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Directors' Report on Corporate Governance and other matters

Approach to governance

Old Mutual views good governance as a vital ingredient of operating a successful business, so that we can provide assurance to shareholders, customers and regulators that the Group's businesses are being properly managed and controlled.

The approach that the Group adopts to governance is underpinned by the Group's four values of integrity, respect, accountability and pushing beyond boundaries. We require integrity of the Group's businesses in all their dealings, including the way in which their boards of directors operate and report upwards. Respect is reflected in the dynamics between the centre and the operating units and the manner in which problems, when they do arise, are dealt with. Accountability lies at the heart of all good governance systems and is vital for the prompt escalation of issues and how they are then addressed. Finally, we aim to empower our operating units to push beyond boundaries and to be responsive and inventive to serve customers' needs without entangling them with unnecessary red tape.

During 2009, the Group reviewed its board structures and risk governance arrangements in major subsidiaries, seeking to apply lessons learned during the severe downturn in 2008 and the first part of 2009. We believe that in the current climate we should move from a highly decentralised federal model of group governance to a more centralised 'strategic controller' model steered from our head office. Our new Group Operating Model will be rolled out during 2010.

Combined Code compliance

As the Company's primary listing (which will be renamed from 1 April 2010 as a premium listing) is on the London Stock Exchange, this report mainly addresses the matters covered by the Combined Code on Corporate Governance issued by the Financial Reporting Council in June 2008 (the ' Combined Code '), but the Company also has regard to governance expectations in the four other territories where its shares are listed (South Africa, Malawi, Namibia and Zimbabwe). The Company's major South African subsidiaries are also subject to applicable local governance expectations, including those contained in King 3 and, in the case of Nedbank Group Limited and Mutual & Federal Insurance Company Limited (until it was delisted on 8 February 2010), the Listings Requirements of the JSE Limited.

Throughout the year ended 31 December 2009 and in the preparation of this Annual Report and these Accounts, the Company has complied with the main and supporting principles and provisions set out in the Combined Code as described in the following sections of this Report. The Company's compliance with Combined Code provisions C1.1, C2.1, C3.1 to C3.7, and the statement relating to the going concern basis adopted in preparing the financial statements set out at the end of this section of this report, have been reviewed by the Company's auditors, KPMG Audit Plc, in accordance with guidance published by the Auditing Practices Board.

Walker Review

During 2009, in response to the view that the events of the financial crisis had exposed material shortcomings in the governance and risk management of some regulated firms, the UK Treasury commissioned Sir David Walker to carry out a review of the corporate governance of major banks and other financial institutions, which led to the publication, in November 2009, of a report containing 39 recommendations. These covered board size, composition and qualification; functioning of the board and evaluation of performance; the role of institutional shareholders in exercising good stewardship over the firms in which they invest; governance of risk; and directors' remuneration.

Old Mutual has already begun to address the implications of the Walker Review and will be taking further steps during 2010 in order to be compliant by the time the new regime is fully in force. This is currently expected to be for accounting periods beginning on or after 29 June 2010. Further details of how the Walker Review's recommendations on remuneration matters are being factored into the Company's approach are set out in the Remuneration Report.

Board of Directors

Membership

The Old Mutual Board currently has 11 members, two of whom are executive and nine of whom are non-executive directors. All of the current directors, except for Mr M Arnold (who was appointed to the Board from 1 September 2009) and Mr P O' Sullivan (who was appointed as successor to Mr C Collins as Chairman of the Board with effect from 1 January 2010), served throughout the year ended 31 December 2009.

2009 operations

Board meetings were held regularly during 2009. Scheduled meetings were coordinated with the Company's reporting calendar to allow for detailed consideration of interim, preliminary and final results and quarterly interim management statements. Sessions were also devoted to strategy and business planning and the Board met ad hoc, as required, to deal with specific matters requiring its consideration. In all, 11 Board meetings were held during 2009.

Monthly management accounts were circulated to each member of the Board within three weeks of the month-end, containing detailed analysis of the businesses' financial performance, including comparisons against budget. Any issues arising from these are addressed at Board meetings or can be raised directly with management.

The Board calendar ensures that all key matters are scheduled for attention over the course of the year, including presentations on the Group's major businesses.

Responsibilities of the Board

The Board's role is to exercise stewardship of the Company within a framework of prudent and effective controls that enable risk to be assessed and managed. The Board sets the Company's strategic aims, reviews whether the necessary financial and human resources are in place for it to meet its objectives and monitors management performance. It is kept informed about major developments affecting the Group through the Group Chief Executive's monthly reports and also holds one or more strategy sessions each year at which high-level strategic matters are debated.

The Board has overall authority for the conduct of the business of the Group and there are a number of matters that have been specifically reserved for the Board to decide, including:

• approval of financial reporting and controls, such as interim and annual results, the Annual Report and Accounts of the Group, payment of dividends and accounting policies;
• monitoring of the cash and capital resources, and overall liquidity, of the Group and authorising any significant acquisitions, disposals of core businesses, investments, capital expenditure or other material projects or transactions;
• monitoring and managing of the relationships between the Group and its regulators;
• reviewing and implementing of effective systems of delegation and internal control, and the carrying out of an annual review of their effectiveness (which, in 2009, led to the decision to pursue the new Group Operating Model);
• overall review and approval of Group strategy and the setting of long-term objectives and/or changes in strategic direction; and
• monitoring of the overall performance of the Group in relation to its objectives, plans, targets and the implementation of projects and decisions.

