Corporate governance

The Board of Aegis considers that its principal governance priorities include ensuring a business environment that lends itself to responsible professional behaviour and value creation, as well as the core areas of Board composition, disclosure standards and oversight of the executive management team.

The Board confirms that throughout 2007 we have complied with the applicable principles and provisions set out in Section 1 of the Combined Code on Corporate Governance issued in July 2006 (the Code) as incorporated into the UK Listing Authority Rules, with one exception:

Our US-based executive director, David Verklin, has a rolling service contract with a contractual termination payment provision which is in excess of one year (B.1.6 of the Code). Details of his contractual entitlement on termination are set out in the Remuneration report. David was recruited in 1998 to set up and grow the media business in the USA. When he was recruited it was accepted market practice for contractual termination payment provisions to be in excess of one year. The Remuneration Committee reviews this position annually and continues to believe that David’s contractual entitlement remains in line with market practice in the USA.

As noted in the Remuneration report, Mainardo de Nardis’s service contract had contained a liquidated damages clause. This expired on 18 August 2007.

The Board comprises 12 directors – a non-executive chairman, five executive directors and six independent non-executive directors. Details of the directors and their biographies are set out on the Board of directors page. Our directors have a broad range of experience, which we believe contributes significantly to the effectiveness of the Board.

All directors are collectively responsible for the success of the Company. Executive directors have direct responsibility for business operations, whereas the non-executive directors have a responsibility to bring independent, objective judgement to bear on Board decisions. This includes constructively challenging management and helping to develop the Company’s strategy.

Each of the non-executive directors has confirmed that they have been throughout the year, and continue to be, independent of the management of the Group and free from any business or other relationship that could materially affect the exercise of their independent judgement. The chairman was independent at the time of his appointment and in the opinion of the Board has remained so since.

The other commitments of the non-executive directors are set out in their biographies.

The Board believes, in principle, in the benefit of executive directors and other senior employees accepting external non-executive directorships in order to broaden their skills and knowledge for the benefit of the Company. The Board has adopted a policy on external appointments which is designed to ensure that employees remain able to discharge their responsibilities to the Group. Directors and employees are usually permitted to retain any fees in respect of such appointments.

To avoid potential conflicts of interest, non-executive directors are expected to inform the chairman before taking up any additional external appointments.

Bernard Fournier is the senior independent director and he is responsible for undertaking the annual review of the chairman’s performance and chairing the Nominations Committee when considering the role of chairman. He is available to shareholders if they need to convey concerns to the Board other than through the chairman or chief executive officer.

In accordance with the Company’s Articles of Association, one third of the Board are required to retire by rotation each year.

The roles of chairman and chief executive officer are set out in writing and have been agreed by the Board.

The chairman is responsible for:

• the composition and leadership of the Board;
• monitoring corporate governance processes;
• maintaining contact with shareholders and other stakeholders; and
• acting as sounding board for the chief executive officer.

The chief executive officer is responsible for:

• the development and execution of the Group’s strategy and its operational performance;
• leading the executive team; and
• leading the management of relationships with external stakeholders.

The Board meets at least seven times a year and more frequently when business needs require. One Board meeting is usually held at the offices of one of the main business units and is typically followed by a second day devoted entirely to the ongoing development of the Company’s strategic plans. Board meetings are structured to allow open discussion and all directors participate in discussing the strategy, trading and financial performance and risk management of the Company.

There is a list of matters that have been reserved to the Board for decision. These include approval of:

• Group strategy, annual budget and operating plans;
• formal results announcements;
• dividend policy;
• all circulars and listing particulars;
• matters relating to share capital; and
• major capital projects, investments and commitments.

All directors are fully briefed on important developments in the various business activities which the Group undertakes and regularly receive information concerning the Group’s operations, finances, key risks and its employees, enabling them to fulfil their duties and obligations as directors.

