Governance

The Board has established a sub-committee structure comprising Risk and Compliance, Audit, Remuneration and Nomination Committees, illustrated as follows:

The executive and senior management team is structured by a primary Executive Committee, which is supported by a structured number of commercial and operational committees across the Group. 

The Group’s investment and asset management business is managed through the Investment and Asset Management Committee, which ensures risk and investment controls are applied consistently throughout the Group, across all our various products and services. 

Each operating subsidiary is managed by its own board, which reports to the relevant commercial and operational committee, with clear line of sight to the Executive Committee. We believe this is the optimal management structure to secure continued growth. 

The Board has adopted the Quoted Companies Alliance (“QCA”) revised corporate governance code (“QCA Code”), which requires the Group to apply 10 principles focused on the pursuit of medium to long-term value for shareholders and also to publish certain related disclosures. 

Our Statement of Compliance with the QCA Corporate Governance Code can be found here.

The Board currently comprises four Executive Directors and four Independent Non-Executive Directors, including the Chair.

Time commitments of Board members

The Group embraces the benefits that are brought by a Board from a range of business backgrounds and who are actively involved in other businesses.  The Board also recognises its members must be able to dedicate sufficient time to the Company.  The Board has considered the time commitments of each Director and is comfortable that each has sufficient available capacity to carry out the required duties for Mattioli Woods:

• David Kiddie’s time commitment from his other Directorships averages four working days per month;
• Ian Mattioli’s time commitment from his roles as Non-Executive Chair of K3 Capital Group plc and Non-Executive Director of Custodian REIT plc average two and one and a half working days per month respectively; 
• Michael Wright’s time commitment from other Directorships averages one day per quarter;
• Iain McKenzie’s time commitment from other Directorships averages two days per month;
• Anne Gunther’s time commitment from her other Directorships averages four and a half working days per month;
• Edward Knapp’s time commitment from his other Directorships averages four working days per month; and
• Martin Reason’s time commitments from his other Directorship averages four days per month respectively.

For more information about our Directors, please read their bios here.

The Board is responsible to shareholders for the proper management of the Group and has a formal schedule of matters specifically reserved to it for decision.  These include strategic planning, business acquisitions and disposals, authorisation of major capital expenditure and material contractual arrangements, setting policies for the conduct of business and approval of budgets and financial statements.  As part of our ongoing focus on corporate governance the Board reserved matters and committee terms of reference were reviewed and updated during the year, in light of the focus on stakeholder engagement and linking a company’s purpose and values to its strategy. 

Other matters are delegated to the Executive Management team, supported by policies for reporting to the Board.  The Company maintains appropriate insurance cover in respect of legal action against the Company’s Directors, but no cover exists in the event that a Director is found to have acted fraudulently or dishonestly. 

The agenda and relevant briefing papers are distributed by the Company Secretary on a timely basis, usually a week in advance of each Board meeting. 

The roles of Chair and Chief Executive are distinct, as set out in writing and agreed by the Board.  The Chair is responsible for the effectiveness of the Board, directing strategy and ensuring communication with shareholders.  The Chief Executive is responsible for overseeing the delivery of this strategy and the day-to-day management of the Group by the Executive Management team.  The Board is committed to developing the corporate governance and management structures of the Group to ensure they continue to meet the changing needs of the business. 

The Non-Executive Directors are considered by the Board to be independent of management and free from any relationship which might materially interfere with the exercise of independent judgement.  The Board does not consider the Non-Executive Directors’ shareholdings to impinge on their independence.  The Non-Executive Directors provide a strong independent element to the Board and bring experience at a senior level of business operations and strategy. Anne Gunther is the Senior Independent Director.

All Directors have access to the Company Secretary, who is responsible for ensuring that Board procedures and applicable rules and regulations are observed.  Any Director, on appointment and throughout their service, is entitled to receive any training they consider necessary to fulfil their responsibilities effectively including training on quoted company requirements from the Nominated Adviser, Canaccord Genuity Limited. 

The Board meets regularly throughout the year as well as on an ad hoc basis, as required by time critical business needs, and is the principal forum for directing the business of the Group. 

The Board has delegated authority to four committees.  The Chair of each committee provides a report of any meeting of that committee at the next Board meeting.  The Chair of each committee is present at the AGM to answer questions from shareholders. 

The Risk and Compliance Committee comprises Edward Knapp (Chair), Anne Gunther, David Kiddie, Martin Reason and Joanne Lake up to the point of her stepping down from the Board in April 2022. Committee meetings are normally attended by George Houston (Group Compliance Officer) as Compliance Oversight Function, the Chief Executive, Group Managing Director, Chief Operating Officer, and by representatives of the external and internal auditors by way of invitation.  In addition, senior managers and representatives from the internal audit, risk and compliance functions attend committee meetings as necessary. 

