Marks & Spencer : Governance 2020

CHAIRMAN'S GOVERNANCE

OVERVIEW

"The Board's primary objective remains to drive and accelerate our strategy of transformation."

Archie Norman, Chairman

The delivery of our transformation strategy this year has continued to be challenging, not least due to the ongoing uncertainty resulting from the Covid-19 pandemic. Nonetheless, we remain confident in the strength and relevance of our transformation programme and in our ability to accelerate this beyond the current crisis. This is in no small part due to the enthusiasm and vigour with which our colleagues have faced this crisis.

The Board's primary objective remains to drive our strategy of transformation, ensuring the long-term, sustainable success of the business. In doing so, it is essential for us to be highly engaged, able to support and challenge senior management and committed to making the hard decisions required to transform the business. We also continue to fulfil our other core duties to oversee M&S's culture, governance, financial controls, risk and change management.

The Governance section that follows is by intention concise, in keeping with our approach in previous years. Further detail on the Board, its Committees and our governance framework are available atmarksandspencer.com/thecompany.

A REFRESHED BOARD

Last year, we completed a substantial refresh of the Board's structure; this year, our refreshed Board has worked cohesively in its duties to the Company, guiding senior management in the delivery of our strategic priorities.

For the year ahead and the challenges that this inevitably brings, we have reviewed the balance of the Board and believe we have put in place a strong non-executive team with a breadth of skills, experience and perspectives for 2020/21. Katie Bickerstaffe has taken on a new role within the Company as Chief Strategy and Transformation Director and steps down from the Board in July alongside Alison Brittain. Two new non-executives, Tamara Ingram and Sapna Sood, and our new Chief Financial Officer, Eoin Tonge, join us in June. Humphrey Singer resigned as Chief Finance Officer and left the Board in December, while David Surdeau joined as Interim Chief Finance Officer in January 2020.

Full details of these changes are provided in the Nomination Committee Report on pages 57 to 58.

BOARD ACTIVITIES

The Board's focus during the year had been to increase the pace of the Company's transformation. It has received updates from all areas of the business on each of the strategic components comprising this transformation in detailed "strategic deep dives", which it has then considered, debated and challenged.

In recent months, this focus has shifted towards addressing the escalating Covid-19 crisis, and has seen the Board's activities and meetings rapidly increase in frequency to address the constantly changing situation.

An overview of the range of matters that the Board discussed and debated at its meetings during the year can be found on pages 48 to 49.

The reports of the Audit and Remuneration Committees for 2019/20 are available on pages 59 to 65 and 66 to 92 respectively.

COVID-19 RESPONSE

The Board has met at least weekly, by phone or online, since the World Health Organization declared the Covid-19 virus a pandemic, ensuring it was well placed to respond when the UK government later began its daily press briefings. It has worked with leadership to review in-depth scenario planning, and engaged teams throughout the business, while setting its expectations for M&S's approach to each of its stakeholder groups, mindful of their respective needs.

The scale and pace with which the Company's response has been coordinated by the Board is significant, and provides a valuable snapshot of M&S's governance in action. A detailed overview of this governance, the teams involved and the individual decisions comprising our overall response to the Covid-19 pandemic can be found on pages 50 to 53.

INVESTMENT IN OCADO

In the early part of the year we worked until the execution to purchase 50% of the share capital of Ocado Retail Limited, combining the strength of M&S's brand and its leading food quality and innovation with Ocado's unique and proprietary technology to create an unrivalled online offer for our customers.

From the outset of the transaction, we strongly believed that this investment would create significant, sustainable shareholder value over the long term, and would be a key component in our drive to become a truly digital retailer. Our belief in this is now stronger than ever in the wake of Covid-19. The successful launch of M&S products on the Ocado platform in September 2020 has therefore been a key priority for the Board during the year, and continues to be moving into the next.

