The Board and its principal Committees

The Board normally meets at least eight times during the year. In 2010 the Board met eight times. There is a formal schedule of matters reserved for the Board’s decision, the main terms of which are shown on page 44. The Board has established a number of Committees with defined terms of reference and receives reports of their proceedings. The principal Committees are the Remuneration Committee, the Nomination Committee, the Audit Committee and the Safety and Environment Committee. The members of each principal Committee and main duties are shown on pages 47 to 51. In addition there is an Executive Committee with authority to approve routine matters of business and a Tax and Treasury Committee which reviews the Group’s tax planning, banking facilities and treasury reports. The table below sets out the number of meetings of the Board and its Committees during the year and individual attendance by the Board and Committee members at these meetings. All of the Committees are authorised to obtain legal or other professional advice as necessary, to secure the attendance of external advisors at their meetings and to seek information required from any employee of the Company in order to perform their duties. The full terms of reference of the principal Committees are available on the Company’s website at www.nationalexpressgroup.com.

During the year the Chairman met on several occasions with the Non-Executives without the Executive Directors present to allow informal discussions on a variety of issues.

The Executive Directors are responsible for the day-to-day management of the Group’s businesses, implementation of its strategy, policies and budgets and its financial performance. Executive management meetings, involving the Executive Directors and senior management from the divisions are held regularly to discuss current issues.

The Company purchases Directors’ and Officers’ Liability Insurance for the Company and its subsidiaries, which gives appropriate cover for any legal action brought against its Directors.

Information and professional development
Reports from the Executive Directors, which include in-depth financial information, are circulated to Board members prior to every Board meeting. Senior management and advisors give presentations to the Board on significant matters during the year.

Under the direction of the Chairman, the Company Secretary is responsible for ensuring Board procedures are followed and applicable rules and regulations are complied with and advises the Board on governance matters. All Directors have access to the advice and services of the Company Secretary and the appointment or removal of the Company Secretary is a matter for the Board as a whole. There is a procedure in place for any Director to take independent professional advice where considered necessary.

On appointment, Directors are offered training as appropriate and are thereafter encouraged to keep abreast of matters affecting their duties as a Director and to attend training courses relevant to their role. An induction process is in place for new Directors, the aims of which are to:

• build an understanding of the nature of the Company, its business and the markets in which it operates;
• establish a link with the Group’s employees; and
• build an understanding of the Group’s main relationships including stakeholders and customers.

Performance evaluation
Formal evaluation of the Board’s performance is periodically carried out using external consultants. The external consultants receive evaluation questionnaires, from each of the Directors and the Company Secretary. The questionnaires, cover the performance of the Board as a whole and individual Board members. As a follow up to the questionnaires, individual meetings are held by the consultants with each Board member at which the answers to the questionnaires are explored further and additional matters raised, before being discussed with the Chairman of the Board and the Board as a whole. Subsequently, the Board agrees a series of actions to improve its performance and increase its effectiveness. An internal evaluation was commenced in late 2010 and will be completed in the first quarter of 2011. The next evaluation will be undertaken using an external facilitator.

Re-election
In accordance with the Company’s Articles of Association, all Directors submit themselves for election at the Annual General Meeting following their appointment and thereafter by rotation at least once every three years. Non-Executive Directors are appointed for specific terms, subject to re-election. Non-Executive Directors will only be put forward for re-election if, following performance evaluation, the Board believes the Director’s performance continues to be effective and demonstrates commitment to the role.

Remuneration and service contracts The Directors’ Remuneration Report, including details of remuneration policy and service contracts, is set out on pages 51 to 63.

Directors’ conflicts of interest
The Board has a procedure in place to deal with a situation where a Director has a conflict of interest, as required by the Companies Act 2006. As part of this process, the members of the Board prepare a list of other positions held and all other conflict situations that may need authorising either in relation to the Director concerned or his/her connected persons. The Board considers each Director’s situation and decides whether to approve any conflict situations, taking into consideration what is in the best interests of the Company and whether the Director’s ability to act in accordance with his or her wider duties is affected. Each Director is required to notify the Company Secretary of any potential or actual conflict situations that will need authorising by the Board. Authorisations given by the Board are reviewed annually.

