Corporate Governance

OUR APPROACH TO GOVERNANCE

Aggreko is committed to maintaining high standards of corporate governance. Not many public companies state that they are committed to maintaining low standards of corporate governance, so we think it is useful to state, as precisely as we are able, what we mean by this.

First, we mean that we take governance at all levels in the Company seriously, and we think about it. Second, it means that we do not slavishly follow the strictures and advice of every governance guru or 'expert' body, but we try to adopt those approaches that we believe are likely to work in the particular context of Aggreko's business and culture, and which promote the following:

• Transparency; giving shareholders the information they need to judge whether the executive management and the Board are doing a good job on their behalf; 
• Effective decision-making, risk management and control; 
• A proper balance between Executive and Non-executive Directors; 
• Keeping the interests of the owners of the business aligned with, and at the front of the mind of, the people charged with managing the business; and 
• The ability of the Company to hear the voice of people other than shareholders who are touched by it. Principally these are regulatory and standards bodies, employees, customers, suppliers and the communities in which we operate 

being mindful of the need to keep the amount of money and time spent on activities other than those involving making money for our shareholders to an appropriate level.

PUTTING GOVERNANCE INTO PRACTICE

We support the UK Corporate Governance Code published by the Financial Reporting Council (the 'Code'). In 2012, the FRC introduced a number of new requirements into the Code, for financial years beginning on or after 1 October 2012, for the Directors to confirm that the annual report is fair, balanced and understandable. This is the first year that this requirement applies to Aggreko and although we have always believed that our annual report meets these criteria, we reviewed our processes this year to ensure that we can provide the necessary confirmation and have the evidence to back it up. In order to assist the Board in making this confirmation, we asked the Audit Committee to provide advice on this point, further detail of the review and process in place can be found in the Audit Committee report.

We consider that the Group complied with all of the provisions of the Code throughout the year ended 31 December 2013 and can confirm that the Board believes the annual report and accounts for 2013, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess our performance, business model and strategy.

Disclosures required by the Disclosure and Transparency Rules (specifically DTR 7.2.6) regarding share capital and related matters are included on Statutory Disclosures of the Directors' Report.

Copies of the Code are publicly available at www.frc.org.uk.

THE BOARD

The Board currently comprises a Chairman, Chief Executive, four other Executive Directors and six Nonexecutive Directors; their details are set out in the Board of Directors section. The Nomination Committee regularly reviews the composition of the Board to ensure that we have an appropriate and diverse mix of skills, experience, independence and knowledge of the Group.

As we mentioned in our 2012 Annual Report, we had a number of new appointments to the Board at the start of 2013 to reflect our new global management structure, these changes were:

• Debajit Das was appointed to the Board as an Executive Director to fulfil the role of Regional Director of Asia Pacific on 1 January 2013. 
• Asterios Satrazemis was appointed to the Board as an Executive Director to fulfil the role of Regional Director of the Americas on 1 January 2013. 
• David Taylor-Smith was appointed to the Board as an Executive Director to fulfil the role of Regional Director of Europe, the Middle East and Africa on 11 March 2013. 

We also appointed a new Non-executive Director in 2013:

• Ian Marchant was appointed to the Board as a Nonexecutive Director on 1 November 2013. 

Full details of our current Board members can be found in the Board of Directors section.

As announced on 28 February 2014, Rupert Soames will be stepping down from the Board after the AGM on 24 April 2014. The Board has commenced a process to identify a permanent successor and has appointed Angus Cockburn, currently Chief Financial Officer, as Interim Chief Executive from 24 April 2014 and Carole Cran, currently Director of Finance, as Interim Chief Financial Officer. Carole Cran will join the Executive Committee and attend Board meetings by invitation.

ROLE OF THE BOARD

The Board focuses on:

• driving the Group's long term objectives and commercial strategy; 
• oversight of our operations to ensure we have competent and prudent management; 
• sound planning and adequate internal control; 
• developing leadership and succession; and
• protecting our reputation and the relationships we have with customers, suppliers and employees. 

