Corporate Governance

Terms of Reference	Download	Size
Terms of reference of the Audit Committee		97k
Terms of reference of the Remuneration Committee		84k
Terms of reference of the Nominations Committee		87k

St. Modwen is committed to the highest standards of corporate governance. The board of directors, through the executive directors and management, exercises effective control over the group and its activities, recognising its responsibility to shareholders and other interested parties. The procedures for applying these principles within the group are set out below. This should be read in conjunction with the Directors’ remuneration report on pages 55 to 61 of the 2007 Annual Report.

Throughout the year ended 30th November 2007 the company has complied with the principles set out in Section 1 of the Combined Code on Corporate Governance 2006 (“The Code”) except for the following matters:

• The Code asks the board to identify each non-executive director it considers to be independent. Of the six non-executive directors at the end of 2007, the board considers Mary Francis, Ian Menzies-Gow, Paul Rigg, Christopher Roshier and John Salmon to be fully independent. The Code seeks an explanation for the determination of independence in certain circumstances, including if a non-executive has served for longer than nine years. Christopher Roshier has been a non-executive director for twenty years, but the board is satisfied that he maintains an independent and rigorous approach to all of its business and accordingly considers him to be independent. The board recognises that Simon Clarke does not meet the criteria for a fully independent director under the Code, although his position as a representative of the Clarke and Leavesley families, who together hold 51.4m shares (42.5%) in the company’s equity, gives him a very strong interest in challenging and scrutinising management to secure excellent performance from the company.
  
  
• The Code recommends that at least half the board, excluding the Chairman, should comprise independent non-executive directors. The board currently comprises five nonexecutive directors whom it determines to be independent; one non-executive (Simon Clarke) who is not deemed fully independent under the Code but who – as explained above – has a strong interest as a shareholder representative in challenging and scrutinising management; and four executive members including the Chairman. The object sought by the Code – that no individual or group of individuals can dominate the board’s decision-making – is thus achieved.
  
  
• The Code recommends that all members of the Audit and Remuneration Committees are independent non-executive directors. Each of these Committees comprises all of the non-executive members of the board except for Christopher Roshier. As explained above, Simon Clarke is not a fully independent director under the Code, but the board considers that its discussions benefit from his involvement in the preparatory detailed scrutiny which takes place in these Committees. As also noted above, Simon Clarke has a strong interest in challenging and monitoring management’s performance.
  
  
• The Code recommends that a Chief Executive should not go on to be the chairman of the same company. As explained in previous years’ annual reports, the board recommended the appointment of former Chief Executive Anthony Glossop as Chairman of the board. This was endorsed by shareholders at the Annual General Meeting in April 2004. As of 11th February 2008 Anthony Glossop became non-executive Chairman. The roles of the Chairman and Chief Executive are carefully differentiated.

This should be read in conjunction with the Directors’ Remuneration Report on pages 53 to 60 of the 2006 Annual Report (View the Annual Report - click here)

BOARD COMPOSITION AND COMMITTEES

The composition of the board provides an appropriate blend of experience and qualifications, and the number of non-executives provides a strong base for ensuring appropriate corporate governance of the company. The board’s decisions are implemented by the executive directors. The Chairman and the non-executives also met during the year without the executive directors being present.

Christopher Roshier is the senior independent director. He is available for consultation by shareholders, whenever appropriate.

The company’s Articles of Association provide that all directors are subject to re-election at least every three years. In addition, all directors are subject to re-election by shareholders after their initial appointment.

The reappointment of non-executive directors is not automatic. It is intended that appointments will be for an initial term of three years, which may be extended by mutual agreement. Prior to each non-executive offering himself to the members for re-election his reappointment must be confirmed by the Chairman in consultation with the remainder of the board.

The terms and conditions of appointment of all directors are available for inspection at the company’s registered office during normal business hours, and at the AGM.

The board is supplied with timely and relevant information regarding the business, through regular monthly and ad hoc reports, site visits and presentations from members of the management team and by meetings with key partners. Where appropriate, the company provides the resources to enable directors to update and upgrade their knowledge. Through the Company Secretary, the board is informed of corporate governance issues and all board members have access via the Company Secretary to independent advice if required.

