Principal corporate governance requirements
UK corporate governance requirements
The Board has prepared this Annual Report with reference to the Combined Code and related guidance published in June 2008 by the Financial Reporting Council (FRC). It describes the way in which the Company is applying all the main and supporting principles of good governance in the Combined Code as described below. The Company has complied throughout the accounting period and is also continuing to comply with all of the provisions of the Combined Code. The Combined Code is publically available on the FRC website, frc.org.uk.
The Board has overall responsibility for the Group's system of internal controls and risk management policies and is also responsible for reviewing their effectiveness. During 2009, the Directors have continued to review the effectiveness of the Group's system of controls, risk management and the Group's high-level internal control arrangements. These reviews have included an assessment of internal controls, and in particular, internal, financial, operational and compliance controls and risk management and their effectiveness, supported by management assurance of the maintenance of control, reports from GIA, as well as the external auditor on matters identified in the course of its statutory audit work. The system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable (not necessarily absolute) assurance of effective operation and compliance with laws and regulations.
Underpinning these reviews is an annual 'letter of assurance' process by which responsible managers confirm the adequacy of their systems of internal financial and non-financial controls, their compliance with Group policies and relevant laws and regulations (including the industry's regulatory requirements), and that they have reported any control weaknesses through the Group's 'continuous assurance' process.
The internal control framework has been in operation for the whole of the year under review and continues to operate up to the date of the approval of this Annual Report. The Directors believe that the Group maintains an effective, embedded system of internal controls and complies with the Turnbull Report guidance and, in the view of the Directors, no significant failings have been identified in the system.
Further information on the ways in which we manage our business risks is set out in the Managing risk section and a list of the principal risks and uncertainties is set out in the Principal risks and uncertainties section.
During 2009, the Board considered the independence of each Non-Executive Director. With the exception of Marcus Wallenberg, the Board considers that all of the Non-Executive Directors are independent. Louis Schweitzer was considered by the Board to be independent upon his appointment as Chairman; in accordance with the Combined Code, the test of independence is not appropriate in relation to the Chairman after his appointment.
Marcus Wallenberg was appointed as a Director of Astra in May 1989 and subsequently became a Director of the Company in 1999. Until September 2005, he was a member of the board of directors and the Chief Executive Officer of Investor AB, which has a 3.55% interest in the issued share capital of the Company as at 28 January 2010. Wallenberg family foundations remain Investor AB's largest shareholders in terms of votes controlled. For these reasons, the Board does not believe that Marcus Wallenberg can be determined independent under the Combined Code. However, the Board believes that he has brought, and continues to bring, considerable business experience and makes a valuable contribution to the work of the Board.
The Board has also considered, in particular, the position of Michele Hooper who joined the board of UnitedHealth Group as a Non-Executive Director in 2007. The Board's approval of this appointment was conditional upon Michele Hooper resigning from the board of UnitedHealth Group in the event of a conflict or non-independence. It is the Board's view that Michele Hooper is independent and that she discharges her duties in a properly independent manner, constructively and appropriately challenging the Executive Directors and the Board.
Jane Henney is a Non-Executive Director of AmerisourceBergen Corporation and CIGNA Corporation, both of which are customers of the Group in the US. The Board has considered these relationships and concluded that they did not compromise her independence.
The position of senior independent Non-Executive Director of the Company was established in 2002. Michele Hooper (who was appointed as a Non-Executive Director in 2003) became the Company's senior independent Non-Executive Director in April 2007.
At the AGM in 2008, a resolution was passed to amend the Articles to enable the Directors to authorise any situation in which a Director has an interest that conflicts or has the potential to conflict with the Company's interests and which would otherwise be a breach of the Director's duty, under section 175 of the Companies Act 2006. The Board has a formal system in place for Directors to declare such situations to be considered for authorisation by those Directors who have no interest in the matter being considered. In deciding whether to authorise a situation, the non-conflicted Directors must act in the way they consider, in good faith, would be most likely to promote the success of the Company, and they may impose limits or conditions when giving the authorisation, or subsequently, if they think this is appropriate. Situations considered by the Board and authorisations given are recorded in the Board minutes and in a register of conflicts maintained by the Company Secretary and reviewed annually by the Board. The Board considers that this system continues to operate effectively.
The disclosures that fulfil the requirements of a corporate governance statement under the Disclosure and Transparency Rules can be found in this Corporate Governance section of the Directors' Report and in other parts of this Annual Report as listed below, each of which is incorporated into this Corporate Governance section by reference:
- Significant holders of the Company's shares (contained in the Shareholder Information section).
- Articles (contained in the Corporate Information section).
- Amendments to the Company's Articles (contained in the Corporate Information section).
US corporate governance requirements
The Company's ADSs are traded on the NYSE and, accordingly, the Company is subject to the reporting and other requirements of the SEC applicable to foreign private issuers. Section 404 of the Sarbanes-Oxley Act requires companies to include in their annual report on Form 20-F filed with the SEC, a report by management stating its responsibility for establishing internal control over financial reporting and to assess annually the effectiveness of such internal control. The Company has complied with those provisions of the Sarbanes-Oxley Act applicable to foreign private issuers. The Board continues to believe that the Group has a sound corporate governance framework, good processes for the accurate and timely reporting of its financial position and results of operations and an effective and robust system of internal controls. The Company has established a Disclosure Committee, further details of which can be found in the Disclosure Policy and Disclosure Committee section below.
The Directors' assessment of the effectiveness of the internal control over financial reporting is set out in the Directors' Responsibilities for, and Report on, Internal Control over Financial Reporting section in the Financial Statements.
