Corporate governance

The Board recognises that the manner in which the Group is governed is critical to the long-term success of the business. The Board is committed to ensuring that high standards of corporate governance are achieved throughout the Group.

This statement, together with the Directors’ report and Directors’ remuneration report, provides details of key aspects of MITIE’s corporate governance environment and explains the manner in which the Board has applied the principles and provisions of good governance as set out in section 1 of the Combined Code issued in June 2006 (the Code).

The Board

Board responsibility
Matters that are exclusively dealt with by the Board include: setting Group objectives and strategies; approving business plans and budgets and monitoring performance against these; approving material tenders, acquisitions, disposals, and business start-ups; approving the Group’s Half-yearly and Annual Report and Accounts; appointing and removing the Chairman, Directors and company secretary; and monitoring the Group’s corporate governance arrangements. These matters are set out in a schedule of matters reserved for the Board which was approved by the Board on 19 May 2006 and which is available on the Group’s website, www.mitie.co.uk.

Board of Directors
On 1 April 2007 there were six Executive Directors, six independent Non-Executive Directors, one non-independent Non-Executive Director (Ian Stewart) and the Chairman. During the year two Executive Directors resigned from the Board (Colin Acheson and Colin Hale). In addition, as announced on 19 May 2008, the Chairman David Ord (having served six years as a Non-Executive Director of MITIE) and Cullum McAlpine (having served five years as a Non-Executive Director of MITIE) intend to resign as Non-Executive Directors with effect from the conclusion of the AGM on 31 July 2008. These decisions to resign have taken account of the Board’s orderly succession planning. Roger Matthews (an independent Non-Executive Director) will succeed David Ord as Chairman following the AGM.

Directors are appointed and may be removed in accordance with the Articles of Association of the Company and the provisions of the Companies Act. All Directors are subject to re-election at intervals of no more than three years in accordance with the Articles of Associationand the Code. The names and biographical details of all Directors serving on the Board as at 31 March 2008 are set out on page 48. As part of the formal Board evaluation, the Board has considered the performance of each Director seeking re-election and is satisfied that they continue to be effective and demonstrate clear commitment to the role.

Board balance
As part of the ongoing review of Board performance (as set out below) the Nomination Committee and the Board have specifically reviewed the roles of Chairman and Senior Independent Non-Executive Director (SID), and the composition and chairmanship of each of its committees.

The Board and the Nomination Committee recognise that, not withstanding the reduction in the number of Executive Directors on the Board from six to four during the year, there will be an imbalance in the number of Executive and independent Non-Executive Directors following the resignation of David Ord and Cullum McAlpine. The composition of the Board did not comply with provision A.3.2 of the Code prior to the resignation of Colin Hale in January 2008 and will similarly not comply with provision A.3.2 following the date of the AGM. The Board is broadly satisfied that the anticipated composition following the date of the AGM is appropriate having regard in particular to the integrity, skills, knowledge and experience of its Directors and the size and nature of the business. The Board is also keen to ensure that the Board does not become too large and unwieldy. However, it is mindful of the need to maintain a balance of independent Non-Executive Directors and non-independent Directors and has accordingly reviewed its composition and has initiated a search process to recruit an additional independent Non-Executive Director to the Board. It is hoped that this recruitment process will be concluded within a reasonable timeframe.

Board appointments

Chairman
The Nomination Committee and the Board have reviewed the role of Chairman and resolved to appoint Roger Matthews as Chairman with effect from the conclusion of the AGM. This is in accordance with the Board succession planning in recruiting Roger Matthews in December 2006 and follows a period of familiarisation for Roger Matthews with the Group. In reaching this decision the committee and the Board prepared a detailed job specification for the role and determined that the appointment of an independent internal candidate from amongst the existing Non-Executive Directors was in the Group’s best interests. As part of this process the committee and the Board have reviewed the independence of Roger Matthews as set out below.

Senior independent Non-Executive Director (SID)
Following Cullum McAlpine’s decision to resign from the Board, the Board has reviewed the role of SID and resolved to appoint David Jenkins to the role with effect from the conclusion of the AGM.

Committee chairmanships and composition
The Board has similarly reviewed the composition and chairmanship of its committees with a view to ensuring that power and responsibility is not concentrated in a few individuals and that the committees draw appropriately on the range of skills and experience of the Executive and Non-Executive Directors. The following changes to the chairmanship and composition of the committees will, subject to re-election take effect on the conclusion of the AGM:

• David Jenkins will assume the role of Chairman of the Audit Committee;
• Roger Matthews will step down from the Audit Committee; and
• Roger Matthews will assume the role of Chairman of the Nomination Committee.

