The Board's Conduct of its Affairs

Every company should be headed by an effective Board to lead and control the company. The Board is collectively responsible for the success of the company. The Board works with Management to achieve this and the Management remains accountable to the Board.

The new Board was reconstituted in late March 2006 with new directors to replace the previous Board in its entirety.

The current Board comprises nine members, of whom eight are Non-Executive Directors and one is an Executive Director. All Independent Directors as well as those nominated by the two major shareholders, namely China National Aviation Fuel Group Corporation ("CNAF") and BP Investments Asia Ltd ("BP"), were appointed on the strength of their expertise, experience and stature. The details, qualifications and major appointments of each Director are provided under the "Board of Directors" section of this Annual Report.

With the exception of Mr Paul Reed and Mr Michael Bennetts who joined the Board on 9 June 2006 and 1 January 2007 respectively, the other six members were appointed at the Extraordinary General Meeting ("EGM") held on 3 March 2006.

The Directors, as a group, consider and decide on issues of strategy, performance, resources and standard of conduct. They provide CAO with the core competencies, drive and direction for its business, so as to enhance long-term shareholder value.

The Board is in a unique position to implement new thinking, strategies and direction for the Company without being restrained by the past. As such, the Board has implemented many new internal controls and processes for the benefit of the Company.

Some of the businesses that the Board transacts include:

a) setting, reviewing and approving corporate strategies, annual budgets and financial plans;

b) reviewing the adequacy and integrity of the Company's internal controls, risk management systems, financial reporting systems and monitoring the performance of the Group and the Management;

c) ensuring that the Group and Management comply with all laws, regulations, policies, directives, guidelines and internal code of conduct;

d) considering and approving the nominations of suitable candidates to the Board of Directors; and

e) ensuring accurate, adequate and timely reporting to, and communication with shareholders.

Matters that are specifically reserved for the Board's consideration and decision include, but are not limited to, corporate planning, material acquisitions and disposals of assets, corporate or financial restructuring, declaration of dividends and interested person transactions.

In accordance with the recommendation of the Code, the Board delegated specific responsibilities to three committees, namely the Audit, Nominating and Remuneration Committees. In addition, the Board adopted the recommendations of the CGAC and formed two additional committees, namely the Risk Management Committee and the Disclosure Committee. Each Committee has the authority to examine issues relevant to their terms of reference and to make recommendations to the Board for action. The ultimate responsibility and decision on all matters still lies with the Board.

The new Board met six times in 2006. When Directors cannot be physically present, telephonic attendance and conference via audio-visual communication at Board and Board committee meetings are allowed under the Company's Articles of Association. The number of Board and Board committee meetings held in 2006, as well as the attendance of each Board member at these meetings, are disclosed below: 

Notes:

(1) Appointed on 9 June 2006. From 9 June 2006 to 31 December 2006, there were two Board meetings, three Audit Committee meetings and one Risk Management Committee meeting held.

(2) Resigned on 1 January 2007.

(3) Resigned on 9 June 2006. During his tenure as the Company's Director, there were four Board meetings, one Audit Committee meeting and one Risk Management Committee meeting held. 

A formal letter is sent to newly-appointed Directors upon their appointment explaining their duties and obligations as a Director. Appropriate training is provided for all new Directors appointed to the Board to ensure that they are familiar with the Company's business, operations, governance practices and regulatory requirements. Training is an ongoing and continuous process.

All Directors are required to officially disclose their interests in the Company including any interested person transactions with the Company. All Directors practise good governance by updating the Company about changes to their interests in a timely manner.

Board Composition and Balance

There should be a strong and independent element on the Board, which is able to exercise objective judgment on corporate affairs independently, in particular, from Management. No individual or small group of individuals should be allowed to dominate the Board's decision making.

Commentary

Of the eight members on the Board, five are nominated by substantial shareholders and three are Independent Directors. Independent Directors constitute at least one-third of the Board. None of its eight members is related to one another.

At least two Independent Directors are resident in Singapore, in accordance to the recommendation of the CGAC. These two Independent Directors are Mr Lim Jit Poh and Mrs Lee Suet Fern.

In addition, the CGAC recommended that the Chairman of the Board should be "one who has experience serving as a chairman of a reputable public listed company in Singapore. The candidate should also have a good working relationship with the various regulators in Singapore, as well as with the shareholders' association, SIAS. He should also command the respect of the investing public".

The Chairman of the Board, Mr Lim Jit Poh, meets the above criteria. He is currently the Chairman of ComfortDelGro Corporation Ltd, a reputable public listed company in Singapore. He has good working relationships with the various regulators in Singapore. He is also a resident of Singapore.

The Nominating Committee reviews each Director's independence. The composition of the Board is also reviewed annually by the Nominating Committee. The Nominating Committee is satisfied that the Board comprises Directors who as a group possess the necessary core competencies for effective decision-making.

