SevenCorporate - 2009 Corporate Governance Statement

CORPORATE GOVERNANCE – EXTRACTED FROM THE SNL ANNUAL REPORT 2009

This statement outlines the Company’s main corporate governance practices and its compliance with the ASX Corporate Governance Council Recommendations 2^nd Edition (“ASX Recommendations”).

Various of the corporate governance policies referred to in this statement are available on the Company’s website (www.sevencorporate.com.au). Those policies which are not separately available on the Company’s website are summarised in this statement. A copy of this statement (including the summaries of the various policies) will be made available on the Company’s website.

PRINCIPLE 1 – LAY SOLID FOUNDATIONS FOR MANAGEMENT AND OVERSIGHT

The Board is empowered to manage the business of the Company subject to the Corporations Act and the Company’s Constitution. The Board is responsible for the overall corporate governance of the Consolidated Entity and the management of the Company including strategic direction, overseeing the financial performance of the Consolidated Entity, capital and risk management, monitoring the business and affairs of the Consolidated Entity and its investments and setting goals for management and monitoring the performance and achievement of management.

Five Directors of the Company are also Directors of Seven Media Group Pty Limited, the holding entity of the Seven Media Group. The management of the Company comprises certain Seven Media Group Executives, for whom a portion of their management time is charged back to the Company for management services provided (appropriate charge back arrangements were put in place at the time of the transaction with Kohlberg Kravis & Roberts in December 2006) as the key executives of the Company devote the majority of their time to Seven Media Group, and those Executives of subsidiaries within the Consolidated Entity, such as Unwired Group Limited and Engin Limited.

It is the role of management to manage the Company in accordance with the direction determined by the Board and the Board’s delegations to management under the Company’s Delegated Authority Policy. Formal delegations from the Board to management and functions reserved to the Board are set out in the Company’s Delegated Authority Policy. The policy details procedures for the authorisation and signing of Company contracts (subject to the Company’s Contracting Policy which includes a system of legal review) and authorisations to relevant Executives in relation to expenditure. The Policy also provides that the powers retained by the Board include but are not limited to: appointment and removal of the Chief Executive Officer; approval of Company investment policy and annual budget; approval of administrative policies that significantly affect the overall management of the Company; and capital expenditure, sponsorships and donations, corporate finance loans, treasury dealings and property transactions above levels that are delegated to Executives. Subject to oversight by the Board and exercise by the Board of functions which the Board is required by law to carry out, management carries out functions that are either under the levels delegated to Executives or not specifically reserved to the Board under the Delegated Authority Policy, including those functions and affairs which pertain to the day-to-day management of the operations and administration of the Company.

The functions exercised by the Board and those delegated to management, as disclosed herein, are subject to ongoing review to ensure that the division of functions remains appropriate.

The performance of Senior Executives of the Company is reviewed on an annual basis in a formal and documented interview process with either the Chief Executive Officer or the particular Executive’s immediate superior, which evaluates performance against agreed performance goals and assessment criteria in relation to the Senior Executive’s duties and material areas of responsibility, including management of relevant business units within budget, motivation and development of staff, and achievement of and contribution to the Company’s objectives.

Under a Performance Management Plan, performance-based incentives are available for Seven Media Group Senior Executives tied to performance reviews and the achievement of agreed performance objectives. Assessments for these particular Executives have been undertaken during the financial year in accordance with this process. For further information about performance management of Senior Executives and staff, please see the discussion at Principle 8 below.

For those Executives of subsidiaries, performance assessments have been undertaken during the year by either the Chairman of the respective Board for a Chief Executive Officer, or Chief Executive Officer for other Senior Executives.

PRINCIPLE 2 – STRUCTURE THE BOARD TO ADD VALUE

As at the date of this statement, the Board comprises eight (8) Directors and an alternate Director as follows.

The Non-Independent Directors in office are:

Mr Kerry Stokes AC Executive Chairman

Mr David Leckie Director and Chief Executive Officer – Broadcast Television

Mr Peter Gammell Director

Mr Bruce McWilliam Commercial Director

Mr Ryan Stokes Director

Mr Robin Waters Alternate Director to Mr Peter Gammell

The Independent Directors in office are:

Mr Peter Ritchie AO Deputy Chairman and Lead Independent Director

Professor Murray Wells Director

Mrs Dulcie Boling Director

Mr Kerry Stokes AC, Mr David Leckie, Mr Peter Gammell, Mr Bruce McWilliam and Mr Ryan Stokes are both Directors of the Company and of Seven Media Group Pty Limited.

