1. business and industrial

CORPORATE GOVERNANCE STATEMENT - 2015
For Marks and Spencer Group plc (‘Marks & Spencer’; ‘M&S’; the ‘Company’) for the year ended 28 March 2015
The Board’s objective is to build a sustainable business through consistent, profitable growth and to make sure
that we act responsibly in meeting our accountabilities to shareholders and wider stakeholders.
The governance principles which apply to all companies with a premium listing on the London Stock Exchange
are found in the UK Corporate Governance Code (the Code). This statement provides a detailed account of
how the Company has applied the Code’s principles and how we comply with its provisions. It sets out our
approach to governance and supplements the information given in our 2015 Annual Report, approved by the
Board on 18 May 2015.
Compliance with the Code
The UK Corporate Governance Code 2012 (the ‘Code’) is the standard against which we were required to
measure ourselves in 2014/15. Throughout the year ended 28 March 2015 the Company complied with all
provisions of the Code, and we remain committed to the highest standards of corporate governance.
A
DIRECTORS
A.1
The Role of the Board: Every company should be headed by an effective Board, which is collectively
responsible for the long-term success of the company.
The Board agrees with the role for Boards given in the Code, which it has adopted in its Governance
Framework:

to provide entrepreneurial leadership of the Company within a framework of prudent and effective controls
which enables risk to be assessed and managed;

to set the Company's strategic aims, ensuring that the necessary financial and human resources are in place
for the Company to meet its objectives and review management performance; and

to set the Company's values and standards and ensure that its obligations to its shareholders and others
are understood and met.
All directors are on appointment individually briefed by the Group Secretary, on the duties they owe as
directors to the Company. Our Governance Framework includes the statutory duties set out in the Companies
Act 2006. The central duty is the duty to act in good faith and in a way most likely to promote the success of
the Company for the benefit of its members as a whole. In fulfilling this duty, directors should have regard
(amongst other matters) to the likely consequences of any decision in the long term; the interests of employees;
the need to foster business relationships with suppliers, customers and others; the impact of operations on the
community and the environment; the desirability of maintaining a reputation for high standards of business
conduct; and the need to act fairly between members of the Company.
The Board is the guardian of the M&S brand, its reputation and stakeholder relationships. During the year we
introduced four new core values built on the principles that have guided M&S since it was founded in 1884. We
believe that these values – Inspiration, Innovation, Integrity and In Touch – are essential in sustaining the
business and securing its long-term future. At M&S, our values help support us and ensure we reflect on doing
the right things the right way, even if this means making difficult choices. We believe that these values should
continue to guide the principles of how we do business and, if we continue to respect these, they should
underpin our performance for the longer term. Being true to our values and being fair has underpinned our
behaviour with our stakeholders, as well as enabling us to build and maintain a trusted relationship with our
customers, employees, suppliers and the communities in which we have operated over the last 130 years.
At M&S, governance is focused not only on the Boardroom but right across the business. We believe that
good governance ultimately produces a better business and improves long-term performance. It is not just
what we do, but how we do it. The work of the Board should complement, enhance and support the work of
the Executive. The Board seeks to achieve this through setting out its strategy, monitoring its strategic
objectives and providing oversight of its implementation by the management team. Working together, the
Board conducts robust interrogation of plans and actions, ensuring high quality decision-making in all areas of
strategy, performance, responsibility and accountability. The role of the Chairman is at the heart of ensuring
these actions are sustained and harnessed and can drive a culture of continuous improvement in standards and
performance across our business ensuring we have a Board that:

supports the executive team to formulate and execute the strategy;

demonstrates independence, knowledge and experience to bring fresh perspectives and to hold
management to account;

seeks full information to form views, question management and take strategic decisions;

is diverse and while acknowledging the recommendations on diversity, ensures that we have the right
balance of skills, experience and background; and

acts responsibly to make sure we meet our accountabilities to shareholders and wider stakeholders.
A.1.1
The Board met eight times during 2014/15 including a two-day strategy meeting. It plans its meetings
at least 18 months in advance in line with its financial reporting calendar. The Board has a formal schedule of
matters reserved for its decision and delegates certain matters to committees as set out below. The Board
determines the overall Group strategy; creation, acquisition or disposal of material corporate entities or assets;
development and protection of the brand; matters of public interest that could affect the Group's reputation;
public announcements including statutory accounts; significant changes in accounting policy; capital structure
and dividend policy; operating plans and key performance indicators; prosecution, defence or settlement of
material litigation; Group remuneration policy and Board structure, composition and succession. The Board
has reviewed its schedule of matters reserved which is set out within the Governance Framework. This outlines
the terms of reference of the Board and its committees and is available on our website. An overview of what
the Board has done during the year, is provided on pages 38 to 39 of the Annual Report.
A.1.2
Key Board appointments are carried out by the following people: Robert Swannell – Chairman, and
Nomination Committee Chairman; Marc Bolland – Chief Executive; Vindi Banga – Senior Independent
Director and Remuneration Committee Chairman; Andy Halford - Audit Committee Chairman. The Board
attendance table is set out on page 37 of the Annual Report. The Nomination, Audit and Remuneration
Committee attendance tables are set out on pages 42, 46 and 53 respectively. Amanda Mellor is Group
Secretary and ensures that the Board receives information and papers in a timely manner to enable full and
proper consideration of agenda items agreed in advance in its annual meeting planner. Any director who is
unable to attend a Board or Committee meeting reviews the relevant papers and provides comments in
advance to the Chairman or Committee Chairman as appropriate.
A.1.3
Directors are granted an indemnity from the Company in respect of liabilities incurred as a result of
their office. In respect of those matters for which they cannot be indemnified, the Company maintains
appropriate liability insurance for the benefit of directors.
A.2.
Division of Responsibilities: There should be a clear division of responsibilities at the head of the
company between the running of the Board and the executive responsibility for the running of the company's
business. No one individual should have unfettered powers of decision.
A.2.1
The roles of Chairman and Chief Executive are not exercised by the same individual, the division of
responsibilities is clearly established between the Chairman, Robert Swannell and Chief Executive, Marc
Bolland and these are set out in the Governance Framework which is reviewed and approved by the Board.
