BOARD LEADERSHIP, TRANSPARENCY AND GOVERNANCE CODE

Transcription

1 SOUTH WEST WATER LIMITED BOARD LEADERSHIP, TRANSPARENCY AND GOVERNANCE CODE Introduction South West Water and its holding company, Pennon Group Plc, is committed to operating to the highest standards of board leadership and governance including transparency of reporting to its investors, customers, regulators and other stakeholders. The South West Water Board recognises that it is responsible for providing vital services relating to water supply and sewerage disposal and in doing so acting responsibly to ensure the protection of the environment, the sustainability of its operations and the satisfaction of its customers needs. Both the South West Water and Pennon Group Boards are committed to the principles on board leadership, transparency and governance published by Ofwat in September 2013 and January South West Water will take into consideration in complying with this Code the legitimate expectations of its shareholders. To assist transparency this Code sets out how South West Water (the Company) complies with the Ofwat principles. The Code also embraces as appropriate the UK Corporate Governance Code which applies to listed companies, including Pennon Group Plc. A Transparency A1 Principle Reporting to meet or exceed the standard set out in the Disclosure and Transparency Rules of the UK Listing Authority. A1.2 Supporting Principle Operation at the highest standards of governance and transparent reporting of how this is achieved. A1.3 Application of Principle Through its Annual Report, regulatory accounts, website, sustainability report and customer and media communications the Company explains: how it is organised, including a clear and unambiguous description of its group structure; company performance including financial results and the meeting of customer standards; key risks to the business and how it is managing those risks; key developments including major investments and service improvements planned; compliance with the Disclosure and Transparency Rules including the UK Corporate Governance Code to the extent that it can be applied to a private limited company. This includes reporting on:- matters reserved for the Board s decision and delegated matters and any of those matters which are reserved for the Pennon Group Board as the owning Company of South West Water Limited; the Company s business model and strategy;

2 details of the Chairman, the Chief Executive, the Finance Director and other Executive Directors, the Senior Independent Director, the other independent Non-executive Directors and the Board Committees and their membership; the biographies of the Chairman and each Director including their experience and any other commitments they may have and how such commitments are managed; Board and Committee attendance by each Director; Terms of Reference of each Committee and an explanation of material matters dealt with; details of Board and Committee evaluations and their outcomes; Directors Responsibility Statements including confirmation that reporting is fair, balanced and understandable; and the external auditor s report on its responsibilities in relation to the Company. B B1 Independence Principle Acting as if it is a separate Public Listed Company. B1.2 - Supporting Principle Board to be fully focused on the Company s obligations as a regulated company. B1.3 - Application of Principle The Board does act as if it is a separate Public Listed Company in so far as it is appropriate to do so as a private company. It is focused on operating as a regulated water and sewerage undertaker in accordance with the provisions of its Licence of Appointment as such an undertaker. In doing so the Board has proper regard to the views and legitimate expectations of its customers, regulators, shareholders, employees and other stakeholders; Within this framework the Board leads the Company both in terms of accountability and legitimacy and is responsible for the setting of and ownership of the Company s strategy together with the ability to make ongoing strategic and sustainable decisions in the interests of the Company for the long-term. C. Board Leadership and Composition C1 Principle Significant independent representation on the Board. C1.2 Supporting Principle Chairman independent of management and investors. C1.3 Application of Principle There is an independent Chair independent of investors and management. The division of responsibilities between the Chairman and the Chief Executive Officer is set out in Appendix A. Independence being defined as set out in B.1.1. of the UK Corporate Governance Code. 2