We have a formal schedule of matters reserved for decision by the Board. These matters are significant to the Group as a whole owing to their strategic, financial or reputational implications. We undertook a thorough review of our corporate governance framework and associated policies in 2012, which included an overhaul of the schedule of matters reserved for the Board, dividing the schedule into ten distinct areas of responsibility. Amongst the matters reserved for decision by the Board are:

• Strategy & Management: approval of and monitoring delivery of the strategy, budgets and oversight of Group operations. 
• Structure & Capital: approval of changes to the corporate or capital structure of the Group. 
• Financial Reporting & Controls: approval of the annual, half-yearly and interim management statements.
• Internal Controls: ensuring a sound system of internal control and risk management. 
• Contracts: approval of major capital expenditure or strategically important contracts. 
• Communications: approval of shareholder communications. 
• Board Membership & Other Appointments: approval of Board appointments and removals and ensuring adequate succession planning is in place. 
• Remuneration: approval of new share plans or changes to existing share plans and remuneration for the Non-executive Directors. 
• Delegation of Authority: division of responsibilities between the Chairman and the Chief Executive and responsibilities of the Board Committees. 
• Corporate Governance: undertaking a review of its own performance and that of its committees, the independence of the Non-executive Directors and reviewing the governance framework in place. 

ROLES OF THE CHAIRMAN, CHIEF EXECUTIVE AND SENIOR INDEPENDENT DIRECTOR

We have a defined division of responsibilities between the Non-executive Chairman, Chief Executive and Senior Independent Director, we last reviewed these role statements in 2012 as part of a corporate governance review.

The Chairman is primarily responsible for leadership of the Board, ensuring its effectiveness on all aspects of its role and setting the agenda to take full account of the issues and concerns of the Board Members.

The Chief Executive is responsible for leading, managing and controlling the Company and its subsidiaries, subject to those matters which are reserved for decision by the Board, and ensuring that decisions of the Board are implemented.

The Senior Independent Director is responsible for providing a sounding board for the Chairman, serving as an intermediary for the other Directors when necessary and is available to meet with shareholders.

NON-EXECUTIVE DIRECTORS

Our Non-executive Directors bring a wide range of experience to the Company. David Hamill, Russell King, Diana Layfield, Robert MacLeod, Ian Marchant and Rebecca McDonald are considered by the Board to be independent as defined in the Code.

David Hamill is the Senior Independent Director and is available to meet shareholders if they have concerns which contact through the normal channels of Chairman, Chief Executive or Chief Financial Officer has failed to resolve or for which such contact is inappropriate. As mentioned in the Chairman's Statement, David Hamill has decided to step down from the Board after this year's Annual General Meeting. Russell King has agreed to succeed him as Senior Independent Director.

INDUCTION, DEVELOPMENT AND SUPPORT

We make sure that all new Directors receive a full, formal and tailored induction on joining the Board, as we explain in more detail below. Also we plan our Board calendar to ensure that Directors are briefed on a wide range of topics throughout the year. These topics range from those with particular relevance for our business, such as world energy demand, to more general matters such as developments in corporate governance.

We recognise that our Directors have a diverse range of experience, and so we encourage them to attend external seminars and briefings that will assist them individually.

Directors have access to independent professional advice at the Company's expense where they judge this to be necessary to discharge their responsibilities as Directors and all Directors have access to the advice and services of the Company Secretary, who is responsible to the Board for ensuring that Board procedures are complied with.

During the full year we supported induction programmes for our new Non-executive Director, Ian Marchant, and for our new Executive Directors, Debajit Das, Asterios Satrazemis and David Taylor-Smith.

Typical Non-executive Director induction programme in 2013

Our induction programme aims to give new Nonexecutive Directors a thorough grounding in Aggreko's business and a clear understanding of their roles and responsibilities. We aim to complete the induction programme within a few months of their appointment.

