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PRIVATE AND CONFIDENTIAL
Report to the Board of
Royal Mail Group
Board Governance Assessment 2009
Rob Goffee
London Business School
Regent’s Park
London NW1 4SA
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Royal Mail Group Board Governance Questionnaire 2009
Table of Contents
Introduction and summary
Analysis of Interview Responses
Analysis of Board Responses to Part 1 of the Questionnaire: The Board
Role and Organisation
Agenda
Corporate Governance
Non-Executive Directors
Executive Directors
Information
Monitoring Group Performance
Board Leadership and Culture
Audit Committee
Nomination Committee
Remuneration Committee
Analysis of Board Responses to Part 2 of the Questionnaire: Board Priority Tasks
Appendix 1
Questionnaire results by rank order of means
Appendix 2
Wider databank scores by rank order of means
Appendix 3
Questionnaire results by gap between Board data and wider databank means
Appendix 4
Table showing frequency of numbers rated per respondent
Appendix 5
Bar chart comparison between mean scores of Board, Executive Directors,
Non-Executive Directors and wider databank
p.3
p.5
p.8
p.10
p.12
p.14
p.16
p.17
p.19
p.21
p.23
p.25
p.26
p.28
p.30
p.32
p.34
p.36
p.37
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Royal Mail Group Board Governance Questionnaire 2009
Introduction and Summary
This report summarises responses to face to face interviews and a two part questionnaire on the
operation and governance of the Royal Mail Board. All Board Directors were interviewed and all
completed the questionnaire. The interviews were broad ranging and help to provide context for
the questionnaire responses.
The questionnaire has 2 parts:
Part 1 comprises 11 distinct sections and a total of 72 questions on a 1-7 scale, where 1 indicates
dissatisfaction and 7 indicates satisfaction. In addition, respondents are given the opportunity to
write comments under each section.
Part 2 asks respondents to assess the level of Board engagement at Royal Mail for seven business
activities, indicating both their rating for current engagement and desired engagement.
Here, we report on both the quantitative data from the scaled questions and the qualitative data
from the written observations and interviews.
We show, where appropriate, the overall means for individual questions taken from the databank of
a wider sample of Boards drawn mainly from the FTSE 100, but also including not-for-profit and
privately owned enterprises based outside the UK. The databank therefore does not constitute a
directly comparable or random sample, but is included for illustrative purposes and to show where
there may be patterns in high and low scores on other Board surveys using similar questions
Appendix 1 shows questionnaire results by rank order. Appendix 2 shows wider databank means by
rank order. Appendix 3 shows the gap between Royal Mail and the wider databank means.
Appendix 4 shows bar chart comparisons of mean scores for the Board, Executive Directors, Non-
Executive Directors and the wider databank.
Overall, the results show that Board members express satisfaction with various aspects of Board
functioning and governance.
63% of questions in Part 1 are at and above the mean from the wider databank and 69% have a
rating of 5.5 or above on a seven point scale.
Particular strengths are:
Corporate governance (qs 16, 23, 48)
© Board mechanics (qs 1,6,7,8)
e Executive Directors representative of the business (q 28)
e Audit Committee (qs 55-60)
Interview data support these strengths but also indicate areas for improvement which include:
¢ = Clarification of Royal Mail vision and goals
e@ Rebalancing of Board expertise and experience (see also qs 20,21,22)
¢ More strategic discussions (see also qs 14, 44)
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Royal Mail Group Board Governance Questionnaire 2009
Responses to Part 2 also indicate a Board which is insufficiently engaged in several priority areas —
suggesting
¢ Increased attention to PS and POL strategy; innovation and new products; customer focus;
people development; and governance
Finally comments in both questionnaire responses and interviews indicates a need to
e Tighten recruitment of NEDs according to governance good practice (q 17)
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Royal Mail Group Board Governance Questionnaire 2009
Analysis of Interview Responses
Introduction and background
Interviews were conducted face to face in London with all Board Directors. The purpose was to allow
individuals to discuss issues free from the constraints of the questionnaire design; and, at the same
time, to comment on key themes emerging from the pattern of questionnaire responses.
The interviews helped to provide a context for the questionnaire responses.
Many commented on the unique history and context of the RM Board — referencing the shareholder
relationship; mix and scale of operations; demanding market conditions; technological change and
so on. Combined with recent industrial relations issues and possible privatisation initiatives, Board
members described a challenging context of considerable uncertainty and complexity.
In addition, the Board itself is in a period of transition. The Chairman and three NEDs joined during
2009 and another NED is arriving in 2010. Of four Executive Directors two have resigned in recent
months — one of them, the CEO.
Members with longer experience draw a vivid picture of the Board as it developed after 2002
emphasising a CEO influenced NED profile; active involvement in strategy and operations;
engagement with executives; and a clear “turnaround” imperative from operating loss into profit.
All Board members acknowledge that the context has changed over recent years — but that
substantial business challenges remain. How, then, can the Board equip itself to actively shape its
new agenda and meet these challenges?
Board strengths
The interviews confirm some of the more positive questionnaire responses.
They describe a Board which operates to generally high standards of corporate governance and
which is supported by broadly well structured committees. The NEDs are appropriately independent.
Chairman and CEO roles are sufficiently differentiated.
The basic mechanics of the Board (role and scope of Board; number of meetings; provision of
information; access to advice etc) appear to operate well.
NEDs are seen to cover some important areas of competence relating to, for example, the
shareholder relationship and industrial relations. NEDs express positive views of Executive Director
capability. Board members describe a culture of respect within which all have the opportunity to
contribute.
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Royal Mail Group Board Governance Questionnaire 2009
Areas for Improvement
In order to perform to its full potential and recognising the changing composition of the Board there
are opportunities for improvement. There is clear recognition of the need for the Board to be
proactive and to exhibit strong solidarity around objectives and priorities given its distinctive
shareholder relationship.
