The Board is committed to high standards of corporate governance, which it considers as fundamental to business integrity and maintaining investors’ trust and to producing a sustained delivery of value to the Company’s shareholders. The Board expects all its directors, officers and employees to act with honesty, integrity and fairness and in accordance with all relevant laws and customs.
Compliance with the Combined Code
The Company’s ordinary shares are listed in the UK on the London Stock Exchange and on the Paris Bourse in France. In addition, the Company has entered into a sponsored level one American Depositary Receipt programme with the Bank of New York Mellon, under which the Company’s shares are traded on the over-the-counter market in the form of American Depositary Receipts.
In accordance with the Listing Rules of the UK Listing Authority, the Company confirms that throughout the year ended 31 January 2009 and as at the date of this Annual Report, it was compliant with the provisions of, and applied the principles of Section 1 of the 2006 FRC Combined Code on Corporate Governance (the Combined Code). The following section together with the Directors’ report, and the Directors’ remuneration report on pages 39 to 47, provide details of how the Company applies the principles and complies with the provisions of the Combined Code.
The role of the Board
- has final responsibility for the management, direction and performance of the Group;
- exercises objective judgement on all corporate matters, independent from executive management;
- is accountable to shareholders for the proper conduct of the business; and
- is responsible for the Group’s overall Corporate Governance arrangements including: independence of directors, review of the Board and its committees’ performance and approval of Group policies.
- Group strategy, three-year plans and annual budgets;
- major acquisitions or divestments of companies and business;
- major changes to the capital structure including tax and treasury management;
- changes to accounting policies or practices;
- approval of all financial announcements, the annual report and accounts and shareholder communications;
- the system of internal control and risk management policy; and
- review of management development strategy.
Other specific responsibilities are delegated to Board Committees which operate within clearly defined terms of reference. Additional information on the responsibilities of the Board Committees.
The Board meets at least 10 times a year and the meetings are structured to allow open discussion. All directors participate in discussing the strategy, trading and financial performance and risk management of the Company. All substantive agenda items have comprehensive briefing papers which are circulated approximately one week before the meeting.
The following table shows the number of years directors have been on the Board as at 1 February 2009 and their attendance at the principal Board meetings they were eligible to attend during the 2008/09 financial year:
|Years on Board||Meetings attended|
|Kevin O’Byrne (from 01/10/08)||0||4/4|
|Duncan Tatton-Brown (until 01/10/08)||n/a||6/6|
In addition to the principal Board meetings, a number of other meetings are convened to deal with specific matters. Directors unable to attend a Board meeting because of another engagement are nevertheless provided with all the papers and information relevant for such meetings and are able to discuss issues arising in the meeting with the Chairman or the Group Chief Executive.
Division of responsibilities
To ensure that no one person has unfettered powers of decision, the roles of the Chairman and Group Chief Executive are separate and there is a clear and established division of responsibilities agreed by the Board. The Chairman is responsible for the operation, leadership and governance of the Board; ensuring its effectiveness and setting its agenda. He also meets separately with the non-executive directors during the year. The Group Chief Executive is responsible for the management of the Group’s business and the implementation of Board strategy and policy.
Board balance and independence
The Company’s Board consists of nine directors, eight of whom served throughout the 2008/09 financial year. In addition to the Chairman, Peter Jackson, there were two executive directors and six non-executive directors as at 31 January 2009. The executive directors are Ian Cheshire (Group Chief Executive) and Kevin O’Byrne (Group Finance Director).
On 17 March 2009, the Company announced that upon conclusion of the AGM to be held on 3 June 2009, Peter Jackson will retire as Chairman of the Board and that Daniel Bernard will succeed him in this role. At the same time, John Nelson will assume the role of Deputy Chairman in addition to retaining his responsibilities as Senior Independent Non-Executive Director and Chairman of the Remuneration Committee. Upon his appointment as Chairman, it is expected that Daniel M Bernard will relinquish his membership of the Audit Committee and become a member of the Remuneration Committee whilst also assuming the role of Chairman of the Nomination Committee.
