Corporate Governance

Compliance statement

In 2008 the Company was subject to and complied with the provisions set out in section 1 of the Combined Code on Corporate Governance that was published in June 2006 by the Financial Reporting Council and which is available via a link on its website www.frc.org.uk.

Board

The Board currently comprises the nonexecutive Chairman, five executive directors and six independent non-executive directors. The Chairman has a primary responsibility for the running of the Board and for ensuring effective communication with shareholders. The Chief Executive is responsible for the operations and for the development of strategic plans and initiatives for consideration by the Board. The division of responsibilities between the Chairman and the Chief Executive has been clearly established, set out in writing and agreed by the Board. Mr N M H Jones acts as Senior Independent Director, the principal roles and responsibilities of which are described elsewhere.

The other significant commitments of the Chairman during 2008 are detailed in his biography.

The Board schedules eight meetings each year, but arranges to meet at other times, as appropriate. There was a full attendance at the eight meetings held in 2008. In addition, the Chairman met during the year with the non-executive directors without the executive directors present.

The Board has a formal schedule of matters specifically reserved for its decision and approval. These include the approval of the strategic and annual profit plans, key public information releases (e.g. financial statements), dividends, major acquisitions and disposals, material contracts, treasury and other Group policies. The section “Internal control” contains further information on how the Board operates.

The Company seeks to ensure that the Board is supplied with appropriate and timely information to enable it to discharge its duties. The Board requests additional information or variations to regular reporting as it requires. A procedure exists for directors to seek independent professional advice in the furtherance of their duties, if necessary. All directors have access to the advice and services of the Company Secretary.

All directors receive an induction on joining the Board. A combination of tailored Board and committee agenda items and other Board activities, including briefing sessions, assist the directors in continually updating their skills and the knowledge and familiarity with the Company required to fulfil their role both on the Board and on Board committees. In addition, external seminars, workshops and presentations are made available to directors. The Company provides the necessary resources for developing and updating directors’ knowledge and capabilities.

The Chairman conducts an appraisal with each director. The Senior Independent Director, having consulted with the other directors, conducts an appraisal interview with the Chairman. Each director completes a questionnaire on the effectiveness and processes of the Board and its committees. The results are considered by the Board and the individual committees.

Whilst all directors are expected to bring an independent judgement to bear on issues of strategy, performance, resources (including key appointments) and standards of conduct, the independent non-executive directors were selected and appointed for this purpose.

The Company Secretary is responsible for advising the Board through the Chairman on all governance matters.

Appointment and replacement of directors

A person may be appointed as a director of the Company by the shareholders in general meeting by ordinary resolution (requiring a simple majority of the persons voting on the relevant resolution) or by the directors; no person, other than a director retiring (by rotation or otherwise), shall be appointed or re-appointed a director at any general meeting unless he or she is recommended by the directors or not less than seven nor more than 35 clear days before the date appointed for the meeting, notice is given to the Company of the intention to propose that person for appointment or re-appointment in the form and manner set out in the Company’s articles of association.

Each director who is appointed by the directors (and who has not been elected as a director of the Company by the members at a general meeting held in the interval since his or her appointment as a director of the Company) is subject to election as a director of the Company by the members at the first Annual General Meeting following his or her appointment. Each director is subject to re-election by the members at the third Annual General Meeting following his or her election or last re-election by the members in general meeting (or at such earlier Annual General Meeting as the directors may decide). The independent non-executive directors understand that the Board will not automatically recommend their re-election by shareholders. The Chairman and the independent non-executive directors are appointed for a specified term of approximately three years, subject to re-election.

The Companies Act allows shareholders in general meeting by ordinary resolution (requiring a simple majority of the persons voting on the relevant resolution) to remove any director before the expiration of his or her period of office, but without prejudice to any claim for damages which the director may have for breach of any contract of service between him or her and the Company.

