Report on Corporate Governance
(extract from 2008 Annual Report and Accounts)

The Company is incorporated in the Isle of Man.  However, the Board is committed to meeting high standards of corporate governance as would be required if the Company was incorporated in the UK. As such the Board acknowledges its contribution to achieving management accountability, improving risk management and ultimately to creating shareholder value.  This statement explains how the Company has applied the main and supporting principles of corporate governance as set out in Section 1 of the Combined Code on Corporate Governance published by the Financial Reporting Council in June 2006.

STATEMENT BY THE DIRECTORS ON COMPLIANCE WITH THE COMBINED CODE

The Company has complied with the provisions set out in Section 1 of the Combined Code throughout the year with the exception of the matter referred to below.

THE BOARD AND ITS COMMITTEES

Board Composition and Independence

The Board currently comprises the Chairman, Chief Executive, Finance Director and, following the resignation of Fred Ponsonby, effective from 1 December 2008, two Non-Executive Directors, all of whom are considered by the Board to be independent.  Their biographies demonstrate a range of experience and sufficient calibre to bring independent judgement on issues of strategy, performance and standards of conduct.

Keith Henry is the Senior Independent Director. The Senior Independent Director is available to shareholders if they have concerns which, through the normal channels of contact with the Chairman, Chief Executive or Finance Director, have not been resolved or for which such contact is inappropriate.

Waterford Finance and Investment Limited hold more than 30% of the Company’s issued share capital.  A Continuing Relationship Agreement dated 18 July 2003 between Emerald, Waterford Finance and Investment Limited, Alastair Beardsall, Edward Grace, Fred Ponsonby (formerly a director of the Company) and Merfyn Roberts stipulates that Emerald carries on business independently of Waterford and that all transactions and relationships between Emerald and Waterford are at arm’s length on a normal commercial basis. 

Operation of the Board

The Board is responsible to shareholders for the proper management of the Group.  A statement of the Directors’ responsibilities in respect of the financial statements is set out on page 46 and a statement on going concern is given on page 26 of the Annual Report.

The Board has a formal schedule of matters specifically reserved to it for decision.  These include strategic planning, business acquisitions and disposals, authorisation of major capital expenditure and material contractual arrangements, setting policies for the conduct of business, approval of budgets and financial statements and entering into debt in the normal course of business.  Other matters are delegated to management, supported by policies for reporting to the Board.  The Company Secretary, Richard Konn, is responsible to the Board for ensuring that Board procedures are followed, that applicable rules and regulations are complied with and for advising the Board, through the Chairman, on governance matters.  The appointment and removal of the Company Secretary is a matter for the Board as a whole.  The Company maintains appropriate insurance cover in respect of legal action against the Company’s Directors, but no cover exists in the event that the Director is found to have acted fraudulently or dishonestly.

The Board met nine times during the year, including five meetings covering strategy and/or business planning.  A report on HSE matters and status is presented at each Board meeting.  The Colombian Country Manager is invited to attend several board meetings a year to present a business and HSE update to the board.  The agenda for each meeting allows an opportunity for the Chairman and Non-Executives Directors to meet without Executives present.  The agenda and relevant briefing papers are distributed by the Company Secretary on a timely basis, in advance of each Board meeting.

The following Board committees deal with specific aspects of the Group’s affairs.  Terms of reference of each committee, explaining its role and the authority delegated to it by the Board, are available on the Company’s website.  The committee chairmen report regularly to the whole Board and are required to confirm that the committees have sufficient resources to undertake their duties.

Nomination Committee

The Nomination Committee met once during the year.  Following the resignation of its former chairman, Fred Ponsonby, effective from 1 December 2008, the committee is chaired by Keith Henry with Merfyn Roberts being the other member.  The Committee is responsible for ensuring that the Board comprises an appropriate balance of skills, knowledge and experience and as part of this role leads the process of recommending candidates for appointment to the Board.  In appropriate cases, recruitment consultants are used to assist the process.  The Nominations Committee also coordinates the performance evaluation of Directors and senior management and considers those candidates presenting themselves for election at the AGM. 

Audit Committee

The Audit Committee met twice during the year and, following the resignation of Fred Ponsonby, effective from 1 December 2008, its members are the Non-Executive Directors: Merfyn Roberts (Chairman) and Keith Henry.  The Board is satisfied that at least one member of the Audit Committee has recent and relevant financial experience (Merfyn Roberts qualified as a chartered accountant in 1980 and is currently an investment trust manager).  Meetings are also attended by the external auditor where appropriate and, by invitation, the Chairman, Chief Executive, and the Finance Director.  The role and responsibilities of the Audit Committee are set out in the Terms of Reference available on the Company’s website and are described in more detail in the Report of the Audit Committee on page 35.

Remuneration Committee

The Remuneration Committee met twice in 2008 and, following the resignation of Fred Ponsonby, effective from 1 December 2008, comprises of Non-Executive Directors; Keith Henry (Chairman) and Merfyn Roberts.  The Committee is not currently advised by external remuneration consultants but consults with the Chairman of the Board and uses data obtained from peer company public accounts.

