Annual Report and Accounts 2010

Chairman’s statement

An overview of our approach to corporate governance and corporate responsibility.

Doug Dunn

Awards and recognition received in 2010:

  • techMARK Company of the Year
  • EETimes ACE Company of the Year
  • National Microelectronics Institute Excellence Awards for Low Power Design and Services to Training and Education
  • CRF Institute Award as one of Britain’s Top Employers in 2010
  • Inclusion in the NASDAQ OMX CRD Global Sustainability 100 Index

Introduction

ARM performed strongly in 2010, reflecting both the recovery in the overall semiconductor industry following the recession in the prior year and successful execution of our business plan. Once again, ARM outperformed the industry and we are well positioned to continue to gain market share. It is generally expected that, after a strong recovery in 2010, the semiconductor industry will see more typical growth levels in 2011.

We were pleased to rejoin the FTSE 100 on 8 February 2010 and to maintain our position in this index. In 2010, our customers reported that they deployed the Group’s processor designs in just over six billion chips, across an ever increasing range of products. This further demonstrates that ARM is a leader not only in processor designs for mobile computers and smartphones, but also for consumer electronics and embedded devices, such as computing, digital TV, microcontrollers, networking, smartcard and solid-state drives.

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.

Directors and succession planning

During 2010 the nomination committee undertook an exercise to refresh the non-executive director representation on the board and we were very pleased to announce that Janice Roberts and Larry Hirst joined the board on 25 January 2011 and Andy Green joined the board on 25 February 2011. The nomination committee worked with external advisers, Russell Reynolds, in connection with these appointments, which bring the board back into the required balance. We were very sorry to lose the respected counsel and incisive contribution of Jeremy Scudamore, who retired for health reasons on 31 January 2011, and we thank him and wish him well for the future.

We mentioned in the 2009 Annual Report that, as part of our succession plans, John Scarisbrick will be retiring from the board at the Annual General Meeting in 2011, having served for more than nine years. The membership of all board committees underwent a full review in December 2010 and John stepped down from the remuneration committee on 16 December 2010 to make way for the new appointees.

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. The board played an important role in guiding ARM through the challenging economic environment in 2010, providing clear strategic direction and ensuring that the Group’s performance and standards of conduct remained at expected levels. The roles of the current members of the board are set out in the biographies section on pages 41 to 43.

Diversity

The board now comprises 12 men (86%) and two women (14%). The workforce as a whole is made up of 83% men and 17% women (2009: 82% men and 18% women). This is broadly in line with the gender split of engineering graduates in the UK in 2010 of 90% men and 10% women.

Gender split – board
 

Gender split – board

  • Male86%
  • Female14%

Gender split – workforce
 

Gender split – workforce

  • Male83%
  • Female17%

Approximate allocation of board agenda time in 2010

Approximate allocation of board agenda time in 2010

  • Strategy and risk56%
  • Business updates and financial reporting
    24%
  • Governance12%
  • Division and function updates8%

Corporate governance framework and role of the board

The Group’s corporate governance framework is built around three pillars:

  • organisation and structure;
  • the internal control framework; and
  • independent assurance.

ARM highly values corporate governance and this is reflected in our governance principles, policies and practices and 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. During 2010, the Group complied with the Combined Code on Corporate Governance 2008, with the two minor exceptions noted in the Corporate Governance Report. We note the provisions of the UK Corporate Governance Code 2010 which is applicable for accounting periods beginning on or after 29 June 2010. To the extent that the Group does not already comply with this and, as new regulations and guidance are published, the Group will aim to comply fully with any changes and best practice principles within a reasonable timescale.

The Group continued to comply with the requirements of the Sarbanes-Oxley Act 2002 (US).

The board’s core activities include:

  • providing leadership for the Group;
  • active engagement in developing the Group’s long-term strategy;
  • monitoring executive actions, standards of conduct, performance against business plans and budgets and ensuring that the necessary financial and human resources are in place for it to meet its objectives;
  • obtaining assurance that material risks to the Group are identified and appropriate systems of risk management and control exist to mitigate such risks and defining the Group’s appetite for risk; and
  • board and executive management succession.

All directors and employees are required to act fairly, honestly and with integrity and they are required to demonstrate that they have read and understand our 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, operating budgets and capital expenditure. 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 on Corporate Governance Code 2008. 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 for making proposals to the board in relation to 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.

Remuneration

ARM maintained its conservative approach to remuneration in 2010, in line with market uncertainty around the timing and scope of the global economic recovery. We continued to be able to retain and recruit the talented people who are critical to the continued success of our business.

Despite the tough market conditions the minimum targets, established three years ago under the Long Term Incentive Plan, were exceeded and our teams have been rewarded for their performance. Details are set out in full in the remuneration report. The board is not proposing any new remuneration schemes or any changes to the Long Term Incentive Plan in 2011. It is intended that the maximum bonus payable under the Deferred Annual Bonus Plan to the executive team will increase from 125% of base salary to 150% of base salary for 2011 and beyond. This change follows a review of executive remuneration by Towers Watson which was undertaken during 2010 and which included an analysis of remuneration packages in comparable companies. The remuneration committee has approved this change, which will bring the variable element of executive pay more in line with market practice among our peers. More detail on executive remuneration is set out in the remuneration report.

Corporate responsibility

In 2010, ARM’s commitment to environmental, social and governance issues was recognised by the NASDAQ OMX CRD Global Sustainability 100 Index which ranked ARM among the top 100 companies in the world for sustainability. More than 3,000 global companies were evaluated on 200 complex and diverse performance metrics in order to establish individual, quantitative ratings of sustainability.

ARM has further strengthened its commitment to leadership in corporate responsibility by joining the United Nations Global Compact and Caring for Climate initiatives and through forming a new partnership with the International Business Leaders Forum to explore how technology can help to develop a low-carbon economy and improve livelihoods in developing countries.

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.

Our commitment to the environment extends beyond the energy efficiency and power saving that ARM technology- based chips help to achieve. In 2010 ARM worked with the American Council for an Energy-Efficient Economy (ACEEE) to help found its intelligent efficiency advisory board, which is made up of a group of industry representatives who help to advance the research agenda and associated policy debate on the importance of IT in achieving the step change needed in energy efficiency. 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. ARM is improving its strategy for low carbon business operation and during 2010 we set goals of:

  • 30% emission reduction in tons of CO2 emission per employee by 2020; and
  • 15% energy use reduction measured in KW hours per employee by 2020.

We will be monitoring and reporting on our performance against these goals annually.

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.

More details about our approach to corporate responsibility are set out in the Corporate Responsibility Report on page 52.

2010 marks ARM’s 20th anniversary

ARM celebrated its 20th anniversary in November 2010. 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 21st year as leader in our market, I would like to thank the teams worldwide who have contributed to making ARM a great success story.

Our stakeholders and Partners will continue to benefit from our open, clear and consistent approach in 2011 and beyond as we expand into our targeted market segments and position ARM for the next 20 years.

Doug Dunn sign

Doug Dunn, Chairman