The Board is committed to the highest standards of corporate governance and recognises that good governance is fundamental to helping the business deliver its strategy whilst generating shareholder value and safeguarding shareholders’ long-term interests.
Compliance with the Combined Code
As a UK listed company, Kingfisher plc is required to state whether it has complied with the provisions set out in Section 1 of the UK Financial Reporting Council’s 2008 Combined Code on Corporate Governance (the Combined Code) throughout the year and, where the provisions have not been complied with, to provide an explanation. The Company is also required to explain how it has applied the principles set out in Section 1 of the Combined Code. The Board considers that throughout the year ended 30 January 2010, and as at the date of this Annual Report, the Company was compliant with the provisions of, and applied the principles of Section 1 of the Combined Code. The following section together with the directors’ report, and the directors’ remuneration report, provides details of how the Company applies the principles and complies with the provisions of the Combined Code.
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.
On 29 December 2009, the Company delisted its ordinary shares from the list of financial instruments admitted to trading on NYSE Euronext Paris. The decision to delist the shares from NYSE Euronext Paris was motivated primarily by low trading volumes experienced over the past few years.
The role of the Board
The Board leads and controls the Group’s business and its powers are set out in the Company’s Articles of Association, which are available on the Company’s website. The Board has final responsibility for the management, direction and performance of the Group and is accountable to the Company’s shareholders for the proper conduct of the business.
The Board has a formal schedule of matters specifically reserved for its approval, which is available on the Company’s website. The schedule is reviewed periodically and includes the following matters:
- 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.
The Board has delegated authority to its committees to carry out certain tasks as defined in their written terms of reference. Additional information on the responsibilities of each of the Board committees.
The Board holds regular scheduled meetings throughout the year. Unscheduled supplementary meetings also take place as and when necessary. These meetings are structured to allow open discussion. All directors participate in discussing the strategy, trading and financial performance and risk management of the Company. Comprehensive briefing papers are circulated to all directors approximately one week before each meeting. Those directors who were unable to attend a particular meeting during the year reviewed the relevant briefing papers and were given the opportunity to discuss any issues with the Chairman or the Group Chief Executive.
Board and committee meeting attendance
The following table shows the number of years directors have been on the Board as at 1 February 2010 and their attendance at the scheduled Board and committee meetings which they were eligible to attend during the 2009/10 financial year:
|Years on Board||Scheduled Board meetings||Audit Committee meetings||Remuneration Committee meetings||Nomination Committee meetings|
|Attended||Eligible to attend||Attended||Eligible to attend||Attended||Eligible to attend||Attended||Eligible to attend|
Board constitution, appointments and independence
The Board is made up of two executive directors, five non-executive directors and a non-executive Chairman. The executive and non-executive directors are equal members of the Board and have overall collective responsibility for the direction of the Company. Current directors’ biographical details.
There is a clear division of responsibilities between the Chairman and the Group Chief Executive, which has been approved by the Board and is available on the Company’s website. The Chairman is responsible for the overall operation, leadership and governance of the Board. He is also responsible for ensuring that all members of the Board develop an understanding of the views of major shareholders and that there is an open dialogue with shareholders. The Group Chief Executive is responsible for all executive management of the Group’s business, consistent with the strategy and commercial objectives agreed by the Board.
At the conclusion of the AGM held on 3 June 2009, Peter Jackson retired as Chairman of the Board and Daniel Bernard succeeded him in this role. At that time, John Nelson assumed the role of Deputy Chairman in addition to his existing responsibilities as Senior Independent Director. The Senior Independent Director is 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. Peter Jackson, Hartmut Krämer and Phil Bentley retired as non-executive directors on 3 June 2009, 23 October 2009 and 17 March 2010 respectively, and Michael Hepher, who has served on the Board as a non-executive director for 12 years, will retire at the conclusion of the AGM to be held on 17 June 2010.
The non-executive directors of the Company play a key governance role and bring an external dimension to the Board’s deliberations. During the year, the Board considered the independence of each non-executive director (other than the Chairman, who was deemed independent by the Board at the date of his appointment) against the criteria specified in the Combined Code and determined that each remained fully independent.
