Aviva 2009 Annual Report Download - page 91

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Performance review
Aviva plc Corporate governance report continued
Corporate responsibility
Annual Report and Accounts 2009
Governance
Shareholder information
Financial statements IFRS
Financial statements MCEV
Other information
During 2009, the Chairman and the non-executive directors met
in the absence of the executive directors and the non-executive
directors met in the absence of the Chairman, including one
meeting chaired by the Senior Independent Director in order
to appraise the Chairman’s performance.
Board committees
The Board has established the following standing committees
to oversee and debate important issues of policy and oversight
outside the main Board meetings:
— Audit Committee;
— Corporate Responsibility Committee;
— Nomination Committee;
— Risk and Regulatory Committee; and
— Remuneration Committee.
Throughout the year the chairman of each committee provided
the Board with a summary of the key issues considered at the
meetings of the committees and the minutes of the meetings
were circulated to the Board. The committees operate within
defined terms of reference which are available on the
Company’s website, www.aviva.com, or from the Group
Company Secretary upon request. Board committees are
authorised to engage the services of external advisers as they
deem necessary in the furtherance of their duties at the
Company’s expense.
Reports of the committee chairmen are set out on pages 93
to 116.
Conflicts of interest
In line with the Companies Act 2006, the Company’s Articles of
Association now allow the Board to authorise potential conflicts
of interest that may arise and to impose such limits or
conditions as it thinks fit. The decision to authorise a conflict of
interest can only be made by non-conflicted directors (those
who have no interest in the matter being considered) and in
making such decision the directors must act in a way they
consider in good faith will be most likely to promote the
Company’s success. The Board has established a procedure
whereby actual and potential conflicts of interest are regularly
reviewed and for the appropriate authorisation to be sought
prior to the appointment of any new director or if a new conflict
arises. During 2009 this procedure operated effectively.
Internal Control
A company’s system of internal control plays a key role in the
management of risks that may impact the fulfilment of its
objectives. Internal control facilitates effective and efficient
operations, the development of robust and reliable internal and
external reporting and compliance with laws and regulations.
A system of internal control reduces but cannot eliminate
the possibility of errors, control circumvention, manual override,
poor decision making or the impact of unforeseen
circumstances. As such, a sound system of internal control
provides reasonable but not absolute assurance over material
misstatements or losses or that a company will not be hindered
in achieving its business objectives.
As part of the Financial Reporting Council’s ‘Internal
Control: Guidance for Directors on the Combined Code’, the
Board should ‘maintain a sound system of internal control to
safeguard shareholders’ investment and the company’s assets’.
In addition, as part of their responsibilities 'The Directors should,
at least annually, conduct a review of the effectiveness of the
Group's system of internal control and should report to
shareholders that they have done so. The review should cover all
material controls, including financial, operational and
compliance controls and risk management systems'.
The Board has overall responsibility for maintaining the
system of internal control for the Group and monitoring its
effectiveness. During the year, the Audit Committee, with the
Risk and Regulatory Committee, on behalf of the Board, have
regularly review the effectiveness of the Group's system of
internal control. The necessary actions have been and are being
taken to remedy significant failings and weaknesses identified
from these reviews. The Audit Committee and the Risk and
Regulatory Committee monitor resolution of any weaknesses to
a satisfactory conclusion. In addition, the Company meets the
Securities and Exchange Commission (Sarbanes-Oxley Act 2002)
requirements for new registrants.
The principal features of the system of internal control and
methods by which the Board satisfies itself that this system
operates effectively are set out below.
Control environment
The Group operates a ‘three lines of defence’ model with
management as the first line, having overall accountabilty for
the management of all risks relevant to the Group’s business.
Management is therefore responsible for designing,
implementing and monitoring the operation of the system of
internal control and for providing assurance to the Executive
Committee, the Audit Committee, and the Risk and Regulatory
Committee, as relevant, that it has done so.
The Group Risk and Compliance functions operate as the
second line of defence and are accountable for providing objective
challenge and oversight of the business’ management of all risk
through the system of internal control. The functions operate
globally with teams in all major regions and business units.
Group Audit operates as the third line of defence and is
accountable for providing reliable independent assurance to the
Audit and Risk and Regulatory Committees, local audit
committees, Board members and the Executive Committee of
the Group on the adequacy and effectiveness of the system of
internal control.
Governance and Oversight Committee Structure
The Board delegates oversight in relation to risk management
and internal control to the following committees:
— Audit Committee; and
— Risk and Regulatory Committee
The Audit Committee is responsible for assisting the Board
in discharging its responsibilities for the integrity of the
Company's financial statements and the effectiveness of
the system of internal financial control and monitoring the
effectiveness, performance and objectivity of the internal
and external auditors.
The Risk and Regulatory Committee, working closely with
the Audit Committee, assists the Board in providing direction
and oversight around the Group’s risk and regulatory policies
and procedures, including those relating to compliance, risk
management, financial malpractice and internal controls.
These Committees have clearly defined terms of reference
and full reports for these Committees are set out on pages
94 to 97.
Oversight of the risk management framework and system
of internal control is performed on behalf of the Board by the
Risk and Regulatory Committee working with the Audit
Committee. These Committees receive reporting over risk
management and internal control procedures and consider
where relevant whether appropriate actions have been
Governance