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The Combined Code on Corporate Governance (the "Code requires UK listed companies to make a disclosure statement on the application of the Principles and Supporting Principles and compliance with the Provisions of the Code. The Board is committed to the highest standards of Corporate Governance and considers that it has complied in full with the Code throughout the year, except that:

1. no member of the Audit Committee has a professional qualification from one of the accounting bodies as recommended by the Smith Guidance. However, the Board considers that all members have relevant financial experience as senior executives of large corporations. The Board further considers that all members of the Audit Committee have the skills and experience of corporate financial matters to discharge properly the Committee’s responsibilities. All members of the Audit Committee are independent, as defined by the New York Stock Exchange (“NYSE”), and meet the definition of ‘financial expert’ in the Sarbanes-Oxley Act in the US; and 
2. the notice period for David J. Illingworth, in accordance with his contract of employment on his appointment as Chief Executive is up to 24 months from the date of appointment.  In line with the Code such notice period reduces to 12 months in July 2009. The Board considered that such notice period was appropriate in line with competitive practice for external appointments when appointed Chief Executive in 2007.

In accordance with the Code, the following paragraphs describe Smith & Nephew’s Corporate Governance policies and procedures and how it applies the Principles and Supporting Principles in the Combined Code.

The Company's American Depositary Shares are listed on the NYSE and the Company is therefore subject to the rules of the NYSE as well as the US securities laws and the rules of the US Securities and Exchange Commission (“SEC”) applicable to foreign private issuers. The Board believes that it has complied throughout the year with both SEC and NYSE requirements related to corporate governance except that, in accordance with the Combined Code, the Nominations Committee consists of a majority of independent directors and does not consist wholly of independent directors, as required by the NYSE.

The Board of Directors of Smith & Nephew consists of an independent non-executive Chairman, two executive directors and six independent non-executive directors.  In 2008 the Board met on eight occasions and individual attendance together with attendance at Board Committee meetings was:  John Buchanan (7), David Illingworth (8), Adrian Hennah (8), Dr Pamela Kirby (8), Warren Knowlton (7), Brian Larcombe (8), Joseph Papa, appointed 1 August 2008 (4), Richard De Schutter (8) and Dr Rolf Stomberg (8). If directors are unable to attend a Board meeting or Committee meeting, they are advised of matters to be discussed and have an opportunity to make their views known to the Chairman prior to the meeting.

The Board is responsible for the strategic direction and overall management of the Group and has a formal schedule of matters reserved for its decisions which include the approval of certain policies, budgets, financing plans, large capital expenditure projects, acquisitions, divestments and treasury arrangements.  Otherwise it delegates the executive management of the Group to the Chief Executive and certain specific responsibilities to Board Committees.  It reviews the key activities and performance of the businesses and considers and reviews the work undertaken by the Committees.  Succession planning is regularly reviewed and appropriate measures are taken to ensure the Board has the appropriate balance of skills and experience necessary for a major global medical devices company.

Non – executive directors meet regularly prior to each quarterly Board meeting without management in attendance and the Senior Independent Director meets with the other non-executive directors annually to evaluate the performance of the Chairman.  Board meetings are held at the major business units enabling directors to have a greater understanding of the business and to meet the management of these units.  All directors have full and timely access to all relevant information and, if necessary, to independent professional advice.  Induction programmes are provided for new directors and training is offered to all directors, who are updated regularly on changes to legal and corporate governance requirements.  Directors have access to the advice and services of the Company Secretary, who is responsible to the Board for ensuring that board and governance procedures are complied with. The Chairman and directors meet with institutional shareholders to discuss matters relating to the Board and governance. The executive directors regularly meet with shareholders on issues relating to the Group, including operational and financial performance.

Appropriate directors and officers liability insurance is in place and Deeds of Indemnity have been entered into between the Company and directors.  The Deeds of Indemnity allow for indemnification of directors in respect of proceedings bought by third parties and for the Company to provide funds for directors’ ongoing costs in defending a legal action as they are incurred rather than after judgment has been given.  Individual directors would still be liable to pay any damages awarded to the Company in an action against them and to repay their defence costs to the extent funded by the company if their defence is unsuccessful.

Whilst the Chairman and Chief Executive collectively are responsible for the leadership of the Group, there is a clear division of respective responsibilities which have been agreed by the Board.  The Chairman’s primary responsibility is leading the Board including setting its agenda and ensuring its effectiveness.  The Chief Executive is responsible for the performance, management and supervision of the Group in accordance with the strategy, policies, budgets and business plans approved by the Board.

The Senior Independent Director is Dr Rolf Stomberg, whose role includes consulting with members of the board on issues relating to the Chairman and chairing meetings of the Nominations and Audit Committee in the absence of the Chairman or Chairman of the Audit Committee.  He is available to shareholders if they have concerns that cannot be resolved through the normal channels of contact with the Chairman or Chief Executive. While Dr. Stomberg has served the Board since 1998, the Board is satisfied of his independence. Dr. Stomberg seeks re-election each year.

In 2008 Consilium Associates conducted an external review which confirmed the Board’s high level of effectiveness.  While there were some opportunities for improvement, the Board operated within a sound governance framework with practices compliant with the Combined Code.

Individual evaluation of the directors is carried out by the Nominations Committee with particular emphasis on the evaluation of those directors standing for re-appointment at the AGM.  The non-executive directors, led by the Senior Independent Director, evaluate the performance of the Chairman.

