure that operational and financial controls are functioning properly, and to provide the forum through which the Group’s external auditor reports to the Board. Further detail about the activities undertaken by the Audit Committee this year can be found on pages 51 to 53 of the Annual Report 2019.

The Remuneration Committee determines appropriate levels of remuneration and compensation for Executive Directors. The Committee meets as required during the year and is closely involved in agreeing the positions within our senior management team that should participate in our Long Term Incentive Plan (‘LTIP’), together with the level of awards. The Remuneration Committee is also responsible for agreeing the performance criteria for annual bonuses and LTIP for Executive Directors and senior management. Further detail about the activities undertaken by the Remuneration Committee this year can be found on pages 54 and 55 of the Annual Report 2019.

The Terms of Reference for each committee were reviewed and updated this year and can be found here: Remuneration Committee / Audit Committee.

In addition to the main Board and committees, the Executive Committee was established in 2017. This consists of the Managing Directors of the main Group businesses across the world plus the Group CEO and Group CFO. It plays an important role in both feeding key matters to the Board to enable well-informed decision making and cascading Board initiatives to the wider businesses. It meets four times a year to discuss matters such as agreeing policy guidelines for business divisions based on an approved Group strategy, recommending objectives and strategy for the Group, and ensuring the control, co-ordination and monitoring within the Group of risk and internal controls, to name a few.

The Board keeps all aspects of corporate governance under review, with the governance framework developing further as the Group continues to grow.

 

Principle 10: Communicate how the Company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders

During 2019, the Board (itself or via the Board committees) worked hard to strike that essential balance between achieving the Group’s short-term objectives and longer-term growth and development. Key activities included:

  • monitoring and review of the financial performance of the Group on an ongoing basis including capital expenditure proposals and significant projects;
  • review of the interim and annual results including supplementary papers;
  • review of the effectiveness of the Group’s internal financial controls, general internal controls and risk management systems;
  • monitoring and review of the effectiveness of the Business Assurance function;
  • overseeing the relationship with the external auditor;
  • approval of the strategy, three year plans and budget;
  • review of the Group risk register;
  • approval of changes to remuneration for Chairman, CEO and CEO direct reports;
  • approval of LTIP Scheme for 2018-21;
  • approval of annual bonus payments and targets for the following financial year;
  • appointing Joy Laws as Group General Counsel & Company Secretary; and
  • assessing and approving the acquisition of Impact Innovations, Inc.

The Annual Report is a key tool for demonstrating to shareholders how the Group is governed and provides an overview of core activities over the past financial year.  In our Annual Report for 2019, we describe the high level work of our Committees and provide Audit Committee and Remuneration Committee reports which go into further detail.  

Our historical Annual Reports and notices of general meeting, along with all other documents sent to shareholders, can be found here.