NOMINATION AND GOVERNANCE COMMITTEE REPORT EMPOWERING THE BOARD TO MEET THE GROUP S STRATEGIC OBJECTIVES The Committee ensures the Board comprises individuals with the necessary skill, knowledge and experience to ensure the effective management of the Group s expanding business and delivery of its strategic objectives. HENRY CORBALLY Nomination and Governance Committee Chairman DEAR SHAREHOLDER, Having succeeded Liam Herlihy as Chairman of the Nomination and Governance Committee following his retirement, I am pleased to present to you the Nomination and Governance Committee report for 2015 outlining the work performed by the Committee during the year. 2015 was another year of significant change for the Board following the retirement of Liam Herlihy as Group Chairman in May 2015. Liam served on the Board for nearly 18 years; he joined the Board in 1997 and was appointed Vice-Chairman in 2001 and Group Chairman in 2008. Liam made an enormous contribution to Glanbia, his depth of experience and knowledge of the Group provided strong and focused leadership during a hugely important period of transformation and it is an honour to succeed him. Patrick Murphy was appointed Vice-Chairman in succession to me. Other significant changes to the Board during 2015 were the retirement of William Carroll, David Farrell and Patrick Gleeson as Non-Executive Directors. Both William and David had served on the Board for four years and Patrick had served on the Board for nine years. Four new Non-Executive Directors: Patsy Ahern, Jim Gilsenan, Tom Grant and Patrick Hogan were appointed to the Board following their nomination by Glanbia Co-operative Society Limited ( the Society ). The following pages provide more details on the roles and responsibilities of the Nomination and Governance Committee and our highlights and achievements during 2015. I am available at any time to discuss any matters that any shareholder may wish to raise. On behalf of the Nomination and Governance Committee. HENRY CORBALLY Nomination and Governance Committee Chairman 61
NOMINATION AND GOVERNANCE COMMITTEE REPORT CONTINUED OUR 2015 HIGHLIGHTS Considered and recommended the appointment of Henry Corbally as Group Chairman. Considered and recommended the appointment of Patrick Murphy as Vice-Chairman. Considered the nomination by the Society of Patsy Ahern, Jim Gilsenan, Tom Grant and Patrick Hogan as Non-Executive Directors. Recommended the revision of the Memorandum and Articles of Association for the re-election of directors to reflect the changes required under the United Kingdom Listing Authority (UKLA) Listing Rules. Oversaw governance aspects of the Board and its Committees. Succession Planning. Amendment to the Relationship Agreement with Glanbia Co-operative Society Limited. GOVERNANCE The Committee was in place throughout 2015. Henry Corbally the new Group Chairman replaced Liam Herlihy as Chairman of the Committee on 12 June 2015. The Committee comprises four Non-Executive Directors, of whom two members constitute a quorum. The Group Secretary acts as secretary to the Committee. When dealing with any matters concerning his membership of the Board, the Group Chairman will absent himself from meetings of the Committee as required and such meetings will be chaired by the Senior Independent Director, Paul Haran. KEY RESPONSIBILITIES Making recommendations to the Board on the appointment and re-appointment of Directors. Planning for the orderly succession of new Directors to the Board. Keeping under review the leadership needs of the Group, both executive and non-executive, with a view to ensuring the continued ability of the Group to compete effectively in the market place. Recommending to the Board the membership and chairmanship of the Audit and Remuneration Committees respectively. Keeping the extent of Directors other interests under review to ensure that the effectiveness of the Board is not compromised. Keeping under review corporate governance developments with the aim of ensuring that the Group s governance policies and practices continue to be in line with best practice. Ensuring that the principles and provisions set out in the UK Corporate Governance Code and the Irish Corporate Governance Annex (and any other governance code that applies to the Company) are observed where appropriate. Reviewing the disclosures and statements made in the corporate governance report to shareholders. The full terms of reference of the Nomination and Governance Committee can be found on the Group s website: www.glanbia.com or can be obtained from the Group Secretary. 2015 COMMITTEE MEETING ATTENDANCE Member Appointed Number of full years on the Committee 2015 Meeting attendance H Corbally 12 June 2015 Less than 1 0/0 D Gaynor 12 December 2014 1 2/2 P Haran 9 June 2005 10 2/2 D O Connor 12 December 2014 1 2/2 L Herlihy 1 5 June 2008 6 1/1 1. Retired 12 May 2015. See pages 48 and 49 for more information on current Nomination and Governance Committee members. COMPOSITION OF THE BOARD Non-Executive Chairman nominated by Glanbia Co-operative Society Limited Non-Executive Directors ALLOCATION OF TIME Board and Committee composition Succession planning Board effectiveness Other 62
