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CEBDA9s
CONSIGNIA EXECUTIVE BOARD
CORPORATE GOVERNANCE FOR SUBSIDIARY COMPANIES.
PURPOSE
1, To seek Executive Board endorsement to Corporate Governance principles to apply to subsidiary
companies throughout the Consignia group.
BACKGROUND
I Existing Corporate Governance procedures need to be updated, and guidelines on Consignia
(policies introduced.
2. The existing Corporate Governance policy for subsidiary companies as written applies to UK
companies which are wholly owned by Consignia ple. This policy needs to be updated to apply to
overseas subsidiaries and to reflect the more complex ownership structure which now exists.
ee
The definition of Corporate Governance used in this paper is ‘the system by which companies are
directed and controlled’ (Cadbury), und refers to the system of control at Board level. In addition,
there is also a need for guidelines on the application of Consignia policies to subsidiaries at a lower
level.
POLICY SUMMARY
The extent to which Consignia Ple can dictate the Corporate Governance or general policy systems
of a subsidiary depends on the legal relationship between the companies.
4. Consignia companies fall into three categories, based on accounting definitions, summarised below:
(i) Subsidiary - where Consignia controls the majority of the voting rights over the company
(ii) Associate - where Consignia has a share in a company but does not control the voting rights
Gil) Joint Venture - where Consignia has a share over the voting rights and a veto,
5, The principle of the revised policy is that the Corporate Governance procedures should apply to all
Subsidiary companies, and that Consignia should use its influence over the Board of the Associate
or Joint Venture to ensure that these procedures are followed as far as possible. The revised policy
is attached at Annex A.
6. The principle of the new guidelines on Consignia policies is that it is desirable for Subsidiaries to
implement Consignia policies (listed in Annex B), in the interest of standardising systems and
procedures. This is particularly important in respect of accounting matters for entities which will be
consolidated into the Consignia ple/Consignia Holdings/Consignia Investments Lid accounts, It is
recognised that in practice this standardisation cannot be required of Associates or Joint Ventures,
but it may be mutually advantageous for these companies to ‘opt-in’ to the policies, at the discretion
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of the Board of the company, In any event, any legal requirements which have been incorporated
into Consignia policies will have to be met by all companies within the group.
7. Any Subsidiary which does not wish to apply the Corporate Governance procedures or Policy
Guidelines must seek the approval of the Consignia company secretary. This approval will only be
given in exceptional circumstances according to the merits of the application.
8. In principle there is no distinction between UK Subsidiaries and overseas Subsidiaries in respect of
application of the Corporate Governance procedures or the Policy Guidelines, save that the
requirements for overseas Subsidiaries may differ according to the legal requirements in the
jurisdiction in which the company operates.
9. The Consignia Company Secretary’s office will monitor compliance with the Corporate Governance
procedures and the Policy Guidelines on an annual, proforma, basis.
NOMINATIONS TO BOARDS OF DIRECTORS
19. Corporate Governance best practice is for companies to make appointments to Boards of Directors
of subsidiary companies through a Nominations Committee. Consignia does not have a formal
Nominations Committee; instead the following procedure is recommended:
11. Where Consignia has the right to appoint Directors to a Subsidiary, Associate or Joint Venture, the
nomination should be approved by the Chief Executive of Consignia ple. The process will be
managed by the Consignia Company Secretary’s Office, with input from Group Personnel and the
Mergers & Aguistions team as appropriate,
CONCLUSION AND RECOMMENDATIONS
12. The Consignia (Executive) Board is invited to:
® Note the paper;
¢ the Corporate Governance procedures and the Policy Guidelines as set out in Annexes A
&B;
implemented by Subsidiaries (not Associates or Joint Ventures)
* Note the procedure for nominating Directors to Subsidiaries, Associates or Joint Ventures.
Jonathan Evans
September 2004
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ANNEX A
CORPORATE GOVERNANCE OF SUBSIDIARY, ASSOCIATE AND
JOINT VENTURE COMPANIES
1. Purpose
The purpose of this policy document is to set standards in Consignia ple, Consignia Holdings ple
and Consignia Investments Ltd (collectively ‘Consignia Group’) for the Corporate Governance of
all Subsidiary, Associate and Joint Venture companies. These standards are taken from legal
requirements (chiefly The Companies Act 1985) and various Codes of Practice for Business
Administration.
