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Directors’ report

continued

Directors’ interests

Under the constitution of the Partnership, the directors, apart from the two non-executive directors, as employees of John Lewis plc, are necessarily interested in the 612,000 Deferred Ordinary Shares in John Lewis Partnership plc which are held in trust for the benefit of employees of John Lewis plc and of certain other companies.

No director has, or had, a material interest in any contract or arrangement to which the company or any subsidiary is, or was, a party.

Board committees

The principal committees of the Partnership Board are the Audit and Risk Committee and the Remuneration Committee. Each committee has written terms of reference agreed by the Board.

Audit and Risk Committee

The Audit and Risk Committee is chaired by Jeff Hewitt, an independent external committee member with relevant financial experience. In addition to the chairman, the members are two of the five elected directors chosen by that group, currently Johnny Aisher and Martin Whitell, together with David Barclay and Jane Tozer, both non-executive directors. The external auditors attend its meetings as does the Finance Director, the Group Financial Controller, the Head of Internal Audit and Risk Management and the Director of Legal Services and Company Secretary. Other executives are invited to attend as appropriate and the Committee meets at least annually with the external auditors and the Head of Internal Audit and Risk Management without any executives being present.

The Committee meets four times a year. Its principal roles are: assisting the Partnership Board in the discharge of its responsibilities in respect of statutory and financial reporting and reviewing and monitoring the effectiveness of the group’s internal controls and risk management systems; monitoring the effectiveness of the group’s internal audit function; making recommendations to the Board on the appointment and dismissal of the external auditors; approving the remuneration and terms of engagement of the external auditors and monitoring and reviewing the external auditors’ independence, objectivity and effectiveness, taking into account professional and regulatory requirements. The Committee keeps under review the nature and extent of non-audit services provided to the Partnership by the external auditors, and receives confirmation from them, at least annually, that in their professional judgement they are independent with respect to the audit. The Head of Internal Audit and Risk Management reports to the Committee and the Committee approves the Internal Audit work programme for each year and considers the results of internal audit work.

The Directors have ultimate responsibility for internal control and the management of risk throughout the business, and also for reviewing its effectiveness, and delegate to the Audit and Risk Committee the monitoring thereof. Executive management is responsible for identifying and evaluating the risks of business operations and for implementing and maintaining systems for managing those risks in an efficient and effective manner through the business planning process. The Committee monitors the development of policies and systems for identifying, evaluating and managing significant risk throughout the Group. It also monitors management’s actions to manage those risks and reports annually to the Board. The operating divisions, John Lewis and Waitrose, Partnership Services and all corporate departments, include risk assessments as part of their business plans and quarterly reporting. A procedure is in place by which Partners may, in confidence, raise concerns about possible improprieties in matters of financial reporting or otherwise.

Non-Audit Services and Auditor Independence

The Board recognises that the independence of the external auditor is a fundamental safeguard for the interests of the Partnership’s shareholders. The Board has agreed a policy setting out the categories of non-audit services that may be undertaken by the external auditor and at least once a year the Audit and Risk Committee reviews the cost and nature of all non-audit work performed by the external auditor and the assurance provided by them regarding their independence and objectivity.