The result is a sense of frustration which is experienced and reported in a variety of ways:
Big strategic, commercial and operational issues are recognised and need further analysis
and debate by the Board
¢ There is a continuous challenge to ensure fire fighting does not displace reflection on key
issues
The Board needs to reassess its priorities particularly after the General Election
e There was clear momentum towards a part-privatisation of Letters - what next?
The Board needs to take care to focus and avoid being side tracked into detail
¢ Discussions require more focus
¢ Board papers do not match sophisticated analysis and detail with clear indication of strategic
issues for discussion (in this sense the EDs are not helping the NEDs)
© Complexity of issues can encourage members to discuss apparently simpler (but often less
important) issues
e Presentations are too lengthy and at the expense of debate
¢ EDs feel NEDs are supportive but are hungry for increasing challenge from NEDs
e Discussions do not involve enough members of the Board
e Too much time is spent educating NEDs; this limits time for discussion. A changing Board
needs induction away from Board meetings as far as possible
e NED experience mix is in course of necessary adjustment to enable them to place Board
papers in an operational context
e There needs to be increased clarity over decisions and points for action
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Next steps
The issues identified above are interconnected not discrete; and the weight attached to each view
varies by Board Member. But when asked to consider actions that might improve performance
three major themes tend to emerge:
e = Clarification and proactive communication of the RM Board “story” — its vision, goals,
priorities etc
e Rebalancing of the Board to incorporate experience and expertise in vital areas (variously
described as logistics, IT, operational change, retail, customer front line, CEO business focus
etc)
e Tighter, more strategic focus for Board discussions (with associated implications for several
issues: agenda; papers; discussion process/time management/conclusions; approval levels —
ie. what must go to Board etc)
Together with the more detailed observations emerging from Parts 1 and 2 of the questionnaire,
these areas may be the start point for further Board discussion.
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Analysis of Board Responses to Part 1 of the Questionnaire:
The Board
Role and Organisation
The mean score for this section comprising eight items is 5.7 out of a possible 7.
¢ Aquestions score strongly (qs 1,6,7,8) at 6 or above; and all are above the wider mean.
e but comments reflect differing views as to the number of meetings, individual contribution
and focus.
Question 1 2 3 4 = 5 6 7 Mean Mean Mean Mean
Board NEDs EDs = Databank
1 The role and scope of
the Board's authority is
clearly defined. * * . 1 1I3 5 6.2 6.0 65 6.0
2 The Board keeps under
review whether its role
should be changed in
any way.
3 The Directors’
experience is utilised.
4 The Board reviews its
composition annually.
5 There are written
defined expectations
concerning Directors’
responsibilities.
6 The number of
meetings is sufficient.
7 I The length of meetings
is adequate.
8 The current Board
committee structure is -f-]-]2y2];2)6 6.2 6.0 65 5.9
appropriate.
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Comments from questionnaire
NED
3 I Experience of customer focus and people skills could be added
6 I There is a need for constant discipline to match time with effort
Planned reduction to 7 meetings pa is at the low end.
Whilst length of meetings is fine there is a slight bias towards presentations versus discussion.
Committee structures fine except unclear what has happened to the proposed industrial
relations committee.
Overall the board operates to a high standard and the new chairman has improved the
effectiveness of meetings
8 I There is a fine balance to be achieved, between adequate time and allowing too much time,
for a board. Director’s expertise is used, but they are also there to contribute on a wider
spectrum, which does not always seem to happen.
ED
2 Still probably too many board meetings and some could be tighter / shorter.
5 Concerned that, with current authority levels, the reduction in the number of meetings from
10-7 may impact governance of major projects / initiatives.
9 Some directors make limited contributions, or only comment on their specialist areas of
expertise
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Royal Mail Group Board Governance Questionnaire 2009
Agenda
The mean score for this section comprising eight items is 5.5 out of a possible 7.
there are significant spreads on several questions
2 questions (qs 10,14) are some way below the wider means
in the comments time spent on strategic issues is a common concern; views on POL
performance vary
Question
6 7 I Mean
EDs
Mean
NEDs
The agenda-setting
process schedules issues
ina timely fashion.
6.0
5.5
5.6
10
All Directors are able to
influence the content of
the agenda.
5.5
48
58
11
Agenda items focus on
relevant issues.
6.2
5.3
a7
12)
The Board identifies
issues for review ona
regular basis.
5.7
5.8
55
13
Board meetings are
productive and achieve
their objectives.
6.0
48
5.6
14
Sufficient meeting time
is devoted to strategic
issues.
4.8
48
a3
15
Sufficient meeting time
is devoted to corporate
performance
6.2
5.5
a2
15a
Sufficient time is
devoted to POL
performance
53
48
10
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Royal Mail Group Board Governance Questionnaire 2009
Comments from questionnaire
NED
3 More time should be devoted to people issues
g _ Thereis a constant need to ensure the urgent does not crowd out the important.
There also needs to be more granularity about POL's operational performance.
7 Performance reporting is improving. This should enable the executive team to spend more
time on strategic issues.
POL executed the recent post office rationalisation with excellence. Strategy and execution
going forward remain a concern.
8 Chairman’s restructuring of the regular reporting has been a positive. It is very difficult to get
the balance right between strategy and today. The very nature of the business and the stage
of transformation, means that we have to adapt to whatever the key issue of the day is.
However, all issues we are dealing with have an implication for the long term future
10 There are aspects of strategy that we do not consider well enough - notably regulation, where
we take a rather narrow, non-strategic view of issues.
ED
2 Parts of board meetings are productive but many parts end up being informative for non-
execs but less useful for execs due to the lack of insights/added value in return on some
subjects.