The criteria used for evaluating individual executive directors’ performance are included in the Directors’ Remuneration Report. Individual non-executive directors’ performance is reviewed by the Chairman and Chief Executive. The performance of the board as a whole is assessed in the context of the company’s achievement of its strategic objectives and total shareholder return targets. Feedback on the company is sought through external surveys from shareholders, analysts and other professionals within the investment community following the regular briefings, presentations and site visits undertaken by the company. This feedback is made available to the whole board.

In support of the principles of good corporate governance, the board has appointed the following committees, all of which have formal terms of reference which are available for inspection by shareholders and are posted on the company’s website:

a) Remuneration Committee
The composition and function of the Remuneration Committee are set out in the Directors’ Remuneration Report on page 55.

b) Audit Committee
The Audit Committee, which currently comprises all of the non-executive directors except for Christopher Roshier, is chaired by John Salmon.

The company’s Finance Director, Financial Controller and Internal Auditor attend Audit Committee meetings but the Committee also meets without management being present and has private sessions with the auditors. The Committee has direct access to the internal and external auditors.

The Audit Committee’s functions include:

• Ensuring that appropriate accounting systems and financial controls are in operation and that the company’s financial statements comply with statutory and other requirements.
• Receiving reports from, and consulting with, the internal and external auditors.
• Reviewing the interim and annual results and reports to shareholders, and considering any matters raised by the internal and external auditors.
• Considering the appropriateness of the accounting policies of the company used in preparing its financial statements.
• Monitoring the integrity of the financial statements of the group and formal announcements relating to the group’s financial performance, and reviewing significant financial reporting judgments contained therein.
• Reviewing the effectiveness of the group’s internal audit function.
• Reviewing and monitoring the independence and objectivity of the company’s external auditors.
• Monitoring the scope, cost-effectiveness and objectivity of the audit.
• Monitoring the company’s policy on non-audit services provided by the external auditors.
• Making an annual assessment of the external auditors and recommending, or not, their reappointment.
• Reviewing “whistle-blowing”arrangements within the company.
• Reviewing its own performance, constitution and terms of reference to ensure it is operating at maximum effectiveness and recommending any changes it considers necessary to the board for approval.

Given the increasing size, complexity and geographical scope of the company’s operations, the company has proceeded with the appointment of an internal auditor tasked with formalising and documenting internal control procedures and ensuring compliance. The newly appointed internal auditor took up her role on 2nd January 2007.

The Committee’s policy on the provision of non-audit services by the external auditors is that, whilst it is appropriate and cost-effective for the external auditors to provide tax compliance and tax planning services to the group, other services should only be provided where alternative providers do not exist or where it is cost-effective or in the group’s interest for the external auditors to provide such services. In all cases the provision of non-audit services is carefully monitored by, and subject to the prior approval of, the Committee. The external auditors would not be invited to provide any non-audit services where it was felt that this could conflict with their independence or objectivity. Such services would include the provision of internal audit and management consulting services.

As part of the regular review of its providers of professional services, the board put the audit out to a tender process involving a number of firms, including Ernst & Young, the incumbent auditors. This process was completed in 2007 and Deloitte & Touche LLP were selected as the company’s auditors.

c) Nominations Committee
The Nominations Committee was reconstituted in 2006 and now comprises Anthony Glossop (as chairman of the Committee), Mary Francis, Ian Menzies-Gow, Paul Rigg and John Salmon. For the appointment of the Company Secretary during the year, a detailed specification was drawn up and agreed with all board members setting out the required skills and background from which it was felt candidates should be drawn. Since a suitable candidate was not already known to the company it was necessary to instruct a search agency. A recommendation was made by the Nominations Committee to the board for the appointment of Jon Messent as Company Secretary.

BOARD AND COMMITTEE ATTENDANCE

The board met eleven times during the year. The Audit Committee met three times, the Nominations Committee once, and the Remuneration Committee four times. All members attended all meetings except that Simon Clarke and Paul Rigg were unable to attend two board meetings. Ian Menzies-Gow and Christopher Roshier were each unable to attend one board meeting. Paul Rigg was unable to attend two Remuneration Committee meetings, and Simon Clarke and Ian Menzies-Gow one.