The Risk and Compliance Committee is principally responsible for monitoring identified risks and the effectiveness of mitigating action, keeping risk assessment processes under review, reviewing the impact of key regulatory changes on the Group, assessing material breaches of risk limits and regulations as well as reviewing client complaints. 

Risk management framework

The Group’s risk management framework is designed to ensure risks are identified, managed and reported effectively.  The Group has invested in its risk management framework to meet the requirements of key regulatory changes and the risk management framework remains subject to ongoing review. 

We continue to apply a ‘three lines of defence’ model to support our risk management framework, with responsibility and accountability for risk management summarised as follows:

• First line: Senior management and operational business units are responsible for managing risks, by developing and maintaining effective internal controls to mitigate risk.  First-line systems and controls are employed to ensure business activities are conducted in compliance with internal policies and procedures.  First-line supervision teams carry out monitoring of business activities on a day-to-day basis. 
• Second line: The risk, compliance and anti-money laundering functions maintain a level of independence from the first line.  They are responsible for providing oversight and challenge of the first line’s day-to-day management, monitoring and reporting of risks to both senior management and governing bodies.
• Third line: The internal audit function is responsible for providing independent assurance to both senior management and governing bodies as to the effectiveness of the group’s governance, risk management and internal controls.

Output from first, second and third-line monitoring is reported to the managers and management information is reported to the Executive Risk and Compliance Committee and the Risk and Compliance Committee. 

Risk appetite

Risk appetite is defined as both the amount and type of risk the Group is prepared to accept or retain in pursuit of our strategy.  Our appetite is subject to regular review to ensure it remains aligned to our strategic goals.  At least annually, the Board, Executive Risk and Compliance Committee and the Risk and Compliance Committee will formally review and approve the Group's risk appetite statement and assess whether the firm has operated in accordance with the stated risk appetite measures during the year. 

Notwithstanding its continued expectations for business growth, the Board retains a relatively low overall appetite for risk, ensuring that our internal controls mitigate risk to appropriate levels. 

Risk assessment process

Identified risks are tracked in a department-level risk register and used as the basis for a consolidated risk register that provides the Risk and Compliance Committee with an overview of the key risks across the organisation.  The Board and senior management are actively involved in a continuous risk assessment process as part of our risk management framework, supported by the new annual ICARA process which assesses the principal risks facing the Group.

Stress tests include consideration of the impact of a number of severe but plausible events that could impact the business.  The work also takes account of the availability and likely effectiveness of mitigating actions that could be taken to avoid or reduce the impact or occurrence of the underlying risks. 

The Group’s risk assessment process considers both the impact and likelihood of risk events which could materialise, affecting the delivery of strategic goals and annual business plans.  A top-down and bottom-up approach ensures that our assessment of key risks is challenged and reviewed on a regular basis throughout the year, with the Board and its committees receiving regular reports and information from senior management, operational business units and the risk oversight functions.

Activities during the year

The committee met six times during the year, with the committee’s activities during the year including:

• Review and challenge of the key components of the Group’s risk management framework;
• Review and challenge of the Group’s treating customers fairly (“TCF”) and conduct risk policies and outcomes;
• Review and challenge of the Group’s vulnerable client processes;
• Review and challenge of the Group’s product governance processes;
• Review of recommendation of the Group’s risk appetite statement including key risk indicators and tolerance for key risks to the Board and review of the risk register;
• Review and challenge of the ICAAP, exploring scenarios and stress tests to determine an appropriate regulatory capital requirement prior to recommendation to the Board;
• Review of the Group’s training and competence regime;
• Oversight of the implementation of Markets in financial instruments directive 2 (“MiFID II”);
• Approval of the Compliance monitoring plan for the year including implementation of identified actions for improvement; and
• Approval of the Compliance manual.

The Audit Committee comprises Anne Gunther (Chair), Edward Knapp, Martin Reason and Joanne Lake until her stepping down from the Board in April 2022.  Anne Gunther is a Chartered Banker and the Board is satisfied that all members of the committee have recent and relevant financial experience.  The Board believes the committee is independent, with all members being Non-Executive Directors. 