DIVIDEND

In March, as part of our update on the impact of Covid-19, we announced that we did not anticipate making a final dividend payment for the 2019/20 financial year. We later announced in April that we also did not anticipate paying a dividend for the 2020/21 financial year. While this was a difficult decision, this is one of the proactive steps we have taken to strengthen our balance sheet and maximise liquidity for the likely duration of the crisis and recovery period beyond.

STAKEHOLDER ENGAGEMENT

While engagement with our customers and colleagues has been a key focus during these recent turbulent weeks, so that they can continue to shop and work safely, maintaining dialogue with all of our stakeholders has also been forefront of the Board's mind.

Through our market announcements, we have ensured that all investors are informed of the impact the virus is having on our business, and those of our retail shareholders who signed up for email communications also received a personal update from me to thank them for their support and understanding.

Supplier engagement has been crucial for our Clothing & Home and Food suppliers, maintaining close contact to ensure that we can support them through this difficult period and maintain continuity of food supplies.

Further information on our stakeholder considerations and activities during the Covid-19 pandemic can be found on pages 50 to 53.

Prior to the Covid-19 outbreak, 2019/20 had already been a year of proactive engagement with our investors. Our rights issue in June 2019, funding our acquisition of 50% of Ocado Retail, was delivered in line with our Digital First strategy. This was the first substantial UK digital rights issue undertaken, allowing digital participation by c.180,000 shareholders. We also engaged with our largest institutional shareholders throughout the triennial review of our Remuneration Policy and have responded to their feedback on our proposals.

We know our Annual General Meeting (AGM) provides investors with another valuable opportunity to communicate with us. In recognition of this, we will be

UK CORPORATE GOVERNANCE CODE

conducting this year's AGM digitally, despite current lockdown measures, again supporting our digital strategy. In addition to being able to vote and submit questions electronically in advance, all shareholders will be able to join the meeting online to hear from Steve and me, ask questions and vote on our resolutions. Information on how to participate electronically, both in advance and on the day, can be found on pages 194 to 197.

Details of our engagement with stakeholders and our full response to s.172 of the Companies Act 2006 can be found on pages 20 to 21.

Archie Norman, Chairman

The UK Corporate Governance Code 2018 (the "Code") is the standard against which we measured ourselves in 2019/20. The Code is available to view on the Financial Reporting Council's website.

We are pleased to confirm that we complied with all of the provisions set out in the Code for the period under review. To keep this report concise, we have focused on the key governance issues only. Our compliance with key areas of the Code are summarised below, together with cross references, where applicable, to the relevant sections of this report where more information can be found.

Full details on how we comply with the Code, including full biographies of our directors and our Corporate Governance Statement, is available on our website. Where reference is made to the availability of further information on our website, it can be found atmarksandspencer.com/thecompany.

• -Independence

  Over half of our Board (excluding the Chairman) comprises independent non-executive directors and the composition of all Board Committees complies with the Code. Additionally, the Chairman was considered independent on his appointment. More information about the Board is available on pages 46 to 47.

• -Senior Independent DirectorOur Senior Independent Director is Andy Halford.

• -Accountability and electionThere is a clear separation of duties between the Chairman and CEO roles, and all the directors are to stand for annual re-election.

• -Evaluation

  An externally facilitated performance evaluation of the Board and its Committees was undertaken during the year in accordance with the requirements of the Code, details of which can be found on page 56.

• -Attendance

  The directors have all attended an acceptable level of Board and Committee meetings, details of which are available on page 54.

• -Committee Chair Experience

  1.The Audit Committee chairman met the specific requirements with regard to recent and relevant financial experience throughout 2019/20.

  2.The Remuneration Committee chairman had been a member of a remuneration committee (for Moneysupermarket.com Group PLC) for more than 12 months prior to his appointment as Chair.

• -Governance Framework

  Our full Governance Framework, setting out details of our corporate governance practices, is available on our website.

