The Directors acknowledge the importance of high standards of corporate governance. The corporate governance code that the Directors have decided to apply is the Quoted Companies Alliance Code on Corporate Governance (the "Code"). The Directors intend to ensure that Keystone Law Group PLC (the "Group") complies with the Code.
The Board comprises five Directors, two of whom are Executive Directors and three of whom are Non-executive Directors (of which two are independent Non-executive Directors), reflecting a blend of different experiences and backgrounds. The Board believes that the composition of the Board brings a desirable range of skills and experience in light of the Company's challenges and opportunities while at the same time ensuring that no individual (or a small group of individuals) can dominate the Board's decision making.
The Board meets regularly to review, formulate and approve the Group's strategy, budgets, corporate actions and oversee the Group's progress towards its goals. The Company has established an Audit Committee and a Remuneration Committee with formally delegated duties and responsibilities and with written terms of reference.
Compliance with the Code
Set out below are the ten principles of the Code and an explanation as to how the Group complies with them.
Principle 1 - Establish a strategy and Group model which promote long-term value for shareholders
As a full service networked law firm, Keystone delivers conventional legal services across a range of service areas and industry to a client base comprising predominantly of SMEs and private individuals. It is how these services are delivered via Keystone's distinctive platform model, rather than the services themselves, which differentiates Keystone from other law firms. It is this platform model which is central to Keystone's growth and success.
Keystone's many high calibre, experienced, self-employed lawyers contract with the Keystone predominantly through personal service companies. The lawyers work from their own offices which are mainly throughout the UK, though with some are based in other countries such as Ireland, the Isle of Man and beyond. They are supported by the Group's central office team from the heart of London's legal district on Chancery Lane. Bespoke proprietary software, developed using leading modern open source products and coding languages, enables Keystone's lawyers to interact with the central office team and each other in an easy and efficient manner, whilst extensive networking and social events engender a strong sense of belonging to the Keystone family.
The lawyers have no fixed remuneration, instead benefitting from a transparent, consistent and 100 per cent. variable pay structure, with between 60-75 per cent. of fees paid to the lawyer once Keystone has been paid for the work undertaken. The Directors believe that, unlike traditional law firms, the cash generative nature of Keystone's platform model and the associated lack of fixed salary overheads of its lawyers enables the Group to scale rapidly and without working capital pressures and constraints.
Keystone's platform model and associated remuneration structure is attractive to high calibre, experienced lawyers from mid-market firms with their own client following, providing an alternative way to practise the law and the opportunity to earn more than in a conventional firm whilst enjoying a better work-life balance. The recruitment of such lawyers enables the Group to drive its growth and to develop a highly diverse client base. With each lawyer developing their own business opportunities and cross-referring work to Keystone colleagues, the Directors believe that the Group's growth is sustainable.
Recruitment of new lawyers is an important driver of revenue growth for the Group. Delays in recruitment of new lawyers and/or a reduction in the level of recruitment of new lawyers could have a significant impact on the Group's performance. There is consistently a lead time between recruiting a lawyer and that lawyer generating revenue which the Group seeks to accelerate through an onboarding plan, but there is a risk that new lawyers may require substantial time in order to start generating fees.
Each year the Group considers the principal risks and uncertainties it faces and sets these out in its Annual Report.
Principle 2 - Seek to understand and meet shareholder needs and expectations
The Board places great emphasis on good communications with shareholders. The Group primarily communicates with shareholders via its annual and interim reports. Following the issue of these reports, the Chief Executive and the Finance Director meet with shareholders and analysts. Further announcements may be made during the course of the year via RNS in satisfaction of the Board's reporting obligations in compliance with regulation and best practice.
Every year, at the Group's AGM all shareholders have the opportunity to communicate directly with the Board and shareholder participation is encouraged. Details of the Group's AGM, and the business to be transacted at it, are announced in the usual way and reproduced on the Group's website.
In addition, the Chairman is available to meet major shareholders on request to discuss governance and strategy. The Senior Independent Director is also available to meet shareholders separately if requested. Reports of these meetings and any other shareholder communications during the year are provided to the Board. Shareholders can contact the Group Secretary to request that a matter be brought to the Board's attention or to arrange a meeting with the Chairman or Senior Independent Director.
Principle 3 - Take into account wider stakeholder and social responsibilities and their implications for long-term success
The Board recognises the importance of the Group's consultants and employees, the Group's clients and the Group's suppliers. The Group engages with each of these stakeholders as set out below.
Consultants and employees
Keystone's success is built on the calibre and commitment of its consultants and who share a common commitment to go above and beyond client expectation.