The skills, experience, expertise and period in office of each Director of the Company at the date of the Annual Report are disclosed in the Board of Directors section of this Annual Report.

In determining whether a Director is independent, the Board conducts regular assessments and has regard to whether a Director is considered to be one who:

is a substantial shareholder of the Company or an officer of, or otherwise associated directly with, a substantial shareholder of the Company;
is employed, or has previously been employed in an executive capacity by the Company or another group member, and there has not been a period of at least three years between ceasing such employment and serving on the Board;
has within the last three years been a principal of a material professional advisor or a material consultant to the Company or another group member, or an employee materially associated with the service provided;
is a material supplier or customer of the Company or other group member, or an officer of or otherwise associated directly or indirectly with a material supplier or customer;
has a material contractual relationship with the Company or another group member other than as a Director.

The Board has previously determined that a material relationship is to be determined on the basis of fees paid or moneys received or paid to either a Director or a Director-related entity, which may impact the EBITDA of the Company in the previous financial year by more than 5%.

In the Board’s view the Independent Directors (identified above) are free from any interest and any business or other relationship which could, or could reasonably be perceived to, materially interfere with the Directors’ ability to act with a view to the best interests of the Company. In terms of longevity of time in office, the Board does not consider that independence can be assessed with reference to an arbitrary and set period of time. The Company has diverse operations that have grown considerably over time and in the Board’s view derives the benefits from having long serving Directors with detailed knowledge of the history and experience of the operations. The Board acknowledges the ASX Recommendation that a majority of the Board should be Independent Directors, however the Directors believe they are able to objectively analyse the issues before them in the best interests of all shareholders and in accordance with their duties as Directors. The Board considers that the individual Directors make highly-skilled decisions in the best interests of the Company, despite the majority of the Board not being Independent Directors.

The Independent Directors meet regularly without management or Non-Independent Directors present.

Mr Kerry Stokes AC is Executive Chairman of the Board of the Company. The Board acknowledges the ASX Recommendation that the Chairman be an Independent Director, however, the Board views as an advantage the Chairman’s history of leadership in television management and related media and his grasp of new technologies driving television production and transmission, not to mention his clear incentive to maximize the interests of the Company. Mr Stokes has been involved in investing in and managing diverse businesses for more than four decades and currently has broad business interests and investments in a range of major business sectors in Australia and overseas, including property, construction, mining, oil and gas exploration. His experience and insights continue to be invaluable to the Consolidated Entity. The Board is conscious of the ASX Recommendation that the roles of Chair and Chief Executive Officer should not be exercised by the same individual. While no Chief Executive Officer, other than the Chief Executive Officer – Broadcast Television, has been appointed to the Company, given the breadth of the Company’s investments and the Executive Chairman’s extensive business experience, the Board considers it appropriate that the Executive Chairman be considered the most senior executive overseeing and supervising the Company’s investments as well as managing the Company’s small executive team in regard to this.

The Chief Executive Officer – Broadcast Television is David Leckie who is also the Chief Executive Officer of the Seven Media Group and devotes the majority of his time to Seven Media Group. Given the nature of the investing activities of the Company he works closely with the Executive Chairman and the other key executives and reports to the Board on the performance and operations of the Seven Media Group.

Directors are able to obtain independent professional advice to assist them in carrying out their duties, at the Company’s expense.

The function of a Nomination Committee is performed by an informal committee of the Board’s Independent Directors identified above as required. The process and policy for appointing a Director is that when the Board considers a vacancy exists for a Board appointment, the Board, assisted by the informal Nomination Committee, identifies candidates with the appropriate expertise and experience, and may at its discretion use external consultants as appropriate. The most suitable candidate is appointed by the Board. The committee of Independent Directors having the function of the Nomination Committee did not meet during the year because there were no appointments to the Board under active consideration and does not operate under a formal charter as the full Board retains the power to nominate and appoint Directors to fill casual vacancies. Directors appointed as casual vacancies hold office until the next General Meeting and are then eligible for re-election.

Under the Constitution of the Company, at the Annual General Meeting one-third of Directors, or if their number is not a multiple of three, then the number nearest one third, and any other Director not in such one-third who has held office for three years or more, excluding the Managing Director, must retire from office and stand for re-election. A Managing Director is not subject to retirement by rotation and is not counted for determining the rotation of the other Directors.

The Notice of Meeting for the Annual General Meeting discloses other key current directorships of Director candidates, as well as other appropriate biographical details and qualifications. Details of Directors, including their time in office, qualifications, experience and special responsibilities are set out in the Board of Directors section of this Annual Report.

