Industry leader - Inchcape

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30<strong>Inchcape</strong> plc Annual report and accounts 2006Corporate governance report continuedlocations where the Board is given presentations on theGroup’s operations and Directors have the opportunityto visit the operations and meet local management.There is a procedure for Directors to take independentprofessional advice at the Company’s expense whererelevant to the execution of their duties, although noDirector felt it necessary during the year. The Group CompanySecretary is responsible for ensuring that Board proceduresare complied with and for advising the Board through theChairman on all other governance matters. All membersof the Board have access to his services and advice.The appointment and removal of the Group CompanySecretary is a matter for the Board as a whole.Performance evaluationThe 2006 evaluation was conducted by the JCA Group, whoare independent external advisors. All members of the Boardwere interviewed individually by the JCA Group to test theBoard’s view of its performance and governance. A synthesisof the Board’s evaluation together with recommendations forconsideration are discussed by the Board and by each of thecommittees in respect of their own performance. The results ofthe evaluation of each Director are communicated to themindividually by the Chairman. The evaluation process includesa review of the Matters Reserved for the Board’s decision anda review of each committee’s Terms of Reference.The 2006 evaluation found that the Board and its committeeswere generally performing effectively but there were ways inwhich performance could be improved. The issues which wereraised have been discussed and are being addressed.The Non-executive Directors are responsible for performanceevaluation of the Chairman, taking into account the viewsof the Executive Directors.Election and re-electionNon-executive Directors are appointed for an initial periodof three years, which may be extended by agreement withthe Board. All Directors currently on the Board have submittedthemselves for election or re-election (as applicable) withinthe last three years, as required by the Company’s Articlesof Association.When considering the election or re-election of a Director,the Nomination Committee takes into account the review ofhis or her performance. This is particularly rigorous in the caseof a Non-executive Director for any term beyond six years.A similar process is applied when considering the appointmentor reappointment of a Director to each of the principalcommittees.Board committeesThe Board has three principal committees, all with written Termsof Reference which are available on the Company’s website(www.inchcape.com). The Group Company Secretary servesas secretary to all three committees.Audit CommitteeThe membership of the Committee is shown on page 25.During the year, the Committee comprised whollyIndependent Non-executive Directors and continues to do so.No-one, other than the Committee Chairman and themembers, is entitled to be present at meetings of theCommittee, although others, including the Chairman,the Group Chief Executive, the Group Finance Director,the Director of Audit and Risk Management and theexternal auditors attend by invitation of the Committee.In light of Ken Hanna’s qualifications as a CharteredAccountant and his experience with Coopers & Lybrand,Compass Partners and Cadbury Schweppes, and Will Samuel’squalifications as a Chartered Accountant and his experiencewith Lazard and Edinburgh Investment Trust, the Board hasdetermined that they have recent and relevant financialexperience.The Non-executive Directors on the Committee havethe opportunity at each meeting to review any issues withthe external auditors and with the Director of Audit andRisk Management without members of the executivemanagement being present.Role: The Committee meets at least three times a year.It is responsible for monitoring the integrity of the financialstatements of the Company and any formal announcementrelating to its financial performance, reviewing internalfinancial controls and internal control and risk managementsystems, monitoring and reviewing the effectiveness of theinternal audit function, making recommendations to the Boardin relation to the appointment and removal of the externalauditor, reviewing the external auditor’s independence andobjectivity and the effectiveness of the audit process, and forpolicy on the engagement of the external auditor to supplynon-audit services. It is also responsible for reviewing theCompany’s arrangements for employees to raise concernsconfidentially about possible improprieties in relation tofinancial reporting or other matters. In order to fulfil its duties,the Audit Committee receives and challenges presentationsor reports from the Group’s senior management, consultingas necessary with the external auditors.Part of the Committee’s responsibility in relation to externalauditors is to keep their independence and objectivity and thenature and extent of the non-audit services they provide underregular review. The Committee has established policies andprocedures in relation to the provision of non-audit servicesby the external auditors pursuant to which external auditors’services are not permitted on areas such as internal audit,appraisal or valuation services and financial informationsystems design/implementation. Financial limits are imposedon permitted areas of non-audit work, such as tax advice.A full statement of the fees paid for audit and non-auditservices is provided in note 3c on page 63.Nomination CommitteeThe membership of the Committee is shown on page 25.During the year the majority of members comprisedIndependent Non-executive Directors and continues to do so.No-one, other than the Committee Chairman and themembers, is entitled to be present at meetings of theCommittee, although others including the Group HumanResources Director, attend by invitation of the Committee.Role: The Nomination Committee meets at least once a year.It is responsible for leading the process for Board appointmentsand making recommendations to the Board. Before theBoard makes an appointment, the Committee evaluates thebalance of skills, knowledge and experience of the Boardand, in light of this evaluation, prepares a description of the
