Corporate Governance Report

The Board and its principal Committees

Details of the Board and its principal Committees are set out below. The following table sets out the number of meetings of the Board and its Committees during the year and individual attendance by the Board and Committee members at these meetings. All of the Committees are authorised to obtain legal or other professional advice as necessary, to secure the attendance of external advisors at their meetings and to seek information required from any employee of the Company in order to perform their duties. The full terms of reference of the Committees are available on the Company's website at www.nationalexpressgroup.com.

	The Board of Directors			Audit Committee			Remuneration Committee			Nomination Committee			Safety and Environment Committee
Name of Director	Attended	Possible		Attended	Possible		Attended	Possible		Attended	Possible		Attended	Possible
Richard Bowker Chief Executive	14	14		-	-		-	-		-	-		-	-
Tim Score Interim Chairman	13	14		3	3		3	3		1	1		4	4
David Ross Chairman1	11	13		-	-		-	-		2	2		4	4
Executive Directors
Jez Maiden2	4	4		-	-		-	-		-	-		-	-
Ray O'Toole	14	14		-	-		-	-		-	-		-	-
Adam Walker3	2	2		-	-		-	-		-	-		-	-
Non Executive Directors
Jorge CosmenDeputy Chairman	14	14		-	-		-	-		3	3		4	4
Miranda Curtis4	9	10		-	-		2	2		-	-		3	3
Roger Devlin	12	14		3	3		3	3		-	-		4	4
Sir Andrew Foster	14	14		3	3		-	-		3	3		4	4
Barry Gibson5	4	4		-	-		1	1		-	-		-	1

Company Secretary: Tony McDonald (also acts as Secretary to the Board Committees).

1.Resigned from the Board on 9 December 2008.

2.Appointed to the Board on 17 November 2008.

3.Resigned from the Board on 26 March 2008.

4.Appointed to the Board on 1 June 2008.

5.Resigned from the Board on 31 May 2008.

The Board of Directors

There is a formal schedule of matters reserved for the Board's attention which includes the review and approval of Group strategy and policies, major business acquisitions or disposals, major capital projects, Group budgets, significant changes to accounting policies, capital structure and dividend policy.

Audit Committee

Members of the Audit Committee are:

Tim Score (Chairman)
Roger Devlin
Sir Andrew Foster

The Committee oversees the process for selecting the external auditor, assesses the continuing independence of the external auditor and recommends approval of the audit fee to the Board. It is responsible for ensuring that provision of non-audit services does not impair the external auditor's independence or objectivity. It discusses with the external auditor the nature and scope of the audit and any issues or concerns arising from the audit process. The Committee reviews the internal audit programme, considers major findings of the internal audit investigations and reviews management's financial reporting and risk management. The Committee reviews the half-year and annual financial statements and the effectiveness of the Company's internal control and risk management systems.

Remuneration Committee

Members of the Remuneration Committee are:

Roger Devlin (appointed as Chairman 31 May 2008)
Miranda Curtis (appointed 1 June 2008)
Tim Score
Barry Gibson (resigned as Chairman 31 May 2008)

The Committee is responsible for determining broad policy for the remuneration of the Executive Directors (including the Chief Executive), the divisional Chief Executives, the Chairman of the Company and the Company Secretary. Within the terms of the agreed policy the Committee will determine the total individual remuneration package of each Executive Director including, where appropriate, bonuses, incentive payments, pension arrangements and share options. The Committee is responsible for selecting, appointing and setting the terms of reference for any remuneration consultants who advise the Committee. The Committee ensures that contractual terms on termination, and any payments made, are fair to the individual and the Company, that failure is not rewarded and the duty to mitigate loss is, where appropriate, fully recognised.

Nomination Committee

Members of the Nomination Committee are:

Tim Score (appointed as Chairman 9 December 2008)
Sir Andrew Foster
Jorge Cosmen
Barry Gibson (resigned 31 May 2008)
David Ross (resigned as Chairman on 9 December 2008)

The Committee is responsible for identifying and nominating for the approval of the Board, candidates to fill Board vacancies as and when they arise. It will give full consideration to succession planning, and keep under review the leadership needs of the organisation, both Executive and Non Executive. The Committee reviews the time required from a Non Executive Director and uses performance evaluation to assess whether the Non Executive Director is spending enough time on fulfilling their duties.