Delegation of certain responsibilities

The Board has delegated its executive powers to the Group Chief Executive, with power to subdelegate, and to the Approvals Committee. In his coordination and stewardship of the Group, the Group Chief Executive is advised by the Group Executive Committee, a consultative management committee. In addition to the executive directors of the Company (Mr J Roberts and Mr P Broadley), the other members of the Group Executive Committee are: Mr A Birrell (Group Risk and Actuarial Director), Mr M Brown (Chief Executive of Nedbank Group, who succeeded Mr T Boardman in March 2010), Mr P Hanratty (Chief Executive Officer of the Long-Term Savings division), Mr D Hope (Head of Strategy Development), Mr P Maddox (Head of Strategic Implementation), Mr D Schneider (Group Human Resources Director) and Mr T Turpin (Chief Executive Officer of US Asset Management). Additional details accompany the photographs of the Committee.

The Board has also delegated specific responsibilities for certain matters to Board committees. The principal Board committees have responsibility for Nomination, Remuneration, and Group Audit and Risk, subject to their respective terms of reference. The Board receives reports from these committees on the matters that they have covered. The matters addressed by the principal Board committees in 2009 are outlined in the part of this section of the Annual Report headed 'Board Committees'.

The Chairman and Group Company Secretary are both involved in ensuring good information flows within the Board and its committees, as well as in facilitating induction and training for the directors. All directors have access to the Group Company Secretary, who is responsible to the Board for ensuring that Board procedures are complied with.

On appointment, new directors receive induction, including information about matters of immediate importance to the Group, such as the current strategy and operating performance. They also hold a series of meetings with other directors, senior management and external advisers (such as the auditors) as part of this induction.

Facilities are available for the directors to take independent professional advice at the Company's expense for the furtherance of their duties, whether as members of the Board or of any of its committees.

The Company maintains directors' and officers' liability insurance in respect of legal action against its directors and senior managers.

Scheme of Delegated Authority

Under the Scheme of Delegated Authority, the Board delegates decision-making relating to wholly-owned subsidiary businesses to the boards of the Group's principal subsidiaries, subject to specified escalation criteria that require higher-level authorisation based on the materiality of the matter concerned.

The governance relationship with the Group's majority-owned subsidiary, Nedbank Group Limited, is somewhat different from those that apply to wholly-owned subsidiaries, in recognition of its own governance expectations as a separately-listed entity on the JSE Limited and the fact that it has minority shareholders. The Company entered into a relationship agreement with Nedbank Group Limited in February 2004 setting out the Company's requirements and expectations as its majority shareholder. The full text of that relationship agreement is available on the Company's website. Among the matters covered are:

• Transactions involving members of the Nedbank Group that require prior consultation with or agreement by the Company
• Provision of information, including that required for assuring the Company about various aspects of corporate governance
• Consultation over senior appointments
• Business cooperation.

Rotation and reelection of directors

The Articles of Association of the Company require that any newly appointed directors should be subject to election at the next following AGM and also that at least one third of the directors (excluding those appointed by the Board during the year) should retire by rotation each year. These provisions are applied in such a manner that each director submits himself for election or re-election at regular intervals and at least once every three years.

Accordingly, at the Annual General Meeting ('AGM') to be held on 13 May 2010, shareholders will be asked to approve the election of Mr M Arnold and Mr P O'Sullivan, and the reelection of Mr N Andrews, Mr B Nqwababa and Mr L Otterbeck. The Board, having reviewed the performance of these directors and the contributions that they each respectively make, recommends that they be elected or reelected as directors at the AGM. Biographical details of each of the directors who is standing for election or reelection are contained in the Board of Directors section of this document.

Skills, experience and review

Plans for refreshing and renewing the Board's composition are managed proactively by the Nomination Committee so as to ensure that changes take place without undue disruption and that there is an appropriate balance of experience and length of service. That Committee also considers, in making recommendations, the independence of candidates and their suitability and willingness to serve on other Committees of the Board. All of these aspects are currently believed by the Nomination Committee to be suitable for the requirements of the Group's business. However, such matters will be kept actively under review, having regard to recommendations in the Board effectiveness review, scheduled retirements of non-executive directors in 2011 and the Group's developing strategy.

Board performance review

The Board conducts a review of its performance on an annual basis. The review is designed to ensure, among other things, that each director continues to contribute effectively and to demonstrate commitment to the role (including commitment of time for Board and Committee meetings and any other duties). In 2009, the Board was assisted by external facilitators in its review. The results of the review are considered by the Board and appropriate actions taken, if necessary. An action plan setting out the recommendations arising from the review and tracking progress in addressing them has been agreed by the Board and will be updated and considered at Board meetings during 2010.

Executive and non-executive roles

While there are currently only two executive directors, all members of the Board have regular contact with the other senior executive management (including the most senior executives of the main business units of the Group) through their periodic participation in Board meetings, other briefing sessions by the senior executives and Board visits to the locations where the Group's main businesses are based.

The executive element of the Board is balanced by an independent group of non-executive directors. The Board as a whole approves the strategic direction of the Group, scrutinises the performance of management in meeting agreed goals and objectives, and monitors the reporting of performance. Procedures are in place to enable Board members to satisfy themselves about the integrity of the Group's financial information and to ensure that financial controls and systems of risk management are robust and sustainable. Non-executive directors on the Remuneration Committee are responsible for determining appropriate levels of remuneration for the executive directors. Members of the Nomination Committee have a primary role in recommending the appointment and, where necessary, removal of executive directors.

Separately from the formal Board meeting schedule, the Chairman holds meetings with the other non-executive directors, without any executives being present, to provide a forum for any issues to be raised. He also conducts an annual performance evaluation of each of the other non-executive directors, with any resulting action points being reported to the Nomination Committee. These procedures will be refreshed during 2010 in line with recommendations contained in the Board effectiveness review conducted during 2009.

Informal meetings among the non-executive directors, without the Chairman or any executive being present, are also facilitated by the Company. Among the activities carried out at such meetings is the annual review of the Chairman's own performance under the aegis of the senior independent director, who also obtains such input as he considers appropriate from the executive directors. As Mr Collins, the former Chairman, was due to retire at the end of 2009, this did not take place this year.

