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Corporate governance:part 1

HomeServe complied throughout the year with the provisions set out in the Combined Code published by the UK Financial Reporting Council in 2003 as updated in June 2008 ('the Code').

The manner in which the Company applies the principles of good governance contained in the Code is described in the appropriate parts of this Annual Report and Accounts. Thus the application by the Company of the Code's principles relating to remuneration matters in the Remuneration report should be read in conjunction with the statement below. A review of the Group's position and prospects is set out in the Chairman's statement, the Chief Executive's review and the Financial review page.

The Board

The Board of Directors leads and controls the Company by holding 10 meetings a year at which its current and forecast performance is reviewed and monitored. Regular reports on monthly performance and other matters of importance to the Group ensure that the Board is supplied in a timely manner with the information necessary to make informed judgements. In addition, the Board holds regular meetings at least annually, also attended by senior operational management, to devise and discuss the Company's medium and long-term strategic focus and management development strategy. Regular formal and informal presentations are given and meetings held in order to inform Directors of issues of importance affecting the Group. Occasionally, meetings of the Board are held at the Company's operating sites other than Walsall, in order to afford the Board, particularly the Non-Executive Directors, with the opportunity to meet with local management.

In accordance with the provisions of its Articles of Association and with the Code, each Director is subject to election by the Company's shareholders at the Annual General Meeting immediately following his appointment and is subject to re-election at least every three years thereafter.

The Board has a Schedule of Matters specifically reserved to it for decision and has approved the written terms of reference of the various committees to which it has delegated its authority in certain matters. Matters reserved to the Board include the recommendation or approval of dividends, the approval of preliminary and interim financial statements, major financial commitments, the acquisitions of significant companies or businesses, appointments to the Board and its Audit, Remuneration and Nomination committees, the Company's future strategy and its internal controls. It also provides that the Board receive regular updates from the chairmen of its committees.

During the year the Board was led by Brian Whitty, the Executive Chairman, who also served as a member of the Board's Nomination Committee.

The Chairman's responsibilities were clearly defined in a written specification agreed by the Board and which made clear the division of responsibilities between the Executive Chairman and the Chief Executive. They included the smooth running of the Board, effective communication between Executive and Non-Executive Directors and the general progress and long-term development of the Group. His executive responsibilities included the management of the Emergency Services businesses and those relating to property, legal and governance matters.

Brian Whitty retired on 31 March 2010 and Barry Gibson was appointed as Non-Executive Chairman. Mr Gibson's responsibilities have been clearly set out in his letter of appointment.

The Board has established a formal procedure for Directors wishing to seek independent legal and other professional advice and all members of the Board have access to the advice and services of the Company Secretary.

The day-to-day running of HomeServe's business is delegated to an Executive Committee which is led by Richard Harpin, Chief Executive. Other members of the Executive Committee include Jon Florsheim, Martin Bennett and the Chief Executives of HomeServe Europe and HomeService USA.

During the year, four independent Non-Executive Directors (Messrs Gibson, Chippendale, Morris and Sibbald) with extensive business, finance and marketing backgrounds, provided the Board with a breadth of experience and with independent judgement. Barry Gibson served as the Company's independent Senior Non-Executive Director until 31 March 2010 when he was replaced by Ian Chippendale.

The Board actively encourages all Directors to deepen their knowledge of their roles and responsibilities and to gain a clear understanding of the Group and the environment in which it operates; and has adopted a formal policy on the induction and training of Directors. Newly appointed Board members are required to undergo an induction programme, which includes obtaining a thorough understanding of the Group's various operations, and they have the opportunity to receive formal training from external providers if they wish. During the year, the Non-Executive Directors have met with various members of the Group's management teams and external advisers.

The Board has implemented a formal process for reviewing its own effectiveness, that of its Remuneration and Audit committees and its individual members. In addition, it continued to ensure that regular meetings of the Non-Executive Directors were held without the Executive Directors, and at least once a year, without the Chairman present, in order to evaluate his performance. The evaluation process, which was conducted by the Chairman and Company Secretary, was concluded in March 2010. Directors completed evaluation questionnaires and a formal written report summarising their views and containing recommendations to further improve the effectiveness of the Board was prepared and reviewed by the whole Board in March 2010. The Board concluded that it was operating effectively, although a number of recommendations for further improvement were approved.

