Corporate governance
Board effectiveness

How does the Board demonstrate independence?

We are putting particular emphasis on making sure that our independent review of the executive is effective.

We have strengthened the role of the Deputy Chairman to address concerns over the combined role. He leads on all governance matters, which includes engaging shareholders on their views, chairing the Nomination and Governance Committee and conducting the review of Board performance.

The Board has a clear majority of independent directors – with six out of 10 being fully independent. All our non-executives have been appointed since 2004 and have an average tenure of less than three years each.

It's also a question of mindset – our Board combines a broad range of skills, experience and personalities which secures the necessary level of challenge and insight to enhance executive performance.

We are conscious of the need to give sufficient time for questions and debate in the boardroom so discussion does not get curtailed.

The non-executives have the opportunity to influence the agenda. An ongoing timetable of executive updates is kept under review and strategic discussions were brought forward to respond to the current economic climate and changing needs of our customers.

The governance committees carry out detailed independent oversight on behalf of the Board to ensure we have the appropriate processes in place for succession, remuneration and audit.

The non-executives get good, direct access to the management team through presentations at Board and committee meetings, the Board's strategic session in February and ad hoc meetings at their request.

Our Group Secretary supports both the Chairman and the Deputy Chairman in carrying out their governance accountabilities. He also makes sure the non-executives get the information and access to people they need. He is supported by the corporate governance group which makes sure that the role of governance is understood throughout M&S. On 8 July 2009 the Group Secretary, Graham Oakley, will retire and will be succeeded by Amanda Mellor, current Head of Investor Relations.

“I am constantly aware of the need to be independent and to ask the challenging question – it's in the best interests of M&S.” Steven Holliday, Non-Executive Director

“I have direct access to the Audit Committee Chairman. The Committee supports me in making sure that management responds to our findings and that internal audit is effective.” Mark Fensome, Head of Internal Audit

“I am pleased that my colleagues and I can be forthright in the boardroom. Our Board culture supports this.” Jan du Plessis, Non-Executive Director

How does the Board keep fully informed?

We have a comprehensive but efficient committee structure to help keep the Board fully informed.

Activity reports from the Nomination and Governance, Remuneration and Audit Committees are given under Committee effectiveness. The committee chairmen report to the full Board on the outcomes of each meeting. With so much detailed work being delegated to the committees, it is essential that time is given to keeping all directors up to date and to give them opportunities to ask questions.

The following committees also support the Board in fulfilling its governance accountabilities:

• Executive Committee – to develop and implement Board strategy and react to operating and financial performance
• Customer Insight Unit – to analyse marketplace trends and customer views to influence business decisions
• How We Do Business Committee – to implement Plan A, our 100 social, environmental and ethical commitments
• Business Involvement Groups – to represent employee views to management to influence business decisions
• Capital Approval Committee – to approve capital expenditure within Board limits and optimise investment
• Fire, Health & Safety Committee – to ensure the safety and wellbeing of our employees, customers and visitors
• Information Security Committee – to ensure adherence to a business wide information security policy
• Business Continuity Committee – to improve our response to any major incident affecting premises or systems

“On the M&S Board we encourage innovative thinking and continual questioning to make sure we meet customer expectations for the next 125 years.” Martha Lane Fox, Non-Executive Director

“The Board is keen to hear direct from us on the major initiatives in our areas. This reinforces the relationship between management and the Board.” Darrell Stein, Director of IT and Logistics

“We have more than 3,500 employees elected by colleagues to represent their interests. The Board wants to keep in touch with employees, especially during the current economic slowdown.” Malcolm Heaven, National Chair of BIG

How does the Board act responsibly?

Responsibility is a core part of governance for us in two respects. The Board must meet its accountabilities to wider stakeholders. And our employees must play their part by acting responsibly at all times.

The Board has a clear view of its accountabilities. As part of our active debates around succession and leadership development, we have established that our primary role as directors is to make sure that:

• our investors are rewarded with profitable returns;
• our customers experience Quality, Value, Service, Innovation and Trust every time they visit M&S;
• our employees are proud to work at M&S;
• our suppliers are engaged in profitable partnerships; and
• our communities and the environment benefit from our sustainable business.

