Corporate Governance Report

Introduction

The Board is committed to the principle of best practice in corporate governance. This report addresses the status of the company’s compliance with the principles and provisions of the Combined Code on Corporate Governance issued on 23 July 2003 ("the Code"), details the key policies, processes and structures that apply within the Group to comply with the Code.

Statement by the Directors on corporate governance policies and compliance with the provisions of the Combined Code

The Code establishes 14 main Principles of Good Governance, 21 supporting principles and 48 provisions. The Listing Rules require every listed company to report on how it applies the principles in the Code, and to confirm that it complies with the Code’s provisions or, where it does not, to provide an explanation. The company complies with the best practice governance provisions as set out in Section 1 of the Code, except, as explained below, with regard to membership of the Remuneration Committee as the Chairman of the Committee is not considered independent and save that no individual member of the Audit Committee has been identified as having recent and relevant financial experience.

A. Directors

A.1 The Board

The first main principle requires the company to have an effective Board which is collectively responsible for its success. Supporting principles describe the Board’s role to provide entrepreneurial leadership within a framework of controls that allow risk to be assessed and managed. The Board should set strategic aims and the company’s values, ensuring that obligations to shareholders are met. Non-executive directors have a particular role in overseeing the development of strategy, scrutinising management performance and ensuring the integrity of financial information and systems of risk management. The Board is satisfied that it has met these requirements.

David Issroff resigned from the Board with effect from 10 May 2006 following his decision to relocate to the United States for personal reasons. Mr. Issroff was a non-executive director and had been appointed to the Board on the nomination of Glencore International AG ("Glencore") as permitted under the terms of the Relationship Agreement between the company and Glencore. There were no other changes to the membership of the Board during the year. The Board, chaired by Willy Strothotte, has eleven directors, comprising three executive directors and eight non-executive directors. The three executive directors are Mick Davis, the Chief Executive, Trevor Reid, Chief Financial Officer, and Santiago Zaldumbide, Chief Executive of Xstrata Zinc. David Rough, an independent, non-executive director is the Deputy Chairman. The non-executive directors possess a range of experience and are of sufficiently high calibre to bring independent judgement to bear on issues of strategy, performance, and resources that are vital to the success of the Group.

The Board is responsible for the governance of the Group on behalf of shareholders within a framework of policies and controls which provide for effective risk assessment and management. The Board provides leadership and articulates the company’s objectives and strategy to achieve those objectives. The Board sets standards of conduct, as documented in an approved Statement of Business Principles, which provide an ethical framework for all Xstrata businesses. While the Board focuses on strategic issues, financial performance, risk management and critical business issues, it also has a formal schedule of matters specifically reserved to it for decision. These reserved matters which are documented in a comprehensive regime of authorisation levels and prior approval requirements for key corporate decisions and actions, are reviewed and updated annually by the Board. Such matters reserved to the Board include, but are not limited to, approval of budgets and business plans, major capital expenditure, major acquisitions and disposals, and other key commitments. Certain powers are delegated by the Board to an Executive Committee which is a Committee of the Board of Xstrata (Schweiz) AG, the main trading subsidiary of Xstrata plc. This Committee and a description of its powers are described on page 125.

The company has a policy based on the Model Code published in the Listing Rules, which covers dealings in securities and applies to directors, persons discharging managerial responsibilities, and employee insiders.

Four scheduled Board meetings were held during the year and five additional meetings were held. Attendance by directors at Board meetings and Committee meetings is shown below. The Chairman held separate meetings with the non-executive directors several times a year following the full Board meetings without the executive directors being present. All Board meetings are held in Switzerland.

Attendance at Board meetings and Committees of the Board

There are four formally constituted committees of the Board, each of which has formal terms of reference. These can be seen on the company website.

Attendance at Board meetings and Committees of the Board
DirectorBoard (9)
of which 4
were scheduled		Audit (4) Remuneration
(2) 		Board (9)
of which 4
were scheduled		Nominations
(1)
Mick Davis 9 3
Ivan Glasenberg 8 1
Paul Hazen 6 2
Robert MacDonnell 8 1
Sir Steve Robson 7 4
David Rough 8 42 31
Trevor Reid 9
Dr. Fred Roux 9 43
Ian Strachan 74 3
Willy Strothotte 92
Santiago Zaldumbide 9

There are four formally constituted committees of the Board, each of which has formal terms of reference. These can be seen on the company website.

