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The Board of Directors (the "Board") and the management of the Company strive to attain and uphold a high standard of corporate governance and to maintain sound and well-established corporate governance practices for the interest sake of shareholders and other stakeholders. The Company abides strictly by the governing laws and regulations of the jurisdictions where it operates and observes the applicable guidelines and rules issued by regulatory authorities. It regularly undertakes review on its corporate governance system to ensure it is in line with international and local best practices.

CORPORATE GOVERNANCE PRACTICES

Throughout the year ended March 31, 2011, the Company has complied with the code provisions of the Code on Corporate Governance Practices (the "CG Code") in Appendix 14 to the Rules Governing the Listing of Securities (the "Listing Rules") on The Stock Exchange of Hong Kong Limited (the "Exchange"), and where appropriate, met the recommended best practices in the CG Code, save for the deviations which are explained below.

Code A.4.1
Code A.4.1 of the CG Code articulates that non-executive directors should be appointed for a specific term, subject to re-election. All the existing non-executive directors of the Company currently and the year through do not have specific terms of appointment. Nevertheless, non-executive directors are subject to retirement by rotation at annual general meetings under the Company's articles of association accomplishing the same purpose as a specific term of appointment.

Code E.1.2
The Chairman of the Board was unable to attend the Company's annual general meeting which was held on July 30, 2010 as he had an engagement that was important to the business of the Company.

Apart from the foregoing, the Company met the recommended best practices in the CG Code as disclosed in the respective sections of the Company's 2010/11 Annual Report. Particularly, the Company published quarterly financial results and business review in addition to interim and annual results. Quarterly financial results enhanced the shareholders to assess the performance, financial position and prospects of the Company. The quarterly financial results were prepared using the accounting standards consistent with the policies applied to the interim and annual accounts.

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DIRECTORS' SECURITIES TRANSACTIONS

The Company has adopted the Model Code set out in Appendix 10 to the Listing Rules from time to time and devised based on the principles of the Model Code a comprehensive and operative company policy to govern securities transactions by directors and designated senior management of the Company. All the directors of the Company have confirmed, after specific enquiry, their compliance with the required standard during the 2010/11 fiscal year.

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THE BOARD

The Company together with its subsidiary companies (collectively the "Group") is controlled through its Board who is responsible for steering the success of the Group by overseeing the overall strategy and directing and supervising its affairs in a responsible and effective manner, whilst management is responsible for the daily operations of the Group under the leadership of the Chief Executive Officer (the "CEO"). The Board has formulated a clear written policy that stipulates the circumstances under which the management should report to and obtain prior approval from the Board before making decisions or entering into any commitments on behalf of the Group. The Board will regularly review the policy.

The specific responsibilities reserved to the Board for its decision and consideration cover: annual budget, major capital and equity transactions, major disposals and acquisitions, connected transactions, recommendation on appointment or reappointment of auditor and other significant operational and financial matters.

In addition, the Board is responsible for the preparation of financial statements for each financial year which gives a true and fair view of the state of affairs of the Group on a going concern basis while the external auditor's responsibilities to shareholders are set out in the Independent Auditor's Report on page 72 of the Company's 2010/2011 Annual Report.

As at May 26, 2011, there were eleven Board members consisting of one executive director, six non-executive directors and four independent non-executive directors. Accordingly, non-executive directors accounted for a vast majority of the Board whereas the independent non-executive directors represented more than one-third of the Board, thus exhibiting a strong independent element which enhanced independent judgement. Mr. Nicholas C. Allen, an independent non-executive director of the Company, has the appropriate professional qualifications, or accounting or related financial management expertise as required under the Listing Rules. The biographies and responsibilities of directors and senior management are set out on pages 62 to 65 of the Company's 2010/2011 Annual Report.