A person also ceases to be a director if he or she resigns in writing, ceases to be a director by virtue of any provision of the Companies Act, becomes prohibited by law from being a director, becomes bankrupt or is the subject of a relevant insolvency procedure, or is requested to resign by notice signed by all the other directors, or if the Board so decides following at least six months’ absence without leave or he or she becomes subject to relevant procedures under the mental health laws.

Powers of the Company’s directors

The Company’s articles of association specify that, subject to the provisions of the Companies Act, the memorandum and articles of association of the Company and to any directions given by shareholders by special resolution, the business of the Company is to be managed by the directors, who may exercise all the powers of the Company, whether relating to the management of the business or not.

Board committees

The Board has four standing committees, all of which have written terms of reference clearly setting out their authority and duties. The terms of reference of the audit, nomination and remuneration committees, which are reviewed annually, can be viewed on the Company’s website (www.ladbrokesplc.com).

Audit committee

The members of the committee are:

	Appointment date	Committee Role
Mr N M H Jones	16 May 2003	Chairman
Ms C P Wicks	1 June 2004	Member
Mr H E Staunton	1 September 2006	Member

All members of the committee are independent non-executive directors. Appointments to the committee are made by the Board at the recommendation of the nomination committee, which consults with the Chairman of the audit committee.

The Board has satisfied itself that the members of the committee have recent and relevant financial experience.

The committee is provided with sufficient resources to undertake its duties. It has access to the services of the Company Secretary (who acts as secretary to the committee) and all other employees. The committee is able to take independent legal or professional advice when it believes it necessary to do so.

The committee meets as required, but not less than three times a year. Of the four meetings of the audit committee held in 2008, Ms C P Wicks was unable to attend one due to other business commitments. Although other directors, including the Group Finance Director, attend audit committee meetings, the committee also meets for private discussions with the external auditor, who attends all of its meetings, and can do so with the internal auditor.

The main role and responsibilities of the committee in 2008 were to:

• monitor the integrity of the financial statements of the Company;
• review the Company’s internal financial control and risk management systems;
• monitor and review the effectiveness of the Company’s internal audit function; and
• oversee the Company’s relationship with the external auditor including the recommendation to the Board of its appointment and remuneration.

Should the committee’s monitoring and review activities reveal any material cause for concern or scope for improvement, it will make recommendations to the Board on action needed to address the issue or make improvements.

The main activities of the committee in 2008 were as follows:

• with the assistance of reports received from management and the external auditor, the critical review of the significant financial reporting issues in connection with the preparation of the Company’s financial and related formal statements;
• assessing the scope and effectiveness of the systems established to identify, assess, manage and monitor financial and non-financial risks;
• monitoring the integrity of the Company’s internal financial controls.

The committee does so by reference to:

1. (a) summaries of business risks and mitigating controls;
2. (b) regular reports and presentations from the head of key risk functions, internal audit and external audit; and
3. (c) the results of the system of annual selfcertification of compliance with key controls and procedures;

• monitoring and reviewing the plans, work and effectiveness of the internal audit function, including any actions taken following any significant failures in internal controls;
• reviewing, with the external auditor, its terms of engagement, the findings of its work, and at the end of the audit process reviewing its effectiveness; and
• reviewing the independence and objectivity of the external auditor.

The external auditor reports to the committee on the actions taken to comply with professional and regulatory requirements and with best practice designed to ensure its independence. The committee has agreed a policy on the engagement of the external auditor to supply non-audit services, the application of which it monitors. The policy, which can be viewed on the Company’s website (www.ladbrokesplc.com), specifies services that may not be provided and contains a level of cost at which committee approval is required enabling the committee to satisfy itself that auditor objectivity and independence are safeguarded.

Finance committee

This committee meets as required to deal with all routine business that excludes matters that are specifically reserved to the Board or to another committee and specific matters delegated to it by the Board requiring attention between scheduled Board meetings. Any two directors can conduct the business of this committee.

