CSL

1. The Board of Directors

1.1 The Board Charter

The Board has a formal charter documenting its membership, operating procedures and the apportionment of responsibilities between the Board and management.

The Board is responsible for oversight of the management of the Company and providing strategic direction. It monitors operational and financial performance, human resources policies and practices and approves the Company’s budgets and business plans. It is also responsible for overseeing the Company’s risk management, financial reporting and compliance framework.

The Board has delegated the day-to-day management of the Company, and the implementation of approved business plans and strategies to the Managing Director, who in turn may further delegate to senior management. In addition, a detailed authorisations policy sets out the decision-making powers which may be exercised at various levels of management.

The Board has delegated specific authority to five Board committees that assist it in discharging its responsibilities by examining various issues and making recommendations to the Board. Those committees are the Audit and Risk Management Committee, the Human Resources Committee, the Nomination Committee and the Securities and Market Disclosure Committee. The Innovation and Development Committee was established this year to recognise the increased importance that this activity plays in the Company’s affairs and the consequent need for the Board to have appropriate input and oversight of this activity. Each committee is governed by a charter setting out its composition and responsibilities. A description of each committee and their responsibilities are set out below. The Board also delegates specific responsibilities to ad hoc committees from time to time.

The Board charter sets guidelines as to the desired term of service of non-executive directors. This charter recognises that whilst board renewal is essential, a mixture of skills and differing periods of service provides for balance and optimal outcomes at a board level. Prior to re-election the Board must review the performance of such director. In the event that such performance is considered less than adequate, the Board may decide that it will not support the re-election of such director.

Directors are entitled to access independent professional advice at the Company’s expense to assist them in fulfilling their responsibilities. To do so, a director must first obtain the approval of the Chairman. The director should inform the Chairman of the reason for seeking the advice, the name of the person from whom the advice is to be sought, and the estimated cost of the advice. Professional advice obtained in this way is made available to the whole Board.

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1.2 Compositions of the Board

TThroughout the year there were nine directors on the Board. Two of the directors – the Managing Director and the Finance Director – are executive directors. The Board charter provides that a majority of directors should be independent. No director acts as a nominee or representative of any particular shareholder. A profile of each current director, including details of their skills, expertise, relevant experience, term of office and Board committee memberships can be found on pages 24 and 25 of this Report.

The Chairman of the Board, Elizabeth Alexander, is an independent, non-executive director. She is responsible for leadership of the Board, for ensuring that the Board functions effectively, and for communicating the views of the Board to the public. The Chairman sets the agenda for Board meetings and manages their conduct and facilitates open and constructive communication between the Board, management, and the public.

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1.3 Independence

The Board has determined that all of its non-executive directors are independent, and were independent for the duration of the reporting period.

All CSL directors are aware of, and adhere to, their obligation under the Corporations Act 2001 to disclose to the Board any interests or relationships that they or any associate of theirs may have in a matter that relates to the affairs of the Company, and any other matter that may affect their independence. As required by law, details of any related party dealings are set out in full in Note 28 to the Company’s financial statements. All directors have agreed to give the Company notice of changes to their relevant interests in Company shares within five days to enable both them and the Company to comply with the Australian Securities Exchange (ASX) Listing Rules. If a potential conflict of interests exists on a matter before the Board then (unless the remaining directors determine otherwise), the director concerned does not receive the relevant briefing papers, and takes no part in the Board’s consideration of the matter nor exercises any influence over other members of the Board.

In addition to considering issues that may arise from disclosure by directors from time to time under these obligations, the Board makes an annual assessment of each non-executive director which includes length of service, to determine whether it considers the director to be independent. The Board considers that an independent director is a director who is independent of management and free of any business or other relationship that could, or could reasonably be perceived to, materially interfere with the exercise of their unfettered and independent judgment.

Information about any such interests or relationships, including any related financial or other details, is assessed by the Board to determine whether the relationship could, or could reasonably be perceived to, materially interfere with the exercise of a director’s unfettered and independent judgment. As part of this process the Board takes into account a range of relevant matters including:

• information contained in specific disclosures made by directors pursuant to their obligations under the Board charter and the Corporations Act;
• any past employment relationship between the director and the Company;
• any shareholding the director or any of his or her associates may have in the Company;
• any association or former association the director may have with a professional adviser or consultant to the Company;
• any other related party transactions whether as a supplier or customer of the Company or as party to a contract with the Company other than as a director of the Company;
• any other directorships held by the director;
• any family or other relationships a director may have with another person having a relevant relationship or interest; and
• length of service.

