including the report of the Audit Committee
The Board is committed to the highest standards of corporate governance set out in the Combined Code on Corporate Governance published by the Financial Reporting Council in June 2008 (the ‘Code’). The Board is accountable to the Company’s shareholders for good governance and this Report, together with the Director’s Remuneration report, describes how the Board has applied the main principles of good governance set out in the Code during the year under review. It is the Board’s view that the Company has been fully compliant.
As at 30 September 2009 and as at the date of this Report, the Board of directors was made up of 10 members, comprising the Chairman, three executive directors and six non-executive directors. Tim Parker was re-appointed as a non-executive director on 1 November 2008, following his retirement on 23 May 2008 and Don Robert was appointed as a non-executive director on 8 May 2009. Sven Kado retired from the Board on 5 February 2009. The non-executive directors are considered by the Board to be independent of management and free of any relationship which could materially interfere with the exercise of their independent judgement. The Board considers that each of the non-executive directors brings their own senior level of experience, gained in each of their own fields, mainly in international operations.
Biographical details of the directors currently in office can be found in the Board of directors section. The Company’s policy relating to the terms of appointment and the remuneration of both executive and non-executive directors is detailed in the Directors’ Remuneration report.
The Board meets regularly during the year as well as on an ad hoc basis, as required by business need. The Board manages the business of the Company and may, subject to the Articles of Association and applicable legislation, borrow money, guarantee, indemnify, mortgage or charge the business, property, assets (present and future) and issue debentures and other securities and give security, whether outright or as a collateral security, for any debt, liability or obligation of the Company or of any third party. The Board has a formal schedule of matters reserved for its decision, although its primary role is to provide entrepreneurial leadership and to review the overall strategic development of the Group as a whole. In addition, the Board sets the Group’s values and standards and ensures that it acts ethically and that its obligations to its shareholders are understood and met. The Board may delegate any of its powers to any committee consisting of one or more directors. The Company has delegated day-to-day operational decisions to the Executive Committee referred to below. The Board met eight times during the year and director attendance for each meeting is shown in the table below. The Board has established a procedure for directors, if deemed necessary, to take independent professional advice at the Company’s expense in the furtherance of their duties. This is in addition to the access that every director has to the General Counsel and Company Secretary, who is charged with ensuring that Board procedures are followed and that good corporate governance and compliance is implemented within the Group. Together with the Group Chief Executive and the General Counsel and Company Secretary, the Chairman ensures that the Board is kept properly informed and is consulted on all issues reserved to it. Board papers and other information are distributed at times to allow directors to be properly briefed in advance of meetings. In accordance with the Company’s Articles of Association, directors have been granted an indemnity issued by the Company to the extent permitted by law in respect of liabilities incurred as a result of their office. The indemnity would not provide any coverage to the extent that a director is proved to have acted fraudulently or dishonestly. The Company has also arranged appropriate insurance cover in respect of legal action against its directors and officers. The roles of Chairman and Group Chief Executive are separate and clearly defined with the division of responsibilities set out in writing and agreed by the Board.
The Chairman has addressed the developmental needs of the Board as a whole, with a view to developing its effectiveness as a team and assists in the development of individual skills, knowledge and expertise. During 2008, the Board conducted a detailed evaluation of its own performance and that of the Audit, Nomination and Remuneration committees by means of a written questionnaire. The evaluation focused on several areas, including Board structure, functionality, objectives, meetings (and their content), administration, risk management, access to management and governance. The results of the evaluation were considered and discussed by the Board and the results have been used to re-assess effectiveness during the year. One specific requirement which was identified in 2008 was the need to widen the non-executive experience on the Board with an individual who had suitable international and strategic experience. This led to the appointment of Don Robert in May 2009.
Performance evaluations, including the skills brought to the Board and the contributions each director made to it, were carried out for each director. Executive directors’ performance has been assessed by the Chairman and the Group Chief Executive. The Group Chief Executive’s performance was evaluated by the Chairman and the non-executive directors. The senior independent non-executive director led the review of the Chairman’s performance in consultation with the executive and non-executive directors. The non-executive directors’ performance was considered by the Chairman and by the Group Chief Executive, as well as by the Board as a whole, which re-assessed the results of the questionnaires referred to above.
Meetings between the non-executive directors, both with and without the presence of the Group Chief Executive, are scheduled in the Board’s annual programme. The Board has also arranged to hold Board meetings at Group business locations to help all Board members gain a deeper understanding of the business. This also provides senior managers from across the Group the opportunity to present to the Board as well as to meet the directors on more informal occasions.
As part of their ongoing development, the executive directors may seek an external non-executive role on a non-competitor board, for which they may retain the remuneration in respect of the appointment. In order to avoid any conflict of interest, all appointments are subject to the Board’s approval and the Board monitors the extent of directors’ other interests to ensure that the effectiveness of the Board is not compromised.
A director has a duty under the Companies Act 2006 (the ‘CA 2006’) to avoid a situation in which he has or can have a direct or indirect interest that conflicts or possibly may conflict with the interests of the Company. This duty is in addition to the duty that a director owes to the Company to disclose to the Board any transaction or arrangement under consideration by the Company. The CA 2006 allows directors of public companies to authorise conflicts and potential conflicts where the articles of association contain a provision to that effect. The Company’s Articles of Association include provisions giving the directors authority to approve such situations and to include other provisions to allow conflicts of interest to be dealt with. The Board has a procedure when deciding whether to authorise a conflict or potential conflict of interest. Firstly, only independent directors (i.e. those that have no interest in the matter under consideration) will be able to take the relevant decision. Secondly, in taking the decision the directors must act in a way they consider, in good faith, will be most likely to promote the Company’s success. In addition, the directors will be able to impose limits or conditions when giving authorisation if they think this is appropriate. Any authorities given are reviewed at least every 15 months. The Board considered and authorised each director’s reported potential and actual conflicts of interest at its July 2009 Board meeting.
Succession planning is a matter for the whole Board rather than for a committee. The Company’s Articles of Association provide that one-third of the directors retire by rotation each year and that each director will seek re-election at the Annual General Meeting every three years. Additionally, new directors may be appointed by the Board but are subject to election by shareholders at the first opportunity after their appointment. The Articles of Association limit the number of directors to not less than two and not more than 20 save where shareholders decide otherwise. It is Board policy that non-executive directors are normally appointed for an initial term of three years which is then reviewed and extended for a further three-year period. It is also Board policy that non-executive directors should not generally serve on the Board for more than nine years. Following their appointment, formal comprehensive and tailored induction is given to all non-executive directors, including visits to key locations within the Group and meetings with members of the Executive Committee and other key senior executives. The induction also covers a review of the Group’s governance policies, structures and business, including details of the risks and operating issues facing the Group. With the exception of Don Robert, all of the directors being proposed for election or re-election at the Annual General Meeting have been subject to a performance evaluation during the year ended 30 September 2009 and the Board is content that each has continued to be effective and has demonstrated his commitment to his respective role.
Although the non-executive directors are not formally required to meet the shareholders of the Company, their attendance at presentations of the annual and interim results is encouraged. The Chairman ensures that the Board maintains an appropriate dialogue with shareholders. Sir James Crosby is the Company’s senior independent non-executive director. The Board believes that Sir James Crosby continues to have the appropriate experience, knowledge and independence to continue in this role.
The formal terms of reference for the main Board committees, approved by the Board and complying with the Code, to assist in the discharge of its duties, are available from the General Counsel and Company Secretary and can also be found on the Company’s website at www.compass-group.com. Membership of the various committees is shown in the Meetings attendance section. The General Counsel and Company Secretary acts as secretary to all Board committees.
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