British American Tobacco

VOLUNTARY STATEMENT ON UK
AND US CORPORATE GOVERNANCE
28 March 2011
Contents

1. Background ……….………………………………………………………………………… 2

2. Board of Directors …………………………………………..……………………………… 3

3. Audit Committee …………………………………………..……………………………….. 4

4. Nomination and Compensation Committees ……………………………..……………. 6

5. Code of Conduct ……………………………………………………..……………………. 6

6. Shareholder Approval of Equity Compensation Plans

and Advisory Votes on Compensation ……………..…………………………………… 6

7. Management Accountability …………………………………………..………………….. 7

8. Loan Prohibitions ……………………………………………..……………………………. 8

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1. Background
The primary corporate governance system that applies to British American Tobacco p.l.c.
(the “Company”), in common with other companies listed on the London Stock Exchange, is
the Combined Code on Corporate Governance adopted by the Financial Reporting Council
in June 2008 (the “2008 Code”). The Corporate Governance Statement in the Company’s
2010 Annual Report (the “Corporate Governance Statement”), explains how the principles
of the 2008 Code have been applied by the Company. The Company’s Board of Directors
(the “Board”) considers that the Company met its obligations as a company listed on the
London Stock Exchange with regard to the 2008 Code in 2010.

A new UK Corporate Governance Code was adopted in 2010 (the “2010 Code”) and will
apply in place of the 2008 Code to accounting periods beginning on or after 29 June 2010.
In keeping with its commitment to high standards of corporate governance, the Company
has taken the opportunity during 2010 to meet the requirements of the 2010 Code.
Accordingly, while the primary purpose of the Corporate Governance Statement is to meet
the Company’s formal obligation under the 2008 Code, it also reports, where appropriate,
by reference to the 2010 Code. To the extent material for the purposes of this Statement,
the requirements of the 2010 Code are the same as those under the 2008 Code.
Accordingly, the 2008 Code and the 2010 Code are collectively referred to in this Statement
as the “UK Code”.

The Company’s American Depositary Receipts (“ADRs”), each of which represents two
Ordinary Shares of the Company, are traded on an unlisted basis on NYSE Amex Equities
(formerly called “NYSE Alternext US”) in New York (the “NYSE Amex”). For historical
reasons, however, the Company is not listed on the NYSE Amex and is not required to file
an Annual Report on Form 20-F with the US Securities and Exchange Commission (the
“SEC”). Instead, the Company submits to the SEC all material information which it has
made public including through submission to the London Stock Exchange and distribution
to shareholders, for example, periodic and year-end results and appointments to the Board.

Accordingly, unlike many non-US companies with ADRs, the Company is not required to
comply with the US corporate governance regime as established by:

(a) the Sarbanes-Oxley Act of 2002 and the rules adopted by the SEC under that Act (the
“SOX Rules”); and

(b) the Listing Standards, Policies and Requirements of the NYSE Amex (the “NYSE
Amex Rules”).

Nevertheless, the Company believes that it is in the interests of its shareholders in general
and its ADR holders in particular to explain the principal differences and common areas
between the corporate governance practices which it applies (as described in the Corporate
Governance Statement), which meet the requirements of the UK Code, and those which it
would be required to apply if it were subject to the SOX Rules and, for the purposes of the
NYSE Amex Rules, a US company listed on the NYSE Amex. The purpose of this
Voluntary Statement is to provide that explanation.

This Statement is made voluntarily and is not intended to comply with the requirements of
the SOX Rules or the NYSE Amex Rules. Nothing in this Statement, whether expressly,
impliedly or otherwise, should be taken as providing the disclosures required under those
Rules and no liability whatsoever shall attach to the Company, its directors, officers or
employees in consequence of this Statement not complying with the requirements of either
the SOX Rules or the NYSE Amex Rules.

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2. Board of Directors
The Company currently has a Board of twelve Directors: the Chairman, three Executive
Directors – the Chief Executive, the Finance Director and Chief Information Officer, and the
Chief Operating Officer– and eight Non-Executive Directors.

