COMPLIANCE WITH THE UK CORPORATE GOVERNANCE CODE.


For the year ended 31 December 2011, the Board believes that the Company has complied with the principles and provisions of the UK Corporate Governance Code.

A. LEADERSHIP

A1. “an effective board...collectively responsible for the long-term success of the company.”

  • The Board sets the Company’s strategy and reviews performance against the objectives.
  • The Board is responsible for ensuring the necessary resources are in place for the Company to achieve its objectives.
  • The Board is accountable to shareholders, employees, customers and other stakeholders for the performance of the Company through engagement with institutional investors, the annual re-election of the Board, and employee and customer satisfaction surveys.
  • There is a clear schedule of matters reserved for the Board. The Board has overall responsibility for the Group’s internal control system. Implementation of the internal control system is the responsibility of the executive directors and senior management.
  • The Board delegates operational responsibilities to the Group Chief Executive who in turn delegates authority to members of the executive management team.

A2. “...clear division of responsibilities...”

  • Defined roles for each of the Chairman, Group Chief Executive and Senior Independent Director ensure a clear division of responsibilities between them.
  • The Chairman is responsible for the leadership and effectiveness of the Board.
  • The Senior Independent Director is responsible for facilitating the relationship between the Board and shareholders.
  • The Group Chief Executive is responsible for leading the day to day management of the Company within the strategy set by the Board.

A3. “The chairman is responsible for leadership of the board and ensuring its effectiveness....”

  • The Chairman sets the agendas for meetings, manages the meeting timetable and facilitates the contribution of non-executive directors for agenda items and training topics.
  • Meetings are chaired to ensure that all Board members have the opportunity to contribute to the discussion and debate.
  • The Chairman facilitates opportunities for Board members to engage outside of the boardroom to promote the development and strengthening of director relationships.
  • The non-executive directors formally appraise the Chairman’s performance. This is facilitated by the Senior Independent Director.

A4. “...non-executive directors should constructively challenge and help develop proposals for strategy.”

  • Short presentations on key issues at Board meetings ensure time and opportunity for discussion, debate and the sharing of non-executive directors’ views.
  • The Chairman seeks to achieve an environment in the boardroom for constructive challenge by non-executive directors by actively inviting non-executive directors’ views and encouraging these views to be delivered in a supportive and positive manner.
  • All directors participate in an off-site strategy event where the strategic objectives for the last year are reviewed and performance against the objectives evaluated. Together with externally facilitated discussion on macroenvironment matters, this forms the foundation for all Board members to debate and develop proposals for the Company’s strategy.
  • The non-executive directors regularly meet in the absence of the executive directors providing an opportunity for any concerns to be discussed. Non-executive directors also meet with the Senior Independent Director in the absence of the Chairman.
  • The Senior Independent Director meets regularly with the Chairman to discuss the effectiveness of the Board.

B. EFFECTIVENESS

B1. “The board and its committees should have the appropriate balance of skills, experience, independence and knowledge of the company...”

  • Board member biographies identify the skills and experience each director brings to the Board.
  • All directors bring experience and qualities from other industries and other aspects of commercial and public life to the Board.
  • The Board is committed to achieving greater diversity of thought in the boardroom, including through stronger representation of women on the Board.
  • The Board considers each of the non-executives to be independent in accordance with the UK Corporate Governance Code.

B2. “...a formal, rigorous and transparent procedure for the appointment of new directors to the board.”

  • The appointment of new directors to the Board is led by the Nominations Committee. The procedure for new appointments is described in more detail in the Nominations Committee Report section.
  • Succession planning is regularly considered for both Board members and senior management. How the Company identifies and retains talent was an area of focus for the Board during 2011, see the table in the Board Agenda in 2011 section for further detail.

B3. “All directors should be able to allocate sufficient time to the company...”

  • The time commitments of non-executive directors are defined on appointment and regularly evaluated. Non-executive directors are expected to dedicate time to the preparation for and attendance at meetings, the annual strategy event, Board dinners and training and development sessions.
  • The Chairman’s agreement to a new directorship is required where this may affect the time a director can dedicate to the Company.
  • Attendance at meetings during 2011 is set out in the table in the Board and committee meetings attendance section.

