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The board of directors (the “Board”) and the management of Lenovo Group Limited (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 including customers, suppliers, employees and the general public. 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 of its corporate governance system to ensure it is in line with international and local best practices.
CORPORATE GOVERNANCE STRUCTURE
The Board continuously reviews its governance structure to ensure its relevance and ability to meet the challenges of the future.
* a management committee comprising the Chief Executive Officer and certain members of the senior management
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CORPORATE GOVERNANCE CODE COMPLIANCE
Throughout the year ended March 31, 2014, the Company has complied with the code provisions of the Corporate Governance Code and Corporate Governance Report (the “CG Code”) set out in Appendix 14 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) (the “Listing Rules”), and where appropriate, met the recommended best practices in the CG Code, save for the exception which is explained below.
|Code Provision A.2.1 (Separate the roles of Chairman and Chief Executive Officer)|
Since November 3, 2011, Mr. Yang Yuanqing (“Mr. Yang”) has been performing both the roles as the chairman of the Board (the “Chairman”) and chief executive officer of the Company (the “CEO”). The Board is of the opinion that it is appropriate and in the best interests of the Company at the present stage for Mr. Yang to continue to hold both the positions as it would help to maintain the continuity of the strategy execution and stability of the operations of the Company. The Board comprising a vast majority of independent non-executive directors meets regularly on a quarterly basis to review the operations of the Company led by Mr. Yang.|
The Board also appointed Mr. William O. Grabe (“Mr. Grabe”) as the lead independent director (the “Lead Independent Director”) with broad authority and responsibility. Among other responsibilities, the Lead Independent Director will chair the Nomination and Governance Committee meeting and/or the Board meeting when considering (i) the combined roles of Chairman and CEO; and (ii) assessment of the performance of Chairman and/or CEO. The Lead Independent Director will also call and chair meeting(s) with all independent non-executive directors without management and executive director present at least once a year on such matters as are deemed appropriate. Accordingly, the Board believes that the current Board structure with combined roles of Chairman and CEO, the appointment of Lead Independent Director and a vast majority of independent non-executive directors will provide an effective balance on power and authorizations between the Board and the management 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 2013/14 Annual Report. Particularly, the Company published quarterly financial results and business reviews in addition to interim and annual results. Quarterly financial results enhanced the shareholders’ ability to assess the performance, financial position and prospects of the Company. The quarterly financial results were also prepared using the accounting standards consistent with the policies applied to the interim and annual financial results.
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The composition, experience and balance of skills of the Board are regularly reviewed to ensure that the mix of skills and experience is appropriate to meet the needs of the Company and its subsidiaries (collectively the “Group”). As of May 21, 2014, there were ten Board members consisting of one executive director, two non-executive directors and seven independent non-executive directors.
In 2013, Mr. Yang Chih-Yuan Jerry (“Mr. Jerry Yang”) was appointed as an observer of the Board of the Company (the “Board Observer”). As a Board Observer, Mr. Jerry Yang will not have the power to vote at any Board meeting and will not exercise any other rights of a director at such meeting. He is neither a director nor an officer of the Company or any subsidiary of the Company, and does not have any management role in the Company or any of its subsidiaries. His primary role is to attend relevant Board meetings and to participate in such meetings by providing his views on matters being considered by the Board.
As a means of enhancing corporate governance of the Company, Mr. Grabe, an independent non-executive director of the Company, was appointed by the Board as the Lead Independent Director in 2013. The Lead Independent Director is not an executive position in the Company and does not have any management role in the Company or any of its subsidiaries. The role of the Lead Independent Director are set out on page 38 of the Company’s 2013/14 Annual Report.
The Board diversity mix is shown below while the detailed biographies and a snapshot of the Board’s experience are set out on page 105 to 108 of the Company’s 2013/14 Annual Report.
Key features of the Board composition
- • The current composition of the Board exceeds the requirements under rule 3.10A of the Listing Rules, as more than half of its members are independent non-executive directors, thus exhibiting a strong independent element which enhances 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 Company has maintained on its website and Hong Kong Exchanges and Clearing Limited’s website (the “HKEx’s website”) an updated list of its directors identifying their roles and functions and whether they are independent non-executive directors.
- • Independent non-executive directors are also identified as such in all corporate communications that disclose the names of directors of the Company.
- • Mr. Zhu Linan and Mr. Zhao John Huan, non-executive directors of the Company, also serve on the board of directors of Legend Holdings Corporation, which company held approximately 32.44% of the total issued shares of the Company (details are set out on pages page 67 of the Company’s 2013/14 Annual Report). Except for the relationships (including financial, business, family, and other material and relevant relationships) as detailed above and in the biographies of directors set out on pages 105 to 108 of the Company’s 2013/14 Annual Report, there are no other relationships among the Board to the best knowledge of the Board members as of May 21, 2014.
Division of Responsibilities
Clarity of the responsibilities of, and constructive working relationship amongst, Board members are critical factors of the Board achieving its success. A summary of responsibilities of leadership of the Company and those of Lead Independent Director is given in the diagram below.
Appointment and Election of Directors
The Board values diversity as a factor in selecting candidates to serve on the Board, and believes that the diversity which exists in its composition provides significant benefits to the Board and the Company.
