Centrica plc

• Energy and related services (UK, NA and Europe)
• FTSE100 listed company (no.30)
• Market Cap of £13.5bn
• Ten person board (chairman, four executives and five independent non-executive directors)
• 900,000 shareholders:
• 80,000 held within the corporate nominee ‘FlexiShare’

Companies Act 2006

• Electronic communications with shareholders
• Directors’ duties
• Articles of association
• Conflicts of interest

Electronic Communications

• Prior to new legislation:
• gentle encouragement to take SFS or web-based information
• welcome letter encouraged SFS
• ‘tired of all this paper’ campaign
• Full annual report - 20,000 shareholders
• Summary financial statement - 840,000
• Web-based (with email alert) - 37,000
• 2006 annual report and SFS accompanied by letter from the Chairman explaining the benefits of web-based communications
• Continued with ‘tired of all this paper’ campaign
• Conducted election for paper/web-based communications
• Enabling resolution passed at the AGM

Web-communication Benefits

• Wealth of information on the web-site:
• current share price
• up to date news and information about the company’s activities
• annual report and summary financial statements
• financial results and trading updates
• results presentations and webcasts
• on-line corporate responsibility report
• historic dividend and share price details
• Electronic voting via Shareview with immediate confirmation of receipt

Shareholder Elections

• Paper communications:
• 4,500 full annual report and accounts
• 70,000 summary financial statement
• Web-based communications (active):
• 48,000 (an increase of 11,000)
• Web-based communications (deemed):
• 770,000

Web-based Communications Deemed Consent

• Those shareholders that did not respond to paper/e-comms election are deemed to have consented to web-based communications
• Legal requirement to advise in writing the availability of shareholder information on website
• ICSA best practice guidance - to send personal proxy card in the early years
• Chairman’s caution - disenfranchisement of shareholders?

Web-based Communications Deemed Consent - Shareholders

• Phased approach:
• In 2008, we intend to issue a six page document to deemed consent shareholders:
• Chairman’s letter
• financial highlights (inc dividend)
• list of proposed resolutions, time and venue of AGM (but not full notice)
• information about how to access the website and the benefits of web-based communications
• Proxy card
• We will consider feedback from shareholders
• We will analyse the proxy responses (any correlation between active elections for paper/e-comms and proxy returns?)
• Mid/late 2008 - decision on whether we continue with phased approach for a further year or move to advisory letter only

Web-based Communications – The Future

• Continue to promote the benefits of web-based communications
• Investment in the website: new technology; updated design; improved content and dedication of internal resource to ensure it is managed and up to date
• Overall, there are cost savings and significantly increased access to a wealth of information about the company in which our shareholders have chosen to invest
• Engaged shareholders (direct and indirect)

Directors’ Duties

• Programme of directors’ training on the new Act
• Paper on directors’ duties and derivative actions taken to the September 07 board meeting, ahead of the October 08 implementation of first four duties
• Directors’ conflicts being reviewed as part of development of new articles
• Training on directors’ interests, conflicts and benefits to be given ahead of October 08 implementation

Directors’ Duties – Approach Taken

• Briefings given to plc and subsidiary boards, senior executives and other managers responsible for preparing board papers and/or taking decisions
• Part of new directors’ induction (and terms of appointment will make reference to duties)

Directors’ Duties - Impact

• Guidance issued by GC100
• Factors listed that directors should have regard to not exhaustive
• Not planning on reciting them in board papers or minutes
• Should consider all relevant factors when making decisions
• No major impact on a well managed company

Articles of Association

• Opportunity for wholesale review of articles e.g. are borrowing limits appropriate for the future needs of the business?
• Objects clause deemed to form part of articles:
• required?
• or should you rely on unlimited objects?
• Removal of matters covered by the Act (avoid duplication) e.g. form of shareholder resolutions, notice periods, variation of class rights, requirement to keep accounting records
• Removal of articles relating to matters that now only need shareholder approval e.g. purchase of own shares, consolidation and subdivision of shares and reduction of capital
• To bring into line with new provisions e.g. web-based communications, time limits for the appointment of proxies, the process for authorising directors’ conflicts of interest, authorisation for the directors to change the company name - contentious?
• Process:
• outline paper to the November board meeting
• detailed proposals to the December board meeting
• final draft of articles and notice of meeting to the February board meeting
• final approval delegated to a committee
• May AGM
• new articles to be in force from 1 October 2008 - to coincide with final implementation of the Act

Conflicts of Interest

• Articles may include provision enabling directors to authorise a conflict or possible conflict
• Directors’ general duties not infringed by authorising in accordance with articles (S.180(4))
• Major law firms liaising with ABI and institutional investors regarding governance around authorisation process

Conflicts of Interest - Governance

• S.175(6) only non-conflicted directors to count towards quorum and vote on conflict in question
• Notwithstanding S.180(4) directors to act in way that promotes the company’s success
• Limits or conditions to be attached to authorisation, e.g. availability of board papers and attendance at meetings
• Development of best practice
• Board’s annual review of conflicts over which current authorisation in place
• Disclosure of authorisation and review processes in the governance report
• ABI currently developing principles in respect of conflicts to be followed by boards - publication date not yet known

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