medMD8F9J4K

8/7/2019 medMD8F9J4K

http://slidepdf.com/reader/full/medmd8f9j4k 1/9



Contents

1. Background ……….………………………………………………………………………… 2

2. Board of Directors …………………………………………..……………………………… 3

3. Audit Committee …………………………………………..……………………………….. 4

4. Nomination and Compensation Committees ……………………………..……………. 6

5. Code of Conduct ……………………………………………………..……………………. 6

6. Shareholder Approval of Equity Compensation Plansand Advisory Votes on Compensation ……………..…………………………………… 6

7. Management Accountability …………………………………………..………………….. 7

8. Loan Prohibitions ……………………………………………..……………………………. 8

1



1. Background

The primary corporate governance system that applies to British American Tobacco p.l.c.(the “Company”), in common with other companies listed on the London Stock Exchange, isthe Combined Code on Corporate Governance adopted by the Financial Reporting Councilin June 2008 (the “2008 Code”). The Corporate Governance Statement in the Company’s2010 Annual Report (the “Corporate Governance Statement”), explains how the principlesof the 2008 Code have been applied by the Company. The Company’s Board of Directors(the “Board”) considers that the Company met its obligations as a company listed on theLondon Stock Exchange with regard to the 2008 Code in 2010.

A new UK Corporate Governance Code was adopted in 2010 (the “2010 Code”) and willapply in place of the 2008 Code to accounting periods beginning on or after 29 June 2010.In keeping with its commitment to high standards of corporate governance, the Companyhas taken the opportunity during 2010 to meet the requirements of the 2010 Code.Accordingly, while the primary purpose of the Corporate Governance Statement is to meetthe Company’s formal obligation under the 2008 Code, it also reports, where appropriate,by reference to the 2010 Code. To the extent material for the purposes of this Statement,the requirements of the 2010 Code are the same as those under the 2008 Code.Accordingly, the 2008 Code and the 2010 Code are collectively referred to in this Statementas the “UK Code”.

The Company’s American Depositary Receipts (“ADRs”), each of which represents twoOrdinary Shares of the Company, are traded on an unlisted basis on NYSE Amex Equities(formerly called “NYSE Alternext US”) in New York (the “NYSE Amex”). For historicalreasons, however, the Company is not listed on the NYSE Amex and is not required to filean Annual Report on Form 20-F with the US Securities and Exchange Commission (the“SEC”). Instead, the Company submits to the SEC all material information which it hasmade public including through submission to the London Stock Exchange and distribution

to shareholders, for example, periodic and year-end results and appointments to the Board.Accordingly, unlike many non-US companies with ADRs, the Company is not required tocomply with the US corporate governance regime as established by:

(a) the Sarbanes-Oxley Act of 2002 and the rules adopted by the SEC under that Act (the“SOX Rules”); and

(b) the Listing Standards, Policies and Requirements of the NYSE Amex (the “NYSEAmex Rules”).

Nevertheless, the Company believes that it is in the interests of its shareholders in general

and its ADR holders in particular to explain the principal differences and common areasbetween the corporate governance practices which it applies (as described in the CorporateGovernance Statement), which meet the requirements of the UK Code, and those which itwould be required to apply if it were subject to the SOX Rules and, for the purposes of theNYSE Amex Rules, a US company listed on the NYSE Amex. The purpose of thisVoluntary Statement is to provide that explanation.

This Statement is made voluntarily and is not intended to comply with the requirements ofthe SOX Rules or the NYSE Amex Rules. Nothing in this Statement, whether expressly,impliedly or otherwise, should be taken as providing the disclosures required under thoseRules and no liability whatsoever shall attach to the Company, its directors, officers oremployees in consequence of this Statement not complying with the requirements of eitherthe SOX Rules or the NYSE Amex Rules.

2



2. Board of Directors

The Company currently has a Board of twelve Directors: the Chairman, three ExecutiveDirectors – the Chief Executive, the Finance Director and Chief Information Officer, and theChief Operating Officer– and eight Non-Executive Directors.

