Corporate Governance
Corporate Governance StatementChairman’s statement on diversity
The Board
Board balance and independence
Board appointments
Information and professional development
Board performance evaluation
Conflicts of interest
Committees
Audit committee
Remuneration committee
Nomination committee
Corporate Responsibility
Accountability and audit
Internal control
Risk assessment
Control environment and control activities
Information and financial reporting
Monitoring
Relations with shareholders
Annual General Meeting
Share capital
Corporate Governance Statement
Dear Shareholder,
Your Board remains committed to high standards of corporate governance which it considers to be central to the effective management of the business and to maintaining the confidence of investors. We take our role of ensuring the long-term success of the Company very seriously.
On the following pages we set out our approach to governance at Burberry. We explain how the Board and its Committees are structured, how they operate and how their effectiveness is evaluated. My role as Chairman is to provide leadership and ensure that the Board is effective, which I strongly believe that it is, and this was confirmed following an independent external evaluation held during the year.
During the financial year ended 31 March 2011, and as at the date of this report, Burberry complied in full with the relevant provisions set out in section 1 of the UK Combined Code on Corporate Governance (the ‘2008 Code’). This report, together with the Directors’ Remuneration Report on pages 76 to 85, provides details of how we have complied with the 2008 Code.
The Board intends to comply with the provisions of the new UK Corporate Governance Code (the ‘2010 Code’) in full during the financial year ended 31 March 2012. We are adopting early the provisions relating to the annual re-election of directors and will be proposing the relevant resolutions at the Annual General Meeting in July.
John Peace
Chairman
Chairman’s statement on diversity
At the Annual General Meeting of Burberry Group plc held on Thursday, 14 July 2011, Sir John Peace, Chairman made the following statement on diversity:
“As some of you know, there has been much debate following Lord Davies report about diversity in Britain’s boardrooms. Also, there has been a suggestion that companies should make a statement about their aspirations in relation to diversity over the next few years. These comments have been directed to gender diversity rather than the broader issues of diversity in corporate Britain. However I think you will be interested to know that Burberry is not only diverse regarding gender. In Burberry’s Group Headquarters 42 different nationalities are represented, and over half of the workforce is female. I think we should all be very proud of that. As a company Burberry is in the fortunate position that three out of its eight directors are women, and all of its executive directors, the true test of gender diversity, are female. This does not mean we are complacent on this subject. The board will monitor diversity and take such steps as we consider appropriate to maintain Burberry’s position as a diverse, meritocratic business.”
The Board
The Board is collectively responsible for promoting the success of the Company. The Board provides leadership for the Group and concentrates its efforts on strategy, performance, governance and internal control. As at the date of this report, the Board has eight members: the Chairman, the Chief Executive Officer, the Executive Vice President, Chief Financial Officer and five independent non-executive directors.
The Board has a formal schedule of matters reserved to it for decision and approval which include, but are not limited to:
- the Group’s business strategy;
- annual budget and operating plans;
- major capital expenditure, acquisitions or divestments;
- the systems of corporate governance, internal control and risk management;
- the approval of the interim and annual financial statements; and
- any interim dividend and the recommendation of the final dividend.
Any matters that are not within the schedule of matters reserved, and do not fall within the terms of reference of the Board’s Committees, are subject to the Company’s internal approval processes.
During the year the Board held six scheduled meetings, including an in-depth session on strategic matters, and one ad hoc meeting. All directors participate in discussions relating to the Group’s strategy, financial and trading performance and risk management. The Board considers that it met sufficiently often to enable the directors to discharge their duties effectively.
The table below gives details of directors’ attendance at Board and Committee meetings during the financial year ended 31 March 2011.
| Board | Audit Committee |
Remuneration Committee |
Nomination Committee | |||
| Scheduled | Ad hoc | Scheduled | Ad hoc | |||
| John Peace | 6/6 | 1/1 | - | - | 5/5 | 2/2 |
| Angela Ahrendts | 6/6 | 1/1 | - | - | - | 2/2 |
| Philip Bowman | 6/6 | 1/1 | 3/3 | 2/2 | 5/5 | 2/2 |
| Ian Carter | 6/6 | 1/1 | 2/3 | 1/2 | 5/5 | 2/2 |
| Stacey Cartwright | 6/6 | 1/1 | - | - | - | - |
| Stephanie George | 6/6 | 1/1 | 3/3 | 2/2 | 5/5 | 2/2 |
| David Tyler | 6/6 | 1/1 | 3/3 | 2/2 | 5/5 | 2/2 |
| John Smith | 6/6 | 1/1 | 2/3 | 1/2 | 5/5 | 2/2 |
Any absences were due to unavoidable prior commitments.
