The Board fully endorses the FRC's view that the key aspects of corporate governance in the UK, the purpose of which is to improve corporate performance, are:

  • a single board collectively responsible for the sustainable success of the company;
  • a system of checks and balances;
  • transparency on appointments and remuneration; and
  • effective rights for shareholders.

The following sections explain how the Company applies the main principles set out in the UK Corporate Governance Code, June 2010 issued by the Financial Reporting Council (the "2010 Code"), as required by the Listing Rules of the Financial Services Authority and meets the relevant information provisions of the Disclosure and Transparency Rules of the Financial Services Authority.

This statement of corporate governance covers the following areas:

  • the structure and role of the Board and its committees;
  • the Board's effectiveness;
  • relations with the Company's shareholders and the AGM;
  • the Group's risk management and internal control framework;
  • the Group's principal risks and uncertainties; and
  • the reports of the Nomination Committee and the Audit Committee.

The report of the Remuneration Committee is set out separately in the Directors' remuneration report.

Compliance with the Code

The 2010 Code sets out principles which companies must apply, and the Listing Rules oblige companies to report to shareholders on how they have done so. The inherent flexibility of the 2010 Code is that it does not prescribe the way in which companies should apply the principles, but sets out provisions – identified good governance practices — by which the principles can be achieved. The 2010 Code recognises that good governance can also be achieved, in particular circumstances, by other means.

The Board acknowledges its responsibility to explain carefully and clearly to shareholders, where we do not follow a particular provision, our reasons for doing so. These reasons should not just identify the provision but also clarify "how its actual practices are consistent with the principle to which the particular provision relates, contribute to good governance and promote delivery of business objectives" (FRC, September 2012).

The Company has complied with the principles and provisions of the 2010 Code save as described in the remainder of this statement.

The Board places on record its willingness to discuss with shareholders the manner in which it has applied, or otherwise, the principles set out in the 2010 Code.

This separate statement of corporate governance forms part of the Directors' report and accordingly is approved by the Board and signed on behalf of the Board by a Director. Certain parts of this statement of corporate governance have been reviewed by the Company's auditors, PricewaterhouseCoopers LLP, for compliance with the 2010 Code to the extent required.

The new edition of the UK Corporate Governance Code was published in September 2012 and applies to reporting periods beginning on or after 1 October 2012 (the "2012 Code"). The 2012 Code does not apply to the Company's reporting period ending 2 December 2012. However, the Board has, where appropriate and feasible, adopted some of the new provisions in the 2012 Code earlier than required and provides disclosure against these requirements in this annual report.

Further information on the 2010 Code and 2012 Code can be found at www.frc.org.uk.

Governance structure

The structure and business of the Board is designed to ensure that the Board focuses on strategy, monitoring the performance of the Group, governance and risk and control issues.

The Board's role

The Board is collectively responsible for the long-term success of the Company. Subject to the Articles, the Companies Act and any directions given by special resolution, the business of the Company will be managed by the Board who may exercise all of the powers of the Company.

The Board has a number of key responsibilities and formally reserved powers, as set out in the schedule of matters reserved for the Board. The Board has responsibility for the overall management of the Group and for setting and reviewing the Group's long-term objectives and commercial strategy, including determination of the nature and extent of the significant risks that the Board is willing to take to implement its commercial strategy. The Board has oversight of the Group's operations, including management and planning, sound risk management and internal control systems, adequate accounting and other records and compliance with statutory and regulatory obligations. Other reserved matters include approval of: the annual report and half-yearly report; the Group's budgets; the authority levels for capital expenditure; the treasury policy; and any governance policies. The Board's role also includes oversight of the Group's capital structure including any share issues and share buy backs. The Directors' report includes a description of the powers of the Directors to issue and buy back the Company's shares.

