Corporate Governance

Statement of appliance of corporate governance policies and the combined code

The directors believe as a Board that their principal function is to deliver sustainable wealth to the Group’s shareholders, and that this should be delivered within a framework of robust corporate governance compliance. The Board has continued to ensure that the Group applies and maintains the principles of good corporate governance, in so far as is practicable and appropriate for a public company of its size.

The application of corporate governance procedures within the Group and the extent of compliance with the Listing Rules of the UK Listing Authority (12.43A) relating to the provisions of the Principles of Good Governance and Code of Best Practice (the ‘Combined Code 2006’) is summarised below;

Extracted from the 2008 Annual Report & Accounts

A Directors

A. 1 The Board

The Board currently comprises a non-executive chairman, two executive directors and three non-executive directors.

• 1.1 The Board directors provide the Group with experience and knowledge from a range of industry, financial and commercial backgrounds. This combination of skills and experience assists the Board in any decision making process and in the development of business strategy, allowing all directors to make a significant and individual contribution. Biographical details of each director, including current directorships held in other non-Group companies, are detailed under Directors and advisers on page 34.
  
  The Group maintains a schedule of matters reserved for decision by the Board, including the release of a number of corporate and statutory disclosures, approval of major operating strategies and acquisitions, composition of relevant Committees and management structures, and matters relating to ethical, health and safety concerns.
  
  The directors provide effective leadership and control of the Group by means of regular Board meetings throughout the year. Relevant papers are circulated to all members of the Board on a timely basis and in advance of each meeting, and the quantity and focus of such information is reviewed on an ongoing basis. Directors provide feedback to management to enable the reporting formats and content of Board papers to be enhanced, and make individual enquiries of management for clarification on issues whenever necessary.
  
  The Group appoints key executive positions throughout the business to provide strong local management teams. These management teams aim to improve financial performance and develop and implement operational improvements within their businesses. The management teams report directly to executive Board directors through the Group Executive Committee, which meets on a regular basis to discuss key operational issues and monitor business unit performance. This structure supports a devolved process of decision-making for day-to-day operations, and allows the Group Board to focus resources more efficiently within the Group.

• 1.2 The roles of Chairman and Chief Executive Officer are separated, with John Gordon holding the office of Chairman and Kevin Appleton the position of Chief Executive Officer. John Gordon will retire from the Board at the Company’s Annual General Meeting, to be held on 23 April 2009, and will be succeeded by David Hollywood who was previously the Group’s Audit Committee Chairman and a non-executive director. A search for a replacement for David Hollywood as Chairman of the Audit Committee and as a non-executive director will be commenced during 2009.
  
  John Standen is the Group’s Senior Independent Director.During 2008, the Board held 10 formal meetings. The attendance of each director at these meetings is shown in the table below:
  

  Director	K A Appleton	J E Gordon	D J Hollywood	A S Merrell	T S Ross	J F Standen
  Attended in person	10	10	10	10	10	10
  Apologies given	-	-	-	-	-	-

  
  
  
• 1.3 The Chairman holds separate meetings, at least annually, with the non-executive directors in order to review the contributions and performance of all individuals comprising the Board. Further details of this process are given in A.6.1 below.
• 1.4 Minutes of Board meetings are agreed by all directors, ensuring that an accurate record is made of all relevant matters.
  
• 1.5 The Company reviews conduct and liability issues as part of its annual risk review and mitigates these exposures wherever possible.

• 2.1 The Board has a Non Executive Chairman and a Chief Executive Officer enabling separation of shareholder interests from the day-to-day operational requirements of the business. Each has clear lines of responsibility and reporting which have been agreed by the Board.

• 3.1 The three non-executive directors constitute in excess of one third of the total Board members. The non-executive directors provide a strong and independent monitor on the performance of both the Group and its executive management.
• 3.2 The Board believes that the non-executive directors are independent within the guidance of the Combined Code 2006 as they have no conflicting business interests with the Group, they are remunerated on a fixed fee basis only and have adequate and unfettered access to internal management and external professional advisors to the Group. Their backgrounds in industry and finance make them suitably qualified to perform their duties as members of the Board and as members of the Audit, and Remuneration and Nomination Committees.
• 3.3 Major shareholders in the Company are offered the opportunity to meet annually with the Senior Non-Executive Director, to allow any concerns to be raised independently from the Board. In addition, the non-executive directors ensure that they are available for questions from individual shareholders on the day of the Annual General Meeting.