BOARD EFFECTIVENESS

The Code recommends that the board undertakes a formal and rigorous annual evaluation of its own performance. A formal evaluation, facilitated by an external assessor, Dr Tracy Long of Boardroom Review, was undertaken during 2005 and 2006. The principal findings of the review were that “the board functions well as a team, with high levels of trust and respect amongst new and existing members, and an ability to deal capably with change. Financial documentation and controls have been upgraded, and recent improvements have been made in the area of board and committee independence and composition, board agendas, shareholder communication and corporate governance.” Three areas for improvement were identified: maximising board contribution; succession planning; and risk analysis. Actions taken to address these areas were:

• Sharpened focus of board agendas and papers.
• Reviewed levels of authority and board involvement in major project acquisitions.
• Increased time given to strategy and risk analysis.
• Identified structure for succession planning.

For 2007 the next formal evaluation has been commenced with Boardroom Review to review the board’s progress against previous action items, and to establish whether there are further improvements required.

RISK MANAGEMENT AND INTERNAL CONTROL

The board recognises that it has overall responsibility for the identification and mitigation of risks and the development and maintenance of an appropriate system of internal control.

During the period under review the directors have reviewed the effectiveness of the system of internal control in accordance with the Turnbull guidance, through the production of a detailed report which covered: the group’s control environment; the manner in which key business risks are identified; the adequacy of information systems and control procedures; and the manner in which any required corrective action is to be taken.

The group’s key internal controls are centred on comprehensive monthly reporting from all activities which includes a detailed portfolio analysis, development progress reviews, management accounts and a comparison of committed expenditure against available facilities. These matters are reported to the board monthly, with reasons for any significant variances from budget. Detailed annual budgets are reviewed by the board and revised forecasts for the year are prepared on a regular basis.

There are clearly defined procedures for the authorisation of capital expenditure, purchases and sales of development and investment properties, contracts and commitments and a formal schedule of matters, including major investment and development decisions and strategic matters, that are reserved for board approval. Formal policies and procedures are in place covering all elements of employment, the construction process, health and safety and IT. The company is currently working in conjunction with FAST (Federation Against Software Theft) to achieve their Gold Accreditation for software licensing compliance. The company already holds Bronze and Silver awards. All necessary steps to achieve the Gold award were undertaken in 2007 and an application will be made in 2008.

Internal control, by its nature, provides only reasonable and not absolute assurance against material misstatement or loss. The directors continue, however, to strive to ensure that internal control and risk management are further embedded into the operations of the business by dealing with areas for improvement as they are identified. In the year under review, no material loss was suffered by a failure of internal control.

The analysis of the business’s key risks was also reviewed and redefined in the light of current experience.

The company’s policies with respect to its:

a) financial risk management objectives and policies, including the policy for hedging each major type of forecasted transaction for which hedge accounting is used; and

b) exposure to price risk, credit risk, liquidity risk and cash flow risk are contained in the notes to the accounts at pages 86 and 89 of the Annual Report (click here to view the Annual Report)

SHAREHOLDER RELATIONS

The executive directors have a programme of meetings with institutional shareholders and analysts at which the company’s strategy and most recently reported performance are explained and questions and comments made are relayed to the whole board. Visits are also arranged to sites of particular interest or significance to assist investors’ understanding of the company’s business. The company’s Annual General Meeting is also used as an opportunity to communicate with private investors. In addition to the usual period for questions which is made available for shareholders at the Annual General Meeting, John Salmon, the chairman of the Audit Committee, and Mary Francis, the chairman of the Remuneration Committee, will be available to answer appropriate questions. Any matters of concern regarding the company are discussed by the senior independent director with shareholders or appropriate corporate governance bodies and comments are fed back by him to the whole board.

Copies of all press releases, investor presentations and Annual Reports are posted here, together with additional details of major projects, key financial information and company background. To simplify and encourage participation in voting on resolutions at our Annual General Meeting, the company provides the opportunity to vote electronically through CREST (for further details see pages 112 and 113 of the Annual Report)

BUSINESS STANDARDS

The company does not condone any form of corrupt behaviour in business dealings and has disciplinary procedures in place to deal with any illegal or inappropriate activities by employees.