2007 Corporate Governance Statement
Introduction
This statement sets out Hills' commitment to business practices and corporate governance. It also describes the Hills approach to corporate governance and summarises the main policies and procedures that Hills has in place.
ASX Principles of Good Corporate Governance
Hills places great importance on the proper governance of the Company and has always had policies to ensure good business practices.
When the Australian Stock Exchange ("ASX") published corporate governance guidelines in March 2003, the Board undertook a detailed review of those recommendations and determined that Hills already complied with the majority of them. Hills commitment to reviewing and complying with the ASX recommendations is an ongoing one.
The ASX recognises that in their Principles they are making recommendations, not prescriptions. Where a recommendation is not considered appropriate to Hills particular circumstances, Hills has the option of not adopting it, as long as it explains why it has chosen not to adopt it.
The ASX Principles make recommendations on materials to be made available. Hills has made all of the recommended documents available and have established links from this website to those documents.
ASX Corporate Governance Principles:
Principle 1:Lay solid foundations for management and oversight
ASX recommends recognising and publishing the respective roles and responsibilities of Board and management. Hills address this recommendation as follows.
The Hills Board's primary role is the protection and enhancement of long-term shareholder value. The responsibilities of the Board can be viewed by clicking here.
The Board remains responsible for overseeing the performance of the management team on behalf of shareholders, but delegates responsibility for the day-to-day management of Hills to the Group Managing Director and senior executives.
To ensure that this delegated responsibility is clearly defined, the Board has formally delegated a range of authorities to management.These include limited expenditure authority and the authority to enter into certain contracts.
Principle 2: Structure the Board to add value
ASX recommends having a Board of an effective composition, size and commitment to adequately discharge its responsibilities and duties. Hills address this recommendation as follows.
2.1 Board composition and independence
The Hills Constitution allows for a maximum of ten directors. The Hills Board currently comprises seven directors, five being non-executive directors plus the Group Managing Director and Finance Director. The directors come from a variety of business and professional backgrounds and bring to the Board a range of skills and experience relevant to Hills. Details of the directors' experience, expertise and terms in office are provided in the annual report. The latest details are set out in the 2007 annual report and can be viewed by clicking here.
Of the five non-executive directors, four are independent and one is non-independent. Ms JH Hill-Ling is considered non-independent primarily due to her ownership interest in Hills. In assessing independence, the Board has adopted a definition consistent with the guidance provided in the ASX best practice recommendations.
Currently, the Board has four independent and three non-independent directors.
The Board believes that the first priority in the selection of directors is their ability to add value to the Board and enhance Hills' performance whilst safeguarding shareholders' interests. Accordingly, relevant expertise and competence is considered as important as technical independence.
The Board has formalised a process for the selection and induction of new directors to ensure they are provided with the information required to properly perform their role. A summary of the process can be viewed by clicking here.
Board operations
The Board meetsregularly, usually monthly as well as to approve annual and half yearly reports. The directors' attendance at those meetings is set out in the 2007 annual report and can be viewed by clicking here. The directors receive a comprehensive Board pack before each meeting. Senior executives meet regularly and present to Board and committee meetings on particular issues.
The Board has established three committees, the Audit and Compliance Committee, the Remunerations Committee and the Nomination Committee. Each committee operates in accordance with a Board-approved charter. Details of committee membership and details of meetings and attendance at those meetings are provided in the annual report. The latest details are set out in the 2007 annual report and can be viewed by clicking here.
All directors have unrestricted access to company records, information and personnel and the Board has a policy of allowing the Board or individual directors to seek independent professional advice at the Company's expense, subject to the approval of cost by the Chairman. Such approval shall not be unreasonably withheld.
Contracts with directors
Details of transactions between directors and members of the Hills Group are provided in the annual report. The latest details are set out in the 2007 annual report and can be viewed by clicking here.
2.2 The role of Chairman
The Board believes that the role of chairman should be filled by the person most suited to the role, with the most relevant skills and experience and who adds the greatest value to the Board and to Hills. The responsibilities of the Chairman can be viewed by clicking here.