Accountability and audit
Statements of the respective responsibilities of the Directors and auditors are set out on pages 68 and 134.

Internal control
The Board’s responsibilities
The Board has overall responsibility for the Group’s system of internal control and for reviewing its effectiveness. The Board maintains full control and direction over appropriate strategic, financial, operational and compliance issues and has put in place an organisational structure with formally defined lines of responsibility, delegated authorities and clear operating processes. The systems that the Board has established are designed to safeguard both the shareholders’ investment and the assets of the Group, and are described below.

Key elements of the control framework
Financial reporting process – management and specialists within the Finance Department are responsible for ensuring the appropriate maintenance of financial records and processes to ensure that all information is relevant, reliable and in accordance with the applicable laws and regulations, and distributed both internally and externally in a timely manner. A review of the consolidation and financial statements is completed by management to ensure that the financial position and results of the Group are appropriately reflected. All financial information published by the Group is subject to the approval of the Audit Committee.

Strategic and financial planning – an annual budgeting and strategic planning process has been established whereby each division and constituent operating company assesses its competitive position and goals, taking account of the strategic risks faced. This strategy is translated into a financial plan with clear milestones and performance indicators.

Performance management – the performance of each division and operating company against its plan is closely monitored by a formal monthly reporting process and by the attendance of the relevant Executive Directors at monthly divisional board meetings.

Annual fitness check process – internal audit undertake an annual review at each operating company to assess the integrity of the balance sheet and to check the effective operation of key financial reporting and information systems controls. The results of the reviews are presented to both divisional and Group finance with any required actions agreed with the relevant divisional Finance Director.

Capital investment – a clear process is in place for the approval of capital expenditure, which includes detailed appraisal of the benefits of the proposed investment and any associated key risks. Material capital expenditure requires Board approval.

Health and safety – health and safety standards and benchmarks have been established in all our businesses and the performance of operating companies in meeting these standards is closely monitored.

Risk management reporting process – each division and operating company evaluates its internal control environment and key risks, and the results are reviewed at management level and passed to the Audit Committee before being presented to the Board. This process is reviewed on a regular basis to ensure the validity and relevance of the key risks included in reports. The review covers strategic, financial, compliance and risk management controls. These procedures are mandated and designed to manage the risk in order to ensure that the operations achieve their business objectives.

Internal audit – the internal control system is independently monitored and supported by a Group internal audit function. The Group internal audit function was successfully moved from an outsourced provider to an in-house function during 2010. The internal audit function reports to management and the Audit Committee on the Group’s financial and operational controls, and monitors and reviews the extent to which its recommendations have been implemented.

Board-level reporting on internal control – during the year the Audit Committee reviews regular reports from the internal audit function, the external auditors and executive management on matters relating to internal control, financial reporting and risk management. The Audit Committee provides the Board with an independent assessment of the Group’s financial position, accounting affairs and control systems. In addition, the Board receives regular reports on how specific risks that are assessed as material to the Group are being managed.

Review of internal control effectiveness
The system of internal control and risk management, described above, has been in place for the year under review and up to the date of approval of this Annual Report and Accounts. Such a system is designed to manage, rather than to eliminate, the risks inherent in achieving the Group’s business objectives, and can therefore provide only reasonable and not absolute assurance against material misstatement or loss. The effectiveness of this system has been regularly reviewed by the Directors in line with the Guidance for Directors in the Combined Code published by the Financial Reporting Council (Turnbull guidance). Where significant control failings or weaknesses have been identified, appropriate corrective action has been taken.

