The company is committed to an open
governance process through which its shareholders may derive assurance
that, in protecting and adding value to SABMiller's financial and
human investment, the group is being managed ethically, according
to prudently determined risk parameters and is striving to achieve
and advance local best practices in the territories in which it
operates. Corporate Governance is regarded as the prudential system
by which the companies in the group are managed and controlled in
support and furtherance
of the company's strategies and policies.
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.
and board committees
The board sets the strategic objectives of the group, determines
investment policy, agrees on performance criteria and delegates
to management the detailed planning and implementation of that policy,
in accordance with appropriate risk parameters. The board monitors
compliance with policies and achievement against objectives, by
holding management accountable for its activity through the measurement
and control of operations by regular reports to the board, including
quarterly performance reporting and budget updates. The board reserves
to itself a schedule of matters to be dealt with exclusively by
the board. These include strategies and policy on social and environmental
responsibility. Appropriate structures for those authorities delegated
to management and board committees are in place, accompanied by
monitoring and reporting systems. Each standing board committee
has specific written terms of reference issued by the board and
adopted in committee. All chairs of committees report orally on
the proceedings of their committees at the next meeting of the board
and minutes of committee meetings are provided to the board. All
the committees have a majority of members who are considered to
be independent in any jurisdiction.
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
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
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
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
Specific responsibilities have been delegated to board committees
with defined terms of reference. The principal board committees
are as follows:
The audit committee
Throughout the financial year, the audit committee was chaired
by Mr Manser FCA, an independent non-executive director. Lord Fellowes,
Mr Levett and Mr Morland served on the committee throughout the
year. Mr Slack and Dr Strauss left the committee on 31 July 2002,
when they retired from the board. Ms De Lisi joined the committee
from 4 September 2002. The committee met three times during the
year and an associated reporting committee met twice more. The external
auditors, the chief executive and the chief financial officer are
in attendance at each meeting and other members of the management
team, including internal audit staff, attend as required. Executive
attendees are excused for periodic discussions with the external
auditors. The committee has the power to examine any financial operating
and strategic matters in, and relating to, the group in accordance
with its written terms of reference. This includes reviewing the
annual accounts, internal control procedures, accounting policies,
compliance and regulatory matters, reviewing and approving the appointment
of the external auditors and other related issues.
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
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.
The nomination committee
The nomination committee is chaired by Lord Renwick. The other
members, Mr Kahn, Lord Fellowes, Mr Manser, and Mr Morland ensure
a majority of independent non-executive directors on the committee.
The committee considers the composition of the board and its committees,
retirements and appointments of additional and replacement directors
and makes appropriate recommendations to the board. Executive
directors are considered for appointment to the board on the basis
of their experience, skills and level of contribution to, and
impact upon, the group. Non-executive directors are selected for
recommendation on the basis of industry knowledge, professional
skills and experience and, where appropriate, the directors believe
that significant shareholders in the company should be represented
on the board. All directors are subject to retirement and re-election
by shareholders at least once every three years in accordance
with the company's Articles of Association and the requirements
of the Combined Code. After recommendation by the nomination committee,
the appointment of a new director is dealt with directly by the
This committee meets as often as required, usually twice a
year. The board chairman conducts annual appraisals of the performance
of each of the non-executive directors and reviews these with
the senior non-executive director and the company secretary.
The senior non-executive director reviews the performance of
the chairman of the board. Thereafter, where appropriate, individual
directors may be interviewed. The results are reported to the
nomination committee and the board.
The committee follows a process of recruitment and selection
to fill non-executive vacancies on the board, using external
agencies when appropriate to present selections for consideration
and interview, in consultation with the executive directors
and for presentation to the board. The composition and size
of the board is now regulated in terms of the agreements with
Altria Group, Inc. covering the Miller Brewing Company transaction,
but outside those requirements, the company continues to follow
the process described. The executive director membership of
the board is limited to two, the chief executive and chief financial
officer, within the arrangements which currently require three
Altria Group, Inc. nominees in a maximum of 13 board members.
The remuneration committee
The remuneration committee is chaired by Lord Renwick, the other
members are Mr Kahn, Lord Fellowes, Mr Manser and Mr Morland.
The committee has a majority of independent non-executive directors.
The committee sets short, medium and long-term remuneration
for the executive directors. More generally, the committee is
responsible for the assessment and approval of a broad remuneration
strategy for the group. The determination of short and long-term
incentive pay structures for group executives, the positioning
of senior executive pay levels relative to local and international
industry benchmarks and the assessment and authorisation of
specific reward proposals for the company's executive directors
and those executives reporting directly to the chief executive.
In order to promote an identity of interests with shareholders,
share incentives are considered to be critical elements of executive
The remuneration committee's overall strategy is to ensure
that employees are rewarded for their contribution to the group's
operating and financial performance at levels which take account
of industry, market and country benchmarks, as well as the requirements
of collective bargaining. While Mr Kahn is not regarded as fully
independent, his experience of the group and external remuneration
matters brings worthwhile balance and perspective to the committee's
The corporate accountability and
risk assurance committee (CARAC)
Lord Fellowes chaired the committee throughout the year and
Mr Kahn, Mr Mackay, Mr Manser, Mr Ramaphosa and Mr Wyman served
as members. Mr Adami contributed as a committee member until
he stepped down from the board on 31 July 2002 and continues
as a co-opted member. The committee's activities (which include
examination of prospective risk) are described in the separate
The committee meets twice a year and reports to the board
on its activities, as do the other board committees. Additionally,
the director of corporate affairs who chairs the group-wide
corporate accountability working committee (a management committee)
meets regularly with the chairman of CARAC on implementation
and planning issues.
