Corporate Governance

The Company is committed to high standards of corporate governance throughout the Group. The Board is accountable to the Company’s shareholders for good governance and this statement describes how the principles identified in the Combined Code on Corporate Governance (as updated in June 2006) are applied by the Company.

The Board confirms that the Company has complied with all of the provisions set out in Section 1 of the Combined Code throughout the year, except that Non-Executive Directors did not attend meetings with major shareholders. This point is explained below.

Directors

At the start of the year, the Board consisted of the Chairman, six Non-Executive Directors and three Executive Directors. On 17 June 2008 Cary Nolan and John Roques retired as Non-Executive Directors.

The Chairman continued with his other commitments (as previously disclosed) consisting of the Non-Executive hairmanships of Symbian Limited (until he stepped down on 2 December 2008), GHG Limited (General Healthcare Group) and Vertex Data Science Limited and his membership of the Advisory Board of the UK Defence Academy and the Court and Council of Imperial College. On 1 February 2009 Sir Peter took up a Non-Executive Directorship as Chairman-elect of Tate & Lyle plc.

Dennis Millard is the Company’s Senior Independent Non-Executive Director, having been appointed on John Roques’s retirement.

All the Non-Executive Directors who have served during the year are considered by the Board to be independent.

In response to the requirements of the Companies Act 2006 introduced in October 2008, each Director has notified the Company of any situation in which he or she has, or can have a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the Company (a situational conflict). These interests were considered and approved by the Board in accordance with the Company’s Articles of Association and each Director was informed of the authorisation and the terms on which it was given. All Directors are aware of the need to consult with the Company Secretary regarding any further possible situational conflict that may arise so that prior consideration can be given by the Board to whether or not such conflict will be approved. In addition, the Board has decided that it will review all situational conflicts annually and it has done so as part of the process of preparation of this report.

Biographies of the Board members appear in the Board of Directors and Officers section. These indicate the high level and broad range of experience that the Directors possess. Their knowledge of the Group’s business and of legal, accounting and market developments is frequently updated by presentations made at Board and Board Committee meetings. All of the Non-Executive Directors have experienced previous periods of economic recession in general or financial management roles and are therefore well equipped to provide support and guidance in the current climate.

The appointment letters for Non-Executive Directors include the time commitment expected of them and confirmation that they have sufficient time available to meet this commitment. Non-Executive Directors are required to obtain the approval of the Chairman before taking on further appointments and the Chairman requires approval from the Board before adding to his commitments.

A formal and comprehensive induction process is in place for new Directors, including presentations from management and site visits. Non-Executive Directors continue to make site visits on an annual basis to improve their knowledge of the business and the Group’s core markets, as well as meeting talented performers and the Company’s senior personnel, and to enable them to provide valuable insights to the executive management. During the year, the Non-Executive Directors made a total of eleven such visits and a programme for the coming year has been planned.

Any Director appointed during the year is required, under the provisions of the Company’s Articles of Association, to retire and seek election by shareholders at the next Annual General Meeting. The Articles also require that every Director must retire and seek re-election at least every three years.

The Board – role and meetings

The role of the Board is to:

• provide entrepreneurial leadership of the Company within a framework of prudent and effective controls which enable risk to be assessed and managed;
• set the Company’s strategic aims, ensure that the necessary financial and human resources are in place for the Company to meet its objectives, and review management performance;
• set the Company’s values and standards, either by considering and approving policies, procedures and guidance or by delegation to the Chief Executive in areas of operational performance. The Board monitors performance against all values and standards to ensure that its obligations to its shareholders and others are understood and met;
• ensure adequate succession planning is in place for the Group’s most senior management; and
• establish and monitor the Group’s policies and performance in the area of corporate social responsibility.

The Board reviews strategic issues on a regular basis and exercises control over the performance of each operating company within the Group by agreeing budgetary targets and monitoring performance against those targets. Certain matters are reserved for approval by the Board and the Board has overall responsibility for the Group’s system of internal controls and risk management, as described later in this report.