There is a formal and transparent procedure for the appointment of new directors to the Board, the primary responsibility of which has been delegated to the Nomination and Governance Committee. The Nomination and Governance Committee is composed of the Chairman and two independent non-executive directors. This composition ensures that any decisions made are impartial and are in the best interest of the Company.
The Board has established the Board diversity policy (the “Diversity Policy”) which relates to the selection of candidates for the Board. The Diversity Policy was adopted to ensure that diversity in its broadest sense continues to remain a feature of the Board. The Nomination and Governance Committee’s assessment of the candidates includes, but is not limited to, consideration of the relevant knowledge and diversity of backgrounds, skills, experience and perspectives that would complement the existing Board.
During the fiscal year 2013/14, the Nomination and Governance Committee reviewed the below measurable objectives and the progress in achieving these objectives:
|Measurable objectives ||Progress for meeting objectives|
|Objective 1||Consider candidates for appointment as independent non-executive directors from a wide pool of backgrounds, skills, experience and perspectives that would complement the
existing Board||In the ordinary course of the Board succession process|
|Objective 2||Report annually against the objectives and other initiatives taking place within the Company which promote diversity||FY2014/15 and ongoing|
|Objective 3||Objective 3 Report annually on the outcome of the composition and structure of the Board as well as any issues and challenges the Board is facing when considering the diverse make up of the Company||FY2014/15 and ongoing|
The Board recognises the need to ensure the Board and senior management are always well resourced, with the suitable people in terms of skills and experience to deliver the Company’s strategy. The structure, size and composition (including, for example, gender, age, and length of service) of the Board will be reviewed from time to time by the Nomination and Governance Committee to ensure that the Board has a balance of skill and expertise for providing effective leadership to the Company.
The Nomination and Governance Committee also ensures that candidates satisfy the requisite skills and core competencies to be deemed fit and proper, and to be appointed as director. The nomination process involves the following six stages:
In accordance with the articles of association of the Company (the “Articles of Association”), all directors are subject to retirement by rotation. At each annual general meeting, one-third of the directors for the time being shall retire from office. The retiring directors shall be eligible for re-election. New appointments either to fill a casual vacancy or as an addition to the Board are subject to re-election by shareholders of the Company at the next following annual general meeting of the Company.
All non-executive directors (including independent non-executive directors) have entered into letters of appointment with the Company for a term of three years. Their terms of appointment shall be subject to retirement from office by rotation and re-election at the annual general meeting in accordance with the Articles of Association.
The Company agreed that the independence of directors is an important principle of the Company. In line with the best practices on corporate governance, the Board adopted the principle that each term of an independent non-executive director of the Company shall not be more than three years and shall, subject to re-election by shareholders at any subsequent annual general meeting of the Company, be renewable for additional three-year terms up to a total of nine years. At the recommendation of the Nomination and Governance Committee, the Board may invite an independent non-executive director to serve for an additional three-year term extending up to a total of twelve years subject to re-election at any subsequent annual general meeting of the Company. Under A.4.3 of the CG Code, any further appointment of an independent non-executive director, who has served the Board for more than nine years, shall be subject to a separate resolution to be approved by shareholders. The Company will set out in the document accompanying the notice of the 2014 annual general meeting the reason why the Board considers the individual continues to be independent and the recommendation to shareholders to vote in favour of the re-election of such independent non-executive director.
The independent non-executive directors do not participate in the day-to-day management of the Company and do not engage in any business dealing or other relationships with the Group (other than in situations permitted by the applicable regulations) in order to ensure that they remain truly capable of exercising independent judgement and act in the best interests of the Group and its shareholders. Further, the Board is satisfied and assured that no individual or group of directors has unfettered powers of decision that could create a potential conflict of interest.
Each of the independent non-executive directors has made a confirmation of independence pursuant to rule 3.13 of the Listing Rules. On May 20, 2014, the Nomination and Governance Committee of the Board conducted an annual review of the independence of all independent non-executive directors of the Company for the year ended March 31, 2014. Having taken into account the factors as set out in rule 3.13 of the Listing Rules in assessing the independence of independent non-executive directors, the Nomination and Governance Committee (with the relevant committee member abstaining from voting on the resolution concerning his own independence) concluded that all of the independent non-executive directors satisfied the criteria of independence as set out in the Listing Rules.
On November 7, 2013, Ms. Ma Xuezheng (“Ms. Ma”) was re-designated from a non-executive director to an independent non-executive director. Although Ms. Ma had certain previous directorships which are or may be regarded as falling within the independence guideline in rule 3.13(7) of the Listing Rules among the factors affecting independence under those rules, the Board is satisfied and has demonstrated to the satisfaction of the Stock Exchange that the re-designation of Ms. Ma as an independent non-executive director is justified for the following reasons:
- Ms. Ma has ceased to be an executive director and chief financial officer of the Company for more than six years since May 23, 2007, the date on which she was re-designated as a non-executive director. Since then, she has not had any executive or management role in the Group. During the tenure of Ms. Ma as an executive director and chief financial officer of the Company, she was appointed as directors of various subsidiaries of the Company. Ms. Ma had also resigned from all such directorships in these subsidiaries for more than two years immediately prior to the date of her re-designation. On the above basis, the Company considers that the above previous directorships would not have any impact on her independence;
- Prior to her re-designation as an independent non-executive director, Ms. Ma has been a non-executive director of the Company. As a non-executive director, she did not take part in the day-to-day management of the Company and did not have any management functions in the Company except for attending meetings of the Board of the Company and meetings of certain Board committees in her personal capacity. The Company considers that her non-executive role in the Company has no impact on her independence;
- To the best knowledge of the directors of the Company, Ms. Ma has not relied on the remuneration given by the Company and she is independent of any connected person and substantial shareholder of the Company;
- The Company believes that Ms. Ma is able to exercise her professional judgement and draw upon her extensive knowledge in financial, investment and corporate governance matters for the benefit of the Company and its shareholders as a whole, in particular, the independent shareholders; and
- Ms. Ma has confirmed her independence to the Stock Exchange in respect of each of the factors set out in rule 3.13 of the Listing Rules that the Stock Exchange takes into account in assessing the independence of a non-executive director.
