Robust Processes

Our CR strategy is integral to our overall business strategy and is critical to our success, our global reputation and our long-term sustainability.

We are committed to maintaining a sustainable and profitable business whilst behaving responsibly to the high standards expected of an international company.

Our approach to CR is embedded across our operations within our corporate governance practices and internal control procedures. This ensures good management of our business and supports our strategy of creating sustainable value for our shareholders.

Governance

We remain committed to maintaining high standards of corporate governance, which we see as the cornerstone of managing our business affairs. We apply the principles of good governance advocated by the Combined Code on Corporate Governance. The Code sets out governance rules and best practice provisions which apply to UK listed companies.

The Board of Imperial Tobacco Group PLC is our principle decision-making forum and manages overall control of the Group’s affairs. Key to this control is the Schedule of Matters on which the Board alone may make decisions. These include approving our commercial strategy, corporate plans, major corporate activities, and our financial statements and dividends.

All Directors are equally accountable to our shareholders for the proper stewardship of our affairs and the success of the Company. By using their judgement, experience and independence, our Non-Executive Directors play a valuable role by critically reviewing the strategies, proposed by management.

This supports the further development of our business, effective use of resources and standards of conduct. It further ensures that we act in the best long-term interests of our shareholders whilst taking account of broader interests relevant to employees, customers, suppliers and the wider community.

To ensure the effective implementation of Group strategy and policy, our Board delegates authority of the day-to-day operation of the business to our Chief Executive and Chief Executive’s Committee (CEC). The Committee, which met 20 times during the year, comprises the Executive Directors, the Manufacturing Director, the Chief Operating Officer Cigar, the Group Human Resources Director and the General Counsel/Company Secretary.

The Board and CEC are updated with progress in social, environmental and ethical issues via presentations, briefing documents and regular reporting mechanisms. Where appropriate, these issues are included in the Schedule of Matters, thereby fully integrating them into our decision-making and risk assessment processes.

During 2009, we made significant progress with the integration of Altadis into our corporate structure and refined our corporate strategy to ensure we capitalise on the opportunities offered by the enlarged business.

Our full Corporate Governance Report is available in our 2009 Annual Report and Accounts and on our corporate website.

MANAGEMENT AND CORPORATE STRUCTURE

As part of the Group’s policy of annual review, the terms of reference for each of these Committees were reviewed and, where necessary, updated during the year and are published on our website www.imperial-tobacco.com

Risk Management

The Group faces a number of risks, similar to those faced by many multinational companies, which may impact on our financial position or prevent us from achieving our corporate strategy. Successful management of these risks is fundamental to our sustainable profitability and future growth. Our business and the risks we face are constantly changing. We, therefore, regularly review our policies and risk management procedures to ensure they are up-to-date and continue to protect our stakeholders.

It is impossible to eliminate every risk. However, through our Risk Co-ordination Committee (RCC) we analyse risks by reference to the likelihood of them occurring and their potential impact. This ‘top down’ process is supported by a long-established ‘bottom up’ approach requiring individual markets, factories, regions and functions across the Group to produce annual risk assessment summaries which are compared to the Group risk register.

These ongoing risk assessment summaries identify major areas of business risk, including specific local risks and how they are mitigated and managed by controls embedded in business processes.

In our 2009 Annual Report and Accounts, we provide an update on the principal risks that may impact on our business and the management controls we have put in place to mitigate them. These principal risks and uncertainties may be categorised as regulation, excise duty and illicit trade, key market dependency, competition law, tobacco-related litigation and financing.

INTERNAL CONTROL FRAMEWORK

Several ongoing activities, monitored and reviewed by Group Compliance, reassure our Board that a sound and robust system of internal control exists throughout the Group. The key features of this control system are shown in the diagram.

Integrated Management of CR

The CEC and Board use a framework of social and environmental issues with performance indicators to monitor CR progress, to set improvement objectives and to structure non-financial reporting.

Originally developed through stakeholder consultation, benchmarking and international guidelines, the CR framework comprises eight key areas of responsibility.

The areas important to the success and sustainability of our business are defined as:

• robust processes;
• product stewardship;
• responsible sales and marketing;
• responsible employment practices;
• occupational health and safety;
• supplier relationships;
• environmental impact; and
• community involvement.

More information on how these issues were identified can be found in our 2008 CR Review and on our website.

During 2009, we commenced a review of the framework to ensure it supports the enlarged business, includes important emerging issues and considers changes in the business environment and stakeholder expectations. We are also evaluating our performance indicators to ensure they remain useful.

We have confirmed alignment with our newly revised risk register and considered the issues articulated during stakeholder engagement. We plan to complete the CR framework review in 2010.

Corporate Documents

The Board has established a number of corporate documents with which employees are expected to comply. These cover key issues such as acceptable business practices, ethical compliance matters and legislation, physical and data security as well as regulatory, governance and health, safety and environmental issues.

Our corporate documents include our Code of Conduct, policies, supporting guidance and instructions which set out the corporate standards which we strive to achieve in addition to local regulations.

Following a review by a cross-functional project team, a new corporate documents intranet site has been created in order to provide improved clarity on the purpose of the documents and how they are connected, maintained and used by the business.

During 2009, we updated a number of our corporate documents, including our International Marketing Standards which are published in full on our website. We reviewed and updated all our policies to bring them in line with our revised risk register. We reappointed policy owners and delivery managers to ensure our requirements are clearly laid out and communicated in such a way that our employees can have no doubt about what is expected of them.

The next phase of this ongoing review project will be the roll-out of improved guidance and training to further support employees’ understanding of expected behaviour, particularly in respect of their business decisions and the enhanced Code of Conduct.

Corporate documents framework

This diagram shows our corporate documentation hierarchy and relationships.

Business Conduct

The Code of Conduct sets out the responsible behaviours we expect from employees of our international business in their dealings with fellow colleagues, customers, consumers, suppliers, agents, intermediaries, advisers, governments and competitors.

The intention of our Code of Conduct is to prevent direct or indirect acts of corruption, bribery, anti-competitive behaviour, fraud, deception, tax evasion or any other conduct which may be inappropriate or unlawful. We expect employees to act honestly and in good faith in all dealings, and expect proper use of the Group’s resources and information.

As part of the restructuring and communication of our corporate documents, we are reviewing and updating our Code of Conduct to ensure it provides appropriate guidance for the enlarged Group. This includes the addition of questions and answers to make the Code easier for employees to understand.

It is planned that the revised Code of Conduct will be rolled-out in 2010. It is also anticipated that the Code of Conduct will be made available on our corporate website.

Raising Concerns

Our Public Interest Disclosure (whistleblowing) policy encourages employees to raise concerns about any perceived malpractice or dangerous occurrence in our workplaces, such that proportionate and independent investigation of such matters can be undertaken.

Individuals are able to voice their concerns through their line management, through human resources or through their regional managers, in strict confidence without fear of victimisation or recrimination. Serious concerns can be raised directly with the Company Secretary, Head of Group Compliance or Group Human Resources Director who will initiate prompt investigations.

In addition, we provide a confidential helpline through an independent specialist agency, Public Concern at Work. We ensure the identity of the person raising the concern remains confidential and do not report on statistics or details to ensure we respect the privacy of any complainant.

Our policy and process is communicated locally by our HR managers and employee guides are currently available in 15 languages.