CORPORATE GOVERNANCE

The Listing Rules of the Financial Services Authority require listed companies to disclose, in relation to section 1 of the Combined Code on Corporate Governance 2003 (the Combined Code), how they have applied its principles and whether they have complied with its provisions throughout the accounting period.

This statement, together with the remuneration report on pages 23 to 25, explains how the Company has applied the principles and complied with the provisions set out in the Code.

The board operates through monthly business committee meetings which senior executives attend on a regular basis. Major strategic decisions and the approval of any significant capital expenditure are reserved for decision by the board. The board is updated of operational decisions through the monthly business committee meetings. Terms of reference for the board committees (as set out below) are available on the Company’s web site.

The board
The board comprises the chairman and chief executive, one further executive director and three independent directors. It is chaired by the chairman and chief executive, T H F Kirby.

T H F Kirby agreed to resume an executive role with the Company in 2000. At the time the board felt that the interests of the Company would be best served if the role of chairman and chief executive were combined; a situation that remains the case today.

The combined role is regularly discussed by the remuneration and nomination committee when its effectiveness is reviewed and alternative options considered. These discussions have to date concluded that it would be irresponsible to split the roles unless there was an alternative which would be more value enhancing to the business. This arrangement does not comply with provision A.2.1 of the Combined Code, which states that the roles of chairman and chief executive should not be exercised by the same person.

To date, no such alternative has been identified. Whilst the board believes that the combined role arrangement continues to work well, the board recognises that it is important to keep succession plans under review for implementation as and when appropriate.

The senior independent director is C J Myatt. The senior independent director is the lead independent director. His principal responsibilities are:

  • to be available to shareholders if they have concerns which contact through the normal channels of the chairman and chief executive, or the finance director, have failed to resolve, or for which such contact is not appropriate; and
  • to ensure that the performance evaluation of the chairman and chief executive is conducted effectively.

The three independent directors have a breadth of successful commercial and professional experience and are considered by the board to be independent of the Group. This opinion was determined by considering for each independent director:

  • whether he is independent in character and judgement;
  • how he conducts himself in board/committee meetings;
  • whether he has any relationships, or whether there are any circumstances, which are likely to affect, or which could appear to affect, his judgement; and
  • whether he acts in the best interests of the Company and its shareholders at all times.

There are various definitions of independence for independent directors within the investment community. The stances underlying these definitions are considered regularly by the board and the chairman's position as to the continuing independence of the independent directors was set out explicitly in his preamble to the 2003 annual report (see page 54).

The board operates primarily through its committees and is responsible for leading and controlling the Group and monitoring executive management. It meets at least four times a year.

All directors bring an independent judgment to bear on issues of strategy, performance, resources, including key appointments, and standards of conduct. In 2005 the board and its committees had ten scheduled meetings, each was attended by all members of the board. There is a procedure for directors to take independent professional advice at the Company's expense where relevant to the execution of their duties. The board considers that it has been supplied with sufficient timely and accurate information to enable it to discharge its duties.

All members of the board have access to the services and advice of the company secretary. The executive directors attach great importance to ensuring that the independent directors are provided with accurate, timely and clear information on the Group. In addition, the independent directors are actively encouraged to update continually their knowledge of and familiarity with the Group and the issues affecting it, so as to enable them to fulfil effectively their roles on both the board and its committees.

During the year ended 29 May 2005, the board introduced a process for the evaluation of its own performance and that of its committees, to be carried out by independent consultants; the first results of this process (which will be an annual one) are expected to be delivered to the board later this year.

Hitherto, the board has conducted an annual evaluation of its own performance and its committees. The performance of the finance director has been formally assessed by the chairman and chief executive in association with the independent directors, led by the senior independent director. The independent directors' performance has been assessed by the chairman and chief executive and the senior independent director.

Board committees
The board has four principal committees, all with written terms of reference which are published on the Company’s web site and which are available on application to the company secretary at the Company’s registered office. The company secretary serves as secretary to all four committees. The chairmen of the audit, and remuneration and nomination, committees are expected to be available to answer questions at the Company’s annual general meeting.

Audit committee
The audit committee comprises the three independent directors under the chairmanship of A J H Stewart who is a chartered accountant (CA(SA)) and has significant relevant financial and accounting knowledge and experience. The audit committee’s terms of reference include monitoring the appropriateness of accounting policies, financial reporting, internal control and risk assessment and keeping under review the scope, results and cost-effectiveness of the external and internal audits and the independence of the Company’s external auditors.

The committee calls upon the external auditors, the internal auditors and the executive directors to attend formal meetings as required. These meetings are held at least three times a year. The external and internal auditors are given the opportunity to raise any matters or concerns they may have in the absence of the executive directors at separate meetings with the audit committee or its chairman. The audit committee held six meetings during the year, each of which was attended by all members of the committee.