2. Link to Accountabilities
This statement sets out the Consignia Group strategy and policy on legal compliance, and ensures
that its Subsidiaries, Associates and Joint Ventures comply with Corporate Governance
requirements (both UK and international).
3. Policy
3.1 Intreduction
Consignia Holdings ple, Consignia ple and Consignia Investments Ltd directly and indirectly own
or control many Subsidiaries, and Associated Companies, and have shares in Joint Ventures
operating throughout the world. The following definitions apply throughout this document:
A company is a Subsidiary of another company, known as its holding company, if that other
company:~
~ holds a majority of the voting rights in it (.e. greater than 50%); or
~ is a member of it and has the right to appoint or remove a majority of its board of directors; or
~ is a member of it and controls alone, pursuant to an agreement with other shareholders or
members, a majority of the voting rights in it; or
- if it is a Subsidiary of a company which is itself a Subsidiary of that other company; or
~ if, regardless of whether any shares are held in the Subsidiary, the parent has the ‘right to
exercise a dominant influence’ over it.
A company is deemed to be an Associated undertaking of another company if that other
company exercises significant influence over its financial and operating policy decisions. It is
generally assumed that if a company holds between 20 and 49% of the shares/voting rights in a
company, it will have significant influence over that company, and therefore be an Associate.
A Joint Venture is when two or more organisations act together to control a legal entity and
each has a veto over overall strategic policy.
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4. Shareholders
4.1 Nominee Shareholders
Where a company is (or has been) required to have more than one shareholder but is wholly owned
by a single entity, a nominee shareholder(s) of the relevant company should be proposed to the
Board, after consultation with the Secretary’s Office. Such nominee shareholders are required to
sign a declaration of nominee status and to sign a blank share transfer form on taking up the
share{s).
4.2 Shareholder Meetings
Shareholder meetings need to be held in accordance with the Articles of Association of the
company, or to the extent that these are not specific, in accordance with the minimum requirements
of the Company Law applicable in the jurisdiction in which the company is based.
For shareholder meetings a shareholder proxy/corporate representative of the Consignia parent
company will need to be appointed. It would normally be acceptable for this to be the person in
Consignia to whom the Subsidiary, Associate or Joint Venture reports. Requests for appointment of
a proxy/representative must be made to the company’s Company Secretary’s Office at least 14 days
in advance of the meeting.
5. Boards of Directors
5.1 Directors
Every company by law has to have a Board of Directors. References to ‘Director’ in this policy
statement refer to full members (whether Executive or Non-Executive) of the Board of a company,
and not to all personnel with a job title incorporating the word ‘director’.
A Director has a general duty to act in good faith in the best interests of the company as a whole.
It is a Director’s responsibility to satisfy hinv/herself that the company is compliant with legislation,
such as, but not limited to, company. health and safety, environmental, data protection and.
competition law. Consignia ple employees appointed as Directors to a Consignia Group Subsidiary,
Associate or Joint Ventures will receive guidance on their role from the Consignia Company
Secretary’s Office, together with a copy of Directors Duties and Responsibilities, as part of their
induction into the role,
5.2 Appointments to the Board
The composition of the Board of Directors (e.g. minimum number of Directors, detail of quorum
required etc.}, and the process of appointment is usually set out in the Articles of Association of a
company.
Appointment of Directors who are Consignia ple employees to the Boards of any Consignia Group
Subsidiary, Associate or Joint Venture should be approved by the Chief Executive of Consignia pic.
The nomination and approval process will be managed by the Consignia Company Secretary's
Office . Ideally, Subsidiary companies should have at least 1 non-executive Director, i.e. someone
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who is not employed by or does not work for that company itself, (although the person does not
need to be from outside the Consignia Group). In all Subsidiary companies the majority of Directors
should be employees of the Consignia Group. In companies where non-Consignia ple employees
serve on the Board, the Articles of Association of the company should ideally require that a quorum
will not be present at Board meetings unless at least one Director of the Company who is a
Consignia ple employee is present.
3.3 Attendance at Board Meetings
Directors must be available to attend Board meetings and Executive Directors will be involved with
the management of the company. Directors who are unable to attend three consecutive meetings
should be considered for removal from the Board.
5.4 Resignation of Directors
When Directors resign the resignation letter should be filed with the Board minutes. In jurisdictions
where shareholders cannot remove Directors by ordinary resolution, a Director, upon appointment,
must execute an undated resignation letter or give an undertaking in writing to resign upon request
of a majority of the shareholders.
