Corporate Governance

Chairman’s overview

The Chairman’s views on corporate governance at Premier Farnell are included in the Chairman’s Statement.

Compliance with the Combined Code

Throughout the year ended 30 January 2011 we have complied with the provisions set out in Section 1 of the Code and applied the principles of the Code in the manner described in this report, save in relation to code provision D.1.1 regarding the senior independent director’s attendance at meetings with a range of major shareholders. This point is explained further in relations with stakeholders.

Also the Board has approved its Chief Executive Officer, Harriet Green, taking on an appointment as Non-Executive Director of BAE Systems plc, a FTSE 100 listed company, in addition to her role as a Non-Executive Director of Emerson Electric Co. There is more on this appointment and the Board’s reasons for agreeing to it below.

Corporate governance framework

The Group operates within a clear governance framework, which is outlined in the diagram below and set out in the report that follows. The Group’s risk management framework is described in the risk management section.

Board size and composition

There are currently eight Directors on the Board: the Chairman, four other Non-Executive Directors and three Executive Directors. The size and composition of the Board is regularly reviewed by the Board and, in particular, the Nominations Committee to ensure that there is an appropriate and diverse mix of skills and experience.

During the year, the following changes were made:

• William Korb retired from the Board as a Non-Executive Director at our AGM on 15 June 2010.
• Thomas Reddin was appointed to the Board as a Non-Executive Director on 30 September 2010.

Our Chairman, Sir Peter Gershon, maintained his Non-Executive Chairmanships of Tate & Lyle plc, General Healthcare Group Limited and Vertex Group Limited and his membership of the UK Defence Academy Advisory Board throughout 2011. He was also appointed to HM Government’s Efficiency Board during the year.

More details on our Board members are in the Board of Directors section.

Role of the Board

UK company law requires Directors to act in a way they consider, in good faith, would promote the success of the Company for the benefit of shareholders as a whole. In doing so, the Directors must have regard (among other things) to:

• The likely consequences of any decision in the long term;
• The interests of Premier Farnell employees;
• The need to foster Premier Farnell business relationships with suppliers, customers and others;
• The impact of Premier Farnell operations on the community and the environment;
• The desirability of Premier Farnell maintaining a reputation for high standards of business conduct; and
• The need to act fairly as between shareholders of Premier Farnell.

In addition to their statutory duties, the Directors must ensure that the Board focuses effectively on all its accountabilities. The Board provides entrepreneurial leadership, determines and monitors performance of the Group’s strategic aims, values and standards, ensures adequate succession planning for senior management and monitors policies and performance on corporate social responsibility.

The Board is collectively responsible for the success of the Group: the Executive Directors are directly responsible for running the business operations and the Non-Executive Directors are responsible for constructively challenging proposals on strategy, scrutinising the performance of management, determining levels of remuneration and for succession planning for the Executive Directors. The Non-Executive Directors must also satisfy themselves on the integrity of financial information and that financial controls and systems of risk management are robust.

The Board reviews strategic issues on a regular basis and exercises control over the performance of each operating company within the Group by agreeing budgetary targets and monitoring performance against those targets. Certain matters are reserved for approval by the Board and the Board has overall responsibility for the Group’s system of internal controls and risk management, as described below. Following presentation by executive management and a disciplined process of review and challenge by the Board, clear decisions on the policy and strategy are adopted and the executive management are fully empowered to implement those decisions.

The powers of the Board are set out in a formal schedule of matters reserved for Board approval. These matters are significant to the Group as a whole due to their strategic, financial or reputational implications. The schedule of matters reserved for the Board is reviewed and updated regularly. A summary of those matters is below.

