Composition of the Board
Simon Robertson chairs the Board of directors and Sir John Rose is the Chief Executive. The division of responsibilities between them is set down in writing and agreed by the Board. Iain Conn is the Company’s Senior Independent Director.
There are currently 14 directors on the Board comprising the non-executive Chairman, the Chief Executive, four other executive directors and eight non-executive directors.
The quality and broad experience of the directors, the balance of the Board’s composition and the dynamics of the Board as a group, ensure the Board’s effectiveness and also prevent any individual or small group dominating the Board’s decision making.
Each executive director receives a service contract on appointment (see group executive page for further information) and each non-executive director receives a letter setting out the conditions of his or her appointment.
Non-executive directors are appointed for an initial term of three years, which may be extended subsequently with the agreement of the Board, although reappointment is not automatic. Executive directors are employees who have executive responsibilities in addition to their duties as directors. Non-executive directors are not employees and do not participate in the daily business management of the Group.
During the year, there were a number of Board changes: Dr John McAdam was appointed as a non-executive director on February 19, 2008; Carl Symon retired as a non-executive director at the Annual General Meeting (AGM) on May 7, 2008 and was succeeded by Helen Alexander CBE as chairman of the remuneration committee; and John Neill CBE joined the Board as a non-executive director on November 13, 2008.
Under the Company’s Articles of Association, one third of the directors are subject to re-election every year, with each director also being subject to re-election at intervals of not more than three years. Any director appointed during the year is separately required to retire and seek election by the shareholders at the next AGM. The Board also requires any non-executive director who has served on the Board for more than nine years to be subject to annual re-election at the AGM.
John Neill CBE, having been appointed to the Board during the year, will seek election by shareholders at the AGM. The directors retiring under the annual re-election provisions contained in the Articles of Association are Iain Conn, James Guyette, John Rishton and Simon Robertson. They all offer themselves for re-election.
Peter Byrom, having served more than nine years on the Board, is subject to annual re-election by shareholders. No other non-executive director has served for more than nine years on the Board. In recommending Peter Byrom for re-election, the Board took account of the desirability of retaining a non-executive director with long experience on the Rolls-Royce Board. The Board believes strongly that in a long-term, complex and technologically advanced business it is essential that non-executive directors have the opportunity to acquire, over a number of years, the experience and knowledge of the business and the sectors with in which the Group operates.
The Articles of Association also provide that no person may be appointed to the office of chairman (in an executive capacity) or to the office of chief executive, managing director or joint managing director of the Company, unless the individual is a British citizen. No person may be appointed to the office of director of the Company if, immediately following such appointment, the number of directors of the Company who are not British citizens would exceed one half of the total number of directors of the Company for the time being.
Subject to the provisions of relevant statutes, the Company’s Memorandum and Articles of Association and any directions given by special resolution, the directors may exercise all the powers of the Company.
Independence of the non-executive directors
The Board applies a rigorous process in order to satisfy itself that its non-executive directors remain independent. The Combined Code does not regard the Chairman as being independent in view of his unique role in corporate governance. However, on his appointment as Chairman on January 1, 2005, Simon Robertson met the criteria for independence contained in the Combined Code. His other significant commitments are described on the linked page. The Board reviews the independence of the non-executive directors every year, based on the criteria in the Combined Code. This review was undertaken in 2008, and the Board concluded that all the non-executive directors (other than the Chairman) were independent in character and judgement. The Board determined that Peter Byrom remains independent in character and judgement notwithstanding that he has served on the Board for more than nine years, that there are no relationships or circumstances which are likely to affect his independent judgement and that he is in no way dependent on the remuneration he receives from the Company.
The Board is responsible to all the Company’s stakeholders for its conduct and for the performance of the Company.
The day-to-day running of the Company is delegated by the Board to the executive team under the leadership of Sir John Rose, the Chief Executive.
The Board retains responsibility for the approval of certain matters which affect the shape and risk profile of the Company, as well as such items as the annual budget and performance targets, the published accounts, payments to shareholders, major capital investments and any substantial change to balance sheet management policy. This division of responsibilities between the Board and the executive team is set out in detail in a schedule approved annually by the Board, which defines those decisions which can only be taken by the Board itself.
The Board has approved the following statement summarising its core responsibilities:
Primary goal
The primary goal of the Board is to ensure that the Company’s strategy creates value for the long-term investor within an acceptable risk profile.
The Board's tasks
In line with its primary goal, the Board's principal tasks are to:
- ensure the development of the Company’s strategy and keep it under rigorous review;
- monitor the implementation of the strategy, ensuring that the necessary financial and human resources are in place to deliver it and that effective controls exist to manage risk;
- safeguard the values of the Company, including its brand and corporate reputation and the safety of its products;
- oversee the quality and performance of management and ensure through effective succession planning and remuneration policies that it is maintained at world-class standards; and
- maintain an effective corporate governance framework that aspires to deliver long-term value to shareholders.
Directors induction, training and information
Newly appointed directors participate in a structured induction programme and receive a comprehensive data pack providing detailed information on the Group.
An existing executive director acts as a mentor to each newly appointed non-executive director, giving guidance and advice as required. As part of their briefing, non-executive directors visit key sites and meet a cross-section of managers and employees to gain a better understanding of the Group and its operations. Ongoing training is available for all the directors, including presentations by the executive team on particular aspects of the business.
There is a procedure for directors to take independent professional advice at the Company's expense. This is in addition to the access every director has to the General Counsel and Company Secretary.
The Chairman and the non-executive directors meet at least once a year without the executive directors present, in order to review the operation of the Board.
The Chairman has an annual meeting with each non-executive director to Review his or her contribution to the Board. The Senior Independent Director chairs an annual meeting with the non-executive directors to review the performance of the Chairman, the outcome of which is reported back to him.
Each year, the Chairman reviews the performance of the Chief Executive as part of the annual salary review process overseen by the remuneration committee. The Chief Executive reviews the performance of the other executive directors in the same way.
In 2008, the annual process to enable the Board to evaluate the effectiveness of its performance involved the completion of a written questionnaire by the directors and a series of meetings between the Chairman and each individual director. The Board reviewed the results of this exercise in February 2009.
The review covered all aspects of corporate governance, including board and committee structure, board dynamics, the conduct and frequency of board meetings, the consideration of strategic issues by the Board and the information provided to directors. The Board considered that it was operating effectively. The review identified the need for improvements in some areas, including revising the format of the Board strategy sessions and improving the consistency of Board papers. The Board agreed to encourage greater interaction between the Board and management, for example, by arranging Board visits to Company facilities. The Board has also asked to receive more regular reports on succession planning for executives. These improvements will be implemented in 2009. The audit, remuneration and nominations committees have separately undertaken reviews of their terms of reference and effectiveness during 2008.
Directors have a duty to avoid a situation in which they have, or can have, a direct or indirect interest which conflicts, or possibly may conflict, with the interests of the Company unless that situational conflict has been authorised by the Board. The Board has reviewed and authorised all director situational conflicts and has agreed that while directors are required to keep confidential all Company information, they shall not be required to share with the Company confidential information received by them from a third party which is the subject of the situational conflict. The Board has also agreed that the authorisation of situational conflicts will be reviewed annually.
The Company has entered into separate deeds of indemnity in favour of its directors. The deeds provide substantially the same protection as that already provided to directors under the indemnity in Article 170 of the Company’s Articles of Association. The Company has also arranged appropriate insurance cover for any legal action taken against its directors and officers.