3 C1.4 Supporting Principle Independent Non-executive Directors being the largest single group on the Board. C1.5 Application of Principle The Board membership consists of an independent Chairman (Principle C1.2), four independent Nonexecutive Directors and four Executive Directors (including the Chief Executive Officer). No alternate directors are appointed and all directors are expected to attend and fully participate at each Board Meeting other than arising from matters beyond their control. C.1.6 Supporting Principle Independent Non-executive Directors to have diverse and relevant skills and experience with personal attributes as set out in the Financial Reporting Council (FRC) Guidance on Board Effectiveness. C1.7 Application of Principle the Terms of Reference of the Nomination Committee provides for following the FRC Guidance when reviewing the suitability of candidates as independent Nonexecutive Directors. C.1.8 Supporting Principle Performance evaluation to be formal and rigorous. C.1.9 Application of Principle An annual externally facilitated performance evaluation is carried out of the Board and each Board Director, assessed by the Board and reported on in terms of weaknesses found and actions taken to improve performance in the Annual Report. C.1.10 Supporting Principle Formal, rigorous and transparent procedure for appointment of all new directors. C1.11 Application of Principle Board new appointments are led by the Nomination Committee of the Board which is made up of a majority of independent Non-executive Directors with expert external facilitation as appropriate. D. Board Committees D1 Principle Board Committees operating at regulated company level. D1.2 Supporting Principle Audit, Remuneration and Nomination Committees to have a majority of independent members. D1.3 Application of Principle Each Committee has a majority of independent Non-executive Directors, led by an independent Nonexecutive Director. Each independent Non-executive Director has the requisite financial knowledge and experience to provide appropriate challenge. D1.4 Supporting Principle Transparent reporting. D1.5 Application of Principle Each Committee s Terms of Reference is as set out in Appendices B to E and formal reporting of the 3

4 composition, operation and activities of each Committee during the year is reported on in the Annual Report. 4

5 APPENDIX A SOUTH WEST WATER LIMITED CHAIRMAN AND CHIEF EXECUTIVE RESPONSIBILITIES CHAIRMAN The Chairman is responsible for leadership [and the running] of the Board, ensuring its effectiveness on all aspects of its role and setting its agenda taking full account of the issues and concerns of Board members. In fulfilling that responsibility he should: - In conjunction with the Chief Executive, ensure effective implementation of Board decisions and ensure that the Board meets sufficiently regularly to discharge its duties. - Ensure the effective running of the Board ensuring that adequate time is made available for discussion of all agenda items, particularly on strategic issues. - Ensure that the Board as a whole plays a full and constructive part in the development and determination of South West Water s strategy and overall commercial objectives. - Ensure that the Board agendas take full account of important issues facing the Company and any concerns of Board members. The emphasis of the agenda should be on strategy rather than routine issues. - Ensure that Board members receive accurate, timely and clear information on the company s performance, issues, challenges and opportunities facing the company and on matters reserved for its decision. Thereby enabling the Board to make sound decisions, monitor effectively and provide advice in order to promote the Company s success. - Propose to the Board in consultation with the Chief Executive, Company Secretary and Committee Chairman as appropriate: a schedule of Matters Reserved for the Board s decision, Terms of Reference for each Committee of the Board and other Board policies and procedures. - Ensure the Board, where appropriate, complies with the Board s approved procedures including the schedule of Matters Reserved for the Board for its decisions and that each Committee of the Board complies with its particular Terms of Reference. - Ensure that there is effective communication with shareholders and ensure that all Board members are aware and understand any major issues and / or concerns of investors. - Ensure that all new directors participate in a full, formal, tailored induction programme. Regularly review each Directors training and development needs. - Ensure that directors continually update their skills, knowledge and familiarity with the company to enable directors to fulfil their role on the Board and any Committee s of the Board.

