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THE QUOTED COMPANY ALLIANCE (QCA) CODE
The Directors recognise the importance of good corporate governance and have chosen to apply the Quoted Companies Alliance Corporate Governance Code (the ‘QCA Code’). The QCA Code was developed by the QCA as an alternative corporate governance code applicable to AIM companies. The underlying principle of the QCA Code is that “the purpose of good corporate governance is to ensure that the Company is managed in an efficient, effective and entrepreneurial manner for the benefit of all shareholders over the longer term”. It is the Board’s job to ensure that Ethernity Networks is managed in terms of this underlying principle of the QCA Code, with effective and efficient decision-making. Corporate governance is an important part of that job, reducing risk and adding value to our business.
The Company addresses the key governance principles defined in the QCA Code as outlined in the table below. We will provide annual updates on our compliance with the code.
Graham Woolfman, Independent Non-executive Chairman
This disclosure was last reviewed and updated on 25 September 2018
|QCA Code Principle||Application (as set out by QCA)||What we do and why|
Establish a strategy and business model which promotes long-term value for shareholders
|The board must be able to express a shared view of the company’s purpose, business model and strategy. It should go beyond the simple description of products and corporate structures and set out how the company intends to deliver shareholder value in the medium to long-term. It should demonstrate that the delivery of long-term growth is underpinned by a clear set of values aimed at protecting the company from unnecessary risk and securing its long-term future.||Ethernity’s strategy is outlined within our Strategic Report section on pages 6 to 8 of our Annual Report and Accounts for the year ended 31 December 2017.
Our strategy is focused around scaling the company business from an IP/technology company to a complete solutions delivery Company, including the offering of a complete software solution for our SoC business directed to Tier 1 OEMs, and the required smart NIC software. Our key focus areas are; increased penetration into the Tier 1 OEM market producing profitable sales growth, continued investment in R&D to up scale the company business to a complete solutions delivery Company and continued progressing our ACENIC project wins for virtual broadband gateway, virtual router and virtual security gateways that should result in initial orders of our SmartNIC solution during 2019 and mass production during 2020.
The key challenges to the business and how these are mitigated is detailed on page 4 in the Chief Executive’s Statement of our Report and Accounts for the year ended 31 December 2017, and as further noted in our Interim results for 2018, that the adoption of the new networking virtualisation market in which we operate was delayed by some 12 months
Seek to understand and meet shareholder needs and expectations
|Directors must develop a good understanding of the needs and expectations of all elements of the company’s shareholder base.
The board must manage shareholders’ expectations and should seek to understand the motivations behind shareholder voting decisions.
|The Board is committed to achieving the strategic goals as outlined above to create the medium to long term anticipated growth, which will allow the Company to adopt a progressive dividend policy in the future along with a growth in the share price.
Ethernity encourages two-way communication with both its institutional and private investors and responds to all queries received. The CEO and CFO are available to and meet regularly with the Company’s major shareholders.
The Board recognizes the AGM as an important opportunity to meet private shareholders. The Directors are available to listen to the views of shareholders informally immediately following the AGM.
Should the situation arise that voting decisions are not in line with the company’s expectations the Board will engage with those shareholders to understand and address any issues. The Company’s Nomad, CEO and CFO are jointly or individually the main points of contact for such matters.
Take into account wider stakeholder and social responsibilities and their implications for long-term success
|Long-term success relies upon good relations with a range of different stakeholder groups both internal (workforce) and external (suppliers, customers, regulators and others). The board needs to identify the company’s stakeholders and understand their needs, interests and expectations.
Where matters that relate to the company’s impact on society, the communities within which it operates or the environment have the potential to affect the company’s ability to deliver shareholder value over the medium to long-term, then those matters must be integrated into the company’s strategy and business model.
Feedback is an essential part of all control mechanisms. Systems need to be in place to solicit, consider and act on feedback from all stakeholder groups.
|Ethernity is committed to making continual progress with regard to all stakeholders of the Company, be it shareholders, customers, suppliers, staff or regarding the environment in general as follows:
1. Customers – Grow profitable sales by delivering the best possible solutions for their requirements
2. Quality – Embracing the best levels of QA including ISO 9001 2015 certification
3. Innovation – Excellence in product design and providing current and future solutions for our customers
4. Team Work – Engage our people, providing an environment that is more than just a place of work.
5. Environment – striving to promote environmental issues, including paperless environments
The Company does not have a formal Sustainability Policy, yet it’s processes and procedures encourage and encompass the above principles.
Ethernity, due to its physical environment, regularly engages with employees on all matters related to their workplace environment and encourages communications at all times. The informal nature of this allows a warmer and more meaningful dialogue between the management and staff. Actions common in the Hi-tech industry such as team building days, the improvement of self-catering facilities, improved amenities and after hours work company provided catering are evidence of our interaction and attitude with staff.
Ethernity continually holds dialogues with our customers through the Chief Executive and the Sales & Marketing team to ensure that the Company is meeting the customer expectations and ambitions. Further essential interaction at all levels of the customer chain are held via online blogs on the Company Website, participation with customers in conferences and forums as well as publishing joint White Papers with customers and their customers.
