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The Board of GUS supports the principles of corporate governance
advocated by the Combined Code (the Code) and, with one exception, in
respect of directors’ service contracts, fully complied with its provisions
throughout the year under review.
The Board’s policy over many years has been to limit the service contracts
of executive directors to one-year rolling terms and, to this extent,
it complies with the relevant provision of the Code. However, the Board
believes that it has to have the freedom to make a judgement from time
to time, in the interests of shareholders, where a longer period of contract
might be appropriate. GUS operates in a global and highly competitive
market for senior executives and it is in this context that the Board
has made an exception in the case of Alan Smart, the Chief Executive of
its South Africa Retail Division. For the reasons explained on page 26,
Mr Smart has a contract which provides for 24 months’ notice on the part
of both the Company and the executive.
Directors
The Board consists of a Chairman, a Chief Executive plus four executive
directors and five non-executive directors. Sir Alan Rudge is the recognised
senior independent member of the Board to whom concerns can be conveyed.
The Board met six times during the year under review. It has a formal
schedule of matters reserved to it for decision.
The Board is supplied in a timely manner with information in a form and
of a quality appropriate to enable it to discharge its duties. There is
also a procedure under which directors, in the furtherance of their duties,
are able to take independent professional advice, if necessary, at the
Company’s expense. In addition all directors have direct access to the
advice and services of the Company Secretary.
The five non-executive directors and the Chairman are, in the opinion
of the Board, independent of management and free from any business relationship
which could materially interfere with the exercise of their independent
judgement. As reported previously, however, some institutional shareholders
deem Lord Harris not to be independent, by virtue of the length of time
he has served as a non-executive director of the Company, and, accordingly,
he stepped down as a member of the Remuneration Committee in the summer
of 2000. The non-executive directors are appointed for specified terms.
The Audit Committee consists of three independent nonexecutive directors:
Oliver Stocken (Chairman), Lady Patten and Sir Alan Rudge. It normally
meets four times a year with both the external auditors and the Group
Internal Auditor present.
The Board acknowledges that the independence of auditors is a subject
that has become increasingly prominent in recent months. It is the role
of the Audit Committee to ensure that the auditors’ objectivity and independence
is maintained. It does this by monitoring the level of fees for non-audit
services through a six monthly review carried out against established
guidelines. These are as follows:
- Audit related services – the auditors’ deep knowledge
of the Group’s affairs means that they are best placed to carry out
such work. This extends to, but is not restricted to, shareholder and
other circulars, regulatory reports and work in connection with acquisitions
and disposals.
- Taxation services – generally the auditors’ knowledge
of the Group’s affairs provides significant advantages which other parties
would not have. Where this is not the case the work is put out to tender.
- General – in other circumstances, proposed assignments
are put out to competitive tender and decisions to award work taken
on the basis of demonstrable competence and cost-effectiveness.
The Remuneration Committee consists exclusively of independent
non-executive directors: Lady Patten (Chairman), Sir Alan Rudge and Oliver
Stocken. The application of corporate governance principles in relation
to directors’ remuneration is described in the Report
on directors’ remuneration and related matters.
The members of the Nomination Committee are Sir Victor Blank (Chairman),
Lady Patten, Sir Alan Rudge, Oliver Stocken and John Peace.
All directors are subject to re-election by shareholders at the first
opportunity after their appointment and thereafter in accordance with
Article 76.1 of the Company’s Articles of Association. This ensures compliance
with the Code by providing that all directors are required to submit themselves
for re-election at least once every three years.
Relations with shareholders
The Company recognises the importance of communicating
with its shareholders and does this through its Annual and Interim Reports
and at the Annual General Meeting. Although it does not have precise rules
covering meetings with its institutional shareholders, it is always ready
to enter into a dialogue with investors, and meetings take place frequently.
All directors normally attend the Annual General Meeting and are available
to answer shareholders’ questions. Voting at the Annual General Meeting
is by way of a show of hands by members present at the meeting unless
a poll is validly called. Following each vote on a show of hands, the
level of proxies lodged on each resolution and the number of proxy votes
for and against the resolution are announced.
Corporate Social Responsibility
Last year’s Annual Report devoted four pages to the subject of Corporate
Social Responsibility (CSR). This recognised a growing focus on CSR by
institutional investors, the Government, non-governmental organisations
and the media.
This year, we have published a separate CSR report as the case to demonstrate
corporate responsibility grows even stronger. This is available, on request,
from the Company Secretary’s office or on the GUS website.
A section on CSR is included in Corporate social
responsibility.