The roles of the Chairman and Group Chief Executive are clearly defined and separate. The Group Chief Executive is responsible for the executive management of the Group’s business; the Chairman runs the Board.

The Board has five scheduled meetings each year and others as required. During 2008 two additional Board meetings were held to consider the renewal of the Company’s bank facilities. The matters reserved to the Board for decision include major capital expenditure, significant investments or disposals, treasury policy and the appointment and removal of the Company Secretary. In certain areas, specific responsibility is delegated to committees of the Board within defined terms of reference.

The Audit and Remuneration Committees have, respectively, five and four scheduled meetings each year, although additional meetings may be held where required. In addition to the scheduled meetings of both Committees, there was an additional meeting of the Remuneration Committee to consider the framework of Executives’ remuneration in 2010. The Nominations Committee meets as required throughout the year and met twice in 2009.

During the year all Directors attended the Board meetings that were held during their respective periods of service, apart from Dennis Millard, Andrew Dougal, Paul Withers and Laurence Bain, who were each unable to attend one of the additional, unscheduled meetings of the Board. All members of the respective committees attended the Committee meetings that were held.

Complete copies of the terms of reference of the Audit, Remuneration and Nominations Committees are available on the Company’s web site at www.premierfarnell.com. The membership of the Committees appears in section Board of Directors and Officers

The Non-Executive Directors held a formal meeting and had a number of discussions during the year without the Executive Directors present to consider, among other things, the performance of the Company and the Executive Directors.

There is an agreed procedure for Directors to take independent professional advice at the Company’s expense, if necessary, in the performance of their duties. This is in addition to the access that every Director has to the Company Secretary. The Company Secretary is charged by the Board with ensuring that Board procedures are followed and for advising the Board on all governance matters.

The Board has adopted a number of corporate governance policies, including a Group Code of Ethics covering issues such as conflicts of interest, fraud and whistle-blowing. A copy of the Code is also available on the Company’s web site at www.premierfarnell.com. The Company has implemented arrangements with an independent organisation to receive information from employees for whistle-blowing purposes. The Company has also adopted policies on share dealing and inside information.

To enable the Board to function effectively and assist Directors to discharge their responsibilities, full and timely access is given to all relevant information. In the case of Board meetings, this consists of a comprehensive set of papers, including regular business progress reports and discussion documents regarding specific matters. In addition, senior managers are regularly invited to Board meetings and make business presentations.

The Chairman, supported by the Company Secretary, maintainsa rolling twelve-month agenda for Board meetings to ensure all relevant matters are planned in to the cycle of meetings and considered at the appropriate time.

The Board – performance evaluation

During the year a performance evaluation was carried out covering the Board, each of the principal Board Committees and individual Directors. The evaluation process consisted of a one to one discussion between the Chairman and each of the other Directors and the Company Secretary. This discussion was based on a series of questions devised for the purpose and circulated before each meeting. These questions combined those used for the previous year’s evaluation with additions designed to increase the breadth and depth of the evaluation. In addition, each Director completed a questionnaire appraising the performance of each other Director. The results of these evaluations were collated by the Company Secretary and considered by the Chairman or, in the case of the Chairman, by the Senior Independent Director. The Chairman discussed with each Director points arising from his or her evaluation.

The evaluation of the Chairman was discussed in a meeting of the Non-Executive Directors led by the Senior Independent Director. The Executive Directors attended the meeting to give their views. The Senior Independent Director subsequently discussed the outcomes of this evaluation with the Chairman.

The performance of the Board as a whole, and of each of its principal Committees was considered by the Board. The Chairman led this discussion, based on the results of his one to one discussions. The Board also reviewed the main outcomes of the prior year’s evaluation process and the actions taken.