Summary of matters reserved for the Board

• Approval of the annual report, interim, preliminary and quarterly financial statements.
• Approval of the Group’s interim dividend and recommendation of final dividend.
• Approval of and monitoring delivery of the Group’s strategic plans and annual business plans.
• Maintenance of a system of internal control and risk management.
• Approval of policies in respect of corporate governance, treasury, corporate social responsibility, code of ethics, investor relations and political donations.
• Major acquisitions, mergers or disposals, being £1 million and over for an acquisition or disposal of a company and £3 million and over for an acquisition or disposal of a business.
• Accounting policies and procedures or any matter having a material impact on future financial performance of the business.
• Decision on matters to be addressed in the business review.
• Considering and, where appropriate, approving Director’s conflicts of interest.
• Ensuring adequate succession plans are in place.
• Board appointments and removals.
• Appointment (or removal) of the Company Secretary.
• Approval of terms of reference and membership of Board committees.
• Approval of the division of responsibilities between the Chairman and Chief Executive.
• Appointment or removal of the auditors and determination of the audit fee.
• Approval of all circulars, prospectuses and other documents issued to shareholders governed by the FSA’s Listing Rules, Disclosure Rules or Transparency Rules or the City Code on Takeovers and Mergers.
• Rules and procedures for dealing in Premier Farnell plc securities.
• Major changes in employee share schemes or pension schemes.

Board activities in 2011

At each Board meeting, the Chief Executive reported to the Board on the businesses within the Group and the performance of the Group as a whole. Reports were also made by each of the principal Board Committees and Company Secretary on governance matters, where relevant. The diagram below illustrates the areas of focus and examples of the related activity of the Board in 2011.

Key actions we have taken this year include:

Entrepreneurial leadership

• Reviewed performance against strategy KPIs at every meeting
• Appointed Thomas Reddin as our new Non-Executive Director bringing a wealth of knowledge and experience of eCommerce and the web
• Evaluated the Board's performance with the defined actions and regular review of achievements against actions
• Consulted with major shareholders on areas of remuneration policy
• Established web advisory board
• Received regular reports on eCommerce initiatives across the Group and customer-based training on the Group's eCommerce functionality
• Defined our collective risk appetite at Board level

Set Strategic Aims

• Successful launch of element14 brand and proposition in AsiaPacific
• Regular review of progress of the Next 1,000 day strategic initiatives
• Disposal of non-core business, TPC Wire & Cable
• Review of the success of strategic acquisitions, such as acquisition of CadSoft Computer
• Defined and reviewed success criteria for the business
• Periodic reviews of market conditions and business performance, including reviews of new and existing competitors

Corporate Social Responsibility

• Planning in anticipation of anti-bribery and corruption legislation
• Reviewed the Group’s CSR policy and received regular updates on progress
• Platinum ranked Company in the Business in the Community Corporate Responsibility Index
• Promoted green ways of working by piloting with electronic tablets to provide for easy access to board papers regardless of location

Succession Planning

• Board meeting held in Singapore where the Board also spent time with local managers
• Non-Executive Director visits to Germany, the USA, Malaysia and China offices to meet management and talented performers
• Held all employee engagement survey with outstanding results
• Launch of global Horizons long term incentive plan and employee share option plan for employees globally
• Reviewed Leadership succession planning for the Group's senior roles
• Refreshed remuneration structure across the Group, introducing deferred share bonus plan to align further the interests of the employees and share holders
• Mentoring programmes whereby board members act as trusted mentors to senior managers

Framework of controls

• Assessed the effectiveness of our financial reporting controls, internal controls and assurance processes
• Set the governance framework underpinning the Board, including the Board policies, matters reserved for Board approval and interaction between the Board and its committees
• Regularly reviewed any situational conflicts of Board members
• Held regular confidential discussions with the Group’s Head of Internal and External Audit and reviewed their effectiveness

Role of the Chairman

The role of the Chairman is to lead the Board to ensure effectiveness in all aspects of its role and, in conjunction with the Chief Executive and Company Secretary, plan agenda items and timings for Board meetings. The Chairman ensures that the membership of the Board is appropriate to the needs of the business, that Board committees carry out their duties, including reporting back to the Board, and that appropriate personal objectives are established for the Chief Executive, then advising her towards their achievement. The Chairman also ensures that Directors are kept well informed, particularly the Non-Executive Directors, with whom he meets at least annually without the Executive Directors present, so that Board members have the information necessary to take a full and constructive part in Board discussions.

Role of the Chief Executive

The roles of the Chairman and Chief Executive are clearly defined, separate and approved by the Board and one of the outcomes of the Board performance evaluation undertaken this year is a review of the written role statements of the Chairman and the Chief Executive Officer to ensure that they fully reflect their ways of working.

The role of the Chief Executive is to lead the delivery of strategy and the executive management of the Group. The Chief Executive is responsible, among other things, for the development and implementation of strategy and processes which enable the Group to meet the requirements of its shareholders, for meeting the Group’s budget and for providing the appropriate environment to recruit, engage, retain and develop the personnel needed to deliver the strategy.

