Board process

The Board governs through a number of statutory Board Committees – the Audit, Remuneration and Nominations Committees – to which certain responsibilities and duties are delegated. These Committees are properly authorised under the constitution of the Company to take decisions and act on behalf of the Board within the parameters laid down by the Board.

The Board is kept fully informed of the work of these Committees and any issues requiring resolution are referred to the full Board as appropriate. A summary of the operations of these Committees is set out below.

The effectiveness of the Audit, Remuneration and Nominations Committees is underpinned by their Non-executive Director membership, which provides independent insight on governance matters. The Board is serviced by the Company Secretary, who reports to the Chairman in respect of his core duties to the Board.

Nominations Committee

The Nominations Committee leads the process for Board appointments and the re-election and succession of Directors, as well as making recommendations for the membership of statutory committees. The Committee is chaired by David Reid and the Company Secretary also attends meetings in his capacity as Secretary of the Committee. Where matters discussed relate to the Chairman, the Senior Independent Non-executive Director chairs the meeting. The Nominations Committee met four times in the year to discuss the ongoing shape and capability of the Board. As well as reviewing the performance and development of the Executive Directors and the senior executive levels below the Board, the Committee also regularly reviews board structure, size, composition, working arrangements and capability, and considers succession plans for Executive and Non-executive Directors.

During the year the Committee continued the effort of identifying suitable candidates for the position of Non-executive Director, and a successor for the position of Group Finance Director. External search consultants were engaged to identify candidates. The Chairman and CEO then met candidates before recommending a shortlist to the Committee. The Committee members interviewed the candidates before recommending three new appointments of Non-executive Directors to the Board. A similar process was followed for the selection of the new Group Finance Director except that, in addition to identifying potential external candidates, the external search consultants also carried out benchmarking of internal candidates.

View the Nominations Committee Terms of Reference (PDF 31KB).

Remuneration Committee

The Remuneration Committee’s role is to determine and recommend to the Board the remuneration of the Executive Directors. It also monitors the levels and structure of remuneration for senior management and seeks to ensure that the remuneration arrangements are designed to attract, retain and motivate the Executive Directors needed to run the Company successfully.

At the invitation of the Committee the Chairman of the Board normally attends meetings and the Chief Executive attends as appropriate.

Representatives of the Group’s Personnel and Finance functions attend as appropriate to provide support and the Company Secretary also attends in his capacity as Secretary of the Committee. The Committee met ten times this year. Each year it conducts a review of the Committee’s own effectiveness and its Terms of Reference. The responsibilities of the Remuneration Committee and an explanation of how it applies the Directors’ remuneration principles of the Combined Code, are set out in the Directors’ Remuneration Report.

View the Remuneration Committee Terms of Reference (PDF 38KB).

Audit Committee

The Audit Committee’s primary responsibilities are to review the financial statements, to review the Group’s internal control and risk assurance processes, to consider the appointment of the external auditors, their reports to the Committee and their independence, which includes an assessment of their appropriateness to conduct any non-audit work, as well as to review the programme of Internal Audit.

At the invitation of the Committee, the Chairman of the Board, the Finance Director and his representatives, the Head of Internal Audit, the Corporate and Legal Affairs Director, other relevant Executive Directors and representatives of the external auditors regularly attend meetings. The Company Secretary also attends in his capacity as Secretary of the Committee.

The Committee met five times this year and took advantage of an overseas Board meeting to meet with local management and review risks and controls. The Committee also had regular private meetings with the external auditors and Head of Internal Audit. During the year the Committee received presentations on whistleblowing, IT security, fraud, bribery and corruption, business continuity and updates from business units. Each year the Committee conducts a review of its own effectiveness and its Terms of Reference.

The need for training is kept under review and the annual agenda ensures time is dedicated to technical updates which are generally provided by external experts. This year training was provided on accounting and reporting developments under IFRS, IFRIC, IAS, and other relevant guidance and standards. Training is also provided to meet specific individual needs of Committee members.

View the Audit Committee Terms of Reference (PDF 62KB).

Management of the Group - Executive Committee

The Board delegates responsibility for formulating and implementing the Group’s strategic plan and for management of the Group to the Executive Committee, which comprises the eight Executive Directors and is chaired by the Chief Executive. The Committee, which is not a statutory committee, has authority for decision-making in all areas except those set out in the Schedule of Matters Reserved for Board Decision and meets formally every week. A number of senior executives also attend the Committee and their valuable operational experience helps broaden the debate. Their attendance facilitates the communication of the Committee’s decisions to the rest of the Group. The Company Secretary attends in his capacity as Secretary of the Committee.

The Executive Committee is responsible for implementing Group strategy and policy and for monitoring the performance and compliance of the business, drawing on the work of relevant committees, and reporting on these matters in full to the Board.

The Executive Committee has set up further non-statutory committees – including the Finance, Compliance and Corporate Responsibility Committees – and operational groups which have responsibility for implementing the key elements of the Group’s strategic plan and managing its UK and international operations, joint ventures, property acquisitions, finance, funding and people matters.

These committees and groups have as members an appropriate mixture of Executive Directors and senior management from relevant functions.

Procedures to deal with Director’s conflicts of interest

The Company has procedures in place to deal with the situation where a Director has a conflict of interest. The procedures have been revised in accordance with the new provisions set out in Companies Act 2006.

As part of these procedures members of the Board are required to:
• consider each conflict situation separately on its particular facts;
• consider the conflict situation in conjunction with the rest of their duties under Companies Act 2006;
• keep records and board minutes as to authorisation granted by Directors and the scope of any approvals given; and
• regularly review conflict authorisation.

Training and development

All new Directors receive a personalised induction programme, tailored to their experience, background and particular areas of focus, which is designed to develop their knowledge and understanding of the Group’s culture and operations. The programme has evolved taking into account feedback from new Directors, and will usually include an overview of the business model and Board processes, meetings with the Executive team and senior managers, site visits across our international operations and briefings on key issues (including social, ethical and environmental (SEE) issues). Directors also receive an induction to those Board Committees he or she will serve on.

The need for Director training is regularly assessed by the Board and regular training sessions are arranged to provide an opportunity for upskilling of the Directors on a variety of areas relevant to the Group’s business, including SEE issues. In the coming year the Board proposes to hold training sessions focusing, inter alia, on the regulation and governance issues associated with operating a financial services business, following the acquisition of Tesco Personal Finance.

The Board usually holds at least one meeting overseas each year to facilitate the Directors’ understanding of the Group’s international operations. In March 2008, the Board convened in the USA to enhance their understanding of the progress of the Fresh & Easy operation.

Board performance evaluation

The performance of the Board is a fundamental component of the Group’s success. The Board regularly reviews its own performance. During the year ended 28 February 2009, the Board assessed its own performance. This assessment was co-ordinated and directed by the Chairman with the support of the Company Secretary. A questionnaire covering the main areas of evaluation was prepared by the Chairman and the Company Secretary and formed the basis of in-depth interviews with each Director. The results of the evaluation were considered by the Board, and confirmed the strength of the strategic and entrepreneurial leadership of the Company, a sound governance framework and practices compliant with the Combined Code.

The Chief Executive reviews the performance of each Executive Director. The Chairman reviews the performance of the Chief Executive and each Non-executive Director. During the year, the Chairman met with the Non-executive Directors, without the Executive Directors present, to discuss Board issues and how to build the best possible team. The Senior Independent Non-executive Director met with the Non-executive Directors in the absence of the Chairman, to assess the Chairman’s performance.

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