Corporate Governance

Principles of Good Governance

The Board is committed to high standards of corporate governance. The adoption and maintenance of good governance is the responsibility of the Board as a whole. This report, together with the Directors' Remuneration Report, describes how the Board applies the principles of good governance and best practice as set out in Section 1 of the Combined Code on Corporate Governance 2008 (the "Combined Code 2008"). A statement of compliance can be found in the 2009 Annual Report.

The Board

The Board consists of a non-executive Chairman, two executive Directors and two other non-executives. Lord Inglewood is considered independent and his independence was assessed when he was appointed as nonexecutive Chairman. A R Heygate is a non-executive Director and the Board considers him to be independent although the Combined Code 2008 would not deem him independent due to his long association with the Company and he represents a significant shareholder. The Board believes that he acts in the best interests of the Company and that his holding of shares in the Company aligns his interests with that of the shareholders. A G M Wannop is the senior independent non-executive Director. The Combined Code 2008 recommends that the Board of Directors of a UK public company should include a balance of executive and non-executive Directors (including independent non-executives) such that no individual or small group of individuals can dominate the Board's decision-making. The Board is confident that it meets the requirements of the Combined Code 2008 with the exception of A R Heygate as outlined above.

The Board meets eleven times throughout the year to determine the strategic direction of the Group and to review operating, financial and risk performance. To enable them to carry out these responsibilities all Directors have full and timely access to all relevant information. There is a formal schedule of matters reserved to the Board, which includes:

approval of the Group's annual Business Plan;
the Group's strategy;
acquisitions, disposals and capital expenditure projects above certain thresholds; all guarantees; treasury policies; the financial statements;
the Company's dividend policy;
transactions involving the issue or purchase of Company shares;
borrowing powers;
appointments to the Board;
alterations to the Memorandum and Articles of Association;
legal actions brought by or against the Group above certain thresholds; and
the scope of delegations to Board committees, subsidiary boards and executive management of the Group.

The Company's Articles of Association provide that one third of the Directors retire by rotation each year at the Annual General Meeting which is in compliance with the Combined Code 2008. All new Directors are subject to election by shareholders at the first opportunity following their appointment.

Directors' biographies are shown on the board page. The formal terms of reference for the main Board Committees together with the terms and conditions of appointment of non-executive Directors are reviewed annually and are available for inspection at the Company's Registered Office and at the Annual General Meeting.

Board Committees

Audit Committee

The Audit Committee currently comprises the three non-executives, W R Inglewood, A R Heygate and A G M Wannop. The Committee is chaired by A R Heygate. The Board considers that the Company meets the main requirements of the Combined Code 2008 for a Company of Carr's size.

The Board are responsible for assessing the Group's internal financial controls and meeting with the external auditors as appropriate. The external auditors have the opportunity for direct access to the Committee without the executive Directors being present.

The Committee reviews the Group's accounting policies and internal reports on accounting and internal financial control matters together with reports from the external auditors. The Audit Committee has overall responsibility for monitoring the integrity of financial statements and related announcements and for all aspects of internal control. The Committee meets at least twice a year and such meetings involve a review of the Group's interim and full year statements. The Audit Committee is also responsible for recommendations for the appointment, reappointment or removal of the external auditors and for reviewing their effectiveness. The audit committee carries out each year a full evaluation of the external auditor as to its complete independence from the Group and that is adequately resourced and technically capable to deliver an objective audit to shareholders. Based on this review the audit committee recommends to the board each year the continuation, or removal and replacement, of the external auditor. It also approves the terms of engagement and remuneration and monitors their independence including the nature and levels of non-audit services. Recommendations by the auditors on internal control procedures are considered by the Audit Committee and implemented where appropriate.

The Chairman of the Audit Committee will be available at the Annual General Meeting to respond to any shareholder questions that might be raised on the Committee's activities.

Meetings Attendance

Details of the number of meetings of, and members' attendance at, the Board, Audit and Remuneration Committees during the period are set out in the table below.

	Board	Audit Committee	Remuneration Committee

No. of meetings	11	2	2

W R Inglewood	11	2	2
C N C Holmes	11	-	-
R C Wood	11	-	-
A R Heygate	10	1	2
A G M Wannop	11	2	2

Remuneration Committee

The Remuneration Committee currently comprises A G M Wannop (Chairman), W R Inglewood and A R Heygate. It is a requirement of the Combined Code 2008 that the Remuneration Committee should, in the case of smaller companies, consist of at least two members who are considered by the Combined Code 2008 to be independent. The Company has complied with this. The Board is confident that the Company complies with the requirements of the Combined Code 2008 in terms of the required number of independent Directors for a Company of Carr's size. C N C Holmes, Chief Executive, attends meetings of the Committee by invitation and in an advisory capacity. No Director attends any part of a meeting at which his own remuneration is discussed. The Chairman and the executive Directors determine the remuneration of the other non-executive Directors. The remuneration of the Chairman is determined by the Board.