A.3
The Chairman: The Chairman is responsible for leadership of the Board and ensuring its effectiveness
on all aspects of its role.
A.3.1
The Chairman on appointment met and continues to meet the independence criteria set out in B.1.1 of
the Code.
A.4
Non-Executive Directors: As part of their role as members of a unitary Board, non-executive directors
should constructively challenge and help develop proposals on strategy.
A.4.1
Vindi Banga, Senior Independent Director, provides a communication channel between the Chairman
and the non-executive directors. He ensures that the views of each non-executive director are given due
consideration. He is an additional contact point for shareholders if they have reason for concern that cannot be
addressed through the normal channels of Chairman, Chief Executive or other executive directors or for which
such contact is inappropriate.
A.4.2
The Chairman meets the non-executive directors without the executives present to make sure they are
sufficiently prepared for Board and committee duties and to receive further insight into the performance of the
Group and management. The Senior Independent Director chairs meetings of the non-executive directors
without the Chairman present to review the performance of the Group generally and the Chairman in particular.
A.4.3
Directors' concerns, which cannot be resolved, about the running of the Group or a proposed action,
would be recorded in the Board minutes. On resignation, a non-executive director with such concerns would
be expected to provide a written statement to the Chairman, for circulation to the Board. No such concerns
have been highlighted.
B
EFFECTIVENESS
B.1
The Composition of the Board: the Board and its committees should have the appropriate balance of
skills, experience, independence and knowledge of the company to enable them to discharge their respective
duties and responsibilities effectively.
B.1.1
The Board has determined that each non-executive director is independent in character and
judgement; commits sufficient time and energy to the role, and continues to make a valuable contribution to
the Board and its committees. The Board keeps under review whether there are relationships or circumstances
which are likely to affect, or could appear to affect their independence. Martha Lane Fox has served on the
Board for eight years. The Board approved the appointment of Martha for a third term in May 2013, and Martha
continued to receive strong support from shareholders for her re-election at the 2014 AGM. Given that Martha
has served more than six years with the Company, her appointment was the subject of particular review and
scrutiny; her detailed knowledge and association with the Group assists her in effectively challenging
management and her length of service, when taken in the context of the Group as a whole, enhances her
effectiveness as a non-executive director. As a result, the Board believes that Martha remains independent in
character and judgement.
B.1.2
B.2
Half the Board comprises independent non-executive directors, excluding the Chairman.
Appointments to the Board: There should be a formal, rigorous and transparent procedure for the
appointment of new directors to the Board.
Vindi Banga succeeded Steven Holliday as Remuneration Committee Chairman in July 2014 and succeeded Jan
du Plessis as Senior Independent Director in March 2015.
Helen Weir formally took up the role of Chief Finance Officer in April 2015, following the announcement of her
appointment in November 2014. She replaced Alan Stewart, who resigned in July 2014.
Richard Solomons joined the Board as a non-executive director on 13 April 2015 and joined the Nomination
Committee on that date. Richard is Chief Executive of InterContinental Hotels Group.
B.2.1
The appointment of new directors is led by the Nomination Committee, which comprises Robert
Swannell (Chairman), Marc Bolland, Chief Executive and all six independent non-executive directors: Vindi
Banga, Alison Brittain, Miranda Curtis, Martha Lane Fox, Andy Halford and Richard Solomons. The
Committee’s terms of reference which are available on the Company's website. An overview of what the
Committee has done during the year is provided on page 42 of the Annual Report.
The Group Secretary acts as secretary to the Committee and ensures that it receives information and papers in
a timely manner to enable full and proper consideration of agenda items agreed in advance in its annual
meeting planner.
B.2.2
The Nomination Committee’s primary role is to ensure that appropriate procedures are in place for the
nomination, selection, training and evaluation of directors and for succession planning. It reviews the
Company’s Board structure, size, composition, diversity and succession requirements, thereby keeping under
consideration the balance of membership and the required blend of skills, knowledge and experience of the
Board. Appointments are made on merit and against objective criteria to ensure that the Board maintains a
balance of skills and experience.
B.2.3
Under the Company’s Articles of Association, all directors seek election at their first Annual General
Meeting following appointment and all directors are required to offer themselves for re-election at least every
three years. However, the Board follow the more rigorous guidance in relation to the re-election of directors,
specifically that all directors will be subject to annual election by shareholders.
At the 2015 AGM, Helen Weir and Richard Solomons will be seeking election following their appointments to
the Board as Chief Finance Officer and non-executive director, respectively. All of the remaining directors will
be seeking re-election. Any term beyond six years (i.e. two three-year terms) for a non-executive director is
subject to rigorous review.
Martha Lane Fox has served on the Board for eight years. The Board approved the appointment of Martha for a
third term in May 2013, and Martha continued to receive strong support from shareholders for her re-election at
the 2014 AGM. This year, given that Martha has served more than six years with the Company, her appointment
was the subject of particular review and scrutiny; her detailed knowledge and association with the Group assists
her in effectively challenging management and her length of service, when taken in the context of the Group as
a whole, enhances her effectiveness as a non-executive director. As a result, the Board believes that Martha
remains independent in character and judgement.
B.2.4
The Nomination Committee formally met four times during the year. This year the Committee has
focused on strengthening, broadening, balancing and understanding the range of skills, experience and
diversity on the Board, its Committees and below Board level, as well as on succession, following the
resignation of Alan Stewart and retirement of Jan du Plessis during the year. This year we secured the
appointments of Helen Weir, as Chief Finance Officer, and Richard Solomons as non-executive director.
For each appointment, considerable time was spent reviewing the existing skill-set on the Board, discussing its
diversity in line with our policy, specifically in terms of background and experiences, nationality and gender and
balancing this against what the business will need to become an international multi-channel retailer.
Considerable time was spent with our external consultants managing a formal, thorough and orderly search,
reviewing all those candidates that might fit our criteria.