The assignment of responsibilities between the Chairman, Mr P O'Sullivan, and the Group Chief Executive, Mr J Roberts, is documented so as to ensure that there is a clear division between the running of the Board and executive responsibility for running the Company's business. The responsibilities of Mr P O'Sullivan as Chairman include those contained in the Supporting Principle to paragraph A.2 of the Combined Code, namely leadership of the Board, ensuring its effectiveness in all aspects of its role and setting its agenda; ensuring that the directors receive accurate, timely and clear information; ensuring effective communication with shareholders; facilitating the effective contribution to the Board of non-executive directors in particular; and ensuring constructive relationships between the executive and non-executive directors.

The Board has determined that, in the absence of exceptional circumstances, non-executive directors should serve a maximum of nine years in office. The renewal of non-executive directors' terms for successive three-year cycles is not automatic and the continued suitability of each non-executive director is assessed by the Nomination Committee before renewal of his appointment takes place. The section of the Remuneration Report entitled 'Non-Executive Directors' Terms of Engagement' describes the current position of each of the non-executive directors with respect to the duration of their office and how the extension process has been applied to them.

Independence of non-executive directors

Seven of the eight current non-executive directors other than the Chairman (Messrs N Andrews, M Arnold, R Bogni, R Edey, B Nqwababa, L Otterbeck and R Pym) are considered by the Board to be independent within the meaning of, and having regard to the criteria set out in, paragraph A.3.1 of the Combined Code - i.e. independent in character and judgment and with no relationships or circumstances which are likely to affect, or could appear to affect, their judgment. The other non-executive director, Mr R Khoza, is not considered independent because of his chairmanship of the Group's partlyowned subsidiary, Nedbank Group Limited, and the business relationships between Aka Capital, in which he owns a stake, and Nedbank.

The terms and conditions of engagement of each of the non-executive directors are available in the corporate governance section of the Company's website. These include details of the expected time commitment involved (which each of the non-executive directors has accepted). Other significant commitments of potential appointees are considered by the Nomination Committee as part of the selection process and are disclosed to the Board when recommendation of an appointment is submitted. Non-executive directors are also required to inform the Board of any subsequent changes to such commitments, which must be precleared with the Chairman if material.

Senior independent director

Mr R Bogni is the senior independent director. The senior independent director is available to shareholders if they have concerns that are unresolved after contact through the normal channels of the Chairman, Group Chief Executive or Group Finance Director or where such contact would be inappropriate. The senior independent director's contact details can be obtained from the Group Company Secretary (martin.murray@omg.co.uk).

Directors' interests

Details of the directors' interests (including interests of their connected persons) in the share capital of the Company and quoted securities of its subsidiaries at the beginning and end of the year under review are set out in the following tables, while their interests in share options and restricted share awards are described in the section of the Remuneration Report entitled 'Directors' interests under employee share plans'. There have been no changes to any of these interests between 31 December 2009 and 11 March 2010.

1 These figures do not include rights to restricted shares that have not yet vested, which are described in the Remuneration Report.

2 This figure does not include shares in the AkaNedbank Eyethu Trust, one of Nedbank's Eyethu BEE trusts.

Directors' conflicts of interest

Processes are in place for any potential conflicts of interest to be disclosed and for directors to avoid participation in any decisions where they may have any such conflict or potential conflict. The Company's procedures for dealing with directors' conflicts of interest have operated effectively during 2009.

No director had a material interest in any significant contract with the Company or any of its subsidiaries during the year. Additional details of various nonmaterial transactions between the directors and the Group are reported on an aggregated basis, along with other transactions by senior managers of the Group, in note G3 to the Accounts.

The executive directors are permitted to hold and retain for their own benefit fees from one external (nonGroup) non-executive directorship (but not a chairmanship) of another listed company, subject to prior clearance by the Board and the directorship concerned not being in conflict or potential conflict with any of the Group's businesses. Neither Mr J Roberts nor Mr P Broadley currently holds any external non-executive directorships of other publicly-quoted companies.

Board Committees

The Board has a number of committees to which various matters are delegated in accordance with their respective terms of reference. The Board also establishes committees on an ad hoc basis to deal with particular matters. In doing so, it specifies a remit, quorum and appropriate mix of executive and non-executive participation. Further information on the principal committees of the Board is set out below.

Group Audit and Risk Committee

Members and years of appointment: Mr R Pym (Chairman) (2007), Mr N Andrews (2003), Mr M Arnold (2009), Mr R Bogni (2002), Mr R Edey (2004), Mr B Nqwababa (2007). Secretary and year of appointment: Mr M Murray (1999)

All members of the Group Audit and Risk Committee (the 'Committee') are independent non-executive directors. The Chairman, Mr Pym, is a chartered accountant with a wide range of recent and relevant financial experience, being Chairman of Bradford & Bingley plc and of Northern Rock (Asset Management) plc. He was Chief Executive of the major UK banking group, Alliance & Leicester plc, until July 2007. All members of the Committee are expected to be financially literate and to have relevant corporate finance experience. The terms of reference of the Committee, which specify its responsibilities, are available on our website at www.oldmutual.com.

At its meetings during 2009, the Committee considered, among other things:

• The accounting principles, policies and practices adopted in the Group's accounts. These included the use and quantum of the liquidity premium used in valuing the bond portfolio of the Group's US life business for the purposes of MCEV reporting, the carrying value of goodwill and various proposed changes to actuarial assumptions;
• The internal audit function, including internal audit's terms of reference, reporting lines and access to the Committee and members of the Board, its plans and resources and achievement of the activities planned as part of its agreed programme for the year, the results of key audits and other significant findings, and the adequacy of management's responses and the timeliness of resolution;
• External audit, including: audit plans for the year, changes in key external audit staff in the external auditors' plan for the year, arrangements for daytoday management of the audit relationship, the auditors' arrangements to identify, report and manage any conflicts of interest, the overall extent of non-audit services provided by the external auditors, the external auditors' engagement letter for the year and fee proposal, and any major issues that arose during the course of the audit and their resolution;
• Significant accounting and actuarial issues;
• Tax, litigation and contingent liabilities affecting the Group;
• Any significant findings or control issues arising from internal audits carried out around the Group; and
• Significant risks and related risk management practices across the Group,

and received and considered specific reports or presentations on:

