Compliance with the Combined Code
The Board is committed to the highest standards of corporate governance set out in the Combined Code on corporate governance published by the Financial Reporting Council ("FRC") in July 2003 (the "Code"). The Board has also applied the principles and provisions in the form set out in the revised draft Combined Code published by the FRC in June 2006 (the "Revised Code") in advance of its commencement date. The Board is accountable to the Company's shareholders for good governance and this report describes how the Board applied the principles of good governance set out in the Code and the Revised Code during the year under review.
The Board
As at 31 July 2006, the Board of Directors was made up of 12 members comprising the Chairman, six Executive Directors and five Non Executive Directors. The Non Executive Directors are considered by the Board to be independent of management and free of any relationship which could materially interfere with the exercise of their independent judgement. The Board considers that each of the Non Executive Directors brings his own senior level of experience, gained in their own fields of mainly international operations. Frank Roach was appointed to the Board with effect from 16 December 2005. Mr Roach was appointed as Chief Executive Officer of North America to succeed Mr Hornsby, who became Group Chief Executive on 1 August 2006 following Mr Banks' retirement on 31 July 2006. For the period from Mr Roach's appointment until Mr Banks' retirement, the provisions of the Code requiring a balance between executive and non executive directors were not met, albeit that this was a temporary position in advance of Mr Banks' retirement. At the date of this report, there are 11 members of the Board, comprising the Chairman, five Executive Directors and five Non Executive Directors. Accordingly, the Board considers that the Company once again satisfies the obligations under the Code.
Biographical details of the Directors currently in office are shown in the on Our board pages. The Company's policy relating to the terms of appointment and the remuneration of both the Executive and Non Executive Directors is detailed in the Remuneration report.
The Board meets regularly during the year as well as on an ad hoc basis, as required by time critical business needs. The Board has a formal schedule of matters reserved to it for its decision, which was reviewed in July 2005, although its primary role is to provide entrepreneurial leadership and to review the overall strategic development of the Group as a whole. Day-to-day operational decisions are delegated to the executive committee referred to later in the corporate governance. The Board met 11 times during the year and Director attendance for each meeting is shown in the table later in this section. The Board has established a procedure for Directors, if deemed necessary, to take independent professional advice at the Company's expense in the furtherance of their duties. This is in addition to the access that every Director has to the Company Secretary, who is charged with ensuring that Board procedures are followed and that good corporate governance and compliance is implemented within the Group. Together with the Group Chief Executive and the Company Secretary, the Chairman ensures that the Board is kept properly informed and is consulted on all issues reserved to it. Board papers and other information are delivered at times to allow Directors to be properly briefed in advance of meetings. In accordance with the Company's Articles of Association, Directors are granted an indemnity from the Company to the extent permitted by law in respect of liabilities incurred as a result of their office. The indemnity would not provide any coverage to the extent that a Director is proved to have acted fraudulently or dishonestly. The Company has also arranged appropriate insurance coverage in respect of legal action against its Directors and officers. The differing roles of Chairman and Group Chief Executive are acknowledged and set out in writing. The Chairman has confirmed that he would not chair any other major company's Board.
The Chairman has addressed the developmental needs of the Board as a whole, with a view to developing its effectiveness as a team and assists in the development of individual skills, knowledge and expertise. During the year, the Board took forward the results of previous ongoing evaluation processes to assess its performance and that of its committees and to identify areas in which its effectiveness, policies and processes might be enhanced, utilising both a questionnaire (in relation to the performance of the Non Executive Directors) and discussions with all Board members.
Performance evaluations, including the skills brought to the Board and the contributions each Director made to it, were carried out for each member of the Board. Executive Directors' performance has been assessed by the Chairman and Mr Banks. Mr Banks' performance was evaluated by the Chairman and the Non Executive Directors. The Senior Non Executive Director led the review of the Chairman's performance in consultation with the Executive and Non Executive Directors. The Non Executive Directors' performance was reviewed by both Mr Banks and the Chairman, as well as by the Board as a whole, which considered the results of the questionnaires referred to above.
Meetings between the Non Executive Directors, both with and without the presence of the Chairman and the Group Chief Executive, are scheduled in the Board's annual timetable. The Board has also arranged to hold at least two Board meetings each year at divisional locations to help all Board members gain a deeper understanding of the business. This also provides senior managers from across the Group the opportunity to present to the Board as well as to meet the Directors on more informal occasions.
As part of their ongoing development, the Executive Directors are encouraged to take up an external non executive position on a non competitor board, for which they may retain payments received in respect of the appointment. In order to avoid any conflict of interest, all appointments are subject to the Board's approval. Generally outside appointments for Executive Directors are limited to one company board only, although Mr Banks, by exception, served on two outside boards. The Board is satisfied that these appointments did not conflict with his duties to the Company. The Board monitors the extent of Directors' other interests to ensure that the effectiveness of the Board is not compromised. Succession planning is considered to be a matter for the whole Board rather than for a committee. The Company's Articles of Association provide that one-third of the Directors retire by rotation each year and that each Director will seek re-election at the Annual General Meeting every three years. Additionally, new Directors are subject to election by shareholders at the first opportunity after their appointment. It is Board policy that Non Executive Directors are normally appointed for an initial term of three years, which is then reviewed and extended for a further three-year period. It is also Board policy that Non Executive Directors should not generally serve on the Board for more than nine years and that, in cases where it is proposed to exceed this period, the Director concerned will retire annually and offer himself for re-election. Following their appointment, formal comprehensive and tailored induction is offered to all Non Executive Directors, supplemented by visits to key locations within the Group and meetings with members of the executive committee and other key senior executives. All of the Directors being proposed for re-election have been subject to a performance evaluation during the year ended 31 July 2006 and the Board is content that each has continued to be effective and has demonstrated his commitment to his respective role.
Although the Non Executive Directors are not asked, at present, to meet the shareholders of the Company, their attendance at presentations of the annual and interim results is encouraged. The Chairman ensures that the Board maintains an appropriate dialogue with shareholders. Gareth Davis is the Company's Senior Independent Non Executive Director.
The formal terms of reference for the main Board committees, approved by the Board and complying with the Code to assist in the discharge of its duties, are available from the Company Secretary and can also be found on the Company's website at www.wolseley.com. Membership of the various committees is shown in the Group Information section. The Company Secretary acts as secretary to all Board committees.