At the request of any non-executive director, the Chairman will arrange meetings consisting of only the non-executive directors to allow the opportunity for any concerns to be expressed. During the year, the Chairman maintained regular contact and met with the Senior Independent Director and other non-executive directors outside formal board meetings.
The Board is chaired by John Peace. The Chairman is responsible for leading the Board and for its effectiveness, including ensuring there is an open culture which allows debate and constructive challenge of the executive directors. Angela Ahrendts is the Chief Executive Officer and is responsible for implementing the strategy as agreed by the Board. The division of the roles and responsibilities of the Chairman and Chief Executive Officer is formally set out in writing and agreed by the Board. The major commitments of the Chairman are detailed in his biography on page 67 and have not changed during the year.
The Senior Independent Director, Philip Bowman, supports the Chairman in his role and leads the non-executive directors in the oversight of the Chairman and Chief Executive Officer. The Senior Independent Director has a specific responsibility to be available to shareholders if they have concerns which the normal channels have failed to resolve or where such contact is inappropriate.
Board balance and independence
The non-executive directors are, in the opinion of the Board, independent of management and free from any business relationship which could materially interfere with the exercise of their independent judgement. During the year under review, the majority of the Board (excluding the Chairman) comprised independent non-executive directors.
At the time of the 2011 Annual General Meeting, John Peace, Philip Bowman and David Tyler will have served for nine years on the Board. The Board does not feel that this compromises their effectiveness, as they bring valuable insight and experience to the Board’s deliberations. The external performance evaluation conducted in the year reviewed the non-executive directors’ contributions and found that they continued to be effective. The Board believes that Philip Bowman and David Tyler remain independent as they continue to provide constructive challenge to the Board’s decision making process. The Nomination Committee will continue to keep the composition of the Board under review.
Board appointments
Board nominations are recommended to the Board by the Nomination Committee under its terms of reference. All directors have historically been subject to election by shareholders at the Annual General Meeting following their appointment and have been re-elected every three years thereafter in accordance with the Company’s Articles of Association and the 2008 Code. At the 2011 Annual General Meeting, the Company will adopt early the provisions of the 2010 Code that relate to annual re-election of directors and all of the directors will be offering themselves for re-election.
The biographical details of the directors can be found on page 67 of this Annual Report. The Board confirms that, following formal performance evaluation conducted by an independent external consultant, the performance of each of the directors standing for re-election continues to be effective and demonstrates commitment to their roles, including commitment of time for Board and Committee meetings and any other duties.
Information and professional development
On appointment, directors receive a full, formal and tailored induction, including meetings with members of the management team and briefings on particular issues. In addition, directors are furnished with an induction pack of information, which includes key Group policies, guidance notes and information on corporate governance matters.
As an ongoing process, directors are briefed and provided with information concerning major developments affecting their roles and responsibilities. In particular, the directors’ knowledge of the Group’s worldwide operations is regularly updated by arranging presentations from senior management throughout the Group.
The Chairman works closely with the Company Secretary to ensure that the Board is supplied in a timely manner with information in a form and of a quality appropriate to enable it to effectively discharge its duties. Where there are occasions when directors are unable to attend a meeting they have the opportunity to review meeting papers and submit comments to the relevant Chairman. Directors are also supplied with a monthly management report, which provides information on operational and financial performance and the Group’s business plans.
All directors have direct access to the advice and services of the Company Secretary and all senior management. The appointment and removal of the Company Secretary is a matter reserved for the Board as a whole. Directors may obtain, in the furtherance of their duties, independent professional advice, if necessary, at the Group’s expense.
Board performance evaluation
The Board undertakes a formal and rigorous review of its performance and that of its committees each financial year. In the year under review the evaluation was led by an independent external consultant, Dr. Tracy Long of Boardroom Review. The evaluation process involved comprehensive interviews with each director and the Company Secretary and covered a range of issues around board and committee processes, board roles and responsibilities and individual effectiveness.