• The Group's US life business, to satisfy itself that the right actions were being taken to manage risk within this operation, following the problems that emerged there during 2008;
• The Group's proposed response to an independent actuarial report on provisioning for guaranteed variable annuity products at Old Mutual Bermuda;
• The activities of subsidiary audit committees on a regular basis (a number of audit or audit and risk committees operated during 2009 at subsidiary level, including at Old Mutual Life Assurance Company (South Africa) Limited, Old Mutual (US) Holdings, Inc., Old Mutual US Life Holdings Inc., Skandia UK, Skandia Nordic, Skandia Europe & Latin America, Nedbank Group Limited and Mutual & Federal Insurance Company Limited, with terms of reference broadly equivalent to those of the Committee); and
• The findings of Internal Review Committees through which Group Finance reviews in detail the results of the major businesses halfyearly with their Finance Directors, including, where applicable, the actuarial aspects of the results of the life businesses around the Group.

A Group Governance and Control Planning meeting was held between the Chairman of the Committee and the Chairmen of the main subsidiary audit committees, the Group Internal Audit Director, the heads of internal audit of major subsidiaries, the Group Risk Director and representatives of the Group's auditors during December 2009, to coordinate the audit committees' activities and to review and approve the scope of internal audit plans for 2010. This included a presentation by the Company's auditors, KPMG, on the likely implications for the Group of Solvency II. Such planning meetings take place annually.

Please refer to the section later in this Report headed 'Auditors' for information on our policy on auditor independence and non-audit fees and the recommendation of the Committee that the auditors be reappointed for 2010. The Committee's role in relation to monitoring of risk is explained in more detail in the 'Internal control environment' section of this report and the separate report on Risk and Capital Management earlier in this document.

The Group's whistleblowing arrangements enable employees of the Group and others to report complaints on accounting, risk issues, internal controls, auditing issues and related matters. They can do this in confidence, using a dedicated hotline operated by an independent firm of accountants. Any reports are investigated and escalated to the Committee as appropriate. Efforts are also made to educate staff around the Group about the existence of the whistleblowing facility and to help them detect the signs of possible fraudulent or improper activity.

The Committee holds private meetings with the external auditors once a year (or more often, if requested by the auditors) to review key issues. The Chairman of the Committee also has regular interaction with the external auditors, the Group Internal Audit Director and the Group Risk Director, as well as with the Chairmen of subsidiary audit committees and the Group Finance Director, to remain abreast of issues as they arise during the year.

From April 2010, the activities of the Group Audit and Risk Committee will be split and reassigned, in line with recommendations contained in the Walker Review, into two successor committees, the Group Audit Committee and the Board Risk Committee. Mr R Pym will continue to be Chairman of the Group Audit Committee, while Mr M Arnold will be Chairman of the Board Risk Committee. Each will be a member of the other committee so as to ensure continued close liaison about audit and risk matters.

Remuneration Committee

Members and years of appointment: Mr R Bogni (Chairman) (2005), Mr N Andrews (2002), Mr R Edey (2007), Mr R Pym (2008). Secretary and year of appointment: Mr M Murray (1999).

Details of the role and activities of the Remuneration Committee and how the Remuneration Committee and the Board have applied the main and supporting principles and the Code Provisions in Section B of the Combined Code relating to remuneration matters are provided in the Remuneration Report. The terms of reference of the Remuneration Committee, which specify its responsibilities, are available on our website at www.oldmutual.com.

Nomination Committee

Members and years of appointment: Mr C Collins (1999, became Chairman in May 2005,) replaced by Mr P O'Sullivan with effect from January 2010, Mr N Andrews (2005), Mr R Bogni (2003), Mr R Edey (2005), Mr R Pym (2008), Mr J Roberts (2008). Secretary and year of appointment: Mr M Murray (1999).

The Nomination Committee makes recommendations to the Board in relation to the appointment of directors, the structure of the Board and membership of the Board's main standing committees. It also reviews development and succession plans for the most senior executive management of the Group and proposed appointments to the boards and standing committees of principal subsidiaries where these are material in the context of the Group as a whole. It was chaired during 2009 by the Chairman of the Board, Mr C Collins, (now replaced by Mr P O'Sullivan) and a majority of its members (four out of six) are independent non-executive directors.

The terms of reference of the Nomination Committee, which specify its responsibilities, are available on our website at www.oldmutual.com.

The Nomination Committee seeks to ensure that its process for identifying candidates for recommendation to the Board as new directors is formal, rigorous and transparent. Vacancies generally arise in the context of either planned refreshing and renewal of the Board, replacing directors who are due to retire, or adjusting the Board's balance of knowledge, skills or independence.

In identifying candidates, appropriate regard is paid to ensuring that they will have sufficient time available in the light of their other commitments to discharge their duties as directors of the Company.

During 2009, the Committee identified the need to increase specialist actuarial expertise within the non-executive cadre, leading to the appointment of Mr M Arnold to the Board. A separate Chairman's Selection Committee was established, under the chairmanship of Mr R Bogni, the senior independent director, for the purpose of identifying and recommending a suitable candidate for the position of Chairman. Mr C Collins, the incumbent Chairman, was not involved in the selection or appointment of his successor. Mr P O'Sullivan was appointed to the Board as Chairman from 1 January 2010.

Other committees

There are a number of executive committees which assist the Group Chief Executive with the day-to-day management of the Group. These include the Group Executive Committee mentioned earlier in this report, the Group Executive Risk Committee, whose responsibilities are described in the Risk and Capital Management report earlier in this document; and the Group Capital Management Committee, whose role is, inter alia, to agree capital allocations within certain limits (or make recommendations to the Board regarding any allocations beyond such limits) and to approve the capital plan of the Group as part of the annual businessplanning process.

