UK Corporate Governance Code (“the Code”) – Checklist Provision
Evidence as per the 2011 Annual Report
Action
UNDERLYING PROVISIONS -
Attention must be paid to the spirit of the code
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Throughout
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Improve impact of shareholder interaction in monitoring the code by facilitating increased interaction with the Board
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Role of the senior independent director (SID): Page 93: David Challen is the senior independent non executive director. He is available to shareholders, acts as a sounding board and confidant for the Chairman and is available as an intermediary for the other directors if necessary. Page 96: Investor Relations.
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Leadership of the Chairman: personal report covering section A&B of the code (role and effectiveness of the Board)
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Page 88 and page 89 respectively.
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Annual re-election of directors
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Page 88 and 90: Board refreshment.
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Comply or explain
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Page 88: statement indicating adherence to the Code “We are pleased to confirm that we complied with the Code for the period under review.”
SECTION A – LEADERSHIP -
A1 – Role of the Board
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A1.1: The board should meet sufficiently regularly to discharge its duties effectively. There should be a formal schedule of matters specifically reserved for its decision. The annual report should include a statement of how the board operates, including a high level statement of which types of decisions are to be taken by the board and which are to be delegated to management.
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A1.1: page 93 – table
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http://www.angloamerican.com/about/approach/governance
A1.2: The annual report should identify the Chairman, the
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A1.2: page 90 and page 91
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deputy Chairman (where there is one), the chief executive, the senior independent director and the chairmen and members of the board committees. It should also set out the number of meetings of the board and its committees and individual attendance by directors. -
A1.3: The company should arrange appropriate insurance cover in respect of legal action against its directors. -
A2 – Division of responsibilities
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A3 – The Chairman
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A1.3: page 121, Directors Report
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(1)The Chairman is responsible for setting the board’s agenda and ensuring that adequate time is available for discussion of all agenda items, in particular strategic issues.
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A3(1): page 93 “Rolling agenda” How do we promote excellence in the Boardroom: Since his appointment, Sir John has introduced a rolling agenda for the Board and instigated regular informal meetings of the NEDs prior to each board meeting.
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(2)The Chairman should also promote a culture of openness and debate by facilitating the effective contribution of nonexecutive directors in particular and ensuring constructive relations between executive and non-executive directors.
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A3(2): page 89 Table: Relationship between Board and management and Improving Board meeting effectiveness.
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(3)The Chairman is responsible for ensuring that the directors receive accurate, timely and clear information. The Chairman should ensure effective communication with shareholders.
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A3(3): page 89 - table Page 92 iPads for review of board materials As part of our commitment to best practice and innovation, iPads were introduced in 2010 for the review of board papers, ensuring fast and timely provision of information to directors whilst at the same time reducing the environmental and financial impacts of board meetings. The majority of the directors use the iPads for reviewing their board papers.
A3.1: The Chairman should on appointment meet the independence criteria set out in B.1.1 below. A chief executive should not go on to be
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A3.1: The Chairman was independent upon appointment.
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Chairman of the same company. If, exceptionally, a board decides that a chief executive should become Chairman, the board should consult major shareholders in advance and should set out its reasons to shareholders at the time of the appointment and in the next annual report.
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A.4 Non executive Directors
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Main Principle (a). As part of their role as members of a unitary board, non executive directors should constructively challenge and help develop proposals on strategy.
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A4(a): page 93 What is the role of the Board? Every year the Board holds a two day strategy meeting at which the non executive directors (NEDs) contribute their expertise and independent perspective in developing the strategy of the Company.
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(b). Non executive directors should scrutinise the performance of management in meeting agreed goals and objectives and monitor the reporting of performance.
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A4(b): page 89 Table: Board effectiveness review
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(c). They should satisfy themselves on the integrity of financial information and that financial controls and systems of risk management are robust and defensible. They are responsible for determining appropriate levels of remuneration of executive directors and have a prime role in appointing and, where necessary, removing executive directors, and in succession planning.
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A4(c): page 101- During 2012 the Audit Committee will continue its role in monitoring the integrity of the financial statements and reviewing the effectiveness of the Company’s internal control and risk management systems. An item of key interest to the Audit Committee will be to understand how the risk and audit processes operate in De Beers and how these will be integrated into Anglo American at the appropriate time.
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A.4.1 The board should appoint one of the independent non executive directors to be the senior independent director to provide a sounding board for the Chairman and to serve as an intermediary for the other directors when
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A4.1: page 93 Role of the senior independent director (SID) David Challen is the senior independent non executive director. He is available to shareholders, acts as a sounding board and confidant for the Chairman and is available as an intermediary for the other directors if necessary.
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necessary. The senior independent director should be available to shareholders if they have concerns which contact through the normal channels of Chairman, chief executive or other executive directors has failed to resolve or for which such contact is inappropriate.
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A4.1: page 96 Investor Relations David Challen in his capacity as the SID works closely with Sir John to maintain his understanding of the issues and concerns of major shareholders. David Challen attended the Australian site visit dinner with analysts and investors. The Chairman, SID and other non executive directors are also available to shareholders to discuss any matter they wish to raise.