Chairman and Chief Executive Officer

There should be a clear division of responsibilities at the top of the company- the working of the Board and the executive responsibility of the company's business – which will ensure a balance of power and authority, such that no one individual represents a considerable concentration of power.

Commentary

The Chairman of the Board, Mr Lim Jit Poh, is an Independent Non-Executive Director. He acts independently in the best interests of the Company and the Group.

The Chairman is primarily responsible for overseeing the overall management and strategic development of the Company. With the assistance of the Company Secretary and Legal Counsel, he regulates Board meetings and ensures that all procedures and good governance practices are complied with. 

The Company currently does not have a Chief Executive Officer. Instead, this important management role is carried out by the Senior Officers Meeting ("SOM"), under the chairmanship of Mr Lim. The six-member SOM comprises an Executive Director and senior staff and they usually meet on a weekly basis to discuss issues and discharge the management function. The Special Task Force implements the decisions of the SOM and conducts day-to-day affairs of the Group. The SOM will continue to function until a CEO is appointed by the Board.

The Chairman is in constant consultation with the Board and its various committees on major issues. As such, the Board believes there are adequate safeguards in place against having a concentration of power and authority in a single individual.

The Chairman and members of the SOM are not related.

Board Membership

There should be a formal and transparent process for the appointment of new Directors to the Board.

Commentary

The Nominating Committee was established by the Board to make recommendations for all Board appointments. The Nominating Committee comprises five members, the majority of whom are Independent Non-Executive Directors:

Nominating Committee

The responsibilities of the Nominating Committee include:

a) evaluate and nominate suitable candidates or, as the case may be, re-nominate retiring Directors to the Board;

b) determine each Board member's independence status; and

c) evaluate the effectiveness of the Board as a whole and independently evaluate each Board member's performance and contribution to the Board.

CNAF and BP have agreed under a Shareholders' Agreement that each shall nominate four and two Directors respectively to the Board, out of a maximum nine Directors. The remaining three shall be Independent Directors.

In 2006, the Nominating Committee nominated two new Directors – Mr Paul Reed and Mr Michael Bennetts to the Board. They represent BP's interest on the Board. The Board approved the candidates nominated and appointed them members of the Board of Directors.

Pursuant to Article 97 of the Company's Articles of Association, both Mr Paul Reed and Mr Michael Bennetts shall retire at the forthcoming Annual General Meeting ("AGM"). The Nominating Committee nominated and the Board approved both retiring Directors to seek for re-election at the forthcoming 2007 AGM. Pursuant to Article 91, one-third of the members of the Board of Directors shall retire. For the 2007 AGM, Mr Lim Jit Poh, Mr Liu Fuchun and Mrs Lee Suet Fern are due for re-election. The Nominating Committee has recommended and the Board agreed that all retiring directors be nominated for re-election at the AGM. 

Board Performance

There should be a formal assessment of the effectiveness of the Board as a whole and the contribution by each Director to the effectiveness of the Board.

Commentary

The Nominating Committee evaluated the performance of each Director and the effectiveness of the Board as a whole.

The Nominating Committee completed a Board assessment and effectiveness questionnaire for 2006. The Nominating Committee is satisfied with the current composition and performance of the Board as a whole.

In its evaluation, the Nominating Committee considered the expertise and experience of each member, his or her attendance, participation and contributions to the Board both inside and outside of Board meetings. The Nominating Committee is satisfied with the performance of the Board and its members.

Access to Information

In order to fulfill their responsibilities, board members should be provided with complete, adequate and timely information prior to board meetings and on an on-going basis.

Commentary

In accordance with the recommendations of the CGAC, enhanced communication processes between the Board and Management in terms of information fl ow are in place.

Agenda for meetings and all Board papers for discussions are circulated to Directors in advance so that the Directors are prepared for the meetings.

The Board as a whole as well as individual Directors have direct access to Management represented by the SOM and other senior executive officers of the Company and Group. The SOM provides the Directors with monthly updates on the operational and financial performance of the Group, and also responds to regular questions from the Board or individual Directors in a timely manner.

Where the Board deems it necessary, the Board can obtain independent advice from external consultants. This enhances the Board's ability to discharge its functions and duties.

All Board members have direct access to and the advice and services of the Company Secretary and in-house Legal Counsel. The Company Secretary and the Legal Counsel attend all Board meetings and assist the Chairman in ensuring that Board papers, procedures and the applicable laws and regulations are adhered to.

Information about the Company and the Group are freely available to each Board member. Management will supply any additional information that the Board requires. Management and senior executives are invited by the Board to attend its meetings to present their proposals or to answer any questions that Board members may have.

The Board also has ready access to external professionals for consultations. 

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