Feedback from the evaluation process was provided to the Board in the form of a presentation at a Nomination Committee meeting and a written report to the Board. The review considered the outcomes of previous evaluations, the current composition and responsibilities of the Board and each of its committees, together with the frequency and structure of meetings. In addition, the review considered the contribution and effectiveness of the executive and non-executive directors. The review identified that the Board had a number of strengths, including:
- they regularly considered and understood shareholders’ expectations;
- the culture and size of the Board was considered effective and open, with a diverse range of skills and providing an appropriate level of challenge; and
- the governance and support framework for the Board was considered positive and effective.
The review also suggested areas for further development, including:
- reviewing the succession planning framework;
- continuing to develop a wider understanding of the competitive landscape and the consumer experience.
The Board has addressed both of these issues since the review and will continue to do so going forward.
The feedback from the review was considered and it was concluded that the Board and its Committees operate efficiently and effectively.
Conflicts of interest
The Board has authority to approve directors’ conflicts and potential conflicts of interest and has adopted a policy and procedures to manage and, where appropriate, to approve such conflicts, which it believes operates effectively.
A review of situational conflicts which have been authorised is undertaken by the Board annually. Following the review for the financial year, the Board concluded that there is currently no compromise to the independence of any director arising from an external appointment or any outside commercial interest.
Committees
The Board is supported by a number of committees including the following principal committees: Audit Committee, Remuneration Committee and Nomination Committee. All the non-executive directors are members of each of the principal committees of the Board. The terms of reference of each of the principal committees can be viewed on the Group’s website www.burberryplc.com.
The Committees, if they consider it necessary, can engage with third-party consultants and independent professional advisors and can call upon other resources of the Group to assist them in developing their respective roles. In addition to the relevant committee members and the Company Secretary, external advisors and, on occasion, other directors attend committee meetings but only at the invitation of the chairmen of the Committees.
Audit committee
The Audit Committee comprises five independent non-executive directors:
Philip Bowman (Chairman)
Ian Carter
Stephanie George
John Smith
David Tyler
The main roles and responsibilities of the Audit Committee are set out in written terms of reference.
Terms of Reference - Audit Committee
The Audit Committee is responsible for:
- reviewing financial statements and formal announcements relating to the Group’s performance;
- reviewing the Group’s internal financial, operational and compliance controls and risk management systems;
- monitoring and reviewing the effectiveness of the Group’s internal audit function;
- assessing the independence, objectivity and effectiveness of the external auditors;
- developing and implementing policies on the engagement of the external auditors for the supply of non-audit services;
- making recommendations for the appointment, reappointment and removal of the external auditors and approving their remuneration and terms of engagement;
- reviewing arrangements by which employees may, in confidence, raise concerns about possible improprieties in matters of financial reporting and other matters.
The Board is satisfied, in accordance with the provisions of the 2008 Code, that at least one member of the Audit Committee has recent and relevant financial experience, given the nature of the senior management positions held or previously held by Philip Bowman, David Tyler and John Smith (see biographical details on page 67).
The Audit Committee met five times during the year with three scheduled meetings and two ad hoc meetings. The attendance record of Committee members is recorded in the table on page 71. At the invitation of the Chairman of the Audit Committee, the Chairman of the Board, the Chief Executive Officer, the Executive Vice President, Chief Financial Officer, the Director of Audit and Risk Assurance, the Senior Vice President Group Finance, the Director of Tax and the external auditors regularly attend meetings. The Audit Committee is responsible for reviewing and monitoring the effectiveness of the Group’s internal control procedures and risk management systems. The Committee reviewed the Group’s internal audit plan and approved the internal audit plan for the financial year to 31 March 2011. In addition, the Committee reviewed the adequacy of the ‘whistle blowing’ arrangements in place to enable employees to raise, in confidence, any concerns they may have. The Committee is satisfied that such arrangements remain appropriate.
External Audit
During the year, the Audit Committee reviewed the effectiveness of the external audit process. The appointment of PricewaterhouseCoopers as the Company’s auditors predated the IPO of the Company in 2002. Further, given the elevation of the Company to the FTSE100 Index in 2009 and the significant geographical and financial expansion of the Company and the Group, the Committee concluded that it was appropriate to review the effectiveness of the external audit process by inviting each of PricewaterhouseCoopers, Ernst & Young, KPMG and Deloitte to tender for the appointment as the Company’s and the Group’s external auditors.