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A.4.2 The Chairman should hold meetings with the non executive directors without the executives present. Led by the senior independent director, the non executive directors should meet without the Chairman present at least annually to appraise the Chairman’s performance and on such other occasions as are deemed appropriate.
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A4.2: page 93 Board effectiveness: At every board meeting, time is set aside for a NEDs only discussion.
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A.4.3 Where directors have concerns which cannot be resolved about the running of the company or a proposed action, they should ensure that their concerns are recorded in the board minutes. On resignation, a nonexecutive director should provide a written statement to the Chairman, for circulation to the board, if they have any such concerns.
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Not applicable
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B1: page 88 - During the year, Nicky Oppenheimer retired from the Board and in April, we welcomed Phuthuma Nhleko as a non executive director (NED) who has an excellent international business track record. These changes continue our comprehensive refreshment programme.
SECTION B – EFFECTIVENESS -
B1: Composition of the Board – The board and its committees should have the appropriate balance of skills, experience, independence and knowledge of the company to enable them to discharge their respective duties and responsibilities effectively.
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B1.1: Identification of independent NEDs, reference to character & judgement and possible relationships which could affect judgement
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B1.1: page 93 – table, page 94 - How does the Board deal with conflicts of interest: If directors become aware that they have a direct or indirect interest in an existing or proposed transaction with Anglo American, they notify the Board at the next board meeting or by a written declaration. Directors have a continuing duty to update any changes in these interests. During 2011, Nicky Oppenheimer recused himself from any discussion regarding the potential increase in the Company’s interest in De Beers and David Challen recused himself from a discussion on a banking facility in which Citigroup was a participant. In accordance with the Company’s Articles and relevant legislation, an unconflicted quorum of the Board can authorise potential conflicts and such authorisations can be limited in scope and are reviewed on an annual basis. During the year under review, the conflicts register was updated and the conflict management procedures were adhered to and operated effectively.
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B1.2: At least half the board should be made up of independent NEDs
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B1.2: page 93 - table and Independence of directors: The Board has a strong independent element and currently comprises, in addition to the Chairman, two executive and eight non executive directors, all of whom are independent according to the definition contained in the UK Corporate Governance Code (the Code). The independent directors are indicated within the table above, and full biographical details for each director are given on pages 90 and 91. The letters of appointment of the NEDs (as well as the executives’ service contracts) are available for inspection at the registered office of the Company.
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None of the NEDs has served concurrently with an executive director for more than nine years. David Challen and Peter Woicke have both been on the Board for over six years now and their re-appointments are subject to particularly rigorous review. The Board believes that both of them continue to display all of the qualities of independence pursuant to the criteria set out in the Code.
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B2: Page 93: “How do we promote excellence in the boardroom” As a direct result of the last external board evaluation, changes were made in strategy planning and improving communication with major shareholders as well as in the areas of committee composition, talent management and succession planning.
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B2: Appointments to the Board: board should be satisfied that plans are in place or orderly succession
Page 99 Sir John Parker describes role of the Nomination Committee (“Nomco”).
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B2.1: There should be a Nomination Committee which should lead the process for board appointments and make recommendations to the board. A majority of members of the Nomination Committee should be independent non executive directors. The Chairman or an independent non executive director should chair the committee, but the Chairman should not chair the Nomination Committee when it is dealing with the appointment of a successor to the Chairmanship. The Nomination Committee should make available its terms of reference, explaining its role and the authority delegated to it by the board.
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Page 99 B2.1, B2.2 : Extract on the role of the Nomco
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Roles and responsibilities Setting guidelines (with the approval of the Board) for the types of skills, experience and diversity being sought when making a search for new directors and, with the assistance of external consultants, identifying and reviewing in detail each potential candidate available in the market. The Committee then agrees a ‘long list’ of candidates for each directorship and, following further discussion and research, decides upon a shortlist of candidates for interview. Shortlisted candidates are each interviewed by the Committee members who will then convene to discuss their impressions and conclusions, culminating in a recommendation to the Board.
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Terms of reference available on the Company website: http://www.angloamerican.com/about/approach/~/media/Fi les/A/Anglo-AmericanPlc/about/approach/governance/terms_of_ref_nom.pdf
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B2.2: The Nomination Committee should evaluate the balance of skills, experience, independence and knowledge on the board and, in the light of this evaluation, prepare a description of the role and capabilities required for a particular appointment.
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See above
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B2.3: Non executive directors should be appointed for specified terms subject to re-election and to statutory provisions relating to the removal of a director. Any term beyond six years for a non executive director should be subject to particularly rigorous review, and should take into account the need for progressive refreshing of the board.
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B2.3:
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Page 91: Biography of David Challen: David Challen continues to demonstrate his independence by challenging and questioning management.
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Page 93 David Challen and Peter Woicke have both been on the Board for over six years now and their reappointments are subject to particularly rigorous review. The Board believes that both of them continue to display all of the qualities of independence pursuant to the criteria set out in the Code.