In light of the above, notwithstanding Ms. Ma’s relationship with the Company as a non-executive director prior to her re-designation as an independent non-executive director, the Company is in the opinion that her current connection with the Company will not affect her independence as an independent non-executive director and she will be able to carry out her duties as an independent non-executive director impartially and independently.
In addition, the Nomination and Governance Committee affirmed that all independent non-executive directors of the Company provided a strong independent element on the Board, were free from any business or other relationship which could materially interfere with the exercise of their judgement, and remained independent for the year ended March 31, 2014.
Conflicts of interest
Directors have a statutory duty to avoid situations in which they have or may have interests that conflict with those of the Company. The Board has a set procedure to deal with the actual or potential conflicts of interest of directors as follows:
The Board deals with each appointment on its individual merit and takes into consideration all the circumstances.
Actual and potential conflicts of interest are notified to the Board before they arise.
Prior to taking up any additional responsibilities or external appointments, directors are obliged to ensure that they will be able to meet the time commitment expected of them in their role at the Company and do not have any potential conflicts that may arise when take up a position with another company.
Decisions regarding transactions with directors and their related parties are always dealt with by other director, such as matter regarding the remuneration of executive director is handled by the Compensation Committee.
All potential conflicts of interest will be recorded, which are reviewed on an annual basis by the Nomination and Governance Committee to ensure that the procedures are working effectively.
All directors are committed to devote sufficient time and attention to the affairs of the Group. Directors are given guidelines on their time commitments to the affairs of the Company and corresponding confirmations were received from the directors in their letters of appointment. Directors have also disclosed to the Company the number and nature of offices held in Hong Kong or overseas listed public companies or organisations and other significant commitments, with the identity of the public companies or organisations. Directors are reminded to notify the Company in a timely manner and bi-annually confirm to the Company of any changes of such information. With respect to those directors who stand for re-election at the 2014 annual general meeting, all of their directorships held in listed public companies in the past three years are also set out in the document accompanying the notice of the 2014 annual general meeting.
The Board has adopted stock ownership guidelines for non-employee director in 2013. The Board believes that share ownership aligns the interests of its directors with the long term interests of the shareholders and further promotes the Company’s commitment to sound corporate governance. In general, these guidelines require non-employee directors to maintain a certain level of equity awards granted to them for so long as he or she is a director of the Company.
Directors’ Securities Transactions
The Company has adopted the Model Code for Securities Transactions by Directors of Listed Issuers (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 directors of the Company have confirmed, after specific enquiry, their compliance with the required standard during the 2013/14 fiscal year.
Induction and Continuous Professional Development
The Company is aware of the requirement to regularly review and agree with each director their training needs. Keeping up-to-date with key business developments is essential for directors to maintain and enhance their effectiveness.
Upon joining the Company, directors are provided with a bespoke induction program to further their understanding of the nature of the Company, its business and the markets in which it operates, and also enhance their knowledge of the Group, its operation and staff. Induction program is tailored to each new director, depending on the experience and background of the director. Normally, a comprehensive, formal and tailored induction program covering amongst other things:
Continuous professional development program
As part of the continuous professional development program, the Board members from time to time receive presentations from senior executives in the business on matters of significance. Financial plans, including budgets and forecasts, are regularly discussed at Board meetings. The Company would arrange appropriate visits and seminars covering the Group’s operations, the industry and governance matters for directors to facilitate their understanding of the Group’s businesses and have a better awareness of the risks associated with the Group’s operations.
During fiscal year 2013/14, the trainings and activities for the Board were set out below:
The Board had the opportunity to meet with senior management of Beijing and Brazil teams and to visit Lenovo Innovation Center in Beijing, Lenovo Brazil office in Sao Paulo and the manufacturing plant in Itu, Brazil. These arrangements provided the Board with a better understanding of the latest technology and products developments of the Group and an insight into the business operations of the Group in the relevant geography.
During these visits, in addition to being provided with presentations on the market and business from local management, directors would also be able to meet with the local team to acquire the latest development of the management team and the business there.
Experts Briefing and Seminar
In-house seminars are arranged for directors to keep them abreast of the latest developments in the international corporate governance development. The directors are also encouraged to attend relevant external professional programs at the Company’s expense and the changes in laws and regulations as necessary to keep abreast of issues facing the changing business environment within which the Group operates.
