RBS 2003 Annual Report Download - page 121

119
Annual Report and Accounts 2003
Corporate governance
The names of directors standing for re-election at the 2004
annual general meeting are contained on page 116 and further
information will be given in the Chairman’s letter to shareholders
in relation to the company’s annual general meeting.
Information, induction and professional development
The Chairman ensures that all directors receive accurate,
timely and clear information on all relevant matters. Any
requests for further information or clarification are dealt with or
co-ordinated by the Group Secretary.
The Group Secretary is responsible for advising the Board,
through the Chairman, on all governance matters. All directors
have access to the advice and services of the Group
Secretary who is responsible to the Board for ensuring that
Board procedures are followed and that applicable rules and
regulations are complied with. In addition, all directors are
able, if necessary, to obtain independent professional advice
at the company’s expense.
Each new director receives a formal induction, including visits
to all the Group’s major businesses and meetings with senior
management. The induction is tailored to the director’s specific
requirements. Existing directors undertake such professional
development as they consider necessary in assisting them to
carry out their duties as directors.
Performance evaluation
Building on the internal review conducted in 2001, a performance
evaluation of the Board and its Committees was undertaken in
the autumn of 2003. The review was conducted by the Group
Secretary using a detailed questionnaire and meetings with
each of the directors to discuss the performance of the Board
and its Committees.
In addition, each director discussed his or her own performance
with the Chairman and the senior independent director met
individually with the executive directors and with the non-
executive directors as a group without the Chairman present,
to consider the Chairman’s performance. The report on the
Board evaluation, which was designed to assist the Board in
further improving its performance, was considered and
discussed by the Board as a whole and specific actions are
currently being implemented. A performance review will be
conducted on an annual basis.
Board Committees
In order to provide effective oversight and leadership, the
Board has established a number of Committees with particular
responsibilities. The Committee chairmanship and membership
is refreshed on a regular basis.
Audit Committee
The Audit Committee is responsible for assisting the Board in
discharging its responsibilities in relation to the financial affairs
of the Group, the arrangements for accounting and financial
reporting and regulatory compliance, the standards of internal
control, and arrangements for internal audit, risk management
and the external auditors. The Audit Committee meets
executive directors and management and the external and
internal auditors privately.
In January 2003, the Audit Committee established its policy on
the engagement of the external auditors to supply audit and
non-audit services, taking into account relevant legislation
regarding the provision of such services by an external audit
firm. This policy is reviewed annually by the Audit Committee
which also reviews and monitors the independence of the
external auditors when it approves non-audit work to be carried
out by them, taking into consideration relevant ethical guidance.
To safeguard auditor objectivity and independence in the
provision of non-audit services, a detailed submission is made
by management to the Audit Committee prior to appointment.
The submission contains, in particular, details as to why the
proposed appointment would not breach auditor independence.
The Audit Committee undertakes an annual evaluation to assess
the independence and objectivity of the external auditors and
the effectiveness of the audit process, taking into consideration
relevant professional and regulatory requirements. The Audit
Committee will make recommendations in relation to the re-
appointment, remuneration and terms of engagement of the
external auditors at the annual general meeting on 29 April 2004.
All members of the Audit Committee are independent non-
executive directors. The Board is satisfied that the Committee
members have recent and relevant financial experience.
Although the Board has determined that each member of the
Audit Committee is an ‘Audit Committee Financial Expert’ as
defined in the SEC rules under the US Securities Exchange
Act, the members of the Audit Committee are selected with a
view to the expertise and experience of the Audit Committee
as a whole, and the Audit Committee reports to the Board as a
single entity. The designation of a director or directors as an
‘Audit Committee Financial Expert’ does not impose on any
such director any duties, obligations or liability that are greater
than the duties, obligations and liability imposed on such
director as a member of the Audit Committee and Board in the
absence of such a designation. Nor does the designation of a
director as an ‘Audit Committee Financial Expert’ affect the
duties, obligations or liability of any other member of the Board.
Remuneration Committee
The Remuneration Committee is responsible for formulating
and reviewing the Group’s executive remuneration policy and
making recommendations to the Board on the remuneration
arrangements for its directors. The Directors’ Remuneration
report is contained on pages 122 to 131. All members of the
Remuneration Committee are independent non-executive
directors.
Responsibility for determining the remuneration of executive
directors has not been delegated to the Remuneration
Committee, and in that sense the provisions of the Code have
not been complied with. The Board as a whole reserves the
authority to make the final determination of the remuneration of
directors as it considers that this two stage process allows
greater consideration and evaluation and is consistent with the
unitary nature of the Board. No director is involved in decisions
regarding his or her own remuneration.