Corporate governance

Directors' Report on Corporate Governance

The Directors are committed to best practice in Corporate Governance and have considered the UK Corporate Governance Code (the Code) which was launched in June 2010 and is intended to apply to listed companies. Although the Code does not directly apply to the Society the Board has reviewed the requirements and, where appropriate for the Society, has voluntarily adopted them.

The Board of Directors

The Board meets at least eleven times during the year. Its responsibilities include determining the Society's long term strategy, the review of business and financial performance, and to ensure that effective systems and controls are in place for risk management and ensuring compliance with laws and regulations. There is a formal schedule of matters reserved for the Board, and the Board has full and timely access to all relevant information to enable it to discharge its duties effectively. At least once a year the Board meets in the absence of the Executive Directors.

The Board has established three committees; the Audit and Compliance Committee which meets at least quarterly and the Remuneration Committee and Chairman's and Nominations Committee both of which meet at least annually. The Audit and Compliance and Remuneration Committees are comprise only Non-Executive Directors. Details of Committee membership are to be found in the table below. The Terms of Reference for Committees can be found here, or are available from the Society's Secretary on request.

Audit & Compliance Committee

The Audit and Compliance Committee consists of four Non-Executive Directors, who meet at least four times a year. The Society's Chairman is not permitted to be a member of the Committee - he may however attend meetings if invited to do so. The Chief Executive, Finance Director, Secretary and Compliance and Risk Manager also attend at the invitation of the Committee. This Committee monitors internal controls, the integrity and judgements made in financial reporting, risk management and regulatory compliance matters, reviews the work of Internal Audit and the Compliance function, assesses their effectiveness, considers the appointment of the Auditors and the Terms of Engagement, and reviews and monitors the external auditor's independence and objectivity and the effectiveness of the audit process. It also has responsibility for ensuring that effective whistle-blowing arrangements are in place, which enables any concerns to be raised by employees in confidence. The Board is satisfied that at least one of the members of the Audit and Compliance Committee has recent and relevant financial experience.

Internal control & risk

The Society manages risk through committees for retail credit risk, operational risk and the Assets and Liabilities Committee which manages wholesale credit, market and liquidity risk. Each of these committees reports routinely to the Board. A Regulatory and Compliance Manager provides internal oversight, with Internal and External Audit providing external oversight.

Remuneration Committee

The Committee consists of four Non-Executive Directors. The Committee's main role is to approve the remuneration and incentive schemes for the Society's Executive and Senior Management. The Executive together with the Chairman meet annually to review Non-Executive Director fees, including those of the Deputy Chairman and Chairman of the Audit and Compliance Committee. The Board set the fees for the Chairman annually.

The Directors' Remuneration Report can be found on page 16 of the 2010 Report & Accounts.

Chairman's & Nominations Committee

The Committee consists of four Non-Executive Directors and the Chief Executive and is chaired by the Society's Chairman. The Committee is responsible for making recommendations to the Board on matters relating to the composition of the Board, including Board and Executive succession planning, the appointment of new Directors and election and re-election of Directors.

Set out below are details of the Directors during 2010 and their attendance record at Board meetings and relevant Board Committee meetings in the year. The number in brackets is the maximum number of scheduled meetings that each Director was eligible to attend.

- denotes not a member of the Committee

It should also be noted that in addition to attendance at the above meetings both Executive and Non-Executive Directors have been invited on occasions to attend Committees of which they are not members.

Chairman & Chief Executive

The roles of Chairman and Chief Executive are distinct and are held by different people, their roles being clearly set out in their individual job descriptions. The Chairman, who is elected by the Board annually, is mainly responsible for leading the Board and ensuring that it acts effectively, with the Chief Executive having responsibility for managing the Society and implementing strategies and policies agreed by the Board.

Board Balance & Independence

The Board consists of six Non-Executive Directors (including the Chairman) and two Executive Directors. Four of the Non-Executive Directors have served less than the maximum of 9 years recommended by the Code and can be defined as independent under it. Jeremy Bristol has completed 16 years of service on the Board at 3 March 2010, and Mark Sargeantson completed 12 years on 1 November 2010. Jeremy Bristol will retire from the Board on 30 November 2011. In the view of the Board, all of the Non-Executive Directors are independent in character and judgement, are free of any relationship or circumstance which could interfere with the exercise of their judgement, and bring wide and varied commercial experience to Board deliberations and continue to represent the interests of the Society's members. The Code now recommends that the Directors stand for re-election annually and this will be considered by the Board during 2011. However Directors are currently subject to re-election by members every three years and Jeremy Bristol, Kieron Blackburn and Sarah Evans stand for re-election at the Annual General Meeting in 2011.

