Evaluation of Board performance
The Board conducts a critical evaluation of its activities on an annual basis. A questionnaire-based peer review of the performance of the Chairman, the Executive Directors, the Non-Executive Directors, the Board and its Committees is conducted by the Company Secretary. In 2008, this was followed by separate interviews between the Company Secretary and each Director to allow a further opportunity to explore particular areas in more detail:
- the results of the review of the Committees and the Board are discussed with the Chairman and presented to the Board;
- the results of the review of the individual performance of each Director (excluding the Chairman) are raised by the Chairman with that Director, as appropriate; and
- the results of the review of the Chairman’s performance are discussed by the Non-Executive Directors without the Chairman present and feedback is given by the Senior Independent Director on a one-to-one basis.
The Chairman also discusses the effectiveness and performance of Directors immediately before they make themselves available for reappointment and, in addition, the Remuneration Committee evaluates the effectiveness of the Chairman and the Chief Executive annually.
The process in 2008 confirmed that all Directors considered the Board to be working well, to be efficient and effective, and to have a good balance of the necessary skills required, although there was a general consensus that, with the forthcoming retirement of Thys Visser, a further Non-Executive Director should be appointed in due course (this is currently being pursued – see above). The decision to split membership of the Audit and CSR Committees (see above) was also universally welcomed, and a review was suggested in 12 months’ time to see how the new structures are working. The Non-Executive Directors were highly supportive of the Executive team and expressed their appreciation of the culture of openness and transparency within the Group. In particular, they welcomed their access to management below the level of the Management Board, most frequently at the regional audit and CSR committee meetings.
The Notice for this year’s Annual General Meeting confirms that the performance of the Directors being proposed for reappointment continues to be effective and that they continue to show commitment to their role.
It is the role of the Remuneration Committee to determine the framework and policy on terms of engagement (including remuneration) of the Chairman, Executive Directors and members of the Management Board, and the specific remuneration of each Executive Director and Management Board member (including entitlements under share incentive schemes and pension schemes) and any compensation payments. The fees paid to the Non-Executive Directors are considered annually and are based upon the recommendation of the Chairman and Chief Executive. The terms of engagement of, and fees payable to, the Chairman are also reviewed annually, taking account of the breadth of the role coupled with the required levels of commitment and expertise.
Anthony Ruys assumed chairmanship of the Remuneration Committee upon Kenneth Clarke’s retirement on 30 April 2008. Its other members are Robert Lerwill, Ana Maria Llopis, Christine Morin-Postel, Sir Nicholas Scheele and Karen de Segundo. The Chairman, Chief Executive and the Management Board member responsible for Human Resources regularly attend meetings by invitation but are not members.
Details of the Directors’ remuneration are set out in Table 1 of the Remuneration report.
Accountability and audit
The Board is satisfied that it has met its obligation to present a balanced and understandable assessment of the Company’s position and prospects in the Directors’ report and accounts and the Business review and in interim reports, reports to regulators and price-sensitive announcements. A summary of the Directors’ responsibilities for the financial statements and their statement concerning relevant audit information is included in the Directors’ report. The Directors’ statement that it is appropriate to continue to adopt the going concern basis in preparing the accounts is also set out in the Directors’ report.
The Board’s obligation to establish formal and transparent arrangements for considering how it should apply financial reporting and internal control principles, and for maintaining an appropriate relationship with the Company’s external auditors, PricewaterhouseCoopers LLP, is met through the Audit Committee. The role of the Audit Committee is to monitor the integrity of the financial statements of the Company and review and, when appropriate, make recommendations to the Main Board on business risks, internal controls and compliance. The Committee satisfies itself, by means of suitable steps and appropriate information, that proper and satisfactory internal control systems are in place to identify and manage business risks and that the Company’s business, and that of its subsidiaries, is conducted in a proper and economically sound manner.
The Audit Committee is chaired by Robert Lerwill and comprises 3 other independent Non-Executive Directors – Christine Morin-Postel, Anthony Ruys and Sir Nicholas Scheele. Karen de Segundo and Ana Maria Llopis were members of the Audit Committee until 1 October 2008. At that time, membership of the Audit Committee, together with that of the CSR Committee, was revised to allow more efficient and focused debate. The Chief Operating Officer and the Finance Director regularly attend meetings of the Committee by invitation but are not members. The Committee’s meetings are also regularly attended by the Head of Audit and Business Risk, the General Counsel to the Company and a representative of the external auditors. As a matter of best practice, the Committee meets alone with the external auditors at the end of every meeting.
