Governance - Xstrata

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at the AGM on 4 May 2011 can be found in the Notice of AGM. The Board has determined that voting on all resolutions at the AGM will be by way of a poll. Each member present in person or by proxy has one vote for each fully paid ordinary share of which she/he is a holder. Board committees The terms of reference of the Audit, Remuneration, Nominations and HSEC Committees are available on the Company’s website www.xstrata.com. Audit Committee Members: Peter Hooley (Chairman from 5 May 2010) (Independent) Sir Steve Robson (Chairman to 5 May 2010) (Independent) Claude Lamoureux (Independent) David Rough (Independent) Ian Strachan (Independent) Responsibilities: The Audit Committee assists the Board in discharging its responsibilities with regard to financial reporting and external and internal audits and controls, including: reviewing Xstrata’s annual financial statements; considering the scope of the Company’s annual external audit and the extent of non-audit work undertaken by external auditors; approving the Company’s internal audit programme; advising on the appointment of external auditors; and reviewing the effectiveness of the Company’s risk management and internal control systems (including bribery and fraud), risk registers and the Group’s whistleblowing procedures. While all members of the Committee are financially literate, Peter Hooley is considered by the Board to have recent and relevant financial experience. The Chief Executive, the Chief Financial Officer, the Group Controller, representatives of the Company’s external auditors and the Head of Internal Audit normally attend the meetings. Other directors of the Company and senior management may also, on invitation by the Committee, attend and speak, but not vote, at any meeting of the Audit Committee. In order to further enhance communication and best practice, the Chairmen of the business unit audit committees and the Chief Executives of the business units are also invited to attend the Audit Committee meetings on a rotational basis. The Audit Committee reports its activities and makes recommendations to the Board. The Audit Committee met three times during the year ended 31 December 2010. A member of the Audit Committee also attends the meetings of the business unit audit committees to help promote a co-ordinated and consistent approach among the Group’s audit committees. During 2010 the Audit Committee: (a) approved the 2009 preliminary results announcement and reviewed management’s impairment testing in detail, including the $1.9bn post tax impairment charge in respect of Xstrata Nickel’s Australian, Norwegian and Canadian operations. The Committee believed that the positions taken and amounts recorded were appropriate and that assumptions were reasonable and within the range of the latest forecasts, where available; www.xstrata.com | 115 (b) reviewed the 2009 annual financial statements and the external auditor’s detailed reports thereon, including the appropriateness of Xstrata Group’s accounting policies, the Litigation Report, the ‘going concern’ statement, banking covenants and asset impairment charges, and recommended approval by the Board; (c) reviewed the external auditor’s plan and scope for the audit of the Xstrata Group accounts, and approved their remuneration both for audit and non-audit work, and their terms of engagement. It also considered and approved the engagement of the auditors in respect of a number of non-audit assignments; (d) reviewed the 2010 interim financial statements and noted that improved trading results and higher commodity prices had reduced the risk of further impairment; (e) at a meeting of the Committee in December 2010, reviewed an impairment charge of $437m (post-tax) in respect of Xstrata Nickel’s Araguaia project, reflecting the fact that development of this project is not seen as a priority at this stage; (f) recommended to the Board the reappointment of the external auditors following confirmation of auditor objectivity and independence, and an evaluation of their effectiveness which rated the auditors highly; (g) reviewed the Company’s internal financial controls and the effectiveness of the Company’s risk management and internal control systems. The Committee noted the introduction of a revised Group Risk Management Policy and new Group Risk and Change Management procedure guidelines based on ISO 31000. The UK Corporate Governance Code requirements relating to responsibility for determining the nature and extent of the significant risks the Company is willing to take in achieving its strategic objectives were noted. The Committee noted that the Company’s internal control systems and operations were examined and tested by the internal auditors; (h) reviewed the plans being developed to implement the new requirements resulting from the enactment of the UK Bribery Act 2010 and noted that, when implemented, this will bring about a more comprehensive environment for UK companies. It was agreed that the Audit Committee should accept delegated responsibility from the Board for oversight of the Global Policy on Bribery, Fraud and Corruption, and for a Code of Conduct which covers a broader range of ethical behaviour. The Committee reviewed the framework for the oversight of ethical issues; (i) reviewed the structure and limits of the Xstrata Group insurance policies, and considered these to be appropriate, and reviewed the pensions, tax and treasury affairs of the Group; (j) reviewed and approved the internal audit plans for 2011, the effectiveness of the internal audit function and, at each meeting, reviewed the reports on findings and on progress against recommendations. At each meeting, the Audit Committee also reviewed a report on major projects in terms of achievement of agreed control and project management objectives delivery targets; (k) reviewed an Ore Reserves and Mineral Resources Report, subject to review by an independent expert, to ensure consistency of reporting across the Group and with international standards; Overview Strategy Performance Governance Financials
