March 2012
Wm Morrison Supermarkets Plc
CORPORATE GOVERNANCE COMPLIANCE STATEMENT
Wm Morrison Supermarkets Plc
Company Secretary
Approved by: Main Board of Wm Morrison Supermarkets Plc, July 2009
Reviewed, updated and approved by the Corporate Compliance and
Responsibility Committee, September 2011 and updated by the Company
Secretary under his delegated authority 16 March 2012
CORPORATE GOVERNANCE COMPLIANCE STATEMENT
Contents
Introduction
Code of Best Practice and Compliance Statement
Appendix 1
Schedule of Matters Reserved for Main Board
Appendix 2
Chairman and Chief Executive Roles and Responsibilities
Appendix 3
Procedure for Directors taking independent professional advice
Appendix 4
Board and Committee membership
Appendix 5
Nomination Committee – Terms of Reference
Appendix 6
Remuneration Committee – Terms of Reference
Appendix 7
Audit Committee – Terms of Reference
Appendix 8
Corporate Compliance and Responsibility Committee – Terms of Reference
Appendix 9
Schedule A to the Code
Appendix 10
Schedule B to the Code
Appendix 11
Schedule C to the Code
Appendix 12
Code for dealings by the Directors and employees in securities of Wm Morrison
Supermarkets Plc
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Wm Morrison Supermarkets Plc
Corporate Governance Compliance Statement
Introduction
The purpose of the this document is to record how Wm Morrison Supermarkets Plc (the
“Company” ) complies with the UK Corporate Governance Code published in June 2010
by the Financial Reporting Council. That code is referred to in this document as the “Code”
and each of its provisions are quoted in this document and against each provision the
Main Board (the “Board”) gives a brief statement of how the Company complies.
Those compliance statements also refer to the terms of reference of the Nomination,
Remuneration and Audit Committees of the Board and, for convenience these are included
in the appendices. Additionally, this document includes at Appendix 8 the Terms of
Reference of the Corporate Compliance and Responsibility Committee. The code for
dealings in securities of the Company by Directors and employees, in Appendix 12,
prepared and publicised within the Company to ensure compliance with the Model Code
as appended to Chapter 9 of the UK Listing Authority Listing Rules (the “Listing Rules”).
The compliance statement has been formally adopted by the Board for the purposes of the
Code. The Board has resolved that it or, as the case may be, such of its Committees as
shall be appropriate, shall have regard to the guidance set out in Schedules A, B and C to
the Code as set out at Appendices 9, 10 and 11.
The compliance statement provides the basis upon which the Directors will report on
corporate governance matters in the Company’s Annual Report and Accounts (the
“annual report”). It also provides the source material for investors and other interested
parties to undertake their reviews of the Company’s compliance with the Listing Rules.
By Order of the Board
G.J. McMahon
Company Secretary and Head of Legal Services
16 March 2012
Wm Morrison Supermarkets Plc
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Code of Best Practice
Compliance Statement
Set out below in italics is the text of each paragraph of the Code and, below each
paragraph of the Code, the Board’s statement as to compliance by the Company.
A.
Directors
A.1
The role of the Board
Code Provisions
A.1.1
The Board should meet sufficiently regularly to discharge its duties
effectively. There should be a formal schedule of matters
specifically reserved for its decision. The annual report should
include a statement of how the board operates, including a high
level statement of which types of decisions are to be taken by the
board and which are to be delegated to management.
The Board normally meets at least 8 times per annum for scheduled
Board meetings. The Board also meets as required on an ad hoc
basis to deal with urgent business – including the consideration and
approval of transactions. The Board has approved a schedule of
matters reserved for decision by the Board. The schedule is set out
in Appendix 1.
To facilitate swift and efficient operational management decisions,
the Board has delegated authority, within clearly identified
parameters, in relation to day-to-day operational matters, to the
Management Board and, for capital expenditure matters, the
Investment Board. The composition of each of which is set out in
Appendix 4.
The Board has also delegated responsibility for certain day to day
treasury and associated matters to the Treasury Committee and for
the review of the Evolve Project to the Evolve Sub-Committee.
In addition, to ensure efficient and effective conduct of the
administrative affairs of the group, the Board has formally delegated
authority to the Company Secretary in relation to a series of
administrative matters.
The annual report will include relevant information regarding the
information required by this Code provision.
A.1.2
The annual report should identify the chairman, the deputy
chairman (where there is one), the chief executive, the senior
independent director and the chairmen and members of the board
committees. It should also set out the number of meetings of the
board and its committees and individual attendance by directors.
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The annual report does, and will continue to, comply with this
requirement.
A.1.3
The company should arrange appropriate insurance cover in
respect of legal action against its directors.
The Company has in place directors’ and officers liability insurance
at levels considered appropriate for the Group.
A.2
Division of Responsibilities
Code Provisions
A.2.1
The roles of chairman and chief executive should not be exercised
by the same individual. The division of responsibilities between the
chairman and chief executive should be clearly established, set out
in writing and agreed by the board.
The roles of the Chairman and of the Chief Executive are separate.
The Chairman has a formal letter of appointment setting out his
duties in relation to the Company. A statement of the division of
responsibilities between the Chairman and Chief Executive is set
out in Appendix 2.
A.3
The Chairman
A.3.1
The chairman should on appointment meet the independence
criteria set out in B.1.1 below. A chief executive should not go on to
be chairman of the same company. If, exceptionally, a board
decides that a chief executive should become chairman, the Board
should consult major shareholders in advance and should set out its
reasons to shareholders at the time of the appointment and in the
next annual report.
Sir Ian Gibson met these independence criteria on appointment.
A.4
Non Executive Directors
Code Provisions
A.4.1
The board should appoint one of the independent non-executive
directors to be the senior independent director to provide a
sounding board to the chairman and to serve as an intermediary for
the other directors where necessary. The senior independent
director should be available to shareholders if they have concerns
which contact through the normal channels of chairman, chief
executive or other executive directors has failed to resolve or for
which such contact is inappropriate.
Nigel Robertson, who is an independent Non-Executive Director,
has been identified by the Board as its Senior Independent Director.
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A.4.2
The chairman should hold meetings with the non-executive directors
without the executives present. Led by the senior independent
director, the non-executive directors should meet without the
chairman present at least annually to appraise the chairman’s
performance and on such other occasions as are deemed
appropriate.
The Board has resolved that such meetings shall be held not less
than annually. These meetings are incorporated into the Company’s
Board performance assessment programme. Where requested by
the Non-Executive Directors, further meetings will be convened.
A.4.3
Where directors have concerns which cannot be resolved about the
running of the company or a proposed action, they should ensure
that their concerns are recorded in the board minutes. On
resignation, a non-executive director should provide a written
statement to the chairman, for circulation to the board, if they have
any such concerns.
The Company Secretary has been instructed that the minutes of
Board meetings should reflect any concerns raised by Directors
regarding the running of the Company or any proposed action. The
Non-Executive Directors have been made aware of Code provision
A.4.3.
B.
Effectiveness
B.1
The Composition of the Board
Code Provisions
B.1.1
The board should identify in the annual report each non-executive
director it considers to be independent. The board should determine
whether the director is independent in character and judgement and
whether there are relationships or circumstances which are likely to
affect, or could appear to affect, the director’s judgement. The board
should state its reasons if it determines that a director is
independent notwithstanding the existence of relationships or
circumstances which may appear relevant to its determination,
including if the director:




has been an employee of the company or group within the last
five years;
has, or has had within the last three years, a material business
relationship with the company either directly, or as a partner,
shareholder, director or senior employee of a body that has such
a relationship with the company;
has received or receives additional remuneration from the
company apart from a director’s fee, participates in the
company’s share option or a performance-related pay scheme,
or is a member of the company’s pension scheme;
has close family ties with any of the company’s advisors,
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