The Company must disclose any significant ways in which its corporate governance practices differ from those followed by US companies under the Listing Standards. In addition, the Company must comply fully with the provisions of the Listing Standards relating to the composition, responsibilities and operation of audit committees. These provisions incorporate the rules concerning audit committees implemented by the SEC under the Sarbanes-Oxley Act.
The Company has reviewed the corporate governance practices required to be followed by US companies under the Listing Standards and its corporate governance practices are generally consistent with those standards.
Code of Conduct
The Code of Conduct, which is available on our website, astrazeneca.com, applies to all Directors, officers, full-time, part-time, contractor and temporary staff at all levels in every country where we operate. It has been translated into over 40 languages and every employee has a copy in his/her local language. It is designed to provide clear direction as to how the Company's commitment to honesty and integrity is to be translated into consistent actions across all areas of the business. Compliance with the Code of Conduct and with the standards detailed by the Group in support of it is mandatory. The same applies to the laws and regulations of the countries in which we work and do business, as well as applicable national and international codes, and the Group seeks to operate to the highest of these standards.
The Code of Conduct also includes information on how to report possible violations of the Code of Conduct through the appropriate channels, including the AZethics telephone lines and the new global website, AZethics.com. Anyone who raises a possible breach in good faith will be supported by management and will not be subject to retaliation, which would itself be considered a serious violation of the Code of Conduct. We review all alleged compliance breaches and concerns, and we investigate and report on them to the Audit Committee, as appropriate.
During 2009, 289 reports of alleged compliance breaches or other ethical concerns were made via the telephone helplines, AZethics.com website or Global Compliance e-mail or postal addresses described in the Code of Conduct. The number of reports via the equivalent channels in 2008 was 206. We believe that the increase in the number of reports via these channels is due, in part, to our efforts to enhance these reporting channels and, in part, to an increased awareness of the Code of Conduct and the accompanying training and communications.
As with the Code of Conduct, our Global Policies apply to all members of the Group. Like the Code of Conduct, the Global Policies provide clear and comprehensive guidance, in plain language, to all managers and employees as to their accountabilities in key ethical, compliance and corporate responsibility risk areas.
A critical element of the effectiveness of the Code of Conduct and Global Policies is to deliver clear training and education to employees on an ongoing basis.
A Group Finance Code of Conduct complements the Code of Conduct. It applies to the CEO, the CFO, the Group's principal accounting officers (including key Finance staff in major overseas subsidiaries) and all Finance function employees, and it reinforces the importance of the integrity of the Group's Financial Statements, of the reliability of the accounting records on which they are based and of the robustness of the relevant controls and processes.
Compliance and Group Internal Audit
The role of the Global Compliance function is to help embed a culture of ethics and integrity in the Group. Global Compliance works closely with GIA, with whom it provides joint assurance reporting to the Audit Committee. The key priorities for our Global Compliance function for 2009/2010 are closely aligned with the Group's strategic priorities. During 2010, the Global Compliance function will continue to focus on ensuring the delivery of an aligned approach to compliance that addresses key risk areas across the business.
During 2009, the Global Compliance Committee met quarterly. The remit of the committee is to oversee and co-ordinate implementation of an effective global compliance programme and evaluate its effectiveness. It does this by assessing key compliance risks within and across the SET functions; working with GIA to ensure co-ordination of compliance auditing and monitoring; reviewing results; and addressing significant policy violations and identifying trends.
Global Compliance provides direct assurance to the Audit Committee on matters concerning compliance issues, with a particular focus on compliance with IFPMA, EFPIA and PhRMA codes. Complementing this, GIA carries out a range of audits that include compliance-related audits and reviews of the assurance activities of other Company assurance functions. The results from these activities are reported to the Audit Committee.
GIA is an independent appraisal function that derives its authority from the Board through the Audit Committee. Its primary role is to provide reasonable and objective assurance to the Directors about the adequacy and effectiveness of the Group's risk management and control framework and the internal controls over key business risks, including financial controls and compliance with laws, regulations and policies.
GIA seeks to discharge the responsibilities set down in its charter by reviewing:
- The processes for ensuring that key business risks are effectively managed.
- The financial and operational controls that help to ensure that the Group's assets are properly safeguarded from losses, including fraud.
- The controls that help to ensure the reliability and integrity of management information systems.
- The processes for ensuring compliance with policies and procedures, external legislation and regulation.
- On an ad hoc basis, whether value for money is obtained (in terms of efficient use of the Group's resources).
GIA acts as a source of constructive advice and best practice, assisting senior management to improve governance, control, compliance and risk management.
Disclosure Policy and Disclosure Committee
The Group's Disclosure Policy provides a framework for the handling and disclosure of inside information and other information of interest to shareholders and the investment community. It also defines the role of the Disclosure Committee. During 2009, the members of the Disclosure Committee were: the CFO; the Executive Vice-President, Development; the General Counsel; the Vice-President, Corporate Affairs; the Vice-President, Investor Relations; and the Senior Vice-President, Group Finance. The Deputy Company Secretary acts as secretary to this committee. The Disclosure Committee meets regularly to assist and inform the decisions of the CEO concerning inside information and its disclosure. Periodically, it reviews the Group's disclosure controls and procedures and its own operation as part of work carried out to enable management and the Board to assure themselves that appropriate processes are operating for the Company's planned disclosures, such as its quarterly results announcements and scheduled investor relations events. In addition, the Disclosure Committee members are members of the steering group that reviews the drafts of, and the process for preparing, this Annual Report.
Disclosure of information to auditors
The Directors who held office at the date of approval of this Directors' Report confirm that, so far as they are each aware, there is no relevant audit information of which the Company's auditors are unaware; and each Director has taken all the steps that he/she ought to have taken as a Director to make himself/herself aware of any relevant audit information and to establish that the Company's auditors are aware of that information.
