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

The Board is committed to maintaining high standards of corporate governance within the Company. Throughout the year ended 30th November 2008 the Company has complied with Section 1 of the Combined Code on Corporate Governance issued in 2006 (the ‘Code’) except in relation to the following matters:

• The Code asks the Board to identify each non-executive director it considers to be independent. Of the seven non-executive directors at the end of 2008, the Board considers 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 one 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. He will step down as non-executive director, and will not be seeking re-election at the 2009 Annual General Meeting. The Board recognises that Simon Clarke does not meet the criteria for a fully independent director under the Code, although his postion as a representative of the Clarke and Leavesley families who together hold 50.6m shares (41.9%) in the Company’s issued share capital, gives him a very strong interest in challenging and scrutinising management to secure excellent performance from the Company.
  
  
• 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 in 2004 which was endorsed by shareholders at the Annual General Meeting that same year. As of 11 February 2008 Anthony Glossop became non-executive Chairman. The roles of the Chairman and Chief Executive are carefully differentiated.
  

BOARD OF DIRECTORS AND COMMITTEES

The Board operates within the terms of its written authorities, which include a schedule of matters reserved for the approval of the Board. The Board currently consists of the non-executive Chairman, three executive directors and six non-executive directors. 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 Board meets not less than ten times during the year and the Chairman and the non-executive directors also met without the executive directors being present. The programme of Board Meetings is tailored to enable some mettings to be held at the company’s properties. In advance of each meeting, each director receives a Board pack containing comprehensive briefing papers. Presentation on business and operational issues are made regularly to the Board by senior management.

Ian Menzies-Gow 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 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) Audit Committee

The Audit Committee, currently comprises of all the non-executive directors except for Christopher Roshier. The Committee is chaired by John Salmon who as a former partner of PricewaterhouseCoopers LLP, is considered by the Board to have the required recent and relevant experience.

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 judgements 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 re-appointment
• 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.
  

During the year, the Committee was assisted in the performance of these duties by the company’s internal auditor, tasked with formalising and documenting internal control procedures and ensuring compliance.

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.

b) Nomination Committee
The Nomination Committee comprises Anthony Glossop (as chairman of the Committee), Ian Menzies-Gow, Paul Rigg and John Salmon.

The Committee ensures that the membership and composition of the Board, including the balance of executive directors and non-executive directors continues to be appropriate and undertakes a regular review of succession planning. During the year, on the recommendation of the Committee, the Board agreed that Tim Haywood would resume his former responsibilities as Company Secretary.

c) Remuneration Committee

The composition and function of the Remuneration Committee are set out in the Directors’ Remuneration Report .

BOARD EFFECTIVENESS

The Code recommends that the Board undertake 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 the year. The principal findings of the review were that “since the first review in 2005 many of the issues raised had improved significantly, and that there was a shared sense of strategic mission and vision…an improved process of risk management, good communication with shareholders and stakeholders, and …a highly committed and knowledgeable executive team”. The principal areas identified as requiring further work were:-

1. Clarity of board agendas and papers
   
2. Discussion of the corporate domain
3. Succession planning
4. The role of the chairman

During the year progress has been made against these recommendations in a number of areas, including the initiation of a management development programme to identify and develop talent; a growing focus on the macro-economic forces influencing the company’s markets; and a redefinition of the role and time commitment of the non-executive chairman.

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, which are discussed in detail within the annual report.

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.

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.

EMPLOYEES

The group encourages employee involvement and places emphasis on keeping its employees informed of the group’s activities and performance. The Company’s executive runs quarterly management meetings at which staff are informed about information affecting them as employees, where their feedback is sought on decisions likely to affect their interests, and where a common awareness is achieved of the financial and economic factors affecting the Company’s performance. This information is then cascaded to staff at the Company’s head office and regional offices. A performance related annual bonus scheme and share option arrangements are designed to encourage employee involvement in the success of the group.

The group operates a non-discriminatory employment policy under which full and fair consideration is given to disabled applicants, to the continued employment of staff who become disabled, and to their continued career development and promotion. It is the policy of the group that the training, career development and promotion of disbaled persons should, as far as possible, be identical to that of other employees.

POLITICAL DONATIONS AND CHARITABLE DONATIONS

The Company did not make any political donations in the year. Details of the company’s charitable activities are included in the CSR review. Direct charitable donations during the year totalled £7,000 (2007: £8,000).

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 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 on the Company’s website (www.stmodwen.co.uk), 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 the 2008 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.