Corporate Governance.

Directors‘ Remuneration

The Remuneration Report includes details of remuneration policies and of the remuneration of the directors.

Relations with Shareholders

The board considers effective communication with shareholders, whether institutional investors, private or employee shareholders, to be extremely important.

The company reports formally to shareholders when its full year and half year results are published. These results are posted on Johnson Matthey‘s website (www.matthey.com). At the same time, executive directors give presentations on the results to institutional investors, analysts and the media in London and other international centres. Live audiocasts of the results presentations in London are available on the company‘s website and copies of major presentations are also posted on the company‘s website.

The company‘s Annual General Meeting takes place in London and formal notification is sent to shareholders at least 20 working days in advance of the meeting. The directors are available for questions, formally during the Annual General Meeting and informally afterwards. Details of the 2010 Annual General Meeting are set out in the notice of the meeting accompanying this Annual Report.

Contact with major shareholders is principally maintained by the Chief Executive and the Group Finance Director, who ensure that their views are communicated to the board as a whole. The Chairman is also available to discuss governance and other matters directly with major shareholders. The board believes that appropriate steps have been taken during the year to ensure that the members of the board, and in particular the non-executive directors, develop an understanding of the views of major shareholders about the company. The board is provided with brokers‘ reports at every board meeting and feedback from shareholder meetings on a six-monthly basis. The canvassing of major shareholders‘ views for the board in a detailed investor survey is usually conducted every two years by external consultants. The board has taken the view that these methods, taken together, are a practical and efficient way both for the Chairman to keep in touch with major shareholder opinion on governance and strategy and for the Senior Independent Director to learn the views of major shareholders and to develop a balanced understanding of their issues and concerns. The Senior Independent Director and other non-executive directors are available to attend meetings with major shareholders if requested, however no such meetings were requested during the year.

Accountability, Audit and Control

In its reporting to shareholders, the board aims to present a balanced and understandable assessment of the group‘s financial position and prospects. Click here for the statement of the Responsibility of Directors for the preparation of the Annual Report and Accounts.

The group‘s organisational structure is focused on its three divisions. These are all separately managed but report to the board through a board director. The executive management team receives monthly summaries of financial results from each division through a standardised reporting process. The group has in place a comprehensive annual budgeting process including forecasts for the next two years. Variances from budget are closely monitored.

The Group Control Manual, which is distributed to all group operations, clearly sets out the composition, responsibilities and authority limits of the various board and executive committees and also specifies what may be decided without central approval. It is supplemented by other specialist policy and procedures manuals issued by the group, divisions and individual businesses or departments. The high intrinsic value of many of the metals with which the group is associated necessitates stringent physical controls over precious metals held at the group‘s sites.

The board has overall responsibility for the group‘s systems of internal control, including in respect of the financial reporting process, and for reviewing their effectiveness. The internal control systems are designed to meet the group‘s needs and manage the risks to which it is exposed, although these cannot be eliminated. Such systems can only provide reasonable but not absolute assurance against material misstatement or loss.

There is a continuous process for identifying, evaluating and managing the significant risks faced by the company. This process has been in place during the financial year and up to the date of approval of the Annual Report and Accounts. The board regularly reviews this process.

The assessment of group and strategic risks is reviewed by the board and updated on an annual basis. At the business level, the processes to identify and manage the key risks are an integral part of the control environment. Key risks and internal controls are the subject of regular reporting to the Chief Executive‘s Committee.

The Audit Committee monitors and reviews the effectiveness of the group‘s systems for internal financial control and risk management, considering regular reports from management and internal audit. The Audit Committee also considers reports from the external auditors on their evaluation of the systems of internal financial control and risk management. Amongst other matters, the Audit Committee reviews the group‘s credit control procedures and risks, controls over precious metals, IT controls and the group‘s corporate social responsibility reporting arrangements and whistleblowing procedures. The Audit Committee also reviews the performance of both the internal and external auditors.

The internal audit function is responsible for monitoring the group‘s systems of internal financial controls and the control of the integrity of the financial information reported to the board. The Audit Committee approves the plans for internal audit reviews and receives the reports produced by the internal audit function on a regular basis. Actions are agreed with management in response to any issues raised by the internal audit reports produced. Internal audit follows up the implementation of its recommendations, including any recommendations to improve internal controls, and reports the outcome to senior management and to the Audit Committee.

In addition, significant businesses provide assurance on the maintenance of financial and non-financial controls and compliance with group policies. These assessments are summarised by the internal audit function and a report is made annually to the Audit Committee. Click here for a report from the Audit Committee on its activities and on the work of internal audit.

The directors confirm that the system of internal controls for the year ended 31st March 2010 and the period up to 2nd June 2010 has been established in accordance with the revised Turnbull Guidance on Internal Control published by the Financial Reporting Council included with the Code. The directors have reviewed the effectiveness of the group‘s system of internal controls, including financial, operational and compliance controls and risk management systems. No significant failings or weaknesses were identified.

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