Business committee
The business committee comprises all directors and is chaired by C J Myatt. It meets not less than nine times a year and is responsible for examining and reviewing many aspects of the Group’s activities including operational and financial performance, capital expenditure proposals, human resource issues and the planning and forecasting processes. The business committee held ten meetings in the year, each of which was attended by all members of the committee.

City committee
The City committee comprises the independent directors and is chaired by N J Donaldson. It meets not less than twice a year and is responsible for corporate governance, investor relations, City presentations and liaison with City advisers. The City committee held three meetings in the year, each of which was attended by all members of the committee.

Remuneration and nomination committee
The remuneration and nomination committee comprises the independent directors and is chaired by C J Myatt. It meets not less than twice a year and is responsible for making recommendations to the board on remuneration policy for senior executives and all directors (including determining specific remuneration packages, terms of employment and performance incentive arrangements). It is also responsible for nominating, for approval by the board, candidates for appointment to the board, and for vetting and approving the appointment of senior executives. The procedures and guidelines used by the remuneration and nomination committee in determining remuneration are outlined in the separate remuneration report. The remuneration and nomination committee held two meetings in the year, each of which was attended by all members of the committee. The committee meets without the executive directors at least annually to appraise the executive directors’ performance.

Communication with shareholders
The Company encourages two way communication with its institutional and private investors and responds promptly to all queries received verbally, in writing or directly through its investor relations web site http://investor.games-workshop.com (the ‘Talk to Tom’ section). The interim and final results are presented publicly to analysts and other meetings with shareholders are arranged as appropriate and these, together with the institutional presentation documents, are also posted simultaneously on the web site.

The Company has an established investor relations programme in the course of which the chairman and chief executive and the finance director have regular meetings with major shareholders to update them on the Company’s progress and to discuss any issues which investors may have. Any issues arising at such meetings are reported and considered by the board. In addition, the Company’s stockbrokers, Baird, obtain shareholder feedback on a confidential basis from major investors following the meetings and this is reported in summary and considered at board meetings.

The Company offers shareholders the opportunity to receive all communication from the Company electronically. Information on how to sign up is available on the Games Workshop web site.

Remuneration report
The Company’s policy on executive remuneration and details of the executive directors’ salaries, annual bonuses, longterm incentives and pensions, and fees for the independent directors, are set out in the board report on remuneration on pages 23 to 25.

Internal control
Detailed reviews of the performance of the Group’s main business activities are included in the operating review and the financial review. The board presents these reviews, together with the directors’ report on pages 13 to 19, to give a balanced and understandable assessment of the Company’s position and prospects.

The directors recognise that they have overall responsibility for ensuring that the Group maintains a sound system of internal control to safeguard shareholders’ investment and the Group’s assets, and for reviewing its effectiveness. The system is designed to manage risks that may prevent the Group from achieving its business objectives, rather than to eliminate these risks. However, even the most effective system can provide only reasonable, and not absolute, assurance against material misstatement or loss.

The directors have established an ongoing process for identifying, evaluating and managing the significant risks faced by the Group, which has been in place from the start of the year until the date of approval of this report. This process is regularly reviewed by the board, in accordance with the document ‘Internal Control : Guidance for Directors on the Combined Code’, the Turnbull report, issued in September 1999. Steps are also being taken to embed internal control in the business processes of the Group.

The effectiveness of the Group's system of internal control is continuously reviewed by the board. The review covers all controls, including financial, operational and compliance controls and risk management. The monitoring of control procedures is achieved through regular review by the finance director, reporting to the board. This review process considers whether significant risks have been identified, evaluated and controlled. Regular reporting by senior management ensures that, as far as possible, the controls and safeguards are being operated appropriately. This process is considered by the audit committee, alongside the external auditors’ reports.

The Group has continued its programme of internal audit reviews during the year. The audit committee agrees an annual internal audit plan, focusing on business specific issues. Elements of this programme are outsourced to external advisers. Actions agreed by management in response to recommendations made are followed up.

The board, with advice from the audit committee, has completed its annual review of the system of internal control in accordance with the guidance as set out in the Turnbull report, and is satisfied that it has acted appropriately and in accordance with that guidance.

Statement of compliance with the Combined Code
Provision A.7.2 of the Combined Code requires that independent directors should be appointed for specified terms. However, the board has decided that it is preferable to retain the flexibility of rolling contracts which can be terminated without notice or compensation, but which, under normal circumstances, operate with a maximum of six months’ notice. The board believes that the requirement for at least one third of the directors to seek re-election by rotation at each annual general meeting adequately ensures that appointment periods are not excessive.

Save as set out above and in connection with provision A.2.1, the Company has complied throughout the year with the provisions set out in section 1 of the Combined Code.

By order of the board

M Sherwin
Secretary
26 July 2004

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