Role of the Company Secretary

The Company Secretary and his team provide dedicated support to the Board. Their services are available to all Directors, particularly the Non-Executive Directors, in order to ensure they receive timely and accurate information to fulfil their duties. Directors may also take independent professional advice on request at the Company’s expense.

External appointments and Non-Executive Directors’ time commitments

Premier Farnell recognises that there are significant advantages to individuals and to the Board as a whole of our Directors serving on the Boards of other companies. In line with the Code recommendation, the Company’s policy is that Executive Directors are permitted to hold one Non-Executive Directorship with another company, with all external appointments being approved by the Board.

Throughout the year, Harriet Green was and remains a Non-Executive Director of Emerson Electric Co and, on 1 November 2010, was appointed to the Board of BAE Systems plc. In approving this further appointment, the Board recognised the importance and benefits of this role for Harriet’s ongoing development and the benefits to the Company of promoting Harriet’s development for the purposes of retaining her services within the Group. In doing so the Board was satisfied that the time commitments required for these appointments did not represent an issue for the Group in light of the overall strength and commitment of the senior management team.

Further details of the external appointments held by the Executive Directors (including their related remuneration) are included in the Remuneration Report.

Non-Executive Directors are required to obtain the approval of the Chairman before taking on any further appointments and the Chairman requires the approval of the Board before adding to his commitments. In all cases Directors must ensure that their external appointments do not involve excessive time commitment or cause a conflict of interest.

The letters of appointment set out the time commitment expected of the Non-Executive Directors in performing their duties. Following a review during the year of the time taken to fulfil their duties, the expected number of days required of each Non-Executive Director (excluding travel) has been increased from 15 days to 22 days for the Chairman of each of the Audit and Remuneration Committees and from 10 days to 18 days for each other Non-Executive Director. This reflects the additional time our Non-Executive Directors now spend in site visits, mentoring and training activities.

Non-Executive Director independence

The Code sets out the circumstances that should be relevant to the Board in determining whether each Non-Executive Director is independent. The Board consider Non-Executive Director independence on an annual basis as part of each Non-Executive Director’s performance evaluation. The Board undertook this review in early 2011 and concluded that all the Non-Executive Directors who had served in 2011 (other than the Chairman for whom this is not relevant under the Code) were independent.

Length of service of Non-Executive Directors

The respective periods of service of our Non-Executive Directors (including our Chairman) are represented as follows:

Conflicts of interest

Under UK company law, all Directors must seek authorisation before taking up any position that conflicts, or may possibly conflict, with the interests of Premier Farnell. Our Articles of Association contain provision to allow the Directors to authorise situations of potential conflicts of interest so that a Director is not in breach of his or her duty under company law. All existing external appointments for each Director have been authorised by the Board and a register of such appointments is kept, noted at each Board meeting and reviewed on an annual basis. All Directors are aware of the need to consult with the Company Secretary regarding any further conflicts which may arise so that prior consideration can be given by the Board as to whether or not such conflict should be approved.

Re-election of Directors

In line with the Code, all Directors seek re-election every three years and any Director appointed during the year also seeks re-election at the next AGM. In compliance with the 2010 Code, which applies to our 2012 financial year, all of our Directors will retire at the 2011 AGM and offer themselves for re-election, save that:

• As announced on 1 February 2011, Sir Peter Gershon will retire from the Board at the next AGM and will not therefore stand for re-election.
• As announced on 1 March 2011, Mark Whiteling will retire from the Board and leave the Company in August 2011. Mark will therefore not stand for re-election.
• As a newly appointed Director, Thomas Reddin will stand for election, in accordance with our Articles of Association.

The Company has initiated searches for successors to Sir Peter Gershon and Mark Whiteling in order to ensure smooth and effective transitions of responsibilities.

Induction, business awareness and development

A formal and comprehensive induction process is in place for new Directors, which includes an information pack and personalised induction programme. This programme is tailored to the needs of each Director and agreed with him or her so that he or she can gain a better understanding of the Group and its businesses. It includes an overview of the Group and its functions and governance. It also encompasses detailed reviews of the strategic projects and initiatives underway, one-on-one meetings with the senior managers responsible for their implementation and for the relevant functions and site visits, as well as access to and guidance through Board policies, prior papers and minutes.

