5. The board’s committees and the executive committee
5.1 The executive committee
The board delegates responsibility for determining and implementing the group’s strategy and for managing the group to the Chief Executive, Mr Graham Mackay, who is supported by the executive committee (excom), which he chairs. Excom members are appointed by Mr Mackay. The other members of excom are the Chief Financial Officer, Mr Wyman; the divisional managing directors responsible for managing the group’s regional hubs (Latin America, Europe, Africa and Asia); the Managing Director of SAB Ltd; the President and Chief Executive Officer of Miller Brewing Company; the directors of key group functions (marketing, corporate affairs, and human resources); and the General Counsel and Group Company Secretary. Excom’s purpose is to support the Chief Executive in carrying out the duties delegated to him by the board and, in that context, excom co-ordinates brand and operational execution, delivers strategic plans, budgets and financial reports for the board’s consideration and, through the Chief Executive, reports on these matters to the board.
Excom also ensures that effective internal controls are in place and functioning, and that there is an effective risk management process in operation throughout the group.
5.2 The disclosure committee
The disclosure committee consists of the Chairman, the Chief Executive, the Chief Financial Officer, a designated non-executive director (Lord Fellowes), and the Company Secretary or the Deputy Company Secretary. The function of the disclosure committee, in accordance with the group’s inside information policy, is to assure compliance with the Disclosure and Transparency Rules and the Listing Rules, and to ensure that the routes of communication between excom members, the disclosure committee, the in-house legal team, the company secretarial office and investor relations are clear and provide for rapid escalation to the disclosure committee and key advisers of any decision regarding potential inside information, so that the company is able to comply fully with its continuing obligations under the Disclosure and Transparency Rules and the Listing Rules.
5.3 The audit committee
During the year under review, the audit committee was chaired by Mr Manser, who has been chairman of the committee since May 2002. Mr Manser qualified as a chartered accountant in 1964 and was made a Fellow of the Institute of Chartered Accountants in 1976. Further biographical information concerning Mr Manser is set out in the Board of directors.
Lord Fellowes, Mr Morland, and Ms Doherty served on the committee throughout the year. Ms De Lisi served until her retirement on 30 April 2007 and was replaced by Mr Devitre who attended his first meeting of the committee on 4 September 2007. Mr Morland has been a member of the committee from its first meeting on 13 April 1999. Lord Fellowes was appointed to the committee on 1 June 2001 and Ms Doherty was appointed on 1 April 2006. The Chairman has recent and relevant financial experience, as does Ms Doherty, who is Chief Financial Officer of Brambles Limited and was previously Group International Finance Director of Tesco PLC, and Mr Devitre, having until 31 March 2008 held the position of Chief Financial Officer of Altria.
The committee met four times during the year. The external auditors, the Chief Executive, the Chief Financial Officer and the Chief Internal Auditor attended each meeting by invitation. Other members of the management team attended as required.
Under its terms of reference, the committee’s key duties include:
- to review, and challenge where necessary, the annual financial statements and interim and preliminary announcements before their submission to the board for approval;
- to examine and review the internal control environment and risk management systems within the group and review the group’s statement on internal control systems prior to endorsement by the board and to review the independence, objectivity and effectiveness of the external audit process;
- to make recommendations to the board regarding the appointment, re-appointment and removal of the external auditors and to approve and recommend to the board the remuneration and terms of engagement of the external auditors;
- to review annually the effectiveness of the internal audit function throughout the group, with particular focus on the charter, annual work plans, activities, staffing, organisational and reporting structure and status of the function; and
- to review the effectiveness of the system for monitoring compliance with laws and regulations (including the group’s bi-annual letters of representation) and the results of management’s investigation and follow-up (including disciplinary action) of any instances of non-compliance.
The audit committee reports its activities and makes recommendations to the board. During the year, the audit committee discharged its responsibilities as they are defined in the committee’s terms of reference, and has been engaged in ensuring that appropriate standards of governance, reporting and compliance are being met. The committee has advised the board on issues relating to the application of accounting standards as they relate to published financial information. The committee has also monitored the further progress which has been made during the year in reviewing and upgrading internal controls in the major business entities across the group, positioning the group to achieve substantive compliance with Sarbanes-Oxley standards in due course (although the company is not an SEC registrant and is not required to comply with Sarbanes-Oxley standards).
