Investor relations - Corporate Governance

Corporate Governance Structure
Corporate Governance Practices
The Board
Delegation by The Board
Accountability and Audit
Communincation with Shareholders

CORPORATE GOVERNANCE STRUCTURE

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CORPORATE GOVERNANCE PRACTICES

Throughout the year ended March 31, 2012, the Company has complied with the code provisions of the Code on Corporate Governance Practices (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 "Listing Rules"), and where appropriate, met the recommended best practices in the CG Code, save for the deviations which are explained below.

Code A.2.1
Under Code A.2.1, the roles of chairman and chief executive officer should be separated and should not be performed by the same individual. Following the resignation of Mr. Liu Chuanzhi on November 3, 2011, Mr. Yang Yuanqing ("Mr. Yang") has been appointed as the chairman of the Board (the "Chairman") and has performed both the roles as 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 hold both the positions as it helps to maintain the continuity of the policies and stability of the operations of the Company. The Board comprising a vast majority of non-executive directors meets regularly on a quarterly basis to review the operations of the Company led by Mr. Yang. Accordingly, the Board believes that this arrangement will not have negative influence on the balance of power and authorizations between the Board and the management of the Company.

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. In February 2012, all the non-executive directors (including independent non-executive directors) have entered into letters of appointment with the Company for a term of three years subject to retirement by rotation as provided for in the articles of association of the Company (the "Articles of Association").

Code E.1.2
Mr. Liu Chuanzhi, the former Chairman was unable to attend the Company's annual general meeting which was held on July 22, 2011 as he had an engagement that was important to the businesses 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 2011/12 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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THE BOARD

Board Composition
As at May 23, 2012 , there were eleven Board members consisting of one executive director, four non-executive directors and six independent non-executive directors. Accordingly, non-executive directors accounted for a vast majority of the Board members whereas the independent non-executive directors represented more than one-third of the Board members, 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 89 to 91 of the Company's 2011/12 Annual Report. The Company has also 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, also serve on the board of directors of Legend Holdings Limited, the controlling shareholder of the Company. Save for the relationships (including financial, business, family, other material and relevant relationships) as detailed above and in the biographies of directors set out on pages 89 to 90 of the Company's 2011/12 Annual Report, there is no other relationship among the Board to the best knowledge of the Board members as at May 23, 2012.

Chairman and Chief Executive Officer
The Chairman leads the Board in the determination of its strategy and in the achievement of its objectives and ensures that all directors are properly briefed on issues arising at Board meetings and receive adequate, complete and reliable information, in a timely manner. 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. Both the Chairman and CEO positions are currently held by Mr. Yang. The Board believes that the current governance structure, with a combined Chairman and CEO and a vast majority of non-executive directors provides an effective balance of power and authority for the management of the Company in the best interests of the Company at the present stage.

Independence of Non-executive Directors
Each of the independent non-executive directors has made a confirmation of independence pursuant to rule 3.13 of the Listing Rules. On May 22, 2012, the Nomination and Governance Committee of the Board has conducted an annual review of the independence of all independent non-executive directors of the Company. 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 abstained from voting on the resolution concerning his own independence) concluded that all the independent non-executive directors satisfied the criteria of independence as set out in the Listing Rules.

On February 8, 2012, Mr. William O. Grabe ("Mr. Grabe") was re-designated from a non-executive director to an independent non-executive director. Although Mr. Grabe was appointed as a non-executive director in 2005 following the closing of a transaction between the Company and certain private equity investors, including the General Atlantic group, whose interests were represented by its senior executive, Mr. Grabe, the Board is satisfied and has demonstrated to the satisfaction of The Stock Exchange of Hong Kong Limited (the "Exchange") that the re-designation of Mr. Grabe as an independent non-executive director is justified for the following reasons:

1. The General Atlantic group converted and disposed of all its remaining interests in the Company on November 15, 2010. Following the disposal, the General Atlantic group ceased to hold any equity interests in the Company;

