The Directors acknowledge the importance of high standards of corporate governance. The Directors have decided to apply the Quoted Companies Alliance Code 2018 on Corporate Governance (the “QCA Code”) which sets out a framework of 10 Principles to corporate governance. The Board intends to ensure that the Group complies with the Code and sets out below how it complies with each of the 10 principles.
KEYSTONE’S BUSINESS MODEL
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 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.
Unlike conventional law firms, Keystone’s high calibre and experienced lawyers are self-employed; predominantly contracting with Keystone through personal service companies. The lawyers have no fixed remuneration, instead benefiting 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. They work from their own offices (mainly in the UK, although geographic location is not a limiting factor due to the way in which services are delivered) and are free to focus exclusively on client care and development and the delivery of legal services. They are fully supported by the Group’s Central Office team which provides all of the services they require to deliver high quality legal services to their clients; including (but not limited to) compliance and insurance, junior lawyer support, marketing, finance and IT.
Fundamental to the operation of Keystone’s model is the Group’s technology solution which has been specifically developed to deliver services to a mobile/dispersed workforce such as we have. This uses both bespoke proprietary software as well as best in class industry specific solutions which, enable its’ lawyers to work efficiently and effectively wherever and whenever they wish in a secure and compliant manner. It also provides a quick, easy and efficient means by which to access the services which the central office provides.
A further aspect which is central to the Keystone model is its culture. Keystone is far more than just a collection of individual lawyers accessing its platform, it is a cohesive law firm which delivers a full range of services to its clients either working individually or as part of a team, as each assignment requires. The flat structure, absence of politics, and inclusive culture, all facilitated by the extensive opportunities which the Group provides for its lawyers to network and socialise, all ensure that Keystone’s lawyers are well connected and fully integrated in the firm. 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.
THE GROUP’S STRATEGY
The Group’s strategy is to grow the business organically, focusing on the substantial opportunity which exists in the UK legal mid-market. Furthermore, management will consider international opportunities to the extent that they are consistent with and will enhance the core offering of Keystone.
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.
It is essential for the success of this strategy that the selection process focused on the quality of the lawyers who are recruited. The key to building a successful law firm in the mid to long term is in maintaining the quality high as this creates a virtuous circle, making the opportunity more attractive to future candidates (and their clients) as well as reducing the principal risks associated with law firms (see Principal Risks and Uncertainties).
The Board comprises five Directors, two executives and three non-executives, reflecting a blend of different experiences and backgrounds. Directors’ biographies setting out their experience, skills and independence are shown on pages 10 and 11. 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 Non-Executive Directors are expected to devote such time as is necessary for the proper performance of their duties. It is anticipated that this will require them to spend a minimum of 24 days a year working for the Company. The Non-Executive Directors meet during the year without the Executive Directors and provide effective balance and challenge, The Executive Directors are full time employees of the Company.
The Non-Executive Directors keep their skill set up to date with a combination of attendance at CPD events and experience gained from other board roles. The Executive Directors are employed 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 Finance Director.
The division of responsibilities between the Chairman and Chief Executive Officer has been agreed by the Board and is set out below.
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 the Board’s current practice that the Non-Executive Directors meet periodically and at least annually, without the Executive Directors.
Board meetings are held monthly and arranged by the Company Secretary. Where the subjects to be discussed call for it, the Company Secretary arranges for or prepares suitable papers which are then circulated to the 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 table below shows the Directors’ attendance at scheduled meetings of the Board and its committees during the year:
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, or the Company Secretary and any Non-Executive Director.
The terms of reference are available on the Company’s website.
The Group does not have a separate nomination committee (this is a departure from the QCA recommendations). Given the size of the Board and the Company, the Board does not believe that such a committee is necessary and has decided that the full Board will carry out the functions which such a committee would normally fulfil.
During the year, the Group has carried out its first Board effectiveness review. This was an internal review led by the Chairman. The Chairman prepared and circulated a series of questionnaires covering the effectiveness of the Board as a whole, the NEDs and the Chairman. These were completed by each Director and returned (in the case of the first two) to the Chairman and (in the case of the latter) to the Senior Independent Director. A summary of the responses was compiled, so as to remain anonymous, and then the outcome was discussed by the Board as a whole. No specific failings in effectiveness were identified and the review served to reinforce the Board’s focus on the development of strategy, the quality of Board papers and the Board’s monitoring of risk.