The Board is supplied in advance of each meeting with an agenda and supporting documentation. At each Board meeting there are a number of standard agenda items, including:

• market and sector analysis reports together with valuation updates from investor relations advisors and brokers;
• reports from the Group chief executive officer, chief executive officers of Aegis Media and Synovate, Group general counsel and Group human resources director; and
• a presentation from the chief financial officer.

In addition, one or two other presentations are usually given at each meeting by representatives of different business units or head office functions, on subjects relevant to strategy or a particular matter under consideration. These presentations also assist the non-executive directors in gaining an ever deeper understanding of the businesses and provide an opportunity to meet other senior non-Board executives. In 2007 for example, there were presentations from one of the Synovate regional businesses and from Group tax and Group human resources. Also at the strategy away day detailed business presentations are given to the Board by the heads of Aegis Media and Synovate, assisted by the Group head of strategy and corporate development.

External advisors are also invited to attend that part of the meeting which is relevant. In 2007 a senior representative from our investor relations advisors attended to discuss the results of an independently conducted shareholder audit.

The Board also receives briefings from the chairmen of the Audit and Remuneration Committees following meetings of those Committees.

The following table identifies the number of Board and Committee meetings held during the past year and the attendance record, in person or by telephone, of individual directors.

*by invitation

Mr Strauss was unable to attend one of the Board meetings due to a long planned prior commitment and Mr Verklin was unable to attend one meeting due to a final stage pitch meeting with a major client.

From time to time the non-executive directors, including the chairman, meet in the absence of the executive directors to consider matters of relevance to the running of the Board and the operation of the Company.

The non-executives, led by the senior independent director, continued the process of meeting annually without the chairman being present to appraise the chairman’s performance. As a result of this the senior independent director meets with the chairman to discuss any particular issues where it is felt that improvements could be made.

During 2007 the Board continued the process of performance appraisal using Synovate’s specialist business unit to carry out a formal independent appraisal of individual directors as well as of the Board and its committees. Each director completed a detailed questionnaire which sought an assessment of the effectiveness of the Board and its committees and the contribution of individual directors. The responses were aggregated and a senior executive of Synovate fed back the overall results for discussion at the July Board meeting. The chairman, as in previous years, then undertook detailed one-to-one discussions with each director to review the results of his or her assessment.

The Board has a formal induction plan for non-executive directors to ensure that a comprehensive familiarisation programme is in place. This includes visits to business operations worldwide. Ongoing training needs for all directors are met as required, for example, during the year directors received briefings on the introduction of the Companies Act 2006 including the new directors’ duties provisions.

The Company has in place an appropriate level of directors and officers insurance cover in respect of legal action against the directors. In addition, the Company has given an indemnity to its directors in respect of third party claims – see the Directors’ Report.

All directors have access to the advice and services of the Company secretary, Group general counsel and, if required, external professional advice at the Company’s expense. If a director has particular concerns, he or she can have these recorded in the Board minutes.

Terms of reference for all Board committees are regularly reviewed and are available on the Company’s website at www.aegisgroupplc.com and from the Company secretary on request.

Brendan O’Neill is chairman of the Audit Committee. He is a chartered management accountant and the Board is satisfied that he has appropriate recent and relevant financial experience to lead the Committee in its duties and deliberations. His colleagues on the Committee during 2007 were Bernard Fournier and Leslie Van de Walle. Details of the members of the Audit Committee, all of whom are independent non-executive directors, are set out on the Board of directors page.

At the invitation of the chairman, meetings of the Committee were also attended, in whole or in part, by the chief financial officer, the external auditors, the chief executive officer as well as the Group general counsel, Company secretary and Group risk manager. In addition, other members of senior management were invited to attend as necessary to provide updates and background information on matters considered by the Committee.

The chairman of the Committee regularly meets with the auditors without executive directors or management present.

The Board considers that, through the Audit Committee, it has an objective and professional relationship with the Company’s external auditors.