directors or senior employees;
holds cross-directorships or has significant links with other
directors through involvement in other companies or bodies;
represents a significant shareholder; or
has served on the board for more than nine years from the date
of their first election.
The Board considers that all of the Non-Executive Directors are
independent of management and free from any business or other
relationship which could materially interfere with the exercise of their
independent judgement.
The Board regularly reviews the number and activities of its NonExecutive Directors to ensure that there are sufficient independent
Non-Executive Directors to provide impartial advice to, and
supervision of, the activities of the Board.
A summary of the composition of the Board is set out in Appendix 4.
The Chairman, Sir Ian Gibson, is the Non-Executive Chairman of
Trinity Mirror Plc and a member of the Public Interest Board of
PricewaterhouseCoopers LLP. Penny Hughes is a Non-Executive
Director of Cable & Wireless Worldwide Plc and Royal Bank of
Scotland. The Board is satisfied that, although these relationships
exist, the Non-Executive Directors of the Company met on
appointment, and continue to meet, the requisite criteria for
independence.
B.1.2
Except for smaller companies, at least half the board, excluding the
chairman, should comprise non-executive directors determined by
the board to be independent. A smaller company should have at
least two independent non-executive directors.
There are currently four Non-Executive Directors (excluding the
Chairman) on the Board out of a total of six Directors (excluding the
Chairman). All of these Non-Executive Directors are considered to
be independent.
B.2
Appointments To The Board
Code Provisions
B.2.1
There should be a nomination committee which should lead the
process for board appointments and make recommendations to the
board. A majority of members of the nomination committee should
be independent non-executive directors. The chairman or an
independent non-executive director should chair the committee, but
the chairman should not chair the committee when it is dealing with
the appointment of a successor to the chairmanship. The
nomination committee should make available its terms of reference,
explaining its role and the authority delegated to it by the board.
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The Board has appointed a Nomination Committee, the terms of
reference of which are set out in Appendix 5. The current members
of the Committee are set out in Appendix 4. The Committee is
currently comprised of five Non-Executive Directors, all of whom are
considered to be independent of management, and one Executive
Director.
B.2.2
The nomination committee should evaluate the balance of skills,
experience, independence and knowledge on the board and, in the
light of this evaluation, prepare a description of the role and
capabilities required for a particular appointment.
The Nomination Committee in conjunction with the Group HR
Director and the Company Secretary prepares the description of the
role and capabilities required for appointments to the Board. The
Board has also agreed a formally documented process (the
“Director Appointment Process”) for the identification and
recruitment of members of the Board which sets out the roles of the
Non-Executive Director, Executive Director, the Chairman, the
Company Secretary, the Group HR Director and external advisors
and consultants.
B.2.3
Non-executive directors should be appointed for specified terms
subject to re-election and to statutory provisions relating to the
removal of a director. Any term beyond six years for a nonexecutive director should be subject to particularly rigorous review,
and should take into account the need for progressive refreshing of
the board.
The letters of appointment of the Non-Executive Directors confirm
that the appointment in each case is for a period expiring at the end
of the Company’s Annual General Meeting. Each Director is
submitted for re-election at each Annual General Meeting. Reappointment of Non-Executive Directors is not automatic. The notice
of Annual General Meeting will provide details (as appropriate) of
why the Board believes Non-Executive Directors should be reelected. On submission for re-election the Chairman will confirm
that performance evaluation has been carried out and that the
individual’s performance continues to be effective and to
demonstrate commitment to the role.
B.2.4
A separate section of the annual report should describe the work of
the nomination committee, including the process it has used in
relation to board appointments. An explanation should be given if
neither an external search consultancy nor open advertising has
been used in the appointment of a chairman or a non-executive
director.
The annual report each year describes the work of the Nomination
Committee. Explanations are given as required regarding external
search consultancies and open advertising of appointments.
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B.3
Commitment
B.3.1
For the appointment of a chairman, the nomination committee
should prepare a job specification, including an assessment of the
time commitment expected, recognising the need for availability in
the event of crises. A chairman’s other significant commitments
should be disclosed to the board before appointment and included
in the annual report. Changes to such commitments should be
reported to the board as they arise, and their impact explained in
the next annual report.
The process set out in this code provision was implemented by the
Nomination Committee, and the Main Board, on the appointment of
Sir Ian Gibson as Non Executive Chairman of the Company in
March 2008. In connection with any future appointments of a
Chairman, the Nomination Committee, in accordance with the
Director Recruitment Process will, amongst other matters, prepare a
job specification in accordance with the Code provisions. The
Chairman’s other significant commitments have been disclosed to
the Board and are included in the annual report. Changes will be
reported to the Board and included in the annual report.
B.3.2
The terms and conditions of appointment of non-executive directors
should be made available for inspection. The letter of appointment
should set out the expected time commitment. Non-executive
directors should undertake that they will have sufficient time to meet
what is expected of them. Their other significant commitments
should be disclosed to the board before appointment with a broad
indication of the time involved and the board should be informed of
subsequent changes.
The terms and conditions of appointment for Non-Executive
Directors are available for inspection at the registered office of the
Company and on the Company’s website. Non-Executive Directors
must comply with minimum attendance requirements under the
terms of their appointment letters. Their other significant
commitments are disclosed to the Board before appointment.
B.3.3
The board should not agree to a full time executive director taking
on more than one non-executive directorship in a FTSE 100
company nor the chairmanship of such a company.
None of the Executive Directors are directors or a chairman of a
FTSE 100 Company.
B.4
Development
Code Provisions
B.4.1
The chairman should ensure that new directors receive a full, formal
and tailored induction on joining the board. As part of this, directors
should avail themselves of opportunities to meet major
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shareholders.
New Directors receive a briefing on the role, duties and
responsibilities of a director of a listed company on appointment and
an induction pack with important information regarding the
Company and Board. In addition they receive a full briefing on the
Group from the remaining members of the Board. Major
shareholders are given the opportunity to meet new Directors.
B.4.2
The chairman should regularly review and agree with each director
their training and development needs.
The Chairman reviews with each Director their training and
development needs as part of the annual appraisal process. Those
needs are then factored into the annual plan for each Director and
monitored by the Chairman with support from the Group HR
Director and Company Secretary. Further, the training and
development needs of all Directors are addressed in the formulation
of the rolling programme of Board training and continuing education.
B.5
Information and Support
B.5.1
The board should ensure that directors, especially non-executive
directors, have access to independent professional advice at the
company’s expense where they judge it necessary to discharge
their responsibilities as directors. Committees should be provided
with sufficient resources to undertake their duties.
The Board has approved the procedures set out in Appendix 3 for
Directors to take independent financial advice. The Board and each
of its Committees are supported by the Company Secretary and,
with the assistance of the Company Secretary, are able to take such
external advice, or may request such internal or external resource,
as they require in order to undertake their duties.
B.5.2
All directors should have access to the advice and services of the
company secretary, who is responsible to the board for ensuring
that board procedures are complied with. Both the appointment and
removal of the company secretary should be a matter for the board
as a whole.
The Board has resolved that all Directors should have access to the
advice and services of the Company Secretary. The removal of the
Company Secretary is a matter reserved for decision by the Board
as a whole – see Appendix 1, paragraph 7.9.
B.6
Evaluation
Code Provision
B.6.1
The board should state in the annual report how performance
evaluation of the board, its committees and its individual directors
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has been conducted.
The Group has established a performance evaluation process for its
Board, Committees and individual Directors, developed by the
Company Secretary.
B.6.2
Evaluation of the Board of FTSE 350 companies should be
externally facilitated at least every three years. A statement should
be made available of whether an external facilitator has any other
connection with the company.
The Board has resolved that it will carry out an externally facilitated
evaluation of the Board’s performance and effectiveness at least
once in every three years. During 2010, an externally facilitated
review of the performance and effectiveness of the Main Board’s
principle governance committees (Audit, Remuneration, Nomination
and Corporate Governance and Responsibility) was carried out.
This was followed up by an externally facilitated evaluation of the
main Board in 2011. Appropriate reporting of these reviews and
any main conclusions, together with disclosure of any connections
between the external facilitator and the company (or an appropriate
negative confirmation) is included in the annual report. Going
forward, a further Board evaluation will be carried out by the
Company itself, led by the Chairman in 2012/13 and a further
externally facilitated independent Board evaluation will be carried
out in 2013/14.
B.6.3
The non-executive directors, led by the senior independent director,
should be responsible for the performance evaluation of the
chairman, taking into account the views of executive directors.
The Chairman is subject to the same evaluation process as the rest
of the Board, and there is an annual evaluation and performance
review carried out by the Non-Executive Directors led by the Senior
Independent Director and taking account of the views of the whole
Board. The Chairman takes no part in that review but its
conclusions are fed back to the Chairman by the Senior
Independent Director and are built into the training and development
plan for the Chairman.
B.7
Re-election
Code Provisions
B.7.1
All directors of FTSE 350 companies should be subject to annual
election by shareholders. All directors should be subject to election
by shareholders at the first annual general meeting after their
appointment, and to re-election thereafter at intervals of no more
than three years. Non-executive directors who have served longer
than nine years should be subject to annual re-election. The names
of directors submitted for election or re-election should be
accompanied by sufficient biographical details and any other
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relevant information to enable shareholders to take an informed
decision on their election.
Under the Articles of Association of the Company all Directors are
required to submit themselves for re-election at the first Annual
General Meeting after their appointment. At each Annual General
Meeting, one third of the Directors (excluding those submitting
themselves for re-election by virtue of having been appointed since
the previous Annual General Meeting) must retire by rotation and
submit themselves for re-election. Each Director must retire from
office at least once in every three year period. The Directors to retire
in any year shall be those who have been longest in office since
their last re-election at an Annual General Meeting.
Notwithstanding the fact that these provisions were approved by
shareholders when the Company’s new Articles of Association were
adopted on 3 June 2010 (and after the publication of the revised
Code), the Board has decided that it will, nonetheless, comply with
this Code provision and submit all directors for re-election annually.
The Board has resolved that sufficient biographical details and other
relevant information on directors subject to re-election will be
included in the Company’s annual report and in the notice of the
Annual General Meeting to enable shareholders to take an informed
decision on their re-election.
B.7.2
The board should set out to shareholders in the papers
accompanying a resolution to elect a non-executive director why
they believe an individual should be elected. The chairman should
confirm to shareholders when proposing re-election that, following
formal performance evaluation, the individual’s performance
continues to be effective and to demonstrate commitment to the
role.
The letters of appointment of the Non-Executive Directors confirm
that the appointment in each case is for a period expiring at the end
of the Company’s Annual General Meeting. Each Director is
submitted for re-election at each Annual General Meeting. Reappointment of Non-Executive Directors is not automatic. The notice
of Annual General Meeting will provide details (as appropriate) of
why the Board believes Non-Executive Directors should be reelected. On submission for re-election the Chairman will confirm
that performance evaluation has been carried out and that the
individual’s performance continues to be effective and to
demonstrate commitment to the role.
C.
Accountability and Audit
C.1
Financial Reporting
Code Provisions
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C.1.1
The directors should explain in the annual report their responsibility
for preparing the annual report and accounts and there should be a
statement by the auditor about their reporting responsibilities.
The Board has resolved that the Directors will comply with this Code
provision and a statement of responsibility is, and will continue to
be, included in the Company’s annual report.
C.1.2
The directors should include in the annual report an explanation of
the basis on which the company generates or preserves value over
the longer term (the business model) and the strategy for delivering
the objectives of the company.
Details of the Group’s business model, risk assessment and
strategic plan are, and will continue to be, included in the annual
report of the Company.
C.1.3
The directors should report in annual and half-yearly financial
statements that the business is a going concern, with supporting
assumptions or qualifications as necessary.
This is, and will continue to be, included in the annual and interim
reports of the Company.
C.2
Risk Management and Internal Control
Code Provision
C.2.1
The board should, at least annually, conduct a review of the
effectiveness of the company’s risk management and internal
control systems and should report to shareholders that they have
done so. The review should cover all material controls, including
financial, operational and compliance controls.
The review and monitoring of internal controls and risk management
systems is an integral part of the activities and functions of the Audit
Committee.
There is an ongoing process of identifying, evaluating and
managing the significant risks faced by the Group which is regularly
reviewed by the Audit Committee and reported to the Board.
C.3
Audit Committee And Auditors
Code Provisions
C.3.1
The Board should establish an audit committee of at least three, or
in the case of smaller companies two, independent non-executive
directors. In smaller companies the company chairman may be a
member of, but not chair, the committee in addition to the
independent non-executive directors, provided he or she was
considered independent on appointment as chairman. The board
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should satisfy itself that at least one member of the audit committee
has recent and relevant financial experience.
The Company has constituted an Audit Committee. The members of
this committee are set out in Appendix 4 and those terms of
reference are compatible with this Code provision. The Board has
resolved that the members of the committee will be named in the
Company’s annual report. The Board is satisfied that the Chairman
of the Committee, Phil Cox, has recent and relevant financial
experience. The Board is also satisfied that all members of the
committee have appropriate knowledge and understanding of
financial risk and accounting matters to contribute effectively to the
committee. The Committee is comprised of independent NonExecutive Directors.
C.3.2
The main role and responsibilities of the audit committee should be
set out in written terms of reference and should include:
 to monitor the integrity of the financial statements of the
company, and any formal announcements relating to the
company’s financial performance, reviewing significant financial
reporting judgements contained in them;
 to review the company’s internal financial controls and, unless
expressly addressed by a separate board risk committee
composed of independent directors, or by the board itself, to
review the company’s internal control and risk management
systems;
 to monitor and review the effectiveness of the company’s internal
audit function;
 to make recommendations to the board, for it to put to the
shareholders for their approval in general meeting, in relation to
the appointment, re-appointment and removal of the external
auditor and to approve the remuneration and terms of
engagement of the external auditor;
 to review and monitor the external auditor’s independence and
objectivity and the effectiveness of the audit process, taking into
consideration relevant UK professional and regulatory
requirements;
 to develop and implement policy on the engagement of the
external auditor to supply non-audit services, taking into account
relevant ethical guidance regarding the provision of non-audit
services by the external audit firm; and to report to the board,
identifying any matters in respect of which it considers that action
or improvement is needed and making recommendations as to
the steps to be taken.
The terms of reference of the Audit Committee are set out in
Appendix 7
C.3.3
The terms of reference of the audit committee, including its role and