Chairman and Chief Executive: division of responsibility

There is a clear division between the roles of Chairman and Chief Executive as formally set out in the terms of reference for each of these roles. These terms of reference have been reviewed as part of the review of the job specification of the Chairman.

The Chairman is responsible for the effective running of the Board. This includes ensuring that the Non-Executive Directors contribute effectively and that the Board is aware of the views of major shareholders. He is also responsible for ensuring that the Board addresses major challenges faced by MITIE and for the effective performance of the Board and its committees. The Chairman is available to consult with shareholders throughout the year and is available at the AGM.

As Chief Executive, Ruby McGregor-Smith is responsible for all aspects of the operation and management of the Group and its business during the year within the authorities delegated by the Board.

The role of the Executive and Non-Executive Directors

The Executive Directors are collectively responsible for proposing strategy and for making and implementing operational decisions. Non-Executive Directors are responsible for exercising their independent skill and judgement and contributing to the formulation of strategy,policy and decision making. The terms of appointment of the Non-Executive Directors’ and the Executive Directors’ service contracts are available for inspection at MITIE’s registered office, the head office and at the AGM.

Company Secretary

Richard Allan was appointed as the company secretary on 21 May 2007 as successor to Suzanne Baxter. The Company Secretary is responsible for ensuring that Board procedures and applicable rules and regulations are observed, as well as advising on all governance matters.

Director independence

During the year, Non-Executive Director independence was considered by the Board. The Board determined that all Non-Executive Directors as at 31 March 2008, with the exception of the Deputy Chairman Ian Stewart, were independent in mind and judgement, and free from any material relationship that could interfere with their ability to discharge their duties effectively. Specific consideration was given to David Jenkins’ prior role with Deloitte & Touche LLP, MITIE’s external auditors. The Board determined that David is independent given that he had not been involved in the provision of services to MITIE and the passage of time since his departure from Deloitte & Touche LLP. Additional consideration was given to directorships held by both Cullum McAlpine and David Jenkins on the Board of Renewable Energy Systems Holdings Limited and two of its subsidiaries. The Board does not consider these directorships to adversely impact either of the Non-Executive Directors’ independence.

External appointments and commitments

Executive Directors are permitted to accept appointments outside the Group providing permission is sought from the Chairman and the Chief Executive and that the additional appointments do not interfere with the Directors’ ability to effectively discharge their duties. The commitments outside the Group of the Executive Directors are detailed on page 54. Executive Directors are entitled to retain any fees earned from these external appointments.

Board meetings

Directors are supplied with an agenda and supporting papers for all Board meetings on a timely basis. This ensures that each Director is appropriately briefed and able to properly discharge their duties. Papers submitted regularly for the Board’s review include reports on:current trading and performance; corporate development activities; health and safety; and, matters relating to corporate governance. The Board will also receive, from time to time, detailed presentations from non-Board members on operational matters. The Board, its committees and its Directors have access to the advice and services of the company secretary and, where appropriate, external independent legal advice funded by MITIE.

All Directors are expected, where possible, to attend all Board meetings and the AGM. During the year ended 31 March 2008, there were six scheduled Board meetings. Additional unscheduled Board meetings were held to deal with administrative matters, predominantly for the approval of the issue of shares. Dedicated budget review meetings have also been held. Directors’ attendance at scheduled Board and committee meetings (Audit, Remuneration and Nomination) of which they are members is shown in the following table:

Director	Board	Audit	Remuneration	Nomination
Number of meetings held in year	6	3	5	3
D C Ord	6	–	–	3
I R Stewart	6	–	–	–
R McGregor-Smith (1), (2)	6	–	–	2
S Baxter (1)	6	–	–	–
N R Goodman	6	–	–	–
D S Jenkins	6	3	5	3
I J S Macpherson	6	3	5	3
R J Matthews	6	3	–	–
C McAlpine	4	2	3	3
G Potts	6	–	5	–
W Robson	6	–	–	–
C S Acheson (3)	3	–	–	–
C S Hale (4)	4	–	–	–

(1) Ruby McGregor-Smith and Suzanne Baxter attended the Audit, Remuneration and Nomination Committee meetings by invitation.
(2) Ruby McGregor-Smith was appointed to the Nomination Committee on 26 July 2007.
(3) Colin Acheson resigned from the Board on 3 October 2007.
(4) Colin Hale resigned from the Board on 14 January 2008.

