Starpharma Holdings Limited (the Company) and the Board are committed to achieving and demonstrating the highest standards of corporate governance. The Board guides and monitors the Company’s activities on behalf of the shareholders. In developing policies and setting standards the Board considers the ASX Corporate Governance Council’s Principles of Good Corporate Governance and Best Practice Recommendations (“the CGC Recommendations”).  The Corporate Governance Statement set out below describes the Company’s current corporate governance principles and practices which the Board considers to comply with the CGC Recommendations.

1. The Board of Directors

The relationship between the Board and senior management is critical to the Group’s long term success. The directors are responsible to the shareholders for the performance of the Group in both the short and the longer term and seek to balance sometimes competing objectives in the best interests of the Group as a whole. Their focus is to enhance the interests of shareholders and other key stakeholders and to ensure the Group is properly managed.

Day to day management of the Group’s affairs and the implementation of the corporate strategy and policy initiatives are delegated by the Board to the Chief Executive Officer (“CEO”) and senior executives. These delegations are reviewed on an annual basis.

1.1 Board charter
The Board of Starpharma Holdings Limited operates in accordance with the charter set out below.

1.1.1 Board Composition

• The Board is to be composed of both executive and non-executive directors with a majority of non-executive directors.
• In recognition of the importance of independent views and the Board's role in supervising the activities of management the Chairman must be an independent non-executive director, the majority of the Board must be independent of management and all directors are required to bring independent judgement to bear in their Board decision making.
• The Chairman is elected by the full Board and meets regularly with the CEO.
• The Board may decide to appoint one of the non-executive directors as Deputy Chairman.
• The Company is to maintain a mix of directors on the Board from different backgrounds with complementary skills and experience.
• The Board is to undertake an annual Board performance review and consider the composition, structure, and role of the Board and individual responsibilities of directors.
• The minimum number of directors is three and the maximum is fifteen unless the Company passes a resolution varying that number.
• There is no requirement for a director to hold shares in the Company.
  

1.1.2 Responsibilities

The responsibilities of the Board include:

• Contributing to the development of and approving the corporate strategy;
• Reviewing and approving business plans, the annual budget and financial plans including available resources and major capital expenditure initiatives;
• Overseeing and monitoring organisational performance and the achievement of the Group's strategic goals and objectives;
• Monitoring financial performance including approval of the annual and half-year financial reports and liaison with the Company's auditors;
• Appointment, performance assessment and, if necessary, removal of the CEO;
• Ensuring there are effective management processes in place and approving major corporate initiatives;
• Enhancing and protecting the reputation of the Group;
• Overseeing the operation of the Group's systems for compliance and risk management;
• Reporting to shareholders.

1.2 Board members
Details of the members of the Board, their experience, qualifications, term of office and independent status are set out in the directors’ report under the heading “Information on Directors”. There are seven non-executive directors, six of whom are deemed independent under the principles set out below, and one executive director at the date of signing the directors’ report.
The Board seeks to ensure that:

• at any point in time, its membership represents an appropriate balance between directors with experience and knowledge of the Group and directors with an external or fresh perspective; and
• the size of the Board is conducive to effective discussion and efficient decision-making.

1.3 Directors’ independence
The Company has adopted specific principles for assessing the independence of directors:  To be deemed independent, a director must be a non-executive and:

• Not be a substantial shareholder of the company or an officer of, or otherwise associated directly with, a substantial shareholder of the company;
• within the last three years, not have been employed in an executive capacity by the Company, or been a director after ceasing to holder any such employment;
• within the last three years, not have been a principal of a material professional adviser or a material consultant to the Company, or an employee materially associated with the service provided;
• not be a material supplier or customer of the Company, or an officer of or otherwise associated directly or indirectly with a material supplier or customer;
• must have no material contractual relationship with the Company other than as a director;
• be free from any interest and any business or other relationship which could, or could reasonably be perceived to, materially interfere with the director's ability to act in the best interests of the company.

Materiality for the purposes of applying these criteria is determined on both quantitative and qualitative bases. An amount of 5% of the individual director’s net worth is considered material, and in addition a transaction of any amount or a relationship is deemed material if knowledge of it may impact the shareholders’ understanding of the director’s performance.  A substantial shareholder for the purposes of applying these criteria is a person with a substantial shareholding as defined in section 9 of the Corporations Act.   

