Corporate governance report

The board

The role of the board of Debenhams is to provide entrepreneurial leadership of the Company within a framework of controls enabling risk to be assessed and managed. It is collectively responsible for the long-term success of the Company.

As at 3 September 2011, the board of Debenhams plc comprised three executive directors, five independent non-executive directors and the non-executive Chairman. Since the year end the number of executive directors has reduced to two following the retirement of Rob Templeman as Chief Executive on 4 September 2011. Michael Sharp, the Deputy Chief Executive, succeeded Rob Templeman as Chief Executive on 5 September 2011. Dennis Millard is the senior independent director.

All the directors will comply with the new Code requirement to submit themselves for re-election at the Annual General Meeting in January 2012. Biographies for the members of the board can be found here.

Following the publication in February of the Davies Review on Women on Boards, the graph below illustrates that Debenhams has already achieved the 2015 aspirational target of 25% female representation on the board. Below board level, women account for 44% of senior management.

The board held six meetings during 2011 which were fully attended by all the board members apart from the meeting on 28 June 2011 which Adam Crozier was unable to attend due to a schedule clash with ITV. In addition to the directors, board meetings were attended by the Retail Operations Director, the Human Resources Director, the Group Trading Director, the Marketing Director and the Company Secretary. The board also held its annual off site meeting in February to consider the Company’s strategy. No individual or small group of individuals dominate the board’s decision-making process.

In accordance with the Code there is a formal schedule of matters reserved for the board’s consideration which is regularly reviewed. Specific matters reserved for the board’s consideration include the approval of the Company’s business model and strategy, determining the level of risk the Company is willing to take in achieving the Company’s strategic and operational plans, approving the Company’s Financial Statements, major capital expenditure, major acquisitions and disposals, approving changes to governance and business policies and conducting a review of the effectiveness of the board and its committees. The board delegates the operational decisions for the implementation of these matters to the Company’s management.

Reports from the executive directors are circulated in advance of each board meeting and focus on major operational matters. Reports are also produced by specialists on general and Company business areas and by other executives and external advisers on key business areas. Going forward, various sectors of the business will be presenting to the board on a rotating basis. In 2011 matters considered by the board included presentations on key divisional operations, marketing and PR, health and safety, approval of the annual budget, assessing the corporate risk map and reviewing governance issues affecting the Company.

The Chairman and the Chief Executive

There is a clear division of responsibilities between the Chairman and the Chief Executive and these are set out in writing and agreed by the board.

The main responsibility of the Chairman is the effective running of the board ensuring that the board as a whole plays a full and constructive part in the development and determination of the Company’s strategy and overall commercial objectives. He ensures that the board determines the nature and extent of the significant risks the Company is willing to embrace in the implementation of its strategy. The Chairman is responsible for promoting the highest standards of integrity, probity and corporate governance throughout the Company. The Chairman is available to shareholders and has visited shareholders during the year. He takes the lead on issues of director development, through induction programmes and regular reviews. By chairing the Nomination Committee, he regularly considers succession planning and the composition of the board.

The Chairman (who sets the board agenda), together with the Company Secretary, ensures that the members of the board and its committees receive clear, comprehensive, up-to-date and timely information so that there can be thorough consideration of the issues prior to, and informed debate and challenge, at board and committee meetings. Where directors have not been able to attend meetings due to conflicts in their schedule, they receive and read the papers for consideration at that meeting, relaying any comments to the Chairman in advance of the meeting where possible. The Company Secretary reports to the Chairman on all board governance matters and reviews the Company’s governance processes such as the induction, development and evaluation of the board members. The Company’s induction process aims to enable new members of the board to make a full contribution to its discussions, be aware of the business policies in place and to refresh their knowledge on corporate governance, best practice and general compliance. On the anniversary of each appointment the induction process is reviewed with the respective board member in order to obtain feedback on the induction provided with a view to enhancing future inductions. All directors have access to the services of the Company Secretary and may take independent professional advice at the Company’s expense in conducting their duties. The Company provides insurance cover and indemnities for its directors and officers.

The Chief Executive is responsible for all executive management matters affecting the Company. His principal responsibility is the day-to-day running of the Company’s business and the achievement of the agreed strategic objectives.

Non-executive directors

All the Debenhams’ non-executive directors are considered by the board to be independent and free from any relationship or circumstances that could affect their independent judgement. They have a wide range of skills and experience and provide constructive challenge in the board room.

The table below details the length of service of the Chairman and of each non-executive director:

Name	Date of appointment	Date of last re-election by shareholders	Current length of service as at year end
Nigel Northridge	1 January 2010	11 January 2011	1 year 8 months
Dennis Millard	9 May 2006	12 January 2010	5 years 4 months
Adam Crozier	9 May 2006	11 January 2011	5 years 4 months
Martina King	1 August 2009	12 January 2010	2 years 1 month
Mark Rolfe	1 October 2010	11 January 2011	11 months
Sophie Turner Laing	1 August 2009	12 January 2010	2 years 1 month

This year’s formal evaluation of the performance of the board, its committees, the individual directors and the Chairman was conducted, in accordance with the Code, by Lintstock Ltd, an external facilitator who has no other connection with Debenhams.

