Following the recent consultation by the London Stock Exchange, new AIM Rules were published in March 2018. One of the key amendments is in respect of AIM Rule 26 which now requires AIM companies to disclose the corporate governance code they apply and how they have applied that code.
The Board of Directors has decided to apply the QCA Corporate Governance Code (“QCA Code”). Details of how the Company complies with the QCA Code are set out below. The Board of Directors are committed to developing and applying high standards of corporate governance to the Company’s business.
The Company has adopted and will operate a share dealing code governing the share dealings of the Directors and applicable employees with a view to ensuring compliance with Rule 21 of the AIM Rules.
The Chair’s Statement on Corporate Governance can be found below.
Anti Bribery Policy
The Company and its senior management have a zero tolerance of bribery and corruption. This policy extends to all the company’s business dealings and transactions in all countries in which it or its subsidiaries and associates operate. All directors and employees are required to comply with this policy. As a U.S. company, it is also subject to Foreign Corrupt Practices Act (“FCPA”).
The Company prohibits the offering, the giving, the solicitation or the acceptance of any bribe, whether cash or other inducement to or from any person or company, wherever they are situated and whether they are a public official or body or private person or company by any individual employee, agent or other person or body acting on the Company’s behalf in order to gain any commercial, contractual or regulatory advantage for the Company in a way which is unethical or in order to gain any personal advantage, pecuniary or otherwise, for the individual or anyone connected with the individual.
The Company will not enter into any business relationship or engage in any activity if it knows or has reasonable grounds to suspect that a business relationship or activity is, in any way, connected with or facilitates bribery or fraud. We will actively cooperate with law enforcement authorities for the investigation and punishment of any act of bribery connected to any group company. Employees of the Company and its subsidiaries must also comply with local policies and procedures that apply to them as set out in any other company compliance manual or procedures.
It is the responsibility of the board of directors to maintain a sound system of internal control to safeguard shareholders’ investment, the company’s assets, employees and business of the Company. Internal control systems are designed to reflect the particular type of business, operations and safety risks, and to identify and manage these risks.
The Board also seeks to ensure that there is a proper organizational and management structure with clear responsibilities, accountability and succession plans. The Board engages independent professional advice where necessary. It is the Board’s policy to ensure that the management structure and the quality and integrity of the personnel are compatible with the requirements of the Company.
Compliance with the QCA Code
New AIM Rules were published in March 2018 which now require AIM companies to state on their website which recognised corporate governance code they apply and how they have applied that code.
The Board of Directors of the Company is committed, where practicable, to developing and applying high standards of corporate governance appropriate to the Company’s size and stage of development.
The QCA Code is constructed around ten broad principles and a set of disclosures. The Code states what is considered to be appropriate arrangements for growing companies and asks companies to provide an explanation about how they are meeting the principles through the prescribed disclosures.
The Board of Directors have chosen to apply the QCA Code, which was revised in April 2018, as devised by the Quoted Companies Alliance and which is based on the ‘comply or explain’ principle.
The table below sets out the principles and the application recommended by the QCA code. It then sets out how the Company complies with these requirements and departures from code, and provides links to appropriate disclosures. These are based upon the recommended disclosures provided in the QCA code.
|QCA PRINCIPLE||APPLICATION||HOW THE COMPANY COMPLIES||DEPARTURES AND REASONS|
|1. Establish a strategy and business model which promote long-term value for shareholders||The board must be able to express a shared view of the company’s purpose, business model and strategy. It should go beyond the simple description of products and corporate structures and set out how the company intends to deliver shareholder value in the medium to long-term. It should demonstrate that the delivery of long-term growth is underpinned by a clear set of values aimed at protecting the company from unnecessary risk and securing its long-term future.||Frontera Resources is an international oil and gas exploration and production company. The company’s strategy is to identify opportunities and operate in emerging markets in Eastern Europe around the Black Sea.
The Company faces a number of challenges in executing its business model which are typical of natural resources companies, including exploration and execution risk and working in jurisdictions where laws governing the exploration and commercialisation of resources may still be developing and the political landscapes may be subject to change quickly.
The Company aims to deliver long-term shareholder value through the commercialization of hydrocarbons located throughout the Company’s holdings.
|2. Seek to understand and meet shareholder needs and expectations||Directors must develop a good understanding of the needs and expectations of all elements of the company’s shareholder base. The board must manage shareholders’ expectations and should seek to understand the motivations behind shareholder voting decisions.||The Company has a Board of Directors with experience in understanding the needs and expectations of its shareholder base. It supplements its direct communication and oversight with professional advisers in the form of Financial PR, Nominated Adviser, Broker and Auditor who provide advice, recommendations and expertise in various areas of the Company’s activity.