The NYSE Amex Rules require that a listed company has sufficient independent directorssuch that they form a majority of the board. The UK Code provides that, excluding thechairman, at least half of the members of the board should be independent. The test forindependence under the UK Code is different to that set out in the NYSE Amex Rules. Theformer identify certain circumstances which are likely, or which could appear, to affect adirector’s judgement and which should therefore be taken into account by the board in itsassessment of a director’s independence (but which are not, in themselves determinative),whereas the latter set out a (non-exhaustive) list of the circumstances in which a directorshall not be considered independent.

The Board considers that all eight of the Company’s Non-Executive Directors areindependent under the criteria set out in the UK Code. Kieran Poynter retired as Chairmanand Senior Partner of PricewaterhouseCoopers LLP, the Company’s auditors, on 30 June2008, two years prior to his appointment to the Board. The Board specifically considered,prior to his appointment, whether his previous position with PricewaterhouseCoopers mightimpact upon his independence, given that a material business relationship with theCompany within the previous three years (including as a partner) is identified in the UKCode as one of the circumstances which is likely, or which could appear, to affect adirector’s judgement. The Board took into account that Mr Poynter had neither worked withthe British American Tobacco Group (the “Group”) nor had any responsibility for the BritishAmerican Tobacco account as Audit partner or otherwise during his time with the firm.Given the size and scale of PricewaterhouseCoopers, as a global professional servicesfirm, and the fact that it works with a great many businesses, the Board concluded that, in

the absence of direct involvement in the Company’s business, his association with the firmup to June 2008 was no impediment to its assessment of him as independent in June 2010.Mindful, however, that this could be an area of concern for shareholders, the Board decidedto appoint him to the Nominations and Corporate Social Responsibility Committees only atthis time. He is not currently a member of either the Audit Committee or the RemunerationCommittee.

Although assessed as independent under the criteria set out in the UK Code, KieranPoynter would not be considered independent under the NYSE Amex Rules, which identifya partnership in the company’s external auditors within the past three years as one of thecircumstances in which a director shall not be considered independent. Nevertheless, sincethe remaining seven Non-Executive Directors would be independent under the NYSE Amex

Rules, the Company, were it subject to the NYSE Amex Rules, would meet the requirementthat independent Directors form a majority of the Board.

The NYSE Amex Rules require the directors of a listed company to meet at least quarterly.Under the UK Code, the board should meet sufficiently regularly to discharge its dutieseffectively. The Company’s Board held nine meetings in 2010, seven of which werescheduled and two of which were convened to address Board and Management Boardsuccession issues as a result of Paul Adams’s retirement from the Board and as ChiefExecutive with effect from 28 February 2011. There was at least one meeting in eachquarter. The Board is scheduled to hold seven meetings in 2011, again with at least onemeeting in each quarter.

The NYSE Amex Rules require the independent directors of a listed company to meet atleast once annually in “Executive Session” (meaning without the non-independent orexecutive directors being present). This is not a requirement under the UK Code and, in

3



2010, there was no such meeting. The Senior Independent Director, however, leads ameeting of the Non-Executive Directors without the Chairman present at least annually.

3. Audit Committee

The NYSE Amex Rules require that a company’s audit committee meets at least quarterlyand that it has a charter that complies with specified requirements, including the applicableNYSE Amex and SOX Rules regarding audit committee independence and other matters.The SOX Rules require that it has authority to engage external advisers. If it were subject tothe SOX and NYSE Amex Rules, the Company’s Audit Committee (the “Audit Committee”)would meet these requirements in all material respects. The Audit Committee’s terms ofreference are available on www.bat.com.

The SOX Rules impose disclosure requirements not contained in the UK Code in respect ofthe independence of members of a company’s audit committee. However, no situationarose in 2010 that would have required the Company to make disclosure regarding any lackof independence on the part of any member of the Audit Committee, had it been subject to

the SOX Rules. As noted above, Kieran Poynter, who would not be considered independentunder the NYSE Amex Rules, is not currently a member of the Audit Committee.

Under the SOX Rules, a company’s board should determine either that at least onemember of the audit committee is an “audit committee financial expert” (in which case,disclosure of the name of the financial expert and whether that person is independent underthe NYSE Amex Rules is required), or that there is no “audit committee financial expert” onthe audit committee (in which case, an explanation of why there is no such expert isrequired). The NYSE Amex Rules require all members of the audit committee to be able toread and understand fundamental financial statements and that at least one member be“financially sophisticated”. The Board considers that, were it subject to the SOX and NYSEAmex Rules, the Chairman of its Audit Committee, who has the “recent and relevantfinancial experience” required by the UK Code, would meet the SOX standard of an “auditcommittee financial expert”, that he would be considered “financially sophisticated” underthe NYSE Amex Rules and that all members of the Audit Committee would meet therequirement of the NYSE Amex Rules of being able to read and understand fundamentalfinancial statements.