The Committee is responsible for setting the remuneration for all Executive Directors and the Chairman, including pension rights and provision for compensation payments.  The Committee also monitors the level and structure of remuneration for senior management.  The remuneration of Non-Executive Directors is a matter for the Executive Directors, within limits set in the Articles of Association.  The Remuneration Committee consults with the Chairman concerning the remuneration of Executive Directors.  Further details of the role and responsibilities of the Remuneration Committee are set out in the Terms of Reference available on the Company’s website and are described in greater detail in the Report on Directors’ Remuneration on pages 38 to 42.

Meetings and Attendance

The following table summarises the number of Board and committee meetings held during the year and the attendance record of individual Directors.

INDUCTION, TRAINING AND PERFORMANCE EVALUATION

Induction and Training

New Directors, on their appointment to the Board, are briefed by the Board and management on the activities of the Group and its key business and financial risks, the Terms of Reference of the Board and its Committees, and the latest financial information about the Group.  The Chairman provides an invitation to major shareholders to meet a new Non-Executive Director.

The Chairman ensures that Directors update their skills, knowledge and familiarity with the Company to fulfil their roles on the Board and on Board Committees.  Ongoing training is provided as necessary and includes updates from the Company Secretary on changes to the Listing Rules, requirements under the Companies Act and other regulatory matters.  Directors may consult with the Company Secretary at any time on matters related to their role on the Board.  All Directors have access to independent professional advice at the Company’s expense where they judge it necessary to discharge their duties, with requests for such advice being authorised by the Chairman.

Evaluation of the Board’s Performance

Performance evaluation takes place for individual Directors, the Board and its Committees and includes assessing the effectiveness of the Board as a whole.  The evaluation of performance is carried out using peer appraisal questionnaires which combines business and personal performance and includes interviews with the Senior Independent Director and the Senior Independent Director with the Chairman.  Aspects of performance include attendance and participation at Board meetings, quality of involvement in committees, commitment and effectiveness of their contribution to Board activities (including the AGM and shareholder communications), the adequacy of training and Non-Executive Directors’ independence.  The process is conducted at the end of the year and reviewed by the Senior Independent Director, on behalf of the Nomination Committee; the Company Secretary is advised of its completion.

The performance of the Chairman is reviewed annually in a meeting of the Non-Executive Directors, led by the Senior Independent Director.  This review takes into account the views of Executive Directors who were interviewed by the Senior Independent Director.

Retirement and Re-election

All Directors are subject to election by shareholders after their appointment and to re-election thereafter at intervals of no more than three years.

Non-Executive Directors are appointed for specified terms, initially three years with the opportunity for renewal by the Company thereafter.  Any recommendation to reappoint a Non-Executive Director for a third term will be preceded by a rigorous review by the Nominations Committee and will take into account the need for progressive refreshing of the Board.  Non-Executive Directors who serve more than nine years will be subject to annual re-election.  If a Non-Executive Director resigns, a written statement is provided to the Chairman indicating whether he has any unresolved concerns about the running of the Company.

REPORT OF THE NOMINATIONS COMMITTEE

Edward Grace and Merfyn Roberts are submitting themselves for re-election.  Their biographical details, provided on page 32, demonstrate the range of skills and experience which each brings to the benefit of the Company.  In the case of the proposed re-election of Merfyn Roberts as Non-Executive Director, following his formal evaluation, the Chairman has confirmed that Merfyn provides valuable contribution to the Board.  In relation to the other Directors, the Chairman has also confirmed that their performance continues to be effective and that each Director continues to demonstrate commitment to the role.

REPORT OF THE AUDIT COMMITTEE

The Audit Committee is responsible for reviewing the Group’s internal control and risk management policies and systems, and monitoring their effectiveness.  Its role includes reviewing the integrity of the Company’s financial statements and other formal announcements relating to the Company’s financial performance, and reviewing significant financial reporting judgements contained in them.

The Audit Committee advises the Board on the appointment, reappointment and removal of external auditors and approves their remuneration and terms of engagement, including developing and implementing a policy on the provision of non-audit services by the external audit firm.  It also reviews and monitors the independence and objectivity of the external auditor.

The Audit Committee met twice during the year.  In the course of these meetings, the Committee considered the following matters:

Internal controls: The Company has an ongoing obligation to monitor the effectiveness of the system of internal controls.  The Company has revised its Financial Operating Procedures to reflect the ongoing progress of the organisational development and enhance the processes run in conjunction with IDEAS, a financial reporting and resource planning system, further strengthening internal control through effective system and process controls.

Internal audit: The Committee evaluated the requirement for an internal audit function and is satisfied that the Group does not currently require a separate function but keeps the situation under review.

Whistle blowing: The Committee reviewed the Group’s procedures for staff to raise concerns in confidence about possible irregular reporting or other misconduct.  In the reported period, no concerns requiring investigation were raised.

Financial reporting: The Committee reviewed draft annual and interim reports before recommending them to the Board.  The Committee discussed with the Chief Executive, Finance Director and external auditors the significant accounting policies, estimates and judgements applied in preparing these reports.