In order to ensure that Directors continue to further their understanding of the issues facing the Group, the Non-Executive Directors are encouraged to visit various Group locations and have made a number of such visits this year. Normally, at least one Board meeting each year is held at a Premier Farnell site other than its corporate head office. In December 2010, the Board held its meeting in Singapore and all Directors (other than Tom Reddin who was unable to attend due to other commitments made prior to his appointment to the Board) were involved in a number of training sessions, management presentations and visits to different areas of the business. This enabled these Directors to improve their knowledge and understanding of our Asia Pacific business, get to know senior management in this region and see the results of the rebranding to element14 there. While in Singapore, the Directors received training on the Company’s latest eCommerce initiatives, as they will be experienced from the viewpoint of our customers, and a presentation from Professor Anil Gupta, INSEAD Professor in Strategy, on current issues for businesses in key territories in Asia. These visits, training and presentations were in addition to the frequent presentations and updates to the Board on current issues made to the Board at other Board meetings throughout the year.

As a further aspect of their ongoing development, each Director receives feedback on his or her performance following the Board’s performance evaluation in each year.

Directors also act as mentors to senior management, which increases exposure for senior management to the Directors and allows them to take advantage of our Directors’ extensive experience.

Performance evaluation

The Code recommends that an evaluation of the effectiveness of the Board and its Committees is conducted annually and the 2010 Code further recommends that the process is externally facilitated at least every third year. In 2011 we carried out an internal performance evaluation of the Board and its Committees and each individual Director on an annual basis and in March 2011 the Board held an externally facilitated evaluation in accordance with the 2010 Code.

The main outcomes of the 2009/10 evaluation and actions taken are summarised below:

2010 Performance Review

The performance evaluation this year consisted of a one-to-one discussion between the Chairman and each of the other Directors and a questionnaire. The results of these evaluations were collated by the Company Secretary and then discussed in sessions held in December 2010 and January 2011. The main points raised by this year’s evaluation and the actions arising are summarised below:

2011 Performance Review

Board Committees

Certain responsibilities of the Board are delegated to the Board Committees to assist the Board in carrying out its functions and to ensure independent oversight of internal control and risk management. The three principal Board Committees (Audit, Remuneration and Nominations) play an essential role in supporting the Board in fulfilling its responsibilities and ensuring that the highest standards of corporate governance are maintained throughout the Group. The minutes of each Board Committee meeting are circulated and noted by the Board. This section of the report sets out how the Board and its Committees work within the governance framework and corporate governance guidelines.

Each Committee’s terms of reference set out the specific matters for which delegated authority has been given by the Board. These terms of reference are reviewed annually and are available on the Governance section of our website at www.premierfarnell.com. A summary of the terms of reference for each committee is included in the committee summaries below.

Audit Committee

During the year, the Committee comprised:

• Dennis Millard (Chairman)
• Andrew Dougal
• William Korb Retired 15 June 2010
• Paul Withers Secretary
• Steven Webb

Dennis Millard as Chairman, brings significant recent and relevant financial expertise, which is augmented by the considerable financial expertise and experience of the other members of the Committee.

In addition to Committee members, there are a number of regular attendees at each meeting. The Chief Executive, the Chairman, Chief Financial Officer, Chief Operating Officer, Head of Internal Audit and lead external audit partner normally attend all scheduled Audit Committee meetings. The Audit Committee members regularly schedule time before or after a meeting, without any Executive Directors or senior management present, to raise any questions and discuss issues with the external auditors or Head of Internal Audit. The Chairman of the Audit Committee meets each of the Head of Internal Audit and the external auditor separately to review current issues and developments prior to each meeting of the Audit Committee. The Head of Internal Audit reports directly to the Chief Executive Officer for line management purposes and functionally to the Chairman of the Audit Committee.

Audit Committee Terms of Reference – summary

• Reviews accounting policies and the integrity and content of the financial statements.
• Monitors disclosure controls and procedures and the internal controls.
• Considers the adequacy and scope of external and internal audits.
• Oversees the relationship with and appointment of the external auditors.
• Monitors the independence and effectiveness of the external auditor, particularly with regard to the scope and expenditure on non-audit work.
• Reviews and approves the statements to be included in the annual report on internal control and risk management.
• Monitors the financial reporting process.