The Company engages with shareholders in a number of ways including:
– The Company’s website has been designed as a hub to provide information to shareholders and communicate with them. The website is regularly reviewed to ensure the information is up to date and relevant. The website contains copies of all Company communications and public documents.
– The Company provides regular updates to the market via the Regulatory News Service.
– The Company’s mid-year and annual results reporting provides required information with regard to historical performance, strategy and objectives of the Company. An Annual General Meeting is held to which all shareholders are invited and may engage with the Board of Directors.
– Contact details for the Company are provided on the Company website along with public documents.
– The Company holds ad hoc shareholder events.
The Company’s Financial PR firm provides an easy point of contact for communication with shareholders.
|3. Take into account wider stakeholder and social responsibilities and their implications for long-term success||Long-term success relies upon good relations with a range of different stakeholder groups both internal (workforce) and external (suppliers, customers, regulators and others). The board needs to identify the company’s stakeholders and understand their needs, interests and expectations. Where matters that relate to the company’s impact on society, the communities within which it operates or the environment have the potential to affect the company’s ability to deliver shareholder value over the medium to long-term, then those matters must be integrated into the company’s strategy and business model. Feedback is an essential part of all control mechanisms. Systems need to be in place to solicit, consider and act on feedback from all stakeholder groups.||As a natural resource business, the Directors of the Company recognize that that they have broad reaching social responsibilities to many different types of stakeholders and environmentally as a result of the drilling and extraction activities of the Company.
Key resources and relationships on which the business relies are its workforce, suppliers, shareholders, local community, host governments and associated elements of regulatory framework.
Employees are encouraged to raise any concerns they may have with relevant management and are also provided with independent contact should they not want to engage directly with their managers.
The mechanisms for feedback from shareholders have been considered under point (2) above.
The process for feedback through local stakeholders and employees is by regular and direct communication.
Feedback from regulators is provided via the regular framework of reporting and inspections that are carried out.
The Company runs an active CSR programme and developed a Health, Safety, and Environment management system (HSEMS) which serves as a foundation to the Company’s approach to managing health, safety and environmental issues.
|4. Embed effective risk management, considering both opportunities and threats, throughout the organisation||The board needs to ensure that the company’s risk management framework identifies and addresses all relevant risks in order to execute and deliver strategy; companies need to consider their extended business, including the company’s supply chain, from key suppliers to end-customer. Setting strategy includes determining the extent of exposure to the identified risks that the company is able to bear and willing to take (risk tolerance and risk appetite).||The Company recognises that risk is inherent in all of its business activities. Its risks can have a financial, operational or reputational impact. The Company’s system of risk identification, supported by established governance controls, ensures that it effectively responds to such risks, whilst acting ethically and with integrity for the benefit of all of our stakeholders. Once identified, risks are evaluated to establish root causes, financial and non-financial impacts, and likelihood of occurrence. Consideration of risk impact and likelihood is taken into account in annual planning, regular board meetings and, when necessary, specially called meetings. The effectiveness and adequacy of mitigating controls are assessed. If additional controls are required, these will be identified and responsibilities assigned.
The Company’s management is responsible for monitoring the progress of actions to mitigate key risks. The risk management process is continuous; key risks are reported to the Board.
|MAINTAIN A DYNAMIC MANAGEMENT FRAMEWORK|
|5. Maintain the board as a well-functioning, balanced team led by the chair||The board members have a collective responsibility and legal obligation to promote the interests of the company, and are collectively responsible for defining corporate governance arrangements. Ultimate responsibility for the quality of, and approach to, corporate governance lies with the chair of the board. The board (and any committees) should be provided with high quality information in a timely manner to facilitate proper assessment of the matters requiring a decision or insight. The board should have an appropriate balance between executive and non-executive directors and should have at least two independent non-executive directors. Independence is a board judgement. The board should be supported by committees (e.g. audit, remuneration, nomination) that have the necessary skills and knowledge to discharge their duties and responsibilities effectively. Directors must commit the time necessary to fulfil their roles.||The Board has four directors, three of whom are non-executive, including the Chairman.
The Board is responsible for the management of the business of the Company, setting its strategic direction and establishing appropriate policies, internal controls and risk management. It is the directors’ responsibility to oversee the business affairs and associated financial position of the Company on behalf of the shareholders, to whom they are accountable. The primary duty of the Board is to act in the best interests of the Company at all times.