the authority delegated to it by the board, should be made available.
A separate section of the annual report should describe the work of
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the committee in discharging those responsibilities.
The terms of reference of the Audit Committee are set out in
Appendix 7. The annual report includes, and will continue to include,
reference to the role of, and work undertaken by, the Audit
Committee.
C.3.4
The audit committee should review arrangements by which staff of
the company may, in confidence, raise concerns about possible
improprieties in matters of financial reporting or other matters. The
audit committee’s objective should be to ensure that arrangements
are in place for the proportionate and independent investigation of
such matters and for appropriate follow-up action.
The Company has established a “whistleblowing policy”. Under the
terms of that policy, appropriate arrangements are available to all
staff who wish to make comments about, or seek to report, matters
which are of concern to them, whether relating to perceived financial
reporting or accounting impropriety, or otherwise.
In relation to any such concerns:
 confidentiality will be respected;
 any concerns relating to allegations or suspicions of financial
reporting or accounting impropriety will be raised with the
Chairman of the Audit Committee; and
 all such matters are fully and efficiently investigated.
C.3.5
The audit committee should monitor and review the effectiveness of
the internal audit activities. Where there is no internal audit function,
the audit committee should consider annually whether there is a
need for an internal audit function and make a recommendation to
the board, and the reasons for the absence of such a function
should be explained in the relevant section of the annual report.
The Company has an Internal Audit Department which reports to
the Audit Committee on a regular basis.
C.3.6
The audit committee should have primary responsibility for making a
recommendation on the appointment, reappointment and removal of
the external auditor. If the board does not accept the audit
committee’s recommendation, it should include in the annual report,
and in any papers recommending appointment or re-appointment, a
statement from the audit committee explaining the recommendation
and should set out reasons why the board has taken a different
position.
The duties of the Audit Committee include the consideration of the
appointment of the auditor, the audit fee and any questions of
resignation or dismissal of the auditor and reporting to the Board.
C.3.7
The annual report should explain to shareholders how, if the auditor
15
provides non-audit services, auditor objectivity and independence is
safeguarded.
The Board has resolved that the Company will comply with this
Code provision.
D.
Remuneration
D.1
The Level and Components of Remuneration
Code Provisions
D.1.1
In designing schemes of performance-related remuneration for
executive directors, the remuneration committee should follow the
provisions in Schedule A to this Code.
The performance-related elements of the remuneration of the
Executive Directors form a significant proportion of their total
remuneration packages. The performance-related elements are the
bonus provisions included in the service agreements of the
executive directors and / or the participation by the Executive
Directors in the Company’s Long Term Incentive Plan and other
incentive schemes. Those elements have been designed with a
view to aligning participants’ interests with those of shareholders
and to incentivise performance at the highest level.
The Remuneration Committee’s terms of reference provide that the
committee should take note of the provisions of Schedule A of the
Code (set out in Appendix 9).
D.1.2
Where a company releases an executive director to serve as a nonexecutive director elsewhere, the remuneration report should
include a statement as to whether or not the director will retain such
earnings and, if so, what the remuneration is.
Richard Pennycook is a Non-Executive Director of Persimmon Plc.
The Company has agreed his fees should be retained by him
personally. The fees in question are disclosed in the Company’s
annual report.
D.1.3
Levels of remuneration for non-executive directors should reflect the
time commitment and responsibilities of the role. Remuneration for
non-executive directors should not include share options or other
performance-related elements. If, exceptionally, options are
granted, shareholder approval should be sought in advance and any
shares acquired by exercise of the options should be held until at
least one year after the non-executive director leaves the board.
Holding of share options could be relevant to the determination of a
non-executive director’s independence (as set out in provision
B.1.1).
Levels of remuneration for Non-Executive Directors reflect the
16
individual’s commitments to the group, including the committees on
which they serve, as well as taking into account market conditions
and remuneration paid by comparable companies. Non-Executive
Directors are not included in share option or incentive schemes.
D.1.4
The remuneration committee should carefully consider what
compensation commitments (including pension contributions and all
other elements) their directors’ terms of appointment would entail in
the event of early termination. The aim should be to avoid rewarding
poor performance. They should take a robust line on reducing
compensation to reflect departing directors’ obligations to mitigate
loss.
The terms of reference for the Remuneration Committee reflect this
Code provision.
D.1.5
Notice or contract periods should be set at one year or less. If it is
necessary to offer longer notice or contract periods to new directors
recruited from outside, such periods should reduce to one year or
less after the initial period.
The service contracts and appointment letters for all of the Directors
comply with this provision.
D.2
Procedure
Code Provisions
D.2.1
The board should establish a remuneration committee of at least
three, or in the case of smaller companies two, independent nonexecutive directors. In addition, the company chairman may also be
a member of, but not chair, the committee if he or she was
considered independent on appointment as chairman. The
remuneration committee should make available its terms of
reference, explaining its role and the authority delegated to it by the
board. Where remuneration consultants are appointed, a statement
should be made available of whether they have any other
connection with the company.
The Board has constituted a Remuneration Committee. Its
membership is set out in Appendix 4 and its terms of reference are
set out in Appendix 6. The Chairman is a member of the Committee
and was considered independent on appointment.
The Committee uses the services of external advisors where
necessary. PricewaterhouseCoopers LLP has provided advice
regarding (a) the design of Executive and Non-Executive
remuneration; (b) the design of long-term incentive plans; (c)
proposed performance criteria for incentive arrangements; and (d)
benchmarking. PricewaterhouseCoopers has no other connection
with the Company.
17
D.2.2
The remuneration committee should have delegated responsibility
for setting remuneration for all executive directors and the chairman,
including pension rights and any compensation payments. The
committee should also recommend and monitor the level and
structure of remuneration for senior management. The definition of
‘senior management’ for this purpose should be determined by the
board but should normally include the first layer of management
below board level.
The terms of reference of the Remuneration Committee reflect this
Code provision.
D.2.3
The board itself or, where required by the Articles of Association,
the shareholders should determine the remuneration of the nonexecutive directors within the limits set in the Articles of Association.
Where permitted by the Articles, the board may however delegate
this responsibility to a committee, which might include the chief
executive.
The remuneration of the Chairman is reviewed and determined by
the Board. The remuneration of Non-Executive Directors is
reviewed and determined by the Chairman and the Executive
members of the Board.
D.2.4
Shareholders should be invited specifically to approve all new longterm incentive schemes (as defined in the Listing Rules) and
significant changes to existing schemes, save in the circumstances
permitted by the Listing Rules.
The Board has resolved that the Company will comply with this
Code provision.
E.
Relations With Shareholders
E.1
Dialogue With Institutional Shareholders
Code Provisions
E.1.1
The chairman should ensure that the views of shareholders are
communicated to the board as a whole. The chairman should
discuss governance and strategy with major shareholders. Nonexecutive directors should be offered the opportunity to attend
scheduled meetings with major shareholders and should expect to
attend meetings if requested by major shareholders. The senior
independent director should attend sufficient meetings with a range
of major shareholders to listen to their views in order to help
develop a balanced understanding of the issues and concerns of
major shareholders.
Where issues relevant to the Board as a whole are raised by
shareholders, the Chairman relays these issues to the Board.
Where shareholders wish to raise concerns then the Chairman
18
deals with these issues as appropriate. Non-Executive Directors are
also offered the opportunity to attend meetings with major
shareholders. The Company engages in dialogue with institutional
investors to as great an extent as is possible in keeping with its
obligations regarding price sensitive information.
E.1.2
The board should state in the annual report the steps they have
taken to ensure that the members of the board, and, in particular the
non-executive directors, develop an understanding of the views of
major shareholders about their company, for example through direct
face-to face contact, analysts’ or brokers’ briefings and surveys of
shareholder opinion.
The Company complies with this Code provision.
E.2
Constructive Use Of The AGM
Code provisions
E.2.1
At any general meeting, the company should propose a separate
resolution on each substantially separate issue, and should, in
particular, propose a resolution at the AGM relating to the report
and accounts. For each resolution, proxy appointment forms should
provide shareholders with the option to direct their proxy to vote
either for or against the resolution or to withhold their vote. The
proxy form and any announcement of the results of a vote should
make it clear that a ‘vote withheld’ is not a vote in law and will not be
counted in the calculation of the proportion of the votes for and
against the resolution.
The Board has resolved that the Company’s AGM and General
Meeting procedures comply, and will continue to comply with this
Code provision.
E.2.2
The company should ensure that all valid proxy appointments
received for general meetings are properly recorded and counted.
For each resolution, where a vote has been taken on a show of
hands, the company should ensure that the following information is
given at the meeting and made available as soon as reasonably
practicable on a website which is maintained by or on behalf of the
company:
 the number of shares in respect of which proxy appointments
have been validly made;
 the number of votes for the resolution;
 the number of votes against the resolution; and
 the number of shares in respect of which the vote was directed to
be withheld.
The Board has resolved that the notice of its AGM and the
Company’s AGM procedures comply, and will continue to comply,
with this Code provision.
19
E.2.3
The chairman should arrange for the chairmen of the audit,
remuneration and nomination committees to be available to answer
questions at the AGM and for all directors to attend.
The Chairman will arrange for the Committee Chairmen (or their
deputies if any of them are unavoidably absent) to be available to
answer questions at each AGM. All directors attend the AGM unless
there are unavoidable reasons for not doing so.
E.2.4
The company should arrange for the Notice of the AGM and related
papers to be sent to shareholders at least 20 working days before
the meeting.
The Board has resolved that it will arrange for the notice of AGM
and related papers to be sent to shareholders at least twenty
working days before the meeting.
20
Appendix 1
Wm Morrison Supermarkets Plc
Schedule of matters reserved for the Main Board
The points listed below relate to matters on which the Main Board has reserved powers.
All such matters accordingly require the express approval of the Main Board except in so
far as it may on some occasions resolve to delegate its powers. In circumstances where a
matter reserved for consideration by the Board requires urgent attention it may be
necessary to convene a Board meeting at very short notice. In such an event, all
reasonable measures will be taken to ensure that the views of all directors are taken into
account.
1.
Strategic management
1.1
1.2
1.3
1.4
1.5
1.6
1.7
2.
Financial structure and capital
2.1
2.2
3.
Responsibility for the overall management of the Group.
Approval and responsibility for the overall commercial strategy of the
Group including its long term objectives.
Material changes to the Group’s overall management and control
structure.
Approval of the annual budgets and any material changes to them.
Oversight of the Group’s day to day operations ensuring:
 competent and prudent management
 sound planning
 an adequate system of internal control
 adequate accounting and other records
 compliance with statutory and regulatory obligations.
Any significant changes to the Group’s overall strategic direction
including materially extending the business into new areas of
operation or new geographical locations. This includes entering into
any material strategic alliance, joint venture, partnership or profit
sharing arrangement.
Any decision to cease to operate all or any material part of the Group’s
business.
Changes to the Group’s capital structure including share issues
(except under general employee share plans), share buy backs and
the use of treasury shares.
Any changes to the Company’s stock exchange listing or its status as
a plc.
Financial reporting and controls
3.1
3.2
3.3
Approval of the preliminary announcements relating to the interim and
final results; the quarterly/seasonal trading statements; and any
unscheduled financial statements as may be required.
Approval of the content of the ‘Annual Report and Financial
Statements’.
Approval of the overall Group dividend policy.
21
3.4
3.5
3.6
3.7
4.
Internal monitoring and controls
4.1
4.2
5.
5.2
5.3
5.4
Major capital projects and transactions where the total capital
expenditure exceeds £10m.
Material disposals of fixed assets/investments where the proceeds
exceed £1m.
Significant contracts of the Group that are not in the ordinary course of
business.
Acquisition or disposal of an interest of more than 5% in the voting
shares or securities of any company or the making of any take-over
bid.
Communications
6.1
6.2
6.3
7.
Review of performance as measured against the Group’s stated
strategy, objectives, business plans and budgets and ensuring
corrective action is undertaken as and when required.
Oversight of the Group’s risk management and internal control
strategy including consideration of recommendations put forward by
the Audit Committee.
Contracts and major transactions
5.1
6.
Declaration of the interim dividend and recommendation of the final
dividend to shareholders.
Approval of any material changes in accounting policies or practices.
Approval of high level corporate treasury policies including foreign
currency exposure and the use of financial derivatives.
Making recommendations to the shareholders for the appointment,
re-appointment or removal of the external auditors, having considered
proposals put forward by the Audit Committee.
Approval of resolutions and corresponding documentation to be put
forward to shareholders at a general meeting.
Approval of non-routine circulars and/ or any listing particulars and/or
prospectus relating to the Group’s securities.
Approval of press releases concerning matters decided by the Board.
Board membership and other major appointments
7.1
7.2
7.3
7.4
7.5
7.6
7.7
Changes to the overall structure, size and composition of the Board,
following recommendations from the Nomination Committee.
Ensuring adequate succession planning for the Board and other senior
management in liaison with the Nomination Committee.
Appointments to the Board following recommendations by the
Nomination Committee.
Terminations from the Board.
Continuation in office of Directors at the end of their term of office
when they are due to be re-elected by shareholders at the AGM.
Appointment of the Chairman of the Board.
Appointment of the Senior Independent Director.
22
7.8
7.9
7.10
7.11
8.
Remuneration
8.1
8.2
8.3
9.
Membership and chairmanship of the various Board committees and
approval of their terms of reference.
Appointment and removal of the Company Secretary.
Appointments to the boards of the subsidiaries.
Appointments of employer nominees to Group pension schemes
Consideration of the Remuneration Committee’s recommendation in
respect of the remuneration policy for Executive Directors, Board of
Management Directors, members of the Group Committee, the
Company Secretary and other senior management.
Determining the remuneration of the Non-Executive Directors, subject
to the articles of association and shareholder approval as appropriate.
The introduction of new share incentive plans or major changes to
existing plans, to be put to shareholders for approval.
Delegation of authority
9.1
9.2
9.3
The division of responsibilities between the Chairman, the Chief
Executive and other Executive Directors.
Approval of the terms of reference of the Board committees.
Receiving reports from the Board committees on their activities.
10. Corporate governance matters
10.1
10.2
10.3
10.4
10.5
10.6
Review of the Group’s overall corporate governance strategy and
structure.
Undertaking formal and rigorous performance reviews of the Board, its
committees and individual directors.
Determining the independence of the Non-Executive Directors.
Receiving reports on the views of the Company’s shareholders.
Considering the balance of interests between shareholders,
employees, customers and the community.
Authorisation of Director conflicts of interest as appropriate, and
review of the conflicts register on an annual basis.
11. General corporate policies
11.1
Approval of the Company’s principal policies, including:
 Share dealing code
 Health and safety policy
 Environmental policy
 Communications policy, including procedures for the release of
price sensitive information
 Corporate social responsibility policy
 Charitable and political donations policy
12. Other matters
12.1
Approval of contributions to any political party.
23
12.2
12.3
12.4
12.5
12.6
12.7
Approval of the appointment of the Group’s principal professional
advisers.
Appointment of corporate representatives.
Prosecution, defence or settlement of litigation which is material to the
interests of the Group.
Oversight of Directors’ and Officers’ liability insurance.
General oversight of the Group’s various pension schemes and any
changes to the rules or trusteeships thereof.
Any changes to this schedule of matters reserved for Main Board
decisions.
24
Appendix 2
Wm Morrison Supermarkets plc
Chairman and Chief Executive
Roles and Responsibilities
Chairman