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B2.4: A separate section of the annual report should describe the work of the Nomination Committee, including the process it has used in relation to board appointments. An explanation should be given if neither an external search consultancy nor open advertising has been used in the appointment of a Chairman or a non executive director.
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B3: Commitment
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B3.1: For the appointment of a Chairman, the Nomination Committee should prepare a job specification, including an assessment of the time commitment expected, recognising the need for availability in the event of crises. A Chairman’s other significant commitments should be disclosed to the board before appointment and included in the annual report. Changes to such commitments should be reported to the board as they arise, and their impact explained in the next annual report.
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B.3.2 The terms and conditions of appointment of non executive directors should be made available for inspection. The letter of appointment should set out the expected time commitment. Non executive directors should undertake that they will have sufficient time to meet what is expected of them. Their other significant commitments should be disclosed to the board before appointment, with a broad indication of the time involved and the board
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B2.4: page 99
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B3.1: page 90 Biography – Sir John Parker: Sir John recently stepped down as Chairman of National Grid plc and as chancellor of the University of Southampton. He was previously senior non executive director and chair of the Court of the Bank of England and joint chair of Mondi and chair of BVT and P&O plc
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B3.2: Available for inspection at the Company’s registered office
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should be informed of subsequent changes. -
B.3.3 The board should not agree to a full time executive director taking on more than one non executive directorship in a FTSE 100 company nor the Chairmanship of such a company.
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B4: Development: Chairman should ensure directors update their skills and the knowledge and familiarity with the company required to fulfil their role on the board and on committees
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B.4.1 The Chairman should ensure that new directors receive a full, formal and tailored induction on joining the board. As part of this, directors should avail themselves of opportunities to meet major shareholders.
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B.4.2 The Chairman should regularly review and agree with each director their training and development needs.
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B5: Information and Support: Supporting Principles: The Chairman is responsible for ensuring that the directors receive accurate, timely and clear information. Management has an obligation to provide such information but directors should seek clarification or amplification where necessary. Under the direction of the Chairman, the company secretary’s responsibilities
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Not applicable
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B4: Page 94
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B4.1, B4.2: page 89 – table
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B4.1: page 94
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B4.2: page 94 - The directors are given the opportunity to discuss their development needs with the Chairman in individual feedback meetings.
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B5: page 89 - table. Page 92 - iPads for review of board materials: As part of our commitment to best practice and innovation, iPads were introduced in 2010 for the review of board papers, ensuring fast and timely provision of information to directors whilst at the same time reducing the environmental and financial impacts of board meetings. The majority of the directors use the iPads for reviewing their board papers.
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include ensuring good information flows within the board and its committees and between senior management and nonexecutive directors, as well as facilitating induction and assisting with professional development as required. -
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The company secretary should be responsible for advising the board through the Chairman on all governance matters.
B5.1: The board should ensure that directors, especially non executive directors, have access to independent professional advice at the company’s expense where they judge it necessary to discharge their responsibilities as directors. Committees should be provided with sufficient resources to undertake their duties.
B5.2: All directors should have access to the advice and services of the company secretary, who is responsible to the board for ensuring that board procedures are complied with. Both the appointment and removal of the company secretary should be a matter for the board as a whole.
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B6: Evaluation: The board should undertake a formal and rigorous annual evaluation of its own performance and that of its committees and individual directors.
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B6.1: The board should state in the annual report how performance evaluation of the board, its committees and its
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Page 93, 94: Board also receives a governance update from the company secretary highlighting developments in company law, corporate governance and best practice.
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B5.1: page 94 - Furthermore, all directors are entitled to seek independent professional advice concerning the affairs of Anglo American at its expense, although no such advice was sought during 2011. Regular presentations are made to the Board by business management on the activities of operations.
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B5.2: page 94 – Directors also have access to management, and to the advice of the company secretary.
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See also Article 106 of the Company’s Articles.
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B6.1: page 88 - An external evaluation of the Board by a facilitator with no prior relationship with the Anglo American Group, commenced towards the end of 2011. This involved interviews with the Board members on an individual basis and attendance at a Board meeting by the
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external facilitator. The results of this review are being analysed as this report is finalised and therefore an update on the results of this externally facilitated assessment will be disclosed in next year’s report.
individual directors has been conducted.
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B6.3: The non executive directors, led by the senior independent director, should be responsible for performance evaluation of the Chairman, taking into account the views of executive directors.
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B6 3: page 93 - As in past years, the evaluation process also included a review, chaired by the senior independent non executive director (without the Chairman present), of the performance of the Chairman. The Chairman has held individual discussions with each director to ensure that the necessary board and committee processes are functioning properly.
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B7: Re-election: directors should be submitted for reelection at regular interval, subject to continued satisfactory performance
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B7: Page 90: In accordance with the UK Corporate Governance Code, Anglo American will continue to propose the re-election of all its directors on an annual basis.
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B7.1: All directors of FTSE 350 companies should be subject to annual election by shareholders. All other directors should be subject to election by shareholders at the first annual general meeting after their appointment, and to reelection thereafter at intervals of no more than three years. Non executive directors who have served longer than nine years should be subject to annual re-election. The names of directors submitted for election or re-election should be accompanied by sufficient biographical details and any other relevant information to enable shareholders to take an informed decision on their election.
