Operation of the Board

To ensure effective control of the Group, the Board has a number of items reserved for its sole discussion and approval. At its September meeting the Board discussed these items to ensure they were appropriate; this review was prompted by issues raised during the 2004/05 Board evaluation process.

The complete document, Matters Reserved to the National Grid plc Board, is available on the Group website at www.nationalgrid.com/corporate/about+us. The broad areas covered are:

• corporate governance;
• strategy/finance;
• approval of the Group’s budget and business plan;
• Director/employee issues;
• Director succession planning;
• listing requirements;
• dividend policy; and
• approval of results announcements and the Annual Report and Accounts.

Items considered at each Group Board meeting relate to: safety, health and environment, finance, business/finance review, business development, projects, and governance and administration. Other items discussed during the year included the Group’s new corporate identity and corporate values, specifically their development and work to embed them within business operations.

Board Committees also carry out a significant amount of work towards the successful management of the Group. The Board has established Audit, Executive, Finance, Nominations, Remuneration and Risk & Responsibility Committees. The Board Committees ensure that issues of policy and oversight are given time for detailed debate outside the Board, where time may be limited because of the number of issues to be covered. To ensure that all Directors are aware of discussions at Board Committees, Board Committee chairmen provide a summary, at each appropriate Board meeting, of key issues debated and present recommendations formulated.

Each Board Committee has terms of reference, agreed by both the Board and Board Committee. These terms of reference are all available on the Group website at www.nationalgrid.com/corporate/about+us.

Audit Committee

The current membership of the Audit Committee is George Rose (chairman), Maria Richter, John Grant and John Allan. John Allan joined the Audit Committee following his appointment on 1 May 2005 and Maria Richter joined the Audit Committee at the same time. These two Directors replaced Ken Harvey and Paul Joskow.

Each of these Directors is Non-executive and regarded by the Board as independent. As required by the Audit Committee terms of reference, the Board has determined that George Rose is an ‘audit committee financial expert’; his biographical details are under Board of Directors.

The Chairman, Group Chief Executive, Group Finance Director, Head of Internal Audit and Group Company Secretary and General Counsel are invited to attend the majority of meetings. Executive Directors, the Head of Risk & Compliance, the Group Financial Controller and external auditors may be invited to attend the Audit Committee as required.

Items discussed by the Audit Committee during the year included:

• recommendation with respect to the level of audit fees paid to the external auditors;
• reviews of external auditor non-audit fees and consultancy spend;
• review of the performance of the external auditors;
• International Financial Reporting Standards conversion project;
• reports from the external auditors;
• reports from the internal auditors;
• review of results and Annual Report and Accounts;
• reports on risk, compliance and business conduct (including whistleblowing);
• reports on Sarbanes-Oxley compliance preparations;
• review of the Audit Committee terms of reference;
• evaluation of the external audit process;
• review of independence and objectivity of the external auditors;
• review of the effectiveness of internal controls for the year; and
• reports from the disclosure committee.

All non-audit work by the external auditors is subject to pre-approval and their total non-audit fees are reviewed by the Audit Committee quarterly. Details of both the audit and non-audit fees paid to the external auditors during the year are set out in note 5 to the accounts.

Executive Committee

The operational management of the Group and day-to-day decisions are delegated to the Executive Committee which is made up of all of the Executive Directors and the Group Company Secretary and General Counsel. The Executive Committee is chaired by the Group Chief Executive and meets monthly.

Issues covered on Executive Committee agendas during the year included:

• reports on safety, health and environment;
• strategy/business development;
• reports and discussions on human resources, succession planning and employee issues;
• finance;
• pensions;
• budget and business plan;
• foreign exchange and treasury management;
• year-end processes (preliminary statements, assurance processes, dividend payments, review of internal controls); and
• administrative items.

Finance Committee

The Finance Committee consists of Paul Joskow (chairman), Roger Urwin, Steve Lucas, Stephen Pettit and Maria Richter. Committee meetings are also attended by the Group Tax and Treasury Director.

The main responsibilities of the Finance Committee are the setting and review of finance policy and the granting of certain approvals. The discussion and review of issues at the Finance Committee dovetails with processes at the Executive Committee and the Board.

Items discussed at the Finance Committee during the year included:

• treasury performance and activity reports;
• Group funding/debt;
• long-term treasury performance management;
• committed borrowing facilities;
• US financing;
• foreign exchange policy;
• guarantees;
• delegations of authority;
• tax updates;
• pensions;
• insurance renewal; and
• electricity and gas trading activity.

Nominations Committee

The current members of the Nominations Committee are Sir John Parker (chairman), Ken Harvey, John Grant, George Rose and Paul Joskow. Each of the Non-executive members of the Nominations Committee is considered by the Board to be independent.

The Group Chief Executive is invited to attend most meetings and the Group Human Resources Director attends as required.

The main responsibilities of the Nominations Committee are to keep under review the size, structure and composition of the Board, to ensure that an adequate Board succession plan is in place and, when necessary, to identify and nominate individuals for appointment to the Board.