Save for the relationships (including financial, business, family, other material and relevant relationships) as detailed below and in the biography of directors set out on pages 62 to 63 of the Company's 2010/2011 Annual Report, there is no other relationship among the Board to the best knowledge of the Board members as at May 26, 2011:

  1. Mr. Liu Chuanzhi and Mr. Zhu Linan, non-executive directors, also serve on the board of directors of Legend Holdings Limited, the controlling shareholder of the Company.
  2. Mr. James G. Coulter and Mr. William O. Grabe were nominated by TPG Capital and General Atlantic Group respectively as non-executive directors of the Company pursuant to the Investment Agreement dated March 30, 2005, details of which were disclosed in the Company's circular dated April 20, 2005.
The Board meets at least four times a year at approximately quarterly intervals to review the financial performance of the Group, the overall group strategy and operations with active participation of majority of directors. Board meetings were scheduled two years in advance to facilitate maximum attendance of directors. Notices of not less than thirty days prior to regular Board meetings were given to all members of the Board. For other Board meetings, directors were given as much notice as is reasonable and practicable in the circumstances.

Meeting agenda were finalized by the Chairman in consultation with members of the Board. For regular Board meetings, directors received agenda with supporting Board papers seven days before meetings while documents with updated financial figures three days prior to meetings. Minutes of Board were circulated to the respective Board members for comment where appropriate and duly kept in minutes book for inspection by any director.

All the directors have direct access to the General Counsel and Company Secretary of the Company who are responsible for advising the Board on corporate governance and compliance issues. Written procedures are also in place for directors to seek, at the Company's expenses, independent professional advice in performing their directors' duties. No request was made by any director for such advice during the 2010/11 fiscal year. The Company has arranged appropriate insurance to cover the liabilities of the directors arising from corporate activities. The insurance coverage is reviewed on an annual basis.

On a bi-monthly basis, management furnished updates of the financial performance of the Company to all members of the Board. Every Board member was furnished with a copy of Non-statutory Guidelines on Directors' Duties published by the Hong Kong Companies Registry and a comprehensive induction package on appointment to ensure that he/she has a proper understanding of the operations and business of the Company and that he/she is fully aware of his/her responsibilities as a director.

It is expressly provided in the Company's Articles of Association that, unless otherwise permissible in the Articles of Association, a director shall not vote on any resolution of the Board approving any contract or arrangement or any other proposal in which he/she is materially interested nor shall he/she be counted in the quorum present at the meeting.

Each of the independent non-executive directors has made a confirmation of independence pursuant to rule 3.13 of the Listing Rules. The Company is of the view that all independent non-executive directors meet the independence guidelines set out in rule 3.13 of the Listing Rules and are independent in accordance with the terms of the guidelines.

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CHAIRMAN AND CHIEF EXECUTIVE OFFICER

The positions of the Chairman of the Board and CEO are held by separate individuals to ensure a segregation of duties in order that a balance of power and authority is achieved. The Chairman leads the Board in the determination of its strategy and in the achievement of its objectives whereas the CEO has delegated authority of the Board to take direct charge of the Group on a day-to-day basis and is accountable to the Board for the financial and operational performance of the Group.

As at May 26, 2011, the posts of Chairman and CEO were held by Mr. Liu Chuanzhi and Mr. Yang Yuanqing respectively.

There is no relationship of any kind (including financial, business, family, other material and relevant relationships) between the Chairman and the CEO.

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BOARD COMMITTEES

The Company has preserved four board committees ("Board Committees") with defined terms of reference (which are available upon written request to the Company Secretary) – Audit Committee, Compensation Committee, Strategy Committee and Governance Committee. The terms of reference of Audit Committee and Compensation Committee reference those set out in the CG Code prevailing from time to time.

Should need arise, the Board will authorize an independent board committee comprising the independent non-executive directors to review, approve and monitor connected transactions (including continuing connected transactions) that should be approved by the Board.

Minutes of committee meetings are circulated to members of the relevant Board Committees for comment and are open for inspection by any director.