• 4.1 The Remuneration and Nomination Committees comprise the three non-executive directors and have the responsibility for nominating and appointing new directors, together with the determination of the remuneration packages of the executive directors. The Committees have written terms of reference, which are published on the Group’s website (www.lavendongroup.com). Tim Ross is Chairman of both the Remuneration and Nomination Committees, and all Committee members are considered to be independent.
  
  During 2008, the Remuneration and Nomination Committees held 5 formal meetings. The attendance of each director at these meetings is shown in the table below:
  
  

  Director	D J Hollywood	T S Ross	J F Standen
  Attended in person	5	5	5
  Apologies given	-	-	-

  
  
  
• 4.2 Non-executive directors hold appointments for a term period of three years, and their fees are determined by the Board following external benchmarking. The reappointment of non-executive directors is addressed after giving due consideration to their qualifications, continuing independence, performance and willingness to accept reappointment.
• 4.3 The Chairman currently holds no other roles which are considered to impair or conflict with his ability to fulfil his duties to the Company.
• 4.4 The terms and conditions of appointment of the non-executive directors are available for inspection at the Company’s registered office and during the Annual General Meeting each year.
• 4.5 The work of the Remuneration Committee is detailed in a separate Remuneration Report on pages 22 to 26 of the financial statements.

• 5.1 The Group allows directors to take professional and independent advice as may be necessary in carrying out their duties. Directors also attend training courses, when appropriate, to ensure they remain up to date with the latest developments and legal requirements which impact their individual responsibilities.
• 5.2 The joint role of Finance Director and Company Secretary, held by Alan Merrell, ensures that the directors have ready access to the Company Secretary in all relevant matters and that compliance with Board procedures is maintained.

• 6.1 The Board undertakes an annual review of its performance. The directors complete detailed appraisals on matters relevant to the Board, its Committees and director performance, from which action plans are developed, where necessary, to address areas identified for improvement.

• 7.1 In accordance with the Articles of the Company a maximum of one third of the directors offer themselves for re-election each year at the Company’s Annual General Meeting, provided that each director shall stand for re-election within three years of the date of their previous re-election. This year Alan Merrell, Tim Ross and John Standen will seek re-election and their biographical details and the Annual General Meeting particulars are detailed on page 34 and pages 87 to 92 of the financial statements respectively.

B Remuneration

The Remuneration Committee considers they are currently complying in full with the relevant provisions of the Combined Code 2006 and outline their procedures and guidelines in a separate Remuneration Report on pages 22 to 26 of the financial statements. Details of the directors’ remuneration and interests in shares during 2008 are included within the Remuneration Report. The Committees annually invite shareholders to vote on the Remuneration Report at the Company’s Annual General Meeting.

C Accountability and audit

C. 1 Financial reporting

• 1.1 The directors and auditors set out their respective responsibilities for preparing and reviewing the financial statements in the Statement of directors’ responsibilities on page 33 and in the Independent auditors’ report on pages 42 to 43 of the financial statements

C. 2 Internal control

• 2.1 The Board maintains a system of internal controls within the Group to provide them with reasonable, but not absolute, assurance of the reliability of the financial information used both within the business and for external publication, as well as safeguarding the assets of the Group against unauthorised use or disposition.
  
  Although no system of internal controls can provide absolute assurance against material misstatement, loss or mismanagement of the Group’s assets, the systems in place are designed to identify to the Board matters which require attention on a timely basis so that they may be considered and dealt with appropriately.
  
  The Board has reviewed the effectiveness of the systems of internal control that were in operation during the past financial year, and these are summarised under the following headings:
  
  Control environment
  There is a clearly defined organisational structure that allows the Group’s objectives to be planned, communicated, executed, controlled and monitored. The Group employs suitably qualified staff so that the appropriate level of authority can be delegated to ensure the efficient management of the business. In the UK all relevant employees hold industry accredited certification and licences.
  
  Identification and evaluation of business risks and control objectives
  The identification and evaluation of both financial and non financial business risks facing the Group is reviewed annually by the Board as part of the approval of the annual operating budget for the forthcoming year. During this process the effectiveness of its internal controls in safeguarding against these risks is considered, and where necessary additional controls are introduced or existing controls are enhanced.
  