In 2012 we published our first Board diversity policy, which set out our targets and objectives to ensure that
diversity, in its broadest sense, remains a central feature of the Board. Since setting out our ambitions and
objectives, the Board has made some positive steps in broadening the diversity not just of the Board, but of our
senior management. We have reported against each of our policy objectives below. In 2014, the Board
reviewed its policy to ensure it continues to drive the benefits of a diverse Board and workforce across the
business. The Board agreed that the ambitions and objectives set out in the policy remain relevant targets
against which to measure our progress.
Maintain a level of at least 30% female directors on the Board over the short to medium term
The appointments of Helen Weir and Richard Solomons increased the female/male balance on the Board from
31% female membership at the start of July last year to 38% in April this year. The Board remains committed to
maintaining at least a 30% female representation on the Board, whilst ensuring that diversity in its broadest
sense remains a central feature. However, the Nomination Committee will continue to recommend
appointments to the Board based on merit, measured against objective criteria and the skills and experience
the individual offers. The Board remains committed to strengthening the pipeline of senior female executives
within the business and has taken steps to ensure that there are no barriers to women succeeding at the
highest levels within M&S.
Assist the development of a pipeline of high-calibre candidates by encouraging a broad range of senior
individuals within the business to take on additional roles to gain valuable board experience
During the year, the Board continued to focus on strengthening the pipeline of executive talent in the
company. It committed to learning and building on existing programmes while introducing new initiatives to
broaden and develop the strong talent which exists across the business, including
-
A comprehensive talent review presented to the Board annually, mapping successional candidates and
opportunities across all senior roles within the business.
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The Leadership Development Service has been in place for 2 years and continues to identify and
partner key senior talent across the business, broadening their skill sets and experience to prepare
them for future opportunities. This has been supported through greater boardroom exposure, nonexecutive and Trustee roles outside of M&S, and participation in mentoring schemes.
-
Access to International Business School Training
-
Senior management mentoring and coaching schemes, including individual leadership assessments,
and non-executive director sponsored lunches and breakfasts.
-
Lead to Succeed management development course
Consider candidates for appointment as non-executive directors from a wider pool, including those with little
or no listed company board experience
During the year, the Nomination Committee discussed the Board’s successional needs, and continues to work
closely with the executive search agency, JCA, in compiling long and short lists of candidates. During the
search for the most recent appointments, the Board identified and interviewed a range of candidates from
various backgrounds and industries, and all candidates were measured against the agreed criteria. Although we
do not currently openly advertise our non-executive director positions, we appreciate the benefit of this
approach and will keep this under review.
Ensure ‘long lists’ of potential non-executive directors include 50% female candidates
The Board remains committed to ensuring that high performing women from a variety of backgrounds who
have the requisite skills, are given greater exposure to the Nomination Committees of FTSE100 companies.
Once again, the Board met its commitment, and all non-executive director long lists in 2014/15 included 50%
female candidates.
Only engage executive search firms who have signed up to the voluntary Code of Conduct on gender diversity
and best practice
The Board continues to support the nine principles of the Executive Search Firms Voluntary Code of Conduct
on gender diversity, demonstrated by remaining committed to only engaging executive search firms who are
signatories to this code. During the year, we continued to work closely with JCA, and maintained our focus on
the targets and ambitions around female representation on the Board. The Board confirms that JCA has no
other connection with the Company.
Report annually against these objectives and other initiatives taking place within the Company which promote
gender and other forms of diversity
The Board has made strong progress against the key policy objectives during the year. In addition, the business
has continued to promote diversity with the introduction or continuation of key initiatives:
-
The annual Board evaluation process includes an assessment of the Board’s diversity including gender,
helping to objectively consider its composition and effectiveness;
-
M&S inspiring Women’s Network launched in 2014, continues to support the progress of women in our
business, giving access to a range of role models, providing informal mentoring and networking
opportunities, and creating a forum for discussion to explore and address the career challenges women
face;
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Taking part in a number of pilot schemes including cross-business mentoring for senior women, run by
the government backed 30% Club, a female only development programme.
-
The MBA Leadership Programme is in its fourth year, recruiting and developing talented MBA
graduates from international business schools; to date intake into the programme has been over 50%
women;
-
Partnering with a local school to provide one-to-one mentoring support for around 50 female students
between the ages of 15 and 17.
-
A number of programmes to help people in our communities, including Marks & Start, Marks & Start
Logistics and Make Your Mark are successfully helping young people, the homeless, lone parents and
those with disabilities to find work in our stores and distribution centres.
Report annually on the outcome of the Board evaluation, the composition and structure of the Board as well as
any issues and challenges the Board is facing when considering the diverse make-up of the Company
We continue to regard the board evaluation process as an important means of monitoring our progress. Full
details of the 2014/15 board evaluation and the Action plan are on page 41 of the Annual Report. We remain
committed to getting the right balance of internal versus external hires and work towards understanding and
managing some of the challenges we face, such as:
-
International management experience reflective of the customers and communities we serve; and
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Any main challenges women face to reach regional management positions and above, within the
business.
B.3
Commitment: All directors should be able to allocate sufficient time to the Company to discharge their
responsibilities effectively.
B.3.1
A job specification for the Chairman was prepared in advance of Robert Swannell’s appointment to the
Board, which includes an assessment of the time commitment expected. This is available to view in the
Governance Framework on the Company’s website. The Chairman’s other significant commitments are
disclosed to the Board before appointment, changes to such commitments are reported to the Board as they
arise and are included on page 34 of the Annual Report.
B.3.2
The non-executive directors have ensured that they have sufficient time to carry out their duties. The
appointment letter for non-executive directors sets out their terms and conditions of appointment, detailed
information on the Group and the expected time commitment, including dates of future Board meetings and
AGMs. Their other significant commitments are disclosed to the Board before appointment, with a broad
indication of the time involved. The Board is informed of any subsequent changes. Their letters of appointment
are available for inspection through the Group Secretary and at our AGM.
B.3.3
No full time executive director has taken on more than one non-executive directorship of a FTSE 100
company, or the chairmanship of such a company.
B.4
Development: All directors should receive induction on joining the Board and should regularly update
and refresh their skills and knowledge.
The Chairman encourages the directors to continually update their skills, knowledge and familiarity with the
Group through their initial induction, on-going participation at Board and committee meetings, meeting
employees at store locations and elsewhere, whilst keeping up-to-date on governance and legal matters and
the views of customers and shareholders.
