Corporate Governance Statement


PRINCIPLES OF GOOD GOVERNANCE
The Board continues to be committed to high standards of corporate governance. The adoption and maintenance of good governance is the responsibility of the Board as a whole. This report, together with the Directors’ Remuneration Report, describes how the Board applies the principles of good governance and best practice as set out in the 2006 Combined Code on Corporate Governance (the “Combined Code”). A statement of compliance can be found at the end of this report.

THE BOARD
The Board consists of a Non-Executive Chairman, two independent Non-Executive Directors, a Chief Executive and three Executive Directors, each with a clear division of responsibilities. The Board considers Non-Executive Directors, Graham Menzies and Stephen Rogers to be independent and Graham Menzies is the Company’s designated Senior Independent Director. The Combined Code recommends that the board of directors of a UK public company should include a balance of executive and non-executive directors (including independent non-executives) such that no individual or small group of individuals can dominate the board’s decision-making. The Board is confident that it currently meets the requirements of the Combined Code, as they apply to companies of the Group’s size and composition.

The Board meets each month throughout the year to direct and control the overall strategy and operating performance of the Group. To enable them to carry out these responsibilities all Directors have full and timely access to all relevant information. The Board constantly reviews the quality, nature and presentation of the information provided and Directors are able to request changes that they believe will offer more appropriate information. A formal schedule of matters, reserved for the decision of the Board, covers key areas of the Group’s affairs including acquisition and divestment policy, approval of budgets, major capital expenditure projects and general treasury and risk management policies. Responsibility for the Group’s day-to-day operations is delegated to the Chief Executive who, supported by the Executive Directors and Executive Management, implements the Board’s strategy and manages the Group’s business. Upon appointment, all Directors undertake a tailored formal induction programme and are also provided with the opportunity for on-going training to ensure they are kept up to date on changes to relevant legislation and the general business environment. At least one Board Meeting each year is held at each of the Group’s principal business locations where the Board receives presentations from local management and a tour of the business. Procedures are in place for Directors to seek both independent advice at the expense of the Company and the advice and services of the Company Secretary in order to fulfil their duties. The Company Secretary is responsible to the Board for ensuring that Board procedures are complied with and for advising the Board, through the Chairman, on all governance matters. The appointment and removal of the Company Secretary is determined by the Board as a whole.

The Chairman meets periodically with the Non-Executive Directors without the Executive Directors present and the Non-Executive Directors meet at least once a year without the Chairman present.

The Company’s Articles of Association provide that one-third of the Directors retire by rotation each year and shall seek re-election at the Annual General Meeting every three years. Additionally, new Directors are subject to election by shareholders at the first opportunity after their appointment.

The formal terms of reference for the main Board Committees are published on the Group’s website at www.heywoodwilliams.com. Directors’ CVs and membership of the various Committees are shown on pages 16 and 17. The terms and conditions of appointment of Non-Executive Directors are available for inspection at the Company’s Registered Office and at the Annual General Meeting.

The Board has delegated specific responsibilities to Committees, as described below.

BOARD COMMITTEES

Audit Committee
The Audit Committee consists of two Non-Executive Directors both of whom are considered by the Board to be independent and have considerable recent relevant financial experience. They are Stephen Rogers, Chairman, and Graham Menzies. Edward Roderick was Chairman of the Audit Committee until his resignation as a Non-Executive Director on 31 May 2007. Stephen Rogers was appointed Chairman following his appointment as a Non-Executive Director on 4 July 2007.

It is a requirement of the Combined Code that the audit committee should consist of at least three, or in the case of smaller companies, two members who should all be independent non-executive directors. The Board is confident that due to its size and composition, the Company currently complies with this requirement of the Combined Code.

Robert Barr, Chief Executive, Mike Richards, Finance Director and Mark Wild, Group Counsel and Company Secretary are not members of the Committee but together with Roger Boyes, Non-Executive Chairman, the internal auditor and external auditors, attend all meetings. The internal and external auditors have the opportunity for direct access to the Committee without the Executive Directors being present.

The Committee reviews the Group’s accounting policies and regular reports from senior management and the internal auditor on accounting and internal financial control matters, together with reports from the external auditors. The Audit Committee has overarching responsibility for all aspects of internal control and meets quarterly to evaluate and consider, amongst other things, all internal control matters including business unit risk assessments and the monitoring of agreed action plans to address any control weaknesses. The Audit Committee also evaluates the annual review of the Group’s risk profile and reviews the Group’s half and full year financial statements. The Audit Committee is responsible for recommendations for the appointment, re-appointment or removal of the external auditors and also reviews the effectiveness of the internal auditor including internal audit plans and performance.