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B7.1:
B7.2 The board should set out to shareholders in the papers accompanying a resolution to elect a non executive director why they believe an individual should
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Page 90: In accordance with the UK Corporate Governance Code, Anglo American will continue to propose the re-election of all its directors on an annual basis. Page 91 – Biographies
B7.2: page 89 - The achievements against the action plan flowing from the 2010 board effectiveness review are detailed in the table above. As Chairman I interviewed each director to review those issues raised during the board evaluation process and on any other issue of concern to them as individual directors.
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be elected. The Chairman should confirm to shareholders when proposing re-election that, following formal performance evaluation, the individual’s performance continues to be effective and to demonstrate commitment to the role.
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This process also provides an opportunity to review the personal performance of a director on a one-to-one basis. Following that I am happy to confirm that each board member’s performance is effective and they each continue to demonstrate full commitment to the role.
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Page 48: Effective risk management
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Audit report: page 101 - 103
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C1.1: page 125
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C1.2: page 4 - Chairman’s Statement: Delivering value and delivering our growth projects
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C1.3: See the Company’s half yearly financial report
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C2: page 48 - Effective risk management Page 101-103 – Audit Committee report
SECTION C: ACCOUNTABILITY -
Main Principle The board is responsible for determining the nature and extent of the significant risks it is willing to take in achieving its strategic objectives. The board should maintain sound risk management and internal control systems.
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C1.1: Responsibility statement from directors in the Annual Report and Accounts should contain a statement by the auditors about their reporting responsibilities
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C1.2 Directors explanation regarding preservation of value over the long term and strategy to deliver objectives
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C1.3: Directors should report in half-yearly financial statements that the business is a going concern with the necessary supporting evidence
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C.2 Risk Management and Internal Control Main Principle The board is responsible for determining the nature and extent of the significant risks it is willing to take in achieving its strategic objectives. The board should maintain sound risk management and internal
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C.2.1 The board should, at least annually, conduct a review of the effectiveness of the company’s risk management and internal control systems and should report to shareholders that they have done so. The review should cover all material controls, including financial, operational and compliance controls. -
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C2.1: page 101 - “A summary of audit results and risk management information was presented to the Committee and Group senior management at regular intervals throughout the year. The Group’s head of internal audit reports to the Audit Committee on the internal audit function’s performance against the agreed internal audit plan. During 2011, over 420 audit projects were completed covering a variety of financial, operational, strategic and compliance related business processes across all business units and functions. In addition, the internal audit department responded to a number of management requests to investigate alleged breaches of our business principles. … C 2.1: page 102 - senior management at regular intervals throughout the year. The Group’s head of internal audit reports to the Audit Committee on the internal audit function’s performance against the agreed internal audit plan. During 2011, over 420 audit projects were completed covering a variety of financial, operational, strategic and compliance related business processes across all business units and functions. In addition, the internal audit department responded to a number of management requests to investigate alleged breaches of our business principles.”
C.3 Audit Committee and Auditors Main Principle The board should establish formal and transparent arrangements for considering how they should apply the corporate reporting and risk management and internal control principles and for maintaining an appropriate relationship with the company’s auditor.
Code Provisions C.3.1 The board should establish an Audit Committee of at least three, or in the case of smaller companies, two, independent non executive directors. The board should satisfy itself that at least one member of the Audit Committee has recent and relevant financial experience.
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C3.1: page 100 - Composition Compliant with the Code and comprises only independent non executive directors: David Challen – Chairman Sir Philip Hampton Phuthuma Nhleko Ray O’Rourke Sir Philip Hampton has significant financial experience, as per his biography on page 91 Sir Philip Hampton 58 joined the Board on 9 November 2009. He is Chairman of the Remuneration Committee and a member of the Audit Committee. Sir Philip is Chairman of The Royal Bank of Scotland and brings to Anglo American significant financial, strategic and boardroom experience across a number of industries.
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(a). The main role and responsibilities of the Audit Committee should be set out in written terms of reference and should include: to monitor the integrity of the financial statements of the company and any formal announcements relating to the company’s financial performance, reviewing significant financial reporting judgements contained in them; -
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C3.2: Page 100 Roles and responsibilities
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(a), (c) Monitoring the integrity of the annual and interim financial statements, the accompanying reports to shareholders and corporate governance statements.
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(c) Making recommendations to the Board concerning the adoption of the annual and interim financial statements.
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(c) Overseeing the Group’s relations with the external auditors.
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(d) Making recommendations to the Board on the appointment, retention and removal of the external auditors.
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(c) Reviewing and monitoring the effectiveness of the Group’s internal control and risk management systems including reviewing the process for identifying, assessing and reporting all key risks.
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(b), (c) Approving the terms of reference and plans of the internal audit function.
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Approving the internal audit plan and reviewing regular reports from the head of internal audit on effectiveness of the internal control system.