The Executive Chairman closely monitors the performance and actions of the Board and its Committees and met regularly with individual Board members during the year to ensure that the Board and its Committees operate effectively and efficiently. The Executive Chairman and each Board member consider the performance of that Board member in relation to the expectations for that Board member and consider any opportunities for enhancing future performance. Matters which may be taken into account include the expertise and responsibilities of the Board member and their contribution to the Board and any relevant Committees and their functions. During the year the Chair of the respective Committees also monitored and evaluated the performance of the Committee – according to the function and objectives of the Committee, its program of work, and the contributions of its members – and discussed the Committee’s performance with the Executive Chairman and its members. The Board continues to develop a process for evaluation of the performance of the Board, its Committees and Directors which is and remains appropriate in the Company’s circumstances.

Board appointees are inducted through a briefing with the Executive Chairman, discussions of the Company’s corporate governance (including its policies and procedures) with the Company Secretary, visits to key business sites and meetings with Company Executives.

The Board, under the terms of appointment of Directors and by virtue of their position, is entitled to access, and is provided with, information concerning the Company needed to discharge its duties efficiently. Directors are entitled, and encouraged, to request additional information if they believe that is necessary to support informed decision making.

Directors variously attend external education seminars and peer group meetings regarding regulatory and compliance developments. The Company arranges presentations to the Board by Executives to update the Directors on the Company’s business activities and industry developments.

The Company Secretary is charged by the Board to support the Board’s effectiveness by monitoring that Company policies and procedures are followed, and coordinating the timely distribution of Board and Committee agendas and briefing materials.

The Company Secretary’s appointment and removal is a matter for the Board. The Company Secretary is accountable to the Board through the Chairman on corporate governance matters. Each of the Directors has access to the Company Secretary.

PRINCIPLE 3 – PROMOTE ETHICAL AND RESPONSIBLE DECISION MAKING

The Company’s policy is that Directors and employees maintain the highest ethical standards of conduct, and act honestly, with integrity and in compliance with their legal obligations. Seven Network Limited, as the holding company of investments in public broadcasters, and as a publicly listed company, upholds and maintains the following ethical standards:

The Commercial Television Industry Code of Practice;

General statutory requirements and regulations of the Corporations Act, ASX Listing Rules and Income Tax Assessment Act;
Equal employment opportunity and affirmative action;
Seven Network encourages a high standard of safe work practices and has implemented Occupational Health & Safety Compliance Procedures;
Policy of community service through charitable organisations; and
Policy of responding to and using Seven Network’s resources during national disasters and tragedies.

The Company is assessing the Group as part of its compliance with the National Greenhouse and Energy Reporting Act.

Formal Employee Conduct Guidelines have been implemented for employees, including Senior Executives, and Directors, and are available on the Company’s website.

The Company has adopted Share Trading Policies for Group Directors and Executives and Staff and summaries of these policies are available on the Company’s website.

The Company has adopted a formal Issue Escalation Guideline to encourage the reporting and investigation of unethical and unlawful practices and matters of concern which cannot otherwise be adequately dealt with under Company policies. The Guideline, including employee contacts, is available on the Company’s website and is also applicable to the employees of the Seven Media Group.

The Company requires compliance with Company policies by staff under the terms of their employment and carries out training of employees in relation to its policies and procedures.

PRINCIPLE 4 – SAFEGUARD INTEGRITY IN FINANCIAL REPORTING

The Board maintains an Audit Committee which comprises Professor Murray Wells as its Chairman, Mr Peter Ritchie AO and Mr Peter Gammell. Professor Wells and Mr Ritchie are Independent Directors and Mr Gammell is a Non-Independent Director. Professor Wells is an Emeritus Professor of Accounting, University of Sydney. Mr Ritchie is a Fellow of CPA Australia. Mr Gammell is a member of the Institute of Chartered Accountants of Scotland. The Board believes the ASX Recommendations are satisfied as regards the technical expertise of the Audit Committee members.

The Audit Committee has a formal Charter, a summary of which is available on the Company’s website. The Committee’s primary objective is to assist the Board in fulfilling its responsibilities concerning the accounting and reporting practices of the Company and its subsidiaries, the consideration of matters relating to the financial affairs of the Company and its subsidiaries and examination of any other matters referred to it by the Board.