Nomination committee

The members of the committee are the Chairman of the Board and two or more independent non-executive directors. The current members of the committee are:

	Appointment date	Committee Role
Sir Ian Robinson	1 October 2001	Chairman
Mr N M H Jones	16 May 2003	Member
Mr C J Rodrigues	18 May 2007	Member
Mr P Erskine	18 February 2009	Member

During 2008 Sir Ian Robinson indicated an intention to retire as Chairman of the Board and as a director at the conclusion of the Annual General Meeting to be held on 15 May 2009. Further to a number of internal candidates being considered for the position, Mr J F Jarvis and Ms C P Wicks were appointed temporary additional members of the committee solely for the purpose of making a recommendation to the Board concerning a successor Chairman of the Board and together with the Chairman of the Board constituted for this purpose the entire membership of the committee.

Appointments to the committee are made by the Board.

The committee is provided with sufficient resources to undertake its duties. It has access to the services of the Company Secretary (who acts as secretary to the committee) and all other employees. The committee is able to take independent legal and professional advice when it believes it necessary to do so.

The committee meets as required but not less than twice a year. Five meetings of the committee were held in 2008 and all the members of the committee (constituting the membership of the committee at the time of each meeting) were in attendance.

The main role and responsibilities of the committee are to:

• review the structure, size and composition of the Board (which includes an objective and comprehensive evaluation of the balance of skills, knowledge and experience of the Board) and make recommendations to the Board with regard to any changes;
• consider succession planning for the directors and other senior executives and make recommendations to the Board;
• identify and nominate for the approval of the Board candidates to fill Board vacancies as and when they arise;
• review the leadership of the Company to ensure the continued ability of the Company to compete effectively in the marketplace;
• recommend candidates for the role of Senior Independent Director and for membership of the audit and remuneration committees, in consultation with the Chairmen of those committees; and
• make recommendations to the Board concerning the re-appointment of non-executive directors at the end of their specified term of office and the re-election by shareholders of any director under the retirement by rotation provisions.

The committee performed the above activities as necessary in 2008.

During 2008 an executive director, Mr R J Ames, and a non-executive director, Mr P Erskine, were appointed (both with effect from 1 January 2009). Mr Ames’ appointment was a planned succession (see his biography) and accordingly external advice or external advertising had not been used in making his appointment. Mr Erskine was appointed a non-executive director and as Chairman of the Board designate to succeed the current Chairman of the Board (see above). A description of the role and capabilities required were prepared and suitable candidates were identified using external advisers.

Remuneration committee

Details of the remuneration committee, including membership, are set out in the Directors’ Remuneration Report, which should be read in conjunction with this section of this report.

Internal control

The Board has ultimate responsibility for the system of internal control operating throughout the Group and for reviewing its effectiveness. No system of internal control can provide absolute assurance against material misstatement or loss. The Group’s system is designed to manage rather than eliminate the risk of failure to achieve business objectives and to provide the Board with reasonable assurance that potential problems will normally be prevented or will be detected in a timely manner for appropriate action.

The Company has had procedures in place throughout the year and up to 19 February 2009, the date of approval of this Annual Report, which accord with the Internal Control Guidance for Directors on the Combined Code published in September 1999.

The Board has delegated the detailed design of the system of internal control to the executive directors.

The control framework and key procedures during 2008 were as follows:

• the Group operates through two principal divisions, Retail and Remote Betting and Gaming. Responsibilities for managing business risks arising were defined by the Board;
• the executive directors met regularly together and with other senior executives (the executive committee) to consider Group financial performance, business development and Group management issues. Divisional management comprised executives with appropriate functional responsibilities. Divisional management met regularly to manage their respective businesses;
• the Board established corporate strategy and Group business objectives. Divisional management integrated such objectives into business strategies for presentation to the Board with supporting financial objectives;
• there was an ongoing process for identifying, evaluating and managing the significant risks faced by the Group. Major business risks and their financial implications were appraised by the responsible executives and endorsed by the divisional management. This was an integral part of the strategic planning process. The appropriateness of controls was considered by executives, having regard to cost/benefit, materiality and the likelihood of risks crystallising. Key risks and actions to mitigate those risks were considered at each regular Board meeting and were formally reviewed and approved by the Board twice yearly;
• divisional budgets, containing financial and operating targets, capital expenditure proposals and performance indicators, were reviewed by the executive directors and supported divisional business strategies. The Group profit plan was approved by the Board;
• reports on Group and divisional performances were regularly provided to directors and discussed at Board meetings. Performance against both budgets and objectives together with management of business risks, were reviewed with divisional management, as were forecasts and material sensitivities. The Board regularly received reports from key executives and functional heads covering areas such as operations, forecasts, business development, strategic planning, human resources, legal and corporate matters, compliance, health and safety and corporate responsibility;
• there was a Group-wide policy governing appraisal and approval of investment expenditure and asset disposals. Major projects were reported on at each regular Board meeting. Post investment audits were undertaken on a systematic basis and were formally reviewed by the Board twice yearly;
• key policies and control procedures (including treasury, compliance and information system controls) are documented in manuals having Group-wide application. Operating companies also used procedure manuals that integrated with Group controls;
• a system of annual self-certification of compliance with key controls and procedures was operated throughout the Group;
• the Group had an internal audit function, outsourced to Deloitte LLP, which reported to management on the Group’s operations; and
• to underpin the effectiveness of controls, it was the Group’s policy to recruit and develop management and staff of high calibre, integrity and with appropriate disciplines. High standards of business ethics and compliance with laws, regulations and internal policies were demanded from staff at all levels.

The role of the audit committee in reviewing the effectiveness of the system of internal control is explained in the ‘Audit committee’ section.

The Board also conducts an assessment of the effectiveness of the internal control system. The assessment takes account of all significant aspects of internal control including: risk assessment; the control environment and control activities; information and communication; and monitoring.

Relations with shareholders

There is a regular programme of meetings with major institutional shareholders to consider the Group’s performance and prospects. In addition, presentations are made twice yearly after the announcement of results, the details of which, together with the Group’s financial reports and announcements, can be accessed via the Group’s internet site. The Chairman met in 2008 with several institutional investors and their representative bodies in addition to results presentations and the Annual General Meeting. Other directors are available to meet the Company’s major shareholders if requested.

The Senior Independent Director is available to shareholders if they have concerns, which contact through the usual channels of Chairman, Chief Executive and Finance Director has failed to solve or for which such contact is inappropriate.

The Board receives a monthly market report from the Company’s brokers who also present to the Board annually. A twice-yearly presentation is made to the Board reporting on the programme of meetings with major institutional shareholders and a report on investor relations is given at each Board meeting. Principles of ownership, corporate governance and voting guidelines issued by the Company’s major institutional shareholders, their representative bodies and advisory organisations are circulated to, and considered by, the Board.

The Company corresponds regularly on a range of subjects with its individual shareholders who have an opportunity to question the Board at the Annual General Meeting. For further information on our relations with shareholders please refer to Shareholder Information.

Rights attaching to the shares and restrictions on voting and transfer

The Company’s share capital is £253.0 million divided into 892,941,175 ordinary shares of 281⁄3p each. Subject to any suspension or abrogation of rights pursuant to relevant law or the Company’s articles of association, the ordinary shares confer on their holders (other than the Company in respect of its treasury shares):

(a)the right to receive out of profits available for distribution such dividends as may be agreed to be paid (in the case of a final dividend in an amount not exceeding the amount recommended by the Board as approved by shareholders in general meeting or in the case of an interim dividend in an amount determined by the Board) – all dividends unclaimed for a period of 12 years after having become due for payment are forfeited automatically and cease to remain owing by the Company;

(b)the right, on a return of assets on a liquidation, reduction of capital or otherwise, to share in the surplus assets of the Company remaining after payment of its liabilities pari passu with the other holders of ordinary shares; and

(c)the right to receive notice of and to attend and speak and vote in person or by proxy at any general meeting of the Company – on a show of hands every member present or represented and voting has one vote and on a poll every member present or represented and voting has one vote for every share of which that member is the holder; the appointment of a proxy must be received not less than 48 hours before the time of the holding of the relevant meeting or adjourned meeting or in the case of a poll taken otherwise than at or on the same day as the relevant meeting or adjourned meeting be received after the poll has been demanded and not less than 24 hours before the time appointed for the taking of the poll.

