Principle 2

Structure the board to add value

1. Composition

AMPCI Macquarie Infrastructure Management No.1 Limited (RE1) board of directors

                 The RE1 board of directors is comprised as follows:

Name and position	Executive/independent	Appointment date
John Roberts, Chairman	Executive	14 May 2004 Appointed by Macquarie
Phil Garling, Director	Executive	17 February 2004 Appointed by AMPCH
The Hon. Michael Lee, Director	Independent	16 June 2004 Appointed by Macquarie
Emma Stein, Director	Independent	16 June 2004 Appointed by AMPCH
Douglas Halley, Director	Independent	13 February 2006 Appointed by the two other independent directors

  AMPCI Macquarie Infrastructure Management No.2 Limited (RE2) board of directors

                  The RE2 board of directors is comprised as follows:

Name and position	Executive/independent	Appointment date
John Roberts, Chairman	Executive	14 May 2004 Appointed by Macquarie
Phil Garling, Director	Executive	17 February 2004 Appointed by AMPCH
Ron Finlay, Director	Independent	16 June 2004 Appointed by AMPCH
Duncan Sutherland,* Director	Independent	16 June 2004 Appointed by Macquarie
Eric Goodwin, Director	Independent	16 June 2004 Appointed by the other two independent directors

  DUET Investment Holdings Limited (DIHL) board of directors

                  The DIHL board of directors is comprised as follows:

Name and position	Executive/independent	Appointment date
*Also serves on the board of the Macquarie owned managers of a number of unlisted managed vehicles.
John Roberts, Chairman	Executive	Appointed by RE1 29 June 2006
Phil Garling, Director	Executive	Appointed by RE2 29 June 2006
Doug Halley, Director	Independent	Appointed by RE2 29 June 2006
Emma Stein, Director	Independent	Appointed by RE1 12 July 2006
Ron Finlay, Director	Independent	Appointed by RE1 and RE2 4 August 2006

2. Appointment to the boards

ASX has granted listing rule waivers in respect of the rights attaching to the A, B and C special shares of DIHL (as described below) to facilitate Macquarie and AMPCH appointed directors for the Australian public company in the same way as they are appointed for the responsible entity of the trusts. These director appointment rights were put in place by DUET, Macquarie and AMPCH with a view to promoting consistency of management across the stapled entities. Macquarie and AMPCH consider the selection of appropriately experienced independent directors as an important contribution to DUET’s performance. From an investor protection viewpoint, DUET has a majority of independent directors on the combined DUET boards. Though Macquarie and AMPCI appointees, these directors are reputable, appropriately qualified and experienced business people who satisfy objective independence criteria described further below. These directors have a duty at law to prefer the interests of DUET investors to those of Macquarie or AMPCH.

a) RE1 and RE2

RE1 and RE2 are jointly owned by Macquarie Capital Group Limited (MCGL) (a subsidiary of Macquarie Group Limited (MGL)) and AMPCH (a subsidiary of AMP Limited (AMP)) and directors are appointed to RE1 and RE2 in consultation with the MGL and AMPCH boards. The following board composition and membership criteria have been adopted by the board in consultation with MGL and AMPCH:

The board is to comprise at least four directors. Additional directors may be appointed if the board feels that additional expertise is required in specific areas, or when an outstanding candidate is identified.

• New appointments to the board require full RE1 and RE2 board approval
• Independent directors are to comprise a majority of the board
• The board is to comprise directors with an appropriate range of qualifications and expertise
• Any nominee of AMPCH or Macquarie may be removed by AMPCH or Macquarie, respectively
• The chairperson of each board will be the nominee director appointed by AMPCH for the first three years from establishment of DUET and thereafter on each third anniversary the chairperson may be rotated such that the shareholder appointing the chairperson is not the shareholder appointing the DUET CEO. The shareholder appointing the chairperson will ensure that the person is of appropriate stature to act as chairperson
• To ensure that the board has the benefit of regular new input and to avoid the potential for loss of objectivity over time, independent directors will retire after nine years. An independent director can continue to hold office after a nine-year term provided their ongoing candidacy is recommended by the Nomination Committee and their relevant appointing party.