The Audit Committee is also responsible for making recommendations to the Board on the appointment (including procedures for selection), and where necessary, the replacement of the External Auditor; evaluating the overall effectiveness of the external audit function through the assessment of external audit reports and meetings with the External Auditors; reviewing the External Auditor’s fees in relation to the quality and scope of the audit with a view to ensuring that an effective, comprehensive and complete audit can be conducted for the fee; and assessing whether non-audit services provided by the External Auditor are consistent with maintaining the External Auditor’s independence. Each reporting period, the External Auditor provides an independence declaration in relation to the audit. Additionally, the Audit Committee provides advice to the Board in respect of whether the provision of non-audit services by the External Auditor are compatible with the general standard of independence of auditors imposed by the Corporations Act.

The current practice is for the rotation of the appropriate External Audit partner(s) to occur every five years (subject to the requirements of applicable professional standards and regulatory requirements) with the most recent rotation having occurred at 30 June 2006.

The Audit Committee meets regularly with the External Auditors without management being present.

The number of meetings attended by the Audit Committee members is disclosed in the Directors’ Report.

PRINCIPLE 5 – MAKE TIMELY AND BALANCED DISCLOSURE

It is the Company’s policy as disclosed herein to promote the effective communication with shareholders principally through the Company website, the provision of the Annual Report, including the Financial Statements, and the Annual General Meeting (and any extraordinary meetings held by the Company) and notices of General Meetings. Information concerning resolutions for consideration at the Company’s General Meetings is provided in the notice of meeting. Shareholders are encouraged to participate in General Meetings and are invited to put questions to the Chairman of the Board in that forum. The Directors ensure that the Company’s External Auditor attends all Annual General Meetings and is available to answer shareholders’ questions about the conduct of the audit and the preparation and content of the Auditor’s report thereon.

The Company’s website provides additional information and greater detail about the Company, including ASX and media releases and access to statements regarding corporate governance-related matters. The Company continues to review its channels of communications with shareholders for cost effectiveness and efficiencies, including using electronic delivery systems for shareholder communications where appropriate.

PRINCIPLE 6 – RESPECT THE RIGHTS OF SHAREHOLDERS

PRINCIPLE 7 – RECOGNISE AND MANAGE RISK

The Company recognises that the management of business and economic risk is an integral part of its operations and has in place policies and procedures for the oversight and management of material business risks, including the establishment of the Risk and Compliance Committee. The Risk and Compliance Committee comprises Mr Peter Ritchie AO as its Chairman, Professor Murray Wells, Mrs Dulcie Boling and Mr Bruce McWilliam.

The Board has required management to design and implement a risk management and internal control system to manage the entity’s material business risks and report to it on the management of those risks. Through the Risk and Compliance Committee, and facilitated by an external consultant, management undertook a detailed Strategic Risk Assessment during the financial year (following similar risk assessments undertaken since 2004) which identified, assessed and ranked the main strategic risks, including material business risks, facing the Company in respect of which management formulated and recorded the internal risk controls implemented for those risks. This assessment report assisted with the development of a formal risk profile of which the key categories of risk were financial and investment risks.

Additionally, the Company conducted an annual Fraud Risk Survey and maintains a Business Continuity Management System under which critical business processes have been identified across the Company and business continuity plans developed for ongoing review by Head of Internal Audit.

The Risk and Compliance Committee also monitors compliance with applicable laws and regulations. The Committee operates under a formal Charter. A summary of the Risk Management Policy is available on the Company’s website.

The Company also has an Internal Audit Committee which reviews relevant controls in the areas of accounting, information and operations and proposes and monitors a program of work that will test and improve the controls implemented by management in these areas. The Internal Audit Committee comprises Professor Murray Wells as its Chairman (also Chairman of the Audit Committee), and Mr Peter Gammell. The Chief Executive Officer - Broadcast Television, the Chief Financial Officer and the Head of Internal Audit also attend meetings of the Internal Audit Committee. The Head of Internal Audit reports directly to the Chairman of the Internal Audit Committee. A statement on the Internal Audit Charter is available on the Company’s website.

The risk assessment framework described above and the Internal Audit Charter are an integral part of the process underlying the statement made by the Executive Chairman and the Chief Financial Officer regarding the integrity of the Financial Statements. The statement is founded on a sound system of risk management, internal compliance and control of material business risks which management has reported to the Board was operating effectively in all material respects for the financial year ended 27 June 2009 and provides reasonable assurance that the policies prescribed by the Board, either directly or through delegation to Committees or Senior Executives, have been implemented.

Pursuant to section 295A of the Corporations Act, each person who performs the chief executive function and the chief financial officer function confirm in writing to the Board, who subsequently state in writing to the External Auditors, that the financial records of the Company for the financial year have been properly maintained, the Financial Statements are prepared in accordance with relevant accounting standards, present a true and fair view, and that the integrity of the financial reports is founded on a sound system of risk management and internal compliance and control systems which, in all material respects, implement the policies prescribed by the Board. The Directors’ Declaration set out in this Annual Report confirms that the declarations required by section 295A of the Corporations Act have been given.