Safety and Environment Committee

Members of the Safety and Environment Committee are:

Miranda Curtis (appointed as Chairman 1 June 2008)
Jorge Cosmen
Sir Andrew Foster
Tim Score
Roger Devlin
Barry Gibson (resigned as Chairman 31 May 2008)
David Ross (resigned 9 December 2008)

The Committee is responsible for reviewing and challenging constructively the structure, content and operation of the safety management arrangements put in place by members of the executive management of the Group's operating companies. It reports periodically to the Board its observations on the safety management arrangements in place and reviews and makes recommendations to the Board on any specific safety management issues relating to the Group or any subsidiary company.

The Board supports the highest standards of corporate governance and ethical practices within all its operations and continues to review its policies on an ongoing basis. The Board has endorsed a set of principles which establish the framework for how its businesses operate. Key to these is working in an open and honest manner.

Statement of Compliance with the Combined Code

In the opinion of the Directors the Company has complied with Section 1 of the Combined Code on Corporate Governance published in 2006 (the "Combined Code") throughout the year apart from provision A.3.2 (the requirement that at least half of the Board, excluding the Chairman, should comprise Non Executive Directors determined by the Board to be independent), provision A.3.3 (appointment of one independent Non Executive Director to be the Senior Independent Director), provision A.4.1 (the requirement for the Nomination Committee to have a majority of independent Directors), provision B.2.1 (the requirement for the Remuneration Committee to have a least three independent Non Executive Directors) and provision C.3.1 (the requirement for the Audit Committee to be made up of at least three independent Non Executive Directors), as follows:

• Following the resignation of David Ross as Chairman on 9 December 2008, Tim Score held the position of Interim Chairman and Senior Independent Director. On 19 January 2009 Roger Devlin was appointed as Senior Independent Director for the period of Tim Score's interim chairmanship.
• Following the resignation of David Ross as Chairman on 9 December 2008, Tim Score has held the position of Interim Chairman. Excluding the Interim Chairman, the Board comprises seven Directors of whom three Non Executive Directors (Miranda Curtis, Roger Devlin and Sir Andrew Foster) are considered by the Board to be independent. Barry Gibson was considered by the Board to be independent to the date of his resignation on 31 May 2008.
• Following the resignation of David Ross, the current members of the Nomination Committee are Tim Score who is not considered independent whilst acting as Interim Chairman, Jorge Cosmen who is not considered independent and Sir Andrew Foster who is considered independent.
• Following the resignation of David Ross, and the appointment of Tim Score as Interim Chairman, only two of the members of the Remuneration Committee, Roger Devlin and Miranda Curtis, are considered independent.
• The Company is in non-compliance with the requirement that the Audit Committee should be made up of independent Non Executive Directors as Tim Score is both Chairman and a member of the Audit Committee. However the Board is satisfied that Tim Score fulfils the requirement of having recent and relevant financial experience.

Applying the principles of good governance

The Board of Directors, Chairman and Chief Executive

The Directors believe it is essential for the Group to be led and controlled by an effective Board that provides entrepreneurial leadership within a framework of sound controls. The Board is responsible for setting the Group's strategic aims, its values and standards and ensuring the necessary financial and human resources are in place to achieve its goals.

The Board consists of the Chairman, three Executive and four Non Executive Directors. A full list of the Directors with details of their biographies and Committee memberships is given in the Board of Directors and Management. The offices of Chairman and Chief Executive are held separately and the division of responsibilities between the Chairman and Chief Executive is shown below.

Main responsibilities of the Chairman include:

• chairing and managing the business of the Board;
• together with the Chief Executive, leading the Board in developing the strategy of the business and ensuring this is effectively implemented by the executive management team;
• ensuring that there is effective dialogue with investors concerning mutual understanding of objectives;
• in conjunction with the Nomination Committee, taking responsibility for the composition and replenishment of the Board;
• periodically reviewing with the Board its working practices and performance; and
• ensuring there is effective contribution from the Non Executive Directors and a constructive relationship between the Executive and Non Executive Directors.

Main responsibilities of the Chief Executive include:

• the development and implementation of management strategy;
• the day-to-day management of the Group;
• managing the executive management team; and
• fostering relationships with key stakeholders.