The NYSE Amex Rules require that a listed company has sufficient independent directors
such that they form a majority of the board. The UK Code provides that, excluding the
chairman, at least half of the members of the board should be independent. The test for
independence under the UK Code is different to that set out in the NYSE Amex Rules. The
former identify certain circumstances which are likely, or which could appear, to affect a
director’s judgement and which should therefore be taken into account by the board in its
assessment of a director’s independence (but which are not, in themselves determinative),
whereas the latter set out a (non-exhaustive) list of the circumstances in which a director
shall not be considered independent.

The Board considers that all eight of the Company’s Non-Executive Directors are
independent under the criteria set out in the UK Code. Kieran Poynter retired as Chairman
and Senior Partner of PricewaterhouseCoopers LLP, the Company’s auditors, on 30 June
2008, two years prior to his appointment to the Board. The Board specifically considered,
prior to his appointment, whether his previous position with PricewaterhouseCoopers might
impact upon his independence, given that a material business relationship with the
Company within the previous three years (including as a partner) is identified in the UK
Code as one of the circumstances which is likely, or which could appear, to affect a
director’s judgement. The Board took into account that Mr Poynter had neither worked with
the British American Tobacco Group (the “Group”) nor had any responsibility for the British
American Tobacco account as Audit partner or otherwise during his time with the firm.
Given the size and scale of PricewaterhouseCoopers, as a global professional services
firm, and the fact that it works with a great many businesses, the Board concluded that, in
the absence of direct involvement in the Company’s business, his association with the firm
up to June 2008 was no impediment to its assessment of him as independent in June 2010.
Mindful, however, that this could be an area of concern for shareholders, the Board decided
to appoint him to the Nominations and Corporate Social Responsibility Committees only at
this time. He is not currently a member of either the Audit Committee or the Remuneration
Committee.

Although assessed as independent under the criteria set out in the UK Code, Kieran
Poynter would not be considered independent under the NYSE Amex Rules, which identify
a partnership in the company’s external auditors within the past three years as one of the
circumstances in which a director shall not be considered independent. Nevertheless, since
the remaining seven Non-Executive Directors would be independent under the NYSE Amex
Rules, the Company, were it subject to the NYSE Amex Rules, would meet the requirement
that independent Directors form a majority of the Board.

The NYSE Amex Rules require the directors of a listed company to meet at least quarterly.
Under the UK Code, the board should meet sufficiently regularly to discharge its duties
effectively. The Company’s Board held nine meetings in 2010, seven of which were
scheduled and two of which were convened to address Board and Management Board
succession issues as a result of Paul Adams’s retirement from the Board and as Chief
Executive with effect from 28 February 2011. There was at least one meeting in each
quarter. The Board is scheduled to hold seven meetings in 2011, again with at least one
meeting in each quarter.

The NYSE Amex Rules require the independent directors of a listed company to meet at
least once annually in “Executive Session” (meaning without the non-independent or
executive directors being present). This is not a requirement under the UK Code and, in

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 2010, there was no such meeting. The Senior Independent Director, however, leads a
meeting of the Non-Executive Directors without the Chairman present at least annually.

3. Audit Committee
The NYSE Amex Rules require that a company’s audit committee meets at least quarterly
and that it has a charter that complies with specified requirements, including the applicable
NYSE Amex and SOX Rules regarding audit committee independence and other matters.
The SOX Rules require that it has authority to engage external advisers. If it were subject to
the SOX and NYSE Amex Rules, the Company’s Audit Committee (the “Audit Committee”)
would meet these requirements in all material respects. The Audit Committee’s terms of
reference are available on www.bat.com.

The SOX Rules impose disclosure requirements not contained in the UK Code in respect of
the independence of members of a company’s audit committee. However, no situation
arose in 2010 that would have required the Company to make disclosure regarding any lack
of independence on the part of any member of the Audit Committee, had it been subject to
the SOX Rules. As noted above, Kieran Poynter, who would not be considered independent
under the NYSE Amex Rules, is not currently a member of the Audit Committee.