Chair the Board

Responsible for the running of the Board

Provide advice and assistance to the CEO

Chair the Nomination Committee

Member of the Remuneration Committee

Attend the Audit Committee by invitation
Chief Executive (‘CEO’)

Chair the Morrisons Executive Board and chair all other operational committees
(including subsidiary Boards)

All Executive Directors report to the CEO

Responsible for all aspects of the Group’s overall commercial, operational and
strategic development

Member of Nomination Committee

Attend the Remuneration and Audit Committees by invitation
25
Appendix 3
Wm Morrison Supermarkets Plc
Procedure For Directors Taking Independent Professional Advice
If a Director considers it necessary to take independent professional advice concerning his
or her duties or responsibilities as a Director he or she should be entitled to do so at the
Company’s expense subject to the limitations set out below and subject to complying with
the following procedure:
1.
In the first instance a Director who requires such professional advice shall be free to
contact the Company’s advisors and in some circumstances this would be
preferable to seeking independent professional advice.
2.
However, it is recognised that in certain circumstances a Director may require
advice from a professional advisor who is completely independent from the
Company.
3.
The provisions of paragraph 4 below shall apply to professional advice taken from
the Company’s advisors as it does to taking advice from independent professional
advisors.
4.
The procedure which a Director must follow (unless the Board otherwise resolves)
is as follows:
4.1
A Director shall give prior notice to the Chairman (with a copy to the
Company Secretary) of his or her intention to seek independent
professional advice and shall provide the name(s) of any professional
advisors he or she proposes to instruct together with a brief summary of the
subject matter. In the Chairman’s case, he shall give prior notice to the
Senior Independent Non-Executive Director (with a copy to the Company
Secretary).
4.2
The Company Secretary shall provide a written acknowledgement of receipt
of the notification.
4.3
The Director should obtain written authorisation to incur fees up to a
maximum amount of £10,000 plus VAT. Such authorisation will not be
unreasonably withheld. If further advice is required which would incur fees
beyond the above amount of £10,000 plus VAT then the Director must seek
further written authorisation; such authorisation will, again, not be
reasonably withheld.
4.4
Where a Director is required to seek authorisation under sub-paragraph 4.3
above, that authorisation must be given either:
4.4.1
by the Chairman (unless the Director seeking the authorisation is
the Chairman, in which case it is the Senior Independent NonExecutive Director) or;
4.4.2
at the option of the Director seeking authorisation or, in the case of
the Chairman, at his option, by two other Directors, one of whom
26
shall be a Non-Executive Director.
5.
For the avoidance of doubt, the above procedure and limitations shall not apply to
Executive Directors acting in the furtherance of their executive responsibilities and
within their delegated powers.
6.
Independent professional advice for the purposes of this procedure shall include
legal advice, the advice of accountants and advice on regulatory matters. It shall
exclude advice concerning the personal interests of the Director concerned (such as
his or her service contract with the Company or his or her dealings in the
Company’s securities or disputes with the Company). It shall also exclude advice in
connection with the exercise of commercial judgement by a Director in the normal
course of fulfilling the responsibilities and duties as a Director of the Company or of
any Group Company.
7.
Any advice obtained under this procedure shall be made available to the other
members of the Board and/or the Company Secretary, if the Chairman so requests
or, in the case of advice obtained by the Chairman under this procedure, if the
Senior Independent Director or the Company Secretary so requests.
27
Appendix 4
Wm Morrison Supermarkets Plc
Board and Board Committee Membership
Main Board
Sir Ian Gibson
Dalton Philips
Richard Pennycook
Philip Cox
Penny Hughes
Nigel Robertson
Johanna Waterous
Non-Executive Chairman
Chief Executive
Group Finance Director
Non-Executive Director
Non-Executive Director
Senior Independent Non-Executive Director
Non-Executive Director
Company Secretary
Greg McMahon
Audit Committee
Philip Cox (Chair of Committee)
Penny Hughes
Nigel Robertson
Johanna Waterous
Nomination Committee
Sir Ian Gibson (Chair of Committee)
Philip Cox
Penny Hughes
Nigel Robertson
Johanna Waterous
Dalton Philips
Remuneration Committee
Johanna Waterous (Chair of Committee)
Sir Ian Gibson
Philip Cox
Penny Hughes
Nigel Robertson
Corporate Compliance and Responsibility Committee
Penny Hughes (Chair of Committee)
Sir Ian Gibson
Nigel Robertson
Johanna Waterous
Dalton Philips
Martyn Jones
Greg McMahon
Richard Taylor
28
Management Board
Dalton Philips
Richard Pennycook
Neal Austin
Martyn Fletcher
Mark Harrison
Terry Hartwell
Richard Hodgson
Martyn Jones
Gregory McMahon
Norman Pickavance
Investment Board
Dalton Philips
Mark Gunter
Mark Harrison
Richard Hodgson
Richard Pennycook
Terry Hartwell
Evolve Sub-Committee
Philip Cox (Chair of Committee)
Sir Ian Gibson
Penny Hughes
Richard Pennycook
Treasury Committee
Richard Pennycook
Jonathan Burke
Paul Coyle
Tony Marsh
Greg McMahon
Trevor strain
29
Appendix 5
Wm Morrison Supermarkets Plc
Nomination Committee
Terms of Reference
1.
2.
Membership
1.1
Members of the Committee shall be appointed by the Board and shall
be made up of at least three members, the majority of whom should be
independent non-executive directors. The Chief Executive shall be a
member of the Committee.
1.2
Only members of the Committee have the right to attend Committee
meetings. However, other individuals such as the Group HR Director
and external advisers may be invited to attend for all or part of any
meeting, as and when appropriate.
1.3
Appointments to the Committee shall be for a period of up to three
years, which may be extended for two further three-year periods
provided that the majority of the Committee members remain
independent.
1.4
The Board shall appoint the Committee Chairman who should be
either the Chairman of the Board or an independent non-executive
director. In the absence of the Committee Chairman and/or an
appointed deputy, the remaining members present shall elect one of
their number to chair the meeting. The Chairman of the Board shall
not chair the Committee when it is dealing with the matter of
succession to the chairmanship.
Secretary
2.1
3.
Quorum
3.1
4.
The quorum necessary for the transaction of business shall be two
both of whom must be independent non-executive directors.
Attendance may be either in person or by telephone or video
conferencing facility. A duly convened meeting of the Committee at
which a quorum is present shall be competent to exercise all or any of
the authorities, powers and discretions vested in or exercisable by the
Committee.
Frequency of Meetings
4.1
5.
The Company Secretary or his/her nominee shall act as the Secretary
of the Committee.
The Committee shall meet at least twice a year and at such other
times as the Chairman of the Committee shall require.
Notice of Meetings
30
6.
7.
5.1
Meetings of the Committee shall be summoned by the Secretary of the
Committee at the request of the Chairman of the Committee.
5.2
Unless otherwise agreed, notice of each meeting confirming the
venue, time and date, together with an agenda of items to be
discussed, shall be forwarded to each member of the Committee, any
other person required to attend and all other non-executive directors,
no later than three working days before the date of the meeting.
Supporting papers shall be sent to Committee members and to other
attendees as appropriate, at the same time.
Minutes of Meetings
6.1
The Secretary shall minute the proceedings and resolutions of all
Committee meetings, including the names of those present and in
attendance.
6.2
Minutes of Committee meetings shall be circulated promptly to all
members of the Committee and the Chairman of the Board and, once
agreed, to all other members of the Board, unless a conflict of interest
exists.
Annual General Meeting
7.1
8.
The Chairman of the Committee shall attend the Annual General
Meeting prepared to respond to any shareholder questions on the
Committee’s activities.
Duties
8.1
The Committee shall carry out the duties below for the parent
company, major subsidiary undertakings and the Group as a whole, as
appropriate:
8.1.1
regularly review the structure, size and composition (including
the skills, knowledge and experience) required of the Board
compared to its current position and make recommendations
to the Board with regard to any changes;
8.1.2
give full consideration to succession planning for directors and
other senior executives in the course of its work, taking into
account the challenges and opportunities facing the
Company, and what skills and expertise are therefore needed
on the Board in the future;
8.1.3
be responsible for identifying and nominating for the approval
of the Board, candidates to fill board vacancies as and when
they arise;
8.1.4
before appointment is made by the Board, evaluate the
balance of skills, knowledge, experience and diversity on the
31
Board, and, in the light of this evaluation prepare a description
of the role and capabilities required for a particular
appointment. In identifying suitable candidates the Committee
shall:
8.1.4.1
use open advertising or the services of external
advisers to facilitate the search;
8.1.4.2
consider candidates
backgrounds; and
8.1.4.3
consider candidates on merit and against objective
criteria, taking care that appointees have enough
time available to devote to the position;
from
a
wide
range
of
8.1.5
keep under review the leadership needs of the Group, both
executive and non-executive, with a view to ensuring the
continued ability of the organisation to compete effectively in
the marketplace;
8.1.6
keep up to date and fully informed about strategic issues and
commercial changes affecting the Group and the market in
which it operates;
8.1.7
review annually the time required from non-executive
directors. Performance evaluation should be used to assess
whether the non-executive directors are spending enough
time to fulfil their duties;
8.1.8
ensure that on appointment to the Board, non-executive
directors receive a formal letter of appointment setting out
clearly what is expected of them in terms of time commitment,
committee service and involvement outside Board meetings;
8.1.9
review potential conflict of interest situations for new
appointments to the Board and make recommendations to the
Board as to their authorisation; and
8.1.10 review the results of the Board performance evaluation
process that relate to the composition of the Board.
8.2
The Committee shall also make recommendations to the Board
concerning:
8.2.1
formulating plans for succession for both executive and nonexecutive directors and in particular for the key roles of
Chairman and Chief Executive;
8.2.2
suitable candidates for the role of senior independent director;
8.2.3
membership of the Audit and Remuneration Committees, in
consultation with the chairmen of those committees;
32
8.3
9.
10.
8.2.4
the re-appointment of any non-executive director at the
conclusion of their specified term of office having given due
regard to their performance and ability to continue to
contribute to the Board in the light of the knowledge, skills and
experience required;
8.2.5
the re-election by shareholders of any director under the
‘retirement by rotation’ provisions in the Company’s articles of
association under the annual re-election provisions of the UK
Corporate Governance Code having due regard to their
performance and ability to continue to contribute to the Board
in the light of the knowledge, skills and experience required;
8.2.6
any matters relating to the continuation in office of any director
at any time including the suspension or termination of service
of an executive director as an employee of the Company
subject to the provisions of the law and their service contract;
and
8.2.7
the appointment of any director to executive or other office
other than to the position of Chairman, the recommendation
for which would be considered at a meeting of the full Board.
For the appointment of a Chairman, the Committee shall prepare a job
specification, including the time commitment expected. The proposed
Chairman’s other significant commitments should be disclosed to the
Board before appointment and any changes to the Chairman’s
commitments should be reported to the Board as they arise.
Reporting Responsibilities
9.1
The Committee Chairman shall report formally to the Board on its
proceedings after each meeting on all matters within its duties and
responsibilities.
9.2
The Committee shall make whatever recommendations to the Board it
deems appropriate on any area within its remit where action or
improvement is needed.
9.3
The Committee shall make a statement in the annual report about its
activities, the process used to make appointments and explain if
external advice or open advertising has not been used.
Other
10.1
The Committee shall:
10.1.1 at least once a year review its own performance, constitution
and terms of reference to ensure it is operating at maximum
effectiveness and recommend any changes it considers
necessary to the Board for approval;
33
10.1.2 have access to sufficient resources in order to carry out its
duties, including access to the Company secretariat for
assistance required;
10.1.3 be provided with appropriate and timely training, both in the
form of an induction program for new members and on an
ongoing basis for all members; and
10.1.4 give due consideration to laws and regulations, the provisions
of the UK Corporate Governance Code and the requirements
of the UK Listing Authority’s listing Prospectus and Disclosure
and Transparency Rules and any other applicable rules, as
appropriate.
11.
Authority
11.1
The Committee is authorised to seek any information it requires from
any employee of the company in order to perform its duties.
11.2
The Committee is authorised to obtain, at the Company’s expense,
outside legal or other professional advice on any matters within its
terms of reference.
34
Appendix 6
Wm Morrison Supermarkets Plc
Remuneration Committee
Terms of Reference
1.
Membership
1.1
Members of the Committee shall be appointed by the Board, on the
recommendation of the Nomination Committee and in consultation with
the Chairman of the Remuneration Committee. The Committee shall
be made up of at least three members, each of which shall be an
independent non-executive director or the Chairman of the Board
(provided he/she is independent on appointment).
1.2
Only members of the Committee have the right to attend Committee
meetings. However, other individuals such as the Chairman, Chief
Executive and Group HR Director and external advisors may be invited
to attend for all or part of any meeting, as and when appropriate.
1.3
The Board shall appoint the Committee Chairman who shall be an
independent, non-executive director and determine the period for
which they shall hold office. In the absence of the Committee
Chairman and/or an appointed deputy, the remaining members
present shall elect one of themselves to chair the meeting. The
Chairman of the Board shall not be eligible to be appointed as
Chairman of the Committee.
1.4
In deciding chairmanship and membership of the Committee, the value
of ensuring that committee membership is refreshed and that undue
reliance is not placed on a particular individual should be taken into
account.
2.
Secretary
2.1
The Company Secretary or his/her nominee shall act as the Secretary
of the Committee.
3.
Quorum
3.1
The quorum necessary for the transaction of business shall be two.
Attendance may be either in person or by telephone or video
conferencing facility. A duly convened meeting of the Committee at
which a quorum is present shall be competent to exercise all or any of
the authorities, powers and discretions vested in or exercisable by the
Committee.
4.
Frequency of Meetings
4.1
The Committee shall meet at least twice a year and at such other
times as appropriate. The Committee should also consider organising
meetings to maximise attendance for example, timetabling them to
coincide with Board meetings.
5.
Notice of Meetings
5.1
Meetings of the Committee shall be summoned by the Secretary of the
35
Committee at the request of any of its members.
5.2
6.
Unless otherwise agreed, notice of each meeting, confirming the
venue, time and date, together with an agenda of items to be
discussed (and supporting papers as required), shall be forwarded to
each member of the Committee and any other person required to
attend. A schedule of meetings will be agreed and circulated prior to
the commencement of any new financial year. Wherever practicable
all committee papers will be circulated no later than three working days
before the date of the meeting. Supporting papers shall be sent to
Committee members and to other attendees as appropriate, at the
same time.
Minutes of Meetings
6.1
The Secretary shall minute the proceedings and resolutions of all
Committee meetings, including the names of those present and in
attendance.
6.2
Minutes of Committee meetings shall be circulated promptly to all
members of the Committee and, once agreed, to all other members of
the Board, unless a conflict of interest exists.
7.
Annual General Meeting
7.1
The Chairman of the Committee shall attend the Annual General
Meeting prepared to respond to any shareholder questions on the
Committee’s activities. In the event that the Chairman is unable to
attend the Annual General Meeting, the Committee will appoint a
deputy for that purpose.
8.
Duties
The Committee shall carry out the duties below for the parent company,
major subsidiary undertakings and the Group as a whole, as appropriate:
8.1
determine and agree with the Board the framework or broad policy for
the remuneration of the Company’s Chief Executive, Chairman,
executive directors, and such other members of the executive
management as it is designated to consider, currently, the Group
Committee. The remuneration of non-executive directors shall be a
matter for the Chairman and the executive members of the Board. No
director or manager shall be involved in any decisions as to their own
remuneration;
8.2
in determining such policy, take into account all factors which it deems
necessary including relevant legal and regulatory requirements, the
provisions and recommendations of the UK Corporate Governance
Code and associated guidance. The objective of such policy shall be
to ensure that members of the executive management of the Company
are encouraged to enhance the Company’s performance and are, in a
fair and responsible manner, rewarded for their individual contributions
to the success of the Company;
8.3
review
the
ongoing
appropriateness
and
relevance
of
the
36
remuneration policy within the terms of the agreed policy and in
consultation with the Chairman and/or Chief Executive;
8.4
approve the design of, and determine targets for any performance
related pay schemes operated by the Company and approve the total
annual payments made under such schemes;
8.5
review the design of all share incentive plans for approval by the
Board and, where necessary, shareholders. For any such plans,
determine each year whether awards will be made, and, if so, the
overall amount of such awards, the individual awards to executive
directors and other executive management and the performance
targets to be used;
8.6
review the terms and operation of the Share Ownership Guidelines on
an annual basis, including the extent to which Executive Directors
have met the required shareholding target;
8.7
determine the policy for, and scope of, pension arrangements for each
executive director and other executive management;
8.8
agree the Company's policy in relation to compensation agreed to be
paid to any executive director or other executive management in
connection with early termination of employment and, where
appropriate, office as director;
8.9
review the terms of service agreements for each executive director
and other executive management from time to time;
8.10
ensure that contractual terms on termination, and any payments
made, are fair to the individual and the Company, and ensure that
failure is not rewarded and that duty to mitigate loss is fully recognised;
8.11
within the terms of the agreed policy, and in consultation with the Chief
Executive, determine the total individual remuneration package
(including base salary, bonuses, incentive payments, share options or
other share awards and pension) of each executive director and Group
Committee member included within level 6 of the Company’s senior
management accountability framework;
8.12
review the approach adopted towards establishing the remuneration
packages of the group of employees who are not executive directors
or Group Committee members but are included within level 6 of the
Company’s senior management accountability framework;