Embed effective risk management, considering both opportunities and threats, throughout the organisation
|The board needs to ensure that the company’s risk management framework identifies and addresses all relevant risks in order to execute and deliver strategy; companies need to consider their extended business, including the company’s supply chain, from key suppliers to end-customer.
Setting strategy includes determining the extent of exposure to the identified risks that the company is able to bear and willing to take (risk tolerance and risk appetite).
|Risk Management remains the responsibility of both the Board and the Audit Committee, which reports back on all meetings held along with recommendations to the Board and is elaborated on page 14 of our Report and Accounts for the year ended 31 December 2017.
The Company maintains a “Directors’ Risk Matrix” which is formally reviewed annually to highlight any change in the identified risk over the last reporting period. The Risk Matrix details risks to the business and how these are mitigated.
The Board considers underlying risk to the business at every Board meeting (at least 6 meetings are held each year). As stated above, the Company formally reviews, updates and documents the principal risks to the business at least annually.
All Board members are responsible for reviewing and evaluating risk and the Executive Directors meet at least once every 2 months to review ongoing trading performance, discuss cash flows, budgets and forecasts and new risks associated with ongoing trading.
The Company makes use of an Independent Internal Auditor whose primary scope is to cover governance procedures and evaluate controls, as is required in terms of Israel Companies Law. The Internal Auditor addresses his report and findings directly to the Audit Committee
Further to the above, the Company has in place further formal policies to ensure an effective and well managed risk environment within the organisation. Further details of these policies are outlined under Principle 8 below.
MAINTAIN A DYNAMIC MANAGEMENT FRAMEWORK
|QCA Code Principle||Application (as set out by QCA)||What we do and why|
Maintain the board as a well- functioning, balanced team led by the chair
|The board members have a collective responsibility and legal obligation to promote the interests of the company, and are collectively responsible for defining corporate governance arrangements. Ultimate responsibility for the quality of, and approach to, corporate governance lies with the chair of the board.
The board (and any committees) should be provided with high quality information in a timely manner to facilitate proper assessment of the matters requiring a decision or insight.
The board should have an appropriate balance between executive and non-executive directors and should have at least two independent non- executive directors. Independence is a board judgement.
The board should be supported by committees (e.g. audit, remuneration, nomination) that have the necessary skills and knowledge to discharge their duties and responsibilities effectively.
Directors must commit the time necessary to fulfill their roles.
|The Board of Directors of the Company is constituted with regard to Israel Companies Law as well as QCA best practice. In terms of Israel Law the following parameters apply:
a. There must be a minimum of two External Directors (Independent Directors);
b. At least two of the External Directors must serve on the Audit and Remuneration Committee along with one other director who cannot be an Executive Director
c. The Chairman of the Company may not serve on either of the Audit or Remuneration Committees
d. At least one of the directors of the Company must be of a gender opposite to that of the majority of gender of the Board.
The Company, taking the above into account has two External Directors appointed in terms of Israel Companies Law as well as two Independent Non-Executive Directors all of whom are considered Independent.
The Board thus comprises three Executive Directors and four Non-Executive Directors. The Board considers that all Non-executive Directors bring an independent judgement to bear notwithstanding the varying lengths of service.
All Directors receive regular and timely information of the Company’s operational and financial performance. Relevant information is circulated to the Directors in advance of meetings. In addition, minutes of the meetings of the Directors are circulated to the Company’s Board of Directors. All Directors have direct access to the advice and services of the Company’s Nominated Adviser, other executive and non-executive directors and the Company Secretary and are able to take independent professional advice in the furtherance of their duties, if necessary, at the company’s expense.
The Board has a formal schedule of matters reserved to it and is supported by the Audit, Remuneration and Nomination Committees
Ensure that between them the directors have the necessary up-to-date experience, skills and capabilities
|The board must have an appropriate balance of sector, financial and public markets skills and experience, as well as an appropriate balance of personal qualities and capabilities. The board should understand and challenge its own diversity, including gender balance, as part of its composition.
The board should not be dominated by one person or a group of people. Strong personal bonds can be important but can also divide a board.
As companies evolve, the mix of skills and experience required on the board will change, and board composition will need to evolve to reflect this change.
|The Nomination Committee of the Board oversees the process and makes recommendations to the Board on all new Board and, where deemed necessary, senior management appointments. Where new appointments are considered the search for candidates is conducted, and appointments are made, on merit, against objective criteria and with due regard for the benefits of diversity and support at Board and management levels. The Nomination Committee also considers succession planning.
The Company Secretary supports the Chairman in addressing the training and development needs of Directors.
Evaluate board performance based on clear and relevant objectives, seeking continuous improvement
|The board should regularly review the effectiveness of its performance as a unit, as well as that of its committees and the individual directors.
The board performance review may be carried out internally or, ideally, externally facilitated from time to time. The review should identify development or mentoring needs of individual directors or the wider senior management team.