Attendance record

The table below sets out the number of meetings held and individual directors' attendance at meetings of the Board and its principal committees (based on membership of those committees, rather than attendance as an invitee) during 2009.

The Group Chief Executive and Group Finance Director attended all, and the Chairman attended all but one, of the Group Audit and Risk Committee meetings held during the year at the invitation of the Chairman of that Committee (but members of management were absent for the private sessions between members of that Committee and the auditors). The Group Chief Executive also attended all and the Chairman attended all but one of the Remuneration Committee meetings at the invitation of the Chairman of that Committee, but absented themselves for any matters relating to their own respective remuneration arrangements. Attendance at Committee meetings by persons other than the members is always at the invitation of the Chairman of the Committee concerned.

* Mr Collins was unable to attend the last two Board Meetings of 2009 as he was indisposed following an operation.

Auditors

During the year ended 31 December 2009, fees paid by the Group to KPMG Audit Plc, the Group's auditors, and its associates totalled £11.9 million for statutory audit services (2008: £11.0 million), £0.5 million for other audit and assurance services relating to Old Mutual Market Consistent Embedded Value reporting (2008: £0.5 million), and £2.8 million for tax and other services (2008: £4.3 million). In addition to the above, Nedbank Group paid a further £2.9 million (2008: £2.6 million) to Deloitte in respect of joint audit arrangements.

The following guidelines have been approved by the Group Audit and Risk Committee as part of the Group's policy on non-audit services:

• Before accepting a proposed engagement to provide a non-audit service to the Group, the lead audit engagement partner and management will assess the threats to objectivity and independence and consider safeguards to be applied. Such assessment will be repeated whenever the scope and objectives of the non-audit service change significantly. Before accepting a proposed engagement to provide a non-audit service to the Group, the audit engagement partner and management will:
  • Consider whether it is probable that a reasonable and informed third party would regard the proposed engagement as being inconsistent with the objectives of the audit of the financial statements
  • Identify and assess the significance of any related threats to the firm's objectivity, including any perceived loss of independence; and
  • Identify and assess the effectiveness of the available safeguards to eliminate or reduce threats to an acceptable leve
• Where it is felt probable that an informed party would regard the proposed service as being inconsistent with the objectives of the firm as auditors, the firm will not be permitted to undertake the non-audit service.
• The Company and its auditors have agreed that they will not directly or indirectly solicit the employment of key senior staff and management of their respective organisations without prior written mutual consent. Partners and directors of the audit firm who have acted as lead partner or as a key audit partner for the Group will not be permitted to join Old Mutual Group as a director or in a senior management position until at least two years after the partner or director concerned ceased to be associated with the audit.

In addition, the following process governs the provision of non-audit services by the auditors:

• There is a schedule of non-audit services which need to be approved in principle on an annual basis and are reported, as and when provided, on a regular basis. This is in line with the SEC's guidelines on auditor independence;
• All non-audit work costing less than £50,000 placed with the external auditors is to be approved by the Head of Group Finance or Business Unit Chief Financial Officer;
• All non-audit work costing over £50,000 placed with the external auditors is to be agreed by the Group Finance Director or his designate;
• All non-audit work costing over £300,000 placed with the external auditors is to be subject to competitive tender and agreed by the Group Finance Director and Group Chief Executive;
• All non-audit work costing over £1 million placed with external auditors is to be approved by the Group Audit and Risk Committee;
• Cumulative fees for non-audit services in any financial quarter should not exceed £500,000 without approval of the Group Audit and Risk Committee or its Chairman; and
• Cumulative fees for non-audit work for the Group should not exceed total statutory audit and auditrelated fees in any one year without the approval of the Group Audit and Risk Committee.

KPMG Audit Plc has expressed its willingness to continue in office as auditor to the Company and, following a recommendation by the Group Audit and Risk Committee to the Board, a resolution proposing its reappointment will be put to the AGM. In reaching its decision to recommend the reappointment of KPMG Audit Plc as auditors, the Board took into account the fact that the firm had been the Company's auditors since the Group demutualised in 1999 and that appropriate arrangements are in place for the rotation and renewal of key audit personnel. The Company has not entered into any contractual restriction preventing it from considering a change of auditors and the choice of auditors is kept under review by the Board from year to year, taking into account appropriate benchmarking data.

Arrangements have been made, in conjunction with KPMG Audit Plc, for appropriate audit partner or director rotation in accordance with the requirements of the UK Auditing Practices Board. The current audit engagement director in the UK, Mr Alastair Barbour, joined the audit team as a key audit director in 2005 and succeeded to his current role in 2008.

Internal control environment

Responsibility for internal control

The Board has overall responsibility for the Group's system of internal control and for reviewing its effectiveness, while the implementation of internal control systems is the responsibility of management. Executive management has implemented an internal control system designed to help ensure:

• The effective and efficient operation of the Group and its business units by enabling management to respond appropriately to significant risks to achieving the Group's business objectives;
• The safeguarding of assets from inappropriate use or from loss and fraud and ensuring that liabilities are identified and managed;
• The quality of internal and external reporting; and
• Compliance with applicable laws and regulations, and with internal policies on the conduct of business.

The system of internal control is designed to manage, rather than eliminate, the risk of failure to achieve the Group's business objectives, and can only provide reasonable, and not absolute, assurance against material misstatement or loss.

Assessment of the system of internal control

An ongoing process for identifying, evaluating and managing the significant risks faced by the Group has been in place for the year ended 31 December 2009 and up to the date of approval of this Report. The process accords with the Turnbull guidance set out in 'Internal Control Guidance for Directors on the Combined Code' and is regularly reviewed by the Board.