Independence

Independence of directors determined by objective criteria is acknowledged as being desirable to protect investor interests and to optimise the financial performance of the fund and returns to investors.
In determining the status of a director, DUET applies the standards of independence which are similar to but not the same as the Principles. Full details of DUET’s independence criteria are as follows:
An independent director is a director of the responsible entity and/or special purpose vehicle who is not a member of management (a non‑executive director) and who  meets the following criteria:

• Must be appointed in a non executive capacity and therefore must not be a director, officer or employee of any Macquarie Group Limited (MGL) Group entity or AMP Limited (AMP) Group entity
• Is not a substantial shareholder of MGL, AMP, DUET or a company holding more than 5% of the voting securities of MGL, AMP or DUET
• Is not an officer of, or otherwise associated directly with, a securityholder holding more than 5% of the voting securities of MGL, AMP or DUET (other than RE1 and RE2)
• Is not and has not within the last three years been:

• Is not and has not within the last three years been a principal, director or employee of a material professional adviser or consultant to DUET, MGL, AMP or other MGL Group or AMP Group managed vehicles. A director who is or has within the last three years been a principal, director or employee of a material professional adviser or consultant must not participate in any consideration of the possible appointment of the professional adviser or consultant and will not participate in the provision of any service to DUET, MGL Group, AMP Group or another MGL Group or AMP Group managed vehicle.
• Is not a material supplier or customer of DUET, MGL Group, AMP Group or other MGL Group or AMP Group managed vehicles, or an officer of, or otherwise associated directly or indirectly with, a material supplier or customer.
• Is not a director of more than two MGL Group or AMP Group-related responsible entities or special purpose vehicle boards
• Has no other interest or relationship that could interfere with the director’s ability to act in the best interests of DUET and independently of management of MGL Group or AMP Group.

The boards believe that independence is evidenced by an ability to constructively challenge and independently contribute to the work of the board. The above criteria are satisfied if any interest or relationship does not materially interfere with the exercise of a director’s independent judgement.  Materiality is assessed having regard to each individual director’s circumstances, the circumstances of the supplier, customer or advisor and any other significant relationships with DUET, MGL Group, AMP Group or their respective other managed vehicles.

The main areas of difference from the independence criteria set out in the Principles is that the DUET independence criteria are designed to ensure that directors are not only independent from DUET but that they are also independent from MGL Group, AMP Group and their respective other managed vehicles. Accordingly the independence criteria must be satisfied in respect of relationships with each of DUET, MGL Group, AMP Group and other MGL Group or AMP Group managed vehicles. By way of example a partner of a professional services firm who is a director of DUET would not be able to provide professional services to DUET or any Macquarie entities or managed vehicles and would not be able to vote on the appointment of the director’s professional services firm by DUET. Additionally the professional services firm must not have earned a material portion of its annual income from doing work for any of DUET, MGL Group, AMP Group or other MGL Group or AMP Group managed vehicles for three years prior to the appointment of the director and on an ongoing basis during the currency of the directorship.

The ability of independent directors to serve on up to two separate managed vehicle boards is considered appropriate because the time commitment and level of remuneration for these roles is not so significant as to compromise independence.

If any independent director serves on two managed vehicle boards or has been determined by the MGL board corporate governance committee or DUET boards as independent despite not satisfying all of the criteria set out in the DUET policy they will be noted as such in their description in this statement. Reasons will be provided for any independence determination.
Each year independent directors are required to provide DUET with written confirmation of their independence status and they have each undertaken to inform DUET if they cease to satisfy the DUET independence criteria at any time. The company secretary also monitors compliance with the DUET independence criteria and seeks information from the independent directors in this regard if necessary and reports to the board.

Director selection and diversity

The following guidelines apply to director selection and nomination:

• Contribution to the diversity of the board in particular, increasing the number of women on the board as part of the board renewal process
• Integrity
• Particular expertise (sector and functional) and the degree to which they complement the skill set of the existing board members
• Reputation and standing in the market

In the case of prospective independent directors, actual (as prescribed by the above DUET policy definition) and perceived independence from Macquarie and AMP. Professional intermediaries and/or industry contacts may be used to identify and/or assess candidates. A board skills matrix has not been developed but regard is had to diversity and the appropriate mix of financial, professional and specific industry skills as part of the appointment process.