The Chairman, Ms JH Hill-Ling, whilst non-executive, is a non-independent director. This is not in accordance with ASX recommendation 2.2 but is considered appropriate given:
the Hill-Ling family's interest in Hills;
Ms Hill-Ling's considerable experience on the Board of Hills; and
the various positions and activities engaged in outside Hills,
which are considered invaluable in her role as chairman.
2.3 The role of Chairman and Group Managing Director
The role of Chairman and Group Managing Director are exercised by different individuals, in accordance with ASX recommendation 2.3. The role of the Group Managing Director can be viewed by clicking here.
2.4 Nomination Committee
The Board has established a Nomination Committee to ensure that the Board retains a sufficiently wide mix of expertise to fulfil its responsibilities. The Nomination Committee is responsible for devising criteria for Board membership for approval by the full Board, except the Group Managing Director, for identifying individuals for nomination and making recommendations to the Board for new directors and membership of committees.
A summary of the Charter for the Nomination Committee can be viewed by clicking here. Committee membership and meeting attendances are set out in the 2007 Annual Report and can be viewed by clicking here.
Principle 3 Promote ethical and responsible decision-making
In Principle 3, ASX recommends actively promoting ethical and responsible decision-making. Hills address this recommendation as follows.
3.1 Hills' commitment to ethical business practices
While the Hills Board has adopted the ASX principles of good corporate governance and implemented most of the ASX recommendations, it believes that these types of rules and regulations are of limited value unless supported by a foundation of honesty and integrity which has been a foundation of Hills' business practice.
The Board has adopted a formal (written) Code of Conduct for Hills, effectively a corporate creed that is best applied by asking "What is the right thing to do?" The code applies to all employees within Hills from the Board, through management to all other staff. The code encourages all staff and other stakeholders to report any breaches of the code to the Chairman of the Board, who is required to investigate and report on all such matters.
The Code of Conduct is supported by more detailed policies setting out the philosophy of Hills in relation to its various stakeholders. A copy of the code is available by clicking here.
3.2 Share dealings by directors and officers
In accordance with Hills' constitution, all directors are required to be shareholders and hold a minimum of 500 shares. Hills has for many years encouraged the holding of its shares by directors and employees.
The Board has adopted a share dealing policy that specifically precludes directors and officers from buying or selling shares within 45 days prior to the announcement of the annual or half-year results, the day of and the day after the announcements and if in possession of price sensitive information not generally available to the public. Details of directors' individual shareholdings and the share dealing policy are provided in the annual report. The latest details are set out in the 2007 annual report and can be viewed by clicking here.
Principle 4 Safeguard integrity in financial reporting
In Principle 4, ASX recommends having a structure to independently verify and safeguard the integrity of the companys financial reporting. Hills address this recommendation as follows.
4.1 True and fair view of accounts
The Board has policies designed to ensure that Hills' financial reports meet high standards of disclosure and provide the information necessary to understand Hills' financial performance and position.
The policies require that the Group Managing Director and Finance Director provide to the Board prior to the Board approving the annual and half-year accounts, a written statement that the accounts present a true and fair view, in all material respects, of Hills' financial performance and position and are in accordance with relevant accounting standards, laws and regulations.
4.2 Audit and Compliance Committee
An Audit Committee has been established. After a review of the structure and function, the Board expanded the role of this committee and it is now referred to as the Audit and Compliance Committee.
The Audit and Compliance Committee is responsible for reviewing the financial accounts and other financial information distributed externally, monitoring the adequacy of risk management and internal control systems and monitoring procedures in place to ensure compliance with statutory responsibilities.
4.3 Structure of Audit and Compliance Committee
The committee consists of three directors, all of whom are non-executive and independent. The Chairman of the committee is an independent director who is not the Chairman of the Board. The Group Managing Director, Finance Director and external and internal auditors are invited to attend the committee meetings. Details of membership and attendance at committee meetings are provided in the annual report. The latest details are set out in the 2007 annual report and can be viewed by clicking here.
