Corporate Governance Practices
VTech Holdings Limited is incorporated in Bermuda and has its shares listed on The Stock Exchange of Hong Kong Limited (the "Stock Exchange"). The corporate governance rules applicable to the Company are the Code on Corporate Governance Practices (the "Code") as set out in Appendix 14 to the Rules Governing the Listing of Securities on the Stock Exchange (the "Listing Rules"). Throughout the year ended 31 March 2011, the Company has complied with all the code provisions of the Code and to a large extent, the recommended best practices in the Code except for the deviation from code provision A.2.1 of the Code as described below.
Under code provision A.2.1 of the Code, the roles of chairman and chief executive officer should be separate and should not be performed by the same individual. Dr. Allan WONG Chi Yun has the combined role of Chairman and Group Chief Executive Officer. The Board considers that this structure will not impair the balance of power and authority between the Board and the management of the Group as the non-executive directors form the majority of the Board, with five out of eight of our directors being independent non-executive directors. The Board believes the appointment of Dr. Allan WONG Chi Yun to the posts of Chairman and Group Chief Executive Officer is beneficial to the Group as he has considerable industry experience.
The key corporate governance principles and practices of the Company are set out below.
Board of Directors
The Board currently comprises three executive directors and five independent non-executive directors. Their names and brief biographies are set out on page 27 of the 2011 Annual Report. The non-executive directors are high calibre executives with diversified industry expertise and bring a wide range of skills and experience to the Group. They bring to the Company independent judgement on issues of strategy, performance, risk and people through their contribution at Board meetings. The Board considers that the five non-executive directors, being the majority of the Board, are independent in character and judgement and they also meet the independence criteria set out in Rule 3.13 of the Listing Rules. All non-executive directors are appointed for a specific term of three years and all directors are required to submit themselves for re-election at least once every three years under the Company's Bye-laws. In accordance with the Company's Bye-laws, each new director appointed by the Board during the year shall hold office until the next following annual general meeting and thereafter the same director, if re-elected, will be subject to retirement by rotation. There exists no relationship among Board members, including financial, operational, family or other relevant material relations.
The Board has received from each independent non-executive director a written annual confirmation of independence pursuant to Rule 3.13 of the Listing Rules.
The Board's focus is on the formulation of business strategy and policy, and control. Matters reserved for the Board are those affecting the Company's overall strategic policies, finances and shareholders. These include, but are not restricted to, deliberation of business plans, risk management, internal controls, preliminary announcements of interim and final results, dividend policy, the annual budgets, major corporate activities such as material acquisitions and disposals, and connected transactions.
The Board may delegate part of its functions and duties to executive committees and day-to-day operational responsibilities are specifically delegated to the management, specifying matters which require approval by the Board.
Four Board meetings at approximately quarterly intervals are scheduled for 2011/12 with other meetings held as required. All directors have access to the advice and services of the Company Secretary and independent professional advice may be sought by the directors if required.
Board Committees
The Board has established a Remuneration Committee, a Nomination Committee, an Audit Committee and a Risk Management Committee with defined terms of reference which are no less exacting than those set out in the Code.
Dr. David SUN Tak Kei was appointed as an independent non-executive director, member of the Audit Committee, the Remuneration Committee, and the Nomination Committee of the Company, while Dr. Patrick WANG Shui Chung ceased to be a member of the Audit Committee of the Company both with effect from 25 January 2011. Dr. David SUN Tak Kei was also appointed as a member of the Risk Management Committee on 30 March 2011.
Remuneration Committee
The Remuneration Committee is chaired by Mr. Michael TIEN Puk Sun with Dr. William FUNG Kwok Lun, Mr. Denis Morgie HO Pak Cho and Dr. David SUN Tak Kei as members. All of the members are independent non-executive directors. It is responsible for reviewing and recommending all elements of the executive directors and senior management remunerations.
The emoluments of directors are based on skills, knowledge and performance, together with reference to the profitability of the Company, and prevailing market conditions. The Company has established a share option scheme (the "2001 Scheme") to provide long term incentive for the executive directors and senior management, and a share purchase scheme to motivate employees and attract suitable personnel for continuous development of the Group.