During the course of the year:

The Chairman of the Audit Committee attends the Annual General Meeting to respond to any shareholder questions that might be raised on the Committee’s activities.

Remuneration Committee
The Remuneration Committee consists of two Non-Executive Directors, both of whom are considered by the Board to be independent. They are Graham Menzies, Chairman, and Stephen Rogers. Edward Roderick was a member of the Remuneration Committee until his resignation as a Non-Executive Director on 31 May 2007. Stephen Rogers became a member of the Committee following his appointment as a Non-Executive Director on 4 July 2007.

Robert Barr, Chief Executive and Roger Boyes, Non-Executive Chairman, attend meetings of the Remuneration Committee by invitation and in an advisory capacity. Meetings are also attended by Mark Wild, Group Counsel and Company Secretary, who acts as Secretary of the Committee. Nobody attends any part of a meeting at which his own remuneration is discussed.

It is a requirement of the Combined Code that the remuneration committee should consist of at least three, or in the case of smaller companies two, members who should all be independent non-executive directors. The Board is confident that due to its size and composition it currently complies with this requirement of the Combined Code.

The Committee recommends to the Board the policy for executive remuneration and determines, on behalf of the Board, the other terms and conditions of service for each Executive Director and the Company Secretary. It determines appropriate performance conditions for the annual cash bonus and long term incentive schemes and approves awards and the issue of options in accordance with the terms of those schemes. The Remuneration Committee has access to advice from the Company Secretary and independent remuneration consultants. Details of the Committee’s current remuneration policies are given in the Directors’ Remuneration Report.

The Chairman of the Remuneration Committee attends the Annual General Meeting to respond to any shareholder questions that might be raised on the Committee’s activities.

Nomination Committee
The Nomination Committee currently consists of Graham Menzies and Stephen Rogers, the Company’s two independent Non-Executive Directors, and Roger Boyes, Non-Executive Chairman, who also acts as the Committee’s Chairman. Robert Barr, Chief Executive, attends meetings of the Nomination Committee. It is a requirement of the Combined Code that a majority of the members of a nomination committee should be independent non-executive directors, and the chairman should be either the chairman of the board or a non-executive director. The Board is confident that it currently complies with these requirements of the Combined Code.

The Committee meets at least once a year and such other times as required and is authorised to propose to the Board new appointments of Executive and Non-Executive Directors.

The Chairman of the Nomination Committee attends the Annual General Meeting to respond to any shareholder questions that might be raised on the Committee’s activities.

MEETINGS ATTENDANCE
Details of the number of meetings of, and members’ attendance at, the Board, Audit, Remuneration and Nomination Committees during the year are set out in the table below. In the case of missed meetings the absent Director is provided with all the relevant papers for the meeting and is given the opportunity to discuss matters appearing on the agenda or arising from the papers with the Chairman of the meeting prior to the meeting and to make representations to the meeting through the Chairman or the Secretary of the relevant meeting.
Board
Audit Committee
Remuneration Committee
Nomination Committee
 
Number of Meetings
12
4
5
2
Robert Barr
12
-
-
-
Roger Boyes
12
-
-
2
Graham Menzies
9
3
5
2
Alan Parker
10
-
-
-
Mike Richards (1)
3
-
-
-
Edward Roderick (2)
4
1
4
-
Stephen Rogers (3)
6
2
1
1
William Schmuhl
11
-
-
-
Richard Whiting (4)
8
-
-
-
Mark Wild (5)
4
-
-
-

1 Appointed on 1 October 2007.
2 Resigned on 31 May 2007.
3 Appointed on 4 July 2007.
4 Resigned on 11 September 2007.
5 Appointed on 11 September 2007.

This table shows only those meetings which each Director attended as a member rather than an invitee.

PERFORMANCE EVALUATION
During the year the Board conducted a rigorous evaluation of its own performance, and that of the principal Board Committees and individual Directors, using an internal process conducted by the Chairman and the Company Secretary. The internal review consisted of a questionnaire covering, inter-alia, the role and organisation of the Board, meeting arrangements, information provision and Committee effectiveness. The completed questionnaires were submitted to the Company Secretary who prepared a summary of the conclusions, which were circulated to the Board and discussed at the next Board Meeting. The purpose of the process was to help identify any areas which needed attention and to suggest any procedures and improvements which may improve the working of the Board. The Board was satisfied that the process showed that the Board and its Committees worked effectively.

Following the evaluation process, the Chairman held structured meetings with each Director in order to assess individual performances and identify what should be included in the Directors’ future training programme. Graham Menzies, as the Senior Independent Director, assessed the performance of the Chairman, taking into account the views of the other Directors.

