The company recognises worth in the values expressed in the Combined Code – Principles of Good Governance and Code of Best Practice – appended to the Listing Rules of the UK Listing Authority (the Combined Code), together with guidance principles included from the Turnbull Report on Internal Control: Guidance for Directors on the Combined Code. Account is also taken of trends in evolving institutional shareholder and government guidance on disclosure and shareholder authorisation, including other regional governance initiatives. This section describes the way in which the company seeks to comply with the Combined Code and believes it has done so in the past financial year. Recognising also the importance of the company's substantial, new operating presence in the United States of America (USA), the company intends, over the medium term, to achieve substantive compliance with the USA Sarbanes-Oxley legislation and related regulation.

The board of directors has given attention to the Higgs review on the role and effectiveness of non-executive directors and the chairman submitted comment reflecting the preliminary views of the board on a number of aspects. Insofar as the company will be affected by potential material changes to its present board and committee composition and the roles of certain directors in terms of principles which might be adopted in the Combined Code as a result of the Higgs review, the board will seek over time to achieve the appropriate level of new compliance consistent with the interests of the company and the shareholders, including the major shareholders who are outside the UK, as well as the contractual commitments to Altria Group, Inc. (previously Philip Morris Companies Inc.). The Smith Report on the functions and constituents of the audit committee and the company's relationship with, and independence of, the external auditors has also received attention from both the board and the audit committee.

Following the company's extraordinary general meeting (EGM) on 1 July 2002 (held to approve the Miller Brewing Company transaction), from 1 August 2002 the board was reconstituted and reduced in number from 16 to 13 directors. Four of the six executive directors stepped down and Mr Slack and Dr Strauss retired from the board at the annual general meeting (AGM) on 31 July 2002. Mr Bible, Mr Cameilleri and Ms De Lisi were appointed to the board as non-executive directors on behalf of Altria Group, Inc. Until the end of July 2002, a majority of six of the ten non-executive directors were regarded by the company as independent. Following the reconstitution of the board from 1 August 2002 to meet the requirements of the transaction agreements, four of the 11 non-executive directors are considered in all jurisdictions to be fully independent and the executive presence on the board has been reduced to two, being the chief executive and chief financial officer. Including
the three directors nominated by Altria Group, Inc., four of the non-executive directors represent shareholders. The company is fortunate in having on its board persons of unquestioned integrity who can be relied upon to exercise their best judgement in the interests of the company and its shareholders. In the USA, all the directors except for Mr Mackay, Mr Wyman and Mr Ning would be regarded as being independent for governance purposes.

The details of the directors appear here.

The executive directors generally have responsibility for proposing strategy and for making and implementing operational decisions on running the group's businesses. Non-executive directors complement the skills and experience of the executive directors, contributing to the formulation of policy and decision-making through their knowledge and experience of other businesses and sectors. All directors bring an independent judgement to the issues of strategy, performance, and resources, including key appointments and standards of conduct. The board continues to regard commercial experience and industry exposure as key ingredients in the range of talents appropriate in a non-executive director of the company.

The board and its committees are supplied with full and timely information which enables them to discharge their responsibilities. All directors have access to the advice of the company secretary and independent professional advice is available to directors in appropriate circumstances at the company's expense. The board met eight times in the year ended 31 March 2003 (against a scheduled seven meetings) and ad hoc committees of the board met twice to deal with investment, financing and reporting issues.

The roles of chairman and chief executive are separate with responsibilities divided between them. The senior non-executive director is Lord Fellowes.

Following the appointment of new directors to the board, an induction programme is arranged, which also involves updates and industry specific retraining for existing directors, including visits to the group's businesses and meetings with senior management as appropriate, to facilitate understanding of the group. In addition to operations, directors are given exposure to internal controls at business unit level.

All directors are subject to retirement and re-election by shareholders every three years. In addition, all directors are subject to election by shareholders at the first opportunity after their initial appointment. The names of directors submitted for election or re-election are accompanied by sufficient biographical details to enable shareholders to make an informed decision in respect of their election. Non-executive directors are appointed for specified terms subject to re-election and to Companies Act provisions relating to the removal of directors. The reappointment of non-executive directors is not automatic. In general, the board will ask a director reaching the age of 70 years to stand for re-election annually or to retire, as the case may be.

Performance of the executive directors and senior executives is assessed by the remuneration committee against defined, pre-agreed goals and applicable strategic objectives. Performance of the non-executive directors is assessed formally on an annual basis by the chairman and the senior non-executive director, in accordance with a set matrix covering items ranging from strategic contribution to attendance. The chairman reports these outcomes to the board in broad terms, indicating that if further consultation or remedial action is needed, it will be pursued through the nomination committee before being brought back to the board. The chairman's performance is assessed by the senior non-executive director, following the same matrix and process.