The Group's actions to review the effectiveness of the system of internal control include:

• An annual review of the risk assessment procedures, control environment considerations, information and communication and monitoring procedures at Group level and within each business unit. This review covers all material controls, including financial, operational and compliance controls and the risk management systems;
• A certification process, under which all business units are required to confirm that they have undertaken risk management in accordance with the Group risk framework, that they have reviewed the effectiveness of the system of internal controls, that internal policies have been complied with and that no significant risks or issues are known which have not been reported in accordance with policy;
• Regular reviews of the effectiveness of the system of internal control by the Group Audit and Risk Committee, which receives reports from Group Risk and Group Internal Audit. The Committee also receives reports from external auditors, KPMG Audit Plc, which include details of significant internal control matters that they have identified during the course of their work.

These activities are in addition to the regular risk management activities which are performed on an ongoing basis (as described in more detail in the Risk and Capital Management report elsewhere in this document).

The certification process described above does not apply to certain joint ventures where the Group does not exercise full management control. In these cases, Old Mutual monitors the internal control environment and the potential impact on the Group through representation on the board of the entity concerned.

The Board reviewed the effectiveness of the system of internal control during and at the end of the year. Our annual internal control assessment has not highlighted any material failings. We remain committed to having a robust internal control environment across the Group.

Group Internal Audit

Group Internal Audit (' GIA ') provides independent, objective assurance on the effectiveness of Old Mutual's systems of governance, risk management and internal control. The work of GIA is focused on the areas of greatest risk to Old Mutual as determined by a comprehensive, riskbased planning process. The Group Audit and Risk Committee (' GARC ') approves the annual internal audit plan and any subsequent amendments.

There are internal audit teams in each of our major businesses. The heads of internal audit in our wholly-owned subsidiaries report directly to the Group Internal Audit Director (' GIAD '). The GIAD reports functionally to the Chairman of the GARC and administratively to the Group Finance Director. The GIAD attends all meetings of the GARC, and has unrestricted access to the Group Chief Executive as well as open invitations to attend any meetings of the Business Unit Audit Committee and of the Group Executive Risk Committee.

GIA teams across Old Mutual use a single audit methodology which meets the standards set by the Institute of Internal Auditors. Issues raised by GIA during the course of their work are communicated to management, who are responsible for taking action to address the issues identified within an appropriate and agreed timeframe.

Formal reports are submitted by the GIAD to each meeting of the GARC, summarising the results of internal audit activity, management's progress in addressing issues and other significant matters.

Other Directors' Report matters

Relations with shareholders and analysts

The Company places great importance on regular, clear and direct communication with its shareholders, institutional investors and sell-side analysts.

The Chairman makes contact with major investors during the year and meets them as required. The Company has a dedicated Investor Relations team, which responds to a variety of enquiries from investors and analysts. The team also runs a programme to facilitate communication between executive management and a wide range of institutional investors worldwide within the constraints of the Listing, Prospectus, Disclosure and Transparency Rules. These investors include both debt and equity owners.

Old Mutual increased the number of investor meetings by approximately 25% to 194 in 2009 compared to 2008. These took place in the UK, South Africa, North America and continental Europe and generally involved one or more of the Group Chief Executive, Group Finance Director or another member of the senior management team. In 2009, the Company targeted smaller institutional investors and these who manage funds for high net worth retail clients and charities with a view to diversifying its shareholder base.

In addition, the Company presented at a number of major investor conferences around the world. It also hosted three events for institutional investors and analysts: a presentation on the Company's UK platform business, which was given by members of UK management, a presentation on Nedbank by its senior management team and a presentation by an independent analyst and economic adviser, who discussed the South African economy and outlook. Copies of all presentations and, where appropriate, transcripts are posted on the Company's website so that they are accessible to shareholders generally.

Currently 14 sell-side analysts from the UK and South Africa actively publish research on the Company. Other sell-side analysts are encouraged to cover the Company to help investors assess the Group's valuation, its performance and the business environment in which it operates, and also to make meaningful comparisons with peers.

The Board is updated regularly by the Investor Relations team on issues arising from any shareholder communications and from analyst research.

General Meetings

The Board uses the AGM to comment on the Group's trading performance during the first quarter of the year. A record of the AGM proceedings is made available on the Company's website shortly after the end of the meeting. All items of formal business at the AGM are conducted on a poll, rather than by a show of hands. The Company's registrars, Computershare Investor Services, ensure that all validly submitted proxy votes are counted, and a senior member of Computershare's staff acts as scrutineer to ensure that votes cast are properly received and recorded.

Each substantially separate issue at the AGM is dealt with by a separate resolution and the business of the AGM always includes a resolution relating to the approval of the Report and Accounts. The chairmen of the Group Audit and Risk, Remuneration and Nomination Committees are available to answer any questions on the matters covered by these Committees at AGMs. All the directors in office at the date of the meeting attended the AGM in 2009.

The notice of AGM and related materials contained in the Report and Accounts or Summary Financial Statements are sent out to shareholders in time to arrive in the ordinary course of the post at least 20 working days before the date of the AGM.

Directors' shareholdings and share dealings

The Remuneration Committee has established guidelines on shareholdings by executive directors of the Company. Under these, the Group Chief Executive is expected to build up a holding of shares in the Company equal in value to at least 150% of annual base salary within five years of appointment; the equivalent figure for other executive directors is 100% of annual base salary. Further details of the executive directors' shareholdings are set out under 'Directors' Interests' earlier in this report and of their interests in awards under the Company's employee share plans are contained in the Remuneration Report. The Board has considered whether to adopt a shareholding requirement for non-executive directors, but does not consider this to be appropriate.

Directors' indemnities

The Company has entered into formal deeds of indemnity in favour of each of the directors. A specimen copy of the indemnities is available in the corporate governance section of the Company's website.

Supplier payment policy

In most cases suppliers of goods or services to the Group do so under standard terms of contract that lay down terms of payment. In other cases, specific terms are agreed to beforehand. It is the Group's policy to ensure that terms of payment are notified in advance and adhered to. The Company has signed the Better Payment Practice Code, an initiative promoted by the Department for Business, Innovation and Skills in the UK to encourage prompt settlement of invoices.

