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Chairman’s statement on corporate governance and corporate responsibility

Doug Dunn

Awards for 2009:

  • 2009 Techmark Technology Innovation Award
  • UK International Trade Award for 2009 sponsored by HSBC
  • Thomson Reuters Extel – Best Investor Relations in FTSE 250, Best CFO Investor Relations in FTSE 250

Introduction

I am pleased to say that ARM demonstrated resilience in an extraordinarily tough year in 2009 and is well placed to take advantage of the potential recovery in the wider economy and in consumer demand in 2010. It is also encouraging that our market capitalisation has increased to merit re-entry into the FTSE 100 on 8 February 2010.

Our designs were used in more than 3.9 billion chips in 2009, across an ever increasing range of products, broadening an already impressive footprint and entrenching ARM as a leader not only in chip designs for mobile applications, but also in consumer electronics such as digital TVs and cameras, enterprise applications such as Wi-Fi and disk drivers and embedded products such as motor controllers and smartcards.

ARM designs were in more than 3.9 billion
chips in 2009

ARM’s board and executive team recognise that continued success has been achieved through the strength and depth of our stakeholder relationships. The corporate governance framework and processes we have in place enable us to manage the Company effectively and to demonstrate transparent, consistent and effective governance so that we remain accountable to our shareholders, employees, Partners, suppliers and the local communities we support and interact with.

Compliance with the Combined Code and the Sarbanes-Oxley Act 2002 (US)

The Group’s corporate governance framework is built around three pillars: organisation and structure, the internal control framework and independent assurance. ARM takes corporate governance very seriously and has integrated governance principles, policies and practices into our everyday working processes. This approach is backed by continuous improvement based on measurement against internal objectives, external audits and benchmarking and a rigorous approach to risk management.

The Group continued to comply with the Combined Code on Corporate Governance 2008 and the requirements of the Sarbanes-Oxley Act 2002 (US).

Corporate governance and role of the board

The Group is committed to high standards of corporate governance and business integrity, which it believes are essential to maintaining the trust of its investors and other stakeholders. The board provides leadership for the Group and is responsible for setting the Group’s strategic aims and standards of conduct, monitoring performance against business plans and budgets prepared by the executive team and ensuring that the necessary financial and human resources are in place for it to meet its objectives. All directors and employees are required to act fairly, honestly and with integrity and they are all subject to a Code of Business Conduct and Ethics, a copy of which is published on the corporate website at www.arm.com.

The board has a formal schedule of matters specifically reserved for its decision, which includes the approval of major business issues, policies and operating and capital expenditure budgets. It is also responsible for sanctioning unusual commercial arrangements such as atypical licence agreements and investments. Authority is delegated to various committees that are constituted within written terms of reference and chaired by independent non-executive directors where required by the Combined Code. The Chairman has primary responsibility for running the board and the Chief Executive Officer has executive responsibilities for the operations and results of the Group and making proposals to the board for the strategic development of the Group. There are clear and documented divisions of accountability and responsibility for the roles of Chairman and Chief Executive Officer.

Directors and succession planning

The board reflects a balance between financial, sector specific and general business skills, with a highly experienced international team leading the business in both executive and non-executive roles. It was key to guiding ARM in the challenging economic environment in 2009, providing clear strategic direction and ensuring that the Group’s performance and standards of conduct remained at expected levels.

There were no board changes during 2009. At the Annual General Meeting on 14 May 2010 Lucio Lanza retires by rotation and has decided not to stand for re-election. He has been a director since 2004 when ARM acquired Artisan, of which he was Chairman from 1997. On behalf of the Group and my board colleagues, I would like to thank Lucio for the valuable contribution he has made over the past five years through his extensive knowledge of the semiconductor industry and the US market. As part of our succession plans, John Scarisbrick, who has been a director since August 2001, will be retiring from the board at the Annual General Meeting in 2011. The Nomination Committee has started the process of identifying suitable replacements for these non-executive director roles and details will be announced at the appropriate time.

Remuneration

ARM continued its conservative approach to remuneration in 2009, in line with market uncertainty around the timing and scope of the global economic recovery. We maintained a freeze on pay at all levels throughout 2009 (the only exception being for employee promotions) and we continued to retain and recruit the talented people who are critical to the continued success of our business.

Despite the tough market conditions over the past two years, the minimum targets set three years ago under the Long Term Incentive Plan (LTIP) were exceeded and our teams will be rewarded for their performance, details of which are set out in full in the Remuneration Report. The board is not proposing any new remuneration schemes or any changes to the existing LTIP and Deferred Annual Bonus Plan in 2010.

Engagement with stakeholders

We continued to develop our engagement with stakeholders in 2009, strengthening our relationships and expanding the ARM network of Partners and our Connected Community.

ARM’s University Programme is an important initiative for the future of the business and our relationships with business partners. We engage with universities around the world, developing the next generation of ARM engineers, donating equipment and software, assisting students, helping to design courses and providing technical support and training. In 2009 the programme strengthened its commitment to institutions in India and China to nurture growing talent. ARM and our Partners are seeing the benefit of the University Programme as students are graduating with experience in designing with ARM products and as university engineering departments base their own research around ARM technology.

Throughout 2009 ARM has supported the Cambridge Network which links like-minded people from business and academia
See page 38

I am also pleased to report major progress in our engagement with investors and sell-side analysts in 2009, where the number of analysts covering the Company doubled to about 30, increasing support and advice for our investors, specifically those in the US. We plan to further enhance investor support in 2010 through improved online communications giving investors better access to the information they need to understand ARM’s business, its strategy and how ARM is progressing against its key performance metrics.

Corporate responsibility

ARM continued its support for science and IT related education through the Engineering Education Scheme, Young Engineers and Young Enterprise, the Cambridge University Entrepreneurs, University of Texas College of Communication, Cambridge University Engineering Society and primary educational establishments.

In January 2009, ARM was presented with a 1 star award in the Sunday Times ‘Best Company to Work For’ survey, recognising us as a “first-class” employer
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Our commitment to the environment extends beyond the energy efficiency and power saving that our technology- based chips help to achieve. In our UK offices, where ARM procures its own energy, supplies are from renewable sources and a greener energy procurement policy is being extended to our other offices where possible.

Our technology allows our Partners to develop smarter digital electronic products that can measure, manage and control the environmental performance of consumer electronics and IT equipment, improving performance and reducing the carbon footprint for some of the products that we all use, every day. ARM is working with suppliers to minimise environmental impact.

In the UK, ARM’s recycling of cardboard and paper grew by 105% from 2006 to 2009
See page 38

More details about our approach to corporate responsibility is set out in the Corporate Responsibility Report, a more detailed version of which is published on our website at www.arm.com.

2010 marks ARM’s 20th anniversary

As a business recognised for its innovation and world class intellectual property, ARM has been built around the highest quality people in the sector. As we enter our 20th year as leader in our market, I would like to thank the teams worldwide who have made ARM a great success story.

Our stakeholders and Partners will continue to benefit from our open, clear and consistent approach in 2010 and beyond as we expand into our targeted market segments and position ARM for further decades of success.

Doug DunnDoug Dunn
Chairman