ACTIVITIES DURING 2015 The principal activities undertaken by the Committee in 2015 are as follows: APPOINTMENT OF NEW GROUP CHAIRMAN Liam Herlihy retired as Group Chairman on 12 May 2015 following the conclusion of 2015 Annual General Meeting (AGM) and was succeeded by Henry Corbally (former Vice-Chairman) who was appointed as new Group Chairman on 12 June 2015 on the recommendation of the Committee. Mr Corbally was considered independent on his appointment. APPOINTMENT OF NEW VICE-CHAIRMAN Following the appointment of Henry Corbally as new Group Chairman, the Committee recommended the appointment of Patrick Murphy as new Vice-Chairman to replace Henry Corbally. APPOINTMENT OF NEW NON-EXECUTIVE DIRECTORS The Committee recommended the re-appointment of Jim Gilsenan and also the appointment of Patsy Ahern, Tom Grant and Patrick Hogan as Non-Executive Directors. The Committee noted their nomination by the Society and their experience and suitability and recommended their appointment to the Board. Patsy, Jim and Patrick were approved by the Board on 12 June 2015. Tom was approved by the Board on 15 December 2015. The Committee did not use an external search consultancy or open advertising for these appointments or the appointment of the Group Chairman, as it was not deemed necessary. AMENDMENT TO THE MEMORANDUM AND ARTICLES OF ASSOCIATION The Committee recommended the adoption of a new Article 84(c) in response to the new United Kingdom Listing Authority ( UKLA ) Listing Rule 9.2.2A which requires the Company to have a constitution that allows the election and re-election of independent Directors to be conducted in accordance with the new election provisions for independent Non-Executive Directors in the UKLA Listing Rules. These changes were approved at the AGM in 2015. The new UKLA Listing Rules require a dual voting process on the election or re-election of independent directors at general meetings for listed companies which have a controlling shareholder. The dual approval process requires such appointments to be approved by independent shareholders (those shareholders other than the controlling shareholder and its concert parties) as well as by shareholders as a whole. This is on the basis that independent directors act as an important source of challenge and control and the Listing Authority therefore sees it as essential that minority shareholders have a proper say in their election. RELATIONSHIP AGREEMENT WITH THE SOCIETY In compliance with UKLA Listing Rule 9.2.2A, the Company has entered into a written legally binding agreement with the Society which is intended to ensure that the Society complies with the independence provisions set out in Listing Rule 6.1.4D of the UKLA. This Relationship Agreement also provides that the governance arrangements set out on page 64 will apply with respect to the composition and size of the Board. These provisions reflect the Board governance arrangements described in the circular which was sent by the Company to shareholders on 2 November 2012 and approved at the Extraordinary General Meeting (EGM) held on 20 November 2012. This Relationship Agreement was amended in 2015 to reflect the agreement between the Company and the Society to further reduce the Society s representation on the Board, details of which are set on page 64. This was agreed as part of the Society s agreement to reduce its shareholding to 36.5% of the Company. While the Company continues to regard the Directors nominated by the Society (the Society Nominee Directors ) as meeting the criteria for independence specified in the UK Corporate Governance Code (see page 64), the Society Nominee Directors are not being designated as independent Directors for the purpose only of Listing Rule 9.2.2A of the UKLA. This is to ensure consistency with the agreement reached in 2012 and amended in 2015 with regard to the composition and size of the Board and allow for the planned reduction of the Society s representation on the Board as agreed and set out on page 64. The re-election of the Society Nominee Directors shall not therefore require separate approval by independent shareholders. COMMITTEE CHANGES Changes in the composition of the Committees on the recommendation of the Committee are set out below. Henry Corbally was appointed Chairman of the Nomination and Governance Committee on 12 June 2015. Additionally, at a meeting of the Committee held on 13 January 2015, the Committee recommended that the Board revise the composition of the Audit Committee so that its membership comprised only independent Non-Executive Directors, the Group Chairman and Vice-Chairmen, bringing its membership in line with the recommendations of the UK Corporate Governance Code. Matthew Merrick and Patrick Gleeson therefore both resigned from the Audit Committee on 24 February 2015 and Donard Gaynor was appointed. 63
NOMINATION AND GOVERNANCE COMMITTEE REPORT CONTINUED GLANBIA CO-OPERATIVE SOCIETY LIMITED RIGHT TO NOMINATE 14 OF THE COMPANY S DIRECTORS The Society currently owns 36.5% of the issued share capital of the Company. During 2012 (and amended in 2015), the Society and the Board agreed the following changes, which will impact the composition and size of the Board in the coming years: For the years 2014 to 2015 (inclusive) the number of Society Nominee Directors on the Board would be up to 14 members; For 2016 and 2017, the number of Society Nominee Directors on the Board will reduce to ten members; For 2018 and 2019 the number of Society Nominee Directors on the Board will reduce to eight; From 2020 the number of Society Nominee Directors on the Board will reduce to seven; The Group Chairman of the Company will be a Society Nominee until 2020; and Up to eight of the Directors on the Board will be composed of Executive Directors and Non-Executive Directors who are independent of the Society. In addition, if the number of Non-Society Nominees on the Board changes, the number of Society Nominees on the Board will change on a pro rata basis. Further, if the Society s shareholding in the Company falls below 33% of the issued share capital, discussions will take place regarding a further reduction in the size of the Society s representation on the Board. REGULAR MATTERS A number of regular matters were considered by the Committee in accordance with its terms of reference, details of which are set out below: REVIEW OF NON-EXECUTIVE DIRECTORS INDEPENDENCE IN ACCORDANCE WITH THE GUIDANCE IN THE IRISH CORPORATE GOVERNANCE ANNEX AND THE UK CORPORATE GOVERNANCE CODE (2014) (THE CODES ). The Board