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Receiving reports from management on the key risks of the Group and management
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(e) Page 101: Anglo American’s policy on auditors’ independence, is consistent with the ethical standards published by the Audit Practices Board.
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(f) Page 101: “prior approval by the Audit Committee Chairman of non audit services where the cost of the proposed assignment is likely to exceed $50,000.
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(f) Anglo American’s policy on the provision of non audit services is regularly reviewed. The definition of prohibited non audit services corresponds with the European Commission’s recommendations on auditors’ independence and with the Ethical Standards issued by the Audit Practices Board in the UK”
C.3.2
(b). to review the company’s internal financial controls and, unless expressly addressed by a separate board risk committee composed of independent directors, or by the board itself, to review the company’s internal control and risk management systems; (c). to monitor and review the effectiveness of the company’s internal audit function;
(d). to make recommendations to the board, for it to put to the shareholders for their approval in general meeting, in relation to the appointment, reappointment and removal of the external auditor and to approve the remuneration and terms of engagement of the external auditor;
(e). to review and monitor the external auditor’s
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independence and objectivity and the effectiveness of the audit process, taking into consideration relevant UK professional and regulatory requirements; -
(f). to develop and implement policy on the engagement of the external auditor to supply non-audit services, taking into account relevant ethical guidance regarding the provision of non-audit services by the external audit firm, and to report to the board, identifying any matters in respect of which it considers that action or improvement is needed and making recommendations as to the steps to be taken.
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C.3.3 The terms of reference of the Audit Committee, including its role and the authority delegated to it by the board, should be made available. A separate section of the annual report should describe the work of the committee in discharging those responsibilities.
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C.3.4 The Audit Committee should review arrangements by which staff of the company may, in confidence, raise concerns about possible improprieties in matters of financial reporting or other matters. The Audit Committee’s objective should be to ensure that arrangements are in place for the proportionate and independent investigation of such matters and for appropriate follow-up action.
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C3.3: page 100 - Approving the internal audit plan and reviewing regular reports from the head of internal audit on effectiveness of the internal control system.
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Terms of reference for the Audit Committee can be found on the Anglo American website: http://www.angloamerican.com/about/approach/~/media/Fi les/A/Anglo-AmericanPlc/siteware/docs/audit_committee_ToR.pdf
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C 3.4: page 102: Whistleblowing programme The Group has had in place for a number of years a whistleblowing programme in all its managed operations. The programme, which is monitored by the Audit Committee, is designed to enable employees, customers, suppliers, managers or other stakeholders, on a confidential basis, to raise concerns in cases where conduct is deemed to be contrary to our values. It may include: (a). actions that may result in danger to the health and/or safety of people or damage to the environment (b). unethical practice in accounting, internal accounting controls, financial reporting and auditing matters (c). criminal offences, including money laundering, fraud, bribery and corruption (d). failure to comply with any legal obligation (e). miscarriage of justice (f). any conduct contrary to the ethical principles embraced in our Business Principles or any similar policy (g). any other legal or ethical concern
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(h). concealment of any of the above.
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C.3.5 The Audit Committee should monitor and review the effectiveness of the internal audit activities. Where there is no internal audit function, the Audit Committee should consider annually whether there is a need for an internal audit function and make a recommendation to the board, and the reasons for the absence of such a function should be explained in the relevant section of the annual report.
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C.3.6 The Audit Committee should have primary responsibility for making a recommendation on the appointment, reappointment and removal of the external auditor. If the board does not accept the Audit Committee’s recommendation, it should include in the annual report, and in any papers recommending appointment or re-appointment, a statement from the Audit Committee explaining the recommendation and should set out reasons why the board has taken a different position.
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C.3.7 The annual report should explain to shareholders how, if the auditor provides non-audit services, auditor objectivity and independence is safeguarded.
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page 103 - Reports received were kept strictly confidential and were referred to appropriate line managers within the Group for resolution. Where appropriate, action was taken to address the issues raised. The reports are analysed and monitored to ensure the process is effective.
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C 3.5: page 102 - The Board also receives assurance from the Audit Committee, which derives its information, in part, from regular internal audit reports on risk and internal control throughout the Group and external audit reporting. The Group’s internal audit function has a formal collaboration process in place with the external auditors to ensure efficient coverage of internal controls.
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C 3.6: page 101 - The Audit Committee has primary responsibility for making recommendations to the Board on the appointment, re-appointment and removal of the external auditors.
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C 3.7: page 101 Anglo American addresses this issue through three primary measures, namely: (a). disclosure of the extent and nature of non audit services; (b). the prohibition of selected services – this includes the undertaking of internal audit services (c). prior approval by the Audit Committee Chairman of non audit services where the cost of the proposed assignment is likely to exceed $50,000
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SECTION D: REMUNERATION D.1 The Level and Components of Remuneration -
Main Principle Levels of remuneration should be sufficient to attract, retain and motivate directors of the quality required to run the company successfully, but a company should avoid paying more than is necessary for this purpose. A significant proportion of executive directors’ remuneration should be structured so as to link rewards to corporate and individual performance.
