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Annual Review & Notice of Meeting 2007

Summary Directors’ report


Principal activities
BT is one of the world’s leading providers of communications solutions and services operating in 170 countries. A review of BT is given in the 'BT in review' section.

An interim dividend of 5.1 pence per share (2006: 4.3 pence) was paid on 12 February 2007. The directors recommend a final dividend of 10 pence per share (2006: 7.6 pence) to be paid on 17 September 2007 to shareholders on the register at the close of business on 24 August 2007. This makes a total dividend for the year of 15.1 pence per share (2006: 11.9 pence), an increase of 27%.
BT’s total shareholder return (TSR) performance
over the five financial years to 31 March 2007

TSR performance of BT

Details of the current members of the Board are shown on the 'Board of directors' section. All served throughout the financial year, with the exception of Deborah Lathen and François Barrault, who were appointed on 1 February 2007 and 24 April 2007 respectively.
     Sir Anthony Greener served as a director and Deputy Chairman until 30 September 2006. He was succeeded as Deputy Chairman and senior independent director by Maarten van den Bergh.
     Sir Christopher Bland, Andy Green, Ian Livingston and John Nelson retire from the Board by rotation at the Annual General Meeting and being eligible, offer themselves for re-election. Deborah Lathen and François Barrault, having been appointed by the Board, will retire and will be proposed for election.
     Sir Mike Rake will succeed Sir Christopher Bland as Chairman on 26 September 2007, when he joins the Board. Sir Christopher steps down from the Board on 30 September 2007.
     The letter of appointment of Maarten van den Bergh was extended until 31 August 2009 on his appointment as Deputy Chairman and is terminable by either party on three months’ notice.
     The letter of appointment of Deborah Lathen is for an initial period of three years from 1 February 2007 and is terminable by either party on three months’ notice.

Annual General Meeting
The Notice of the Annual General Meeting to be held at 10.30 am on 19 July 2007 at The Sage Gateshead, St Mary’s Square, Gateshead Quays, Gateshead NE8 2JR is contained in the 'Notice of meeting' section.

Corporate governance
It is BT’s policy to achieve for all our operations best practice in our standards of business integrity. The directors consider that BT has, throughout the year, complied with the provisions set out in section 1 of the 2003 Combined Code on Corporate Governance.

Board, directors and board committees
The Board is currently made up of the part-time Chairman, the Chief Executive,five other executive directors and eight independent non-executive directors. It is BT’s policy that the Board will comprise a majority of independent non-executive directors. The roles of the Chairman and the Chief Executive are separate. The non-executive directors provide a strong, independent element on the Board. Non-executive directors are appointed initially for three years at the end of which the appointment may be continued by mutual agreement. The Chairman and the non-executive directors meet regularly without the executive directors. The Chairman ensures the views of shareholders are known to and appropriately considered by the Board.
     The Board’s principal focus is the overall strategic direction, development and control of the group. A formal statement of its role is available on the company’s website. The Board meets at least nine times each year.
     During summer 2006 the Board carried out a further evaluation of Board and Board Committee performance and effectiveness. As part of this process, the Chairman had one-to-one sessions with the directors; and the previous Deputy Chairman, Sir Anthony Greener, met all directors individually to review the Chairman’s performance.
     To meet best corporate governance practice, Audit, Remuneration and Nominating Committees have long been an established part of BT’s system of governance. Each committee has written terms of reference, which are available on the company’s website. The Audit and Remuneration Committees are made up entirely of independent non-executive directors. The Board considers that several of the Audit Committee’s members have recent and relevant financial experience. The Audit Committee reviews the company’s published financial results, the Annual Report & Form 20-F and other published information for statutory and regulatory compliance and reports its views to the Board. It recommends the appointment, reappointment and remuneration of the company’s external auditors and ensures that key partners are rotated at appropriate intervals. The Board has policies determining what non-audit services the company’s external auditors can provide, in order to safeguard their independence and objectivity.
     The Nominating Committee ensures an appropriate balance of experience and abilities on the Board, using this evaluation to review the size and composition of the Board and to recommend any proposed changes to the Board.

    The Equality of Access Board monitors the company’s compliance with the Undertakings made to Ofcom following Ofcom’s Strategic Review of Telecommunications. Its terms of reference are also available on the company’s website.
     The Chief Executive, Ben Verwaayen, chairs the Operating Committee, which meets weekly.
     The Board also has a Community Support Committee and a Pension Scheme Performance Review Group.

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 2007 financial year and have continued up to the date on which this document was approved.
     BT’s management is responsible for establishing and maintaining adequate internal control over financial reporting for the group. Management has concluded that at 31 March 2007 the group’s internal control over financial reporting was effective.

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