 2003 Annual Report Overview
Statement of Directors’ Responsibilities
Directors
2003 Attendance
Chairman and CEO
"The Board and I take our objectives regarding corporate governance very seriously."
Chairman's letter to shareholders, February 2004
2003 Annual Report Overview
Corporate governance is the process by which companies are controlled and directed. The UK Listing Authority has issued the Combined Code (the Code) that provides UK listed companies with principles and detailed provisions on what constitutes best practice in corporate governance. BAE Systems is required to report to shareholders on how it applies the principles in the Code and either to confirm that it complies with the Code’s provisions or to explain why it has not.
BAE Systems reported to shareholders in February this year that it was compliant with the Combined Code throughout 2003. The Combined Code has been revised recently and BAE Systems will report on compliance with the revised code in the 2004 annual report and accounts.
Statement of Directors’ Responsibilities
Company law requires the directors to prepare financial statements for each financial year that give a true and fair view of the state of affairs of the company and the group and of the profit or loss for that period. In preparing those financial statements, the directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable and prudent;
- state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and
- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.
The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the company and to enable them to ensure that the financial statements comply with the Companies Act 1985. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the group and to prevent and detect fraud and other irregularities.
Directors
The Board of BAE Systems recognises that it is responsible for the leadership of the company and that in discharging this responsibility it is required to take decisions objectively and in the best interests of the company. The Board has set a vision, values and standards for BAE Systems. Our vision and values are communicated across the company and guide the work undertaken by everyone in BAE Systems. The Board through a single document, the Operational Framework, has provided all employees with details of the standards of behaviour and key policies that are mandatory across the company. The areas covered by it include:
- business ethics
- business planning
- risk management
- internal control
- personal behaviour.
The terms of reference of the Board’s Nominations, Audit and Remuneration Committees state that only members of those particular committees have a right to be present at their meetings. The membership of these committees is reviewed periodically to ensure that undue reliance is not placed on any one director. The last such review was undertaken in April 2003.
Whilst the Board has delegated the normal operational management of the company to the executive directors and other senior managers it has agreed a schedule of matters that are reserved for its decision. This schedule includes:
- approving the group strategy and business plan;
- ensuring that the company has proper reporting and internal control systems and that appropriate polices are in place to cover matters such as political and charitable donations, health, safety and the environment, employment and the export of defence equipment;
- approving changes to the company’s capital structure;
- approving major changes to risk management policies, treasury policies and the group pension schemes; and
- approving the acquisition and disposal of assets above certain limits set by the Board.
The Operational Framework sets out the group’s organisation structure together with the attendant delegated authorities. Within these, the Board has recognised that the terms on which the company accepts complex long-term contracts is critical to the performance of the company. Therefore, the Board has determined that all contract bids and tenders above a certain limit must be approved by it and, given the different risk profiles of the various stages of a long-term design and build contract, has set guidelines on the nature of the contracting arrangements that it is willing to approve.
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2003 Attendance
Six regular board meetings are scheduled during the year and usually a number of additional meetings are called as required. In 2003, the Board met on nine occasions. At each regular meeting the Board reviews the company’s performance against the agreed business plan, major contracts and variances to the profitability forecast for these contracts. The Board reviews annually the company’s business plan, its strategy and management resources.
The attendance by individual director at meetings of the Board and its Committees in 2003 is shown in the table below.
| Director |
Board |
Audit |
Remuneration* |
Nominations* |
|
| Professor S Birley |
9 (9) |
5 (5) |
6 (6) |
5 (6) |
| Sir Robin Biggam |
3 (3) |
2 (2) |
2 (2) |
2 (2) |
| Mr K C Brown |
3 (3) |
2 (2) |
2 (2) |
2 (2) |
| Dr U Cartellieri |
7 (9) |
- |
3 (3) |
2 (3) |
| Sir Richard Evans |
9 (9) |
- |
- |
6 (6) |
| Mr C V Geoghegan |
8 (9) |
- |
- |
- |
| Mr M J Hartnall |
4 (4) |
3 (3) |
- |
- |
| Lord Hesketh |
9 (9) |
4 (5) |
6 (6) |
4 (6) |
| Mr M Lester |
8 (9) |
- |
- |
- |
| Sir Charles Masefield |
3 (3) |
- |
- |
- |
| Sir Peter Mason |
8 (8) |
- |
5 (5) |
3 (3) |
| Mr S L Mogford |
8 (9) |
- |
- |
- |
| Rt Hon M Portillo |
9 (9) |
2 (3) |
- |
3 (3) |
| Mr M H Ronald |
9 (9) |
- |
- |
- |
| Mr G W Rose |
9 (9) |
- |
- |
- |
| Mr P Scaroni |
6 (9) |
2 (5) |
- |
- |
| Mr M J Turner |
9 (9) |
- |
- |
- |
(Figures in brackets denote the maximum number of meetings that could have been attended)
* including attending meetings of the Nominations and Compensation Committee that was replaced by separate Remuneration and Nominations committees on 29 April 2003
Chairman and CEO
The chairman and chief executive have been appointed separately and there is a clear division of responsibilities between these two positions. The chairman is responsible for the effective working of the Board and setting the agenda for its meetings. The chief executive is responsible for all operational matters. To ensure that the non-executive directors are properly informed of matters affecting the company the chairman and chief executive meet with them as a group on a regular basis.
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