Committees of the Board
The principal committees of the Board are the Audit, Remuneration, Nomination and Corporate Compliance and Responsibility (CCR) Committees.
The Company Secretary organises the appropriate level of insurance cover for Directors to defend themselves against legal claims and civil actions. The level of cover is currently £60m in aggregate.
Full terms of reference of the Committees are available on request and in the Corporate Governance Compliance Statement set out in the Investor Relations section of the Group's website www.morrisons.co.uk/corporate
a) Nomination Committee
During the year the activities of the Committee were focused on advice to the executive management on the establishment and composition of the Management Board and on senior management succession planning. The Committee has engaged an executive search agency, MWM Consulting, to assist in the process of identification of potential candidates to join the Board as and when appropriate.
b) Remuneration Committee
The objective of the Group's remuneration policy is to encourage a strong performance culture and an emphasis on long term shareholder value creation. The intention is to position remuneration arrangements competitively against the market, with a clear reward structure to enable the Group to attract, retain and motivate the best talent who are key to the Group's recent and future success.
The Group HR Director has advised the Group on all remuneration related matters, including pensions and Executive Directors' contracts. Where necessary this advice was supplemented by external advisers.
The committee also receives advice from its appointed advisers Hewitt New Bridge Street on remuneration matters, Pension Capital Strategies Limited (a member of the Jardine Lloyd Thompson Group) in respect of pensions, and Ashurst LLP in respect of Executive Directors' contracts.
The activities of the Remuneration Committee during the year are set out in more detail in the Directors' remuneration report
c) Audit Committee
The Board has delegated to the Audit Committee the responsibility for reviewing on its behalf and making recommendations to the Board as to:
- the integrity of financial reports;
- the effectiveness of the Group's internal control and risk management system; and
- the independence of the external auditors.
The Audit Committee's responsibilities have not changed during the year.
The Audit Committee regularly considers the professional development needs of its members, and whether adequate technical information is being provided. Where necessary, it will seek independent external advice at the Group's expense, with such arrangements made through the Company Secretary.
The Audit Committee is chaired by Philip Cox who has the requisite recent and relevant financial experience. The Chairman, the CEO, the Group Finance Director, the Head of Risk and Internal Audit and other finance department representatives have attended meetings by invitation.
| During the year, the membership of those Committees was: |
Committee membership |
| Name |
Nomination |
Remuneration |
Audit |
CCR |
| Sir Ian Gibson |
•* |
• |
|
• |
| Dalton Philips |
• |
|
|
• |
| Philip Cox |
• |
• |
•* |
|
| Brian Flanagan |
• |
• |
• |
|
| Penny Hughes |
• |
• |
• |
|
| Martyn Jones |
|
|
|
• |
| Paul Manduca |
• |
•* |
• |
|
| Nigel Robertson |
• |
• |
• |
•* |
| Johanna Waterous |
• |
• |
• |
• |
* Chair of the Committee
| The Directors attended the following number of Board and Committee meetings: |
Committee membership |
| Number of meetings |
Board |
Nomination |
Remuneration |
Audit |
CCR |
| Sir Ian Gibson |
11/11 |
6/6 |
13/13 |
|
4/4 |
| Dalton Philips |
9/9 |
5/5 |
12/13 |
|
3/3 |
| Richard Pennycook |
10/11 |
|
|
|
|
| Mark Gunter |
10/11 |
|
|
|
|
| Philip Cox |
10/11 |
6/6 |
12/13 |
6/6 |
|
| Brian Flanagan |
10/11 |
5/6 |
12/13 |
6/6 |
|
| Penny Hughes |
9/11 |
6/6 |
9/13 |
5/6 |
|
| Martyn Jones |
8/8 |
|
|
|
3/3 |
| Paul Manduca |
11/11 |
5/6 |
13/13 |
|
|
| Nigel Robertson |
10/11 |
6/6 |
13/13 |
2/2 |
4/4 |
| Johanna Waterous |
10/11 |
6/6 |
10/13 |
6/6 |
3/4 |
(i) Overview of actions taken by the Audit Committee in discharging its duties
The Committee has received and reviewed reports and presentations from senior management to fulfil its terms of reference. To meet its responsibilities in this respect, the Committee considered:
- interim and preliminary announcements, together with any other formal announcements relating to financial performance;
- the accounting principles, policies and procedures adopted in the Group's financial statements, including, where necessary, challenging the judgements made; and
- the potential effects of tax and pensions accounting and other significant judgemental and complex accounting issues dealt with in the accounts.
