| INTRODUCTION -  Corporate governance is the process by which companies are controlled and directed - a company's board is ultimately responsible for this. The key to good corporate governance is having the right strategy, leadership and control structures in place to produce and sustain the delivery of value to shareholders. Good corporate governance, and its visibility, gives confidence to all associated with a company that it is being managed well and that value is being created. Our objective in this report is to summarise the key elements of the Company's governance structure and relate this to the principles in the UK 's Combined Code on Corporate Governance – a code of good practice for listed companies. The Board has adopted a top-level statement on corporate governance, the Board Charter. This details certain governance principles and the principal duties of the Chairman, Chief Executive and Senior Independent Director. Attached to the Board Charter you will also find a schedule of matters reserved for the Board and the terms of reference of various Board committees. Dick Olver
Chairman View Board Charter in PDF format (4MB) Compliance with the Combined Code THE BOARD - “Every company should be headed by an effective board, which is collectively responsible for the success of the company.” Combined Code – Main Principle A.1 The Board is responsible for the leadership of the Company. It has mandated standards of behaviour and key policies, covering:- business ethics
- business planning
- risk management
- internal control
- personal behaviour
Through the Company's Integrated Business Planning process the Board is involved in the development of strategy. The Board approves business plans that are used to implement strategy and monitor the operational performance of the Company.
The Board has delegated the normal operational management of the Company to the executive directors and other senior managers but certain matters have been reserved for its decision.
The Board met on 11 occasions in 2005 plus an additional two days were spent reviewing strategy.
CHAIRMAN AND CHIEF EXECUTIVE - “There should be a clear division of responsibilities at the head of the company between the running of the board and the executive responsibility for the running of the company's business. No one individual should have unfettered powers of decision.” Combined Code – Main Principle A.2 The Chairman and Chief Executive have been appointed separately and there is a clear division of responsibilities between these two positions.
The Chairman, who serves in a non-executive capacity, is responsible for the effective working of the Board. The Chief Executive is responsible to the Board for the normal management of the Company's operations.
The present Chairman was appointed in 2004. On his appointment the Nominations Committee agreed that he was independent based on the criteria used in the Combined Code. BOARD BALANCE AND INDEPENDENCE - “The Board should include a balance of executive and non-executive directors (and in particular independent non-executive directors) such not no individual or small group of individuals can dominate the board's decision making.” Combined Code – Main Principle A.3 At present there are fifteen directors on the Board. This comprises a non-executive chairman, six executive directors and eight non-executive directors. The Board considers that all the non-executive directors are independent using the criteria in the Combined Code. APPOINTMENTS TO THE BOARD - “There should be a formal rigorous and transparent procedure for the appointment of new directors to the board.” Combined Code - Main Principle A.4 The Board has appointed a committee, the Nominations Committee, with responsibility for reviewing the composition of the Board on a regular basis and, if deemed necessary, to find suitable candidates for appointment to the Board. INFORMATION AND PROFESSIONAL DEVELOPMENT – “The Board should be supplied in a timely manner with information in a form and of a quality to enable it to discharge its duties. All Directors should receive induction on joining the board and should regularly update and refresh their skills and knowledge.” Combined Code - Main Principle A.5 The Board has agreed what information it should receive on a regular basis.
The Chief Executive is responsible for the training and development needs of the executive Directors and the Company Secretary for the non-executive Directors. PERFORMANCE EVALUATION – “The Board should undertake a formal and rigorous annual evaluation of its own performance and that of its committees and individual directors.” Combined Code - Main Principle A.6 The Board evaluations of its own effectiveness and that of the Audit, Nominations and Remuneration committees. The performance of individual directors is included as part of this process.
The evaluation process is undertaken with the assistance of external facilitators.
RE-ELECTION – “All directors should be submitted for re-election at regular intervals, subject to continued satisfactory performance. The board should ensure planned and progressive refreshing of the board.” Combined Code - Main Principle A.7 All new Directors are required to seek re-election to the Board at the first Annual General Meeting (AGM) following appointment.
All Directors are required to stand down and seek re-election to the Board at least once every three years.