John Nelson is the nominated Senior Independent Director and his role includes being available for approach or representation from significant shareholders who may feel inhibited from raising issues with the Chairman. He is also responsible for conducting an annual review of the performance of the Chairman and, in the event it should be necessary, convening a meeting of the non-executive directors.
The Company considers all of its present non-executive directors to be fully independent, including Michael Hepher, notwithstanding the fact that he has served more than 11 years as a director. Michael Hepher has offered himself for re-election at the AGM this year to provide continuity of Board membership as Daniel Bernard takes on his new role as Chairman of the Board. The Board sets out its reasons for determining his continued independence in the Directors’ report.
The executive and non-executive directors are equal members of the Board and have overall collective responsibility for the direction of the Company. The names and biographical details of the current directors are given in the Board of Directors section.
Conflicts of interest
The Company has procedures in place to deal with conflicts of interest and these procedures have operated effectively. The Board is aware of the other commitments of its directors and changes to these commitments are reported to the Board.
Appointments to the Board
There is a formal, rigorous and transparent procedure for the appointment of new directors to the Board. This is described in the section on the Nomination Committee. Individual non-executive directors are able to serve up to three three-year terms. At the end of each three-year term, an analysis is undertaken to ensure that the relevant directors continue to make an effective and valuable contribution to the Board and demonstrate an appropriate commitment to the role. The terms and conditions of appointment of the non-executive directors are available for inspection at the Company’s registered office and will be available for inspection at the AGM from 15 minutes before the meeting until it ends.
Information and professional development
Each member of the Board receives monthly information including financial results. The Board pack for meetings includes reports from the executive directors in respect of their areas of responsibility. The Group Chief Executive’s report deals, amongst other things, with trading, management, capital, returns and the Company’s ‘Delivering Value’ objectives. These matters are discussed at each Board meeting. Financial plans, including budgets and forecasts, are also regularly discussed at Board meetings. From time to time, the Board receives detailed presentations from non-Board members on matters of significance or on new opportunities for the Group. The non-executive directors periodically visit different Group companies and are provided with briefings and information to assist them in performing their duties.
The Board receives reports concerning meetings with institutional shareholders and addressing their issues and concerns. This process and reporting allows the directors to develop the necessary understanding of the views of the shareholders and also enables the Board to judge whether investors have a sufficient understanding of the Company’s objectives.
The Chairman is responsible for ensuring that induction and training programmes are provided. Individual directors are also expected to take responsibility for identifying their individual needs and to take steps to ensure that they are adequately informed about the Group and their responsibilities as a director. The Board is confident that all its members have the knowledge, ability and experience to perform the functions required of a director of a listed company.
- individual time with the Chairman, the Group Chief Executive, the Group Finance Director and other senior corporate executives;
- visits to the Company’s stores and those of competitors;
- meetings with operating company management; and
- external training courses at the Company’s expense, if required.
The Company Secretary provides a programme of ongoing briefings for the directors that cover a number of legal and regulatory changes and developments relevant to directors’ areas of responsibility. Throughout their period in office, the directors are continually updated on the Group’s businesses and the regulatory and industry specific environments in which they operate. These updates are by way of written briefings and meetings with senior executives and, where appropriate, external sources.
Performance evaluation of the Board, its committees and individual directors takes place on an annual basis and is conducted within the terms of reference of the Nomination Committee with the aim of improving individual contributions, the effectiveness of the Board and its committees and the Group’s performance. In recent years, the evaluation has been internally facilitated.
The Board undertook a formal self-evaluation of its own performance during the 2008/09 financial year. The process was led by the Chairman and facilitated by the Company Secretary and involved the use of an online questionnaire with Company-specific questions. The same process was used to evaluate the performance of each of the Board committees. The Board will continue to review its procedures, effectiveness and development in the year ahead and the new Chairman will use the output of the most recent evaluation as the basis of his initial individual meetings with directors.
