Annual report 2010 - Imperial Tobacco Group

GovernanceIn this section54 Chairman’s Introduction56 Board of Directors58 Corporate Governance Report73 Other Information78 Directors’ Remuneration ReportChairman’s IntroductionStrategy Performance Governance FinancialsThe challenging economic and business environmentreinforces the need for effective leadership and high standardsof corporate governance. We are confident that the strongleadership provided by our newly appointed Chief Executiveand her fellow Directors will ensure we remain in a position todeliver our growth strategy. This strong leadership is supportedby our long-established and embedded governance practices,robust internal controls, remuneration policy, and our highethical standards.Our Corporate Structure ExplainedWe have two main businesses: tobacco and logistics. Ourtobacco business comprises the manufacture, marketing andsale of tobacco and tobacco-related products. Our logisticsbusiness comprises the distribution of tobacco products formajor tobacco manufacturers, including Imperial Tobacco, aswell as a wide range of non-tobacco products and services.What Does Good Governance Mean To Us?To us good governance means ensuring the right processesare in place to support our strategic direction. To deliver thisstrategy we must maintain appropriate controls to minimiseunacceptable risk to our stakeholders whilst also maintainingan environment which enables our management to effectivelyimplement that strategy. Good governance also meansensuring we treat our stakeholders in a fair and just manner.How We Achieve Good Governance In PracticeOur Executive Directors have a wealth of experience in thetobacco industry, complemented and supplemented bythe wide range of business and financial experience of ourNon-Executive Directors.Our Directors’ experience, oversight, strong leadership andconstructive challenge of key decisions ensures we takeour business in the right strategic direction and provides anenvironment in which our corporate strategy can be delivered.We believe good governance is not just a matter for theBoard but must be embraced throughout the organisationand we have reinforced this during the year by the roll-outof our updated Code of Conduct.Both our tobacco and logistics businesses are managedwithin our Corporate Governance framework and are subjectto our policies and control procedures. However, we run ourlogistics business on an operationally neutral basis in orderto ensure that all its customers are treated equally.Managing RiskThe Group faces a number of risks, similar to those facedby many multinational companies, which may impactour financial position or prevent us from achieving ourcorporate strategy. Successful management of theserisks is fundamental to our sustainable profitability andfuture growth.Our business and the risks we face are constantly changing.We regularly review our policies and risk managementprocedures to ensure they are up-to-date and continue toappropriately protect our stakeholders. During the year webrought together into a single Commercial Integrity Departmentthose activities with responsibility for reviewing and managingthe enhancement by the business of our anti-illicit tradestrategies, the legal protection of our brands and the drivingof good corporate and individual conduct across the Group.It is impossible to eliminate every risk. However, through ourRisk Co-ordination Committee we analyse risks by referenceto the likelihood of them occurring and their potential impact.This top down process complements our long establishedrisk management controls which are embedded across thebusiness. Further information relating to the managementof risk during the year is set out on pages 25 to 27.We also encourage employees to raise concerns theymay have, including anything they believe to be wrong ordangerous. Our public interest disclosure (whistleblowing)policy allows employees to do this safe in the knowledgethat they will not suffer any detriment as a consequence.Key Achievements in 2010In May 2010 Mr G Davis retired as Chief Executive and, aftera rigorous succession process, Mrs A J Cooper was identifiedas having the skills and expertise to drive the future growthof the business and was appointed his successor.We largely completed the integration of Altadis, includingembedding our processes and internal controls.In addition we have continued to enhance our riskmanagement and anti-illicit trade processes by furtherdeveloping the approach of the Risk Co-ordination Committeeand establishing our Commercial Integrity Department.On 27 September 2010 we signed a co-operation agreementwith the European Commission and the Member States of theEuropean Union. Under the co-operation agreement we willwork together with the European Commission and the lawenforcement authorities of the Member States of the EuropeanUnion to jointly tackle the smuggling and counterfeiting oftobacco products.In addition we have rolled-out our new Code of Conduct toover 600 managers in more than 40 workshops. The Codeof Conduct has been published on our intranet and has beentranslated into our key business languages. The roll-out willbe extended to the wider employee base during 2011.Key Priorities for 2011In light of the UK Corporate Governance Code published inJune 2010 we are reviewing and, if appropriate, will enhanceour governance and internal control processes. In addition, tosupport our sustainable sales growth strategy, our priorities for54