Auditor independence: The Committee satisfied itself as to the independence of the external auditor.  In doing so it considered the following factors:

• The auditor’s procedures already in place for maintaining and monitoring independence, including those to ensure that the partners and staff have no personal or business relationships with the Company, other than those in the normal course of business.

• Adherence by management and the auditor during the year to the Group’s policies for the procurement of non-audit services and the employment of former audit staff.

Reappointment of the external auditors:  Following an assessment of the quality of service provided, auditor independence and the effectiveness of the audit process, the Committee recommends that the Board presents the resolution to shareholders at the 2009 AGM for the reappointment of BDO Stoy Hayward LLP as the external auditors.

The Board reviews the non-audit services that the external auditors can provide and approval by the Board is required prior to any such engagement.  These approvals operate in addition to the Group’s general procurement policies, which require contracts over a certain level to be subject to a tender process. The external auditors ensure any non-audit services are not prohibited by professional or other regulatory requirements, which essentially limits work to tax services and assurance services that are generally of an audit nature.   

COMMUNICATIONS WITH SHAREHOLDERS

The Board is accountable to the Company’s shareholders and as such it is important for the Board to appreciate the requirements of the shareholders and equally that the shareholders understand how the actions of the Board and short-term financial performance relate to the achievement of the Company’s longer term goals.

The Board reports to the shareholders on its stewardship of the Company through the publication of interim and final results each year.  The Review of Operations and Financial Review on pages 4 to 26 of the Annual REport as well as the Business Review on pages 43 to 44 comment on the Group’s financial performance in the context of the business risks, objectives and plans for the future.  At other times during the year, presentations to analysts and updates to the stock exchange are made available to shareholders on the Company’s website.  In addition the Chairman, Chief Executive and Finance Director meet with major shareholders to discuss the progress of the Group.

The Chairman provides periodic feedback to the Board following meetings with shareholders; the Company’s brokers may be invited to attend Board meetings when investor relations are on the agenda.  The Chairman may be accompanied by the Chief Executive and Finance Director during presentation of interim and final results.  The Senior Independent Director may attend these presentations and inform the Board of views expressed by the shareholders.

The Annual General Meeting provides an opportunity for communication with all shareholders and the Board encourages the shareholders to attend and welcomes their participation.  The Chairman, Chief Executive, Finance Director and the chairmen of all the Board Committees attend the Annual General Meeting and are available to answer questions.  Notice of the Annual General Meeting and related papers are sent to the shareholders at least 21 working days before the meeting.  All proxy votes are counted and the results of voting on each resolution are announced.  Details of resolutions to be proposed at the Annual General Meeting to be held on 24 April 2009 can be found on the notice of the meeting on page 87 of the Annual Report.

INTERNAL CONTROL

The Directors acknowledge that they are responsible for the Group’s system of internal control and for monitoring its effectiveness.  The policies and system are designed to manage, rather than eliminate, the risk of failure to achieve the Group’s strategic objectives, and can only provide reasonable and not absolute assurance against material misstatement or loss.

The Group’s risk management processes and system of internal control procedures include the following:

Management structure: Authority to operate the various business units is delegated to local management within limits approved by the Board.  The appointment of executives to the most senior positions within the Group requires the approval of the Board.  Functional, operating and financial reporting standards are established by senior executive management for application across the whole Group.  The Company’s policies set out the general ethos of the Group, delegation of authority and authorisation levels, segregation of duties and other control procedures together with group accounting policies.  These procedures are supplemented by operating standards set by the local management, as required for the type of business and the geographical location of each business unit.

Identification and evaluation of business risks: Following the guidance of the Turnbull Committee, a process has been established for identifying, evaluating and managing the significant risks faced by the Group.  The major financial, commercial, legal, regulatory and operating risks within the Group are identified through a periodic review process.  The Company regularly reviews these risks to ensure they are being effectively managed and appropriately insured, and prepares a risk assessment report that is passed to the Audit Committee. This process has been in place throughout the year under review and up to the date of approval of the annual report and financial statements.  The Board reviews the process on at least an annual basis.

Information and financial reporting systems: The Group’s planning and financial reporting procedures include detailed operational budgets for the year ahead and an eighteen-month rolling plan.  The Board reviews and approves the annual budget, consolidated for the Group.  Performance against the approved budget is monitored through the monthly reporting of key performance indicators, updated forecasts for the year together with information on the key risk areas.  Timely monitoring and feedback permits corrective action to be taken where necessary.

Investment appraisal: A budgetary process and authorisation levels regulate commitment for expenditure.  For expenditure beyond specified levels, detailed written proposals are submitted to the Board or the executive management for approval prior to commitment.  Reviews are carried out after the expenditure is made, and for some projects, during the expenditure period, to monitor actual versus budget; major overruns are investigated.

The Audit Committee has reviewed the effectiveness of the system of internal control and has reported its findings to the Board.  The findings of this review are provided in the Report of the Audit Committee on pages 35 to 36 of the Annual Report.

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