During the period, the Board's activities included:

  • receiving reports from senior management on trading, business performance, financing and operational projects;
  • receiving progress reports from senior management on particularly significant projects such as the development of CFC2 and the expansion of the non-food business and its dedicated fulfilment centre;
  • approving individual capital expenditure projects in CFC1;
  • overseeing and approving the Group's refinancing including the share placing;
  • approving the annual budget and the business plan for the Group;
  • discussing various business development and strategic opportunities;
  • annual strategy conference devoted to reviewing and agreeing the Group's strategic direction;
  • reviewing and approving the Group's results announcements and the annual report;
  • receiving reports on and discussing the Group's marketing and commercial strategy;
  • receiving update reports at each Board meeting on health and safety, investor relations and legal and company secretarial matters;
  • discussing risk management and internal control;
  • approving the new Chairman Designate, the Chief Financial Officer and other Director appointments, discussing management succession plans and Board composition;
  • approving new governance policies including the Board diversity policy; and
  • visits to the CFCs and the non-food distribution centre to assist in understanding the operational issues the business faces.

The Board delegates the detailed implementation of matters approved by the Board and the day-to-day operational aspects of the business to the Executive Directors and the Management Committee, who meet formally twice weekly to review operational performance and to execute the strategic decisions made by the Board. The Management Committee will also monitor implementation of certain significant or cross-divisional projects. Management has authority to undertake capital expenditure without Board approval up to certain pre-approved expenditure thresholds and above which the expenditure must be referred to the Board for approval.

Board Committees

Certain aspects of the Board's responsibilities have been delegated to appropriate committees to ensure compliance with the regulatory requirements including the Companies Act, the Listing Rules and the 2010 Code. The chairman of each committee provides a report or update of each meeting of the respective committee to the Board at the subsequent Board meeting.

A summary of the terms of reference of each Board committee is set out in the table below. The full terms of reference are available on the Company's corporate website (www.ocadogroup.com) and reports by each committee are given on pages specified in the below table.

CommitteeRole and terms of referenceMembership required under the terms of referenceMinimum number of meetings
per year
Committee report on pages
Nomination Undertakes an annual review of succession planning and ensures that the membership and composition of the Board, including the balance of skills, remains appropriate.

Makes recommendations for the membership of the Board, Audit Committee and the Remuneration Committee.
  • All Non-Executive Directors.
  • Minimum of three members.
  • A majority of the members should be independent Non-Executive Directors.
2 Nomination Committee report
Audit Reviews and reports to the Board on the Group's financial reporting, internal control and risk management systems, the independence and effectiveness of the auditors and monitors the need for an internal audit function.

Makes recommendations to the Board for a resolution to be put to shareholders of the Company in relation to the appointment and remuneration of the external auditors.
  • At least three members.
  • All members should be independent Non-Executive Directors, except for a period following the Company's listing.
3 Audit Committee report
Remuneration Determines the remuneration, bonuses, long-term incentive arrangements, contract terms and other benefits in respect of the Executive Directors, the Chairman and the Company Secretary.
  • At least three members.
  • All members should be independent Non-Executive Directors, except for a period following the Company's listing.
2 Remuneration Committee report

Current Board composition

The names and details of the current (as at the date of this annual report) Directors on the Board are set out in the Board of Directors section. As at the date of this annual report, the Board comprises 13 members, including the Chairman, five Executive Directors and seven Non-Executive Directors.

Length of Tenure of Chairman/Non-Executive Directors

Length of Tenure of Chairman Non Executive Directors

Diversity of the Board

Diversity of the Board

Board changes

There were a number of changes to the Board since the prior period, set out in chronological order in the following table:

DirectorPositionDate of AppointmentDate of Resignation
Mark Richardson Operations Director 23/01/2012
Andrew Bracey Chief Financial Officer 23/03/2012
Wendy Becker Non-Executive Director 30/03/2012 21/01/2013
David Young Non-Executive Director 23/05/2012
Alex Mahon Non-Executive Director 01/06/2012
Duncan Tatton-Brown Chief Financial Officer 01/09/2012
Sir Stuart Rose Chairman Designate 11/03/2013

The Company announced on 22 January 2013 the retirement of the Chairman, Lord Grade, from the Board, such retirement to take effect at the Company's Annual General Meeting on 10 May 2013. The Company also announced the appointment of Sir Stuart Rose as an independent Non-Executive Director and Chairman Designate with effect from 11 March 2013. Sir Stuart will become Chairman immediately following Lord Grade's retirement.

Additionally, in January 2012, Jason Gissing, one of the co-founders of the business and current Executive Director, assumed the new Board position of Commercial Director, responsible for Ocado's retail activities, including buying, supplier and customer relationships, marketing and brand development. Neill Abrams, Legal and Business Affairs Director and the Company Secretary, assumed responsibility for HR, which was previously part of Jason's former role.