The total outstanding indebtedness of the Company (and its service company subsidiary, Old Mutual Business Services Limited) to trade creditors at 31 December 2009 amounted to £3,867,555, corresponding to 40 days' payments when averaged over 2009.

Charitable contributions

The Group made a wide range of significant donations to charitable causes and social development projects during 2009, as described in more detail in the Responsible Business section of this website. The Company, its subsidiaries in the UK, and the Old Mutual Bermuda Foundation collectively made charitable donations of £195,000 during the year (2008: £672,000).

Environmental matters

A description of the Group's environmental impact and management during 2009 is contained in the Responsible Business section of this website.

Political donations

The Group made no EU or other political donations during the year.

Dividend policy

The Board is recommending the payment of a final dividend for the year ended 31 December 2009 of 1.5p per share (or its equivalent in other relevant currencies). Subject to approval at the 2010 AGM, a scrip dividend alternative will also be available for eligible shareholders in relation to this dividend.

The Board intends to pursue a dividend policy consistent with the Group's new strategy and having regard to overall capital requirements, liquidity and profitability, and targeting dividend cover of a least 2.5 times IFRS AOP earnings over time.

Share capital

The Company has a single class of share capital, which is divided into Ordinary Shares of 10 pence each. The Company's issued share capital at 31 December 2009 was £551,825,295 divided into 5,518,252,950 Ordinary Shares of 10 pence each (2008: £551,614,136 divided into 5,516,141,360 Ordinary Shares of 10 pence each). During the year ended 31 December 2009, 2,111,590 shares were issued under the Company's employee share option schemes at an average price of 91.18 pence each.

At 31 December 2009, shareholder authorities were in force enabling the Company to make market purchases of, and/or to purchase pursuant to contingent purchase contracts relating to each of the overseas exchanges on which the Company's shares are listed, its own shares up to an aggregate of 527,670,000 shares. No shares were bought back by the Company during 2009.

Out of the 5,518,252,950 shares in issue at 31 December 2009:

• 239,434,888 were held by the Company in treasury
• A total of 204,777,492 shares were held by African life subsidiaries of the Company, with 190,284,758 of these shares held on books for the benefit of the Group's South African life operations and related businesses. Under UK company law these shares cannot be voted while they are held by subsidiaries of Old Mutual plc.

The total number of voting rights in the Company's issued ordinary share capital at 31 December 2009 (which excludes the 239,434,888 shares held in treasury, but includes the shares held by the African life subsidiaries) was 5,278,818,062.

In the period 1 January to 10 March 2010, 1,200,752 further shares were issued by the Company under its employee share schemes at an average price of 93.46p each and 147,313,449 shares were issued on 8 February 2010 as consideration for the acquisition by the Company of the minority interests not already owned by the Group in Mutual & Federal Insurance Company Limited. No further shares were bought back during that period. As a result, the Company's issued share capital at 10 March 2010 had increased to £566,676,715.10 divided into 5,666,767,151 Ordinary Shares of 10 pence each and the total number of voting rights at that date, after deducting the 239,434,888 treasury shares, was 5,427,332,263.

Rights and obligations attaching to shares

The following description summarises certain provisions of the Company's current Articles of Association (the ' Articles ') and applicable English law concerning companies (now mainly enshrined in the Companies Act 2006 (the ' Act ')). This is a summary only: for further information please see the relevant provisions of the Act or the Articles.

Issue of shares

Subject to the Act and the Articles, shares may be issued with such rights and restrictions as the Company may by ordinary resolution approve or as the directors may decide. At each AGM the Company seeks authority from shareholders for the directors to allot up to a certain amount of shares.

Whenever shares are issued for cash, the Company must offer shares to all shareholders pro rata to their holdings, unless it has been given authority by shareholders to issue shares without applying such preemption rights. The Company seeks authority from its shareholders on an annual basis to issue up to 5% of its issued share capital without observing preemption rights, in line with relevant regulations and best practice. No shares were issued for cash in 2009 disapplying preemption rights, and the total number of shares issued disapplying preemption rights by the Company over the last three years amounted to less than 7.5% of the Company's issued share capital over that period.

The Company's existing authorities to issue shares and to do so without observing preemption rights are due to expire at the end of this year's AGM, but an ordinary resolution and a special resolution to approve the renewal of these authorities respectively will be put to shareholders at the 2010 AGM.

Voting

Every member attending a general meeting in person has one vote in a show of hands. In the case of joint holders of a share, the vote of the senior who tenders a vote, whether in person or by proxy, will be accepted to the exclusion of votes of the other joint shareholders: seniority will be determined by the order in which the joint holders' names are listed in the register. Under the Act, members are entitled to appoint a proxy to exercise all or any of their rights to attend and to speak and vote on their behalf at a general meeting.

A member may appoint more than one proxy in relation to a general meeting provided that each proxy is appointed to exercise the rights attached to a different share or shares held by that member. Proxies may vote in a poll or a show of hands.

A member that is a corporation may appoint one or more individuals to act on its behalf at a general meeting as a corporate representative. Where more than one corporate representative has been appointed, any one of them is entitled to vote and exercise other powers on behalf of the member at a general meeting or class meeting.

There are currently no restrictions on the voting rights of any member of the Company.

The Articles provide a deadline for submission of proxy forms by members of not less than 48 hours before the relevant general meeting (not excluding nonworking days).

Dividends and distributions

Subject to the provisions of the Act, the Company may by ordinary resolution from time to time declare dividends not exceeding the amount recommended by the Board. The Board may pay dividends, and also any fixed-rate dividend, whenever the financial position of the Company justifies its payment, in the Board's opinion. If the Board acts in good faith, it is not liable to holders of shares with preferred or pari passu rights for losses arising from the payment of interim or fixed dividends on other shares.