Roger Devlin is the Senior Independent Director. The Board considers all of the Non Executive Directors to be independent other than Jorge Cosmen, and considered David Ross to be independent prior to his appointment as Chairman and Tim Score to be independent prior to his appointment as Interim Chairman. Mr Cosmen is not considered to be independent by the Board due to his close links with the Alsa business and significant interests in the shares of the Company which are held through European Express Enterprises Limited. The Non Executives bring a variety of different experiences and considerable knowledge to assist with Board decisions. Non Executive Directors do not participate in any of the Company's share option or bonus schemes and their service is non-pensionable.

The Board meets at least eight times during the year. In 2008 the Board met 14 times and visited businesses in Spain and North America. There is a formal schedule of matters reserved for the Board's decision, the main terms of which are shown in the Corporate Governance Report together with the attendance record of the Directors. During the year the Chairman met on several occasions with the Non Executives without the Executive Directors present to allow informal discussions on a variety of issues.

The Executive Directors are responsible for the day-to-day management of the Group's businesses, implementation of its strategy, policies and budgets and its financial performance. Executive management meetings, involving the Executive Directors and senior management from the divisions are held regularly to discuss current issues.

The Company purchases Directors' and Officers' Liability Insurance for the Company and its subsidiaries, which gives appropriate cover for any legal action brought against its Directors.

Committees of the Board

The Board has established a number of Committees with defined terms of reference and receives reports of their proceedings. The principal Committees are the Remuneration Committee, the Nomination Committee, the Audit Committee and the Safety and Environment Committee. The members of each principal Committee, attendance and main duties are shown in the Corporate Governance Report. In addition there is an Executive Committee with authority to approve routine matters of business and a Tax and Treasury Committee which reviews the Group's tax planning, banking facilities and treasury reports.

Appointments to the Board

The Nomination Committee leads the process for Board appointments and makes recommendations to the Board. The Committee will prepare a description of the role and requirements for any particular appointment based on its evaluation of the Board as a whole.

The terms and conditions of appointment of the Non Executive Directors are available for inspection at the Company's registered office during normal business hours and at the Annual General Meeting of the Company. The Non Executive Directors disclose to the Board their other significant commitments. The procedures adopted by the Company in relation to Directors' conflicts of interest are detailed in the Corporate Governance Report.

External advisors are normally appointed when recruiting Board members; they use as a basis for their search a description of the role and capabilities required for a particular appointment proposed by the Nomination Committee.

The work of the Nomination Committee

The members of the Nomination Committee are shown in the Corporate Governance Report.
Before making a recommendation for an appointment to the Board the Nomination Committee:

• prepares a job specification and a description of the capabilities required for a particular post;
• considers the current composition of the Board and mix of skills and experience; and
• where appropriate, and in particular where a vacancy for a Non Executive Director arises, will use an external search consultancy and/or open advertising.

During the year the Committee:

• considered the appointment of a new Non Executive Director to replace Barry Gibson, appointed search consultants for the Non Executive Director's position and interviewed candidates for this position following which Miranda Curtis was appointed as a Non Executive Director;
• considered the appointment of a new Executive Director to replace Adam Walker, appointed search consultants for the Executive Director's position and interviewed candidates for this position following which Jez Maiden was appointed as an Executive Director;
• prepared a job specification for the role of Deputy Chairman and made a recommendation for the formal appointment of Jorge Cosmen to the role of Deputy Chairman;
• considered the appointment of an Interim Chairman, following the resignation of David Ross and selected search consultants to identify a permanent successor for the Chairman's position;
• reviewed proposals which were submitted to the Board for the implementation of succession planning.

Information and professional development

Reports from the Executive Directors, which include in-depth financial information, are circulated to Board members prior to every Board meeting. Senior management and advisors give presentations to the Board on significant matters during the year.

Under the direction of the Chairman, the Company Secretary is responsible for ensuring Board procedures are followed and applicable rules and regulations are complied with and advises the Board on governance matters. All Directors have access to the advice and services of the Company Secretary and the appointment or removal of the Company Secretary is a matter for the Board as a whole. There is a procedure in place for any Director to take independent professional advice where considered necessary.

On appointment, Directors are offered an appropriate training course and are thereafter encouraged to keep abreast of matters affecting their duties as a Director and to attend training courses relevant to their role. An induction process is in place for new Directors the aims of which are to:

• build an understanding of the nature of the Company, its business and the markets in which it operates;
• establish a link with the Group's employees; and
• build an understanding of the Group's main relationships including stakeholders and customers.

