STRUCTURE AND CORPORATE GOVERNANCE and systems of internal control of Reed Elsevier Group plc and Elsevier Reed Finance BV. The boards of Reed Elsevier PLC and Reed Elsevier NV have each adopted a schedule of matters which are required to be brought to them for decision. In relation to Reed Elsevier Group plc and Elsevier Reed Finance BV  the boards of Reed Elsevier PLC and Reed Elsevier NV approve the strategy and the annual budgets  and receive regular reports on the operations  including the treasury and risk management activities  of the two companies. Major transactions proposed by the boards of Reed Elsevier Group plc or Elsevier Reed Finance BV require the approval of the boards of both Reed Elsevier PLC and Reed Elsevier NV. The Reed Elsevier PLC and Reed Elsevier NV Audit Committees meet on a regular basis to review the systems of internal control of Reed Elsevier Group plc and Elsevier Reed Finance BV. Reed Elsevier NV regarding the remuneration of the executive directors of these companies. The fees of non-executive directors are determined by each of the boards as a whole. A Directors’ Remuneration Report  which has been approved by the boards of Reed Elsevier Group plc  Reed Elsevier PLC and Reed Elsevier NV  appears on pages 29 to 38. This report also serves as disclosure of the directors’ remuneration and interests in shares of the two parent companies  Reed Elsevier PLC and Reed Elsevier NV. Reed Elsevier Group plc has established a Strategy Committee  comprising a majority of independent non- executive directors. The Committee is chaired by Morris Tabaksblat  the other members being Crispin Davis  Mark Elliott – appointed in April 2003 and David Reid – appointed in April 2003. The Committee met once during the year  and there was full attendance. The Committee’s terms of reference include reviewing the major features of the strategy proposed by the Chief Executive Officer  and subsequently recommending the proposed strategy to the board. The Committee is also responsible for reviewing any acquisition or investment  which would have major strategic or structural implications for Reed Elsevier Group plc. The board of Reed Elsevier Group plc is responsible for the system of internal control of the Reed Elsevier publishing and information businesses  while the boards of Elsevier Reed Finance BV are responsible for the system of internal control in respect of the finance group activities. The boards of Reed Elsevier Group plc and Elsevier Reed Finance BV are also responsible for reviewing the effectiveness of their system of internal control. The objective of these systems is to manage  rather than eliminate  the risk of failure to achieve business objectives. Accordingly  they can only provide reasonable  but not absolute  assurance against material misstatement or loss. The boards of Reed Elsevier Group plc and Elsevier Reed Finance BV have implemented an ongoing process for identifying  evaluating and managing the significant risks faced by their respective businesses. This process has been in place throughout the year ended 31 December 2003 and up to the date of the approvals of the Annual Reports and Financial Statements. Reed Elsevier PLC and Reed Elsevier NV participate in regular dialogue with institutional shareholders  and presentations on the Reed Elsevier combined businesses are made after the announcement of the interim and full year results. The boards of Reed Elsevier PLC and Reed Elsevier NV commission periodic reports on the attitudes and views of the companies’ institutional shareholders and the results are the subject of formal presentations to the respective boards. A trading update is provided at the respective Annual General Meetings of the two companies  and near the end of the financial year. The Annual General Meetings provide an opportunity for the boards to communicate with individual shareholders. The Chairman  the Chief Executive Officer  the Chief Financial Officer  the Chairmen of the board committees  other directors and a representative of the external auditor are available to answer questions from shareholders. The interim and annual results announcements and presentations  together with the trading updates and other important announcements concerning Reed Elsevier  are published on the Reed Elsevier website (www.reedelsevier.com). Reed Elsevier Group plc has an established framework of procedures and internal controls  which is set out in a group Policies and Procedures Manual  and with which the management of each business is required to comply. Group businesses are required to maintain systems of internal control  which are appropriate to the nature and scale of their activities and address all significant operational and financial risks that they face. The board of Reed Elsevier Group plc has adopted a schedule of matters that are required to be brought to it for decision. Each business group has identified and evaluated its major risks  the controls in place to manage those risks and the level of residual risk accepted. Risk management and control procedures are embedded into the operations of the The boards of Reed Elsevier PLC and Reed Elsevier NV exercise independent supervisory roles over the activities REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003 25 Strategy Committee Operating companies Reed Elsevier Group plc INTERNAL CONTROL Parent companies RELATIONS WITH SHAREHOLDERS