The Company has also considered directors' periods of service on the board, particularly in the context of the long term nature of the Company's research, development and commercialisation activities, and has concluded that length of service does not, and should not reasonably be perceived to, adversely impact upon a director's ability to act in the best interests of the company.
Under these criteria the Board has determined that all non-executive directors were independent at the date of this report with the exception of Dr J W Raff, who was an executive director until 1 July 2006.

1.4 Term of office
The Company’s Constitution requires that one third of non-executive directors (or if their number is not a multiple of three then the number nearest to one third) retire at every annual general meeting and be eligible for re-election.

1.5 Chairman and Chief Executive Officer (CEO)
The current Chairman Mr Peter Bartels is an independent non-executive director appointed in 2003.  The CEO Dr Jackie Fairley was appointed as a director and CEO on 1 July 2006.  The Chairman is responsible for leading the Board, ensuring directors are properly briefed in all matters relevant to their role and responsibilities, facilitating Board discussions and managing the Board’s relationship with the Company’s senior executives. The CEO is responsible for implementing Company strategies and policies. The Board policy is for these separate roles to be undertaken by separate people.

1.6 Commitment
The Board held meetings nine meetings during the year. Meetings are held at the Company’s corporate offices and laboratory facility in the Baker Building, 75 Commercial Road, Melbourne, Australia.  Mr Richard Hazleton, a US resident director, has attended four meetings since his appointment on 1 December 2006.  Of these meetings Mr Hazleton attended one in person and the other three by telephone conference.  The number of meeting of the Board and of each Board committee held during the year ended 30 June 2007, and the number of meetings attended by each director is disclosed in the Directors’ Report. The commitments of non-executive directors are considered by the remuneration and nomination committee prior to their appointment to the Board and are reviewed each year as part of the annual performance assessment.  Prior to appointment or being submitted for re-election each non-executive director is required to specifically acknowledge that they have and will continue to have the time available to discharge their responsibilities to the Company.

1.7 Conflict of interests
Directors are expected to avoid any action, position or interest that may result in a conflict with an interest of the Company. A director who has a material personal interest in a matter that relates to the affairs of the Company must give notice of such interest and is precluded from participating in discussions or decision making on such dealings.

1.8 Independent professional advice
Directors and Board committees have the right, in connection with their duties and responsibilities, to seek independent professional advice at the Company’s expense. Prior approval of the Chairman is required, but this approval will not be unreasonably withheld.

1.9 Performance assessment
The Board undertakes an annual self assessment of its performance. Each director is asked to consider matters such as composition, structure and role of the Board, and performance of individual directors. The Chairman then meets individually with each director to discuss the assessment.  The CEO's performance is assessed taking into account attainment of predetermined targets or goals based on various financial and other measurable indicators related to the Company.  The CEO meets with the remuneration and nomination committee annually to discuss attainment of key performance indicators of both the CEO and the senior management team.

2. Corporate reporting

The Company prepares audited financial statements for each year ending 30 June, and reviewed financial statements for each half year period ending 31 December. In accordance with ASX Listing Requirements the annual financial statements (preliminary final report) is lodged with the ASX by 31 August, and half year statements are lodged with the ASX by 28 February each year.
The CEO and the CFO have made the following certifications to the Board:

• that the Company’s financial reports are complete and present a true and fair view, in all material respects, of the financial condition and operational results of the Company and Group and are in accordance with relevant accounting standards; and
• that the above statement is founded on a sound system of risk management and internal compliance and control and which implements the policies adopted by the Board and that the Company’s risk management and internal compliance and control is operating efficiently and effectively in all material respects.

3. Board committees

The Board has established a number of committees to assist in the execution of its duties and to allow detailed consideration of complex issues. The committee structure and membership is reviewed on an annual basis. Board committees are chaired by an independent director other than the Chairman of the Board. Minutes of committee meetings are tabled at subsequent Board meeting, and where applicable matters determined by committees are submitted to the full Board as recommendations for Board decisions. Current committees of the Board are the following:

3.1 Audit and risk management committee
The audit and risk management committee consists of the following independent non-executive directors:
Mr Ross Dobinson (Chairman)
Mr Leon Gorr
Dr Peter Jenkins

Details of these directors’ qualifications and attendance at committee meetings are set out in the directors’ report on pages 21 to 24 of the 2007 Annual Report.