The independence and objectivity of the external auditors are considered on a regular basis. The external auditors’ appointment is subject to regular review and the lead audit partner is rotated at least once every five years. Particular regard is also given to the level of non-audit fees. A formal policy is maintained on the provision of non-audit services which prohibits the provision of services such as financial information systems design and implementation, internal audit outsourcing or legal services, although tax compliance services are allowed within defined monetary limits. All other permitted non-audit services are considered on a case by case basis by the Chairman on behalf of the Audit Committee. This policy has been reviewed by the Committee in light of the

FRC Guidance on Audit Committees and from March 2011 will also allow certain audit-related services to be provided by the auditor within defined monetary limits. At each meeting, the Audit Committee receives a report on all non-audit services provided and the estimated cost since the last meeting. The Audit Committee monitor these costs in the context of the audit fee for the year, in order to ensure that the potential to affect auditor independence and objectivity does not arise. The split between audit and non-audit fees for the year to 30 January 2011 and information on the nature of the non-audit fees incurred is detailed on page 105 of the Consolidated Financial Statements.

The Audit Committee has adopted and implemented a Group-wide policy restricting the employment by the Group of former employees of the external auditor.

Remuneration Committee

During the year, the Remuneration Committee comprised:

• Paul Withers (Chairman)
• Andrew Dougal
• William Korb   Resigned 15 June 2010
• Dennis Millard
• Secretary
  Steven Webb

In addition to the Committee members, there are a number of regular attendees at each meeting. Including the Chief Executive, the Chairman, Chief Financial Officer, Chief Operating Officer and Chief People Officer. Each Executive and the Chairman abstain from any discussion and from voting in relation to aspects of their own remuneration package or fees.

Remuneration Committee Terms of Reference – summary

• Determines remuneration for Executive Directors.
• Recommends and monitors the level and structure of remuneration for senior executives across the Group (the first layer of management below Board level).
• Approves design of and targets for performance-related pay for Executive Directors, approving any payments to be made based on performance.
• Determines the fees of the Chairman.
• Approves contracts of employment with Executive Directors.
• Approves the design of and governs employee share schemes.
• Approves the policy for expense claims by Directors.
• Oversees changes to employee benefit structures.
• Considers risks to the Group as a result of remuneration plans.

Full details of Directors’ remuneration and a statement of our remuneration policy are detailed in the Remuneration Report.

Nominations Committee

The composition of the Nominations Committee during the year was:

• Sir Peter Gershon (Chairman)
• Andrew Dougal   Appointed 14 December 2010
• Harriet Green   Appointed 14 December 2010
• William Korb   Retired 15 June 2010
• Dennis Millard
• Thomas Reddin   Appointed 14 December 2010
• Paul Withers   Appointed 14 December 2010
• Secretary
  Steven Webb

As part of its role is to review the composition of the Board, the Nominations Committee recommended the appointment of a new Non-Executive Director. In line with our policy on the appointment of Non-Executive Directors, a detailed candidate specification was prepared which defined the criteria for the new appointee. That specification was agreed with Chief Executive Officer and approved by the Nominations Committee. In accordance with the requirements of that specification, a US-based search agency was sought and retained to assist with the search for suitable candidates. A short-list of potential appointees was produced. The short-listed candidates were interviewed by the Chairman and Chief Executive Officer. Following those interviews, the final candidates were selected and interviewed by all members of the Nominations Committee.

Nominations Committee Terms of Reference – summary

• Reviews the composition of the Board.
• Recommends appointment of new Directors.
• Considers succession plans for senior and executive positions.

Key activities for the Committees in 2011

Other committees

These committees form part of the Corporate Governance Framework, but are not formally appointed committees of the Board.

Web Advisory Board

The Web Advisory Board’s primary function is to offer counsel to the Board and the Chief Executive Officer on matters relating to the web and eCommerce. It brings together internal and external expertise and capabilities in core areas of our eCommerce strategy, enabling these experts to bring challenge, insight and to accelerate further our progress in these important strategic areas.

The Chairman of the Web Advisory Board is Thomas Reddin. The Web Advisory Board meets four times a year and provides a brief overview of progress to date at each Premier Farnell Board meeting.

