The Nomination and Governance Committee
“We need to maintain the right skills and experience on the Board and to develop tomorrow's leaders, to ensure the continued success of M&S.” Sir David Michels, Committee Chairman
Committee membership On 28 March 2009 the Nomination and Governance Committee comprised Sir David Michels (Deputy Chairman and Committee Chairman), Sir Stuart Rose (Executive Chairman) and all five independent non-executive directors: Jeremy Darroch, Martha Lane Fox, Steven Holliday, Louise Patten and Jan du Plessis, who joined the Committee on 1 November 2008 when he was appointed to the Board. Lord Burns chaired the Committee until 1 June 2008 when he retired from the Board.
The Group Secretary acts as secretary to the Committee and ensures that it receives information and papers in a timely manner to enable full and proper consideration of agenda items agreed in advance.
Our activities during the year During 2008/09 the Committee held two formal meetings (see attendance table under Board and Committee attendance). In September 2008 the Board extended its remit to the consideration of wider governance issues and the new conflicts of interest provisions of the Companies Act 2006.
The Deputy Chairman has also held separate meetings on a regular basis with both the Chairman and the non-executives to consider the process and timetable for succession to Chief Executive and to make sure our governance is working.
Leadership development and succession In September 2008 the Committee received a presentation from the Director of Human Resources on senior succession planning, focusing on the business unit directors below the Board. This followed its meeting in June 2008 which reviewed roles below this level. The bench strength in key areas of the business was discussed and opportunities to further develop senior management for future leadership positions. This would involve career opportunities that retain and develop our best people and enable them to gain broad experience across the Group.
During the year we announced changes to the management team to make sure we have a proper mix of upcoming talent, combining new recruits and existing employees. Further consideration was also given to how we induct people into Marks & Spencer to give them the best start.
Board composition On 16 October 2008 we announced the appointment of Jan du Plessis as a non-executive director on 1 November 2008. Jan brings a wide range of international business experience and brand knowledge to the Board. He also refreshes the skills and experience of the Audit Committee. His appointment followed a search by an external consultancy commissioned by the Committee. The candidates were shortlisted by the Chairman and the Deputy Chairman and the preferred candidate then seen by a wider group of directors before being recommended to the Board for appointment.
All directors seek shareholder election at their first Annual General Meeting following appointment and thereafter offer themselves for re-election at least every three years. We announced last year that Sir Stuart Rose will seek re-election each year during his tenure as Executive Chairman.
At our 2009 AGM, in addition to Stuart and our new non-executive director, Jan du Plessis, the following directors will seek re-election: Sir David Michels, Jeremy Darroch and Louise Patten, who are the chairmen of our principal board committees.
Committee performance review In February 2009 Committee members completed a questionnaire electronically to rate their performance. An unattributed executive summary was then distributed to all members for discussion.
The 2008/09 review has confirmed that:
- there is a robust process in place to identify and develop leaders of tomorrow; and
- we are on track to be able to separate the roles of Chairman and Chief Executive by July 2011.
The Committee has set itself some key actions for 2009/10 to:
- keep under review the ongoing development of leadership to meet the successional needs of the business;
- continue to review internal and external candidates for the separate roles of Chairman and Chief Executive; and
- keep the governance structure under review to make sure it adds value to the Company's performance.
The Remuneration Committee
“We pay for performance, to reward our leaders for delivering success for the business and our shareholders.” Louise Patten, Committee Chairman
Committee Membership On 28 March 2009 the Remuneration Committee comprised four independent non-executive directors: Louise Patten (Committee Chairman), Martha Lane Fox, Steven Holliday and Sir David Michels.
The Group Secretary acts as secretary to the Committee and ensures that it receives information and papers in a timely manner to enable full and proper consideration of agenda items agreed in advance in its annual meetings planner.
The remuneration of the non-executive directors is determined by the Chairman and the executive directors.
Our activities during the year During 2008/09 the Committee held
four meetings (see attendance table under Board and Committee attendance). Its activities during the year included:
- a review of the total reward framework for directors and senior managers;
- salary and benefit reviews for directors and senior managers, including all packages for joiners and leavers;
- agreement to all share plan awards and vestings;
- target setting for bonus and share incentive plans;
- a review of investor feedback on the 2008 AGM vote on remuneration (87.16% in favour); and
- a review of guidelines from advisory bodies and institutional investors on executive remuneration.
Further information on the Committee’s activities is given in the Remuneration report.
Committee performance review In February 2009 Committee members completed a questionnaire electronically to rate their performance. An unattributed executive summary was then distributed to all members for discussion.
The 2008/09 review has confirmed that:
- the Committee has confidence in the alignment of senior remuneration with the Company’s strategic aims;
- all targets set (both financial and non-financial) are sufficiently challenging; and
- the Committee understands and monitors investor concerns and receives sufficient information, advice and support to assist its decision-making.
The Committee has set itself some key actions for 2009/10 to:
- set a senior remuneration framework that continues to ensure ‘pay for performance’; and
- make sure that the reward framework remains aligned to the business strategy.