B.4.1 On joining the Board the Chairman ensures that all new directors receive a full, formal and tailored
induction to the Group, the executive directors also follow our corporate induction framework for senior
management. These inductions cover key areas, including company structure and strategy, industry and
competitive environment and sentiment and reputation. All directors are provided the opportunity to meet
major shareholders. Our new directors, Helen Weir and Richard Solomons, received comprehensive, formal
and highly tailored induction programmes, which were supported by one-on-one meetings with the Group
Secretary, executive directors, members of the Management Committee and a wide range of senior
management across the business, and the opportunity to meet with major shareholders.
B.4.2
As part of the annual Board evaluation, the Chairman reviews and agrees with each director their
training and development needs.
B.5
Information and Support: The Board should be supplied in a timely manner with information in a form
and of a quality appropriate to enable it to discharge its duties.
The Chairman ensures that the directors receive accurate, timely and clear information. They receive regular
updates on business performance against the annual operating plan, the strategy and investment decisions,
together with business reports and presentations from senior management at Board meetings.
The Group Secretary and Head of Corporate Governance supports the Chairman in carrying out his governance
accountabilities. She also makes sure the non-executives receive the information and access to the people they
need. She keeps the directors informed on governance, regulation and legislative change through her written
report to each Board meeting. She is supported by the Governance Group - comprising secretariat, legal,
insurance, internal audit & risk, pensions, the company archive and BIG (employee representatives) - which
helps and supports colleagues to do the right thing, the right way with governance that is meaningful, relevant
and focused on improving the business, both in the UK and overseas.
Board papers are distributed electronically via iPads.
B.5.1
There is an established procedure whereby the Board or any of its committees may take independent
professional advice when appropriate. Any individual director, wishing to do so in the furtherance of their
duties, may take independent professional advice through the Group Secretary at the Company's expense.
B.5.2
The Group Secretary plays a key role in the promotion of good governance, therefore the appointment
or removal of this person is a matter for the Board as a whole.
B.6
Evaluation: The Board should undertake a formal and rigorous annual evaluation of its own
performance and that of its committees and individual directors.
The M&S Board is committed to best practice in its governance activities. The annual Board effectiveness
review provides a useful opportunity for the Board to take a step back and reflect on their collective and
individual effectiveness, consider where improvements can be made and chart progress. Our last
independently facilitated Board review was conducted in 2012, therefore in line with best practice we
commissioned another independent review in 2015. The review comprised the following stages:
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Stage 1 A comprehensive brief was given to the assessment team by the Chairman, Robert Swannell,
and Group Secretary, Amanda Mellor, in December 2014. The evaluation team also observed Board
and committee meetings in December 2014, and January and March 2015. Copies of all Board papers
were provided to the team for briefing purposes prior to the meeting. In January and February,
detailed interviews were conducted with every Board member. All participants were interviewed
according to a clear agenda, tailored for the Board. In addition, the team spoke to the Director of HR,
the Interim Chief Finance Officer, Head of Internal Audit & Risk, the Group Secretary, the Company’s
external remuneration consultants, PwC, and the Company’s lead Audit Partner from Deloitte.
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Stage 2 The report was compiled by the evaluation team based on information and views supplied by
the Board and those interviewed. All recommendations were based on best practice as described in the
UK Corporate Governance Code and other current corporate governance guidelines.
-
Stage 3 Draft conclusions were discussed with the Chairman and subsequently discussed with the
whole Board. The conclusions of that discussion were recorded in the minutes of the meeting. Robert
Swannell also received a separate report with feedback on individual directors. Following the Board
meeting, Ffion Hague gave feedback on the Chairman to the Senior Independent Director, and to the
Committee Chairmen on the performance of each committee. The Senior Independent Director also
met with the non-executive directors to review the Chairman’s performance. This review was then
shared with the Chairman.
B.6.1
The Annual Report sets out how the Board and its committees have been reviewed and their respective
performances during 2014/15, the outputs and the action planning for 2015/16.
The Board and committees reviews were conducted against the principals set out in the UK Corporate
Governance Code. All participants were interviewed according to an agenda tailored specifically for our Board
and committees, and all were hugely supportive of our aims, embraced our desire to elicit a diversity of views,
and demonstrated a commitment to achieving exemplary performance.
B.6.2
During 2014/15, the Board and its committees were again reviewed. In order to ensure consistency the
review was once again conducted by Ffion Hague of Independent Board Evaluation, a wholly independent
consultant who has no other relationship with M&S.
B.6.3
The non-executive directors, led by the Senior Independent Director, have reviewed the performance
of the Chairman taking into account the views of the executive directors, against his accountabilities and the
business objectives and confirm that he demonstrates strong leadership of the Group.
B.7
Re-election: All directors should be submitted for re-election at regular intervals, subject to continued
satisfactory performance.
B.7.1
All directors were subject to election by shareholders at the 2014 AGM. All directors will again stand
for election by shareholders at the 2015 AGM. Directors’ biographies are given on pages 34 and 35 of the
Annual Report and can be viewed on our corporate website, enabling shareholders to take an informed
decision when determining their (re)-election.
B.7.2
The papers accompanying the resolutions to elect each non-executive director set out to shareholders
why the Board believes that they should be elected and that, following a formal evaluation, the individual’s
performance continues to be effective and demonstrates commitment to the role.
SECTION C
ACCOUNTABILITY
C.1
Financial and Business Reporting: The Board should present a fair balanced and understandable
assessment of the Company’s position and prospects
The Board applies a consistent approach in its financial reporting, which includes interim and other pricesensitive public reports as well as reports to regulators and information required by statute.
The Board has established arrangements that enable it to assess that the information presented is fair,
balanced and understandable.
C.1.1
The responsibilities of the directors in preparing the accounts and the statement by auditors about
their reporting responsibilities are set out on pages 82 and 89 respectively of the Annual Report. Confirmation
that the directors consider the annual report and accounts, taken as a whole, to be fair, balanced and
understandable is given on page 83 of the Annual Report.