Page 116 – Independent Remuneration Report Review by Mercer ... We are satisfied that the Committee closely adheres to the stated policy of setting base pay levels at the median of comparable companies, that at least 50% of remuneration for the executive directors is performance related and that variable pay is consistent with business performance, market conditions and retention of talent. We note that the Committee received a report from an outside Consultant which verified this market position. ...
Code Provisions D.1.1 In designing schemes of performance-related remuneration for executive directors, the Remuneration Committee should follow the provisions in Schedule A to this Code. -
SCHEDULE A THE DESIGN OF PERFORMANCERELATED REMUNERATION FOR EXECUTIVE DIRECTORS
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(A1) The Remuneration Committee should consider whether the directors should be eligible for annual bonuses. If so, performance conditions should be relevant, stretching and designed to promote the long-term success of the company. Upper limits should be set and disclosed. There may be a case for part payment in shares to be held for a significant period.
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A1: page 106 - For executive directors, the corporate element is based on stretching earnings per share (EPS) targets which are calculated using underlying earnings (reconciled in note 13 of the financial statements). The key individual objectives are designed to support the Company’s strategic priorities and in 2011 included cost and asset optimisation, project execution, portfolio restructuring, strategic initiatives, organisational structure and capabilities, CSR initiatives and safety improvements.
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(A2) The Remuneration Committee should consider whether the directors should be eligible for benefits under long-term incentive schemes. Traditional share option schemes should be weighed against other kinds of long-term incentive scheme.
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(A3) Executive share options should not be offered at a discount save as permitted by the relevant provisions of the Listing Rules. In normal circumstances, shares granted or other forms of deferred remuneration should not vest, and options should not be exercisable, in less than three years. Directors should be encouraged to hold their shares for a further period after vesting or exercise, subject to the need to finance any costs of acquisition and associated tax liabilities.
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(A4) Any new long-term incentive schemes which are proposed should be approved by shareholders and should preferably replace any existing schemes or, at least, form part of a well considered overall plan incorporating existing schemes. The total potentially available
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A2: page 105 – Remuneration mix Each executive director’s total remuneration consists of basic salary, annual bonus, long-term incentives and benefits. An appropriate balance is maintained between fixed and performance-related remuneration and between elements linked to short-term financial performance and those linked to longer-term shareholder value creation. page 107 - Share options and all employee share schemes No share options were granted in 2011 to executive directors under the Company’s Discretionary Option Plan (DOP) and there is no intention to make future grants under the unapproved part of the DOP to executive directors. However, the DOP is retained for use in special circumstances relating to the recruitment or retention of key executives. UK-based executive directors are eligible to participate in the Company’s Save As You Earn scheme (SAYE) and Share Incentive Plan (SIP). Performance conditions do not apply to these schemes because they are offered to all UK-based employees.
A3: page 106 – Bonus Share Plan (BSP) … These Bonus Shares vest only if the participant remains in employment with the Group until the end of a three-year holding period … Awards of Enhancement Shares made in 2011 will vest after three years only to the extent that a challenging performance condition is met. Page 107 – Long Term Incentive Plan (LTIP) – Performance measures - As in previous years, vesting of the LTIP awards made during 2011 is subject to the achievement, over a fixed three-year period, of stretching Group performance targets. page 110 - EXECUTIVE SHAREHOLDING TARGETS: Within five years of their appointment, executive directors are expected to acquire and maintain a holding of shares with a value of two times basic salary in the case of the chief executive and one and a half times basic salary in the case of any other executive director. At the date of this report these shareholding targets had been exceeded. The Committee takes into consideration achievement against these targets when making grants under the Company’s various long-term incentive plans.
A4: page 107 - Long Term Incentive Plan (LTIP) At the AGM in April 2011, shareholders approved a new LTIP to replace the previous LTIP
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rewards should not be excessive. -
(A5) Payouts or grants under all incentive schemes, including new grants under existing share option schemes, should be subject to challenging performance criteria reflecting the company’s objectives, including nonfinancial performance metrics where appropriate. Remuneration incentives should be compatible with risk policies and systems.
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A5: page 106 – BSP The value of the bonus is calculated by reference to achievement against annual performance targets which include measures of corporate (and, if applicable, business unit) performance as well as the achievement of specific individualobjectives. page 107- LTIP – Performance measures As in previous years, vesting of the LTIP awards made during 2011 is subject to the achievement, over a fixed three-year period, of stretching Group performance targets. Half of each award is subject to a Group Total Shareholder Return (TSR) measure, while the other half is subject to a Group operational measure, an Asset Optimisation and Supply Chain (AOSC) efficiency measure. The measures are described in greater detail on the following page. …. The Committee is able to apply a clawback of conditional LTIP awards in the event that, during the relevant performance period, the Committee becomes aware of a material error in the Company’s results for the relevant performance period.
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(A6) Grants under executive share option and other long-term incentive schemes should normally be phased rather than awarded in one large block.
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A6: page 107 - LTIP awards are made annually as opposed to once every 3 or 5 years.
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(A7) Consideration should be given to the use of provisions that permit the company to reclaim variable components in exceptional circumstances of misstatement or misconduct.