In addition to scheduled Board and committee meetings during the year, the Chairman met with the Non-Executive Directors on several occasions without the Executive Directors being present.

Director appointment, induction and training

No new Directors were appointed to the Board during the relevant period. However, the Board has a general policy that subsequent to appointment to the Board: all new Directors are subject to re-election by the shareholders at the first AGM after their appointment; that each new Director receives a tailored induction suitable to their role; and, that all new Directors receive a tailored information pack which includes a copy of MITIE’s Memorandum and Articles of Association, latest Annual Report and Accounts, committee terms of reference and copies of recent Board minutes and supporting papers. In accordance with MITIE’s Articles of Association all Directors are subject to re-election at least once in every three-year period. None of the Executive or Non-Executive Directors has a service contract with a notice period greater than 12 months. All Directors have access to management and the operating businesses in MITIE at their request and have secure remote access to Board and other relevant papers held on a dedicated facility.

Review of Board performance

The Board is committed to effective and rigorous review of its performance and that of the committees and individual Directors and accordingly a formal evaluation of the performance and effectiveness of the Board, its committees and of each Director is performed annually.

Director performance evaluation for the current year has been carried out using a combination of formal appraisal questionnaires completed by all Board members and through informal meetings and discussions. The results of these reviews are reported to the Board and used to improve the Board’s performance. Results of the prior year appraisal process identified an overall level of satisfaction with the performance of the Board and that of its committees and Directors. Additionally, action taken in response to this feedback included the need to continue to monitor the balance of Executive and independent Non-Executive Directors, and the sector relevant expertise of the independent Non-Executive Directors, and minor changes to the information reported to the Board. Similarly, action will be taken throughout the current year to introduce improvements as identified in the evaluation exercise undertaken for the year ended 31 March 2008.

The committees

The specific duties and responsibilities of each committee are set out in its terms of reference which are available on the Group’s website, www.mitie.co.uk. Further details in relation to the composition, role and functioning of each committee are set out below.

Executive Committee and executive board

During the year the Group operated an executive committee of the Board which managed the operational matters delegated to it by the Board. The committee members were the Executive Directors, and senior management were invited to attend specific meetings. During the year, the Board approved the formation of an executive board which now fulfils the operational management role of the Executive Committee. The purpose of this change was to enable non-Directors to be full participating members of the executive management team rather than involvement through invitation. The executive board is not a formal committee of the Board but operates on a review and consultative basis under the existing powers of the Chief Executive and other Executive Directors.

The Executive Committee now remains as a formal approval and signing committee of the Board.

Audit Committee

The Audit Committee consists entirely of independent Non-Executive Directors and is chaired by Cullum McAlpine. During the year the Audit Committee comprised David Jenkins, Ishbel Macpherson, Roger Matthews and Cullum McAlpine. All members of the committee are considered as being appropriately experienced to fulfil its duties, while David Jenkins, Ishbel Macpherson and Roger Matthews continue to be deemed, as at the date of this report, by the Board to have significant, recent and relevant financial experience through their qualifications and their previous appointments.

During the year the Audit Committee invited the external auditors, Chief Executive, Group Finance Director and Head of Internal Audit to attend meetings of the committee. The committee also met separately with the external auditors and the Head of Internal Audit without the presence of the Executive Directors.

Report of the Audit Committee

During the year the Audit Committee held three meetings. The matters under consideration at these meetings included:

• The Group’s Half-yearly Financial Report and Annual Report and Accounts;
• Critical accounting policies and judgements;
• The review of the external auditors’ audit plan, nature and scope of work and overall summary of key issues and judgements;
• The re-appointment of the external auditors;
• The approval of fees for the external auditors;
• The effectiveness of the external auditors including the appropriateness and skills of the audit team;
• Compliance with the Group policy on the provision of non-audit services by the external auditors and maintenance of auditor independence;
• The approval of the Group risk assurance framework and the internal audit plan for the year ending 31 March 2008 and for the year ending 31 March 2009;
• The review of key internal audit reports and findings; and
• The effectiveness of the internal audit function.