C.1.2
An explanation of the basis on which the Company creates value for shareholders and generates value
over the longer term is set out in the Annual Report on pages 2 to 31, along with details of the strategy for
delivering the Company’s objective of becoming an international, multi-channel retailer.
C.1.3
The directors' going concern statement is given on page 82 of the Annual Report. Based on the
Group’s cash flow forecasts and projections, the Board is satisfied that the Group will be able to operate within
the level of its facilities for the foreseeable future.
C.2
Risk Management and Internal Control: The Board is responsible for determining the nature and
extent of the significant risks it is willing to take in achieving its strategic objectives. The Board should maintain
sound risk management and internal control systems.
One of the Board's key accountabilities is to provide entrepreneurial leadership of the Company within a
framework of prudent and effective controls which enable risk to be assessed and managed. Effective risk
management is critical to the Board’s achievement of its strategic objectives and the long-term sustainable
growth of our business.
C.2.1
The Board, through the Audit Committee, has conducted a review of the effectiveness of the systems
of the Company’s risk management and internal control systems as described below.
Risk management
We believe that effective risk management is critical to the achievement of our strategic objectives and the
long-term sustainable growth of our business.
The Board has overall accountability for ensuring that risk is effectively managed across the Group and, on
behalf of the Board, the Audit Committee reviews the effectiveness of the Group Risk Process. Each business
area is responsible for identifying, assessing and managing the risks in their respective area.
Risks are identified and assessed by all business areas half-yearly and are measured against a defined set of
criteria, considering likelihood of occurrence and potential impact to the Group. The Group Risk function
facilitates a risk identification and assessment exercise with the Executive Board members. This information is
combined to form a consolidated view of risk. The top risks (based on likelihood and impact) form our Group
Risk Profile, which is reported to the Executive Board for review and challenge, ahead of it being submitted to
Group Board for final review and approval.
To ensure our risk process drives continuous improvement across the business, the Executive Board monitors
the ongoing status and progress of key action plans against each risk quarterly. Risk remains a key
consideration in all strategic decision-making by the Board, incorporating debate on risk appetite.
C.2.2 Our principal risks and uncertainties
As with any business, we face risks and uncertainties on a daily basis. It is the effective management of these
that places us in a better position to be able to achieve our strategic objectives and to embrace opportunities
as they arise.
Details of our principal risks and the mitigating activities in place to address them are presented on pages 24
and 25 of our Annual Report. It is recognised that the Group is exposed to a number of risks, wider than those
listed in the Annual Report. However, a conscious effort has been made to disclose those of most concern to
the business at this moment in time and those that have been the subject of Board or Audit Committee debate.
To achieve a holistic view of the risks facing our business, both now and in the future, we consider those that
are:
external to our business;
core to our day-to-day operation;
related to business change activity; and
those that could emerge in the future.
The ‘risk radar’ on page 23 of the Annual Report maps our principal risks against these categories. This tool is
also used to facilitate wider Executive and Board discussions on risk, including potential emerging risks.
C.2.3 Internal control
The Audit Committee has completed its review of the effectiveness of the Group’s systems of internal control
during the year and up to 19 May 2015, the date of the Annual Report, in accordance with the requirements of
the revised Turnbull Guidance on Internal Control, published by the FRC. It confirms that no significant failings
or weaknesses were identified in the review for 2014/15. Where areas for improvement were identified,
processes are in place to ensure that the necessary action is taken and that progress is monitored.
The key features of the Group’s internal control and risk management systems that ensure the accuracy and
reliability of financial reporting include: clearly defined lines of accountability and delegation of authority,
policies and procedures that cover financial planning and reporting, preparing consolidated accounts, capital
expenditure, project governance and information security, and the Group’s Code of Ethics and Behaviours.
On behalf of the Board, the Audit Committee examines the effectiveness of the Group’s:

Systems of internal control, covering all material controls, including financial, operational and compliance
controls and risk management systems, primarily through approving the internal audit plan and reviewing
its findings, reviews of the annual and half year financial statements and a review of the nature, scope and
reports of external audit;

Management of risk by reviewing evidence of risk assessment activity and an internal audit report on the
process; and

Action taken or to be taken to manage critical risks or to remedy any control failings or weaknesses
identified.
This year, we have placed significant focus on developing our approach to risk appetite in line with the
Corporate Governance Code. By expressing the types and amount of risk we are willing to take or accept to
achieve our plan, we aim to support consistent, risk-informed decision-making across the Group.
C3
Audit Committee and Auditors: The Board should establish formal and transparent arrangements for
considering how they should apply the corporate reporting and risk management and internal control
principles and for maintaining an appropriate relationship with the Company’s auditor.
C.3.1
The Audit Committee comprises four independent non-executive directors. Andy Halford (Chairman),
Martha Lane Fox, Miranda Curtis, and Alison Brittain. The Audit Committee met five times during the year and
private meetings have been held separately with the external auditors and internal audit after each Committee
meeting.
The Board has satisfied itself that Andy Halford has recent and relevant financial experience and is confident
that the collective experience of the members enables it to be effective. The fact that a person has been
identified as having recent and relevant financial experience does not impose additional duties, obligations or
responsibilities on that Audit Committee member. The Committee also has access to the financial expertise of
the Group and its external and internal auditors and can seek further professional advice at the Company’s
expense, if required.
The Group Secretary acts as secretary to the Committee and ensures that it receives information and papers in
a timely manner, via iPads, to enable full and proper consideration of agenda items. These agenda items are
agreed in advance in its annual meeting planner.
C.3.2
The main roles and responsibilities of the Audit Committee are set out in written terms of reference
which have been updated and are available on our website. An overview of what the committee has done
during the year, along with how their performance was rated, is provided on pages 46 to 50 of the Annual
Report.
C.3.3
The terms of reference of the Audit Committee, available on our website, include its role and the
authority delegated to it by the Board.
C.3.4
At the request of the Board, the Audit Committee considered whether, in its opinion, the 2014/15
Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and whether it provides
the information necessary for shareholders to assess the Group’s performance, business model and strategy.