The key responsibilities of the Audit Committee are:

• To review the reporting of financial and other information to the shareholders of the Company and to monitor the integrity of the financial statements;
• To review the Group’s accounting procedures and provide oversight of significant judgement areas;
• To review the firm’s internal controls and effectiveness of the internal audit function;
• To review the effectiveness of the external audit process and the independence and objectivity of the external auditors;
• To review audit fees and proposals for future years; and
• To report to the Board on how it has discharged its responsibilities. 

Committee meetings are normally attended by the Chief Executive, Chief Financial Officer, Head of Financial Reporting, Chief Operating Officer, Group Compliance Officer and by representatives of the external and internal auditors by way of invitation.  The presence of other senior executives from the Group may be requested.  The committee meets with representatives of the internal and external auditors, without management present, at least once a year. 

Activities during the year

The committee met five times during the year, where it considered the significant financial and audit issues, the judgements made in connection with the financial statements and reviewed the narrative within the Annual Report and the Interim Report. 

During the year the Audit Committee continued to monitor the operation of the internal audit function which has been outsourced to RSM Risk Assurance Services LLP since December 2018.  In light of an ever-changing regulatory environment, outsourcing gives the Group access to greater skills externally, while having the ability to shrink or expand our internal audit activities to meet the ongoing demands of the business and in response to the impact of the uncertainty created by the pandemic. 

The committee also considered the tender and subsequent appointment of, and fees payable to, the external auditors and discussed with them the scope of the interim review and annual audit for the Group and subsidiaries of the Group. 

Specific audit issues the committee discussed included:

• Oversight and approval of the process to change external auditor as delegated from the Board. This included leading the tender process through to assessment of the various audit proposals and selection of the preferred auditor;
• Assessment of whether each entity and the Group as a whole are going concerns, including whether forecast performance would result in an adequate level of headroom over the Group’s available cash facilities;
• Review of the whether any impairment needed to be recognised in respect of the intangible assets of the Group, including the assumptions underlying the calculation of the value in use of the cash generating units tested for impairment;
• Management’s approach to estimating the recoverability of WIP, including the recovery rate applied and the length of historical data used to calculate that recovery rate;
• Provisions recognised in respect of contingent consideration payable on past business combinations and management’s key assumptions and estimates applied in reaching these recognition and measurement decisions; and
• Review and approval of the internal audit plan.

Significant judgements and estimates

Significant critical accounting judgements and key estimates in connection with the Group’s financial statements for the year ended 31 May 2022 and other matters considered by the committee included:

External auditor

An analysis of fees payable to the external audit firms in respect of audit and non-audit services during the year is set out in Note 7 to the financial statements.  The Company is satisfied the external auditor is independent in the discharge of their audit responsibilities, following diligence conducted as part of the appointment process. 

Internal audit

The internal audit function is responsible for providing assurance over the design and operational effectiveness of the internal controls related to the Group’s key activities.  Our internal audit activity is based around a strategic, risk-based approach to cyclical internal audit with consideration of the Group’s key strategic priorities and risks.  This approach is designed to provide assurance over key areas including; governance, risk management and control. During the year the internal audit function engaged in a number of activities, including:

• Developing our internal audit plan based on an analysis of the Group’s corporate objectives, risk profile and assurance framework, as well as other factors such as emerging issues in our sector;
• Delivering audits providing assurance over the Group’s governance arrangements, financial crime and whistleblowing activities, complaints, HR and training activities, wealth management services, cyber risk, investment services as well as client communications, costs and charges;
• The internal audit team has also continued to provide assurance activities in respect of the CREIT and going forward, the 2022/23 plan extends to coverage of Maven activity; and
• Looking ahead, the internal audit function has developed a forward-looking plan to provide the Group with assurance over key areas of regulatory focus into 2022/23 including; the Investment Firms Prudential Regime (IFPR), vulnerable clients, operational resilience and product governance and pricing. The Plan is complemented with additional reviews on core business areas e.g. client invoicing, integration management and conflicts of interest as well as work due under a cyclical approach; regulatory reporting.  

As the third line of defence, the internal audit function (together with the external auditors in connection with their audit of the financial statements) continues to build risk awareness within the organisation by challenging the first and second lines of defence to continue developing and enhancing the internal control framework. 

The Remuneration Committee comprises Martin Reason (Chair), David Kiddie, Anne Gunther and Joanne Lake until her stepping down from the Board. The committee meets not less than twice a year.  It is responsible for determining and reviewing the Group’s policy on executive remuneration and other benefits and terms of employment, including performance-related bonuses and share options.  The committee also administers the operation of the share option and share incentive schemes established by the Company. 