The Audit Committee is committed to ensuring the independence and objectivity of the external auditors and confirms that the requirements of the Group’s policy on the provision of non-audit services were met. This policy restricts the external auditors from performing work which will result in them auditing their own work, making management decisions for the Group, creating a conflict of interest, finding themselves in the role of advocate for MITIE or creating any potential threat to their independence. Additionally, the external auditors will only be considered for the provision of non-audit services if they are best suited to perform the work in question. Deloitte & Touche LLP also maintains its own internal controls designed to safeguard their independence. A summary of the fees paid to the external auditors is given in Note 4 to the financial statements.

The remit of the Audit Committee also includes monitoring the arrangements by which employees may raise concerns regarding any matters of financial reporting or other perceived improprieties across the Group. During the year ‘whistle-blowing’ activity has been communicated to the committee along with the results of investigations carried out. These investigations have not identified any material risks to the Group.

Remuneration Committee

During the year the Remuneration Committee’s members were Ishbel Macpherson, David Jenkins, Graham Potts and Cullum McAlpine, all of whom are independent Non-Executive Directors. The committee held five meetings during the year and is chaired by Ishbel Macpherson.

The key duty of the Remuneration Committee is to make recommendations to the Board on the individual remuneration packages of Executive Directors. As a part of this process the committee oversaw the introduction of a LTIP (following shareholder approval at the AGM in July 2007) to reward, retain and incentivise senior members of the MITIE management team. During the year the committee has been advised by the following external remuneration consultants: New Bridge Street Consultants LLP in relation to the introduction of the LTIP; and, Kepler Associates in relation to Executive Director remuneration through formal benchmarking with market and industry comparators. The Board is responsible for reviewing and setting the remuneration of the Non-Executive Directors.

Nomination Committee

During the year the Nomination Committee comprised David Jenkins, Ishbel Macpherson, Cullum McAlpine and David Ord. On 26 July 2007 Ruby McGregor-Smith was appointed as a member of the committee. During the year three meetings of the committee took place. A key function of the committee is to evaluate the balance and composition of the Board and ensure that new Directors bring the requisite skills, knowledge and experience required for the role being considered. A full evaluation of succession planning was also undertaken by the committee during the year as described more fully above.

Shareholder communications

The Board is committed to an ongoing dialogue with institutional and private investors. The principal method of communication between the Board and shareholders remains news announcements, the Half-yearly Financial Report, the Annual Report and Accounts, the CR Report and MITIE’s website, www.mitie.co.uk. A full programme of formal and informal events, institutional investor meetings and presentations are also held following the Half-yearly Financial Report and Preliminary Results announcements which are led by the Chief Executive and Group Finance Director. The Chairman, SID and Non-Executive Directors may attend and are available for additional meetings with shareholders upon request.

Latest Group information, financial reports, corporate governance and CR matters, Half-yearly Financial Report and Preliminary Results presentations, major shareholder information and all announcements are made available to shareholders via the MITIE website (www.mitie. co.uk) which has a specific area dedicated to investor relations. The 2007 AGM approved changes to the Articles of Association of the Company implementing the use of electronic communications as enabled under recent changes in company law. Under the new Articles the Company can communicate with its shareholders in three ways: in hard copy (as under the previous Articles); in electronic form to shareholders who have elected to receive documents electronically; and by making the document available on the website and notifying each relevant shareholder that the document or information has been made available on the website. The Company has deemed that any shareholder who failed, within 28 days of the 2007 AGM, to elect to receive either electronic or hard copy communications, has agreed to receive notification of documents made available on the Company’s website.

Significant importance is attached to investor feedback on the Group’s performance, and as such the executive board receives an investor relations report at each meeting detailing corporate news, share price activity, investor relations activity and major shareholder movements. The Board is updated by the Executive Directors on these matters and receives analyst feedback following the Half-yearly Financial Report and Preliminary Results presentations.

The AGM also allows shareholders to address and discuss any issues surrounding the Group directly with the Executive and Non-Executive Directors.

Internal control and risk management

The Board recognises that it is responsible for the Group’s system of internal control and for reviewing its effectiveness. This system is designed to support the Group’s pursuit of achieving its objectives and strategies and also the identification and management of risks that may impact upon MITIE and the environment in which the Group operates. The system of internal control is designed to manage rather than eliminate the risk of failing to achieve these objectives and strategies, and it will only provide reasonable, and not absolute, assurance against material misstatement and loss.

Key features of MITIE’s system of internal control are set out below.

Culture, responsibility and accountability

The Board and senior management are responsible for maintaining and developing a culture of integrity, competence, fairness and responsibility throughout the Group. Essential to this is the recruitment and retention of highly skilled individuals who promote the highest standards of integrity, competence, governance and ethical behaviour.

