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|BT's policy is to achieve best practice
in our standards of business integrity for all our activities around
the world. This includes a commitment to the highest standards of
corporate governance throughout the group. This section of the annual
report describes how BT has applied the principles set out in Section
1 of the Combined Code on Corporate Governance (the Code).
The directors consider that, throughout the year, BT has fully complied
with the provisions set out in Section 1 of the Code.
The Board meets every month, except in August. Its principal focus
is the overall strategic direction, development and control of the
group. Key matters, such as approval of the group’s strategic
plans and annual operating plan and budget, and monitoring the company’s
operating and financial performance, are reserved for the Board.
These are set out in a formal statement of the Board's role.
BT's aim is for approximately two-thirds of the Board to be non-executive
directors. Of the current 12 directors, nine are independent, non-executive
directors. Two directors are full-time executives. The Chairman
is part-time. Between them, the non-executive directors bring experience
and independent judgement at a senior level of international business
operations and strategy, marketing, communications and international
The non-executive directors provide a strong independent element
on the Board with Lord Marshall and Sir Anthony Greener, the Joint
Deputy Chairmen, as the senior independent members. However, the
Board operates as a single team.
Non-executive directors are appointed initially for three years.
Towards the end of that period, the Board considers, on the recommendation
of the Nominating Committee, whether
to continue the appointment. Appointments will be reviewed again
by the Board before the end of the sixth year. After the third anniversary,
appointments can be terminated by either the director or BT on 12
months’ written notice. Normally, non-executive directors
will remain in office for no more than ten years. Lord Marshall’s
contract was renewed for a second three-year term from 1 April 1998.
It was extended in June 2000 to the end of this year’s annual
general meeting when Lord Marshall will retire. Sir Anthony Greener’s
contract is for a three-year term from 1 October 2000.
All directors are required by the company’s articles of association
to be elected by shareholders at the first annual general meeting
after their appointment. At least one-third of the other directors
must seek re-election by the shareholders each year. This can mean
that directors are not necessarily re-elected every three years.
To comply with the Code, BT’s policy is that, in practice,
no director stays in office for more than three years without re-election.
The Chairman and executive directors have service agreements, which
are approved by the Remuneration Committee.
Information about the periods of these contracts is in the Report
on directors' remuneration.
The Board has a procedure for directors, in furtherance of their
duties, to take independent professional advice if necessary, at
the company’s expense. In addition, all directors have access
to the advice and services of the Secretary, the removal of whom
is a matter for the whole Board. He advises the Board on appropriate
procedures for the management of its meetings and duties, as well
as the implementation of corporate governance and compliance in
On appointment, directors take part in an induction programme when
they receive information about BT, the formal statement of the Board’s
role, the terms of reference and memberships of the principal Board
and management committees, including the powers that have been delegated
to the management committees, the company’s corporate governance
framework and executive reserved powers and latest financial information
about the group. This is supplemented by visits to key BT locations
and meetings with members of the Executive
Committee and other key senior executives. Throughout their
period in office, they are updated on BT’s business, the competitive
and regulatory environments in which it operates and other changes,
by written briefings and meetings with senior BT executives. Directors
are also advised on appointment of their legal and other obligations
as a director of a listed company, both in writing and in face-to-face
meetings with the Secretary. They are reminded of these obligations
each year and are encouraged to attend training courses at the company’s
Guidelines are in place concerning the content, presentation and
delivery of papers to directors for each Board meeting, so that
the directors have enough information to be properly briefed.
Principal Board committees
The Chief Executive, Sir Peter Bonfield, chairs the Executive
Committee. The other members are the Group Finance Director,
the Group Commercial Director and Secretary, the Group Personnel
Director, the Chief Executive Officers of the following lines of
business (BT Wireless, BT Ignite, BTopenworld, BT Wholesale and
BT Retail), the Chief Executive of BT Business Services, the Group
Strategy and Development Director, the Group Communications Director,
the Group Engineering Director and Chief Technology Officer and
the Restructuring Project Director. The Committee develops the group’s
strategy, for Board approval, and oversees its implementation. It
also finalises, before Board approval, annual operating and capital
expenditure plans and budgets, reviews operational activities and
agrees and monitors group-wide policies, where these are not reserved
to the Board.