Appointments to the Board
There is a formal, rigorous and transparent procedure for the appointment of new directors to the Board and this is described in the section on the Nomination Committee. The procedure was followed during the selection and appointment of Anders Dahlvig and Andrew Bonfield, who joined the Board as non-executive directors on 16 December 2009 and 11 February 2010, respectively. The terms and conditions of appointment of each of the non-executive directors are available for inspection at the Company’s registered office and will also be available for inspection at the AGM from 15 minutes before the meeting until its conclusion. 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 their role.
Directors’ conflicts of interest
The Company has robust procedures in place to identify, authorise and manage any conflicts of interest, and these procedures have operated effectively during the year. A register of directors’ conflicts is maintained by the Company Secretary and reviewed by the Board on a regular basis. The Board is aware of the other commitments of its directors and any changes to these commitments are reported to the Board.
All new directors appointed to the Board receive a comprehensive induction programme tailored to their experience, background and particular areas of focus, which is designed to develop their knowledge and understanding of the Group’s culture and operations. In particular, the programme includes:
- individual one-to-one meetings with the Chairman, the Group Chief Executive, the Group Finance Director and other directors;
- site visits to the Group’s stores and those of its competitors;
- meetings with operating company management and other senior management; and
- external training courses at the Company’s expense, if required.
Subsequent training is also available to directors on an ongoing basis. Directors are briefed on issues arising at Board and committee meetings and have full and timely access to relevant information ahead of each meeting. The Board meeting briefing papers include updates from the Group Chief Executive, the Group Finance Director and the Company Secretary. In particular, the Board received updates on the following activities during the year: trading results; key management changes; capital structure; returns; financial plans; and legal and regulatory updates. The Board programme includes presentations from management on particular issues and site visits including overseas operations. 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 also receives regular reports addressing issues and concerns raised by the Company’s institutional shareholders. This process allows the directors to develop the necessary understanding of the views of these shareholders and also enables the Board to judge whether investors have a sufficient understanding of the Company’s objectives.
As well as planned development and briefings, directors are also expected to take responsibility for identifying their own individual needs and to take necessary 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.
There is also an agreed procedure whereby directors may take independent professional advice at the Company’s expense in the furtherance of their duties.
Performance evaluation and director re-election
During the year, the Board considered the output from its own performance evaluation and that of its committees, which was carried out during January 2009. The annual performance evaluation is conducted within the terms of reference of the Nomination Committee with the aim of improving directors’ individual contributions, Board and committee effectiveness, and the Group’s performance. The internal process was led by the Chairman and facilitated by the Company Secretary and involved the use of an online questionnaire with specific questions relevant to the Company. The performance assessment of the non-executive directors and the Group Chief Executive was carried out by the Chairman during the year. In addition, the Group Chief Executive conducted the performance review of the Group Finance Director and the Senior Independent Director conducted the performance review of the Chairman.
The individual evaluations found the performance of each director to be effective and concluded that the Board and its committees continue to operate effectively. The Board confirmed that the contributions made by each director offering themselves for re-election at the AGM on 17 June 2010 continued to be effective and that the Company should support their re-election. The details of directors seeking re-election and election at the 2010 AGM are set out in the separate Notice of Annual General Meeting.
The Board will continue to review its procedures, effectiveness and development in the year ahead and the Chairman will use the output of the most recent evaluation as the basis of his individual meetings with directors.
The Board will consider the use of an external facilitator to carry out an independent Board evaluation during the year ahead.
The Board has delegated authority to its committees to carry out certain tasks as defined in each committee’s respective terms of reference. The written terms of reference in respect of the Audit, Remuneration and Nomination committees are available on the Company’s website and hard copies are available upon application to the Company Secretary at the Company’s registered office.
Minutes of committee meetings are made available to all directors on a timely basis and the chairmen of the principal committees provide updates to the Board at subsequent Board 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. Details of each committee, including membership, are set out in the following committee reports:
The current members of the Audit Committee are Andrew Bonfield (Chairman), Anders Dahlvig, Michael Hepher and John Nelson. Phil Bentley retired from the Board and therefore the Audit Committee on 17 March 2010 and was replaced as chairman of the Audit Committee by Andrew Bonfield on this date. Daniel Bernard resigned as a member of the Committee following his appointment as Chairman of the Board on 3 June 2009. In accordance with the requirements of the Combined Code, Andrew Bonfield is designated as the committee member with recent and relevant financial experience. The Audit Committee is comprised of members having the necessary ability and experience to understand financial statements.