Performance evaluation

During the year a formal evaluation of the Board's performance was carried out using external consultants. The external consultants received evaluation questionnaires from each of the Directors and the Company Secretary. The questionnaires covered the performance of the Board as a whole and individual Board members. As a follow-up to the questionnaires individual meetings were held by the consultants with each Board member at which the answers to the questionnaires were explored further and additional matters raised. The responses to all questionnaires were discussed with the Chairman of the Board and the consultants then made a presentation to the Board as a whole, drawing out the general themes arising from the questionnaires. Subsequently the Board agreed a series of actions to improve its performance and increase its effectiveness.

Re-election

In accordance with the Company's Articles of Association all Directors submit themselves for election at the Annual General Meeting following their appointment and thereafter by rotation at least once every three years. Non Executive Directors are appointed for specific terms, subject to re-election. Non Executive Directors will only be put forward for re-election if, following performance evaluation, the Board believes the Director's performance continues to be effective and demonstrates commitment to the role.

Remuneration and service contracts

The Directors' Remuneration Report includes details of remuneration policy and service contracts.

Directors' conflicts of interest

The Board has a procedure in place to deal with a situation where a Director has a conflict of interest, as required by the new company law regime introduced by the Companies Act 2006. As part of this process, the members of the Board prepare a list of other positions held and all other conflict situations that may need authorising either in relation to the Director concerned or his/her connected persons. The Board considers each Director's situation and decides whether to approve any conflict situations, taking into consideration what is in the best interests of the Company and whether the Director's ability to act in accordance with his or her wider duties is affected. Each Director is required to notify the Company Secretary of any potential or actual conflict situations that will need authorising by the Board. Authorisations given by the Board are reviewed annually.

Accountability and audit

Statements of the respective responsibilities of the Directors and auditors are set out in the Directors Report and the Indepedent Auditor's Report to the Members of National Express Group PLC.

Internal control
The Board's responsibilities
The Board has overall responsibility for the Group's system of internal control and for reviewing its effectiveness. The Board maintains full control and direction over appropriate strategic, financial, operational and compliance issues and has put in place an organisational structure with formally defined lines of responsibility, delegated authorities and clear operating processes. The systems that the Board has established are designed to safeguard both the shareholders' investment and the assets of the Group, and are described below.

Key elements of the control framework
Strategic and financial planning - an annual budgeting and strategic planning process has been established whereby each division and constituent operating company assesses its competitive position and goals, taking account of the strategic risks faced. This strategy is translated into a financial plan with clear milestones and performance indicators.

Performance management - the performance of each division and operating company against its plan is closely monitored by a formal monthly reporting process and by the attendance of the relevant Executive Directors at monthly divisional board meetings.

Annual fitness check process - a self assessment review takes place at each operating company to assess the integrity of the balance sheet and to challenge the effective operation of key financial and information systems controls within each material accounting cycle. This process is led by divisional Finance Directors and is closely monitored by Group finance and validated by the internal audit function.

Capital investment - a clear process is in place for the approval of capital expenditure, which includes detailed appraisal of the benefits of the proposed investment and any associated key risks. Material capital expenditure requires Board approval.

Health and safety - health and safety standards and benchmarks have been established in all our businesses and the performance of operating companies in meeting these standards is closely monitored.

Risk management reporting process - each division and operating company evaluates its internal control environment and key risks, and the results are reviewed at management level and passed to the Audit Committee before being presented to the Board. This process is reviewed on a regular basis to ensure the validity and relevance of the key risks included in quarterly reports. The review covers strategic, financial, compliance and risk management controls. These procedures are mandated and designed to manage the risk in order to ensure that the operations achieve their business objectives.

Internal audit - the internal control system is independently monitored and supported by an outsourced Group internal audit function which works in conjunction with an in-house internal audit resource. The division of responsibilities between the in-house and outsourced functions is agreed as part of an annual internal audit plan. The internal audit function reports to management and the Audit Committee on the Group's financial and operational controls, and reviews, together with in-house internal audit functions, particularly in the UK business, the extent to which its recommendations have been implemented.

Board-level reporting on internal control - during the year the Audit Committee reviews regular reports from the internal audit function, the external auditors, and executive management on matters relating to internal control, financial reporting and risk management. The Audit Committee provides the Board with an independent assessment of the Group's financial position, accounting affairs and control systems. In addition, the Board receives regular reports on how specific risks that are assessed as material to the Group are being managed.

