BT 2003 Annual Report Download - page 56

Corporate governance
the views of the company’s internal and external
auditors in the absence of executives. The Committee
met four times during the 2003 financial year. At its
meetings the Committee has reviewed the company’s
full year and quarterly results and its Annual Report
and Form 20-F and considered the adequacy of
the financial systems that have produced those results.
It has reported its views to the Board so it has been
able to approve the results announcements and the
annual report for publication. It has also during the
2003 financial year considered the group’s risk register
as submitted to it by the Management Council and
reviewed the company’s internal control, accounting
systems and related matters.
The Committee has agreed, for the 2004 financial
year, in accordance with the Sarbanes-Oxley Act, to:
&establish a process for dealing with complaints
received by the company regarding accounting,
internal accounting controls or auditing matters, and
the confidential, anonymous submission by employees
of concerns regarding questionable accounting or
auditing matters.
&oversee the adoption of a specific code of ethics
for the Chief Executive, Group Finance Director and
Director Group Financial Control, which is consistent
with BT’s overall statement of business ethics (see
‘‘Statement of business practice’’ on page 56).
The Remuneration Committee comprises solely
independent non-executive directors and is chaired
by Sir Anthony Greener. It met seven times during
the 2003 financial year. Further details about
the Committee are included in the Report on
directors’ remuneration.
Committee memberships are shown in Board of
directors and Operating Committee on pages 50
to 51.
Internal control and risk management
The Board is responsible for the group’s systems
of internal control and risk management and for
reviewing the effectiveness of those systems. Such
systems are designed to manage, rather than eliminate,
the risk of failure to achieve business objectives; any
system can provide only reasonable and not absolute
assurance against material misstatement or loss.
The Board also takes account of significant social,
environmental and ethical matters that relate to BT’s
businesses. The company’s workplace practices,
specific environmental, social and ethical risks and
opportunities and details of underlying governance
processes are dealt with in the Our people and
Our commitment to society sections of this report.
BT has processes for identifying, evaluating and
managing the significant risks faced by the group.
These processes have been in place for the whole
of the 2003 financial year and have continued up to
the date on which this document was approved.
The processes are in accordance with the guidance
for directors published in the UK in September 1999.
Risk assessment and evaluation takes place as an
integral part of the group’s annual strategic planning
cycle. The group has a detailed risk management
process which identifies the key risks facing the group
and each business unit. This information is reviewed by
senior management as part of the strategic review.
The group’s current key risks are summarised on
page 140 of this document.
The key features of the risk management process
comprise the following procedures:
&senior executives, led by the group’s Risk
Manager, review the group’s key risks and have created
a group risk register. This is reviewed by
the Management Council before being approved by
the Board.
&the lines of business carry out risk assessments
of their operations, have created registers relating
to those risks, and ensure that the key risks are
addressed. Line of business audit committees monitor
the standards of internal controls in the lines
of business.
&senior management report regularly to the Group
Finance Director on the operation of internal controls
in their area of responsibility.
&the Chief Executive receives annual reports from
senior executives with responsibilities for major group
operations with their opinion on the effectiveness of the
operation of internal controls during the financial year.
&the group’s internal auditors carry out continuing
assessments of the quality of risk management and
control. They also promote effective risk management
in the lines of business operations.
&the Audit Committee,onbehalf of the Board,
considers the effectiveness of the operation of internal
control procedures in the group during the financial
year. This follows consideration of the matter by
the Management Council. The Audit Committee reviews
reports from the internal auditors and from the external
auditors and reports its conclusions to the Board.
The Audit Committee has carried out these actions
for the 2003 financial year.
Material joint ventures and associates, which BT
does not control, outside the UK have not been dealt
with as part of the group for the purposes of this
internal control assessment.
Relations with shareholders
Senior executives, led by the Chief Executive and
the Group Finance Director, hold meetings with
the company’s principal institutional shareholders to
discuss the company’s strategy, financial performance
and specific major investment activities. As explained
in the Report on directors’ remuneration,wealso
maintain contact, when appropriate, through
the chairman of the Remuneration Committee and other
senior executives to discuss overall remuneration
policies and plans. Contact with institutional
shareholders (and with financial analysts, brokers and
the media) is controlled by written guidelines to ensure
the protection of share price sensitive information that
has not already been made generally available to
the company’s shareholders.
We are continuing our policy that shareholders
vote on the annual report at the AGM. Shareholders
will also be asked this year to vote on the Report on
directors’ remuneration as required by the Directors’
Remuneration Report Regulations 2002, having been
BT Annual Report and Form 20-F 2003 55