Letter from the Chairman.

“We believe that good corporate governance underpins the long-term success and sustainability of the Company creating trust and engagement between the Company and its shareholders.”
JOHN STEWART
CHAIRMAN

CHAIRMAN’S LETTER

The Board aspires to the highest standards of corporate governance and this year has dedicated a significant amount of time to considering emerging corporate governance practice in line with our belief that this is fundamental to sound decision making processes and delivering the Company’s strategy. As Chairman, my leadership of the Board is critical to encouraging open and transparent discussion, constructive challenge and support.

The last five years have seen unprecedented challenges for the global and UK economies and, in particular, financial services companies. This has rightly heightened the importance and visibility of good corporate governance. As a major investor in UK and global companies, we are aware of our responsibility both to practise high standards of corporate governance and to contribute to promoting an environment where such standards inform our engagement with companies in which we invest. We regularly review and refresh our approach to corporate governance to ensure that it is robust, well embedded and at the forefront of best practice. We firmly support LGIM’s engagement with the companies in which it invests, with a view to driving best practice and enhancing corporate governance practices, as detailed in the Shareholder matters section.

Our statement of compliance with the provisions of the UK Corporate Governance Code is set out in the Corporate Governance Report. I am pleased to report that the Company has complied with all principles of the Code throughout the year ended 31 December 2012 and from that date up to the date of publication of this Annual Report.

CHANGES TO THE BOARD

The Board was extremely pleased to announce the appointment of Nigel Wilson as the Group Chief Executive in June 2012 following the retirement of Tim Breedon as Group Chief Executive. On behalf of the Board, I would like to thank Tim for his contribution to the success of the Company and welcome Nigel to his new role. I am pleased to report that we have seen a smooth transition during the succession period and I have enjoyed working closely with Nigel since his appointment. Nigel and I have spent time visiting various business locations and considering the prospects for further growth. Nigel continues to bring an evolutionary approach to the execution of the next stage of the Group’s strategy and provides continued focus on delivering for our customers, business partners and shareholders.

Following Nigel’s appointment, the Board reviewed the balance of skills and experience represented on the Board and determined that greater knowledge of the LGIM business would further strengthen the Board.

In September 2012, we were pleased to welcome Mark Zinkula, CEO LGIM, to the Board as an executive director. Mark is an excellent addition to the Board, bringing detailed knowledge of LGIM and also the US market.

Following almost nine years of service, Henry Staunton has decided to retire from the Board and will be stepping down as a director following this year’s AGM. Henry has been a great asset to the Company and I would like to thank him for his service.

The Board is currently engaged in a process to identify and appoint a new Chief Financial Officer.

BOARD DIVERSITY

Last year I highlighted the importance of a diverse Board and set out the Board’s diversity statement. This year the Board has built on this statement and adopted a Board diversity policy which also sets out the key principles that must be considered when making Board appointments. The diversity policy is available to view on our website.

We welcome the benefits of greater Board diversity, including gender diversity, and the Board remains committed to ensuring that the Company’s directors bring a wide range of skills, knowledge, experience, backgrounds and perspectives. Although we do not have a set target for the number of women on our Board, we endorse Lord Davies’ recommendations in relation to diversity. The Board continues to incorporate board diversity considerations into its thinking on the composition of the Board; however, all appointments will continue to be made on merit against objective criteria, in the context of the overall balance of skills and backgrounds that the Board needs to maintain in order to remain effective.

The Board believes that diversity at all levels of the organisation is important and is working towards strengthening the representation of women among the non-Board senior management cadre – the Board directors of tomorrow. The Board places great importance on talent development in the organisation and I am pleased to say that Board members play an active role in mentoring individuals and sponsoring and attending talent development programmes. Outside of the organisation I also devote time to furthering talent development through my involvement in the FTSE 100 Cross-Company Mentoring Programme and the 30% Club, which is a group of Chairman voluntarily committed to bringing more women on to UK Corporate Boards.

The Nominations Committee report sets out in more detail how diversity is considered when making appointments to the Board.

BOARD EVALUATION

This year the Board undertook an evaluation facilitated by an external evaluator, KPMG LLP and the Board is pleased to confirm that the evaluation concluded that the Board was overall effective. The Board recognises that good corporate governance continues to evolve and consequently that there are steps that it could take to continue to remain fully effective in the future. I am pleased to report that many of the recommendations made by the evaluator have already been implemented by the Board. The review was extremely comprehensive and included a review of over a year’s Board and Committee papers, interviews with all Board members and meetings with the Executive Committee members and other senior management. A more detailed report on the Board evaluation is set out in the Corporate Governance Report.

EXECUTIVE REMUNERATION

Executive remuneration has recently been subject to intense public debate. We support initiatives to make executive remuneration as transparent and simple as possible. You will see that in anticipation of the revised remuneration regulations coming into force we have split the Remuneration Report into two parts: a forward-looking section outlining the Company’s remuneration policy and a section reporting on implementation during 2012.

COMMUNICATIONS WITH SHAREHOLDERS AND ANNUAL GENERAL MEETING (AGM)

We value open, constructive and effective communication with our shareholders and I have enjoyed meeting with shareholders throughout the year. I look forward to sharing with you in person the successes of the Company during 2012 at the AGM on 22 May 2013. The AGM is an important forum for engagement with all shareholders and gives shareholders an opportunity to raise questions on this report and any other questions they may have on the resolutions to be put to the meeting. At the 2013 AGM all Board directors will be available, as usual, to meet shareholders after the meeting to discuss issues on a face-to-face basis. We would like our investors to find attending our AGM an interesting and rewarding experience, to hear about the performance of the Company over the last year and have the opportunity to meet members of the Board and I would encourage as many shareholders as possible to attend.

JOHN STEWART
CHAIRMAN

For more information visit our website: investor.legalandgeneral.com/corporate-governance.cfm