The Remuneration Committee met once during the year. The Remuneration Committee discussed and reviewed the remuneration packages for all executive directors and senior management. The Remuneration Committee also reviewed and approved the establishment of the share purchase scheme.
Nomination Committee
The Nomination Committee is chaired by Dr. William FUNG Kwok Lun with Mr. Denis Morgie HO Pak Cho, Dr. David SUN Tak Kei, Mr. Michael TIEN Puk Sun, Dr. Patrick WANG Shui Chung and Dr. Allan WONG Chi Yun as members. The majority of the members of the Nomination Committee are independent non-executive directors. It is responsible for reviewing the Board composition and identifying and nominating candidates for appointment to the Board such that it has the relevant blend of skills, knowledge and experience. Candidates for appointment as directors may be sourced internally or externally through various channels such as using the services of specialist executive search firms. The aim is to appoint individuals of the highest calibre in their area of expertise and experience.
The Nomination Committee met once during the year and considered the appointment of an independent non-executive director, and the nomination was accepted by the Board.
Audit Committee
The Audit Committee is chaired by Mr. Denis Morgie HO Pak Cho, with Dr. William FUNG Kwok Lun, Dr. David SUN Tak Kei (appointed on 25 January 2011), Mr. Michael TIEN Puk Sun and Dr. Patrick WANG Shui Chung (ceased to be a member on 25 January 2011) as members. All of the members are independent non-executive directors. It has been established to assist the Board in fulfilling its oversight responsibilities for financial reporting, risk management and evaluation of internal controls and auditing processes. It also ensures that the Group complies with all applicable laws and regulations.
Mr. Denis HO, as Chairman of the Audit Committee, has the appropriate financial management expertise as required under the Listing Rules. The Audit Committee held two meetings during the year and were attended by the Chief Compliance Officer, the Chief Financial Officer and the external auditor. In addition, the Chairman of Audit Committee held periodic independent meetings with the Chief Financial Officer, the Chief Compliance Officer and the external auditor. Work performed by the Audit Committee during the year included, but not limited to, reviewing the following:
| - | unaudited Group financial statements for the six months ended 30 September 2010; |
| - | report from the external auditor based on limited agreed upon procedures on the unaudited Group financial statements for the six months ended 30 September 2010; |
| - | accounting principles and practices adopted by the Group; |
| - | implementation of applicable International Financial Reporting Standards; |
| - | appointment of the external auditor and their remuneration; |
| - | significant findings by the Internal Audit Department and recommendations for corrective actions; and |
| - | respective audit plans of the internal and external auditors. |
During the year, the Audit Committee has organised a training session on accounting, taxation and Listing Rules to directors and relevant staff.
On 31 May 2011 (the date of the 2011 Annual Report), the Audit Committee met to review the audited Group financial statements and reports for the year ended 31 March 2011 in conjunction with the Company's external auditor and senior management before recommending them to the Board for consideration and approval. The Group's annual results announcement for the year ended 31 March 2011 has been agreed by the Group's external auditor.
The Audit Committee assists the Board in meeting its responsibilities for maintaining an effective system of internal control during the year. The Audit Committee reviews the process by which the Group evaluates its control environment and risk assessment procedures, and the way in which business and control risks are managed. Based on the information received from the management, external auditor and Internal Audit Department, the Audit Committee is satisfied that the overall financial and operational controls for the Group continue to be effective and adequate.
External Auditor
The Audit Committee reviews and monitors the external auditor's independence and objectivity. It also meets with the auditor to consider the nature, scope and results of their audit with senior management.
During the year, the fees in respect of audit and non-audit services provided by KPMG, the external auditor, is shown in note 2 to the financial statements.
Risk Management Committee
The Risk Management Committee, chaired by Dr. Allan WONG Chi Yun with Dr. PANG King Fai and Mr. Andy LEUNG Hon Kwong held two meetings during the year to review the Group's risk management and internal control systems and their effectiveness. The Risk Management Committee has put in place policies and procedures for the identification and management of risks.
