Governance - Rolls-Royce

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Governance
Chairman’s introduction
In 2011, the nominations committee commissioned an external review of
the Board’s effectiveness by JCA Partners LLP. I am very pleased to report
that the review found that all members of the Board were united in
believing the Board worked very well and that it is seen as an effective
Board with a unity of purpose. The review is described in more detail in the
nominations committee report on page 48.
Following the introduction of the UK Corporate
Governance Code, I am pleased to be able to
provide a fuller view of the operation of the
Board and to confirm how the Company has
met its obligations.
In September 2011, we issued our response to the Davies Report on
women on boards confirming our support for the development of a
diverse workforce. We govern this through our Global Diversity and
Inclusion Steering Group, the membership of which includes main board
directors and senior executives. The nominations committee discusses
this topic regularly and expects to make demonstrable progress in this
area by 2015.
In this report, the Board has taken account of the concerns expressed by
the Financial Reporting Review panel (February 2011) about how
companies are reporting risks and the discussions of the Financial
Reporting Council (FRC) summarised in ‘Boards and Risk’ (September 2011).
The working of a Board cannot be captured and tabled by a ‘standard’
approach and this introduction, and the following pages, allied to the
usual committees’ reports, will I hope provide a clear insight into the
corporate governance structure and practices of Rolls-Royce.
The Board’s committee structure has been reviewed during the year and
due to the importance of safety in our business, both in terms of the safety
of our products and the health and safety of our employees, the Board has
agreed to the introduction in 2012 of a safety committee, which will be
chaired by Sir Frank Chapman. The safety committee’s terms of reference,
once reviewed and approved by the Board, will be added to those of the
other committees on the Group’s website.
In accordance with the provisions of the UK Corporate Governance Code
(the Code), all Board directors are required to seek re-election at the AGM
in 2012. Following the performance evaluation process, I am pleased to
confirm that each of the non-executive director’s performance and
contribution continues to be timely, thoughtful, challenging and relevant.
In addition, each has provided, and continues to provide, excellent
commitment to the role, ensuring sufficient time is available for meeting
preparation and non-scheduled meetings. However, I would advise that
Sir Peter Gregson has decided to retire at the 2012 AGM and will not seek
re-election.
The Board continues to support our longest serving non-executive
director, Peter Byrom, who has been a Rolls-Royce Board member since
1997. We are a complex and technologically advanced company with a
long business cycle from the development of an engine to its eventual
retirement, and the Board greatly values Peter’s independent experience
and his continuing contribution to debate. In supporting Peter, the Board
has taken full account of the Code’s requirement to consider carefully a
non-executive director’s independence where that director has served on
the Board for more than nine years from the date of their first election.
In December 2011, the Board received a detailed report from the risk
committee (including a review of all internally significant risks), which,
following discussion, confirmed and defined the Board’s tolerance for risk,
ensured all directors understood the Group’s risk exposure and provided
an impact review of potential changes in risk.
We have therefore endeavoured to make sure that the risks we identify on
pages 34 and 35 are indeed the key risks facing the Group, to ensure that
we eliminate risks expressed in generic terms and to show how risks are
managed. A description of our risk management process is set out in the
risk committee report, detailed on page 51.
In December 2011, the FRC published a paper entitled ‘Developments in
Corporate Governance 2011’ in which it expressed concern about the level
of reporting of the activities of a company’s committees in the annual
report, particularly the work of the audit committee. As a result, I have
asked the committee chairmen to make personal reports in this year’s
Annual report in order to provide greater insight into committee work.
In January 2012, the UK Government announced its intention to introduce
reforms to the way directors’ remuneration is set, approved and reported.
At Rolls-Royce, we believe strongly in the alignment of executive rewards
to the creation of long-term shareholder value. In the report by the
chairman of the remuneration committee on pages 52 to 54 we have
endeavoured to provide a clearer view of how we believe we achieve that
and we will engage in a positive way with the proposals outlined by the
UK Government.
I believe that the strength of the Company’s corporate values, its
reputation and its ability to achieve its objectives are influenced by the
effectiveness of the Company’s approach towards corporate governance,
which is why the Board will continue to attach the highest priority to its
compliance with the Code’s principles.
Governance
The Group values its communications with existing and potential
shareholders who offer a rich and diverse source of capital to fund the
future growth of the Group. Our engagement with shareholders is
described in more detail on page 42.
Sir Simon Robertson
Chairman
Rolls-Royce Holdings plc Annual report 2011