The first stage of the review involved Lintstock engaging with the Chairman, the Chief Executive and the Company Secretary to set the context for the evaluation and to tailor the questionnaires used to the specific circumstances of Debenhams. In particular, based upon the input of the incoming Chief Executive, certain specific questions were framed around the opportunities and challenges for Debenhams, both domestically and internationally

All respondents were then requested to complete an online questionnaire addressing the performance of the board and its committees. The anonymity of all respondents was ensured in order to promote the open and frank exchange of views.

The questionnaires addressed the following issues:

• Board composition, expertise and dynamics
• Board support, time management and board committees
• Strategic, operational and risk oversight
• Succession planning and human resource management
• Priorities for change

A 360 review of individual performance was also conducted which was provided in confidence to the Chairman. The composition and performance of the committees of the board was considered in the review and was highly rated.

Lintstock’s report was discussed at the board meeting held on 13 October 2011. The following areas were addressed in the report:

• The current composition of the board was reviewed and the attributes which ought to be sought in future non-executive director appointments were identified, as was their priority.
• The level of board support and the information the board receives were highly rated, although it was suggested that there could be further rationalisation of the material which the board receives from various constituencies.
• The relationship between individual directors and the relationship between the board and top-level management were highly rated, as was the board’s oversight of succession.
• The performance of the board in overseeing strategy was rated highly and recent improvements in this area were noted. It was suggested that this will need to be re-evaluated under the new Chief Executive and that there may be the potential for greater board involvement. Input on certain core strategic issues was also considered by board members based upon feedback from the incoming Chief Executive.
• There was broad consensus as to the key risks which the Company faced. It was felt that the risks are well understood, regularly debated in detail and that well-considered contingency plans are in place.
• Supporting the new Chief Executive in “shaping” the focus of the board was identified as the number one priority over the coming year. To this end, the role of the board in assisting with the development of a new strategic plan and supporting the new Chief Executive in his communications with the market was considered.

The review content for each subsequent evaluation is designed to build upon learning gained in the previous year to ensure that the recommendations agreed in the review are implemented and that year-on-year progress is measured.

The board committees are the Audit, Remuneration and Nomination Committees. The terms of reference (which are reviewed annually) of each committee can be found at www.debenhamsplc.com. During the year, the board approved the constitution of a Sustainability Committee, a committee of the board whose aim is to further integrate the corporate social responsibility of the business within its operations. The Sustainability Committee is chaired by Martina King and its members are employees whose roles within the business fall within four key work streams, namely sustainable sourcing, environment, logistics & distribution and people. Further information on the role and operation of that committee can be found here.

The Committee’s membership and responsibilities are detailed within the Remuneration Report here.

Nomination Committee

Nigel Northridge
Chairman, Nomination Committee

Directors and meetings

Name of director	Position	Meetings attended
Nigel Northridge (Committee Chairman)	Chairman	1/1
Adam Crozier	Independent non-executive director	1/1
Martina King	Independent non-executive director	1/1
Dennis Millard	Senior independent non-executive director	1/1
Mark Rolfe	Independent non-executive director	0/0
Sophie Turner Laing	Independent non-executive director	1/1

The Nomination Committee is chaired by Nigel Northridge. The other members are Adam Crozier, Martina King, Dennis Millard, Mark Rolfe and Sophie Turner Laing.

Other individuals such as the Chief Executive, the HR Director and external advisers may be invited to attend for all or part of any meeting, as and when appropriate. The Company Secretary also attends meetings in his capacity as Secretary of the Committee. The Committee met once formally during the year.

The Committee is responsible for board recruitment. The Committee’s aim is to ensure that the right skill sets are present in the boardroom to deal with the challenges and opportunities facing the Company thereby enabling it to compete effectively in the marketplace. The Committee regularly considers the time commitment required from the existing non-executive directors and is responsible for succession planning. Both in its recruitment and succession planning processes, the Committee takes into account the board size, structure and composition having regard to the balance of skills, knowledge, experience and diversity of psychological type, background and gender so as to ensure that the board is not composed of solely like-minded individuals. In line with the UK Corporate Governance Code, the Nomination Committee is this year recommending that all the directors of the Company stand for re-election at the next Annual General Meeting. The monitoring and approval of any director conflicts of interest, including other external directorships, also falls within the remit of this Committee.

The Committee has this year focused on implementing its agreed succession plan for the role of Chief Executive. Rob Templeman stepped down from his position as Chief Executive on 4 September 2011 and Michael Sharp assumed the leadership of the business thereafter. Michael Sharp had been Deputy Chief Executive since November 2008 and his appointment as Chief Executive will ensure continuity of management and strategy of the business. Rob Templeman remains available to both the board and Michael Sharp on a consultancy basis until September 2012 at the latest.