Whistle blowing policy
A Group “whistle blowing” policy has been issued to all Group companies to ensure a consistent approach across the Group and it is also available on the Group’s website www.nationalexpressgroup.com. The Board supports the highest standards of corporate governance and ethical practices within all its operations and continues to review its policies on an ongoing basis. The Board has endorsed a set of principles which establish the framework for how its businesses operate. Key to these is working in an open and honest manner. The Group is committed to the highest standards of quality, honesty, openness and accountability. Employees are encouraged to raise genuine concerns under the policy either by contacting their line manager or the Company Secretary. Any concerns raised are investigated carefully and thoroughly to assess what action, if any, should be taken and confidential records are maintained. The Company Secretary reports any matters of significance to the appropriate committee. In 2010 no issues of significance were raised.

Share capital
Information about the share capital of the Company is included in the Directors’ report on page 66.

Relations with shareholders
Dialogue with shareholders
The Board recognises the importance of maintaining good communications with the Company’s shareholders to ensure mutual understanding of the Group’s strategy, objectives, governance and performance. The Chairman, Group Chief Executive and Group Finance Director hold a number of meetings with existing and prospective institutional shareholders during the year as well as giving presentations following the full year and half-year results. They also meet and give presentations to analysts and brokers. The Company’s brokers in turn provide confidential feedback to the Company on the views of the major institutions. The Chairman, Senior Independent Director and other Non-Executive Directors are also given the opportunity to meet institutional shareholders and are available by contact through the normal channels.

The Board is provided with regular updates on the views and issues raised by the Company’s investors. During the year the Board received external presentations from advisors on shareholder and market perception of the Group Performance. Written responses are given to correspondence received from shareholders.

During the year shareholders are kept informed of the progress of the Group through regular corporate communications; the Preliminary announcement, the Notice of AGM, interim management statements and press releases regarding any other significant development, as well as the dissemination of regulated information. Such communications are made available to the London Stock Exchange and simultaneously available on the Company’s website (www.nationalexpressgroup.com). The Company’s website houses wide-ranging information about the Group, including the Annual Report and Accounts, press releases, share price data and links to subsidiary company websites.

The Company has introduced an electronic communications facility to enable shareholders to receive documentation such as the Annual Report and Accounts electronically and also to cast their votes by proxy electronically. The Company has also introduced an electronic proxy appointment service for CREST members.

Major shareholdings
As at 24 February 2011, the Company had been notified of the following interests in its shares which represent 3% or more of the voting rights in the Company:

* Using the total voting rights figure of 510,057,338.

The holdings for European Express Enterprises Ltd are included in Jorge Cosmen’s holdings which are shown on page 61 of the Directors’ Remuneration Report.

Analysis of ordinary shareholdings at 24 February 2011

Analyst coverage
The Company is aware of 19 analysts who have published equity research notes covering National Express Group PLC during 2010 and we provide names and contact numbers of their firms on our website.

The Annual General Meeting
The Annual General Meeting provides an opportunity for all shareholders to question the Chairman and Directors on a variety of topics, and information is provided at the meeting on different aspects of the Group’s activities. All of the Company’s Directors are present at the meeting. Voting at the Annual General Meeting on all resolutions is by poll on a one share, one vote basis. The results are available on the Group’s website following the meeting. Notice of the Annual General Meeting and related papers are sent to shareholders at least 20 working days before the meeting.

Audit Committee

The role of the Audit Committee
The Committee oversees the process for selecting the external auditor, assesses the continuing independence of the external auditor and recommends approval of the audit fee to the Board. It is responsible for ensuring that provision of non-audit services does not impair the external auditor’s independence or objectivity. It discusses with the external auditor the nature and scope of the audit and any issues or concerns arising from the audit process. The Committee reviews the internal audit programme, considers major findings of the internal audit investigations and reviews management’s financial reporting and risk management. The Committee reviews the half-year and annual financial statements and the effectiveness of the Company’s internal control and risk management systems.

The Committee met twice in 2010. The agenda reflects the duties delegated to it by its terms of reference, details of which are summarised above. There are a number of standing items considered during the year such as consideration of the internal and external audit reports, review of the Annual Report and Accounts, review of the preliminary and half-year announcements, and review of the Corporate Governance Report.