In determining whether an interest or relationship is considered to interfere with a director’s independence, the Board has regard to the materiality of the interest or relationship. For this purpose, the Board adopts a conservative approach to materiality consistent with Australian accounting standards. If a director has a current or former association with a supplier, professional adviser or consultant to the CSL Group, that supplier, adviser or consultant will be considered material:

• from the Company’s point of view, if the annual amount payable by the CSL Group to the supplier, adviser or consultant exceeds 5% of the consolidated expenses of the CSL Group; and
• from the director’s point of view, if that amount exceeds 5% of the supplier’s, adviser’s or consultant’s total revenues.

Similarly, a customer of the CSL Group would be considered material for this purpose from the Company’s point of view if the annual amount received by the CSL Group from the customer exceeds 5% of the consolidated revenue of the CSL Group, and from the director’s point of view if that amount exceeds 5% of the customer’s total expenses.

In addition to assessing the relationship in a quantitative sense, the Board also considers qualitative factors, such as the nature of the goods or services supplied, the period since the director ceased to be associated and their general subjective assessment of the director.

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1.4 Nomination Committee

The functions and responsibilities of the Nomination Committee are documented in a formal charter approved by the Board. During the year the charter was changed to ensure that only independent members of the Board sit as the Nomination Committee. The Committee is chaired by the Board Chairman.

The Committee is responsible for reviewing the Board’s membership and making recommendations on any new appointments. The Committee is also responsible for:

• setting and following the procedure for the selection of new directors for nomination;
• conducting regular reviews of the Board’s succession plans to enable it to maintain an appropriate mix of skills and experience;
• regularly reviewing the membership of Board committees; and
• conducting annual performance reviews of the Board, individual directors, and the Board committees.

Information about meetings held during the year, and individual directors’ attendance at these meetings, can be found on page 38 of the Directors’ Report attached to the financial report.

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1.5 Director Appointments

No new directors were appointed to the Board during the financial year. However David Anstice was appointed as of the 2 September 2008 and will be seeking election at the 2008 Annual General Meeting. John Akehurst, Maurice Renshaw and Ian Renard were each re-elected as directors at the 2007 Annual General Meeting.

Before their nomination for election or re-election, it is the Company’s policy to ask directors to acknowledge to the Board that they have sufficient time to meet the Company’s expectations of them. The Board requires that all of its members devote the time necessary to ensure that their contribution to the Company is of the highest possible quality. The Board charter sets out procedures for the removal of a director whose contribution is found to be inadequate.

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1.6 Performance Evaluation

As mentioned above, the Board (as the Nomination Committee) meets annually to review its own performance. The Chairman also holds discussions with individual directors to facilitate peer review. The non-executive directors are responsible for evaluating the performance of the Managing Director, who in turn evaluates the performance of all other senior executives. These evaluations are based on specific criteria including the Company’s business performance, whether the long term strategic objectives are being achieved and the achievement of individual performance objectives. These performance evaluations took place in accordance with these processes during the last financial year.

In addition to the briefing papers, agenda and related information regularly supplied to directors, the Board has an ongoing education program designed to give directors further insight into the operation of the Company’s business. As part of this program, directors have the opportunity to visit Company facilities including all major operating sites in the US, Europe and Australia and attend meetings and information sessions with employees.

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2. Audit and Risk Management

2.1 Integrity in Financial Reporting and Regulatory Compliance

The Board is committed to ensuring the integrity and quality of its financial reporting, risk management and compliance systems.

Prior to giving their director’s declaration in respect of the annual and half-year financial statements, the Board requires the Managing Director and the Finance Director to sign written declarations to the Board that:

• The financial statements and associated notes comply with IFRS Accounting Standards as required by the Corporations Act 2001, the Corporations Regulations 2001 and the CSL Group Accounting Policies.
• The financial statements and associated notes give a true and fair view of the financial position as at the relevant balance date and performance of the Company for the year then ended as required by the Corporations Act 2001.
• In their opinion there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.
• They have established and maintained an adequate risk management and internal compliance and control system to facilitate the preparation of a reliable financial report which in all material respects implements the policies adopted by the Board of Directors and the Statements made above are based on that system.

These written declarations were received by the Board in respect of the financial year ended 30 June 2008.

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2.2 Audit and Risk Management Committee

The Audit and Risk Management Committee is responsible for assisting the Board in fulfilling its financial reporting, risk management and compliance responsibilities. The functions and responsibilities of the Committee are set out in a charter. Broadly, the Committee is responsible for:

• overseeing the Company’s system of financial reporting and safeguarding its integrity;
• overseeing risk management and compliance systems and the internal control framework;
• monitoring the activities and effectiveness of the internal audit function;
• monitoring the activities and performance of the external auditor and coordinating its operation with the internal audit function; and
• providing full reports to the Board on all matters relevant to the Committee’s responsibilities.

The roles and responsibilities of the Committee are reviewed annually.