A priority for the Committee during the year was in connection with the issues arising from the fraud in Aegis Media Germany as reported in last year’s accounts. A special meeting of the Committee was held in July attended by the CEO of Aegis Media Germany, and the CFOs of Aegis Media Europe and Aegis Media Global. The meeting discussed the lessons that had been learned and the changes that had been instigated in control processes and procedures. These lessons and changes were also discussed with all of the Group’s operational finance functions at the Group’s annual Finance conference. An assessment of these controls has been integrated into the Group’s annual compliance certification process and will continue to be reviewed as part of the Group’s risk management and internal audit reviews going forward.

Other work carried out by the Committee during 2007, in accordance with its responsibilities, included:

• monitoring the integrity of the Company’s financial statements and reviewing significant reporting judgements;
• reviewing internal audit and risk management and controls, and considering progress reports from the Group Risk Committee and Group risk manager;
• reviewing the Company’s internal financial controls and procedures;
• reviewing the external auditors’ independence, objectiveness and effectiveness;
• approving the external auditors’ terms of engagement, the scope of the audit and the applicable levels of materiality; and
• prior to the release of the preliminary announcement of the annual results, reviewing the year’s results and audit findings.

In reviewing the half year and annual financial statements the Committee focused in particular on:

• any changes in accounting policies and practices;
• major judgemental areas;
• issues resulting from the external audit;
• the going concern assumption;
• compliance with accounting standards and the Combined Code; and
• compliance with stock exchange and legal requirements.

Based on written reports submitted to it, the Committee reviewed, with the external auditors, the findings of their audit work and confirmed that all significant matters had been satisfactorily resolved.

The Committee has responsibility for making recommendations to the Board in relation to the external auditors’ independence and implements policy on the engagement of the supply of non-audit services. Details of amounts paid to the external auditors in respect of audit and non-audit services are given in note 6 to the financial statements. The Committee has confirmed that the policy concerning rotation of audit partner complies with current guidance issued by the Institute of Chartered Accountants in England and Wales.

The Committee has considered the balance between fees for audit and non-audit work for the Group in the year and concluded that the nature and extent of the non-audit fees do not present a threat to the external auditors’ independence.

During the year the Remuneration Committee comprised Charles Strauss (chairman), Daniel Farrar and Lorraine Trainer. All three are independent non-executive directors.

Meetings of the Committee were also attended, in whole or in part, by the chief executive officer, the Group human resources director, the Company secretary and a senior representative from Kepler Associates, advisors to the Committee. The CEO does not attend meetings when the Committee discusses matters relating to his remuneration.

Although not a member of the Committee, the chairman of the Board may attend meetings and is consulted by the Committee on proposals relating to the remuneration of the chief executive officer.

The Committee meets three times a year and other times as required. It is responsible for:

• overseeing policy regarding executive remuneration;
• approving the remuneration packages for the Group’s executive directors;
• reviewing incentive schemes for the Group as a whole; and
• approving awards to be made under the 2003 Executive Share Option Scheme and the 2003 Performance Share Plan.

During the year the most significant issues addressed by the Committee were:

• a review of the total compensation packages of the Group’s most senior executives relative to marketplace benchmarks;
• the approval of annual bonuses for the executive directors and a small number of other senior executives from around the Group;
• the continuing review and assessment of a broader range of external reward benchmarking data for an increased set of senior managers around the Group;
• a review of the Group’s main annual bonus schemes to reflect revised financial targets; and
• a self assessment review of how the Committee functioned and had performed during the year.

The Nomination Committee comprises all of the non-executive directors together with the chief executive officer and is chaired by the chairman of the Board, Lord Sharman. The Committee meets as and when required but at least once a year.

The Committee is responsible for:

• reviewing the Board structure, size and composition;
• identifying and nominating to the Board candidates for appointment or reappointment as directors; and
• reviewing the renewal or otherwise of terms of appointment for non-executive directors, with any individual in question not taking part in the discussion.

The Committee meets once a year, together with the Group human resources director, specifically to review the Group’s ongoing succession planning. This is key to ensuring that the Group maintains an appropriate balance of skills and experience across the Group and on the Board.

The Group operates a system of internal control, which is maintained and reviewed in accordance with the Combined Code 2006 and the guidance contained in the Turnbull Report (revised).