A.2 Chairman and Chief Executive

Another main principle states that there should be a clear division of responsibilities between the running of the Board and executive responsibility for running the business, so that no one person should have unfettered powers of decision.

A clear separation is maintained between the responsibilities of the Chairman and the Chief Executive. This is documented in a statement approved by the Board. The Chairman is responsible for leadership of the Board and creating the conditions for overall Board and individual director effectiveness while the Chief Executive is responsible for overall performance of the Group including the responsibility for arranging the effective day-to-day management controls over the running of the Group.

A.3 Board balance and independence

The company complies with the requirement of the Code that there should be a balance of executive and non-executive directors such that no individual or small group can dominate the Board’s decision taking.

Of the eight non-executive directors, six are considered by the Board to be independent of management and free from any business or other relationship which could materially interfere with the exercise of their independent judgement and two, Willy Strothotte and Ivan Glasenberg are directors of Glencore International AG ("Glencore"). Willy Strothotte is Chairman and Ivan Glasenberg is Chief Executive Officer of Glencore. The Board has considered these associations and considers the industry expertise and experience of these directors beneficial to the Group.

David Rough is the Deputy Chairman and the Senior Independent Director. His role and responsibilities as the Senior Independent Director are detailed in and formalised by Board resolution and, in summary, are that he should be available to shareholders to discuss their concerns where the normal channels would not be appropriate for this purpose, to have contact with analysts and major shareholders to obtain a balanced understanding of their issues and concerns, to chair the Nomination Committee and to lead the Board and director appraisal process.

The non-executive directors have a particular responsibility to ensure that the strategies proposed by the executive directors are fully considered. To enable the Board to discharge its duties, all directors receive appropriate and timely information and briefing papers are distributed to all directors.

The Board reviews annually the composition and chairmanship of its standing committees, namely the Audit, Remuneration, Nomination and the Health, Safety, Environment & Community Committee.

A.4 Appointments to the Board

The Code requires there to be a formal, rigorous and transparent procedure for the appointment of new directors, which should be made on merit and against objective criteria. The Nomination Committee fulfils these requirements and its report is set out on page 124.

A.5 Information and professional development

Another main principle requires that information of appropriate quality is supplied to the Board in a timely manner and that, in addition to induction programmes on joining the company, directors should regularly update their skills and knowledge.

All directors are made aware that they may take independent professional advice at the expense of the company in the furtherance of their duties. All directors had access to the advice and services of the Company Secretary, who is responsible to the Board for ensuring that all governance matters are complied with and assists with professional development as required.

Arrangements have been approved by the Board to ensure that new directors should receive a full, formal and tailored induction on joining the Board. In addition ongoing support and resources are provided to directors in order to enable them to extend and refresh their skills, knowledge and familiarity with the company. Professional development and training is provided in three complementary ways: regular updating with information on changes and proposed changes in laws and regulations affecting the Group or its businesses; arrangements, including site visits, to ensure directors are familiar with the Group’s operations; and, opportunities for professional and skills training.

A.6 Performance evaluation

In accordance with the Code requirement, the Board undertook a formal and rigorous evaluation of its own performance and that of its Committees and of its individual directors including the Chairman. The process was led by the Senior Independent Director and was based on one-to-one interviews. As a result of the evaluation, a number of outcomes were agreed including a formal review/follow up process after six months following completion of a large project or acquisition, approved by the Board, to monitor how actual performance compared with the original Board approved plan, covering such areas as cost, production levels and timing; an annual presentation or review on senior management succession planning, and changes to Board/Committee processes.

A.7 Re-election of directors

Under the Code, directors should offer themselves for re-election at regular intervals and there should be a planned and progressive refreshing of the Board.

One third of all directors are required to retire by rotation at each Annual General Meeting and any director who, at the start of an AGM, has been in office for more than three years since his election must retire. Retiring directors may offer themselves for re-election.

A succession plan was approved by the Board during the year to ensure there was a balance of skills and experience on the Board and to plan for an orderly refreshing of Board membership. It is proposed that Messrs Davis, Reid, Rough and Sir Steve Robson will retire and will offer themselves for re-election at the AGM on 8 May 2007. Following an appraisal of the non-executive directors, the Board was satisfied that each director’s performance continues to be effective and that each director continues to demonstrate commitment to the role, and recommended the re-election of the four directors.