The SOX Rules require that a company’s audit committee be responsible for theappointment of its external auditors or, if domestic law requires that shareholders vote onthe appointment of a company’s external auditors, that the audit committee be responsiblefor making a recommendation to the shareholders. Under English company law, acompany’s external auditors are appointed by its shareholders. In accordance with therequirements of the UK Code, the Audit Committee is responsible for makingrecommendations to the Board, for the Board to put to the shareholders for their approval ingeneral meeting, in relation to the appointment, re-appointment and removal of the externalauditors.

The SOX Rules also require that a company’s external auditors report directly to the auditcommittee. Whilst, as a matter of English law, the Company’s external auditors areanswerable to the shareholders, on a day-to-day basis they report to the Company, throughthe Audit Committee, which is responsible for approving their remuneration and terms ofengagement and for recommending them to the Board.

Under the SOX Rules, the external auditors are required to report to the audit committee on

critical accounting policies and alternative treatments under generally accepted accountingprinciples relating to material items that have been discussed with management and othermaterial communications with management, prior to the filing of their audit report with the

4



SEC. Although the Company’s external auditors are not specifically required to report onsuch matters to the Audit Committee under the UK Code, they are matters that wouldordinarily form part of their reports to the Audit Committee.

The SOX Rules include prohibitions on a company’s external auditors providing specifiednon-audit services. Certain other non-audit services may be provided if specifically

approved by the audit committee, or if they are in accordance with written policies andprocedures previously approved by it. If the Company were required to file an AnnualReport on Form 20-F with the SEC, it would have to disclose the approval policiesestablished by the Audit Committee, as well as information regarding the non-audit feespaid to the Company’s external auditors. There are no comparable restrictions or disclosurerequirements under the UK Code, although the Financial Reporting Council’s Guidance onAudit Committees states that companies should explain in their annual report how, if theexternal auditor provides non-audit services, auditor objectivity and independence issafeguarded. This issue is addressed in the Company’s Corporate Governance Statement.The Audit Committee is responsible for monitoring the independence of the Company’sexternal auditors and has an established policy aimed at safeguarding and supporting theexternal auditors’ independence and objectivity. Pursuant to this policy, it keeps underreview the ratio of audit fees to non-audit fees charged by the external auditors to ensurethat neither their independence nor their objectivity is put at risk, and takes steps to ensurethat they do not audit their own work. It remains confident that the objectivity andindependence of the external auditors are not in any way impaired by reason of the non-audit services which they provide to the Group. The non-audit fees paid to its externalauditors are disclosed by the Company in its Annual Report.

Under the SOX Rules, the partner with overall responsibility for an audit client and the leadconcurring partner performing a second level of review must be replaced at least every fiveyears and may not be reappointed for a further five years. Other members of the audit teamfor a company must generally rotate at least every seven years, with a two year cooling-offperiod. There are similar rotation provisions under UK regulations for the UK lead partner ofan audit firm and key partners involved in an audit and it is the Audit Committee’s policy torequire a staggered five year rotation for the lead partners of the external auditors globally.The Audit Committee will consider dispensations from this policy where recommended bythe appropriate Regional Audit Committee as a result of local circumstances.

In addition to requiring the rotation of members of the audit team, the SOX Rules state thatan audit firm will not be independent if, during the audit engagement period, any auditpartner (other than certain specialty partners) working on a company’s audit earns orreceives compensation based on cross-selling non-audit services to that company or itsaffiliates. Similarly, external auditors will not be independent in certain circumstancesinvolving employment by a company of former partners or employees of the audit firm. The

Company is satisfied as to the independence and objectivity of the external auditors, takinginto consideration relevant UK professional and regulatory requirements.