6 - Ensure that the performance of the Board, its Committee s and individual directors is evaluated at least once a year and act on the results of the performance evaluation. - Promote a culture of openness and debate at Board meetings and in particular facilitate the effective contribution of Non-Executive Directors by ensuring a constructive relationship between Executive and Non-Executive Directors. - Arrange informal meetings of the Directors of the Board, including meetings of the Non-Executive Directors at which the Executive Directors are not present, as required, to ensure that sufficient time and consideration is given to complex, contentious or sensitive issues. - Chair the Nomination Committee and in that role initiate change and succession planning in Board appointments to retain and build an effective and complementary Board. Proposing in conjunction with the Nomination Committee the membership of the Board Committees and their Chairman. - Promote the highest standards of integrity, probity and corporate governance throughout the Company and particularly at Board level. - Establish a close relationship of trust with the Chief Executive, providing support and advice but respecting executive responsibilities. - Ensure that the Board determines the nature and extent of significant risk that the company is willing to embrace in the implementation of its strategy. CHIEF EXECUTIVE The Chief Executive is responsible for all executive management matters affecting South West Water and in particular for running, leading, managing and controlling the Company and its subsidiaries subject to those matters which are reserved for decision by the Board. In exercising his responsibilities he should: - Exercise leadership of the executive management team to ensure that South West Water s business delivers the requirements of its customers, the regulator, shareholders and other stakeholders. - Apprise the Board of all matters which materially affect South West Water and its performance. - In conjunction with the Executive team ensure that the decisions of the Board and its Committee s are fully implemented. - In conjunction with the executive team propose and develop strategy and overall commercial objectives for consideration by the Board. - In conjunction with the executive team formulate annual and medium term business plans indicating how the company s strategy will be delivered. - With regard to South West Water s strategy ensure that the Board has regular opportunity to review challenge and approve it. - Provide input from himself and the executive team into the Board s agenda. 6

7 - In conjunction with the executive team ensure that appropriate priority reports are provided to the Board with sufficient and timely information to enable the Board to fulfil its role. - Provide input to the Chairman and Company Secretary on appropriate changes to the schedule of Matters Reserved for the Board and Board Committees Terms of Reference. - Ensure that the executive team complies with Board procedures including the schedule of Matters Reserved for the Board and each Committee of the Board adheres to its Terms of Reference. - In conjunction with the Chairman, ensure that there is effective communication with shareholders and that Board member s understand the views of investors. - Ensure that the highest standards of integrity, probity and corporate / ethical governance are promoted within South West Water. - Ensure that appropriate Health, Safety and Environmental policy is maintained and observed within South West Water. - Ensure that sound systems of internal control are maintained and that all major risks are adequately managed. - Maintain a dialogue with the Chairman on important / strategic issues facing South West Water. Ensure the Chairman is aware of any complex, contentious or sensitive issues that affect South West Water. - Provide information / advice on succession planning to the Chairman of the Nomination Committee particularly in respect of Executive Directors. Note Pursuant to the UK Corporate Governance Code / Code provision A.2.1 the roles of Chairman and Chief Executive are not exercised by the same individual. 7

8 APPENDIX B SOUTH WEST WATER LIMITED AUDIT COMMITTEE TERMS OF REFERENCE 1. Membership 1.1 Members of the Committee shall be appointed by the South West Water (SWW) Board, on the recommendation of the Nomination Committee in consultation with the Chairman of the Audit Committee. The Committee shall be made up of at least 3 members. 1.2 All members of the Committee shall be independent Non-executive Directors at least one of whom shall have recent and relevant financial experience. The Chairman of the SWW Board shall not be a member of the Committee. 1.3 Only members of the Committee have the right to attend Committee meetings. However, other persons may attend from time to time together with executives responsible for matters within the remit of the Committee. 1.4 The external auditors will be invited to attend meetings of the Committee on a regular basis. 1.5 Appointments to the Committee shall be for a period of up to three years, which may be extended for two further three year periods, provided the Director remains independent. 1.6 The SWW Board shall determine whether a Director is independent in character and judgement and shall determine each Non-executive Director it considers to be independent. 2. Secretary The SWW Company Secretary or their nominee shall act as the Secretary of the Committee. 3. Quorum The quorum necessary for the transaction of business shall be 2 members. A duly convened meeting of the Committee at which a quorum is present shall be competent to exercise all or any of the authorities, powers and discretions vested in or exercisable by the Committee. 4. Frequency of Meetings The Committee shall meet at least three times a year at appropriate times in the reporting and audit cycle and otherwise as required. 5. Notice of Meetings 5.1 Meetings of the Committee shall be summoned by the Secretary of the Committee at the request of any of its members or at the request of external or internal auditors if they consider it necessary. 8

