Corporate governance report
This section of our Annual Report sets out our approach to corporate governance in 2007. In it you will find information on the Board, how it operated, how it delegated its responsibilities to the Executive team and to the Board Committees, how those Committees discharged their responsibilities and how we evaluated the effectiveness of the Board, the Committees and the Directors. It also sets out how we engaged with our shareholders and how we approached our corporate and social responsibilities.
Corporate governance review 2007
This section explains our overall approach to corporate governance, how we have applied the principles of the 2006 Combined Code on Corporate Governance (the 'Code'), the extent to which we have complied with the Code's provisions and an explanation of the one area where we have not complied.
As one of the UK's largest asset managers, corporate governance is very important to us. We are committed to business integrity, high ethical values and professionalism across all our activities. The Board of Schroders plc supports the highest standards of corporate governance.
In 2004 the Board adopted the Schroders Governance Guidelines. These Guidelines form the basis for how the Board and the Committees operate, what is expected of Directors and how they discharge their duties. During 2007 the Board reviewed and updated these Guidelines and the Group's other core governance documents, including the Schedule of Matters Reserved to the Board and the terms of reference of the principal Board Committees, to ensure that they remained appropriate for Schroders taking into account current best practice. The Guidelines, and all the other documents mentioned in this report, are available on the website at www.schroders.com or from the Company Secretary.
The role of the Board
The Board is accountable to shareholders for the creation and delivery of strong, sustainable financial performance and long-term shareholder value. The Board achieves this through a combination of deciding on issues itself, delegating responsibility to Board Committees and delegating authority to the Chief Executive. Certain matters can only be decided by the Board. These are contained in the Schedule of Matters Reserved to the Board and include consideration and approval of such matters as:
- The Group's strategy;
- Major acquisitions and disposals;
- Significant new business activities;
- The Annual Report and Accounts and other financial statements;
- The annual budget; and
- The issue and repurchase of the Company's shares.
The composition of the Board
There are currently 12 Directors. In addition to the Chairman, there are four executive Directors and seven non-executive Directors, of which five are considered by the Board to be independent. Biographical details of the Directors can be found in Directors' profiles.
There were no changes to the composition of the Board during the year.
The Chairman is Michael Miles. He is responsible for leading the Board. His other responsibilities are to ensure the effectiveness of the Board, monitor and evaluate the performance of the Chief Executive and ensure there is appropriate dialogue with our shareholders.
The Chief Executive is Michael Dobson. He is responsible for the executive management of the business of the Company and its subsidiaries. This includes recommending to the Board the Group's strategy for building shareholder value over the long-term through growth in profits.
The roles of the Chairman and Chief Executive are totally separate and each has a written job description setting out their respective responsibilities. Both job descriptions were reviewed and updated in 2007.
The Senior Independent Director is Sir Peter Job. He is available to shareholders if they have concerns which have not or cannot be resolved through discussion with the Chairman or the executive Directors. Sir Peter also chairs meetings of the non-executive Directors at which the performance of the Chairman is reviewed.
The non-executive Directors The Board considers that Andrew Beeson, Luc Bertrand, Sir Peter Job, Merlyn Lowther and Kevin Parry are independent non-executive Directors. None of the factors implying a lack of independence, as set out in the Code, applies. George Mallinckrodt and Bruno Schroder are also non-executive Directors, but do not meet the test of independence in the Code. However, the Board considers that both of them bring valuable experience to Board deliberations and that at all times they act in the best interests of the Company.
Time commitment The Board is satisfied that the Chairman and each of the non-executive Directors committed sufficient time during 2007 to the fulfilment of their duties as Directors of the Company. None of the non-executive Directors has any conflict of interest which has not been disclosed to the Board in accordance with the Company's Articles of Association.
External non-executive directorships The Board believes, in principle, in the benefit of executive Directors and other employees accepting non-executive directorships of other companies in order to widen their skills and knowledge for the benefit of the Company. The Board has adopted a policy on external appointments, which is designed to ensure that employees remain able to discharge their responsibilities to the Group. Directors and employees are usually permitted to retain any fees paid in respect of such appointments. Under the policy, executive Directors may not take on more than one non-executive directorship of a FTSE 100 company or any chairmanship of such a company. None of the executive Directors currently holds a directorship of a FTSE 100 company.
