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PRINCIPLE 2: STRUCTURE THE BOARD TO ADD VALUE

Board structure
The Board is currently comprised of 11 directors, with:

  • nine non-executive directors, including the Chairman; and
  • two executive directors.

The directors in office at the date of this report, the year of each director’s appointment and each director’s status as an independent, non-executive or executive director are set out in the Board Structure table.

The following Board changes have occurred since 1 July 2006:

  • 3 July 2006 – Mr Trevor Flügge resigned as a director;
  • 8 September 2006 – Mr David Robb resigned as an
    executive director;
  • 1 November 2006 – Mr Lou Giglia retired as a director; and
  • 5 July 2007 – Mr Anthony Howarth was appointed as an additional director.

Director independence
Directors are expected to bring independent views and judgement to the Board’s deliberations.

Under the Charter, the Board must include a majority of non-executive independent directors and have a non-executive independent Chairman (with different persons filling the roles of Chairman and Managing Director).

The Board has reviewed the position and associations of all directors in office at the date of this report and considers that a majority (eight of eleven) of the directors are independent. In considering whether a director is independent, the Board has had regard to the independence criteria in ASX Principle 2 and other facts, information and circumstances that the Board considers relevant. The Board assesses the independence of new directors upon appointment and reviews their independence, and the independence of the other directors, at other times as appropriate.

The test of whether a relationship is material is based on the nature of the relationship and the circumstances of the director. Materiality is considered from the perspective of the company, the director, and the person or entity with which the director has a relationship.

The three directors who are not considered to be independent are:

  • Mr Richard Goyder, Managing Director;
  • Mr Gene Tilbrook, Finance Director; and
  • Mr James Graham, a non-executive director, who is Managing Director of Gresham Partners Limited.

Mr Graham is technically deemed not to be independent by virtue of his professional association with Gresham Partners Limited, which acts as an investment advisor to the company.

The Board has, however, determined that the relationship does not interfere with Mr Graham’s exercise of independent judgement and believes that his appointment is in the best interests of the group because of the substantial knowledge and expertise he brings to the Board.

In addition, the Board has considered the independence of Messrs Trevor Eastwood (Chairman), Dick Lester and David White, in relation to their period of service as directors.

In each case, the Board considered that the length of time that the director had been on the Board did not have an adverse impact on the director’s ability to bring an independent judgement to bear in decision-making. The Board considers that having some directors who have served on the Board for longer periods helps to ensure continuity of corporate knowledge and experience, provided that the capacity for active contribution and independent judgement is maintained.

The independence of the Chairman, Mr Eastwood, was also considered in light of the fact that he served as Managing Director from 1984 to 1992. In relation to his past executive service, the Board considers that the relevant criteria for independence in ASX Principle 2 is satisfied given the significant passage of time since his retirement from that position.

The Board considers that Messrs Eastwood, Lester and White are independent directors in accordance with the independence criteria in ASX Principle 2, given their continued and demonstrated performance and ability to make objective judgements on matters before the Board.

Retirement and re-election
The company’s Constitution requires one third of the directors, other than the Managing Director, to retire from office at each annual general meeting. Directors who have been appointed by the Board during the year (as a causal vacancy or as an addition to the Board) are required to retire from office at the next annual general meeting.

Directors cannot hold office for a period in excess of three years or beyond the third annual general meeting following their appointment without submitting themselves for re-election. Retiring directors are eligible for re-election by shareholders.

Board support for directors retiring by rotation and seeking re-election is not automatic. The Board Charter and the company’s letter of appointment for a non-executive director require a non-executive director to take into account the views of the other non-executive directors of the company when making a decision to stand for re-election.

Under the Board Charter, the Chairman must retire from this position at the expiration of 10 years unless the Board decides otherwise. In addition, the appointment is formally reviewed at the end of each three year period.

Nomination and appointment of new directors
Recommendations of candidates for appointment as new directors are made by the Board’s Nomination Committee for consideration by the Board as a whole. If it is necessary to appoint a new director to fill a vacancy on the Board or to complement the existing Board, a wide potential base of possible candidates is considered. In some cases, external consultants are engaged to assist in the selection process. If a candidate is recommended by the Nomination Committee, the Board assesses the qualifications of the proposed new director against a range of criteria including background, experience, professional skills, personal qualities, the potential for the candidate’s skills to augment the existing Board, and the candidate’s availability to commit to the Board’s activities. If these criteria are met and the Board appoints the candidate as a director, that director (as noted previously) must retire at the next annual general meeting and will be eligible for election by shareholders at that meeting.