It is the policy of the company, where practicable, to pursue
dialogue with institutional shareholders and to involve investors
in its AGM. Alongside the facilities offered by the company
secretary's department, the company has a dedicated investor
relations and communications team to liaise with institutional
investors. The investor relations team (which reports to the
director of corporate affairs) is in constant contact with
analysts and fund managers and arranges presentations on recent
acquisitions and country business progress, as well as site
visits. The executive directors and senior management conduct
regular roadshows and presentations. The group corporate accountability
manager maintains contact with fund managers and institutional
investor representative bodies on socially responsible investment
(SRI) and triple bottom line issues and initiates one-on-one
interactions and briefings with interested investors.
The company encourages shareholders to attend its AGMs, which
provide opportunities for shareholders to ask questions of
the board, including the chairmen of the audit, remuneration
and nomination committees and of CARAC.
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.
and internal control
Board of directors
Following the publication in September 1999 and
application of Internal Control: Guidance for Directors on the Combined
Code (the Turnbull Report), the directors report below on their
review of the effectiveness of the group's systems of internal control.
The group's existing internal controls and risk management processes
are subject to constant review and adaptations to the extent necessary
to ensure full compliance with the requirements of the Turnbull
Report, for the reporting period and to deliver improved value to
the operating businesses.
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
The audit committee deals primarily with operational and financial
matters, including breakdowns of controls, reputation, insurance
and loss prevention, litigation and listing compliance issues.
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.
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.
The focus of risk management in the group is to support the
delivery of business objectives by identifying, assessing, managing
and monitoring all known forms
of risk across the group. Management is involved in a continuous
process of developing and enhancing its risk and control procedures
to improve the mechanisms for identifying and monitoring risks.
Key features of the group's system of risk management comprise:
Group statements on strategic direction,
ethics and values.
Clear business objectives
and business principles.
An ongoing process for
identification and evaluation of significant risk that may
prevent achievement of business objectives.
Implementation of management
processes to manage the significant risks to an acceptable
Ongoing monitoring of significant risks and internal
and external environmental factors that may change the risk
In addition, there is a process of regular reporting to the
board through the audit committee on the status of the risk
management and internal control systems, and any evolving
risk issues or internal control breakdowns that may have occurred.
The corporate accountability committee also reports regularly
to the board on social, environmental, ethical and prospective
Key reports include those that identify, rank, monitor and
measure strategic, operational and financial risks in each
division and on a group basis on an annual cycle. These are
supplemented by reports on internal control processes and
breakdowns, along with reviews of the structure and effectiveness
of internal audit functions. These reports were co-ordinated
and evaluated with advice from external consultants in the
period under review.
Key risks, with which the board has been concerned,
and reviewed, during the year, include:
Miller turnaround execution risk
and asset impairment
Fundamental consumption shifts within the liquor
The current initiative to enhance the group's
risk management framework seeks to standardise and strengthen
existing practices for reporting and assessing risks at
different levels of the group to achieve a more integrated
approach to risk management. It also seeks to provide
a more consistent platform for risk management process
assurance by internal audit.
The group's systems of internal control are designed and
operated to support the identification and management
of risks affecting the group and the business environment
in which it operates. As such, they are subject to continuous
review as circumstances change and new risks emerge.
Key features of the group's systems of internal control
Written policies and procedures,
which are detailed in policy manuals, clearly defined
lines of accountability and delegation of authority,
and comprehensive reporting and analysis against approved
standards and budgets.
Group treasury operations
control and reduce exposure to interest rate, counterparty,
liquidity and currency transaction risks and co-ordinate
the activities of group companies in this area. Treasury
policies, risk limits and monitoring procedures are
reviewed regularly by the board.
Minimisation of operating risk by ensuring that the
appropriate infrastructure, controls, systems and people
are in place throughout the businesses. Key policies
employed in managing operating risk involve segregation
of duties, transaction authorisation, monitoring,financial
and managerial reporting.
Business resumption planning, including preventative
and contingency measures, back-up capabilities and the
purchase of catastrophe insurance to maintain product
and service delivery under adverse conditions.
Assurance on compliance with systems of internal control and
on their effectiveness is obtained through regular management
reviews, control self-assessment (including letters of representation),
internal audit reviews and testing, and by testing of certain
aspects of the internal financial control systems by the external
auditors during the course of their statutory examinations.
The group's various divisional audit committees consider the
results of these reviews on a regular basis, to confirm the
appropriateness and satisfactory nature of these systems, while
ensuring that breakdowns involving material loss, if any, together
with remedial actions, have been reported to the appropriate
boards of directors.
At the half year and at the year end the chief executives and
the chief financial officers of all the group's operations are
required to submit formal letters of representation on controls,
compliance and notification of ongoing or potential operational,
financial and legal risks or claims. These letters form the
subject of full reports to the audit committee. Directors, executives,
key managers and professionals also make annual written declarations
of interests and are obliged to report without delay any potential
or actual conflicts of interest which may arise.
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.