Newly appointed Non-executive Directors typically begin their inductions with a meeting with the Company Secretary on Directors' duties, conflicts of interest, corporate governance, Board procedures, Group policies and the use of our electronic Board packs. This is followed by a tour of our manufacturing facility in Dumbarton with the Group Chief Executive where he explains Aggreko's business models, Group strategy, markets, competition, products and corporate responsibility. Whilst at the manufacturing site, new Non-executive Directors meet with the Director of Manufacturing for an overview of the manufacturing business, our products and work into research and development. An induction meeting is also scheduled with the Chief Financial Officer to cover the business plan, budget, KPIs, financial planning, reporting and investor relations. Following this, further meetings on head office functions are scheduled with the Director of Finance, Group Treasurer, Director of Internal Audit, Chief Information Officer and Group Human Resources Director. Meetings are then scheduled with the Regional Directors of the business areas and their teams. We also arrange for new Non-executive Directors to meet the principal partner of our External Auditor.

Typical Executive Director induction programme in 2013

The induction programme for a new Executive Director includes the same process as described above for a Nonexecutive Director, it then goes on to an additional detailed induction specific to their executive responsibilities. For David Taylor-Smith, this involved an eight week introduction to the EMEA business, with the aim of visiting all key sites and individuals within the region and gaining a broader understanding of Aggreko's business generally. The induction began in the UK and involved meeting the EMEA management team, learning about the structure of the Northern Europe business unit and attending shareholder presentations with the Chief Executive and Chief Financial Officer. David then spent one week with each of EMEA's business units in Continental Europe, Africa and the Middle East, visiting depots, customer sites and office locations in each area. While visiting each business unit, David travelled with the relevant Managing Director, spending time meeting their teams and gaining a detailed understanding of each business unit. Meeting the customers of the EMEA business was also an important part of this induction and where possible, visits were arranged to customer sites, with the customer, in each business unit. David also accompanied service engineers on site visits for 'hands on' learning of the day to day operations and set up of our equipment on various project sites from wind farms and power plants to film studios.

As we mentioned in last year's report, Asterios Satrazemis and Debajit Das were appointed to the Board from within the business. Since both already had extensive knowledge of Aggreko, their induction focussed on their new roles and responsibilities as members of the Board.

BOARD COMMITTEES

The Board has standing Audit, Ethics, Nomination and Remuneration Committees. The memberships, roles and activities of these Committees are detailed in separate reports: Audit Committee, Ethics Committee, Nomination Committee and Remuneration Committee.

Each Committee reports to, and has its terms of reference approved by, the Board and the minutes of the Committee meetings are circulated to, and reviewed by, the Board. The terms of reference of the standing Committees of the Board were last updated as part of the governance review undertaken in 2012, and are available on our website at http://ir.aggreko.com/committee-terms-of-reference.

Executive Committee

The Chief Executive chairs the Company's Executive Committee, which comprises the Executive Directors, together with the heads of the main Group functions. These individuals are: the Group Human Resources Director, the Chief Information Officer, the Group Sales & Marketing Director, the Group Operations & Technology Director, the Group Business Development Director and the Group Legal Director & Company Secretary. The role of the Executive Committee is to support the Chief Executive and as such it has no formal terms of reference.

BOARD MEETINGS

The Board generally meets at least six times each year. At each meeting, the Board receives certain regular reports, for example covering current trading, treasury, and environment, health and safety. At particular points in the year, the Board reviews budgets, capital expenditure, risks and financial statements. The Board also has regular updates on strategy and reviews other topics, in particular to cover some of the principal risks and uncertainties facing the business, as identified in the Principal Risks and Uncertainties section, or to address the issues raised in the previous year's Board evaluation. We also review the senior management succession plan for the Group, with the Group Human Resources Director providing a briefing on senior management moves and each Executive Director leading a discussion on the succession plan for his region or function. In addition, each Regional Director gives a detailed annual presentation on the performance of his region. The Board also receives reports on what others think about us; gets copies of investor and analyst feedback, customer satisfaction metrics, and the results of employee surveys.

The Board generally meets in central London or at the Group head office in Glasgow, but at least one meeting each year is held at one of the Group's other locations, which gives the Directors the opportunity to review the operations and meet local management. In June 2013, the Board visited Brazil, this included visits to the Aggreko facility in Campinas and the former headquarters for Poit Energia (which we had acquired in 2012). The visit to Brazil also included presentations from the Americas Executive team and a tour of the Aggreko Service Centre in Jaguariuna with the Americas Executive team.