The non-executive directors are considered independent and bring a wide range of skills and experience to the Company, as well as independent judgment on strategy, risk and performance. The independence of each non-executive director is assessed at least annually.
The Board of Directors meet at least four times a year as a full board and each member is able to devote the time needed to properly attend to his role. The commitment in terms of time changes according to the state of activity of the business and the requirement for decisions to be made at the board level.
The board has appointed subcommittees to assist in its activities.
The terms of reference of the board committees are reviewed annually and are available on the Company’s website.
|6. Ensure that between them the directors have the necessary up-to-date experience, skills and capabilities||The board must have an appropriate balance of sector, financial and public markets skills and experience, as well as an appropriate balance of personal qualities and capabilities. The board should understand and challenge its own diversity, including gender balance, as part of its composition. The board should not be dominated by one person or a group of people. Strong personal bonds can be important but can also divide a board. As companies evolve, the mix of skills and experience required on the board will change, and board composition will need to evolve to reflect this change.||The Board has been assembled to allow each director to contribute the necessary mix of experience, skills and personal qualities to deliver the strategy of the company for the benefit of the shareholders. Full details of the Board Members and their experience and skills can be found on the Company’s website.
Together, the Board of Directors provide relevant oil and gas industry skills; the skills associated with running a public company; financial, commercial and technical skills, and; government affairs and international country experiences to assist the Company in achieving its stated aims.
The Board has not sought external advice on any significant matter, apart from advice sought in the normal course of business from our investment bankers, financial and technical auditors, lawyers and tax compliance advisers. No external advisers have been engaged by the Board of Directors, except as noted above.
The Board is comprised as follows (which further outlines the necessary mix of skills and experience):
|7. Evaluate board performance based on clear and relevant objectives, seeking continuous improvement||The board should regularly review the effectiveness of its performance as a unit, as well as that of its committees and the individual directors. The board performance review may be carried out internally or, ideally, externally facilitated from time to time. The review should identify development or mentoring needs of individual directors or the wider senior management team. It is healthy for membership of the board to be periodically refreshed. Succession planning is a vital task for boards. No member of the board should become indispensable.||The Board conducts discussions among members as to how it can improve its effectiveness after decisions are made as well as when individual board members highlight the need for improvement in specific areas. This is a process of continuous improvement.|
|8. Promote a corporate culture that is based on ethical values and behaviours||The board should embody and promote a corporate culture that is based on sound ethical values and behaviours and use it as an asset and a source of competitive advantage. The policy set by the board should be visible in the actions and decisions of the chief executive and the rest of the management team. Corporate values should guide the objectives and strategy of the company. The culture should be visible in every aspect of the business, including recruitment, nominations, training and engagement. The performance and reward system should endorse the desired ethical behaviours across all levels of the company. The corporate culture should be recognisable throughout the disclosures in the annual report, website and any other statements issued by the company.||Please refer to Chairman’s corporate governance statement and to the CSR section on the Company’s website for a full description of how the Board promotes a culture based on sound ethical values.||None|
|9. Maintain governance structures and processes that are fit for purpose and support good decision-making by the board||The company should maintain governance structures and processes in line with its corporate culture and appropriate to its size and complexity; and capacity, appetite and tolerance for risk. The governance structures should evolve over time in parallel with its objectives, strategy and business model to reflect the development of the company.||The Company has governance structures in place that receive attention and continuous improvement when necessary as its business evolves. Please refer to Chairman’s corporate governance statement for a full description of the corporate governance structures and Committees.||None|
|10. Communicate how the company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders||A healthy dialogue should exist between the board and all of its stakeholders, including shareholders, to enable all interested parties to come to informed decisions about the company. In particular, appropriate communication and reporting structures should exist between the board and all constituent parts of its shareholder base. This will assist: • the communication of shareholders’ views to the board; and • the shareholders’ understanding of the unique circumstances and constraints faced by the company. It should be clear where these communication practices are described (annual report or website).||The Board endeavors to provide information to all of its stakeholders primarily via the Company’s website as an easily accessible hub for all archived historical and current information related to the company’s business. The Board encourages regular interaction via shareholder update meetings, communication via its Investor Relations firm as well as other fit for purpose interactions.||None|
Chairman’s Corporate Governance Statement
The Board of Directors is committed to developing and applying high standards of corporate governance to its business and seeks to apply, where appropriate, the QCA Code, revised in April 2018 as devised by the Quoted Companies Alliance.