5.5 Directors and Shareholding
If Consignia ple employees appointed as Directors of Consignia Group Subsidiaries, Associates or
Joint Ventures are required also to hold shares in the company, they must sign share transfer forms
upon appointment.
5.6 Declarations of Interest
Directors are required not to put themselves in a position where there is a conflict between their
duty to the company and a duty owed to another person and are required to disclose to the Board
any interest in a (proposed) contract, transaction or arrangement with the company. A proforma
declaration of interests must be completed on appointment and thereafter on an annual basis. This
should be obtained from the relevant company secretary.
6. Board Meetings
6.1 The Board Meeting
The directors act collectively through Board Meetings ~ subject to any matters which have been
properly devolved to individuals (e.g. a managing director), committees or other levels of
management. Board meetings should be held as ofien as required to ensure the proper functioning of
the company and to ensure that the Board can demonstrate management control over the company.
6.2 Notification of Board Meetings
Due notice must be given convening a meeting of directors, unless meetings are held at fixed times.
If insufficient notice is given, the notice (and therefore any resolutions passed at that Board
meeting) will be invalid unless all the directors are present at the Board meeting. Where there has
been any such irregularity, a subsequent regularly convened Board meeting can ratify and confirm
what was done irregularly,
6.3 Timing of Board Meetings
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Boards should meet regularly so that the Board can retain full and effective management control
over the company and properly monitor executive management. Where a Board is unable to meet to
discuss a specific issue, a Board decision evidenced by a written resolution, which must be signed
by all directors, is permissible if allowed by the law applying to the company.
6.4 Transparency
There should be transparency of and support for decision making. Any issue which is to be put to
the Board must be drawn to its attention with adequate information in a paper submitted to the
Board in advance of the meeting. That paper should highlight the risks and opportunities of the
proposal and indicate that appropriate advice has been sought, (e.g. tax, legal, group finance).
Copies of all notices, papers and minutes pertaining to a Board meeting must be sent to all directors,
even if a director is unable to attend the meeting. A regular performance report should be prepared
by the management of trading companies and sent to the directors of the company, the company
secretary and the Secretary’s Office where regular Board meetings do not take place.
6.5 Reserved Matters
The Board for each Subsidiary, Associate Joint Venture (other than dormant companies) should
have a schedule of matters reserved for Board collective decision. This schedule will be given to
directors with their guidance on appointment. Other matters may be devolved to committees or
individuals. The Consignia Company Secretary's Office must be provided with details of matters
reserved to the shareholders and directors of companies for which they do not act as company
secretary.
7. Company Secretarial Matters
7.1 The Appointment and Role of the Company Secretary
UK law requires the appointment of a suitably qualified or experienced company secretary. This is
not the case in all countries. The company secretary has specific duties, such as preparing returns to
the Registrar of Companies relating to the company, Failure to notify certain matters or to file
annual returns (where required) can result in fines. The company secretary is responsible for
ensuring that any necessary documents are filed with the Register of Companies (or equivalent) and
keeping any statutory books up to date - but he or she relies on petting the appropriate information
from others.
7.1 The Role of the Consignia Company Secretary's Office
The Consignia Company Seeretary’s Office should provide company secretarial services to all
wholly owned UK companies, unless exceptionally agreed otherwise with the Secretary's Office.
Where the Consignia Company Secretary’s Office does not act as company secretary to a
Subsidiary, Associate or Joint Venture, the company secretary of that company has the
responsibility to advise the Consignia Company Secretary’s Office of key changes to the company’s
corporate structure.
The company secretary is responsible for giving the required notice of Board and Shareholder
Meetings (with appropriate paperwork, including background papers) and circulating the Minutes of
the meeting promptly thereafter. A copy of the minutes should be sent to the Consignia Company
Secretary's Office.
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7.2 Monitoring Compliance
‘The Consignia company secretary or equivalent will be responsible for monitoring compliance with
this policy, via completion of an annual proforma checklist.
7.3 Consignia pic Policies
Consignia ple has adopted various policies or guidance notes on matters such as the environment,
health and safety, employment policies, data protection, benchmarking, business standards, and
compliance with competition law.
All Subsidiaries, Associates and Joint Ventures must comply with legislation applicable in their
jurisdiction, and with Group policies which seek to ensure compliance with such legislation.
it is desirable for Subsidiaries, Associates and Joint Ventures to adopt other Consignia ple policies,
to ensure consistency of approach across the Group. A list of the broad policy areas and the
recommended approach is attached at Appendix A.