During the 2013/14 fiscal year, the Company arranged experts briefing and seminar for directors on the topics of “Corporate Social Responsibility”, “Corporate Governance” and “New Companies Ordinance – Key Changes Affecting Directors”.
To facilitate the training for directors, the Company had also introduced an online training at Lenovo University for directors started in fiscal year 2012/13. In fiscal year 2013/14, the focus of the online training was “Confidentiality Awareness: Protect Innovation; Protect Information” and the attendance rate of directors was 100%.
The directors are updated on a continuing basis by the Company Secretary on any new regulations and guidelines, as well as any amendments thereto issued by the Stock Exchange and other regulatory authorities, particularly the effects of such new or amended regulations and guidelines on directors specifically, and the Company and the Group.
The Board considers the aforementioned training attended and/or participated in by the directors, and the continuing legal updates provided to the directors, as adequate to enhance the directors’ skills and knowledge to carry out their duties as directors. All directors are required to provide the Company with their training records on annually basis and such records are maintained by the Company Secretary for regular review by the Nomination and Governance Committee.
The Nomination and Governance Committee will, on a continuing basis, evaluate and determine the training needs of the directors, particularly on relevant new laws and regulations and essential practices for effective corporate governance and risk management, to enable the directors to sustain their active participation in Board deliberations and effectively discharge their duties.
In addition to directors’ attendance at meetings and review of relevant materials provided by senior management during the 2013/14 fiscal year, the professional trainings attended by the directors are set out as follows:
Note: Dr. Wu Yibing retired as a non-executive director of the Company on July 16, 2013.
The Board recognises the importance of providing timely and appropriate information to directors so as to enable them to make informed decisions and to perform their duties and responsibilities effectively.
Other key features of Board process
- • The directors are supplied in a timely manner with all relevant documentation and financial information to assist them in the discharge of their duties. Monthly updates of the financial performance of the Company are furnished to the Board between regular Board Meetings.
- • In addition to standing agenda items, there may be discussions on “deep-dive” topics. During the fiscal year 2013/14 “deep-dive” presentations included the Group’s specific strategy and business in a specific market.
- • The Board systematically visits the Group’s business locations both to review its operations and meet with local management. During the fiscal year 2013/14, the Board visited and reviewed the Group’s business and its operations in Beijing and Brazil.
- • Senior management are invited to attend Board meetings, where appropriate, to report on matters relating to their areas of responsibility, and also to brief and present details to the directors on recommendations submitted for the Board’s consideration. Additional information or clarification may be required to be furnished, particularly with respect to complex and technical issues tabled to the Board.
- • To enhance the communication between directors and senior management and have an understanding of management planning, directors are invited to attend Lenovo’s Global Leadership Team event and participate in small group discussions with relevant senior management.
- • Separate executive sessions were arranged for (i) the Chairman to meet with non-executive directors in the absence of management and (ii) the Lead Independent Director to meet with other independent non-executive directors in the absence of executive director and management to discuss matters relating to any issue or other matters such persons would like to raise.
- • To enhance communication with and contribution from all the directors, the Chairman meet with each non-executive director on an one-on-one basis at least once a year.
- • All 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 in place for directors to seek, at the Company’s expense, independent professional advice in performing directors’ duties. No request was made by any director for such advice during the fiscal year 2013/14.
- • The Company has established Continuous Disclosure Policy and its implementation guideline on monitoring, reporting and disseminating inside information. The critical concerns of the Group’s operations and developments are communicated and addressed to the Board in a timely manner.
- • 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.
- • All directors were provided with a tablet and a notebook to gain access to meeting materials of the Board and Board committees meetings through an internal electronic platform.
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DELEGATION BY THE BOARD
Board’s Role and Responsibilities
The Group is controlled through the 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. The Board also sets the Group’s core values and adopts proper standards to ensure that the Company operates with integrity and complies with the relevant rules and regulations.
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.
Board activities in the financial year ended March 31, 2014
Board activities are structured to assist the Board in achieving its goal to support and advise senior management on the delivery of the Group’s strategy within a transparent governance framework. The diagram below shows the key areas of focus for the Board, which appear as items on the Board’s agenda at relevant times throughout the financial year. Concentrated discussion of these items assists the Board in making the most appropriate decision based on the long-term opportunities for the business.
During the fiscal year 2013/14, a total of seven Board meetings were held, of which four Board meetings were primarily to review quarterly business performance and strategy execution and the remaining three were for reviewing specific strategy in the geography, business or other relevant areas and also new projects. Given the geographical spread of the Group’s business, in addition to the meetings in Hong Kong, Beijing and New York, the Company also held meeting in Brazil with a particular focus on reviewing the strategies and business in this area which provided an opportunity for directors to meet with local management team.