At the invitation of the Committee, and as appropriate to the matters under discussion, meetings may be attended by the Executive Directors and internal and external auditors. Full minutes are kept by the Secretary of the matters considered and decisions taken by the Committee. Outside of the meeting process the Committee Chairman has regular contact with the Executive Directors, other Committee members and the auditors on a variety of topics.

Main activities during the year
Other items, in addition to the responsibilities noted above, that were considered and discussed during 2010 included:

• progress with the implementation of the Group’s internal audit structure;
• review of the Group Risk Register;
• the results of the Annual Fitness Checks within the subsidiaries; and
• the external auditor’s performance and fees.

Review of external auditors
The Audit Committee assesses and reviews on a regular basis the independence of the external auditors. As part of their determination the Audit Committee considers a report by the external auditors on the firm’s independence which is required in order to carry out their professional duties and responsibilities as auditors.

Policy on auditors providing non-audit work
The Committee has an approved policy on the provision of non-audit services by its auditor. The policy sets the approvals policy for the following types of service:

• services that are considered to have ‘general pre-approval’ by the Audit Committee, by virtue of the approval of the policy;
• services that require ‘specific pre-approval’, on a case-by-case basis, before any work can commence; and
• services that cannot be supplied by the external auditors (“prohibited services”).

The services that have general pre-approval are tax, transaction investigation and advisory and corporate finance services. The fees for these services are pre-approved up to a level of 25% of the total fees paid to the external auditors. For services exceeding this limit specific pre-approval is required.

In deciding whether or not to grant approval for the provision of specific services by the external auditors, the Audit Committee includes in its consideration the following factors:

(i)whether the external auditing firm is best placed to provide an effective and efficient service, given its familiarity with the Company’s processes, systems and people; and

(ii)the level of non-audit fees paid to the external auditors in the year as a proportion of the annual external audit fee.

The majority of non-audit work undertaken by the external auditors during the year relates to advice in respect of tax advisory and other regulatory services. These items the Committee believes would be impractical and costly to provide through another party.

Nomination Committee

The role of the Nomination Committee
The Committee is responsible for identifying and nominating, for the approval of the Board, candidates to fill Board vacancies as and when they arise. It will give full consideration to succession planning, and keep under review the leadership needs of the organisation, both Executive and Non-Executive. The Committee reviews the time required from a Non-Executive Director and uses performance evaluation to assess whether the Non-Executive Director is spending enough time on fulfilling their duties.

The Nomination Committee leads the process for Board appointments and makes recommendations to the Board. The Committee will prepare a description of the role and requirements for any particular appointment based on its evaluation of the Board as a whole.

The terms and conditions of appointment of the Non-Executive Directors are available for inspection at the Company’s registered office during normal business hours and at the Annual General Meeting of the Company. The Non-Executive Directors disclose to the Board their other significant commitments. The procedures adopted by the Company in relation to Directors’ conflicts of interest are detailed on page 44.

External advisors are normally appointed when recruiting Board members; they use as a basis for their search a description of the role and capabilities required for a particular appointment proposed by the Nomination Committee.

During the year the Committee reviewed succession planning for the Group.

Safety and Environment Committee

The role of the Safety and Environment Committee
The Committee is responsible for reviewing and challenging constructively the structure, content and operation of the safety management arrangements put in place by members of the executive management of the Group’s operating companies. It reports periodically to the Board its observations on the safety management arrangements in place and reviews and makes recommendations to the Board on any specific safety management issues relating to the Group or any subsidiary company.

Main activities during the year
During the year the Committee:

• visited Group locations to review safety practices and procedures;
• reviewed compliance by the North America division with the requirements of the Group’s Health & Safety policy;
• monitored the progress of implementation of the Group’s Health & Safety Plan 2009–2011; and
• considered the strategic aims of the business in relation to risk and liability and efficiency of energy use.