The Chairman leads the assessment of the Group Chief Executive and the non-executive directors, the Group Chief Executive undertakes the performance reviews for executive directors and the Senior Independent Director conducts the review of the performance of the Chairman.
The evaluations found the performance of each director to be effective and concluded that the Board provides the effective leadership and control required for a listed company. The Board confirmed that the contributions made by the directors offering themselves for re-election at the AGM on 3 June 2009 continued to be effective and that the Company should support their re-election.
There is an agreed procedure to enable individual directors to take independent legal and financial advice at the Company’s expense, as and when necessary, to support the performance of their duties as directors of the Company.
The Board has established Nomination, Remuneration and Audit Committees and provides sufficient resources to enable them to undertake their duties. Executive directors are not members of these Board committees, although they may be invited to attend meetings. The Board is satisfied that the terms of reference for each of these committees satisfy the requirements of the Combined Code and are reviewed on an ongoing basis. The terms of reference for all Board committees can be found on the Company’s website at www.kingfisher.com or a copy can be obtained by application to the Company Secretary at the Company’s registered office.
Each committee has access to such information and advice as it deems necessary at the cost of the Company. Each committee is responsible for reviewing the effectiveness of its terms of reference, as appropriate, and for making recommendations to the Board for changes where necessary. The minutes of committee meetings are circulated to all directors.
The members of the Audit Committee and the record of their attendance at the meetings they were eligible to attend during the year are set out below:
|Phil Bentley, Chairman||4/4|
The Audit Committee is comprised of members having the necessary ability and experience to understand financial statements. Solely for the purpose of fulfilling the requirements of the Combined Code, the Board has designated Phil Bentley as the committee member with recent and relevant financial experience. Further details on Phil Bentley can be found in Board of Directors.
- to monitor the integrity of the financial statements of the Company;
- to review, understand and evaluate the Company’s internal financial, risk, and other internal controls and their associated systems;
- to monitor and review the effectiveness of the Company’s internal audit function on an annual basis;
- to oversee the relationship with the external auditors, making recommendations to the Board in relation to the appointment, remuneration and terms of engagement; and
- to monitor and review the external auditor’s independence, objectivity and effectiveness and to approve the policy on the engagement of the external auditor to supply non-audit services.
At each of its meetings, the Audit Committee meets separately with the external auditors and the Group Audit & Risk Management Director without management being present. Further details on the work of the Audit Committee can be found under Auditors and the Audit Committee report.
The members of the Nomination Committee and the record of their attendance at the meetings they were eligible to attend during the year are set out below:
|Peter Jackson, Chairman||2/2|
- reviews the structure, size and composition of the Board and makes recommendations to the Board, as appropriate;
- identifies the balance of skills, knowledge and experience on the Board and nominates candidates to fill Board vacancies;
- reviews the time required from a non-executive director;
- considers succession planning, taking into account the challenges and opportunities facing the Group and the future skills and expertise needed on the Board; and
- reviews the leadership needs of the organisation, both executive and nonexecutive, with a view to ensuring the continued ability of the organisation to compete effectively in the marketplace.
The Nomination Committee meets periodically when required and external advisers may be invited to attend. Following the termination of Duncan Tatton-Brown’s service agreement, the Nomination Committee conducted a rigorous search and selection process with the assistance of specialist recruitment consultants, which identified Kevin O’Byrne as the most suitable candidate for the role of Group Finance Director. In addition, and with the support of specialist recruitment consultants, Committee members were also involved in the assessment and interview of potential successors to the Chairman, a process which identified Daniel Bernard as successor to Peter Jackson. The Committee’s activities during the year also included considering the appointments of Euan Sutherland and Peter Hogsted as CEO UK and CEO International respectively.
The members of the Remuneration Committee and the record of their attendance at the meetings they were eligible to attend during the year are set out below:
|John Nelson, Chairman||4/4|
- determining, on behalf of the Board, the Company’s policy on the remuneration of the Chairman, the executive directors and the senior management team of the Company;
- determining the total remuneration packages for these individuals, including any compensation on termination of office; and
- appointing consultants in respect of executive directors’ remuneration.
