Governance framework

We are committed to the highest standards of corporate governance and to operating our businesses in a sustainable and responsible manner. Our corporate governance practices are based on the Combined Code on Corporate Governance as revised in 2006 (the ‘Code’), and consideration is given to current and developing best practice including matters contained in the various investor guidelines.

The Board considers that it complied in full with the Code during the year except temporarily in respect of the requirement for at least half of the Board, excluding the Chairman, to consist of independent Non-executive Directors.

Following the appointments of Tom King and Bob Catell to the Board as Executive Directors, and the resignation of Paul Joskow as an independent Non-executive Director, during the year the Board consisted of the Chairman, seven Executive Directors and six independent Non-executive Directors. Following the announcement made in March 2008 regarding Edward Astle’s departure, with effect from 30 April 2008, the Board consisted of the Chairman, six Executive Directors and six Non-executive Directors, in compliance with the Code. An additional independent Non-executive Director, Philip Aiken, joined the Company in May 2008.

The Board’s role includes approval of the overall business strategy of National Grid; approval of the business plan and budget; approval of the financial policy; oversight of Policy and Procedure statements, Codes of Conduct, Delegations of Authority, Framework for Responsible Business and Standards of Ethical Business Conduct for all employees. The framework and standards described above, together with other documentation relating to National Grid’s governance, are available on our website at www.nationalgrid.com.

The Board of National Grid during the year was composed as set out in the following table. Biographical details for all the Directors can be found under Board of Directors, together with details of Board Committee memberships. Attendance at Board meetings was as indicated from a total of 12 meetings:

Name Attendance*
Chairman  
Sir John Parker 12 of 12
Chief Executive  
Steve Holliday 12 of 12
Executive Directors  
Bob Catell (from 25 September 2007) (Deputy Chairman) 7 of 7
Steve Lucas 11 of 12
Nick Winser 12 of 12
Tom King (from 13 August 2007) 7 of 7
Mark Fairbairn 12 of 12
Edward Astle 12 of 12
Non-executive Directors  
Ken Harvey (Senior Independent Director) 12 of 12
Linda Adamany 12 of 12
John Allan 10 of 12
Stephen Pettit 12 of 12
Maria Richter 12 of 12
George Rose 9 of 12
Paul Joskow (to 31 July 2007) 5 of 6

* Attendance is expressed as number of meetings attended out of number possible or applicable for the individual Director

Board members are required to attend Board and Committee meetings regularly. If they are unable to do so, the Chairman is informed and the reasons recorded. Instances of non attendance during the year were regarded as reasonable in each case due to the individual circumstances concerned. Non attendance at meetings is considered in the one-to-one director performance evaluation conducted by the Chairman.

In order to ensure that the Directors are kept informed, they are sent papers for meetings of the Board and those Committees of which they are a member. In the event that a Director is unable to attend a meeting, they are able to relay their views and comments via the relevant Committee chairman or the Chairman of the Board.

In accordance with the Articles of Association, Directors are submitted for re-election by shareholders at the first Annual General Meeting (AGM) following their initial appointment and then at subsequent AGMs at least once every three years. Further details regarding those Directors due for re-election at the 2008 AGM can be found in the Notice of 2008 AGM.

The service contracts (Executive Directors) and letters of appointment (Non-executive Directors) of Board members are available to National Grid’s shareholders and may also be inspected at the AGM prior to the meeting. Further details regarding the Directors’ service contracts and letters of appointment can be found in the Directors’ Remuneration Report.

Non-executive Director independence

It is important that the Non-executive Directors bring experience, probity and independent challenge to the Board. Accordingly, the independence of the Non-executive Directors is considered at least annually as part of the performance evaluation conducted by the Nominations Committee. This assessment also considers the character, judgement and commitment of each Non-executive Director as well as their performance on the Board and relevant Committees. The Board takes into account service on the boards of either Lattice Group plc or National Grid Group plc prior to their merger in considering length of service as a Director of National Grid. Following such evaluation, each of the Non-executive Directors has been determined by the Board to be independent.

Roles of the Chairman, Chief Executive and Senior Independent Director

The Chairman and the Chief Executive have separate roles and responsibilities which have been approved by the Board. The Chairman’s main responsibility is the leadership and management of the Board and its governance. His contractual commitment to National Grid is two days per week but in practice this is often exceeded. The Board is satisfied that the Chairman, and other Non-executive Directors if required, would be available as needed. The number and perceived responsibility of other directorships are considered as part of the performance evaluation.

The Chief Executive retains responsibility for the leadership and day-to-day management of the Company and the execution of its strategy as approved by the Board.

The Senior Independent Director is Ken Harvey. His responsibilities include leading the Non-executive Directors’ annual consideration of the Chairman’s performance. He is also available to shareholders in the event they feel it inappropriate to communicate via the Chairman, the Chief Executive or the Finance Director. No such requests were received from shareholders during the year.

Director development

The Chairman, with the support of the Company Secretary & General Counsel, is responsible for the induction of new directors and ensuring that the existing Directors continually update their skills, knowledge and familiarity with National Grid and their roles as directors.

Upon appointment to the Board, new Non-executive Directors receive a tailored induction programme including the provision of recent Board materials and presentations, one-to-one meetings with senior management and Executive Directors, and a directors’ information pack to provide background reference information on the Company’s businesses and operations including issues relating to corporate social responsibility.

Particular attention is given to current issues, emerging developments and director effectiveness. This includes, for Non-executive Directors:

For Executive Directors, development programmes include:

With the agreement of the Board, and as part of their personal development, the Chief Executive, Steve Holliday, is a Non-executive Director of Marks and Spencer Group plc and Steve Lucas, Finance Director, is a Non-executive Director of Compass Group plc. Upon appointment, Bob Catell, Executive Director and Deputy Chairman, was a Non-executive Director of Keyera Energy Management Ltd, Sovereign Bancorp, Inc., Advisory Board and JP Morgan Chase Inc., Metropolitan Advisory Board. The fees for these positions are retained by the Director. Details are here. The Company Secretary & General Counsel is a Non-executive Director of Aga Rangemaster Group plc and the fee is retained by her.

The services of the Company Secretary & General Counsel’s department are available to the Directors and advice may also be sought from independent professional advisors at the Company’s expense. During the year no independent professional advice was requested by the Directors other than that already provided to Committees by external advisors such as the consultants to the Remuneration Committee.

Performance evaluation

In each financial year since 2003/04, the Board has undertaken a formal evaluation of its performance and that of its Committees and individual Directors in order to review past performance and to develop future performance.

The Chairman led the overall process of evaluation which was, as in previous years, in the form of a confidential survey completed by all Directors in relation to the Board and any Committee of which they were a member, plus one-to-one meetings between the Chairman and each Director. Additionally, certain regular attendees at specific Committee meetings were asked to complete surveys in relation to the relevant Committee.

The Board considered the merit of using an external body to manage the performance evaluation process. It concluded that the current approach remained appropriate for the Company. This is reviewed annually.

The Company Secretary & General Counsel collated the evaluation results and these were considered. Overall the results for the evaluation carried out in 2007/08 were positive and indicated that the Board and Committees were effective and that no major changes were required. The Chairman’s performance was reviewed and his leadership and performance were considered to have been of a high standard.

Areas highlighted by the Board and Committees for consideration following the latest review included:

In accordance with established practice, the Board and Committees review these matters in a formal response and action plan and will adopt new processes and procedures as appropriate.

Following the 2006/07 evaluation process, a number of actions were implemented during the year including:

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