A growing number of mainstream City institutions has decided to incorporate
social responsibility into corporate governance frameworks. They view
CSR in the context of risks and opportunities and their impact on shareholder
value. Accordingly, these major institutions want assurance that companies
they invest in are fully aware of the risks and have effective management
systems to deal with them.
The Association of British Insurers has responded to this
pressure from its members by developing a set of guidelines, in the form
of disclosures which institutions would expect to see included in the
annual reports of listed companies. Specifically they refer to disclosures
relating to Board responsibilities and to policies, procedures and verification.
The guidelines refer to social, ethical and environmental matters (SEE)
and do not use the term CSR.
The GUS disclosures are as follows:
(a) With regard to the Board
- The Board takes regular account of the significance
of social, environmental and ethical matters to the businesses of the
Company. The responsibility for such matters lies with the Company Secretary
who ensures that they feature regularly on the Board agenda. He is supported
in this work by a CSR Group which meets under his chairmanship and which
draws on staff with relevant expertise from across all of the Group’s
businesses. It includes experts in communication, internal audit, community
affairs, consumer rights and environment. It is supported by external
advisers.
- The section on internal control, which appears below,
includes, inter alia, the Board’s confirmation that there is an ongoing
process for identifying, evaluating and managing the significant risks
faced by the Group. This process includes the identification and assessment
of the significant risks to the Company’s short and long term value
arising from SEE matters, as well as the opportunities to enhance value
that may arise from an appropriate response. Further explanations appear
in the second part of Corporate social responsibility.
- The Board receives adequate information to make this
assessment and, in this context, reference should be made to the key
procedures described below under internal control. Account is taken
of SEE matters in any training programmes deemed appropriate on the
appointment of new directors.
(b) With regard to policies, procedures and verification
- The Board has identified supply chain issues as an area
of potential risk that might significantly affect the Company’s short
and long term value. GUS has significant buying power, giving it some
degree of responsibility for the actions of the companies with which
it deals. As GUS takes seriously its own social responsibility, it is
only natural that it should want those over whom it has influence to
do the same and, in so doing, guard against the risk to its reputation
through a potential association with undesirable practices. To this
end the Board has approved a set of seven principles that merchandisesuppliers
and business partners will be asked to endorse. These are set out in
more detail in the separately published CSR Report.
- Practice to comply with these principles varies by division.
In summary:
– In Burberry, a
programme is being developed as part of a new supplier manual.
 Burberry management
has accepted the seven principles and suppliers are being
asked to sign up.
The programme is currently being extended to licensees. To
monitor compliance,
suppliers will be asked to complete a self assessment
questionnaire,following
which there will be a risk based approach to the
identification of
suppliers to be visited.
– In Home Shopping all suppliers have signed up to a policy based on
the seven
principles. A workshop
has been held for senior merchandisers and, to audit
compliance, a pilot
programme has been put in place with six suppliers using
independent auditors.
– Argos has accepted the seven principles and is including them within
its terms
and conditions.
An audit programme is to be developed concentrating on direct
import suppliers.
– Reality is applying the seven principles in its supply chain, through
its Purchasing
Manager, who has
undertaken to include them in contract terms and subsequently
to audit suppliers.
- The Group Internal Audit Department’s role is to ensure
that adequate procedures are in place effectively to monitor compliance
with the seven principles.
- The Company’s policies and procedures for managing risks
to short and long term value arising from SEE matters are as described
below under ‘Internal Control’.
- An important aspect of the Company’s SEE procedures
is that they should be subject to verification and this is reflected
in the Group Internal Auditor’s membership of the CSR Group. However,
it is felt that shareholders would welcome some measure of external
verification and the procedures for verification of SEE disclosures
are focused on work undertaken by Acona, an independent consultancy
practice. This involves a review which has four principal aspects:
- The extent to which GUS has identified the CSR issues relevant to
its business.
- The adequacy of the policies and frameworks for managing these issues.
- The comprehensiveness and robustness of the data collection and the
completeness and
accuracy of the data.
– Evidence supporting the material claims in the report.
- Taking these points in turn, Acona has made the following
disclosures in the separately published CSR Report:
– GUS has a clear understanding of the CSR ‘agenda’ and the impact it
has on the
Group. In all businesses
there is a recognition of the need to manage
non-financial risks
and opportunities, and the principal issues have been
identified. We have
made recommendations to the Group that this existing
process of risk
identification be formalised.