B. Remuneration

Remuneration is covered in the Remuneration Report on pages 126 to 139 and, with regard to the Remuneration Committee, on pages 123 and 124.

C. Accountability and Audit

C.1 Financial Reporting

The Board is required to present a balanced and understandable assessment of the company’s position and prospects. This responsibility extends to annual and interim reports and other price-sensitive reports and reports to regulators as well as to information required to be presented by statutory requirements.

The Board is mindful of its responsibility to present a balanced and clear assessment of the company’s position and prospects and the Board is satisfied that it has met this obligation. This assessment is primarily provided in the Chairman’s Statement, the Chief Executive’s Report, and the Operating and Financial Review contained in this Report. The Statement of Directors’ Responsibilities in respect of the Consolidated Financial Statements is set out on page 140.

C.2 Internal Control

The Code requires the company to maintain a sound system of internal control to safeguard shareholders’ investment and the company’s assets. The Board must review, at least annually, the effectiveness of the internal control system and report to shareholders that they have done so. The review should cover all material controls, including financial, operational and compliance controls and risk management systems.

Internal Control

The Board of Directors is responsible for the Group’s system of internal control. An ongoing process, in accordance with the Guidance of the Turnbull Committee on Internal Control, has been established for identifying, evaluating and managing the significant risks faced by the Group. This process has been in place throughout the year under review up to the date of approval of the annual report and financial statements. The Board relies on reviews undertaken by the Audit Committee (supported by the Business Unit Audit Committees) in relation to the Group’s compliance with the Turnbull Guidance throughout the year.

The Audit Committee reviewed the process by which risks are identified and assessed and the effectiveness of the system of internal control by considering the regular reports from management on the operation of the risk assessment process throughout the Group, the key risks identified, mitigating actions and controls, management representations and assertions, and reports covering the independent assessment of internal control systems from Internal Audit, the external auditors and other assurance providers such as Health, Safety and Environmental Management.

The principal aim of the system of internal control is the management of business risks that are significant to the fulfilment of the Group’s business objectives with a view to enhancing over time the value of the shareholders’ investment and safeguarding the assets. The internal control systems have been designed to manage rather than eliminate the risk of failure to achieve business objectives and provide reasonable but not absolute assurance against material misstatement or loss. The directors confirm that they have reviewed the effectiveness of the system of internal control.

Control environment

The key elements and procedures that have been established to provide an effective system of internal control are as follows:

(i) Organisational Structure

There is a well-defined organisational structure with clear operating procedures, lines of responsibility and delegated authority.

The way the Group conducts its business, expectations of management and key accountabilities are embodied in the Group’s policies, its Statement of Business Principles and Board Level Authority Limits.

The Group operates a decentralised management model with appropriate authority delegated to Commodity Business Unit Boards for the Alloys, Coal, Copper, Nickel and Zinc/Lead businesses. The Business Units are responsible for profitability to the level of earnings before interest and taxation (EBIT). Business Unit Boards meet regularly and either the Group CEO or CFO attend as representatives of Head Office.

The Board sets overall policy and delegates the authority to implement that policy to its commodity business units and supporting functions.

Group policies are established by head office management for application across the whole Group.

(ii) Risk Identification and Evaluation

The Board considers effective risk management as essential to the achievement of the Group’s objectives and has implemented a structured and comprehensive system across the Group.

The Group Risk Management Policy is published on the Xstrata website at http://www.xstrata.com/assets/pdf/x_policy_group_risk_management.pdf. The Xstrata approach to risk management is value driven and has the stated objective of ensuring "an environment where we can confidently grow shareholder value through developing and protecting our people, our assets, our environment and our reputation". The process is thorough and robust and is an essential element of the Group’s approach to business planning.

Each commodity business unit and the head office carry out a comprehensive annual risk review and update its risk register accordingly. Objectives in the business plan are aligned with risks and a summary of the key risks, related internal controls, accountabilities and further mitigating actions that are planned is appended to the business plan that is reviewed and approved by the Executive Committee.

Progress against plans, significant changes in the business risk profile and actions taken to address controls and mitigate risks are reported quarterly to the commodity business and Group Audit Committees, and to the Executive Committee and the Board as and when necessary.