The Board's challenge is to make sure this is put into practice and embedded in the M&S culture so that our employees understand their responsibilities.

Our history provides strong foundations that underpin our brand values. We must preserve these and build on them to continue to keep them relevant to doing business today.

During the year the Board has:

• reinvigorated our brand values and the business initiatives that underpin them to make sure they meet customer expectations;
• reaffirmed our 100 Plan A commitments on the most important social, environmental and ethical challenges facing our business;
• launched our 'Lead to Succeed' programme to help our senior people understand the unique nature of M&S leadership;
• conducted a root and branch review of our Code of Ethics, which sets out how we behave with our stakeholders and outlines our principal policies. Our senior people are accountable for ensuring this is understood and followed in their areas; and
• initiated a number of projects to celebrate our 125th Anniversary with our customers, employees, suppliers, communities and shareholders. We are taking this opportunity to reflect on our past, look forward to our future and be proud to be part of M&S.

“We have strengthened our governance of Plan A during the year. Controls have been improved, clear KPIs defined and support has been established throughout the business. The Board and Audit Committee are in regular touch with our progress.” Richard Gillies, Director of Plan A

“Plan A has attracted significant interest from a wide range of stakeholders. It has got serious traction throughout the Company. Despite a tough year, leadership is sticking to its guns.” Jonathon Porritt

Of course good governance is also a matter of the Board working effectively as it goes about meeting its accountabilities. To this end we have undertaken a thorough review of both the Board and its governance committees and given particular weight to induction and succession planning. This matters to us – a strong Board makes a significant difference to a company’s ability to create value. The annual performance review is an important element of the Board’s activities to review and improve its performance continually.

What did the Board do during 2008/09?

During 2008/09 we acted decisively to meet the challenge of the global economic downturn, taking steps to manage costs tightly and respond quickly to the changing needs of our customers. Our current priorities place a greater emphasis on managing our business through the current downturn, underpinning our strong financial position and continuing to invest for the long term, to be well placed when the market improves. In November 2008 we announced six priorities:

Our priorities

• retain our market leading position in general merchandise;
• improve our performance in food;
• drive our international business;
• optimise margins and tightly control costs;
• maintain a strong balance sheet; and
• uphold high ethical standards.

In May 2009 we announced that we have completed a major review to drive M&S through its next phase of development and launched a change programme under the banner '2020 – Doing the Right Thing'.

The Board met 10 times during the year (see attendance table under Board and Committee attendance) and at every meeting received an update on current trading, operational and financial performance from the Chairman and the Finance and Operations Director. Directors received a monthly Group Results booklet summarising financial results for the Group against the current operating plan. It also contained information on interest expense, cash flow and net debt, balance sheet, inventories, capital expenditure, investor relations and competitor news.

The Board received regular updates from the Chairmen of the Audit; Remuneration; Nomination and Governance; and Capital Approval Committees on activities during the year and an annual update from the Chairmen of the How We Do Business Committee and the Fire, Health & Safety Committee. At each Board meeting the Group Secretary reported on governance.

Executive Committee members attended Board meetings to give updates on progress in their respective areas during the year. The Head of our Customer Insight Unit gave regular updates to the Board on latest market share data and customer feedback on M&S products and the service they received in stores.

The Board held an offsite meeting in February 2009 to consider the mid to long-term retail landscape, presented by independent advisers, and strategic opportunities presented by the Executive Committee.

During the year separate meetings were held by the non-executive directors to consider the process and timetable for succession to Chief Executive. This would allow for the first assessment of internal candidates after they had had experience in their new roles for a reasonable period.

How did the Board review its performance?

In June 2008 we published our Governance Framework containing individual profiles for Board members and terms of reference for the Board and its Committees, against which performance could be measured. In November 2008 the Board agreed that external review of its performance would not be good use of funds at this time, given our own internal resource, but that an external review of our internal process would help us to make sure that our approach to the annual assessment is thorough.

Sir David Michels, Deputy Chairman, led the 2008/09 Board review, assisted by Alison Houston, our Head of Board Performance. In December 2008 each director had a one to one discussion with the Deputy Chairman, enabling him to highlight particular issues or themes to be reviewed.