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A7: page 106 – BSP – …The Committee is able to apply a clawback of deferred Bonus Shares in the event that, during the relevant deferral period, the Committee becomes aware of a material error in the Company’s results for the relevant bonus performance period. … Page 106 – BSP - … Enhancement Shares will be subject to the same clawback provisions mentioned previously. … page 107 – LTIP – …. The Committee is able to apply a clawback of conditional LTIP awards in the event that, during the relevant performance period, the Committee becomes aware of a material error in the Company’s results for the relevant performance period.
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(A 8) In general, only basic salary should be pensionable. The Remuneration Committee should consider the pension consequences and associated costs to the company of basic salary increases and any other
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A8: page 112 – Pensions – … In 2011, normal contributions were payable on their behalf at the rate of 30% of their basic salaries payable under these contracts. Page 106 – BSP – … Awards under the BSP are not pensionable, are made annually … page 105 - Basic salary increases for executive directors with effect from January 2012 were limited to an inflation adjustment in line with the general salary review for the broader employee population.
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changes in pensionable remuneration, especially for directors close to retirement.
D.1.2 Where a company releases an executive director to serve as a nonexecutive director elsewhere, the remuneration report should include a statement as to whether or not the director will retain such earnings and, if so, what the remuneration is.
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D1.2: page 111- EXTERNAL APPOINTMENTS Executive directors are not permitted to hold external directorships or offices without the prior approval of the Board; if approved, they may each retain the fees payable from one such appointment. During the year ended 31 December 2011, Cynthia Carroll and René Médori each retained fees amounting to £78,000 and £68,000 respectively.
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Page 112 Figure 12, footnote (1) In 2011, Cynthia Carroll and René Médori held non-executive directorships of Anglo American Platinum Limited and René Médori held a non-executive directorship of Anglo American South Africa Limited. The fees for these directorships were ceded to their employer, AAS.
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D.1.3 Levels of remuneration for non executive directors should reflect the time commitment and responsibilities of the role. Remuneration for nonexecutive directors should not include share options or other performance-related elements. If, exceptionally, options are granted, shareholder approval should be sought in advance and any shares acquired by exercise of the options should be held until at least one year after the non executive director leaves the board. Holding of share options could be relevant to the determination of a non executive director’s independence (as set out in provision B.1.1).
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D1.3: page 111: Non-executive directors may not participate in the Company’s share incentive schemes or pension arrangements.
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D.1.4 The Remuneration Committee should carefully consider what compensation commitments (including pension contributions and all other elements) their directors’ terms of appointment would entail in the event of early
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D1.4: page 111- Should Cynthia Carroll not be required to work her full notice, Anglo American Services is able to discharge its liability for the unexpired portion of her notice period by making a payment in lieu of her salary and other contractual benefits; in the case of René Médori, whose contract dates from 2005, the payment would also include a pro-rated bonus.
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termination. The aim should be to avoid rewarding poor performance. They should take a robust line on reducing compensation to reflect departing directors’ obligations to mitigate loss. -
D.1.5 Notice or contract periods should be set at one year or less. If it is necessary to offer longer notice or contract periods to new directors recruited from outside, such periods should reduce to one year or less after the initial period.
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D1.5: page 111 - Cynthia Carroll and René Médori are employed by Anglo American Services (UK) Ltd (AAS). It is the Company’s policy that the period of notice for executive directors will not exceed 12 months and accordingly the employment contracts of the executive directors are terminable at 12 months’ notice by either party.
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D.2 Procedure Main Principle There should be a formal and transparent procedure for developing policy on executive remuneration and for fixing the remuneration packages of individual directors. No director should be involved in deciding his or her own remuneration.
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D2 : The key principles of the Policy on Executive Director Remuneration are outlines on page 105 and includes: …Representatives of the Company’s principal investors are consulted on material changes to remuneration policy. page 104 – Membership of the Committee - The Company’s chief executive attends the Committee meetings by invitation and assists the Committee in its deliberations, except when issues relating to her own compensation are discussed. No directors are involved in deciding their own remuneration.
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Code Provisions D.2.1 The board should establish a Remuneration Committee of at least three, or in the case of smaller companies two, independent non executive directors. In addition the company Chairman may also be a member of, but not chair, the committee if he or she was considered independent on appointment as Chairman.
The Remuneration Committee should make available its terms of reference, explaining its role and the authority delegated to it by the board. Where remuneration consultants are appointed,
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D2.1: page 104 - Membership of the Committee The Committee comprised the following non-executive directors during the year ended 31 December 2011: Sir Philip Hampton (Chairman) David Challen Sir CK Chow Jack Thompson Peter Woicke
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The full Terms of Reference of the Committee can be found on the Anglo American website and copies are available on request. http://www.angloamerican.com/about/approach/~/media/Fi les/A/Anglo-AmericanPlc/about/approach/governance/Remuneration_Committe e_Terms_of_Reference_Dec2011.pdf Page 105 – Figure 1 sets out the external advice provided
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a statement should be made available of whether they have any other connection with the company.
to the Committee and other services provided to the Company.