The Committee currently comprises three independent non-executive directors. Details of the Committee’s current members, including their qualifications and experience, are set out in the directors’ profiles on pages 24 and 25 of this Report. The Committee charter provides that a majority of the Committee must be independent directors, and that the Committee Chair must be an independent director who is not also Chairman of the Board. Executive directors may not be members of the Committee. Members are chosen having regard to their qualifications and training to ensure that each is capable of considering and contributing to the matters for which the Committee is responsible.

The Committee meets at least four times a year, and senior executives and internal and external auditors frequently attend meetings on invitation by the Committee. The Committee holds regular meetings with both the internal and external auditors without management or executive directors present. Details of Committee meetings held during the year and individual directors’ attendance at these meetings can be found on page 38.

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2.3 Risk Framework

The Company has adopted and follows a detailed and structured Risk Framework to ensure that risks in the CSL Group are identified, evaluated, monitored and managed.

This Risk Framework sets out the risk management process, the roles and responsibilities for different levels of management, the risk tolerance of the Company, the matrix of risk impact and likelihood for assessing risk, and risk management reporting requirements.

As part of the Risk Framework, a Corporate Risk Management Committee of responsible executives reports to the Audit and Risk Management Committee on a quarterly basis. Its task is to implement, coordinate and facilitate the risk management process across the CSL Group. This includes quantifying and monitoring certain business risks identified and evaluated as part of the risk management process, including those relating to operating systems, the environment, health and safety, product quality, physical assets, security, disaster recovery, insurance and compliance. In addition, each business unit and manufacturing site in the Group has its own Risk Management Committee which reports to the Corporate Risk Management Committee on a quarterly basis, and the Group has a Global Risk and Insurance Manager who is responsible for monitoring and coordinating the implementation of the Risk Framework throughout the CSL Group.

Risk assessment and management policies are reviewed periodically, including by the CSL Group’s internal audit function.

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2.4 External Auditor

One of the chief functions of the Audit and Risk Management Committee is to review and monitor the performance and independence of the external auditor. The Company’s external auditor for the financial year was Ernst & Young, who were appointed by shareholders at the 2002 annual general meeting. A description of the procedure followed in appointing Ernst & Young is set out in the notice of the 2002 annual general meeting.

The Committee has established guidelines to ensure the independence of the external auditor. The external audit partner is to be rotated at least every five years, and the auditor is required to make an independence declaration annually. Information about the total remuneration of the external auditor, including details of remuneration for any non-audit services, can be found in Note 30 of the financial report.

The Committee is satisfied that the provision of those non-audit services by the external auditor was consistent with auditor independence.

The external auditor attends each annual general meeting to be available to answer questions from shareholders.

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3. Human Resources Committee

Detail on the Company’s remuneration policies and practices (including details of the Human Resources Committee of the Board and its Charter, remuneration of directors and senior executives of the consolidated entity and the Company, and details of the Company’s employee share, option and performance rights plans and human resources priorities and succession planning) are set out in the Remuneration Report on pages 41 to 52.

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4. Innovation and Development Committee

With the establishment of the Innovation and Development Committee, the Board has delegated authority to this Committee to provide the Board with oversight of CSL’s programs and development opportunities. The membership of the Committee shall comprise three members, two being independent non-executive directors and the third being the Managing Director. The Committee is authorised by the Board to:

• monitor the strategic direction of the CSL’s technology, research and product development programs; and
• provide guidance on issues and priorities, additions to the R&D pipeline and significant development milestones.

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5. Market Disclosure

5.1 Summary of Continuous Disclosure Policy

The Board has approved a continuous disclosure policy designed to facilitate the Company’s compliance with its obligations under the ASX Listing Rules. The policy:

• gives guidance as to the types of information that may require disclosure, including examples of practical application of the rules;
• gives practical guidance for dealing with market analysts and the media;
• identifies the correct channels for passing on potentially market-sensitive information as soon as it comes to hand;
• establishes regular occasions at which senior executives and directors are actively prompted to consider whether there is any potentially market-sensitive information which may require disclosure; and
• allocates responsibility for approving the substance and form of any public disclosure and communications with investors.

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5.2 Securities and Market Disclosure Committee

The Board has delegated authority to a Securities and Market Disclosure Committee, which has a formal charter. The Committee is designed to be convened at short notice to enable the Company to comply with continuous disclosure obligations and securities related issues. It comprises a minimum of any two directors, one of whom must be an independent director. The Committee has authority to:

• approve the form and substance of any disclosure to be made by the Company to the ASX in fulfilment of its continuous disclosure obligations;
• approve the allotment and issue, and registration of transfers of securities;
• make determinations on matters relating to the location of the share register; and
• effect compliance with other formalities which may be urgently required in relation to matters affecting the share capital.

