Tesco 2009 Annual Report Download - page 46

44 REPORT OF THE DIRECTORS
Tesco PLC Annual Report and Financial Statements 2009
Corporate governance
Directors’ report on corporate governance
Tesco PLC is committed to the highest standards of corporate governance
as we recognise that good governance is crucial in helping the business to
deliver its strategy, generating shareholder value and safeguarding our
shareholders’ long-term interests.
Compliance with the Combined Code
The Combined Code on Corporate Governance sets out guidance in the
form of principles and provisions on how companies should be directed
and controlled to follow good governance practice. The Financial Services
Authority (FSA) requires companies listed in the UK to disclose, in relation
to Section 1 of the Combined Code, how they have applied the principles
and whether they have complied with its provisions throughout the
financial year. Where the provisions have not been complied with
companies must provide an explanation for this.
The Board considers that Tesco PLC complied in full with the Combined
Code principles of Corporate Governance and Code of Best Practice for the
whole of the year ended 28 February 2009, with the exception of provision
A.3.2, in respect of which the company was not in compliance for part of
the year.
Provision A.3.2 requires that at least half the Board, excluding the
Chairman, should comprise Non-executive Directors determined by the
Board to be independent. The Board recognises the importance of a
balanced board with an appropriate level of independence. There were,
however, two unexpected changes to the Board in the year, with the
resignation of Carolyn McCall and E Mervyn Davies as Non-executive
Directors due to conflicts of interest, which resulted in the Board not
being in balance.
While the process of finding replacements for Carolyn McCall and
E Mervyn Davies was started immediately, the Board places a priority
on ensuring that the right candidates are selected and the process of
recruiting individuals with the right experience, availability and skills to
complement those of the existing Board can take a significant amount
of time. The Company announced the appointment of two new Non-
executive Directors on 17 December 2008 as replacements for the two
Non-executive Directors who had resigned, and the appointment of
a further Non-executive Director was announced on 12 January 2009,
in order to ensure that the Board remained in balance once the new Group
Finance Director, Laurie McIlwee, was appointed on 27 January 2009.
Jacqueline Tammenoms Bakker and Patrick Cescau joined the Board with
effect from 1 January and 1 February respectively, and Ken Hanna joined
the Board with effect from 1 April 2009, at which point the Board became
once again fully compliant with provision A.3.2.
Further information on the Combined Code provision be found at
www.frc.org.uk.
Board composition and independence
As at 28 February 2009, the Board of Tesco PLC comprised eight
Executive Directors, seven independent Non-executive Directors and
David Reid, Non-executive Chairman. Rodney Chase is Deputy Chairman
and Senior Independent Non-executive Director. Ken Hanna joined the
Board on 1 April 2009.
The structure of the Board and the integrity of the individual Directors
ensure that no single individual or group dominates the decision
making process.
Biographies for the Directors can be found on page 43 of this Report.
Changes to the Board since 24 February 2008 are as follows:
Carolyn McCall Non-executive Director Resigned 10 April 2008
E Mervyn Davies Non-executive Director Resigned 31 October 2008
Jacqueline
Tammenoms Bakker Non-executive Director Appointed 1 January 2009
Laurie McIlwee Executive Director Appointed 27 January 2009
Patrick Cescau Non-executive Director Appointed 1 February 2009
Ken Hanna Non-executive Director Appointed 1 April 2009
Election of Directors
All Directors have to submit themselves for re-election at least every three
years if they wish to continue serving and are considered by the Board to
be eligible. The Company’s Articles of Association require all new Directors
to be submitted for election by shareholders in their first year following
appointment.
The Chairman
Clear divisions of accountability and responsibility exist and operate
effectively for the positions of Chairman and Chief Executive. The
Chairman has primary responsibility for running the Board, while the
Chief Executive has executive responsibilities for the operations and
results of the Group and making proposals to the Board for the strategic
development of the Group.
Senior Independent Director
The Board has appointed one Non-executive Director, Rodney Chase,
to act as Senior Independent Director. The Senior Independent Director
is available to shareholders to assist in resolving concerns, should the
alternative channels be inappropriate. The Senior Independent Director
is also required to lead the discussion in relation to assessing the
effectiveness of the Chairman’s performance.
Non-executive Directors
The Non-executive Directors bring a wide range of skills and experience,
as well as independent judgement on strategy, risk and performance
to the Company.
Both Charles Allen and Harald Einsmann have served on the Board for ten
years. The Chairman has conducted a thorough review with each Director
to assess his independence and contributions to the Board and confirmed
that they both continue to be effective independent Non-executive
Directors. Charles Allen brings extensive corporate operational experience
and knowledge of the media industry and provides leadership for the
Remuneration Committee. Through his wealth of business experience
Harald Einsmann contributes a valued dimension to the Board in terms of
international marketing, brand building and human resource development.
Both Charles Allen and Harald Einsmann will retire and offer themselves
for re-election at this year’s Annual General Meeting. Thereafter they may
submit themselves for re-election each year if the Board considers them
to be eligible.