– The policies and systems in GUS are developing fast, and are in some
areas
incomplete. However,
there is a clear commitment within the Company to a
structured and comprehensive
approach. We have made recommendations on
those areas where
frameworks should be extended.
– The CSR Report has data on the Group’s environmental impacts, staff
numbers,
health and safety
performance and the work of the GUS Charitable Trust and
community programmes.
All of the data comes from well-founded systems for
recording and control.
Data collection for the CSR Report has been audited
by the GUS Internal
Audit Department, who reviewed the processes for
completeness and
accuracy. Acona staff specified the scope of the review, have
been closely involved
in its execution, and have examined the findings in detail.
– The qualitative aspects of the CSR Report have been reviewed via an
extensive
series of meetings
and interviews with GUS staff across the Group. There has
been a processof
management review and sign-off within each business. We are
confident that it
is anaccurate reflection of the status of CSR management in
GUS plc.
Accountability and audit
It is a requirement of the Code that the Board should present a balanced
and understandable assessment of the Company’s position and prospects.
In this context, reference should be made to the Statement of Directors’
Responsibilities on page 23, which includes a statement in compliance
with the Code regarding the Group’s status as a going concern, and to
the Report of the Auditors on page 34, which includes a statement by the
auditors about their reporting responsibilities.
The Board recognises that its responsibility to present a balanced and
understandable assessment extends to interim and other price sensitive
public reports and reports to regulators as well as information required
to be presented by law.
Internal control
The Board acknowledges that it is responsible for the Group’s system of
internal control and for reviewing its effectiveness. Such a system is
designed to manage rather than eliminate the risk of failure to achieve
business objectives and can provide reasonable, but not absolute, assurance
against material mis-statement or loss. The Board has reviewed the effectiveness
of the key procedures which have been established to provide internal
control.
Following publication of guidance for directors on internal control (The
Turnbull Guidance) the Board confirms that there is an ongoing process
for identifying, evaluating and managing the significant risks faced by
the Group. These include those relating to social, environmental and ethical
matters. This process was in place throughout the year under review and
up to the date of approval of the Annual Report. The process is regularly
reviewed by the Audit Committee which reports its findings for consideration
by the Board and is in accordance with The Turnbull Guidance.
The key procedures, which operated throughout the year, are as follows:
- Risk assessment:
– The Group clearly sets out its objectives as part of its medium term
planning
process. These objectives
are then incorporated as part of the budgeting and
planning cycle and
are supported by the use of both financial and non-financial
key performance
indicators.
– The operating divisions are required to make presentations on risk
to the Audit
Committee which
reports regularly to the Group Board on the risks facing the
businesses.
– The detailed assessment of strategic risks is delegated to the Group
Chief
Executive. This
review is carried out as part of the annual budgeting and the
monthly reporting
and re-forecasting cycles.
– The Audit Committee has delegated responsibility for considering operational,
financial and compliance
risks on a regular basis and receives reports on the
controls over these
risks biannually. This includes risks arising from social,
environmental and
ethical matters.
- Control environment and control activities:
– The Group consists of a number of major trading divisions each with
its own
management and control
structures.
– The Group has established procedures for delegated authority which
ensure that
decisions that are
significant, either because of the value or the impact on other
parts of the Group,
are taken at an appropriate level.
– The Group has implemented appropriate strategies to deal with each
significant
risk that has been
identified. These strategies include not only internal controls
but other approaches
such as insurance, joint ventures and specialised treasury
instruments.
– The divisions operate within a framework of policies and procedures
laid down in
organisation and
authority manuals, and personnel are required to comply
with these procedures.
Policies and procedures cover key issues such as
authorisation levels,
segregation of duties, compliance with legislation and
physical and data
security.
- Information and communication:
– The Group has a comprehensive system of budgetary control including
monthly
performance reviews
for each major business and division. These reviews are at
a detailed level
within the trading divisions and at a high level for the Group
Board.
– On a monthly basis, the achievement of business objectives, both financial
and
non-financial, is
assessed using a range of key performance indicators. These
indicators are reviewed
to ensure that they remain relevant and reliable.
– There are clear procedures in the major trading divisions for employees
to
report suspected
improprieties.
- Monitoring:
– A range of procedures is used to monitor the effective application
of internal
control in the Group
including control self-assessment, management confirmation
of compliance with
standards and internal audit reviews.
– The Internal Audit Department’s responsibilities include reporting
to the Audit
Committee on the
effectiveness of internal control systems focusing on those
areas of greatest
financial risk to the Group.
– Follow-up procedures ensure there is an appropriate response to changes
in
risks and controls.
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