Committees

The Board operates a number of committees to which it has delegated certain specific responsibilities and each of which has formally adopted terms of reference. These comprise the Nomination, Audit and Remuneration Committees. The terms of reference of each of the Board's committees are available on request from the Company Secretary.

A Risk Committee, comprising certain Executive Directors and members of the Executive Committee, operates across the Group and is chaired by Martin Bennett. Its terms of reference have been approved by the Board and its purpose is to establish the Group's risk appetite, to evaluate the risk registers compiled by each of its businesses, to monitor the effectiveness of its action plans for the mitigation of those risks, and to report thereon to the Audit Committee and the Board, which retains responsibility for the overall evaluation of the Group's risk management processes.

Nomination Committee

The Nomination Committee, which makes recommendations to the Board on the appointment of Directors, was under normal circumstances chaired by Brian Whitty with the other members being the independent Non-Executive Directors. This Committee met informally to consider the position of Chief Financial Officer to which Martin Bennett was appointed on 26 June 2009. Following this, Andrew Sibbald assumed the role of Chairman of the Committee, heading up the process to identify a Non-Executive Chairman. Messrs Chippendale, Morris and Harpin sat on the Committee for this purpose and met informally on a number of occasions and formally twice before a recommendation was made to the Board.

The Committee draws on the advice of such professional advisers as it considers necessary and did so during the year in respect of both the Chairman and Chief Financial Officer appointments.

Its duties also include the review of the size, structure and composition of the Board, and succession planning for Directors and other senior managers. During the year, these duties were undertaken by the Board itself.

Audit Committee

The Audit Committee was chaired by Mark Morris who comes from a strong financial background having worked in audit, business advisory and corporate finance before becoming a plc finance director. The Committee comprises only independent Non-Executive Directors with Barry Gibson and Ian Chippendale being the other members.

The Committee meets regularly to review the preliminary and interim results before they are presented to the Board, to receive reports from the Company's internal and external auditors and to make recommendations to the Board on accounting policies. Its primary duties include the monitoring, on behalf of the Board, of compliance with and the effectiveness of the Company's accounting and internal control systems. The Committee's duties also include agreeing audit strategy, monitoring the scope and results of the Company's annual audit and the independence and objectivity of its auditors. The internal and external auditors and the Chief Financial Officer are invited but are not entitled to attend all meetings. Where appropriate, other Executive Directors also attend meetings at the Chairman's invitation. The external and internal auditors are provided with the opportunity to raise any matters or concerns that they may have, in the absence of the Executive Directors, whether at Committee meetings or, more informally outside of them.

The Committee is responsible for making recommendations to the Board for a resolution to be put to the shareholders for their approval in general meeting for the appointment of the external auditors, the approval of their remuneration and their terms of engagement.

The Committee has implemented a policy relating to the use of the external auditors for non-audit services and monitors fees paid in respect of such services. This policy provides that, excluding certain specialist services, the total fees payable to the auditor for non-audit related work in any financial year should not normally be more than 50% of the total fees payable in respect of audit and compliance services. In addition any proposed spend over a predetermined limit must be approved by the Committee. This year due to the sale and closure of the Emergency Services businesses and some specific projects agreed in 2008/9 but completed in 2009/10, external auditor fees for non-audit services exceeded the audit fees.

The Committee has also agreed and implemented a procedure for reviewing and assessing its own effectiveness and that of the internal and external audit process. The results of the last review of the external audit process were considered by the Audit Committee in May 2010.

Remuneration Committee

The Committee was chaired throughout the year by Ian Chippendale. The Committee comprises only independent Non-Executive Directors, Barry Gibson and Mark Morris being its other members.

The Remuneration Committee's responsibilities include determining the Group's overall remuneration strategy and the remuneration packages of the Executive Directors and other members of the Executive Committee, after having consulted with the Chairman and Chief Executive and having received professional advice from remuneration consultants. The Committee is also responsible for approving the grant and exercise of executive long-term incentive arrangements. In determining remuneration policy, the Committee is free to obtain such professional advice as it sees fit, and regularly monitors both the policies of comparator companies and current market practice, in order to ensure that the packages provided are sufficient to attract and retain Executive Directors of the necessary quality.

The Committee has also agreed and implemented a procedure for reviewing and assessing its own effectiveness.

The remuneration of Non-Executive Directors is a matter for the Company's Board.

Short biographies of each of the Directors, including their membership of the Board's committees outlined above, may be found on directors page.

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