Specific responsibilities have been delegated to board committees with defined terms of reference. The principal board committees are as follows:

 

The audit committee reviews in annual cycles with management, that adequate and suitable internal controls are in place and are appropriate to meet future needs; that significant business, strategic, statutory and financial risks have been identified and are being monitored and managed; that appropriate standards of governance, reporting and compliance are in operation; and it advises the board on issues relating to the application of accounting standards to published financial information.

Internal audit structures in the major operating subsidiaries and divisions function under the direction of, and report to, their respective audit committees. The internal audit functions are performed either by teams of appropriate, qualified and experienced employees, or through the engagement of external practitioners upon specified and agreed terms with equivalent access. These structures are reviewed for effectiveness with external consultants at least once a year. The primary mandate of the group's internal auditors is to examine and evaluate the effectiveness of the applicable operational activities, the attendant business risks and the systems of internal operational and financial control, so as to bring material deficiencies, instances of non-compliance and development needs to the attention of the applicable audit committee, external auditors and operational management, for resolution. The company's audit committee has access to the proceedings of the reports to the divisional audit committees and to subsidiary internal audit practitioners; the last having access to both central management and to the company's audit committee.

During the year a corporate governance manager was appointed to co-ordinate group-wide internal audit activity, internal control monitoring and governance reporting.

The audit committee is comprised of five non-executive directors, of whom independent directors (Lord Fellowes, Mr Manser and Mr Morland) are in the majority.

Last year the board put its remuneration report to an advisory vote at its annual general meeting. Of the 998.7 million ordinary shares in issue, 752.2 million were voted (1.5 million by 26 shareholders present in person). Although the resolution was carried unanimously on a show of hands, the proxy votes counted represented 96.1% in favour of the resolution.

At the extraordinary and annual general meetings held respectively on 1 and 31 July 2002, all proxy votes were counted and displayed on screen during the voting processes.

 

In particular, the directors recognise the impact of changes such as the acquisition and integration of Miller Brewing Company and the development of a UK corporate centre. Accordingly, a programme has commenced to enhance the group's risk management framework, and related systems of internal control, appropriate to the evolving structure and needs of the group.

The directors are responsible for the group's system of internal control and for reviewing its effectiveness. The system of internal control is designed to manage, rather than eliminate, the risk of failure to achieve business objectives and can provide reasonable, but not absolute, assurance against material misstatement or loss. In reviewing the system of internal control, the board has taken into account the results of all of the work carried out to audit and review the activities of the group. There is an ongoing process for identifying, evaluating, managing, monitoring and reporting on the significant risks faced by individual group companies and by the group as a whole. This process has been in place for the year under review up to and including the date of approval of the annual report and accounts.

In accordance with the Turnbull guidance, reviews on the effectiveness of internal control were carried out in May and November 2002 and in May 2003 by the board.

Board and executive committees
The executive committee (EXCOM), which is chaired by the chief executive, and comprises senior SABMiller plc managers, has specific responsibility for the system of risk management and reviews the risk reports of the group and the business units twice yearly, reporting to the board on key risks and their associated mitigating actions.

The corporate accountability committee deals with business ethics, values and principles, plus stakeholder accountability, including specialist areas such as employee, social, health, safety and environmental issues, as well as impacts on product and service quality and non-exclusively with emerging and prospective risk.

 
Business units

Responsibilities and processes are to a large extent replicated at business unit level via the existence of divisional or company audit committees and in some cases corporate accountability committees. Each local audit committee has formal terms of reference which include defined monitoring roles in relation to both risk management processes and internal audit activities.

 

In line with the recent changes outlined above and as part of the current enhancement programme, the group intends to strengthen central management resource in both risk management and internal audit. This will improve group-wide co-ordination and promote best practice in each of these specialist areas.

Key risks, with which the board has been concerned, and reviewed, during the year, include:

Internal audit functions operated in all of the group's principal business units in the period under review, reporting to local management and accountable to local audit committees. The audit committee is satisfied that adequate, objective internal audit assurance standards and procedures exist in the group. The November 2002 and May 2003 audit committee meetings reviewed internal audit reports on the major business units, together with proposals for the ongoing internal assurance processes. Reports on these issues were made to the board.

The adequacy and capability of the group's internal audit structures were the subject of a review during the year by external consultants.