Under the SOX Rules, a company’s board should determine either that at least one
member of the audit committee is an “audit committee financial expert” (in which case,
disclosure of the name of the financial expert and whether that person is independent under
the NYSE Amex Rules is required), or that there is no “audit committee financial expert” on
the audit committee (in which case, an explanation of why there is no such expert is
required). The NYSE Amex Rules require all members of the audit committee to be able to
read and understand fundamental financial statements and that at least one member be
“financially sophisticated”. The Board considers that, were it subject to the SOX and NYSE
Amex Rules, the Chairman of its Audit Committee, who has the “recent and relevant
financial experience” required by the UK Code, would meet the SOX standard of an “audit
committee financial expert”, that he would be considered “financially sophisticated” under
the NYSE Amex Rules and that all members of the Audit Committee would meet the
requirement of the NYSE Amex Rules of being able to read and understand fundamental
financial statements.

The SOX Rules require that a company’s audit committee be responsible for the
appointment of its external auditors or, if domestic law requires that shareholders vote on
the appointment of a company’s external auditors, that the audit committee be responsible
for making a recommendation to the shareholders. Under English company law, a
company’s external auditors are appointed by its shareholders. In accordance with the
requirements of the UK Code, the Audit Committee is responsible for making
recommendations to the Board, for the Board to put to the shareholders for their approval in
general meeting, in relation to the appointment, re-appointment and removal of the external
auditors.

The SOX Rules also require that a company’s external auditors report directly to the audit
committee. Whilst, as a matter of English law, the Company’s external auditors are
answerable to the shareholders, on a day-to-day basis they report to the Company, through
the Audit Committee, which is responsible for approving their remuneration and terms of
engagement and for recommending them to the Board.

Under the SOX Rules, the external auditors are required to report to the audit committee on
critical accounting policies and alternative treatments under generally accepted accounting
principles relating to material items that have been discussed with management and other
material communications with management, prior to the filing of their audit report with the

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SEC. Although the Company’s external auditors are not specifically required to report on
such matters to the Audit Committee under the UK Code, they are matters that would
ordinarily form part of their reports to the Audit Committee.

The SOX Rules include prohibitions on a company’s external auditors providing specified
non-audit services. Certain other non-audit services may be provided if specifically
approved by the audit committee, or if they are in accordance with written policies and
procedures previously approved by it. If the Company were required to file an Annual
Report on Form 20-F with the SEC, it would have to disclose the approval policies
established by the Audit Committee, as well as information regarding the non-audit fees
paid to the Company’s external auditors. There are no comparable restrictions or disclosure
requirements under the UK Code, although the Financial Reporting Council’s Guidance on
Audit Committees states that companies should explain in their annual report how, if the
external auditor provides non-audit services, auditor objectivity and independence is
safeguarded. This issue is addressed in the Company’s Corporate Governance Statement.
The Audit Committee is responsible for monitoring the independence of the Company’s
external auditors and has an established policy aimed at safeguarding and supporting the
external auditors’ independence and objectivity. Pursuant to this policy, it keeps under
review the ratio of audit fees to non-audit fees charged by the external auditors to ensure
that neither their independence nor their objectivity is put at risk, and takes steps to ensure
that they do not audit their own work. It remains confident that the objectivity and
independence of the external auditors are not in any way impaired by reason of the non-
audit services which they provide to the Group. The non-audit fees paid to its external
auditors are disclosed by the Company in its Annual Report.

Under the SOX Rules, the partner with overall responsibility for an audit client and the lead
concurring partner performing a second level of review must be replaced at least every five
years and may not be reappointed for a further five years. Other members of the audit team
for a company must generally rotate at least every seven years, with a two year cooling-off
period. There are similar rotation provisions under UK regulations for the UK lead partner of
an audit firm and key partners involved in an audit and it is the Audit Committee’s policy to
require a staggered five year rotation for the lead partners of the external auditors globally.
The Audit Committee will consider dispensations from this policy where recommended by
the appropriate Regional Audit Committee as a result of local circumstances.

In addition to requiring the rotation of members of the audit team, the SOX Rules state that
an audit firm will not be independent if, during the audit engagement period, any audit
partner (other than certain specialty partners) working on a company’s audit earns or
receives compensation based on cross-selling non-audit services to that company or its
affiliates. Similarly, external auditors will not be independent in certain circumstances
involving employment by a company of former partners or employees of the audit firm. The
Company is satisfied as to the independence and objectivity of the external auditors, taking
into consideration relevant UK professional and regulatory requirements.

