governance and accountability
Corporate GovernanceNorthern Rock plc (the Company) regards adherence to the principles of good corporate governance to be of the utmost importance. The Board is accountable to Northern Rock's shareholders for corporate governance, and the Corporate Governance Section of the Annual Report and Accounts describes how the Company applies the principles and provisions contained in the Combined Code of Corporate Governance (the Combined Code) appended to the Listing Rules of the United Kingdom Listing Authority, published in June 2005 July 2003.
The Listing Rules of the United Kingdom Listing Authority require listed companies to disclose how they comply with the Combined Code and, where they do so not do so. To provide a clear explanation of why they do not comply. For the period 1 January 2005 to 31 December 2005, the Company complied with all aspects of the Combined Code.
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The Board of Directors
The Board of Directors meets regularly throughout the year, retains full and
effective control over the Company and its subsidiaries (the Group), is
collectively responsible for the success of the Group and determines its
strategy and policies whilst monitoring performance.
The Board is currently comprised of the Chairman, the Senior Independent Director, 6 other Non-Executive Directors, the Chief Executive and 4 other Executive Directors.
Corporate Social Responsibility
A Management Structure is in place within the Company to support our Corporate
Social Responsibility activities.
The Board Member for Corporate Social Responsibility within Northern Rock is David F Baker, Deputy Chief Executive.
The Executive Committee receives a formal summary of corporate CSR activities that have taken place during the reporting period and the proposals for the following year.
Main Board receives a formal briefing annually in the area of Corporate Social Responsibility.
See also main section under Northern Rock's Business - Mission, Vision and Values
Electronic Shareholder Voting
The Company introduced electronic voting for our shareholders at the Annual
General Meeting in April 2005, increasing the opportunity for our shareholders
to provide input to key business decisions. The results of the voting are
displayed on the Corporate website 2005.
FSA Listing Prospectus and Disclosure Rules 2005
On 1 July 2005, the new Listing, Prospectus and Disclosure Rules came into
force. These changes were made to implement the Prospectus Directive, the
Market Abuse Directive and the FSA’s review of the Listing Rules. The
Company has therefore established policies to ensure compliance with the new
Rules.
The Banking Code
Copies of The Banking Code can be obtained from our
sites/web sites and by clicking on the following link:
Confirmation that Northern Rock subscribes to the Code can be found on the following link:
Northern Rock follows The Banking Code. The current edition came into effect on 1 March 2005 - a voluntary code which sets standards of good banking practice for financial institutions to follow when they are dealing with personal customers in the United Kingdom. It provides valuable protection for the customer and explains how financial institutions are expected to deal with them day-to-day and in times of financial difficulty.
The code applies to:
- current accounts, including basic bank accounts;
- card products and services;
- loans and overdrafts;
- savings and deposit accounts, including mini cash and TESSA ISAs; and
- payment services, including foreign-exchange services.
It does not cover mortgages, investments, premium bonds or insurance. These are separately regulated by the Financial Services Authority or by other codes.
As a voluntary code, it allows competition and market forces to work to encourage higher standards for the benefit of customers.
Branch Closures
Northern Rock follows the Banking Code in respect of Branch closures. If the
Company plan to close a branch, we will advise customers at least 8 weeks
beforehand, and at least 12 weeks beforehand if it is the last bank or building
society branch within a 5-mile radius (4 miles in rural areas). We will also
advise customers how we can continue to provide banking services to them.
Risk Management
Northern Rock's risk management process is designed to maintain and improve the
established framework for the identification, control and monitoring of
existing and future risks. This approach provides a mechanism for the
identification and communication of risks to throughout the business. The
approach is co-operative between Group Risk and the business, which ensures
that risks are:
- identified;
- assessed for probability of occurrence;
- assessed for impact; and,
- responded to where appropriate.
Once the associated probabilities and impacts have been identified, an appropriate response can be developed and implemented.
The actual management of risk is embedded within the business, with responsible individuals being empowered to manage the risks within a framework of policies, procedures and delegated authorities established by the Board and Senior Management. A process of reporting provides evidence of control, supervision and monitoring by the business.
Risk Management Forums
CSR Risk Management continued to be reviewed as an integral part of Corporate
Operational Risk Management processes in 2005. A series of Operational Risk
Management Forums were held during the year, with the emphasis being placed on
exchange of internal and external good practice in the fields of Risk
Management within Northern Rock.
The Forums provided us with the ability to raise the importance of CSR related issues within briefing sessions and to assist in the development of a consistent approach (where appropriate) to operational risk management across the business.
The Risk Management Process
This ensures that the management of risk is embedded within the business,
ensuring that the Company achieves an acceptable level of risk management,
satisfying both corporate objectives and stakeholders.
The process includes the following:
- the responsibility for ensuring adequacy of risk management practices resides with the Board and the Board Risk Committee. Responsibility for the identification, management and reporting of risk is delegated to the relevant line management. Comprehensive high level policies, approvals and limits are in place to support this;
- monitoring and reporting of risk exposures is integrated into established business reporting processes. Separate and independent reporting is carried out by Group Risk, Internal Audit and Compliance functions; and,
- continued development of the business and the environment in which Northern Rock operates requires continual development of the risk management processes. This ensures that Northern Rock not only maintains its existing high standards of risk management but also fully exploits the opportunities that effective risk management can deliver.
Quantification of Risk
Northern Rock has developed a bespoke risk matrix for business risks.
Measurement of risk before application of risk response measures assists with
the prioritisation and allocation of resource and responsibility. Measurement
of risk after application of response measures aids understanding by the
business of the impacts associated with the risk it retains.
Response to Risk
The management of risk is achieved by use of a number of techniques, which
include:
- acceptance of risk within an agreed risk framework;
- management, control and good corporate governance;
- transfer of the risk to third parties; and,
- avoidance of risks considered to be unacceptable.
Group Risk's role in the overall risk management process is to support line management in the selection of the appropriate techniques to deploy in responding to and mitigating risk. This response to risk is intended to reduce risk and uncertainty thereby improving the probability of Northern Rock achieving its strategic objectives, within its risk appetite.
Techniques for the transfer of risk to third parties can include using contract conditions, outsourcing arrangements and contracts of insurance.