9 5.2 Unless otherwise agreed, notice of each meeting confirming the venue, time and date together with an agenda of items to be discussed, shall be forwarded to each member of the Committee, any other person required to attend and all other Non-executive Directors, no later than 5 working days before the date of the meeting. Supporting papers shall be sent to Committee members and to other attendees as appropriate, at the same time. 6. Minutes of Meetings 6.1 The Secretary shall minute the proceedings and resolutions of all meetings of the Committee, including recording the names of those present and in attendance. 6.2 The Secretary shall ascertain, at the beginning of each meeting, the existence of any conflicts of interest and minute them accordingly. 6.3 Minutes of Committee meetings shall be circulated promptly to all members of the Committee and, once agreed, to all members of the SWW Board. 7. Duties The Committee shall carry out the duties below for South West Water Limited. 7.1 Financial Reporting The Committee shall monitor the integrity of the financial statements of SWW, including its annual and half-yearly reports and any other formal announcements relating to its financial performance, reviewing significant financial reporting issues and judgements which they contain The Committee shall review and challenge where necessary: (a) (b) (c) (d) (e) the consistency of, and any changes to, accounting policies on a year on year basis; the methods used to account for significant or unusual transactions where different approaches are possible; whether SWW has followed appropriate accounting standards and made appropriate estimates and judgements, taking into account the views of the external auditor; the clarity of disclosure in SWW s financial reports and the context in which statements are made; and all material information presented with the financial statements, such as the Report of Directors the notes to the financial statements and [the corporate governance statement] (insofar as it relates to the audit and risk management). 7.2 Internal Controls and Risk Management Systems The Committee shall: 9

10 7.2.1 keep under review the effectiveness of SWW s internal controls, including all material financial, operational and compliance controls and risk management systems; and review and approve the statements to be included in the SWW s Annual Report and financial statement concerning internal controls and risk management. 7.3 Whistleblowing and Fraud The Committee shall: review SWW s arrangements for its employees to raise concerns, in confidence, about possible wrongdoing in financial reporting or other matters. The Committee shall ensure that these arrangements allow proportionate and independent investigation of such matters and appropriate follow up action; and review SWW s procedures for detecting fraud. 7.4 Internal Audit The Committee shall: monitor and review the effectiveness of internal audit arrangements in the context of the company s overall risk management system; review and assess the annual internal audit plan; review conclusions and manager responses to major findings in all reports on SWW from the internal auditors; review and monitor management s responsiveness to the findings and recommendations of the internal auditor; and meet the head of internal audit at least once a year, without management being present, to discuss any issues arising from the internal audits carried out. In addition, the head of internal audit shall be given the right of direct access to the Chairman of the SWW Board and to the Committee. 7.5 External Audit The Committee shall: oversee the relationship with the external auditor including review the findings of the audit with the external auditor. This shall include but not be limited to, the following; (a) (b) (c) a discussion of any major issues which arose during the audit, any accounting and audit judgements, levels of errors identified during the audit. The Committee shall also review the effectiveness of the audit. 10

11 7.5.3 review any representation letter(s) requested by the external auditor before they are signed by management; and review the management letter and management s response to the auditor s findings and recommendations the appointment, re-appointment and removal of SWW s external auditors is a matter for the Pennon Group Audit Committee. 7.6 Treasury Annually review SWW s treasury risk management policies. 7.7 Reporting Responsibilities The Committee Chairman shall report formally to the SWW Board on its proceedings after each meeting on all matters within its duties and responsibilities The Committee shall make whatever recommendations to the SWW Board it deems appropriate on any area within its remit where action or improvement is needed The Committee shall compile a report to shareholders on its activities to be included in the Company s Annual Report and financial statements. 7.8 Other Matters The Committee shall: have access to sufficient resources in order to carry out its duties, including access to the Pennon Group company secretariat and the Group Financial Control department for assistance as required; and give due consideration to laws and regulations, including the provisions of the UK Corporate Governance code. 8. Authority The Committee is authorised: 8.1 to seek any information it requires from any employee of SWW in order to perform its duties; 8.2 to obtain, at the company s expense, outside legal or other professional advice on any matter within its terms of reference; and 8.3 to call any SWW employee to be questioned at a meeting of the Committee as and when required. 11