The audit and risk management committee has appropriate financial expertise and all members are financially literate and have an appropriate understanding of the industry in which the Group operates.

The committee meets at least twice a year, and has direct access to the Company’s auditors. The charter of this committee is to:

• review and report to the Board on the annual report, the half-year financial report and all other financial information published by the company or released to the market
• assist the Board in reviewing the effectiveness of the organisation’s internal control environment covering:
  >   effectiveness and efficiency of operations
  >   reliability of financial reporting
  >   compliance with applicable laws and regulations
• oversee the effective operation of the risk management framework by:
  >   ensuring the effective implementation of the risk management policy and program
  >   defining risk threshold levels for referral to the Board
  >   ensuring that an effective system of internal compliance and control is in place
  >   ensuring staff charged with risk management responsibilities have appropriate authority to carry out their functions and have appropriate access to the audit and risk management committee
  >   ensuring the allocation of sufficient resources for the effective management of risk
• recommend to the Board the appointment, removal and remuneration of the external auditors, and review the terms of their engagement, the scope and quality of the audit and assess performance
• consider the independence and competence of the external auditor on an ongoing basis
• review and monitor related party transactions and assess their propriety
• assist the Board in the development and monitoring of statutory compliance and ethics programs
• provide assurance to the Board that it is receiving adequate, up to date and reliable information
• report to the Board on matters relevant to the committee’s role and responsibilities.

In fulfilling its responsibilities, the audit and risk management committee:

• receives regular reports from management and the external auditors;
• meets with the external auditors twice a year, or more frequently if necessary;
• reviews the processes the CEO and CFO have in place to support their certifications to the board;
• reviews any significant disagreements between the auditors and management, irrespective of whether they have been resolved;
• meets separately with the external auditors at least twice a year without the presence of management;
• provides the external auditors with a clear line of direct communication at any time to either the Chairman of the committee or the Chairman of the board.

The audit and risk management committee has authority, within the scope of its responsibilities, to seek any information it requires from any employee or external party.

3.2 Remuneration and nomination committee
The remuneration and nomination committee consists of the following independent non-executive directors:
Mr Ross Dobinson (Chairman)
Mr Peter Bartels
Mr Leon Gorr

Details of these directors’ attendance at committee meetings are set out in the directors’ report on page 24 of the 2007 annual report.

The main responsibilities of the committee are to:

• conduct annual reviews of board membership having regard to present and future needs of the Company and make recommendations on board composition and appointments
• conduct an annual review of and conclude on the independence of each director
• propose candidates for board vacancies
• oversee board succession including the succession of the Chairman
• oversee the annual assessment of board performance
• advise the board on remuneration and incentive policies and practices generally
• make specific recommendations on remuneration packages and other terms of employment for executive directors, other senior executives and non-executive directors.

When the need for a new director is identified or an existing director is required to stand for re-election, the committee reviews the range of skills, experience and expertise on the board, identifies its needs and prepares a short-list of candidates with appropriate skills and experience. Where necessary, advice is sought from independent search consultants.

Each member of the senior executive team has signed a formal employment contract covering a range of matters including their duties, rights, responsibilities and any entitlements on termination. Each contract refers to a specific formal position description.

The remuneration and nomination committee’s terms of reference include responsibility for reviewing any transaction between the organisation and the directors, or any interest associated with the directors, to ensure the structure and the terms of the transaction are in compliance with the Corporations Act 2001 and are appropriately disclosed.

The Remuneration Report is set out on pages 25 to 33 of the 2007 Annual Report.

3.3 Research committee
The research committee consists of the following directors:
Dr Peter Jenkins (Chairman)
Independent non-executive director

Prof Peter Colman
Independent non-executive director

Dr Jackie Fairley
Chief Executive Officer and director

The charter of the research committee is:

• to ensure that the Board is kept fully informed of developments relating to the Company’s research activities and development progress against milestones; and
• to advise the Board on scientific matters in relation to the Company’s continuous disclosure obligations under the ASX Listing Rules.