DIRECTORS’ REMUNERATION
The Directors’ Remuneration Report . A Resolution to approve this report is included on the Agenda for the Annual General Meeting.

ACCOUNTABILITY AND AUDIT

Financial reporting
The Directors’ responsibilities in relation to financial statements can be found in the Directors' responsibilities section..

Risk and internal control
The Board is responsible for ensuring that there is a system of internal control and for reviewing its effectiveness. Such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. The Board has implemented the Guidance on Internal Control (the “Turnbull Guidance”) and confirms that the necessary procedures and management structures have been in place for the year under review and up to the date of approval of the Annual Report and Accounts. These procedures provide for a continuous process for identifying, evaluating and managing the significant risks the Group faces. The Board has incorporated into its meeting calendar and agenda, procedures to enable risk management and internal control to be considered on a regular basis during the year and, at its meeting on 27 November 2007, the Board undertook a specific full risk and internal control assessment of the Group’s operations based on reports and analyses from the Audit and Risk Management Committees and from the Group’s internal auditor.

The Board has, therefore, in compliance with the Combined Code, formally reviewed the effectiveness of the Group’s system of internal control. The Board’s monitoring procedures cover all controls including financial, operational and compliance controls and risk management. These monitoring procedures are based, principally, on complementary strategic and business unit risk appraisals conducted in conjunction with the Group’s risk management advisers and the Group’s internal auditor. It has conducted a formal annual review covering all controls including financial, operational, compliance and risk management in accordance with the Internal Control Guidance for Directors on the Combined Code. Following its review the Board determined that it was not aware of any significant deficiency or material weakness in the system of internal control. The Audit Committee, supported by a UK/Europe Executive Risk Management Group and a US Executive Safety Committee, has been delegated responsibility by the Board for discharging its internal control review responsibilities. A summary of the principal internal control structure and risk management processes in place across the Group is set out below.

Whilst the management of each business unit is responsible for internal control and risk management within its own business and for ensuring compliance with the Group’s risk management and internal control programme, Executive Risk Management Groups have been established in both the UK/Europe and the US. These groups meet on a quarterly basis and, with the support of the Company’s insurers and risk management consultants, engage the Group’s senior operational management in monitoring risk assessments, reviewing action plans on improving internal controls, evaluating new risk management initiatives and considering insurance related issues and claims trends aimed at embedding a risk management culture throughout the Group.

There is also a comprehensive Group-wide system of budget planning with frequent reporting of results to each level of management as appropriate, including monthly reporting to the Board. Budgetary planning reviews, involving the Executive Directors and Divisional Executives, include the identification and assessment of business and financial risks inherent in each Division with the key issues evaluated by the Board.

Material associates have not been dealt with as part of the Group for the purposes of applying the Turnbull Guidance.

The Chairman of the Audit Committee reports to the Board on internal control and risk management issues following each Audit Committee meeting.

The Board has formal procedures in place for the approval of investment and acquisition projects, with designated levels of authority, supported by post investment review processes for all major acquisitions and major capital expenditure.

PENSIONS
The assets of the UK pension funds are held by an independent Trustee separately from the assets of the Company and invested by independent fund managers on separate mandates. The assets of the defined benefits plan are currently invested, based on scheme specific asset allocations, in index-tracking funds and the assets of the defined contribution scheme are also invested in index-tracking funds. During the year, following changes in legislation which increased the already complex administrative burden on individual Trustees, changes were made to the structures of the Trustee Boards of the pension funds. The Company proposed that the existing independent Trustee, Fountain Trustee Limited (“FTL”), should replace the individual Trustees and become the sole professional Trustee. The individual Trustees carefully considered the Company’s proposals, and after satisfying themselves that appropriate ongoing procedures were in place, confirmed to the Company their agreement to the proposal. On 6 June 2007 the individual Trustees formally stepped down from their positions as Trustees and FTL was appointed as sole independent Trustee.

AUDITOR INDEPENDENCE
Ernst & Young LLP are the Group’s external auditors. The Board is satisfied that both the Audit Committee and the auditors themselves have adequate policies and safeguards in place to ensure that the objectivity and independence of the auditors is maintained. During the year the Audit Committee considered the following factors:

The Audit Committee’s Terms of Reference include an obligation to consider and keep under review the degree of work undertaken by the external auditor, other than the statutory audit, to ensure such objectivity is safeguarded. Non-audit work primarily in respect of taxation and transaction support has been carried out by Ernst & Young LLP as the Board believes it is in the Group’s best interests to make use of their extensive knowledge of the business. The Board continuously monitors the quality and volume of this work and will, where appropriate, use other accounting firms or other appropriately qualified professional organisations. The Audit Committee and the Board do not consider it appropriate for the auditors to undertake work in connection with the design or implementation of major financial systems, provision of internal audit services or risk management assessment.