Members are at liberty to contact any of the Society's Directors on any topic of concern. The Code recommends that a Senior Independent Director should be appointed. Whilst the Board has not officially appointed a Senior Independent Director, this role is fulfilled by the Deputy Chairman who is available to members if they have any concerns which they have been unable to resolve through the normal channels of the Chairman or Executive Directors.

Appointment to the Board

The Chairman's and Nominations Committee is responsible for reviewing the balance of skills and experience required on the Board and makes recommendations to the Board. The Board maintains a succession plan and develops a role profile for vacancies arising. Non-Executive Director appointments are advertised in the Sunday Times, in the local press and on appropriate Non-Executive Director appointment websites. All Directors are subject to election by the Society's members at the first Annual General Meeting after their appointment. Members also have the right under the Society's Rules to nominate candidates for election to the Board. The Board seeks to ensure planned and progressive refreshing of its membership.

Each year all Directors must meet the tests of fitness and propriety laid down by the Financial Services Authority and all Directors are required to be registered with the Financial Services Authority as an Approved Person to enable them to fulfil their Controlled Function as a Director.

The Board has resolved that no Executive Director shall remain on the Board following retirement from Executive office.

Information & Professional Development

On appointment, Directors are given appropriate induction and training. To ensure their skills remain updated, Directors attend industry seminars, conferences, and training courses and receive presentations from Senior Managers. All Directors are able to obtain independent, professional advice at the Society's expense if they believe it is necessary in fulfilling their role.

Performance Evaluation

The Society has a process to evaluate, at least annually, the performance and effectiveness of individual Directors, the Chairman, the Board and Board Committees. The performance of the Chief Executive and Non-Executive Directors is evaluated at least annually by the Chairman.

The Chairman also evaluates the performance of the Finance Director in their capacity as a Director, and the Chief Executive evaluates the Finance Director's performance in their capacity as a member of the Executive. The Chairman is evaluated by the Deputy Chairman, after consulting and obtaining the views of the other Directors. Those Non-Executive Directors who have served at least 6 years on the Board are subject to a particularly rigorous performance evaluation in line with the Code's requirements. The Board also annually evaluates its overall performance and the performance of the Board Committees. In 2011 a Board Effectiveness Review will be undertaken by an external facilitator who has no other business connection with the Society. The remaining Executive are evaluated by the Chief Executive.

Remuneration

The Report on the Directors' Remuneration on page 16 of the 2010 Report & Accounts sets out the remuneration policies for Executive and Non-Executive Directors.

Financial Reporting

The Statement of Directors' Responsibilities on page 18 of the 2010 Report & Accounts sets out the Board's responsibilities in relation to the preparation of the Society's Annual Report and Accounts, and a statement that the Society's business is a going concern is included in the Directors' Report.

Risk & Internal Control

The Directors have a responsibility, both under the Building Societies Act and the Financial Services and Markets Act, to establish and maintain systems of control appropriate to the business. The Internal Auditor provides independent assurance to the Board on the effectiveness of the system of internal control through the Audit and Compliance Committee.

The information received and considered by the Committee provided reasonable assurance that during the financial year there were no material breaches of control or regulatory standards, and that overall, the Society maintained an adequate system of internal control.

Audit & Compliance Committee & Auditors

The role and membership of the Audit and Compliance Committee have been set out earlier in this report. The Committee meets at least four times a year and minutes of the meetings, together with a report highlighting the key issues are provided to the subsequent Board meeting.

The external auditors meet the Audit and Compliance Committee at least twice yearly. At these meetings there is an opportunity for the external auditors to meet with the Non-Executive Director members alone.

The Society also engages the auditors for non-audit services which include advice on corporation tax issues. The Board has a policy relating to the engagement of external auditors to supply non-audit services, the purpose of which is to ensure the continued independence and objectivity of the external auditor.

Relations with members

The Society does not have shareholders in the same way as a listed company; as a mutual society our members are our shareholders. We therefore endeavour to elicit their views on our products and services through market research and dialogue with our staff. The Non-Executive Directors have during the year participated in a number of "Meet the Director Days" at our branches to listen to members' views in order to develop a balanced understanding of any issues or concerns and the quality of the Society's products and services. The Chairman ensures that the views received from members are communicated to the Board as a whole.

Every year the Society sends voting forms to those members eligible to vote under the Rules encouraging them to vote by post or appoint a proxy to vote for them at the AGM if they are unable to attend in person. The Society will once again this year offer members the facility to vote over the internet. The postal and internet votes are counted by the Electoral Reform Services and a poll is called in relation to the resolutions at the AGM enabling all votes received to be included within the final numbers.

The Society is keen to encourage as many members as possible to attend the Annual General Meeting as this gives the opportunity for them to meet the Society's Directors and Executive to discuss issues that are of concern. The Chairmen of all the committees are also available to answer questions.