The Audit Committee is authorised by the Board to review any activity within the business. It is authorised to seek any information it requires from, and require the attendance at any of its meetings of, any Director or member of management, and all employees are expected to cooperate with any request made by the Committee. The Committee is authorised by the Board to obtain, at the Company’s expense, outside legal or other independent professional advice and secure the attendance of outsiders with relevant experience and expertise if it considers this necessary.
The Chairman of the Committee reports to the subsequent meeting of the Board on the Committee’s work and the Board receives a copy of the minutes of each meeting. The papers considered by the Committee are available to any Director who is not a member, should they wish to receive them. The Committee’s effectiveness is reviewed annually as part of the Board evaluation process. In 2008, the Board concluded that it continues to operate effectively.
Activities of the Audit Committee in 2008
The Audit Committee met 5 times during 2008, including immediately before the Company’s full year results were published. It follows an agreed annual work programme comprising both regular items and areas considered to require particular focus. During 2008, it continued to monitor the integrity of the Company’s financial statements and all formal announcements concerning the Company’s financial performance, to review significant financial reporting judgements contained in them, and to keep under review the consistency of accounting policies applied across the Group. It met regularly with management and with the internal and external auditors to review the effectiveness of internal controls and business risk management, and received reports from the Head of Audit and Business Risk, the Head of Group Security and the Group’s regional audit and CSR committees and corporate audit committee. The specific items considered by the Audit Committee during 2008 included:
- a comprehensive review of Group risks in light of the current macroeconomic situation, and the risk mitigation plans in place to manage identified risks (see Key Group risk factors);
- the Group’s position with regard to counterparty risks and liquidity issues in the light of volatility in the financial markets and the failure of a number of significant financial institutions;
- a revised audit and CSR committee framework, which recommended the merging of regional and (where possible) area and individual market audit and CSR committees to enhance their efficiency and effectiveness;
- compliance with the Standards of Business Conduct;
- compliance with records management procedures;
- the annual works plan for the Group’s internal audit function;
- an independent review of the internal audit function and the implementation of proposals arising from the review; and
- revised Guidance on Audit Committees issued by the Financial Reporting Council.
It has satisfied itself that proper and satisfactory internal controls remain in place to identify and contain business risks, and that the Company’s business, and that of its subsidiaries, is being conducted in a proper and economically sound manner.
The Group’s whistleblowing policy and procedures enable staff, in confidence, to raise concerns about possible improprieties in financial and other matters and to do so without fear of reprisal, provided that such concerns are not raised in bad faith. Details of this policy are set out in the Company’s Standards of Business Conduct. The policy is supplemented by local procedures throughout the Group and at the Group’s London headquarters, which provide staff with additional guidance and enable them to report matters in a language with which they are comfortable. The Audit Committee receives regular reports on whistleblowing incidents. It remains satisfied that the policy and the procedures in place incorporate arrangements for the proportionate and independent investigation of matters raised and for the appropriate follow-up action.
The Audit Committee assesses annually the qualification, expertise and resources, and independence of the external auditors and the effectiveness of the audit process. The Committee’s assessment is made with reference to a satisfaction survey of the external auditors completed by members of senior management.
PricewaterhouseCoopers LLP have been the Company’s auditors since it listed on the London Stock Exchange in September 1998. The Audit Committee considers that the relationship with the auditors is working well and remains satisfied with their effectiveness. Accordingly, it has not considered it necessary to date to require the firm to tender for the audit work. The external auditors are required to rotate the audit partners responsible for the Group and subsidiary audits every 5 years and the current lead audit partner has been in place for 4 years. There are no contractual obligations restricting the Company’s choice of external auditor.
The Audit Committee has an established policy aimed at safeguarding and supporting the external auditors’ independence and objectivity. Pursuant to this policy, it keeps under review the ratio of audit fees to non-audit fees charged by the external auditors to ensure that neither their independence nor their objectivity is put at risk, and takes steps to ensure that they do not audit their own work. It remains confident that the objectivity and independence of the external auditors are not in any way impaired by reason of the non-audit services which they provide to the Group. Moreover, the Committee is satisfied that such work is best handled by them, either because of their knowledge of the Group or because they have been awarded it through a competitive tendering process. A breakdown of non-audit fees charged by the auditors is disclosed in note 3(d) in the Notes on the accounts.
The Audit Committee has completed its assessment of the external auditors for the financial period under review. Having satisfied itself as to their qualification, expertise, resources and independence and the effectiveness of the audit process, it has recommended to the Board, for approval by shareholders, the reappointment of PricewaterhouseCoopers LLP as the Company’s external auditors and approved their fees and terms of engagement.