The Nominating Committee, consisting
of the Chairman, the Joint Deputy Chairmen and three other non-executive
directors, recommends to the Board appointments of all directors.
To ensure an appropriate balance of expertise and ability, it has
agreed, and regularly reviews, a profile of the skills and attributes
required from the non-executive directors as a whole. This profile
is used to assess the suitability as non-executive directors of
candidates put forward by the directors and outside consultants.
Candidates short-listed for appointment are met by the Committee
before it recommends an appointment to the Board.
The Audit Committee, comprising
solely non-executive directors, is chaired by Sir Anthony Greener.
It reviews BT’s systems of internal control and risk management,
considers the company’s published financial reports for statutory
compliance and against standards of best practice and recommends
to the Board appropriate disclosure in these reports. The Board
takes responsibility for disclosures on internal control in the
annual report. The Audit Committee
also reviews annually the performance of the company’s auditors
to ensure that an objective, professional and cost-effective relationship
is maintained. It recommends to the Board the auditors’ fees
for their audit services. The Group Finance Director and the Group
Commercial Director and Secretary attend Committee meetings. Each
year, the Committee sets aside time to seek the views of the company’s
auditors in the absence of executives.
The Remuneration Committee comprises
solely non-executive directors and is chaired by Lord Marshall.
Sir Anthony Greener will chair the Committee after Lord Marshall's
retirement. Further details about the Committee are included in
the Report on directors'’ remuneration.
Committee membership is identified in the table
Internal control and risk management
The Board is responsible for the group’s systems of internal
control and risk management and for reviewing the effectiveness
of those systems. Such systems are designed to manage, rather than
eliminate, the risk of failure to achieve business objectives; any
system can provide only reasonable and not absolute assurance against
material misstatement or loss.
BT has processes for identifying, evaluating and managing the significant
risks faced by the group. These processes have been in place for
the whole of the 2001 financial year and have continued up to the
date on which this document was approved. The processes are in accordance
with the guidance for directors published in the UK in September
Risk assessment and evaluation takes place as an integral part of
the group’s annual strategic planning cycle. The group has
a detailed risk management process which identifies the key risks
facing each business unit. This information is reviewed by senior
management as part of the strategic review. The group’s current
key risks are summarised in Risk
The key features of the risk management process comprise the following
||the group's lines of business carry out
risk assessments of their operations, have created registers
relating to those risks, and ensure that the key risks are
addressed. Lines of business audit committees monitor the
standards of internal controls in the lines of business;
||senior management report regularly
to the Group Finance Director on the operation of internal
controls in their area of responsibility;
||the annual strategy review
process includes consideration of major business risks;
||the Chief Executive receives
annual reports from senior executives with responsibilities
for major group operations with their opinion on the effectiveness
of the operation of internal controls during the financial
|| the group's internal auditors
carry out continuing assessments of the quality of risk management
and control; they also promote effective risk management in
the lines of business’ operations;
Committee, on behalf of the Board, considers the effectiveness
of the operation of internal control procedures in the group
during the financial year. This follows the consideration
of the matter by the Executive Committee
at a preceding meeting. The Audit
Committee reviews reports from the Executive
Committee, from the internal auditors and from the
external auditors and reports its conclusions to the Board.
The Audit Committee has carried
out these actions for the 2001 financial year.
Material joint ventures and associates, which BT does not
control, outside the UK have not been dealt with as part of
the group for the purposes of this internal control assessment.
Relations with shareholders
Senior executives, led by the Chief Executive
and Group Finance Director, hold meetings with the company’s
principal institutional shareholders to discuss the company’s
strategy, financial performance and specific major investment activities.
As explained in the Report on directors' remuneration, the company
also maintains contact, when appropriate, through the chairman of
the Remuneration Committee and appropriate senior executives to
discuss overall remuneration policies and plans. Contact with institutional
shareholders (and financial analysts, brokers and the press) is
controlled by written guidelines to ensure the protection of share
price sensitive information that has not already been made available
generally to the company’s shareholders.
The company is continuing its policy that shareholders vote on the
annual report at the AGM.