The Nominations Committee is responsible for planning the progressive refreshing of the Board (see ‘Appointments to the Board' above) FINANCIAL REPORTING – “ The board should present a balanced and understandable assessment of the company's position and prospects.” Combined Code - Main Principle C.1 In preparing the annual report to shareholders the directors seek to present a summarised but balanced and easily understood assessment of the Company's performance and provide guidance on its future prospects.INTERNAL CONTROL –“ The board should maintain a sound system of internal controls to safeguard shareholders' investments and the company's assets.” Combined Code - Main Principle C.2 The overall responsibility for the system of internal control within BAE Systems rests with the Directors of the Company. Responsibility for establishing and operating detailed control procedures lies with the managing director of each operating business.
The Directors completes a formal review of the effectiveness of the Company's internal controls on a regular basis. In order to assist the Board in this review, an Operational Assurance Statement (OAS) is produced by each part of the business. It is signed off by the relevant managing director to confirm compliance against the Company's mandated policies and procedures, including operational and financial controls and risk management processes.
RELATIONS WITH SHAREHOLDERS – “There should be a dialogue with shareholders based on the mutual understanding of objectives. The Board as a whole has responsibility for ensuring that a satisfactory dialogue with shareholders takes place. Combined Code” – Main Principle D.1 “The Board should use the AGM to communicate with investors and to encourage their participation. Combined Code.” – Main Principle D.2 The Company has a comprehensive investor relations programme and maintains a Investor Relations web-site. This can be accessed at www.baesystems.com.
The Annual General Meeting provides all shareholders with the opportunity to develop their understanding of the Company and ask questions on the matters put to the meeting including this report and accounts.
AUDIT COMMITTEE AND AUDITORS - The board should establish formal and transparent arrangements for considering how they should apply the financial reporting and internal control principles and for maintaining an appropriate relationship with the company's auditors. Combined Code Main principle C.3 The Board has appointed an audit committee that is responsible for reviewing the effectiveness of the Company's financial reporting, internal control policies and procedures for the identification of risk. It is also responsible for keeping the relationship with the Company's Auditors under review. The Committee has four members all of whom are independent non-executive directors.
The Audit Committee meets on at least four occasions each year and, amongst other things, undertakes the following:- reviews the financial statements and receives reports on them from the Auditors;
- reviews the output from the processes used by the Company to identify, evaluate and mitigate risk;
- reviews the effectiveness of the Company's internal controls;
- reviews the Company's Ethics Hotline;
- agrees the scope of the Auditors' work and their fees; and
- monitors the performance of the Internal Audit function.
The Audit Committee has agreed safeguards aimed at protecting the independence of the Auditors.
A review of the performance of the current auditors, KPMG Audit Plc, was undertaken by the Audit Committee recently. On the basis of this, the Board has agreed that a resolution for their reappointment be put to the AGM. Back to Top
Board of Directors - December 2006
Board of Directors
Dick Olver (Chairman)
Sue Birley
Phil Carroll
Ulrich Cartellieri
Chris Geoghegan
Michael Hartnall
Michael Lester
Sir Peter Mason
Steve Mogford
Roberto Quarta
Mark Ronald
Sir Nigel Rudd
George Rose
Sir Nigel Rudd
Mike Turner
Peter Weinberg
Audit Committee
Michael Hartnall (Chairman)
Dr Ulrich Cartellieri
Sir Peter Mason
Roberto Quarta
View the terms of reference of the Audit Committee.
Corporate Responsibility Committee
Peter Weinberg (Chairman)
Sue Birley
Phil Carroll
Sir Nigel Rudd
View the terms of reference of the Corporate Responsibility
Committee.
Nominations Committee
Dick Olver (Chairman)
Phil Carroll
Sir Peter Mason
View the terms of reference of the Nominations Committee.
Non-Executive Directors' Fees Committee
Dick Olver (Chairman)
Michael Lester
Mark Ronald
Mike Turner
View the terms of reference of the Non-Executive Directors' Fees Committee.
Remuneration Committee
Sue Birley (Chairman)
Roberto Quarta
Sir Nigel Rudd
Peter Weinberg
View the terms of reference of the Remuneration Committee.
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