Vodafone 2009 Annual Report Download - page 57

Governance
Vodafone Group Plc Annual Report 2009 55
It remains the policy of the Company not to make political donations or incur political
expenditure as those expressions are normally understood. However, the directors
consider that it is in the best interests of shareholders for the Company to participate
in public debate and opinion-forming on matters which affect its business. To avoid
inadvertent infringement of the Companies Act 2006, shareholder authority has
been sought as outlined above.
Internal control
The Board has overall responsibility for the system of internal control. A sound
system of internal control is designed to manage rather than eliminate the risk of
failure to achieve business objectives and can only provide reasonable and not
absolute assurance against material misstatement or loss. The process of managing
the risks associated with social, environmental and ethical impacts is also discussed
under “Corporate responsibility” on pages 45 to 47.
The Board has established procedures that implement in full the Turnbull Guidance
“Internal Control: Revised Guidance for Directors on the Combined Code” for the year
under review and to the date of approval of the annual report. These procedures,
which are subject to regular review, provide an ongoing process for identifying,
evaluating and managing the significant risks faced by the Group. See page 69 for
management’s report on internal control over financial reporting.
Monitoring and review activities
There are clear processes for monitoring the system of internal control and reporting
any significant control failings or weaknesses together with details of corrective
action. These include:
a formal annual confirmation provided by the Chief Executive and Chief Financial •
Officer of each Group company certifying the operation of their control systems
and highlighting any weaknesses, the results of which are reviewed by regional
management, the Audit Committee and the Board;
a review of the quality and timeliness of disclosures undertaken by the Chief •
Executive and the Chief Financial Officer which includes formal annual meetings
with the operating company or regional chief executives and chief financial
officers and the Disclosure Committee;
periodic examination of business processes on a risk basis including reports on •
controls throughout the Group undertaken by the Group internal audit
department who report directly to the Audit Committee; and
reports from the external auditors on certain internal controls and relevant •
financial reporting matters, presented to the Audit Committee and management.
Any controls and procedures, no matter how well designed and operated, can
provide only reasonable and not absolute assurance of achieving the desired control
objectives. Management is required to apply judgement in evaluating the risks facing
the Group in achieving its objectives, in determining the risks that are considered
acceptable to bear, in assessing the likelihood of the risks concerned materialising,
in identifying the Company’s ability to reduce the incidence and impact on the
business of risks that do materialise and in ensuring that the costs of operating
particular controls are proportionate to the benefit.
Review of effectiveness
The Board and the Audit Committee have reviewed the effectiveness of the internal
control system, including financial, operational and compliance controls and risk
management, in accordance with the Combined Code for the period from 1 April
2008 to 19 May 2009, the date of approval of the Group’s annual report. No significant
failings or weaknesses were identified during this review. However, had there been
any such failings or weaknesses, the Board confirms that necessary actions would
have been taken to remedy them.
Disclosure controls and procedures
The Company maintains “disclosure controls and procedures”, as such term is
defined in Exchange Act Rule 13a-15(e), that are designed to ensure that information
required to be disclosed in reports the Company files or submits under the E xchange
Act is recorded, processed, summarised and reported within the time periods
specified in the Securities and Exchange Commission rules and forms, and that such
information is accumulated and communicated to management, including the
Company’s Group Chief Executive and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure.
The directors, the Chief Executive and the Chief Financial Officer have evaluated the
ef fectiveness of the disclosure controls and procedures and, based on that evaluation,
have concluded that the disclosure controls and procedures are effective at the end
of the period covered by this document.
Auditors
Following a recommendation by the Audit Committee and, in accordance with
Section 384 of the Companies Act 1985, a resolution proposing the reappointment
of Deloitte LLP as auditors to the Company will be put to the shareholders at the
2009 AGM.
In its assessment of the independence of the auditors and in accordance with the US
Public Company Accounting Oversight Board’s standard on independence, the Audit
Committee receives in writing details of relationships between Deloitte LLP and the
Company that may have a bearing on their independence and receives confirmation
that they are independent of the Company within the meaning of the securities laws
administered by the SEC.
In addition, the Audit Committee pre-approves the audit fee af ter a review of both the
level of the audit fee against other comparable companies, including those in the
telecommunications industry, and the level and nature of non-audit fees, as part of
its review of the adequacy and objectivity of the audit process.
In a further measure to ensure auditor independence is not compromised, policies
provide for the pre-approval by the Audit Committee of permitted non-audit services
by Deloitte LLP. For certain specific permitted services, the Audit Committee has
pre-approved that Deloitte LLP can be engaged by Group management subject to
specified fee limits for individual engagements and fee limits for each type of specific
service permitted. For all other services, or those permitted services that exceed the
specified fee limits, the Chairman of the Audit Committee, or in his absence another
member, can pre-approve services which have not been pre-approved by the
Audit Committee.
In addition to their statutory duties, Deloitte LLP are also employed where, as a result
of their position as auditors, they either must, or are best placed to, perform the work
in question. This is primarily work in relation to matters such as shareholder circulars,
Group borrowings, regulatory filings and certain business acquisitions and disposals.
Other work is awarded on the basis of competitive tender.
During the year, Deloitte LLP and its affiliates charged the Group £8 million
(2008: £7 million, 2007: £7 million) for audit and audit-related services and a further
£1 million (2008: £2 million, 2007: £3 million) for non-audit assignments. An analysis
of these fees can be found in note 4 to the consolidated financial statements.
US listing requirements
The Company’s American Depositary Shares are listed on the NYSE and the Company
is, therefore, subject to the rules of the NYSE as well as US securities laws and the
rules of the SEC. The NYSE requires US companies listed on the exchange to comply
with the NYSE’s corporate governance rules but foreign private issuers, such as the
Company, are exempt from most of those rules. However, pursuant to NYSE Rule
303A.11, the Company is required to disclose a summary of any significant ways in
which the corporate governance practices it follows differ from those required by the
NYSE for US companies. The differences are as follows:
Independence
NYSE rules require that a majority of the Board must be comprised of independent •
directors and the rules include detailed tests that US companies must use for
determining independence.
The Combined Code requires a company’s board of directors to assess and make •
a determination as to the independence of its directors.
While the Board does not explicitly take into consideration the NYSE’s detailed tests,
it has carried out an assessment based on the requirements of the Combined Code
and has determined in its judgement that all of the non-executive directors are
independent within those requirements. As at 19 May 2009, the Board comprised the
Chairman, two executive directors and nine non-executive directors.