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D.2.2 The Remuneration Committee should have delegated responsibility for setting remuneration for all executive directors and the Chairman, including pension rights and any compensation payments. The committee should also recommend and monitor the level and structure of remuneration for senior management. The definition of ‘senior management’ for this purpose should be determined by the board but should normally include the first layer of management below board level.
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D 2.2: page 104 Role of the Remuneration Committee and Terms of Reference. The Remuneration Committee (the Committee) is responsible for considering and making recommendations to the Board on: The Company’s general policy on executive and senior management remuneration. The specific remuneration packages for executive directors of the Company, including basic salary, performance-based short-term and long-term incentives, pensions and other benefits. The remuneration of the Chairman. The design and operation of the Company’s share incentive schemes.
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D.2.3 The board itself or, where required by the Articles of Association, the shareholders should determine the remuneration of the non executive directors within the limits set in the Articles of Association. Where permitted by the Articles, the board may however delegate this responsibility to a committee, which might include the chief executive.
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D2.3: page 111 - POLICY ON NON EXECUTIVE DIRECTOR REMUNERATION Non-executive director remuneration is approved by the Board as a whole on the recommendation of the Chairman and executive directors. The Company’s policy on non-executive director remuneration is based on the following key principles: Page 111 CHAIRMAN’S FEES The Chairman’s fees are reviewed periodically (on a different cycle from the review of other non-executive directors’ fees). A recommendation is then made to the Board (in the absence of the Chairman) by the Committee and chief executive, who will take external advice on market comparators. The Chairman’s fees will be reviewed during 2012.
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D.2.4 Shareholders should be invited specifically to approve all new long-term incentive schemes (as defined in the Listing Rules26) and significant changes to existing schemes, save in the circumstances permitted by the Listing Rules
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D2.4 n/a – There was no need in 2011. The 2010 Annual Report included the new LTIP rules.
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SECTION E: RELATIONS WITH SHAREHOLDERS -
E.1 Dialogue with Shareholders Main Principle -
E1 (a): page 96 - We place a great deal of importance on maintaining an active dialogue with our investor base around the world. We plan to increase our interaction in 2012 by further exposing our operating management to investors.
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E1(b): page 96 - Any significant concerns raised by a shareholder in relation to the Company and its affairs are communicated to the Board.
(c). The board should keep in touch with shareholder opinion in whatever ways are most practical and efficient.
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E1(c): page 96 - Feedback from meetings held between executive management, or the Investor Relations Department, and institutional shareholders is also communicated to the Board. The Chairman, SID and other non executive directors are also available to shareholders to discuss any matter they wish to raise.
Code Provision E.1.1 (a) The Chairman should ensure that the views of shareholders are communicated to the board as a whole.
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E1.1(a): page 96 - Any significant concerns raised by a shareholder in relation to the Company and its affairs are communicated to the Board. The Company maintains an active engagement with its key financial audiences, including institutional shareholders and sell side analysts as well as potential shareholders. The Investor Relations department manages the interaction with these audiences and regular presentations take place at the time of interim and final results as well as during the rest of the year.
(b) The Chairman should discuss governance and strategy with major shareholders.
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E1.1(b): page 96 - Sir John Parker met with a number of key investors to discuss ‘Strategy, The Board, Board Changes & Operating Performance’. The Chairman, SID and other non executive directors are also available to shareholders to discuss any matter they wish
(a). There should be a dialogue with shareholders based on the mutual understanding of objectives. The board as a whole has responsibility for ensuring that a satisfactory dialogue with shareholders takes place -
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Supporting Principles (b). Whilst recognising that most shareholder contact is with the chief executive and finance director, the Chairman should ensure that all directors are made aware of their major shareholders’ issues and concerns.
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to raise
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(c) Non executive directors should be offered the opportunity to attend scheduled meetings with major shareholders and should expect to attend meetings if requested by major shareholders.
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E1.1(c): page 96 - Feedback from meetings held between executive management, or the Investor Relations Department, and institutional shareholders is also communicated to the Board
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(d) The senior independent director should attend sufficient meetings with a range of major shareholders to listen to their views in order to help develop a balanced understanding of the issues and concerns of major shareholders
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E1.1(d): page 96 - Sir John Parker met with a number of key investors to discuss ‘Strategy, The Board, Board Changes & Operating Performance’. David Challen in his capacity as the SID works closely with Sir John to maintain his understanding of the issues and concerns of major shareholders. The Chairman, SID and other non executive directors are also available to shareholders to discuss any matter they wish to raise.
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E.1.2 The board should state in the annual report the steps they have taken to ensure that the members of the board, and, in particular, the nonexecutive directors, develop an understanding of the views of major shareholders about the company, for example through direct face-to-face contact, analysts’ or brokers’ briefings and surveys of shareholder opinion.
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E1.2: page 96 The Board is briefed on a regular basis by the Investor Relations department and analysts’ reports are circulated to the directors. Feedback from meetings held between executive management, or the Investor Relations Department, and institutional shareholders is also communicated to the Board.
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