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5.3 Shareholder Communication

TIn addition to its formal disclosure obligations under the ASX Listing Rules, the Board uses a number of additional means of communicating with shareholders. These include:

• the half-year and annual report and Shareholder Review;
• posting media releases, public announcements, notices of general meetings and voting results, and other investor related information on the Company’s website; and
• annual general meetings, including webcasting which permits shareholders worldwide to view proceedings.

The Company has a dedicated corporate governance page on the Company’s website which supplements the communication to shareholders in the annual report regarding the Company’s corporate governance policies and practices. That web page also contains copies of many of the Company’s governance-related documents, policies and information.

The Board is committed to monitoring ongoing developments that may enhance communication with shareholders, including technological developments, regulatory changes and the continuing development of “best practice” in the market, and to implementing changes to the Company’s communications strategies whenever reasonably practicable to reflect any such developments.

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6. Securities Trading Policy

By promoting director and employee ownership of shares, the Board hopes to encourage directors and employees to become long-term holders of Company securities, aligning their interests with those of the Company. It does not condone short-term or speculative trading in its securities by directors and employees nor does it permit directors or employees to enter into any price protection arrangements with third parties to hedge such securities nor for directors to enter into margin loan arrangements in relation to Company securities. The Company has a comprehensive securities trading policy which applies to all directors and employees. The policy aims to inform directors and employees of the law relating to insider trading, and provide them with practical guidance for avoiding unlawful transactions in Company securities.

As a basic principle, the policy states that directors and employees should not buy or sell securities in the Company when they are in possession of price sensitive information which is not generally available to the market. The policy identifies trading ‘windows’ during which, subject to the blanket rule, it is safest to trade in Company securities. Directors and employees are reminded that procuring others to trade in Company securities when in possession of price sensitive information is also a breach of the law and the securities trading policy. Acquisitions of securities under the employee share and option plans are exempt from the prohibition under the Corporations Act 2001.

A procedure of internal disclosure applies to directors and employees wishing to buy or sell Company securities or exercise options over Company shares. Directors and employees are forbidden from making such transactions without the prior approval of the Chairman (in the case of directors) or the Company Secretary (in the case of employees). Directors also have specific disclosure obligations under the Corporations Act 2001 and the corresponding ASX Listing Rules.

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7. Corporate Responsibility

The Company’s approach to Corporate Responsibility is guided by its Group Values, Corporate Code of Conduct and related policies.

7.1 Group Values

The Company has developed a set of values common to the diverse business units that form the CSL Group. The CSL Group Values, endorsed by the Board, serve as the foundation for every day decision-making. These values are superior performance, innovation, integrity, collaboration and customer focus.

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7.2 Code of Conduct

The Board has also adopted a Corporate Code of Conduct (the Code) outlining its commitment to responsible business practices and ethical standards. The Code sets out principles of conduct derived from the Group Values and includes:

• a commitment to conducting its business with the utmost integrity by complying with laws and regulations in all countries in which the Company operates, and by fulfilling all of its responsibilities to shareholders and the financial community;
• rules guiding employees and directors towards ethical decisions in situations of potential conflict of interest, political involvement, bribery and financial inducements;
• workplace relations principles regarded by the Company as fundamental, including mutual respect, anti-discrimination and freedom of association;
• commitment to adherence to health and safety standards, both of products, through compliance with manufacturing and other best practice standards, and in the provision of safe and healthy employee work environments;
• practices for responsible environmental management; and
• guidance for beneficial interactive relationships with stakeholders and the communities in which CSL operates, and collaboration throughout the organisation.

The Company expects that its contractors and suppliers will comply not only with the laws of the countries in which they operate, but also with internationally accepted best practice. It therefore expects that contractors also observe the principles set out in the Code of Conduct.

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7.3 Supporting Policies

In furtherance of the Code, the Company has adopted a Whistleblower Policy which outlines the Company’s commitment to ensuring that employees are able to raise concerns regarding any illegal conduct or malpractice without being subject to victimisation, harassment or discriminatory treatment, and to have such concerns properly investigated. This Policy sets out the mechanism by which staff, contractors and consultants can confidently, and anonymously if they wish, voice concerns in a responsible manner without fear of discriminatory treatment.

Other specific policies have been developed to support each aspect of the Code, which are endorsed by the Board and then tailored by each business unit to suit the legal, regulatory and cultural environment in which they operate. These policies include:

• Animal Ethics;
• Charitable Donations;
• Drugs and Alcohol;
• Employee Counselling;
• Environment;
• Equal Employment Opportunity/Workplace Harassment;
• Labour Standards;
• Learning and Development;
• Occupational Health and Safety;
• Political Donations;
• Privacy;
• Professional Behaviour;
• Recognition of Employee Contribution;
• Recruitment and Selection;
• Rehabilitation Policy; and
• Reporting and Management of Incidents.

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