The Audit Committee, supported by senior management, conducted a rigorous tender process focusing on quality, resources, independence and value. The tendering firms were invited to put forward a proposal to the Audit Committee, following briefing meetings with key management and the Audit Committee Chairman. Following the review of these proposals by management and the Audit Committee Chairman, two firms, PricewaterhouseCoopers and Ernst & Young, were selected to present to the Audit Committee and such presentations were made by the personnel which each firm proposed would conduct the external audit. This included partners, directors and managers from the respective firms. The team proposed by PricewaterhouseCoopers was a different team from the one which had conducted the audit for the year ended 31 March 2010. After careful consideration, the Audit Committee concluded that the proposal from PricewaterhouseCoopers was the best overall in terms of quality, resources, independence and value and would better meet the Group’s requirements for external audit services going forward.
The Audit Committee therefore recommended to the Board that PricewaterhouseCoopers be retained as the Group’s external auditors and that it should propose to shareholders that PricewaterhouseCoopers LLP be re-appointed as the Group’s external auditors at the forthcoming Annual General Meeting.
The Committee recognises that the independence of the auditors is an essential part of the audit framework and the assurance that it provides. The Committee monitors the types of non-audit work that are undertaken by the external auditors, including receiving regular reports on the type of work undertaken, to ensure that their objectivity and independence are not compromised. Any proposed non-audit assignments require prior approval and the Committee receives a report at each meeting providing details of non-audit assignments carried out by the external auditors in addition to their normal work.
Details of the fees paid to the external auditors during the financial year can be found in note 31 in the financial statements.
Remuneration committee
Terms of Reference – Remuneration Committee
The report of the Remuneration Committee is set out on pages 76 to 85.
Nomination committee
Terms of Reference – Nomination Committee
The Nomination Committee comprises:
John Peace (Chairman)
Angela Ahrendts
Philip Bowman
Ian Carter
Stephanie George
John Smith
David Tyler
The Nomination Committee is responsible for reviewing the balance and composition of the Board and its committees and for identifying and recommending appointments or renewal of appointments to the Board. These regular reviews ensure that the Group and the Board are able to draw from a complementary balance of skills and experience and that there is in place an appropriate plan for orderly succession to the Board. The procedure for appointments is set out in the Committee’s terms of reference.
The Nomination Committee met twice during the year under review. The table on page 71 gives details of directors’ attendance at these meetings.
During the year the Nomination Committee considered and reviewed the structure and diversity of the Board and its Committees, the Group’s succession planning arrangements and the results of the performance evaluation. These arrangements will be kept under review by the Committee.
The terms and conditions of appointment of non-executive directors, including the expected time commitment, are available for inspection at the Company’s registered office and will be made available for 15 minutes before the Annual General Meeting and during the meeting itself.
Corporate Responsibility
Details of the Group’s approach to Corporate Responsibility are given on pages 58 to 63.
Accountability and audit
The Board acknowledges that it should present a balanced and understandable assessment of the Group’s position and prospects. In this context, reference should be made to the Statement of Directors’ Responsibilities on page 86, which includes a statement in compliance with the 2008 Code regarding the Group’s status as a going concern, and to the Report of the Auditors on page 87 which includes a statement by the auditors about their reporting responsibilities. The Board recognises that its responsibility to present a balanced and understandable assessment extends to interim and other price-sensitive public reports and reports to regulators as well as to information required to be presented by law.
Internal control
The Board acknowledges that it is responsible for the Group’s system of internal control and the Audit Committee reviews its effectiveness. Such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can provide only reasonable and not absolute assurance against material misstatement or loss. The Audit Committee has reviewed the effectiveness of the key procedures which have been established to provide internal control. As part of the process that the Board has in place to review the effectiveness of the internal control system, there are procedures designed to capture and evaluate failings and weaknesses, and in the case of those categorised by the Board as ‘significant’, procedures exist to monitor that the necessary actions are being taken to remedy failings.
In accordance with the revised guidance for directors on internal control (‘the Revised Turnbull Guidance’), the Board confirms that there is an ongoing process for identifying, evaluating and managing the significant risks faced by the Group. These include those relating to social, environmental and ethical matters. This process was in place throughout the year under review and up to the date of approval of the Annual Report and Accounts. The process is regularly reviewed by the Audit Committee which reports its findings for consideration by the Board, and is in accordance with the Revised Turnbull Guidance. The key procedures operating within the Group are as follows:
Risk assessment
The Group’s business objectives are incorporated into the annual budgeting and planning cycle. Progress towards the achievement of such objectives is monitored by a variety of financial measures and non-financial performance indicators.