12 APPENDIX C SOUTH WEST WATER LIMITED SUSTAINABILITY COMMITTEE TERMS OF REFERENCE 1. Membership 1.1 Members and the Chairman of the Committee shall be appointed by the Board and shall be made up of at least two Non-executive Directors. 1.2 All Non-executive Directors of the Committee shall be independent Nonexecutive Directors of the South West Water Board. 1.3 Only members of the Committee have the right to attend Committee meetings. However, other persons may attend from time to time together with other executives responsible for matters within the remit of the Committee. 1.4 In the absence of the Committee Chairman the remaining members present shall elect one of themselves (such a member shall be a Non-executive Director) to chair the meeting. 1.5 The SWW Board shall determine whether a Director is independent in character and judgement and shall identify each Non-executive Director it considers to be independent. 2. Secretary The SWW Company Secretary / Joint Company Secretary or nominee shall act as the Secretary of the Committee. 3. Quorum The quorum necessary for the transaction of business shall be two members, provided at least one is an independent Non-executive Director Committee member. A duly convened meeting of the Committee at which a quorum is present shall be competent to exercise all or any of the authorities, powers and discretions vested in or exercisable by the Committee. 4. Frequency of Meetings The Committee shall meet at least three times a year at appropriate times in the annual accounts reporting cycle and otherwise as required. 5. Notice of Meetings 5.1 Meetings of the Committee shall be summoned by the Secretary of the Committee at the request of any of its members. 5.2 Unless otherwise agreed, notice of each meeting confirming the venue, time and date together with an agenda of items to be discussed, shall be forwarded to each member of the Committee, any other person required to attend no later than five working days before the date of the meeting. 12

13 Supporting papers shall be sent to Committee members and to other attendees as appropriate, at the same time. 6. Minutes of Meetings 6.1 The Secretary shall minute the proceedings and resolutions of all meetings of the Committee, including recording the names of those present and in attendance. 6.2 The Secretary shall ascertain, at the beginning of each meeting, the existence of any conflicts of interest and minute them accordingly. 6.3 Minutes of Committee meetings shall be circulated promptly to all members of the Committee and, once agreed, to all members of the SWW Board. 7. Duties 7.1 In the context of the requirement for companies to conduct their business in a responsible manner (including in relation to environmental, social and governance (ESG) matters) the duties of the Committee, in a non-executive capacity, are to annually review the strategies, policies, targets and performance of South West Water Limited, in the following areas: (i) Responsible - its corporate values; and - Business - ethical business practices. (ii) Community - community engagement within its area of operation; - educational partnerships. (iii) Market place - Environmental - monitoring the impact of the Sustainability SWW business on the environment; - Customer engagement - ascertaining customer s priorities for services and investment; - Innovation - in catchment management; service delivery; asset optimisation and drinking water services; - Energy and water efficiency - the promotion of energy and water conservation. Enhancing energy and water efficiency by reducing wastage of energy and water resources; - SWW s supply chain - adheres to Sustainable business, governance policies and practices. (iv) Work place - Health & Safety - strive for high standards of Health & Safety in the workplace; - Work place policies - including (but not limited to) equal opportunities, Occupational Health, parental leave and Human Rights; - the promotion of diversity within the SWW workforce; - nurture employment talent within the SWW business. The bullet points under (i) to (iv) are a non exhaustive list of areas of SWW s ESG activity. 13

14 7.2 In addition, the Committee shall prior to each financial year: approve SWW sustainability targets for the forthcoming year; And on an annual basis: review and approve for submission to the SWW Board a statement to be included in the SWW Annual Report and financial statements concerning the activities of the Committee; and review and approve a SWW Sustainability Report for submission to the Pennon Group Sustainability Committee. 8. Reporting Responsibilities 8.1 The Committee shall make whatever recommendations to the SWW Board it deems appropriate on any area within its remit where action or improvement is needed. 9. Other Matters The Committee shall: 9.1 have access to sufficient resources in order to carry out its duties and, at the Committee's discretion, seeking advice from external consultants; 9.2 be provided with appropriate and timely training, both in the form of an induction programme for new members and on an ongoing basis for all members; 9.3 give due consideration to laws and regulations and the provisions of the UK Corporate Governance Code; and 9.4 once a year review its own performance, constitution and terms of reference to ensure it is operating at maximum effectiveness and recommend any changes it considers necessary to the SWW Board for approval. 10. Authority The Committee has authority to: 10.1 seek any information it requires from any SWW employee in order to perform its duties; 10.2 obtain, at the Company's expense, outside legal or other professional advice on any matter within its terms of reference; 10.3 call any SWW employee to attend at a meeting of the Committee as and when required; and 10.4 These terms of reference may be amended from time to time by the SWW Board. 14