The Audit Committee
“We need robust reporting and controls. Our oversight
of management and financial reporting enables us to
give shareholders the necessary assurances.” Jeremy Darroch, Committee Chairman
Committee membership On 28 March 2009 the Audit Committee comprised five independent non-executive directors: Jeremy Darroch (Committee Chairman), Martha Lane Fox, Steven Holliday, Sir David Michels and Jan du Plessis, who joined the Committee on 1 November 2008 when he was appointed to the Board.
The Board has satisfied itself that at least one member of the Committee has recent and relevant financial experience and is confident that the collective experience of Committee members enables it to be effective. The Committee also has access to the financial expertise of the Group, its external and internal auditors and can seek further professional advice at the Company’s expense, if required.
The Group Secretary acts as secretary to the Committee and ensures that it receives information and papers in a timely manner to enable full and proper consideration of agenda items agreed in advance in its annual meetings planner.
Our activities during the year During 2008/09 the Audit Committee met five times (see attendance table under Board and Committee attendance) to coincide with key dates in the Company’s financial reporting and audit cycle. In September 2008 the Committee decided to increase the number of times it met during the year from four to five times to give more time to review with management the findings of internal audits relating to key business processes and the principal risks facing the Group.
In October 2008 the Committee reviewed and updated its terms of reference in line with new Financial Reporting Council Guidance on Audit Committees.
Its activities during the year included a review of:
- finance reports and accounting policies relating to full year and half year results;
- engagement letter and Audit Engagement Policy for the external auditors;
- reports from the external auditors on the major findings from their audit work;
- internal audit reports on reviews of key business areas and processes, undertaken as agreed in advance by the Committee;
- internal controls and risk management;
- tax risk management;
- going concern and counterparty risks;
- property values;
- code of ethics and whistleblowing;
- directors’ travel and expenses;
- reports from management on e-commerce, finance processes and business continuity;
- progress against Plan A targets for carbon emissions, energy efficiency and waste to landfill; and
- assurance programme for our How We Do Business Report (Plan A and CSR).
At the end of each meeting the Committee held separate meetings with the external and internal auditors, without management present, to discuss matters relating to their respective areas and any issues arising from their audits. These discussions, together with respective audit findings and stakeholder feedback, assisted the Committee in determining the effectiveness and objectivity of external and internal audit.
External auditors The external auditors, PricewaterhouseCoopers LLP (‘PwC’), are engaged to express an opinion on the financial statements. They review and test the systems of internal financial control and the data contained in the financial statements to the extent necessary to express their audit opinion. They discuss with management the reporting of operational results and the financial position of the Group and present their findings to the Audit Committee.
The Committee keeps under review the independence and objectivity of the external auditors and the effectiveness of the audit process. It has reviewed and updated the Auditor Engagement Policy which requires prior Committee approval for certain engagements. On occasions, the nature of non-audit advice may make it more timely and cost-effective to select PwC, who already have a good understanding of the Group.
PwC may also be appointed for consultancy work, but only after rigorous checks, including competitive tender, to confirm they are the best provider. PwC is also subject to professional standards which safeguard the integrity of the auditing role performed on behalf of shareholders.
Arrangements have been made, in conjunction with PwC, for audit partner rotation in accordance with the recommendations of the Auditing Practices Board. In 2008/09 Stuart Watson succeeded Ranjan Sriskandan, who had been in place since 2003/04, as lead audit engagement partner.
The Committee has recommended to the Board that PwC be proposed for reappointment by shareholders at the AGM on 8 July 2009 when the Committee Chairman will be available to answer any audit-related questions.
As authorised by shareholders at the AGM on 9 July 2008, the Committee determined the level of audit and non-audit fees for 2008/09 for the external auditors on behalf of the Board. Details are given in note 4 to the financial statements.
Internal audit Internal audit's work is focused on areas of priority as identified by the Group Risk Profile and in accordance with an annual audit plan approved each year by the Audit Committee and by the Board. The Board receives a full report from internal audit each year on the department's work and findings and regular updates on specific issues. The Committee monitors and assesses the role and effectiveness of internal audit on behalf of the Board.
In January 2009 the Committee approved proposals for structural changes to internal audit as part of the Head Office review. Internal audit will continue to focus on key business risks. Senior management will update the Audit Committee directly on the controls and risk management systems operating in their areas of responsibility.
Committee performance review In February 2009 Committee members completed a questionnaire electronically to rate their performance. An unattributed executive summary was then distributed to all members for discussion.
The 2008/09 review has confirmed that:
- the Committee focuses its time effectively on the priority issues and the extra meeting has enabled more direct input from senior management; and
- the Committee's increased oversight of risks has enabled it to gain a greater understanding of management's response to the economic downturn.
The Committee has set itself some key actions for 2009/10 to:
- increase focus on risk assessment and mitigating controls by management to achieving financial and non-financial KPIs during the economic downturn;
- spend more time directly with senior management to hear how they are responding to audit findings; and
- challenge the risks and controls relating to the development of financial and other IT systems to make sure our investment is well spent.