The culture of Keystone is to provide a liberating and innovative environment which allows lawyers to thrive and look after the needs of their clients. Keystone is focussed on providing its lawyers with the freedom flexibility and autonomy they want combined with the support and infrastructure they need. Keystone is characterised by its inclusive collegiate culture. The senior management and central office employees engage directly with the Group's consultants daily and meet with them in a range of different formats regularly throughout the year. Furthermore, Keystone conducts an annual survey in which the consultants provide their feedback on the service, support and infrastructure they receive. Keystone produces a quarterly internal magazine called KeyNews and sends out more regular bulletins by email.
Keystone's consultants are supported by Keystone's who are equally central to the success of the Group. On a monthly basis the members of Keystone's central office are bought together for informal "town hall" style meetings. Keystone's central office is open plan and there is a good day to day dialogue between all members of staff who are encouraged to speak freely. All levels of management are encouraged to ensure good engagement within their teams. Like for like the Group aims to recruit and retain the best support staff in the industry.
Keystone's consultants have strong client relationships. The success of the Group is down to the attentive and bespoke nature of the service it provides. Most clients have a close day to day relationship with their lawyer and feed their comments back to them during the matters. Clients also can give feedback directly to our senior management and are invited to do so in the Group's engagement letter which is sent to every client at the commencement of the matter.
As a regulated law firm, the services we provide are governed by the highest standards of professional practice and our internal compliance function works with our lawyers, our clients, our regulator and our ombudsman in this respect.
Our service and expertise regularly wins awards. A number of industry publications including The Lawyer, Legal Week, Chambers and Partners have independently attested to Keystone's very high level of client satisfaction.
Each of our Group unit heads engage directly with our suppliers in their area. We engage regularly with our key suppliers. The heads of our Group units have direct access to the Board and discuss supplier matters both formally and informally as and when necessary.
Principle 4 - Embed effective risk management, considering both opportunities and threats, throughout the organisation
The Board is responsible for maintaining a sound system of internal controls to safeguard shareholders' investments and the Group's assets. Such a system is designed to manage, rather than eliminate, the risk failing to achieve the Group's objectives. It is designed to provide a reasonable, but not an absolute, assurance against material misstatement or loss. The Board has considered the need for an internal audit function, but has concluded that the internal control system in place is currently the most appropriate solution given the size and complexity of the Group. The Board revisits this decision periodically.
The Board is responsible for the identification and evaluation of major risks faced by the Group and for determining the appropriate course of action to manage those risks. Senior management conducts an annual risk audit and submits this to the Board for review. The Board raises enquiries and requires changes as it deems necessary.
The Group takes a pro-active approach to risk management which starts at the strategic level with the Group identifying areas of the law in which it will not operate. The Group then recruits to this risk profile. The recruitment process is controlled by senior management team who are qualified and experienced solicitors and who have many years' experience of recruiting consultants to Keystone. The Group focuses on attracting experienced and well qualified lawyers with a client following from highly respected law firms, thereby reducing the risk profile of the lawyer base.
The consultants are required to report all risks, complaints and regulatory matters to the Group's internal compliance function. Further that function also, using technology and traditional methods, proactively monitors matters and actively engages with consultants to assess, understand and manage each risk as it arises. In addition to risk matters passed to the compliance function by consultants, all clients are informed in Keystone's engagement letter that they can raise any concerns they may have directly with senior management should they so wish. From time to time clients chose to do so and write to alert the compliance function to perceived issues. The compliance function is led by William Robins, Operations Director and the Group's Compliance Officer.
The Board has expressly identified the risk factor of non-compliance by the lawyer base with the Group's policies and procedures. Attention is drawn to the Risk Factor headed "Litigation, professional liability and uninsured risks" holdings in Part II of the Group's admission document. The risk management approach taken is prevention rather than cure, with the focus being on identifying potential issues before they materialise. Should issues arise though, then they are managed by the Group's compliance function.
Each new matter taken on requires must be set up in Keystone's system. Embedded in this set up process, Keystone consultants are required to complete a risk questionnaire which applies a points-based risk rating to every matter. Any matter which exceeds the acceptable level of risk is automatically escalated to the compliance function who then speak to the consultant who completed the form to further understand the risk. Based on this dialogue the compliance function will determine what if any additional controls are necessary for the handling of the matter and, if so, how they are to be implemented and checked.
On a quarterly basis there is a review of all high-risk matters. This review looks at the matter itself, any new facts or developments and the appropriateness of any steps implemented to address perceived risk. The Group uses a system of peer review when appropriate, such as when giving legal opinions or in high risk matters. Otherwise, reviews are undertaken, when necessary, by the compliance function.
On an ad hoc basis, lawyers regularly contact the compliance function to discuss issues which they encounter in order to plan how best to manage potential issues or challenges as they arise. An "open door" culture is actively promoted and, so far as can be measured, seems to be highly effective.