5 Time spent on POL performance / issues much improved
9 Strategic debate is limited and at a superficial level
11
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Royal Mail Group Board Governance Questionnaire 2009
Corporate Governance
The mean score for this section comprising four items is 5.7 out of a possible 7.
eq 16is particularly strong
e q17is below the wider mean
e q19 elicits a mixed response
positive comments are made about adjustments in the NED mix; others relate to the
unique ownership structure of RM
Question 1 2)3 54/5 > 6 7 I Mean Mean) Mean Mean
16
The Board operates to
high standards of - - - - - 3.4 6.6 6.3 6.8 6.2
corporate governance.
17
Non-Executive Directors
are recruited according
to corporate governance
good practice.
18
Directors receive
appropriate guidance in
matters of corporate
governance.
19
The balance of
executive/nonexecutive I - I - I 1) 1)1/)1) 3 5.6 6.3 5.0 5.8
directors is appropriate
Comments from questionnaire
NED
1 There may be some difference in understanding of best practice between those from
commercial and non-commercial backgrounds.
6 No problem here - inevitably some general corporate governance practice is made harder by
who we are
7 Some short cuts on recent appointments.
8 We are in the process of recruiting some more NED's which will redress the balance. Our
ownership structure means we have extra dimensions to deal with when recruiting new
NED's.
10 My recruitment was to governance best practice.
12
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Royal Mail Group Board Governance Questionnaire 2009
ED
We have already identified the need for more non-execs with the right skills sets required for
the company in the future.
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Royal Mail Group Board Governance Questionnaire 2009
Non-Executive Directors
The mean score for this section comprising eight items is 5.2 out of a possible 7.
the independence of the NEDs is strongly scored (q 23)
q 20 is the lowest response of all questions and some way from the wider means
qs 21 and 25 also score below 5
again there are concerns about NED balance but also positive comments about steps taken
to achieve a better balance; other comments suggest a positive basis for ED:NED
relationships
Question 1/2 3 (>4)5 > 6) 7 I Mean Mean Mean Mean
Board EDs NEDs Databank
20
Non-Executive Directors
represent an
appropriate mix of = tyr} s)2]- 1 4.2 4.2 43 5.5
expertise and
experience.
21
The recruitment criteria
for Non-Executive 1 ai 1/5
Directors ensure a
balanced Board.
22
Non-Executive Directors
have appropriate
knowledge of the Group
and the issues it faces.
23
Non-Executive Directors
are sufficiently -Ielelelalelel os ax aa vy.
independent of . . . “
executive management.
24
Non-Executive Directors
have enough
opportunities to meet -}-]-]3/)3)1]3 5.4 5.5 5.3 5.4
without the Executive
Directors.
25
Non-Executive Directors
have adequate
knowledge of key s 2 1)}3/4)12/12 48 5.2 43 47
executives below the
Board.
26
Non-Executive Directors
have adequate
opportunity to meet -I-/a}f2}a};aj)2] sa 5.3 48 47
with key executives
below the Board.
27
Non-Executive Directors
are offered the
opportunity to -f-]-] 2]; 3)}2]2 5.4 5.8 47 5.0
undertake additional
training.
14
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Comments from questionnaire
NED
3 recruitment of NEDs does not bring about diversity of background or experience
é Generally good constructive relationship
7 With fewer board meetings it will be desirable for non exec's to spend more time in the
business. We should consider whether this should occur on an individual basis or whether it
would be desirable to have a managed program. This would increase exposure to the
organisation below board level too.
8 The current recruitment process will achieve a better balance of relevant experience and
expertise. The style of the organisation is such that the Executives are very open to
involvement with the NED's and their views are actively sought and welcomed.
10 The current Board does not have the right mix of expertise amongst its non-execs, but the
Chairman has put in place a process for correcting this
ED
2 NED capability is mixed
4 Arelatively new group with developing knowledge
9 Need more non-execs with wide enough experience to contribute across a variety of subjects.
Need more ex CEO types
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Executive Directors
The mean score for this section comprising four items is 5.9 out of a possible 7.
eq 28 is particularly strong
most responses are positive and above the means
© comments are also positive
Question 1 2/3 )I)4)5 I) 6 7 I Mean I Mean) Mean Mean
Board EDs NEDs Databank
28 The Executive Directors
ahaha abet -I-I/-]-Ja}s]4] 63 63 63 5.9
representative of the
business.
29 The Executive Directors
work well as an 7 7 - 1)/4/3/)2 5.6 5.5 5.8 5.8
Executive Team.
30 The Executive Directors
are a balanced team of
management expertise
and experience.
31 The Board has sufficient
opportunity and
information to evaluate i . = -/3)4/)2 5.9 5.8 6.0 5.5
the performance of the
Executive Directors.
Comments from questionnaire
NED
1 The executives are individually of the highest quality. The team dynamics appear open and
respectful of each other’s roles. I would welcome more cross functional input from executives
at Board meetings outside their direct areas of responsibility.
6 Good team but would like POL to be a more cohesive part of the Group
8 The team are a good mix, with the obvious shortcoming of no HR director.
ED
2 Difficult sometimes for non-execs to fully evaluate executive performance from board
meetings, however some of the non-execs have taken great care and effort to get to know the
business and the key people and are able , to form good solid judgements
on individuals.
5 I The forthcoming NED appointment will be helpful in the light of POL's financial services
aspirations.
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Information
The mean score for this section comprising nine items is 6.0 out of a possible 7.
another solid set of scores — particularly qs 32, 38, 39
comments are also positive but several say that there is a requirements for greater structure
focus in order to address key questions in high quality discussion
Question
1
2
g
4
5
6
Za
Mean
Board
EDs
Mean
NEDs
32
The quality of
information
provided to the
Board and its
Committees is
appropriate
6.0
5.7
6.5
5.9
33
The quantity of
information
provided to the
Board and its
Committees is
appropriate.