BOARD ACTIVITIES IN 2013

Some of the key activities that the Board has covered over the past year are:

• Leadership 
  • Rolling out and communicating the five year Group strategy, explaining the new goals and priorities for the business and monitoring progress. 
  • Approving investment in new fleet. 
  • Visit to Brazil to see the Aggreko facility in Campinas, the former headquarters for Poit Energia and receive presentations from the Americas Executive team. 
  • Reviewing and challenging the strategy for product and service technology.
  • Keeping contract risk management under close review, with an emphasis on reduction of net debt.
  • Reviewing employee engagement across the business with our fourth Global Opinion Survey.
• Effectiveness
  • Appointing one new Non-executive Director and three new Executive Directors to the Board.
  • Adding strength and financial experience to the Audit Committee by appointing two new Committee Members. 
  • Following the restructuring of the regional business units in 2012, ensuring new processes and reporting lines were operating effectively.
  • Agreeing a new management and organisation structure for the Latin American business to ensure it is organised for growth and continued success, as well as for the benefit of customers and employees.
  • Focussing on succession within the business, reviewing and identifying talented individuals for current and future succession. 
• Accountability
  • Reviewing our processes to ensure that we are able to provide confirmation that the Annual Report and Accounts for 2013 is fair, balanced and understandable and provides the information necessary for shareholders to assess our performance, business model and strategy.
  • Assessing the effectiveness of the framework of delegated authorities.
  • Managing the risks of our operations and business functions in overseas countries.
  • Understanding current developments in executive remuneration, including the change in reporting requirements for the new Directors' Remuneration Report and typical areas of concern for shareholders. 
  • Reviewing and challenging the Group's Treasury policies.
  • Approving revised Ethics Policies and rolling out a new online training solution for employees. 
• Relations with shareholders
  • Meeting shareholders face to face at the Annual General Meeting in Glasgow. 
  • Preparing to offer a further return of capital to shareholders in 2014.
  • Further detail on our investor relations activities can be found here. 

The attendance of Directors at meetings during 2013 is set out in the table below.

	Board meetings	Audit Committee	Remuneration Committee	Ethics Committee	Nomination Committee
Angus Cockburn	7(7)	–	–	–	–
Debajit Das	7(7)	–	–	–	–
David Hamill	6(7)	2(3)	4(5)	2(3)	5(6)
Ken Hanna	7(7)	–	5(5)	3(3)	6(6)
Russell King	7(7)	3(3)	5(5)	–	6(6)
Diana Layfield1	7(7)	2(2)	–	3(3)	–
Robert MacLeod	7(7)	3(3)	5(5)	–	6(6)
Ian Marchant2	1(1)	0(1)	–	–	–
Rebecca McDonald	7(7)	–	4(5)	–	–
Asterios Satrazemis	7(7)	–	–	–	–
Rupert Soames	7(7)	–	–	–	6(6)
David Taylor-Smith3	6(6)	–	–	–	–
Figures in brackets denote the maximum number of meetings that could have been attended. 1 Appointed to the Audit Committee on 29 July 2013. 2 Appointed to the Board and Audit Committee on 1 November 2013. Ian was unable to attend the December 2013 Audit Committee meeting owing to a pre-existing business commitment, made prior to his appointment. 3 Appointed to the Board on 11 March 2013.

The Chairman holds meetings with the Non-executive Directors without the Executive Directors present, and at least once a year the Senior Independent Director chairs a meeting of the Non-executive Directors without the Chairman present.

ELECTION OF DIRECTORS

In accordance with the Code, all members of the Board (with the exception of Rupert Soames and David Hamill) will be offering themselves for re-election or election (in the case of our newly appointed Non-executive Director) at the 2014 Annual General Meeting. It is part of the Chairman's role to discuss the time commitment and contribution of each Non-executive Director as part of his or her individual appraisal, and the Nomination Committee unanimously recommends the reappointment of each of the Directors being proposed. More detail on the Nomination Committee's role in the reappointment of Directors can be found in the Nomination Committee report.