The members of the Remuneration Committee have no personal interest in the outcome of their decisions and seek to serve the interests of shareholders to ensure the continuing success of the Company.  The remuneration of the Non-Executive Directors is determined by the Board itself.  No Director is permitted to participate in decisions concerning their own remuneration. 

The committee met four times during the year with key items considered including:

• Review and approval of the Group’s remuneration policy;
• Annual review of Executive Directors’ and other senior managers’ base salaries and bonus arrangements including specific approvals for changes or payments made during the year;
• Awards to be granted under the share option and incentive schemes established by the Company;
• Trends and benchmarking of executive pay in the wider market; and
• Appointment of external advisers to provide analysis relating to the company’s remuneration compliance requirements.

The Committee continues to review the Group’s long-term incentive plans to ensure it can continue to attract, retain and incentivise appropriately qualified staff to achieve its goals. 

The Nomination Committee comprises David Kiddie (Chair), Anne Gunther, Edward Knapp, Ian Mattioli and Joanne Lake until her stepping down from the Board. The Committee is responsible for reviewing the size, structure and composition of the Board, establishing appropriate succession plans for the Executive Directors and other senior executives in the Group and for the nomination of candidates to fill Board vacancies where required. 

The committee works in close consultation with the Executive Directors and met four times during the year, with the main items being considered including Board structure including proposed changes to Chair role and committee composition, review of key matters including Board and management succession planning, talent management and development and leadership development, undertaking a board evaluation during the year and considering engagement of an external service provider for the 2022 board evaluation.

All Directors are encouraged to attend all Board meetings and meetings of Committees of which they are members.  Directors’ attendance at meetings during the year (including the AGM) was as follows:

These committees form part of the Corporate Governance framework but are not sub-committees of the Board.  The main committees comprise the Governance Committee, the Management Engagement Committee, the Investment Committee and the Executive Risk and Compliance Committee. 

Governance Committee

The Board strongly believes that robust governance and strong, responsible, balanced leadership by the Board are critical to creating long-term shareholder value and business success.  The committee’s role is to assist the Board in shaping the strategy, culture and ethical values of the Group, while supporting the Management Engagement Committee in the day-to-day management of Mattioli Woods and its subsidiaries. 

The key responsibilities of the committee are to:

• Take a leadership role in shaping the corporate governance principles, culture and ethical values of the Group in line with the Group’s strategic priorities;
• Oversee the brand and reputation of the Group, ensuring that reputational risk is consistent with the risk appetite approved by the Board and the creation of long-term shareholder value;
• Develop strategy and growth initiatives, such as possible acquisitions and new products and services;
• Implement the agreed strategy and support the day-to-day management of the Group by the Management Engagement Committee;
• Review and discuss the annual business plan and budget prior to its submission to the Board for approval;
• Oversee the Group’s compliance with its statutory and regulatory obligations, including conduct of the firm and TCF; and
• Oversee the Group’s conduct in relation to its corporate and societal obligations, including setting the guidance, direction and policies for the Group’s TCF, corporate responsibility agenda and related activities and advising the Board and management on these matters.

The Governance Committee is Chaired by the Chief Executive and comprises functional heads from the appropriate disciplines. Committee meetings are normally attended by the Group Managing Director, Chief Financial Officer, Chief Operating Officer and by other senior executives from the Group as requested. 

Management Engagement Committee

The Board has delegated its day-to-day operational authority to the Management Engagement Committee, subject to a list of matters that are reserved for decision by the Governance Committee or the full Board only.  The Management Engagement Committee is primarily responsible for:

• Managing and monitoring all aspects of the Group’s business on a continuing basis;
• Implementing the business strategy and business plans agreed by the Board from time to time;
• Ensuring that day-to-day operations are conducted in accordance with the relevant regulatory and statutory requirements;
• Monitoring the management and performance of the Group‘s business units and operating subsidiaries (including their results compared to budget, risks and regulatory compliance); and
• Reviewing employee talent management and development programmes, ensuring they consider the benefits of diversity, including gender, social and ethnic backgrounds, cognitive ability and personal strengths. 

The Management Engagement Committee meets at least monthly but more frequently if required.  The committee is Chaired by the Executive Directors on behalf of the Chief Executive and committee meetings may be attended by any number of a broad range of senior managers from across the Group, depending on the meeting agenda. 

Investment Committee

The Board has delegated authority to the Investment Committee to oversee the Group’s investment management approach, developing the ‘house view’ on economics, investment markets and asset allocation; and considering how the Group should best apply these views. 

