Principles of corporate governance

The company's board of directors appreciates the value of good corporate governance not only in the areas of accountability and risk management but also as a positive contribution to business prosperity. It believes that corporate governance involves more than a simple "box ticking" approach to establish whether a company has met the requirements of a number of specific rules and regulations. Rather the issue is one of applying corporate governance principles (including those set out in the Combined Code on Corporate Governance published by the Financial Reporting Council in July 2003) in a sensible and pragmatic fashion having regard to the individual circumstances of the group's business. The key objective is to enhance and protect shareholder value.

The board is responsible to shareholders for the proper management of the group. The non-executive directors have a particular responsibility to ensure that the strategies proposed by the executive directors are fully considered. To enable the board to discharge its duties, all directors have full and timely access to all relevant information and there is a procedure for all directors, in furtherance of their duties, to take independent professional advice, if necessary, at the expense of the group.

The board has a formal schedule of matters reserved to it and meets monthly. It is responsible for overall group strategy, approval of major capital expenditure projects and consideration of significant financing matters.

The following committees, which have written terms of reference, deal with specific aspects of the group's affairs:

1. The remuneration committee is responsible for making recommendations to the board on the company's framework of Executive remuneration and its cost. The committee determines the contract terms, remuneration and other benefits for each of the executive directors, including performance related bonus schemes, pension rights and compensation payments. The board itself determines the remuneration of the non-executive directors. The committee comprises two non-executive directors. It is chaired by Russell Hodgson and meets at least twice a year including immediately before the submission of the annual and interim financial statements to the board.
   
   
2. The audit committee comprises two non-executive directors, and is chaired by Graham Norfolk. Its prime tasks are to review the scope of external audit, to receive regular reports from Baker Tilly, and to review the half-yearly and annual accounts before they are presented to the board, focusing in particular on accounting policies and areas of management judgement and estimation. The committee is responsible for monitoring the controls which are in force to ensure the integrity of the information reported to the shareholders. The committee acts as a forum for discussion of internal control issues and contributes to the board's review of the effectiveness of the group's internal control and risk management systems and processes. It advises the board on the appointment of external auditors and on their remuneration for both audit and non-audit work, and discusses the nature and scope of the audit with the external auditors. It meets at least twice a year including immediately before the submission of the annual and interim financial statements to the board.
3. The Nominations Committee comprises of two non-executive directors, Russell Hodgson (Chairman) and Graham Norfolk. The duties of the committee are to satisfy themselves that any person being considered for a directorship or senior management appointment within the Company are suitably qualified, and have sufficient experience, to effectively carry out the role being offered. The committee meets on an ad-hoc basis as required.

The directors are responsible for the group's system of internal control and reviewing its effectiveness. The board has designed the group's system of internal control in order to provide the directors with reasonable assurance that its assets are safeguarded, that transactions are authorised and properly recorded and that material errors and irregularities are either prevented or would be detected within a timely period. However, no system of internal control can eliminate the risk of failure to achieve business objectives or provide absolute assurance against material misstatement or loss.

The key elements of the control system in operation are:

• the board meets regularly with a formal schedule of matters reserved to it for decision and has put in place an organisational structure with clear lines of responsibility defined and with appropriate delegation of authority; and
  
  
• there are procedures for planning, approval and monitoring of capital expenditure and information systems for monitoring the group's financial performance against approved budgets and forecasts.

The process adopted by the group accords with the guidance contained in the document "Internal Control Guidance for directors on the Combined Code" issued by the ICAEW. The audit committee will receive reports from the external auditors on a regular basis and from executive directors of the group. During the year, the audit committee has reviewed the effectiveness of the system of internal control as described above. The board receives periodic reports from all committees.

The group values its dialogue with both institutional and private investors. Effective two-way communication with fund managers, institutional investors and analysts is actively pursued and this encompasses issues such as performance, policy and strategy. The directors have meetings with analysts and institutions on a regular basis. There is a wealth of information for investors on the group's web site, www.bdpx.com, which is updated monthly.

The directors have voluntarily undertaken to adopt and comply with the provisions set out in Section 1 of the Combined Code insofar as they apply to the group given its size and structure. The only areas of the Code with which the directors believe the group does not currently comply are the annual evaluation of the performance of its committees and its directors, and the need to establish a procedure for the appointment and induction of new directors.