  Information systems
  The management information systems provide the Group with relevant and timely reports from which both the Board and senior management can monitor the performance of the business. Budgets and prior year data provide the Board and senior management with comparative information with which to assess and monitor the performance of the various activities of the Group. Operational performance statistics are reviewed against a range of measures including competitive benchmarks and historical trends. The Group has continued to invest in developing and enhancing these information systems during the year, to ensure that the information is provided in the most efficient manner.
  
  Main control procedures
  Defined controls and procedures are embedded throughout the organisation, and cover the preparation and review of financial and operational information, the setting of appropriate authority levels, the segregation of duties and the defining of procedures for seeking and obtaining approval for major transactions and organisational changes.
  
  Monitoring
  The executive directors have significant involvement in the day-to-day management of the Group’s activities and are, therefore, able to monitor the control procedures at an operational and financial level. A Group Executive Committee, comprising the two executive directors and direct reports from the operating subsidiaries and business functional units within the Group, meets regularly to ensure the efficient communication and control of information and processes.
  
  During 2008, the Group introduced an internal audit function, which is undertaking a programme of financial audits across the Group. The internal audit reports are addressed to, and reviewed by, the Audit Committee, and appropriate actions, if required, agreed. In addition, the Group’s operations are subject to regular Quality and Health & Safety audits.
  
  Any reportable control weaknesses identified by the Group’s external auditors are discussed with the Audit Committee, and reports circulated to the relevant executive directors.

C. 3 Audit Committee and Auditors

• 3.1 The Audit Committee comprises the three non-executive directors and is responsible for the appointment of auditors, setting policy for the procurement of non-audit services and internal monitoring and reporting procedures. The Committee has written terms of reference, which are published on the Group’s website (www.lavendongroup.com). David Hollywood is the Chairman of the Audit Committee.
  
  During 2008 the Audit Committee held 3 formal meetings. The attendance of each director at these meetings (and the occasions at which the Group’s external auditors were invited to attend) is shown in the table below:
  
  

  Director	D J Hollywood	T S Ross	J F Standen	Group's external auditors
  Attended in person	3	3	3	2
  Apologies given	-	-	-	-

  
  
  The Audit Committee considers it is currently complying in full with the relevant provisions of the Combined Code 2006 and outlines its responsibilities and activities in a separate Report of the Audit Committee on page 41.

D Relations with shareholders

D. 1 Dialogue with institutional shareholders

• 1.1 The directors hold a series of meetings with institutional investors following the publication of the Group’s annual and interim financial results each year. Meetings are also held during the year for both existing and prospective shareholders, to provide the opportunity to understand the Group’s operations and strategy in greater detail.
• 1.2 The Board retains a Stockbroker to ensure a regular flow of relevant information is made available to both current and prospective shareholders and to facilitate feedback to assist the Board in understanding the issues and concerns of the shareholders.

D.2 The Annual General Meeting and shareholder communications

The majority of the Company’s share capital continues to be held by institutional investors. Whilst the Company does not include a formal Group presentation at the Annual General Meeting for smaller private shareholders, the Company maintains a website: www.lavendongroup.com, which publishes financial results, formal announcements, and a number of corporate governance documents for review by current and potential shareholders.

Analysis of shareholders at 31 December

• 2.1 The directors announce the proxy vote on the respective resolutions at the Annual General Meeting, after the show of hands for each resolution. The overall voting for each resolution is publicly announced following the completion of the Annual General Meeting.
• 2.2 It continues to be the Company’s policy to ensure that Annual General Meeting resolution proposals remain segregated when voting issues are substantially separate matters. In particular a separate resolution relating to the annual report and accounts will continue to be included. Details of the Annual General Meeting date, venue and the agenda are disclosed on pages 87 and 92.
• 2.3 The Company believes that private shareholders gain a benefit from having the full Board, including the Chairmen of the Audit, and Remuneration and Nomination Committees, available at the Annual General Meeting to answer individual questions or concerns about the Group’s performance and strategy.

Statement of compliance with the combined code under listing rule 12.43A

In accordance with the guidance of the UK Listing Authority, the Board has formally reviewed its internal control procedures as required by the Combined Code 2006.

The directors believe that the Group is complying with all current areas of best practice as detailed in the Combined Code 2006.