Following its review, the Committee was of the opinion that the 2014/15 Annual Report, taken as a whole, is
representative of the year and presents a fair, balanced and understandable overview and, provides the
necessary information for shareholders to assess the Group’s performance, business model and strategy.
C.3.5
The Audit Committee has reviewed ‘whistleblowing’ procedures including the reporting and follow-up
of any concerns by employees regarding possible improprieties in matters of financial reporting, other fraudrelated matters and bribery. Our Code of Ethics and Behaviours (a copy of which is on our website) outlines the
behaviours that M&S expects of its employees and advises them to report any concerns or suspected
wrongdoing by the Company, colleagues or others involved with the Company, by reporting it to a manager,
calling a confidential employee helpline or reporting it to the Group Secretary, as the Independent Internal
Individual.
C.3.6
The Audit Committee ensures that the internal audit department is adequately resourced and
continues to have appropriate standing within the Group, and to keep its members’ independence and
objectivity under review. During the year the Committee Reviewed and debated the risk profile, and remained
focus on the audit, assurance and risk processes within the business.
Internal Audit & Risk comprises both the Group Risk function and Internal Audit. Group Risk facilitates and
manages the risk process that is ultimately owned by the Group Board. Internal Audit, accountable to the Audit
Committee, uses a risk-based approach to provide independent assurance over the adequacy and effectiveness
of the control environment, including controls related to key risks on the Group Risk Profile.
C.3.7
The Audit Committee has primary responsibility for making a recommendation on the appointment, re-
appointment and removal of the external auditors. As authorised by shareholders at the 2014 AGM, the Audit
Committee determines the level of remuneration for the external auditors on behalf of the Board. Details of
this year’s fees are given in note 4 page 99 to the financial statements in the Annual Report.
Tenure of Auditor
At the 2014 AGM, shareholders approved the appointment of Deloitte as the Company’s new Statutory
Auditor. The proposed change in auditor was communicated to shareholders in December 2013. This extended
lead time provided a smooth handover process from PwC, the previous Statutory Auditor, and allowed Deloitte
to shadow PwC through areas of the 2014 year end process, giving them a good understanding of the business.
C.3.8
The Audit Committee has assessed whether suitable accounting policies have been adopted and whether
management have made appropriate judgements and estimates. Throughout the year the finance team has
worked closely with the external auditor to ensure that the business is transparent and provides the required
level of disclosure regarding the significant issues considered by the Committee in relation to the financial
statements, as well as how these issues were addressed, whilst being mindful of matters that may be business
sensitive. The main areas of judgement considered by the Committee during 2014/15 are presented on pages
48 and 49 of the Annual Report.
The Audit Committee keeps under review the independence and objectivity of our external auditors, including
the review of audit fee proposals and non-audit fees. The Committee reported on how the effectiveness of
Deloitte was assessed for the 2014/15 period. We believe their independence, the objectivity of the external
audit and the effectiveness of the audit process are safeguarded and remained strong.
The Committee judges our external auditors on the quality of their audit findings, management’s response and
stakeholder feedback. No decisions are taken by the external auditor in relation to the design of internal
controls and they do not perform a management role in any of the work that they undertake. Their audit and
non-audit fees are set, monitored and reviewed throughout the year (see note 4). We ensure that our auditor
engagement policy, which is reviewed annually and disclosed on our website, is adhered to when non-audit
work is commissioned.
D
REMUNERATION
D.1
The Level and Components of Remuneration: Levels of remuneration should be sufficient to attract,
retain and motivate directors of the quality required to run the company successfully, but a company should
avoid paying more than is necessary for this purpose. A significant proportion of executive directors'
remuneration should be structured so as to link rewards to corporate and individual performance.
We continue to be supportive of the drive to increase the transparency of executive remuneration report and to
provide shareholder with greater influence over future policy. Our 2015 Remuneration Report is again split into
two distinct sections. Our remuneration policy is set out on pages 52 – 60 of the Annual Report. For
shareholder transparency, we have continued to include a ‘summary’ of the remuneration policy in this year’s
Annual Report, even though we are not seeking shareholder approval for our policy. Pages 60-61provide
information on the policy since its approval at last year’s AGM. Pages 62-76 describe the implementation of the
remuneration policy during 2014/15 and for the forthcoming year.
Our remuneration framework is designed to support and drive our strategy, and ensure our business is run by
high-quality leaders with the skills and expertise necessary to deliver our long term business priorities within a
framework that is aligned with the interests of the Company’s shareholders. Our remuneration strategy
continues to ensure that a significant percentage of the package remains ‘at risk’. We believe that our
remuneration policy provides appropriate incentives to reward performance that protects the long term
interests of our stakeholders, and helps to deliver our strategy to become a leading international, multi-channel
retailer. The Committee also has a particularly strong focus on the remuneration for employees below Board
level when determining remuneration for executive directors.
D.1.1
Performance-related elements of remuneration form a significant proportion of the total remuneration
package of executive directors. The indicative values of the remuneration packages for each executive director
(salary, pension, annual cash bonus and long-term incentives based on fixed, target and maximum scenarios)
are given on page 61 of the Annual Report.
D.1.2
We recognise that executive directors may be invited to become non-executive directors of other
companies and that these appointments can broaden their knowledge and experience, to the benefit of M&S.
The individual director retains the fee, details of which are disclosed on page 73 of the Annual Report.
D.1.3
The fees paid to our non-executive directors recognise the responsibility of the role, the time
commitments required and are not performance related nor pensionable.
Non-executive directors do not
participate in any of the Company’s share schemes nor the Annual Bonus Scheme.
The basic annual fee which includes membership of committees is £70,000 per annum. The additional fee for
acting as Chairman of the Audit or Remuneration Committees is £15,000 and the Senior Independent Director
receives a fee of £100,000. Each of the non executive director fees are disclosed on page 74 of the Annual
Report.
D.1.4
The Remuneration Committee carefully considers commitments made to directors in respect of
remuneration which would impact on early termination. The Company retains the right to terminate the
contract of any executive director summarily, in accordance with the terms of their service agreement, on
payment of a sum equivalent to the contractual notice entitlement of 12 months’ salary and specified benefits.