Furthermore, the compliance function:
Principle 5 - Maintain the board as a well-functioning, balanced team led by the chair
The Board comprises five directors, two executives and three non-executives, reflecting a blend of different experience and background. Two of the non-executives are considered independent, namely Robin Williams and Peter Whiting (the "Non-Executive Directors").
The Non-Executive Directors are expected to devote such time as is necessary for the proper performance of their duties. Overall the Non-Executive Directors are expected to spend a minimum of 24 days a year working for the Company. The executive directors are full time employees of the Company.
The Board, the Audit Committee, the Remuneration Committee and the Disclosure Committee meets periodically and as appropriate. The Group discloses in its annual report the attendance of directors at scheduled board and committee meetings.
Principle 6 - Ensure that between them the directors have the necessary up-to-date experience, skills and capabilities
The list of directors and their experience and skills is set out on the Group's website at http://www.keystonelaw-ir.co.uk/content/investors/board.asp.
The Non-Executive Directors keep their skillset up to date with a combination of attendance at CPD events and experience gained from other board roles. The Executive Directors are full time in the Group and this is the best way of their keeping up-to-date. The Group's Nominated Adviser and the Company Secretary ensure the Board is aware of any applicable regulatory changes. All Directors are able to take independent professional advice in the furtherance of their duties, if necessary, at the Group's expense. In addition, the Directors have direct access to the advice and services of the Company Secretary and Chief Financial Officer.
Subsequent to the Group's IPO, neither the Board nor any of its committees has sought external advice on a significant matter. The Group's external advisers are set out on the Group's website at http://www.keystonelaw-ir.co.uk/content/investors/advisers.asp.
Principle 7 - Evaluate board performance based on clear and relevant objectives, seeking continuous improvement
Historically there has been no requirement under the AIM Rules for Companies to conduct a formal performance evaluation of the Directors. The Group listed in November 2017 and accordingly no external evaluation has yet been undertaken.
The skills and experience of the Board are set out in their biographical details. The experience and knowledge of each of the Directors gives them the ability constructively to challenge strategy and scrutinise performance. Robin Williams and Peter Whiting joined the Board in October 2017 and took part in an induction process, during which they met with key employees and advisers and received presentations from the Executive Directors on strategy and finance. It is intended that, in the future, on joining the Board, any new directors will undergo a similar formal induction programme which will be tailored to the existing knowledge and experience of the director concerned.
The Board believes that the Directors possess a mix of experience that is appropriate for the Group's current operations and strategy.
The Group's first board effectiveness review is scheduled for November 2018. Once it has been completed and fully reviewed by the Chairman, the Group's website will be updated with the relevant details.
Principle 8 - Promote a corporate culture that is based on ethical values and behaviours
As a law firm, Keystone is regulated by the SRA and as such complies with the SRA Code of Conduct. Central to this Code is a series of obligations placed on the Group and its consultants to operate with integrity and uphold the rule of law.
Keystone's business model drives positive behaviour. It aligns the interests of clients and lawyers, both of which are fulfilled through the Group and the support the lawyers receive and use in advising the clients.
Principle 9 - Maintain governance structures and processes that are fit for purpose and support good decision-making by the board
The division of responsibilities between the Chairman and Chief Executive Officer is clear, is set out below and has been agreed by the Board. There is strong non-executive representation on the Board. The Non-Executive Directors meet during the year without the Executive Directors and provide effective balance and challenge.
Role of the Chairman and Chief Executive
The Chairman leads the Board ensuring its effectiveness and his role and responsibilities are clearly divided from those of the Chief Executive Officer. The Chairman:
The Chief Executive Officer has responsibility for all operational matters which include the implementation of strategy and policies approved by the Board. In addition, he has responsibility for managing the business of Keystone subject to the matters reserved for the Board. He has overall responsibility for the Group's development and expenditure and delivering on the budget prepared by the Finance Director and approved by the Board.
Matters reserved for the Board
The Board is responsible for reviewing, formulating and approving the Group's strategy, budgets and corporate actions and overseeing the Group's progress towards its goals. This is formally documented in a schedule of matters reserved for board approval and includes:
Board decisions and activity during the year
The Board has a schedule of regular business comprising all the major financial and operational matters of the Group. The Board has established a number of committees, the work of which is described below. The Board has ensured that all areas for which it is responsible are addressed and reviewed during the course of the year. The Chairman, aided by the Company Secretary, is responsible for ensuring the Directors receive accurate and timely information. The Company Secretary provides minutes of each meeting and every Director is aware of the right to have any concerns minuted.