The Audit Committee oversees the Group's relationship with the external auditors. Private meetings are held with the external auditors, without management present. The purpose of these meetings is to understand their views on the control and governance environment and management's effectiveness within it. To fulfil its responsibilities in respect of the independence and effectiveness of the external auditors, the Committee reviewed:
- the terms, areas of responsibility, duties and scope of work of the external auditors as set out in the engagement letter;
- the external auditors' work plan for the Group;
- the detailed findings of the audit, including a discussion of any major issues that arose during the audit;
- the letter from KPMG Audit Plc confirming its independence and objectivity; and
- the audit fee and the extent of non-audit services provided by the external auditors.
In this period, the external auditors have continued to provide a significant level of non-audit work, primarily to provide the Board with independent assurance in respect of IT systems replacement. The Board believes that this activity is a reasonable extension of their statutory audit work and that there are safeguards in place to avoid a threat to their independence or objectivity. The Board has a policy on the engagement of the external auditors to supply non-audit services and the Committee has reviewed the scope of non-audit services provided by the external auditors to ensure that there was no impairment of objectivity. A copy of that non-audit services policy is available in the Corporate Governance Compliance Statement set out in the 'Investor Relations' section of the Group's website at www.morrisons.co.uk/corporate. This non-audit services policy is designed to assist the Company and each of its subsidiaries in ensuring that the engagement of the external auditors to provide non-audit services:
- is only carried out in appropriate circumstances;
- is transparent; and
- does not impair the judgement or independence of the external auditors.
When assessing the non-audit services for approval the Audit Committee will take the following into consideration:
- whether the skills and experience of the audit firm make it the most suitable supplier of the non-audit service;
- whether there are safeguards in place to ensure that there is no threat to the objectivity or independence in the conduct of the audit resulting from the provision of such services by the external auditor;
- the nature of the non-audit services, the related fee levels and the fee levels individually and in aggregate relative to the audit fee; and
- the criteria which govern the compensation of the individuals performing the audit.
KPMG also follows its own ethical guidelines and continually reviews its audit team to ensure that its independence is not compromised.
The Audit Committee has determined that it will review not less than annually whether the incumbent auditors should remain in place or whether an auditor selection process should be initiated.
(ii) Internal control
The Board is responsible for setting a system of internal controls for the Group and reviewing its effectiveness. Executive management is responsible for implementing and maintaining the system of controls. This system is intended to manage rather than eliminate the risk of not meeting the Group's strategic objectives, whilst recognising that certain inherent risks may be outside the Group's control. The Board recognises that any system of internal control can only seek to provide reasonable, not absolute, assurance against material misstatement or loss.
The Board delegates to the Audit Committee the review of the effectiveness of the Group's internal controls and risk management systems. During the year, the Committee discharged this responsibility by:
- receiving and considering regular reports from the internal audit function on the status of internal control and risk management systems across the Group. The Committee also reviewed the department's findings, annual plan and the resources available to it to perform its work;
- reviewing the external auditor's management letters on internal financial control;
- seeking reports from senior management on the effectiveness of the management of key risk areas; and
- monitoring the adequacy and timeliness of management's response to identified audit issues.
The Audit Committee receives regular reports from the Head of Risk and Internal Audit on any whistle-blowing activity in respect of concerns expressed by colleagues about possible malpractice or wrongdoing. Whilst there were no significant concerns raised by colleagues, all actions required were discussed and agreed with the Committee.
The Board is satisfied that a continual process for identifying, evaluating and managing significant risks has been in place for the financial year and up to the date of this Annual report. To date, no material financial problems have been identified that would affect the results reported in these financial statements. The Board confirms that if significant weaknesses had been identified during this review the Board would have taken the necessary steps to remedy them.
d) Corporate Compliance and Responsibility Committee (CCR)
The CCR Committee, chaired by a Non-Executive Director, Nigel Robertson, reviews and oversees the development and implementation of policy in relation to health and safety, environmental, competitive and ethical compliance, corporate social responsibility (CSR), including the Group's engagement with community organisations and charitable bodies, and governance and other reputational management issues. With effect from 10 March 2011 Penny Hughes has been appointed as chair of the CCR Committee.
The Committee's remit does not cover operational matters but it performs an oversight, monitoring and advisory role in relation to these key areas in the Company's governance and development.
The Committee, which reports to the Board, was set up and met four times during the financial year and, as well as reviewing its terms of reference, it received presentations on the Group's CSR, health and safety and competition compliance policies and procedures.