The Chief Internal Auditor has direct access to the audit committee, primarily through its chairman. The audit committee has access to subsidiary company internal audit leadership. The reports of the divisional audit committees are also available to the audit committee.
During the year, the committee met with the external auditors and with the Chief Internal Auditor without management being present.
In addition to the review of its performance, terms of reference and effectiveness led by the Chairman of the board, the committee critically reviewed its own performance during the year by means of a questionnaire which each member of the committee completed independently. The committee chairman then reviewed the responses and conducted one-to-one discussions with members of the committee where he felt it was necessary. The results of the self-assessment and any action plans arising were then reported to the board.
5.4 The nomination committee
During the year the nomination committee was chaired by Lord Renwick. Lord Renwick retired as chairman and as a member of the nomination committee with effect from 31 March 2008 and was replaced as chairman by Mr Kahn. Both Lord Renwick and Mr Kahn were members of the committee throughout the year, as were Lord Fellowes, Mr Morland and Mr Manser. During the year Altria and BevCo exercised their rights under their relationship agreements to nominate Mr Bible and Mr Santo Domingo Davila, respectively, as members of the nomination committee with effect from 14 November 2007. Mr Ramaphosa was appointed to the committee at the same time.
The committee is empowered to consider the composition of the board and its committees. It is asked to consider the retirement, appointment and replacement of directors, and is required to make appropriate recommendations to the board.
The nomination committee has continued to evaluate the balance of skills, knowledge and experience of the board. In order to further strengthen the independence and balance of the board, and as part of the continuing process of progressive renewal of the board, the committee successfully recruited Ms Ramos and Mr Pieterse to the board. Appropriate succession plans for the non-executive directors approaching nine years service, for the executive directors and for senior management were also kept under review.
Where non-executive vacancies arise, the committee may use the services of external consultants in order to identify suitable candidates for the board to consider. Candidates are shortlisted for consideration by the nomination committee on the basis of their relevant corporate or professional skills and experience. In accordance with the terms of the relationship agreement with Altria, the only executive directors appointed to the board are the Chief Executive and the Chief Financial Officer.
5.5 The remuneration committee
The committee consists entirely of independent directors: Mr Morland (Chairman), Lord Fellowes, Mr Manzoni and Mr Manser.
The committee is empowered by the board to set short-term, medium-term 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 and for the operation of the company’s share-based incentive plans. This includes determination of short-term and long-term incentives for executives across the group.
During the year the remuneration committee has implemented its strategy of ensuring that employees and executives are rewarded for their contribution to the group’s operating and financial performance at levels which take account of industry, market and country benchmarks. To ensure that the executives’ goals are aligned to those of the company, share incentives are considered to be critical elements of executive incentive pay. During the year, the committee engaged the services of consultants, Kepler Associates and Mercer Human Resource Consulting (Mercer). At levels below the company’s executive committee, the company’s management consults, among others, Hay Consulting, Ernst & Young and Towers Perrin, on a project basis. More details of the company’s remuneration policy can be found in the directors’ remuneration report.
5.6 The corporate accountability and risk assurance committee (CARAC)
Lord Fellowes chaired the committee throughout the year. Mr Kahn, Mr Mackay, Mr Manser, Mr Manzoni, Mr Ramaphosa and Mr Wyman served as members. Additionally, the Director of Corporate Affairs, Ms Clark, met regularly with the chairman of CARAC to discuss implementation and planning issues, and attended all meetings of the committee.
The objective of CARAC is to assist the board in the discharge of its responsibilities in relation to corporate accountability, including sustainable development, corporate social responsibility, corporate social investment and ethical commercial behaviour. More details of the committee’s activities can be found in the sustainable development review section of this report and in the company’s separate Sustainable Development Report which is available on the company’s website and, upon request, in hard copy.
During the year, the CARAC focused on company-specific and industry issues which are critical to protecting the company’s licence to operate.