Corporate Governance

Statement of Compliance
The Group has applied the main principles set out in the UK Corporate Governance Code (“UKCGC”) issued by the Financial Reporting Council in June 2010, as referred to in the UK Listing Authority Listing Rules (“Code”) which is available online at www.frc.org.uk. A full statement of compliance with the Code’s main principles of the Code of Best Practice is on pages 19 to 20. The Company has complied with the Code throughout the year ended 31 December 2011, other than the limited exceptions stated as follows:

UKCGC B.1.1 - Mr Davies was an employee of the Group in 1999 and, together with Mr Kanter, has served on the Board for more than 9 years from the date of their first election. As detailed within the Report of the Directors, Mr Davies and Mr Kanter have advised the Company of their intention to resign from the Board with effect from the day of the 2012 Annual General Meeting.

The Board considers that all of the non-executive directors are independent in character and judgement from the management of the Company and free from any business or other relationship which could materially interfere with the exercise of their independent judgement. All of the non-executive directors have extensive business experience.

Board of Directors
The Board of Directors meets regularly to review strategic, operational and financial matters, including proposed acquisitions and divestments, and has a formal schedule of matters reserved to it for decision. It approves the interim and preliminary financial statements, the annual financial plan, significant contracts and capital investment in addition to reviewing the effectiveness of the internal control systems and business risks faced by the Group. Where appropriate, it has delegated authority to committees of directors. Information is supplied to the Board in advance of meetings and the Chairman ensures that all directors are properly briefed on the matters being discussed. The Board also receives detailed presentations from senior managers at the scheduled monthly Board meetings.

Mr Sherriff, a director since 1 August 2002, was appointed Chief Executive Officer on 19 April 2011 and it is the Group’s policy that the roles and the responsibilities of the Chairman and Chief Executive Officer are separate. The Chairman is primarily responsible for management of the Board, corporate strategy and development and ensuring effective communication with shareholders. The Chief Executive Officer is responsible for managing the Group’s operating strategy and businesses.

Non-executive directors are appointed for specified terms, up to a maximum of three years, and reappointment is not automatic. There is a formal selection process to appoint non-executive directors and a separate Nomination Committee was formed in 2001. On 19 April 2011 Mr Bertram was appointed the senior independent non-executive director.

All directors have access to the advice and services of the Company Secretary or suitably qualified alternative, and all the directors are able to take independent professional advice, if necessary, at the Company’s expense. Directors offer themselves for re-election at the Annual General Meeting following their appointment and thereafter in accordance with the Company’s current Articles of Association which requires directors to retire from office and offer themselves for reappointment by the members if they were not appointed or reappointed at one of the preceding two Annual General Meetings.

Board Committees
Each of Mr Bertram, Mr Davies, Mr Kanter, Ms Murray and Mr Whiting serve on the Nomination, Remuneration and Audit Committees. The Committees have written terms of reference which clearly specify their authority and duties and those terms of reference are available upon written request to the Company.

On 1 January 2012 Mr Ratcliffe was appointed as chairman of the Nomination Committee which also comprises Mr Bertram, Mr Davies, Mr Kanter, Ms Murray and Mr Whiting.

On 1 January 2012 Ms Murray was appointed as Chair of the Remuneration Committee and the Committee also comprises Mr Bertram, Mr Kanter, Mr Davies and Mr Whiting. The Report of the Directors on Remuneration appears on pages 21 to 28.

Mr Bertram, a Fellow of the Institute of Chartered Accountants in England and Wales, is chairman of the Audit Committee and the Committee also comprises Mr Davies, Mr Kanter, Ms Murray and Mr Whiting. The Audit Committee meets regularly with management and the external auditors to review and monitor the financial reporting process, the statutory audit of the consolidated financial statements, audit procedures, internal controls and financial matters.

The Audit Committee assess the performance of the external auditors on an annual basis. The Audit Committee then recommends the appointment, reappointment or removal of the Company’s external auditors. The Chairman, Chief Executive Officer and Group Finance Director attend the meetings by invitation, however, the Audit Committee meets at least annually with the Company’s external auditors without the other directors present. The auditors have unrestricted access to the Audit Committee.