31<strong>Inchcape</strong> plc Annual report and accounts 2006role and capabilities required for a particular appointmentin consultation with an external search consultant, who isappointed to work with the Committee. The consultantprepares a list of potential candidates which is discussedby the Committee and reduced to a shortlist. The shortlistcandidates then meet with a panel of Committee membersand other Directors also have the opportunity to meet thecandidates. Following this, and in the light of feedbackreceived, the Committee meets to finalise a recommendationto the Board. A Director may be consulted by the Committeein the course of the process to appoint his successor but it is thepolicy of the Board that he does not participate in the decisionon the appointment.During the course of the year, the Committee met to considerthe structure, size and composition of the Board, including theskills, knowledge and experience available. It also undertookits annual review of development and succession plans.In addition, the Committee made recommendations forthe election and re-election of Directors retiring at the2007 AGM. No Directors participated in the meeting whenrecommendations regarding his or her election or re-electionwere considered.Remuneration CommitteeThe membership of the Committee is shown on page 25.At all times during the year, the Committee comprised whollyIndependent Non-executive Directors and continues to do so.No-one, other than the Committee Chairman and themembers, is entitled to be present at meetings of theCommittee, although others, including the Chairman,the Group Chief Executive and the Group Human ResourcesDirector, attend by invitation of the Committee.Role: The Remuneration Committee meets at least two timesa year. It is responsible for remuneration issues regarding theChairman, Executive Directors and certain senior executiveswithin the framework recommended by the Committee andapproved by the Board. More details are given in the Boardreport on remuneration on pages 33 to 40.Communication with shareholdersThe Company encourages two way communication with itsinstitutional and private investors and responds promptly toall queries received verbally or in writing. The preliminary andinterim results are presented publicly to analysts and othermeetings with shareholders are arranged as appropriate.The Company has an established Investor Relationsprogramme in the course of which the Group Chief Executiveand the Group Finance Director have regular meetingswith major shareholders to update them on the Company’sprogress and to discuss any issues that investors may have.During these meetings, shareholders are reminded of theavailability of the Chairman, the Deputy Chairman andSenior Independent Non-executive Director, and the restof the Board if they wish to meet them. Any issues arising atsuch meetings are reported and considered by the Board.In addition, the Company’s stockbrokers obtain shareholderfeedback on a confidential basis from major investors followingthe meetings and this is reported in summary and consideredat Board meetings. The Chairman has also written to thelargest fifteen shareholders emphasising his availabilityand that of the Deputy Chairman and Senior IndependentNon-executive Director and the rest of the Board, includingnew Non-executive Directors, should they wish to meet.The Company makes constructive use of the AGM inaccordance with the Code. Private investors are encouragedto participate in the meeting at which the Chairmancomments on the performance and outlook for the Companyand the Group Chief Executive makes a presentation onoperational and strategic issues. Peter Johnson, Chairmanof the Nomination Committee, Ken Hanna, Chairman of theAudit Committee, and Michael Wemms, Chairman of theRemuneration Committee, will be available to answershareholder questions.Remuneration reportThe Company’s policy on executive remuneration with detailsof the Executive Directors’ salaries, annual bonuses, long termincentives and pensions, and fees for the Non-executiveDirectors appears in the Board report on remunerationon pages 33 to 40.Internal controlThe Board of Directors has overall responsibility for establishingkey procedures designed to achieve a sound systemof internal control and for reviewing its effectiveness.Such a system can provide only reasonable and not absoluteassurance against any material misstatement or loss andcannot eliminate business risk. It is the responsibility of theAudit Committee to monitor and review internal controls, withits Chairman reporting the results of such reviews to the Board.In addition, the Board has entrusted executive managementwith responsibility for implementing internal control procedures.The Group operates a Risk Management Strategy Group,which is chaired by the Group Chief Executive and includes,inter alia, the Group Finance Director, Group CompanySecretary, Group Legal Director, Group Information SystemsDirector, Group Treasury Director, Group Audit Director andthe Group Risk Manager. The Risk Management Strategy Groupmeets quarterly to consider what changes to risk managementand control processes should be recommended. Its reviewcovers matters such as responses to significant risks that havebeen identified, output from monitoring processes, includinginternal audit reports, and changes to be made to the internalcontrol system. It also follows up on areas that requireimprovement and reports back to the Audit Committee.The Group Chief Executive also reports to the Board, on behalfof executive management, significant changes in the Group’sbusiness and the external environment in which it operates.In addition, the Group Finance Director provides the Board withmonthly financial information, which includes key performanceand risk indicators. The Group’s key internal control andmonitoring procedures include the following.Financial reportingThere is a comprehensive budgeting system with an annualbudget approved by the Directors. Monthly actual resultsare reviewed and reported against the budget and, whereappropriate, revised forecasts at each of the Board’sscheduled meetings.Monitoring systemsInternal Audit reports to the Audit Committee on itsexamination and evaluation of the adequacy andeffectiveness of the Group’s systems of internal control.Internal Audit also works closely with managementand the external auditors.
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