To avoid potential conflicts of interest, non-executive Directors are expected to inform the Chairman before taking up any additional external appointments.
Board meetings The Board held five meetings during 2007, including a two-day off-site meeting which considered the Group's strategy. The Board has a two-year rolling plan of items for discussion, agreed between the Chairman and the Chief Executive. This plan is reviewed and adapted regularly to ensure that all of the matters reserved to the Board, as well as other key issues, are discussed at the appropriate time. At each Board meeting the Chief Executive provided a review of the business and how it was performing and the Chief Financial Officer provided a detailed review of the Group's financial position. In 2007 the range of subjects discussed included:
- The strategic development of the Group, including its people strategy.
- The Group's financial results;
- The budget for 2008;
- The level of dividend and the use of the Group's capital;
- Our regional businesses in Asia, Europe and the Americas;
- Our key business areas including Investment, Distribution, Private Equity and Private Banking;
- Our IT and operational platform;
- Possible acquisitions and the review of the acquisitions of NewFinance Capital and Aareal Asset Management; and
- Regulatory and governance issues.
Attendance at the Board meetings is set out in the table below:
| Maximum possible attendance |
Meetings attended |
|
|---|---|---|
| Michael Miles | 5 | 5 |
| Jonathan Asquith | 5 | 5 |
| Andrew Beeson | 5 | 4 |
| Luc Bertrand | 5 | 5 |
| Alan Brown | 5 | 5 |
| Michael Dobson | 5 | 5 |
| Sir Peter Job | 5 | 5 |
| Merlyn Lowther | 5 | 5 |
| George Mallinckrodt | 5 | 4 |
| Kevin Parry | 5 | 5 |
| Bruno Schroder | 5 | 5 |
| Massimo Tosato | 5 | 4 |
Information to the Board Before each Board meeting Directors received comprehensive papers and reports on the issues to be discussed at the meeting. Senior executives below Board level also attended meetings to make presentations on their areas of responsibility. This gave the Board the opportunity to have direct access to a broader group of executives below Board level. In addition to Board papers, Directors are provided with relevant information between meetings. This included information on management changes, analysts' commentaries on the Company, our competitors and the asset management industry generally. Directors were also sent copies of the minutes of the Group Management Committee meetings.
Support to the Board The Board Secretary is responsible for advising and supporting the Chairman and the Board on corporate governance matters. Directors have access through the Board Secretary to independent professional advice at the Company's expense.
Insurance and indemnities The Company maintains appropriate Directors' and Officers' liability insurance.
At the 2007 Annual General Meeting, shareholders authorised the Company to provide indemnities to Directors in certain circumstances and to fund a Director's defence costs. Following the 2007 Annual General Meeting the Company granted specific deeds of indemnity to each of the Directors.
Chairman's Committee Meetings of the Chairman and non-executive Directors, usually without the executive Directors present, are held prior to most scheduled Board meetings. Four such meetings were held in 2007 and matters discussed included the evaluation of the Board, the performance of the Chairman and the Chief Executive, senior management succession and investment performance. The Chief Executive attended two meetings at the invitation of the Chairman.
Delegated authorities The Board has a formal schedule of matters reserved to it, subject to which authority to manage the business is delegated to the Chief Executive. He in turn delegates authority to the senior executive team which meets as the Group Management Committee. This is chaired by the Chief Executive and generally meets twice each month to oversee the strategic management of the Group's business. The current members and their areas of responsibility are set out below:
| Michael Dobson | Chief Executive |
| Jonathan Asquith | Vice Chairman and Head of Fixed Income, Property and Corporate Development |
| Stephen Brooks | Chief Financial Officer |
| Alan Brown | Chief Investment Officer |
| Jamie Dorrien-Smith | Head of Americas |
| Lester Gray | Head of Asia Pacific |
| Ken Lambden | Head of Equities |
| Philip Mallinckrodt | Head of Private Banking |
| Markus Ruetimann | Head of Operations and IT |
| Massimo Tosato | Vice Chairman and Head of Distribution |
| John Troiano | Head of Global Institutional Business |
| Howard Trust | Group General Counsel |
The Board delegates certain of its responsibilities to its Remuneration Committee, Nominations Committee and Audit Committee. Summaries of the terms of reference of these Committees are set out in remuneration report and in Audit Committee report respectively, together with reports on the Committees' activities during the year. The Chairmen of the Audit, Remuneration and Nominations Committees reported to the Board on the matters considered, and any significant issues that had arisen, at the next Board meeting after the Committees had met. Meetings of the Nominations Committee were held after the conclusion of scheduled Board meetings. All Directors received copies of the minutes of all Committee meetings.