The Group Chief Executive may attend the Remuneration Committee’s meetings by invitation. He does not attend when his individual remuneration is discussed and no director is involved in deciding his own remuneration.
Further information on the Remuneration Committee’s activities is contained in the Directors’ remuneration report.
- monthly Group trading performance;
- the Group’s capital structure and funding;
- capital expenditure proposals, major acquisitions or disposals of businesses;
- the Group’s key risks;
- management development and senior executive succession plans;
- the Group’s corporate responsibility programme; and
- the individual progress of operating companies.
The Group Chief Executive reports to the Board on issues, progress and recommendations for change. Details of the executive team forming part of the Retail Board and their biographical details are set out in the Conversation with the executive team.
- assists the Chairman in ensuring that all directors have full and timely access to all relevant information;
- is responsible for ensuring that the correct Board procedures are followed and advises the Board on corporate governance matters; and
- administers the procedure under which directors can, where appropriate, obtain independent professional advice at the Company’s expense.
The appointment or removal of the Company Secretary is a matter for the Board as a whole.
Accountability, risk management and internal control
- the Board’s overall responsibility;
- regularly reviewed for its effectiveness by both the Board and the Audit Committee; and
- in compliance with the Turnbull Guidance 2005.
However, such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can provide only reasonable and not absolute assurance against material misstatement or loss.
The Board has approved a set of policies, procedures and frameworks for effective internal control that implement the Turnbull Guidance, ‘Internal Control: Revised Guidance for Directors on the Combined Code’, for the year under review and to the date of approval of this Annual Report. These procedures are subject to regular review and provide an ongoing process for identifying, evaluating and managing the significant risks faced by the Group.
- works with the operating companies to develop, improve and embed risk management tools and processes into their business operations;
- oversees the operation of the individual operating businesses’ audit committees;
- ensures that business risks are identified, managed and regularly reviewed by management at all levels of the Group and that directors are periodically appraised of the key risks in accordance with the Turnbull Guidance 2005;
- provides the Audit Committee and the Board with objective assurance on the control environment across the Group; and
- monitors adherence to the Group’s key policies and principles.
Management at each operating company has responsibility for the identification and evaluation of the significant risks applicable to their business and any mitigating actions to be taken through the Retail Board, which reviews, identifies and evaluates the risks that are significant at a Group level as well as the mitigating actions against those risks. These are then considered by the Board. The type of risks identified include strategic risk, external factors (such as competition, environment and regulation), change management programmes, health and safety, retention of key management and macro market risks.
Monitoring and review activities
- a formal biannual confirmation provided by the finance director of each operating company certifying the operation of their control systems and highlighting any weaknesses, the results of which are reviewed by regional management, the Audit Committee and the Board;
- periodic examination of business processes on a risk basis including reports on controls throughout the Group undertaken by the internal audit function which reports directly to the Audit Committee; and
- reports on certain internal controls and relevant financial reporting matters from the external auditors, PricewaterhouseCoopers, to the Audit Committee and management.
Any controls and procedures, no matter how well-designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives. Management is required to apply judgement in evaluating the risks facing the Group in achieving its objectives, in determining the risks that are considered acceptable to bear, in assessing the likelihood of the risks concerned materialising, in identifying the Company’s ability to reduce the incidence and impact on the business of risks that do materialise and in ensuring the costs of operating particular controls are proportionate to the benefit.
The Board confirms that it has reviewed the effectiveness of the internal control system, including financial, operational and compliance controls and risk management in accordance with the Combined Code for the period from 3 February 2008 to the date of approval of this Annual Report. Following a review of its operating model, the Group is restructuring its business in China. The directors consider that, with hindsight, B&Q China expanded too quickly following the acquisition of OBI in 2005 and became too reliant on local vendors with the result that controls over inventory and supply chain management, including product proliferation, proved inadequate. The Group has deployed additional experienced management and enhanced controls to remedy this significant weakness. Further controls training will be undertaken in 2009/10.