Key Board roles

The primary responsibilities of the Chief Executive Officer, the Chairman, the Senior Independent Director and the Non-Executive Directors are set out in writing and provide a system of checks and balances in which no individual has unfettered decision making power.

Chairman Lord Grade joined the Board as an independent Non-Executive Director and Chairman in 2006. Sir Stuart Rose will succeed Lord Grade as Chairman with effect from the Annual General Meeting on 10 May 2013. Their biographical details indicate their significant time commitments outside of the Company.
Chief Executive Officer The Company's Chief Executive Officer is Tim Steiner. His biographical details are set out in The Board.
Division of responsibilities between Chairman and Chief Executive Officer There is a clearly established and long-standing division of responsibilities between the Chairman and the Chief Executive Officer which is set out in writing and has been approved by the Board. The Chairman is responsible for leadership of the Board, and ensuring its effectiveness and for influencing the direction of the Board's agenda. The Chief Executive Officer is responsible for the day-to-day management, operations and results of the Group, executing the strategy once agreed by the Board and making proposals to the Board for the strategic development of the Group.
Senior Independent Director David Grigson, who joined the Board as an independent Non-Executive Director in February 2010, is the Board's Senior Independent Director. His biographical details are set out here. The Senior Independent Director's role is to provide a sounding board for the Chairman and to serve as an intermediary for the other Directors when necessary. The Senior Independent Director is available to shareholders of the Company to assist in resolving any concerns of such shareholders.
Non-Executive Directors
  • The Chairman and the Non-Executive Directors bring wide and varied commercial experience to the Board's and the committees' deliberations. All Directors are encouraged to challenge and bring independent judgement to bear on all matters, whether strategic or operational.
  • Each Non-Executive Director's letter of appointment to the Board sets out clearly the expected time commitment from them to the Company. The Board is satisfied that each of the Non-Executive Directors has sufficient time available to devote to the Company.
  • The terms and conditions of appointment of the Non-Executive Directors are available for inspection at the Company's registered office (during normal business hours) and at the Company's AGM.
Company Secretary The Board is assisted by the Company Secretary (who is also the Legal and Business Affairs Director), Neill Abrams. His biographical details are set out here. The Company Secretary reports to the Chairman in respect of his core secretarial duties to the Board. All Directors have access to the advice and services of the Company Secretary. He has responsibility for ensuring that the Board procedures are followed and for governance matters. The Company Secretary, under the direction of the Chairman, was responsible for ensuring good information flows within the Board and its committees. The appointment and removal of the Company Secretary is one of the matters reserved for the Board.

Independence

The 2010 Code provides that the Company should identify in the annual report each Non-Executive Director that it considers to be independent. That is, determine whether the Director is independent in character and judgement and whether there are relationships or circumstances which are likely to affect, or could appear to affect, the Director's judgement.

The Board considers the Chairman, Sir Stuart Rose, David Grigson, Ruth Anderson, Douglas McCallum, Robert Gorrie and Alex Mahon to be independent. By way of further explanation:

  • Jörn Rausing, who has been on the Board over ten years, is considered to be independent in character and judgement. However, the test for independence under the 2010 Code is more extensive, as it also requires the absence of any relationships that appear to affect a director's judgement. Although the Board considers Jörn to be independent in substance, it does not consider him to be free of relationships which may appear to affect his judgement as he is a beneficiary of the Apple II Trust, a major shareholder of the Company. His continued membership of the Board is considered to be beneficial to the Company in that his significant business experience at Tetra Laval enhances the balance of skills and experience on the Board. Jörn Rausing's influence on the manner with which Tetra Laval has built up its commanding market position in a world class technology-intensive industry also assists in setting the Company's strategic direction and reinforces its measured risk appetite. In addition, Jörn provides valuable insight to the Board on the views of shareholders whose objective is the sustainable long-term success of the Company.
  • Robert Gorrie is considered to be independent notwithstanding the fact that he has been a Director for over 12 years and receives additional remuneration from the Group for consulting services that he provides to the Ocado Council (the Company's employee representative body). He received a total of £8,000 in the period for these services (2011: £9,000). The Board does not consider these services to constitute a material business relationship with the Company, nor these sums to be material in the context of impacting Robert Gorrie's judgement. Furthermore, his involvement with the Ocado Council promotes good governance in that it provides the Non-Executive Directors with a direct earpiece to the views and concerns of the Group's hourly-paid employees, which enhances the system of checks and balances and provides a flow of information that is independent of senior management. Robert Gorrie was employed by the Company as Logistics Director from 2000 to 2006, more than five years ago. The Board views his resultant knowledge of the Group's complex IT and logistics infrastructure to be helpful to the Non-Executive Directors in their involvement with determining the Company's strategy.
  • Sir Stuart Rose will become Chairman at the Company's AGM on 10 May 2013. At the same meeting shareholders will vote on his remuneration package, as described in detail in the Directors' remuneration report. This package includes an initial one-off award in the form of Ocado shares. This share award will not vest until after three years of service as Chairman, and all of the shares must be held until at least one year after he ceases to be a member of the Board. The Board does not consider the share award to be equivalent to participation in the Company's share option or performance-related pay scheme, since there are no performance conditions attached to the receipt of the shares (only continued service). There is also no possibility of any conflict arising between the terms for receipt of these shares and determination of the achievement or otherwise of any performance related scheme for the Executive Directors and senior management.