The Group Risk Committee of executive management meets formally at least three times a year to re-evaluate risk and to consider the work of the Internal Audit and Risk Assurance and other assurance teams. During the year, the Committee met on three occasions. The Director of Audit and Risk Assurance attends these meetings.
The Board acknowledges that it is responsible for considering operational, financial, compliance and other risks to the business and has delegated responsibility for reviewing the risk management procedures to the Audit Committee.
Control environment and control activities
The Group consists of a number of businesses, each with its own management structure which forms part of the overall management structure of the Group. The senior executives of these units report to the executive directors.
The Group has established procedures for the delegation of authorities for matters that are considered significant, either because of their value or the impact on the Group, to ensure that approval is considered at an appropriate level.
The Group’s trading units operate within a framework of policies and procedures which are either already laid down or are being established in organisation or authority manuals. Policies and procedures cover key issues such as authorisation levels, compliance with legislation and physical security.
The Group has implemented various strategies to deal with the risk factors that have been identified. Such strategies include a framework of internal control and the use of third-party services to assist in monitoring specific issues. In addition, other approaches are taken, such as insurance. Further information is set out in the Risk section on pages 54 to 56.
Information and financial reporting
The Group has procedures in place to ensure that there is appropriate internal control and risk management in relation to financial reporting and the preparation of consolidated accounts.
The Group has a comprehensive system of budgetary control, focused on monthly financial performance reporting which is at an appropriately detailed level. A summary of results supported by commentary and performance measures is provided to the Board each month. The performance measures are subject to review to ensure that they provide relevant and reliable indications of business performance.
In relation to the preparation of consolidated accounts, the procedures include maintaining a dedicated consolidated financial reporting system, obtaining representations from senior management of the relevant legal entities, and the review and reconciliation of reported data at appropriate intervals.
A summary of the key business risks and relevant control measures is submitted by the executive directors at each Audit Committee meeting. The Audit Committee meets with both external and internal auditors.
Monitoring
A range of procedures is used to monitor the effective application of internal control within the Group. These include management review and management confirmations of compliance with standards and procedures as well as internal audit and other specialist reviews. The Internal Audit department is responsible for reporting to the Audit Committee on the effectiveness of internal control systems.
Relations with shareholders
The Board recognises the importance of maintaining good communications with its shareholders and does this through the Annual Report, preliminary and interim announcements, interim management statements, the Annual General Meeting and through the additional processes described below.
The Chief Executive Officer and Executive Vice President, Chief Financial Officer make presentations to institutional shareholders and analysts immediately following the release of the preliminary and interim results; these presentations are made available on the Group’s website www.burberryplc.com.
The Company communicates with its institutional investors frequently and regularly through a combination of formal meetings, participation at investor conferences and informal briefings with management. The Board is kept abreast of the views of major shareholders by briefings from the Director of Investor Relations. In addition, analysts’ notes and brokers’ briefings are also used to achieve a wide understanding of investors’ views.
The non-executive directors, including the Senior Independent Director, are available to meet with major shareholders to discuss issues of importance to them, should a meeting be requested.
Annual General Meeting
2010 Annual General Meeting
In accordance with the provisions of the 2008 Code, the Notice of
the 2010 Annual General Meeting was sent to shareholders at least
20 working days before the Meeting. A poll vote was taken on each
of the resolutions put before shareholders. Shareholders approved a
resolution to adopt new Articles of Association which had been
amended to take account of the Companies’
(Shareholders’ Rights) Regulations 2009 and the final
implementation of the Companies Act 2006.
All directors attended and the Chairman of the Board and the chairmen of each of the committees were available to answer shareholders’ questions.
2011 Annual General Meeting
Voting at the 2011 Annual General Meeting will be by way of poll.
The results of the voting at the Annual General Meeting will be
announced and details of the votes will be available to view on the
Group’s website www.burberryplc.com as soon as
possible after the meeting.
It is the intention that all directors, including the chairmen of the Audit, Remuneration and Nomination Committees, will attend the forthcoming Annual General Meeting and will be available to answer shareholders’ questions.
Share capital
Further information about the Company’s share capital, including substantial shareholdings, can be found in the Director’s Report on pages 68 to 70.
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