Chairman’s overview Robert Swannell

For many decades M&S has based its core values around Quality, Value, Service, Innovation and Trust. These values have played a key role in underpinning the integrity of our products, brand and way of doing business, giving M&S a real point of difference and special culture.

We see these values as key to the way we work with our customers, our suppliers and our colleagues across the business. They go to the heart of how we try to behave as an organisation. As a Board these values support and inform the way we review and debate our plans and ensure the right environment for decision-making and challenge in all areas of strategy, performance, responsibility and accountability.

Our values are recognised across the business. They are fundamental to Plan A which celebrated its fifth year this year and which simply could not have taken root in the way it has at M&S without an existing culture that embraced it. Plan A is not a disembodied CSR programme; it is a whole company way of doing business.

As a Board how can we use these values to our advantage? How can we ensure that we remain trusted and respected not only for what we do and the integrity of the decisions we make, but how we take those decisions? Do we as a Board set a clear example from the top which will reinforce a culture of trust and integrity in line with our values and ensure our future success? These are questions for many organisations and those in positions of leadership and trust.

Our values were tested in January when elements of our Interim Management Statement appear to have been leaked to the press. The implied breach of trust or carelessness was felt profoundly in the organisation. We were determined that a thorough, independent investigation was required of the leak and of our process and controls and that we would learn from our findings. The level of support for this action across the business highlighted just how strongly the team felt about the relevance of trust and integrity, not only for the company and the brand but also towards our fellow colleagues. The findings of the investigation have now been discussed by the Board and appropriate measures implemented.

These values were also highlighted when the integrity of our product and trust in our supply chain in Food meant that we were not impacted by the horsemeat scandal. We have discussed our processes and controls in this area in our Board and Audit Committees meetings over the past year and recognise the hard work of our Food team in building strong relationships and knowledge of our suppliers. In this way we have ensured, so far as we can, the quality and integrity of our product from farm to fork so that customers can trust us for what we sell. Our deep-rooted values demonstrated their worth in guiding the principles for how we do business and if we continue to respect these, they should continue to support us for the longer term.

At a time when breaches of corporate trust and integrity are under the spotlight, resulting in ever greater scrutiny, regulation and control, we believe our values could not be more relevant, essential and valuable to sustain us for our long-term future. Commentators recognise when trust and integrity are lost but often attribute little credit to those who do their best to instil and uphold high standards.

We continually try to find an appropriate balance between the myriad factors upon which we, as a Board, must focus. These range from our key commercial issues and our long term strategy, to our response to enhanced governance processes and reporting.

While the increase in scrutiny is sometimes testing, we welcome the opportunity for clear challenge and frank dialogue with our stakeholders. We were pleased that our governance event was so well attended by investors and a wide range of shareholder representative bodies, keen to engage with us on a range of issues relating to our Board process, management of risk, approach to remuneration and our progress to become the world’s most sustainable major retailer. This year we have also undertaken many more investor events to communicate our progress on key aspects of our strategy. We believe that greater levels of stewardship and engagement enable better understanding about the issues we face and our deliberations on them, as they relate to our business and people.

We welcome calls for greater openness and transparency on Board deliberations, which in turn challenge us to plan our agendas to maximise our impact, look at the way we do things and reflect on the quality of the decisions we have made. We have worked hard to build an engaged, trusted team and an environment where we can all be honest and direct about what we have done well and where we can do better.

We will not get everything right all of the time, but will learn where we make mistakes – our annual Board evaluation assists us in highlighting areas in which improvements can be made. Last year we made good progress in achieving our plans, including hosting our first Board meeting in Turkey.

This year, our Action Plan again sets out specific objectives to improve our Board performance. Some of these are now part of a longer term journey, but all aim to enable the right environment for debate and reflection on the quality of our decisions. These should enhance and underpin trust and sustain our values longer term.