2. Mr. Grabe retired from all his duties with the General Atlantic group in 2010; he has thereafter ceased to represent the interests of the General Atlantic group and has been sitting on the Board solely in his personal capacity;

3. To the best knowledge of the directors of the Company, Mr. Grabe has not relied on the remuneration given by the Company and he is independent of any connected person and substantial shareholder of the Company;

4. The Company believes that Mr. Grabe is able to exercise his professional judgment and draw upon his extensive knowledge in information technology, investment, employees compensation and corporate governance matters for the benefit of the Company and its shareholders as a whole and, in particular, the independent shareholders; and

5. Mr. Grabe confirmed his independence to the Exchange in respect of each of the factors set out in rule 3.13 of the Listing Rules that the Exchange takes into account in assessing the independence of a non-executive director.

In light of the above, notwithstanding Mr. Grabe's relationship with the Company as a non-executive director prior to his re-designation as an independent non-executive director, the Company is of the opinion that his current connection with the Company will not affect his independence as an independent non-executive director and he will be able to carry out his duties as an independent non-executive director impartially and independently.

Appointment and Election of Directors

Board appointment process
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 structure, size and composition of the Board will be reviewed from time to time by the Nomination and Governance Committee to ensure that the Board has a balanced skill and expertise for providing effective leadership to the Company.

Board tenure
In accordance with 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 the 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 2012 annual general meeting the reasons why the Board considers the individual continues to be independent and the recommendation to shareholders to vote in favor of the re-election of such independent non-executive director.

Directors' commitments
All directors are committed to devote sufficient time and attention to the affairs of the Company together with its subsidiaries (collectively 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. In respect of those directors who stand for re-election at the 2012 annual general meeting, all their directorships held in listed public companies in the past three years are also set out in the document accompanying the notice of the 2012 annual general meeting.

Director induction and professional development
Every newly appointed director receives a comprehensive induction package on appointment to ensure that he/she has a proper understanding of the operations, business and governance policies of the Company. In addition, the new director also receives training by external lawyers to ensure he/she is fully aware of the responsibilities as a director under statute and common law, the Listing Rules, applicable legal requirements and other regulatory requirements. During the 2011/12 fiscal year, the Company arranged new directors to visit Lenovo Innovation Center and manufacturing plant in Beijing to enhance their understanding of the operations of the Company.

In addition to Board meetings, during the 2011/12 fiscal year, the Company also arranged independent non-executive directors of the Company to attend certain culture and finance function activities and visit some of the overseas management offices to enhance their understanding of the culture and operations of the Company. The directors are also regularly updated and apprised of any new regulations and guidelines, as well as any amendments thereto issued by the Exchange and the Hong Kong Companies Registry, particularly the effects of such new or amended regulations and guidelines on directors specifically, and the Company and the Group generally. On an ongoing basis directors are encouraged to keep up to date on all matters relevant to the Group and attend briefings and seminars as appropriate.

The Company is aware of the requirement to regularly review and agrees with each director their training needs. The continuing professional training program of the Company for directors will be reviewed on an ongoing basis by the Nomination and Governance Committee.

Board Process
The Board recognises the significance 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

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 the directors of the Company have confirmed, after specific enquiry, their compliance with the required standard during the 2011/12 fiscal year.

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DELEGATION BY THE BOARD

Role of the Board
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 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.

The Board considered and/or resolved the following major non routine matters during the 2011/12 fiscal year:

• Acquisition of shares in Medion AG
• Formation of a joint venture with Compal Electronics, Inc.
• Appointment of Mr. Nobuyuki Idei and Mr. Zhao John Huan as directors
• Resignation of Mr. James G. Coulter and Mr. Liu Chuanzhi as directors
• Re-designation of Mr. Grabe from a non-executive director to an independent non-executive director
• Amendments to the terms of reference of the Audit Committee, Compensation Committee and Nomination and Governance Committee
• Amendments to the Articles of Association
• Adoption of the shareholders' communication policy of the Company (the "Shareholders' Communication Policy")
• Disbandment of the Strategy Committee
• Adoption of a Board principle on the term of independent non-executive directors

Board Committees
As at May 23, 2012, the Company has preserved three board committees ("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 (formerly known as 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.