The Committee recommends to the Board the policy for executive remuneration and determines, on behalf of the Board, the other terms and conditions of service for each executive Director. It determines appropriate performance conditions for the annual cash bonus and deferred bonus scheme and approves awards and the issue of options in accordance with the terms of those schemes. The executive directors' contract periods are one year. The Remuneration Committee also monitors the level and structure of remuneration of senior management below that of main board Director. The Committee has access to advice from the Company Secretary and to detailed analysis of executive remuneration in comparable companies. Details of the Committee's current remuneration policies are given in the Directors' Remuneration Report found in the 2009 Annual Report.

The Chairman of the Remuneration Committee attends the Annual General Meeting to respond to any shareholder questions that might be raised on the Committee's activities.

Relations with Shareholders

The Board recognises the importance of good communications with all shareholders. The Group maintains dialogue with institutional shareholders and analysts, and general presentations are made when financial results are announced. Shareholders have access to the Company's website at www.carrs-milling.com.

The Annual General Meeting is the principal forum for all the directors to engage in dialogue with private investors. All shareholders are given the opportunity to raise questions at the meeting. The Group aims to send notices of Annual General Meetings to shareholders at least 20 working days before the meeting, as required by the Combined Code 2008, and it is the Company's practice to indicate the proxy voting results on all resolutions at the meetings.

Internal Control

The Board of Directors has overall responsibility for the Group's systems of internal control, including financial, operational and compliance controls and risk management, which safeguards the shareholders' investment and the Group's assets, and for reviewing its effectiveness. Such a system can only provide reasonable and not absolute assurance against material misstatement or loss, as it is designed to manage rather than eliminate the risk of failure to achieve business objectives.

The Board of Directors is not aware of any significant losses caused by breaches of internal control in the period.

The Group operates within a clearly defined organisational structure with established responsibilities, authorities and reporting lines to the Board. The organisational structure has been designed in order to plan, execute, monitor and control the Group's objectives effectively and to ensure that internal control becomes embedded in the operations. The Board confirms that the key on-going processes and features of the Group's internal risk based control system, which accord with the Turnbull guidance, have been fully operative and up to the date of the Annual Report being approved. These include: a process to identify and evaluate business risk; a strong control environment; an information and communication process; a monitoring system and a regular Board review for effectiveness. The Finance Director and Group Financial Accountant are responsible for overseeing the Group's internal controls.

The Group does not have an internal audit function as the Board consider that the Group has not yet reached a size where a separate internal audit function would be an appropriate or cost effective method of ensuring compliance with Group policies, and therefore does not currently propose to introduce a Group internal audit function. This area will be kept under review as part of the Board's assessment of the Group's systems of internal control.

The management of the Group's businesses identified the key business risks within their operations, considered the financial implications and assessed the effectiveness of the control processes in place to mitigate these risks. The Board reviewed a summary of the findings and this, along with direct involvement in the strategies of the businesses, investment appraisal and budgeting process, enabled the Board to report on the effectiveness of internal control.

Auditors Independence

The Board is satisfied that PricewaterhouseCoopers LLP has adequate policies and safeguards in place to ensure that auditor objectivity and independence is maintained. The Group meets its obligations for maintaining the appropriate relationship with the external auditors through the Audit Committee whose terms of reference include an obligation to consider and keep under review the degree of work undertaken by the external auditors, other than the statutory audit, to ensure such objectivity and independence is safeguarded.

Compliance with the revised Combined Code 2003

The Directors consider that the Company has, during the period ended 29 August 2009, complied with the requirements of the Combined Code 2008 other than as set out below.

the non-executive director, A R Heygate, is not deemed to be independent under the requirements of the Combined Code 2008 although the Board considers him to be independent (Sch.3.1)
the members of the Audit Committee are deemed not to have recent and relevant financial experience in accordance with the Combined Code 2008 (Sch.3.1). However, the Board believes their business knowledge and experience is sufficient to satisfy the Committee's obligations
there are no specific provisions for compensation on early termination of the executive directors (B.1.5)
the Board did not have in place during the period a formal and rigorous process of evaluation of its own performance and that of its committees (A.6.1). Rigorous but informal evaluation has historically been carried out by the Chairman and Chief Executive, an evaluation of the performance of the individual directors has also been carried out by the Remuneration Committee
there is no separate Nominations Committee (A.4.1) to assess and recommend new directors. Instead the Board as a whole considers these areas following initial scrutiny and recommendations by the Chief Executive and Chairman
one Audit Committee meeting was chaired by W R Inglewood in the absence of A R Heygate.