The following lists out the membership, responsibilities and the summary of work that each Board Committee performed on behalf of the Board during the 2010/11 financial year:

Audit Committee

Membership

All members of the Audit Committee (defined as "Committee" in this section) are non-executive directors, the majority of which including the Committee Chairman are independent non-executive directors. The members during the 2010/11 fiscal year were Mr. Nicholas C. Allen (Committee Chairman), Professor Woo Chia-Wei, Mr. Ting Lee Sen and Ms. Ma Xuezheng.

The Committee members possess diversified industry experience and the Chairman has the accounting or related financial management expertise.

Responsibilities and summary of work
The Committee is responsible for assisting the Board in providing an independent review of the financial statements and internal control system. It acts in an advisory capacity and makes recommendations to the Board. The Committee meets with external auditor and management of the finance and internal audit functions of the Company at least four times a year at quarterly interval and is authorized to obtain independent professional advice to support its function. In addition, separate executive sessions were arranged for the Committee to meet with external auditor, Internal Auditor and General Counsel in the absence of management to discuss matters relating to any issues arising from the audit and any other matters such persons would like to raise.

The Committee met four times during the 2010/11 fiscal year and has performed the following duties:
  • Review of the accounting principles and practices adopted by the Group
  • Review of the financial reporting matters including the quarterly, interim and annual financial statements, announcements, interim report and annual report before submission to the Board for approval
  • Discussion of yearly internal audit plan of the Group and quarterly review of internal audit and business control
  • Discussion of yearly audit plan of the Group and review of quarterly external audit progress report
  • Review of enterprise risk management
  • Overview of group's tax model
  • Review of non-audit services provided by external auditor
  • Review of continuing connected transactions of the Group
  • Recommendation on re-appointment of external auditor

Compensation Committee

Membership

All members of the Compensation Committee (defined as "Committee" in this section) are non-executive directors, the majority of whom are independent non-executive directors. The current members are Mr. William O. Grabe (Committee Chairman), Professor Woo Chia-Wei and Mr. Ting Lee Sen with Ms. Ma Xuezheng and Mr. Zhu Linan acting as observers.

Responsibilities and summary of work
The Committee is responsible for considering and making recommendation to the Board on the Company's compensation policy, including its long-term incentive policy. It is also responsible for the determination of the compensation level and package paid to the Chairman of the Board, CEO and other directors and senior management. The Committee is authorized to obtain outside independent professional advice to support its function.

In the year ended March 31, 2011, the Committee held three meetings and passed circular resolutions in which the following activities were resolved to be undertaken:
  • Approval of 2010/11 updated merit plan
  • Submission of 2010/11 non-executive director pay recommendation by independent consultant for the Board's approval
  • Approval of 2009/10 bonus payments and 2010/11 compensation for the direct reports of CEO and President
  • Approval of 2009/10 bonus payment for CEO
  • Approval of the total budget for 2010/11 merit for direct reports of CEO and President
  • Approval of 2010/11 merit for CEO and Chairman of the Board
  • Approval of the change to 2010/11 LTI budget
  • Approval of the changes to attainment and goals of the senior management incentive plan
  • Approval of additional LTI grants to outstanding performed employees

Strategy Committee

Membership

The Strategy Committee (defined as "Committee" in this section) currently comprises Mr. Liu Chuanzhi (Committee Chairman), Mr. Yang Yuanqing, Mr. James G. Coulter and Mr. William O. Grabe with Ms. Ma Xuezheng acting as an observer.

Responsibilities and summary of work

The Committee is responsible for assisting the Board in determining the vision, the long-term strategy and intermediate targets for the Company and reviewing the annual targets of the Company. The Committee is also responsible for the assessment of the performance of the CEO and making proposals to the Compensation Committee.

The Committee met four times during the 2010/11 fiscal year to review the business performance and business strategy of the Group and it also assessed the performance of the CEO for 2009/10.


Governance Committee

Membership

The Governance Committee (defined as "Committee" in this section) currently is composed of Mr. Liu Chuanzhi (Committee Chairman), Mr. Yang Yuanqing and Mr. James G. Coulter.