Disclosure Committee

The Disclosure Committee is made up of the Executive Directors, the Company Secretary, the Group Financial Controller, the Head of Internal Audit and our Investor Relations Manager. It meets four times a year to review all results announcements, following certification from individual executive managers which together cover all sections of the statements. An overview of activity is provided to the Audit Committee, along with the minutes of the Disclosure Committee.

Board meetings

The Board has five Board meetings scheduled each year. In addition to the five scheduled meetings in 2011, there was one additional Board meeting held to consider the implementation of a new warehouse management system and to review the Company’s budget for the second half of the year in light of market conditions and performance in the first half. The additional Board meeting, which was called at short notice, had 100% attendance.

Scheduled Board and Committee meetings are arranged at least one year in advance and all Directors are expected to attend each meeting. All Directors are provided with the papers and relevant information in advance of each meeting and, if a Director is unable to attend a meeting due to exceptional circumstances, he or she will still receive the supporting papers and will usually discuss any matters they wish to raise with the Chairman of the meeting, in order to ensure his or her views are given consideration. The Chairman, Chief Executive and Company Secretary work together to ensure that the Directors receive relevant information for them to discharge their duties and that such information is accurate, timely and clear. The communication of information applies to all scheduled Board meetings, but is particularly important in exceptional circumstances where the Board needs to respond to changing market conditions. We provide all our Directors with an electronic tablet for easy access to papers regardless of location and secure access to electronic copies of meeting papers and other key documents via a dedicated website. The documents include past and current Board and Committee papers, reports, minutes, policies, press coverage, analyst reports and material from briefing sessions.

Meeting attendance for 2011 is set out in the table below. In 2011, all Directors committed an appropriate amount of time to fulfil their duties and responsibilities to the Board. Any instances of non-attendance were related to prior business commitments.

Board and Committee attendance

The following table sets out the number of meetings of the Group Board and its Committees during 2011 and individual attendance by Board and Committee members at those meetings.

• A= Maximum number of meetings Director could have attended.
• B= Number of meetings Director actually attended.
• SID= Senior Independent Non-Executive Director.
• 1= William Korb retired from the Board and all committees on 15 June 2010.
• 2= Thomas Reddin was appointed to the Board on 30 September 2010. He was unable to attend the Board meeting on 14 December 2010 due to business commitments made prior to his appointment.
• 3= Harriet Green, Andrew Dougal, Thomas Reddin and Paul Withers were appointed to the Nominations Committee on 14 December 2010. No meetings of the Nominations Committee have taken place between this date and the year-end.

Non-Executive Director Board briefings

The Chief Executive meets on a one-to-one basis with the Non-Executive Directors in between Board meetings and ahead of each scheduled Board meeting to brief them on the business of the meeting. The Non-Executive Directors use these meetings as an opportunity to advise the Chief Executive whether they have any specific questions they would like to raise about the business of the meeting. The Chief Executive, Chairman and Company Secretary are always available for the Directors to discuss any issues concerning Board meetings or other matters.

Governance framework

Premier Farnell aims to build a sustainable business through consistent, profitable growth and to make sure that our customers and wider stakeholders can trust us. We recognise that creating shareholder value is the reward for taking acceptable risks.

The Board has overall accountability for running the business effectively by making sure all risks are appropriately managed. Internal controls and risk management are designed to limit the chance of failure to achieve corporate objectives. Independent assurance is provided by the external and internal auditors who present their findings regularly to the Audit Committee. The system includes an ongoing process for identifying, evaluating and managing significant business risks. However, any system can provide only reasonable and not absolute assurance of meeting internal control objectives and is designed to manage rather than eliminate the risk of the Company failing to meet its business objectives.

Effective internal control

One of the Board’s key responsibilities is to ensure that management maintains a system of internal control which provides assurance of effective and efficient operations, internal financial controls and compliance with law and regulation. The Board’s consideration of the materiality of financial and other risks to the Group’s business and reputation ensures that appropriate controls are in place. Consideration is also given to the relative costs and benefits of implementing specific controls.

Assurance

On behalf of the Board, the Audit Committee examines the effectiveness of the:

• Systems of internal control, primarily through approving the internal audit plan and reviewing its findings, reviews of the financial controls for financial reporting of the annual, half year and quarterly financial statements and a review of the nature, scope and reports of external audit.
• Management of risk by reviewing evidence of risk assessment activity and internal audit reports on the process.
• Action taken to manage critical risks or to remedy any control failings or weaknesses identified.