The SOX Rules require the audit committee to establish detailed “whistleblower”
procedures to handle complaints concerning accounting, internal accounting controls or
auditing matters and for the anonymous submission by employees of concerns about
questionable accounting or auditing matters. The Group’s whistleblowing policy and
procedures enable employees to raise concerns over suspected wrongdoing at work,
including improper accounting practices, in confidence and without reprisal, even where
their concern is mistaken, provided that it is raised in good faith. Details of the Company’s
whistleblowing policy and procedures are set out in the Company’s Standards of Business
Conduct.

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4. Nomination and Compensation Committees
Subject to certain exceptions, the NYSE Amex Rules require that director nominations be
selected, or recommended for the board's selection, and that the compensation of the
officers of a company be determined, or recommended for the board’s determination, either
by a committee comprised of independent directors or by a majority of the independent
directors on its board. The NYSE Amex Rules also require a company to adopt a formal
written charter or board resolution, as applicable, addressing the nominations process and
related matters. The NYSE Amex Rules do not permit the chief executive officer to be
present during voting or deliberations with respect to his compensation.

The Board has established:

(a) a Nominations Committee for the purpose of making recommendations to the Board
on suitable candidates for appointment to the Board and Management Board and
reviewing the succession plans for the Executive Directors and members of the
Management Board; and

(b) a Remuneration Committee for the purpose of determining the framework and policy
on terms of engagement and remuneration of the Chairman, the Executive Directors
and members of the Management Board.

The Nominations Committee is chaired by the Chairman and comprises all the Non-
Executive Directors (all of whom have been assessed as independent under the UK Code,
and a majority of whom are independent under the NYSE Amex Rules). The Remuneration
Committee comprises the seven Non-Executive Directors who would be considered
independent under the NYSE Amex Rules, one of whom chairs it. As noted above, Kieran
Poynter, who would not be considered independent under the NYSE Amex Rules, is not
currently a member of the Remuneration Committee. The Chairman and the Chief
Executive do not attend meetings when their own remuneration is under review.

Both Committees satisfy the requirements of the UK Code and their terms of reference are
available on www.bat.com.

5. Code of Conduct
Under the SOX Rules, a company must disclose whether it has a written code of conduct
and ethics which is applicable to its principal executive officer, principal financial officer and
principal accounting officer or controller (or persons performing similar functions) and which
meets certain specified requirements, and it must make that code public. The Company’s
Standards of Business Conduct, available on www.bat.com, are applicable to all the
Company’s directors, officers and employees and to the directors, officers and employees
of all Group companies.

If the Company were subject to the SOX Rules, it would also be required to disclose any
material waivers or amendments to its code of conduct in the Annual Report on Form 20-F.
There were no material waivers or amendments to the Company’s Standards of Business
Conduct in 2010 that would have required such disclosure.

6. Shareholder Approval of Equity Compensation Plans and Advisory

Votes on Compensation
Subject to certain exceptions, the NYSE Amex Rules require the approval of shareholders
with respect to the establishment of (or material amendment to) any stock option or

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 purchase plan or other equity compensation arrangement pursuant to which options or
stock may be acquired by officers, directors, employees, or consultants.

The Company complies with the listing rules of the UK Listing Authority. Those rules require
shareholder approval for the adoption of equity compensation plans, which are either long-
term incentive schemes in which the directors of a company can participate, or schemes
which may involve the issue of new shares. Under the UK Listing Authority rules, such
plans cannot be changed to the advantage of participants without shareholder approval,
save that certain minor amendments, for example to benefit the administration of a plan or
to take account of tax benefits, are permissible without such approval. The UK Listing
Authority rules requiring shareholder approval for the establishment of, or any material
amendment to, equity compensation plans may differ from those provided for under the
NYSE Amex Rules.

The Company’s Long Term Incentive Plan (“LTIP”) delivers the long-term element of
remuneration for Executive Directors, members of the Management Board and other senior
employees. The Executive Directors and members of the Management Board also
participate in an annual performance related bonus plan, called the International Executive
Incentive Scheme (“IEIS”). Shareholder approval was sought and obtained at the Annual
General Meeting in 2007 for the 2007 LTIP, which replaced the previous long-term
incentive scheme. In addition, shareholders were consulted in 2010 regarding specific
proposals in respect of the LTIP and IEIS. The consultation was undertaken following the
Remuneration Committee’s comprehensive review in the second half of 2010 of all
elements of the remuneration policy for senior managers, and was based around the
Company’s top twenty shareholders as well as institutional shareholder representative
bodies and governance service agencies. Further details of the consultation and its
outcome are provided in the Remuneration Report in the Company’s 2010 Annual Report.