Where the external auditors provide non audit services such work has been put out to tender as appropriate. The Board has reviewed the nature of the work and level of fees for these services and considers that this has not affected the auditors’ objectivity and independence. The expenditure on non audit services is set out on page 52 .

Board Attendance
Details of the number of meetings of the Board (including sub-committees at which only certain directors are required to attend) and committees and individual attendances by directors are set out in the table below.

Operating Board
The Operating Board is chaired by the Chief Executive Officer and also comprises the Chairman, Group Finance Director and other senior managers within the Group. The Operating Board normally meets on a monthly basis to discuss policy and operational issues. Those issues outside the delegated authority levels set by the plc Board are referred to the plc Board for its decision. All Non-Executive Directors are invited to attend the Operating Board meetings.

Relations with Shareholders
In order to maintain dialogue with institutional shareholders the Chairman, Chief Executive Officer and Group Finance Director meet with them following interim and final results announcements, or as appropriate, with other directors available to meet institutional shareholders on request. Where practicable the Annual Report is sent to shareholders at least 20 working days before the Annual General Meeting and each issue for consideration at the Annual General Meeting is proposed as a separate resolution. All continuing directors generally attend the Annual General Meeting.

Social, Ethical and Environmental Risks
The Board takes regular account of the significance of social, environmental and ethical (“SEE”) matters to the Group’s business of providing IT services and solutions (including software, managed services and consultancy) to the business community.

The Board considers that it has received adequate information to enable it to assess any significant risks to the Company’s short and long-term value arising from SEE matters and has concluded that the risks associated with SEE matters are minimal. The Board will continue to monitor those risks on an ongoing basis and will implement appropriate policies and procedures if those risks become significant.

Internal Control
The Group maintains an ongoing process in respect of internal control to safeguard the shareholders’ investment and the Group’s assets and to facilitate the effective and efficient operation of the Group.

These processes enable the Group to respond appropriately, and in a timely fashion, to significant business, operational, financial, compliance and other risks, (in line with the Turnbull Guidance and the Code), which may otherwise prevent the achievement of the Group’s objectives.

The Group recognises that it operates in a highly competitive market that can be affected by factors and events outside its control. Details of the risks faced by the Group are set out in the table on pages 9 and 10. The Group is committed to minimising risks arising wherever possible and accepts that internal controls, rigorously applied and monitored, are an essential tool in achieving this objective.

The key elements of Group internal control, which have been effective during 2011 and up to the date of approval of these financial statements, are set out below:

• The existence of a clear organisational structure with defined lines of responsibility and delegation of authority from the Board to its executive directors and operating divisions;
• A procedure for the regular review of reporting business issues and risks by operating divisions;
• Regular review meetings with the operating management;
• A planning and management reporting system operated by each division and the executive directors; and
• The establishment of prudent operating and financial policies.

The directors have overall responsibility for establishing financial and other reporting procedures to provide them with a reasonable basis on which to make proper judgements as to the financial position and prospects of the Group, and have responsibility for establishing the Group’s system of internal control and for monitoring its effectiveness. The Group’s systems are designed to provide directors with reasonable assurance that physical and financial assets are safeguarded, transactions are authorised and properly recorded and material errors and irregularities are either prevented or detected with the minimum delay. However, systems of internal financial control can provide only reasonable and not absolute assurance against material misstatement or loss.

The key features of the systems of internal financial control include:

• financial planning process with an annual financial plan approved by the Board. The plan is regularly updated providing an updated forecast for the year;
• monthly comparison of actual results against plan;
• written procedures detailing operational and financial internal control policies which are reviewed on a regular basis;
• regular reporting to the Board on treasury and legal matters;
• defined investment control guidelines and procedures;
• periodic reviews by the Audit Committee of the Group’s systems and procedures.

The majority of the Group’s financial and management information is processed and stored on computer systems. The Group is dependent on systems that require sophisticated computer networks. The Group has established controls and procedures over the security of data held on such systems, including business continuity arrangements.

On behalf of the Board, the Audit Committee has reviewed the operation and effectiveness of this framework of internal control for the year ended 31 December 2011, and up to the date of approval of the annual report.

Internal Audit
The need for an internal audit function is reviewed on an annual basis by the Audit Committee taking into account the size and complexity of the Group. At present there is no intention to establish an internal audit function.

Page references are in relation to the 2011 Annual Report.