Induction of new directors
New directors are provided with a formal letter of appointment which sets out the key terms and conditions of appointment, including duties, rights and responsibilities, the time commitment envisaged, and the Board’s expectations regarding involvement with committee work.

As part of a comprehensive induction programme, the new director meets with the Chairman, the Audit Committee Chairman, the Managing Director, Divisional Managing Directors, and other key executives. The programme also includes site visits to some of Wesfarmers’ key operations.

Knowledge, skills and experience
All directors are expected to maintain the skills required to discharge their obligations to the company.

Directors are provided with papers, presentations and briefings on group businesses and on matters which may affect the operations of the group.

Directors are also encouraged to undertake continuing education and training relevant to the discharge of their obligations as directors of the company. Subject to prior approval by the Company Secretary, the reasonable cost of continuing education and training is met by the company.

To assist directors to maintain an appropriate level of knowledge, skill and experience in the operations of the company, directors undertake site visits each year to a number of Wesfarmers businesses.

Board access to information and independent advice
All directors have unrestricted access to employees of the group and, subject to the law, access to all company records and information held by group employees and external advisers. The Board receives regular detailed financial and operational reports from senior management to enable it to carry out its duties.

Consistent with ASX Principle 2, each director may, with the prior written approval of the Chairman, obtain independent professional advice to assist the director in the proper exercise of powers and discharge of duties as a director or as a member of a Board committee. The company will reimburse the director for the reasonable expenses of obtaining that advice.

Conflicts of interest
Directors are required to avoid conflicts of interest and immediately inform their fellow directors should a conflict of interest arise. Directors are also required to advise the company of any relevant interests that may result in a conflict.

The Board has adopted the use of formal standing notices in which directors disclose any material personal interests and the relationship of these interests to the affairs of the company. A director is required to provide an updated notice to disclose any new material personal interests or if there is any change in the nature or extent of a previously disclosed interest.

Where a matter in which a director has a material personal interest is being considered by the Board, that director must not be present when the matter is being considered or vote on the matter, unless all of the other directors have passed a resolution to enable that director to do so or the matter comes within a category of exception under the Corporations Act 2001.

Committees of the Board
The Board has established an Audit Committee, a Nomination Committee and a Remuneration Committee as standing committees to assist the Board in the discharge of its responsibilities.

These committees review matters on behalf of the Board and (subject to the terms of the committee’s Charter):

  • refer matters to the Board for decision, with a recommendation from the committee (where the committee acts in an advisory capacity); or
  • determine matters (where the committee acts with delegated authority), which it then reports to the Board.

Nomination Committee
The specific responsibilities of the Nomination Committee are set out in the committee’s Charter, which reflects the requirements of the ASX Principles.

The Nomination Committee’s responsibilities include:

  • reviewing Board and committee composition and recommending new appointments to the Board and the committees;
  • ensuring an effective induction programme for directors; and
  • reviewing Board succession plans.

The Nomination Committee was established as a separate Board committee from 1 January 2007. In the period from 1 July to 31 December 2006, the nomination functions were carried out by the Nomination and Remuneration Committee.

The members of the Nomination Committee at the date of this report are:

  • Mr Trevor Eastwood (Chairman)
  • Mr Colin Carter
  • Mrs Patricia Cross
  • Dr Robert Every
  • Mr James Graham
  • Mr Anthony Howarth (from 5 July 2007)
  • Mr Richard Lester
  • Mr Charles Macek
  • Mr David White

The members of the Nomination and Remuneration Committee were:

  • Mr Trevor Eastwood
  • Mr Colin Carter
  • Mrs Patricia Cross
  • Mr Trevor Flügge (until 3 July 2006)
  • Mr Lou Giglia (until 1 November 2006)

The composition, operation and responsibilities of the Nomination Committee are consistent with ASX Principle 2.

The committee (as the Nomination Committee or as part of the Nomination and Remuneration Committee) met four times during the year ended 30 June 2007. Details of meeting attendance for committee members are set out in the Directors’ Report on page 121 of the Financial statements.

A summary of the committee’s role, rights, responsibilities and membership requirements is available from the corporate governance section of the company’s website.

Audit Committee
Further information about the Audit Committee is provided in this statement under Principle 4: Safeguard Integrity in Financial Reporting.

Remuneration Committee
Further information about the Remuneration Committee is provided in this statement under Principle 9: Remunerate Fairly and Responsibly.