Aviva 2006 Annual Report Download - page 81

Overview Business review Governance Financial statements Other information
Aviva plc
Annual Report and Accounts 2006 77
Corporate governance report
The Combined Code on Corporate Governance
The Combined Code on Corporate Governance sets out guidance
in the form of principles and provisions on how companies should
be directed and controlled to follow good governance practice.
The Financial Services Authority requires companies listed in the UK
to disclose, in relation to Section 1 of the Combined Code, how
they have applied its principles and whether they have complied
with its provisions throughout the accounting year. Where the
provisions have not been complied with companies must provide
an explanation.
The Combined Code was reviewed by the Financial Reporting
Council during 2006 with a revised Code becoming effective in
respect of financial years commencing on or after 1 November
2006 and accordingly the changes do not apply to the year
under review.
It is the Board’s view that the Company has been fully compliant
throughout the accounting period with the provisions set down
in Section 1 of the Combined Code (including the changes that
became effective for financial years commencing on or after
1November 2006). This report sets out details of how the
Company has applied the principles and complied with the
provisions of the Combined Code during 2006. Further information
on the Code can be found on the Financial Reporting Council’s
website, www.frc.org.uk.
The Board
The directors are responsible to shareholders for ensuring that
the Company is appropriately managed and that it achieves its
objectives. It meets regularly to determine the strategic direction, to
review the Company’s operating and financial performance and to
oversee that the Company is adequately resourced and effectively
controlled. The specific duties of the Board are clearly set out
in its terms of reference that address a wide range of corporate
governance issues and list those items that arespecifically reserved
for decision by the Board. Matters requiring Board approval include:
–Group strategy and business plans;
–Acquisitions, disposals and other transactions outside
delegated limits;
–Financial reporting and controls;
–Capital structure;
–Dividend policy;
–Shareholder documentation;
–The constitution of Boardcommittees;
–Key business policies, including the remuneration policy.
Matters that are not specifically reserved to the Board and its
committees under its terms of reference, or to shareholders in
General Meeting, are delegated to the Group Chief Executive.
The Board’s terms of reference also set out those matters that must
be reported to the Board, such as significant litigation or material
regulatory breaches, and cover how matters requiring consideration
by the Board that arise between scheduled meetings should be
dealt with.
The Board and its committees operate in line with work plans
agreed prior to the start of each year. At Board and committee
meetings, directors receive regular reports on the Group’s financial
position, risk management, regulatory compliance, key business
operations and other material issues. Directors are fully briefed
in advance of Board and committee meetings on all matters to
be discussed. The Group Company Secretary is responsible for
following Board procedures and advising the Board, through the
Chairman, on governance matters. All directors have access to his
advice and services.
The Board has adopted a procedure whereby directors may, in the
performance of their duties, seek independent professional advice
at the Company’s expense if considered appropriate. No director
obtained any such independent professional advice during 2006.
The directors
The Board currently comprises the Chairman, six independent non-
executive directors and four executive directors. Each non-executive
director serves for a fixed term not exceeding three years that
may be renewed by mutual agreement. Subject to the Board
being satisfied with a director’s performance, independence and
commitment, thereis no specified limit regarding the number of
terms a director may serve. All directors are required to be elected
by shareholders at the Annual General Meeting following his/her
appointment by the Boardand be re-elected at least once every
three years. Any non-executive director who has served on the
Board for nine years or more is required to submit himself/herself
for re-election annually.The Board’s policy is to appoint and retain
non-executive directors who can apply their wider knowledge and
experiences to their understanding of the Aviva Group, and to
review and refresh regularly the skills and experience it requires
through a programme of rotational retirement. In addition to the
strengths of experience, diversity and an international perspective,
the Boardalso seeks to comply with the requirements of the
Combined Code on the independence of directors. The process
for appointing new directors is conducted by the Nomination
Committee whose report, including a description of its duties,
is set out below.
The Combined Code requires that at least half the Board, excluding
the Chairman, should comprise independent non-executive
directors as determined by the Board. The Nomination Committee
performs an annual review of directors’ interests in which all
potential or perceived conflicts, including time commitments,
length of service and other issues relevant to their independence,
areconsidered. It is the Board’sview that an independent non-
executive director also needs to be able to present an objective,
rigorous and constructive challenge to management, drawing on
his/her wider experiences to question assumptions and viewpoints
and wherenecessary defend their beliefs. To be effective, an
independent director needs to acquire a sound understanding of
the industry and the Company so as to be able to evaluate properly
the information provided. Having considered the matter carefully
the Board is of the opinion that all of the current non-executive
directors areindependent and free from any relationship or
circumstances that could affect, or appear to affect their
independent judgement. Accordingly, over half of the directors,
excluding the Chairman, areindependent non-executive directors.
Each of the directors being proposed for re-election at the 2007
Annual General Meeting has been subject to a formal performance
evaluation and took part in a peer evaluation review during 2006.
Biographical details of all the directors, including those proposed
for re-election, are set out on pages 72 and 73.