4.4 Audit and Compliance Committee Charter
The committee has a Board-approved charter setting out its role, responsibilities, structure and membership requirements. A copy of its charter can be viewed by clicking here.
The Charter includes information on the committees procedures for the selection and appointment of external auditors, and for the rotation of external audit engagement partners.
The Board has in place policies for ensuring the quality and independence of Hills' external auditors. The majority of fees paid to Hills' external audit firms for work other than the audit of the accounts were for taxation services. The Board requires that adequate hand-over occurs in the year prior to rotation of an audit partner to ensure an efficient and effective audit under the new partner. Details of the amounts paid for both audit and non-audit services are provided in the annual report. The latest details are set out in the 2007 annual report and can be viewed by clicking here.
Principle 5 Make timely and balanced disclosure
In Principle 5, ASX recommends promoting timely and balanced disclosure of all material matters concerning the company. Hills address this recommendation as follows.
Witten policies and procedures have been established which are designed to ensure compliance with ASX Listing Rule disclosure requirements. The Audit and Compliance Committee is charged with monitoring the compliance and this duty forms a part of the committee Charter, which can be viewed by clicking here.
Principle 6 Respect the rights of shareholders
In Principle 6, ASX recommends respecting the rights of shareholders and facilitating the effective exercise of those rights. Hills address this recommendation as follows.
6.1 Communications with shareholders
The Board is committed to ensuring that shareholders are informed of all non-confidential material matters. It accomplishes this through:
the annual report distributed at the end of September each year;
the Chairman's address to the annual general meeting;
the letter from the Chairman mailed to all shareholders on the release of the half-year financial results;
providing information on Hills website, which contains extensive information about the Hills Group and its activities, including annual reports and shareholder information and
making appropriate disclosure to the market where necessary.
The Board has established continuous disclosure controls throughout Hills that include senior executives providing regular sign-off concerning matters that require disclosure to the ASX.
6.2 External auditor at annual general meeting
Hills' financial accounts are subject to an annual audit by an independent, professional auditor, who also reviews the half-year accounts.
The Board requests the external auditor to attend the annual general meeting each year and to be available to answer shareholder questions regarding the conduct of the audit and the preparation and content of the auditor's report.
The Board ensures that shareholders are made aware that the external auditor is present and available for questions at the annual general meeting.
Principle 7 Recognise and manage risk
In Principle 7, ASX recommends establishing a sound system of risk oversight and management and internal control. Hills address this recommendation as follows.
7.1 Board to establish policies on risk oversight and risk management
Hills' internal audit department is responsible for reviewing compliance with the internal control systems and operates under a Board-approved charter.
The Internal Audit Manager is not an employee and has access to both the Chairman of the Audit and Compliance Committee and Chairman of the Board as and if required. The Audit and Compliance Committee oversees the operation of the internal audit department, approves its plans and reviews its work program and activities.
7.2 Group Managing Director and Finance Director to state annual report complies
with Board-established policies.
The Group Managing Director is charged with implementing appropriate risk systems within Hills. He includes in his report to the Board a risk report that notifies directors of any issues or concerns.
The Board reviews all major strategies and purchases for their impact on the risks facing Hills and takes appropriate action. Similarly, Hills reviews all aspects of its operations for changes to the risk profile on an annual basis.
Principle 8 Encourage enhanced performance
In Principle 8, ASX recommends fairly reviewing and actively encouraging enhanced Board and management effectiveness. Hills address this recommendation as follows.
The Board reviews the operations of the Board and the performance of its individual directors. The review is conducted annually.
The Board reviews its governance structures, including Board committees, regularly to assess their effectiveness and efficiency.
Principle 9 Remunerate fairly and responsibly
In Principle 9, ASX recommends ensuring that the level and composition of remuneration is sufficient and reasonable and that its relationship to corporate and individual performance is defined. Hills address this recommendation as follows.