The QCA Code is constructed around ten broad principles and a set of disclosures. The Code states what is considered to be appropriate arrangements for growing companies, and asks companies to provide an explanation about how they are meeting the principles through the prescribed disclosures. In the final section to this statement the Company sets out how each principle is applied, where the Company departs from these principle, with an explanation as to why. Further we include an index as to where the required disclosures are made.
Frontera’s Board has four directors, three of whom are non-executive. The Board is responsible for the management of the business of the Company, setting its strategic direction and establishing appropriate policies, internal controls and risk management. It is the directors’ responsibility to oversee the business affairs and associated financial position of the Company on behalf of the shareholders, to whom they are accountable. The primary duty of the Board is to act in the best interests of the Company at all times.
The non-executive directors bring a wide range of skills and experience to the Company, as well as independent judgment on strategy, risk and performance. The independence of each non-executive director is assessed at least annually, and all of the non-executive directors are considered to be independent at the date of this report.
It is the Company’s policy that the roles of the Chairman and CEO are separate. A summary of their roles is as follows:
The Chairman is responsible for managing and providing leadership and governance for the Board of Directors of the Company in order to create the conditions for the overall Board’s and individual Director’s effectiveness. It is the Chairman’s job to set the Board’s agenda and to ensure that the Board plays a full and constructive part in the development and determination of the Company’s strategies and policies, and that Board decisions taken are in the Company’s best interests and fairly reflect the Board’s consensus. The Chairman ensures that the strategies and policies agreed by the Board are effectively implemented by the Chief Executive and the management of the Company. In this context, the Chairman is accountable to the Board and acts as a direct liaison between the Board and the management of the Company, including the responsibility to provide independent advice and counsel to the CEO and management of the Company. Finally, the Chairman also ensures that there is sufficient and effective communication with all stakeholders to understand any issues and concerns.
The CEO is responsible for executing the strategy and policies agreed by the Board and advancing/executing the Company’s objectives through leadership of the senior executive team. The CEO is responsible and accountable to the Board of Directors for all day-to-day management decisions and for implementing the Company’s long and short-term plans. The CEO acts as a direct liaison between the Board and management of the Company and communicates to the Board on behalf of management. He also ensures that the Company’s risks are adequately addressed and appropriate internal controls are in place. Additionally, the CEO is responsible for communicating with shareholders, capital markets, employees, Government authorities, other stakeholders and the public. He is responsible for maintaining the highest ethical standards and integrity in the interest of the shareholders, employees, customers and the wider community of the Company’s stakeholders.
Attendance at Meetings
It is expected that all Directors attend Board meetings, unless they are prevented from doing so by prior commitments.
Where Directors are unable to attend meetings due to conflicts in their schedules, they will receive the papers scheduled for discussion in the relevant meetings, giving them the opportunity to relay any comments to the Chairman. Directors are required to leave the meeting where matters relating to them, or which may constitute a conflict of interest to them, are being discussed.
The terms of reference of the board committees are reviewed as required and are available on the Company’s website.
The Remuneration Committee consists of the following directors: Steve Nicandros and Zaza Mamulaishvili. It is responsible for reviewing the performance of the senior executives and members of the Board and for determining their levels of remuneration.
The Committee makes recommendations to the Board, within agreed terms of reference, which the Board review at least annually, regarding the levels of remuneration and benefits including participation in the Company’s share plan.
The Terms of Reference of the Remuneration Committee can be found here [LINK 1]
The Finance/Audit Committee consists of the following directors: Luis Giusti, Zaza Mamulaishvili and Steve Nicandros.
The Finance/Audit Committee meets at least twice a year to consider the annual and interim financial statements and the audit programme. The terms of Reference of the Finance/Audit Committee are reviewed by the Board as needed and are available on the Company’s website, or on request from the Company.
The Finance/Audit Committee responsible for ensuring that the appropriate financial reporting procedures are properly maintained and reported upon, reviewing accounting policies and for meeting the auditors and reviewing their reports relating to the accounts and internal control systems.
The Terms of Reference of the Audit Committee can be found here [LINK 2]
Company culture and ethics
The Board of Directors seeks to embody and promote a corporate culture that is based on sound ethical values and behaviors. A culture of ethics and compliance is at the core of all aspects of our Company’s business.
The Board of Directors of the Company has adopted this code of ethics, to promote honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest; promote the full, fair, accurate, timely and understandable disclosure of the Company’s financial results in accordance with applicable disclosure standards; promote compliance with applicable governmental laws, rules and regulations; and deter wrongdoing.
Steve C. Nicandros
Chairman of the Board of Directors
27 September 2018