The output of the process has been reviewed by the Group and commodity business Audit Committees and accords with the Turnbull Guidance.

Following the acquisition of Falconbridge, a significant integration programme was completed to embed the necessary policies and procedures within Falconbridge entities and ensure compliance with Xstrata’s Internal Control Framework.

(iii) Information and Financial Reporting Systems

Financial reporting to the Executive Committee and the Board is continuously modified and enhanced to cater for changing circumstances. The Group’s comprehensive planning and financial reporting procedures include detailed operational budgets for the year ahead and a three-year rolling plan. The Board reviews and approves the annual budget and plan. Plans and budgets are prepared on the basis of consistent economic assumptions determined by the Group Finance function. Performance is monitored and relevant action taken throughout the year through the monthly reporting of key performance indicators, updated forecasts for the year together with information on the key risk areas.

In addition, comprehensive monthly management reports on a divisional and consolidated basis, including updated forecasts for the year, are prepared and presented to the Executive Committee by the Group Controller and form a cornerstone of the system of internal control. Detailed consolidated management accounts, together with an executive summary from the Chief Executive, are circulated to all directors on a monthly basis.

(iv) Investment Appraisal

A budgetary process and authorisation levels regulate capital expenditure. For expenditure beyond specified levels, detailed written proposals are submitted to the Executive Committee in accordance with Board delegated authority limits. There is a standardised approval procedure for investment appraisal which includes a detailed calculation of return on equity. Economic assumptions are consistent with those included in management reports and budgets and are agreed with Group Finance. Reviews are carried out after the project is complete and, for some projects, during the construction period, to monitor progress against plan; major overruns are investigated. Commercial, legal and financial due diligence work, using outside consultants, is undertaken in respect of acquisitions as appropriate.

(v) Treasury Committee

A Treasury Committee operates as a sub-committee of the Executive Committee. Its membership consists of the Chief Executive, the Chief Financial Officer, the Group Treasurer and Group Controller. All meetings are held outside the UK. The Committee recommends group policy, which is approved by the Board, relating to all aspects of funding, management of interest rate and foreign exchange exposures and it co-ordinates relationships with banks, rating agencies and other financial institutions. The Committee monitors all significant treasury activities undertaken by Group companies and ensures compliance with Group policy. A monthly report details the Group cash/debt position, review of bank covenants, exposures and hedging and is circulated to the Executive Committee.

(vi) Internal Audit

Internal Audit is an important element of the overall process by which the Executive Committee and the Board obtains the assurance it requires that risks are being properly identified, managed and controlled. Risk-based internal audit plans, prepared on an annual basis, are approved by the Audit Committees, and timely reports on achievement of the plans and findings are presented to the Audit Committees.

Internal Audit completed a full programme of work in 2006, covering the Business Units and Head Office, focusing in particular on the more significant risks and related internal controls identified in the risk self-assessment process. Findings and agreed actions were reported to management and the Audit Committees.

The Group-wide internal audit function is supplemented by services provided as required by KPMG LLP as an outsourced service provider.

(vii) Fraud Management

There is a formal Group policy relating to fraud management, including reporting and investigation arrangements and whistleblowing procedures. There are independently operated confidential hotlines in each country in which the Group operates, through which employees or contractors can report any breach of Xstrata’s Business Principles, including fraud. The contact details are published in the Statement of Business Principles which can be found on the Xstrata website.

All incidents reported are fully investigated and the results are reported to the Plc Audit Committee.

C.3 Audit Committee and Auditors

A principle of the Code is that the Board should establish formal and transparent arrangements for considering how it should apply the financial reporting and internal control principles and for maintaining an appropriate relationship with the external auditors, Ernst & Young LLP. These responsibilities are delegated to and are discharged by the Audit Committee whose work is described on pages 122 to 123.

D. Relations with shareholders

D.1 Dialogue with shareholders

The company is required to have a dialogue with shareholders, based on the mutual understanding of objectives, and it is the responsibility of the Board as a whole to ensure that a satisfactory dialogue does take place. The Code recognises that most shareholder contact is with the Chief Executive and the Chief Financial Officer. However, the Chairman, the senior independent director, and other directors as appropriate, should maintain contact with major shareholders in order to understand their issues and concerns.