15 APPENDIX D SOUTH WEST WATER LIMITED REMUNERATION COMMITTEE TERMS OF REFERENCE 1. Membership 1.1 Members of the Committee shall be appointed by the Board, on the recommendation of the Nomination Committee. The Committee shall be made up of at least three members, all of whom are independent Nonexecutive Directors. 1.2 Only members of the Committee have the right to attend Committee meetings, together with the Chairman of the Board. However, executives and other persons responsible for remuneration matters may attend from time to time together with external advisers as appropriate. 1.3 Appointments to the Committee shall be for a period of up to three years, which may be extended for two further three-year periods, provided the Director remains independent. 1.4 The Board shall appoint the Committee Chairman who shall be an independent Non-executive Director. In the absence of the Committee Chairman and/or an appointed deputy, the remaining members present shall elect one of themselves to chair the meeting. The Chairman of the Board shall not be Chairman of the Committee. 2. Secretary 2.1 The Company Secretary/Joint Company Secretary or nominee shall act as the secretary of the Committee. 3. Quorum 3.1 The quorum necessary for the transaction of business shall be two. A duly convened meeting of the Committee at which a quorum is present shall be competent to exercise all or any of the authorities, powers and discretions vested in or exercisable by the Committee. 4. Meetings 4.1 The Committee shall meet at least twice a year and at such other times as the Chairman of the Committee shall require. 5. Notice of Meetings 5.1 Meetings of the Committee shall be summoned by the Secretary at the request of any of its members. 5.2 Unless otherwise agreed, notice of each meeting confirming the venue, time and date together with an agenda of items to be discussed, shall be forwarded to each member of the Committee, any other person required to attend and all other Non-executive Directors, no later than five working 15

16 6. Minutes days before the date of the meeting. Supporting papers shall be sent to Committee members and to other attendees as appropriate, at the same time. 6.1 The Secretary shall minute the proceedings and resolutions of all Committee meetings, including the names of those present and in attendance. 6.2 The Secretary shall ascertain, at the beginning of each meeting, the existence of any conflicts of interest and minute them accordingly. 6.3 Minutes of Committee meetings shall be circulated promptly to all members of the Committee and, once agreed, to all members of the Board, unless a conflict of interest exists. 7. Annual General Meeting 7.1 The Chairman of the Committee shall attend the Annual General Meeting prepared to respond to any shareholder questions on the Committee s activities. 8. Duties The Committee shall: 8.1 determine and agree with the Board the framework or broad policy for the remuneration of the Company s Chairman, Chief Executive, other executive Directors and such other members of the executive management as it is designated to consider. The remuneration of Non-executive Directors shall be a matter for the Chairman and the Executive Directors of the Board. No Director or Manager shall be involved in any decisions as to their own remuneration; 8.2 in determining such policy, take into account all factors which it deems necessary. The objective of such policy shall be to ensure that members of the executive management of the Company are provided with appropriate incentives to encourage enhanced performance and are, in a fair and responsible manner, rewarded for their individual contributions to the success of the Company; 8.3 review the ongoing appropriateness and relevance of the remuneration policy; 8.4 review periodically any performance related pay schemes operated by the Company or Group and the annual payments made under such schemes; 8.5 review the design of all share incentive plans for approval by the Board and shareholders. For any such plans, determine each year whether awards will be made, and if so, the overall amount of such awards, the individual awards to Executive Directors and the Executive Management Team members and the performance targets to be used; 8.6 determine the policy for, and scope of, pension arrangements for each Executive Director and the Executive Management Team members; 16