• -Auditor tenure

  We changed our auditor in 2014/15, following a thorough tender process. Our lead audit partner, Richard Muschamp, has been in place since the start of the 2019/20 financial year.

• -Non-audit policy

  This is disclosed on our website, along with the limited non-audit work undertaken during 2019/20. Details of non-audit fees can be found on page 64.

• -Auditor appointment

  We disclose our external auditor appointment policy on our website.

• -Internal Audit

  Details of the Internal Audit function are provided within this report on page 65.

• -Culture

  Information about how the Board has assessed and monitored culture can be found on pages 18 to 19 of the Strategic Report.

• -Performance-related pay

  A significant part of performance-related pay is delivered through shares. Our reward framework is simple, transparent and designed to support and drive our strategy.

  More information on our approach to investing in and rewarding our workforce is available in the report of the Remuneration Committee from page 66.

• -Workforce engagement

  The Chair of the Company's workforce advisory panel, the Business Involvement Group (BIG), is invited to attend three Board meetings and one Remuneration Committee meeting each year. More detail on how M&S engages with its key stakeholder groups is presented on pages 20 to 21.

• -Diversity

  Information about the diversity of our Board, including its consideration of diversity in its succession plans and in developing senior management, can be found on pages 19, 46, 49and 58.

OUR BOARD

NEWLY-APPOINTEDCHAIRMAN

EXECUTIVE DIRECTOR

EXECUTIVE DIRECTORINDEPENDENT NON-EXECUTIVE DIRECTORSArchie NormanChairman

Steve RoweChief Executive

Eoin Tonge

Appointed:September 2017

Appointed:April 2016 (as Chief Executive)

Chief Financial Officer (Designate)

Andy HalfordSenior Independent Director

Key strengths and experience

Appointed:Incoming June 2020

Appointed:January 2013

• -Extensive retail and business leadership experience.

  Key strengths and experience

  Key strengths and experienceKey strengths and experience

• -Long-term track record of value creation and change in major British companies.

• -Very extensive in-depth commercial and retail experience.

  • -Strong financial background and extensive supply chain expertise.

    • -Significant recent and relevant financial experience.

      Archie is an experienced Chairman and former Chief Executive having led major transformation programmes at ITV, Lazard, Asda, Energis and Hobbycraft. He was previously Deputy Chairman of Coles Limited and, in 2016, was appointed Lead Director at the Department for Business, Energy & Industrial Strategy.

• -Extensive knowledge of M&S having worked in all major areas of the business.

• -Significant experience in overseeing strategic programmes.

• -International, consumer and digital experience.

Andy's strong finance background and broad knowledge of the

Steve joined M&S in 1989 and worked in senior roles across all areas of the business prior to his appointment as CEO, including Director of Home, Director of Retail, Director of Retail and E-commerce, Executive Director, Food, and Executive Director, General Merchandise.

Eoin will join the business in June from Greencore, where he has been CFO since 2016. At Greencore, he oversaw the divestment of their US operations, strengthening the company's balance sheet, returning capital to shareholders and simplifying the business. Prior to that he was MD of Greencore's Grocery business and also worked in a variety of roles across finance, treasury and capital markets at Goldman Sachs.

UK and international consumer market was gained from CFO positions held in global listed companies. He is Chief Financial Officer of Standard Chartered, which he joined after 15 years at Vodafone, nine of which were spent as Chief Financial Officer.

BOARD AS AT 3 JUNE 2020 (DATE OF PUBLICATION)

BOARD AS AT 3 JULY 2020 (FOLLOWING THE AGM)

• 1. Figures rounded to the nearest 1%.

• 2. Katie Bickerstaffe was an executive director with effect from 27 April 2020.

Full biographical details of each director are available onmarksandspencer.com/thecompany.