The Board has overall responsibility for establishing and maintaining the Group’s system of internal controls and reviewing its effectiveness, including financial, operational and compliance controls and risk management.

The system of internal controls is intended to manage rather than eliminate the risk of failure of the achievement of business objectives. In pursuing these objectives, internal controls can only give reasonable, and not absolute, assurance against material misstatement or loss.

The Board confirms that in 2007 it has reviewed the effectiveness of the system of internal controls and that there are ongoing processes for identifying, evaluating and managing the significant risks faced by the Group.

Assigning the roles and responsibilities outlined above has assisted the Group in establishing a sound governance structure and enabled the Board to set the tone of the Group’s outlook on risk and internal controls.

The internal risk control processes and procedures which have been in place throughout the year and up to the date of approval of the Annual Report and Accounts are highlighted below:

• regularly reviews and updates the Group’s strategy;
• has delegated to the chief executive officer and the executive directors the implementation of strategy and management of the Group’s day-to-day activities, and management of operational risks;
• has implemented an organisational structure with clearly defined lines of responsibility and delegation of authority;
• has adopted a schedule of matters which are required to be brought to it for decision and consideration, thus ensuring that it maintains full and effective supervision over significant matters;
• has ensured the implementation of the Group Policies and Procedures Manual, which sets Group policy in relation to legal, financial, IT, human resources and other areas of risk. The policies are updated from time to time as necessary;
• reviews performance through a comprehensive system of reporting, based on annual budget with monthly business reviews against actual results, analysis of variances, key performance indicators and regular forecasting; and
• through the services of the Audit Committee, reviews the key risks facing the Group and the procedures in place to manage them.

Each separate business operation’s chief executive officer is responsible for:

• the conduct and performance of their business against agreed targets and performance plans;
• identifying and evaluating significant risks within their areas of responsibility and ensuring that an effective system of internal controls is in place;
• meeting defined reporting timetables and ensuring compliance with the Group’s delegated authorities, policies and controls; and
• accurate submissions of accounts on a monthly basis subject to the limitations set by the annual business strategy and the delegated authorities.

Other important elements of our internal control processes are described. below:

The Committee manages and monitors the Group’s risk and control processes and procedures. It was chaired during 2007 by the Company secretary and its members during the year were drawn from relevant functions and from Group businesses worldwide, as follows:

The Committee meets four times a year, usually three weeks before an Audit Committee meeting. The Risk Committee and the Audit Committee work very closely together and ensure that there are good communication channels in place to enhance the flow of information. The minutes of each Risk Committee meeting and the internal audit supporting papers are sent to the Audit Committee for information and comment.

A review of the Committee’s terms of reference was undertaken in 2007 with the input of KPMG. The revised terms of reference were subsequently endorsed by the Audit Committee.

The Committee is responsible for:

• setting the Group risk management strategy;
• communicating and embedding risk and internal control policy and guidelines;
• reviewing the major risks facing the Group and providing guidance and direction on the internal controls required to manage them;
• monitoring risk management performance; and
• overseeing and supporting the internal audit function.

Significant matters dealt with by the Committee during 2007 included:

Germany fraud
The previously reported fraud in Aegis Media Germany was reviewed in detail to see what lessons had been learned and what consequent changes had been introduced in control processes and procedures. As a result, the Group Risk Manager undertook a revision of the internal audit work programme.

In relation to the fraud, three individuals including the former chief executive of Aegis Media Central and Eastern Europe and one other former employee of Aegis Media Germany have been formally charged with embezzlement. Court proceedings were commenced in January 2008 against the two former employees and these proceedings are ongoing.

The Group continues to take steps to maximise recovery for the losses suffered including making a claim under the Group’s crime insurance policy. Although some recovery of funds is expected, the amount and timing of the recovery is not certain and the recoveries are disclosed as a contingent asset in the Group’s financial statements.