If compliance with these policies is not possible, or is not desired by the Subsidiary, Associate or
Joint Venture, the company should advise the Consignia company secretary who will respond .
Consignia cannot force Associate or Joint Venture companies to adopt Consignia policies where
their respective Boards do not wish to do so. If a Consignia Subsidiary elects not to adopt a
Consignia policy it needs to secure the agreement of the Consignia company secretary who will
consult with the relevant policy holders and Consignia ple Executive Directors.
7.4 Enquiries from or Investigations by Governmental or Regulatory Bodies
Ifa Subsidiary, Associate or Joint Venture company receives an enquiry from a governmental or
regulatory body, (e.g. DTI, Postal Services Commission, OFT, European Commission), it must
advise the Consignia Company Secretary's Office immediately and take advice on the terms of
reply. Similarly, in the event of enquiries from Postcomm, the Consignia Regulation Department
must be informed and will advise on the terms of reply.
7.5 Company Identification
Under English law, a company’s name must appear outside every office and place of business in a
conspicuous position and in legible letters. This is usually done by means of a painted sign or
plaque. A company’s name must also appear legibly in certain correspondence; namely in all
business letters, notices and official publications, bills of exchange, promissory notes, cheque
books, orders for goods and money, and also in all of its bills of parcels, invoices, receipts and
letters of credit. Further particulars such as the company’s place of registration, its registered
number and the address of its registered office must also appear in all business letters and order
forms. Where a company trades under a business name which is different to the company name, it
must also state its registered company name on all business letters, written orders, invoices, receipts
and demands for payment.
7.6 Liquidation
Companies which are no longer active should be regularly reviewed as candidates for liquidation or
other appropriate means of disposal, Consignia Group Taxation, Legal Services, Group Finance and
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Company Secretary's Office are to be consulted. Any disposal of a company must be such that there
is no ongoing liability either to the parent company or to any officers. Before deciding to liquidate a
company, consideration should be given to keeping it: for example, to protect the company name.
The Consignia Company Secretary's Office should co-ordinate any liquidation/dispesal.
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Appendix A
CONSIGNIA POLICIES - APPLICABILITY TO SUBSIDIARIES, ASSOCIATES
AND JOINT VENTURES
Unless otherwise specified below, Consignia ple does not have any requirement for Subsidiaries,
Associates and Joint Ventures to adopt Consignia policies.
Consignia plc/Consignia Holdings ple/and Consignia Investments Ltd require that Subsidiaries
adopt the following policies where they are described as Mandatory (M), Mandatory other than in
Exceptional Circumstances, requiring the approval of the Consignia company secretary (E), or
Recommended in line with best external corporate governance practice (R). Consignia ple
employees who are Directors of Associates and Joint Ventures should use their influence to ensure
the policies are adopted in the company where possible, advising the Consignia company secretary
where this will not be the case.
References to Company Secretary's Office below refer to the company secretary of the Subsidiary/
Associate or Joint Venture (which may be the Consignia company secretary), unless this is
otherwise specified.
Area of Responsibility and Requirement Activity Required of Subsidiary/
Associate/Joint Venture by Consignia
Company Secretarial
(M) Reporting significant legal events, matters * Notify Consignia Company Secretary's Office of
including loan covenants and other agreements,
changes in share ownership, sale or purchase of
shares, appointment and resignation of directors or
company secretary
(MD Annual return information/filing
(M) Memorandum & Articles of Association
(M) Authority levels for decision/expenditure
(MD Reserved powers
any changes. An annual proforma return will be
circulated to ensure that company details are correct
and ap to date;
Submitting all statutory returns and notifications
required:
Articles and by-laws should be kept with the minate
books and be kept up to date. Copies of these, and
any amendments to them, must be submitted to the
Consignia Company Secretary's Office;
Follow group-wide policy;
‘Where amount falls outside these levels seek advice
from Company Secretary's Office on getting
necessary (Board) authority;
Follow group-wide policy;
Where required action falls outside existing powers
seek advice from Company Secretary’s Office on
getting necessary (Board) authority;
Financial Control & Management
(E) Accounting policies, conventions standards and
practices
For companies which are consolidated into
Consignia accounts, adopt the group’s accounting
policies and make accounting estimates which are
consistent with practices used by Consignia.
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(M) Transfer Pricing + Adopt transfer prices which are consistent with
competition law, regulatory requirements, the
Trading Model and ensure that there is no cross
subsidy.
