Morrisons | Annual Report and Financial Statements 2011

The Board

Membership

On 29 January 2012, the Board comprised a Non-Executive Chairman, two Executive Directors and four Non-Executive Directors.

There is a clear division of responsibilities between the Chairman and the Chief Executive, which has been set out in writing and agreed by the Board.

As reported in the 2010/11 Annual report and financial statements, during the year three directors left the Board. Paul Manduca stepped down on 9 March 2011, and Brian Flanagan and Mark Gunter stepped down on 9 June 2011 following the Company's AGM. There were no new appointments to the Board. Throughout the period, the majority of the Board consisted of independent Non-Executive Directors. Details of appointments, roles and backgrounds of the Directors are set out in the Board of Directors and Management Board section.

Performance evaluation and training

The performance of the Board, its committees and its Directors are assessed and appraised regularly. The Chairman is responsible for monitoring the performance of the Chief Executive, who in turn is responsible for monitoring the performance of the Executive Directors.

The effectiveness of the Board was considered within the context of three key criteria:

• the Board's ability to achieve its objectives,particularly with regard to the development of strategy, the oversight of risk and control, the monitoring of executive performance, and the protection of shareholder and stakeholder interests;
• the Board's ability to work together effectively; and
• the Board's ability to maximise its use of time.

The conclusions of that review were that the Board demonstrated six areas of strength: its approach to strategy, its knowledge of stakeholder views, its development of internal controls and risk management, its approach to remuneration, its positive culture and contribution, and its combination of formal and informal meetings throughout the year.

The review suggested that there were two issues which related to the future, and which might have affected the Board's capacity for impact and effectiveness in the longer term, being preparation for organisational change and the approach to executive succession planning.

These matters were already in the Board's schedule of matters for regular review, and the Nomination Committee and full Board have, since the report was received, considered both of these matters in detail. Detailed plans have been reviewed and approved.

The Board has accepted the recommendation of the Corporate Compliance and Responsibility (CCR) Committee that there will be a further evaluation process of the Board and its principal committees (Audit, Nomination, Remuneration and CCR) carried out in the current financial year by the Chairman, supported by the Chair of the CCR Committee and the Company Secretary, and in the following financial year, a further independently facilitated external evaluation.

The Board is satisfied that the arrangements for review and appraisal of the performance of the Board, its committees and individual Directors are appropriate. The Board is also confident that the initiatives which have been implemented already or which are in progress will enable the Group to satisfy the best practice recommendations of the Code in relation to Board evaluation.

During the course of the 2011/12 financial year, the Group has continued with its series of Board training sessions, presented by the Group's external advisers on various key issues of importance to the Group. This training was designed to address matters of specific relevance to the Group and covered a range of topics.

These training programmes have also been shared, as appropriate, with the Group's Management Board to ensure that there is the necessary knowledge and support at the highest levels of the Group's management. In relation to the Group's compliance processes to address bribery and corrupt practices, training has been provided across the management of the Group and the Group's policies, which were revised and brought up to date to reflect the introduction during the year of the Bribery Act and the requirement for high level sponsorship and support for those policies.

During the year, Nigel Robertson assumed the role as Senior Independent Director, Johanna Waterous was appointed as Chair of the Remuneration Committee and Penny Hughes was appointed Chair of the CCR Committee. Prior to these Directors each taking up those roles, they received a detailed induction from the Company Secretary, supported by meetings with key and relevant members of the Group's management team and with the Group's principal external advisers. The aim of these induction programmes was to ensure that they each had a clear and thorough understanding of the particular requirement of those specific roles and a detailed familiarity with the particular issues relating to their new areas of responsibility.

The training programme will continue, so that regular updates are provided to the Board on corporate governance, legal issues, accounting issues and new developments.

Senior Independent Director

Nigel Robertson assumed the role of Senior Independent Director on 10 March 2011 when Paul Manduca stepped down from the Board. Nigel joined the Board as a Non-Executive Director in July 2005 and, on appointment, had no prior association with the Company. He has gained extensive knowledge of the Group's business and its activities. Throughout his period of tenure as Senior Independent Director, he has been available to shareholders as an alternative to the Chairman, the Chief Executive and the Group Finance Director. He will continue to be available to meet shareholders and will report any relevant issues to the Board or the Chairman. Nigel also co-ordinates the review of the performance of the Chairman by the Non-Executive Directors, the latest having been carried out in February 2012.

Non-Executive Directors

The Non-Executive Directors provide a varied range of skills and experience to the Group. Details of their experience outside the Group are set out in their respective biographies. The Board is satisfied that all Non-Executive Directors, including the Non-Executive Chairman, remain independent according to the definition contained in the Code. No Non-Executive Director:

• has previously been employed by the Group within the last five years;
• has had a material business relationship with the Group within the last three years;
• receives remuneration other than Director's fees;
• has close family ties with any of the Group's advisers, Directors or senior employees;
• holds cross-directorships or has significant links with other directors through involvement in other companies or bodies;
• represents a significant shareholder; or
• has served on the Board for more than nine years.

All Directors are provided with a comprehensive, formal and tailored induction to the business. The minimum time commitment expected of the Non-Executive Directors is one day per month attendance at meetings, together with attendance at the AGM, Board away days and site visits, plus adequate preparation time. The Board is satisfied that each of the Non-Executive Directors commits sufficient time to the business of the Group and contributes to the governance and operations of the Group. This has been confirmed by the independent Board effectiveness evaluation referred to earlier in this report.

During the year, the Non-Executive Directors met six times without management present to discuss the performance of the business and management, and the wider economic, commercial and social environment in which the Group operates. The Chairman arranges for there to be regular discussions between all the Non-Executive Directors (including himself) as a group. These are not part of a strict timetable, as they are influenced by the circumstances from time to time. However, these discussions take place, roughly, at or around every alternate Board meeting. The Senior Independent Director has also co-ordinated a meeting of the Non-Executive Directors which carried out an appraisal of the Chairman's performance. As part of this process, he also sought the views of the Executive Directors.

Board responsibilities

The Board is responsible for setting and approving the strategy and key policies of the Group, and for monitoring the progress towards achieving these objectives. It monitors financial performance, critical operational issues and risks, including regular review and formal approval of the Group's risk register. The Board also approves all circulars, listing particulars, resolutions and correspondence to shareholders, including the Annual report and financial statements, half-yearly financial report and interim management statements.

The formal schedule of matters reserved for the Board remains unaltered and further details are available in the Corporate Governance Compliance Statement set out in the investor relations section of the Group's website, www.morrisons.co.uk/corporate

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