Items included for discussion by the Nominations Committee during the year included:

• Board and Board Committee performance evaluation;
• oversight of Group Chief Executive succession;
• Non-executive Director succession; and
• chairmanship of the Remuneration Committee.

The Nominations Committee also receives regular reports from the Group Chief Executive and Group Human Resources Director on succession and development planning for senior positions within the Group.

The Nominations Committee has overall responsibility for the Board performance evaluation process and for considering Non-executive Director independence prior to making recommendations to the Board.

Remuneration Committee

The Remuneration Committee consists of John Allan (chairman), John Grant, Ken Harvey, Stephen Pettit and George Rose. John Allan joined the Remuneration Committee following his appointment to the Board on 1 May 2005. John Allan replaced John Grant as chairman of the Remuneration Committee with effect from 1 March 2006. Each member of the Remuneration Committee is a Non-executive Director and is considered by the Board to be independent.

The Chairman, Group Chief Executive, Group Human Resources Director and Group Head of Compensation & Benefits are usually invited to attend the Remuneration Committee to provide advice as required.

No Committee member or attendee at the Remuneration Committee participates in any discussion on his or her own remuneration.

The main responsibilities of the Remuneration Committee are the development of Group policy on Executive Director remuneration and the determination of remuneration for Executive Directors. Further detail is included in the Directors’ Remuneration Report.

To allow additional time for discussion the Remuneration Committee held a separate strategy meeting during the year.

Items included on the Remuneration Committee agenda for discussion during the year were:

• remuneration issues and disclosure;
• performance share plan update;
• total shareholder return update;
• Directors’ Remuneration Report;
• bonuses and personal targets;
• headroom/dilution update;
• pensions update;
• feedback on discussions with advisers;
• tender for advisers; and
• benchmarking and market trends.

Risk & Responsibility Committee

The members of the Risk & Responsibility Committee are Stephen Pettit (chairman), Ken Harvey and Maria Richter. Ken Harvey was appointed to the Risk & Responsibility Committee with effect from 1 May 2005.

The Group Chief Executive, Group Corporate Responsibility Director and the Group Company Secretary and General Counsel normally attend Committee meetings with Executive Directors invited to attend as necessary.

The Risk & Responsibility Committee reviews strategies, policies, management initiatives and Group targets in respect of safety, environment, health, inclusion and diversity, human rights, ethics and community involvement.

The Risk & Responsibility Committee is involved in internal control processes as it considers and provides reports to the Audit Committee on the non-financial and reputational risks faced by the Group. Items considered on the Risk & Responsibility agenda during the year included:

• Group risk, compliance (specifically non-financial items) and business conduct;
• safety, health and environment audit programme and plan;
• independent verification of non-financial data in the Annual Report and Accounts;
• review of corporate responsibility issues relevant to the business;
• non-financial performance targets;
• work-related stress;
• climate change;
• human rights;
• inclusion and diversity;
• external advisers to the Risk & Responsibility Committee; and
• electric and magnetic field science.

Board and Board Committee attendance

The following table indicates the number of meetings of the Board and each of its Committees held during 2005/06 and the number of those meetings that each of the Directors attended as a member:

		Board Committees
	Board meetings	Audit	Executive	Finance	Nominations	Remuneration	Risk & Responsibility
Total meetings during the year	11	6	12	5	5	8	4
Sir John Parker	11	-	-	-	5	-	-
Roger Urwin	11	-	12	5	-	-	-
Steve Holliday	11	-	11	-	-	-	-
Steve Lucas	10	-	10	5	-	-	-
Nick Winser	11	-	12	-	-	-	-
Mike Jesanis	11	-	12	-	-	-	-
Edward Astle	10	-	12	-	-	-	-
Ken Harvey	10	1(i)	-	-	5	8	3(ii)
John Allan	7(iii)	4(iii)	-	-	-(iv)	5(iii)	-
John Grant	11	5	-	-	5	8	-
Paul Joskow	11	1(i)	-	5	4(v)	-	-
Stephen Pettit	11	-	-	5	-(iv)	8	4
Maria Richter	10	5(vi)	-	5	-(iv)	-	4
George Rose	9	6	-	-	5	7	-

1. Ken Harvey and Paul Joskow officially left the Audit Committee as of 1 May 2005; they were only eligible to attend one meeting.
2. Ken Harvey joined the Risk & Responsibility Committee on 1 May 2005; he was eligible to attend a total of three meetings.
3. John Allan joined the Board on 1 May 2005; he was eligible to attend a total of 10 meetings of the Board, five meetings of the Audit Committee and seven meetings of the Remuneration Committee. As he was only notified of the dates of Board and Committee meetings upon his appointment, he was unable to join meetings on some occasions due to diary clashes.
4. At Nominations Committee meetings where the Group Chief Executive’s succession was discussed, all Non-executive Directors were invited to attend, meaning John Allan, Maria Richter and Stephen Pettit attended some meetings of the Committee.
5. Paul Joskow joined the Nominations Committee on 1 May 2005; he was eligible to attend a total of four meetings.
6. Maria Richter joined the Audit Committee on 1 May 2005; she was eligible to attend a total of five meetings.