The Board places considerable importance on effective communication with shareholders. The Chief Executive and Chief Financial Officer, assisted by the Executive General Manager of Corporate Affairs, maintain regular dialogue with and give briefings throughout the year to analysts and institutional investors and are involved in a structured programme of investor, analyst and media site visits. Presentations are given by the Chief Executive and Chief Financial Officer after the company’s preliminary announcements of the year-end results and at the half year. Care is taken to ensure that any price-sensitive information is released to all shareholders, institutional and private, at the same time in accordance with the Disclosure Rules and Swiss Stock Exchange requirements.

The Senior Independent Director was available to shareholders for any concern which contact with the Group Chairman, Chief Executive or Chief Financial Officer failed to resolve or for which such contact was inappropriate.

All shareholders can obtain access to the annual report and accounts and other current information about the company through the company’s website at www.xstrata.com. The Business Review on pages 15 to 105 include a detailed report on the business and future developments.

D.2 Constructive use of the Annual General Meeting

All directors normally attend the company’s Annual General Meeting and shareholders are invited to ask questions during the meeting and to meet directors after the formal proceedings have ended. Shareholders at the meeting are advised as to the level of proxy votes received including percentages for and against and the abstentions in respect of each resolution following each vote on a show of hands.

At the time of the listing in March 2002, shareholders in the old Xstrata AG were informed that the company would offer shareholders the opportunity to attend general meetings in Switzerland where the head office resides, even though the company was incorporated and has its registered office in England. Given this history and the number of shares still held in or through Switzerland, the Board continues to consider it is appropriate for the Annual General Meeting, to be held in Zug, Switzerland. Due to minimal attendance of shareholders at the satellite meetings held concurrently in London in previous years, no satellite meeting will be held in London at this year’s AGM, but a live webcast will be provided of the Annual General Meeting through the company’s website www.xstrata.com. A telephone dial-in facility will also be provided on a listen-only basis.

The Board uses the Annual General Meeting to communicate with institutional and private investors and welcomes their participation. At the Annual General Meeting on 9 May 2006, the Chairman and the Chairmen of the Audit, Remuneration, Nomination and HSEC Committees were present to answer questions. Details of the resolutions to be proposed at the Annual General Meeting on 8 May 2007 can be found in the Notice of the Meeting.

In accordance with the Code Provision D.2.4, Notice of the Annual General Meeting and related papers will be sent to shareholders at least 20 working days before the meeting.

Board Committees

The terms of reference of the Audit, Remuneration, Nominations and HSEC Committees are available on the company website.

Audit Committee

The Audit Committee assists the company’s Board of directors in discharging its responsibilities with regard to financial reporting, external and internal audits and controls, including reviewing the annual financial statements, considering the scope of the company’s annual external audit and the extent of non-audit work undertaken by external auditors, approving the internal audit programme, advising on the appointment of external auditors and reviewing the effectiveness of the company’s internal control systems.

The Combined Code recommends that all members of the Audit Committee should be non-executive directors, all of whom are independent in character and judgement and free from relationships or circumstances which are likely to affect, or could appear to affect, their judgement and that at least one member should have recent and relevant financial experience. The Audit Committee comprises four independent non-executive directors, Sir Steve Robson (Chairman of the Committee), David Rough, Fred Roux and Ian Strachan. The Board considered membership of the Committee during the year and, while bearing in mind the Combined Code provision that at least one member of the audit committee should have recent and relevant financial experience, declared its satisfaction that the members of the Committee have requisite skills and attributes, and collectively have sufficient recent and relevant financial experience to discharge its role and responsibilities. The Board therefore considers that it complies with the intent of the Combined Code recommendations regarding the composition of the Audit Committee.

The Committee met four times in the year. Four meetings are scheduled for 2007.

The Chief Executive, the Chief Financial Officer, the Group Controller, a representative of the company’s external auditors and the Head of Internal Audit normally attend the meetings. In order to further enhance communication and best practice, the Committee invites the Chairmen of the Business Unit Audit Committees and the Chief Executives of the Business Units to attend the Audit Committee meetings on a rotational basis. Other directors of the company and senior management may also, on invitation by the Committee, attend and speak, but not vote at any meeting of the Committee.

