Managing
Our Risks

We believe our social, environmental and ethical (SEE) risks should be managed no differently than any other business risk that we face. Therefore, back in 2002, we incorporated the evaluation of SEE risks into our general risk management framework.

Each operating company is responsible for managing its own risks. Every six months we ask the business units to formally review and report on their business risks, including SEE risks, to our group control function. The results of these reviews are reported via the Audit Committee to the board. In addition, the head of group control annually meets with the Pearson Executive Management Committee to formally review and discuss the key risks facing the business.

In 2004, as in prior years, our risk assessments did not identify any significant unmanaged SEE risks. Similarly our most important SEE risks, many of which are concerned with reputational risk, have not changed year on year.

• Journalistic/author integrity: fundamental to both our newspaper and publishing operations. Our newspapers have clearly laid down journalistic policies and procedures covering journalistic standards of conduct. Within the book publishing businesses editorial and legal review processes are in place to ensure that our authors' independence and freedom of speech is respected and maintained, whilst protecting us legally and on copyright infringement.
   
• Ethical business behaviour: our widely published Code of Business Conduct details how we behave as a business. To ensure compliance, annually, we ask employees to confirm that they understand the Code and report any breaches. Our confidential ethical helplines are another vehicle by which unacceptable behaviour can be reported. Our group legal counsel and head of group control follow-up all reported incidents.
   
• Compliance with UN Global Compact standards: as a signatory to the UN Global Compact it is important that both we and our suppliers comply with these guidelines. Our greatest exposure is where we source printed material from developing countries, where less rigorous standards may apply. Both operating company and corporate staff regularly visit suppliers in these countries to ensure compliance.
   
• Environmental impact: compared to many other businesses we do not believe that our products have significant environmental impact. However, wherever possible we strive to understand the affect of printed material on the environment. We work with suppliers to use renewable sources of paper and recycled paper where available and economically viable. In the UK, we are lead participants in an industry-wide initiative involving both publishers and retailers, which looks at the process of book returns - a feature of our industry.
   
• People: people are key to our business. Our human resource policies are designed to attract and retain talented and motivated employees who enjoy and contribute to the growth of Pearson.

To enhance our existing procedures, in 2005, we plan to carry out an independent external review of the SEE risk management procedures adopted by our UK businesses. We anticipate that this will develop into a formal self-assessment SEE audit programme, which will be rolled about across the rest of the business.

During 2005, we will also be reviewing our risk reporting in preparation for the introduction of the new Operating and Financial Reporting requirements, which we will first have to comply with for our 2006 annual report and accounts.

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