Annual Accounts for the year ended 31 July 2006 Contents Page Report of the Chairman of the Court of Governors 1-2 Report of the Director 3-6 Report of the Directors 7 Accounting Policies 8-9 Consolidated Income and Expenditure Account 10 Statement of Total Recognised Gains and Losses 11 Balance Sheets 12 Consolidated Cash Flow Statement 13 Notes to the Accounts 14-27 Corporate Governance and Internal Control Statement 28-29 Environmental Policy Statement 30 Endowment Investment Performance 31 Statement of Council’s Responsibilities 32 Report of the Auditors 33 Officers Responsible for the School’s Finances 34 Directors of the School and Members of the Council 35 Report of the Chairman of the Court of Governors Pedestrianisation of Houghton Street During the past year, the School has continued to enhance • the Memorandum and Articles of Association, the School’s the effectiveness of its governance arrangements. Our Instrument of Governance, has been revised so that responsibility for procedures and practices meet, and in many respects surpass, formal approval of the annual audited accounts of the company and nationally commended standards of good practice. the appointment of the Director of the School lie with the Council, bringing us into line with normal company practice. I mentioned in my report last year that we were assessing the School’s governance against the recommendations of the The role and responsibilities of the Heads of Academic Departments Committee of University Chairmens’ (CUC) Governance Code have been clarified following the recommendations of a Review of Practice and General Principles and reviewing the structure Group chaired by the Director. of Council committees and the relationship between the Council The School was granted degree awarding powers by the Privy and Court of Governors. A number of changes have been agreed Council during the year. We are, with a number of other institutions to the School’s governance arrangements, the most significant in a similar position, exploring with the University of London the of which are: implications of exercising those powers as a college of the University. • Council has adopted CUC’s Model ‘Statement of Primary Responsibilities’ as the basis for its activities as the School’s Strategic Direction Governing Body, and a business schedule that ensures all its Council exercises the full range of responsibilities expected of responsibilities, including those required by HEFCE, are given company directors in overseeing, guiding and promoting the timely consideration; School’s strategic development, working closely with the Finance • the structure of the committees reporting to Council has been and General Purposes Committee. overhauled to ensure fitness for purpose; the delegation of powers I referred last year to the School’s new five-year rolling Strategic Plan to committees has been set out in a more structured way in with its five institutional strategic priorities1 and related Measures committees’ terms of reference; and greater consistency has been of Achievement (planned outcomes) and indicators of performance. introduced into the membership structure of committees; During the past year Council has, in accordance with agreed internal • the first of what will be regular triennial self-evaluation surveys of and external guidelines, monitored progress towards achieving the Council’s effectiveness has been carried out: we are indebted to Plan’s five priorities by receiving and questioning reports on the Professor Sir Robert Worcester of MORI for his help in this regard; delivery of the actions that underpin the Measures of Achievement • the relationship of the Court of Governors with the Council has and on the attainment and development of targets. The Plan has been clarified and the Court’s role set down in its own Statement now been reviewed and updated to carry it forward to 2011, with of Primary Responsibilities, including that of ‘custodian of the the five priorities established in 2005 remaining unchanged. long-term fundamentals, interests and well being of the School At its Awayday on 25 September 2006, Council reviewed current in the spirit of the Founders’ with a range of measures being strategic issues and progress made in the past 12 months against implemented to give effect to that role; agreed objectives, and considered a range of issues relating to the • agreement to establish regional advisory boards to provide a Strategic Plan, including the implications for academic growth and structure for obtaining advice from leaders of the region on change of the Five Year Development Plans submitted by academic aspects of its region’s relationship to the School, with annual departments, property and financing, international strategy and discussion by the Court of issues raised by the boards: the first future fundraising strategy. While the Awayday is not a formal such board will be for North America; LSE Annual Accounts for the year ended 31 July 2006 1 Report of the Chairman of the Court of Governors decision making meeting, it provided the opportunity for Council proactive and strategic approach to audit, to establish tighter controls to consider its position on a range of important issues on which over the associated activities mentioned above and to link the audit decision will need to be made in the forthcoming year and beyond. and risk management functions more closely. We were pleased to receive confirmation from HEFCE that the Institutional Finance School is not considered ‘at higher risk’ at present and that there Council is responsible for ensuring the solvency of the Company are no issues of significance the Funding Council currently needs to and safeguarding its assets and income. Detailed monitoring of address with us. the financial position is delegated to the Finance and General Purposes Committee which reports to Council on a termly basis. Succession Planning During the year the Committee has undertaken a review of the During the year, Peter Sutherland KCMG was elected as a member effectiveness of the School’s financial management arrangements of the Court of Governors from 16 March 2006 and as my successor to ensure compliance with recommended practice and to identify as Chairman of Court and Council from 1 January 2008. Peter’s opportunities for improvement. background in public policy and his business and international interests match the School’s profile remarkably well and we are Legal Compliance delighted that he has accepted the Chairmanship role. We have The raft of legal obligations placed on the School continues to grow. also been fortunate in attracting four further outstanding new In liaison with the School’s Solicitors, the Secretariat continually Governors: Professor Charles Bean, Shami Chakrabarti, Alan Elias updates a comprehensive digest of new and forthcoming statutory and Timothy Frost. and regulatory developments which is used as a tool to ensure ‘light The Nominations Committee has continued its work in succession touch’ compliance that intrudes as little as possible upon the core planning with main committee memberships, chairmanships and activities of teaching, learning and research. Council receives the office holders, seeking to identify a broad spread of potential digest at regular intervals for information and comment. candidates to fill future vacancies. Six further Emeritus Governors During the past year the School has appointed a full-time Diversity were appointed under the scheme for recognising outstanding Adviser to take forward the fresh requirements placed on us by new service to the School over many years: Ian Hay Davison, Baroness diversity and equality legislation and to embed greater awareness of Howe, Lord Moser, William Plowden, John Selier and Lord Sheppard its positive benefits in the School community. of Didgemere. The implications for the School of the new Charities and Company The establishment of the regional advisory boards referred to above Law Reform Bills have been assessed and the implications of will open further opportunities to achieve greater international implementing the changes they will bring identified. representation in the membership of the Court through common membership of both bodies. The School continues to receive a considerable number of requests under the Freedom of Information Act and has robust and efficient processes for dealing with them. Looking Ahead The past year has been one of significant progress and change in Risk and Audit the governance arrangements of the School. I am confident that all the steps that have been taken will not only materially enhance The Risk Committee continues to oversee the management of key the effectiveness of our governance and ensure that it meets the strategic risks to the School’s priorities and to make twice-yearly highest standards of good practice but will also provide a structure reports to Council on steps being taken to control them. During the that actively contributes to the promotion of initiatives and the past year, the School’s Risk Register has been thoroughly revised realisation of our strategic objectives. and continues to focus on the practical handling of a relatively small number of ‘real’ major risks. Particular attention is being paid to managing the risks arising from the School’s growing involvement in different types of collaboration and joint ventures and from a range of disparate activities and organisations associated with the School. These formed the subject of the first Joint Meeting of the Risk and Lord