The regular items of a Board meeting for reviewing quarterly results include a report from CEO on business performance and strategy execution, a report from Chief Financial Officer on financial performance and reporting and reports from the chairman of the respective Board committees on matters discussed and/or approved at the relevant Board committees’ meetings held prior to the Board meetings. In addition to these regular reports, the Board considered and/or resolved the following non-routine matters during the 2013/14 fiscal year:
Appointment of Mr. Grabe as the Lead Independent Director and cessation as chairman of the Compensation Committee
Re-designation of Ms. Ma as an independent non-executive director and appointment as chairman of the Compensation Committee
Appointments of Mr. William Tudor Brown and Mr. Zhu Linan as member of the Compensation Committee
Acquisition of X86 server hardware and related maintenance services business of International Business Machines Corporation
Acquisition of Motorola Mobility Holdings LLC and its subsidiaries
Amendment to the delegation of authority policy
Adoption of the Diversity Policy of the Company
Adoption of non-employee directors stock ownership guidelines
Discussion on Board and Board committees’ evaluation results
As at May 21, 2014, the Company has preserved three Board committees (the “Board Committees”) with defined terms of reference (which are posted on the Company’s website and HKEx’s website) – Audit Committee, Compensation Committee and Nomination and Governance Committee. The terms of reference of Audit Committee, Compensation Committee, and Nomination and Governance Committee reference those set out in the CG Code prevailing from time to time.
* Mr. William Tudor Brown was appointed as a member of the Audit Committee with effect from May 22, 2014.
The Board may also establish committees on an ad hoc basis to approve specific projects as deemed necessary. Should the 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.
All Board Committees follow the same principles and procedures as those of the Board and are provided with sufficient resources to perform their duties. The Board Committees will report to the Board on a regular basis, including their decisions or recommendations to the Board, unless there are legal or regulatory restrictions on their ability to do so. The member list of the Board Committees is also posted on the Company’s website and HKEx’s website.
The Audit Committee is authorised by the Board to perform its duties within its terms of reference. Details of the Audit Committee, including its membership, terms of reference and work done during the fiscal year 2013/14, are summarized in the Audit Committee Report as stated on page 69 to 74 of the Company’s 2013/14 Annual Report.
The Compensation Committee is authorised by the Board to perform its duties within its terms of reference. Details of the Compensation Committee, including its membership, terms of reference and work done during the fiscal year 2013/14, are summarized in the Compensation Committee Report as stated on pages 75 to 85 of the Company’s 2013/14 Annual Report.
NOMINATION AND GOVERNANCE COMMITTEE
The Nomination and Governance Committee (defined as “Committee” in this section) of the Board of the Company as at May 21, 2014, is comprised of three members including Mr. Yang Yuanqing (Committee Chairman) and two independent non-executive directors, Mr. Nobuyuki Idei and Mr. William O. Grabe.
The Committee is responsible for reviewing the Board composition of the Board and Board committees to ensure they are properly constituted and balance in terms of skills, experience and diversity. In addition to this, it is also responsible for:
Making recommendation to the Board on succession planning for directors and CEO;
Assessment of the performance of the Chairman and/or CEO and making proposals to the Compensation Committee;
Monitoring corporate governance issues and developments to ensure that the Company is in line with the international best practices;
Reviewing and determining the director induction and continuous professional development programs; and
Reviewing and monitoring the annual Board and Board committees’ evaluation and the progress of the implementation actions.
The Committee’s terms of reference which clearly deal with its membership, authority, duties and frequency of meetings are published on the websites of the Company and the HKEx.
The Committee is provided with sufficient resources to perform its duties.
The Committee is authorised to obtain outside legal or other independent professional advice in performing its duties at the Company’s expense. No request was made by any member for such advice during the year.
General Counsel and Company Secretary are invited to attend the Committee meetings in order to provide insight and enhance the Committee’s awareness of corporate governance issues and developments.
The chairman of the Committee being also the Chairman and CEO, is required to excuse himself from the agenda items relating to succession planning of the Chairman and/or CEO and the assessment of performance of the Chairman and/or CEO.
Main activities during FY2013/14
During the year ended March 31, 2014, the Committee held two meetings in which the following activities were considered and/or resolved:
Board and Board committees’ compositions
Reviewed and recommended to the Board on the structure, size and composition of the Board including the diversity and balance of skill, knowledge and experience of the directors.
Considered and recommended changes to the Board and Board Committee’s composition:
- appointment of Mr. Grabe as the Lead Independent Director;
- re-designation of Ms. Ma as an independent non-executive director and her appointment as chairman of the Compensation Committee in replace of Mr. Grabe;
- appointments of Mr. William Tudor Brown and Mr. Zhu Linan as member of the Compensation Committee.
- Reviewed the progress against Board diversity targets and discussed and agreed a Diversity Policy, recommending it to the Board for its approval.
Assessment of the performance of the Chairman and CEO and succession planning
Assessed the performance of the Chairman and CEO for fiscal year 2012/13 and making recommendation to the Compensation Committee.
Reviewed the arrangement of same person acting as Chairman and CEO.
Reviewed and discussed succession planning for the position of directors and review potential candidates for this roles.
Reviewed corporate governance disclosures in 2012/13 annual report and 2013/14 interim report.
Reviewed and assessed the independence of independent non-executive directors and affirmed the Committee’s view over their independence.
Reviewed and discussed the induction and continuous development programs for the directors of the Company.
Reviewed the policies and practices on corporate governance, and the compliance with legal and regulatory requirements of the Group.
Board and Board Committees’ evaluation
Oversaw the process of the Board and Board Committees’ evaluation for fiscal year 2013/14.
Discussed and approved the proposed actions to be taken in response to the findings of 2012/13 Board and Board Committees’ evaluation. The Committee also reviewed reports on the status of the action plan to monitor the progress being made.
