Imperial Chemical Industries (ICI)

Audit Committee
The Audit Committee assists the Board in the discharge of its responsibilities for corporate governance, financial reporting and corporate control. The Committee also monitors the Group’s whistle-blowing procedures, ensuring that appropriate arrangements are in place to raise matters of possible impropriety in confidence, with suitable subsequent follow-up action. It met on four occasions in 2004.

The Committee comprises the independent Non-Executive Directors under the Chairmanship of Mr J T Gorman. The Board has determined that Mr Gorman and Baroness Noakes are the Audit Committee’s financial experts.

Audit and internal control
In accordance with the guidance for directors on internal control (The Turnbull Guidance in the Combined Code), the Board confirms that there is a process for identifying, evaluating and managing the significant risks to the achievement of the Group’s strategic objectives. The process has been in place throughout 2004 and up to the date of approval of the Annual Report and Accounts, and accords with the Turnbull Guidance. The effectiveness of this process has been reviewed regularly by the Audit Committee which reports its findings for consideration by the Board.

Board effectiveness
All new Directors receive a formal induction tailored to their particular needs. Throughout their period in office Directors are continually updated on the Group’s business and the competitive and regulatory environment in which it operates. Directors are advised on appointment of their legal and other duties and obligations as a director of a listed company and are updated on these as part of their continuing professional development at least annually.

All Directors, including the Chairman, receive a formal performance evaluation to which all other members of the Board have an opportunity to contribute.

The NEDs meet twice a year with the Chairman and Chief Executive. These discussions include evaluation of Board and individual Director performance and succession plans.

In 2004, a comprehensive externally facilitated review took place of the effectiveness of the Board and its Committees. This included extensive interviews with all members of the Board and the Company Secretary. The review concluded that the Board (including its Committees) is working effectively.

US corporate governance compliance
As a consequence of its US listing, the Company is required to comply with the provisions of the Sarbanes-Oxley Act 2002, as it applies to foreign issuers. The Company continues to monitor its legal and regulatory obligations arising from Sarbanes-Oxley. The Company has taken action to be compliant with those rules that have already become effective, and has plans to address rules with future effective dates.

In accordance with recommendations issued by the US Securities and Exchange Commission (SEC), the Company has established a Disclosure Committee comprising appropriate senior executives from the ICI Corporate Centre: the General Counsel, the Chief Financial Officer, the Vice President, Investor Relations and Corporate Communications, and the Chief Internal Auditor and Group Financial Controller. The Committee designs, maintains and evaluates the Company’s disclosure controls and procedures and reports its evaluation to the Chief Executive and Chief Financial Officer.

In November 2003, the SEC approved the NYSE’s new corporate governance rules for listed companies. Under these new rules, as a NYSE-listed foreign private issuer, ICI must disclose any significant ways in which its corporate governance practices differ from those required to be followed by US companies under NYSE listing standards. We believe the following to be the significant differences between our corporate governance practices and NYSE corporate governance rules applicable to US companies.

Independent Directors
Under NYSE listing rules applicable to US companies, independent directors must comprise a majority of the board of directors. The NYSE rules include detailed tests for determining director independence while the Combined Code prescribes a more general standard for determining director independence. The Combined Code requires a company’s board to assess director independence by affirmatively concluding that the director is independent of management and free from any business or other relationship that could materially interfere with the exercise of independent judgement.

The ICI Board does not have a majority of independent Directors. However, the Board includes a balance of Executive Directors and independent NEDs such that no individual or group can dominate the Board’s decision taking and the Company complies with the 2003 FRC Code.

The Board of ICI has assessed the independence of the NEDs against the criteria set out in the Combined Code and the NYSE corporate governance rules, save that in the case of the latter, the Board has not sought to enquire into the interests of Directors’ family members other than their spouse. On this basis the Board has concluded that all NEDs are independent.

Non-management Directors’ meetings
Pursuant to NYSE listing standards, non-management directors must meet on a regular basis without management present and independent directors must meet separately at least once per year.

ICI’s NEDs meet twice a year with the Chairman and Chief Executive to discuss and evaluate Board and individual Director’s performance and succession plans. The Chairman and Chief Executive both absent themselves when their own performance is being assessed. Discussions are led by the Chairman, except when his own performance and succession is discussed when the Senior Independent Director takes the Chair.

Adoption and disclosure of corporate governance guidelines
US companies listed on the NYSE are required to adopt and disclose corporate governance guidelines. The Listing Rules of the UK Financial Services Authority require each listed company incorporated in the United Kingdom to include in its Annual Report and Accounts a narrative statement of how it has applied the principles of the Combined Code and a statement as to whether or not it has complied with the provisions of the Combined Code throughout the accounting period covered by the Annual Report and Accounts.

Principles of business conduct
ICI’s reputation for high ethical standards is central to its business success. A Code of Business Conduct which provides guidance in this area has been communicated throughout the Group and a confidential, independently operated, whistle-blowing service is also provided to enable staff to report any suspected non-compliance. The Code is published on the Company’s website (www.ici.com) and is available in paper form from the Company Secretariat on request.

Shareholder communications
Communications with shareholders are given a high priority. The Annual Review is sent to shareholders and a full Annual Report and Accounts is available by election or on request. At the half year, an interim report is sent to shareholders and the quarterly results are published via the London Stock Exchange and by press release. The Company’s financial reports are available to shareholders in paper and electronic form. The Company’s website (www.ici.com) provides financial and other information about ICI.

Overall responsibility for ensuring that there is effective communication with investors and that the Board understands the views of major shareholders rests with the Chairman, who makes himself available to meet shareholders for this purpose. On a day-to-day basis the Board’s primary contact with major shareholders is via the Chief Executive and Chief Financial Officer who have regular dialogue with individual institutional shareholders and

deliver presentations to analysts after the quarterly results. The Senior Independent Director and other members of the Board, however, are also available to meet major investors on request.

The Board commissions an independent survey of investor views covering both the UK and US on a biennial basis which provides valuable feedback from investors.

Individual shareholders have the opportunity at the Annual General Meeting to question the Chairman and through him the Chairmen of the Remuneration and Audit Committees. As an alternative, shareholders may leave written questions for response by the Company. After the Annual General Meeting, shareholders can meet informally with the Directors.

The following is a summary of the full Remuneration Report that is contained on pages 43 to 54 in the ICI 2004 Annual Report and Accounts. The full Report can be found on the Company’s website (www.ici.com) or copies may be obtained on request from the Company Secretariat as noted on page 24.