8.13
in determining such packages and arrangements, give due regard to
any relevant legal requirements, the provisions and recommendations
on the Combined Code (including Schedule A thereto) and the UK
Listing Authority’s Listing Rules and associated guidance;
8.14
review and note annually the remuneration trends across the company
or group;
37
9.
10.
8.15
oversee any major changes in employee benefits structures
throughout the company or group;
8.16
ensure that all provisions regarding disclosure of remuneration
including pensions, as set out in the Directors’ Remuneration Report
Regulations 2002 and the Combined Code are fulfilled;
8.17
ensure that appropriate benchmark information is available for
remuneration monitoring purposes;
8.18
agree the policy for authorising claims for expenses from the Chief
Executive and Chairman of the Company;
8.19
be exclusively responsible for establishing the selection criteria,
selecting, appointing and setting the terms for any remuneration
consultants who advise the Committee, at the Company's expense;
and
where remuneration consultants are appointed, make a
statement available of whether they have any other connection with
the Company. The Committee will only seek outside advice as and
when required;
8.20
consider other matters as referred to the Committee by the Board; and
8.21
when setting remuneration policy for directors, review and have regard
to the remuneration trends across the Company or Group.
Reporting Responsibilities
9.1
The Committee Chairman shall report formally to the Board, after each
meeting, on all matters within its duties and responsibilities.
9.2
The Committee shall make whatever recommendations to the Board it
deems appropriate on any area within its remit where action or
improvement is needed.
9.3
The Committee shall produce an annual report of the Company’s
remuneration policy and practices which will form part of the
Company’s Annual Report and ensure each year that it is put to
shareholders for approval at the AGM.
9.4
The Committee shall produce the statement required to be included in
the Annual Report of the Company identifying the membership of the
Committee and the frequency of, and attendance by members at,
Committee meetings over the course of the year.
Other
10.1
The Committee shall:
10.1.1 at least once a year, review its own performance, constitution
and terms of reference to ensure it is operating at maximum
effectiveness and recommend any changes it considers
necessary to the Board for approval;
38
10.1.2 have access to sufficient resourcing in order to carry out its
duties, including access to the Company secretariat for
assistance as required;
10.1.3 be provided with appropriate and timely training, both in the
form of an induction program for new members and on an
ongoing basis for all members; and
10.1.4 give due consideration to the laws and regulations, the
provisions of the UK Corporate Governance Code and the
requirements of the UK Listing Authority’s Listing Prospectus
and Disclosure and Transparency Rules and any other
applicable Rules, as appropriate.
11.
Authority
11.1 The Committee is authorised by the Board to seek any information it
requires from any employee of the Group in order to perform its duties.
11.2
In connection with its duties the Committee is authorised by the Board
to obtain, at the Company’s expense, any outside legal or other
professional advice.
39
Appendix 7
Wm Morrison Supermarkets Plc
Audit Committee
Terms of Reference
1.
2.
3.
4.
Membership
1.1
Members of the Committee shall be appointed by the Board, on the
recommendation of the Nomination Committee and in consultation
with the Chairman of the Audit Committee. The Committee shall be
made up of at least three members.
1.2
All members of the Committee shall be independent Non-Executive
Directors, at least one of whom shall have recent and relevant
financial experience and be competent in accounting and/or
auditing. The chairman of the Board shall not be a member of the
Committee.
1.3
All members of the Committee and all other Directors of the
company may attend meetings of the Committee as may such
members of management or other persons, including the auditors
and professional advisors, as the Chairman of the Committee may
determine as being appropriate. Ordinarily, it is envisaged that the
Chief Accountant and the Head of Risk and Internal Audit would
attend meetings of the Committee.
1.4
The external auditors will be invited to attend meetings of the
Committee on a regular basis.
1.5
The Board shall appoint the Committee Chairman who shall be an
independent Non-Executive Director.
In the absence of the
Committee Chairman and/or an appointed deputy, the remaining
members present shall elect one of themselves to chair the meeting.
2.1
The Company Secretary or his/her nominee shall act as the
Secretary of the Committee.
3.1
The quorum necessary for the transaction of business shall be two
members. Attendance may be either in person or by telephone or
video conferencing facility. A duly convened meeting of the
Committee at which a quorum is present shall be competent to
exercise all or any of the authorities, powers and discretions vested
in or exercisable by the Committee.
Secretary
Quorum
Frequency of Meetings
4.1
The Committee shall meet at least three times a year at appropriate
40
times in the reporting and audit cycle and otherwise as required.
5.
6.
7.
Notice of Meetings
5.1
Meetings of the Committee shall be summoned by the Secretary of
the Committee at the request of any of its members or at the request
of external auditors if they consider it necessary.
5.2
Unless otherwise agreed, notice of each meeting confirming the
venue, time and date together with an agenda of items to be
discussed, shall be forwarded to each member of the Committee or
any other person required to attend. This shall be no later than
three working days before the date of the meeting.
Minutes of Meetings
6.1
The Secretary shall minute the proceedings and resolutions of all
meetings of the Committee, including recording the names of those
present and in attendance.
6.2
The Secretary shall ascertain, at the beginning of each meeting, the
existence of any conflicts of interest and minute them accordingly.
6.3
Minutes of Committee meetings shall be circulated promptly to all
members of the Committee and, once agreed, to all members of the
Board, unless a conflict of interest exists.
Annual General Meeting
7.1
8.
The Chairman of the Committee shall attend the Annual General
Meeting prepared to respond to any shareholder questions on the
Committee’s activities.
Duties
The Committee should carry out the duties below for the group as a whole as
appropriate.
8.1
Financial Reporting
8.1.1 The Committee shall monitor the integrity of the financial
statements of the company, including its annual and interim
reports, preliminary and interim results announcements and
any other formal announcement relating to significant
changes in expectations of financial performance, reviewing
significant financial reporting issues and/or judgements which
they contain. The Committee shall also review summary
financial statements, significant financial returns to regulators
and any financial information contained in certain other
documents, such as announcements of a price sensitive
nature. In the absence of significant changes in expectations,
it is not envisaged that the Committee’s prior approval to
41
interim management statements will be required.
8.1.2 The Committee shall review and challenge where necessary:
8.1.2.1
The consistency of, and any changes to,
compliance with accounting policies both on a year
on year basis and across the group;
8.1.2.2
The methods used to account for significant or
unusual transactions where different approaches
are possible;
8.1.2.3
Whether the company has followed appropriate
accounting standards and made appropriate
estimates and judgements, taking into account the
views of the external auditors;
8.1.2.4
The clarity of disclosure in the company’s financial
reports and the context in which statements are
made;
8.1.2.5
All material information presented with the financial
statements, such as the enhanced business review
and the corporate governance statement (insofar as
it relates to the audit and risk management);
8.1.2.6
The going concern statement or assumption (and
any supporting work or report in connection with
such statement or assumption), or any contrary
statement or assumption (and any supporting work
or report in connection with that contrary statement
or assumption) proposed as the basis of the
company’s (or its group’s) financial statements; and
8.1.2.7
Any material written communication (including
email) between the auditors and the company.
8.1.3 The Committee shall review the annual financial statements
of the pension schemes where not reviewed by the Board as
a whole.
8.2
Internal Controls and Risk Management Systems
The Committee shall:
8.2.1 Keep under review the effectiveness of the company’s
internal controls and risk management systems; and
8.2.2 Review and approve the statements to be included in the
Annual Report concerning internal controls and risk
management.
42
8.3
Whistle Blowing and Fraud
The Committee shall:
8.3.1 The Committee shall review the company’s arrangements for
its employees to raise concerns, in confidence, about
possible wrongdoing in financial reporting or other matters.
The Committee shall ensure that these arrangements allow
proportionate and independent investigation of such matters
and appropriate follow up action.
8.3.2 Review the Company’s procedures for detecting fraud
8.4
Internal Audit
The Committee shall:
8.4.1 Monitor and review the effectiveness of the Company’s
Internal Audit department in the context of the Company’s
overall risk management system;
8.4.2 Approve the appointment and removal of the Head of the
Internal Audit department;
8.4.3 Consider and approve the remit of the Internal Audit
Department and ensure it has adequate resources and
appropriate access to information to enable it to perform its
function effectively and in accordance with the relevant
professional standards. The Committee shall also ensure the
department has adequate standing and is free from
management or other restrictions;
8.4.4 Review and assess the annual internal audit plan;
8.4.5 Review promptly all reports on the Company from the
Internal Auditors;
8.4.6 Review and monitor management’s responsiveness to the
findings and recommendations of the Internal Auditor; and
8.4.7 The Head of Internal Audit shall be given the right of direct
access to the Chairman of the Board and to the Chairman of
the Committee.
8.5
External Audit
The Committee shall:
8.5.1 Consider and make recommendations to the Board, to be put
to shareholders for approval at the AGM, in relation to the
appointment, re-appointment and removal of the company’s
external auditors. The Committee shall oversee the selection
43
process for new auditors and if an auditor resigns the
Committee shall investigate the issues leading to this and
decide whether any action is required;
8.5.2 Oversee the relationship with the external auditors including
(but not limited to) ;
8.5.2.1 Approval of their remuneration, whether fees for
audit or non audit services and that the level of fees
is appropriate for the scope of work undertaken;
8.5.2.2 Approval of their terms of engagement, including
any engagement letter issued at the start of each
audit and the scope of the audit;
8.5.2.3 Assessing annually their independence and
objectivity taking into account relevant professional
and regulatory requirements and the relationship
with the auditors as a whole, including the provision
of any non-audit services;
8.5.2.4 Satisfying itself that there are no relationships (such
as family, employment, investment, financial or
business) between the auditors and the company
(other than in the ordinary course of business);
8.5.2.5 Agreeing with the Board a policy on the employment
of former employees of the company’s auditors,
then monitoring the implementation of this policy;
8.5.2.6 Monitoring the auditors compliance with relevant
ethical and professional guidance in the rotation of
audit partners, the level of fees paid by the company
compared to the overall fee income of the firm,
office and partner and other related requirement;
8.5.2.7 Assessing annually their qualifications, expertise
and resources and the effectiveness of the audit
process which shall include a report from the
external auditors on their own internal quality
procedures;
8.5.2.8 Seeking to ensure co-ordination with activities of the
Internal Audit department; and
8.5.2.9 Considering the risk of withdrawal of the Company’s
present auditor from the market.
8.5.3 Meet regularly with the external auditor, including once at the
planning stage before the audit and once after the audit at
the reporting stage. The Committee shall meet the external
44
auditors at least once a year, without management being
present, to discuss their remit and any issues arising from the
audit;
8.5.4 Review and approve the annual audit plan and ensure that it
is consistent with the scope of the audit engagement;
8.5.5 Review the findings of the audit with the external auditors.
This shall include, but not be limited to, the following;
8.5.5.1 A discussion of any major issues which arose during
the audit,
8.5.5.2 Any accounting and audit judgements, and
8.5.5.3 Levels of errors identified during the audit.
The Committee shall continually review the effectiveness of the
audit process with a specific review undertaken at the end of the
annual cycle.
8.5.6 Review any representation letter(s) requested by the external
auditors before they are signed by management;
8.5.7 Review the management letter and management’s response
to the auditors’ findings and recommendations; and
8.5.8 Develop and implement a policy in the supply of non-audit
services by the external auditors, taking into account any
relevant ethical guidance on the matter.
8.6
Reporting Responsibilities
8.6.1 The Committee Chairman shall make a summary report to
the Board on its proceedings after each meeting on matters
within its duties and responsibilities.
8.6.2 The Committee shall make whatever recommendations to
the Board it deems appropriate on any area within its remit
where action or improvement is needed.
8.6.3 The Committee shall compile a report to shareholders on its
activities to be included in the company’s Annual Report.
8.6.4 The Chairman of the Committee shall consider for approval
the annual report on compliance with the Groceries Supply
Code of Practice and summary to be included in the
Company’s Annual Report
8.7
Other Matters
The Committee shall:
45
8.7.1 Have access to sufficient resources in order to carry out its
duties, including access to the company secretariat for
assistance as required;
8.7.2 Be provided with appropriate and timely training, both in the
form of an induction programme for new members and on an
ongoing basis for all members;
8.7.3 Give due consideration to laws and regulations, the
provisions of the Combined Code and the requirements of
the UK Listing Authority’s Listing, Prospectus Rules and the
Disclosure and Transparency Rules as appropriate;
8.7.4 Be responsible for co-ordination of the internal and external
auditors;
8.7.5 Oversee any investigation of activities which are within its
terms of reference, act for internal audit purposes as a forum
of last resort and to ensure it is operating at maximum
effectiveness and recommend any changes it considers
necessary to the Board for approval;
8.7.6 At least once a year, reviews its own performance,
contribution and terms of reference to ensure it is operating
at maximum effectiveness and recommend any changes it
considers necessary to the Board for approval.
9.
Authority
The Committee is authorised:
9.1
To seek any information it requires from any employee of the
company in order to perform its duties;
9.2
To obtain, at the company’s expense, outside legal or other
professional advice on any matter within its terms of reference; and
9.3
To instigate, at the Company’s expense, special projects or
investigations relating to any matter within the Committee’s terms of
reference.
9.4
To call any employee to be questioned at a meeting of the
Committee as and when required.
46
Wm Morrison Supermarkets plc
Audit Committee
Group Policy for the Provision of Non-Audit Services by the External Auditor
1.
This policy is designed to assist the Company and each of its subsidiaries in
ensuring that the engagement of the external auditors to provide non-audit
services:
a) Is only done in appropriate circumstances;
b) Is transparent; and
c) Does not impair the judgement or independence of the external
auditors.
2.
The Audit Committee has decided to categorise the type of services in the
following fashion:
a) “Audit related” which involves:
i. Audit of financial statements of the Company and its
subsidiaries;
ii. Review of Interim Results;
iii. Review of Interim Management Statements;
iv. Audit related regulatory reporting; and
v. Reports on internal controls or governance.
b) “Permitted Non-Audit”, where the external auditor shall be permitted by
the Audit Committee, in appropriate circumstances, to provide services
and which include:
i. Corporate finance services for mergers and acquisition
transactions;
ii. Tax compliance services;
iii. Tax advisory services;
iv. UKLA/public circular reporting accountancy services;
v. Assurance reviews of implementation programmes relating to
financial systems, processes or controls;
vi. Environmental auditing; and
vii. Forensic investigations.
c) “Reserved Non-Audit”, where the external auditor will not normally be
permitted by the Audit Committee to provide services and which include:
i. Bid defence work;
ii. Maintenance of accounting records;
iii. Preparation of financial statements;
iv. Executive remuneration advice;
v. General systems and consulting work (such as financial
information technology, internal audit, valuation, litigation
support or other legal services, recruitment services); and
vi. Any other service where there is a risk that the firm may be
called upon to review its own work as part of the external audit
engagement.
3.
Any decision on the use of external advisers in respect of accounting, audit
and/or tax advice outside the audit engagement) must only be taken
following consultation with the Group Finance Director.
47
4.
The Group Finance Director shall have the power to commission Non-Audit
Services (permitted Non-Audit and/or reserved Non-Audit) from any firm,
whether the external auditors or not, where the prospective value of fees
shall not exceed £100,000. Any proposed engagement of a firm to provide
Non-Audit services at a prospective fee level greater than £100,000 shall
require the prior approval of the Audit Committee.
5.
The external auditors shall not be commissioned to provide any Reserved
Non-Audit Services except in extraordinary circumstances and with the
specific approval of the Audit Committee.
6.
The Company shall seek to operate this policy in such a way that the best
service provider is engaged as is appropriate to the individual
circumstances.
7.
The external auditors may be commissioned to provide Audit Related
Services and Permitted Non-Audit Services on the following basis:
a) For any such services other than those referred to at paragraphs 2
(a) (i) to (iv) inclusive, the external auditor shall only be engaged
where other providers are not practical or available (or are conflicted)
and management concludes that the external auditor will not have to
review its own work or output as part of the audit process;
b) A tender process (whether formal or informal) shall be considered;
c) The external auditor may be used as a supplier of corporate finance
assurance services (such as review of completion accounts on a
disposal) where that firm has the most relevant knowledge;
8.
Where there is an urgent need to engage the external auditors for Permitted
Non-Audit services above the threshold referred to in Paragraph 3, the
Group Finance Director can discuss and agree the matter with the
Chairman of the Audit Committee and report their conclusion at the next
Audit Committee meeting.
9.
The cost of all Non-Audit Services provided by the auditors, both Permitted
Non-Audit Services and, in exceptional circumstances, Reserved Non-Audit
Services, will be reported to the Group Board annually. The Group Finance
Director shall be responsible for obtaining such a report from the auditors.
10. The Audit Committee shall also receive from the Group Finance Director
(for information only) a report in respect of each financial year which sets
out all external professional services fees.
11. When assessing Non-Audit Services for approval the Audit Committee will
take the following into consideration:
 Whether the skills and experience of the audit firm make it the
most suitable supplier of the Non-Audit Service;
 Whether there are safeguards in place to ensure that there is no
threat to the objectivity or independence in the conduct of the
audit resulting from the provision of such services by the external
auditor;
 The nature of the non-audit services, the related fee levels and
the fee levels individually and in aggregate relative to the audit
48