5.6
5.2
6.3
oF
34
Additional
information
required is fully and
promptly made
available.
ss
5.8
6.0
6.1
35
Presentations to the
Board are of a high
standard.
6.0
6.0
6.0
5.8
36
Directors receive
appropriate
education on issues
facing the Group.
5.9
6.0
5.8
5.3
37
The induction
process provides
adequate
information for new
Directors to
understand the
Company and their
role.
5.9
6.0
5.8
52
38
The Board has
appropriate access
to external advice
6.4
6.3
6.5
oe
39
Non-committee
members are
appropriately
informed about the
business of Board
committees.
6.1
6.0
6.3
5.6
17
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Royal Mail Group Board Governance Questionnaire 2009
40 The papers for each
Board and
Committee meeting
are provided é = -}/2/1/)/3/)4 §9) 5.8 6.0 5.4
sufficiently in
advance of the
meeting.
Comments from questionnaire
NED
1 Excellent Board and Committee administration and backup. Consistently high quality and
Supportive.
6 Constant battle to get to the main points through a lot of detail.
7 Generally papers are provided on time. The unfortunate exception was for the strategy
away-days.
8 The quality of information has improved over the last few years, (dramatically) The quality
of support papers is excellent, but the structure of papers some times requires you to go
through a very long an detailed paper to get to the key issue. I do not mean that we do not
need the detail; it is the timing and structure of information provision that may need
reviewing.
10 The paperwork for Board meetings is of a good standard. However, there is not always
clarity as to the key questions that the Board is being asked to answer. And far too much
time in Board meetings is spent on going through pre-circulated papers and presentations,
rather than taking papers as read and providing a tight, brief overview that sets up the
discussion and leaves plenty of time for Board discussion. This inhibits effective Board
engagement. That was particularly marked at the Startegy awayday when much of the
time was absorbed with the executive talking to the non-execs, despite a substantial and
high quality briefing pack.
ED
2 We go to great lengths in a fast changing business/ environment to ensure that the board
are rarely surprised ( if ever )and that they have all the relevant information..........if
anything I think there are times where they perhaps get far too many papers and we need
to do more to ensure they are more concise.
18
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Monitoring Group Performance
The mean score for this section comprising six items is 5.5 out of a possible 7.
responses related to objectives, performance and monitoring are broadly positive
board contribution to strategy (q 44) and communication with shareholder do less well
comments are mixed with differing views about measures, oversight and shareholder
communication
Question
6 7 I Mean
EDs
Mean
NEDs
41
The Board has
agreed appropriate
and rigorous
company
performance
objectives
5.7
6.3
5.6
42
The Board has robust
procedures for
monitoring
corporate
performance
(operational and
financial).
5.8
6.0
5.6
43
The Board monitors
business
development
effectively.
5.2
SS
2
44
The Board
contributes
effectively to the
Group’s strategic
direction.
5.5
48
5.6
45
The Board is able to
identify potential
problems in the
Group’s
performance.
5.8
ao
5.4
46
The Board
communicates
effectively with the
shareholder
5.4
45
oom
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Comments from questionnaire
NED
Operating KPI's appear broad and deep (possibly too many at Board level). Financial
performance KPI's focus too heavily at the sales/costs/operating level, and not enough at
the financial sustainability of the company.
The plan provides a sound basis for performance management.
Are goals sufficiently stretching?
Perhaps there is a need to raise the profile of financial services for monitoring in the
Post Office
Strategy development is an evolutionary process, more discussion and debate would add
more value.
The board has less visibility of shareholder communications and feedback than would be
the case in a quoted company.
The provision of performance objectives and monitoring is now well established. The
shareholder is fully briefed about performance.
It is difficult to be sure that the Board is effectively overseeing these key aspects of the
business, given its scale. The Board itself does not communicate with the shareholder,
that resting with the Chairman, Chief Executive and SID.
10
ED
2 Communication with the shareholder is not straightforward - on the face of it we have
one shareholder but in practice different parts of government will often have conflicting
objectives. Most high level contact is, therefore , done by the Chairman/CEO
Board concentrates more on performance than on strategic direction. Shareholder
communication often lacks coordination and tends towards interaction at too low a level
within Government. The Board receive comprehensive financial and operational
performance information.
20
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Board Leadership and Culture
The mean score for this section comprising eight items is 5.8 out of a possible 7.
scores are broadly positive and comparable to the wider means
q 54 is the weakest but on a par with boards elsewhere
comments are positive but suggest there is scope to improve quality of discussion
Question
EDs
Mean
NEDs
47
The Board receives
effective leadership.
6.0
6.0
6.0
48
The roles of
Chairman and Chief
Executive are clearly
differentiated at the
company.
6.8
6.8
6.4
49
Board meetings are
managed efficiently.
6.0
6.0
6.0
50
The Board operates
constructively as a
team.
6.0
5.0
oF
S21
52
The Chairman and
the Group Chief
Executive have
created a culture in
which all Directors
can participate fully.
Board discussions
are a free and open
exchange of views.
6.2
5.7
5.8
a3
59
6.0
53)
There isa
constructive
relationship
between Non-
Executive Directors
and Executive
Directors.
6.3
5.0
6.0
54
There is sufficient
consideration given
to succession
planning of Board
members.
5.2
4s
5.0
21
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Comments from questionnaire
NED
1 Directors feel able to and do contribute freely to debate. The Chairman and CEO both
encourage this and allow any voice to be heard. The CEO takes constructive criticism well
and is not at all defensive.
3 Succession planning should be more long term.
6 Nice and open
8 There is a learning curve being scaled and peak performance has not yet been achieved.
The degree to which board meetings are a free and frank exchange of views is as much
down to the willingness of the NEDs to contribute, both on their subject and outside their
comfort zone.