Board effectiveness
Evaluation The Board, led by the Chairman, reviewed during the year the effectiveness of the Board and the principal Board Committees. The Board considered alternative evaluation methods and agreed that internal evaluation using a Schroders-specific questionnaire complemented by interviews between the Chairman and individual Directors where required was appropriate. The performance of the Board Committees and individual Directors was considered as part of this evaluation process. The responses to the questionnaires were analysed and discussed with the Chairman. A report was prepared on the findings of the evaluation process and this was considered by the whole Board at the Board meeting in February 2008.
The performance of the Chief Executive was considered by the Chairman's Committee against his objectives agreed with the Chairman for the year. The outcome was discussed by the Chairman with the Chief Executive.
The Chairman's Committee, led by Sir Peter Job in his role as Senior Independent Director, also assessed the performance of the Chairman with input from the whole Board. Sir Peter discussed with the Chairman the outcome of this review.
Induction All new Directors undertake an induction programme on joining the Board. The aim of this programme is to introduce new Directors to the Group's business, its operations and its governance arrangements. The induction programme includes meetings with senior management, visits to offices, presentations on key business areas and relevant documentation. The Board receives presentations on business and functional areas, new business and strategic developments, changes to the regulatory environment and the impact of specific issues, such as the implications of the new Companies Act.
In order to keep the Board informed of wider developments within the business and on general issues affecting their role as Directors, a series of specific briefing sessions were held outside of Board meetings. These were open to all Directors. One of the principal objectives was to ensure that there was consistency of knowledge on the issues considered. The Board held three briefing sessions in 2007 and the topics covered included the use of derivatives within the business and the management of associated risks, the Internal Capital Adequacy Assessment Process and product development. We shall be continuing with these briefings in 2008.
Shareholder relations
Ongoing communication across the Company's shareholder base, including institutional investors and private and employee shareholders, is achieved mainly through the publication of the annual and interim reports and quarterly trading updates, the announcement of significant developments affecting the Group and the Annual General Meeting. Corporate and investor information, including webcasts of the presentations of the interim and final results made by the Chief Executive and Chief Financial Officer, can be found at www.schroders.com.
The Board as a whole is responsible for ensuring that dialogue with shareholders takes place. During the year the Chief Executive, the Chief Financial Officer and other senior executives conducted a series of meetings with and presentations to institutional investors, analysts and prospective shareholders to review the Group's strategy and prospects and to discuss corporate governance matters. Over 30 such meetings were held in 2007. The Chairman is also available to meet institutional shareholders, as is the Senior Independent Director. Feedback from shareholders is available to the Board from the Chairman, the Chief Executive and the Chief Financial Officer.
The Annual General Meeting provides shareholders with an opportunity to question the Chairman and other Directors, including the Chairmen of the Remuneration and Audit Committees. The Chief Executive provided shareholders at the meeting in April 2007 with a review of the Group's business in 2006.
The Annual Report and Accounts and the notice of meeting are sent to shareholders at least 20 working days prior to the date of the Annual General Meeting.
Compliance with code provisions
The Company complied with all of the provisions of section 1 of the Code throughout the year except for one. Neither Bruno Schroder nor George Mallinckrodt are considered independent under the provisions of the Code. Consequently, less than half of the Board (excluding the Chairman) comprised independent non-executive Directors. Bruno Schroder is a representative of the principal shareholder group and the Board considers that it is appropriate for this group to be represented on the Board. The Board considers that George Mallinckrodt's business and international experience are of great value to the Board.
Michael Miles
Chairman
10 March 2008