IT penetration testing
Recognising its importance, IT penetration testing was rolled out with the assistance of external IT specialists. The scope of the testing was to identify any system, network or application vulnerabilities to unauthorised access that could lead to a loss of data integrity. An implementation programme for improvements has been put in place. This is seen as an important exercise and will be continued on an annual basis.

Review of key risks
Discussions took place between the Group risk manager and senior management from Synovate and Aegis Media to review and update, where appropriate, the key risks for each business. These were agreed along with associated control processes. Alongside this review of the key business risks an assessment was also undertaken of potential low probability but high impact risks. Any consequential actions agreed by the Committee have been or are planned to be communicated to the businesses and internal processes amended accordingly.

Review of Group Principles and Policies Manual
The Committee was tasked with overseeing a review and update of the manual. This will be completed in early 2008 and distributed to all employees via the Group’s intranet site.

Risk self-assessment surveys
The risk self-assessment surveys provide senior management with an insight from the businesses about the management of their key risks and changes in risk focus. As Synovate and Aegis Media face a number of different risks, two separate online surveys were developed with input from Synovate’s COO and Aegis Media’s Global CFO. The CEOs of each local business unit must report, for each of the risks identified in their survey, the status of internal control and management of the risk within their operation, providing action plans where required.

The last survey was performed in December 2006. In 2007 the results were analysed by the Risk Committee and provided online to regional, global and group management as well as to the Risk and Audit Committees. Based on the responses and a review of the operations’ key risks, the surveys have been updated. The revised surveys will be distributed for completion in the first quarter of 2008, with responses taking into account the period since completion of the previous survey.

Annual compliance certificates
The chief executive officer and chief financial officer of each reporting unit or entity is required to complete an annual certificate to confirm in relation to the relevant unit or entity that:

• the accounts as submitted were accurate and complete;
• there were no actual or potential breaches of laws or regulations;
• there were no frauds;
• there were no related party transactions other than those properly disclosed;
• there were no conflicted directorships; and
• all relevant information was disclosed to the auditors.

Similar certifications have been required of regional, global and Group management.

Where a unit or entity states that they are non-compliant with any of the areas listed above, full explanations are required for further understanding and follow-up. The results from this process are reported to the Audit Committee prior to the signing of the Annual Report and Accounts.

Internal audit
Our internal audit function has been in place since 2005 and helps provide assurance to the Board, via the Risk and Audit Committees, on internal controls implemented to help mitigate some of the Group’s key risks. Internal audit reviews are undertaken with the support of an international firm of accountants.

The annual internal audit programme incorporates all areas of our business and is agreed by the Risk Committee and approved by the Audit Committee. In 2007, the following types of activities were included within the plan:

• reviews of recently acquired companies;
• peer reviews;
• internal audits concentrating on financial controls at the operations deemed to be higher risk; and
• IT security reviews.

In addition to the agreed plan, ad hoc audits may be carried out. These may be at the request of senior management, the Risk Committee or the Audit Committee. All amendments to the original plan require approval from the Audit Committee. In 2007, this included the IT penetration testing as referred to earlier.

One of our key risks is the integration of companies that we acquire. We therefore bring them into our internal audit programme as early as possible, recognising that full integration may take time. Within 12 months of acquisition we visit the more significant businesses to perform an acquisition review. The next step may be a peer review or an internal audit review, depending on the size of the acquisition. Our audit programme is based on a five year rolling cycle, with the more significant operations visited by internal audit every two to three years. Peer reviews are used to supplement the internal audit reviews to ensure good coverage of our operations and are conducted by experienced CFOs from within our operating units. Support is provided from an international firm of accountants to carry out specified detailed tests to confirm that key financial operations are working satisfactorily.

All reviews are performed using pre-defined audit programs that are updated on a rolling basis to incorporate the risks and results from the risk self-assessment surveys and issues arising from the internal audit reviews. The acquisition reviews also focus on the issues highlighted within the due diligence report.

Action plans to address any areas of concern are agreed with senior management, with responsibilities assigned and timeframes established. The results are reported to country, regional, global and Group management as appropriate and also to the Risk and Audit Committees.