We do not see governance therefore as simply a box-ticking exercise, nor as a generality related to processes or control. We see it more about testing whether we do the right things, in the right way, ensuring we have the right safeguards, checks and balances in place and that the right considerations underpin every decision we take. We believe that this practical approach will support our performance for the long-term and protect the trust, integrity and value of our business and our brand.

The required regulatory and governance assurances are provided throughout this report. As in previous years, we have sought to provide a genuine understanding of how governance supports and protects the M&S business in a practical way. We use the key themes of the Code as the framework for articulating this narrative. Feedback from shareholders has encouraged us to keep a similar format to previous years so our approach is outlined in Leadership, Effectiveness, Accountability, Engagement and relations with shareholders, Remuneration and the Governance of our Pensions Scheme.

Our Governance Framework is reviewed every year and sets out the roles, accountabilities and expectations for our directors and our structures. This format has been adopted widely across the business and can be viewed in the ‘Investors’ section of our corporate site.

Appointments and succession

The Nomination Committee has continued to work on ensuring appropriate succession and mix amongst both the executive and non-executive directors. We have set out our ambitions and objectives in shaping the Board for the future in our Board Diversity Policy. We are conscious that, following Kate Bostock’s departure and the subsequent appointments of Steve Rowe and Andy Halford, the percentage of women on the Board has fallen to 21% this year, below our target of 30%. However, this will increase to 23% following Jeremy Darroch’s departure from the Board on 19 June 2013. We remain committed to our target and advocating the role women play at the top of organisations and at M&S in particular. However, we continue to make appointments based on objective criteria to ensure we appoint the best individuals with diverse experience and background for the role.

In July 2012, we announced that Kate Bostock would be leaving M&S after eight years. In September, John Dixon was appointed Executive Director, General Merchandise, moving across from his previous role in Food. Steve Rowe, previously Director of Retail, was appointed to the Board to succeed John as Executive Director, Food.

As part of our succession planning, in December we announced that Jeremy Darroch would be leaving M&S in 2013, after seven years on the Board and as Chairman of our Audit Committee. We appointed Andy Halford as non-executive director in January and he will succeed Jeremy as Chair of the Audit Committee in June 2013. At that time we also announced that Steven Holliday will remain on the Board for a further year, stepping down at the 2014 AGM, by which time he will have served ten years on the Board. This will allow us to phase the change in Chairman of these two important Committees. In spite of the proposed length of Steve’s tenure, the Board is confident that he will continue to provide strong and independent oversight to Board debate while continuing to bring his significant experience, knowledge and leadership to the Chairmanship of the Remuneration Committee. More detail on the Board’s debate and assessment of Steve’s independence is outlined the Effectiveness section of the report.

On 21 May, we announced that Steven Sharp, Executive Director Marketing, will be retiring from the business. He will step down from the Board following the AGM and will continue as Creative Director until 28 February 2014. Patrick Bousquet- Chavanne will take over responsibility for marketing and will be put forward for election to the Board as Executive Director, Marketing and Business Development at the 2013 AGM.

The Nomination Committee has also reviewed our future talent pool and longer-term succession potential. The Committee’s activities are outlined in detail in our Nomination Committee report.

In supporting this debate on talent and future leadership for the business, the Remuneration Committee has continued to develop and test the setting and disclosure of objectives and targets. These are highlighted in further detail within our Remuneration report. In line with last year, the Committee has also been an active voice in a number of formal consultations and engaged with shareholders and shareholder representative bodies on the broader UK remuneration debate and need for greater transparency.

Monitoring risk

In view of our longer term ambitions and the significant business initiatives currently underway across the business, the Audit Committee has played a substantial role in ensuring appropriate governance and challenge around our risk and assurance processes. This is covered in further detail in the Accountability section.

Overall, I am pleased with the Board’s activity across the governance agenda, some of which is highlighted on the following pages. Further detail is available on our website. We continue to challenge ourselves and the business and to reflect and learn from our decisions and debate.

Robert Swannell's signature

Robert Swannell Chairman