Tesco 2010 Annual Report Download - page 51

Corporate governance
Management of the Group – Executive Committee
The Board delegates responsibility for formulating and implementing the
Group’s strategic plan and for management of the Group to the Executive
Committee, which is chaired by the Chief Executive and comprises the
eight Executive Directors and a senior executive, Colin Holmes, who was
appointed as a member of the Committee on 7 September 2009. The
Committee has authority for decision-making in all areas except those
set out in the Schedule of Matters Reserved for Board Decision and meets
formally on a regular basis. A number of other senior executives also
attend the Committee and their valuable operational experience helps
broaden the debate. Their attendance facilitates the communication
of the Committee’s decisions to the rest of the Group. The Company
Secretary attends in his capacity as Secretary of the Committee.
The Executive Committee is responsible for implementing Group strategy
and policy and for monitoring the performance and compliance of the
business, drawing on the work of relevant committees, and reporting on
these matters in full to the Board.
The Executive Committee has set up further committees – including the
Finance, Compliance and Corporate Responsibility Committees (which are
described in more detail below) – and operational groups which have
responsibility for implementing the key elements of the Group’s strategic
plan and managing its UK and international operations, joint ventures,
property acquisitions, finance, funding and people matters. These
committees and groups have as members an appropriate mixture of
Executive Directors and senior management from relevant functions.
Procedures to deal with Directors’ conflicts of interest
The Company has procedures in place to deal with the situation where
a Director has a conflict of interest. As part of these procedures members
of the Board are required to:
• consider each conflict situation separately on its particular facts;
• consider the conflict situation in conjunction with the rest of their
duties under Companies Act 2006;
• keep records and Board minutes as to authorisation granted by
Directors and the scope of any approvals given; and
• regularly review conflict authorisation.
Training and development
All new Directors receive a personalised induction programme, tailored
to their experience, background and particular areas of focus, which is
designed to develop their knowledge and understanding of the Group’s
culture and operations. The programme has evolved taking into account
feedback from new directors, and will usually include an overview of the
business model and Board processes, meetings with the Executive team
and senior managers, site visits at home and abroad and briefings on
key issues (including social, ethical and environmental (SEE) issues).
Directors also receive an induction to those Board Committees he or she
will serve on.
The need for Director training is regularly assessed by the Board and
regular training sessions are arranged to provide an opportunity for
upskilling of the Directors on a variety of areas relevant to the Group’s
business, including SEE issues. In the last year the Board received training
focusing, inter alia, on the regulatory and governance issues associated
with operating a financial services business, following the acquisition of
Tesco Bank in the previous year.
The Board usually meets overseas once each year to facilitate the Directors’
understanding of the Group’s international operations. In February 2010,
the Board visited China and Korea to view first hand the progress and
direction of the business in these markets. In July 2009, the Company
held its Annual General Meeting in Scotland and the Board took the
opportunity to visit some strategically significant parts of the business
in this region.
Board performance evaluation
The performance of the Board is a fundamental component of the Group’s
success. The Board regularly reviews its own performance. During the year
ended 27 February 2010, the Board assessed its own performance. This
assessment was co-ordinated and directed by the Chairman with the
support of the Company Secretary. The Chairman and the Company
Secretary carried out in-depth interviews with each Director. The results of
the evaluation were considered by the Board, and confirmed the strength
of the strategic and entrepreneurial leadership of the Company, a sound
governance framework and practices compliant with the Combined Code.
The Chief Executive reviews the performance of each Executive Director.
The Chairman reviews the performance of the Chief Executive and each
Non-executive Director. During the year, the Chairman met several times
with the Non-executive Directors, without the Executive Directors present,
to discuss Board issues and how to build the best possible team. The Senior
Independent Director met with the Non-executive Directors, in the absence
of the Chairman, to assess the Chairman’s performance.
Risk management and internal controls
Accountabilities
Accepting that risk is an inherent part of doing business, our risk
management systems are designed both to encourage entrepreneurial
spirit and also provide assurance that risk is fully understood and managed.
The Board has overall responsibility for risk management and internal
control within the context of achieving the Group’s objectives. Executive
management is responsible for implementing and maintaining the
necessary control systems. The role of Internal Audit is to monitor the
overall internal control systems and report on their effectiveness to
Executive management, as well as to the Audit Committee, in order
to facilitate its review of the systems.
Background
The Group has a five-year rolling business plan to support the delivery of
its strategy of long-term growth and returns for shareholders. Every business
unit and support function derives its objectives from the five-year plan and
these are cascaded to managers and staff by way of personal objectives.
Key to delivering effective risk management is ensuring our people have
a good understanding of the Group’s strategy and our policies, procedures,
values and expected performance. We have a structured internal
communications programme that provides employees with a clear
definition of the Group’s purpose and goals, accountabilities and the
scope of permitted activities for each business unit, as well as individual
line managers and other employees. This ensures that all our people
understand what is expected of them and that decision-making takes
place at the appropriate level. We recognise that our people may face
ethical dilemmas in the normal course of business so we provide clear
guidance based on the Tesco Values. The Values set out the standards
that we wish to uphold in how we treat people. These are supported
by the Group Code of Business Conduct which was launched this year,
replacing the Code of Ethics, and offers guidance on relationships
between the Group and its employees, suppliers and contractors.
We operate a balanced scorecard approach that is known within the
Group as our Steering Wheel. This unites the Group’s resources around
our customers, people, operations, community and finance. The Steering
Wheel operates at all levels throughout the Group. It enables the business
to be operated and monitored on a balanced basis with due regard for
all stakeholders.
Risk management
The Group maintains a Key Risk Register. The Register contains the key
risks faced by the Group including their impact and likelihood, as well as
the controls and procedures implemented to mitigate these risks. The
content of the Register is determined through regular discussions with
senior management and reviewed by the Executive Committee and the full
Board. A balanced approach allows the degree of controllability to be taken
into account when we consider the effectiveness of mitigation, recognising
that some necessary activities carry inherent risk which may be outside
Tesco PLC Annual Report and Financial Statements 2010 49