Application of the UK Corporate Governance Code
The board applied all of the principles and provisions of the Code throughout the year ended 31 March 2013, except in three respects:
1. In July 2012, our Chief Executive, Mr Mackay, was appointed as Executive Chairman with the intention that he would hold this position for an interim period of one year. The Code recommends that a chief executive should not go on to be chairman of the same company and that the chairman should on appointment meet the independence criteria set out in the Code. As a former Chief Executive, Mr Mackay was not independent on appointment.
Mr Mackay’s proposed appointment was announced in April 2012, when the board set out a number of changes to the composition of the board to take effect at our 2012 annual general meeting, including the retirement of our then Chairman, Mr Kahn, and of Mr Pieterse, an independent non-executive director; the appointment of Mr Mackay as Executive Chairman; and the appointment of Mr Clark as an executive director and Chief Operating Ofﬁcer, with the intention that he would succeed Mr Mackay as Chief Executive at the end of the interim period, when Mr Mackay would become non- executive Chairman.
Before announcing these changes, we discussed them with our major institutional shareholders, and at the time of their announcement our Senior Independent Director, Mr Manser, wrote on behalf of the board to all shareholders to explain the process that had been followed and to set out the board’s reasons for these changes. These changes were welcomed by the overwhelming majority of shareholders, and our explanation of our decision not to apply the Code in this respect under the ’comply or explain’ principle was cited by the Association of British Insurers, in a report in December 2012, as a best practice example.
Subsequently, as shareholders will be aware, Mr Mackay was diagnosed in April 2013 with a brain tumour, which led the board to accelerate the planned promotion of Mr Clark to Chief Executive. The transition of management responsibilities from Mr Mackay to Mr Clark was well advanced when Mr Clark assumed the role of Chief Executive on 23 April 2013, three months earlier than was originally planned.
2. Our audit committee did not consist solely of independent directors. Under our relationship agreement, as approved by shareholders in 2002 and in 2005, Altria Group, Inc. (Altria) has the right to nominate a director to the audit committee, and has nominated Mr Devitre, whom the board does not consider to be an independent director for the purposes of the Code. The board nevertheless considers that the composition of the audit committee remains appropriate, given Altria’s interest as the company’s largest shareholder, and is satisﬁed that, having regard to the experience and background in ﬁnancial matters of Mr Devitre, as a former chief ﬁnancial ofﬁcer of Altria, the independence from management and the effectiveness of our audit committee in discharging its functions continue to be considerably enhanced and not in the least compromised.
3. Two directors, Mr Armour and Ms Weir, were unable to attend our 2012 annual general meeting because of long standing prior commitments.