In addition to the board meetings, there is regular communication between Executive and Non-executive Directors, including where appropriate updates on matters requiring attention prior to the next scheduled board meeting. It is Board's current practice that the Non-Executive Directors meet periodically and at least annually, without the Executive Directors.
The Group listed in November 2018. After listing the Board met once in 2017 and put in place a monthly schedule of meetings, commencing in January 2018.
Board meetings are arranged by the Company Secretary. Where the subjects to be discussed call for it, the Company Secretary arranges for or prepares suitable which are then circulated to Directors in advance. Additional ad hoc meetings and committee meetings are called as necessary, for example to approve the release of the Group's annual report, once it has been approved in principle in substantially the final form.
At least annually the Board will consider the Group's strategy and annual budget.
There are currently no plans in place for evolution of the corporate governance framework in line with the Group's plans for growth as the Board believes that the current structure of the Board is suitable for the such growth plans in the short to medium term. However, the Board will keep this under regular review.
The Audit Committee is charged with the oversight of the internal financial controls and risk management systems, making recommendations to the Board on the appointment of auditors and the audit fee, monitoring and reviewing the conduct and control of the audit work as well as monitoring the integrity of all formal reports and announcements relating to the Group's financial performance. The Committee has unrestricted access to the Group's auditors.
The Audit Committee comprises at least two members of whom both are independent non-executive directors and one shall have recent and relevant financial experience with competence in accounting or auditing. One member is a member of the Remuneration Committee. The Finance Director attends the committee meetings by invitation.
The members of the Audit Committee are:
Peter Whiting (Chairman)
The Audit Committee considers all proposals for non-audit services and ensures that these do not impact on the objectivity and independence of the auditor. The Audit Committee in its meetings with the external auditor reviews the safeguards and procedures developed by the auditor to counter threats or perceived threats to their objectivity and independence and assess the effectiveness of the external audit. The Group's policy on non-audit services performed by the external auditor is to address any issues on a case by case basis.
The terms of reference are available on the Company's website at: http://www.keystonelaw-ir.co.uk/archive/governance/Audit-Committee-tor.pdf
The Remuneration Committee reviews the performance of the Executive Directors and makes recommendations to the Board on matters relating to their remuneration and terms of service. The Remuneration Committee reviews the performance of the executive directors, sets the scale and structure of their remuneration and the basis of their service agreements with due regard to the interests of shareholders and reviews and approves any proposed bonus entitlement. It is be responsible for the management of the Group's share-based incentive scheme and any future such schemes that may be put in place.
The Remuneration Committee meets as and when necessary, but at least twice each year. The committee members have regard to the recommendations put forward in the QCA Code and, where appropriate, the QCA Remuneration Committee Guide and associated guidance. The Remuneration Committee comprises at least two independent non-executive directors and is chaired by a non-executive director who is appointed by the Board in consultation with the two independent non-executive directors.
The members of the Remuneration Committee are:
Simon Philips (Chairman)
The terms of reference are available on the Company's website at: http://www.keystonelaw-ir.co.uk/archive/governance/Remuneration-Committee-tor.pdf
The Disclosure Committee is available as needed to review how the Group should deal with price sensitive information and information that may be price sensitive information. The purpose of the Disclosure Committee is to provide a rapid response to the potentially urgent matter of required disclosures. All Board members are members of the Disclosure Committee as is the Company Secretary. The quorum of the Disclosure Committee is one of the Chief Executive Officer, the Finance Director, and the Company Secretary and any Non-Executive Director.
The terms of reference are available on the Company's website at: http://www.keystonelaw-ir.co.uk/archive/governance/Disclosure-Committee-tor.pdf
The Group does not adhere to all of the recommendations of the QCA Code as there is no separate nomination committee. The Board will consider all recommendations for appointment to the Board. From time to time, separate committees may be set up by the Board to consider specific issues when the need arises. The Board undertake those functions normally delegated to a nomination committee.
Principle 10 - Communicate how the Group is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders
The Group announces the results of its AGM each year and records in its annual report the full details of the votes cast at that year's AGM. The results for the 2018 AGM can be viewed at http://www.keystonelaw-ir.co.uk/archive/circulars/Results-AGM-2018.pdf.
None of the 2018 AGM resolutions resulted in a vote against which were 20% or more of the votes cast. If at future AGMs 20% or more of the votes should be cast against a resolution, the Board will note this in this Corporate Governance Statement.
The 2018 AGM was the first AGM for the Group since admission of the Group's shares to trading on AIM.
Since the Group's IPO and up to the date of publication of the 2017 Annual Report, the Remuneration Committee had not met and therefore there are no matters to report.
The Audit Committee met once since the Group's IPO and up to date the date of publication of the 2017 annual report. At that meeting of the Audit Committee the committee addressed the following areas:
Page last updated: 26 September 2018