The SOX Rules require the audit committee to establish detailed “whistleblower”procedures to handle complaints concerning accounting, internal accounting controls orauditing matters and for the anonymous submission by employees of concerns aboutquestionable accounting or auditing matters. The Group’s whistleblowing policy andprocedures enable employees to raise concerns over suspected wrongdoing at work,including improper accounting practices, in confidence and without reprisal, even wheretheir concern is mistaken, provided that it is raised in good faith. Details of the Company’swhistleblowing policy and procedures are set out in the Company’s Standards of BusinessConduct.

5



4. Nomination and Compensation Committees

Subject to certain exceptions, the NYSE Amex Rules require that director nominations beselected, or recommended for the board's selection, and that the compensation of theofficers of a company be determined, or recommended for the board’s determination, eitherby a committee comprised of independent directors or by a majority of the independentdirectors on its board. The NYSE Amex Rules also require a company to adopt a formalwritten charter or board resolution, as applicable, addressing the nominations process andrelated matters. The NYSE Amex Rules do not permit the chief executive officer to bepresent during voting or deliberations with respect to his compensation.

The Board has established:

(a) a Nominations Committee for the purpose of making recommendations to the Boardon suitable candidates for appointment to the Board and Management Board andreviewing the succession plans for the Executive Directors and members of theManagement Board; and

(b) a Remuneration Committee for the purpose of determining the framework and policyon terms of engagement and remuneration of the Chairman, the Executive Directorsand members of the Management Board.

The Nominations Committee is chaired by the Chairman and comprises all the Non-Executive Directors (all of whom have been assessed as independent under the UK Code,and a majority of whom are independent under the NYSE Amex Rules). The RemunerationCommittee comprises the seven Non-Executive Directors who would be consideredindependent under the NYSE Amex Rules, one of whom chairs it. As noted above, KieranPoynter, who would not be considered independent under the NYSE Amex Rules, is notcurrently a member of the Remuneration Committee. The Chairman and the Chief

Executive do not attend meetings when their own remuneration is under review.Both Committees satisfy the requirements of the UK Code and their terms of reference areavailable on www.bat.com.

5. Code of Conduct

Under the SOX Rules, a company must disclose whether it has a written code of conductand ethics which is applicable to its principal executive officer, principal financial officer andprincipal accounting officer or controller (or persons performing similar functions) and whichmeets certain specified requirements, and it must make that code public. The Company’sStandards of Business Conduct, available on www.bat.com, are applicable to all theCompany’s directors, officers and employees and to the directors, officers and employeesof all Group companies.

If the Company were subject to the SOX Rules, it would also be required to disclose anymaterial waivers or amendments to its code of conduct in the Annual Report on Form 20-F.There were no material waivers or amendments to the Company’s Standards of BusinessConduct in 2010 that would have required such disclosure.

6. Shareholder Approval of Equity Compensation Plans and AdvisoryVotes on Compensation

Subject to certain exceptions, the NYSE Amex Rules require the approval of shareholderswith respect to the establishment of (or material amendment to) any stock option or

6



purchase plan or other equity compensation arrangement pursuant to which options orstock may be acquired by officers, directors, employees, or consultants.

The Company complies with the listing rules of the UK Listing Authority. Those rules requireshareholder approval for the adoption of equity compensation plans, which are either long-term incentive schemes in which the directors of a company can participate, or schemes

which may involve the issue of new shares. Under the UK Listing Authority rules, suchplans cannot be changed to the advantage of participants without shareholder approval,save that certain minor amendments, for example to benefit the administration of a plan orto take account of tax benefits, are permissible without such approval. The UK ListingAuthority rules requiring shareholder approval for the establishment of, or any materialamendment to, equity compensation plans may differ from those provided for under theNYSE Amex Rules.

The Company’s Long Term Incentive Plan (“LTIP”) delivers the long-term element ofremuneration for Executive Directors, members of the Management Board and other senioremployees. The Executive Directors and members of the Management Board alsoparticipate in an annual performance related bonus plan, called the International ExecutiveIncentive Scheme (“IEIS”). Shareholder approval was sought and obtained at the AnnualGeneral Meeting in 2007 for the 2007 LTIP, which replaced the previous long-termincentive scheme. In addition, shareholders were consulted in 2010 regarding specificproposals in respect of the LTIP and IEIS. The consultation was undertaken following theRemuneration Committee’s comprehensive review in the second half of 2010 of allelements of the remuneration policy for senior managers, and was based around theCompany’s top twenty shareholders as well as institutional shareholder representativebodies and governance service agencies. Further details of the consultation and itsoutcome are provided in the Remuneration Report in the Company’s 2010 Annual Report.

