CSL

1. The Board of Directors

1.1 The CSL 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, the Innovation and Development Committee and the Securities and Market Disclosure Committee. Each committee is governed by a charter setting out its composition and responsibilities. A description of each committee and their responsibilities is set out below. The Board also delegates specific responsibilities to ad hoc committees from time to time.

The CSL 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 the expiry of a director’s term of office, the Board reviews that director’s performance. In the event that such performance is considered less than adequate, the Board may decide that it will not support the re-election of that 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.

Details of Board 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.

The CSL Board Charter is available on the Company’s website.

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1.2 Compositions of the Board

Throughout the year there were nine directors on the Board. Two of the directors – the Managing Director and the Finance Director – are executive directors. The CSL 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 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 of the financial report. 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 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 CSL 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. The Nomination Committee comprises all of the independent non executive directors. 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.

The Nomination Committee Charter is available on the Company’s website.

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1.5 Director Appointments

One new director was appointed to the Board during the financial year. David Anstice was appointed as of 1 September 2008 and was elected at the 2008 Annual General Meeting.

Ken Roberts retired as a director on 15 October 2008. Elizabeth Alexander and David Simpson were each re-elected as directors at the 2008 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 CSL Board Charter sets out procedures relating to the removal of a director whose contribution is found to be inadequate.

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1.6 Performance Evaluation

As mentioned above, the Nomination Committee meets annually to review the Board’s performance. The Chairman also holds discussions with individual directors to facilitate peer review. The Nomination Committee is 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, the Corporations Regulations 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;
• 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; and
• 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 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 2009.

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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 (other than the management of risk associated with research and development projects which is the responsibility of the Innovation and Development Committee);
• 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 of the Directors’ Report attached to the financial report.

The Audit and Risk Management Committee Charter is available on the Company’s website.

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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. 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.

In addition, the oversight of risk management associated with research and development projects is one of the responsibilities of the Innovation and Development Committee (see below). The research and development operations have a number of management committees that report into the Innovation and Development Committee.

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 53 of the Directors’ Report attached to the financial report. Details of Committee 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.

The Human Resources Committee Charter is available on the Company’s website.

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4. Innovation and Development Committee

The Board has delegated authority to the Innovation and Development Committee to provide the Board with oversight of CSL’s programs and development opportunities. The Committee comprises at least three members, being at least two independent non-executive directors and the Managing Director. The Committee is authorised by the Board to:

• monitor the strategic direction of CSL’s technology, research and product development programs;
• provide guidance on issues and priorities, additions to the research and development pipeline and significant development milestones; and
• oversee the management of risk associated with the research and development projects.

The Committee generally meets at least four times a year. The Company’s Chief Scientific Officer is a required attendee. The Board Chairman or any other director may attend any meeting of the Committee in an ex officio capacity. Details of Committee 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.

The Innovation and Development Committee Charter is available on the Company’s website.

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5. Market Disclosure

5.1 Continuous Disclosure Policy

The Company has a Communications and External Disclosure Policy, which was adopted by the Board this year in place of its previous Continuous Disclosure Policy. This policy is available on the Company’s website, and operates in conjunction with the Company’s more detailed internal continuous disclosure policy. Together, these policies are designed to facilitate the Company’s compliance with its obligations under the ASX Listing Rules by:

• providing guidance as to the types of information that may require disclosure, including examples of practical application of the rules;
• providing practical guidance for dealing with market analysts and the media;
• identifying the correct channels for passing on potentially market-sensitive information as soon as it comes to hand;
• establishing 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
• allocating 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

Significant ASX announcements (such as announcements of financial results or major transactions) are the subject of full Board approval. The Board has also 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 urgent or less significant continuous disclosure obligations and miscellaneous 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.

From time to time, the Committee may also be specifically authorised by the Board to approve minor amendments to significant ASX announcements following full Board approval.

Details of Committee 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.

The Securities and Market Disclosure Committee Charter is available on the Company’s website.

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5.3 Shareholder Communication

In 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 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 or margin loan arrangements in relation to Company securities. The Company has a comprehensive securities trading policy which applies to all directors and employees and is available on the Company’s website. 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. In addition, the policy identifies certain “blackout periods” during which no directors or employees are allowed 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.

A procedure of internal notification and approval applies to directors and designated senior employees wishing to buy or sell Company securities or exercise options over Company shares. Directors and designated senior employees are forbidden from making such transactions without the prior approval of the Chairman (in the case of Directors) and the Company Secretary (in the case of designated senior employees). Directors also have specific disclosure obligations under the Corporations Act 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, Code of Responsible Business Practice 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 Responsible Business Practice

The Board adopted a new Code of Responsible Business Practice (the Code) in December 2008. Based upon the CSL Group Values and guiding principles, the Code outlines CSL’s commitment to responsible business practices and ethical standards. The Code replaces the previous CSL Limited Code of Conduct and sets out the rights and obligations that all employees have in the conduct of the Company’s business. These rights and obligations relate to:

• business integrity, including statements relating to compliance with applicable laws and standards, ethical and transparent business practices, privacy and political donations;
• the safety and quality of products, including statements on bioethics (including animal ethics) and human rights principles;
• maintaining a safe, fair and rewarding workplace, which covers many employee relations issues such as:
  • labour standards;
  • equal employment opportunity/workplace harassment;
  • learning and development;
  • occupational health and safety;
  • professional behaviour;
  • employee counselling;
  • recruitment and selection;
  • recognition of employee contribution;
  • rehabilitation; and
  • reporting and management of incidents;
• the community, incorporating policy statements on charitable donations; and
• environmental management.

In accordance with the Code, the Company is committed to ensuring that employees, contractors, suppliers and partners are able to raise concerns regarding any illegal conduct or malpractice and to have such concerns properly investigated. This commitment is implemented through the Company’s internal Whistleblower Policy, which sets out the mechanism by which employees, contractors, suppliers and partners can confidently, and anonymously if they wish, voice such concerns in a responsible manner without being subject to victimisation, harassment or discriminatory treatment.

A copy of the Code was distributed to all employees in March/April 2009 and an enhanced training program is being developed and will be implemented across the CSL Group in the next financial year.

The Company expects its contractors and suppliers to 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 and suppliers also observe the principles set out in the Code.

A copy of the Code can be accessed in 11 languages on the Company’s website.

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7.3 Supporting Policies

A review of the CSL policy framework was conducted in conjunction with the introduction of the Code. The new framework provides for three levels of policy making within the CSL Group as follows:

• Board Policies cover any operational issue of strategic importance that applies to all CSL Group business units and all CSL Group employees and are approved by the Board;
• Global Policies cover issues of an operational nature requiring consistent implementation across all CSL Group business units and are approved by a member of the Executive Management Group or the Chair of a CSL Global Functional Committee; and
• Local Policies cover issues that apply to a particular CSL Group business unit or a part of a particular CSL Group business unit and are approved by the appropriate site leader or functional leader.

The new framework ensures that policy issues are reviewed and approved at the appropriate level within the CSL Group and that the principles outlined in the Code are properly implemented.

Communication of the revised CSL policy framework has been undertaken to ensure that all employees have a clear understanding of the policy structure and decision making processes within the CSL Group.

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