During the year, the Committee:

  • reviewed for submission to the Board, the 2005 annual financial statements, the 2006 interim and, in February 2007, the 2006 annual financial statements and reviewed the external auditor’s detailed reports thereon;
  • reviewed the appropriateness of the Group’s accounting policies;
  • reviewed Management Reports prior to approval of the interim and annual accounts and before the Hard Close audit. The Management Report covers areas involving areas of significant judgement, estimation or uncertainty including assessment of fair values, quality of earnings, taxation, treasury, reserves and resources, legal matters, and the appropriateness of preparing the financial statements on a going concern basis;
  • reviewed reports from the external auditor on issues arising from their work;
  • reviewed the external auditor’s plan and scope for the audit of the Group accounts including updated plans following the acquisition of Falconbridge, and approved their remuneration both for audit and non-audit work, and their terms of engagement;
  • recommended to the Board the re-appointment of the external auditors following an evaluation of their effectiveness and confirmation of auditor objectivity and independence;
  • approved revised procedures and practices for the reporting of transactions with Glencore, a related party and requested follow-up on issues resulting from a review of Glencore related party transactions;
  • examined the effectiveness of the company’s risk management system including its risk management process and profile, and the company’s internal control systems and operations, and received reports on internal control raised in Business Unit Management Letters. The Committee received reports of the internal control environment at Falconbridge which was considered to be effective;
  • approved the statement on the process by which the Committee and the Board reviews the effectiveness of internal control;
  • reviewed the structure and limits of Group insurance policies which were considered to be appropriate;
  • reviewed and approved the Internal Audit plans for 2007 including updated plans following the acquisition of Falconbridge, the effectiveness of the internal audit function and, at each meeting, reviewed the reports on findings and on progress against recommendations;
  • evaluated the performance of the Committee;
  • reviewed the whistleblowing arrangements within the Group.

Following each Committee meeting, separate meetings were held by the Committee with the external auditors in the absence of executive management, with executive management in the absence of the external auditors and with the internal auditor in the absence of executive management and the external auditors.

The Group has a specific policy governing the conduct of non-audit work by the external auditors which ensures that the company is in compliance with the requirements of the Combined Code and the Ethical Standards for Auditors published by the Auditing Practices Board.

The auditors are permitted to provide non-audit services that are not in conflict with auditor independence. Six-monthly reports are made to the Audit Committee detailing non-audit fees paid to both the external and internal auditors. However, prior approval of the Committee is required for each specific service provided by the external auditors. A range of non-audit services have been pre-approved in principle by the Audit Committee, however, where the fee is likely to be in excess of $100,000 for such services, specific re-approval is required, while prior approval of the Chief Financial Officer is required for those pre-approved services where the fee is likely to be less than $100,000.

The Audit Committee is supported and assisted in its work by separate Audit Committees for each Commodity Business Unit in line with the decentralised commodity business unit model. The Business Unit Audit Committees are independent of the executive management of the Business Unit and are chaired by suitably qualified individuals independent of Xstrata. The terms of reference of these Committees follow those of the company’s Audit Committee. Meeting dates precede those of the company’s Audit Committee and minutes of their meetings are circulated to the company’s Audit Committee.

Remuneration Committee

The Remuneration Committee is chaired by Willy Strothotte. As Chairman of the company and Chairman of Glencore, he is not considered to be an independent director. The Board regards Willy Strothotte’s membership as critical to the work of the Committee due to his extensive knowledge and experience of the global mining resources sector. David Rough and Paul Hazen, the other members of the Committee, are both non-executive directors and independent. The Committee met twice during the year. The Chief Executive attends meetings by invitation but does not participate at a meeting of the Committee (or during the relevant part) at which any part of his remuneration is being discussed or participate in any recommendation or decision concerning his remuneration.

The principal roles of the Committee are (i) to consider and determine all elements of the remuneration of the Chief Executive, and Chief Financial Officer and of the Heads of the major operating subsidiaries or business units of the company (the "Executive Group") as defined by the Chief Executive and (ii) to determine targets for any performance-related remuneration schemes operated by the company.

