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Corporate governance
Including the report of the Audit Committee
Compliance with the Combined Code The Board is committed to the highest standards of corporate governance as set out in the Combined Code on corporate governance published by the Financial Reporting Council (‘FRC’) in July 2003 (the ‘Code’). The Board has also applied the principles and provisions in the form set out in the revised Combined Code published by the FRC in June 2006 (the ‘Revised Code’). The Board is accountable to the Company’s shareholders for good governance and this report describes how the Board applied the principles of good governance as set out in the Code and the Revised Code during the year under review.
The Board As at 31 July 2007, the Board of Directors was made up of 11 members comprising the Chairman, five Executive Directors and five Non Executive Directors. The Non Executive Directors are considered by the Board to be independent of management and free of any relationship which could materially interfere with the exercise of their independent judgement. The Board considers that each of the Non Executive Directors brings his own senior level of experience and expertise. Fenton Hord retired from the Board as an Executive Director on 31 July 2007 and Robert Walker will step down from the Board as a Non Executive Director with effect from 31 October 2007. Accordingly, at the date of this report, there are 10 members of the Board, comprising the Chairman, four Executive Directors and five Non Executive Directors.
Biographical details of the Directors currently in office are shown in Our board. The Company’s policy relating to the terms of appointment and the remuneration of both the Executive and Non Executive Directors is detailed in the Remuneration report.
The Board meets regularly during the year, as well as on an ad hoc basis, as required by time critical business needs. The Board has a formal schedule of matters reserved to it for its decision, although its primary role is to provide entrepreneurial leadership and to review the overall strategic development of the Group as a whole. Day-to-day operational decisions are managed by the Executive Committee and the Executive Committee Advisory Group, as referred to in Corporate governance. The Board met eight times during the year and Director attendance for each meeting is shown in the table in Corporate governance. The Board has established a procedure for Directors, if deemed necessary, to take independent professional advice at the Company’s expense in the furtherance of their duties. This is in addition to the direct access that every Director has to the Company Secretary, who is charged with ensuring that Board procedures are followed and that good corporate governance and compliance is implemented throughout the Group. Following their appointment, formal comprehensive and tailored induction is offered to all Directors, which is supplemented by visits to key locations within the Group and meetings with members of the Executive Committee, the Executive Committee Advisory Group and other key senior executives.
Together with the Group Chief Executive and the Company Secretary, the Chairman ensures that the Board is kept properly informed and is consulted on all issues reserved to it. Board papers and other information are delivered at times to allow Directors to be properly briefed in advance of meetings. In accordance with the Company’s Articles of Association, Directors are granted an indemnity from the Company to the extent permitted by law in respect of liabilities incurred as a result of their office. The indemnity would not provide any coverage to the extent that a Director is proved to have acted fraudulently or dishonestly. The Company has also arranged appropriate insurance coverage in respect of legal action against its Directors and Officers. The distinct roles of Chairman and Group Chief Executive are acknowledged and set out in writing. The Chairman has confirmed that he would not chair any other major company’s board of directors. Gareth Davis is the Company’s Senior Independent Director and is available to shareholders where communication through the Chairman or Executive Directors would not be appropriate. The Chairman ensures that the Board maintains an appropriate dialogue with shareholders and, although the Non Executive Directors are not formally asked, at present, to meet the Company’s shareholders, their attendance at presentations of the annual and interim results is encouraged.
The Chairman reviewed the developmental needs of the Board as a whole, including the skills and contributions each Director brought to it and confirmed that there were no outstanding items from the performance evaluations which had been carried out during 2006. It is proposed that a further detailed review be carried out during 2008. The Chairman confirmed that should any Director have any concerns or observations which they wished to raise, these could be notified to him directly or to the Company Secretary, to be addressed appropriately.
Meetings between the Non Executive Directors, both with and without the presence of the Chairman and the Group Chief Executive, are scheduled in the Board’s annual timetable. The Board has also arranged to hold at least two Board meetings each year at divisional locations to help all Board members gain a deeper understanding of the business. This also provides senior managers from across the Group the opportunity to present to the Board as well as to meet the Directors on more informal occasions.
As part of their ongoing development, the Executive Directors are encouraged to take up an external non executive position on the board of a non competitor company, for which they may retain payments received in respect of such appointment. In order to avoid any conflict of interest, all appointments are subject to the Board’s approval and, generally, outside appointments for Executive Directors are limited to one company board. The Board monitors the extent of Directors’ other interests to ensure that the effectiveness of the Board is not compromised. Overall responsibility for succession planning is considered to be a matter for the whole Board rather than for a committee.
The Company’s Articles of Association provide that one-third of the Directors retire by rotation each year and that each Director will seek re-election by the shareholders at the Annual General Meeting at least once every three years. Additionally, new Directors are subject to election by shareholders at the first opportunity after their appointment. It is Board policy that Non Executive Directors are normally appointed for an initial term of three years, which is then reviewed and extended for up to a further two three-year periods. It is also Board policy that Non Executive Directors should not generally serve on the Board for more than nine years and that, in cases where it is proposed to exceed this period, the Director concerned will retire annually and offer himself for re-election. Details of the Directors seeking re-election at the 2007 AGM are given in the Notice of Meeting.
The formal terms of reference for the Board committees, approved by the Board and complying with the Code to assist in the discharge of its duties, are available from the Company Secretary and can also be found on the Company’s website at www.wolseley.com. Membership of the various committees is shown in Group information. The Company Secretary acts as secretary to all Board committees.