116 | Governance Corporate Governance report continued (l) reviewed the report on fraud-related matters and the whistleblowing arrangements; and (m) conducted, and was satisfied with, an assessment of its own effectiveness and that all matters required by law, regulation and good corporate governance, including the duties and responsibilities delegated to it by the Board, were satisfactorily covered by the Committee. Following each Committee meeting, separate meetings were held by the Committee with the external auditors in the absence of executive management, with executive management in the absence of the external auditors and with the internal auditor in the absence of executive management and the external auditors. The Group has a specific policy governing the conduct of non-audit work by the external auditors which ensures that the Company is in compliance with the requirements of the Combined Code, the FRC Guidance on Audit Committees and the Ethical Standards for Auditors published by the Auditing Practices Board. The policy is available on Xstrata’s website at http://www.xstrata.com/policies. The auditors are permitted to provide non-audit services that are not in conflict with auditor independence and objectivity. At each meeting, reports are submitted to the Audit Committee detailing non-audit fees paid to the external auditors. A range of non-audit services has been pre-approved in principle by the Audit Committee. However, where the fee is likely to be in excess of $100,000 for such pre-approved services, specific re-approval is required from the Audit Committee, while prior approval of the Chief Financial Officer is required for those pre-approved services where the fee is likely to be less than $100,000. However, any non-audit services provided by the external auditors which have not been pre-approved require the specific approval of the Audit Committee. Fees paid to the auditor for audit services, audit-related services and other non-audit services per service type are detailed in Note 10 to the financial statements on page 165. The external auditors, Ernst & Young, were requested to provide certain non-audit services when it was concluded they were the most appropriate supplier due to efficiency and Ernst & Young’s status as a leading firm for the specific services being requested. The Audit Committee is supported and assisted in its work by separate audit committees for each business unit in line with the decentralised commodity business unit model. The business unit audit committees are independent of the executive management of the business unit and are chaired by suitably qualified individuals independent of Xstrata. The terms of reference of these committees follow those of Xstrata’s Audit Committee. Meeting dates precede those of Xstrata’s Audit Committee and minutes of their meetings are circulated to Xstrata’s Audit Committee. Remuneration Committee Members: Willy Strothotte (Chairman) Con Fauconnier (Independent) (from 5 May 2010) Paul Hazen (Independent) (to 5 May 2010) David Rough (Independent) Responsibilities: The principal roles of the Remuneration Committee are: to consider and determine all elements of the remuneration of the Chief Executive and Chief Financial Officer and of the heads of the business units of the Company (the Executive Committee) as defined by the Chief Executive; and to determine targets for any performance-related pay schemes operated by the Company. At its meetings, the Remuneration Committee makes recommendations to the Board in regard to all elements of the remuneration for the executive directors and the members of the Executive Committee. The Remuneration Committee receives independent advice on benchmarking and best practice. The remuneration of non-executive directors, other than the Chairman, is approved by the Chairman and Chief Executive. The Chairman’s remuneration is determined by the Remuneration Committee while the Chairman is absent. The Remuneration Committee is chaired by Willy Strothotte. As Chairman of Xstrata and Chairman of Glencore, he is not considered to be an independent director and therefore is not compliant with the Combined Code. The Board regards Willy Strothotte’s membership as beneficial to the work of the Committee due to his extensive knowledge and experience of the global mining resources sector. The Board considers that this is consistent with the main principle in Code B.2 of the Combined Code and contributes to good governance. However, Willy Strothotte will retire from the Board, effective from the end of the AGM on 4 May 2011, and the Company will then be fully compliant with the UK Corporate Governance Code. The Committee met twice during the year. The Chief Executive attends meetings by invitation but does not participate at a meeting of the Committee (or during the relevant part) at which any part of his remuneration is being discussed or participate in any recommendation or decision concerning his remuneration. The Remuneration Committee’s activities in respect of the year ended 31 December 2010 included: (a) determining the bonuses for 2009 performance and salaries for 2011 for the executive directors and members of the Executive Committee; (b) determining the vesting percentage applicable to awards under the Long Term Incentive Plan 2007 which vested in March 2010, approving the number of share options and contingent share awards to be awarded under the 2010 Long Term Incentive Plan awards and the individual awards to members of the Executive Committee;
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Governance - Xstrata

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