B4. “All directors should receive induction on joining the board and should regularly update and refresh their skills and knowledge.”

  • The induction process is described in detail in the Induction programme section.
  • There are regular training sessions for non-executive directors.
  • The Chairman regularly meets with each director to agree training and development needs.

B5. “The board should be supplied in a timely manner with information in a form and of a quality appropriate to enable it to discharge its duties.”

  • Board and committee papers are generally issued a week in advance of meetings.
  • During 2011, the Board was ‘e-enabled’ to facilitate the supply of information.
  • The Company Secretary assists the Chairman in ensuring the timely supply of quality information to the Board and updates the Board on governance matters at each Board meeting.
  • All Board members have access to the advice and services of the Company Secretary as and when required, as well as to independent professional advice at the expense of the Company.

B6. “The board should undertake a formal and rigorous annual evaluation...”

B7. “All directors should be submitted for re-election...”

  • All directors were subject to shareholder re-election at the AGM in 2011.
  • All current directors will stand for either election or re-election at the 2012 AGM.

C. ACCOUNTABILITY

C1. “The board should present a balanced and understandable assessment of the company’s position and prospects.”

  • The Directors’ Report can be located in the Our group, Our performance and Our approach sections, and this sets out the performance of the Company, the business model, strategy and the risks and uncertainties relating to the Company’s future prospects.

C2. “The board is responsible for determining the nature and extent of significant risks it is willing to take in achieving its strategic objectives...”

  • The Board sets the Company’s risk appetite and annually reviews the effectiveness of the Company’s risk management and internal control system.
  • The Group Risk Committee provides guidance to the Board on risk management policies and procedures and advice on what constitutes acceptable risk taking. This assists the Board in setting the risk appetite for the Company. The activities of the Group Risk Committee are explained in more detail in the Group Risk Committee Report section.

C3. “The board should establish formal and transparent arrangements for considering how they should apply the corporate reporting and risk management and internal control principles and for maintaining an appropriate relationship with the company’s auditor.”

  • There is a risk management framework in place comprising policies and procedures. These policies and procedures are published on a dedicated intranet site which is regularly updated and reviewed.
  • The Audit Committee and the Group Risk Committee assist the Board by undertaking the day to day oversight of the risk management framework and seeking assurance on the effectiveness of the internal controls in accordance with Turnbull Guidance.
  • The Board has delegated management of the relationship with the Company’s auditor to the Audit Committee. Further details of the activities of the Audit Committee are set out in the Audit Committee Report section.

D. REMUNERATION

D1. “Levels of remuneration should be sufficient to attract, retain and motivate directors of the quality required to run the company successfully, but a company should avoid paying more than is necessary for this purpose. A significant proportion of executive directors’ remuneration should be structured so as to link rewards to corporate and individual performance.”

  • The levels of remuneration of directors and how the Company promotes an alignment of interest between directors and shareholders by linking reward to performance are explained in the Directors’ Remuneration Report section.

D2. “...a formal and transparent procedure for developing policy on executive remuneration and for fixing the remuneration packages of individual directors.”

  • The activities of the Remuneration Committee and the way in which it sets executive remuneration policy are set out in the Directors’ Remuneration Report section.

E. RELATIONS WITH SHAREHOLDERS

E1. “The board as a whole has responsibility for ensuring that a satisfactory dialogue with shareholders takes place.”

  • The Board actively seeks the views of shareholders, including through meetings between shareholders and the Chairman, Group Chief Executive or Group Chief Financial Officer, bi-annual discussions with the Company’s corporate brokers and regular reports on investor relations activities. The Board values open interaction with shareholders and is committed to ensuring that the direction of the Company is aligned with shareholders’ interests.

E2. “The board should use the AGM to communicate with investors and to encourage their participation.”

  • The Board values the AGM as an important opportunity to engage with investors. Attendees at the AGM have the opportunity to ask questions of the Board and to speak to individual directors.
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