Sainsburys corporate governance and information disclosure

This paper attempts to demonstrate the annual report of Sainsbury from its corporate governance aspects and evaluate the information provided in the annual report from 5 parts: the main corporate governance mechanisms, the ownership structure, the audit report, the audit committee, and the voluntary disclosures.

2.0 corporate governance mechanisms

The chairman of the Board is Philip Hampton since 2004. It consists of three Executive Directors and six Non-Executive Directors.

2.1 Division of responsibilities between the Chairman and the Chief Executive

Corporate governance of Sainsbury set division of responsibilities between the Chairman and the Chief Executive.

The chairman is the leadership of the board. His responsibilities are designing its agenda and ensuring effectiveness of the board. Also the chairman of Sainsbury keeps communicating with shareholders effectively because the Board must know the opinions of major shareholders. In addition he makes sure that the Chief Executive could get a strategy, which must be supported by the Board as a whole. Furthermore Philip Hampton promotes constructive relations between the Executive and Non-Executive Directors.

Justin King is the Chief Executive of Sainsbury, his responsibilities is executing the strategy, which was agreed by the Board. He also creates a framework of values, organization and objectives to make sure the successful delivery of key targets. Finally he takes a leading role, with the Chairman, in the relationship with all external agencies and in promoting Sainsbury’s.

The division of responsibilities can help company to increase corporate governance and reduce the principal-agent problem. Chief Executive’s strategy must be agreed by the Board, at the same time, the Chairman must effectively communicate with shareholders. Therefore the Board will monitor the strategy and make sure it is represent the shareholders’ profit.

2.2 Independence of Non-Executive Directors

Non-Executive Directors are elected by shareholders at the first Annual General

Meeting and appointed for an initial three-year term. If they get mutual agreement and shareholders’ agreement, their appointment could be extended for a second term. There has a regulation to increase the independence that all the Non-Executive Directors are independent according to the provisions of the Code. This means that there is no compromise to the independence of the Directors who have executive or non-executive roles with other companies.

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Directors may have a direct or indirect interest that conflicts with company’s interests without independence. The Board has established procedures for the disclosure by Directors of any such conflicts, and also for the consideration and authorization of these conflicts by the Board. In accordance with the Act, the Board considered and authorized each Director’s reported potential conflicts of interest during the year. The Board will continue to monitor and review potential conflicts of interest on a regular basis.

2.3 Remuneration Committee

The Committee is chaired by Bob Stack who was appointed a Non-Executive Director and Chairman of the Committee on 1 January 2005.

There are four main responsibilities for Remuneration Committee:

First, determining and agreeing with the Board the broad remuneration policy for the Chairman, Executive Directors and the Operating Board Directors;

Second, setting individual remuneration arrangements for the Chairman and Executive Directors;

Third, recommending and monitoring the level and structure of remuneration for those members of senior management within the scope of the Committee, namely the Operating Board Directors and any other executive whose salary exceeds that of any Operating Board Director;

Fourth, approving the service agreements of each Executive Director and including termination arrangements.

3.0 Ownership

J Sainsbury plc is a PLC (Public limited Company). Also it has a limited liability, which means that no shareholder of Sainsbury is personally responsible for the debts, obligations, or acts of the company. From the data of FAME, GOVERNMENT OF QATAR via its funds has 26.01% of total shares, THREE DELTA (HOLDCO) LLP own 25%, RAZINO LTD occupy 6.98%, LORD SAINSBURY OF TURVILLE has 5.83%, LEGAL & GENERAL GROUP PLC via its funds own 3.99%, and BLACKROCK, INC. via its funds own 3.52%. (Specific data will be shown on appendix)

4.0 Audit Report

Sainsbury invite PricewaterhouseCoopers LLP to do the audit for the company. In Sainsbury’s 2009 annual report PricewaterhouseCoopers LLP demonstrate the audit report, which shows their responsibilities, basis of audit opinion and audit opinion.