Performance and effectiveness
The Board undertook an annual review of its committees’ performance and effectiveness. The review concluded that overall the Committee was effective in carrying out its duties. Details of the Board and Board Committees’ evaluation process can be found under “Board and Board Committees’ Evaluation” as set out on page 55 to 56 of the Company’s 2013/14 Annual Report.
Board and Board Committees Meetings and Attendance
Details of directors’ attendance at the general meetings, Board and Board Committees meetings held during the year ended March 31, 2014 are set out below:
- The attendance figure represents actual attendance/the number of meetings a director is entitled to attend.
- The Board held four regular meetings, one strategic meeting and two ad hoc meetings during the 2013/14 fiscal year.
- The Company held the annual general meeting and the general meeting on July 16, 2013 and March 18, 2014 respectively.
- Representatives of the external auditor participated in every Audit Committee meeting and the annual general meeting held during the 2013/14 fiscal year.
- Mr. Zhu Linan was re-designated from an observer to a member of the Compensation Committee with effect from November 7, 2013.
- Dr. Wu Yibing retired as non-executive director of the Company in the annual general meeting held on July 16, 2013.
- Mr. William O. Grabe was appointed as the Lead Independent Director with effect from May 23, 2013 and ceased to be the chairman of the Compensation Committee with effect from November 7, 2013.
- Mr. William Tudor Brown was appointed as a member of the Compensation Committee with effect from May 23, 2013.
- Ms. Ma Xuezheng was re-designated from a non-executive director to an independent non-executive director and was appointed as the chairman of the Compensation Committee, all with effect from November 7, 2013.
- For corporate governance reasons, Mr. Yang Yuanqing was required to excuse himself from the agenda item relating to assessment of the performance of the Chairman and CEO of the Nomination and Governance Committee meeting to avoid conflict of interest.
During the 2013/14 fiscal year, the Chairman held executive session with non-executive directors (including independent non-executive directors) without the presence of management to discuss on any Board matters.
To enhance the corporate governance practices, the Lead Independent Director held executive session with independent non-executive directors without the presence of executive director and all the senior management after each regular Board meeting to discuss matters relating to any issue or other matters such persons would like to raise.
Board and Board Committees’ Evaluation
The Board is aware of the importance of continually assessing its own performance in support of the leadership of the Group. The Board has established a formal process, led by the Nomination and Governance Committee, for the annual evaluation of the performance of the Board and Board Committees, to ensure that they continue to act effectively and efficiently and to fulfill their respective duties.
The Board conducted the first formal evaluation of its own performance and that of its Committees in fiscal year 2012/13. The aim of the evaluation was to capture open and constructive feedback from Board members that would:
Provide insights into the effectiveness of the Board and Board Committees; and
Determine areas within the Board and Board Committees where additional competence is needed.
The key themes were identified and form the basis of the action plan from 2012/13 Board and Board Committees’ evaluation as follow:
- Enhancing the relationship between the Board and senior management following changes in Board composition during the 2013/14 fiscal year;
Enhancing succession planning for key Board positions;
Ensuring that an appropriate balance of skills, experience and diversity on the Board is maintained; and
Ensuring the Board staying abreast of issues and trends affecting the Company, and use this information to assess and guide the Company’s performance both year-to-year and in the long-term.
In fiscal year 2013/14, the Company enhanced the evaluation process involving each of the directors completing a comprehensive questionnaire, which was structured to include a wide range of questions that focused on the seven areas shown below and the Lead Independent Director discussed the draft results report with the chairpersons of Audit Committee and Compensation Committee. The process took place between November 2013 and February 2014.
A consolidated report of the evaluation was prepared by the Nomination and Governance Committee for review and consideration by the Board. The results of the evaluation were thoroughly discussed at a Board meeting on February 12, 2014.
The evaluation report concluded that the Board and Board Committees continue to operate effectively. The Board also identified enhancement areas, which will be incorporated into the future Board program to ensure that the operation of the Board and Board Committees continue to improve. These areas will continuously be reviewed by the Board.
The Company has a formal schedule of matters specifically reserved to the Board and those delegated to management. The management is responsible for the daily operations and administration function of the Group under the leadership of the CEO. The Board has given clear directions to management as to the matters that must be approved by the Board before decisions are made on behalf of the Company. The types of decisions to be delegated by the Board to management include implementation of the strategy and direction determined by the Board, operation of the Group’s businesses, preparation of financial statements and operating budgets, and compliance with applicable laws and regulations. These arrangements will be reviewed periodically to ensure that they remain appropriate to the Company’s needs. The list of members of senior management and their biographies are set out on page 108 to 109 of the Company’s 2013/14 Annual Report.
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ACCOUNTABILITY AND AUDIT
The Board acknowledges its responsibility for presenting a balanced, clear and comprehensive assessment of the Company’s performance, position and prospects. The Board is also 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 going concern basis while the external auditor’s responsibilities to shareholders are set out in the Independent Auditor’s Report on page 123 of the Company’s 2013/14 Annual Report.
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, for many years the Company has had in place an integrated framework of internal controls which is consistent with the COSO (the Committee of Sponsoring Organizations of the Treadway Commission) framework.