In line with best practice for all current executive directors, the Company reserves the right on termination to
make phased payments which are paid in monthly instalments and subject to mitigation. Entitlement to
participate in future share schemes ceases on termination. Further details of the Company’s termination policy
are detailed of pages 57-58 of the Annual Report.
All share awards granted in 2013 and onwards are subject to malus provision. Under the terms of these
provisions, the Committee has discretion to reduce, cancel or impose further conditions on unvested awards in
circumstances it considers appropriate, including for example, a material misstatement of the Company’s
audited results. As detailed on page 60, clawback provisions will be introduced as part of the replacement
share scheme rules at this year’s AGM. These clawback provisions will apply to payments made under the
2015/16 annual cash bonus and any future cash bonus awards and to awards made under the executive share
schemes in 2015 and onwards. These provisions will allow the Committee in certain specified circumstances to
reclaim awards paid to individuals for up to three years after payment. The specified events include gross
misconduct or where a material misstatement of the Company’s financial statements has occurred.
D.1.5
All executive directors and senior managers have rolling service contracts which can be terminated by
the Company giving 12 months' notice and by the employee giving six months' notice. Exceptions may exist
where new recruits have been granted longer notice periods for the initial period of their employment,
reducing to twelve months. The Chairman has an agreement for service which can be terminated on six
months’ notice by either party. Non-executive directors have agreements for service with the Company for an
initial three-year term, which can be terminated on three months’ notice by either party. Details of each
executive director’s and non-executive director’s contract terms are set out on pages 73 and 74 respectively of
the Annual Report.
D.2
Procedure: There should be a formal and transparent procedure for developing policy on executive
remuneration and for fixing the remuneration packages of individual directors. No director should be involved
in deciding his or her own remuneration.
D.2.1
The Remuneration Committee currently comprises three independent non-executive directors – Vindi
Banga (Chairman), Miranda Curtis, and Robert Swannell. The Committee met 6 times during the year under
review. The Committee attendance table can be found on page 53 of the Annual Report. The Remuneration
Committee’s terms of reference which is available on our website. An overview of what the Committee has
done during the year, along with how their performance was rated, is provided on pages 75-76 of the Annual
Report.
The Group Secretary acts as secretary to the Committee and ensures that it receives information and papers in
a timely manner to enable full and proper consideration of agenda items agreed in advance in its annual
meeting planner.
The Committee seeks independent external advice as necessary, and the services of Deloitte and PwC were
used during the year. On the appointment of Deloitte as external auditors, a transition plan was put in place
while a new Committee advisor was selected. PwC were appointed in 2014 by the Committee as its
independent advisors following a rigorous and competitive tender process. PwC provide independent
commentary on matters under consideration by the Committee and updates on legislative requirements, best
practice and market practice. The Committee also seeks internal support from the Group Secretary, Director of
Human Resources and Head Reward & Global Mobility, all of whom may attend the Committee meetings by
invitation but are not present for any discussions that relate directly to their own remuneration. The
Committee also reviews external data produced through a number of surveys and bespoke benchmarking data,
including those published by Aon Hewitt (through the New Bridge Street consultancy), KPMG, PwC and
Towers Watson.
D.2.2
The Remuneration Committee's primary role is to recommend to the Board the senior remuneration
strategy and framework, giving due regard to the financial and commercial health of the Company and to
ensure the executive directors and senior management are fairly rewarded for their individual contributions to
the Company's overall performance.
D.2.3
The remuneration of the non-executive directors is determined by the Chairman and the executive
directors.
D.2.4
Shareholders are invited specifically to approve all new long-term incentive schemes.
E. RELATIONS WITH SHAREHOLDERS
E.1 Dialogue with Institutional Shareholders: There should be a dialogue with shareholders based on the
mutual understanding of objectives. The Board as a whole has responsibility for ensuring that a satisfactory
dialogue with shareholders takes place.
Communication
We are committed to ongoing engagement with shareholders and have a well established cycle of
communication based on the Group’s financial reporting calendar. This includes our preliminary results in May,
Annual Report in June, half year results in November and Interim Management Statements in January and July.
We are very keen to understand the views of all our stakeholders and ensure open dialogue throughout the
year, not just ahead of the AGM season. We had another full agenda in 2014/15. The business had over 566
contacts with over 316 separately identifiable institutions, in the form of one-to-one or group meetings hosted
by an executive director or our Investor Relations team. In addition to the AGM, we also engaged with a
number of leading private client brokers who typically represent our retail investor base.
We held the fourth of our now annual governance events at our head office in June 2014, providing an
opportunity to meet a significant number of our largest investors, representatives from the influential investor
advisory companies and key industry governance specialists. In 2015, the event will be attended by Robert
Swannell, Chairman, Vindi Banga, Senior Independent Director and Chairman of the Remuneration Committee,
Andy Halford, Chairman of our Audit Committee, Martha Lane Fox, Non-executive director and member of our
Sustainable Retailer Advisory Board and Mike Barry, Director of Plan A. The event is structured around
presentations on the Board, Audit and Risk, Remuneration and Plan A. The overriding objective of the meeting
is to provide investors and their governance specialists with an insight into the key focus and considerations of
the Board and its committees and to better understand the governance measures operating across the
business.
A number of broader investor presentations were hosted during the year. We held an investor event in Paris,
providing an update on our International strategy, and a seminar on the development of our multi-channel
capabilities. Presentations are made by directors and senior M&S managers and offer investors more in-depth
information on the progress being made towards our strategic goals. They do not include any additional
statements on current trading performance, nor do they disclose any new, material financial information. The
slides from the presentations are added to our corporate website for wider viewing.
Private Investors
Private shareholders continue to represent 95% of the shareholding on our share register. We value their
opinions and continue to actively engage with them. We circulate shareholder topics cards with our Notice of
Meeting to ensure that the views of those shareholders unable to attend our AGM are heard. Those returned
are summarised, presented to the Board and senior management and the Chairman addresses the top three
topics at the meeting. Many are responded to directly. Shareholders can also email the Chairman with their
comments, write to us or telephone our helpline.