The Board has determined that none of the non-executive directors or their immediate families has ever had a material relationship with the Group either directly as an employee or as a partner, shareholder or officer of an organisation that have a relationship with the Group.  They are therefore considered independent.  They do not receive additional remuneration apart from directors’ fees, do not participate in the Group’s share options scheme or performance related pay schemes, and are not members of the Group’s pension scheme.  No director of Smith & Nephew is a director of a company or an affiliate in which any other director of Smith & Nephew is a director.

None of the Directors or Executive Officers (or any relative or spouse of such person, or any relative of such spouse, who has the same address as the director or officer of any subsidiary of Smith & Nephew) have any family relationship with any other directors or the officers nor have a material interest in any contract to which the Company or any of its subsidiaries are or were a party from the beginning of fiscal year 2006 to 11 March 2009.

With effect from 1 October 2008 a director has a duty under the Companies Act 2006 (the “CA 2006”) to avoid a situation in which he has or can have a direct or indirect interest that conflicts or possibly may conflict with the interests of the Company. This duty is in addition to the existing duty that a director owes to the Company to disclose to the Board any transaction or arrangement under consideration by the Company. The CA 2006 allows directors of public companies to authorise conflicts and potential conflicts where the Articles of Association contain a provision to that effect. Shareholders approved amendments to the Company’s Articles of Association at the Annual General Meeting held on 1 May 2008 which included provisions giving the directors authority to approve such situations and to include other provisions to allow conflicts of interest to be dealt with in a similar way to the position that existed before 1 October 2008. The Board has a procedure when deciding whether to authorize a conflict or potential conflict of interest. Firstly, only independent directors (i.e. those that have no interest in the matter under consideration) will be able to take the relevant decision. Secondly, in taking the decision the directors must act in a way they consider, in good faith, will be most likely to promote the Company’s success. In addition, the directors will be able to impose limits or conditions when giving authorisation if they think this is appropriate. There have been no reported conflicts of interest during the year.

Details of the Group’s policies on remuneration, service contracts and compensation payments are included in the “Remuneration Report”.

The Board is assisted by the Audit, Remuneration and Nominations and Ethics and Compliance committees, each of which has its own terms of reference, which may be found on the Group's website at www.smith-nephew.com. The Company Secretary is secretary to each of the committees. For each of the Committees the Chairman of the Committee reports orally to the Board and minutes of the meeting are circulated to all members of the Board.

The Audit Committee met on five occasions in 2008 (individual attendance is shown in parenthesis). The Committee, consisting entirely of independent non-executive directors, is chaired by Warren D. Knowlton (5). He was appointed to the Committee in February 2001 and became Chairman of the Committee in July 2001. The other members of the Committee are Brian Larcombe (5) who was appointed to the Committee in January 2003, Richard De Schutter (4) who was appointed in February 2001 and Dr Rolf Stomberg (5) who was appointed in February 1998. In February 2009 Joseph C. Papa was appointed to the Committee.

The Remuneration Committee, consisting entirely of independent non-executive directors, met three times in 2008 (individual attendance is shown in parenthesis) and is chaired by Dr Rolf Stomberg (3). The other members of the Committee are Dr Pamela Kirby (3), Warren Knowlton (3) and Richard De Schutter (3). The Remuneration Committee sets the pay and benefits of the executive directors and  Executive Officers, approves their main terms of employment and determines share options and long-term incentive arrangements for the Group. It also reviews senior management succession planning.

The Nominations Committee, consisting of two independent non-executive directors and the Chief Executive, met twice in 2008 (individual attendance is shown in parenthesis) and it’s Chairman, John Buchanan, and members, Dr Rolf Stomberg and David J. Illingworth, attended both meetings.  The Committee oversees the Board’s plans for succession, recommends appointments to the Board and determines the fees of the non-executive directors.  There is a formal and transparent procedure for the appointment of new directors to the Board.  Candidate profiles are agreed by the Committee before external consultants are engaged to advise on prospective Board appointments.  Shortlisted candidates are interviewed by members of the Committee who then recommend candidates to be interviewed by all members of the Board.  The final decision is made by the Board. However there may be occasions when opportunities arise to appoint a new director without all of this process being strictly adhered to. The Senior Independent Director oversees the process for the appointment of a new Chairman.

The Board established an Ethics and Compliance Committee in August 2008 which has met on four occasions in 2008 (individual attendance is shown in parenthesis). The Committee is chaired by Richard De Schutter (4) and the other members are Dr. Pamela Kirby (4) and Joseph Papa (4). The Committee reviews  and approves Group policies as they relate to ethical and compliance matters; the ethical and compliance strategy plans; and the activities and monitoring of the ethical and compliance procedures and processes.

Under Smith & Nephew's articles of association, any director who has been appointed by the Board of Directors since the previous annual general meeting of shareholders, either to fill a casual vacancy or as an additional director, holds office only until the next annual general meeting and then is eligible for reappointment by the shareholders. Subsequently, directors retire and offer themselves for re-election at the third annual general meeting after the meeting at which they were last reappointed. The directors are subject to removal with or without cause by the Board of Directors or the shareholders. Executive Officers serve at the discretion of the Board of Directors.

Joseph C. Papa was appointed a director by the Board on 1 August 2008 and, in accordance with the Articles of Association, will retire at the annual general meeting to be held on the 30th April 2009 and, being eligible, will offer himself for re-election. Dr Rolf Stomberg who has served more than nine years as a director of the Company will retire at the annual general meeting to be held on 30th April 2009 and, being eligible, will offer himself for re-election.  In accordance with the articles of association, David J. Illingworth will retire and, being eligible will offer themselves for re-election at the AGM.