A new Combined Code on Corporate Governance was published by The London Stock Exchange on 25 June 1998. This consolidates the recommendations of the Hampel Committee and the earlier Cadbury and Greenbury Committees, both of which are now superseded.

The publication of the Code was accompanied by a Stock Exchange announcement of changes to its Listing Rules. The requirements of the new rules apply to the reporting of financial years ending on or after 31 December 1998.

For listed companies, the Code lays down 14 Principles of Good Governance and 45 underlying provisions. The new rules require companies publicly to explain to shareholders their approach to these Principles and how they have applied them, and the extent to which they have complied with the detailed provisions.

The Board of GUS supports the broad principles of Corporate Governance advocated by the Code and complies with most of its provisions. Where it does not do so the underlying reasons are stated.

Directors
The Board consists of an executive Chairman, nine other executive directors and five non-executive directors including one of the two Deputy Chairmen. Sir Victor Blank, non-executive Deputy Chairman, is the recognised senior independent member to whom concerns can be conveyed.

The Board usually meets at least seven times a year and did so during the year under review. It has a formal schedule of matters specifically reserved to it for decision. This covers strategy, finance and treasury, capital expenditure, acquisitions and disposals, control and audit, pension arrangements, accounts and dividends and formal matters such as the establishment of committees and their terms of reference, the use of the Company Seal and the approval of prospectuses and issue documents.

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. Specific examples of this are:

• A comprehensive pack of Board papers is sent to directors five days before meetings. This includes divisional reports, management accounts and forecasts, budgets, treasury reports, papers supporting capital expenditure proposals, acquisitions and disposals, reports from Board sub-committees (Audit and Remuneration Committees in particular) and those covering special projects such as, for example, the monitoring of work in relation to Year 2000 (the so-called Millennium Computer Bug).
• Group management accounts are circulated to all directors as a matter of monthly routine.
• Directors are properly briefed on Board issues either through Board papers or via personal briefings from the Chairman whenever considered appropriate.

The day to day management of the Group's affairs is vested in the Executive Committee, the membership of which is the Chairman of the Board, Lord Wolfson of Sunningdale, the Deputy Chairman, Eric Barnes and Victor Barnett, the Chairman of the Burberry Division, David Bury, the Group Commercial Director and Treasurer and David Tyler, the Group Finance Director. Sir Victor Blank normally attends meetings as the senior independent director. The Committee meets at least twice monthly.

The five non-executive directors are independent of management and are free from any business or other relationship which could materially interfere with the exercise of their independent judgement. Lady Patten and Lord Harris are co-directors of Harveys Furnishings plc. Their independence is not impaired by this relationship. The Board has reviewed the status of Sir Victor Blank, Lord Harris and Dr. Alan Rudge. It formed the view that these directors should be regarded as independent of management and has resolved that neither Sir Victor Blank's consultancy agreement, Dr. Rudge's Deputy Chairmanship of Experian's Global Board, nor the tenure on the Board in the case of Lord Harris are of such significance that they could materially interfere with the exercise of their independent judgement.

The five non-executive directors represent a strong independent influence and they have a major role to play on three committees of the Board.

The Audit Committee consists of four independent non-executive directors; Jonathan Charkham (Chairman), Sir Victor Blank, Lady Patten and Dr. Alan Rudge. The Committee, which has written terms of reference, setting out its authorities and duties, meets at least four times a year with the external auditors present. The Committee receives regular reports from the Group Internal Auditor who is also present at the meetings. The Committee keeps under review the scope and results of the external audit, its cost effectiveness and the independence and objectivity of the auditors. The Committee has also kept under review the nature and extent of non-audit services supplied by the auditors in seeking to balance the maintenance of objectivity and value for money.

The Remuneration Committee consists exclusively of independent non-executive directors. The application of corporate governance principles in relation to directors' remuneration is described in the Report on Directors' Remuneration and Related Matters.

Hitherto, the Company has not had a formalised procedure under which every director receives appropriate training on the first occasion he or she is appointed to the Board and subsequently as necessary. This has now received the attention of the Board and, in the case of Terry Duddy, who was appointed during the year, appropriate arrangements have been put in place. The training needs in respect of new appointments will be assessed and appropriate arrangements put in place.

The Nomination Committee is chaired by the Chairman of the Board, Lord Wolfson of Sunningdale. Jonathan Charkham and Lady Patten are ex officio members of the Committee by virtue of their respective chairmanships of the Audit and Remuneration Committees. The fourth member is Sir Victor Blank, a Deputy Chairman and the recognised senior independent director. The Company's general policy is that the chief executive of each of the Group's major operating divisions should have a seat on the Parent Board. The Board takes the view that an appointment, whether internal or external, as head of a Division is best left to the Chairman and the Executive Committee, although other directors appropriately able to contribute are consulted during the selection process. This was the process under which Terry Duddy was appointed Chief Executive of Argos and, thereafter following Board approval, invited to join the Parent Board. The Nomination Committee has the responsibility for making recommendations to the Board on all other Board appointments.

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 states that, at each annual general meeting, one third of the directors, or if their number is not an integral number of three, the nearest number to one third, but not exceeding one third, shall retire from office. Hence, it is possible that the period between elections for a director could be more than three years which conflicts with the requirements of Principle A.6 of the Combined Code which looks for re-election at least every three years. Therefore in common with a number of other companies, the Board now proposes to change the Articles of Association for which a resolution will be submitted for shareholder approval at the forthcoming Annual General Meeting. It has not been the practice to appoint non-executive directors for specified terms. This matter currently is receiving the attention of the Board.

The top management structure reflects the Group's organisation. The Group consists of seven distinct operating divisions, each of which is represented on the Parent Board either by its Chairman or Chief Executive Officer and, with this structure in place, the Board has decided in principle that there is no need for the role of a Chief Executive positioned between the Chairman and these executives. It considers that the present arrangement already satisfies Principle A.2 of the Code in that the executive management of the operating companies is separate from the running of the Board.

Relations With Shareholders
Although the Company does not have precise rules covering meetings with its institutional shareholders it is always prepared to enter into a dialogue with significant investors and meetings frequently do take place. The Board uses the Annual General Meeting to communicate with private investors and encourages their participation.

In relation to the Annual General Meeting it can be confirmed that:

• The level of the proxies lodged on each AGM resolution and the balance for and against it will be disclosed once the resolution has been dealt with on a show of hands and providing no poll has been called for. This practice was in fact introduced at last year's AGM.
• There will be no bundled resolutions and, in particular, a resolution will be proposed in relation to the report and accounts.
• It is standard practice for the chairmen of the Audit, Remuneration and Nomination committees to be available to answer questions at the AGM.
• It has been standard practice for the Notice of the AGM and related papers to be sent to shareholders 28 days before the meeting and usually this will satisfy the requirement that they be sent at least 20 working days before the meeting. When this is not the case appropriate action will be taken.

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, 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, 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 statutory requirements.

Statement of Compliance
During the financial year under review the Company has complied with the Provisions set out in the Combined Code except to the extent disclosed in the Appliance Statement set out above.

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