Group policies and procedures support the business by providing an operational internal control framework for the Group, each division and operating business to work within which is appropriate to the nature of the business being undertaken. This framework is designed to balance the need for Group-wide consistency and control with the autonomy local management require to develop and manage each operating business successfully.

In order to delegate responsibilities clearly and effectively to the Group’s operating businesses, and to ensure compliance with the matters reserved for the Board, a formal delegated authorities matrix is issued to all operating subsidiaries that includes both financial and nonfinancial authorities and matters relating to strategy, contract approval, recruitment, capital expenditure, banking transactions and specific Group policies. Each operating subsidiary is headed by a managing or regional Director who has authority to manage their business within this framework of delegated authorities and Group policies and procedures outlined above.

To support the business further, the Group central team has a team of specialist resources with individuals responsible for specific functions including legal, health and safety, IT, insurance, human resources, tax, pensions, purchasing, finance and business risk. Regular dialogue between these functions and the operating businesses provides additional support and forms a key part of the system of internal control.

Information and communication

The Group maintains a number of systems and processes that report relevant information to Group executive management and the Board as necessary. This includes financial and non-financial information regarding business performance, compliance with policy and procedure, relevant regulations and business critical matters.

At an operational level each division and business holds regular executive board meetings. To maintain and develop relationships between separate divisions, and to address specific matters, regional meetings are also held and are attended by regional representatives of each division. Senior Group management regularly attend these meetings.

The Group also maintains an extensive intranet which allows all employees to access key information as well as Group policies, procedures and guidelines.

Risk management

The Board confirms that there is a continuing process for identifying, evaluating, and managing significant risks faced by the Group. The Board also confirms that this process has been in place throughout the year under review and up to the date of approval of the Annual Report and Accounts, and that this process is monitored by the Board in accordance with the revised guidance on internal control issued by the Financial Reporting Council.

The process for identifying, evaluating and managing principal risks requires the Group and its principal businesses to consider strategic, operational, financial and compliance risks and the effectiveness of the mitigating controls based on a pre and post controls risk evaluation. The principal risks identified from this process are recorded on the Group’s risk register which is maintained by the Group’s Business Risk function. This register is reviewed by the Board twice a year and will similarly be reviewed by the executive board twice a year.

Monitoring the system of internal control

The Board is responsible for monitoring the Group’s system of internal control and for reviewing its effectiveness. Monitoring is carried out throughout the year via the receipt and review of various reports, presentations and discussions with management, as set out above. Specifically, the Audit Committee supports the Board by monitoring and guiding the activities of the internal audit function, including approving the internal audit programme, reviewing regular reports from the function and via meetings with the Head of Internal Audit. The internal audit programme is designed to provide a level of assurance over key risks as identified in the Group risk register and is developed by the Head of Internal Audit who reports to the company secretary and independently to the Audit Committee.

During the reporting period a review was initiated by the Audit Committee into the Group’s assurance framework encompassing both the Group’s Business Risk function and Group level controls, and the assurance framework within the operating divisions. The review was conducted by external consultants, Grant Thornton, who reported in November 2007. A number of recommendations set out in the report have been implemented in order to strengthen further the Group’s risk assurance framework.

The Audit Committee also receives regular reports from the external auditors who contribute a further independent perspective on certain aspects of the internal financial control systems arising from their work. As necessary the Audit Committee will have dialogue with the Executive Directors on their control responsibilities, and in particular, those relating to specific matters reported by internal or external audit.

Reviewing the effectiveness of the system of internal control

The Board performs a formal annual assessment of the operation and effectiveness of the system of internal control and updates this assessment prior to the signing of the Annual Report and Accounts. This includes consideration of reports on principal risks, controls and their effectiveness from the heads of each central team function and an independent report from the Head of Internal Audit summarising key audit findings. The Board also holds discussions with senior management and reviews the results of a formal internal controls review and system effectiveness confirmation from each operating subsidiary.

The Board confirms that management has taken steps during the year to improve further the system of internal control, embed effective controls further into the operations of the Group and to address improvements as they come to management’s attention. These steps are monitored to ensure they are implemented appropriately and that ultimately they are effective.

Compliance with the Combined Code

The Board confirms that throughout the year ended 31 March 2008 the Group has complied with the provisions set out in section 1 of the Code with the exception that the Board did not consist of an at least equal number of independent Non-Executive and Executive Directors between 1 April 2007 and 14 January 2008.