4.1 Audit opinion

Audit opinions in the 2009 annual report reflect three things

First, in accordance with IFRSs as adopted by the European Union , the Group financial statements give a true and fair view about Group’s affairs as at 21 March 2009 and its profit and cash flows for the 52 weeks then ended;

Second, the financial statements and the part of the Remuneration report to be audited have been properly prepared in accordance with the Companies Act 1985 and, as regards the Group financial statements, Article 4 of the IAS Regulation;

Third is about the information, which is given in the Directors’ report is consistent with the financial statements.

From audit opinion, we can understand

5.0 Audit Committee

In 2009 annual report, I find members of the Committee are independent Non-Executive Directors. Auditor independence has been strengthened by this

The main responsibility for audit Committee of Sainsbury is to monitor the integrity of the financial statements and any formal announcements relating to the Company’s financial performance, also reviewed any significant financial judgments contained in them.

The Committee has responsibility to make sure the Company’s financial controls and the systems of internal control and risk management work efficiently. Where any weaknesses were identified, the detailed actions for resolution are closely monitored through to completion.

In addition, the Committee has implemented the Company’s policy which restricts the engagement of PricewaterhouseCoopers LLP in relation to non-audit services. This is another useful function for audit committee of Sainsbury to increase the auditor independence. The policy is designed to ensure that such services do not have influence on external auditors’ independence and objectivity.

Another very important responsibility for audit committee is the system of internal control. The

Audit Committee has reviewed the effectiveness of the system of internal control. In addition, if there have some weakness of the system of internal control, the committee must make sure the relevant remedial actions are taken to solve these problems.

6.0 Evaluation of the quality of any Voluntary Disclosures

This paper will show Sainsbury’s Voluntary Disclosures from four aspects: food, employee environment, and social.

6.1 Food

Basing on 2009 annual report, we can see that Sainsbury tries its best to provide and inspire customers to eat a healthy food. Without decreasing the taste and quality or increasing the prices, the company makes products as healthy as possible. There also have some highlights during 2009 on this part. For example, reducing the fat in their products and reducing the sugar in all of their squash lines by ten per cent.

Products are the most important elements for a supermarket. Sainsbury pay a lot of attention on improving the healthy of their products. And this voluntary disclosure can help the company to attract more customs.

6.2 Employee

During the year ending March 2009 Sainsbury generated 5,000 new jobs by opening 11 new supermarkets. Also the corporation created a program called ‘You Can’, which now have over 2,000 colleagues participating in. 760 colleagues have been recruited in 2008/09 by providing job opportunities to the long-term unemployed and disadvantaged.

6.3 Environment

Sainsbury’s was the first UK food retailer to publish an environment report which we did in 1996. The company holds ‘Reduce, Re-use, Recycle’, in order to minimize the waste from its business and customer. The highlights during 2009 are environmentally efficient stores, which was first opened Dartmouth, Devon. This green store focuses on decreasing overall CO2 emissions, energy consumption. Also, the green store efficiently uses the Rainwater to harvest, by which can reduce mains water usage by 60 per cent, saving around one million litters of mains water every year. This disclosure will highly increase the corporate reputation of Sainsbury.

6.4 Social

This is another part, which can significantly improve Sainsbury’s corporate reputation. From 2009 annual report, we can find several highlights, for instance, Active Kids, which was beginning in 2005, in 2009 Sainsbury donated over £70 million worth of sports equipment and experiences to schools, nurseries, Scouts and Girl guiding UK. In addition, Food Donation program, In 2008/09 the company donated over £5 million worth of surplus food to a network of charities across the UK.

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Sainsbury do well in this part, it help a lot of people at the same time, company’s reputation increase by disclosing these information. Even though customs lost confidence during 2008, Sainsbury still have good performance in 2008/2009, the important reason is the actions, which was mentioned in the environmental and social disclosures help the company to increase their reputation in their customs’ mind.

7.0 Conclusion

In conclusion, Sainsbury par a lot of attention on independence not only on internal company but also on external auditors. This is very important for a company to increase its corporate governance. Meanwhile, making sure managers represent the shareholders’ profits. Furthermore, according to the voluntary disclosure, we find that Sainsbury regard company reputation as the most important part. Because of this, Sainsbury still performance well in recent year even the economical environment is worse in UK.