Key to Committees

AAudit

NNomination

RRemuneration

Committee Chair

Key to role status

In the role currentlyNewly appointedOutgoing

GENERAL COUNSEL AND COMPANY SECRETARY

Andrew Fisher OBENon-Executive DirectorJustin King CBENon-Executive DirectorPip McCrostieNon-Executive Director

Nick Folland

Appointed:December 2015

Appointed:January 2019

Appointed:July 2018

Appointed:February 2019

Key strengths and experienceKey strengths and experienceKey strengths and experience

• -International consumer and technology sector experience.

  • -Extensive experience of working in and leading large businesses.

    • -Substantial experience of corporate finance and tax.

• -Extensive knowledge of high-growth digital businesses.

Andrew was instrumental in establishing mobile lifestyle app Shazam, where he was Executive Chairman until October 2018, as a leading mobile consumer brand, and brings over 20 years' experience leading and growing numerous technology-focused enterprises.

• -Considerable knowledge of retail transformation and operations.

• -Extensive knowledge of global businesses and corporate transactions.

Justin is currently Vice Chairman of Terra Firma, acting as adviser to the General Partner. Between 2004 and 2014, he was the CEO of Sainsbury's, leading the business through a major transformation. He has also previously held senior positions at M&S as Head of Food, as well as Asda, Haagen-Dazs, PepsiCo and Mars.

Pip was a member of Ernst and Young's Global Executive Board from 2008 until her retirement in 2016. At EY she gained extensive financial experience and led and transformed the Global Corporate Finance business. She was founder and co-founder respectively of the Global Transaction Tax Network and UK Transaction Tax Group and a non-executive director of Inmarsat from 2016 to 2019.

Nick has extensive legal and governance experience, having been General Counsel and Company Secretary in FTSE 100 businesses since 2001. More recently, he has held positions as Chief Executive of the Crown Prosecution Service and Chief External Affairs Officer and Chief of Staff to the CEO of the Co-op.

NEWLY-APPOINTED NON-EXECUTIVE DIRECTORS

OUTGOING DIRECTORS

Sapna SoodNon-Executive DirectorTamara IngramNon-Executive DirectorAlison Brittain CBENon-Executive Director

Appointed:June 2020

Appointed:June 2020

Appointed:January 2014

Katie BickerstaffeChief Strategy and Transformation Director

Sapna is a Group Director at Compass Group PLC where she leads the International Clients and Market Development business. She has in-depth knowledge of running complex supply chains, including in food and clothing, as well as experience of leading large transformation programmes. She has held leading operational roles in the building materials and industrial gas sectors in Europe and Asia-Pacific, latterly as CEO and President of LafargeHolcim in the Philippines. She has been a non-executive director at Kering since 2016 with her term due to expire on 16 June 2020.

Tamara joins from a longstanding leadership career in advertising, marketing and digital communications, having held leadership roles at WPP since 2002. Prior to this, she worked at Saatchi and Saatchi where she held the roles of CEO and Chair. Tamara has led renowned marketing campaigns for household brands around the world and delivered cultural and business transformation at pace within her own businesses as well as on behalf of clients. She is Non-Executive Chair of Wunderman Thompson and a non-executive director of Marsh MacLennan.

Key strengths and experience

Appointed:April 2020

• -Financial and commercial experience.

  (as Chief Strategy and Transformation Director) July 2018 (as Non-Executive Director)

• -Considerable knowledge of running large-scale consumer businesses.

Key strengths and experience

• -Extensive experience of retail and operations.

  Alison is CEO of Whitbread, a global organisation with a broad portfolio of hospitality brands, and was previously Group Director at the Retail Division of Lloyds Banking Group, with responsibility for its retail branch networks as well as its Retail Business Banking and UK Wealth businesses. Alison will be standing down at the 2020 AGM having served over six years on the Board.

• -Significant understanding of UK retail and leading consumer-focused businesses.

Katie joined the leadership team as Chief Strategy and Transformation Director on 27 April 2020. As a result, she will step down from the Board at the 2020 AGM having served as a non-executive director for two years.

