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Corporate Governance

Statement of Compliance

The Group has applied the principles set out in section 1 of the Combined Code on Corporate Governance issued by the Financial Services Authority in 2006, as incorporated in the UK Listing Authority Listing Rules. A full statement of compliance with the Combined Code’s main principles of the Code of Best Practice is on page 15. The Company has complied with the Combined Code throughout the year ended 31 December 2007, other than the limited exceptions stated as follows:

A.3.1 Mr Davies was an employee of the Group in 2000 the Board considers that all of the non-executive directors are independent in character and judgement of the management of the Company and free from any business or other relationship which could materially interfere with the exercise of their independent judgement.

Board of Directors

The Board of Directors meets regularly to review strategic, operational and financial matters, including proposed acquisitions and divestments, and has a formal schedule of matters reserved to it for decision. It approves the interim and preliminary financial statements, the annual financial plan, significant contracts and capital investment in addition to reviewing the effectiveness of the internal control systems and business risks faced by the Group. Where appropriate, it has delegated authority to committees of directors. Information is supplied to the Board in advance of meetings and the Chairman ensures that all directors are properly briefed on the matters being discussed.

Executive responsibility is split between the Chairman and the Chief Operating Officer. The Chairman is primarily responsible for strategy and corporate development. The Chief Operating Officer has specific responsibility for the Group’s operating businesses.

Non-executive directors are appointed for specified terms, up to a maximum of three years, and reappointment is not automatic. There is a formal selection process to appoint non-executive directors and a separate Nomination Committee was formed in 2001. Mr Davies is the senior non-executive director.

All of the non-executive directors have extensive business experience and are considered by the Board to be independent of the management of the Company and free from any business or other relationship which could materially interfere with the exercise of their independent judgement.

All directors have access to the advice and services of the Company Secretary, and all the directors are able to take independent professional advice, if necessary, at the Company’s expense.

Directors offer themselves for re-election at the AGM following their appointment and thereafter in accordance with the Company’s articles, which require one-third of directors to retire in rotation at each AGM.

Board Committees

All non-executive directors serve on the Nomination, Remuneration and Audit Committees. The Committees have written terms of reference which clearly specify their authority and duties and those terms of reference are available upon written request to the Company.

The Nomination Committee is chaired by Mr Kanter and the Committee also comprises Mr Bertram, Mr Davies and Mr Ratclilffe.

Mr Davies is chairman of the Remuneration Committee and the Committee also comprises Mr Bertram and Mr Kanter. Mr Bertram is chairman of the Audit Committee and the Committee also comprises Mr Davies and Mr Kanter.

The Audit Committee meets regularly with management and the external auditors to review audit procedures, internal controls and financial matters.

It also recommends the appointment of the Company’s external auditors. The Chairman, Chief Operating Officer and Group Finance Director attend the meetings by invitation. The auditors have unrestricted access to the Audit Committee.

Where the external auditors provide non audit services such work has been put out to tender as appropriate and the Board considers that the auditors’ objectivity and independence is safeguarded.

Operating Board

The Operating Board comprises the Chairman, Chief Operating Officer, and Group Finance Director, together with other senior managers within the Group. The Operating Board normally meets on a monthly basis to discuss policy and operational issues. Those issues outside the delegated authority levels set by the plc Board are referred to the plc Board for its decision.

Relations with Shareholders

In order to maintain dialogue with institutional shareholders the executive directors meet with them
following interim and final results announcements, or as appropriate, and non-executive directors have also visited major institutional shareholders on an occasional basis. Where practicable the Annual Report is sent to shareholders 20 working days before the AGM and each issue for consideration at the AGM is proposed as a separate resolution. All directors including the non-executive directors, are expected to attend the AGM.

Social, Ethical and Environmental Risks

The Board takes regular account of the significance of social, environmental and ethical (“SEE”) matters to the Group’s business of providing IT services and solutions (including software, managed services and consultancy) to the business community.

The Board considers that it has received adequate information to enable it to assess any significant risks to the Company’s short and long-term value arising from SEE matters and has concluded that the risks associated with SEE matters are minimal. The Board will continue to monitor those risks on an ongoing basis and will implement appropriate policies and procedures if those risks become significant.

Internal Control

The Group maintains an ongoing process in respect of internal control to safeguard the shareholders’ investment and the Group’s assets and to facilitate the effective and efficient operation of the Group.

These processes enable the Group to respond appropriately, and in a timely fashion, to significant business, operational, financial, compliance and other risks which may otherwise prevent the achievement of the Group’s objectives.

The Group recognises that it operates in a highly competitive market that can be affected by factors and events outside its control. Details of the risks faced by the Group are set out in the table on page 7. It is committed to minimising risks arising wherever possible and accepts that internal controls, rigorously applied and monitored, are an essential tool in achieving this objective.

The key elements of Group internal control, which have been effective during 2007 and up to the date of approval of these financial statements, are set out below.

• The existence of a clear organisational structure with defined lines of responsibility and delegation of authority from the Board to its executive directors and operating divisions;
• A procedure for the regular review of reporting business issues and risks by operating divisions;
• Regular review meetings with the operating management;
• A planning and management reporting system operated by each division and the executive directors;
• The establishment of prudent operating and financial policies.

The directors have overall responsibility for establishing financial and other reporting procedures to provide them with a reasonable basis on which to make proper judgements as to the financial position and prospects of the Group, and have responsibility for establishing the Group’s system of internal control and for monitoring its effectiveness. The Group’s systems are designed to provide directors with reasonable assurance that physical and financial assets are safeguarded, transactions are authorised and properly recorded and material errors and irregularities are either prevented or detected with the minimum delay. However, systems of internal financial control can provide only reasonable and not absolute assurance against material misstatement or loss.

The key features of the systems of internal financial control include:

• Financial planning process with an annual financial plan approved by the Board. The plan is regularly updated providing an updated forecast for the year;
• Monthly comparison of actual results against plan;
• Written procedures detailing operational and financial internal control policies which are reviewed on a regular basis;
• Regular reporting to the Board on treasury and legal matters;
• Defined investment control guidelines and procedures;
• Periodic reviews by the Audit Committee of the Group’s systems and procedures.

The majority of the Group’s financial and management information is processed and stored on computer systems. The Group is dependent on systems that require sophisticated computer networks. The Group has established controls and procedures over the security of data held on such systems, including business continuity arrangements.

On behalf of the Board, the Audit Committee has reviewed the operation and effectiveness of this framework of internal control for the year ended 31 December 2007.

Internal Audit

The need for an internal audit function is reviewed on an annual basis by the Audit Committee taking into account the size and complexity of the Group. At present there is no intention to establish an internal audit function.

Turnbull Guidance

The process by which the Board identifies, evaluates and manages significant risks faced by the Group has been an integral part of the reports provided to the directors and such risks are regularly discussed within Board meetings. Risks are identified within the reports provided by Executive Directors and other senior executives of the Group. This process has been in place throughout the year under review and up to the date of approval of this annual report