Under its terms of reference, which are available on the Company’s website, the Audit Committee is required, amongst other things to:
- monitor the integrity of the financial statements of the Company;
- review, understand and evaluate the Company’s financial, risk, and other internal controls and their associated systems;
- monitor and review the effectiveness of the Company’s internal audit function on an annual basis;
- oversee the relationship with the external auditors, making recommendations to the Board in relation to the appointment, remuneration and terms of engagement; and
- 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 current members of the Nomination Committee are Daniel Bernard (Chairman), Andrew Bonfield, Anders Dahlvig, Michael Hepher, Janis Kong and John Nelson.
The primary purpose of the Nomination Committee is to lead the process for Board appointments and to make recommendations for maintaining an appropriate balance of skills on the Board. In particular, the Nomination Committee:
- 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 non-executive, 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 a rigorous search and selection process carried out with the assistance of specialist recruitment consultants, the Nomination Committee considered the proposed appointments of Anders Dahlvig and Andrew Bonfield as additional non-executive directors. In making its appointment recommendations to the Board, the committee reviewed the overall balance of skills, knowledge and experience on the Board against current and future requirements of the Company.
A report detailing the composition, responsibilities and work carried out by the Remuneration Committee during the year, including an explanation of how it applied the principles of the Combined Code in setting executive directors’ remuneration, is included within the directors’ remuneration report.
The members of the Retail Board are the executive directors, divisional chief executives and certain other Group functional heads. The executive element of the Retail Board, whose biographical details are set out here meet 12 times a year under the chairmanship of the Group Chief Executive. The remaining members of the Retail Board, whose biographical details are also set out here, participate in at least four meetings per year and other meetings upon invitation.
The Retail Board is responsible for the day-to-day management of the Group’s businesses and the overall financial performance of the Group in fulfilment of strategy, plans and budgets. It is also responsible for making recommendations on:
- 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 Company Secretary acts as Secretary to the Board and its committees and, with the consent of the Board, may delegate responsibility for the administration of the committees to other suitably qualified staff. The Company Secretary is also responsible for ensuring that the correct Board procedures are followed and advises the Board on corporate governance matters. All directors have access to the advice and services of the Company Secretary and his appointment and removal is one of the matters reserved to the Board.
Accountability, risk management and internal control
The Board considers risk assessment, identification of mitigating actions and internal control to be fundamental to achieving the Company’s strategic corporate objectives. This system of internal control is:
- the Board’s overall responsibility;
- annually 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.
The internal audit function:
- 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
There are clear processes for monitoring the system of internal control and reporting any significant control failings or weaknesses together with details of corrective action. These include:
- a formal quarterly 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; and
- 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.
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 1 February 2009 to the date of approval of this Annual Report. Following this review, the Board is satisfied that the system of internal control is effective.
During the year, the Company reviewed the services of its existing auditors, PricewaterhouseCoopers LLP, and following a tender, appointed Deloitte LLP to serve as its statutory auditors until the conclusion of the 2010 AGM. A resolution proposing the appointment of Deloitte LLP as auditors to the Company will be put to the 2010 AGM.
The Company has a policy on the use of its auditors for non-audit work and this is regularly reviewed. 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, and with the final decisions on these issues. The Audit Committee is satisfied with the effectiveness and independence of the external auditors.
In addition to their statutory duties, Deloitte 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 £nil (2008/09: £2.3 million) for audit and audit-related services and a further £0.4 million (2008/09: £0.9 million) for non-audit services. In addition, Deloitte LLP charged the Group £1.3 million for audit and audit-related services and a further £0.3 million for non-audit services during the year.
Relations with shareholders
The Company is committed to communicating its strategy and activities clearly to its shareholders and, to that end, maintains an active dialogue with investors through a planned programme of investor relations activities. The investor relations programme includes:
- 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 and Group Finance Director to discuss business performance; and
- a section dedicated to shareholders on the Company’s website.
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.
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 have the opportunity to 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 17 June 2010, the Chairman will use his discretion to call for a poll on all substantive resolutions. 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.