fee; and
The criteria which govern the compensation of the individuals
performing the audit.
12. The Audit Committee will not give approval for Non-Audit services to be
provided by the Group’s external auditors which would result in:
 The external auditor auditing its own firm’s work;
 The external auditor making management decisions for the
Company;
 A conflict of interest being created; or
 The external auditor being put in the role of advocate for the
Company.
The Group’s external auditors will confirm from time to time that they cannot
perform these services.
13. For information, the Group’s current external auditors have also confirmed
that , as a matter of internal policy within the firm, all Non-Audit Services
are referred to the relationship partner for approval in the first instance and
that their own policy excludes them providing the following services for audit
clients:
 Internal audit (with a few very limited exceptions);
 Secondments to senior positions that involve any decision
making;
 Valuations that will be included in the financial statements; or
 Litigation support.
49
Appendix 8
Wm Morrison Supermarkets Plc
Corporate Compliance and Responsibility Committee
Terms of Reference
1.
2.
Membership
1.1
Members of the Committee shall be appointed by the Board, on the
recommendation of the Nomination Committee. The Committee
shall be made up of at least three members.
1.2
The membership of the Committee shall be made up of a
combination of both executive and independent non-executive
directors together with such representatives of the senior
management of the Group as shall be co-opted to the Committee.
1.3
Only members of the Committee have the right to attend Committee
meetings. Other directors of the company may attend meetings of
the Committee, as may such members of management or other
persons, including the Company’s professional advisors, as the
Chairman of the Committee may determine as being appropriate.
1.4
Ordinarily, it is envisaged that the following post holders would
attend (in whole or part) and/or give presentations to meetings of
the Committee:
 Group Logistics Director;
 Group Manufacturing Director;
 Group Property Director;
 Group Commercial Director
 Group HR Director;
 Company Secretary/Head of Legal Services;
 Head of Competition Compliance;
 Public Relations Director;
 Corporate Affairs Director;
 CSR Manager;
 Head of Risk and Internal Audit;
 Security Director;
 Technical Services Director.
1.5
The Board shall appoint the Committee Chairman who shall be an
independent non-executive director.
In the absence of the
Committee Chairman and/or an appointed deputy, the remaining
members present shall elect one of themselves to chair the
meeting.
Secretary
2.1
3.
The Assistant Company Secretary or his/her nominee shall act as
the Secretary of the Committee.
Quorum
50
3.1
4.
Frequency of Meetings
4.1
5.
6.
7.
8.
The quorum necessary for the transaction of business shall be two
members both of whom shall be main Board directors. Attendance
may be either in person or by telephone or video conferencing
facility. A duly convened meeting of the Committee at which a
quorum is present shall be competent to exercise all or any of the
authorities, powers and discretions vested in or exercisable by the
Committee.
The Committee shall meet at least three times a year at appropriate
times in the Board reporting and review cycle and otherwise as
required.
Notice of Meetings
5.1
Meetings of the Committee shall be summoned by the Secretary of
the Committee at the request of any of its members or at the
request of external auditors if they consider it necessary.
5.2
Unless otherwise agreed, notice of each meeting confirming the
venue, time and date, together with an agenda of items to be
discussed, shall be forwarded to each member of the Committee or
any other person required to attend. This shall be no later than
three working days before the date of the meeting.
Minutes of Meetings
6.1
The Secretary shall minute the proceedings and resolutions of all
meetings of the Committee, including recording the names of those
present and in attendance.
6.2
The Secretary shall ascertain, at the beginning of each meeting, the
existence of any conflicts of interest and minute them accordingly.
6.3
Minutes of Committee meetings shall be circulated promptly to all
members of the Committee and, once agreed, to all members of the
Board, unless a conflict of interest exists.
Annual General Meeting
7.1
The Chairman of the Committee shall attend the Annual General
Meeting and be prepared to respond to any shareholder questions
on the Committee’s activities.
8.1
The specific topics or areas of interest/concern for the various
different but connected functions to be considered by the
Committee are set out in Schedule 1. In each case, the Committee
will work up with the relevant management, who have responsibility
Remit
51
for the disciplines or activities concerned, a proportionate
programme of design, development, review, assessment and
monitoring of each such topic or area.
9.
Duties
The Committee should carry out the duties below for the group as a whole as
appropriate.
9.1
Corporate Compliance
9.1.1
The Committee shall monitor the integrity of the Company’s
policies/procedures in respect of, and review the results of
trends identified by reports relating to, matters falling within
its remit reviewing significant issues and/or judgements
which they contain.
9.1.2
The Committee
necessary:
shall
review
and
challenge
where
9.1.2.1
The consistency of, and any changes to,
application of governance and compliance
policies both on a year on year basis and across
the group;
9.1.2.2
The methods used to report significant or
unusual events or incidents where different
approaches are possible;
9.1.2.3
Whether the Company has followed appropriate
compliance policies and procedures and ethical
and
governance
standards
and
taken
appropriate action and made appropriate
judgements, taking into account, where relevant,
the views of the external advisers;
9.1.2.4
The clarity of disclosure in the Company’s
annual CSR report and other annual reports and
the context in which statements are made;
9.1.2.5
All material information presented with the
financial statements, such as the enhanced
business review and the corporate governance
statement (insofar as it relates to the governance
and compliance matters);
9.1.2.6
Any material written communication (including
email) between relevant regulators, professional
bodies and community interest groups, charities
and other stakeholders and the Company which
is drawn to the attention of the Committee by the
Company Secretary or any member of the
52
Committee.
9.1.2.7
9.2
The Company’s stance and approach to gender
and racial and sexual diversity issues,
developments and trends. The Committee will
monitor and keep under review the Company’s
policies, procedures and standards on such
matters and whether the Company has followed
those policies, procedures and standards and
taken appropriate action and made appropriate
judgements, taking into account, where relevant,
the views of external advisers.
Whistle Blowing
The Committee shall:
9.2.1
9.3
The Committee shall review the Company’s arrangements
for its employees to raise concerns, in confidence, about
possible wrongdoing in matters falling within the
Committee’s remit, noting the possible overlap with the work
of the Audit Committee. The Committee shall ensure that
these arrangements allow proportionate and independent
investigation of such matters and appropriate follow up
action.
Internal Assurance
The Committee shall:
9.4
9.3.1
Monitor and review the effectiveness of the systems of
internal monitoring and assurance of matters falling within
its remit.
9.3.2
Consider and approve the remit of the Group Secretariat,
Marketing
and
Communications
and
Technical
Departments, the Competition Compliance function, the
CSR function and other relevant functions or departments to
ensure they each have adequate resources and appropriate
access to information to enable them to perform their
respective functions effectively and in accordance with the
relevant professional standards. The Committee shall also
ensure that each such department has adequate standing
and is free from management or other restrictions;
9.3.3
Review promptly all reports on the Company from those
charged with assurance reporting and review and monitor
management’s responsiveness to the findings and
recommendations of such reports;
External Assurance
53
The Committee shall:
9.5
9.4.1
Oversee the selection process for new advisers relating to
matters within its remit and if an adviser resigns the
Committee shall investigate the issues leading to this and
decide whether any action is required;
9.4.2
Oversee the relationships with such external advisers
including (but not limited to) ;
9.4.2.1
Approval of their remuneration and that the level
of fees is appropriate to enable an adequate
service to be provided;
9.4.2.2
Approval of their terms of engagement, including
any engagement letter and the scope of the work
to be undertaken;
9.4.2.3
Satisfying itself that there are no relationships
(such as family, employment, investment,
financial or business) between the advisers and
the Company (other than in the ordinary course
of business);
9.4.2.4
Agreeing with the Board a policy on the
employment of former employees of the
Company’s advisers, then monitoring the
implementation of this policy;
9.4.2.5
Monitoring the advisers’ compliance with relevant
ethical and professional guidance;
9.4.2.6
Assessing annually the advisers’ qualifications,
expertise and resources and the effectiveness of
the external advisory process which shall include
a report from the external advisers on their own
internal quality procedures;
9.4.2.7
Considering the risk of withdrawal of any of the
Company’s present advisers from the market.
9.4.3
Develop and implement a policy in the supply of external
advisory services, taking into account any relevant ethical
guidance on the matter.
9.4.4
Seek to ensure co-ordination with the activities of the
Internal Audit function.
GSCOP
The Committee shall:
54
9.5.1
9.6
9.7
Review and approve the annual report on compliance with
the Groceries Supply Code of Practice (“the code”) and
summary to be included in the Company’s annual report.
Oversee compliance with the code, including (but not limited
to):
9.5.1.1
reviewing and monitoring significant disputes with
suppliers with regard to the Code; and
9.5.1.2
requesting (if considered appropriate) and
reviewing periodic reports from the Code
Compliance Officer on compliance with the Code.
Reporting Responsibilities
9.6.1
The Committee Chairman shall report formally to the Board
on its proceedings after each meeting on all matters within
its duties and responsibilities.
9.6.2
The Committee shall make whatever recommendations to
the Board it deems appropriate on any area within its remit
where action or improvement is needed.
9.6.3
The Committee shall compile a report to shareholders on its
activities to be included in the Company’s Annual Report.
Other Matters
The Committee shall:
9.7.1
Review and monitor the standards of behaviour (and
policies and procedures which support those standards) of
the Company, its directors and employees to ensure that
appropriate standards of ethical behaviour are upheld by
the Company throughout its activities and operations;
9.7.2
Have access to sufficient resources in order to carry out its
duties, including access to the company secretariat for
assistance as required;
9.7.3
Be provided with appropriate and timely training, both in the
form of an induction programme for new members and on
an ongoing basis for all members;
9.7.4
Give due consideration to laws and regulations, the
provisions of the Combined Code and the requirements of
the UK Listing Authority’s Listing Rules, Prospectus Rules
and the Disclosure and Transparency Rules as appropriate;
9.7.5
Oversee any investigation of activities which are within its
terms of reference, act as a forum of last resort and to
ensure it is operating at maximum effectiveness and
55
recommend any changes it considers necessary to the
Board for approval;
10.
9.7.6
At least once a year, review its own performance,
contribution and terms of reference to ensure it is operating
at maximum effectiveness and recommend any changes it
considers necessary to the Board for approval.;
9.7.7
Review the Company’s systems and controls for the
prevention of bribery and receive reports on noncompliance;
9.7.8
Review regularly the adequacy and effectiveness of the
Company’s anti-money laundering systems and controls
including any reports from a Money Laundering Reporting
Officer (if appointed); and
9.7.9
Review regular reports from the Competition Compliance
Officer and keep under review the adequacy and
effectiveness of the Company’s compliance function
Authority
The Committee is authorised:
10.1 To seek any information it requires from any employee of the
Company in order to perform its duties;
10.2 To obtain, at the Company’s expense, outside legal or other
professional advice on any matter within its terms of reference; and
10.3 To instigate, at the Company’s expense, special projects or
investigations relating to any matter within the Committee’s terms of
reference.
10.4 To call any employee to be questioned at a meeting of the
Committee as and when required.
Schedule 1
Part 1
Specific Health and Safety Topics/Review Areas
 Implementation of company Health and Safety policy, directions of the
Board and approved Health and Safety plans.
 Delivery of Health and Safety by the Health and Safety Management
System through Health and Safety arrangements, risk assessment and
employee engagement.
 Reporting of Health and Safety performance in relation to training activity;
the impacts of business change; external drivers such as new or changed
legislation or events in the wider community; significant incidents;
accident trends and enforcement actions.
 Review of Health and Safety Performance in each of the key operating
56
areas of the business (probably once a year, unless otherwise directed).
Part 2
Specific Competition Compliance Topics/Review Areas
 Ongoing OFT, Competition Commission and other competition authorities
 Competition compliance regime including:

