Setting new standards - Friends Life

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CORPORATE GOVERNANCE CORPORATE SOCIAL RESPONSIBILITY REPORT DIRECTORS AND MANAGEMENT Corporate Governance Report and Committee Reports The Board The Board provides leadership of the Group and, either directly or through the operation of committees of directors and delegated authority, brings an independent judgment on all issues of strategy, performance, resources (including key appointments) and standards of conduct. The Board sets the Group’s strategic aims, which it then implements through its approval and regular monitoring of a business plan and budget prepared by the executive directors. The business plan specifies key developments towards the strategic objectives that are to be achieved by management within an agreed budget. The Chairman, together with the Company Secretary, ensures that the directors receive timely and clear information on all relevant matters. At board meetings, directors receive reports from finance, risk management and each of the key business areas. The Board, supplied with information that is both timely and appropriate, deals with those matters specifically reserved for its decision, and takes all material decisions affecting the Group. These include acquisitions, sales, capital structure, financing, the establishment of board committees and their terms of reference, and the oversight and review of the operation and achievement of the Group’s activities. During 2006, it has been the practice for non-executive directors to have a private session after each board meeting without the executive directors being present. The boards of F&C and the UK and international insurance subsidiaries also meet separately and regularly to monitor and direct the operations of those businesses and report, on a timely basis, through the respective chief executives, to their immediate controlling companies. Board membership, attendance and balance The current membership of the Board and the significant commitments of the directors are stated on pages 44 and 45. The names of the chairman and members of each of the Audit and Compliance, Nomination and Remuneration Committees are stated in the reports of those committees. During 2006, the Board met on 10 occasions, and directors also attended an off-site strategy meeting. The total number of meetings including Board committees and the attendance of directors at these meetings are shown as follows: Total number of meetings B A&C N R I (see key below) 10 7 10 8 4 Sir Adrian Montague Chairman 10 – 9 – 4 Lady Judge Deputy Chairman, and senior independent director 10 – 9 8 4 Alison Carnwath Non-executive director 10 6 – 8 – Christopher Jemmett Non-executive director 10 7 – 8 4 Ray King Non-executive director 9 7 – – 4 Sir Mervyn Pedelty* Non-executive director 3 – – – 1 Lord MacGregor of Pulham Market Non-executive director 10 7 10 – – Keith Satchell Group Chief Executive 10 – – – 4 Ben Gunn Chief Executive FPLP 10 – – – – Philip Moore Group Finance Director 10 – – – 4 Alain Grisay Chief Executive F&C 10 – – – 4 *appointed on 1 October 2006 KEY: B Board A&C Audit and Compliance Committee N Nomination Committee R Remuneration Committee I Investment Committee 50 Friends Provident Annual Report & Accounts 2006 The Board accepts the Nomination Committee’s assessment and considers all six non-executive directors (which expression excludes the Chairman) to be independent in character and judgment and is not aware of any relationships or circumstances which are likely to affect, or could appear to affect, the judgment of any of them. Christopher Jemmett and Lord MacGregor are both now aged 70 and in accordance with the Company’s policy will retire at the 2007 AGM. Notwithstanding Lady Judge was first elected to the Board of Friends’ Provident Life Office in May 1994 and to the Board of the Company in June 2001, the Board is entirely satisfied that Lady Judge is independent in character and judgment, that there are no relationships or circumstances that are likely to affect, or could appear to affect, her judgment. Her other roles as Deputy Chairman of the Financial Reporting Council and Chairman of the Professional Standards Advisory Board of the Institute of Directors inform her contributions to Board debates on governance issues and complement her role as the senior independent director. The Board is satisfied that, as a non-executive director seeking reelection, Lady Judge continues to perform effectively and demonstrates commitment to her role, including commitment of time for Board and committee meetings and her other duties. The Nomination Committee worked closely with the Board in order to ensure that the independent executive directors have the appropriate balance of skills and experience to support the activities of the Board and to help the Group continue to compete effectively in the market place. During 2006, the Nomination Committee devoted considerable time to succession planning which resulted in a number of changes to the Board. Details of the process followed are contained in the report of the Nomination Committee on page 58. The non-executive directors have a wide range of experience and the Board is able to lead and give direction to the Group without any imbalance that may allow any individual or group of individuals to dominate its decision taking. Any director having a concern in this or any other regard may raise it with the Chairman or the senior independent director. All directors have access to the advice and services of the Company Secretary who ensures that Board processes and leading corporate governance practice are followed. There is also an established procedure whereby individual directors who consider it necessary in furtherance of their duties, may take independent, professional advice at the Company’s expense.