The Audit Committee has completed its review of the effectiveness of the Group’s systems of internal control during the year, which are in compliance with the Turnbull Guidance on Internal Control (Revised Guidance for Directors on the Combined Code 2005). It confirms that the necessary action plans to remedy identified weaknesses in internal control are in place and have been throughout the year. The Board also, where appropriate, ensures that necessary actions have been,or are being, taken to remedy significant failings or weaknesses identified from the review of effectiveness of internal controls.

The Group’s internal controls over the financial reporting and consolidation processes are designed under the supervision of the Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of the Group’s published financial statements for external reporting purposes in accordance with IFRS.

Because of its inherent limitations, internal control over financial reporting cannot provide absolute assurance, and may not prevent or detect all misstatements whether caused by error or fraud.

The Group’s internal control over financial reporting and the preparation of consolidated financial information includes policies and procedures that provide reasonable assurance that transactions have been recorded and presented accurately. Chief Financial Officers of subsidiaries of the Group are required to certify that the financial information they have provided as part of the annual consolidation process has been properly prepared and reviewed in accordance with instructions from the Group Finance Department.

Management regularly conducts reviews of the internal controls in place in respect of the processes of preparing consolidated financial information and financial reporting.

During the year, there were no changes to the internal controls over the processes of financial reporting and preparation of consolidated financial information that have affected, or are reasonably likely to affect materially the level of assurance provided over the reliability of the financial statements.

Risk identification

As well as the risks that management identifies through the ongoing processes of reporting and comparing actual performance against detailed financial and operating plans, analysing significant variances and scrutinising key performance indicators, the Audit Committee has additional risk identification processes, which include:

• “risks and controls” process for identifying, evaluating and managing major business risks. During the year, business and function leaders have operated the process, which has been co-ordinated by the Head of Internal Audit.
• Assurance framework summary, developed to identify strategic issues on which assurance is required, external and internal sources from which assurance is obtained and any ways in which that assurance may need to be enhanced.
• Internal and external audit reports, which comment on controls to manage identified risks and also identify new ones.
• Our Code of Ethics, that encourages employees to report any areas of concern regarding compliance with controls, combined with a confidential whistle-blowing helpline. In addition, employees are encouraged to raise comments, questions and concerns confidentially and directly with the Chief Executive using the “askharriet” email function.
• Disclosure Committee meetings which are held at least four times a year to review all financial statements. The Disclosure Committee reports into the Audit Committee and requires certification from individual executive managers on the relevant sections of all financial statements.
• A quarterly process to collate all contingent liabilities identified by the business units and function heads. This report is tabled at the Disclosure Committee and then reviewed by the Audit Committee.

The Board has also implemented an annual process to review the Group’s risk appetite, considering the key factors underpinning delivery of the Group strategy and supporting sustainable operational and financial performance. The exercise was undertaken through detailed interviews conducted with each Director around specific risks and discussed in detail at a number of Board meetings during 2011. This exercise is in addition to the evaluation of major business risks and controls referred to above.

Controls

• Defined organisational structure with authorities properly delegated.
• Formal authorisation process for investments.
• Clearly defined responsibilities for financial management on maintenance of financial controls and the production and review of detailed, accurate and timely financial management information.
• The reporting line of the Head of Internal Audit to the Chief Executive Officer and to the Audit Committee.
• The Code of Ethics which clearly defines expected standards of business behaviour. The Code of Ethics is widely publicised and included as part of the employee induction programme.
• The control of key financial risks through clear authorisation levels and proper segregation of duties.
• Our comprehensive financial review cycle. The annual budget is approved by the Board and monthly variances are reviewed against detailed financial and operating plans.
• The quarter end controls checklist and Disclosure Committee, which requires sign off from the Chief Executive and Chief Financial Officers of each business unit, covering internal controls, legal and regulatory compliance, Code of Ethics, tax issues and financial controls.
• A process of internal control self-assessment co-ordinated by the Internal Audit team.

The statement of Directors’ responsibilities in relation to the preparation of the accounts is in Statement of Directors’ responsibilities accordion of the Directors’ Report.