Responsibilities and summary of work

The Committee is to assist the Board in overseeing Board organization and senior management succession planning, developing its corporate governance principles and determining Board evaluation criteria and process. During the 2010/11 fiscal year, the Committee members participated in a Board meeting to review the senior management succession planning of the Company.


BOARD AND COMMITTEE MEETINGS
The composition of the Board and attendance of individual directors at meetings of the Board and Board Committees during the 2010/11 financial year were as follows:

  Attendance/Meetings in the 2010/11 fiscal year
Directors Board
(Total no.: 6)
Audit
Committee
(Total no.: 4)
Compensation
Committee
(Total no.: 3)
Strategy
Committee
(Total no.: 4)
Executive director        
Mr. Yang Yuanqing (CEO) 6/6 3/4#
         
Non-executive directors        
Mr. Liu Chuanzhi (Chairman) 5/6 4/4
Mr. Zhu Linan 6/6
Ms. Ma Xuezheng 6/6 4/4
Mr. James G. Coulter 4/6 3/4
Mr. William O. Grabe 5/6 3/3 3/4
Dr. Wu Yibing 6/6
         
Independent non-executive directors        
Professor Woo Chia-Wei 6/6 4/4 3/3
Mr. Ting Lee Sen 6/6 3/4 3/3
Dr. Tian Suning 6/6
Mr. Nicholas C. Allen 6/6 4/4

Notes:
# For corporate governance reason, Mr. Yang Yuanqing was required to excuse himself from a strategy committee meeting to avoid conflict of interest.


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COMPENSATION POLICY

Lenovo recognizes the importance of attracting and retaining top-caliber talent and is strongly committed to effective corporate governance. Consistent with this philosophy, the Company has a formal, transparent and performance-driven compensation policy covering its directors and senior management.

Lenovo's compensation policy for its directors and senior management is to ensure that compensation is aligned to support the Company's strategy, attract and retain top talent, reinforce the Company's performance driven culture, and reflects the market practices of other leading international and IT-focused enterprises, with particular focus on those who compete in the PC sector.

Non-Executive Directors
To ensure that non-executive directors are appropriately remunerated, the Compensation Committee will engage an independent international compensation consulting firm to conduct an analysis of the compensation package of non-executive directors and make recommendation to the Board (comprising only executive director) for approval. In making its recommendation, the firm will also review other relevant factors such as the time commitment, workload, job requirements and responsibilities of the non-executive directors and compare with those of the peers companies and general industry.

The compensation of non-executive Directors is comprised of an annual cash retainer equal to US$80,000 (approximately HK$621,000) and an annual award of Stock Appreciation Rights (SARs) and Restricted Stock Units (RSUs) which can be settled in either Lenovo shares or their cash equivalent upon exercise. SARs and RSUs are subject to a three-year vesting period and are otherwise subject to the same terms and conditions of the SAR and RSU schemes described below.

The Chairman of the Audit Committee also receives an additional cash retainer equal to US$20,000 (approximately HK$156,000). The Chairman of the Compensation Committee receives an additional cash retainer of US$10,000 (approximately HK$78,000).

Details of the compensation of the non-executive directors are included in note 11 to the financial statements on pages 102 to 104 of the Company's 2010/11 Annual Report. SAR and RSU awards outstanding for non-executive directors as of March 31, 2011 under this scheme are presented on pages 38 to 41 of the Company's 2010/11 Annual Report.

Chairman, Executive Director and Senior Management
To ensure that Lenovo's compensation reflects the policy principles described above, the Compensation Committee considers a number of relevant factors including: salaries and total compensation paid by comparable companies, job responsibilities and scope, employment conditions elsewhere in the Company, location and market practices, Company's business performance and individual performance.

Lenovo's compensation structure for its employees, including the Chairman of the Board, executive director and senior management, is comprised of base salaries and allowances, performance bonus, long-term incentives, retirement benefits, and benefits in kind. These components are described in more detail below.