17 8.7 ensure that contractual terms on termination, and any payments made, are fair to the individual, and the Company, that failure is not rewarded and that the duty to mitigate loss is fully recognised; 8.8 within the terms of the agreed policy and in consultation with the Chairman, determine the total individual remuneration package of each Executive Director and Executive Management Team members including bonuses, incentive payments and share options or other share awards; 8.9 in determining such packages and arrangements, give due regard to any relevant legal requirements, the provisions and recommendations in the UK Corporate Governance Code and the UK Listing Authority s Listing Rules and associated guidance all as amended from time to time; 8.10 review and note annually the remuneration trends across the company; 8.11 oversee any major changes in employee benefits structures for executive management; 8.12 agree the policy for authorising claims for expenses from the Chairman; 8.13 ensure that all provisions regarding disclosure of remuneration including pensions, as set out in relevant directors remuneration report regulations and the UK Corporate Governance Code as amended from time to time are fulfilled; and 8.14 be exclusively responsible for establishing the selection criteria, selecting, appointing and setting the terms of reference for any remuneration consultants who advise the Committee: and to obtain reliable, up-to-date information about remuneration in other companies. The Committee shall have full authority to commission any reports or surveys which it deems necessary to help it fulfil its obligations. 9. Reporting Responsibilities 9.1 The Committee Chairman shall report formally to the Board on its proceedings after each meeting on all matters within its duties and responsibilities. 9.2 The Committee shall make whatever recommendations to the Board it deems appropriate on any area within its remit where action or improvement is needed. 9.3 The Committee shall produce an annual report of the Company's remuneration policy and practices which will form part of the Company's annual report and ensure each year that it is put to shareholders for approval at the AGM. 10. Other 10.1 The Committee shall, at least once a year, review its own performance, constitution and terms of reference to ensure it is operating at maximum effectiveness and recommend any changes it considers necessary to the Board for approval have access to sufficient resources in order to carry out its duties, including access to the Company Secretariat for assistance as required. 17

18 11. Authority 11.1 The Committee is authorised by the Board to seek any information it requires from any employee of the Company in order to perform its duties In connection with its duties the Committee is authorised by the Board to obtain, at the Company's expense, any outside or other professional advice. 18

19 APPENDIX E SOUTH WEST WATER LIMITED NOMINATION COMMITTEE TERMS OF REFERENCE 1. Membership 1.1 Members of the Nomination Committee ("the Committee") shall be appointed by the Board and shall be made up of at least three members, the majority of whom shall be independent non-executive directors. 1.2 Only members of the Committee have the right to attend Committee meetings, together with the Chairman of the Board. However, executives and other persons responsible for nomination matters may attend from time to time together with external advisers as appropriate. 1.3 Appointments to the Committee shall be for a period of up to three years, which may be extended for two further three-year periods provided that the majority of the Committee members remain independent. 1.4 The Board shall appoint the Committee Chairman who shall be the Chairman of the Board. In the absence of the Committee Chairman and/or an appointed deputy, the remaining members present shall elect one of their number to chair the meeting. The Chairman of the Board shall not chair the Committee when it is dealing with the matter of succession of the chairmanship. 2. Secretary 2.1 The Company Secretary/Joint Company Secretary or nominee shall act as the secretary of the Committee. 3. Quorum 3.1 The quorum necessary for the transaction of the business shall be two both of whom must be independent non-executive directors. A duly convened meeting of the Committee at which a quorum is present shall be competent to exercise all or any of the authorities, powers and discretions vested in or exercisable by the Committee. 4. Frequency of Meetings 4.1 The Committee shall meet at least once a year and at such other times as the Chairman of the Committee shall require. 5. Notice of Meetings 5.1 Meetings of the Committee shall be summoned by the Secretary of the Committee at the request of the Chairman of the Committee. 5.2 Unless otherwise agreed, notice of each meeting confirming the venue, time and date, together with an agenda of items to be discussed, shall be forwarded to each member of the Committee, any other person required to 19