The Board may also establish committees on an ad hoc basis to approve specific projects as deemed necessary. 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.

All the 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.

Audit Committee

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 2011/12 are summarized in the Audit Committee Report as stated on pages 59 to 61 of the Company's 2011/12 Annual Report.

Compensation Committee

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 2011/12 are summarized in the Compensation Committee Report as stated on pages 62 to 71 of the Company's 2011/12 Annual Report.

Strategy Committee

Membership

The Strategy Committee (defined as "Committee" in this section) was disbanded on February 8, 2012. Its strategy and performance related responsibilities were taken over by the full Board and the Nomination and Governance Committee respectively. Prior to its disbandment, the Committee was composed of Mr. Yang Yuanqing (Committee Chairman), Mr. William O. Grabe (Member) and Ms. Ma Xuezheng (Observer).

Responsibilities and summary of work

The Committee was 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 was also responsible for the assessment of the performance of the CEO and making proposals to the Compensation Committee.The Committee held three meetings during the period from April 1, 2011 to February 8, 2012 to review the business performance and business strategy of the Group and assess the performance of the CEO for FY2010/11.

Nomination and Governance Committee

Membership

The Nomination and Governance Committee (formerly known as Governance Committee) (defined as "Committee" in this section) is currently composed of Mr. Yang Yuanqing (Committee Chairman), Mr. Nobuyuki Idei and Mr. William O. Grabe.

Responsibilities and summary of work

Board and Committee Meetings and Attendance
The number of meetings the Board and Board Committees held during the 2011/12 financial year are shown below together with attendance details:

	Attendance/Meetings in the 2011/12 fiscal year
Name of directors	Board	Audit Committee	Compensation Committee	Nomination and Governance Committee	Strategy Committee
	(Note 1)	(Notes 1 & 2)	(Note 1)	(Notes 1 & 10)	(Notes 1 & 11)
Executive director
Mr. Yang Yuanqing (Chairman & CEO) (Note 3)	4/4	–	–	1/1	2/3(Note 9)
Non-executive directors
Mr. Liu Chuanzhi (Note 4)	3/3	–	–	–	3/3
Mr. Zhu Linan	4/4	–	–	–	–
Ms. Ma Xuezheng	4/4	4/4	–	–	–
Mr. James G. Coulter (Note 5)	2/2	–	–	–	1/2
Dr. Wu Yibing	4/4	–	–	–	–
Mr. Zhao John Huan (Note 6)	1/1	–	–	–	–
Independent non-executive directors
Professor Woo Chia-Wei	4/4	4/4	6/6	–	–
Mr. Ting Lee Sen	4/4	4/4	6/6	–	–
Dr. Tian Suning	4/4	–	–	–	–
Mr. Nicholas C. Allen	4/4	4/4	–	–	–
Mr. Nobuyuki Idei (Note 7)	2/2	–	–	1/1	–
Mr. William O. Grabe (Note 8)	3/4	–	6/6	1/1	2/3

Notes:

1. The attendance figure represents actual attendance/the number of meetings a director is entitled to attend.
2. Representatives of the external auditor participated in every Audit Committee meeting held during the 2011/12 fiscal year.
3. Mr. Yang Yuanqing was appointed as the Chairman on November 3, 2011.
4. Mr. Liu Chuanzhi resigned as the Chairman and non-executive director on November 3, 2011.
5. Mr. James G. Coulter resigned as a non-executive director on September 27, 2011.
6. Mr. Zhao John Huan was appointed as a non-executive director on November 3, 2011.
7. Mr. Nobuyuki Idei was appointed as an independent non-executive director on September 28, 2011.
8. Mr. William O. Grabe was re-designated as an independent non-executive director on February 8, 2012.
9. For corporate governance reason, Mr. Yang Yuanqing was required to excuse himself from the Strategy Committee meeting to avoid conflict of interest.
10. The name of the "Governance Committee" was changed to "Nomination and Governance Committee".
11. The Strategy Committee was disbanded on February 8, 2012.