BOARD ACTIVITIES

WHAT WAS ON THE BOARD'S AGENDA IN 2019/20?

Board meetings are an important mechanism through which the directors discharge their duties, particularly under s.172 of the Companies Act 2006.

More information is available on pages 20 and 21

The following pages provide an overview of the content and structure of the Board's meetings and how consideration of the Group's key stakeholders is central to its discussions (see the key to the right).

Meeting agendas are agreed in advance by the Chairman, CEO and Company Secretary and are tailored to strike an

TRANSFORMATION PROGRAMME

appropriate balance between regular standing items, such as reports on current trading and financial performance, with one or two detailed "deep dives". These enable the Board to exchange views and robustly debate elements of the Company's performance, specific projects or areas of strategic significance.

PRINCIPAL COMMITTEE UPDATES

The Chairs of the Audit, Remuneration and Nomination Committees provide regular updates to the Board on the key issues and topics raised at those meetings, as well as any recommendations for the Board's approval, ensuring that the Board as a whole is up to speed on a range of significant issues that fall outside of its own remit.

Updates on the progress of the transformation programme were provided at each meeting, supplemented by deep dives presented by the relevant business area as required. These updates enable the Board to keep a finger on the pulse of the transformation programme, providing guidance and challenge as needed and driving progress forwards.

STRATEGIC DEEP DIVES

REVIEW AND KPI UPDATES

At each meeting, the Board received presentations on and discussed selected strategically significant matters in greater depth to evaluate progress, provide insight and, where necessary, decide on appropriate action. These included:

Covid-19-Following the WHO's declaration of a pandemic, held weekly calls to discuss and monitor the impact of Covid-19 on our business and stakeholders and agreed to continue to do so for as long as needed.

-

Received updates on measures imposed by the government in response to the crisis and directed the Company's response.

For more detail, see p50-p53

Clothing & Home-Received updates on progress towards resetting the Clothing & Home operating model, resolving outstanding issues with business unit profitability and re-accelerating growth in online.

For more detail, see p12-p13

Food-Reviewed progress of key elements of the

Food transformation strategy, including lowering costs, delivering trusted value, reforming the supply chain, preparations for the Ocado launch and renewing the property estate.

For more detail, see p10-p11

Home and Beauty-Received progress updates on the Home,

Furniture and Beauty strategies, discussing cost base, logistical operations and challenges, and considered the future operating models of these businesses.

Brexit

-

Received updates on the Group's preparations in light of developing government guidance, focusing on management of operational risk, financial impact and potential strategic consequences.

-Considered the potential impact over the longer term on the Company's owned businesses in Ireland and the Czech Republic and its franchise business in France.

For more detail, see p37

Investment in

Ocado Retail Limited-Discussed and approved matters relating to the rights issue, including timing and structure, the prospectus, launch communications and the impact of the rights issue on employee share plans.

-

Received updates on the Ocado Retail Limited business plan, current activities and the key priorities and deliverables in preparation for transition by September 2020.

For more detail, see p9-p11, p29

Business Involvement Group-Discussed the review of the role of

National BIG to improve the way it engages with the business.

-

Received updates on the activities of National BIG during the year and insights into the views of colleagues across the business.

International-Discussed the stabilisation of the

International business, roll-out of the market right pricing model and driving growth in key markets, particularly India.

For more detail, see p14-p15

Property-Reviewed the property strategy and received updates on store renewals and the future shape of the estate.

For more detail, see p16

Loyalty-Discussed options for a new Loyalty strategy, with work to conclude during the second half of 2020.

For more detail, see p17

Culture-Received updates on the development of the HR community within M&S and the key areas of focus for delivery, including modernising supporting technological infrastructure, investing in leadership capability across the business and improving talent planning and succession processes.

-

Received updates and discussed colleagues' views and responses to changes in the business, including the re-launch of 'Our Behaviours' and organisation-wide communication from management.

For more detail, see p18-p19