As of 25 January 2011, the SEC adopted rules for “Say-on-pay” and “Golden Parachute”
compensation as required under the Dodd-Frank Wall Street Reform and Consumer
Protection Act. The recently adopted rules require public companies subject to the federal
proxy rules to (i) provide shareholders with an advisory vote on executive compensation
disclosed pursuant to Regulation S-K at least once every three years (the “Say-on-pay
Vote”), and (ii) provide shareholders with an advisory vote, at least once every six years, on
whether they are presented with the Say-on pay Vote every 1, 2 or 3 years, in each case
beginning with first annual shareholders’ meeting taking place on or after 21 January 2011.
Furthermore, the SEC has required companies to provide enhanced disclosure and a
shareholder advisory vote to approve certain “golden parachute” agreements in connection
with a merger, acquisition, sale or distribution of substantially all assets.

Under the UK Companies Act, the Company is required to seek the approval of its
shareholders for the Remuneration Report at its Annual General Meeting at which its
Annual Report (which contains the Remuneration Report) is laid. The vote of the
shareholders is of an advisory status only and therefore does not affect the actual
remuneration paid to any individual Director. The Company has no “golden parachute”
arrangements with any of its Directors or senior members of management and it is not the
Company’s practice to enter into such arrangements. Details of the Company’s policy on
Executive Directors’ service contracts and the terms of appointment for Non-Executive
Directors are set out in the Remuneration Report.

7. Management Accountability
The SOX Rules require an Annual Report on Form 20-F filed with the SEC to be
accompanied by a statement from the company’s principal executive officer and principal
financial officer certifying that the Report does not contain any material misstatements or
omissions and that the financial statements contained in it fairly present, in all material

7
 respects, the financial condition and results of the company’s operations. The SOX Rules
also require that specific certifications and disclosures be made in relation to the company’s
disclosure controls and procedures and internal controls over financial reporting. In
addition, the principal executive officer and principal financial officer are required to state in
a separate certificate that an Annual Report on Form 20-F filed with the SEC complies with
the applicable SEC requirements and fairly presents, in all material respects, the financial
condition and results of operations of the issuer.

The Company is not required to provide equivalent certifications under the UK Code and
accordingly does not do so. However, the Board is responsible for the Company’s Annual
Report and authorises its signature. In accordance with English company law, the Directors
confirm in the 2010 Annual Report that they have met their responsibilities in relation to the
financial statements and that, to the best of their knowledge and belief:

(a) all relevant audit information has been provided to the external auditors;

(b) the financial statements give a true and fair view of the assets, liabilities, financial
position and profit or loss of the Company and the Group; and

(c) the Directors’ Report (which incorporates the Business Review) includes a fair review
of the development and performance of the business and the position of the
Company and the Group, together with a description of the principal risks and
uncertainties that they face.

The Company’s external auditors have reported that, in their opinion, the financial
statements give a true and fair view of the Company and the Group at 31 December 2010
and of the profit and cash flows of the Group for the year then ended. The Corporate
Governance Statement addresses the Company’s system of risk management and internal
control and sets out the Board’s statement on risk management and internal control,
prepared in accordance with the current version of the Turnbull Guidance adopted by the
UK Listing Authority.

The SOX Rules provide that, under certain circumstances, a company’s chief executive
officer and chief financial officer can be required to reimburse the company for bonuses and
their profits on the sale of the company’s shares, where an accounting restatement is made
necessary by non-compliance or misconduct. Those circumstances have not arisen within
the Company.

8. Loan Prohibitions
Under the SOX Rules, a company is prohibited from extending or maintaining credit (or
arranging for extensions of credit), or renewing an extension of credit, in the form of a
personal loan, to or for any director or executive officer, other than certain consumer credit
arrangements made in the ordinary course of business. Other types of loan are specifically
exempted. The Company does not make personal loans, or extend or maintain credit or
arrange extensions of credit, to its Directors.

28 March 2011