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Corporate Governance

The Board of Mattioli Woods plc is committed to achieving high standards of corporate governance, integrity and business ethics. Under the rules of AIM, the Group is not required to comply with the provisions of the Combined Code on Corporate Governance issued by the Financial Reporting Council in July 2003 ("the Combined Code"). However, the Group has taken steps to comply with the Combined Code in so far as it can be applied practically, given the size of the Group and the nature of its operations, except where explicitly set out below.

The Board and its committees

The Board of Directors, comprising four Executive Directors and one independent Non-Executive Director meets regularly throughout the year. Their biographies demonstrate a range of experience which is vital to the success of the Group. This forum provides the principal format for directing the business of the Group.

The roles of Executive Chairman and Chief Executive are distinct, as set out in writing and agreed by the Board. The Executive Chairman is responsible for the effectiveness of the Board, directing strategy and ensuring communication with shareholders, and the Chief Executive is responsible for the day to day management of the Group.

It is the opinion of the Board that the Non-Executive Director is independent of management and free from any business or other relationships which could materially interfere with the exercise of his independent judgement. The Board does not consider the Non-Executive Director's shareholding to impinge on his independence. The Non- Executive Director provides a strong independent element to the Board and brings experience at a senior level of business operations and strategy.

The balance of executive and non-executive directors is not equal and a nominations committee has not been appointed. Hence paragraph A.3.2 of the Combined Code (which states a smaller company should have at least two independent non-executive directors) and paragraph A.4.1 (which states there should be a nomination committee to lead the process for board appointments) are not complied with.

The Board handles nomination issues, and plans to appoint an additional non-executive director when an appropriately qualified candidate has been identified. The Board considers that given the size and nature of the Group's activities, such non-compliance with the Combined Code is not unreasonable and does not compromise the overall principles of corporate governance which the Board strongly supports.

All Directors have access to the Company Secretary, who is responsible for ensuring the Board procedures and applicable rules and regulations are observed. Any Director, on appointment and throughout their service, is entitled to receive any training they consider necessary to fulfil their responsibilities effectively.

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 in 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 and approval of budgets and financial statements. Other matters are delegated to management, supported by policies for reporting to the Board. The Company Secretary is responsible to the Board for ensuring that Board procedures are followed and 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 has delegated authority to two Committees. The Chairman of each Committee provides a report of any meeting of that Committee at the next Board meeting. The Chairman of each Committee is present at the Annual General Meeting to answer questions from shareholders.

Audit Committee

The Audit Committee met four times during the year, is chaired by John Redpath and also comprises Ian Mattioli. The Committee meets together with the Finance Director, Nathan Imlach, not less than twice a year. It is responsible for ensuring that the financial performance of the Group is properly reported on and monitored. The Audit Committee considers the appointment of, and fees payable to, the external auditors and discusses with them the scope of the annual audit. The Audit Committee also reviews the external auditors' management letter, and detailed presentations are made to the Committee by the Company's auditors.

As part of its duties, the Audit Committee reviews the halfyear and annual financial statements for compliance with accounting standards, statutory obligations and the requirements of the AIM Rules and the Combined Code. The Audit Committee also reviews the effectiveness of the internal controls of the Group. The presence of other senior executives from the Group may be requested.

Remuneration Committee

The Remuneration Committee met three times during the year, is chaired by John Redpath and also comprises Bob Woods. The Committee meets not less than twice a year. It is responsible for determining and reviewing the Group's policy on executive remuneration and other benefits and terms of employment, including performance related bonuses and share options.

The Remuneration Committee administers the operation of the share option schemes established by the Company.

The members of the Remuneration Committee can have no personal interest in the outcome of their decisions and seek to serve the interests of shareholders to ensure the continuing success of the Company. Bob Woods abstains from his role on this committee in relation to his own remuneration.

The remuneration of the Non-Executive Director is determined by the Executive Directors and confirmed by the full Board, excluding the Non-Executive Director concerned.

Meetings and attendance

All Directors are encouraged to attend all Board meetings and meetings of committees of which they are members.

Induction, training and performance evaluation

New Directors receive an induction on their appointment to the Board covering 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 ensures that Directors update their skills, knowledge and familiarity with the Group required 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 AIM Rules, requirements under the Companies Act and other regulatory matters. 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 or two other directors, one of whom is a non-executive.

Evaluation of the Board's performance

The evaluation of individual Directors' performance is carried out by the Remuneration Committee. Executive Directors' performance is evaluated using an approach which combines business and personal performance objectives with financial and non-financial measures of achievement against those objectives. The annual review cycle starts with objective setting in July, interim reviews in December and performance evaluation in May. The results of interim and annual evaluations are communicated to the Remuneration Committee.

The evaluation of the Non-Executive Director's performance uses self-appraisal and interview with the Chairman to consider aspects of performance including 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 director independence.

The performance of the Chairman is reviewed annually by the Non-Executive Director. This review takes into account the views of Executive Directors who were interviewed by the Non-Executive 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 12 months with the opportunity for renewal by the Company thereafter. The terms and conditions of appointment of the Non-Executive Director are available for inspection at MW House during normal business hours and prior to the AGM.

Communications with shareholders

The Board is committed to ongoing dialogue with the Company's shareholders. The principal methods of communication with private investors remain the Annual Report and Accounts, the interim statement, the Annual General Meeting and the Group's web site (www.mattioli-woods.com).

Internal control and risk management

The Board has overall responsibility for the Group's system of internal control and for reviewing its effectiveness. Such a system can only be designed to manage, rather than eliminate, the risk of failure to achieve business objectives, and can therefore only provide reasonable not absolute assurance against material misstatement or loss.

An ongoing process, in accordance with the guidance of the Turnbull Committee on internal control, has been established for identifying, evaluating and managing significant risks faced by the Group. 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 routinely reviews the effectiveness of the system of internal control and risk management to ensure controls react to changes in the Group's overall profile.

The Group maintains appropriate insurance cover and reviews the adequacy of the cover regularly.

There are clearly defined procedures for reviewing and approving all bids, acquisitions and capital expenditure within the Group.