"The Board should undertake a formal and rigorous annual evaluation of its own performance and that of its committees and individual directors." Combined Code - Main Principle A.6
- The Board evaluations of its own effectiveness and that of the Audit, Nominations and Remuneration committees. The performance of individual directors is included as part of this process.
- The evaluation process is undertaken with the assistance of external facilitators.
RE-ELECTION
"All directors should be submitted for re-election at regular intervals, subject to continued satisfactory performance. The board should ensure planned and progressive refreshing of the board." Combined Code - Main Principle A.7
- All new Directors are required to seek re-election to the Board at the first Annual General Meeting (AGM) following appointment.
- All Directors are required to stand down and seek re-election to the Board at least once every three years.
- The Nominations Committee is responsible for planning the progressive refreshing of the Board (see ‘Appointments to the Board' above)
FINANCIAL REPORTING
"The board should present a balanced and understandable assessment of the company's position and prospects." Combined Code - Main Principle C.1
- In preparing the annual report to shareholders the directors seek to present a summarised but balanced and easily understood assessment of the Company's performance and provide guidance on its future prospects.
INTERNAL CONTROL
" The board should maintain a sound system of internal controls to safeguard shareholders' investments and the company's assets." Combined Code - Main Principle C.2
- The overall responsibility for the system of internal control within BAE Systems rests with the Directors of the Company. Responsibility for establishing and operating detailed control procedures lies with the managing director of each operating business.
- The Directors completes a formal review of the effectiveness of the Company's internal controls on a regular basis. In order to assist the Board in this review, an Operational Assurance Statement (OAS) is produced by each part of the business. It is signed off by the relevant managing director to confirm compliance against the Company's mandated policies and procedures, including operational and financial controls and risk management processes.
RELATIONS WITH SHAREHOLDERS
"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. Combined Code" – Main Principle D.1
"The Board should use the AGM to communicate with investors and to encourage their participation. Combined Code." – Main Principle D.2
- The Company has a comprehensive investor relations programme and maintains a Investor Relations web-site. This can be accessed at www.baesystems.com.
- The Annual General Meeting provides all shareholders with the opportunity to develop their understanding of the Company and ask questions on the matters put to the meeting including this report and accounts.
AUDIT COMMITTEE AND AUDITORS
The board should establish formal and transparent arrangements for considering how they should apply the financial reporting and internal control principles and for maintaining an appropriate relationship with the company's auditors. Combined Code Main principle C.3
- The Board has appointed an audit committee that is responsible for reviewing the effectiveness of the Company's financial reporting, internal control policies and procedures for the identification of risk. It is also responsible for keeping the relationship with the Company's Auditors under review. The Committee has four members all of whom are independent non-executive directors.
- The Audit Committee meets on at least four occasions each year and, amongst other things, undertakes the following:
- reviews the financial statements and receives reports on them from the Auditors;
- reviews the output from the processes used by the Company to identify, evaluate and mitigate risk;
- reviews the effectiveness of the Company's internal controls;
- reviews the Company's Ethics Hotline;
- agrees the scope of the Auditors' work and their fees; and
- monitors the performance of the Internal Audit function.
- The Audit Committee has agreed safeguards aimed at protecting the independence of the Auditors.
- A review of the performance of the current auditors, KPMG Audit Plc, was undertaken by the Audit Committee recently. On the basis of this, the Board has agreed that a resolution for their reappointment be put to the AGM.