Following a recommendation by the Audit Committee a resolution proposing the re-appointment of PricewaterhouseCoopers LLP as Auditors to the Company will be put to the 2009 AGM.
The Company’s policy on the use of its Auditors for non-audit work was reviewed and updated in 2008. The Auditors are precluded from engaging in non-audit services that would compromise their independence or violate any laws or regulations affecting their appointment as Auditors. The approval of the Chairman of the Audit Committee is required prior to awarding contracts for non-audit services to the external auditors in excess of specified amounts. The external auditors report to the Audit Committee annually on their independence from the Company. Periodic rotation of key audit partners is also required.
Each of the Group’s businesses is consulted on the effectiveness and independence of the Auditors annually. In addition, the Auditors provide the Audit Committee with a schedule of each matter on which there was an initial difference between them and management in relation to the accounting treatment, with the advice (if needed) of the firm’s technical committee, and with the final decisions on these issues. The Audit Committee considers whether the audit should go out to tender but has taken the view that partner rotation at both the Group and operating business level has been sufficient to maintain the necessary independence.
In addition to their statutory duties, PricewaterhouseCoopers LLP is also employed where, as a result of its position as auditor, it either must, or is best placed to, perform the work in question. This is primarily work in relation to matters such as shareholder circulars, Group borrowings, tax advice, regulatory filings and certain business acquisitions and disposals. Other work is awarded on the basis of competitive tendering.
During the year, PricewaterhouseCoopers LLP charged the Group £2.3m (2007/08: £1.9m) for audit and audit-related services and a further £0.9m (2007/08: £1.1m) for non-audit services.
Relations with shareholders
- formal presentations of full-year and interim results;
- conference calls to discuss quarterly trading statements;
- regular meetings between institutional investors and senior management to ensure that the investor community receives a balanced and complete view of the Group’s performance and the issues faced by the Group;
- hosting investors’ and analysts’ sessions at which senior management from relevant operating companies deliver presentations which provide an overview of individual businesses;
- responding to enquiries from shareholders through the Company’s investor relations team;
- regular meetings with institutional investors and analysts by the Group Chief Executive to discuss business performance; and
- a section dedicated to shareholders on the Company’s website, www.kingfisher.com.
The Chairman, the Senior Independent Director and the chairmen of the Board committees are available to meet major investors on request. The Senior Independent Director has a specific responsibility to be available to shareholders who have concerns, and for whom contact with the Chairman, Group Chief Executive or Group Finance Director has either failed to resolve their concerns, or for whom such contact is inappropriate.
At the 2008 AGM, shareholders approved amendments to the Articles which enabled the Company to take advantage of the provision of the Companies Act 2006 to communicate with its shareholders electronically. Following that approval, unless a shareholder has specifically asked to receive a hard copy, shareholders will be notified of the availability of the Annual Report on the Company’s website, www.kingfisher.com. For the 2009 reporting season, shareholders will receive a notice of availability and form of proxy in paper through the post. Shareholders continue to have the option to appoint proxies and give voting instructions electronically.
The principal means of communication with private investors is by electronic communications and through the AGM, an occasion attended by all the Company’s directors and at which all shareholders present are given the opportunity to question the Chairman and the Board as well as the chairmen of the Board committees. After the AGM, shareholders can meet informally with directors.
A summary business presentation is given at the AGM before the Chairman deals with the formal business of the meeting. At the AGM on 3 June 2009, the Chairman will use his discretion to call for a poll on all substantive resolutions. This will bring the Company in line with best practice and the recommendation in the 2005 Myners Report, ‘Review of the impediments to voting UK shares’. The Board considers that the use of polls for voting on substantive resolutions will usually be appropriate since it produces a more transparent method of voting and an exact and definitive result. The results of the votes in relation to all resolutions will be disclosed to those in attendance at the meeting, published on the Company’s website and announced via the regulatory news service shortly after the conclusion of the AGM.