Review of internal control effectiveness
The system of internal control and risk management, described above, has been in place for the year under review and up to the date of approval of this Annual Report and Accounts. Such a system is designed to manage, rather than to eliminate, the risks inherent in achieving the Group's business objectives, and can therefore provide only reasonable and not absolute assurance against material misstatement or loss. The effectiveness of this system has been regularly reviewed by the Directors in line with the Guidance for Directors in the Combined Code published by the Financial Reporting Council (Turnbull guidance). Where significant control failings or weakness have been identified, appropriate corrective action has been taken.

Audit Committee and auditors

The work of the Audit Committee
The members of the Audit Committee are shown in the Corporate Governance Report.
The Committee meets at least three times a year and met three times in 2008. The agenda reflects the duties delegated to it by its terms of reference, details of which are summarised in the Corporate Governance Report. There are a number of standing items considered during the year such as consideration of the internal and external audit reports, review of the Annual Report and Accounts, review of the preliminary and half year announcements, and review of the Corporate Governance Report.
Other items that were considered and discussed during 2008 included a review of the 2008 internal and external audit plans, the integration of the Continental Auto business in Spain, annual fitness checks within the subsidiaries and the external auditor's performance and fees.
At the invitation of the Committee, and as appropriate to the matters under discussion, meetings may be attended by the Executive Directors and internal and external auditors. Full minutes are kept by the Secretary of the matters considered and decisions taken by the Committee. Outside of the meeting process the Committee Chairman has regular contact with the Executive Directors, other Committee members and the auditors on a variety of topics.

Review of external auditor

The Audit Committee assesses and reviews on a regular basis the independence of the external auditor. As part of their determination the Audit Committee considers a report by the external auditor on the firm's independence which is required in order to carry out its professional duties and responsibilities as auditor.

Policy on auditor providing non-audit work

The Committee has an approved policy on the provision of non-audit services. The policy sets the approvals policy for the following types of service:

• services that are considered to have "general pre-approval" by the Audit Committee, by virtue of the approval of the policy;
• services that require "specific pre-approval", on a case-by-case basis, before any work can commence; and
• services that cannot be supplied by the external auditor.

The services that require specific pre-approval are tax, transaction investigation and valuation, advisory and corporate finance services. The fees for these services are pre-approved up to a level of 25% of the total fees paid to the external auditor. For services exceeding this limit specific pre-approval is required.

In deciding whether or not to grant approval for the provision of specific services by the external auditor, the Audit Committee includes in its consideration the following factors:

(i) whether the external auditing firm is best placed to provide an effective and efficient service, given its familiarity with the Company's processes, systems and people; and
(ii) the level of non-audit fees paid to the external auditor in the year as a proportion of the annual external audit fee.

The majority of non-audit work undertaken by the external auditor during the year relates to overseas financing structures and tax advisory/compliance services. These items the Committee believes would be impractical and costly to provide through another party.

Whistleblowing policy

A Group "whistleblowing" policy has been issued to all Group companies to ensure a consistent approach across the Group.

Relations with shareholders

Dialogue with institutional shareholders
The Board maintains regular dialogue with its institutional shareholders and fund managers through a variety of meetings and presentations throughout the year. Presentations are given by the Executive Directors following the full year and half year results to institutional investors, analysts and brokers which the Non Executive Directors may attend. In addition, the Company's brokers provide confidential feedback to the Company on the views of the major institutions following the half year and final results. A formal review of the opinions of the Company's major investors on its financial performance and management was undertaken in 2007 and an action plan has been put in place addressing key issues arising from this survey.

During the year written responses are given to correspondence received from shareholders and all shareholders receive copies of the Annual Report and Accounts or the Annual Review and Summary Financial Statement. The Company has introduced an electronic communications facility to enable shareholders to receive documentation such as the Annual Report and Accounts electronically and also to cast their votes by proxy electronically. The Company has also introduced an electronic proxy appointment service for CREST members.

The Company's website, www.nationalexpressgroup.com, houses wide-ranging information about the Group, including the Annual Report and Accounts, press releases, share price data and links to subsidiary company websites.

The Annual General Meeting

The Annual General Meeting provides an opportunity for all shareholders to question the Chairman and Directors on a variety of topics, and information is provided at the meeting on different aspects of the Group's activities. All of the Company's Directors are present at the meeting. Voting at the Annual General Meeting on all resolutions is by poll on a one share, one vote basis. The results are available on the Group's website following the meeting. Notice of the Annual General Meeting and related papers are sent to shareholders at least 20 working days before the meeting.

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