As of 25 January 2011, the SEC adopted rules for “Say-on-pay” and “Golden Parachute”compensation as required under the Dodd-Frank Wall Street Reform and ConsumerProtection Act. The recently adopted rules require public companies subject to the federalproxy rules to (i) provide shareholders with an advisory vote on executive compensationdisclosed pursuant to Regulation S-K at least once every three years (the “Say-on-payVote”), and (ii) provide shareholders with an advisory vote, at least once every six years, onwhether they are presented with the Say-on pay Vote every 1, 2 or 3 years, in each casebeginning with first annual shareholders’ meeting taking place on or after 21 January 2011.Furthermore, the SEC has required companies to provide enhanced disclosure and ashareholder advisory vote to approve certain “golden parachute” agreements in connectionwith a merger, acquisition, sale or distribution of substantially all assets.

Under the UK Companies Act, the Company is required to seek the approval of its

shareholders for the Remuneration Report at its Annual General Meeting at which itsAnnual Report (which contains the Remuneration Report) is laid. The vote of theshareholders is of an advisory status only and therefore does not affect the actualremuneration paid to any individual Director. The Company has no “golden parachute”arrangements with any of its Directors or senior members of management and it is not theCompany’s practice to enter into such arrangements. Details of the Company’s policy onExecutive Directors’ service contracts and the terms of appointment for Non-ExecutiveDirectors are set out in the Remuneration Report.

7. Management Accountability

The SOX Rules require an Annual Report on Form 20-F filed with the SEC to beaccompanied by a statement from the company’s principal executive officer and principalfinancial officer certifying that the Report does not contain any material misstatements oromissions and that the financial statements contained in it fairly present, in all material

7



8

respects, the financial condition and results of the company’s operations. The SOX Rulesalso require that specific certifications and disclosures be made in relation to the company’sdisclosure controls and procedures and internal controls over financial reporting. Inaddition, the principal executive officer and principal financial officer are required to state ina separate certificate that an Annual Report on Form 20-F filed with the SEC complies withthe applicable SEC requirements and fairly presents, in all material respects, the financial

condition and results of operations of the issuer.

The Company is not required to provide equivalent certifications under the UK Code andaccordingly does not do so. However, the Board is responsible for the Company’s AnnualReport and authorises its signature. In accordance with English company law, the Directorsconfirm in the 2010 Annual Report that they have met their responsibilities in relation to thefinancial statements and that, to the best of their knowledge and belief:

(a) all relevant audit information has been provided to the external auditors;

(b) the financial statements give a true and fair view of the assets, liabilities, financialposition and profit or loss of the Company and the Group; and

(c) the Directors’ Report (which incorporates the Business Review) includes a fair reviewof the development and performance of the business and the position of theCompany and the Group, together with a description of the principal risks anduncertainties that they face.

The Company’s external auditors have reported that, in their opinion, the financialstatements give a true and fair view of the Company and the Group at 31 December 2010and of the profit and cash flows of the Group for the year then ended. The CorporateGovernance Statement addresses the Company’s system of risk management and internalcontrol and sets out the Board’s statement on risk management and internal control,prepared in accordance with the current version of the Turnbull Guidance adopted by theUK Listing Authority.

The SOX Rules provide that, under certain circumstances, a company’s chief executiveofficer and chief financial officer can be required to reimburse the company for bonuses andtheir profits on the sale of the company’s shares, where an accounting restatement is madenecessary by non-compliance or misconduct. Those circumstances have not arisen withinthe Company.

8. Loan Prohibitions

Under the SOX Rules, a company is prohibited from extending or maintaining credit (or

arranging for extensions of credit), or renewing an extension of credit, in the form of apersonal loan, to or for any director or executive officer, other than certain consumer creditarrangements made in the ordinary course of business. Other types of loan are specificallyexempted. The Company does not make personal loans, or extend or maintain credit orarrange extensions of credit, to its Directors.

28 March 2011

Documents

medMD8F9J4K