Transfer of shares

Any shares in the Company may be held in uncertificated form and title to uncertificated shares may be transferred by means of a relevant system. Registration of a transfer of an uncertificated share may be refused in the circumstances set out in the Uncertificated Securities Regulations (as defined in the Articles) and where, in case of a transfer to joint holders, the number of joint holders to whom the uncertificated share is to be transferred exceeds four.

Any member may transfer all or any of their certificated shares by an instrument of transfer in any usual form or in any other form which the Board may approve. The instrument of transfer must be executed by or on behalf of the transferor. The Board may decline to register a transfer of a certificated share unless the instrument of transfer:

• Is duly stamped or certified or otherwise shown to the satisfaction of the Board to be exempt from stamp duty and accompanied by the relevant share certificate and such other evidence of the right to transfer it as the Board may reasonably require
• Is in respect of only one class of share
• If to joint transferees, is in favour of not more than four such transferees.

Repurchase of shares

Subject to authorisation by shareholder resolution, the Company may purchase its own shares in accordance with the Act. Any shares which have been bought may be held as treasury shares or else must be cancelled immediately the purchase is completed, so reducing the amount of the Company's issued share capital. No shares have been repurchased by the Company since the AGM in 2009.

Amendment to the Articles of Association

Any amendments to the Articles of the Company may be made in accordance with the provisions of the Act by way of a special resolution. New Articles of Association, reflecting changes arising from the full implementation of the Act and other recent company law changes are being proposed for adoption at the AGM in 2010.

Appointment and replacement of directors

Under the Articles, directors must be at least four and not more than 16 in number. Directors may be appointed by the Company by ordinary resolution or by the Board. A director appointed by the Board holds office only until the next following AGM and is then eligible for election by the shareholders.

The Company may by special resolution remove any director before the expiration of his or her term of office. Directors shall also vacate their office in certain customary circumstances specified in the Articles, including voluntary resignation in writing, mental ill health or that director becoming bankrupt.

Powers of the directors

Subject to the Articles, any legislation and any directions given by special resolution, the business of the Company will be managed by the directors, who may exercise all the powers of the Company, whether relating to the management of the business of the Company or not. In particular, the Board may exercise all the powers of the Company to borrow money and to mortgage or charge any of its undertaking, property, assets and uncalled capital and to issue debentures and other securities and give security for any debt, liability or obligation of the Company to any third party.

Shares held in employee benefit trusts

The shareholdings in the Company of the Group's employee benefit trusts and the policies of those trusts on voting those shares are described in the section of the Remuneration Report entitled 'Employee share ownership trusts'.

Significant agreements

The following significant agreements to which the Company is a party contain provisions entitling counterparties to exercise termination or other rights in the event of a change of control of the Company:

• £1,250 million Revolving Credit Facility (the Facility) dated 2 September 2005 between the Company, various syndicate banks (the Banks) and Lloyds TSB Bank plc as agent (the 'Agent'). If a person or group of persons acting in concert gains control of the Company, the Company must notify the Agent. The Agent and the Company will negotiate with a view to agreeing terms and conditions acceptable to the Company and all of the Banks for continuing the Facility. If such negotiations fail within 30 days of the original notification to the Agent by the Company, the Banks become entitled to declare any outstanding indebtedness repayable by giving notice to the Agent within 15 days of the 30day period mentioned above. On receiving notice for payment from the Agent, the Company shall pay the outstanding sums within three business days to the relevant Bank(s)
• Old Mutual Capital Funding L.P. (the 'Issuer') $750 million 8% Guaranteed Cumulative Perpetual Preferred Securities (the Preferred Securities) guaranteed on a subordinated basis by the Company. Under the terms of the Preferred Securities, the Issuer is required to give notice to the holders of such securities (the Holders) in the event of a change of control of the Company. In such case the Issuer and the Company agree, to the extent that such action is within their reasonable control, to vary the terms of the Preferred Securities and the Company's guarantee (and to use all reasonable endeavours to ensure that the entity that has acquired control of the Company (the 'Acquirer') gives such undertakings as are necessary) in order to preserve the rights of the Holders. The Issuer and the Company shall also take such steps as are in their reasonable control to ensure that the economic interests of the Holders are not adversely affected by the actions of the Acquirer following the change of control.

Substantial interests in voting rights

At 10 March 2010, the following substantial interests in voting rights had been declared to the Company in accordance with the Disclosure and Transparency Rules:

Going concern

The Group's business activities, together with factors likely to affect its future development, performance and position are set out in the Business Review. The  financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the Group Finance Director's Statement. In addition, section E of the notes to the financial statements includes the Group's objectives, policies and processes for managing its capital and set out details of the risks related to financial instruments and insurance risks taken on by the Group.

The Group continues to meet Group and individual entity capital requirements and daytoday liquidity needs through the Group's available credit facilities. The Company's existing revolving current facility of £1.25 billion does not mature until September 2012.

After making enquiries, the Board of Directors has a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Annual Report and Accounts.

Disclosure of information to the auditors

The directors who held office at the date of approval of this Directors' Report on Corporate Governance and Other Matters confirm that, so far as they are each aware, there is no relevant audit information of which the Company's auditors are unaware, and each director has taken all the steps that he ought to have taken as a director to make himself aware of any relevant audit information and to establish that the Company's auditors were aware of that information.

Governing law

The Group Chief Executive's Statement, the Risk and Capital Management report, the Business Review, the Group Finance Director's Statement and this Directors' Report on Corporate Governance and Other Matters collectively comprise the 'directors' report' for the purposes of section 463(i)(a) of the Companies Act 2006. The Remuneration Report set out in this document is the directors' remuneration report for the purposes of section 463(1)(b) of that Act. English law governs the disclosures contained in and liability for the directors' report and the directors' remuneration report.

By order of the Board

Martin Murray
Group Company Secretary
11 March 2010