The Risk Management Committee has developed a framework for the management and control of risk in the Group. Risks are being more formally identified and recorded in the Risk Register for key operations. This Register is updated regularly and the major risks are being reviewed by the Risk Management Committee.
The Risk Management Committee also ensures that any new and emerging risks are promptly identified, evaluated and appropriate actions are taken by the management. This requires the active and frequent participation by the process owner of each function in identifying risks affecting its business and implementing measures to reduce such risks, as well as the active monitoring on the progress of the improvement in internal control procedures.
The Risk Management Committee reports to the Board in conjunction with the Audit Committee.
On 30 March 2011, the Board resolved to appoint Dr. David SUN Tak Kei, an independent non-executive director as a member of the Risk Management Committee with immediate effect.
Responsibilities in Respect of Financial Statements
The directors are responsible for overseeing the preparation of the consolidated financial statements for the year ended 31 March 2011, to give a true and fair view of the state of affairs of the Group as at that date and of its profit and cash flows for the year then ended. In doing so the directors have adopted the appropriate accounting policies, applied them consistently in accordance with the International Financial Reporting Standards and made judgements and estimates that are prudent and reasonable in preparing the consolidated financial statements on the going concern basis.
The directors are responsible for ensuring the maintenance of proper accounting records, safeguarding of the assets of the Company and taking reasonable steps for the prevention and detection of fraud and other irregularities.
The statement by the external auditor of the Company regarding their responsibilities on the financial statements of the Group is set out in the Independent Auditor's Report on page 32 of the 2011 Annual Report.
Internal Controls
The directors have the overall responsibility for internal control, including risk management, and set appropriate policies having regard to the objectives of the Group. The Board, through the Audit Committee, reviewed the overall effectiveness of the Group's system of internal control over financial, operational and compliance issues, risk management process, information systems security and effectiveness of financial reporting and compliance with Listing Rules, and is satisfied that such systems are effective and adequate. The Board also considered that the resources, qualifications and experience of staff of the Company's accounting and financial reporting function, and their training programmes and budget were adequate.
Internal Audit Department
The Internal Audit Department reviews the effectiveness of the internal control system. The Internal Audit Department carries out annual risk assessment on each identified audit area and devises an annual audit plan according to the nature of business and risk exposures, and the scope of work includes financial and operational reviews. The audit plan is reviewed and agreed by the Audit Committee. In addition to the agreed schedule of work, the Internal Audit Department conducts other review and investigative work as may be required. The Audit Committee receives summary reports from the Internal Audit Department periodically while the results of internal audit reviews and responses to the recommended corrective actions are also reported to the executive directors. The Internal Audit Department is also responsible for following up on the corrective actions to ensure that satisfactory controls are maintained.
The Group has put in place an organisational structure with formal clearly defined lines of responsibility and delegation of authority. There are also established procedures for financial planning, capital expenditure, treasury transactions, information and reporting systems, and for monitoring the Group's businesses and their performance.
Other control and management
Code of Conduct
The Company's policy on code of conduct is also an important part of the Group's internal control process. Employees are required to strictly follow the code of conduct to ensure the Group operates to the highest standards of business behaviour and ethics in our dealings with customers, business partners, shareholders, employees, and the business community. The policy is reinforced and monitored by an annual confirmation of compliance in writing.
Whistleblower Policy
The Group maintains a whistleblower policy to facilitate the raising of concerns by employees. Procedures are established for employees to report complaints and suspected internal malpractices directly to the Chief Compliance Officer, who will review the complaints and determine the appropriate mode of investigation and subsequent corrective action. Recommendations on improvements are communicated to the respective department's senior management for implementation. The Chief Compliance Officer reports the results of his review of the complaints received to the Audit Committee, where applicable, twice a year.
Model Code of Securities Transactions
The Company has adopted the Model Code for Securities Transactions by Directors of Listed Issuers (the "Model Code") as set out in Appendix 10 to the Listing Rules regarding securities transactions by directors and senior management. After specific enquiry, all directors of the Company confirmed that they have complied with the required standard of dealings set out in the Model Code throughout the year ended 31 March 2011.
updated 20th June, 2011
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