Training;

Communication; and

Regular updates and reviews.
 Grocery supply code of practice compliance regime.
Part 3
Specific Corporate Governance Topics/Review Areas
 Combined Code compliance.
 Awareness of developments in governance trends and policies.
 Oversight of approach to be taken to governance developments.
 Oversight of Group structures and procedures.
 Review of Board / Board Committee structures and evaluation processes
(in liaison with Chairman of Nomination Committee).
 Legal and regulatory compliance.
 Approach taken on key legal issues / cases to ensure appropriate stance
is observed.
Part 4
Specific Corporate Responsibility Topics/Review Areas
 Identification, tracking and input into relevant Government, quasigovernmental and regulatory initiatives and developments;
 The Group’s approach to the discharge of responsibilities to staff,
customers, the general public, governmental bodies and authorities and
other interested shareholders.
 Community relations
 Environmental plan compliance, targets and performance
57
Appendix 9
Schedule A To The Code
The design of performance related remuneration for executive Directors
1.
The remuneration committee should consider whether the directors should be
eligible for annual bonuses. If so, performance conditions should be relevant,
stretching and designed to promote the long-term success of the company. Upper
limits should be set and disclosed. There may be a case for part payment in shares
to be held for a significant period.
2.
The remuneration committee should consider whether the directors should be
eligible for benefits under long-term incentive schemes. Traditional share option
schemes should be weighed against other kinds of long-term incentive scheme.
Executive share options should not be offered at a discount save as permitted by
the relevant provisions of the Listing Rules.
3.
In normal circumstances, shares granted or other forms of deferred remuneration
should not vest, and options should not be exercisable, in less than three years.
Directors should be encouraged to hold their shares for a further period after vesting
or exercise, subject to the need to finance any costs of acquisition and associated
tax liabilities.
4.
Any new long-term incentive schemes which are proposed should be approved by
shareholders and should preferably replace any existing schemes or, at least, form
part of a well considered overall plan incorporating existing schemes. The total
potentially available rewards should not be excessive.
5.
Payouts or grants under all incentive schemes, including new grants under existing
share option schemes, should be subject to challenging performance criteria
reflecting the company’s objectives, including non-financial performance metrics
where appropriate. Remuneration incentives should be compatible with risk policies
and systems.
6.
Grants under executive share option and other long-term incentive schemes should
normally be phased rather than awarded in one large block.
7.
Consideration should be given to use the provisions that permit the company to
reclaim variable components in exceptional circumstances of misstatement or
misconduct.
8.
In general, only basic salary should be pensionable. The remuneration committee
should consider the pension consequences and associated costs to the company of
basic salary increases and any other changes in pensionable remuneration,
especially for directors close to retirement.
58
Appendix 10
Schedule B To The Code
Disclosure of corporate governance arrangements
Corporate governance disclosure requirements are set out in three places:



FSA Disclosure and Transparency Rules sub-chapters 7.1 and 7.2 (which set
out certain mandatory disclosures);
FSA Listing Rules 9.8.6 R, 9.8.7 R, and 9.8.7A R (which includes the ‘comply
or explain’ requirement); and
The UK Corporate Governance Code (in addition to providing an explanation
where they choose not to comply with a provision, companies must disclose
specified information in order to comply with certain provisions).
These requirements are summarised below. The full text of Disclosure and
Transparency Rules 7.1 and 7.2 and Listing Rules 9.8.6 R and 9.8.7 R and 9.8.7A
R are contained in the relevant chapters of the FSA Handbook, which can be found
at http://fsahandbook.info/FSA/html/handbook/.
The Disclosure and Transparency Rules sub-chapters 7.1 and 7.2 apply to issuers
whose securities are admitted to trading on a regulated market (this includes all
issuers with a Premium or Standard listing). The Listing Rules 9.8.6 R, 9.8.7R and
9.8.7A R and UK Corporate Governance Code apply to issuers of Premium listed
equity shares only.
There is some overlap between the mandatory disclosures required under the
Disclosure and Transparency Rules and those expected under the UK Corporate
Governance Code. Areas of overlap are summarised in the Appendix to this
Schedule. In respect of disclosures relating to the audit committee and the
composition and operation of the board and its committees, compliance with the
relevant provisions of the Code will result in compliance with the relevant Rules.
Disclosure and Transparency Rules
Sub-chapter 7.1 of the Disclosure and Transparency Rules concerns audit
committees or bodies carrying out equivalent functions.
DTR 7.1.1 R to 7.1.3 R sets out requirements relating to the composition and
functions of the committee or equivalent body:
 DTR 7.1.1 R states that an issuer must have a body which is responsible for
performing the functions set out in DTR 7.1.3 R, and that at least one member
of that body must be independent and at least one member must have
competence in accounting and/or auditing
 DTR 7.1.2 G states that the requirements for independence and competence in
accounting and/or auditing may be satisfied by the same member or by
different members of the relevant body
 DTR 7.1.3 R states that an issuer must ensure that, as a minimum, the relevant
body must:
(1)
monitor the financial reporting process;
(2)
monitor the effectiveness of the issuer’s internal control, internal audit
59
(3)
(4)
where applicable, and risk management systems;
monitor the statutory audit of the annual and consolidated accounts;
review and monitor the independence of the statutory auditor, and in
particular the provision of additional services to the issuer.
DTR 7.1.5 R to 7.1.7 G explain what disclosure is required. Specifically:
 DTR 7.1.5 R states that the issuer must make a statement available to the
public disclosing which body carries out the functions required by DTR 7.1.3 R
and how it is composed.
 DTR 7.1.6 G states that this can be included in the corporate governance
statement required under sub-chapter DTR 7.2 (see below).
 DTR 7.1.7 G states that compliance with the relevant provisions of the UK
Corporate Governance Code (as set out in the Appendix to this Schedule) will
result in compliance with DTR 7.1.1 R to 7.1.5 R.
Sub-chapter 7.2 concerns corporate governance statements. Issuers are required to
produce a corporate governance statement that must be either included in the
directors’ report (DTR 7.2.1 R); or in a separate report published together with the
annual report; or on the issuer’s website, in which case there must be a crossreference in the directors’ report (DTR 7.2.9 R).
DTR 7.2.2 R requires that the corporate governance statements must contain a
reference to the corporate governance code to which the company is subject (for
companies with a Premium listing this is the UK Corporate Governance Code). DTR
7.2.3 R requires that, to the extent that it departs from that code, the company must
explain which parts of the code it departs from and the reasons for doing so. DTR
7.2.4 G states that compliance with LR 9.8.6R (6) (the ‘comply or explain’ rule in
relation to the UK Corporate Governance Code) will also satisfy these requirements.
DTR 7.2.5 R to DTR 7.2.10 R set out certain information that must be disclosed in
the corporate governance statement:
 DTR 7.2.5 R states that the corporate governance statement must contain a
description of the main features of the company’s internal control and risk
management systems in relation to the financial reporting process. DTR 7.2.10
R states that an issuer which is required to prepare a group directors’ report
within the meaning of Section 415(2) of the Companies Act 2006 must include
in that report a description of the main features of the group’s internal control
and risk management systems in relation to the process for preparing
consolidated accounts.
 DTR 7.2.6 R states that the corporate governance statement must contain the
information required by paragraph 13(2)(c), (d), (f), (h) and (i) of Schedule 7 to
the Large and Medium-sized Companies and Groups (Accounts and Reports)
Regulations 2008 where the issuer is subject to the requirements of that
paragraph.
 DTR 7.2.7 R states that the corporate governance statement must contain a
description of the composition and operation of the issuer’s administrative,
management and supervisory bodies and their committees. DTR 7.2.8 G states
that compliance with the relevant provisions of the UK Corporate Governance
Code (as set out in the Appendix to this Schedule) will satisfy these
requirements.
Listing Rules
60
Listing Rules 9.8.6R (for UK incorporated companies) and 9.8.7 R (for overseas
incorporated companies) state that in the case of a company that has a Premium
listing of equity shares, the following items must be included in its annual report and
accounts:


a statement of how the listed company has applied the Main Principles set out
in the UK Corporate Governance Code, in a manner that would enable
shareholders to evaluate how the principles have been applied;
a statement as to whether the listed company has:
 complied throughout the accounting period with all relevant provisions set
out in the UK Corporate Governance Code; or
 not complied throughout the accounting period with all relevant provisions
set out in the UK Corporate Governance Code and if so, setting out:
(i)
those provisions, if any, it has not complied with;
(ii)
in the case of provisions whose requirements are of a continuing
nature, the period within which, if any, it did not comply with some
or all of those provisions; and
(iii)
the company’s reasons for non-compliance.
The UK Corporate Governance Code
In addition to the ‘comply or explain’ requirement in the Listing Rules, the Code
includes specific requirements for disclosure which must be provided in order to
comply. These are summarised below:
The annual report should include:
 a statement of how the board operates, including a high level statement of
which types of decisions are to be taken by the board and which are to be
delegated to management (A.1.1);
 the names of the chairman, the deputy chairman (where there is one), the chief
executive, the senior independent director and the chairmen and members of
the board committees (A.1.2);
 the number of meetings of the board and those committees and individual
attendance by directors (A.1.2);
 where a chief executive is appointed chairman, the reasons for their
appointment (this only needs to be done in the annual report following the
appointment) (A.3.1);
 the names of the non-executive directors whom the board determines to be
independent, with reasons where necessary (B.1.1);
 a separate section describing the work of the nomination committee, including
the process it has used in relation to board appointments and an explanation if
neither external search consultancy nor open advertising has been used in the
appointment of a chairman or a non-executive director (B.2.4);
 any changes to the other significant commitments of the chairman during the
year (B.3.1);
 a statement how performance evaluation of the board, its committees and its
directors has been conducted (B.6.1);
 an explanation from the directors of their responsibility for preparing the
accounts and a statement by the auditors about their reporting responsibilities
(C.1.1);
 an explanation from the directors of the basis on which the company generates
61