Fixed Compensation
Fixed compensation includes base salary, allowances and benefits-in-kind (e.g. medical, dental and life insurance, etc.). Base salary and allowances are set and reviewed annually for each position, reflecting competitive market positioning for comparable positions, market practices, as well as the Company's performance and individual contribution to the business. Allowances are also provided to facilitate temporary and permanent staff relocations. Benefits-in-kind are reviewed regularly taking into consideration relevant industry and local market practices.

Performance Bonus
Chairman of the Board and CEO, as well as senior management and selected employees of the Company are eligible to receive a performance bonus payable in cash. The amounts paid under the plan are based on the performance of the Company and its subsidiaries, performance groups and/or geographies as appropriate, as well as the performance of the individual.

Long-Term Incentive Program
The Company operates a Long-Term Incentive Program ("LTI Program") which was approved by the Company on May 26, 2005. The purpose of the LTI Program is to attract, retain, reward and motivate executive and non-executive directors, senior management and selected top-performing employees of the Company and its subsidiaries.

Under the LTI Program, the Company maintains three types of equity-based compensation vehicles: (i) share appreciation rights, (ii) restricted share units, and (iii) performance-based share units. These vehicles are described in more detail below.

  1. Share Appreciation Rights ("SARs")
    SARs entitle the holder to receive the appreciation in value of the Company's share price above a predetermined level. SARs are typically subject to a vesting schedule of up to four years.
  2. Restricted Share Units ("RSUs")
    RSUs are equivalent to the value of one ordinary share of the Company. Once vested, RSUs are converted to an ordinary share, or its cash equivalent. RSUs are typically subject to a vesting schedule of up to four years. Dividends are typically not paid on RSUs.
  3. Performance Based Share Units
    The Company has three performance based share unit plans, the 2005 Performance Share Unit (PSU) plan, the 2007 Performance RSU plan and the 2008 Performance RSU. The 2005 PSU plan was discontinued in 2006 however, the Company continues to honor grants previously awarded. All outstanding awards vested completely on May 1, 2008.

    The Performance RSU plans have been discontinued; however, the Company continues to honor grants previously awarded. All outstanding awards vest completely by June 1, 2012.
The Company reserves the right, at its discretion, to pay any awards under the LTI Program in cash or ordinary shares. The Company has created and funded a trust to pay shares to eligible recipients. In the case of SARs, awards are due after exercise by the recipient. In the case of RSUs, awards are due after the employee satisfies any vesting conditions.

The number of units that are awarded under the plan is set and reviewed annually, reflecting competitive market positioning, market practices, especially those among Lenovo's competitors, as well as the Company's performance and an individual's actual and expected contribution to the business. In certain circumstances, awards under the LTI Program may be made to support the attraction of new hires. Award levels and mix may vary.

During the 2010/11 fiscal year, CEO, senior management and selected employees received an annual award comprised of SARs and RSUs.

Awards outstanding for executive and non-executive directors as of March 31, 2011 under the LTI Program are presented on pages 39 to 41 of the Company's 2010/11 Annual Report.

Share Option Scheme
The Company operates two share option schemes, the "New Option Scheme" and the "Old Option Scheme". Details of the programs are set out in the Directors' Report on pages 58 to 61 of the Company's 2010/11 Annual Report. Options outstanding for executive and non-executive directors as of March 31, 2011 under these schemes are presented in the Directors' Report on page 60 of the Company's 2010/11 Annual Report.

No options were granted under these schemes during the 2010/11 fiscal year.

Retirement Benefits
The Company operates a number of retirement schemes for its employees, including executive directors and senior management. These schemes are reviewed regularly and intended to deliver benefit levels that are consistent with local market practices. Details of the programs are set out in the Directors' Report on pages 68 to 70 of the Company's 2010/11 Annual Report.