10 I think the Board works reasonably on these dimensions but could be a lot better.
ED
2 Although the opportunity is there for interaction it is sometimes too much of a one way
conversation.
9 There are no bars to directors' contributions. However, debates are limited and several of
the Directors seldom contribute.
22
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Audit Committee
The mean score for this section comprising six items is 6.2 out of a possible 7.
scores are very positive (all exceed the wider means)
most comments are also positive
Question 1 2,53 45 6) 7 I Mean I Mean I Mean Mean
Board EDs NEDs Databank
55
The Committee
receives effective -f-f-]-]fa2)}s5]2 61 6.0 63 5.9
leadership.
56
The role, scope and
authority of the -I-}-]-/a}s]a4] 63 63 63 6.2
Committee are
clearly defined.
s7
The composition of
the Committee is
appropriate with
the right level of
experience and
expertise.
58
There are sufficient
meetings of the - = S i 1,5 /I4 6.3 6.2 6.5 6.1
Committee.
59
The Committee
meetings are
managed
effectively.
60
The Committee is
provided with
adequate resources - - - - - 5 4 6.4 65 6.3 61
to perform its
function effectively.
Comments from questionnaire
NED
6 Well run
7 New appointment. Too early to assess.
The meeting to review the regulatory accounts was brief and not attended by the external
23
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auditor
a Certain that new Chairman he will do an excellent job. My sense is that it needs some
strengthening on the commercial front.
10 My general sense is of a well-run committee.
ED
2 The audit committee was very effectively run by previous Chairman and new Chair has
made an excellent start
5 My perception is that it does operate very effectively.
9 The Audit Committee is a high point of overall Board effectiveness
24
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Nomination Committee
The mean score for this section comprising six items is 5.9 out of a possible 7.
e broadly positive scores
@ some comments suggest that professional HR expertise is missing
Question 1/2 #3 )4{I5 6,7 I Mean I Mean) Mean
Board EDs NEDs
61 The Committee
receives effective -I-}-I-)/2])4)3] 61 I 60 I 63
leadership.
5.7
62 The role, scope and
authority of the
Committee are
clearly defined.
6.0
63 The composition of
the Committee is
appropriate with
the right level of
experience and
expertise.
5G
64 There are sufficient
meetings of the - - - - Zz 2.4 6.3 6.4 6.0
Committee.
58
65 The Committee
meetings are
managed
effectively.
5.6
66 The Committee is
provided with
adequate resources - - - iI2 3/2 5.8 6.2 5.0
to perform its
function effectively.
Ex)
Comments from questionnaire
NED
3 Would benefit from permanent HR director. Would help with more strategic overview.
from time to time
6 Needed only as and when; needs discipline not to stray into executive management role
8 The committee has been changed recently, and we need to let it run for a bit to see how
it works going forward. The ownership structure of the business means we have to be
25
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Royal Mail Group Board Governance Questionnaire 2009
ED
very diligent on following procedure; otherwise we can fall foul of the law. We need an
Remuneration Committee
The mean score for this section comprising six items is 5.5 out of a possible 7.
there are fewer responses here
some critical comments are made concerning shareholder influence
Recent vast improvements on scope and leadership. Light on big company HR experience
Question
1
2
5
4
5)
6
7
Mean
Board
Mean
EDs
Mean
NEDs
67
The Committee
receives effective
leadership.
5.2
5.7
47
5.6
68
The role, scope and
authority of the
Committee are
clearly defined.
6.0
6.0
6.0
6.1
69
The composition of
the Committee is
appropriate with the
right level of
experience and
expertise.
5.1
5.0
53
a9
70
There are sufficient
meetings of the
Committee.
6.3
6.0
6.5
6.0
Pal
The Committee
meetings are
managed effectively.
5.2
5.7
47
5.6
72
The Committee is
provided with
adequate resources
to perform its
function effectively.
5.4
5.8
5.0
5.7
26
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Royal Mail Group Board Governance Questionnaire 2009
Comments from questionnaire
NED
6 Tough task fairly done
7 The use of independent consultants in developing the LTIP is a positive move. The
interface with Government creates an unsatisfactory environment for effective
remuneration policy.
8 We could do with strengthening our Rems and Bens knowledge
ED
2 The Committee is really well led under the most difficult of circumstances given the issues
our shareholder has with the need to ensure that we pay appropriately in order to have
access to the right people from a recruitment and retention point of view.