All of the Directors have service agreements or letters of appointment and the details of their terms are set out in the Remuneration Report. No other contract with the Company or any subsidiary undertaking of the Company in which any Director was materially interested existed during or at the end of the financial year.

BOARD PERFORMANCE EVALUATION

This year we conducted our evaluation of Board and Committee performance internally. We designed a questionnaire, intended to stimulate thought and discussion, rather than to compile formal responses or scores. The Group Legal Director & Company Secretary then held individual meetings with each Director. The results of those meetings were collated and discussed at our December 2013 Board meeting. The Chairman and the Chief Executive were then asked to prepare an action plan to ensure improvements were implemented.

The table below sets out the areas identified for improvement and actions taken.

Following our 2013 Board performance evaluation, four areas were identified for improvement:

Objective		Progress
Board Composition	The Board has a good mixture of skills covering all main areas and the balance between Executive and Non-executive was effective. However, we recognised that we need to keep the areas of expertise under review as the business develops.	We will continue to review criteria for new appointees.
Succession	The Executive appointments to the Board in 2013 had gone well, with good levels of confidence and interaction between the Executives. In order to build on this success, the Board agreed to increase their focus on succession in 2014 and improve access to Non-executive Directors for Executives below Board level.	Succession would be examined in greater detail by the Nomination Committee and regular presentations have been scheduled for Executive Committee Members at the Board.
Strategy and Competition	A number of topics were identified during the evaluation as items on which the Board would welcome deeper debate. Topics included key strategic issues and the competitive landscape, on a regional and international level.	We have incorporated these points into the 2014 Board agenda.
Board Meetings	Board meetings are chaired effectively, timekeeping is well managed and the level and quality of information provided to the Board is generally good. Some suggestions were made to improve the running order of meetings, the provision of information and the level and detail of financial reports.	We have revised some of our regular reports, for example, a new investor relations report to include more analysts' data.

Further details on the outcomes of the Committee evaluations are included in their separate reports: Audit Committee, Ethics Committee, Nomination Committee and Remuneration Committee.

The last externally facilitated evaluation of Board and Committee performance was in 2011, therefore we intend to use an external facilitator for our 2014 Board and Committee evaluation.

We have reviewed the interests declared by Directors which could conflict with those of the Company, and we are satisfied that the Board's powers to authorise potential conflicts are operating effectively.

RELATIONS WITH SHAREHOLDERS

Understanding what people think about us is a key part of driving our business forward and we actively seek dialogue with the market, providing us with the opportunity to communicate with shareholders and analysts and to understand their views on the Company's performance and strategy. The Board receives regular updates on the views of shareholders through briefings and reports from management, Directors and the Company brokers who have had shareholder interaction over the year. In addition, the Senior Independent Director is available to meet shareholders if they wish to raise any issues separately.

We have engaged with shareholders in a number of ways during 2013, which include:

• half and full year formal reporting, with presentations by the Chief Executive and Chief Financial Officer to institutional investors and analysts following results announcements; these are also broadcast live on our investor website;
• presentation of the Company strategy; 
• a programme of meetings throughout the year with existing and potential institutional investors; 
• conference calls for investors and analysts following the release of first and third quarter results; 
• meeting shareholders face to face and responding to questions at the Annual General Meeting; and 
• introducing a shareholder welcome letter for new shareholders, containing useful information for first time shareholders. 

In 2013 we held over 260 one to one meetings with investors. These meetings are conducted by at least one of the Chief Executive, Chief Financial Officer, Director of Finance or Head of Investor Relations and where appropriate, senior members of the regional teams are also invited to allow investors to gain a broader perspective on the business. These meetings occur in a number of different locations around the world to reflect the global nature of our shareholder base. This year we held meetings in London, Edinburgh, New York and Paris for major shareholders and also visited investors on the West Coast of the USA, Canada, Germany, Switzerland, Italy, Sweden and Denmark.