(M) Performance Reporting « Provide sufficient management information to give
comfort to the Consignia parent (as shareholder) on
operational and financial performance periodically,
preferably using a standard Consignia format.
(R) Forecasts * Provide forecasts of future financial! performance
and outtums and measures.
(MD) Statitory Accounts * For companies which are consolidated into
Consignia accounts, adopt the group's standards and
format for content, timing and method of submission
of accounts to enable quarterly and annual statutory
accounts and consolidation to be prepared.
(M) Auditors + For companies consolidated into the Consignia
accounts, appointment of group approved external
auditors,
suring optimal company funding. * Establish intra Group funding account with
Consignia Group Treasury
« For Subsidiaries, agree surplus flmds management’
borrowing/leasing arrangements with Consignia
Group Treasury I
(M) Banking: Secure appropriate local banking * Agree local bankers and account structure with I
arrangements Consignia Group Treasury i
* Refer any requests for parental guarantees to I
Consignia Group Treasury I
i
(RB) Currency Exsosere: Ensure thet niaterial foreign I « = Notify Consignia Group Treasury of material i
currency exposures are managed. cirrency exposures and agree managemenvhedging [I
action,
(M) Insurance: Ensure that all statutory insurance * Purchase local insurance to cover statutory
requirements are in place and that material business requirements.
‘assets are protected, * Provide Consignia Group Treasury with relevant i
information on assets and lability risks and agree I
appropriate cover, :
(M) Dividend Policy: Payment of dividend to « Declaration and payment of dividend in accordance
Halding Company with Holding Company Policy,
Taxation
(M4 Comply with tax law in respect of its own « Submitting alf tax retums required in all countries of
activities. operation;
* Paying all taxes due in all countries of operation;
* Unless the company has tax expertise in house it
must use the agreed external tax advisor to support
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« (Mb) Ensuring that the capital structure of the
company meets local legal requirements
Personnel
» (M) Employment law
* (M) Health & Safety
thent in ensuring that they comply with the law;
Conform with national, and where appropriate
European, employment law.
Ensare compliance with group Health & Safety
policy or have an equivalent in place which mast be
clearly in evidence.
iu
«@ (M) Consignia internal Audit will have right of
access to all documents and relevant information for
companies in which Consignia has a shareholding.
* (MM) Provide independent assurance to the Executive
management and Board of Consignia on risk and
contro! matters across the Consignia Group.
Risk identification and management is undertaken in
each of its subsidiaries.
Highlight critical risks and include in the overall
Business Unit risk profile.
Plan to mitigate the risks of the subsidiary. Ensure
effective internal controls have been established
along with a designated owner, to help manage and
control the risks pertaining to that subsidiary,
it must be ensured by the party requesting external
audit services that all formal reports and
management letters regarding the subsidiary must be
copied to the Consignia Director of Internal Audit
Branding
« (MD Use of Consignia brand
Agree all use of Consignia as an endorsement or
brand with Consignia Group Communications
Director.
Agree creation of a new main brand or sub-brand
(not prodact names) with Consignia Group
Communications Director.
Communications
* {M)} Press releases and external communications:
Clear ail external communications that use the brand
Consignia (referred to specifically or to speak on
behalf of Consignia) with Consignia Group External
Relations,
ig
« (£) Business Plan completion
Business Plan wholly in line with Consignia Strategy
Business Plan wholly in line with legal and
regulatory requirements in country of operation
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CONSIGNIA CORPORATE GOVERNANCE / POLICY COMPLIANCE PROFORMA
Consignia Company Secretary's Office will maintain a database of companies in the Consignia
Group, and an associated organisation chart.
Information on each Consignia Subsidiary, Associate and Joint Venture shall be submitted to
Consignia Company Secretary’s Office at least once a year, using the following proforma. The
summary sheet must be signed off by the company secretary (where the Consignia company
secretary is not used) or a Director of each company.
I Consignia Group - Subsidiary details
Company name:
Date and place of incorporation:
Current directors and officers:
Location of minute books and corporate
documents ie. Memorandum & Articles of
Association, Company Registers, etc.
Authorised and issued shares:
Names of shareholders:
Names of subsidiary companies:
Signature of company director or officer certifying i
I Compliance with Consignia Corporate Governance
procedures and Policy Guidelines (other than
where identified below)
i
Exceptions to the above agreed with Consignia
I company secretary:
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