In February 2009 each director completed a questionnaire electronically to rate performance across the highlighted areas. An unattributed executive summary was then distributed to all directors and discussed at the Board meeting in March 2009.

The 2008/09 review has confirmed that:

• whilst the Board had committed additional time to strategic development and brought forward its deliberations to respond to the changing economic climate, the balance of time spent on strategic and operational issues still needed to be monitored;
• succession planning and leadership development required sustained focus to identify and develop leaders of tomorrow. The appointment of Jan du Plessis as a non-executive director had enhanced the independence, skills and experience on the Board; and
• information presented to the Board on wider stakeholders was helpful. This included regular presentations on customer sentiment and the competition which gave a valuable insight into the market and behaviours using independent analysis.

External review During 2008/09 we worked with external consultants who advise companies on how to get the best value out of governance. We used their online tool with electronic questionnaires for the Board and committee reviews and to produce the executive summary of the results.

In April 2009 they analysed with us the results of our Board assessment, gave us feedback on our process and reviewed the action plans we have set ourselves as a result. We are also discussing with them ways of benchmarking the progress we make on those actions during 2009/10.

Board committee performance The Nomination and Governance, Remuneration and Audit Committees have each conducted reviews of their own performance as described for the Board. More information is given in their respective reports under Committee effectiveness.

Individual performance The Chairman has reviewed the performance of the executive directors individually against set objectives. Remuneration is directly linked to these reviews and is determined by the Remuneration Committee.

Our Governance Framework gives particular emphasis on governance accountabilities for the Chairman, Deputy Chairman and non-executive directors during the tenure of combined Chairman and Chief Executive. The Deputy Chairman has reviewed the performance of the Chairman against these accountabilities and business objectives and confirms that he continues to demonstrate effective leadership.

The Board has determined that each non-executive is independent in character and judgement; makes an effective and valuable contribution to the Board, and demonstrates commitment to the role, including giving sufficient time to M&S.

Induction and ongoing development On appointment, the Head of Board Performance met with our new non-executive director, Jan du Plessis, to agree a customised induction programme which included individual meetings with business unit directors and store managers to gain an understanding of their respective operations. He has also met with a representative body of shareholders to listen to their respective views on Marks & Spencer.

The Group Secretary is an important resource to the non-executives to make sure that timely information is given to them to enable full and proper consideration of agenda items. He also keeps the directors informed on governance, regulation and legislative change through his written report to each Board meeting.

Our online Board portal provides easy access to information for directors to carry out their duties and for ongoing development.

What is the Board's focus for 2009/10?

Good governance is a matter of continuous development. We are not standing still.

We are putting in place our Board Action Plan for 2009/10. In May 2009 the Board discussed the findings from its Board review and agreed actions for 2009/10 within three key areas:

1. An independent Board: harness the experience and talent of the non-executive directors to invest in the business for the long term, to be well placed when the market improves;
2. An informed Board: improve the depth and breadth of information given to the Board to facilitate robust decision-making during the economic downturn;
3. A responsible Board: reinforce our brand reputation and stakeholder relationships for the long-term success of M&S through our brand values (how we differentiate M&S), Plan A (how we do business) and our Code of Ethics (how we behave).

We are now developing an approach to monitoring the progress we make on these actions.

How did we comply with the Combined Code?

The governance rules which apply to UK companies listed on the London Stock Exchange are found in the Combined Code on Corporate Governance (the 'Code') which was updated by the Financial Reporting Council in June 2008.

Throughout the year ended 28 March 2009 the Company complied with all Code provisions with the exception that from 1 June 2008 the role of Chairman and Chief Executive has been exercised by the same individual, Sir Stuart Rose (A.2.1). We plan to revert to recommended best practice no later than July 2011.

• Corporate governance section
  • Board effectiveness
  • From the boardroom to the shop floor
  • Accountability and audit
  • Principal risks and uncertainties
  • Committee effectiveness
  • Board and Committee attendance
  • Relations with shareholders
  • Governance of the Group pension schemes
• Remuneration report
• Other disclosures