Sly Bailey's talk at Leveson Inquiry seminar
The role of corporate governance in maintaining standards
by Sly Bailey
Today I’ve been asked to outline how the system of Corporate Governance works in practice at Trinity Mirror.
Unlike many newspaper companies we’re a plc, a public limited company, we therefore have expectations that are placed on us and expectations that we in turn have of our staff.
The reason for this is, of course, quite simple. We’re owned by a very broad shareholder base made up of “retail” share holders – members of the public who typically own a small amount of our shares – through to major financial institutions who on the whole hold the shares for pension funds and insurance companies: the Nation’s investments.
So that those two classes of shareholder can have confidence in investing in plcs, the directors are obliged to follow a well-established set of principles. These are a very clear set of common sense guidelines that have been codified into the UK Corporate Governance Code.
Unless you have worked in a plc, much of what the code suggests will be alien and could seem overly bureaucratic. In practice it simply helps the directors of the company run the business by a series of clear and codified systems and controls.
However, what are really important are the ways in which the systems are actually implemented and put into practice.
It’s not about box-ticking, it’s about how we manage the business and how that shapes the culture.
At Trinity Mirror we have a properly constituted Board with separately-defined responsibilities. The Board’s terms of reference are clearly set out with a list of matters that are reserved to the board for decision.
The split of responsibilities between the Chairman and me as CEO are agreed and written down.
We have a majority of non-executive directors, and as I’m on a public platform and aware of some of the recent calls for a greater number of women on boards, it would be remiss of me not to take this opportunity to give ourselves a plug and say that we are one of very few, possibly the only major plc, with a 50/50 split of men and women on our board.
The Board itself then operates through a series of committees: the Audit & Risk Committee; the Remuneration Committee, and; the Nominations Committee. Each of these is chaired by an experienced independent non-executive director. Each Committee has clear terms of reference which we publish on our website.
But whilst the board might sometimes believe it is omnipotent, it does have the humility to recognise that it cannot be omnipresent. It simply can’t be in all places looking at everything at all times. So we need a framework through which we manage the business.
We therefore undertake a very detailed assessment of the risks facing every part of every aspect of the business. Now, this is not a health and safety man with a clip board survey.
No, it’s a very full, bottom-up analysis of what we do as a business and the risks associated with it. The risks range from macro economic factors, structural change in our industry, breach of regulation, a failure in the supply chain, to a major editorial problem. At present we have 27 key risks.
Each risk is analysed in detail for its likelihood, and potential level of impact. We then review what steps can be put in place to manage those risks, and what controls are needed in the business to ensure that those steps are followed. Effectively this is where corporate governance is actually just good management practice.
All this is then captured in what we call our ‘risk map’. This is a living document that is under near-constant amendment by management.
It’s central to how we manage the business on a day-to-day basis and is formally reviewed by the Audit & Risk Committee of the Board three times a year.
In addition to the risk map, we then ask circa 70 of our senior executives from finance managers to advertising managers, lawyers to editors, to sign a certificate at the end of each financial year, to confirm whether or not they have any risk matters that they wish to bring to the attention of the Board.
These statements then allow me to sign my own statement to the board on the risk control systems. The board as a whole then endorses a statement on our risk processes and internal controls that is published in our annual report and accounts
And that is not the end of the process. Our external auditors have to review all aspects of the process and make a statement themselves, which is published in the report and accounts.
Not leaving anything to chance, section 418 of the Companies Act requires the Directors to publish yet another statement confirming that they have told the auditors everything that they ought to have told them.
To give the Directors confidence that they can publish that statement, we require another 40 executives to sign a certificate confirming that they haven’t withheld anything from the auditors.
Now, you may think that this is little more than signing pieces of paper. In practice it absolutely influences the way in which executives run and manage the business, and is another tool that helps maintain standards.
I hope you’re still with me because finally we come back round to the UK Corporate Governance Code. The Directors are required to publish a statement as to whether or not the company has complied with the code over the previous year.