In particular, the Investment Committee is responsible for developing and implementing the Group’s asset management strategy, for developing and monitoring all aspects of the Group’s investment business on a continuing basis, receiving reports from the board of Custodian Capital, the Multi-Asset Team (including the Asset Allocation Committee) and from the Managers of the Group’s single strategy Funds including Individual Structured Products.  The Committee is also responsible for ensuring that the Group’s day-to-day investment and asset management operations are conducted in accordance with the relevant regulatory and statutory requirements through the investment management, investment research and investment operations teams. 

The Investment Committee meets at least six times a year but more frequently if required.  The Committee is Chaired by the Chief Investment Officer and comprises senior members of the investment, wealth management, technical and compliance functions.

Executive Risk and Compliance Committee

The Board has delegated authority to the Executive Risk and Compliance Committee to oversee the operation of the Group’s risk and compliance framework and activity.  The Executive Risk and Compliance Committee is responsible for ensuring that risk, compliance and internal audit are considered, reviewed and actions implemented across all areas of the Group including wealth management advice, asset management, pension administration and employee benefits.  The committee is also responsible for ensuring that risks are fully considered in context of the Group’s ICARA and the impact on the Group’s capital requirements. 

The Operational Risk and Compliance Committee meets at least four times a year but more frequently if required.  The committee is Chaired by the Compliance Oversight Function and comprises senior members of the Group’s management and risk and compliance function. 

New Directors receive an induction on their appointment covering the activities of the Group, its key business and financial risks, the terms of reference of the Board and its committees and the latest financial information.

The Chair ensures Directors update their skills, knowledge and familiarity with the Group as required to fulfil their roles on the Board and its committees.  Ongoing training is provided as necessary and includes updates from the Company Secretary and Nominated Adviser on changes to the AIM Rules, requirements under the Companies Acts and other regulatory matters.  All Directors have access to independent professional advice at the Company’s expense where they judge it necessary to discharge their duties, with requests for such advice being authorised by the Chair or two other Directors, one of whom is a Non-Executive. 

During the year ended 31 May 2022 an internal review of the Board’s effectiveness was undertaken and led by the senior independent Director.  This involved one-to-one interviews with Directors and a review of Board and Board committee papers and minutes.  The key points raised in the review were around board composition and succession planning. 

The Board plans to undertake a self-evaluation during the financial year ended 31 May 2023, which will be led and facilitated by an external third party provider. 

Individual appraisal of each Director’s performance is undertaken either by the Chief Executive Officer or Chair each year and involves meetings with each Director on a one-to-one basis.  The Non-Executive Directors Chair carries out an appraisal of the performance of the Chief Executive Officer, with the  Senior Independent Director conducting the same exercise for the Chair.

All Directors are subject to election by shareholders after their appointment and to re-election thereafter at intervals of no more than three years under the Company’s articles of association.  However, as a matter of good practice and as recommended under the QCA Corporate Governance Code, board policy is for all Directors to stand for re-election at each AGM. 

Non-Executive Directors’ appointments are initially for 12 months and continue thereafter until terminated by either party giving six months’ prior written notice to expire at any time on or after the initial 12-month period.  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 prior to the AGM. 

The Board is committed to maintaining an ongoing dialogue with the Company’s shareholders.  The principal methods of communication with private investors remain the Annual Report and financial statements, the Interim Report, the AGM and the Group’s website (www.mattioliwoods.com). 

It is intended that all Directors will attend each AGM and shareholders will be given the opportunity to ask questions at the AGM on 28 October 2022.  In addition, the Chair, Chief Executive Officer, Chief Financial Officer and Group Managing Director welcome dialogue with individual institutional and retail shareholders to understand their views and feed these back to the Board.  General presentations are also given to analysts and investors covering the annual and interim results as well as additional presentations dependent upon the circumstances and include for acquisition activity, investment in the Group or for fund-raising. 

The Board is ultimately responsible for the Group’s systems of internal control and for reviewing its effectiveness.  Such systems are designed to manage rather than eliminate risks and can only provide reasonable not absolute assurance against material misstatement or loss.

In accordance with the guidance of the Turnbull Committee on internal control, an ongoing process has been established for identifying, evaluating and managing significant risks faced by the Group.  This process has been in place throughout the year under review and up to the date of approval of the Annual Report and financial statements.

The Board routinely reviews the effectiveness of the systems of internal control and risk management to ensure controls react to changes in the nature of the Group’s operations.

The Group maintains appropriate insurance cover and reviews the adequacy of the cover regularly, in conjunction with the Group’s insurance brokers. 

There are clearly defined procedures for reviewing and approving transactions, acquisitions, material expenditure and capital expenditure within the Group.