Long-Term Incentive Awards
The total number of awards of the members of the Board, including the Chairman of the Board and CEO, under the LTI Program as disclosed pursuant to Securities and Futures Ordinance is set out on pages 39 to 41 of the Company's 2010/11 Annual Report.

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EXTERNAL AUDITOR

The Group's external auditor is PricewaterhouseCoopers ("PwC"), who is remunerated mainly for its audit services provided to the Group. The Company has adopted a policy on engagement of external auditor for non-audit services, under which the external auditor is required to comply with the independence requirements under Code of Ethics for Professional Accountants issued by Hong Kong Institute of Certified Public Accountants. External auditor may provide certain non-audit services to the Group given that these do not involve any management or decision making functions for and on behalf of the Group; or perform any self assessments; or acting in an advocacy role for the Company. The engagement of the external auditor for permitted and approved non-audit services shall be approved by the Audit Committee if the value of such non-audit services equals to or above US$320,000.

During the 2010/11 fiscal year, PwC provided audit and insignificant non-audit services to the Group.

The fees paid or payable to PwC for audit and non-audit services for the financial year ended March 31, 2011 and the comparative figures for the financial year ended March 31, 2010 are as follows:

  2011
US$mn
2010
US$mn
 
Audit    
– 2009/10 3.6
– 2010/11 4.0
     
  4.0 3.6
Non-audit 0.6 0.5
     
Total 4.6 4.1

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INTERNAL CONTROL

The Board acknowledges its responsibility to ensure the Company maintains sound and effective internal controls. This is achieved through a defined management structure with specified limits of authority and defined control responsibility to:

  • Achieve business objectives and safeguard assets against unauthorized use or disposition;
  • Ensure maintenance of proper accounting records for the provision of reliable financial information for internal use or for publication; and
  • Ensure compliance with the relevant legislation and regulations.
To achieve this, the Company has established an integrated framework of internal controls which is consistent with the COSO (the Committee of Sponsoring Organizations of the Treadway Commission) framework.

The internal control system of the Company covers every activity and transaction. Within this framework, management performs periodic enterprise wide risk assessments and continuously monitor and report the progress of action plans to address the key risks. They also track and report on the implementation of strategic initiatives, business plans, budgets and financial results. As part of the focus on financial integrity, all relevant senior executives regularly verify the accuracy and completeness of the quarterly financial statements and compliance with key internal controls.

Also essential to the internal control system are well defined policies and procedures that are properly documented and communicated to employees. The Corporate policies form the basis of all our major guidelines and procedures and set out the control standards required for the functioning of our business entities. The policies cover those required for administrative and operating activities such as performance monitoring, employee health and safety, delegation of authority, personnel administration, information security, and business continuity management.

Additionally, the Company's Code of Conduct demonstrates Lenovo's commitment to an environment of uncompromising integrity and helps employees determine when to ask for advice, and where to obtain it. All Lenovo employees are required to comply with the company's Code of Conduct, which is available on Lenovo's intranet, and to participate in annual training to reinforce the company's commitment to compliance and to conducting business with integrity. Lenovo regards any violation of this Code as a serious matter and is committed to follow up on all reported concerns. Furthermore, in keeping with best practices, Lenovo has also developed and implemented an Anti-Bribery and Anti-Corruption Policy which reinforces the message in the Code of Conduct and provides additional specific guidance regarding compliance with rules and laws related to bribery and corruption.

While management is responsible for the design, implementation and maintenance of internal controls, the Board and its Audit Committee oversee the actions of management and monitor the effectiveness of the established controls. To assist the Audit Committee in its oversight and monitoring activities, the Company maintains an independent worldwide Internal Audit function which provides objective assurance to the Audit Committee that the system of internal controls is effective and operating as intended. The mission of Internal Audit is to provide the Board of Directors and Lenovo management with:

  • Independent and objective assessment of Lenovo's system of internal control;
  • Guidance in managing and controlling risks for Lenovo stakeholders;
  • Proactive support to improve Lenovo's control posture; and
  • Independent investigations regarding allegations of fraud and violations of Lenovo's Business Conduct Guidelines.
To enable it to fulfill its mission, Internal Audit has unrestricted access to all corporate operations, records, data files, computer programs, property, and personnel. To preserve the independence of the internal audit function, the Head of Internal Audit reports directly to the Audit Committee on all audit matters and to the Chief Financial Officer on administrative matters. The Head of Internal Audit is authorized to communicate directly with the Chairman of the Board and other Board members. To help ensure the quality of the Internal Audit function and provide assurance that the Internal Audit function is in conformity with the standards of the Institute of Internal Auditors, Internal Audit has implemented a comprehensive and continuous quality assurance program covering all Internal Audit activities. In addition, the Audit Committee periodically commissions an independent external quality assurance review of the Internal Audit function.

In selecting the audits to perform each year, Internal Audit uses information collected throughout the year from process owners, the risk assessment team, senior executives, external auditor and the Board. Using this information Internal Audit develops a risk based audit plan focusing on areas with significant risks or where substantial changes have been made. The audit plan is reviewed by the Audit Committee, who are also given quarterly updates on the performance of the plan and key findings. Ad hoc reviews may also be performed on areas of concern identified by management or the Audit Committee. During the 2010/11 fiscal year, Internal Audit issued multiple reports covering most of the operational and financial units worldwide. In addition to reviews performed by Internal and External Auditors, Lenovo also places importance on self testing of key controls by our management in order to ensure that their internal controls are working as intended or necessary actions have been taken to address control weaknesses.

Furthermore, Internal Audit are responsible for investigating any allegations of potential violations of Lenovo's Code of Conduct or the Anti-Bribery and Anti-Corruption Policy. Internal Audit partners with Legal, Human Resources, and subject matter experts where necessary to ensure the appropriate expertise when performing these investigations. The management of the business units, the process owners and the Audit Committee are informed of any required actions resulting from these reviews, and Internal Audit monitors the corrective actions to completion.

Regarding procedures and internal controls for the handling and dissemination of price-sensitive information, the Company is aware of its obligations under the Listing Rules and the overriding principle that information which is expected to be price-sensitive should be announced immediately it is the subject of a decision. The Company conducts its affairs with close regard to the applicable laws and regulations prevailing in Hong Kong and has implemented policies and procedures which strictly prohibit unauthorized use of confidential and sensitive information, and has communicated to all relevant staff regarding this matter.

The Board, through the Audit Committee of the Company, conducts a continuous review of the effectiveness of the internal control system operating in the Company and considers it is adequate and effective. The review covers all material controls, including financial, operational and compliance controls, and risk management functions. The Board is not aware of any significant areas of concern which may affect the shareholders. The Board is satisfied that the Company has fully complied with the code provisions on internal controls as set forth in the CG Code.

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COMMUNICATION WITH SHAREHOLDERS

The Company is committed to safeguard shareholders' interests and encourage shareholders to attend the annual general meetings for which sufficient notices will be given. Shareholders are therefore encouraged to actively participate at such meetings. The 2010 Annual General Meeting of the Company held on July 30, 2010 was attended by, among others, CEO, Chief Financial Officer, Chairman of the Audit Committee and representatives of independent professional consultant Towers Watson and external auditor PwC to answer questions raised by shareholders at the meeting. Resolutions passed at the 2010 Annual General Meeting included: adoption of the Group's audited accounts for the year ended March 31, 2010 together with the directors' report and independent auditor's report, re-election of retiring directors and authorization to fix directors' fees for the year ended March 31, 2011, re-appointment of external auditor and authorization to fix auditor's fee and grant of general mandates to the Board to issue and repurchase shares of the Company. All the resolutions proposed at the 2010 Annual General Meeting were decided by way of poll voting. The poll was conducted by Tricor Abacus Limited, the Company's share registrar, as scrutineer and the results of the poll were published on the Company's website (www.lenovo.com/hk/publication) and the Exchange's website (www.hkex.com.hk).

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