Once all of that is done, our shareholders get to vote on whether or not they accept our report and accounts. To help them in that there are a number of proxy voting agencies, bodies such as the ABI and Risk Metrics who review us for compliance with the code and score us.
The areas I’ve covered so far are the ways in which we have chosen to apply corporate governance rules that are applicable to all plcs. In addition to those processes, at Trinity Mirror we also have a series of operational policies. These set the rules for what people can and cannot do.
We have “authority levels” that set the limit on how much an individual can commit the company to spend, or the level of invoice they can sign off for payment.
We have fast track reporting systems if there is any suspected fraud within the company with a no de minimus rule. I have to be told about any suspected fraud however small and we have a whistleblowers’ charter.
In short, as it cascades through the business Corporate Governance becomes good management, it is simply what we do to manage the business.
But – and I want to emphasise this – no system of corporate governance, however well thought through and rigorously applied, can be completely “bomb proof”. It cannot stop the determined wrong-doer.
But what it can do, is significantly minimise the risk of wrong-doing with systems and controls that are designed to help the business quickly identify if something is going wrong.
Good corporate governance, as it cascades through the business, reinforces on a daily basis what is and isn’t acceptable. So the culture of the business is founded upon a clear set of principles and procedures, which are well-communicated and understood.
I now want to spend a few minutes on how good governance is applied to editorial.
Our Editors have a number of tools to help them in compliance with standards.
The first is their own version of the Combined Code and it really is their own version. It’s the Editors Code of Practice, often wrongly described as the PCC Code. That distinction is very important.
It’s not a code drawn up by some separate body and then imposed on Editors, it’s their own code that they have devised, a set of standards and a form of ethical guidebook. It’s amended from time to time as need arises, and I think it’s often overlooked that the code is not set in stone, but has been amended nearly 30 times since it was first introduced.
The second tool is Trinity Mirror’s own set of controls and procedures that form part of our own Corporate Governance system and apply equally to Editorial.
We have a very clear Code of Business Conduct that is issued to all new employees and forms part of their induction programme. This covers areas such as conflict of interest, entertainment, gifts and benefits, bribery, the confidentiality of information and inside information. Our Editors also have clear policies for procurement and expenses.
We also have a series of editorial procedures, the way we do things. These range from editorial legal review, to understanding the provenance of stories and, like any other system, we believe it should be reviewed from time to time.
Given the recent furore that has led to the setting up of this Inquiry, we recently undertook a thorough review of our Editorial Controls and Procedures.
The review was also timely as following the recent introduction of the Contentwatch editorial technology, we’ve seen changes to organisation, structure and process in many of our newsrooms.
The review, which was informed by the governance standards applicable to quoted companies, found that in general across our 165 newspapers and more than 500 websites, controls are robust. However, there are a number of areas where they can be strengthened and where practices and procedures can be updated.
These include training, legal oversight, expectations of third party suppliers and digital controls.
The review and its recommendations have been approved by the Board and are now Group policy. The full review document will also be submitted to this inquiry.
The area I haven’t yet covered is judgement. And this of course is a key factor in the running of our business, and specifically the editing of our newspapers.
We’re not in the business of producing identikit products, identical cars for instance, that are mass-produced to detailed and standard specifications.
Faced with circa 80 blank pages, often more, every day our editors produce a different, unique version of their product. A frankly miraculous feat of skill, expertise and good old fashioned gut instinct of what will make a great story, a great paper.
The point is that what makes it into the paper and what doesn’t, is entirely a matter for the editor.
So working within the framework of all of the systems of corporate governance as described, a huge amount of what we do relies on the good, well-informed, expertly-applied judgement of our editors.
And I do believe that the culture that results from a clear and codified way of doing things, one of strong corporate governance that works hand in glove with good editorial judgment, will be one of honesty and integrity, and is a healthy and effective way to run newspapers.
And I would point to the fact that in the hundreds of thousands of stories that Trinity Mirror publishes every year, we make very few mistakes.
In summary, proper processes lead to proper behaviours, and need not limit creativity.
Sly Bailey is Chief Executive of Trinity Mirror
See details of Leveson Inquiry Seminar here