Corporate Governance

For the year ended 31 January 2007.

The Group fully supports the Principles of Good Governance and Code of Best Practice as set out in the FRC Combined Code issued in July 2003. The Board has considered the implications of the revised Combined Code on the Group’s governance and will comply with those provisions considered appropriate for the size of the Group.

Application of Principles of Good Governance Board of Directors

With effect from 17 April 2007 the Executive Deputy Chairman moved into a Non-Executive role and so the Board of Directors comprises three Executive and four Non-Executive Directors The Group has an independent Chairman and Senior Independent Non-Executive Director who are both members of the Audit, Remuneration and Nomination Committees. The Executive Board members are the Chief Executive Officer, Group Finance Director and European Managing Director. David Higgins and Tom Crawford are not considered independent.

The Board meets at least 10 times per annum and has a fixed schedule for reviewing the Group’s operating performance. In addition other meetings as required are arranged to deal with specific issues or transactions. The Board also has a schedule of matters and responsibilities specifically reserved to itself, the main items of which include:

Approval of the published financial results and other statements;
Appointments to the Board and other Board Committees;
Approval of the annual Group Strategic Plan and Budget;
Approval for acquisitions, mergers and disposals;
Approval for new businesses which require start up capital;
Approval of capital expenditure and leasehold agreements over certain thresholds;
Approval of material contracts over certain thresholds; and
Approval of treasury policy and significant financing arrangement.

During the year attendance at the pre-arranged meetings was 100% for the Chairman and Executive Board members and circa 95% for the Non-Executives.

The Executive Directors are responsible for the day to day operational and financial management of the Group within the framework set out by the Board. Outside the formal schedule of matters reserved for the Board, the Chairman and Non-Executive Directors make themselves available for consultation with the Executive team as often as necessary.

Procedural compliance is monitored by the Chairman and the Group Finance Director (who is also the Company Secretary) and Directors’ appointment and removal is a matter for the Board as a whole. Independent professional advice and training is available to all the Directors.

The Senior Non-Executive Director is available for consultation with shareholders, through the Company Secretary. The Executive Directors have met with the Company’s major shareholders and other potential investors on a regular basis and have reported to the Board on those meetings.

On joining the Board, a new Director receives appropriate induction including meeting with other Directors and senior management, visiting the Group’s key operations and meeting the Group’s principal advisors.

The Board has a policy of reasonable funding for independent professional advice for all Directors in furtherance of their duties as Directors of the Company. In relation to non-reserved matters the Board is assisted by a number of committees with delegated authority. The Board regularly discusses and reviews its performance and the composition of its membership and considers that it is operating effectively.

Audit Committee

The Audit Committee meets at least twice a year with the Group’s senior financial management and external auditors to review the interim and annual financial statements, the accounting policies of the Group, its internal financial control procedures and compliance with accounting standards. The members of the Committee are Ian Kirkpatrick (Chairman) and Gus Moore, both of whom are independent Non-Executive Directors. The Board considers that the membership of the Committee as a whole has sufficient recent and relevant financial experience to HARVEY NASH GROUP PLC ANNUAL REPORT & ACCOUNTS 2006 / 35 discharge its function. The Committee has a formal agenda, timetable and terms of reference.

During the course of the period under review the Committee has:

Reviewed the financial statements and the financial reporting judgements contained within those statements for the Group and any formal announcements relating to the Group’s financial performance;
reviewed the Group’s internal control system and risk controls;
reviewed various reports and recommendations from the Group’s internal audit function;
made a recommendation to the Board in relation to the appointment, terms of engagement and remuneration of the external auditors whilst monitoring their independence and objectivity;
reported to the Board any matters, which it considered needs action or improvements together with recommended actions;
made itself available to hear any concerns from staff, in confidence; and
reviewed the effectiveness of the audit process. The Committee’s full terms of reference are available from the Company Secretary on request.

The Audit Committee applies a policy which governs the provision of audit and non-audit services provided by the auditors and, in summary, requires significant non-audit services other than tax and other compliance services to be subjected to a competitive tendering process.

The Committee is authorised to engage the services of external advisors as it deems necessary, at the Company’s expense, in order to carry out its function.

The Committee met twice during the year, with full attendance by its members.

Remuneration committee

The Remuneration Committee meets at least twice a year. The members of the Committee are Ian Kirkpatrick (Chairman) and Gus Moore, both of whom are independent Non -Executive Directors. The Committee’s full terms of reference are available from the Company Secretary on request.

The Remuneration Committee determines and approves the broad policy and specific remuneration and long term incentive arrangements of the Company’s Executive Directors and certain of the senior management. The Chief Executive Officer may be invited attend and speak at meetings of the Committee, but does not participate in any matter which impacts upon his own remuneration.

The remuneration of the Non-Executive Directors, including the Chairman is set by the Executive Directors.

The Directors’ Remuneration Report includes details of remuneration and policy, practices and the remuneration of the Directors.

The Remuneration Committee met three times during the year, with full attendance by its members

Nomination Committee

The Company has a Nomination Committee, which provides a transparent process and procedure for the appointment of new Directors to the Board. The members of the Committee are Ian Kirkpatrick (Chairman), Gus Moore (Senior Independent Non-Executive) and David Higgins (Non-Executive Deputy Chairman). The Committee’s terms of reference, which are available form the Company Secretary on request are:

Responsibility for identifying and nominating candidates for appointment to the Board;
Evaluating the balance of skills, knowledge and experience required on the Board; and
Succession planning.