We also enjoy meeting and engaging in discussions with shareholders at the Company's Annual General Meeting. The 2014 Annual General Meeting will be held in Glasgow on Thursday, 24 April 2014. Further details of the meeting are set out in the Statutory Disclosures section and in the letter from the Chairman and notice of meeting sent with this report. Shareholders unable to attend are encouraged to vote using the proxy card mailed to them or electronically as detailed in the Notice of Meeting.

INTERNAL CONTROL

The Board has applied Principle C.2 of the Code by establishing a continuous process for identifying, evaluating and managing the risks that are considered significant by the Group in accordance with the revised Turnbull Guidance on Internal Control published by the Financial Reporting Council. This process has been in place for the period under review and up to the date of approval of the Annual Report and Accounts. The process is designed to manage rather than eliminate risk, and can only provide reasonable and not absolute assurance against material misstatement or loss. The Board's monitoring framework covers a wide range of controls, including financial, operational and compliance controls together with risk management. It is based principally on reviewing reports from management and considering whether significant risks are identified, evaluated, managed and controlled and ensuring that any significant weakness thus identified is promptly remedied. The Board continues to enhance and strengthen the procedures for identifying and monitoring key areas of risk. We have formatted the registers to provide clearer visibility on the highest rated risks; we now provide a comparison to previous registers to show risk trending and also provide a high level narrative explaining key changes from the previous register. Internal Audit provide assurance to the Audit Committee on the operation of controls which have been identified to address risks on the Group Risk Register.

The Board also considers financing and investment decisions concerning the Group and monitors the policy and control mechanisms for managing treasury risk. The Group insurance programme is reviewed by the Board, which also approves self-insured exposures.

During each financial year the Audit Committee reviews the external and internal audit work programmes and considers reports from internal and external auditors on the system of internal control and any material control weaknesses. It also receives responses from management regarding the actions taken on issues identified in audit reports. The full report of the Audit Committee is available here.

PERFORMANCE REPORTING AND INFORMATION

The Group has in place a comprehensive financial review cycle, which includes a detailed annual budgeting process, where business units prepare budgets for approval by the Board. The Group uses a large number of performance indicators to measure both operational and financial activity in the business. Depending on the measure; these are reported and reviewed on a daily, weekly or monthly basis. In addition management in the business receive a weekly and monthly pack of indicators which are the basis of regular operational meetings, where corrective action is taken if necessary. At Group level a well-developed management accounts pack including income statements, balance sheets and cash flow statement, as well as key ratios related to capital productivity and customer satisfaction scores, is prepared and reviewed monthly by management. As part of the monthly financial reporting process a forecast of the current year numbers is carried out. To ensure consistency of reporting the Group has a global enterprise resource planning system and a global consolidation system as well as a common accounting policies and procedures manual. Management monitor the publication of new reporting standards and work closely with the external auditors in evaluating the impact of these standards.

REVIEW OF EFFECTIVENESS OF INTERNAL CONTROL

In compliance with Provision C.2.1 of the Code, the Board reviews the effectiveness of the Group's system of internal control.

On an annual basis the Audit Committee receives a formal review that is designed to assess the application of the principal financial controls operated by the Group. The review, which is based on self-assessment by senior operational management, is carried out using a risk review and control questionnaire and is intended to complement the internal and external audit procedures. There is also a comprehensive procedure for monitoring all significant risks and key risks have been identified on the Group Risk Register. The Board has considered the probability of those risks occurring and their impact, as well as the actions that would be taken in response to them if they did occur.

The Board has undertaken a specific assessment of internal control for the purpose of this Annual Report. This assessment considered all significant aspects of internal control during the year ended 31 December 2013. Accordingly, the Board is satisfied that the Group continues to have an effective system of internal control.

CORPORATE SOCIAL RESPONSIBILITY

The Board has set policies for the Group to ensure that it operates worldwide in a safe, ethical and responsible manner, which protects the environment as well as safeguarding the health and safety of its employees, its customers and the communities in which it operates. These policies are intended to recognise, evaluate and manage responsibly environmental, health and safety risks through implementation of a comprehensive Global Environmental, Health and Safety Management System that standardises best operating practices, objectives, data collection, reporting, audits, performance indicators and goals. These policies are set out in more detail in the Corporate Social Responsibility section.