Board process

The Board governs through a number of Board Committees – in particular, the Audit, Remuneration and Nominations Committees – to which certain responsibilities and duties are delegated. These Committees are properly authorised under the constitution of the Company to take decisions and act on behalf of the Board within the parameters laid down by the Board.

The Board is kept fully informed of the work of these Committees and any issues requiring resolution are referred to the full Board as appropriate. A summary of the operations of these Committees is set out below. The effectiveness of the Audit, Remuneration and Nominations Committees is underpinned by their Non-executive Director membership, which provides independent insight on governance matters. The Board is serviced by the Company Secretary, who reports to the Chairman in respect of his core duties to the Board.

Nominations Committee

The Nominations Committee leads the process for Board appointments and the re-election and succession of Directors, as well as making recommendations for the membership of the Audit and Remuneration Committees. The Committee is chaired by David Reid and the Company Secretary also attends meetings in his capacity as Secretary of the Committee. Where matters discussed relate to the Chairman, the Senior Independent Director chairs the meeting.

As well as reviewing the performance and development of the Executive Directors and the senior executive levels below the Board, the Committee also regularly considers:
• the Board structure, size, and composition;
• the skills, experience and knowledge of the Board and identifies candidates to fill Board vacancies and enhance its capability;
• succession planning for directors and other senior executives in the course of its work, taking into account the challenges and opportunities facing the company, and what skills and expertise are therefore needed on the Board in the future;
• the time commitment required from Non-executive Directors;
• the leadership needs of the organisation, both executive and non-executive, with a view to ensuring the continued ability of the organisation to compete effectively in the marketplace; and
• strategic issues and commercial changes affecting the Group and the market in which it operates.

View the Nominations Committee Terms of Reference (PDF 31KB).

Remuneration Committee

The Remuneration Committee’s role is to determine and recommend to the Board the remuneration of the Executive Directors.

It also monitors the levels and structure of remuneration for senior management and seeks to ensure that the remuneration arrangements are designed to attract, retain and motivate the Executive Directors needed to run the Company successfully. At the invitation of the Committee, the Chairman of the Board normally attends meetings and the Chief Executive attends as appropriate. Representatives of the Group’s Personnel and Finance functions attend as appropriate to provide support and the Company Secretary also attends in his capacity as Secretary of the Committee.

Each year the Committee conducts a review of its own effectiveness and its Terms of Reference. The responsibilities of the Remuneration Committee and an explanation of how it applies the Directors’ remuneration principles of the Combined Code are set out in the Directors' Remuneration Report.

View the Remuneration Committee Terms of Reference (PDF 38KB).

Audit Committee

The Audit Committee’s primary responsibilities are:
• to review the financial statements;
• to review the Group’s internal control and risk assurance processes;
• to consider the appointment of the external auditors, their reports to the Committee and their independence, which includes an assessment of their appropriateness to conduct any non-audit work; and
• to review the programme of Internal Audit.

Other regular attendees at the invitation of the Committee include:
• Chairman of the Board
• Finance Director and his representatives
• Head of Internal Audit
• Corporate and Legal Affairs Director
• Relevant Executive Directors
• External Auditors

The Company Secretary also attends in his capacity as Secretary of the Committee. The Combined Code requires the Audit Committee to include at least one member with recent and relevant financial experience. The Committee Chairman fulfils this requirement, and all other Committee members have an appropriate understanding of financial matters.

The Committee usually meets four times per year and additional ad hoc meetings are called when necessary. While fulfilling the above responsibilities, the Committee receives presentations from significant businesses within the Group, as well as on fraud, bribery and corruption, business continuity, IT controls and governance and whistleblowing. Each year the Committee conducts a review of its own effectiveness and its Terms of Reference. The Committee also has regular private meetings with the external auditors and the Head of Internal Audit during the year.

The need for training is kept under review and the annual agenda ensures time is dedicated to technical updates which are generally provided by external experts. Recently, training has been provided on accounting and reporting developments under IFRS and IAS and governance developments proposed by the FRC. With respect to Tesco Bank, training was provided on regulatory, accounting, governance and risk management requirements. Training is also provided to meet specific individual needs of Committee members.

View the Audit Committee Terms of Reference (PDF 62KB).

Management of the Group - Executive Committee

The Board delegates responsibility for formulating and implementing the Group’s strategic plan and for management of the Group to the Executive Committee, which is chaired by the Chief Executive and comprises the eight Executive Directors. The Committee has authority for decision-making in all areas except those set out in the Schedule of Matters Reserved for Board Decision and meets formally on a regular basis. A number of senior executives also attend the Committee and their valuable operational experience helps broaden the debate. Their attendance facilitates the communication of the Committee’s decisions to the rest of the Group. The Company Secretary attends in his capacity as Secretary of the Committee.

The Executive Committee is responsible for implementing Group strategy and policy and for monitoring the performance and compliance of the business, drawing on the work of relevant committees, and reporting on these matters in full to the Board. The Executive Committee has set up further committees – including the Finance, Compliance and Corporate Responsibility Committees (which are described in more detail below) – and operational groups which have responsibility for implementing the key elements of the Group’s strategic plan and managing its UK and international operations, joint ventures, property acquisitions, finance, funding and people matters. These committees and groups have as members an appropriate mixture of Executive Directors and senior management from relevant functions.

Procedures to deal with Director’s conflicts of interest

The Company has procedures in place to deal with the situation where a Director has a conflict of interest. As part of these procedures members of the Board are required to:
• consider each conflict situation separately on its particular facts;
• consider the conflict situation in conjunction with the rest of their duties under Companies Act 2006;
• keep records and Board minutes as to authorisation granted by Directors and the scope of any approvals given; and
• regularly review conflict authorisation.

Training and development

All new Directors receive a personalised induction programme, tailored to their experience, background and particular areas of focus, which is designed to develop their knowledge and understanding of the Group’s culture and operations. The programme has evolved taking into account feedback from new directors, and will usually include an overview of the business model and Board processes, meetings with the Executive team and senior managers, site visits at home and abroad and briefings on key issues (including social, ethical and environmental (SEE) issues).  Directors also receive an induction to those Board Committees he or she will serve on.

The need for Director training is regularly assessed by the Board and regular training sessions are arranged to provide an opportunity for upskilling of the Directors on a variety of areas relevant to the Group’s business, including SEE issues. In the last year the Board received training focusing, inter alia, on the regulatory and governance issues associated with operating a financial services business, following the acquisition of Tesco Bank in the previous year.

The Board usually meets overseas once each year to facilitate the Directors’ understanding of the Group’s international operations. In February 2010, the Board visited China and Korea to view first hand the progress and direction of the business in these markets. In July 2009, the Company held its Annual General Meeting in Scotland and the Board took the opportunity to visit some strategically significant parts of the business in this region.

Board performance evaluation

The performance of the Board is a fundamental component of the Group’s success. The Board regularly reviews its own performance. During the year ended 27 February 2010, the Board assessed its own performance. This assessment was co-ordinated and directed by the Chairman with the support of the Company Secretary. The Chairman and the Company Secretary carried out in-depth interviews with each Director. The results of the evaluation were considered by the Board, and confirmed the strength of the strategic and entrepreneurial leadership of the Company, a sound governance framework and practices compliant with the Combined Code.

The Chief Executive reviews the performance of each Executive Director. The Chairman reviews the performance of the Chief Executive and each Non-executive Director. During the year, the Chairman met several times with the Non-executive Directors, without the Executive Directors present, to discuss Board issues and how to build the best possible team. The Senior Independent Director met with the Non-executive Directors, in the absence of the Chairman, to assess the Chairman’s performance.

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