Prize for the best reporting on corporate governance in accordance with the Norwegian Code of Practice for Corporate Governance for the 2010 financial year
The NCGB has decided to award this year’s prize for the best corporate governance reporting to ORKLA ASA.
Below is the reasoning for the NCGB’s decision:
The Norwegian Corporate Governance Board (NCGB) has decided to award this year’s prize for the best corporate governance reporting to ORKLA ASA.
The company provides a good, comprehensive account of its compliance with the Code of Practice that is also noteworthy for its company-specific approach. It is clear from the report that the company’s board of directors is closely involved in corporate governance, both in terms of ensuring compliance with the corporate governance policy and in the preparation of the report. The corporate governance report deals systematically with the requirements of the Code of Practice, and it is easy for the reader to understand how Orkla addresses each section of the Code of Practice. The report includes a section addressing how the company has structured its reporting in relation to the requirements of Section 3-3B of the Accounting Act and of the Code of Practice, allowing for the fact that these requirements are similar but not wholly identical.
Comments on particular sections of the report
Orkla presents a statement of policy on corporate governance which, in accordance with the amendment to Section 1 of the Code of Practice in 2010, includes the company’s policy on corporate social responsibility. Section 3 of the report provides a good account of the company’s dividend policy in terms both of its historic policy and future intentions, together with historic information on mandates granted to the board of directors in previous years and the board’s current strategy in respect of such mandates. The company provides a very good and comprehensive account of its compliance with Section 4 of the Code of Practice on equal treatment of shareholders and transactions with related parties. This includes an account of the rules of procedure that apply when the board considers matters where a member of the board might be perceived as having a conflict of interest, and the section also provides clear information on where the reader can find more detailed information on transactions with related parties. The report states that the company’s strategy is not to dilute the shareholdings of existing shareholders, and explains that the company has not carried out any substantive increases in share capital in recent years.
Orkla also provides a good explanation of the requirements and procedures for shareholders to participate in the company’s general meetings, including information on the timetable for giving notice of attendance, voting by proxy and voting rights in relation to share transfers. In accordance with the Code of Practice, the report confirms that shareholders are given the opportunity to vote separately on the election of each candidate to corporate bodies. The company has a nomination committee in accordance with the recommendation of the Code of Practice, and the report provides a good, comprehensive account of how this committee is elected and its duties, including information on the guidelines for its duties that are approved by the general meeting. The report also provides information on the composition of the committee and details the arrangements in place for shareholders to give input and put forward proposals in respect of the committee through the company website.
Orkla also provides a good account in respect of Section 8 of the Code of Practice – The corporate assembly and the board of directors, composition and independence. The shareholder-elected members of the corporate assembly are elected for a one-year term of office to give greater flexibility in ensuring a suitable composition of the assembly, and this is clearly a positive feature in terms of corporate governance. The report also provides good information on the composition of the board of directors and the independence of its members, including their relationships to major shareholders. The company’s articles of association stipulate that the shareholder elected members of the board are required to hold shares in the company with a view “to strengthening the shared financial interest of shareholders and board members”. (NCGB could scarcely be more in agreement with this sentiment!). This requirement goes beyond the Code of Practice, which only recommends that companies should encourage board members to hold shares. The report also gives a good picture of the work of the board of directors, addressing both its organisation and scope and including an account of the use of sub-committees (audit committee and compensation committee). Information is also provided in the report on the number of board meetings held, and on the board’s annual evaluation of its performance. Comprehensive information on the members of the board, their background, shareholdings and the number of board meetings they have attended is provided in conjunction with the board of directors’ report.
This section of the report dealing with risk management and internal control provides an extensive review, particularly in respect of the processes the company uses in this area. More detailed information on the specific risks to which the company is exposed and the way in which these are evaluated and managed by the board is provided in the board of directors’ report and in the notes to the accounts. NCGB understands that carrying out the processes that the company details will in practice represent an extensive task.
Comprehensive information on remuneration of the executive management is provided in a note to the accounts, and this includes the principles applied for performance-related remuneration and for share options. In addition, Orkla applies a ceiling to performance-related remuneration, in accordance with the recommendations in this respect included in the Code of Practice in 2010, and the note explains the specific details of the maximum bonuses permitted. This represents a treatment of this area that is entirely in accordance with the Code of Practice.
Another company that demonstrates best practice in its reporting on the remuneration of executive management is Statoil. NCGB would therefore like to make particular honourable mention of Statoil in this respect. Statoil has chosen to include within its corporate governance report a comprehensive account of its principles for remuneration, both in terms of fixed salaries and performance-based remuneration, together with the ceiling it applies to performance-based remuneration, while the specific figures for the year are reported in a note to the accounts. This represents a more reader-friendly approach, which makes the information on the company’s policies in this area immediately available to the reader of the corporate governance report without the need to consult the notes to the accounts.
Oslo, 20 October 2011