9 The executives are put under too much pressure to make personal accommodations to
satisfy Governments agenda
27
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Analysis of Board Responses to Part 2 of the Questionnaire:
Board Priority Tasks
e there are substantial spreads in most response sets for both current and desired
engagement
e there are relatively big gaps — on average — between current and desired engagement of the
board in all areas with the exception of industrial relations
«the largest gap relates to innovation and new products
i” I I Pal
Current Engagement
Desired Engagement
Strategy for POL: 42 42 43
Current Engagement
55 5.0 63
Desired Engagement
Innovation & New Products:
Current Engagement
Desired Engagement
Customer Focus:
Current Engagement
Desired Engagement
Industrial Relations:
Current Engagement
Desired Engagement
People Development:
3.9 4.0 3.8
Current Engagement
5.1 5.2 5.0
Desired Engagement
Current Engagement
3.9
3.8
4.0
Desired Engagement
5.0
Si
4s
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Royal Mail Group Board Governance Questionnaire 2009
Appendices
29
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Royal Mail Group Board Governance Questionnaire 2009
Appendix 1
Questionnaire results by rank order of means
48 The roles of Chairman and Chief Executive are clearly differentiated at the company. 6.8
16 The Board operates to high standards of corporate governance. 6.5
60 The Audit Committee is provided with adequate resources to perform its function effectively. 6.4
23 Non-Executive Directors are sufficiently independent of executive management. 6.4
38 The Board has appropriate access to external advice. 6.4
7 The length of meetings is adequate 6.3
28 The Executive Directors as a group are representative of the business. 6.3
56 The role, scope and authority of the Audit Committee are clearly defined. 6.3
58 There are sufficient meetings of the Audit Committee. 6.3
64 There are sufficient meetings of the Nomination Committee. 6.3
70 There are sufficient meetings of the Remuneration Committee. 6.3
1 The role and scope of the Board's authority is clearly defined. 6.2
8 The current Board committee structure is appropriate 6.2
55 The Audit Committee receives effective leadership. 641
59 The Audit Committee meetings are managed effectively. 61
39 Non-committee members are appropriately informed about the business of Board committees. 6.1
61 The Nomination Committee receives effective leadership. 6.1
6 The number of meetings is sufficient 6.0
32 The quality of information provided to the Board and its Committees is appropriate 6.0
35, Presentations to the Board are of a high standard. 6.0
47 The Board receives effective leadership. 6.0
49 Board meetings are managed efficiently. 6.0
The Chairman and the Group Chief Executive have created a culture in which all Directors can
51 participate fully. 6.0
62 The role, scope and authority of the Nomination Committee are clearly defined. 6.0
68 The role, scope and authority of the Remuneration Committee are clearly defined. 6.0
15: Sufficient meeting time is devoted to corporate performance 5.9
34 Additional information required is fully and promptly made available. 59
36 Directors receive appropriate education on issues facing the Group. 5.9
The induction process provides adequate information for new Directors to understand the
37 Company and their role. 5.9
The papers for each Board and Committee meeting are provided sufficiently in advance of the
40 meeting. 5.9
41 The Board has agreed appropriate and rigorous company performance objectives 5.9
42 The Board has robust procedures for monitoring corporate performance (operational and financial). 5.9
The composition of the Audit Committee is appropriate with the right level of experience and
57 expertise. 5.9
The Board has sufficient opportunity and information to evaluate the performance of the Executive
31 Directors. 5.9
9 The agenda-setting process schedules issues in a timely fashion. 5.8
30
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Royal Mail Group Board Governance Questionnaire 2009
I.11___I Agenda items focus on relevant issues. 5.8 I
30 The Executive Directors are a balanced team of management expertise and experience. 5.8
53 There is a constructive relationship between Non-Executive Directors and Executive Directors. 5.8
66 The Nomination Committee is provided with adequate resources to perform its function effectively. 5.8
12 The Board identifies issues for review on a regular basis. 5.7
18 Directors receive appropriate guidance in matters of corporate governance. 5.7
45 The Board is able to identify potential problems in the Group's performance. 5.7
19 The balance of executive/non executive directors is appropriate 5.6
29 The Executive Directors work well as an Executive Team. 5.6
33, The quantity of information provided to the Board and its Committees is appropriate. 5.6
50 The Board operates constructively as a team. 5.6
52 Board discussions are a free and open exchange of views. 5.6
The composition of the Nomination Committee is appropriate with the right level of experience and
63 expertise. 5.6
13 Board meetings are productive and achieve their objectives. 5.5
65 The Nomination Committee meetings are managed effectively. 5.5
2 The Board keeps under review whether its role should be changed in any way. 5.4
27 Non-Executive Directors are offered the opportunity to undertake additional training. 5.4
The Remuneration Committee is provided with adequate resources to perform its function
72 effectively. 5.4
24 Non-Executive Directors have enough opportunities to meet without the Executive Directors. 5.4
22 Non-Executive Directors have appropriate knowledge of the Group and the issues it faces 5.3
43 The Board monitors business development effectively. 5.3
5 There are written defined expectations concerning Directors’ responsibilities. 5.2
10 All Directors are able to influence the content of the agenda. 5.2
44 The Board contributes effectively to the Group’s strategic direction. 5.2
67 The Remuneration Committee receives effective leadership. 5.2
71 The Remuneration Committee meetings are managed effectively. 5.2
The composition of the Remuneration Committee is appropriate with the right level of experience
69 and expertise. 54
17 Non-Executive Directors are recruited according to corporate governance good practice. 54
3 The Directors’ experience is utilised. 5.1
15a Sufficient time is devoted to POL performance 54
26 Non-Executive Directors have adequate opportunity to meet with key executives below the Board. 5.41
46 The Board communicates effectively with the shareholder. 5.0
54 There is sufficient consideration given to succession planning of Board members. 49
4 The Board reviews its composition annually 49
14 Sufficient meeting time is devoted to strategic issues. 48
21 The recruitment criteria for Non-Executive Directors ensure a balanced Board. 48
25 Non-Executive Directors have adequate knowledge of key executives below the Board. 48
20 Non-Executive Directors represent an appropriate mix of expertise and experience. 42
31
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Royal Mail Group Board Governance Questionnaire 2009
Appendix 2
Wider databank scores by rank order of means
Non-Executive Directors are sufficiently independent of executive management.