The main points from this review were that:

2008 Performance Review – outcomes and actions

2009 Performance Review – main outcomes

• Improve the process for setting performance goals and targets in incentive schemes.
• Provide the Board with more information to benchmark the Company’s performance against its main competitors.
• Increase the Board’s input to, and focus on, progress of the Company’s strategy.
• Identify a method to allow Non-Executive Directors to get to know key executives in greater depth.

The actions taken to address these outcomes will be set out in the Company’s Annual Report to February 2010.

Remuneration Committee

The composition and role of the Remuneration Committee is set out in the Remuneration Report.

Full details of Directors’ remuneration and a statement of the Company’s remuneration policy also appear in the Remuneration Report.

Each Executive Director abstains from any discussion or voting at full Board meetings on Remuneration Committee recommendations where the recommendations have a direct bearing on his or her own remuneration package.

The details of each Executive Director’s individual package are fixed by the Remuneration Committee in line with the policy adopted by the full Board.

Nominations Committee

The Nominations Committee, comprising the Chairman, Sir Peter Gershon, the Senior Independent Director, Dennis Millard, and William Korb, meets as necessary.

The Committee’s principal function is to provide advice and recommendations to the Board on any appointments to the Board. The Committee also keeps the composition and balance of the Board under review.

During the year, the Committee was involved in the criteria and appointment of a new Senior Independent Director as a result of the retirement of John Roques.

Audit Committee and internal control

The primary role of the Audit Committee is to keep under review the Group’s financial and other systems and controls and its financial reporting procedures. In fulfilling this role, the Committee receives and reviews work carried out by the Internal and External Auditors and their findings. The Company’s Internal Audit department works to an annual programme developed in consultation with the Committee, as well as covering specific matters arising during the year.

The Audit Committee’s terms of reference are available on the Company’s web site. In addition, and following a recommendation from the Smith Report, the Committee has also adopted and implemented a Group-wide policy restricting the appointment of former employees of the external auditors.

Dennis Millard, the Committee’s Chairman, was formerly the Group Finance Director of Cookson Group plc and is currently Chairman of the Audit Committees of both Debenhams plc and Xchanging plc, bringing recent and relevant financial expertise to the Committee.

The Committee keeps the scope and cost effectiveness of both the internal and external audit functions under review. This includes an annual review of the effectiveness of the external auditors, including their quality control procedures. Following the appointment of a new Head of Internal Audit, the Committee reviewed and approved his proposals for the future structure of the department at its December 2008 meeting.

The independence and objectivity of the external auditors is also considered on a regular basis, with particular regard to the level of non-audit fees. The split between audit and non-audit fees for the year to 1 February 2009 and information on the nature of the non-audit fees incurred appears in note 4 to the Consolidated Financial Statements. The non-audit fees were paid in respect of assurance and tax compliance work and are considered by the Committee not to affect the independence or objectivity of the auditors.

The external auditors’ appointment is subject to periodic review by the Committee and the lead audit partner is rotated at least every five years. The Committee also maintains a formal policy on the provision of non-audit services by the auditors, which is reviewed each year. This policy prohibits the provision of services such as financial information systems design and implementation; internal audit outsourcing and legal services and requires that others are subject to prior approval by the Committee or its Chairman. This policy allows specific tax compliance services within defined monetary limits to be pre-approved by the Committee at the beginning of the year. All other permitted non-audit services are considered on a case-by-case basis.

At each of its meetings, the Committee is provided with information on all non-audit services provided by the auditors and the estimated cost of such services. The Committee monitors such costs, in the context of the audit fee for the year, in order to ensure that the value of non-audit services does not increase to a level where it has the potential to affect the auditors’ objectivity and independence.

The Committee also receives an annual confirmation of independence from the auditors.

Throughout the year, the Group has been in full compliance with the applicable provisions on internal control contained in the Combined Code.