During the year under review, the Committee:

  • determined the remuneration for the executive directors and reviewed the remuneration arrangements proposed for the members of the Executive Committee for 2007;
  • determined the vesting percentage applicable to awards under the Long Term Incentive Plan 2003 which vested in March 2006, approved the number of shares options and contingent share awards to be awarded under the 2006 Long Term Incentive Plan awards, and the individual awards to members of the Executive Committee;
  • approved amendments to the Annual Bonus Plan, agreed a bonus pool for 2005 and set bonuses for members of the Executive Committee;
  • with respect to the Added Value Incentive Plan, approved proposals regarding the methodology dealing with the situation when an index constituent undergoes a take-over, merger, dissolution or other variation of capital;
  • agreed an increase to the Chairman’s remuneration.

The terms of reference of the Remuneration Committee conform precisely to the Code. The setting of non-executive directors’ remuneration was decided by the Board as a whole.

Details of the company’s remuneration for executive directors, benefits, share options, pensions entitlements, service contracts and compensation payments are given in the Remuneration Report on pages 126 to 139. A resolution to approve the Remuneration Report will be proposed at the Annual General Meeting.

Nominations Committee

The Nominations Committee comprises three non-executive directors of which two are independent. It is chaired by David Rough. The terms of reference provide for a formal and transparent procedure. The Committee has responsibility to identify, evaluate and recommend candidates for Board vacancies and to make recommendations on Board composition and balance. One meeting was held in 2006.

At this meeting, the Committee:

  • reviewed the plan for the retirement by rotation and re-election of directors and the framework for board succession planning to ensure continuity. This is designed to take in account matters such as the size of the company, product diversity and geographical spread, as well as maintaining a balance to the Board in relation to independent/non-independent members, their skills and experience. The Committee also decided that independent non-executive directors ideally should not remain on the board for more than nine years.
  • reviewed a shortlist of potential candidates produced by an executive search company for a non-executive director with broad international experience, based in the UK or Europe.
Health, Safety, Environment & Community Committee

The Board has established a HSEC Committee to assist the Board to fulfil its HSEC roles and obligations globally. The Board HSEC Committee provides the Board with additional focus and guidance on key global HSEC issues.

The Committee comprises Ian Strachan, who chairs the Committee, Mick Davis, David Rough and Fred Roux. Professor Jim Joy is the HSEC Risk Advisor to the Committee and Paul Jones, General Manager Sustainable Development, is Secretary to the Committee. The Committee met three times in the year and there was an informal meeting of the members of the Committee in South Africa with operational site visits.

During the year, the HSEC Committee:

  • monitored and evaluated reports on the implementation and effectiveness of HSEC Policy, HSEC Management Standards, HSEC Strategy, HSEC performance and HSEC Governance;
  • monitored and evaluated the implementation and effectiveness of the HSEC assurance programme;
  • monitored and evaluated the implementation and effectiveness of the Zinc, Coal and Alloys Commodity Businesses’ HSEC strategies and plans;
  • monitored and evaluated reports on high potential HSEC incidents and the results of investigations into critical HSEC incidents and the comprehensive South African Fatality Prevention Programmes;
  • monitored and evaluated reports on the HSEC performance of the former Falconbridge operations;
  • received legal Advice on HSEC obligations and HSEC governance arrangements across the business;
  • evaluated a report on ICMM member companies’ HSEC leadership practices;
  • revised the Committee’s terms of reference;
  • monitored and evaluated new developments, issues and/or relevant legislation on HSEC matters; and
  • reviewed a report from the independent verifiers, URS Verification Limited, on the 2005 Sustainability Report.
Executive Committee

The Executive Committee is a Committee of the Board of Xstrata (Schweiz) AG, the main trading subsidiary of Xstrata plc. The Executive Committee obtains its responsibility and authority from the Xstrata (Schweiz) AG Board and is directly accountable to the Xstrata plc Board. It is chaired by Mick Davis and comprises executive directors, Trevor Reid and Santiago Zaldumbide (also Chief Executive of Xstrata Zinc) together with the Chief Executives of the other Business Units, Peter Coates (Xstrata Coal), Peet Nienaber (Xstrata Alloys), Ian Pearce (Xstrata Nickel), Charlie Sartain (Xstrata Copper), and Marc Gonsalves (Executive General Manager, Corporate Affairs). Other members of senior management are invited to attend Executive Committee meetings as required. The Executive Committee is responsible for implementing strategy, approval of matters consistent with its delegated levels of authority and overseeing the various businesses which comprise the Group. It meets regularly during the year and no meetings are held in the United Kingdom.