The Board has also decided that shareholders should this year be
asked to vote on the directors' and senior executives' remuneration
policy, as set out on pages 62 to 65 in the Report on directors'
remuneration. Shareholders were asked to vote on the remuneration
policy for the first time at the AGM in 1999, but were not asked
to do so in 2000 as there had been no significant change.
It is part of the company’s policy to involve its shareholders
fully in the affairs of the company and to give them the opportunity
at the AGM to ask questions about the company’s activities
and prospects and to vote on every substantially different issue
by proposing a separate resolution for each issue. The Board's opinion
is that the re-election and fees of the auditors are inter-related
issues and should therefore be dealt with by one resolution.
The proxy votes for and against each resolution, as well as abstentions,
will be counted before the AGM and the results will be made available
at the meeting after shareholders have voted on a show of hands.
It is our policy for all directors to attend the AGM if at all possible.
Whilst, because of ill health or other pressing reasons, this may
not always be achievable, in normal circumstances this means the
chairmen of the Audit and Remuneration committees are at the AGM
and are available to answer questions.
BT's practice is to post the Annual Report and Notice of AGM in
the most cost-effective manner, given the large number of shareholders.
We aim to give as much notice as possible and at least 21 clear
days, as required by our articles of association. In practice, the
Annual Report and the Notice of AGM are being sent to shareholders
more than 20 working days before the AGM.
Established procedures ensure the timely release of share price
sensitive information and the publication of financial results and
regulatory financial statements.
Statement of Business Practice
To reinforce our commitment to achieve best practice in our standards
of business integrity, BT has a written Statement of Business Practice
(“The Way We Work”). The Statement reflects BT’s
international operations and the increasing expectations in the
areas of corporate governance and business practice standards. A
copy of the Statement (which is available in eight languages) has
been sent to every employee and is also available on the company’s
intranet site. There is a question and answer guide for managers
to help them brief their teams.
An ongoing comprehensive communications exercise, using vehicles
such as video and CD-ROM, continues to be rolled out across the
group, helping to raise awareness of the Statement and embody our
ethics and business principles across all the company’s activities.
BT has also developed, collaboratively with The Institute of Business
Ethics, an internal business practice excellence award - an industry
These high-level principles are supported by online training, and
a confidential helpline and e-mail facility are available to employees
who have questions regarding the application of these principles.
We also continue to require our agents and contractors to apply
these principles when representing BT.
It has always been the company’s policy not to give cash contributions
to any political party. However, given the nature of the group’s
businesses, BT and other group companies have a business need to
contact politicians and political parties on a non-partisan basis
to make them aware of key arguments and technology and industry
trends. BT believes these activities form a legitimate part of normal
relationships between companies and the political machinery. They
are not designed to support or influence support for a particular
party. Provisions of the Political Parties, Elections and Referendums
Act 2000, which mainly came into operation on 16 February 2001,
have changed significantly the controls over the funding of political
parties in the EU and other forms of EU political expenditure. The
new Act has also extended the definition of political donations
to the extent that we anticipate some of our existing activities
will be caught, even though they are not “donations”
in the ordinary sense of the word. As we wish to continue these
activities, we are, in accordance with the Act, seeking shareholders’
approval at the AGM to continue to make political donations and
incur other EU political expenditure, as these terms are defined
by the Act. Expenditure will continue to be on an even-handed basis
related broadly to the electoral strength of each party. The policy
of not making any direct cash contributions to any party will continue.
BT's main pension fund – the BT Pension Scheme – is
not controlled by the Board, but by trustees who are company and
union nominees, with an independent chairman. The trustees look
after the assets of the pension fund, which are held separately
from those of the company. The pension scheme funds can only be
used in accordance with its rules and for no other purpose.
On 1 April 2001, we introduced a defined contribution scheme for
new employees after closing the BT Pension Scheme to new entrants.
The defined contribution scheme has been established under a separate
trust from the existing BT Pension Scheme, but also has company
and union-nominated trustees and an independent chairman. Its assets
are held separately from those of the company.
A statement by the directors of their responsibilities for preparing
the financial statements is included in the statement
of directors’ responsibilities.
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