48 The roles of Chairman and Chief Executive are clearly differentiated at the company. 6.4
16 The Board operates to high standards of corporate governance. 6.2
56 The role, scope and authority of the Audit Committee are clearly defined. 6.2
17 Non-Executive Directors are recruited according to corporate governance good practice. 6.1
34 Additional information required is fully and promptly made available. 6.1
58 There are sufficient meetings of the Audit Committee. 6.1
60 The Audit Committee is provided with adequate resources to perform its function effectively. 6.1
68 The role, scope and authority of the Remuneration Committee are clearly defined. 6.1
1 The role and scope of the Board's authority is clearly defined. 6.0
6 The number of meetings is sufficient 6.0
7 The length of meetings is adequate 6.0
47 The Board receives effective leadership. 6.0
49 Board meetings are managed efficiently. 6.0
52 Board discussions are a free and open exchange of views. 6.0
53 There is a constructive relationship between Non-Executive Directors and Executive Directors. 6.0
62 The role, scope and authority of the Nomination Committee are clearly defined. 6.0
70 There are sufficient meetings of the Remuneration Committee. 6.0
8 The current Board committee structure is appropriate 5.9
28 The Executive Directors as a group are representative of the business. 5.9
32 The quality of information provided to the Board and its Committees is appropriate 5.9
33 The quantity of information provided to the Board and its Committees is appropriate. 5.9
38 The Board has appropriate access to external advice. 5.9
The Chairman and the Group Chief Executive have created a culture in which all Directors can
51 participate fully. 5.9
55 The Audit Committee receives effective leadership. 5.9
59 The Audit Committee meetings are managed effectively. 5.9
The composition of the Nomination Committee is appropriate with the right level of experience and
63 expertise. 59
66 The Nomination Committee is provided with adequate resources to perform its function effectively. 5.9
The composition of the Remuneration Committee is appropriate with the right level of experience
69 and expertise. 5.9
10 All Directors are able to influence the content of the agenda. 5.8
18 Directors receive appropriate guidance in matters of corporate governance. 5.8
19 The balance of executive/non executive directors is appropriate 5.8
29 The Executive Directors work well as an Executive Team. 5.8
32
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Royal Mail Group Board Governance Questionnaire 2009
35 Presentations to the Board are of a high standard. 5.8
The composition of the Audit Committee is appropriate with the right level of experience and
57 expertise. 5.8
64 There are sufficient meetings of the Nomination Committee. 5.8
11 Agenda items focus on relevant issues. 5.7
30 The Executive Directors are a balanced team of management expertise and experience. 5.7
50 The Board operates constructively as a team. 5.7
61 The Nomination Committee receives effective leadership. 5.7
The Remuneration Committee is provided with adequate resources to perform its function
2 effectively. 5.7
9 The agenda-setting process schedules issues in a timely fashion. 5.6
13 Board meetings are productive and achieve their objectives. 5.6
39 Non-committee members are appropriately informed about the business of Board committees. 5.6
41 The Board has agreed appropriate and rigorous company performance objectives 5.6
42 The Board has robust procedures for monitoring corporate performance (operational and financial). 5.6
44 The Board contributes effectively to the Group's strategic direction. 5.6
65 The Nomination Committee meetings are managed effectively. 5.6
67 The Remuneration Committee receives effective leadership. 5.6
ra The Remuneration Committee meetings are managed effectively. 5.6
12 The Board identifies issues for review on a regular basis. 5.5
20 Non-Executive Directors represent an appropriate mix of expertise and experience. 5.5
The Board has sufficient opportunity and information to evaluate the performance of the Executive
31 Directors. 5.5
46 The Board communicates effectively with the shareholder. 5.5
21 The recruitment criteria for Non-Executive Directors ensure a balanced Board. 5.4
22 Non-Executive Directors have appropriate knowledge of the Group and the issues it faces 5.4
24 Non-Executive Directors have enough opportunities to meet without the Executive Directors. 5.4
The papers for each Board and Committee meeting are provided sufficiently in advance of the
40 meeting. 5.4
45 The Board is able to identify potential problems in the Group's performance. 5.4
14 Sufficient meeting time is devoted to strategic issues. 5.3
15 Sufficient meeting time is devoted to corporate performance 5.3
36 Directors receive appropriate education on issues facing the Group. 5.3
43 The Board monitors business development effectively. 5.3
2 The Board keeps under review whether its role should be changed in any way. 5.2
4 The Board reviews its composition annually 5.2
The induction process provides adequate information for new Directors to understand the
37 Company and their role. 5.2
E} The Directors’ experience is utilised. 5.1
5 There are written defined expectations concerning Directors’ responsibilities. 54
27 Non-Executive Directors are offered the opportunity to undertake additional training. 5.0
54 There is sufficient consideration given to succession planning of Board members. 5.0
25 Non-Executive Directors have adequate knowledge of key executives below the Board. 47
26 Non-Executive Directors have adequate opportunity to meet with key executives below the Board. 47
15a Sufficient time is devoted to POL performance -
33
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Royal Mail Group Board Governance Questionnaire 2009
Appendix 3
Questionnaire results by gap between Board data and wider databank means
The induction process provides adequate information for new Directors to understand the
37 Company and their role. 0.7
15 Sufficient meeting time is devoted to corporate performance 0.6
36 Directors receive appropriate education on issues facing the Group. 0.6
39 Non-committee members are appropriately informed about the business of Board committees. 0.5
38 The Board has appropriate access to external advice. 0.5
The papers for each Board and Committee meeting are provided sufficiently in advance of the
40 meeting. 0.5
64 There are sufficient meetings of the Nomination Committee. 0.5
ar Non-Executive Directors are offered the opportunity to undertake additional training. 0.4
61 The Nomination Committee receives effective leadership. 0.4
Non-Executive Directors have adequate opportunity to meet with key executives below the
26 Board. 0.4
28 The Executive Directors as a group are representative of the business. 0.4
48 The roles of Chairman and Chief Executive are clearly differentiated at the company. 0.4