The Board has overall responsibility for the Group’s system of internal controls and risk management, designed to safeguard shareholder investment and the Company’s assets. The Audit Committee monitors the system’s effectiveness on behalf of the Board and reviews it at least annually, while responsibility for implementing the system rests with the Executive Directors. The system includes an ongoing process for identifying, evaluating and managing significant business risks. However, any system can provide only reasonable and not absolute assurance of meeting internal control objectives and is designed to manage rather than eliminate the risk of the Company failing to meet its business objectives.

Summarised below are the ways in which risks are identified; the controls that are in place and the assurance steps that are taken. The processes described have been in place for the year and accord with the 2005 Internal Control Guidelines for directors on the Combined Code issued by the Financial Reporting Council (the “Turnbull Guidance”).

Risk identification

As well as the risks that management identifies through the ongoing processes of reporting and comparing actual performance against detailed financial and operating plans, analysing significant variances and scrutinising key performance indicators, the risk identification processes include:

• An ongoing ‘risks and controls’ process for identifying, evaluating and managing major business risks. During the year business and function leaders have operated the process, which has been coordinated by the Head of Internal Audit. The results of the process are reviewed by the Audit Committee;
• An assurance framework summary, developed to identify the strategic issues on which assurance is required, the external and internal sources from which that assurance is obtained and any ways in which that assurance may need to be enhanced. The summary is reviewed by the Audit Committee not less than annually;
• Internal audit and external audit reports which, as well as commenting on controls to manage identified risks, also identify new risk areas;
• A Code of Ethics that encourages employees to report any areas of concern regarding compliance with financial and other controls, combined with a confidential whistle-blowing helpline, the Trustline. In addition, the Company’s employees are encouraged to raise other comments, questions, issues and concerns that they have directly with the Chief Executive, using the ‘askharriet’ email address set up specifically for this purpose. Through this confidential route, Harriet Green receives hundreds of comments and queries each year on a range of issues and each email receives a response;
• A Disclosure Committee that meets at least four times a year to review all financial statements issued by the Company. The minutes of all meetings of this Committee are received by the Audit Committee; and
• A quarterly process which collates all contingent liabilities identified by business units and function heads and leads to their presentation to the Disclosure Committee and the Audit Committee.

Controls

• A Code of Ethics that is widely communicated (including via the Group intranet) and supported by a module on the Group’s online learning centre that clearly defines expected standards of business behaviour;
• Defined organisational structure with appropriate delegation of authorities;
• Formal authorisation procedures for all investments;
• Clear responsibilities on the part of line and financial management for the maintenance of good financial controls and the production and review of detailed, accurate and timely financial management information;
• The control of key financial risks through clear authorisation levels and proper segregation of duties;
• A comprehensive financial review cycle, which includes an annual budget approved by the Board and review of monthly variances against detailed financial and operating plans;
• A quarter-end controls checklist. This includes sign off from both the CEO and CFO of each business covering internal controls, legal and regulatory compliance, Code of Ethics, and tax issues, as well as financial controls; and
• A process of internal control self-assessment, co-ordinated by Internal Audit.

Assurance

• The ‘risks and controls’ process clearly identifies senior management responsibilities for risk mitigation action plans;
• Internal Audit independently reviews the ‘risks and controls’ process operated by management;
• In compiling the assurance framework summary, senior management review the sources of assurance in relation to principal business risks and identify to the Audit Committee the persons with whom responsibility for the provision of assurance on those risks lies;
• Internal Audit carries out independent audits. The annual Internal Audit plan, agreed with the Audit Committee at the start of each year, provides a high degree of financial and location coverage, as well as allocating a significant proportion of effort to reviewing the risk management frameworks surrounding major business risks;
• Internal Audit reports include recommendations to improve internal controls, together with agreed senior management responsibility and target resolution dates. The Internal Audit reports, included in the papers for every Audit Committee meeting, summarise these recommendations;
• Internal Audit follows up implementation of recommendations. The follow up process for high priority internal audit issues includes monthly status reporting to senior management and updates at each Audit Committee meeting;
• The Audit Committee receives a full report from the Head of Internal Audit each year on the department’s work and findings, in addition to the updates on specific issues provided at each meeting of the Committee;
• The effectiveness of the internal audit function is externally assessed every three years;
• A comprehensive external audit plan is agreed with the Audit Committee;
• The effectiveness of the external auditor is reviewed annually and reported to the Audit Committee; and
• Certification is required from individual executive managers of relevant sections of all financial statements.