9.1 Hills' commitment to responsible executive remuneration
The Hills Board believes that it has a responsibility to ensure that executive remuneration is fair and reasonable, having regard to the competitive market for executive talent, structured effectively to motivate and retain valued executives and designed to produce value for shareholders. Details in respect of Hills' remuneration policies, their costs and benefits and the link between remuneration and corporate performance are provided in the annual report. The latest details are set out in the 2007 annual report and can be viewed by clicking here.
9.2 The Remuneration Committee
The Remuneration Committee sets policies for directors' and senior officers' remuneration, makes specific recommendations to the Board on the remuneration of directors and senior officers and undertakes a detailed review of the performance of the Group Managing Director at least annually. The committee operates in accordance with a Board approved charterand consists of three directors with a majority being independent. Details of membership and attendance at committee meetings are provided in the annual report. The latest details are set out in the 2007 annual report and can be viewed by clicking here.
The Remuneration Committee Charter can be viewed by clicking here.
9.3 and 9.4 Directors' remuneration
The remuneration of non-executive directors is different to that of executives. Executive directors receive a salary and may receive bonuses and options in accordance with plans approved by shareholders.
Non-executive directors receive a set fee per annum and are fully reimbursed for any out of pocket expenses necessarily incurred in carrying out their duties. They do not receive any performance related remuneration, nor shares or options as part of their remuneration.
When reviewing directors' fees, the Board takes into account any changes in the size and scope of Hills' activities, the potential liability of directors and the demands placed on them in discharging their responsibilities. The Board also considers the advice of independent remuneration consultants.
Retirement benefits
Directors receive their statutory superannuation entitlements. In addition, certain non-executive directors are entitled to receive benefits on retirement under a scheme which has now been discontinued.
Under the scheme, directors are entitled to a maximum retirement benefit of twice their annual directors' fees (calculated as an average of their fees over the last three years) accumulated over a period of eight years of service.
Since the scheme was discontinued, no new directors have become entitled to any benefit and the benefit multiple for existing directors (up to a maximum of two times fees) remains fixed.
These benefits have been fully provided for in the financial statements.
Indemnity and insurance of directors
In accordance with Hills' constitution and to the extent permitted by law, Hills indemnifies every person who is, or has been, a director or secretary and may agree to indemnify a person who is or has been an officer of a group company against a liability incurred by that person in his or her capacity as such a director, secretary or officer, to another person (other than the company or a related body corporate of the company) provided that the liability does not arise out of conduct involving a lack of good faith. In addition, Hills has directors and officers insurance against claims and expenses that Hills may be liable to pay under these indemnities.
Principle 10 Recognise the legitimate interests of stakeholders
In Principle 10, ASX recommends recognising legal and other obligations to all legitimate stakeholders. Hills address this recommendation as follows.
Hills recognises its obligations to its various stakeholders and that it is always responsible and accountable for its actions and their consequences.
The Hills Code of Conduct can be viewed by clicking here.
Hills' commitment to its staff
Hills aspires to be an "employer of choice", a well regarded and progressive employer that provides safe and rewarding workplaces for all of its staff so that they can fully contribute their talents to the achievement of corporate goals.
Hills encourages its staff to become shareholders and share in the success of the Group. The employee share plan offers all permanent staff with more than three years of continuous service ordinary shares in Hills.
Hills is committed to protecting the health, safety and wellbeing of its staff, contractors and visitors to its premises.
Hills' commitment to the environment
Hills cares about the environment and recognises that protection of it is an integral and fundamental part of its business. Hills has an environmental management system in place and management assists staff to understand and implement the relevant aspects of this system in their day-to-day work.
Environmental compliance is monitored with relevant issues being reported through management to the Board.
Hills' commitment to the community
The Board believes that Hills has a responsibility to the Australian community, along with the communities of the other regions around the world in which the Group operates. Hills aspires to be a good corporate citizen through the effective provision of quality products, through the taxes it pays, the employment and training it provides its staff, the involvement of its staff in professional, educational and community organisations and through the donations it makes to various charities.
Hills is justifiably proud of its reputation as a dependable Australian company.