Management of Internal Controls
Essential to Lenovo’s internal control framework as well as the management of internal controls are well defined policies and procedures that are properly documented and communicated to employees. Corporate policies are the foundation of major guidelines and procedures and set out required control standards which guide employees’ everyday work at Lenovo. The policies address legal, regulatory, and operational topics, including, for example, intellectual property, data privacy, employee health and safety, delegation of authority, information security, and business continuity.
Additionally, the Company’s Code of Conduct, which applies to all employees, forms the basis of Lenovo’s commitment to conducting all business with uncompromising integrity and ethical behavior. The Code also 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 in seven languages and is accessible on the Company’s website as well as on Lenovo’s intranet, and to participate in regular training to reinforce the Company’s commitment to compliance and to conducting business with integrity. Lenovo regards any violation of the Code as a serious matter and is committed to following up and investigating on all reported concerns. Furthermore, in keeping with best practices, Lenovo has 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.
Along with establishing guidelines, principles and values, Lenovo recognizes that an environment where employees feel free to bring concerns to management is also required to make our internal control system successful. Lenovo’s corporate policy on reporting unlawful or inappropriate conduct makes it clear that all reports will be kept anonymous and confidential. Most importantly, Lenovo maintains if employees seek advice, raise a concern relating to a potential compliance issue, or report suspected misconduct, any form of retaliation or harassment will not be tolerated.
The internal control system of the Company covers every activity and transaction. Within this framework, management performs periodic, enterprise-wide risk assessments and continuously monitors and reports the progress of action plans to address the key risks. Management also tracks and reports 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. Additionally, the senior executives have an obligation to maintain the effectiveness of the disclosure controls, certify execution of the quarterly disclosure process, take appropriate actions to resolve disclosure items, and report to the Audit Committee as well as the Company’s external auditor.
To enhance the monitoring of controls, Lenovo recognizes the importance of self testing of key controls by management in order to ensure that the internal controls are working as intended or that necessary actions have been taken to address control weaknesses. To further assist management with monitoring controls, Lenovo has established a Worldwide Business Control Organization. As part of its mission, the Worldwide Business Control Organization helps to clearly communicate control requirements across all organizations and process owners, evaluate the operating effectiveness and efficiency of the established processes and controls in order to help to mitigate risk.
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 controls;
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 Code of Conduct and other company policies.
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, which is also given quarterly updates on the performance of the plan and key findings. From the audit work performed, process owners are able to confirm to Senior Management that internal controls are working as intended or that necessary corrections have been made where control weaknesses have been found. In keeping with best practices, Internal Audit regularly monitors the status of management action plans with respect to audit findings to ensure completion and reports to the Audit Committee. Reporting also includes identified key controls issues as well as potential controls issues in order to provide the Audit Committee full visibility into the status of Lenovo’s control environment. Ad hoc reviews of areas of concern identified by management or the Audit Committee may also be performed. During the last year, Internal Audit issued multiple reports covering all significant operational and financial units worldwide.
Furthermore, Internal Audit is responsible for investigating any allegations of potential violations of Lenovo’s Code of Conduct, the Anti-Bribery and Anti-Corruption Policy, or any other company policies as appropriate. Internal Audit partners with Legal, Ethics and Compliance, Human Resources, and subject matter experts where necessary to ensure the appropriate expertise when performing these investigations. Management and the Audit Committee are informed of any required actions resulting from these reviews, and the corrective actions are monitored until completion.
Regarding procedures and internal controls for the handling and dissemination of inside information, the Company is aware of its obligations under the Securities and Futures Ordinance and the Listing Rules as well as the overriding principle that inside information should be announced immediately if 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 inside 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 to be 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 Corporate Governance Code.
Enterprise Risk Management
At Lenovo, risk is defined as a potential action, event or circumstance that could impact the Company’s ability, favorably or unfavorably, to meet its strategic goals. Risk is an inherent part of the Company and needs to be understood and managed properly to provide a foundation for the Company’s sustained growth. In line with the commitment to deliver sustainable value, Lenovo has implemented an Enterprise Risk Management (ERM) framework to proactively manage risks.
Lenovo’s ERM framework is effected by Lenovo’s Board of Directors and management team, and is applied in strategy setting and across all major functions of the Company. It involves:
The ERM team, who is responsible to design, implement, review, and update Lenovo ERM framework.
All Lenovo major functions, where risk ownership is established via the appointment of ERM Champions in each function.
Within this framework, critical and major risks of the business functions, especially in view of the changing business environment, are identified and assessed to determine the appropriate risk mitigation plans to be implemented. These are monitored and reviewed by each business function as well as at the group level. With the insurance function embedded within ERM team, risk transfer options, where available, are also explored with the business functions for more effective risk management. At least annually, these influential risks are highlighted to the Audit Committee, along with the status of actions taken to manage these risks.
The ERM framework covers all types of risks faced by the Company, both external and internal, and has helped enhance the Company’s efforts to provide strong support for our rapid growing business, across all markets. During the 2013/14 fiscal year, there was continued strong focus at the business level to address the fast changing industry trends. At the operational level, risk management was also strengthened to improve the robustness of our supply chain.
This framework will continue to be strengthened, so as to create a robust risk management culture which safeguards the value of the Company.
Independence of 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 the external auditor for non-audit services, under which the external auditor is required to comply with the independence requirements under the Code of Ethics for Professional Accountants issued by the Hong Kong Institute of Certified Public Accountants. The 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; do not perform any self assessments; and do not act 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 is equal to or above US$320,000.