20 attend and all other non-executive directors, no later than five working days before the date of the meeting. Supporting papers shall be sent to Committee members and to other attendees as appropriate, at the same time. 6. Minutes of Meetings 6.1 The Secretary shall minute the proceedings and resolutions of all Committee meetings, including the names of those present and in attendance. 6.2 The Secretary shall ascertain, at the beginning of each meeting, the existence of any conflicts of interest and minute them accordingly. 6.3 Minutes of Committee meetings shall be circulated promptly to all members of the Committee and the Chairman of the Board and, once agreed, to all other members of the Board, unless a conflict of interest exists. 7. Annual General Meeting 7.1 The Chairman of the Committee shall attend the Annual General Meeting prepared to respond to any shareholder questions on the Committee's activities. 8. Duties 8.1 The Committee shall: regularly review the structure, size and composition (including the skills, knowledge and experience) required of the Board compared to its current position and make recommendations to the Board with regard to any changes; give full consideration to succession planning for Directors and Executive Management Team members in the course of its work, taking into account the challenges and opportunities facing the Company, and what skills and expertise are therefore needed on the Board in the future; be responsible for identifying and nominating for the approval of the Board, candidates to fill Board vacancies as and when they arise having regard in respect of Non-executive Directors to the FRC Guidance on such appointments; before appointment is made by the Board, evaluate the balance of skills, knowledge and experience on the Board, and, in the light of this evaluation prepare a description of the role and capabilities required for a particular appointment. In identifying suitable candidates the Committee shall: use open advertising or the services of external advisers to facilitate the search; consider candidates from a wide range of backgrounds; and consider candidates on merit and against objective criteria, taking care that appointees have enough time available to devote to the position; 20

21 8.1.5 keep under review the leadership needs of the Company, both executive and non-executive, with a view to ensuring the continued ability of the Company to compete effectively in the marketplace; keep up to date and full informed about strategic issues and commercial changes affecting the Company and the markets in which it operates; review annually the time required from Non-executive Directors. Performance evaluation shall be used to assess whether the Non-executive Directors are spending enough time to fulfil their duties; and ensure that on appointment to the Board, Non-executive Directors receive a formal letter of appointment setting out clearly what is expected of them in terms of time commitment, committee service and involvement outside Board meetings. 8.2 The Committee shall also make recommendations to the Board concerning: formulating plans for succession for both Executive and Non-executive Directors and in particular for the key roles of Chairman, Chief Executive and Finance Director (but see below); suitable candidates for the role of Senior Independent Director; membership of the Audit and Remuneration Committees, in consultation with the Chairmen of those committees; the re-appointment of any Non-executive Director at the conclusion of their specified term of office having given due regard to their performance and ability to continue to contribute to the Board in the light of the knowledge, skills and experience required; the continuation (or not) in service of any Director who has reached the age of 70; the re-election by shareholders of any Director under the 'retirement by rotation' provisions in the Company's articles of association having due regard to their performance and ability to continue to contribute to the Board in the light of the knowledge, skills and experience required; any matters relating to the continuation in office of any Director at any time including the suspension or termination of service of an Executive Director as an employee of the Company subject to the provisions of the law and their service contract; and the appointment of any person to executive director or other senior position other than to the position of Chairman. 9. Reporting Responsibilities 9.1 The Committee Chairman shall report formally to the Board on its proceedings after each meeting on all matters within its duties and responsibilities. 9.2 The Committee shall make whatever recommendations to the Board it deems appropriate on any area within its remit where action or improvement is needed. 21

22 9.3 The Committee shall make a statement in the annual report about its activities, the process used to make appointments and explain if external advice or open advertising has not been used. 10. Other 10.1 The Committee shall, at least once a year, review its own performance, constitution and terms of reference to ensure it is operating at maximum effectiveness and recommend any changes it considers necessary to the Board for approval. 11. Authority 11.1 The Committee is authorised to seek any information it requires from any employee of the Company in order to perform its duties The Committee is authorised to obtain, at the Company's expense, outside legal or other professional advice on any matters within its terms of reference. 22