These rights can be suspended. If the member, or any other person appearing to be interested in shares held by that member, has failed to comply with a notice pursuant to section 793 of the Companies Act 2006 (notice by company requiring information about interests in its shares) the Company can suspend (until one week after the default ceases) the right to attend and speak and vote at a general meeting and if the shares represent at least 0.25% of their class the Company can withhold any dividend or other money payable in respect of the shares and refuse to accept certain transfers of the relevant shares. In addition following certain action by a gambling industry regulator (as more specifically set out in the Company’s articles of association) the Company may suspend all or some of the rights attaching to all or some of the shares held by any relevant shareholder to attend and to speak at meetings and to vote, to receive any dividend or other money payable in respect of the shares, and to the issue of further shares or other securities in respect of the shares. The Trustee of the Ladbrokes Share Ownership Trust, which is used in connection with certain of the Company’s employee share ownership plans, held 894,491 ordinary shares in the Company at 31 December 2008 which are not voted by plan members and which it can vote in its absolute discretion.

A member may choose whether his or her shares are evidenced by share certificates (certificated shares) or held in electronic (uncertificated) form in CREST (the UK electronic settlement system). Any member may transfer all or any of his or her shares subject in the case of certificated shares to the rules set out in the Company’s articles of association or in the case of uncertificated shares the regulations governing the operation of CREST (which allow the directors to refuse to register a transfer as therein set out); the transferor remains the holder of the shares until the name of the transferee is entered in the register of members. The directors may refuse to register a transfer of certificated shares in favour of more than four persons jointly or where there is no adequate evidence of ownership or the transfer is not duly stamped (if so required). The directors may also refuse to register a share transfer if it is in respect of a certificated share which is not fully paid up or on which the Company has a lien provided that, where the share transfer is in respect of any share admitted to the Official List maintained by the UK Listing Authority, any such discretion may not be exercised so as to prevent dealings taking place on an open and proper basis, or if in the opinion of the directors (and with the concurrence of the UK Listing Authority) exceptional circumstances so warrant provided that the exercise of such power will not disturb the market in those shares. Whilst there are no squeeze-out and sell out rules relating to the shares in the Company’s articles of association, shareholders are subject to the compulsory acquisition provisions in sections 974 to 991 of the Companies Act 2006 and can be required by the Company to transfer their shares following certain action by a gambling industry regulator (as more specifically set out in the Company’s articles of association).

Significant agreements that take effect, alter or terminate upon a change of control following a takeover bid

The agreements between Ladbrokes Group Finance plc, a wholly owned subsidiary of the Company, and 14 separate banks for the provision by the banks of revolving credit facilities of up to £910 million on a committed basis provide that the banks may give notice of cancellation if a change of control occurs. On cancellation the amounts drawn would be immediately repayable. In the context of a takeover bid, the acquirer would normally arrange substitute facilities.

The agreement between Ladbrokes International Limited (“LI”), a wholly owned subsidiary of the Company, and Prima Poker Limited (“PP”), pursuant to which PP granted to the operator a non-exclusive licence to use an interactive gaming system and provide various poker related services to the Company, provides that PP may give notice of cancellation if a change of control occurs. On cancellation LI must pay a turnover related fee on a notional maximum 24 months use of the licence.

Amendment of the Company’s articles of association

The Company’s articles of association may be amended by the members of the Company by special resolution (requiring a majority of at least 75% of the persons voting on the relevant resolution).