Although management has ultimate responsibility for implementing any agreed recommendations, Internal Audit monitors their progress. Where common issues are noted across several business units, these are reviewed and discussed in more detail at the Risk Committee to assess whether updates to existing Group policies are required. Regional and global management are also reminded to take corrective action. In addition, common issues were shared and discussed at the Group’s Finance annual conference.

On an ongoing basis management identifies, analyses, monitors and controls all major risks. These include risks affecting clients, people, the ability to provide continuous service, risks arising from the laws that govern our business and control over Company finances.

Our risk management process has identified the following potential risks and uncertainties that could have a material impact on the Group’s performance, and has put in place internal processes and controls designed to mitigate each risk. The Group’s results could also be impacted by other factors. The risk factors detailed below should not be regarded as a complete and comprehensive statement of all potential risks and uncertainties facing the Group.

We have arrangements in place that allow employees, in confidence, to raise concerns about possible wrongdoing in matters of financial reporting or other matters, without fear of reprisal, provided that such concerns are not raised in bad faith. We are in the process of upgrading this process by giving all employees access to a confidential external free helpline service to be called ‘SpeakUp’.

Based on normal business planning and control procedures, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the accounts.

Good relations with our shareholders are extremely important to us. We want them to have a full understanding of the dynamics of our business and our prospects, and to have an active, open and two-way relationship with us at all levels.

Our contact programme is developed in consultation with external corporate broking and investor relations advisors and reviewed against the market norm. In 2007 we had a total of 276 face-to-face investor contacts, including one-to-ones, Group meetings and investor events. Through that programme we met with 169 individually identified investors, including both current shareholders (including CFD holders) and non-holders. Five international roadshows included North America, France and Germany. Overall, our 2007 investor relations programme delivered further progress on an already high level of contact in 2006 (112 individually identified institutions), which was characterised at the time as ‘comprehensive and at the forefront of best practice for a FTSE 250 company, both in terms of the number of separate institutions met and the percentage of the register covered’.

Our active programme of investor and analyst education about Aegis includes the following activities:

• the chief executive officer, chief financial officer and communications director conduct formal roadshow meetings with existing and potential shareholders after our preliminary and interim results;
• significant time is spent outside our financial calendar roadshows meeting institutional investors, particularly in the UK, Europe and the US;
• major institutional investors are offered the opportunity to meet with newly-appointed non-executive directors, and all of our non-executive directors are available for meetings on request;
• our operational management are made available to meet with shareholders and analysts, as appropriate, and a range of senior management representatives regularly present at investor conferences and events throughout the year;
• regular contact is maintained with the sell-side analysts who cover Aegis, and we actively monitor their opinions and forecasts; and
• regular introductory meetings are held for new analysts and fund managers, and in October 2007, as in previous years, we held a detailed half-day seminar, covering strategy and operations at Synovate and themed around Synovate’s 3 ‘i’s values of ‘international, innovative, integration’.

The Board receives monthly reports from our investor relations advisors, covering market and sector issues, as well as changes in valuation. It also receives regular briefings from our brokers, giving views on shareholder perceptions, and continues to monitor what further steps it might take to improve its understanding of shareholder opinion. In the second quarter of 2007 we conducted an audit of institutional investor opinion, covering 19.6% of the addressable institutional ownership of Aegis at that time. The findings were subsequently presented to the Board.

The Annual General Meeting provides an opportunity for shareholders to address questions to the chairman or the Board directly (including the respective Chairmen of the Board Committees). Shareholders may also raise issues on an informal basis, following the conclusion of the Annual General Meeting. Published information, including press releases, presentations and webcasts of our results meetings, is available on our corporate website, www.aegisgroupplc.com. We relaunched this website in the course of 2007, and it now includes additional information, including on our businesses and strategy.

For further information, please contact our communications director, Charlotte Elston, on 020 7070 7700 or email her at communications@aegisplc.com.

If you would like to contact the chairman or one of the non-executive directors, please email at corpgov@aegisplc.com.

John Ross
Company secretary
18 March 2008