PRINCIPLE 8 – REMUNERATE FAIRLY AND RESPONSIBLY

The remuneration of the Non-Executive Directors of the Board is restricted, in aggregate, by the Constitution of the Company and the requirements of the Corporations Act. As the Directors consider that the attraction, retention and motivation of its Directors and Senior Executives is of critical importance in securing the future growth of the Company, its profits, share price and shareholder returns, Executive Directors, Non-Executive Directors and Senior Executives may receive performance linked payments and other payments at the discretion of the Board in relation to special services that they perform for the Company. Professor Murray Wells has previously been engaged as an independent consultant to compensate him for the exceptional contribution in both time and experience in relation to his responsibilities as Chairman of the Audit and Internal Audit Committees, capital management and restructure, regulatory and compliance issues, review of investment opportunities and as Board Ombudsman. In order to ensure that his status as an Independent Director is not compromised, the Board has determined, under Article 11.17 of the Constitution that his compensation be paid out of the aggregate maximum payable to Directors.

The Board maintains a Remuneration Committee comprising Mr Peter Ritchie AO as its Chairman and Mrs Dulcie Boling. The Remuneration Committee Charter sets out the role and responsibilities of the Remuneration Committee. The terms of the Committee’s charter are summarised below and in the Remuneration Report. The primary functions of the Committee are to review and advise the Board on Directors’ fees and the remuneration package of the Chief Executive and Senior Executives, and to provide advice and support and serve as a sounding-board for the Chief Executive and Board in human resource matters. Members of the Remuneration Committee have informal discussions with the Executive Chairman and Chief Executive and provide advice to them and the Board on remuneration-related matters throughout the year, as requested. The Committee also reviews and makes recommendations to the Board on the grant of Options to Executives and is available to review and advise on succession planning and employee development policies. There was no separate meeting of the Remuneration Committee in the financial year as remuneration-related matters were considered in full Board meetings. Remuneration matters which arise in relation to Seven Media Group Executives and employees are determined within the Seven Media Group because it is from that source that the key executives of the Company receive the majority of their remuneration.

The objective of the remuneration process is to ensure that remuneration packages properly reflect the duties and responsibilities of the employees and that the remuneration is at an appropriate but competitive market rate which enables the Company to attract, retain and motivate people of the highest quality and best skills from the industries in which the Company operates. This policy provides for the Chief Executive to consider the remuneration packages paid within the industry and the impact these people are expected to have on the operational and financial performance of the Company.

Remuneration packages may include bonus, option or share elements and the Company has established Share and Option Plans for that purpose. The payment of bonuses shall be based on the achievement of specific goals which relate to the performance of the Company or as otherwise specified in the relevant employment contracts. Share Options are issued as a part of remuneration packages where they are considered appropriate, with exercise prices and hurdle rates which reflect the long-term objectives of the Company.

A Retirement Deed has previously been entered into with four qualifying Non-Executive Directors in relation to the benefit payable on retirement to Directors who have served more than five years. These Retirement Deeds have been in place for a number of years. The benefits payable upon retirement under the Deeds were frozen on 1 August 2003 at three times the average of the Director’s emolument over the previous three years and no further increases will apply. From that date, retirement benefits have not been offered to newly appointed Non-Executive Directors. Three Non-Executive Director Retirement Deeds now remain current.

The Company also conducts annual employee performance reviews, involving a written questionnaire, discussion between employee and manager of employee competencies and the agreement of performance goals for the employee.

Performance based incentives of Executive Directors and senior employees and executives of the Seven Media Group are now largely determined within the Seven Media Group however there are still occasions where it is appropriate to issue options to acquire shares in the Company. There are established policies in relation to share trading and trading windows in respect of shares or entitlements owned by executives and senior employees. Also Directors who in the past have granted put or call options over shares held by them in the Company have disclosed this in Appendix 3Y forms lodged with ASX. As the Company’s standard option deed prohibit assigning or other dealings with options (prior to exercise) without the Company’s consent, it was not considered necessary to establish a policy in relation to entering into transactions in associated products which limit the economic risk of participating in unvested entitlements under an equity based remuneration scheme. The Company will continue to monitor the appropriateness of this approach, and will implement such a policy if it determines that circumstances warrant it in future.

Further details relating to remuneration are contained within the Remuneration Report.