During the 2011/12 fiscal year, the Chairman held two executive sessions with non-executive directors (including independent non-executive directors), the first one being a session attended by only human resources management to review the organization human resources planning of the Company while the other was without the presence of all the senior management to discuss future Board meeting matters.

Management Functions
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 our needs. The list of senior management and their biography are set out on pages 90 to 91 of the Company's 2011/12 Annual Report.

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ACCOUNTABILITY AND AUDIT

Financial Reporting
The Board is responsible 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 a going concern basis while the external auditor's responsibilities to shareholders are set out in the Independent Auditor's Report on page 103 of the Company's 2011/12 Annual Report.

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.

While management is responsible for the design, implementation and maintenance of internal controls, the Board and its Audit Committee acknowledge responsibility to ensure Lenovo maintains sound and effective internal controls.

Management of Internal Controls
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 company guidelines and procedures and set out the control standards required which guide employees' everyday work within Lenovo 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 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 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.

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.

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 Global Business Process & Controls organization. As part of its mission, the Global Business Process & Controls organization helps to clearly communicate control requirements across all organizations and process owners, design processes, and evaluate the operating effectiveness and efficiency of designed 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 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 2011/12 fiscal 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. In keeping with best practices, Internal Audit regularly monitors the status of management action plans with respect to audit findings to closure in order 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 2011/12 fiscal year, Internal Audit issued multiple reports covering most of the 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. 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.

Price-Sensitive Information
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 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 sensitive information, and has communicated to all relevant staff regarding this matter.

Control Effectiveness
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 CG 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 the Board 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. 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. This framework will continued to be strengthened, so as to create a robust risk management culture which safeguards the value of the Company.

External Auditor

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 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 2011/12 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, 2012 and the comparative figures for the financial year ended March 31, 2011 are as follows:

	2012 US$mn	2011 US$mn
Audit
– 2010/11	–	4.0
– 2011/12	5.5	–
	5.5	4.0
Non-audit	1.9	0.6
Total	7.4	4.6

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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.

Extraordinary General Meeting
During the 2011/12 fiscal year, the Company convened and held an extraordinary general meeting on May 27, 2011 (the "EGM") to consider and approve certain continuing connected transactions with NEC Corporation and its affiliates, which meeting was attended by CEO, Chief Financial Officer, members of the independent board committee and representatives from the independent financial advisor to independent shareholders of the Company. The resolution approving the continuing connected transactions was passed with about 99.97% votes cast in favour of it.

2011 Annual General Meeting
The 2011 annual general meeting of the Company held on July 22, 2011 was attended by, among others, CEO, Chief Financial Officer, chairmen of the Audit Committee and Compensation Committee, and representatives of 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:

• Received the Group's audited accounts for the year ended March 31, 2011 together with the directors' report and independent auditor's report (99.96%);
• Declaration of a final dividend for the issued ordinary shares for the year ended March 31, 2011 (100%);
• Re-election of retiring directors and authorization to fix directors' fees for the year ended March 31, 2011 (99.16% to 99.99% in respect  of each individual resolution);
• Re-appointment of PwC as auditor and authorization of the Board to fix auditor's remuneration (99.93%);
• Approval of granting the general mandate to the directors to allot, issue and deal with the Company's shares (72.87%);
• Approval of granting the general mandate to the directors to repurchase the Company's shares (99.98%);
• Approval of authorisation to directors to extend the general mandate to issue new shares by adding the number of shares repurchased (74.11%);
• Approval of cancellation of the series A cumulative convertible preferred shares from the existing authorized share capital of the Company (99.99%); and
• Approval of amendments to the Articles of Association which allowed the Company to make use of the electronic means and the website for communication with the shareholders upon obtaining express or deemed consent (99.99%).

All the resolutions proposed at the EGM and 2011 annual general meeting were decided by way of poll voting. Procedures for conducting the poll were explained by the Chairman at the commencement of these meetings. 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 May 27, 2011 and July 22, 2011 respectively.

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