or preserves value over the longer term (the business model) and the strategy
for delivering the objectives of the company (C.1.2)
a statement from the directors that the business is a going concern, with
supporting assumptions or qualifications as necessary (C.1.3);
a report that the board has conducted a review of the effectiveness of the
company’s risk management and internal controls systems (C.2.1);
a separate section describing the work of the audit committee in discharging its
responsibilities (C.3.3);
where there is no internal audit function, the reasons for the absence of such a
function (C.3.5);
where the board does not accept the audit committee’s recommendation on the
appointment, reappointment or removal of an external auditor, a statement from
the audit committee explaining the recommendation and the reasons why the
board has taken a different position (C.3.6);
an explanation of how, if the auditor provides non-audit services, auditor
objectivity and independence is safeguarded (C.3.7).
a description of the work of the remuneration committee as required under the
Large and Medium-Sized Companies and Groups (Accounts and Reports)
Regulations 2008 including, where an executive director serves as a nonexecutive director elsewhere, whether or not the director will retain such
earnings and, if so, what the remuneration is (D.1.2)
the steps the board has taken to ensure that members of the board, in
particular the non-executive directors, develop an understanding of the views of
major shareholders about their company (E.1.2).
The following information should be made available (which may be met by placing
the information on a website that is maintained by or on behalf of the company):
 the terms of reference of the nomination, audit and remuneration committees,
explaining their role and the authority delegated to them by the board (B.2.1,
C.3.3 and D.2.1);
 the terms and conditions of appointment of non-executive directors (B.3.2))
(see footnote 9); and
 where performance evaluation has been externally facilitated, a statement of
whether the facilitator has any other connection with the company (B.6.2); and
 where remuneration consultants are appointed, a statement of whether they
have any other connection with the company (D.2.1).
The board should set out to shareholders in the papers accompanying a resolution
to elect or re-elect directors:
 sufficient biographical details to enable shareholders to take an informed
decision on their election or re-election (B.7.1);
 why they believe an individual should be elected to a non-executive role
(B.7.2); and
 on re-election of a non-executive director, confirmation from the chairman that,
following formal performance evaluation, the individual’s performance continues
to be effective and to demonstrate commitment to the role (B.7.2).
The board should set out to shareholders in the papers recommending appointment
or reappointment of an external auditor:
 if the board does not accept the audit committee’s recommendation, a
statement from the audit committee explaining the recommendation and from
the board setting out reasons why they have taken a different position (C.3.6).
62
Additional Guidance
The Turnbull Guidance and FRC Guidance on Audit Committees contain further
suggestions as to information that might usefully be disclosed in the internal control
statement and the report of the audit committee respectively. Both sets of guidance
are available on the FRC website at http://www.frc.org.uk/corporate/ukgcode.cfm.
OVERLAP BETWEEN THE DISCLOSURE AND TRANSPARENCY RULES AND
THE UK CORPORATE GOVERNANCE CODE
Disclosure and Transparency Rules
D.T.R 7.1.1 R
Sets out minimum requirements on
composition of the audit committee or
equivalent body.
UK Corporate Governance Code
Provision C.3.1
Sets out recommended composition of the
audit committee.
D.T.R 7.1.3 R
Provision C.3.2
Sets out minimum functions of the Sets out the recommended minimum terms
audit committee or equivalent body.
of reference for the committee.
D.T.R 7.1.5 R
The composition and function of the
audit committee or equivalent body
must be disclosed in the annual
report.
DTR 7.1.7 R states that compliance
with Code provisions A.1.2, C.3.1,
C.3.2 and C.3.3 will result in
compliance with DTR 7.1.1 R to DTR
7.1.5 R.
D.T.R 7.2.5 R
The corporate governance statement
must include a description of the main
features of the company’s internal
control and risk management systems
in relation to the financial reporting
process.
Provision A.1.2:
The annual report should identify members
of the board committees.
Provision C.3.3
The annual report should describe the work
of
the
audit
committee.
Further
recommendations on the content of the
audit committee report are set out in the
FRC Guidance on Audit Committees.
Provision C.2.1
The Board must report that a review of the
effectiveness of the risk management and
internal control systems has been carried
out. Further recommendations on the
content of the internal control statement
are set out in the Turnbull Guidance.
While this requirement differs from the
requirement in the UK Corporate
Governance Code, it is envisaged that
both could be met by a single internal
control statement.
DTR 7.2.7 R
The corporate governance statement
must include a description of the
composition and operation of the
administrative,
management
and
supervisory
bodies
and
their
This requirement overlaps with a number of
different provisions of the Code:
A.1.1: the annual report should include a
statement of how the board operates.
63
committees.
A.1.2: the annual report should identify
members of the board and board
DTR 7.2.8 R states that compliance committees.
with Code provisions A.1.1, A.1.2,
A.4.6, B.2.1 and C.3.3 with result in B.2.4: the annual report should describe
compliance with DTR 7.2.7 R.
the work of the nomination committee.
C.3.3: the annual report should describe
the work of the audit committee.
D.2.1: a description of the work of the
remuneration committee should be made
available. [Note: in order to comply with
DTR 7.2.7 R this information will need to
be included in the corporate governance
statement].
64
Appendix 11
Schedule C To The Code
Engagement principles for institutional shareholders
Principle 1: Dialogue with companies
Main Principle
Institutional shareholders should enter into a dialogue with companies based on the
mutual understanding of objectives.
Supporting Principle
Institutional shareholders should apply the principles set out in the Institutional
Shareholders’ Committee’s “Code on the Responsibilities of Institutional Investors”,
which should be reflected in fund manager contracts.
Principle 2: Evaluation of Governance Disclosures
Main Principle
When evaluating companies’ governance arrangements, particularly those relating
to board structure and composition, institutional shareholders should give due
weight to all relevant factors drawn to their attention.
Supporting Principles
Institutional shareholders should consider carefully explanations given for departure
from the UK Corporate Governance Code and make reasoned judgements in each
case. They should give an explanation to the company, in writing where
appropriate, and be prepared to enter a dialogue if they do not accept the
company’s position. They should avoid a box- ticking approach to assessing a
company’s corporate governance. They should bear in mind, in particular, the size
and complexity of the company and the nature of the risks and challenges it faces.
Principle 3: Shareholder Voting
Main Principle
Institutional shareholders have a responsibility to make considered use of their
votes.
Supporting Principles
Institutional shareholders should take steps to ensure their voting intentions are
being translated into practice. Institutional shareholders should, on request, make
available to their clients information on the proportion of resolutions on which votes
were cast and non-discretionary proxies lodged. Major shareholders should attend
AGMs where appropriate and practicable. Companies and registrars should
facilitate this.
65
Appendix 12
Wm Morrison Supermarkets Plc
(“the Company”)
Code for Dealings by Directors and PDMRs in Securities of the Company
1.
Introduction
The Rules of the UK Listing Authority, and in particular, the Model Code contained
in Annex 1R to LR9 (the “Model Code”), require the Company to adopt an
employee securities dealing code. The Company has adopted the rules set out in
this document (the “Share Dealing Code”) to apply to Directors of Wm Morrison
Supermarkets Plc and other persons discharging managerial responsibilities
(“PDMRs”) for Wm Morrison Supermarkets Plc. PDMRs include any senior
executives of the Company who are not directors but who have regular access to
inside information relating directly or indirectly to the issuer and the power to make
managerial decisions affecting the future development and business prospects of
the Company. These employees should also ensure that the rules applicable to
their connected persons are followed.
The purpose of this document is to help and protect certain employees of the
Morrisons Group from inadvertently breaching insider trading rules. Any employee
who believes that they may be regarded as a PDMR and/or may be viewed as
being in possession of information of this nature should contact the Company
Secretary for guidance as to whether they should seek consent to deal under the
Share Dealing Code.
It must be remembered that it is an individual’s responsibility to comply with the
Share Dealing Code. Failure to do so would be regarded as a breach of an
individual’s contract of employment and could constitute a criminal offence.
2.
Procedures for Directors and PDMRs
Set out below are specific details of the UKLA Listing Regime to which Directors
and other PDMRs should be aware when dealing in the securities of the Company.
The following is a briefing note issued to all Directors and PDMRs by the Company
Secretary together with the Introduction section to this code set out at paragraph 1
above.
The Listing Regime – Share Dealing
As part of its continuing obligations under the Listing Rules, a listed company must
require compliance with the Model Code which imposes restrictions on certain
persons dealing in the Company’s securities. In addition, Chapter 3 of the
Disclosure and Transparency Rules (part of the Disclosure and Transparency Rules
sourcebook) imposes certain notification obligations on Directors, Persons
Discharging Managerial Responsibilities (“PDMRs”) and their connected persons.
A breach of these provisions could result in liability and public censure for both you
and the Company. I am therefore drawing your attention to certain relevant parts of
the Listing Regime to make sure that you are fully aware of your and the Company's
obligations and the possible sanctions for any breach of the requirements.
66
I attach the following:
1.
a copy of the Model Code requirements of the Listing Rules; and
2.
a copy of Chapter 3 of the Disclosure and Transparency Rules.
Model Code
Although you should read the Code yourself, the main provision, as far as you are
concerned, is that as a director you must first seek clearance from the Chairman
before any dealing in the Company’s securities. If the Chairman is unavailable, you
must seek clearance from the Chief Executive. In the event that both the Chairman
and Chief Executive are unavailable, clearance from the Senior Independent
Director should be sought. The Chairman must seek prior clearance from the
Senior Independent Director. PDMRs must seek clearance from the Chief
Executive. In each case, the Company Secretary will act in a liaison role to ensure
consent is sought and, if approved, at the appropriate time.
Disclosure and Transparency Rules
Again, although you should read the Disclosure and Transparency Rules yourself,
the main effect for you is that as a director or PDMR you and any connected person
(effectively your spouse, civil partner, children or step-children under 18, other
relatives you have lived with for at least 12 months, another corporate body with
which you are associated or the trustees of any trust under which any of the
aforementioned are or may be the beneficiaries), must notify the Company in writing
of all transactions in the Company's shares within four business days.
Chapter 2 of the Disclosure and Transparency Rules also imposes controls on the
disclosure of inside information. Due to your position, the Company is obliged to
name you on its list of persons with access to inside information relating to the
Company. This list may be made available to the Financial Services Authority
should they request it.
You should also note that you will remain liable to criminal penalties for any insider
dealing under the Criminal Justice Act 1993 and also civil penalties under the
market abuse regime. A separate note entitled Insider Dealing and Market Abuse is
attached as an appendix.
It is important that you understand these legal and regulatory obligations. In doing
so, you should note that whilst primary responsibility for compliance with the Listing
Rules and the Model Code rests with the Company, you can be liable personally, if
you are knowingly concerned with any such breach, to FSA disciplinary action
(including fines and public censure). You should also note that you and your
connected persons have direct responsibility for complying with Chapter 3 of the
Disclosure and Transparency Rules.
3.
Close Periods
The Company has undertaken to announce its results on a half yearly basis to the
UK Listing Authority. Under the Model Code, dealings may not take place during the
period from the end of accounting period 10 until the announcement of the
preliminary results or from the end of period 6 until the date of the announcement of
the interim results.
The Company is also obliged to give quarterly management statements in
accordance with the UK Listing Authority’s Disclosure Rules and Transparency
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Rules. Accordingly, dealings may not take place in the period of 30 days
immediately preceding the announcement of the management statements or, if
shorter, the period from the end of the relevant financial period up to and including
the time of the announcement. These periods are referred to as “close periods” and
applications for permission to deal during these periods will normally be refused.
The results announcements will usually be made during the first or second weeks of
March and September and management statements will usually be made in the first
or second weeks of June and December (please check with the Company Secretary
for the exact dates).
4.
Prohibited Periods
Prohibited periods include close periods as set out above and any period where
there exists a matter which constitutes inside information in relation to the
Company. During a prohibited period dealings will not be permitted other than in
exceptional circumstances. There may be occasions when dealing is forbidden in
the Company’s shares or other securities if price sensitive information exists with
the Morrisons Group but the individual employee is not yet aware of it. [It is for this
reason, and to protect employees against possible accusation that they dealt in the
Company’s securities at a sensitive time, that those employees who might be
expected to receive such information are required, under the terms of these rules, to
obtain permission to deal from a nominated executive.]
5.
Connected Persons
The definition of “connected person” includes in relation to a person discharging
managerial responsibilities:
that person’s spouse, child or step-child;

except where the context otherwise requires, a body corporate with which

the person is associated;
a person acting in his capacity as trustee of any trust the beneficiaries of

which include that person, his spouse or any of his children or step-children
or a body corporate with which he is associated or of a trust whose terms
confer a power on the trustees that may be exercised for the benefit of the
director, his spouse, children or step-children or an associated company;
and
certain other categories of person.

If in doubt about whether a person is connected with you, please contact the
Company Secretary for clarification.
Directors and other PDMRs must take reasonable steps to prevent their connected
persons dealing in securities on considerations of a short term nature and must try
to prohibit such persons dealing during prohibited periods.
To assist in preventing dealings in breach of this provision, directors and PDMRs
must inform their connected persons and investment advisors acting on their behalf
of their management position in the Morrisons Group, of the close periods that apply
to the Company and in addition to seeking consent to any dealings by those
persons, must advise the Company of any dealings made by such connected
persons.
6.
Background Information
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The regulations covering directors/employees dealing in the Company’s securities
arise from five sources:1.
2.
3.
4.
5.
the Criminal Justice Act (1193);
the Financial Services and Markets Act 2000;
the Companies Act 1985 and 2006;
the UK Listing Authority Listing Rules and DTRs; and
the Model Code
Whilst many of the regulations are specifically related to dealings by Board
Directors, the Model Code extends the regulations to certain employees who by
virtue of their employment are likely to be in possession of price sensitive
information.
Employees may not deal in the shares or other securities of any company when in
possession of price sensitive information relating to that company.
This document has been prepared in order to assist you in complying with your
obligations with respect to dealing in securities of the Company. However, it is no
more than a summary of such obligations. If you require a copy of the Model Code
please request one from the Company Secretary.
Any breach of the Code or other regulations referred to in this document
(which in many cases will also amount to a breach of your contract of
employment) must be viewed by the Company has a matter of the utmost
seriousness and may lead to summary dismissal. It can also lead to enquiries
being made by the Financial Services Authority, to prosecution and to
consequent adverse publicity for you and other parties involved.
If you have any queries concerning this document, please do not hesitate to contact
Greg McMahon at Hilmore House on extension 6902 or email
greg.mcmahon@morrisonsplc.co.uk
69
Appendix
Insider Dealing and Market Abuse
1.
Insider Dealing – Part V of the Criminal Justice Act 1993 (“CJA”)
1.1
Statutory restrictions on insider dealing are to be found in Part V
CJA. Under the CJA it is a criminal offence to:
1.1.1
deal in securities when in possession of inside information;
1.1.2
encourage another to do so, when in possession of inside
information; or
1.1.3
disclose inside information otherwise than in the proper
performance of the functions of any employment, office or
profession.
1.2
In relation to each of the above offences:
1.2.1
the expression “dealing” includes not only acquisitions or
disposals by an individual but also situations where an
individual procures another to effect an acquisition or
disposal on his behalf. It covers not only dealing on a
regulated market but also off-market transactions where a
professional intermediary (such as a broker or merchant
bank) is involved;
1.2.2
the CJA applies to dealings in all classes of the Company’s
securities, including traded options or other derivative
securities. The CJA also applies to dealings in the
securities of other companies even where there is no direct
connection between the “insider” and the company
concerned;
1.2.3
the CJA is only concerned with “inside information”. The
information must be precise or specific and not relate to
securities or issuers generally. It must not have been
made public and if it were to be made public it must be
likely to have a significant effect on the price of any
securities. Obvious examples are the Company’s annual or
interim results, or the intention to make a significant
acquisition or carry out a capital raising exercise;
1.2.4
in order to be guilty of one of the above offences, it is also
necessary to know that the information is “inside
information” and that it was acquired knowingly from an
inside source. Information is obtained from an inside
source if the individual in question obtained it, amongst
other ways, because he is a director or employee of an
issuer or because he had access to the information by
virtue of his employment or office. The information is also
considered to be from an inside source if it is obtained
directly or indirectly from a person who obtained it in one of
the above two ways.
1.3
The offences
conviction, a
imprisonment.
civil sanctions
outlined above are criminal offences carrying, on
fine and/or a sentence of up to seven years’
It is also possible that an insider dealer could face
such as being called to account for the profits made
70
by such insider dealing. It is therefore imperative that careful
consideration should be given to imposing appropriate restrictions
on the way in which and extent to which inside information is
disseminated throughout the Company, in cases where that
information is not public.
2.
Market Abuse – Financial Services and Markets Act 2000 (“FSMA”)
2.1
Sections 118-123 of FSMA allow the Financial Services Authority
(“FSA”) to impose a penalty on any person where the FSA is
satisfied that a person has or is engaged in market abuse, or has
required or encouraged another person to engage in behaviour that
would (if engaged in by the first person) amount to market abuse.
2.2
The implementation of the Market Abuse Directive in the UK has
resulted in the redefinition of the civil offence of market abuse with
effect from 1 July 2005. The offence is based on the existence of
particular types of behaviour:
2.2.1
insiders dealing or attempting to deal on the basis of
inside information;
2.2.2
insiders disclosing inside information to another person
other than in the proper course;
2.2.3
behaviour (not falling within “dealing” or “disclosing”)
based:
2.2.3.1 on information not generally available, but which
would be regarded as relevant, and
2.2.3.2 likely to be regarded as a failure to observe
standards of behaviour reasonably expected
(misuse of information);
2.2.4
effecting or participating in effecting transactions which
give a false or misleading impression as to supply,
demand, price or value of qualifying investments, or
secures an abnormal or artificial price;
2.2.5
effecting or participating in transactions which employ
fictitious devices, deception or contrivance;
2.2.6
disseminating or causing to disseminate information that
could give a false or misleading impression as to a
qualifying investment;
2.2.7
behaviour (not falling within “false or misleading
impression”, “fictitious devices” or “disseminating”) which:
2.2.7.1 gives a regular market user a false or misleading
impression as to supply, demand, price or value
of
qualifying
investments
(misleading
behaviour), or
2.2.7.2 would be, or would be likely to be, regarded by a
regular market user as behaviour that would
distort or be likely to distort the market
(distortion)
and the behaviour is likely to be regarded as a failure to
observe standards of behaviour reasonably expected.
2.3
Market abuse is a civil offence, supplementing the criminal offences
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of creating a false market in investments under section 397 of
FSMA and of insider dealing under Part V of the Criminal Justice
Act 1993. Market abuse is not a criminal offence, and need only be
proven on a balance of probabilities.
2.4
Persons who commit market abuse will be liable to be punished by
unlimited fines or by public censure and may also be ordered to
make restitution. These penalties can also be imposed upon a
person who encourages or requires another person to engage in
market abuse. The FSA has published the Code of Market Conduct
which is designed to assist in determining whether or not certain
conduct amounts to market abuse.
72