An executive management committee, the Disclosure Committee, monitors and reviews processes for disclosures made by the Company to its shareholders and reviews such disclosures before they are considered by the Board.

The Audit Committee reports to the Board on its activities and all Board members receive copies of the minutes of Audit Committee meetings and of the information provided to the Audit Committee on risk identification, control and assurance. The Committee reports to the Board on its proceedings regularly throughout the year.

The Audit Committee has completed its review of the effectiveness of the Group’s system of internal controls during the year and confirms that the necessary action plans to remedy identified weaknesses in internal control are in place.

The statement of the Directors’ responsibilities in relation to the accounts appears in the Directors’ report.

Going concern

In making its determination that the going concern basis is the appropriate basis of preparation for the financial statements, the Board has considered a number of factors. These have included, but are not limited to:

• The Group’s operating plan for the next 12 months;
• Market forecast data, where available, for the end markets in which it operates;
• An evaluation of the Group’s borrowing requirements over the next 12 months, including monthly peak forecasts; and
• A review of contingent liabilities which potentially might crystallise over the coming 12 months.

The Board has also reviewed the sensitivity of its operating plans to changes in activity levels as well as macro-economic factors that impact profitability and cash flow, interest rates being one example.

Finally, the Board has reviewed and considered the nature of the actions that it could take to respond to adverse movements in the operating environment and which might lead to a situation where the Board was forced to reconsider its ability to continue as a going concern.

Based on this evaluation, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the accounts.

Communication with stakeholders

The Company places a great deal of importance on The Company places a great deal of importance on communication with its stakeholders.

There is regular dialogue with individual institutional shareholders as well as general presentations after the interim and preliminary results. Since Harriet Green’s appointment as Chief Executive in April 2006, regular and frequent meetings have been held with a significant number of such shareholders. The Board regards the discussion of the Company’s strategy as primarily the role of the Chief Executive and this forms part of the regular meetings held with institutional shareholders. The Board also receives copies of analysts’ reports on the Company.

All Company announcements are published on the Company’s web site, together with presentation materials.

During the year, external advisors provided the Board with regular reports on the investment community’s views on the Company and its management.

The Chairman is available to shareholders at any time to discuss strategy and governance matters. While Non-Executive Directors do not ordinarily attend meetings with major shareholders, they would do so if this were requested by shareholders. Dennis Millard, as Senior Independent Director of the Company, is also available to shareholders if they have concerns which contact through the normal channels cannot resolve, or where the normal channels are not appropriate.

All ordinary shareholders have the opportunity to ask questions at the Company’s Annual General Meeting. All Directors are usually available to take questions at the meeting.

At the AGM, separate resolutions are proposed on each separate issue and proxy forms allow shareholders to vote for or against, or to withhold their vote on each resolution.

The results of proxy voting are made available on the Company’s website after the meeting and at the meeting itself to shareholders who attend.

The notice of the AGM is sent to shareholders at least 20 working days before the meeting.

As discussed in the Directors’ Report, employee communication is given high priority. As well as formal structures, such as the Company’s European Works Council, considerable time is devoted to other forms of employee communication. These include extensive employee briefings conducted by the Chief Executive and other members of senior management at regular intervals and a Group-wide intranet that is updated daily with information relevant to employees.

The Group also communicates widely with suppliers and customers, both individually and through group events such as seminars on key industry developments and focus groups.

The Group is also active in its local communities, as described in the Corporate Social Responsibility Report.