During the 2013/14 fiscal year, PwC provided audit and insignificant non-audit services to the Group.
Remuneration of External Auditor
The fees paid or payable to PwC for audit and non-audit services for the financial year ended March 31, 2014 and the comparative figures for the financial year ended March 31, 2013 are as follows:
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REMUNERATION OF DIRECTORS AND SENIOR MANAGEMENT
A formal and transparent procedure for fixing the remuneration packages of individual directors and senior management is in place. Details of remuneration policies and other relevant information are set out in the Compensation Committee Report of the Company’s 2013/14 Annual Report on pages 75 to 85.
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The Company Secretary, Mr. Mok Chung Fu, Eric is responsible for facilitating the Board process, as well as communications among Board members with shareholders and management. During the financial year ended March 31, 2014, the Company Secretary undertook appropriate professional training to update his skills and knowledge.
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There was no change to the Company’s constitutional documents during the 2013/14 fiscal year. The Articles of Association is available on the Company’s website and the HKEx’s website. However, a special resolution will be put forward to the shareholders in the forthcoming annual general meeting of the Company to be held on July 2, 2014 to adopt the new articles of association of the Company so as to bring the constitution of the Company in line with provisions of the Company Ordinance (Chapter 622 of the Laws of Hong Kong) which came into effect on March 3, 2014 (“New Companies Ordinance”), the Listing Rules and current corporate practices.
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Communication with Shareholders
The Company is committed to safeguard shareholders’ interests and believes that effective communication with shareholders and other stakeholders is essential for enhancing investor relations and investor understanding of the business performance and strategies of the Group. To achieve this, the Company has established the Shareholders’ Communication Policy setting out various formal channels of communication with shareholders and other stakeholders for ensuring fair disclosure and comprehensive and transparent reporting of the Company’s performance and activities. The Nomination and Governance Committee of the Company will review the Shareholders’ Communication Policy on a regular basis to ensure its effectiveness.
Constructive use of the general meetings
The annual general meeting and other general meetings of the Company are the primary forum for communication by the Company with its shareholders and for shareholder participation. The Board encourages shareholders to participate in general meetings as it provides a valuable opportunity to discuss the Company, its corporate governance and other important matters. Notice of the annual general meeting and related papers are sent to shareholders at least 20 clear business days prior to the date of the annual general meeting. The information sent to shareholders includes a summary of the business to be covered at the annual general meeting, where a separate resolution is prepared for each substantive matter.
During the 2013/14 fiscal year, the Company started to arrange a question and answer session in the annual general meeting for shareholders and media to communicate directly with Chairman and senior management. The Company also arranged a product display at the annual general meeting venue to update shareholders on the latest products strategy of the Company.
2013 Annual General Meeting
The 2013 annual general meeting of the Company held on July 16, 2013 was attended by, among others, the CEO, Chief Financial Officer, chairpersons of the Audit Committee and Compensation Committee, and representatives of the external auditor PwC and other professional consultant to answer questions raised by shareholders at the meeting.
Separate resolutions were proposed on each issue, including the re-election of individual retiring directors. The matters resolved and the percentages of votes cast in favour of the resolutions are summarised below:
|Matters being voted upon||Percentage of affirmative votes|
|Receive and consider the Group’s audited accounts for the year ended March 31, 2013 together with the directors’ report and independent auditor’s report||99.99%|
|Declaration of a final dividend for the issued ordinary shares for the year ended March 31, 2013||99.99%|
|Re-election of retiring directors and authorization of the Board to fix directors’ fees ||97.54% to 99.99% with respect to each individual resolution|
|Resolve not to fill up the vacated office resulted from the retirement of Dr. Wu Yibing as director||99.89%|
|Re-appointment of PwC as auditor and authorization of the Board to fix auditor’s remuneration||99.50%|
|Approval of granting the general mandate to the directors to allot, issue and deal with the additional Company’s ordinary shares||72.97%|
|Approval of granting the general mandate to the directors to repurchase the Company’s ordinary shares||99.99%|
|Approval of authorisation to directors to extend the general mandate to issue new ordinary shares by adding the number of ordinary shares repurchased||73.86%|
During the 2013/14 fiscal year, the Company convened and held a general meeting on March 18, 2014 (“2014 General Meeting”) to consider and approve the revised supply annual caps and the revised royalty annual caps for existing continuing connected transactions with NEC Corporation and its associates, which meeting was attended by the CEO, Chief Financial Officer, members of the independent board committee and representatives from the independent financial advisor to independent shareholders of the Company.
|Matters being voted upon||Percentage of affirmative votes|
|Approval of and confirm the revised supply annual caps and the revised royalty annual caps||99.99%|
All of the resolutions proposed at the 2013 annual general meeting and the 2014 General Meeting were decided by way of poll voting. Procedures for conducting the poll were explained by the Chairman at the commencement of this meeting. The poll was conducted by Tricor Abacus Limited, the Company’s share registrar, as scrutineer and the details of poll voting results were posted on the Company’s website (www.lenovo.com/hk/publication) and HKEx’s website (www.hkex.com.hk) on July 16, 2013 and March 18, 2014 respectively.
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