DIRECTORS’ REPORT CORPORATE GOVERNANCE REPORTS Information and communication The Board regularly reviews strategy and members of executive management also participate in an annual strategic review that considers overall business direction and its financial implications. Individual business units prepare annual budgets and business plans that provide a basis against which actual results can be benchmarked. Assets, liabilities, investments and other relevant criteria are also monitored. Progress against plans is actively monitored and supported by regular forecasts, which, together with actual results, are consolidated and presented to the Board for discussion on a timely basis. Through these mechanisms, the business’s performance is continually monitored, risks are identified in a timely manner, their financial implications assessed, control procedures re-evaluated and, where appropriate, corrective actions agreed and implemented. Performance and continual professional development The Board’s formal annual evaluation of its own performance, of its committees and individual directors was carried out in 2006 by each director completing a questionnaire prepared internally, and a self-assessment of his or her performance. Completed questionnaires were sent in confidence to the Chairman who also conducted individual meetings with directors. The Chairman reported to the October Board meeting comments and issues raised by directors during this process. The Board has again confirmed that it will keep this process under review to ensure that analyses of the outcome of this evaluation will give the Board, the Chairman and the Nomination Committee in particular, the information they need to continue to fulfil the intentions underlying the requirements of the Combined Code during 2007. After the Board meeting in December, the senior independent director met with the independent directors (other than the Chairman) to discuss the performance of the Chairman. It was agreed that the Chairman had continued to perform effectively throughout the year and provided strong leadership to the Group. Throughout 2006, the Board received presentations from various business units and two Board meetings each year are held at the offices of subsidiary companies in order to gain better insight of business activities and operations of the Group at that location. Directors also individually attend internal briefings on specific technical topics and external seminars to keep up-to-date with regulations and best practice affecting the Group’s core businesses and report on these to the Chairman and the Company Secretary. There is a full induction process in place for new directors that recognises the complexities of the Life and Pensions and Asset Management businesses and aims to enable directors to make a full contribution to Board discussions within an optimum time-frame. Committees of the Board All committees of the Board that are subject to the requirements of the Combined Code are chaired by an independent director and exclusively comprise, or, in the case of the Nomination Committee (where the Chairman of the Board is a member), have a majority of, independent directors. The Board committees are constituted with appropriate written terms of reference that are reviewed annually and minutes of the Board committees are circulated to the Board. Reports on the activities of the Audit and Compliance, Nomination and Remuneration Committees are included on pages 57 to 68. Details of other significant committees reporting to the boards of the Company or the Life and Pensions subsidiaries are: Investment Committee Sir Adrian Montague (Chairman), Philip Moore, Keith Satchell (until 31 December 2006), Jim Smart (from 1 January 2007), Alain Grisay, Christopher Jemmett, Lady Judge, Ray King and Sir Mervyn Pedelty (from 1 October 2006). Group Asset Liability Committee This was established during 2006 and reports to the Investment Committee. It comprises the executive directors of the Company, together with senior managers from the Life and Pensions and Asset Management businesses, and supervises the application of agreed risk appetite in respect of asset liability matching for both shareholder and policyholder funds. It also reviews the investment of, and monitors market, liquidity and credit risk management in relation to, shareholder funds and makes recommendations to the Investment Committee in respect of policy on foreign exchange and interest rate hedging. Group Risk Committee Keith Satchell (until 31 December 2006), Philip Moore, Ben Gunn, Alain Grisay and Jim Smart (with effect from 1 January 2007). Details of the activities of the Committee are set out on page 54. With-Profits Committees (WPCs) of the Life and Pensions operating companies While these committees are committees of the boards of the Life and Pensions operating companies and not the Company, the Board of the Company appoints the chairman of the WPCs from amongst the independent directors of the Company. Alison Carnwath has fulfilled that role since 1 April 2004. An overview of the work of the WPCs is set out on page 59. Friends Provident Annual Report & Accounts 2006 51
Page 1 and 2: Setting new standards Friends Provi
Page 3 and 4: ANNUAL REVIEW CORPORATE GOVERNANCE
Page 5 and 6: Group financial highlights Group
Page 7 and 8: INTERNATIONAL LIFE & PENSIONS ASSET
Page 43 and 44: DIRECTORS’ REPORT CORPORATE GOVER
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Page 71 and 72: FINANCIAL STATEMENTS Independent Au
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Friends Provident plc Pixham End Do
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