The 2010 Code recommends that at least half of the board of directors of a UK listed company, excluding the chairman, should comprise non-executive directors determined by the board to be independent. The Board currently complies with this provision, although it will cease to do so after the AGM when Lord Grade retires as Chairman and Sir Stuart Rose assumes that role, as that will reduce by one the number of independent Non-Executive Directors on the Board.

The composition of the Audit Committee and the Remuneration Committee do comply with the independence provisions of the 2010 Code, and will not be affected by the change in Chairman. Since the end of the period the composition of the Audit Committee and the Remuneration Committee were changed to bring each into line with the independence requirements of the 2010 Code.

The following chart illustrates the current composition of the Board and each of the Board committees in respect of the independence of its members under the 2010 Code:

Board composition

The Board and the Nomination Committee reviewed and discussed Board and Board committee size and composition a number of times during the period. As set out above, a significant number of Board changes have taken place during the period. The Company expects that as existing members of the Board step down and new directors are appointed, those new directors will comply with the 2010 Code with regard to independence. The Board believes that it is very important to provide some continuity of leadership by retaining some long-standing Directors and therefore has taken a measured approach to transforming the Board to one that is compliant with the independence requirements of the 2010 Code. The Board has kept, and will continue to keep, the Board size and composition under regular review.

Board and Committees attendance

The attendance record of the Directors at scheduled Board and committee meetings during the period is set out in the following table. The Board scheduled 14 meetings during the period and ad hoc meetings and conference calls were also convened to deal with specific matters which required attention between scheduled meetings. The composition of the Board and committees changed during the period, as set out above and in each of the Board committee's description set out below; hence Directors did not attend all of the relevant meetings during the period.

Board of DirectorsAudit CommitteeRemuneration CommitteeNomination Committee
ActualPossibleActualPossibleActualPossibleActualPossible
Executive Directors
Tim Steiner 13 14
Duncan Tatton-Brown1 4 4
Neill Abrams 14 14
Jason Gissing 14 14
Mark Richardson2 12 12
Non-Executive Directors
Lord Grade (Chairman) 13 14 3 3
David Grigson 13 14 5 5 3 3
Jörn Rausing 13 14 4 4 3 3
Ruth Anderson 14 14 5 5 4 4 3 3
Robert Gorrie 13 14 4 5 3 4 3 3
Douglas McCallum 11 14 4 4 3 3
Alex Mahon3 6 6 3 3 1 1
Former Directors
Andrew Bracey4 6 6
David Young5 6 7 2 2 2 2 1 1
Wendy Becker6 6 8 2 3 2 2

Notes:

  1. Duncan Tatton-Brown joined the Board of the Company on 1 September 2012.
  2. Mark Richardson joined the Board of the Company on 23 January 2012.
  3. Alex Mahon joined the Board of the Company on 1 June 2012.
  4. Andrew Bracey resigned from the Board of the Company effective on 23 March 2012.
  5. David Young retired from the Board of the Company effective on 23 May 2012.
  6. Wendy Becker joined the Board of the Company on 30 March 2012 and resigned from the Board effective on 21 January 2013.