Relations with stakeholders – shareholders

Engagement with our shareholders is essential to ensure a greater understanding of and confidence in the medium and longer term strategy of Premier Farnell and in the Board’s ability to oversee its implementation. The Chairman – supported by the Senior Independent Director and by the Chairman of the Remuneration Committee on matters relating to Executive Director remuneration – is primarily responsible for ensuring that the Board is accessible to major shareholders and that channels for communication are open. He also has principal responsibility for ensuring that the Board is aware of any concerns raised by major shareholders and that their views are taken on board. The Chief Executive and Chief Financial Officers also have regular dialogue with institutional shareholders. All other ordinary shareholders have the opportunity to ask questions at our AGM where all Directors are expected to be available to take questions. All Directors attended the 2010 AGM and were available to shareholders.

During the year our Senior Independent Director, Dennis Millard, had considerable exposure to the views of our major shareholders, having been kept fully informed by our Chairman, Paul Withers as Chairman of the Remuneration Committee and our Executive Directors of their respective meetings with those shareholders. This has been sufficient to enable Dennis to develop a balanced understanding of the issues and concerns of major shareholders, although Dennis remains available for meetings with major shareholders if any is requested.

Shareholder engagement activities

• The Chairman and Paul Withers held individual meetings with our top 12 shareholders.
• Three major shareholders were invited to attend a PFLC session in November to present, give their views and take part in a Q&A session.
• Our Chief Executive and Chief Financial Officers held many meetings with investors throughout the year.
• The Chairman met with a number of major shareholders towards the end of the year to discuss matters such as strategy and succession planning.
• Our Non-Executive Directors are invited to attend – and several have attended certain of – our quarterly results presentations.
• The Chairman attended our annual investor day.
• All Directors attend and have dialogue with our shareholders at our AGM.

Relations with stakeholders – employees, suppliers and customers

We give a high priority to employee communications. As well as the formal structures, considerable time is given to other forms of employee communication.

Premier Farnell also communicates with suppliers and customers, individually and at group events. We are very active in our local communities as described in some detail in the Summary Sustainability Report section of the Business Review and the online version of the Sustainability Report http://annualreport2011.premierfarnell.com/sustainabilityreport

• Employee briefings (including our annual Kick-Off event, regular town halls and green days) conducted by the Chief Executive and other senior management (given quarterly and ad hoc).
• Group-wide Intranet which is accessible to all employees through their work computer or local cyber café and which gives a wide range of Group information, news and the ability to post real-time comments.
• Annual Kick-Off meetings to involve employees in the strategic priorities for the coming year.
• The “askharriet” email facility for employees.
• Our annual employee engagement survey.
• Customer buddy programme, whereby employees choose a customer to work closely with.
• Initiatives such as our Net Promoter Score, an innovative framework enabling us to measure customer satisfaction and drive customer-focused change throughout Premier Farnell. We are committed to creating a complete lifecycle experience for our customers so that at every contact point we treat and suitably reward customers to earn their lifetime loyalty.
• Customer councils, focus groups and surveys to gain customer insight on planned initiatives, receive feedback and pulse views on our proposition and service.
• Social media for suppliers and customers, using twitter and facebook to provide real-time immediate connections.
• Maintain and secure relationships with top suppliers, driving excellence in overall supplier management and engagement.
• Our annual eSupplier summit at which our key suppliers come together with leaders from our eCommerce and Innovation teams to review plans and proposals for the enhancement of our proposition and to define the key part that our suppliers play in that.

AGM

We propose separate resolutions for each issue and proxy forms allow shareholders to vote for or against or withhold their vote on each resolution. The results of all proxy voting is published on our website after the meeting and at the meeting itself to the shareholders that attend. The notice of AGM is sent to shareholders at least 20 working days before the meeting.

Going concern

The Group’s business activities and financial position; the factors likely to affect its future development and performance; and its objectives and policies in managing the financial risks to which it is exposed and its capital are discussed in the Business Review.

The Directors have assessed, in the light of current and anticipated economic conditions, the Group’s ability to continue as a going concern.

The Directors confirm they are satisfied that the Company and the Group have adequate resources to continue in business for the foreseeable future. For this reason, they continue to adopt the “going concern” basis for preparing accounts.

Share capital and control

Details are included in the Share capital and control accordion of the Directors’ Report.