Governance & Ethics

Our approach

Xstrata is committed to the principles of best practice in corporate governance, recognising that strong and accountable governance is directly linked to our ability to manage risk and ensure optimal performance.

Xstrata's management structure devolves responsibility and authority to our four global commodity businesses. This structure relies on robust governance and communication throughout the Group to ensure local responsibility and management of our assets is accompanied by compliance with Group-wide policies and standards. Xstrata is committed to the principles of best practice in corporate governance, recognising that strong and accountable governance is directly linked to our ability to manage risk and ensure optimal performance.

Xstrata's Board comprises three executive directors and nine non-executive directors, of which six are considered to be independent. There were no changes to the composition of the Board during 2005. Xstrata complies with the best practice governance provisions set out in Section 1 of the UK Combined Code on Corporate Governance, with the exception of membership of the Remuneration Committee, which comprises two independent non-executive directors, but is chaired by Xstrata non-executive Chairman Willy Strothotte. As a director of Glencore International, a shareholder in Xstrata, Mr Strothotte is not considered to be independent. In addition, no individual member of the Audit Committee has been identified as having recent and relevant financial experience. During the year, David Rough, Senior Independent Director and Deputy Chairman led a formal assessment of the Board's performance, including individual assessments of Board members. A comprehensive corporate governance report is published in the Annual Report 2005.

The remuneration of all company directors is fully disclosed in the Remuneration Report, published in the Annual Report 2005. This disclosure includes directors' benefits, together with an explanation of each component of directors' pay, including service contracts and performance criteria for long-term incentives.

The remuneration of all senior managers, including Executive Committee members, is dependent to varying extents on the Group's health, safety, environmental and community performance, which is assessed to determine annual bonuses. To drive improvements in safety performance in South Africa, the proportion of managers' bonuses dependent on HSEC performance was increased and now represents up to 80% for Xstrata Coal managers and at least 60% for Xstrata Alloys senior management.

HSEC governance

As with financial performance, Xstrata's Executive Committee and Board have overall responsibility for Xstrata's HSEC performance. The Executive Committee receives comprehensive monthly reports on the Group's HSEC performance and the Board reviews performance quarterly.

Xstrata's Group HSEC Policy, Corporate Social Involvement Policy, Risk Management Policy and Business Principles set out the guiding principles and strategic framework for the management of health, safety, environmental and community issues across the business. In late 2004, Xstrata introduced 17 HSEC Management Standards, which set out corporate expectations in key areas of HSEC performance. Each commodity business and operation's systems and performance is independently audited against these standards through the HSEC Assurance Programme. Within these standards, it is the responsibility of each commodity business to implement specific HSEC management initiatives and controls. HSEC risks are identified and managed by each operation and each commodity business through comprehensive risk management processes and are integrated into business plans. Policies, Xstrata's Business Principles and HSEC Management Standards are available from the Sustainability section of our website (www.xstrata.com/sustainability).

A comprehensive HSEC governance review was conducted by Xstrata Coal to identify enhancements to the HSEC framework in line with international best practice, various national HSEC standards and feedback from a range of managers and directors. A further review will be completed at the Group level in 2006. The review showed a clear and appropriate framework for managing HSEC issues and continued management commitment to achieving Group HSEC objectives. The results of these reviews, including lessons learned to improve governance, are shared across the Group.

Our 2005 Sustainability Report has been independently assessed against the AA1000 Assurance Standard (AA1000AS) by URS Verification Limited for the first time. The Board HSEC Committee considers the AA1000AS provides the most comprehensive benchmark against which to measure Xstrata's sustainable development reporting. AA1000AS assesses sustainability management and reporting against three assurance principles: materiality, completeness and responsiveness.

Board HSEC Committee

In February 2005, Xstrata's Board formed an HSEC committee, chaired by independent non-executive director Ian Strachan and comprising David Rough, Deputy Chairman and Senior Independent Director, Fred Roux, independent non-executive director and Mick Davis, Group Chief Executive. The General Manager Health, Safety and Environment acts as secretary to the committee. All Board members are provided with regular independent briefings on social, ethical and environmental issues and are able to consult external experts at Xstrata's expense.

Tieri township, winner of the 2005 Keep Australia Beautiful Regional Tidy Town Award

The committee reports to the Board on developments, trends and forthcoming significant legislation on HSEC matters, reviews Xstrata's HSEC Policy and Standards and monitors the effectiveness of management systems in place. All significant incidents are reviewed and six-monthly follow up progress reports on fatality prevention programmes are provided by the relevant commodity businesses. The committee also monitors HSEC performance and compliance to Xstrata's HSEC Policy and Standards and relevant legislation, through key performance indicators, a quarterly review of HSEC assurance audits and presentations by each commodity business. The HSEC Committee reviews its performance, constitution and terms of reference each year and reports any recommended changes to the Xstrata Board.

In July 2005, a specialist health and safety advisor was appointed to the committee. Professor Jim Joy is Professor of Mining Safety and Director of the Minerals Industry Safety and Health Centre (MISHC) at the University of Queensland, Australia and a leading expert in safety and risk in the mining industry. This specialist role provides independent advice, guidance and technical expertise as a member of the HSEC Committee, contributes to Xstrata's ongoing commitment to sustainable development, and provides input into the development of policies and guidelines for health and safety management throughout the Xstrata Group. The Board HSEC committee is reviewing options to secure relevant independent social and environmental expertise.

All HSEC Committee members attended the four committee meetings held in 2005 and visited Xstrata Alloys underground and smelting operations near Rustenburg, South Africa. In addition, the committee members conducted a visit to Impala Platinum underground operations in South Africa, as a benchmarking exercise. The committee received presentations from the Chief Executive of each of Xstrata's four global commodity businesses during the year, outlining HSEC strategy, performance, management systems and plans. These presentations will continue on a rotational basis, allowing the committee to give recognition to good HSEC performance and initiatives, request further information as required and identify areas for further improvement across the Xstrata Group.

HSEC management

The General Manager Health, Safety and Environment (GM HSE) oversees the global implementation, review and assurance of the HSEC Policy and Standards and manages the Group's interface with stakeholders on issues related to sustainable development. The GM HSE reports directly to the Group Chief Executive.

Ownership of and responsibility for HSEC performance, is an integral part of overall operational performance. HSEC resources are focussed at the site level. Senior divisional and commodity business HSEC managers assist sites to develop HSEC frameworks and management systems that are aligned to the Group Policy and Standards, in order to manage the HSEC risks in their business or operation.

HSEC Governance

HSEC Assurance Programme

Xstrata's comprehensive Group-wide HSEC Assurance Programme provides assurance to the Board through independent audits at every managed site, against Xstrata's HSEC Policy and 17 Management standards.

KPMG conducted an independent review of Xstrata's HSEC Assurance Programme in the final quarter of 2004, in advance of the programme being rolled out from January 2005. KPMG's report described Xstrata's Assurance Programme as "an example of leading practice in the mining sector". The baseline audits completed in 2005 will be followed by a regular programme of audits at each operation, to ensure that Group expectations are being met or exceeded. Lower scoring operations have been prioritised for re-audit in 2006, with the majority of sites being re-audited in 2007 and high performing sites scheduled for 2008. Additional information on the performance of our operations in the 2005 baseline audits is provided in the Sustainability chapter.