We continue our efforts to drive our private shareholders to become more informed investors. A wealth of
information is made available on our website and our Investor Relations iPad App throughout the year. Our
trading statements and financial results are emailed to shareholders that have provided us with email addresses
and requested to receive electronic communication.
We remain committed to our ‘lost shareholder’ programme and our search agent, ProSearch, continues to seek
out those that have failed to keep their details up-to-date. There have been some great success stories and on
many occasions individuals have also become aware of lost shareholdings in other companies, not just M&S.
However, despite all our efforts there are some instances where we are not able to find the shareholder, at
which point our share forfeiture programme steps in to utilise these funds for good causes.
E.1.1
Our Chairman, Chief Executive, Chief Finance Officer and Group Secretary play key roles in our
relationship with major shareholders and all executive directors attend our full and half year results
presentations. Non-executive directors are also offered the opportunity to attend scheduled meetings with
major shareholders. The Senior Independent Director is available for shareholders as required.
E.1.2
As noted above, the Board is regularly updated on the views of our major shareholders by the
Chairman following meetings they have with him, the Chief Executive, Chief Finance Officer, the Group
Secretary or our Investor Relations department. An independent view is also provided on major investors’ views
on Company management and performance by Makinson Cowell, the capital market’s advisory firm ahead of
each year’s AGM. This is based on the results of extensive surveys and interviews.
E.2 Constructive use of the AGM: The Board should use the AGM to communicate with investors and to
encourage their participation.
The AGM provides the Board with the opportunity to meet and engage directly with our shareholders,
particularly our private shareholders. The meeting begins with a business presentation, followed by a question
and answer session led by the Chairman. Voting on the resolutions is then conducted by electronic poll, which
gives a democratic result of all shares represented on the day and those lodged before the meeting. The
indicative result is screened at the meeting with the final results announced via the London Stock Exchange.
Shareholders who are not able to attend are encouraged to vote online in advance of the meeting at
sharevote.co.uk or by using the proxy card that we mail to them. In 2013, 92.5% of the proxy votes received
were logged electronically through the CREST system.
The 2015 AGM will be held at Wembley Stadium on Tuesday 7 July 2015. The Notice of Meeting sets out the
25 resolutions being proposed at the meeting. Last year all resolutions were passed, with votes ranging from
88.25% to 99.99%,
E.2.1
At each AGM we propose individual resolutions on each substantially separate issue and propose a
resolution relating to the Report and Accounts. Voting at our AGM is conducted by poll, using the electronic
Votenow system, rather than a show of hands. All resolutions are voted separately using three way voting –
shareholders can vote for, vote against or withhold their vote on a resolution.
E.2.2
Our registrar record all proxy votes received up to 48 hours prior to our AGM and report the votes
‘For’, ‘Against’ or ‘Vote Withheld’ to the Chairman prior to the meeting. These votes are included in the
indicative poll result screened at the meeting. The final results are announced via the London Stock Exchange
and shown on our website. (This year voting will close at 11am on Friday 3 July 2015 as a result of the AGM
being held on a Tuesday – as permitted under the Articles).
E.2.3
The 2014 AGM was attended by all directors, including the Chairmen of the Audit Committee (Andy
Halford), Remuneration Committee (Steven Holliday) and Nomination Committee (Robert Swannell). All were
available for questions. Steven Holliday stepped down from the Board and as Chairman of the Remuneration
Committee at the 2014 AGM.
E.2.4
The Notice of Meeting and related papers for the AGM are sent to shareholders at least 20 working
days before the meeting.
PENSION SCHEMES GOVERNANCE
The Group operates a defined benefit pension scheme (the ‘Scheme’) for employees with an appointment date
prior to 1 April 2002.
The results of the triennial actuarial valuation of the Scheme as at 31 March 2012 revealed a deficit of £290m.
This represents a substantial reduction in deficit from £1.3bn as at 31 March 2009. The next valuation is due as
at 31 March 2015. Funding progress is closely monitored and the investment derisking journey has continued
since the last valuation.
The assets of the pension scheme, which are held under trust separately from those of the Group, are managed
by the Board of the Pension Trust (‘Trustee Board’). The Trustee Board comprises four company nominated
directors, including the Chairman, Graham Oakley; three member nominated directors and two independent
directors. All directors are appointed for a five-year term and may stand for a second term. The Trustee Board
operates three main committees: Management and Governance, Investment, and Actuarial Valuation, which
has been convened earlier this year in preparation for the 2015 valuation.
The Trustee Board has a business plan against which progress is measured on an ongoing basis in a similar
approach to the Group Board. There is also an annual Board Effectiveness Review and both the Trustee Board
and the Investment Committee hold annual strategy days which help drive the long-term agenda and the
business plan priorities.
Each Trustee Board director has an individual training plan, which is based on the Pension Regulator’s Trustee
Knowledge and Understanding requirements and tailored to address any skill gaps and specific committee
roles. The majority of the Trustee Board members hold the Pensions Management Institute Award in
Trusteeship.
All advisers, investment managers and suppliers are appointed through a rigorous tender process. They are
monitored via quarterly reports and periodic meetings and there is also a rolling programme of both informal
and formal adviser reviews.
In addition to six monthly reports from EY as covenant adviser, the Trustee Board also receives presentations
from the Chief Finance Officer after the Year and Half Year results.
The Scheme is a signatory to the UN Principles for Responsible Investment and the Trustee has partnered with
a specialist engagement service, Hermes Equity Ownership Services (EOS), to exercise its global equity voting
rights in accordance with a detailed Trustee policy, which addresses a range of governance, social and
environmental issues. EOS has also enhanced the Trustee’s stewardship and governance oversight of investee
companies by engaging with companies, on a global basis, where management is considered not to be acting
in the best long-term interests of investors. The results of these voting and engagement activities are published
quarterly on the M&S Pension Scheme’s website. The Scheme is also a signatory to the Financial Reporting
Council’s UK Stewardship Code.
In 2014 we highlighted that business forecasting and planning indicated that fees for non-audit work with
Deloitte were likely to be impacted by additional items, much of which were a direct result of the transition
between audit firms. Where non-audit work was performed by Deloitte, both the Company and Deloitte ensure
robust processes to prevent auditor independence from being compromised.