Governance and management

Corporate Governance

Rebuilding trust in financial institutions generally is central also to achieving our aim of being recognised as the best bank for customers. We are judged on how we do business, and how we respond to our stakeholders’ concerns and needs. In particular, we are judged on the effectiveness of our decision-making.

We understand the reliance that investors, customers and other stakeholders place on our corporate governance arrangements and the need to ensure the integrity of those processes. From our discussions with shareholders in 2010 we also know that there is a strong desire to understand more about the Board’s approach to governance. We recognise the importance of promoting mutual understanding between the Group and its shareholders through greater engagement. In 2010, Board members and senior management held more than 300 meetings with equity investors.

The Chairman of Lloyds Banking Group, Sir Winfried Bischoff, is responsible for leadership of the Board and for ensuring its effectiveness. We operate a unitary Board with all Directors collectively responsible for the long-term success of the Group. The Chairman ensures that Directors are kept advised of key developments, that they receive timely and relevant information and are involved in relevant decisions. It is expected that all Directors, but particularly the Non-Executive Directors, constructively challenge proposals that come to the Board for decision. In 2010, 17 Board meetings took place.

The Group Chief Executive manages the business day to day. The roles and responsibilities of the Chairman, Group Chief Executive, Senior Independent Director and Non-Executive Directors are set out by the Board Governance Framework. This Framework sets out matters for which the Board is responsible – including the development and setting of strategy and long-term objectives; approval of financial budgets; capital and structure of capital; and various statutory and regulatory approvals – and delegates certain other matters to its Committees.

In 2010, the Board comprised 5 Executive Directors and 9 Non-Executive Directors, including the Chairman. Maintaining the right balance of skills and experience on the Board is an ongoing priority. All new Directors appointed in 2010 have undertaken a formal three-stage induction course, and, throughout the year, Non-Executive Directors undertook approximately five days of training.

The Board is also keen to ensure that, subject to merit, its membership is diverse in gender, ethnicity and background. At the end of 2010 the Board included 2 women.

Full details on our approach to corporate governance are available in our Annual Report and Accounts.

LLOYDS BANKING GROUP’S BOARD AND COMMITTEE STRUCTURE

Political Donations

It is Lloyds Banking Group’s policy not to make political donations (as defined in the Companies Act 2006). The Group did not knowingly make any political donations in 2010. We avoid participating in any activity which we have reasonable grounds for believing falls within the scope of the Companies Act 2006. However the law in this area is extremely broad in scope and could potentially capture normal business activities that would not ordinarily be regarded as being a political donation or expenditure.  We have therefore obtained shareholder approval to make donations to political parties, candidates and organisations or incur political expenditure up to £100,000 a year in total. This authority expires in June 2013.

Corporate responsibility governance

We strengthened our governance framework in 2010, establishing Board representatives for key strands of our responsible business agenda. Sir Winfried Bischoff has overall Board responsibility for Corporate Responsibility and Truett Tate, Group Executive Director, Wholesale, is Executive Sponsor for Climate Change and Environmental Issues.

We also established a new Environmental Steering Group, chaired by our Group Property Director. With senior representation from across the Group, this drives our environmental strategy, targets and performance. This year, we have established a Financial Inclusion Steering Group.

The Board considers responsible business issues throughout the year, and reviews our performance on an ongoing basis. In 2010 a Corporate Responsibility Steering Group, chaired by Group HR Director Angie Risley, met on a regular basis to drive the responsible business strategy. Most of our activity, however, takes place in the business itself, driven by a network of senior managers who act as champions. They ensure we conduct our business in a responsible way and inform our responsibility strategy.

For 2011 a new Community Investment & Sustainable Development Steering Group is being established to develop and drive our responsible business strategy. Details of this Steering Group will be published in our next report.

Membership of the CR Steering Group in 2010:

Corporate responsibility governance

Independent assessment of our performance

In 2010, we were re-selected for the Dow Jones Sustainability Index. This comprises the top 10 per cent most sustainable companies globally, based on long-term economic, environmental and social criteria. We are ranked the top UK bank in the FTSE4Good Ethical Index. We are also the top UK bank in the new FTSE CDP Carbon Strategy Index Series launched in 2010 and a component of the Carbon Disclosure Leadership Index. We are ranked Platinum in Business in the Community’s Corporate Responsibility Index and, this year, were awarded Business in the Community’s CommunityMark, the national standard that publicly recognises excellence in community investment.

Risk Management

The Group has a conservative business model, embodied by a risk culture founded on prudence and accountability. The focus has been and remains on building and sustaining long-term relationships with customers, through good and bad economic times.

Our approach to risk is based on robust corporate governance practices and a risk management culture which guides the way all employees approach their work, the way they behave and the decisions they make. Our risk culture ensures that everyone understands that they are accountable for the risks they take and that the needs of customers are paramount.

The Board takes the lead by establishing the ‘tone at the top’ and approving the Group’s professional standards and corporate values. The Board ensures that senior management implements strategic policies and procedures designed to promote professional behaviour and integrity. The Board also ensures that senior management implements risk policies and risk appetites that either limit, or where appropriate, prohibit activities, relationships, and situations that could diminish the quality of corporate governance. All colleagues, including the Group Chief Executive, are assessed against a balanced scorecard that explicitly includes their risk management, as a component of their overall performance.

The Group’s full risk management framework is set out in our Annual Report and Accounts.