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Board committees

Board committees

Each Board committee has written terms of reference which define the role and responsibilities of the committees and are reviewed annually. The terms of reference of each committee are available from the company secretary or can be viewed on the Company’s website.

Appointments to the committees are made on the recommendation of the nomination committee but subject to Board approval. Membership of the committees is for periods of up to three years, normally extendable by no more than two additional three year periods. The company secretary acts as secretary to the Board committees.

Nomination committee

A J Hobson	Chair
R J S Bell
A K Illsley
O G Ni-Chionna
D T Nish

The committee meets as required to review the structure, size and composition of the Board and, if appropriate makes recommendations for changes to the Board. The committee leads the process for Board appointments, in both executive and non-executive capacities, and the re-election and succession of directors. During 2008/09 the committee met twice: (i) to consider the terms of appointment of directors, succession planning and Board skill and balance; and (ii) to consider the candidates put forward for the role of group finance director and make recommendations to the Board.

Search consultants have been used extensively in the identification of new Board appointments. For the appointment of the group finance director, the committee was supported by external executive recruitment consultants, The Miles Partnership, who conducted a thorough search and identified a number of high quality candidates for the role. The nomination committee reviewed the proposed candidates and identified Andrew Booker as the best applicant and took the recommendation to the full Board for final approval.

When the need for a new director is identified, the criteria in respect of the background and competencies of potential candidates are approved by the Board before the search is started. This specification is drawn up after consideration of the skills, knowledge and experience of existing Board members. The committee also ensures that candidates have enough time available to devote to the position. As part of the process for nominating candidates for appointment, the committee will also obtain details and review any interests the candidate may have which conflict or may conflict with the interests of the Company. If such conflict is found to exist, the committee will consider whether there are grounds for recommending the candidate for appointment and for the Board to authorise such conflict.

The committee also reviews annually the need for succession planning, particularly for the chairman, chief executive and other key Board positions, and makes recommendations accordingly. In formulating its succession plans, the committee takes into account the challenges and opportunities facing the Company and what skills and expertise therefore will be required on the Board and from senior management in the future.

Remuneration committee

O G Ni-Chionna	Chair
R J S Bell
A K Illsley
D T Nish

The remuneration committee, which is chaired by the senior independent director, consists of the non-executive directors and determines the broad policy and framework for the remuneration of executive directors and senior managers. No director is permitted to be present when his/her own remuneration is being discussed, nor to vote on his/her own remuneration. The committee also determines the nature and scale of incentive performance arrangements that encourage enhanced performance and which reward individuals in a fair and responsible manner for their contribution to the success of the business. In setting the remuneration policy for executive directors and senior managers, the committee also takes into account the reward policies for managers in the marketplace generally.

An integral part of the role of the remuneration committee is to carry out an appraisal of the performance of the chief executive.

Audit committee

D T Nish	Chair
A K Illsley
O G Ni-Chionna

The audit committee comprises three non-executive directors; each is considered to be independent as required by the Combined Code. The chairman of the Board is invited to attend meetings of the committee. The committee is authorised by the Board to obtain outside legal and other independent professional advice within its terms of reference, and to secure the attendance of advisers with relevant experience and expertise, if it considers this necessary. Members of the audit committee have unrestricted access to the external auditors.

The main duties of the committee, set out in its terms of reference, are to:

• make recommendations on the appointment and remuneration of external auditors and to monitor their performance;
• approve and monitor the policy for non-audit services provided by the external auditors to ensure that the independence of the auditors is not compromised;
• review and advise the Board on the Company’s financial statements, its accounting policies and on the control and mitigation of its financial and business risks;
• review the nature and scope of the work to be performed by the external and internal auditors, the results of their audit work and of the response of management;
• review and advise the Board on the effectiveness of the Company’s internal control environment, including its ‘whistleblowing’ procedures.

D T Nish took over the chair of the committee on his appointment to the Board. He is a member of the Institute of Chartered Accountants of Scotland and is Group Finance Director of Standard Life plc. He is considered to have the recent and relevant financial experience required for the provisions of the Combined Code. The other members of the committee have a wide range of business experience, which is evidenced by their biographical summaries. The Board has reviewed the audit committee’s composition during the year and is satisfied that it has the expertise and resource to fulfil effectively its responsibilities, including those relating to any risk controls.

Meetings

The committee invites executive directors, management, external and internal auditors to attend meetings as it considers appropriate for the matters being discussed. The committee receives sufficient, timely and reliable information prior to each meeting in order to reach an informed decision on any issue.

Work of the committee

During 2008/09, the audit committee met on three occasions and reported its conclusions to the Board. It met privately with the internal and external auditors without executives present. It also met with executive management and executive directors.

The committee discharged its obligations in respect of 2008/09 as follows:

Financial reporting

During the year the committee reviewed the draft half year and annual financial statements prior to Board approval. The committee received a report from the external auditors setting out the accounting or judgemental issues which required its attention. The auditors’ reports were based on an independent review (Half year report) and a full scope audit (Annual report) respectively.

The committee has also advised the Board on accounting policies, disclosure and controls.

Internal controls and risk management

The committee reviews reports from internal audit at three meetings during the year. These reports consider the operation of, and issues arising from, the Group’s internal control procedures, together with observations from the external auditors. The committee monitored the effectiveness of the Group’s risk management process, which considers the key risks, both financial and non-financial, facing the Group and the effectiveness of the Group’s controls to manage and reduce the impact of those risks.

Internal audit

It is the role of internal audit to advise management and the Board on the extent to which systems of internal control are effective and to provide independent and objective assurance that the processes by which significant risks are identified, assessed and managed are appropriate and effectively applied. The internal audit plan, which covers the scope, authority and resources of the function, is determined through a structured process of risk assessment and is approved by the audit committee. The nature and scope of the work of the internal audit team was reviewed and approved, the reports of results received and the responses of management considered. The plan set out at the beginning of the year was achieved and the outcome of the work was in line with expectations. To ensure the independence of the internal audit function, the senior internal auditor has the right of direct access to the chair of the committee and to the chairman of the Board; this right was not invoked in the year under review. The head of internal audit has a separate session with the chair of the audit committee before or after a formal audit committee meeting.

External audit

The committee reviews auditor independence annually. The committee also monitors the cost effectiveness and objectivity of the external auditors. The engagement and independence of the external auditors is considered annually by the audit committee before it recommends its selection to the Board. The committee has satisfied itself that Deloitte LLP is independent and that there are adequate controls in place to safeguard its objectivity. To assist in ensuring independence, the role of the audit partner on the audit is rotated every five years. The provision of non-audit services by the external auditors is considered in line with the committee’s terms of reference. The audit committee must approve all services of at least £100,000 and executive approval must be given for all approved services of less than £100,000. The auditor should only provide non-audit services where such advice does not conflict with their statutory responsibilities and ethical guidance. The audit committee has sole authority to approve non-audit services from the external auditors.

During the year, the auditors also provided tax advice. Auditor objectivity and independence was safeguarded through the use of a separate tax audit partner. In addition, the auditors report annually on the actions taken to comply with professional and regulatory requirements and on current best practice required to ensure independence. The audit committee reviewed the external auditors’ proposed plan in November 2008 and their report of May 2009 and has considered the effectiveness of the external audit.

Operating board

The Board delegates responsibility for the management of the business to the Operating board, led by the chief executive. The Operating board is comprised of the chief executive, the group finance director and the five managing directors with responsibility for the individual business units.