It is healthy for membership of the board to be periodically refreshed. Succession planning is a vital task for boards. No member of the board should become indispensable.
|The Board is required to carry out an evaluation of its performance annually, considering the performance by the Board and its operation on all matters pertaining to the Company.
All Independent Directors are to undergo a performance evaluation before being proposed for re-election to ensure that their performance is and continues to be effective, and that where appropriate they maintain their independence and that they are demonstrating continued commitment to the role.
The Independent Director’s evaluations are led by the Chairman. The Chairman is in turn is evaluated by the Executive Directors, led by the Chief Executive along with at least 2 of the remaining Independent Directors so as to ensure a fair and impartial evaluation
Appraisals are carried out each year with all Executive Directors.
All continuing Directors stand for re-election based on the terms applicable in law, their contracts and the Company’s Articles of Association.
Promote a corporate culture that is based on ethical values and behaviours
|The board should embody and promote a corporate culture that is based on sound ethical values and behaviours and use it as an asset and a source of competitive advantage.
The policy set by the board should be visible in the actions and decisions of the chief executive and the rest of the management team.
Corporate values should guide the objectives and strategy of the company.
The culture should be visible in every aspect of the business, including recruitment, nominations, training and engagement. The performance and reward system should endorse the desired ethical behaviours across all levels of the company.
The corporate culture should be recognisable throughout the disclosures in the annual report, website and any other statements issued by the company.
|The Company employs staff based on merit for the position, remunerates fairly and follows all aspects of the law with regard to structure and process of employee’s remuneration.
In order to maintain an environment of integrity, the Company has in place for all staff the following policies:
a. A formal Code of Conduct, covering, inter-alia;
· Conflicts of interest
· Use of assets
· Fair disclosure in reports
b. A Share Dealing Code
c. An AIM Rules Compliancy Policy
d. An Anti-Bribery and Corruption Policy
e. A Social Media Policy
Maintain governance structures and processes that are fit for purpose and support good decision- making by the board
|The company should maintain governance structures and processes in line with its corporate culture and appropriate to its:
• size and complexity; and
• capacity, appetite and tolerance for risk.
The governance structures should evolve over time in parallel with its objectives, strategy and business model to reflect the development of the company.
|Our Corporate Governance Statement on pages 12 – 15 of our Report & Accounts for the year ended 31 December 2017 details the company’s governance structures and why they are appropriate and suitable for the company.
The Company’s governance structures are further enhanced by having two additional External Directors (Independent) due to the requirements of Israel Companies Law, thus creating a structured Board with the majority of the Directors being independent.
Graham Woolfman, the Non-executive Chairman, is responsible for leading the Board and David Levi, the Chief Executive, has executive responsibility for leading the Company’s business and implementing Group strategy.
|QCA Code Principle||Application (as set out by QCA)||What we do and why|
Communicate how the company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders.
|A healthy dialogue should exist between the board and all of its stakeholders, including shareholders, to enable all interested parties to come to informed decisions about the company.
In particular, appropriate communication and reporting structures should exist between the board and all constituent parts of its shareholder base. This will assist:
a. The communication of shareholders’ views to the board, and
b. The shareholders’ understanding of the unique circumstances and constraints faced by the company.
|The Company encourages two-way communication with both its institutional and private investors and responds quickly to all queries received. The CEO and CFO talk at least bi-annually with the Company’s major shareholders and ensure that their views are communicated fully to the Board.
The Board further recognises the AGM as an important opportunity to meet private shareholders. The Directors are available to listen to the views of shareholders informally immediately following the AGM.
25 September 2018
The Company has Audit, Nomination and Remuneration Committees.
The Audit Committee is chaired by Zohar Yinon and has the primary responsibility for monitoring the quality of internal controls, ensuring that the financial performance of the Company is properly measured and reported on, reviewing reports from the Company’s auditors relating to the Company’s accounting and internal controls, and in all cases having due regard to the interests of Shareholders. The Audit Committee meets at least twice a year. Chen Saft-Feiglin and Neil Rafferty are the other members of the Audit Committee.
The Nomination Committee is chaired by Graham Woolfman, and identifies and nominates, for the approval of the Board, candidates to fill Board vacancies as and when they arise. The Nomination Committee meets as required. Neil Rafferty and David Levi are the other members of the Nomination Committee.
The Remuneration Committee is chaired by Chen Saft-Feiglin and reviews the performance of the executive directors and determines their terms and conditions of service, including their remuneration and the granting of options to the Executive, having due regard to the interests of Shareholders. The Remuneration Committee meets at least once a year. Zohar Yinon and Neil Rafferty are the other members of the Remuneration Committee.
Company law requires the Directors to prepare financial statements for each financial year, which give a true and fair view of the state of affairs of the Company and the Group and of the profit or loss for each period. In preparing those financial statements, the Directors are required to:
- Select suitable accounting policies and then apply them consistently;
- Make judgements and estimates that are reasonable and prudent;
- State whether applicable accounting standards have been followed with any material departures disclosed and explained in the financial statements; and
- Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company and the Group will continue in business.
The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and to ensure that the financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.
Policies approved at the Annual General Meeting of 13 August 2019: