Best Practice Corporate Governance Reporting December 2008
Introduction 4 Best practice examples
Section 1: Putting governance into context 6
Section 2: Directors 13
Section 3: Accountability and audit 46
Section 4: Relations with shareholders 67 Index 71
Main changes introduced by the Appendix 1: Combined Code (2008) 72 Main changes introduced by the revised Rules issued by the Appendix 2: Financial Services Authority 73 Overlapping provisions between the Disclosure and Transparency Rules and the Appendix 3: Combined Code (2008) 74
Main changes introduced by the Guidance Appendix 4: on Audit Committees 2008 77
Appendix 5: Sources 78
Appendix 6: Further guidance 81 Contents Introduction Introduction Best practice corporate governance reporting
Corporate governance The Combined Code on developments Corporate Governance During 2008, companies reported for the An Update for 2008 first time under the Combined Code on Corporate Governance (2006), which took Current Economic Climate effect for accounting periods commencing In view of the current economic downturn, on or after 1 November 2006. corporate governance, and the reporting of that governance, may become a more The FRC conducted a review of the pressing issue for listed companies; Combined Code during 2007 and, as a particularly insofar as it relates to going result of this review, in November 2007, the concern reporting, risk management, FRC consulted on a further two possible internal controls, board balance and changes to the Code. On 27 June 2008, directors’ remuneration. the FRC issued a revised Combined Code on Corporate Governance. The Combined The extracts included within this Code (2008) contains only a small number best practice compendium are taken of amendments and is applicable for predominantly from UK listed companies’ accounting periods beginning on or after annual report and accounts for periods 29 June 2008. ended 31 December 2007 and 31 March 2008; such reporting being made before A summary of the main changes the full gravity of the economic situation introduced by the Combined Code (2008) became clear. Whilst the accounting is provided in Appendix 1. standards’ mandatory disclosures concerning financial risks and liquidity The revised FSA Rules will have been provided in the financial On the same date that the Combined statements, the narrative reporting around Code (2008) was released, the Financial going concern in the “front end” of the Services Authority (FSA) issued revisions annual report, may not reflect the more to the Listing Rules and the Disclosure and comprehensive level of disclosure that Transparency Rules (DTR) to implement is likely to be expected in the current the amendments to the 4th and 8th EU economic climate. Company Law Directives and to make other minor changes. The revised Listing Recent surveys have shown that good Rules and DTR apply for accounting corporate governance leads to improved periods commencing on or after 29 June business performance: in the current 2008 and include requirements for listed economic climate, investors may look companies in relation to audit committees more closely at companies’ corporate and corporate governance statements. A governance disclosures. The Financial summary of these requirements is provided Reporting Council (FRC) has issued in Appendix 2. guidance to directors to assist them in meeting their disclosure responsibilities. As the effective date for both the The guidance, entitled ‘An update for Combined Code (2008) and the DTR is directors of listed companies: going reporting years commencing on or after 29 concern and liquidity risk’ encourages June 2008, companies with December year boards to provide investors with expanded ends will be reporting in line with them for disclosure of the basis for their conclusion the first time in 2010 (for their December regarding the application of the going 2009 year ends). For 2008 year ends, concern basis of accounting. the Combined Code (2006) continues to apply and it is important to realise that We fully expect companies to expand early compliance with the revised Code disclosure as appropriate in the coming provisions would trigger a breach in year, with those annual reports forming the compliance, requiring an explanation. basis of our compendium for 2009.
4 Section 1 Introduction Best practice corporate governance reporting
There is an element of overlap between Best practice compendium the mandatory disclosure requirements of the DTR and the existing requirements of The compendium is a repository of UK company law and recommendations good practice examples of corporate of the Combined Code. A table showing governance reporting, featuring extracts the extent of this overlap can be found at from the annual reports of FTSE 350 Appendix 3. companies for reporting periods ending December 2007 or later. The revised Guidance on Audit Committees The basis for the compendium was the extensive review of 114 FTSE 350 In March 2008 the FRC announced companies’ annual reports, of which 54 the launch of a consultation on the were FTSE 100 companies and 60 were Smith Guidance on Audit Committees FTSE 250 companies. From this review following the release of recommendations 48 companies were selected. The full by the FRC Market Participants Group. list of companies included is provided in In October 2008 the FRC issued revised Appendix 5. ‘Guidance on Audit Committees’, which is effective for financial years ending on or This is the fourth edition of PwC’s after 30 June 2009. corporate governance compendium. The compendium aims to: The main changes to the guidance are detailed in Appendix 4. yy illustrate good practice reporting including explanations of departure FRC consultation on going concern from the Code; and On 29 August 2008, the FRC issued a yy show how reporting has evolved. consultation paper proposing revised Helpful hints accompanying the extracts guidance for directors of listed companies highlight new trends and good practice to assist them in applying the going suggestions. concern assumption. The existing guidance ‘Going concern and financial It should be noted that the extracts reporting: guidance for directors of listed selected should not be viewed as word companies registered in the UK’ offers perfect disclosure; rather this is a collection the directors three options whereas the of disclosure examples that could assist proposed revisions by the FRC introduce companies in their future reporting. Above a fourth option: suggesting that directors all, we encourage companies to provide make detailed additional disclosures in corporate governance disclosures that are accordance with IFRS requirements, when meaningful, forward looking, succinct and they have identified material uncertainties presented in an innovative and engaging that may cast significant doubt about the manner. company’s ability to continue as a going concern. The compendium covers all sections of the Combined Code, except for directors’ The revised guidance is expected to be remuneration, which is presented in the published mid 2009. directors’ remuneration report rather than the corporate governance statement. Its structure is as follows: 1. Putting governance into context 2. Directors 3. Accountability and audit 4. Relations with shareholders
5 Section 1 Putting governance into context 1.1 Introductions
Vodafone Group Plc Helpful hint The Board of the Company is committed to will strive to act in accordance with the Show the board’s commitment high standards of corporate governance, laws and customs of the countries in which to high standards of corporate which it considers are critical to business it operates; adopt proper standards of governance integrity and to maintaining investors’ trust business practice and procedure; operate in the Company. The Group expects all with integrity; and observe and respect the its directors and employees to act with culture of every country in which it honesty, integrity and fairness. The Group does business.
BG Group plc Helpful hints Effective governance is at the core of BG The Company’s shares are listed on the Include a personalised Group’s ability to operate successfully in London Stock Exchange. This report statement from the chairman the global business environment. explains how the Governance Framework is structured and implemented across Set out the company’s Sir Robert Wilson the Group in support of the statements governance framework Chairman by the Board that the Company complies with the UK Financial Reporting Council’s The Board of Directors of BG Group is Combined Code on Corporate Governance committed to the highest standards of (the Combined Code). corporate governance, which it believes are critical to business integrity and […] performance, and to maintaining investor confidence. Governance Framework
In order to ensure the highest standards There are three elements to BG Group’s of corporate governance are observed, Governance Framework: the Group’s the Company operates within a organisation and structure; the Governance Framework. Internal Control Framework; and independent assurance. The Governance Framework complements the beliefs and behaviours as set out in the BG Group Business Principles, details of which can be found on page 38.
6 Putting governance into context Section 1 1.1 Introductions
Yell Group plc Helpful hint Our approach Guiding principles Set out the guiding principles For Yell, corporate governance and a Our Guiding Principles – Excellence, underpinning the governance responsible approach are inextricably Reliability, Responsibility and Integrity – framework linked. Our Governance and Responsibility support our vision, underpin our values programme brings the two together and define our approach to all aspects of ensuring that we meet our commitments to our business. all our stakeholders. Governance and Vision Responsibility framework
Our vision for governance and We have established a framework which responsibility at Yell is to provide our we believe identifies all the elements shareholders and other stakeholders with of a sound approach to governance confidence that Yell is a well-managed and and responsibility. A steering group, responsible company. comprised of senior managers and led by our Company Secretary, uses this The board takes steps to engage with framework to set and monitor governance shareholders and to evaluate the relevant and responsibility objectives, identify financial, social, ethical and environmental improvement opportunities and ensure issues that may influence or affect Yell. that activities are aligned with business strategy. Through this framework we provide assurance to all our stakeholders that Yell is a well-managed, responsible company. Our framework Element Sub-element The Yell Way Culture Roles, responsibilities and accountabilities Business excellence Baseline compliance Laws and regulations Market regulation Responsibility Environment Suppliers/partners Yell people Customers Investors Communities Brand integrity Reputation and brand management Intellectual property Fair selling Accountability and Reporting openness Stakeholder dialogue Investor relations Internal communication Risk management Internal control and audit Assurance
7 Section 1 Putting governance into context 1.1 Introductions
BP p.l.c. Helpful hint Letter from the chairman The board clearly needs to focus on its Explain that the company’s unique tasks and these are described governance principles will be Dear Shareholder in the company’s ‘board governance kept under regular review principles’, which were approved in During the past year, the board has November and can now be found on carefully considered the role it plays and our website. its method of working. Central to this is the board’s review of its system of governance. The board will keep its work and This has been timely - BP adopted its performance under regular review and will prior governance framework for the board revisit the governance principles annually. more than 10 years ago. This approach Set out below is a description of the board has stood the board in good stead and and its committees and an account of the has been robust when judged against work that they have done during the year. the standards of governance that have developed over time. This framework will continue to underpin our approach.
It has, however, been important for the board to consider the position of the Peter Sutherland company in the markets in which it Chairman operates and to ensure that the manner 22 February 2008 in which the board works will meet the challenges that BP will face in the future. As part of the review, each board member discussed their evaluation of the existing policies and proposed their views on the role and challenges for the BP board going forward. The review process also involved benchmarking, identifying examples of governance best practice and a legal review of US and UK board policies.
8 Section 1 Putting governance into context 1.2 Compliance statements
Prudential plc Helpful hints Governance and the role of the Board The governance rules applicable to all UK companies admitted to the Official List Confirm the board’s The Board is responsible to shareholders of the UK Listing Authority are set out in responsibility to shareholders for creating and delivering sustainable the Combined Code, published by the Confirm that the company has shareholder value through the management Financial Reporting Council in June 2003, applied the principles of of the Group’s business. This governance and revised in 2006. The directors believe the Code and complied with report explains Prudential’s governance that good corporate governance is central its provisions policies and practices, and sets out how to achieving the Group’s objectives and the Board manages the business for the maximising shareholder value, and are benefit of shareholders, promoting committed to high standards of corporate long-term shareholder interest. governance. The Board supports the Combined Code, and confirms that it has complied with all of the provisions set out in Section 1 throughout the financial year ended 31 December 2007, and has applied the principles as set out below and in the Directors’ Remuneration Report.
Vodafone Group Plc Helpful hint Compliance with the Combined Code provisions of, and applied the principles of, Section 1 of the 2006 FRC Combined Code Confirm compliance with the The Company’s ordinary shares are listed on Corporate Governance (the “Combined Code’s provisions throughout in the UK on the London Stock Exchange. Code”). The following section, together the year In accordance with the Listing Rules of with the “Directors’ Remuneration” section the UK Listing Authority, the Company on pages 71 to 81, provides details of confirms that throughout the year ended how the Company applies the principles 31 March 2008 and at the date of this and complies with the provisions of the Annual Report, it was compliant with the Combined Code.
9 Section 1 Putting governance into context 1.2 Compliance statements
Marks and Spencer Group plc Helpful hints Compliance with the Combined Code Executive Chairman and Deputy Explain the reasons for the Chairman to ensure proper division of departure from the Code’s The Company complies with all the responsibilities and balance of power; provisions and state the period provisions of the Code with the of non-compliance following exceptions: yy appointment of two new executive directors and increased responsibility Include steps taken to mitigate yy throughout the year ended for the Group Finance and governance and shareholder 29 March 2008: the Board did not Operations Director; concerns fully consult major shareholders in advance of our announcement on yy recruitment of an additional non- 10 March that our Chief Executive executive director to ensure a majority would become Chairman from 1 June of independent directors on the Board. 2008 (A.2.2); and Following that appointment, the Board will consider the appointment of a yy from 1 June 2008: the role of Chairman further non-executive; and and Chief Executive will be exercised by the same individual (A.2.1) and our yy annual voting by shareholders for Chief Executive will become Sir Stuart Rose’s reappointment as a Chairman (A.2.2). director starting at the 2008 AGM.
Our reasons for departure from the Code The Board unanimously believes that are set out on Page 39. the overall arrangements represent a sensible way forward and provide a sound […] transitional governance structure leading to the appointment of a new Chairman and New Board structure separate Chief Executive by summer 2011. On 10 March 2008 we announced Board The new structure will ensure continuity and senior management changes. We of leadership, strengthen the Board and stated that Lord Burns would stand down streamline the organisation. This will focus as Chairman from 1 June 2008, when everyone on business performance during Sir Stuart Rose would be appointed a period of significant trading uncertainty Executive Chairman. and it addresses investor concerns over succession. On 3 April 2008 Lord Burns wrote to shareholders setting out the detailed Consultation with shareholders reasons behind the Board’s decisions. The Code states that: ‘If exceptionally A copy of this letter is available on our a Board decides that a Chief Executive website. The Board has taken this should become Chairman, the Board decision, cognisant of its prime objective should consult major shareholders in to ensure the Company’s ongoing advance and should set out its reasons commercial success, and has put in to shareholders at the time of the place balancing controls to mitigate the appointment and in the next annual report’. governance concerns: In the period leading up to the yy limited period of appointment of announcement on 10 March 2008 of combined Chairman and Chief the Board and senior management Executive until July 2011; changes, the Board considered how best yy appointment of Sir David Michels as to communicate with shareholders. The Deputy Chairman; changes proposed as part of the new governance and management structure yy clear specification of duties of were wide-ranging and not only included
10 Putting governance into context Section 1 1.2 Compliance statements
Marks and Spencer Group plc (cont’d) Helpful hint the appointment of the Executive Chairman deliberations would nonetheless be and Deputy Chairman but two new Board subject to comment and scrutiny. The Present the areas of non- appointments, the extension of the Finance Board also knew that it would, rightly, be compliance clearly including Director’s role and a large number of senior obliged under the Code to explain why it details of any remedial action management appointments, as well as was proposing to combine the Chairman taken news of the departures of several members and Chief Executive roles and to answer of the senior management team. questions from any shareholders with concerns. In light of these proposed changes and their sensitivities the Board was concerned Since the announcement, Lord Burns about the risk of leaks and did not consult has consulted with a number of principal major shareholders in advance. The investors and shareholder representative Board was unanimous and clear that the bodies and he and Sir David Michels proposed changes, taken as a whole, were have met with those who had requested in the interests of shareholders, customers a meeting. A letter was also sent to all and employees. The Board was also clear shareholders on 3 April 2008 setting out that whatever consultation was undertaken the detailed reasons behind the in advance of an announcement, its Board’s decisions.
SABMiller plc
2. Application of the Combined Code the period following the appointment to the nomination committee, under The board applied the principles and the terms of the respective relationship provisions of the Combined Code agreements with Altria and BevCo Ltd throughout the year ended 31 March 2008, (‘BevCo’) of Mr Bible and Mr Santo except in the following respects (with items Domingo Dávila to the nomination (a) to (d) being dealt with more fully in committee. The appointments took sections 3 and 5 of this report): effect on 14 November 2007; a) at least half the board, excluding the d) the chairman of the nomination Chairman, were not independent for the committee, although considered by the purposes of the Combined Code; board to be independent in character and judgement, was not independent b) the audit committee did not consist for the purposes of the Combined solely of independent directors, as Code; and the committee included Ms De Lisi, an Altria Group, Inc. (‘Altria’) nominee, e) one director was not able to attend until her retirement on 30 April 2007, the 2007 annual general and then Mr Devitre, Altria’s nominated meeting because of a longstanding replacement for Ms De Lisi, neither of prior commitment. whom is independent for the purposes of the Combined Code; The board has taken a number of steps to redress the balance of c) the nomination committee did not independent directors on the board and comprise a majority of independent nomination committee: non-executive directors throughout
11 Section 1 Putting governance into context 1.2 Compliance statements
SABMiller plc (cont’d)
a) Ms Maria Ramos and Mr Rob Pieterse Lord Renwick of Clifton retires from were appointed to the board on the board on 31 July 2008. He stepped 15 May 2008. Both are independent down as a member and as chairman of non-executive directors; and the nomination committee on 31 March 2008. b) Mr Ramaphosa, an independent non-executive director, was appointed With effect from 15 May 2008, over half to the nomination committee on the board, excluding the Chairman, 14 November 2007. were independent for the purposes of the Combined Code and, with effect from 1 April 2008, a majority of the directors on the nomination committee were independent for the purposes of the Combined Code.
12 Directors Section 2 2.1 Board decisions
Friends Provident plc Helpful hint The role of the board aims, which it then implements through its approval and regular monitoring of a Provide a clear statement on The Board provides leadership of the business plan and budget prepared by the board’s responsibility Group and, either directly or through the the executive directors. The business plan and role operation of committees of directors and specifies key developments towards the delegated authority, brings an independent strategic objectives that are to be achieved judgment on all issues of strategy, by management within an agreed budget. performance, resources (including key appointments) and standards of conduct. The Board sets the Group’s strategic
Schroders plc Helpful hint Board meetings yy The strategic development of the Group, including its people strategy; Provide some insight to the The Board held five meetings during topics discussed at 2007, including a two-day off-site meeting yy The Group’s financial results; board meetings which considered the Group’s strategy. yy The budget for 2008; The Board has a two-year rolling plan of items for discussion, agreed between the yy The level of dividend and the use of the Chairman and the Chief Executive. This Group’s capital; plan is reviewed and adapted regularly yy Our regional businesses in Asia, Europe to ensure that all of the matters reserved and the Americas; to the Board, as well as other key issues, are discussed at the appropriate time. At yy Our key business areas including each Board meeting the Chief Executive Investment, Distribution, Private Equity provided a review of the business and how and Private Banking; it was performing and the Chief Financial yy Our IT and operational platform; Officer provided a detailed review of the Group’s financial position. In 2007 the yy Possible acquisitions and the review of range of subjects discussed included: the acquisitions of NewFinance Capital and Aareal Asset Management; and yy Regulatory and governance issues.
Prudential plc Helpful hint Governance framework necessary for the effective day-to-day running and management of the business. Set out delegation structure To promote effective governance across all from board to chief executive of its operations, the Board has approved The chief executive of each business unit, to management a governance framework which maps who in respect of his business unit reports out the internal approvals processes and to the Group Chief Executive, has authority those matters which may be delegated. for management of that business unit and These principally relate to the operational has established a management board management of the Group’s businesses comprising its most senior executives. In and include pre-determined authority limits accordance with the Group Governance delegated by the Board to the Group Chief Framework, business unit chief executives Executive for further delegation by him in annually certify their compliance with the respect of matters which are requirements of the framework.
13 Section 2 Directors 2.1 Board decisions
Barclays PLC Helpful hints The Board and other risks inherent in the business Show the board’s awareness and the relative costs and benefits of of directors’ duties under the Role of the Board implementing specific controls. Companies Act 2006 Under UK company law, Directors must act The Board is also the decision-making Disclose the schedule of in a way they consider, in good faith, would body for all other matters of such matters reserved for the board be most likely to promote the success of importance as to be of significance Barclays for the benefit of the shareholders to the Group as a whole because of as a whole. In doing so, the Directors must their strategic, financial or reputational have regard (amongst other matters) to: implications or consequences. There is a yy the likely consequences of any decision formal schedule of matters reserved for the in the long-term; Board’s decision, which is summarised in yy the interests of Barclays employees; the panel above right. yy the need to foster Barclays business […] relationships with suppliers, customers and others; Summary of matters reserved for yy the impact of Barclays operations on the Board the community and the environment; yy Approval of interim and final financial yy the desirability of Barclays maintaining statements, dividends and any a reputation for high standards of significant change in accounting business conduct; and policies or practices. yy the need to act fairly as between yy Approval of strategy. shareholders of Barclays. yy Major acquisitions, mergers The role and responsibilities of the or disposals. Barclays Board, which encompass the yy Major capital investments and projects. duties of Directors described above, yy Board appointments and removals. are set out in Corporate Governance in yy Role profiles of key positions on Barclays. The Board is responsible to the Board. shareholders for creating and delivering sustainable shareholder value through yy Terms of reference and membership of the management of the Group’s Board Committees. businesses. It therefore determines the yy Remuneration of auditors and goals and policies of the Group to deliver recommendations for appointment or such long-term value, providing overall removal of auditors. strategic direction within a framework yy Changes relating to capital structure or of rewards, incentives and controls. The status as a PLC. Board aims to ensure that management yy Approval of all circulars, prospectuses strikes an appropriate balance between and significant press releases. promoting long-term growth and delivering short-term objectives. yy Principal regulatory filings with stock exchanges. The Board is also responsible for ensuring yy Rules and procedures for dealing in that management maintains a system of Barclays securities. internal control that provides assurance of yy Any share dividend alternative. effective and efficient operations, internal financial controls and compliance with yy Major changes in employee law and regulation. In carrying out this share schemes. responsibility, the Board has regard to what yy Appointment (or removal) of is appropriate for the Group’s business and company secretary. reputation, the materiality of the financial
14 Section 2 Directors 2.2 Directors’ roles
Meggitt PLC Helpful hint Board composition development of strategy. The performance of management is monitored, as is the Explain the role of the non- […] integrity of financial information and executive directors effectiveness of financial controls and risk The Chairman is responsible for leading the management systems. The non executive Board and for ensuring its effectiveness. directors are responsible for determining Accurate, timely and clear information is appropriate levels of remuneration for the provided to all directors and the Chairman executive directors and have an important is satisfied that effective communication, role in the appointment of new directors. principally by the Chief Executive and The terms and conditions of appointment Group Finance Director, is undertaken with of non executive directors are available for the shareholders. The Chairman facilitates inspection. Their letters of appointment the contribution of non executive directors set out the expected time commitment and the relationship between them and required and on appointment their other the executive directors. The non executive significant commitments were disclosed directors play a full part by constructively along with the time involved. challenging and contributing to the
Inchcape plc Helpful hint
Set out in tabular format the Independent (as No of years Audit Nominations Remuneration Name Position determined by the size and composition of the on the Board Committee Committee Committee Board) board and its committees
P Johnson Company 9 No No Yes No Chairman and (Chairman) Chairman of the Nominations Committee
A Lacroix Group Chief 2 No No Yes No Executive
B Richmond Group Finance 1 No No No No Director
R Ch’ien Non-executive 10 No No No No Director
K Guerra Non-executive 1 Yes No No Yes Director
K Hanna Non-executive 6 Yes Yes Yes Yes Director (Chairman)
W Samuel Non-executive 2 Yes Yes Yes Yes Director
D Scotland Non-executive 2 Yes Yes Yes Yes Director
M Wemms Non-executive 3 Yes Yes Yes Yes Director and (Chairman) Chairman of Remuneration Committee
15 Section 2 Directors 2.2 Directors’ roles
Barclays PLC Helpful hints Board structure and composition Barclays has adopted a Charter of Compare and contrast the Expectations, which sets out, in detail, roles of executive and non- The roles of the Group Chairman and the roles of each of the main positions executive directors Group Chief Executive are separate. The on the Board including that of the Group Group Chairman’s main responsibility is Chairman, Deputy Chairman, Senior State where further information to lead and manage the work of the Board Independent Director and both non- can be obtained on to ensure that it operates effectively and executive and executive Directors. role profiles fully discharges its legal and regulatory Sir Richard Broadbent continued in the responsibilities. The Board has delegated role of Senior Independent Director in the responsibility for the day-to-day 2007. The Senior Independent Director is management of the Group to the Group an additional contact point for shareholders Chief Executive, who is responsible for and also monitors the performance of the recommending strategy to the Board, Group Chairman on behalf of the Board. leading the executive Directors and for Sir Nigel Rudd continued in the role of making and implementing Deputy Chairman during 2007. operational decisions. The Charter of Expectations, including role The Board of Directors has collective profiles for key Board positions, is available responsibility for the success of the Group. from: http://www.aboutbarclays.com However, executive Directors have direct responsibility for business operations, whereas non-executive Directors are responsible for bringing independent judgement and scrutiny to decisions taken by the Board, providing objective challenge to management. The Board can draw on the wide range of skills, knowledge and experience they have built up as Directors of other companies, as business leaders, in government or in academia. It is the intention to have a broad spread of geographical experience represented on the Board. […]
16 Section 2 Directors 2.3 Senior independent director
SkyePharma PLC Helpful hint Role of Senior Independent Director between the Chairman and the Non- Executive Directors. In addition, he Outline the role and The Senior Independent Director, chairs the Audit Committee and also responsibilities of the senior Alan Bray, is available to shareholders leads the annual performance review independent director if they request a meeting, or have of the Chairman. No formal review in concerns which contact through the respect of the Chairman was completed normal channels has failed to resolve or in respect of 2007 given Mr Scudamore’s where such contact is inappropriate. He recent appointment. also provides a communication channel
Marks and Spencer Group plc
The principal roles of the Executive During the period of combined Chairman Chairman, Deputy Chairman and non- and Chief Executive: to monitor the executive directors are set out below: effectiveness of the role of Executive Chairman; independently to lead the […] succession process for the appointment of a Chief Executive by 2011; and to maintain Deputy Chairman and Senior contact with principal investors and Independent Director representative bodies on a regular basis, yy to lead on all governance issues keeping the Board informed. including conducting the annual review of Board effectiveness and ensuring that the performance of individual directors is kept under review; and yy to provide a communication channel between the Chairman and non- executive directors and, when required, principal shareholders including representative bodies.
Aviva plc
Senior Independent Director resolve through normal channels, or when such channels would be inappropriate. Under the Combined Code the Board The Senior Independent Director is appoints one of the non-executive also responsible for leading the Board’s directors to act as Senior Independent discussion on the Chairman’s performance Director. The main responsibility of the and the appointment of a new chairman, Senior Independent Director is to be when appropriate. Wim Dik served as the available to shareholders should they have Senior Independent Director concerns that they have been unable to throughout 2007.
17 Section 2 Directors 2.4 Attendance at meetings
BAE Systems plc Helpful hint The attendance by individual directors at meetings of the Board and its committees in A tabular format enables a 2007 was as follows: clear picture to be conveyed of meeting attendance records Non- Corporate Executive Audit Nominations Remuneration Director Board Responsibility Directors’ Committee Committee Committee Committee Fees Committee
Professor S Birley1 3 (5) - 1 (1) - 3 (3) -
Mr P Carroll 11 (12) - 5 (5) 7 (8) 1 (1) -
Dr U Cartellieri2 8 (9) 3 (3) - - - -
Mr C V Geoghegan 10 (12) - - - - -
Mr M J Hartnall 12 (12) 4 (4) - - - -
Mr W Havenstein 11 (12) - - - - 1 (1)
Mr A G Inglis3 6 (6) - 2 (2) - - -
Mr I G King 11 (12) - - - - -
Sir Peter Mason 10 (12) 3 (4) - 7 (8) 1 (1) -
Mr S L Mogford1 3 (5) - - - - -
Mr R L Olver 12 (12) - - 8 (8) - 1 (1)
Mr R Quarta 9 (12) 1 (1)4 - - 8 (8) -
Mr G W Rose 12 (12) - - - - -
Sir Nigel Rudd 11 (12) - 5 (5) - 8 (8) -
Mr M J Turner 12 (12) - - - - 1 (1)
Mr P A Weinberg 10 (12) - 5 (5) - 7 (8) -
Figures in brackets denote the maximum number of meetings that could have been attended. 1 retired from the Board on 9 May 2007 2 retired from the Board on 26 September 2007 3 appointed to the Board on 13 June 2007 4 in attendance at three additional meetings when not a member of the Committee
18 Directors Section 2 2.4 Attendance at meetings
Cadbury Schweppes plc Helpful hint Board meetings and attendance: The attendance of the individual Directors at Board and Committee meetings during 2007 was as follows: Explain the procedure where directors are unable to attend meetings
Corporate Strategy and Social Board (1 meeting Audit Responsibility Nomination Remuneration 10 meetings over 2 days) 5 meetings 2 meetings 3 meetings 9 meetings
Sir John Sunderland 10 1 n/a 2 3 n/a
Roger Carr 10 1 3 n/a 3 8
Bob Stack 10 1 n/a 2 n/a n/a
Ken Hanna 10 1 n/a n/a n/a n/a
Todd Stitzer 10 1 n/a 2 n/a n/a
Sanjiv Ahuja 8 1 n/a 1 1 n/a
Wolfgang Berndt 10 1 5 n/a 1 9
Rick Braddock1 5 1 n/a n/a n/a 2
Lord Patten 8 1 n/a 2 2 n/a
David Thompson 10 1 5 2 1 8
Rosemary Thorne2 7 1 4 1 2 5
Raymond Viault 10 1 4 n/a 3 6
Guy Elliott3 4 1 1 n/a n/a n/a
Ellen Marram4 4 1 n/a 1 n/a n/a
NB n/a means that the specified Director is not a member of that Committee, although he or she may attend meetings at the invitation of the Chairman of the Committee.
1 Rick Braddock resigned from the Board on 24 May 2007. 2 Rosemary Thorne resigned on 5 September 2007. 3 Guy Elliott was appointed a Non-executive Director on 27 July 2007 and has not missed a meeting since his appointment. 4 Ellen Marram was appointed a Non-executive Director on 1 June 2007 and has not missed a Board meeting since her appointment. When Directors have not been able to attend meetings due to conflicts in their schedule, they receive and read the papers for consideration at that meeting, and have the opportunity to relay their comments in advance, and if necessary follow up with the relevant Chairman of the meeting.
19 Section 2 Directors 2.4 Attendance at meetings
Antofagasta plc Helpful hint Directors’ attendance at meetings in 2007 Again, a tabular format aids understanding of directors’ The number of Board and Committee meetings held during 2007, together with details of attendance at board and each Director’s attendance, is set out below: committee meetings
Audit Nomination Remuneration Board Committee Committee Committee
Number Maximum Number Maximum Number Maximum Number Maximum attended possible attended possible attended possible attended possible
J-P Luksic 7 7 ------
C H Bailey 7 7 4 4 1 1 3 3
G S Menendez 7 7 4 4 1 1 3 3
R F Jara 6 7 - - 1 1 - -
D E Yarur(1) 5 7 3 4 - - 3 3
G A Luksic 4 7 ------
J W Ambrus 7 7 ------
J G Claro 6 7 ------
W M Hayes 7 7 ------
(1) Mr D E Yarur was unable to attend 1 Board meeting and 1 Audit Committee meeting between August and October 2007 due to a serious accident during the year from which he has now fully recovered.
All Directors in office at the time of the Annual General Meeting in June 2007 attended that meeting.
Each Director withdrew from any meeting when his own position was being considered.
20 Directors Section 2 2.5 Role of non-executive directors
Unilever Group Helpful hint Non-Executive Directors Our Non-Executive Directors are chosen for their broad and relevant experience Set out the role and The Non-Executive Directors share and international outlook, as well as responsibilities of non- responsibility for the execution of the their independence. They form the Audit executive directors including Boards’ duties, taking into account Committee, the Nomination Committee, details of private meetings their specific responsibilities, which are the Remuneration Committee and in essentially supervisory. In particular, they majority the Corporate Responsibility comprise the principal external presence in and Reputation Committee. The roles the governance of Unilever, and provide a and membership of these key Board strong independent element. See page 46 committees are described on pages 37 for their biographies. and 38. The profile set by the Boards for the Non-Executive Directors and the chart Role and Responsibility used for orderly succession planning can be seen on our website at The key elements of the role and www.unilever.com/investorcentre/ responsibilities of our Non-Executive corpgovernance Directors are: Meetings yy supervision of and advice to the Group Chief Executive; The Non-Executive Directors meet as a group, without the Executive Directors yy developing strategy with the Group present, under the chairmanship of Chief Executive; Mr Treschow. In 2007 they met three yy scrutiny of performance; times as a group. In addition, the Non- Executive Directors (including the yy oversight of controls; Chairman) usually meet before each Board meeting with the Group Chief yy reporting of performance; Executive and the Group Secretary. yy remuneration of and succession planning for Executive Directors; and yy governance and compliance.
Venture Production plc Helpful hint Role of the Non-Executive Directors yy Standards of conduct, compliance Another example giving details and control on the Board and in the of the role and responsibilities The roles and responsibilities of the Company generally. of the non-executive directors Non-Executive Directors are set out in their appointment letters and their yy The appointment of key employees key responsibilities, which are mainly and officers. supervisory, are to recommend, advise A copy of the standard letter of and monitor matters relating to: appointment for a Non-Executive Director yy The strategy of the Company. is available on the Company’s website. The Non-Executive Directors meet periodically, yy The Company’s performance. often just before a Board meeting, without the Executive Directors present. During yy Present and future availability and 2007 they met three times as a group. use of resources.
21 Section 2 Directors 2.6 Unresolved concerns and 2.7 Insurance cover
Inchcape plc Helpful hints Balance of independent directors proposed action, these would be recorded Explain how directors can in the Board minutes. If a Director were communicate any concerns […] to resign over an unresolved issue, the about the business Chairman would bring the issue to the If any Director were to have any concerns attention of the Board. No such issues or State whether any concerns regarding the running of the Company or a concerns arose during the year. arose during the year
Forth Ports PLC
Unresolved Concerns action, their concerns are recorded in the Board Minutes. If a Non-Executive Director Where Directors have concerns which resigns, he is required to provide a written cannot be resolved in connection with the statement to the Chairman, for circulation running of the Company or a proposed to the Board, if he has any such concerns.
Wm Morrison Supermarkets PLC Helpful hints The Company Secretary organises the legal claims and civil actions. The level of Explain and quantify the level appropriate level of insurance cover for cover is currently £50m in aggregate. of insurance cover Directors to defend themselves against for directors
Disclose the limitations of the directors’ and officers’ indemnity cover Cobham plc The Directors have the benefit of a the Companies Act 1985. They can take Directors’ and officers’ liability insurance independent legal advice at the Company’s policy and the Company has entered expense within set limits in furtherance of into qualifying third party indemnity their duties. arrangements with them, as permitted by
Forth Ports PLC
Insurance Cover resulting from the unsuccessful defence of any proceedings. To the extent permitted The Company purchases insurance to by UK Law, the Company also indemnifies cover its Directors and Officers and the its Directors, Officers and Trustees. Neither Trustees of its pension schemes against the insurance nor the indemnity provides the costs of defending themselves in civil cover where a Director, Officer or Trustee legal proceedings taken against them in has acted fraudulently or dishonestly. that capacity and in respect of damages
22 Section 2 Directors 2.8 Chairman and chief executive
Tesco PLC Helpful hint Board composition and independence The Board requires all Non-executive Directors to be independent in their Set out clearly the roles and […] judgement. The structure of the Board responsibilities of the chairman and the integrity of the individual Directors The Chairman has primary responsibility for and chief executive ensure that no single individual or group running the Board. The Chief Executive, dominates the decision-making process. Sir Terry Leahy, has executive responsibilities for the operations and results of the Group and making proposals to the Board for the strategic development of the Group. Clear divisions of accountability and responsibility exist and operate effectively for these positions.
BG Group plc Helpful hint Board composition The Chairman, Sir Robert Wilson, is responsible for the workings and Show the clear division of The Board is made up of a non-executive leadership of the Board and for the balance responsibilities between the Chairman, the Chief Executive, the Chief of its membership. The Chief Executive, chairman and chief executive Financial Officer and eight independent Frank Chapman, is responsible for leading and highlight where information non-executive Directors. A list of the and managing the business within the is also made available on the individual Directors, their biographies and authorities delegated by the Board. company’s website details of their committee membership are provided on pages 46 and 47.
The posts of Chairman and Chief Executive are separate and their responsibilities are clearly established, set out in writing and agreed by the Board. This description of the roles and responsibilities of the Chairman and Chief Executive is also available on BG Group’s website.
Associated British Foods plc Helpful hint Chairman and Chief Executive Martin Adamson, is responsible for the running and leadership of the board. Identify the chairman and chief The roles of the Chairman and the Chief The Chief Executive, George Weston, is executive and clearly state Executive are separately held and the responsible for leading and managing the their responsibilities division of their responsibilities is clearly business within the authorities delegated established, set out in writing, and agreed by the board. by the board. The Chairman,
23 Section 2 Directors 2.9 Chairman’s independence
Standard Life plc Helpful hints Sir Brian Stewart was Chairman of another status and his other commitments. Details Give the board’s justification FTSE 100 company, Scottish & Newcastle of these commitments were included in of the independence of the plc, until his resignation as Chairman at the announcement of his appointment. incoming chairman the conclusion of the Company’s Annual Since then, he has resigned from his other General Meeting (AGM) on 29 May 2007. directorships of Dairy Crest Group plc Confirm that the chairman has Because of the need for continuity and and F&C Global Smaller Companies plc. sufficient time to devote to strong leadership during the Company’s He continues in his role as Chairman of his duties initial period as a listed company, the Candover Investments plc, and the Board Board considered that Sir Brian’s is satisfied that he remains independent continuing Chairmanship was important and has sufficient time to carry out to the balance of the Board. Gerry his duties. Grimstone succeeded Sir Brian Stewart as Chairman of the Board at the conclusion of the 2007 AGM. He had been Deputy Chairman since March 2006. Prior to his appointment as Chairman, the Board considered Gerry Grimstone’s independent
Man Group plc
Changes to the Board of Directors From an assessment of the likely time commitment expected, the Board […] was satisfied that Jon Aisbitt’s other commitments should not be detrimental Jon Aisbitt has been a non-executive to the adequate discharge of his director since August 2003, a member of responsibilities in respect of the Nomination, Remuneration, and the the Chairmanship. Audit and Risk Committee, and became Chairman of the latter in June 2007. After due and careful consideration of Jon has over 20 years’ experience in the factors outlined above Jon Aisbitt international corporate finance. During was appointed Chairman of the Board his tenure of office he has continued of Directors of the Company, with effect to perform as an effective independent from 1 September 2007. As a result of this non-executive director and there are no appointment he relinquished his role as circumstances which are likely to affect, or Chairman of the Audit and Risk Committee could appear to affect his judgement as an and was replaced in this role by independent director. Dugald Eadie.
Land Securities Group PLC Helpful hint Board balance and independence Directors. David Rough is the Senior Confirm that the existing Independent Director. The Board regards chairman was independent at […] each of the seven Non-executive Directors the time of his appointment as being independent and the Chairman There exists a strong Non-executive was independent at the time of his element on the Board which currently appointment to that position. consists of the Chairman, five Executive Directors and seven Non-executive
24 Section 2 Directors 2.10 Board balance and independence
Aviva plc Helpful hints The directors The Combined Code requires that at least half the Board, excluding the Chairman, Disclose the company’s The Board currently comprises the should comprise independent non- policy on appointments and Chairman, eight independent non- executive directors as determined by re-appointments executive directors and two executive the Board. The Nomination Committee directors. Each non-executive director performs an annual review of directors’ Confirm that more than half serves for a fixed term not exceeding interests in which all potential or perceived of the board are independent three years that may be renewed by conflicts, including time commitments, non-executive directors mutual agreement. Subject to the length of service and other issues relevant Board being satisfied with a director’s to their independence, are considered. It performance, independence and is the Board’s view that an independent commitment, there is no specified limit non-executive director also needs to be regarding the number of terms a director able to present an objective, rigorous and may serve. Each director is required to constructive challenge to management, be elected by shareholders at the drawing on his/her wider experiences to Annual General Meeting following question assumptions and viewpoints and his/her appointment by the Board and to where necessary defend their beliefs. To be be re-elected at least once every three effective, an independent director needs years. Any non-executive director who has to acquire a sound understanding of the served on the Board for nine years or industry and the Company so as to be more is required to submit himself/herself able to evaluate properly the information for re-election annually. The Board’s provided. Having considered the matter policy is to appoint and retain non- carefully the Board is of the opinion that all executive directors who can apply their of the current non-executive directors are wider knowledge and experiences to their independent and free from any relationship understanding of the Aviva Group, and to or circumstances that could affect, review and refresh regularly the skills and or appear to affect, their independent experience the board requires through judgement. Accordingly, over half of the a programme of rotational retirement. In directors, excluding the Chairman, are addition to the strengths of experience, independent non-executive directors. diversity and an international perspective, Each of the directors being proposed for the Board also seeks to comply with the re-election at the 2008 Annual General requirements of the Combined Code on Meeting has been subject to a formal the independence of directors. The performance evaluation and took part process for appointing new directors is in a peer evaluation review during 2007. conducted by the Nomination Committee Biographical details of all the directors are whose report, including a description of set out on page 77. its duties, is set out on page 90.
25 Section 2 Directors 2.10 Board balance and independence
Inchcape plc Helpful hint Independence/non-executive directors In addition to the Chairman, the Board Use narrative and diagrams to currently has six Non-executive Directors clearly explain independence Peter Johnson was appointed Chairman who bring to the Group a wide diversity of of directors and show the on 1 January 2006 for a three year term, experience and expertise. Raymond Ch’ien board balance having previously been the Group Chief is not regarded as independent because Executive. As previously reported, the he previously had a service contract with Board recognised the benefit to the Crown Motors Limited, a subsidiary of the Company and its shareholders of Peter Company incorporated in Hong Kong and Johnson’s ongoing involvement because has now served for 10 years on the Board. of his deep and broad experience of the automotive industry as a whole and The other five Non-executive Directors the contrasting international markets in are considered by the Board to be which Inchcape operates. The Board also independent in accordance with the Code, recognised the pivotal role which he has namely, as being independent in character played in the development and continuity and judgement and having no relationships of the Company’s relationships with its which are likely to affect, or could appear major international brand partners, which in to affect, the Directors’ judgement. Will many cases are founded upon associations Samuel and Michael Wemms are both built up over many years. non-executive directors of Galiform PLC. Having regard to all the circumstances, All Directors bring an independent including the independence they have judgement to bear on issues of strategy, demonstrated as Directors of the performance, resources (including key Company and the fact that there are appointments) and standards of conduct. no cross-shareholdings or business The Non-executive Directors share relationships between Galiform and responsibility for the execution of the Inchcape, the Board is satisfied and has Board’s duties, taking into account their determined that they are both independent. specific responsibilities. They comprise the principal external presence in the Matters are referred to the Board as a governance of the Company and provide whole and no one individual or small group a strong independent element coupled of individuals has unfettered powers of with strong company experience, required decision making. for the execution of the Company’s Balance of independent directors strategy. The key elements of the role and responsibilities of the Non-executive Directors are:
Independent yy guidance and advice to the CEO; Non-executive Directors (5) yy development of strategy with the CEO;
Executive yy scrutiny of performance; Directors (2)
yy controls;
yy reporting of performance; Non-independent Chairman (1) Non-executive yy remuneration of and succession Directors (1) planning for Executive Directors; and
yy governance and compliance.
26 Section 2 Directors 2.10 Board balance and independence
Standard Life plc Helpful hint The Board mutual agreement and re-election at the appropriate AGM. As long as the Board State the company’s policy for […] is satisfied with a Director’s performance, board balance and confirm the independence and ongoing commitment, procedures for re-election It is the Company’s policy that, apart there is no specified limit to the number of from the Chairman, at least half the terms a Director may serve. All Directors Board should normally be made up of must be elected by shareholders at independent non-executive Directors. the AGM following their appointment This balance ensures that no individual by the Board, and offer themselves for Director or small group of Directors re-election at least once every three dominates the decision making process. years. Non-executive Directors who have As at 10 March 2008, the Board served on the Board for more than six comprises the Chairman, seven years will be proposed for re-election independent non-executive Directors, following a rigorous evaluation of individual and three executive Directors. Each performance by the Chairman at a non-executive Director serves for a one-to-one meeting. Those with nine years fixed term not longer than three years. or more continuous service must offer This term may then be renewed by themselves for re-election each year.
27 Section 2 Directors 2.11 Justification of independence
J Sainsbury plc Helpful hint Independence/Non-Executive Directors The Non-Executive Directors bring wide Highlight due consideration and varied commercial experience to by the board of any potential The Chairman satisfied the independence Board and Committee deliberations. They conflict of interest criteria of the Code on his appointment and are appointed for an initial three-year term, all the Non-Executive Directors who have subject to election by shareholders at the served during the year are considered to first AGM after their appointment, after be independent according to the principles which their appointment may be extended of the Code. Bob Stack is a Director of for a second term, subject to mutual Cadbury Schweppes plc which supplies agreement and shareholder approval. products to Sainsbury’s, but neither the Board, nor Cadbury Schweppes, considers the relationship to be material in the context of their overall businesses.
Yell Group plc Helpful hint The Board Tim Bunting was appointed to the Board Explain the considerations as a non-executive director with effect undertaken by the board in Our Board comprises of two executive from 18 May 2007. Tim was a partner concluding that a particular directors and seven non-executive in Goldman Sachs, with whom Yell has non-executive director directors. Six out of the seven an ongoing business relationship, until is independent non-executive directors are considered November 2006. Notwithstanding this, independent by the Company. Our the Board considers him to be Chairman, Bob Scott was independent independent in both character and upon his appointment. judgment and therefore, deemed him independent on appointment. In reaching Our executive directors are John Condron its decision, the Board took into account (Chief Executive Officer) and John Davis the fact that Tim ceased acting as Yell’s (Chief Financial Officer). relationship manager at Goldman Sachs in July 2003 and that Tim stood down from Lord Powell of Bayswater was the full time employment at Goldman Sachs in Senior Independent Director throughout November 2005. the reporting period. All non-executive directors are available to shareholders who wish to raise issues.
28 Section 2 Directors 2.11 Justification of independence
Barclays PLC Helpful hint Independence of yy Sir Nigel Rudd has served as a non-executive Directors non-executive Director since 1996. Disclose the board’s The Code suggests that length of expectations of what it means The Code sets out circumstances tenure is a factor to consider when to be an independent non- which the Board may find relevant when determining independence. As executive director determining the independence of a non- recommended by the Code, it is our executive Director. The Board considers policy that any Director who serves that the following behaviours, as set out in for more than nine years should seek our Charter of Expectations, are essential annual re-election by shareholders for the Board to conclude an individual and that all Directors subject to is independent: re-election should undergo a rigorous performance evaluation. yy provides objective challenge to management; yy At the time of his appointment to the Board, Dr Danie Cronjé was Chairman yy is prepared to challenge others’ of Absa. The Code suggests that such assumptions, beliefs or viewpoints a business relationship is a factor to as necessary for the good of be considered by the Board when the organisation; determining independence. The Code further suggests that yy questions intelligently, debates cross-directorships may affect constructively, challenges rigorously independence. Sir Nigel Rudd and and decides dispassionately; Dr Cronjé are both non-executive yy is willing to stand up and defend Directors of Sappi Limited. Dr Cronjé their own beliefs and viewpoints in retired as Chairman of Absa and left order to support the ultimate good of the Absa Board in 2007 and will not the organisation; and submit himself for re-election as a Director of Barclays when he retires at yy has a good understanding of the the 2008 AGM. organisation’s business and affairs to enable them properly to evaluate As a result of the annual performance the information and responses review, the Board concluded that Sir Nigel provided by management. Rudd and Dr Cronjé both continue to demonstrate the essential characteristics The Board considers non-executive of independence expected by the Board. Director independence on an annual Sir Nigel’s length of service, and his basis, as part of each Director’s resulting experience and knowledge of performance review. Barclays, is viewed by the Board as being especially valuable, particularly as only one The Corporate Governance and other non-executive Director has served Nominations Committee and subsequently for more than six years and the Board the Board reviewed the independence of continues to be regularly refreshed. non-executive Directors in early 2008 and concluded that each of them continues to All Directors must report any changes in demonstrate these essential behaviours. In their circumstances to the Board and the determining that each of the non-executive Board reserves the right to terminate the Directors remains independent, the Board appointment of a non-executive Director considered in particular the following: if there are any material changes in their circumstances that may conflict with their commitments as a Barclays Director or that may impact on their independence.
29 Section 2 Directors 2.12 Shareholders’ concerns
National Grid plc Helpful hint Roles of the Chairman, Chief Executive annual consideration of the Chairman’s State whether any concerns and Senior Independent Director performance. He is also available to were raised by shareholders shareholders in the event they feel it […] inappropriate to communicate via the Chairman, the Chief Executive or the The Senior Independent Director is Finance Director. No such requests were Ken Harvey. His responsibilities include received from shareholders during the year. leading the Non-executive Directors’
Schroders plc Helpful hint The Senior Independent Director is executive Directors. Sir Peter also chairs Make it clear that the senior Sir Peter Job. He is available to meetings of the non-executive Directors independent director is shareholders if they have concerns which at which the performance of the Chairman available to shareholders have not or cannot be resolved through is reviewed. discussion with the Chairman or the
30 Section 2 Directors 2.13 Board appointments
Antofagasta plc Helpful hint Appointments to the Board criteria. In fulfilling these responsibilities, the Nomination Committee consults the Disclose the workings of The Nomination Committee currently Chairman, Mr. J-P Luksic. The Nomination the nomination committee comprises Mr. G S Menendez (Chairman), Committee meets as necessary and, in any including consideration of Mr. C H Bailey and Mr. R F Jara. case, at least once a year. Its terms succession planning of reference are available from the As explained above, Mr. Bailey and Company’s registered office and may Mr. Menendez are considered by be viewed on the Company’s website – the Board to be independent Non- www.antofagasta.co.uk. Executive Directors. In making appointments to the Board, The Nomination Committee periodically the Nomination Committee considers reviews the composition of the Board the skills, experience and knowledge including the balance between Executive of the existing Directors and assesses and Non-Executive Directors and which of the potential candidates would considers succession planning for both most benefit the Board. It considers the Executive and Non-Executive Directors potential candidate’s knowledge and and the Group’s senior management. It experience of Chile, the mining industry is also responsible for the process for in Latin America, capital markets and the new Board appointments and makes regulatory environment and that he has recommendations to the Board on the sufficient time to devote to the role. The appointment of new Directors and is Chairman ensures that any new Directors responsible for ensuring that appointments are provided with a full induction on joining are made on merit and against objective the Board.
31 Section 2 Directors 2.13 Board appointments
AstraZeneca PLC Helpful hints Board changes Committee and, most recently, the Explain the procedure for Science Committee. appointments of new directors There is an established procedure operated by the Nomination Committee yy In accordance with Article 70 of the Set out the director changes for the recommendation to the Board Company’s Articles of Association, during the year in bullet format of the appointment of new Directors. which gives the Directors the power to Appointments are based on the merits appoint a new Director nominated by of the candidates, who are measured the Nomination Committee who can against objective criteria, and care is then hold office until the next AGM (at taken to ensure that appointees have which they will be eligible for enough time to devote to the job. Further re-election), Bo Angelin was appointed details of the type of criteria used to as a Non-Executive Director on select candidates are set out on page 42 25 July 2007. (Nomination Committee). In accordance yy Jonathan Symonds resigned from the with the Company’s Articles of Association, Board with effect from 31 July 2007 to all Directors retire at each Annual General pursue his career outside AstraZeneca. Meeting (AGM) and may offer themselves for re-election by shareholders (see below yy Also under Article 70 of the Company’s for more details). The Board reviews Articles of Association, Simon Lowth annually the status of succession to senior was appointed as a Director and the positions, including those at Board level, Chief Financial Officer of the Company and ensures it has regular contact with, with effect from 5 November 2007. and access to, succession candidates.
During the 2007 financial year:
yy Joe Jimenez resigned from the Board on 12 April 2007 after agreeing to take up a full-time executive appointment with Novartis, the Swiss- based healthcare group. Mr Jimenez served the Company as a Non- Executive Director for approximately four years and was a member of the Remuneration Committee.
yy At the AGM on 26 April 2007, Sir Peter Bonfield and Erna Möller, both Non-Executive Directors, stepped down from the Board. Sir Peter Bonfield served the Company as a Non- Executive Director for 12 years and worked as a member of various Board committees including the Remuneration Committee (acting as Chairman) and the Nomination Committee. Erna Möller served the Company as a Non-Executive Director for eight years (having formerly served as a Director of Astra AB for four years) and also worked as a member of various Board committees including the Remuneration
32 Section 2 Directors 2.13 Board appointments
Cadbury Schweppes plc Helpful hint The Board Set out in tabular format The Board has 12 members: three Executive Directors, and nine Non-executive the changes in board Directors all of whom (except the Chairman) are deemed independent under the appointments during the year provisions of the Combined Code. No individual or group of individuals dominates the Board’s decision-making. Collectively, the Non-executive Directors bring a wide range of international experience and expertise as they all currently occupy or have occupied senior positions in industry and public life, and as such each contributes significant weight to Board decisions.
Changes to the Board since 1 January 2007 are as follows:
Rick Braddock Non-executive Director resigned 24 May 2007
Ellen Marram Non-executive Director appointed 1 June 2007
Guy Elliott Non-executive Director appointed 27 July 2007
Rosemary Thorne Non-executive Director resigned 5 September 2007
David Thompson Non-executive Director will resign 8 March 2008
Sir John Sunderland Chairman will resign mid-2008
Sir John Sunderland will be succeeded as Chairman by Roger Carr. Biographies of each of the Directors as at the date of this report, can be found on pages 48 and 49.
33 Section 2 Directors 2.13 Board appointments
Croda International Plc Helpful hints Nomination Committee During the year the Committee oversaw State that the nomination the development of a succession plan for committee is satisfied with the Martin Flower (Chairman) the senior management team. The process size, structure and composition Michael Buzzacott involved the assessment and evaluation of the board David Dunn by external consultants, Whitehead Mann, Mike Humphrey of the members of the Group Executive Confirm that the non-executive Stanley Musesengwa Committee and the Finance Committee, directors have sufficient time to other than the Group Chief Executive, devote to their duties The Nomination Committee is responsible against defined leadership criteria. The for nominating, for approval by the Board, Disclose whether a succession results of the evaluations were presented candidates for appointment to the Board. plan is in place and whether it to the Committee by Whitehead Mann and It meets on an ad hoc basis. Terms of is being kept under review then were reviewed by the Committee with reference are posted on the the assistance of the Group VP Personnel. Company’s website. Consequently, development activities have been identified for, and undertaken by, The Committee met four times during the the executives concerned and these will year. The Committee continued the effort be reviewed by the Committee midway started during 2006 to identify a suitable through 2008. new non-executive director. External search consultants, Spencer Stuart, were The Committee carried out its customary engaged to identify initial candidates. corporate governance review and was The Chairman then met candidates satisfied that the size, structure and before recommending a shortlist to the composition of the Board and the required Committee. Subsequently, Committee time commitment from non-executive members and the Group Chief Executive directors remained appropriate and that all interviewed the candidates before the non-executive directors continued to recommending to the Board that Stanley fulfil the criteria of independence and were Musesengwa be appointed. able to commit the required time for the proper performance of their duties.
Training and briefings are available to all directors on appointment and subsequently, as appropriate, taking into account existing experience, qualifications and skill sets.
34 Section 2 Directors 2.13 Board appointments
Lloyds TSB Group plc Helpful hints Nomination committee In addition, the directors agreed with the committee’s recommendation that Identify the members of the The nomination committee, comprising Mr Brown be asked to remain on the board nomination committee Sir Victor Blank (chairman), Dr Berndt, for a further year. This would enable the Confirm the use of external Mr du Plessis, Sir Julian Horn-Smith and group to continue to benefit from his wide consultants for the Lord Leitch, reviews the structure, size experience and maintain an appropriate appointment of new directors and composition of the board, taking balance of skills and experience on the into account the skills, knowledge and board, as part of the plans for orderly experience of directors and considers and succession for appointments. His makes recommendations to the board continuing membership of the audit on potential candidates for appointment committee and understanding of the as directors. The committee also makes Group’s activities will be particularly helpful recommendations to the board concerning to the new chairman of that committee. the re-appointment of any independent Mr Brown remains the senior independent non-executive director by the board at director and both the nomination the conclusion of his or her specified committee and the board considered term; the re-election of any director by the matter very carefully and concluded the shareholders under the retirement that Mr Brown was independent in provisions of the articles of association; character and there were no relationships any matters relating to the continuation in or circumstances which were likely to office of a director; and the appointment affect, or could appear to affect, the of any director to executive or other office director’s judgement. As stated in the in the company, although the chairman directors’ report, Mr Brown will stand for of the company would not chair the re-election at the annual general meeting, committee when it was dealing with in accordance with the provisions of the the appointment of a successor to the combined code on corporate governance chairmanship of the company. issued by the Financial Reporting Council which apply to independent non-executive During the year, in accordance with directors who have served on the board for the plans for the orderly succession for more than nine years from the date of their appointments to the board, the committee first election. recommended the appointment of two non-executive directors. In that regard, The committee’s terms of reference are detailed role specifications were drawn up, available from the company secretary external search consultants were engaged and are displayed on our website and candidates were interviewed by www.lloydstsb.com. committee members and other directors.
35 Section 2 Directors 2.14 Directors’ time commitments
Schroders plc Helpful hint Time commitment Directors has any conflict of interest which Confirm appropriate time has not been disclosed to the Board in commitment by the non- The Board is satisfied that the Chairman accordance with the Company’s Articles executive directors to and each of the non-executive Directors of Association. the business committed sufficient time during 2007 to the fulfilment of their duties as Directors of the Company. None of the non-executive
BP p.l.c. Helpful hint Outside appointments Non-executive directors may serve on a Explain the company’s number of outside boards, provided they policy on external As part of their ongoing development, continue to demonstrate the requisite board appointments executive directors are permitted to take commitment to discharge their duties to up one external board appointment, BP effectively. The nomination committee subject to the agreement of the chairman keeps under review the nature of directors’ (which is then reported to the BP other interests to ensure that the efficacy board). The board is satisfied that these of the board is not compromised and appointments do not conflict with their may make recommendations to the board duties and commitments to BP. Executive if it concludes that a director’s other directors retain any fees received in commitments are inconsistent with those respect of such external appointments required by BP. and this is reported in the directors’ remuneration report.
36 Section 2 Directors 2.15 Information and professional development
Friends Provident plc Helpful hints Information and Communication Performance and Continual Professional Development Confirm that the directors receive clear, timely and The Chairman, together with the Company […] relevant information Secretary, ensures that the directors Disclose different types of receive timely and clear information on Throughout 2007, the Board received professional development all relevant matters. At Board meetings, presentations from various business units opportunities for directors directors receive reports from finance, and two Board meetings were held at the risk management and each of the key offices of subsidiary companies in order to Explain how the induction business areas. The Board, supplied with gain better insight into business activities process for new directors is information that is both timely and and operations of the Group at that appropriately tailored appropriate, deals with those matters location. Directors also individually attend specifically reserved for its decision, and internal briefings on specific technical takes all material decisions affecting topics and external seminars to keep the Group. These include acquisitions, up-to-date with regulations and best sales, capital structure, financing, the practice affecting the Group’s core establishment of Board committees businesses and report on these to the and their terms of reference, and the Chairman and the Company Secretary. oversight and review of the operation and achievement of the Group’s activities. There is a full induction process in place During 2007, it has been the practice for for new directors that recognises the non-executive directors to have a private complexities of the Life & Pensions and session after each Board meeting without Asset Management businesses and aims the executive directors being present. to enable directors to make a full The Board regularly reviews strategy and contribution to Board discussions within members of executive management also an optimum timeframe. participate in an annual strategic review that considers overall business direction and its financial implications.
Cairn Energy PLC Helpful hint The Company provides the necessary University (a position recently created resources for developing and updating its through an alliance between the Company Provide examples of the directors’ knowledge and capabilities. In and the University) spoke to the Board relevant training given particular, the Company is committed to about enhanced oil recovery techniques to directors the provision of continuing professional and their applications. These seminars development training to its directors and in were held at the end of Board meetings 2007 held a number of seminars for Board and were attended by all directors members, which are regularly presented by present at such meetings. This process the Company’s external advisers and guest is continuing in 2008. Any director may speakers, on subjects appropriate to the request that a particular subject is covered Company’s business, including changes to in a seminar. In addition, all press cuttings legislation, regulation and market practice. relating to the Company and all brokers’ For example, at the meeting of the Board and analysts’ reports on the Company are in December 2007, the Cairn Professor of distributed to all directors. Petroleum Engineering from Heriot Watt
37 Section 2 Directors 2.15 Information and professional development
Vodafone Group Plc Helpful hint Information and yy briefings and presentations Explain how the knowledge professional development from relevant executives; and of the executive and non- executive directors is Each member of the Board has immediate yy opportunities to visit continually refreshed access to a dedicated online team room business operations. and can access monthly information If appropriate, the induction will also including actual financial results, reports include briefings on the scope of the from the executive directors in respect of Internal Audit function and the role of their areas of responsibility and the Chief the Audit Committee, meetings with Executive’s report which deals, amongst the external auditor and other areas the other things, with investor relations, giving Company Secretary deems fit, considering Board members an opportunity to develop the director’s area of responsibility. an understanding of the views of major investors. These matters are discussed at The Company Secretary provides a each Board meeting. From time to time, programme of ongoing training for the the Board receives detailed presentations directors, which covers a number of from non-Board members on matters of sector specific and business issues, as significance or on new opportunities for the well as legal, accounting and regulatory Group. Financial plans, including budgets changes and developments relevant to and forecasts, are regularly discussed individual director’s areas of responsibility. at Board meetings. The non-executive Throughout their period in office, the directors periodically visit different parts directors are continually updated on the of the Group and are provided with Group’s businesses and the regulatory briefings and information to assist them in and industry specific environments in performing their duties. which it operates. These updates are by way of written briefings and meetings with The Chairman is responsible for ensuring senior executives and, where appropriate, that induction and training programmes external sources. are provided and the Company Secretary organises the programmes. Individual The Company Secretary ensures that the directors are also expected to take programme to familiarise the non-executive responsibility for identifying their training directors with the business is maintained needs and to take steps to ensure that over time and kept relevant to the needs they are adequately informed about the of the individuals involved. The Company Company and their responsibilities as a Secretary confers with the Chairman and director. The Board is confident that all senior independent director to ensure that its members have the knowledge, ability this is the case. and experience to perform the functions required of a director of a listed company.
On appointment, individual directors undergo an induction programme covering, amongst other things:
yy the business of the Group;
yy their legal and regulatory responsibilities as directors of the Company;
38 Section 2 Directors 2.16 Access to independent advice
Reuters Group PLC Helpful hints 1.3 Board responsibilities and process by, the Board. The directors may take independent professional advice at the Confirm that directors may […] company’s expense. None of the directors take independent sought such advice during 2007. Reuters professional advice All directors have access to the services provides insurance cover and indemnities of the Company Secretary who is State whether any directors for its directors and officers. appointed by, and can only be removed sought such advice during the reporting period
Disclose that all directors AstraZeneca PLC have access to the advice and services of the Insurance, indemnities and The Directors are also able to obtain company secretary professional advice independent legal advice at the expense of the Company, as necessary in their The Company maintained Directors’ capacity as Directors. and Officers’ liability insurance cover throughout 2007.
Friends Provident plc
All directors have access to the advice procedure whereby individual and services of the Company Secretary directors, who consider it necessary who ensures that Board processes and in furtherance of their duties, may take leading corporate governance practice independent, professional advice at the are followed. There is also an established Company’s expense.
39 Section 2 Directors 2.17 Performance evaluation
National Grid plc Helpful hints Performance evaluation yy increasing the number of informal Set out the areas covered by meetings of Board members; and the performance evaluation In each financial year since 2003/04, the Board has undertaken a formal yy consideration of the interaction Detail the actions taken evaluation of its performance and that of between Committees. following the previous year’s its Committees and individual Directors in review In accordance with established practice, order to review past performance and to the Board and Committees review these develop future performance. Disclose the outcome of the matters in a formal response and action evaluation of the board and The Chairman led the overall process plan and will adopt new processes and committees and of the review of evaluation which was, as in previous procedures as appropriate. of the chairman’s performance years, in the form of a confidential survey Following the 2006/07 evaluation process, completed by all Directors in relation to the a number of actions were implemented Board and any Committee of which they during the year including: were a member, plus one-to-one meetings between the Chairman and each Director. yy informing Directors at each Board Additionally, certain regular attendees at meeting of the latest training courses specific Committee meetings were asked which may be of interest to them; to complete surveys in relation to the relevant Committee. yy providing a programme of shareholder communications in a ‘Shareholder The Board considered the merit of using an Issues’ update to the Board; external body to manage the performance evaluation process. It concluded that the yy devoting additional time to long term current approach remained appropriate for succession plans; the Company. This is reviewed annually. yy in depth operational review sessions The Company Secretary & General Counsel were held during the year where more collated the evaluation results and these time was assigned for certain key areas; were considered. Overall the results for the evaluation carried out in 2007/08 yy producing more detailed guidance were positive and indicated that the for Board and Committee papers and Board and Committees were effective presentations to ensure information and that no major changes were required. presented is clear and relevant; and The Chairman’s performance was reviewed and his leadership and yy new sub-committees of the Executive performance were considered to have Committee were established to been of a high standard. consider Social Policy and Global Retirement Plans respectively. Areas highlighted by the Board and Committees for consideration following the latest review included:
yy a review of the rolling business agenda to include a greater emphasis on strategic external factors such as climate change;
40 Section 2 Directors 2.17 Performance evaluation
BG Group plc Helpful hints Board evaluation The performance of individual non-executive Directors is evaluated by Disclose whether external An evaluation of the performance of the Chairman, with input from the consultants were used to carry the Board, its principal committees, the committee chairmen and the Executive out board evaluation individual non-executive Directors and the Directors. The performance of the Chief List the key areas covered by Chairman, was conducted during the year. Executive is evaluated by the Chairman the review The Board and committee evaluations and non-executive Directors. The were facilitated by external consultants on performance of the Chief Financial Officer behalf of the Chairman and the chairmen is evaluated by the Chief Executive in of the Board committees, and comprised a consultation with the Chairman and other series of one-to-one interviews between a non-executive Directors. facilitator and each Director. The evaluation of the Chairman was led The interviews were based upon a number by Paul Collins, the Senior Independent of key areas covering Group strategy, Director, and involved individual meetings succession planning, Board size and the with each of the Executive Directors, relationship between the Board and followed by a group review with the its committees. non-executive Directors, excluding the Chairman. The results of the reviews were then considered with the Chairman and Senior The Directors have concluded that, Independent Director and subsequently following this evaluation, the Board and its discussed collectively by the Board as committees operate effectively and also a whole. consider that each Director is contributing effectively and demonstrates commitment to the role.
Wm Morrison Supermarkets PLC Helpful hint The Board This assessment was followed up with another evaluation carried out in Where circumstances suggest […] December 2007. The Board conducted appropriate, carry out more this evaluation without external assistance than one evaluation within b) Performance evaluation through the use of a questionnaire, based a year In February 2007, an independent on the independent assessment. The assessment was conducted to evaluate the questionnaires were sent to all Directors performance of the Board, its committees and the responses were reviewed by the and its Directors. The results of this were Chairman and the Company Secretary, and presented to the Board in March 2007. a report of findings was discussed by the This confirmed that Board members felt Board. The Board was satisfied with its that good progress had been made, and performance and it was agreed that action that the Board was embracing the right would be taken in those areas for which programme of work to ensure further it believed improved processes could improvements in its effectiveness. be introduced.
41 Section 2 Directors 2.17 Performance evaluation
Marks and Spencer Group plc Helpful hint Board performance yy introduction of an online Board portal Disclose the outcome of to provide a more secure, efficient and previous year’s performance The performance of the Board is a vital flexible method of delivering Board evaluation of boards, component of the Group’s success and papers and easy access to information committees and the Board is keen to ensure that the for induction and ongoing development. individual directors annual review of its performance builds on the previous year’s results to ensure a From 1 June 2008 Sir David Michels as continuous process. In September 2007 Deputy Chairman will lead the Board’s the Board approved an action plan based review of its performance. He will also on the key themes from the 2006/07 hold meetings with the non-executive review of process, people, strategy and directors, without the executive directors performance measures. The action plan present, to monitor and reflect on the also referred to the new statutory directors’ effectiveness of the new governance duties, to address these as an integral structure and to appraise the performance part of Board performance. The Board of the Executive Chairman. agreed to conduct the 2007/08 review ‘in Individual performance house’ and that it be led by Lord Burns. In January 2008 each director completed The performance of the executive directors a questionnaire to rate collective was reviewed individually by the Chief performance over some 20 questions Executive against set objectives. with free text boxes for comments. The Remuneration is directly linked to Chairman then reviewed an unattributed these reviews and determined by the executive summary, highlighting key Remuneration Committee. Similarly, outcomes which he has subsequently the Chief Executive’s performance was discussed with individual directors. reviewed by the Chairman. The Senior Some of the outcomes achieved in Independent Director reviewed the 2007/08 following the 2006/07 review: Chairman’s performance against a set of previously agreed objectives. The yy a greater focus on the long-term growth performance of the non-executive directors prospects of the business leading to the was reviewed individually by the Chairman. announcement in November 2007 This year’s questionnaire also invited each of our priorities for the next five years. director to comment on the individual Whilst continuing to invest in our core performances of themselves, other business we have ambitious plans for directors and the Chairman. our UK property portfolio, M&S Direct and International businesses and Under the new Board structure from 1 June Plan A; 2008 the Deputy Chairman will review the performance of the Executive Chairman, yy regular reviews of the bench strength taking into account the views of the non- of senior management and future executive directors. skills and composition of the Board, leading to the new governance and Committee performance management structures announced on 10 March 2008. Succession planning The process for reviewing the effectiveness will continue to be a priority and from of the Committees in 2007/08 has been 1 June 2008 Sir David Michels, Deputy to combine ongoing reviews with a simple Chairman, will chair the Nomination questionnaire led by each of the respective Committee; and chairmen. The Audit and Remuneration Committees undertook a review looking at their methods of operation and processes
42 Section 2 Directors 2.17 Performance evaluation
Marks and Spencer Group plc (cont’d) and combined this with the use of We made important organisational questionnaires which were conducted changes, promoting existing talent and in March 2008. An executive summary bringing in new people, to ensure we have was produced for the Chairman of each the right skills in key areas of focus over Committee which they discussed with the next three years. Senior leadership their respective Committee members. development remains a priority.
Succession planning and senior leadership development
During the year successional planning reviews were held by the Board and the Nomination Committee resulting in key appointments to the Board and senior management.
Marshalls plc Helpful hint Performance evaluation management to gain a more detailed understanding of the business, that the Explain the planning During the year, the Board conducted an style of the Board’s financial reporting process for the performance evaluation of its own performance and should be amended to focus on key evaluation, including any that of its three principal Committees. matters and the mechanics of the Audit objectives set for the board A brief questionnaire covering the main and Remuneration Committees should be and monitoring of progress areas of the evaluation was prepared refined. The exercise was viewed positively against them by the Chairman and the Secretary and by the Directors and it will be undertaken formed the basis of one-to-one again during the course of the current discussions between each of the financial year. Directors and the Secretary. The evaluation questionnaire included questions about Following the evaluation in 2006 the Board the effectiveness of the Executive and the set itself objectives for the year. Progress Non-Executive Directors. on these objectives was reviewed in 2007, new objectives for 2008 have been agreed Feedback on the points raised was and a Board timetable has been set to considered by the Board. The principal ensure that they are properly considered conclusions were that there should be a during the year. re-allocation of Board time to allow the As set out above there is an established Non-Executive Directors to spend time process to evaluate the performance of visiting sites or meeting with senior the Chairman.
43 Section 2 Directors 2.18 Re-election
Cobham plc Helpful hint Non-executive Directors are appointed for of Association, Directors are subject to Explain the circumstances specified terms of three years which can re-appointment by shareholders at the first where directors are subject be extended by agreement provided that AGM after their appointment by the Board; to re-appointment by the individual’s performance continues if they have held office for three years or the shareholders to be effective. All Non-executives have more since their previous appointment by confirmed they will have sufficient time shareholders; and, in the case of to meet what is expected of them and Non-executive Directors, if they have held copies of their appointment letters are office for nine years or more since first available on request to the Company being appointed by shareholders. Secretary. Under the Company’s Articles
Rexam PLC Helpful hints Election and re-election of directors time to fulfil his or her role on the Board. Use of a table adds clarity on The continued appointment of any non re-election of directors Article 57 of the Articles states that a executive director who has served on the director should be proposed for election Board for a period in excess of nine years Set out the board’s if he or she has been appointed to the will be subject to annual re-election at the recommendations for Board since the date of the last AGM, or AGM. The non executive directors’ letters directors’ re-election proposed for re-election if he or she has of appointment are available for inspection held office for more than 30 months at the at the Company’s registered office and at date of the notice convening the next AGM. the AGM. The Board ensures that each executive and non executive director be required to The Board will only recommend to submit himself or herself for re-election by shareholders that executive and non shareholders at least every three years. executive directors be proposed for election or re-election at an AGM, in Non executive directors serve the accordance with the Articles, after Company under letters of appointment evaluating the performance of the which are generally for an initial three year individual director. At the AGM 2008, the term. On appointment, an undertaking is following directors are being recommended requested from the non executive director by the Board and will be proposed for to ensure that he or she has sufficient election or re-election:
Name Director AGM 2008
Peter Ellwood Non executive Election
Bill Barker Executive Re-election
Peter Ellwood is being recommended Bill Barker is being recommended for for election at the AGM 2008 as the re-election at the AGM 2008 following a Board believes that he is an experienced performance evaluation which confirmed chairman with international business and his comprehensive knowledge of the leadership experience that will complement beverage can industry and market. His the Board. international leadership skills are important to the Board and key to the continued development of the Group.
44 Section 2 Directors 2.18 Re-election
Croda International Plc Helpful hint Re-election of directors the notice of last year’s AGM was posted to shareholders, he will be offering himself Explain the process for the The Company’s Articles of Association for election under Article 84. Further details re-election of the directors require the directors to offer themselves for about Michael Buzzacott and Stanley re-election at least once every three years. Musesengwa are given in the notice of At this year’s AGM, Michael Buzzacott will the AGM which is in a separate document be retiring under Article 85 and offering issued to shareholders with the himself for re-election. In addition, as annual report. Stanley Musesengwa was appointed after
45 Section 3 Accountability and audit 3.1 Going concern and directors’ responsibilities
BT Group plc Helpful hints Statement of directors’ responsibilities The directors confirm that they have Ensure disclosure complies complied with the above requirements in with the new Disclosure and The directors are responsible for preparing preparing the financial statements. Transparency Rules the group’s financial statements in accordance with applicable law and The directors are responsible for keeping State the directors’ International Financial Reporting Standards proper accounting records that disclose responsibility for the integrity (IFRS) as adopted by the European Union with reasonable accuracy at any time the of the company’s website (EU) and issued by the IASB, and for financial position of the company and the preparing the parent company financial group and to enable them to ensure that statements in accordance with applicable the group financial statements comply law and United Kingdom Accounting with the Companies Act 1985 and Article Standards (United Kingdom Generally 4 of the IAS Regulation and the parent Accepted Accounting Practice). company financial statements comply with the Companies Act 1985. They are The directors are responsible for preparing also responsible for the preparation of financial statements for each financial the Report on directors’ remuneration, year which give a true and fair view, in safeguarding the assets of the company accordance with IFRS as adopted by the and the group and hence for taking EU and issued by the IASB, of the state reasonable steps for the prevention and of affairs of the group and of the profit detection of fraud and other irregularities. or loss of the group and a true and fair view, in accordance with United Kingdom The directors are responsible for the Generally Accepted Accounting Practice maintenance and integrity of the corporate (UK GAAP), of the state of affairs of the and financial information included on the company and of the profit or loss of the group’s website. Legislation in the United company for that period. In preparing Kingdom governing the preparation and those financial statements, the directors dissemination of financial statements may are required to: differ from legislation in other jurisdictions.
yy select suitable accounting policies and The directors confirm, to the best of then apply them consistently; their knowledge:
yy make judgments and estimates that are yy that the consolidated financial reasonable and prudent; statements, which have been prepared in accordance with IFRS as adopted yy state whether the consolidated financial by the EU and issued by the IASB, statements comply with IFRS as give a true and fair view of the assets, adopted by the EU and issued by the liabilities, financial position and profit or IASB, and with regard to the parent loss of the group; and company financial statements whether applicable accounting standards have yy that the Report of the Directors on been followed, subject to any material pages 11 to 82 includes a fair review departures disclosed and explained in of the information required by Rules the financial statements; and 4.1.8-4.1.11 of the Disclosure and Transparency Rules of the United yy prepare the consolidated and parent Kingdom Financial Services Authority. company financial statements on the going concern basis unless it is The names and functions of all of the inappropriate to presume that the group directors are set out on pages 58 to 60. will continue in business.
46 Accountability and audit Section 3 3.1 Going concern and directors’ responsibilities
The Capita Group Plc Helpful hint Going concern The Directors confirm that the accounts comply with the above requirements. Give a clear statement of the The Board of Directors has a reasonable directors’ responsibilities using expectation that the Group and the The Directors are responsible for keeping bullet points and confirm that Company have adequate resources to proper accounting records which disclose the accounts comply with continue in operational existence for the with reasonable accuracy at anytime the the requirements foreseeable future. For this reason they financial position of the Group and to continue to adopt the going concern basis enable them to ensure that the accounts in preparing the accounts. comply with the Companies Act 1985.They are also responsible for safeguarding the […] assets of the Group and hence for taking reasonable steps for the prevention and Statement of Directors’ responsibilities detection of fraud and other irregularities. in respect of the accounts and auditors To the best of each Director’s knowledge, Company law requires the Directors to the financial statements contained within prepare accounts for each financial year this Annual Report and Accounts give a that give a true and fair view of the state of true and fair view of the assets, liabilities, affairs of the Company and of the Group financial position and profit or loss of the and of the profit or loss of the Group for Group and the undertakings included in that period. In preparing those accounts, the consolidation taken as a whole; and the Directors are required to: the Directors’ report includes a fair review yy Select suitable accounting policies and of the development and performance of then apply them consistently the business and the position of the issuer and the undertakings included in the yy Make judgements and estimates that consolidation taken as a whole, together are reasonable and prudent with a description of the principal risks and uncertainties that they face. Details of the yy State whether applicable accounting principal risks and uncertainties can be standards have been followed, subject found on page 21. to any material departures disclosed and explained in the accounts yy Prepare the accounts on the going concern basis unless it is inappropriate to presume that the Group will continue in business.
To the best of each Director’s knowledge and belief, there is no information relevant to the preparation of their report of which the Company’s auditors are unaware.
Each of the Directors has taken all steps that a Director might reasonably be expected to have taken to be aware of all relevant audit information and to establish that the Company’s auditors are aware of that information.
47 Section 3 Accountability and audit 3.1 Going concern and directors’ responsibilities
Cattles plc Helpful hint Going Concern financial and business plans. In reviewing Disclose justification of this information, the directors are satisfied the going concern basis Under company law, the directors that the Company and the Group have of accounting are required to consider whether it is adequate resources to continue in business appropriate to prepare financial statements for the foreseeable future. For this reason, on the basis that the Company and the the directors continue to adopt the going Group are going concerns. As part of its concern basis in preparing the Group’s normal business practices, the Group financial statements. prepares annual budgets and longer-term
Shaftesbury PLC
Going Concern expectation that the Group and the Company have adequate resources to Comprehensive financial forecasts are continue in operational existence for the prepared at least quarterly and submitted foreseeable future. For this reason, they to the Audit Committee for review. Based continue to adopt the going concern basis on the information contained in these in preparing the financial statements. forecasts, the Directors have a reasonable
SkyePharma PLC Helpful hint Going concern basis resources to continue in operational Disclose any uncertainties existence for the foreseeable future and and risks in determining As noted above, the Directors have made have, therefore, prepared the financial going concern an assessment of the general working information contained herein on a going capital requirements for the next twelve concern basis. The auditors’ report on the months, including the cash required to financial statements for 2006, the auditors’ service debt obligations, operate the Lyon conclusion on the unaudited statements Given the current economic facility, complete certain development for the first half of 2007 and the auditors’ climate companies should programmes and establish the supply report on the financial statements for 2007 consider providing extensive chain for Flutiform™, and of the likelihood include emphasis of matter paragraphs disclosure surrounding of success of the potential approaches to to draw attention to the disclosures made the basis for the going renegotiating or refinancing the convertible in Note 1 to these financial statements concern statement bonds. Based on this assessment the indicating material uncertainties. The Board has a reasonable expectation that auditors’ reports are not qualified in this the convertible bonds can be renegotiated respect and the Directors believe that or refinanced in a timely manner and these risks can be managed to a that the Group will have adequate successful outcome.
48 Section 3 Accountability and audit 3.2 Internal control
British American Tobacco p.l.c. Helpful hints Internal control The audit committee framework is regularly reviewed by the Board and was Outline high-level results of The Board is responsible for the overall revised during the course of 2007 to ensure the board’s review of internal system of internal control for the Company that it remains aligned with the Group’s control effectiveness and that and its subsidiaries and for reviewing the business structure. The revised framework remedial action is monitored effectiveness of the system. It carries reflects the continuing migration of many Explain dissemination of out such a review annually, covering of the processes and supporting control controls processes all material controls including financial, systems above the Group’s individual operational and compliance controls and markets and is directed towards ensuring Describe the annual processes risk management systems, and reports to that these processes and control systems for each company within shareholders that it has done so. remain subject to adequate review from the group an internal control and business risk Overview perspective. In relation to each level of Note that no significant failings The Company maintains a sound audit committee, the Group’s requirements or weaknesses were identified system of internal control with a view to on constitution, membership and in the internal control system safeguarding shareholders’ investment procedures have been developed to reflect and the Company’s assets. It is designed both existing practice within the Group to identify, evaluate and manage risks and best practice generally in the field of that may impede the achievement of the corporate governance. Company’s business objectives rather than The Group’s regional audit committees to eliminate these risks and can therefore (which are all chaired by an Executive provide only reasonable, not absolute, Director) focus on risks and the control assurance against material misstatement environment within each region and are or loss. A description of the key risk factors in turn supported by end market or area that may affect the Group’s business is audit committees. The corporate audit provided in the Operating and Financial committee comprises members of the Review on pages 28 to 31. Management Board and it focuses on The main features of the risk management the risks and the control environment processes and system of internal control within the Group’s operations which do operated within the Group are identified not fall under the responsibility of the below. They do not cover the Group’s regional, area and local audit committees, associate undertakings. Save to the extent for example central functions, global indicated (in relation to developments programmes and above-region projects. which occurred during the year), they have The reviews conducted by the regional been in place throughout the year under audit committees and the corporate audit review and up to date. committee include consideration of the effectiveness of the process for identifying, Audit committee framework evaluating and managing the risks of the business and the assessments of internal The Group uses audit committees at control and business risks completed by central, regional, area and individual operating companies. The relevant external market levels to support the Audit and internal auditors regularly attend Committee in monitoring risks and control. meetings of all audit committees and have This framework provides a continuing private audiences with members of the process for identifying, evaluating and audit committees at least once each year. managing the significant risks faced by In addition, central, regional and individual the Company and its subsidiaries. It is market management, along with internal designed to capture and evaluate failings audit, supports the Board in its role of and weaknesses and to ensure that ensuring a sound control environment. appropriate remedial action is taken where necessary.
49 Section 3 Accountability and audit 3.2 Internal control
British American Tobacco p.l.c. (cont’d) Risk management and internal The results of these reviews are reported control processes to the relevant regional audit committee or to the corporate audit committee and, It is the responsibility of each Group where appropriate, to the Board’s Audit company to manage its risks (both financial Committee to ensure that appropriate and non-financial) and they must maintain remedial action has been, or will be, taken a business risk register to identify, assess where necessary. and monitor the key risks which they face. They are required regularly to review Review and update the register. The Group’s internal audit function provides advice The Turnbull Guidance sets out best and guidance to the Group’s businesses practice on internal control for UK-listed on best practice in risk management and companies to assist them in assessing the control systems. application of the Code’s principles and compliance with the Code’s provisions Group companies and other business units with regard to internal control. The current are required at least annually to complete version of the Turnbull Guidance (the a checklist of the key controls which Guidance) applies to listed companies for they are expected to have in place. Its financial years beginning on or after purpose is to enable them to self-assess 1 January 2006. their internal control environment, assist them in identifying any controls which may The processes described above, and require strengthening and support them in the reports that they give rise to, enable implementing and monitoring action plans the Board and the Audit Committee to to address control weaknesses. monitor the internal control framework on a continuing basis throughout the year The Group’s internal audit function is and to review its effectiveness at the year responsible for carrying out audit checks end. The Board, with advice from its Audit on Group companies and other business Committee, has completed its annual units, and does so against an audit plan review of the effectiveness of the system presented annually to the Audit Committee, of internal control for the period since which focuses in particular on higher risk 1 January 2007. No significant failings or areas of the Group’s business. weaknesses were identified and the Board is satisfied that, where specific areas Annual processes for improvement have been identified, processes are in place to ensure that the Annually, at the year end, each operating necessary remedial action is taken and company within the Group and each that progress is monitored. The Board is department within the Group’s UK satisfied that the system of internal control headquarters is required to: is in accordance with the Guidance. yy review its system of internal control, confirm whether it remains effective and report on any material weaknesses and the action being taken to address them; and
yy review and confirm compliance with the Standards of Business Conduct and identify any material instances of non-compliance or conflicts of interest identified.
50 Section 3 Accountability and audit 3.2 Internal control
J Sainsbury plc Helpful hints
Internal control yy regular reviews by management and Confirm the board’s the Audit Committee of the scope and responsibility for the internal The Board has overall responsibility for results of internal audit work across the control system the system of internal controls, including Company and of the implementation risk management, and has delegated of recommendations. The scope of Explain the processes used to certain of these responsibilities to the the work covers all key activities of the assess the effectiveness of the Audit Committee. The Audit Committee Company and concentrates on higher internal control system has reviewed the effectiveness of the risk areas; system of internal control and ensured Disclose how these processes that any required remedial action has or is yy reviews of the scope of the work are reviewed being taken on any identified weaknesses. of the external auditors by the The system of internal controls is designed Audit Committee and any significant Confirm compliance of the to manage rather than eliminate the issues arising; internal control system with risk of failure to achieve the Company’s the Turnbull guidance (2005) business objectives and can only provide yy reviews by the Audit Committee of reasonable and not absolute assurance accounting policies and levels of against material misstatement or loss. It delegated authority; and includes all controls including financial, yy consideration by the Board and by the operational and compliance controls and Audit Committee of the major risks risk management procedures. facing the Group and of the procedures The processes used to assess the in place to manage them. These include effectiveness of the internal control health and safety, product safety, systems are ongoing, enabling a legal compliance, litigation, quality cumulative assessment to be made, and assurance, insurance and security include the following: and reputational, social, ethical and environmental risks. yy discussion and approval by the Board of the Company’s strategic direction, There is a continuous process for plans and objectives and the risks to identifying, evaluating and managing the achieving them; significant risks faced by the Company. This process has been in place throughout yy review and approval by the Board of the year and up to the date of approval budgets and forecasts, including both of the Annual Report and Financial revenue and capital expenditure; Statements and accords with the Turnbull guidance (2005). yy regular operational and financial reviews of performance against The effectiveness of the process is budgets and forecasts by reviewed annually by the Audit Committee management and the Board; which then reports to the Board. The process consists of: yy regular reviews by management of the risks to achieving objectives and yy formal identification by management actions being taken to mitigate them; of each division of the key risks to achieving their business objectives yy regular reviews by the Board and and the controls in place to manage Audit Committee of identified them. The likelihood and potential fraudulent activity and any impact of each risk is evaluated and whistleblowing by colleagues or actions necessary to mitigate them are suppliers, and actions being taken to identified. The risks and progress in remedy any control weaknesses; mitigating them are regularly reviewed
51 Section 3 Accountability and audit 3.2 Internal control
J Sainsbury plc (cont’d)
at divisional leadership team yy assurance from specialist functions meetings as part of their normal and committees that legal and business activities; regulatory, health and safety, product safety, social, ethical and yy certification by management that they environmental risks are appropriately are responsible for managing the risks identified and managed; and to their business objectives and that the internal controls are such that they yy independent assurance by Internal provide reasonable but not absolute Audit as to the existence and assurance that the risks in their areas effectiveness of the risk management of responsibility are appropriately activities described by management. identified, evaluated and managed; The system of internal control and risk yy reporting and review by the management is embedded into the Operating Board of risk management operations of the Company, and the activities and actions to improve actions taken to mitigate any weaknesses their effectiveness; are carefully monitored.
WS Atkins plc Helpful hints C.2 Internal control The Board has a process for identifying, Confirm that the internal evaluating and managing the risks we face. control process has been in The Board is responsible for reviewing That process is continual and has been place throughout the year and and approving the Group’s system of in place for the year under review up to up to the date of the report internal controls and its adequacy and and including the date of this report. This effectiveness. This established system process covers subsidiaries in which the Explain operating-level of internal controls includes financial, Group has an interest of 50% or more. responsibility for internal operational and compliance controls Joint Ventures in which we do not have control system and risk management. It is the role of overall control are not treated, for these management to implement the agreed purposes, as part of the Group. For these policies on risk and control. Joint Ventures, systems of internal control are applied as agreed between the parties Our system of internal financial and to the venture. For the Metronet Joint operational controls is designed to meet Venture the Board regularly reviewed the the Group’s particular needs and aims to risks faced by the Group separately. facilitate effective and efficient operations, to safeguard the Group’s assets, The Audit Committee formally reviews ensure proper accounting records are the operation and effectiveness of the maintained and ensure that the financial Group’s system of internal controls on an information used within the business annual basis. The latest review covered and for publication is reliable. Our risk the financial year to 31 March 2008 and management process identifies the key included the period to the approval of the risks facing each business and reports to Directors’ Report and Financial Statements the Board on how those risks are by the Board. being managed. Key features of our system of internal Such a system of internal control can control are as follows: only be designed to manage rather than eliminate risk of failure to achieve business yy Group organisation and culture objectives and can provide reasonable, but By its statements and actions the not absolute, assurance against material Board emphasises a culture of integrity, misstatement and loss. competence, fairness and responsibility.
52 Accountability and audit Section 3 3.2 Internal control
WS Atkins plc (cont’d)
The Board focuses mainly on the Board appropriately. A commercial strategic issues, senior management risk and audit framework is in place that performance and financial performance. requires peer review to be carried out Our chief executive and the Group for all significant bids and opportunities Executive, as his senior executive or where significant investment team, concentrate on operational decisions have to be taken. performance, operational decision-making and the formulation of yy Business conduct policy strategic proposals to the Board. The The Board is responsible for the Group’s managing directors manage Group’s business conduct policy. their businesses with the support of The Group believes that integrity is a senior managers. The Board determines fundamental prerequisite for successful how the chief executive operates within business relationships, both internally a framework of delegated authorities and externally. Reputation, trust and and reserved powers which seek confidence are essential elements that to ensure that certain transactions, we seek to protect and enhance to significant in terms of their size or type, the benefit of all with whom we have are undertaken only after Board review. a relationship. The Group seeks to understand and meet its customers’ yy Control environment needs, whilst seeking continuous Our operational structure has clearly improvement. Across the Group there documented and communicated are procedures in place that seek to principles of delegation of authority underpin this approach. By so doing and segregation of duties. The Group’s the Group aims to meet the needs of management systems include financial all stakeholders. policies and procedures, corporate and business quality assurance yy Individual business controls manuals, health and safety procedures Individual businesses and central and environmental management corporate functions complete an procedures. These procedures are annual self-certification statement. subject to review to ensure that Responsible managers personally improvements to enhance controls can confirm the review of their systems of be made. internal control and their compliance with Group policies. The statement also yy Financial reporting requires the reporting of any significant The Board approves a strategic plan control issues that have emerged so and annual budgets for the Group. that areas of Group concern may be The financial performance of individual identified, addressed and experience business segments is reported regularly shared. The results of the process are and compared to annual budgets. We reviewed by the Audit Committee and report to our shareholders on a reported to the Board. half-yearly basis. Forecasts for the yy Functional reporting Group are updated and reviewed by the The Board assesses the risks facing the Board regularly. business on an ongoing basis and has yy Project and contract control identified a number of other key areas Procedures seek to ensure that risks that are subject to regular reporting to are identified through the project the Board such as human resources, lifecycle from bidding to completion. health and safety, environment, tax Regular review procedures are in place and treasury. to ensure that issues are reported to
53 Section 3 Accountability and audit 3.2 Internal control
WS Atkins plc (cont’d)
yy Risk management review The Group maintains insurance policies The Board assesses risk management to provide protection from losses throughout the Group, aided by the arising through claims from clients. The Group Risk Committee and detailed adequacy of the Group’s insurance reviews of internal controls and cover, including arrangements within risk management. The Group risk the captive insurance company, is management framework requires reviewed by the Board annually. businesses to record formally all significant risks facing their business yy Internal audit and detail the steps being taken The internal audit function undertakes a to avoid or mitigate those risks. A programme to address internal control summary of the key risks facing the and risk management processes Group is placed on risk registers which with particular reference to the are reviewed regularly by the Audit Turnbull report. Its conclusions are Committee and the Board. communicated to the relevant level of management and the function has a direct reporting responsibility to the Audit Committee.
54 Section 3 Accountability and audit 3.3 Audit committee responsibilities and activities
Friends Provident plc Helpful hint Activities and Work of the Committee internal audit plan and reviewed the performance and resourcing of Internal Give details of the activities of During 2007, the Committee met on five Audit. The Committee also reviewed the the audit committee occasions, timed to coincide with the Company’s policy on ‘whistleblowing’, the financial reporting and audit cycles of the anti-money laundering procedures and the Company. The Committee has throughout annual compliance plan for the Company’s the year monitored the integrity of the UK life and pensions subsidiaries. financial statements through a review of the quarterly new business results and The use of the auditor for non-audit work final and interim report and accounts. is approved by the Committee or its As part of its normal responsibilities, the Chairman within his delegated authority. Committee has dealt with compliance with the relevant parts of the Combined On an annual basis, the Committee reviews Code, the effectiveness of internal the effectiveness of the external auditor controls and reporting procedures for risk and has made a recommendation to management processes. In particular, the the Board on the re-appointment of the Committee has agreed the annual audit auditor. Within the schedule of meetings, plan with the external auditor and has the Committee fulfilled its main role and considered the auditor’s reports and has responsibilities and as a consequence can monitored and followed up management confirm that it has met the requirements of actions in response to the issues raised. the Combined Code in so far as they relate The Committee also worked closely with to the work of audit committees during Internal Audit and agreed the annual 2007 and up to the date of this report.
AstraZeneca PLC Helpful hints Audit Committee The current members of the Audit Committee are John Buchanan (who chairs Include a personal “In recent years, the Audit Committee the committee), Jane Henney and Michele statement from the audit agenda has been shaped by Hooper. They are all Non-Executive committee chairman the requirements to monitor the Directors. The Board considers each implementation of the Group’s compliance member to be independent under the UK Detail the activities of the with various new developments in the Combined Code and under the general audit committee during external regulatory environment, including guidance and specific criteria of the the year the Sarbanes-Oxley Act, International New York Stock Exchange’s (NYSE) Set out the terms of reference Financial Reporting Standards, changes corporate governance listing standards and confirm their availability on to the UK Combined Code and the Smith concerning the composition of audit the company’s website Report. In 2007, the Committee sought committees applicable to non-US to ensure that the amended systems companies. In May 2007, the Company State that the committee of compliance and governance have submitted the required annual written members met operational become embedded effectively within the affirmation to the NYSE confirming its full managers business, supporting the Group’s strategic compliance with those standards. For the objectives as well as providing assurance purposes of the UK Combined Code, the to the Directors and shareholders. Regular Board remains satisfied that at least one reviews of key accounting judgements and member of the Audit Committee has financial results continued as well as the recent and relevant financial experience. risk-based review of key issues.” At its meeting in December 2007, the JOHN BUCHANAN Board determined that Michele Hooper is Chairman of the Audit Committee an audit committee financial expert for the
55 Section 3 Accountability and audit 3.3 Audit committee responsibilities and activities
AstraZeneca PLC (cont’d) purposes of the US Sarbanes-Oxley Act of general meeting authorise the Directors 2002. The Deputy Company Secretary acts to fix the remuneration of the external as secretary to this committee. auditor. The Audit Committee reviews and approves the appointment and any The core remit of the Audit Committee dismissal of the Vice-President, Group includes, among other things, reviewing Internal Audit. and reporting to the Board on: The Audit Committee maintains policies yy Matters relating to the audit plans of and procedures for the pre-approval of all the external auditor and Group audit services and permitted Internal Audit. non-audit services undertaken by the external auditor. The principal purpose of yy The Company’s overall framework for these policies and procedures is to ensure internal control over financial reporting that the independence of the external and for other internal controls auditor is not impaired. The policies and and processes. procedures cover three categories of work yy The Company’s overall framework – audit services, audit-related services and for risk management with particular tax services. The policies define the type emphasis on financial risks. of work that falls within each of these categories, as well as those yy The accounting policies and practices non-audit services that the external auditor of the Company. is prohibited from performing under the rules of the US Securities and Exchange yy The annual and quarterly financial Commission and other relevant UK reporting carried out by the Company. professional and regulatory requirements. The pre-approval procedures permit The Audit Committee is charged with certain audit, audit-related and tax services promptly bringing to the attention of the to be performed by the external auditor Board any significant concerns of the during the year, subject to fee limits agreed external auditor or the Vice-President, with the Audit Committee in advance. The Group Internal Audit about the conduct, Chief Financial Officer (supported by the results or overall outcome of their audit Group Financial Controller and the Director work, any matters which may significantly of Group Tax) monitors the status of all affect or impair the independence of the services being provided by the external external auditor, any significant deficiencies auditor. The procedures also deal with the or material weaknesses in the design or placing of non-audit work out for tender, operation of the Company’s internal control where appropriate. Authority to approve over financial reporting or other internal work in excess of the pre-agreed fee limits controls and any serious issues of is delegated to the Chairman of the Audit non-compliance. Committee in the first instance. Regular reports to the full Audit Committee are The Audit Committee oversees the also provided for and, in practice, a establishment, implementation and standing agenda item at Audit Committee maintenance of the Company’s Code meetings covers the operation of the of Conduct and other related policies. pre-approval procedures. It establishes procedures for the receipt and handling of complaints The Audit Committee’s remit is available on concerning accounting or audit matters. It the Company’s website, astrazeneca.com. recommends to the Board the appointment of the external auditor, subject to the The Audit Committee held five scheduled approval of the Company’s shareholders meetings during 2007. Four of these at a general meeting. Shareholders in a meetings were held in London, UK and one
56 Section 3 Accountability and audit 3.3 Audit committee responsibilities and activities
AstraZeneca PLC (cont’d) meeting was held in Boston, US. All Audit yy Reports were received from the external Committee members participated in all auditor concerning its audit of the meetings either in person or by telephone. financial statements of the Group and from management, Group Internal Following each Audit Committee meeting, Audit and the external auditor on the the Chairman of the committee (or the effectiveness of the Company’s system Senior Non-Executive Director in the of internal controls and, in particular, its absence of the Chairman of the committee) internal control over financial reporting. reported to the Board on the principal This included review and discussion matters covered at the meeting. The of the results of the Company’s minutes of Audit Committee meetings were ‘continuous assurance’ and annual also circulated to all Board members. ‘letter of assurance’ processes. These processes are described on pages In addition to attendance at Audit 42 to 43. The Audit Committee also Committee meetings, members of the reviewed quarterly activity reports of Audit Committee met individual managers audit work carried out by Group or groups of managers from the Company Internal Audit and the status of on a number of occasions during 2007. follow-up actions with management. This direct contact with other managers helped the Audit Committee members gain yy The Audit Committee reviewed the a deeper insight into areas relevant to the Company’s continuing work to comply Audit Committee’s work and provided an with the applicable provisions of the opportunity to discuss specific areas US Sarbanes-Oxley Act (the 2002 of interest. Act). In particular, it regularly reviewed the status of compliance with the During the year, in line with its normal programme of internal controls over practice, the Audit Committee also financial reporting implemented held a number of private meetings, pursuant to section 404 of the without management present, with both Act. Further information about the the Company’s Vice-President, Group implementation of section 404 of the Internal Audit and the lead partners from Act is set out in the Financial Review on the Company’s external audit firm. The page 92. purpose of these meetings was to facilitate free and open discussions between the yy The Audit Committee reviewed data Audit Committee members and those about calls made by employees to individuals, separately from the main the Company’s Code of Conduct sessions of the Audit Committee, which whistleblowing helpline either seeking were attended by the Chief Financial guidance on issues, or raising Officer and the Group Financial Controller. concerns, together with the results (From July 2007 until the appointment of of enquiries into these matters. No Simon Lowth on 5 November 2007, the material issues were reported through Group Financial Controller acted as Chief this route during the year. Financial Officer.) yy The Audit Committee reviewed the During 2007 and January 2008, the Company’s new Code of Conduct. business considered and discussed by the Audit Committee included the matters yy The Audit Committee reviewed both referred to below: the accounting matters relating to the Company’s arrangements with Merck & yy The Company’s financial disclosures Co., Inc. resulting from the restructuring were reviewed and various accounting matters considered.
57 Section 3 Accountability and audit 3.3 Audit committee responsibilities and activities
AstraZeneca PLC (cont’d) in 1998 of the joint venture between processes as well as the Group risk Astra AB and Merck & Co., Inc. and the profile and risk management plans contractual arrangements which will ahead of scrutiny by the Board. begin to affect the Company in 2008. yy In the context of the Company’s yy The Audit Committee reviewed reports accelerated internal change relating to certain taxation matters, programme, the Audit Committee including the Company’s continuing considered the potential impact on the dialogue with tax authorities around Group’s system of internal control and, the world and considered these in conjunction with Group Internal Audit, matters, where relevant, in the light of identified areas within the business accounting judgements. most likely to be impacted by this change programme for the purposes yy The Audit Committee heard reports of being able to ensure management concerning the internal audit, global maintained the effectiveness of compliance and global finance these controls. functions, including the internal audit plan and progress and plans of the Following discussions at a meeting in Global Compliance Officer. January 2008, the Audit Committee unanimously recommended to the Board yy The Audit Committee reviewed the that a resolution for the re-appointment of amount of audit and non-audit fees of KPMG Audit Plc as the Company’s external the external auditor throughout 2007. auditor be proposed to shareholders at the The Audit Committee was satisfied AGM in April 2008. throughout the year that the objectivity and independence of the external At the same meeting, the Chief Executive auditor were not in any way impaired Officer and the Chief Financial Officer by either the nature of the non-audit presented to the Audit Committee their work undertaken by the external auditor conclusions following the evaluation of the during the year, the level of non-audit effectiveness of the Company’s disclosure fees charged for such work or any controls and procedures required by other facts or circumstances. Further Item 15(a) of Form 20-F as at information about the audit and non- 31 December 2007. Based on their audit fees for the year is disclosed in evaluation, the Chief Executive Officer and Note 29 to the Financial Statements on the Chief Financial Officer concluded that, page 175. as at that date, the Company maintains an effective system of disclosure controls yy A review and assessment of the Audit and procedures. Committee’s performance and terms of reference was carried out. It was There was no change in the Company’s concluded that the Audit Committee’s internal control over financial reporting that terms of reference remain satisfactory occurred during the period covered by this and fit for purpose, and therefore Annual Report and Form 20-F Information no changes were recommended for 2007 that has materially affected, or is approval by the Board. reasonably likely to materially affect, the Company’s internal control over yy A review of the Group’s liquidity and financial reporting. financing strategy in respect of the acquisition of MedImmune, Inc. was The Audit Committee is currently also carried out. scheduled to meet four times in 2008 and will meet at such other times as may be yy The Audit Committee reviewed aspects required to conduct business. of the Company’s risk management
58 Section 3 Accountability and audit 3.3 Audit committee responsibilities and activities
BT Group plc Helpful hints Report of the Audit Committee considers the formal reports of the auditors and reports the results of those reviews Disclose the policy on non- Introduction to the Board. It reviews the auditors’ audit services and external performance, including the scope of the auditors’ independence The Audit Committee is chaired by Phil audit, and recommends to the Board Hodkinson. The other members are appropriate remuneration. Identify the members of the Maarten van den Bergh, Clay Brendish, audit committee Patricia Hewitt and Carl Symon. They are As a result of regulatory or similar all independent non-executive directors. requirements, it may be necessary to State that an independent With the exception of Patricia Hewitt, who employ the external auditors for certain review of the audit committee joined the Committee on 8 May 2008, non-audit work. In order to safeguard was carried out and disclose they were members of the Committee the independence and objectivity of the outcome throughout the 2008 financial year. John the external auditors, the Board has Nelson stepped down as a member of determined policies as to what non-audit the Committee on 13 January 2008 when services can be provided by the external he retired from the Board. The Board auditors and the approval processes considers that the Committee’s members related to them. Under those policies, work have broad commercial knowledge of a consultancy nature will not be offered and extensive business leadership to the external auditors unless there are experience, having held – between them clear efficiencies and value-added benefits – various prior roles in major business to the company. The overall policies and and financial management, treasury and the processes to implement them were financial function supervision and that reviewed and appropriately modified in this constitutes a broad and suitable mix the light of the provisions of the Sarbanes- of business, financial management and Oxley Act relating to non-audit services IT experience. The Board has reviewed that external auditors may not perform. membership of the Committee and is The Audit Committee monitors the extent satisfied that members of the Committee of non-audit work being performed by have the recent and relevant financial the external auditors and approves any experience required for the provisions of substantive work before it is undertaken. the Combined Code. It is the opinion of the It also monitors the level of non-audit fees Board that the Audit Committee includes paid to the auditors. a member in the person of Phil Hodkinson who is an ‘audit committee financial expert’ The Audit Committee reviews BT’s for the purposes of the US Sarbanes- published financial results, the Annual Oxley Act. Report & Form 20-F and other published information for statutory and regulatory Committee role compliance. It reports its views to the Board to assist it in its approval of the The Committee’s terms of reference are results announcements and the Annual available from the Company Secretary and Report & Form 20-F. are posted on our website at www.bt.com/committees. The The Committee also reviews the disclosure Committee recommends the appointment made by the Chief Executive and Group and reappointment of the external Finance Director during the certification auditors and considers their resignation process for the annual report about the or dismissal, recommending to the Board design and operation of internal controls appropriate action to appoint new auditors. or material weaknesses in the controls, It ensures that key partners are rotated at including any fraud involving management appropriate intervals. It discusses with the or other employees who have a significant auditors the scope of their audits before role in the company’s financial controls. they commence, reviews the results and
59 Section 3 Accountability and audit 3.3 Audit committee responsibilities and activities
BT Group plc (cont’d) The Board, as required by UK law, takes In addition to carrying out those regular responsibility for all disclosures in the tasks described above under the annual report. Committee’s terms of reference, the Committee also carried out its annual Committee activities consideration of the group’s risk register process, and reviewed BT’s system of During the year, the Audit Committee internal control, its accounting systems, monitored and reviewed the standards of IT security and fraud and related matters. risk management and internal control over financial reporting, including the processes Additionally, the Committee has reviewed and procedures for ensuring that material at each of its meetings during the 2008 business risks, including risks relating financial year the steps being taken within to IT security, fraud and related matters, the group with regard to the application are properly identified and managed, of the Sarbanes-Oxley Act dealing with the effectiveness of internal control, internal control over financial reporting. financial reporting, accounting policies and procedures, and BT’s statements on An independent review of Committee internal controls before they were agreed processes, conducted by Egon Zehnder, by the Board for the Annual Report. assessed performance and processes. This formed part of the annual Board It also reviewed the internal audit function and Committee evaluation. Committee and its relationship with the external members, and those others consulted, auditors, including internal audit’s plans regard the Committee as effective on and performance. both behaviours and processes. There is a similar view too of the external It reviewed the arrangements for dealing, audit process, which is regarded as in confidence, with complaints from effective, following an external evaluation employees and others about accounting by questionnaire. The Committee also or financial management impropriety, reviewed the experience, skills and fraud, poor business practices and other succession planning within the group’s matters, ensuring that arrangements finance function. are in place for the proportionate and independent investigation and appropriate The Group Finance Director, the Secretary, follow up action. the chief internal auditor and the external auditors attend the Committee’s meetings. At each of its meetings, it reviewed with The Committee met four times during the group chief internal auditor and the 2008 financial year. The papers and appropriate executives the implementation minutes of Audit Committee meetings are and effectiveness of key operational sent to directors who are not members of and functional change and remedial the Committee. programmes including major contracts and IT programmes. The Committee also set aside time at every meeting to seek the views of the internal and external auditors in the absence of executives.
60 Section 3 Accountability and audit 3.3 Audit committee responsibilities and activities
LogicaCMG plc Helpful hints Audit Committee In order to fulfil its terms of reference, the Committee reviews, challenges Identify the audit committee The composition of the Company’s Audit and approves, as the case may be, member(s) with recent and Committee and its terms of reference presentations or reports from senior relevant financial experience reflect the Combined Code and the management, consulting as necessary Smith Guidance. with the external auditors. During the year, Confirm that the audit the Committee had a satisfactory level of committee met with the The Committee is authorised by the Board dialogue with the Company’s auditors. external and internal auditors to investigate any activity within its terms During the year, the Committee specifically in private of reference and to seek any information considered, amongst other things, the that it requires from any employee of following matters: the Company and its subsidiaries. All employees are directed to cooperate with yy the performance of its independent any request made by the Committee. The auditor, PricewaterhouseCoopers Committee has the right to consult the LLP (PwC) (including qualifications, Company’s professional advisers or, if it expertise and resource, effectiveness, is not satisfied with the advice received, objectivity and independence), and seek further independent professional recommended to the Board their advice at the Company’s expense in the re-election as the Company’s furtherance of its duties. The Committee independent auditors for 2007 believes that the skills, qualifications and commercial experience of its members are yy the review and approval of PwC’s 2007 appropriate for them to perform their duties proposed fee and audit programme. in accordance with the terms of reference The Committee subsequently received laid down by the Board. and considered PwC’s report, which summarised the conclusions from The Audit Committee, which comprises their 2006 audit. This report included all independent Non-Executive Directors, feedback from PwC on the status of the is chaired by Roger Payne and, for 2007, Company’s control environment and included Angela Knight, George Loudon management’s responsiveness to (retired 1 November 2007), Wim Dik and audit results Wolfhart Hauser. The Board considers Roger Payne to have recent and relevant yy the appropriateness of the Company’s financial experience following his role as accounting policies were also reviewed a former financial director of a FTSE 100 and approved listed company. The Committee meets at least four times a year and any two yy the review and approval of the members constitute a quorum. Company’s ongoing policy for using PwC for non-audit work. This The Chairman of the Audit Committee and policy is designed to ensure PwC’s the Committee itself meet with the external independence and that the Company auditors in private at least four times complies with best practice a year. The Chairman, Chief Executive Officer, Chief Financial Officer, Deputy yy the review of the 2006 full-year Chief Financial Officer, Head of Internal preliminary and 2007 Audit and other appropriate specialist interim announcements functional managers attend the scheduled yy the review of the Company’s 2006 meetings at the request of the Committee. Annual report and accounts, in The Chairman of the Audit Committee particular the financial overview, report meets with the Head of Internal Audit in of the Directors, Financial statements private at least four times a year. (including notes to the accounts) and relevant sections of the Corporate
61 Section 3 Accountability and audit 3.3 Audit committee responsibilities and activities
LogicaCMG plc (cont’d) Governance report. These were yy an extensive goodwill evaluation recommended for approval to covering the Group’s activities which the Board supported the carrying value thereof with no impairment deemed necessary yy the search process for a new Head of Internal Audit following the move of the yy a review of the processes in respect incumbent to a financial role and the of the costing, pricing and controls on interim management arrangements of large, long term contracts, following a the function pending the recruitment of profits warning in May 2007, involving a new Head of Internal Audit both executive management and the Company’s external auditors PwC. As a yy the reports and updates from the consequence of this, additional controls Company’s internal audit and quality and closer monitoring of such controls assurance functions. The internal were put in place audit and quality assurance plans for 2007 were reviewed and approved. yy at each Audit Committee meeting, These reports and updates additionally the Committee reviews any matters, covered the Company’s as required, relating to a number management of its internal controls of standing items including major acquisitions/divestments; progress yy the appointment of Ernst & Young concerning actions taken in response LLP to undertake an independent to the Committee’s representations; review of the effectiveness of the relevant legal, reporting practices and Internal Audit function. A number of compliance developments, reports recommendations were made following filed under the Company’s confidential the review which will be implemented disclosure policy; compliance with the during the course of 2008 Company’s code of ethical conduct, including ‘whistleblowing’, and any yy the reports from the Company’s other special investigations falling Risk Management Committee under the terms of reference of the (RMC) regarding the Company’s risk Audit Committee. management policy and programme of work. The Committee and the Board also received reports concerning specific key risks identified by the RMC. In addition, the impact of changing legislation and regulation, were considered and where necessary, appropriate actions were taken
yy the review of the financial position of the Company’s defined benefit pension schemes
yy the implementation of a policy in respect of the recommended investigation of potential/actual fraud
yy the annual review of the Company’s tax and treasury policies in accordance with its terms of reference. Both policies were approved
62 Section 3 Accountability and audit 3.4 Whistleblowing
BlueBay Asset Management plc Helpful hint Whistle-blowing measures Company’s whistle-blowing arrangements. The review was conducted during the State when the policy was In accordance with the FSA rules the 2007/08 financial year, and again in reviewed and whether Company has had a whistle-blowing the period between the year-end and changes were recommended policy in place for a number of years. publication of the 2008 Annual Report This enables staff to raise concerns and Accounts. about possible improprieties relating to the Company’s operations. The Code The policy was considered to meet recommends that the Audit Committee current market practice in this area and no should review the adequacy of the changes were recommended.
Arriva plc Helpful hint Whistleblowing on a confidential basis. A confidential telephone mailbox and confidential Explain the procedure for The group operates a whistleblowing policy e-mail facility are provided to protect reporting concerns and and procedure whereby employees can, the identity of employees in these appropriate follow up, and in confidence, report on matters where circumstances. The complaint will be confirm that the they feel a malpractice is taking place, or investigated in a confidential manner and, audit committee reviews if health and safety standards are being after a decision is made as to what further these arrangements compromised. Areas that are addressed by steps should be taken, feedback is given this procedure cover financial malpractice, to the person making the complaint. An criminal activities, dangers to health and official written record is kept of each stage safety, improper or unethical behaviour and of the procedure. risks to the environment. The whistleblowing policy and its operation The procedures allow for employees to is subject to periodic review by the Audit raise their concerns with line management Committee; the last review was in or, if this is inappropriate, to raise them February 2008.
63 Section 3 Accountability and audit 3.4 Whistleblowing
Anglo American plc Helpful hints Whistleblowing programme yy any conduct contrary to the ethical Provide examples of concerns principles embraced in our Good that may be raised Following adoption in December 2003 of a Citizenship: Our Business Principles or whistleblowing policy that is aligned with any similar policy; Provide information in the Public Interest Disclosure Act 1998, the circumstances where Group has implemented a whistleblowing yy any other legal or ethical concern; and facilities are operated by an programme in virtually all of the managed independent party operations. The programme, which is yy concealment of any of the above. monitored by the Audit Committee, is The programme makes available a Disclose the number of reports aimed at enabling employees, customers, selection of telephonic, e-mail, received and whether any suppliers, managers or other stakeholders, web-based and surface mail resultant action was taken on a confidential basis, to raise concerns communication channels to any person in cases where conduct is deemed to be in the world who has information about contrary to our values. It may include: unethical practice in Anglo American and yy actions that may result in danger to its managed operations. The multilingual the health and/or safety of people communication facilities are operated by or damage to the environment; independent service providers who remove all indications from information received yy unethical practice in accounting, as to the identity of the callers before internal accounting controls, financial submission to designated persons in reporting and auditing matters; the Group.
yy criminal offences, including During 2007, 230 reports were received money laundering, fraud, bribery via the global Speakup facility, covering and corruption; a broad spectrum of concerns, including ethical, criminal, supplier relationships, yy failure to comply with any health and safety, and human legal obligation; resource-type issues. Reports received were kept strictly confidential and were yy miscarriage of justice; referred to appropriate line managers within the Group for resolution. Where appropriate, action was taken to address the issues raised.
64 Section 3 Accountability and audit 3.5 External auditors
Friends Provident plc Helpful hints Independence of External Auditor yy design and implement systems that have financial implications; Explain the audit committee’s The Combined Code requires the policy on non-audit services Company to explain the process to ensure yy provide internal audit services being performed by the auditor that auditor’s objectivity and independence where an opinion has to be given is safeguarded in its provision of non-audit on management’s assessment of State how the external services to the Company. accounting controls and auditor’s objectivity and financial systems; independence is maintained The Audit and Compliance Committee evaluated the independence of the external yy provide litigation support services; auditor and satisfied itself of its integrity, competence and professionalism. yy provide corporate finance services; and Having given full consideration to the yy advise on senior executives’ Committee’s evaluation, the Board has remuneration. satisfied itself that during the year, no aspect of the work of the independent The auditor of the Company is permitted auditor was impaired on these grounds. to perform audit-related and non-audit In maintaining a clear perception of work in areas where, in the opinion of independence and balancing that with the the Audit and Compliance Committee or best interests of the Company, the Board its Chairman, it is appropriate for it to do has also considered the policy for awarding so and there are no actual or perceived audit-related and/or non-audit work to the independence issues. Group’s external auditor. The Company does not impose an automatic ban on The Chairman of the Audit and Compliance any Group company’s external auditor Committee is authorised to approve the undertaking non-audit work. The Group’s use of auditors for audit-related and aim is always to have any non-audit work non-audit work provided that the cost does carried out in a manner that affords best not exceed £100,000 and the aggregate value for money. The auditor must not be value of audit-related and non-audit work in a position of conflict in respect of the awarded to auditors does not exceed the work in question and must have the skill, audit fee for the financial year in question. competence and integrity to carry out the In other circumstances, the approval of the work in the best interests of the Company Audit and Compliance Committee and the Group. is required.
In particular, the external auditor is not If the Committee considers it appropriate, permitted to: the provision of audit services may be formally market-tested through a tender yy perform work that involves the process involving those audit firms judged valuation of an asset or liability competent to meet the needs of the Group. incorporated into any of the The frequency of this market-testing will Company’s financial statements; depend on the needs of the Group and prevailing leading practice. Following a yy act as secondees to positions of limited tender process undertaken in 2006 influence within the Group; and the respective shareholder approval at its 2007 AGM, KPMG Audit Plc was appointed as auditor to F&C and now acts as a single group auditor.
65 Section 3 Accountability and audit 3.5 External auditors
Croda International Plc Helpful hint Audit independence for approval. The rotation of audit partners’ Disclose the controls responsibilities within PwC is required for safeguarding the The Committee and the Board place great by their profession’s ethical standards, is independence of the emphasis on the objectivity of the Group’s actively encouraged and has taken place. external auditors auditors, PricewaterhouseCoopers LLP (“PwC”), in their reporting to shareholders. Assignments awarded to PwC have The PwC audit partner is present at all been, and are, subject to controls by Audit Committee meetings to ensure full management that have been agreed by communication of matters relating to the Committee so that audit independence the audit. is not compromised. The chairman of the Audit Committee is required to give prior The overall performance of the auditors approval of work carried out by PwC and is reviewed annually by the Audit its associates in excess of predetermined Committee, taking into account the views thresholds; part of this review is to of management, and feedback is provided determine that other potential to senior members of PwC unrelated to the providers of the services have been audit. This activity also forms part of PwC’s adequately considered. own system of quality control. These controls provide the Committee with The scope of the forthcoming year’s audit adequate confidence in the independence is discussed in advance by the Audit of PwC in their reporting on the audit of Committee. Audit fees are reviewed by the the Group. Committee and then referred to the Board
Arriva plc Helpful hint (d) External audit from a technical and territorial capacity) Confirm the audit committee’s to enable it to deliver a completely responsibility regarding the The external audit process is fundamental objective audit to the shareholders. It is objectivity and independence to any company’s audit programme and the responsibility of the Audit Committee of the external auditors the role of the external auditor is to provide to formally recommend to the Board assurance to the members of the company each year the continuation, or removal as a whole that the financial statements and replacement, of the external auditor. produced by the company are in all This process is supported by a full material respects true and fair. Whilst the annual review of the expertise, resources, external auditor is ultimately appointed by effectiveness and independence of the the shareholders in general meeting it is external audit firm. inevitable that the regular contact with the company is via the executive directors, Additionally, the Audit Committee, as senior managers and other employees. part of its ongoing process for ensuring continued audit independence, reviews It is therefore against this background and approves the level and nature of that the Audit Committee is charged non-audit work performed. by the Board with the responsibility of ensuring that the external auditor remains completely independent of the company (and relevant officers of the company) in all material respects and that the external audit firm is adequately resourced (both
66 Section 4 Relations with shareholders 4.1 Dialogue with institutional shareholders
BAE Systems plc Helpful hints Relations with shareholders The Company maintains a comprehensive Investor Relations website that provides, State how the company keeps The Company has a well-developed amongst other things, information on up to date with the views of investor relations programme managed investing in BAE Systems and copies of the shareholders, disclosing by the Chief Executive, Group Finance the presentation materials used for key whether any external Director and Investor Relations Director. shareholders presentations. This can be consultants are used In addition, the Chairman is in regular accessed via the Company’s website, Disclose the extent of the contact with major shareholders and looks www.baesystems.com. to keep them informed of progress on information on the internet and corporate governance matters. In order the company’s website to assist in developing an understanding of the views of major shareholders, each year the Company commissions a survey of investors undertaken by external consultants. The results of the survey are presented to the Board.
Reuters Group PLC Helpful hints 1.12 D. Relations with shareholders An investor relations department is dedicated to facilitating communications State whether any ‘There should be a dialogue with between the company and its shareholders asked to shareholders based on the mutual shareholders. In the last three years, meet with the senior understanding of objectives. The board as Reuters has received several awards independent director a whole has responsibility for ensuring that for investor relations, including the IR Disclose if the company has a satisfactory dialogue with shareholders Magazine award in each of those years for takes place.’ (2006 Combined Code – Main a good track record in investor best investor relations in the media sector. media relations Principle D.1) It provides a regular report on investor relations as part of the routine Board report The executive directors meet regularly with materials. The company’s AGM is used institutional shareholders and analysts. as an opportunity to communicate with Non-executive directors are offered the private investors. The chairmen of each opportunity to attend meetings with major of the Board committees are available shareholders and from time to time some to answer questions at the AGM, and all attend the presentations of the annual directors are expected to attend the AGM. results to analysts. No shareholders At the AGM the level of proxies lodged on asked to meet with Dick Olver, the Senior each resolution and the balance for and Independent Director, during the year. against the resolution and the number of votes withheld are announced after the resolution has been voted on. At the 2005 AGM, voting using a poll for all resolutions was introduced to replace voting by a show of hands as the Board considers poll voting gives a better representation of shareholders’ views.
67 Section 4 Relations with shareholders 4.1 Dialogue with institutional shareholders
Standard Life plc Helpful hints Communications with investors The Board is equally committed to the Explain the development of the interests of retail shareholders who process to establish effective Since its shares were listed on the London make up 95% of the Company’s total dialogue with shareholders, Stock Exchange, the Company has been number of shareholders. During the year, providing details of the format working to develop processes to support shareholders’ views were gathered on the of such dialogue an effective dialogue with its shareholders services and means of communication based on a mutual understanding of available to them. Shareholder Explain how the company objectives. The Company has a formal comments have informed the Company’s seeks the views of both the Investor Relations department, whose communication methods, in particular institutional shareholders and remit is to support communication with with regard to the use of electronic the retail shareholders institutional investors. The Group has put in communications and the distribution of place an ongoing programme of domestic Disclose that the website the Annual Report and Accounts and and international presentations and is updated at the same AGM pack. meetings between the executive Directors time as Stock Exchange and institutional investors, fund managers To allow all shareholders full access announcements and with the and analysts. A wide range of relevant to the Company’s announcements, all voting results, including the issues is discussed at these presentations material information reported via the number of votes withheld and meetings, including business strategy, London Stock Exchange’s regulatory news financial performance, operational activities service is simultaneously published on the and corporate governance – but excluding Company’s website. price-sensitive inside information. During 2007, the executive Directors undertook The Chairman’s statement, Group Chief a comprehensive dialogue programme, Executive’s statement and Business holding many one-to-one and group review contained in this Annual Report investor and analyst meetings. Issues and Accounts together aim to provide discussed at these meetings have been a balanced overall assessment of the brought to the attention of the Board. In Group’s activities, performance and addition, during the year, an independent, prospects. This information will be detailed analysis was commissioned supported by a presentation at the 2008 by the Company to gather the views of Annual General Meeting – an event that institutional investors on the Company’s provides a valuable opportunity for the performance during its initial year as a Board and investors to communicate. listed company. The results of this study Shareholders will be invited to ask were carefully considered by the Board. As questions during the meeting and will have a result of these procedures, the an opportunity to meet the Directors after non-executive Directors believe that they the formal part of the meeting. Details are aware of shareholders’ views. of the voting results from the meeting, including the number of votes withheld, if any, will be published on the Group’s website at www.standardlife.com
68 Relations with shareholders Section 4 4.2 Constructive use of the AGM
BP p.l.c. Helpful hints BP’s AGM Copies of speeches and presentations given at the AGM are available to Disclosure that all votes are Shareholders are encouraged to attend download from the BP website after the counted as all resolutions the AGM and use the opportunity to ask event, together with the outcome of voting are taken on a poll questions and hear the resulting discussion on the resolutions. about BP’s performance. However, given State that copies of the size and geographical diversity of the Both the chairman and board committee speeches are available on company’s shareholder base, attendance chairmen were present during the 2007 company’s website may not always be practical and AGM. Board members met shareholders on shareholders are encouraged to use proxy an informal basis after the main business Give disclosure when the voting on the resolutions put forward. Every of the meeting. In 2007, voting levels at the AGM is webcast vote cast, whether in person or by proxy at AGM showed a slight decrease to 61%, shareholder meetings, is counted, because compared with 64% in 2006. It is proposed votes on all matters except procedural that the AGM in 2008 will also be webcast. issues are taken by a poll.
HBOS plc Helpful hints Case Study – AGM The Chairs of the Audit, Remuneration and Nomination Committees are present Explain flexibility The Company’s AGM takes place at at the AGM – along with other Directors surrounding the location of different UK locations each year to – to answer shareholders’ questions, the AGM maximise opportunities for the Company’s through the Chairman of the Board, on Confirm that the directors shareholders to attend. The AGM enables the responsibilities and activities of their will attend the AGM and shareholders to hear about and question Committees. In the last three years AGMs that committee chairmen the Group’s performance and the Directors’ have been held in Edinburgh, Manchester will be available to answer stewardship of the Company. Shareholders and Brighton. The 2008 AGM will be held shareholder questions who wish to raise a question can submit in Glasgow. it beforehand, or can ask it at the AGM.
69 Section 4 Relations with shareholders 4.2 Constructive use of the AGM
GlaxoSmithKline plc Helpful hint Annual General Meeting yy Re-appointment and remuneration Summarise the business to of Auditors be transacted at the AGM The AGM will be held at 2.30pm on Resolutions will be proposed to in addition to disclosing it Wednesday, 21st May 2008 at The Queen re-appoint PricewaterhouseCoopers in the formal notice of Elizabeth II Conference Centre, Broad LLP as auditors and to authorise the meeting Sanctuary, Westminster, London SW1P the Audit Committee to determine 3EE. The business to be transacted at the their remuneration. meeting will include: yy Receiving and adopting yy Special business GlaxoSmithKline’s 2007 Annual Report The company will seek authority to:
yy Approving the 2007 yy make donations to EU political Remuneration Report organisations and incur EU political The Remuneration Report on pages 71 expenditure, each capped to 86 sets out the remuneration policies at £50,000 operated by GlaxoSmithKline and disclosures on Directors’ remuneration, yy allot Ordinary Shares in including those required by the the company Companies Act 2006 and the Directors’ Remuneration Report Regulations yy give the Directors authority to 2002. A resolution will be proposed to disapply pre-emption rights when approve the Remuneration Report. allotting new Shares in connection with rights issues or otherwise up yy Retirement, election and re-election to a maximum of 5% of the current of Directors issued share capital and purchase Mr Witty, Mr Viehbacher and Professor its own Ordinary Shares up to a Sir Roy Anderson have been appointed maximum of just under 10% of the Directors since the 2007 AGM and will current issued share capital offer themselves for election to the Board. Sir Christopher Gent, yy adopt new Articles of Association to Sir Ian Prosser and Dr Schmitz will each reflect the changes introduced by retire and offer themselves for the new Companies Act 2006. re-election to the Board under article 93 of the company’s Articles of Shareholders are entitled to appoint one Association. Dr Garnier will also be or more proxies to attend the AGM, and to retiring by rotation but will not be speak and vote on their behalf. seeking re-appointment as he will be retiring from the Board after the Details on how to appoint or be appointed conclusion of the AGM. a corporate representative or proxy can be found on page 177. The Notice of AGM will be published on the company’s website.
70 Index Index
Pages Pages Introduction 4 3 Accountability and audit 46 Best practice examples 4 3.1 Going concern and 46 1 Putting governance 6 directors’ responsibilities into context 3.2 Internal control 49 1.1 Introductions 6 3.3 Audit committee 55 1.2 Compliance statements 9 responsibilities and activities 2 Directors 13 3.4 Whistleblowing 63 3.5 External auditors 65 2.1 Board decisions 13 2.2 Directors’ roles 15 4 Relations with shareholders 67 2.3 Senior independent 17 director 4.1 Dialogue with institutional 67 2.4 Attendance at meetings 18 shareholders 2.5 Role of non-executive 21 4.2 Constructive use of 69 directors the AGM 2.6 Unresolved concerns 22 2.7 Insurance cover 22 Index 71 2.8 Chairman and chief 23 Appendix 1 - Main changes 72 executive introduced by the Combined 2.9 Chairman’s independence 24 Code (2008) 2.10 Board balance and 25 Appendix 2 - Main changes introduced 73 independence by the revised Rules issued by the 2.11 Justification of 28 Financial Services Authority independence Appendix 3 - Overlapping provisions 74 2.12 Shareholders’ concerns 30 between the Disclosure and Transparency Rules and the Combined 2.13 Board appointments 31 Code (2008) 2.14 Directors’ time commitments 36 Appendix 4 - Main changes introduced 77 2.15 Information and 37 by the Guidance on Audit professional development Committees 2008 2.16 Access to independent 39 Appendix 5 - Sources 78 advice Appendix 6 - Further guidance 81 2.17 Performance evaluation 40 2.18 Re-election 44
71 Appendix 1 Main changes introduced by the Combined Code (2008)
On 27 June 2008 the Financial Reporting yy The Preamble to the Code has been Council (FRC) released a new version revised to reflect some of the findings of the Combined Code on Corporate of the FRC’s 2007 review of the impact Governance. The Combined Code (2008) and implementation of the Combined is applicable for accounting periods Code (2006), which were outlined in commencing on or after 29 June 2008 Appendix 1 to ‘Best Practice Corporate and contains only a small number of Governance Reporting - November amendments, which are as follows: 2007’. In particular, the preamble now provides guidance for companies to yy To remove the restriction in provision assist them in making the statement A.4.3 on an individual chairing required by Listing Rule 9.8.6 R(5) more than one FTSE 100 company. of how the Combined Code’s main This restriction was felt to be over- principles have been applied. prescriptive and to focus narrowly on the holding of other company So A.4.3 now reads: chairmanships in certain listed companies. It was also recognised that yy For the appointment of a chairman, provision A.4.3 already has safeguards the nomination committee should in place regarding the time commitment prepare a job specification, including of the chairman an assessment of the time commitment expected, recognising the need for yy For listed companies outside the FTSE availability in the event of crises. 350, to amend provision C.3.1 to allow A chairman’s other significant the company chairman to be a member commitments should be disclosed of, but not chair, the audit committee to the board before appointment and provided that he or she was considered included in the annual report. Changes independent on appointment as to such commitments should be chairman. This relaxation is intended reported to the board as they arise, to assist smaller companies meet and their impact explained in the next the Code’s recommendations on the annual report. composition of the audit committee. However, membership of the company And C.3.1 now reads: chairman would be in addition to a yy The board should establish an audit minimum of two independent non- committee of at least three, or in executive directors the case of smaller companies two, yy Schedule C to the Combined Code independent non-executive directors. has been revised to acknowledge In smaller companies the company that the Financial Services Authority’s chairman may be a member of, but not Disclosure and Transparency Rules chair, the committee in addition to the (DTR) now include certain Corporate independent non-executive directors, Governance disclosure requirements provided he or she was considered (also for periods commencing on or independent on appointment as after 29 June 2008 - see Appendix 2 chairman. The board should satisfy for further detail). Schedule C has also itself that at least one member of been amended to reflect that eight of the audit committee has recent and its provisions now overlap with the relevant financial experience. DTR requirements and the overlapping provisions are set out in an Appendix to Schedule C (see Appendix 3)
72 Appendix 2 Main changes introduced by the revised Rules issued by the Financial Services Authority
On 27 June 2008, the Financial Services –– all relevant information about the Authority (FSA) released revisions to the corporate governance practices Listing Rules and the Disclosure and applied beyond the requirements Transparency Rules (DTR) to implement under national law recent amendments to the EU Company –– an explanation of any departure Law 4th and 8th Directives and to make from any corporate governance other minor changes. The revisions apply code applied. for periods commencing on or after 29 June 2008. In addition the corporate governance As a result, a new section relating to statement must contain: corporate governance has been inserted –– a description of the main features of into the DTR. The main elements are: the company’s internal control and yy Requirement to have an audit risk management systems in relation committee to the financial reporting process –– certain information resulting from Certain companies are required to the EU Takeover Directive relating to have an audit committee (or a body share capital performing equivalent functions). At –– a description of the composition least one member must be independent and operation of the company’s and at least one member (who may, administrative, management but need not be, the same person) and supervisory bodies and their must have competence in accounting committees. and/or auditing yy Requirement to have a corporate The interaction between the requirements governance statement of the DTR and other UK legislation and guidance is considered in Appendix 3. Certain companies will be required to present a separate corporate governance statement. It may be included as part of the directors’ report or separately issued to accompany the annual report and accounts or may be made available on the company’s website, and if so, cross-references must be made to it in the directors’ report
The DTR contains a number of required disclosures in the corporate governance statement listed below:
The corporate governance statement must contain a reference to:
–– any corporate governance code to which the company is subject –– any corporate governance code which the company may have voluntarily decided to apply –– where that code is publicly available
73 Appendix 3 Overlapping provisions between the Disclosure and Transparency Rules and the Combined Code (2008)
As there is some overlap between the mandatory disclosures required under the Financial Services Authority’s Disclosure and Transparency Rules (DTR) and those expected under the Combined Code, the DTR clarify that compliance with the relevant provisions of the Combined Code will result in compliance with the relevant Rules. However, where a company chooses to “explain” rather than “comply” with any of these overlapping provisions, then such departure from the Combined Code may result in a breach of the DTR.
The following table lists the new Audit Committee and Corporate Governance disclosure requirements of the DTR and outlines the extent of overlap with existing UK legislation and guidance.
Disclosure and Transparency Combined Code Rules
DTR 7.1.1 R Provision C.3.1
Sets out minimum requirements on Sets out recommended composition of composition of the audit committee or the audit committee. equivalent body.
DTR 7.1.3 R Provision C.3.2
Sets out minimum functions of the audit Sets out the recommended minimum committee or equivalent body. terms of reference for the committee.
DTR 7.1.5 R Provision A.1.2
The composition and function of the audit The annual report should identify committee or equivalent body must be members of the board committees. disclosed in the annual report. Provision C.3.3
The annual report should describe the work of the audit committee. Further recommendations on the content of the audit committee report are set out in the FRC Guidance on audit committees.
DTR 7.1.7 R states that compliance with Code provisions A.1.2, C.3.1, C.3.2 and C.3.3 will result in compliance with DTR 7.1.1 R to DTR 7.1.5 R.
74 Appendix 3 Overlapping provisions between the Disclosure and Transparency Rules and the Combined Code (2008)
Disclosure and Transparency Combined Code Rules
DTR 7.2.5 R Provision C.2.1
The corporate governance statement The Board must report that a review of must include a description of the main the effectiveness of the internal control features of the company’s internal control system has been carried out. Further and risk management systems in relation recommendations on the content of the to the financial reporting process. internal control statement are set out in the Turnbull Guidance.
While the DTR requirement differs from the recommendation in the Combined Code, it is envisaged that both could be met by a single internal control statement.
DTR 7.2.7 R Provision A.1.1
The corporate governance statement The annual report should include a must include a description of the statement of how the board operates. composition and operation of the administrative, management and Provision A.1.2 supervisory bodies and their committees. The annual report should identify members of the board and board committees.
Provision A.4.6
The annual report should describe the work of the nomination committee.
Provision B.2.1
A description of the work of the remuneration committee should be made available. [Note: in order to comply with DTR 7.2.7 R this information will need to be included in the corporate governance statement].
Provision C.3.3
The annual report should describe the work of the audit committee.
DTR 7.2.8 R states that compliance with Code provisions A.1.1, A.1.2, A.4.6, B.2.1 and C.3.3 will result in compliance with DTR 7.2.7 R.
75 Appendix 3 Overlapping provisions between the Disclosure and Transparency Rules and the Combined Code (2008)
Disclosure and Transparency UK Legislation Rules
DTR 7.2.6 R SI 2008/410 7 Sch 13
The corporate governance statement This paragraph applies to a company with must contain the information required securities carrying voting rights admitted by paragraph 13(2)(c), (d), (f), (h) and to trading on a regulated market at the (i) of Schedule 7 to the Large and end of the reporting period. Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (SI 2008/410) (information about share capital required under Directive 2004/25/EC (the Takeover Directive)) where the issuer is subject to the requirements of that paragraph.
These disclosure requirements are identical and all companies subject to DTR 7.2.6 R are subject to the equivalent requirement in Company Law. Note, however, that SI 2008/410 requires the information to be included within the directors’ report whereas, if the corporate governance statement is not included within the directors’ report, the DTR permit a cross-reference to this information in the directors’ report to avoid the need for duplication.
76 Appendix 4 Main changes introduced by the Guidance on Audit Committees 2008
On 15 October 2008, the Financial yy Amendments to the information that Reporting Council (FRC) published audit committees should seek from revised non-mandatory ‘Guidance on the external audit firm about the audit committees’, formerly known as the independence of its staff, its policies ‘Smith Guidance’ (the Guidance), which is for maintaining staff independence and effective for listed companies for financial monitoring compliance with relevant years ending on or after 30 June 2009. requirements (including the rotation requirements for partners and staff) The Guidance was first published in 2003 and its safeguards in relation to and updated in 2005. It provides guidance provision of non-audit services. These to listed companies on the composition, changes simply ensure consistency role and responsibilities of the audit with the existing APB Ethical Standards committee and assists directors serving for auditors on audit committees in carrying out their role. Boards are not required to follow the yy Introduction of the suggestion that Guidance, but it is intended to assist it may be appropriate for the audit them when implementing the relevant committee of a group to consider provisions of the Combined Code on using audit firms from more than Corporate Governance. one network of firms (with additional guidance on considerations relevant The purpose of the amendments is to to such a decision, including the implement changes recommended by the option of joint audits). FRC Market Participants Group report on promoting choice in the audit market, The revisions do not change the duty which was published in October 2007. of the audit committee to make a recommendation to the board on the The main changes to the Guidance are: appointment of the auditor, using their own judgement and seeking the information yy Recommended disclosure in the annual they require to come to the right decision. report of how the audit committee reached its recommendation to The press release accompanying the the board on the appointment, revised Guidance encourages adoption of reappointment or removal of the best practice with immediate effect, but external auditor, including: indicates that the recommendations on disclosures apply only to periods ending –– Supporting information on on or after 30 June 2009, which aligns with tendering frequency the effective date of the Combined Code –– The tenure of the incumbent auditor (2008) and the new Financial Services –– Any contractual obligations that Authority’s Disclosure and Transparency acted to restrict the Rules on corporate governance. audit committee’s choice of external auditor. yy Encouragement to audit committees to consider the need to include the risk of the withdrawal of their auditor from the market in their risk assessment process
77 Appendix 5 Sources
Anglo American plc BP p.l.c. Annual Report 2007 Annual Report and Accounts 2007 Year ended 31/12/2007 Year ended 31/12/2007 www.angloamerican.co.uk www.bp.com
Antofagasta plc British American Tobacco p.l.c. Annual Report and Financial Annual Report and Accounts 2007 Statements 2007 Year ended 31/12/2007 Year ended 31/12/2007 www.bat.com www.antofagasta.co.uk BT Group plc Arriva plc Annual Report & Form 20-F 2008 Annual Report & Accounts 2007 Year ended 31/03/2008 Year ended 31/12/2007 www.btplc.com www.arriva.co.uk Cadbury Schweppes plc Associated British Foods plc Annual Report & Accounts 2007 Annual Report and Accounts 2008 Year ended 31/12/2007 Year ended 13/09/2008 www.cadburyschweppes.com www.abf.co.uk Cairn Energy PLC AstraZeneca PLC Annual Report and Accounts 2007 Annual Report and Form 20-F Year ended 31/12/2007 Information 2007 www.cairn-energy.plc.uk Year ended 31/12/2007 www.astrazeneca.com Cattles plc Annual Report and Financial Aviva plc Statements 2007 Annual Report and Accounts 2007 Year ended 31/12/2007 Year ended 31/12/2007 www.cattles.co.uk www.aviva.com Cobham plc BAE Systems plc Annual Report & Accounts 2007 Annual Report 2007 Year ended 31/12/2007 Year ended 31/12/2007 www.cobhamnet.co.uk www.baesystems.com Croda International Plc Barclays PLC Annual Report & Accounts Annual Report 2007 Year ended 31/12/2007 Year ended 31/12/2007 www.croda.com www.barclays.com Forth Ports PLC BG Group plc Annual Report and Accounts 2007 Annual Report and Accounts 2007 Year ended 31/12/2007 Year ended 31/12/2007 www.forthports.co.uk www.bg-group.com Friends Provident plc BlueBay Asset Management plc Annual Report & Accounts 2007 Annual Report 2008 Year ended 31/12/2007 Year ended 30/06/2008 www.friendsprovident.com www.bluebayassetmanagement.com
78 Appendix 5 Sources
GlaxoSmithKline plc Meggitt PLC Annual Report 2007 Annual report and accounts 2007 Year ended 31/12/2007 Year ended 31/12/2007 www.gsk.com www.meggitt.com
HBOS plc National Grid plc Annual Report and Accounts 2007 Annual Report and Accounts 2007/08 Year ended 31/12/2007 Year ended 31/03/2008 www.hbosplc.com www.nationalgrid.com
Inchcape plc Prudential plc Annual Report and Accounts 2007 Annual Report 2007 Year ended 31/12/2007 Year ended 31/12/2007 www.inchcape.com www.prudential.co.uk
J Sainsbury plc Reuters Group PLC Annual Report and Financial Annual Report and Accounts 2007 Statements 2008 Year ended 31/12/2007 52 weeks ended 22/03/2008 www.thomsonreuters.com www.j-sainsbury.co.uk Rexam PLC Land Securities Group PLC Annual Report 2007 Annual Report 2008 Year ended 31/12/2007 Year ended 31/03/2008 www.rexam.com www.landsecurities.com SABMiller plc Lloyds TSB Group plc Annual Report 2008 Annual Report and Accounts 2007 Year ended 31/03/2008 Year ended 31/12/2007 www.sabmiller.com www.lloydstsb.com Schroders plc LogicaCMG plc Annual Report and Accounts 2007 Annual report and accounts 2007 Year ended 31/12/2007 Year ended 31/12/2007 www.schroders.com www.logica.com Shaftesbury PLC Man Group plc Annual Report 2007 Annual Report 2008 Year ended 30/09/2007 Year ended 31/03/2008 www.shaftesbury.co.uk www.mangroupplc.com SkyePharma PLC Marks and Spencer Group plc Annual Report 2007 Annual report and financial Year ended 31/12/2007 statements 2008 www.skyepharma.com Year ended 29/03/2008 www.marksandspencer.com Standard Life plc Annual Report and Accounts 2007 Marshalls plc Year ended 31/12/2007 Annual Report 2007 www.standardlife.com Year ended 31/12/2007 www.marshalls.com
79 Appendix 5 Sources
Tesco PLC Annual Report and Financial Statements 2008 Year ended 23/02/2008 www.tesco.com
The Capita Group Plc Annual Report and Accounts 2007 Year ended 31/12/2007 www.capita.co.uk
Unilever Group (Unilever PLC and Unilever N.V.) Annual Report and Accounts 2007 Year ended 31/12/2007 www.unilever.com
Venture Production plc Annual Report and Accounts 2007 Year ended 31/12/2007 www.vpc.co.uk
Vodafone Group Plc Annual Report Year ended 31/03/2008 www.vodafone.com
Wm Morrison Supermarkets PLC Annual report and financial statements 2008 52 weeks ended 03/02/2008 www.morrisons.co.uk
WS Atkins plc Annual Report 2008 Year ended 31/03/2008 www.atkinsglobal.com
Yell Group plc Annual Report 2008 Year ended 31/03/2008 www.yellgroup.com
80 Appendix 6 Further guidance
Other corporate Contacts governance publications by PricewaterhouseCoopers LLP For further information, please contact your usual PwC contact, or Corporate governance and AIM An assessment of the governance Margaret Cassidy procedures adopted by AIM companies Director (July 2008) Corporate governance Email: [email protected] Best Practice Corporate Tel: +44 (0) 20 7213 1285 Governance Reporting (November 2007) Angela Green Senior Manager Internal control reporting in the UK Corporate governance Survey of annual report disclosures Email: [email protected] (Summer 2007) Tel: +44 (0) 20 7213 5401
Board performance evaluation Monica Peters Survey of annual report disclosures Manager (Summer 2007) Corporate governance Email: [email protected] Audit committee benchmarking survey Tel: +44 (0) 20 7212 1451 Best and worst features (Summer 2007)
Performance evaluation tools (for board, audit committee, remuneration committee and effectiveness of the external audit process)
Combined Code Disclosure Checklist
Governance Briefing (quarterly publication)
81 Notes
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