Application of the UK Code
The Board acknowledges that Said Darwazah holding the positions of Chairman and Chief Executive and the continuation of Independent Non-Executive Directors who have served more than nine years require explanation under the UK Corporate Governance Code (the "Code") which is detailed below. Other than in these instances, Hikma was in full compliance with the Code in 2016.
Chairman and Chief Executive position
The Board is aware that Said Darwazah’s position as Chairman and Chief Executive constitutes a departure from the Code. The Board fully considered the position and consulted shareholders in early 2014. The disclosure below summarises the Board’s rationale.
Reasons for the decision
The Board is focused on the commercial success of Hikma and believes that the continuing position of Chairman and Chief Executive is the best way to achieve this objective for Hikma because:
- Chairman’s role: The Chairman position is highly visible inside and outside Hikma, acting as an ambassador with business partners and adviser to the divisions. It is essential the Chairman intimately understands MENA culture and has strong relationships in the region, can speak Arabic and has extensive pharmaceutical knowledge.
- Business partners: A significant number of the Company’s key political and commercial relationships across the MENA region are built on the long-term trust and respect for the Darwazah family where the role of the Chairman remains key.
- Continuity of success: Said Darwazah has been a driving force behind the operational success of the business since 2007 and the Board believes that it is important to the continued success of the Group that he remains in the lead executive role.
- Succession: The Board considers that the heritage and management relationships across the Group add extra challenge to appointing an external Chief Executive, whilst ensuring shareholder value is maximised. The Chief Executive continues to develop the executives below him with a view to handing responsibilities over in the medium term.
The Board has implemented the following enhancements to controls:
- Governance structure review: The Independent Directors meet at least bi-annually in a private session chaired by the Senior Independent Director. This meeting includes consideration of the appropriateness of the governance structure and safeguards for shareholders.
- Committee Chair roles: The Chairs of the Board Committees, all of whom are Independent Non-Executive Directors, undertake a significant amount of oversight of the functions that report to their Committees and have in-depth relationships with the relevant executives.
- Transparency and engagement: Hikma has always had the highest regard for external shareholders. Many of the original investors from before listing still invest and support Hikma today. Over ten years since flotation the Company has maintained the highest standards of shareholder engagement, which is reflective of the importance placed on maintaining strong investor relations and governance. Hikma has won and been shortlisted for several transparency and governance awards, particularly over the past five years.
- Expanded Senior Independent Director role: The Board has increased the responsibilities of the Senior Independent Director to assume joint responsibility, with the Chairman and Chief Executive, for setting the Board agenda, agreeing action points and the minutes of the meetings.
The Board considers Robert Pickering, Dr Ronald Goode, Patrick Butler, Dr Pamela Kirby, John Castellani and Nina Henderson to be independent. These individuals provide extensive experience of international pharmaceutical, financial, corporate governance and regulatory matters and were not associated with Hikma prior to the listing of Hikma in 2005.
* Diagram and table as at 31 March 2017. Mr Michael Ashton stepped down from the Board on 19 May 2017.
The Board reviewed and considered the independence of the Non-Executive Directors during the year as part of the annual corporate governance review. It recognises that Dr Ronald Goode has served in excess of nine years and therefore this constitutes a departure from the UK Code. Dr Ronald Goode will stand down in May 2018.
The Board wishes to retain the services of Dr Ronald Goode for a time period sufficient to transfer his responsibilities and knowledge in an orderly manner whilst ensuring continuity and ongoing challenge. The Board considers this to be appropriate as Hikma is a maturing company in which historical knowledge and personal relationships are important to the successful oversight of the business.
The Board is of the view that Dr Ronald Goode remains independent because:
- His character and the manner in which he performs his role clearly demonstrate independent thought and judgement.
- He continues to ask difficult and challenging questions of management and request additional information when required.
- None of the Independent Directors receives additional remuneration apart from Directors’ fees, and they do not participate in the Group’s share plans or pension schemes.
- There are no conflicts of interest between any Independent Non-Executive Directors and management or significant shareholders.
The Board does not view Ali Al-Husry as an Independent Director due to the length of his association with the Company, being an executive with Hikma prior to listing and his involvement with Darhold Limited, Hikma’s largest shareholder. However, he continues to bring to the Board broad corporate financial experience and a detailed knowledge of the MENA region, which is an important and specialist part of the Group’s business.
The Board does not view Dr Jochen Gann as an Independent Director as his appointment was part of the shareholder agreement with Boehringer Ingelheim, a major shareholder and his primary employer. However, Jochen brings significant M&A and corporate finance experience, with a particular focus on the pharmaceutical sector.