Governance at Tesco



The company has complied with all the provisions of the Cadbury Committee's Code of Best Practice
("the Code"). The Board is committed to proper standards of corporate governance and will continue
to keep procedures under review should the Code develop.

Board and Board committees

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The Board of Tesco PLC comprises five independent non-executive directors and eight executive
directors. The full Board, which meets every month, manages overall control of the group's affairs
by the schedule of matters reserved for its decision. These include the approval of financial
statements, major acquisitions and disposals, authority levels for expenditure, treasury policies,
risk management policies and succession plans for senior executives.

The Board delegates day-to-day and business management control to the Executive Committee which
comprises the executive directors. This meets formally every week and its decisions are
communicated throughout the group on a regular basis. They are responsible for implementing group
policy, the monitoring and performance of the business and reporting to the full Board thereon.

The company has an Audit Committee, which meets a minimum of three times a year, whose terms of
reference cover the points recommended by the Code. Its duties include monitoring internal control
throughout the group, approving the group's accounting policies and reviewing the interim and
annual financial statements before submission to the Board. The Committee is chaired by John
Gardiner and consists entirely of non-executive directors. The Remuneration Committee, also
composed entirely of non-executive directors, is chaired by Baroness O'Cathain, and meets a minimum
of three times a year. The report of the Remuneration Committee is given below.

The Nominations Committee, chaired by Lord MacLaurin, is responsible for selecting and appointing
the company's executive and non-executive directors and meets as required.

Internal financial control

The Board of directors has overall responsibility for the systems of internal financial control.
Implementation and maintenance of the internal financial control system is the responsibility of
executive management. The Board, through the Audit Committee, has reviewed the effectiveness of the
systems of internal financial control for the accounting year and the period to the date of
approval of the financial statements although it should be understood that such systems are
designed to provide reasonable but not absolute assurance against material misstatement or loss.


The company has an established framework of internal financial controls, the key features of which
are as follows:

Organisational structure  The responsibilities of the Board set out above are designed to ensure
effective control over strategic, financial and compliance issues.

Financial framework  The company operates a comprehensive system of financial reporting to the
Board and senior management, based upon an annual budget and regular forecasts. Weekly and periodic
reports of actual results together with key performance indicators are produced.

Policies and procedures  The group employs 153,000 people including over 1,200 senior managers.
Management control is formalised at all levels and is regulated by cascading limits of authority.
Formal policies and procedures also exist for areas which are identified, by their nature, as being
significant risk areas. Policies and procedures are regularly subject to compliance audits.

Quality and integrity of personnel  The company attaches high importance to the values of trust,
honesty and integrity of personnel in responsible positions and operates a policy of recruiting and
promoting suitably experienced personnel with clearly defined accountabilities.

Investment appraisal  The capital investment programme is subject to formalised review procedures
with key criteria requiring to be met. All major initiatives require business cases to be prepared,
normally covering a minimum period of five years. Post investment appraisals are also carried out.

Control monitoring  The group maintains an internal audit function whose work is focused on areas
of perceived highest risk, as identified by risk analysis and who regularly provide reports to the
Audit Committee. Our external auditors, Price Waterhouse, also contribute an independent
perspective on certain aspects of the internal financial control system arising from their audit
work and annually report their findings to the Audit Committee. Price Waterhouse have confirmed
that, in their opinion, the group are complying with the Companies Act 1985 requirement to keep
proper books and records.