evaluation and review process considered the independence of each of the Non-Executive Directors, taking into account their integrity, their objectivity and their contribution to the Board and its Committees. The Board is of the view that the following behaviours are essential for a Non-Executive Director to be considered independent: Provides an objective, robust and consistent challenge to the assumptions, beliefs and views of senior management and the other Directors; Questions intelligently, debates constructively and challenges rigorously and dispassionately; Acts at all times in the best interests of the Company and its shareholders; and Has a detailed and extensive knowledge of the Company and the Group s business and of the market as a whole which provides a solid background in which they can consider the Company and the Group s strategy objectively and help the Executive Directors develop proposals on strategy. The Board and Committee believe that all Non-Executive Directors demonstrated the essential characteristics of independence and brought independent challenge and deliberations to the Board. The Committee s review took into consideration the fact that Paul Haran has served on the Board for more than ten years (six and a half years of which coincide with the Group Managing Director s tenure, the longest co-terminous period with a current Executive Director) and that 14 of the Non-Executive Directors are nominated by the Society, both of which the Codes state could be relevant to the determination of a Non-Executive Director s independence. However, the Codes also make it clear that a director may be considered independent notwithstanding the presence of one or more of these factors. This reflects the Board s view that independence is determined by the Director s character as set out above. The Committee concluded that both Paul Haran and the Society Nominee Directors continue to demonstrate the essential characteristics of independence and brought independent challenge and deliberations to the Board through their character and objectivity; however notwithstanding this, the Society Nominee Directors are not being designated as independent directors for the purpose only of Listing Rule 9.2.2A of the UKLA. Mr Haran was considered to be independent. This conclusion was presented to and agreed by the Board. The Board agreed that Paul Haran should remain on the Board for the foreseeable future in order to maintain a degree of certainty and smooth transition of Board and Committee experience and knowledge and help to integrate the recently appointed independent Non-Executive Directors and new Group Chairman following the 2015 AGM. This decision was subject to a rigorous review in line with the Company s policy on the appointment of independent Non-Executive Directors adopted in 2014. RE-ELECTION OF DIRECTORS The Committee continues to be of the view that, in line with best practice, all Directors should be re-elected to the Board at the Company s AGM. All Directors were re-elected at the 2015 AGM, with the exception of Liam Herlihy, David Farrell and Patrick Gleeson who were not put forward for re-election as they had indicated their intention to retire at the conclusion of the AGM. All Directors are seeking re-election at the 2016 AGM. The Committee is satisfied that the backgrounds, skills, experience and knowledge of the Company and the Group of the continuing Directors collectively enables the Board and its Committees to discharge their respective duties and responsibilities effectively. This was supported by the formal performance evaluation of the Board, the outcome and recommendations of which are set out on page 40. Additionally in 2016 (as in 2015), each of Patrick Coveney, Donard Gaynor, Paul Haran and Dan O Connor will seek re-election at the AGM by separate resolution of the independent shareholders (i.e. all of the shareholders save the Society and its subsidiary companies). We believe that sufficient biographical and other information on those Directors seeking re-election is provided in this Annual Report to enable shareholders to make an informed decision. 64
REVIEW OF THE TIME REQUIRED FROM A NON-EXECUTIVE DIRECTOR The Committee assessed the time dedicated to the Company and the Group by each Non-Executive Director. This review also considered the extent of the Non-Executive Directors other interests to ensure that the effectiveness of the Board is not compromised by such interests. The Board and Committee are satisfied that the Group Chairman and each of the Non-Executive Directors commit sufficient time to the fulfilment of their duties as Group Chairman and Directors of the Company respectively. The Group Chairman farms at Kilmainhamwood, Kells, Co. Meath, but the Committee and the Board consider that this does not interfere with the discharge of his duties to the Group. REVIEW OF NOMINATION AND GOVERNANCE COMMITTEE PERFORMANCE The Board and Committee assessed its performance, covering terms of reference, composition, procedures, contribution and effectiveness. As a result of that assessment, the Committee is satisfied that it is functioning effectively and that it has met its terms of reference. SUCCESSION Succession planning and talent development provided much focus during the year. The Committee and the Board remain committed to broadening and developing the strong talent which exists across the Group. This is also referenced on page 41. DIVERSITY The Committee at the current time has not set a specific female board member quota. Appointments to the Board, having regard to the right of the Society to nominate up to 14 of the 22 Directors (which will reduce to 10 later in 2016), and throughout the Group will continue to be based on the diversity of contribution and required competencies, irrespective of gender, age, nationality or other personal characteristics. 65