Nomination committee

DUET is an externally managed vehicle with the majority of RE1 and RE2 directors being appointed by AMPCH and Macquarie (the owners of RE1 and RE2) in consultation with the RE1 and RE2 boards. Each of RE1 and RE2 have appointed a Nomination Committee which reviews board composition and succession planning and makes representations to AMPCH and Macquarie on these matters and also reviews the appointment of directors to the DIHL board as discussed below. The Nomination Committee comprises the full board.  It is chaired by John Roberts and there is a majority of independent directors. 

b) DIHL

Under the DIHL constitution, RE1 has been issued with an A special share, (and has rights under the management services agreement) which entitles it to appoint director(s) constituting up to 40% of the DIHL board. RE2, as responsible entity of DUET2, has been issued with a B special share, which entitles it to appoint director(s) constituting up to 40% of the DIHL board while the entities are stapled. RE1 and RE2 (in their capacity as responsible entity of DUET1 and DUET2, respectively) have each been issued with a C special share, which entitles them to jointly appoint director(s) constituting up to 20% of the DIHL board. None of the A, B or C special shares has any economic interest, which means that the holders of those shares are not entitled to any dividends and are only entitled to the par value of those shares on a winding up of DIHL.

The rationale for this approach is that under the stapling arrangements, the practical operation of the RE1, RE2 and DIHL boards is such that no significant decision (in particular strategy, capital raisings, borrowings and investments) can be made by one board without the consultation and consideration of the other board, and the DIHL board has a sufficient quorum of independent directors to vote on transactions with Macquarie or AMP companies.

In determining the status of directors, the DIHL board has adopted the standards of independence required by the DUET policy as set out above.

Nomination committee

As part of the DUET external management arrangements, the DIHL directors are appointed by RE1 and RE2. DIHL has appointed a Nomination Committee which reviews board composition and succession planning and makes representations to the RE1 and RE2 boards in respect of these matters. The Nomination Committee comprises the full board. It is chaired by John Roberts and has a majority of independent directors. 

3. Chairman

The chairman of each board and Nomination Committee is John Roberts. John is an executive of Macquarie and the director appointed by Macquarie, and as such does not satisfy the independence recommendation of the Principles. The joint venture arrangements require the responsible entities’ chairman to be an executive chairman given DUET1, DUET2 and DUET3 are externally managed trusts and Macquarie and AMP branded.

The right to appoint the chairman may be rotated between AMPCH and Macquarie so that the party who has not appointed the incumbent chairman may appoint the chairman for the next three years, provided the CEO is also rotated. The appointing shareholder is required to ensure that the chairman is of appropriate stature for a listed entity.
In all cases, the chairman does not exercise the role of CEO. That role is performed by David Bartholomew who was appointed as CEO in February 2011. The RE1, RE2 and DIHL board charters provide that all independent directors will meet at least once per year in the absence of management and at other times as they determine.

4. Independent professional advice

The directors of RE1, RE2 and DIHL are entitled to obtain independent professional advice at the cost of the relevant trust or company subject to the estimated costs being first approved by the chairman as reasonable.

5. Board performance

To ensure that the directors of RE1, RE2 and DIHL are properly performing their duties, the following procedures are in place:

• A formal annual performance self-assessment of the board, the audit and risk committees and individual directors
• A formal induction program for directors
• Access by directors to continuing education to update and enhance their skills and knowledge.

The procedure for evaluation of the boards’ performance is:

• Directors are given the opportunity to discuss individual performance and feedback on performance via questionnaire and if necessary the chairman meets with each independent director to discuss the effectiveness of the board and board committees as a whole
• The board as a whole discusses and analyses board and committee performance during the year, including suggestions for change or improvement, based on the questionnaire responses and the chairman’s feedback from conducting separate meetings (if any) with the independent directors.