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 reduce and manage, the risk of failing to achieve the Group’s objectives. It is designed to provide a reasonable 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 assesses both the risks and the controls in place to prevent the risk crystallising as well as any mitigation which would exist should they materialise.
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.
As a law firm, Keystone is regulated by the Solicitors Regulatory Authority (“SRA”) as well as being subject to other legal regulation governing its industry and the economy as a whole (eg: anti money laundering legislation, data protection rules (GDPR) etc). As such, the Group has a dedicated compliance department, led by the Group’s Compliance Officer and staffed by employed qualified solicitors, whose role it is to ensure compliance with all such regulation as well as handling any complaints or claims received from the Group’s clients. The structure of Keystone ensures that this department is wholly independent of the consultant lawyers, whilst the “open door collegiate” culture of the Group ensures that lawyers are more than happy to seek support and guidance from the team where they identify issues of potential concern. This department reports to the Chief Executive who is fully appraised of any regulatory matters being handled, complaints / claims made as well as the status of these and the Board receives regular updates as to the status of any significant regulatory matter, any claims made or complaints which the CEO believes may proceed to a claim.
The Group uses technology, with each new matter taken on being subjected to a risk questionnaire, as well as more traditional methods, such as file audits, to proactively monitor matters and actively engages with consultants to assess, understand and manage any risk that should arise. The Group’s standard terms of business, provided to each client at the start of each engagement, advises the clients of the Group’s complaints procedure; this procedure directs the clients directly to the compliance department. Furthermore, under the terms of the compliance agreement, which each consultant enters into with the Group, the consultants are required to report all risks, complaints and regulatory matters to the compliance function.
As the most significant risk for a law firm is associated with claims for professional negligence, one of the Group’s significant contracts (and as such an item which requires Board sign off) is the renewal of the professional indemnity insurance. This ensures that the Board is the body which is ultimately responsible for assessing the appropriateness of the level of cover which the Group holds.
The financial procedures and controls of the Group are under the stewardship of the Finance Director (see Directors’ Biographies on pages 10/11 of the Annual Report). These processes and controls are reviewed as part of the Group’s audit on an annual basis, this includes a specific SRA audit to ensure compliance with the SRA’s rules on client money, and the Group’s auditors meet with the Audit Committee of the Board on a bi-annual basis without the presence of the Finance Director.
One fundamental aspect of the success of Keystone is the culture of the Group. For the lawyers, the flat structure, transparent and consistent remuneration policy and absence of politics creates an extremely positive, open and encouraging environment in which they can thrive in driving forward their practices. Within the central office team we engender a positive client focused culture; this extends beyond the clients of the law firm to include the lawyers themselves; whom we treat as if they were clients. By engendering this supportive culture with our lawyers we ensure that they are free to focus on client development and delivering legal services which are wholly consistent with the Group strategy.
Furthermore, as a law firm, Keystone is regulated by the SRA and as such has to comply 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.
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, 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.
The Group’s AGM also provides an opportunity for shareholders 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 by emailing [email protected] co.uk. Use the heading “Shareholder contact” to request that a matter be brought to the Board’s attention or to arrange a meeting with the Chairman or Senior Independent Director.
The Board recognises the importance of the wider stakeholder groups, principally being: consultants and employees, clients and the Group’s suppliers. The Group engages with each of these stakeholder groups regularly through a range of channels.
CONSULTANTS AND EMPLOYEES
Keystone’s success is built on the calibre and commitment of its consultants and employees who share a common commitment to go above and beyond client expectation. Keystone is characterised by its open and inclusive collegiate culture with consultants feeling free to share their views about the Group with management in an unhindered manner. 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, providing plentiful opportunity for dialogue. Furthermore, Keystone conducts a formal annual survey in which the consultants provide their feedback on the service, support and infrastructure they receive as well as producing a quarterly internal magazine and sending out more regular bulletins by email or over Keyed In.
Keystone’s employees are equally central to the success of the Group and on a periodic basis central office team are brought 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. Management is encouraged to ensure good engagement within its teams.
Keystone’s consultants have strong client relationships and as such normally have an open dialogue with their clients such that they receive regular feedback during the progression of each matter. Clients are also invited to give feedback directly to senior management 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.
All announcements regarding AGM’s or any other shareholder meetings, together with results of any votes held are reported on the Group’s website which is also the source for historical financial reports and any regulatory news.
Activity of the Board and its subcommittees are shown in the body of this report, which itself will be published on our website.
Page last updated: 5 February 2020