4. External auditors

The Company’s policy is to appoint external auditors who clearly demonstrate quality and independence. The performance of the external auditor is reviewed annually. The current auditors are PricewaterhouseCoopers who have been the external auditors of  the Company since it commenced operations. It is PricewaterhouseCoopers policy to rotate audit engagement partners on listed companies at least every five years, and the current audit engagement partner assumed responsibility for the conduct of the audit in 2005.

An analysis of fees paid to the external auditors, including a break-down of fees for non-audit services, is provided in note 29 to the financial statements in the 2007 Annual Report. It is the policy of the external auditors to provide an annual declaration of their independence to the audit and risk management committee.

The external auditor is requested to attend the annual general meeting and be available to answer shareholder questions about the conduct of the audit and the preparation and content of the audit report.

5. Risk assessment and management

The Board, through the audit and risk management committee, is responsible for ensuring there are adequate policies in relation to risk management, compliance and internal control systems. The Company operates in a challenging and dynamic environment, and risk management is viewed as integral to realising new opportunities as well as identifying issues that may have an adverse effect on the Company’s existing operations and its sustainability. The Board is committed to a proactive approach in managing material business risks, and aims to ensure that effective risk management practices are a key element of the Company’s culture.  Health and Safety (see item 6) are considered to be of paramount importance and are the focus of significant risk management activities within the company.  Other risk areas that are addressed include business continuity and disaster recovery, reputation, intellectual property, product development and clinical trials. 

Adherence to the Code of Conduct (see item 7) is required at all times and the board actively promotes a culture of quality and integrity.

6. The environment, occupational health and safety

The Company recognises the importance of environmental issues and is committed to the highest levels of performance. There are adequate systems in place to ensure compliance with environmental regulations.  In order to conduct activities in Australia the wholly owned subsidiary Starpharma Pty Ltd has obtained the necessary accreditations, laboratory certifications and licenses from the applicable Commonwealth and State authorities.  DNT has obtained the necessary accreditations, laboratory certifications and licenses as applicable from Central Michigan University, State of Michigan and US federal authorities.  The directors are not aware of any breach of applicable environmental regulations.

The Company has adopted an Occupational Health and Safety (OH&S) Policy and has established OH&S committees at each of its sites as part of its overall approach to workplace safety. The committees meets monthly to review the development and implementation of OH&S policy and procedures, to consider any work related safety matters or incidents, and to ensure compliance with relevant legislation and guidelines.

7. Code of conduct

The directors are committed to the principles underpinning best practice in corporate governance, with a commitment to the highest standards of legislative compliance and financial and ethical behaviour.  The Company has adopted a code of conduct reflecting the core values of the Company and setting out the standards of ethical behaviour expected of directors, officers and employees in all dealings and relationships including with shareholders, contractors, customers and suppliers, and with the Company.  Areas covered include employment practices, equal opportunity, harassment and bullying, conflicts of interest, use of company assets and disclosure of confidential information. Click here for a full copy of the Code of Conduct .

8. Trading in Company securities

The purchase and sale of Company securities by directors, executives and employees is only permitted (subject also to complying with applicable laws) during the thirty day period following the annual general meeting and the release to the market of the half yearly and annual financial results, unless prior approval is given to each transaction by the Chairman.

Except with the prior approval of the Chairman, no director or executive may enter into any transaction which would have the effect of hedging or otherwise transferring to any other person the risk of any fluctuation in the value of:

(a)   securities in the Company which are subject to a restriction on disposal under an employee share or incentive plan; or
(b)   options or performance rights (or any unvested securities in the Company underlying them).

The Company’s share trading policy is discussed with each new employee as part of their induction training.

9. Continuous disclosure and shareholder communication

The Board has appointed the Company Secretary as the person responsible for disclosure of information to the ASX Limited. This role includes responsibility for ensuring compliance with the continuous disclosure requirements of the ASX Listing Rules and overseeing and co-ordinating information disclosure to the ASX, analysts, brokers, shareholders, the media and the public. Procedures have been established for reviewing whether there is any price sensitive information that should be disclosed to the market, or whether any price sensitive information may have been inadvertently disclosed.

All ASX announcements are posted on the Company’s website as soon as practicable after release to the ASX.  Announcements are also posted on the OTCQX website (www.otcqx.com) in order to provide timely disclosure to US investors trading in the Company's Level One ADRs (OTCQX:SPHRY).