The analysed audit and non-audit fees for 2007 appear in note 5.

GOING CONCERN
The Directors have reviewed the budget, cash flow, borrowing facilities and other relevant information and have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. For this reason, the Directors continue to adopt the going concern basis for the preparation of the accounts.

RELATIONS WITH SHAREHOLDERS
The Board considers communications with shareholders, whether institutional investors or private shareholders, to be extremely important and they are given a high priority. Throughout the year, the Company has maintained regular dialogue with institutional shareholders. The views of shareholders are reported to the Board by the Chief Executive and Finance Director and discussed at Board meetings.

Meetings are also held at the request of the Company’s principal shareholders to discuss the Company’s strategy and performance and to obtain feedback. The Combined Code recognises that primary contacts are likely to be by the Chief Executive and Finance Director but requires the Chairman and Senior Independent Director to maintain contact with major shareholders in order to understand their concerns. Whereas the Chairman and the Senior Non-Executive Director have attended some meetings with institutional shareholders, the Board considers that given its size and established communication routes, it is not necessary for the Non-Executive Directors to attend such meetings. However, both of the Board’s independent Non-Executive Directors would be available to meet with any major shareholder if such a meeting was requested. Whilst these procedures do not strictly comply with the Combined Code, the Board considers them to be appropriate given the Company’s size and established communication route.

The Annual and Interim Reports to shareholders are published on the Group’s website, www.heywoodwilliams.com, together with the presentations made to institutional shareholders and analysts following the announcement of interim and full year results. Other announcements and developments relating to the Group are posted on the Group’s website immediately following their release. There is also an opportunity for individual shareholders to question the full Board on general business matters at the Company’s Annual General Meeting. Notice of the Company’s Annual General Meeting is circulated to all shareholders at least 20 working days before such meeting. Details of proxy voting are declared by the Chairman after a vote on a show of hands and the results are published on the Group’s website immediately following the Annual General Meeting.

CORPORATE SOCIAL RESPONSIBILITY REPORT
The Group believes that high standards of business ethics are critical in today’s business environment, it promotes a positive relationship with stakeholders, seeks to follow best practice and places high priority on compliance with all legislative and regulatory requirements.

During the year the Company’s membership of the FTSE4Good UK Index, a financial index series that is designed to identify and facilitate investment in companies that meet globally recognised corporate responsibility standards, was renewed.

ENVIRONMENTAL POLICY
The Group recognises the importance of good environmental practice and the need to seek continual improvement in its environmental performance as part of its overall risk management strategy.

Whilst the Group’s activities have a relatively low environmental impact, its business procedures incorporate an environmental policy aimed at eliminating or minimising the impact of its operations on the environment. The Group takes account of environmental issues in its commercial decision making, encourages its employees to use resources effectively and co-operates fully with regulatory authorities and other interested parties to limit any harmful effects which its activities may have on the environment.

In implementing the Group’s policy, individual Group companies are responsible for developing and implementing procedures and arrangements appropriate to their business. To achieve this, Group companies will take full account of the following principles:

Actions taken by management during 2007 include:

Throughout its different businesses, the Group aims to make efficient use of energy, waste and raw materials through effective management and also by ensuring that energy efficient techniques are used where practical.

When deemed appropriate by the Group’s risk management process, detailed environmental audits are undertaken by specialist environmental consultants. Such audits also form part of the due diligence procedures applicable to significant prospective acquisitions. A review of the environmental performance of the UK/European businesses is also included within the periodic safety and loss prevention audits undertaken as part of the Group’s on-going risk management programme.

HEALTH AND SAFETY
Our objective in the area of health and safety is straightforward; to minimise accidents and injuries in the workplace.

The Group is, therefore, committed to ensuring the health and safety of its employees (and other relevant persons) as an integral part of its overall risk management programme.

The cornerstone underpinning the Group’s approach is a fundamental belief that line managers have direct accountability for ensuring the development of safe working practices within their respective areas of responsibility. In doing so, line management is supported by a health and safety competent person in each of the UK/European and US businesses.

Each of the Group’s businesses is required to have in place a formal safety training/improvement plan aimed at ensuring that employees:

Health and safety features as a standing agenda item on Company monthly management meetings, whilst the Group’s overall safety performance is reviewed quarterly by the UK/Europe Executive Risk Management Group, the US Executive Safety Committee and the Board as a whole.

COMPLIANCE WITH THE COMBINED CODE
The Directors consider that the Company has, during the year ended 31 December 2007, complied with the requirements of the Combined Code with the following exceptions:

STEPHEN ROGERS
Audit Committee Chairman
4 March 2008