The Board has sufficient opportunity and information to evaluate the performance of the
31 Executive Directors. 0.4
60 The Audit Committee is provided with adequate resources to perform its function effectively. 0.3
41 The Board has agreed appropriate and rigorous company performance objectives 0.3
The Board has robust procedures for monitoring corporate performance (operational and
42 financial). 0.3
7 The length of meetings is adequate 0.3
8 The current Board committee structure is appropriate 0.3
16 The Board operates to high standards of corporate governance. 0.3
45 The Board is able to identify potential problems in the Group’s performance. 0.3
70 There are sufficient meetings of the Remuneration Committee. 0.3
2 The Board keeps under review whether its role should be changed in any way. 0.2
55: The Audit Committee receives effective leadership. 0.2
59 The Audit Committee meetings are managed effectively. 0.2
nl The role and scope of the Board's authority is clearly defined. 0.2
9 The agenda-setting process schedules issues in a timely fashion. 0.2
12 The Board identifies issues for review on a regular basis. 0.2
35 Presentations to the Board are of a high standard. 0.2
58 There are sufficient meetings of the Audit Committee. 0.2
5 There are written defined expectations concerning Directors’ responsibilities. 04
The composition of the Audit Committee is appropriate with the right level of experience and
57 expertise. O41
34
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Royal Mail Group Board Governance Questionnaire 2009
11 Agenda items focus on relevant issues. 01
25 Non-Executive Directors have adequate knowledge of key executives below the Board. 0.1
30 The Executive Directors are a balanced team of management expertise and experience. 0.1
32 The quality of information provided to the Board and its Committees is appropriate 041
The Chairman and the Group Chief Executive have created a culture in which all Directors can
51 participate fully. 0.1
56 The role, scope and authority of the Audit Committee are clearly defined. 01
2 The Directors’ experience is utilised. 0.0
6 The number of meetings is sufficient 0.0
23 Non-Executive Directors are sufficiently independent of executive management. 0.0
24 Non-Executive Directors have enough opportunities to meet without the Executive Directors. 0.0
43 The Board monitors business development effectively. 0.0
47 The Board receives effective leadership. 0.0
49 Board meetings are managed efficiently. 0.0
62 The role, scope and authority of the Nomination Committee are clearly defined. 0.0
13 Board meetings are productive and achieve their objectives. 0.1
18 Directors receive appropriate guidance in matters of corporate governance. 0.1
54 There is sufficient consideration given to succession planning of Board members. 0.1
65 The Nomination Committee meetings are managed effectively. 0.1
68 The role, scope and authority of the Remuneration Committee are clearly defined. 0.1
22 Non-Executive Directors have appropriate knowledge of the Group and the issues it faces 0.1
50 The Board operates constructively as a team. 0.1
The Nomination Committee is provided with adequate resources to perform its function
66 effectively. 0.2
34 Additional information required is fully and promptly made available. 0.2
19 The balance of executive/non executive directors is appropriate 0.2
29 The Executive Directors work well as an Executive Team. 0.2
53 There is a constructive relationship between Non-Executive Directors and Executive Directors. 0.2
The Remuneration Committee is provided with adequate resources to perform its function
72 effectively. 0.3
33 The quantity of information provided to the Board and its Committees is appropriate. -0.3
4 The Board reviews its composition annually 0.3
The composition of the Nomination Committee is appropriate with the right level of experience
63 and expertise. 0.3
44 The Board contributes effectively to the Group’s strategic direction. 0.4
52 Board discussions are a free and open exchange of views. -0.4
67 The Remuneration Committee receives effective leadership. 0.4
71 The Remuneration Committee meetings are managed effectively. 0.4
14 Sufficient meeting time is devoted to strategic issues. 0.5
46 The Board communicates effectively with the shareholder. 0.5
10 All Directors are able to influence the content of the agenda. 0.6
21 The recruitment criteria for Non-Executive Directors ensure a balanced Board. 0.6
The composition of the Remuneration Committee is appropriate with the right level of experience
69 and expertise. 0.8
17 Non-Executive Directors are recruited according to corporate governance good practice. 1.0
20 Non-Executive Directors represent an appropriate mix of expertise and experience. 1.3
35
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Royal Mail Group Board Governance Questionnaire 2009
I 15a I Sufficient time is devoted to POL performance -
36
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Appendix 4
Table showing frequency of numbers rated per respondent
Ratin. NED NED NED NED NED NED ED ED ED ED
4 . é . z a @ E g “ 5
2 a o S a a 2 il - 8 5
3 - 2 1 : : i 2 - 8 1
4 5 8 4 3 5 9 12 - 11 8
5 21 21 28 td 9 32 22 3 11 30
6 37 39 21 14 6 30 36 1 9 27
7 10 3 4 47 43 : - 49 26 v
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Royal Mail Group Board Governance Questionnaire 2009
Appendix 5
Bar chart comparison between mean scores of Board, Executive Directors, Non-Executive Directors
and wider
databank
38
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Royal Mail Group Board Governance Questionnaire 2009
Role and Organisation
7.0
39
Board Mean
@ Mean NED1
@Mean ED 2
Wider Databank
Board Mean
@ Mean NED1
Mean ED 2
Wider Databank
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Royal Mail Group Board Governance Questionnaire 2009
Corporate Governance
Board Mean
@ Mean NED 1
Mean ED 2
Wider Databank
Non-Executive Directors
7.0
in @Board Mean
@Mean NED1
Mean ED 2
Wider Databank
40
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Royal Mail Group Board Governance Questionnaire 2009
Executive Director
Board Mean
@ Mean NED 1
Mean ED 2
Wider Databank
Information
@ Board Mean
@ Mean NED 1
Mean ED 2
Wider Databank
41
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Royal Mail Group Board Governance Questionnaire 2009
Monitoring Group Performance
7.0
[— MBoard Mean
@ Mean NED 1
Mean ED 2
Wider Databank
Board Leadership & Culture
Board Mean
@Mean NED1
Mean ED 2
Wider Databank
42
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Royal Mail Group Board Governance Questionnaire 2009
Audit Committee
Nomination Committee
43
@ Board Mean
@ Mean NED1
Mean ED 2
Wider Databank
Board Mean
@ Mean NED1
Mean ED 2
Wider Databank
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
RemuerationCommitte
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Royal Mail Group Board Governance Questionnaire 2009
67
68
69
70
71
72
Board Mean
@ Mean NED1
Mean ED 2
Wider Databank