Audit Committee

Dennis Millard
Chairman, Audit Committee

Directors and meetings

Name of director	Position	Meetings attended
Dennis Millard (Committee Chairman)	Senior independent non-executive director	3/3
Adam Crozier	Independent non-executive director	3/3
Martina King	Independent non-executive director	3/3
Mark Rolfe	Independent non-executive director	3/3
Sophie Turner Laing	Independent non-executive director	3/3

The Audit Committee is chaired by Dennis Millard. The other members are Adam Crozier, Martina King, Mark Rolfe and Sophie Turner Laing. Dennis Millard brings significant recent and relevant financial expertise to the Committee which is enhanced by the other members of the Committee who have appropriate business expertise. The Audit Committee meetings are also attended by the Chairman, the Finance Director, the Head of Internal Audit and Risk Management, the external auditors PricewaterhouseCoopers LLP, and the Treasurer for the presentation of his report. The Company Secretary also attends any meeting in his capacity as Secretary of the Committee.

The Audit Committee’s primary responsibilities are to monitor the integrity of financial statements (including any related information presented with the financial statements) and any formal announcements relating to the Company’s financial performance, to review any changes in accounting principles and consider the appropriateness of accounting policies adopted by the Company, to review the Group’s internal and external audit activity and to review and monitor the effectiveness of the risk management and internal control systems within the business. The terms of engagement of the external auditor together with the external auditor independence policy are also approved by the Committee.

The Committee met three times during the year and also met with the Company’s external auditor and the Head of Internal Audit and Risk Management privately without any management being present.

While fulfilling the above responsibilities during the year, the Committee also reviewed the stock management controls within the business, the business continuity plan, the going concern status, the whistleblowing policy and risk appetite. The Committee also approved the statements included in the annual report concerning internal controls and risk management, considered the external auditors’ performance, resource, independence and objectivity and recommended to the board the re-election of the auditors for 2011 and the auditors’ report on the year end audit and management’s responses to the issues. The internal audit programme and the external audit strategy and scope for 2011 were also agreed and approved and the Anti-Bribery and Corruption Policy was recommended to the board for approval. After each meeting the Chairman reports to the board on the matters discussed, on recommendations and on actions to be taken.

The Audit Committee reviewed its performance using an external facilitator and the overall conclusion was that the Committee was discharging its duties effectively. Arising from the review, it was agreed that certain areas for additional focus in the year ahead would be: IT systems risks, governance and controls, with particular reference to multi-channel systems; the internal controls framework at the centralised accounting facility; and data security.

Directors’ conflicts of interest

The Nomination Committee annually reviews and considers the interests and other external appointments held by the members of the board. All conflicts declared were approved at its meeting in September. The directors have a continuing duty to inform the board of any potential conflicts immediately so that such conflicts may be considered and if authorised included within the register of conflicts.

Share capital and control

Information which the directors are required to provide pursuant to Section 992 of the Companies Act 2006 can be found here.

Auditors’ independence

In order to ensure that an appropriate relationship is maintained with the external auditors, a policy on auditor independence has been established and is regularly reviewed. This covers matters such as that auditors and their staff have no family, financial, employment, investment or business relationship with the Company, the employment by the Company of former audit employees, the rotation of audit partners and the provision of non-audit services. The Audit Committee makes recommendations to the full board in respect of reappointment annually of the auditors and the board then ensures that this is included on the Notice for the Annual General Meeting. As regards the risk of the external auditors withdrawal from the market, the Company considers that there are sufficient other auditors in the marketplace should this situation ever arise.

The objective of the Audit Committee’s policy in relation to the provision of non-audit services by the auditors is to ensure that the provision of such services does not impair the external auditors’ independence or objectivity. An independent report is produced by the Debenhams’ central costs team each quarter during the year detailing all non-audit work, its cost, when it was carried out and who instructed it. This information is reported to the Audit Committee at each meeting.

The Company’s policy identifies three categories of accounting services. The first category is audit-related services which the auditors are permitted to provide. The second category is prohibited services which the auditors are not permitted to provide. Prohibited services are those which might result in the external auditor auditing its own work or making management decisions for the Company and those where some mutuality of interest is created or where the external auditor is put in the role of advocate for the Company. The third category is “potential” services which the auditors may, in certain circumstances, provide subject to compliance with the independence policy. These services include tax advisory services or services where the auditors are acting as the Company’s reporting accountant.

£0.1 million was paid by the Company to PricewaterhouseCoopers LLP for non-audit services in respect of advisory services. The audit fees paid by the pension schemes were £28,000.

Relations with shareholders

The board is responsible for ensuring that the Company maintains a satisfactory dialogue with shareholders. The Chairman and the senior independent director are always available to major shareholders. Formal trading updates are given to the market on six occasions during the year. Following each of these announcements, conference calls are held with shareholders and analysts and after the full year and interim results a presentation is made to the shareholders and analysts. Analysts or brokers’ briefings are circulated to the board. A programme of meetings and conference calls is also organised at appropriate times during the year at which the Chief Executive and Finance Director comment on Company performance and respond to any issues raised by investors. In addition Debenhams arranges visits to its stores for analysts and shareholders.