The Kongsberg Group Board of Directors actively supports the principles for good corporate governance and attaches importance to KONGSBERG’s compliance with the Norwegian Code of Practice for Corporate Governance and to explaining any deviations. For the complete overview of the Code with comments, see the Oslo Stock Exchange’s website at www.oslobors.no/ob/cg or NUES (the Norwegian Corporate Governance Committee): www.nues.no
The following is a detailed discussion of each individual section of the Norwegian Code of Practice. The review is based on the latest version of the Code, dated 30 October 2014.
The information that KONGSBERG is required to disclose pursuant to Section 3-3b of the Accounting Act regarding reporting on corporate governance has been taken into account in this report and follows the systematics of the Code of Practice where it is natural to do so. A detailed description of the location of the disclosures required by Section 3-3b of the Accounting Act follows below:
1. “a statement of the recommendations and regulations concerning corporate governance that the enterprise is subject to or otherwise chooses to comply with”: The section of the report entitled ‘KONGSBERG’s Policy’
2. “information on where the recommendations and regulations mentioned in no. 1 are available to the public”: The section of the report entitled ‘KONGSBERG’s Policy’
3. “the reason for any non-conformance with recommendations and regulations mentioned in no. 1”: The section of the report entitled ‘Deviations from the code of practice’
4. “a description of the main elements in the enterprise’s and, for enterprises that prepare consolidated accounts, if relevant also the Group’s internal control and risk management systems linked to the accounts reporting process”: The section of the report entitled Item 10 ‘Risk management and internal control’
5. “articles of association that completely or partially extend or depart from provisions stipulated in Chapter 5 of the Public Limited Companies Act”: The section of the report entitled Item 6 ‘General Meeting’
6. “the composition of the Board of Directors, corporate assembly, shareholders’ committee/supervisory board and control committee and any working committees that these bodies have, as well as a description of the main elements in prevailing instructions and guidelines for the bodies’ and any committees’ work”: The section of the report entitled Item 8 ‘Board of Directors – composition and independence’ and Section 9 ‘The Board’s work’
7. “articles of association that regulate the appointment and replacement of directors”: The section of the report entitled Item 8 ‘Board of Directors composition and independence’
8. “articles of association and authorisations that allow the Board to decide that the enterprise is to repurchase or issue the enterprise’s own shares or equity certificates”: The section of the report entitled Item 3 ‘Share capital and dividends’
Deviations from the Code of Practice
According to the Group’s own evaluation, we deviate from the code of practice on one major point:
Item 6 – The General Meeting
There are two deviations on this point. The entire Board of Directors has not usually attended the General Meeting. Thus far, the items on the agenda of the General Meeting has not required this. The Chair of the Board is always present to respond to any questions. Other board members participate on an ad hoc basis. From the Group’s perspective, this is considered to be sufficient.
The other departure refers to Article 8 of the Articles of Association, which specifies that the General Meetings are to be chaired by the Chair of the Board. If the Chair is absent, the General Meeting is chaired by the Board’s Deputy Chair. In the absence of both, the chair shall be elected by the General Meeting. This is a departure from the recommendation regarding an independent chair. The arrangement has been adopted by the shareholders through a unanimous resolution of the General Meeting and has worked satisfactorily thus far.
The description of the main features is generally structured like the Code of Practice. As recommended, more details are provided on the individual points. Item 16, ‘Management and in-house procedures’, is not covered by the recommendation. It has nonetheless been included because it is considered crucial to KONGSBERG’s discussion of corporate governance.
We actively strive to comply with international “best practice” standards when we draw up our governance documents, since we feel there is a close correlation between high-quality systems of governance and our value creation.
The topic of corporate governance is subject to annual evaluation and discussion by the Board. The following report was carried at the Board meeting on 5 February 2015.
The Group’s vision is ”World Class – through people, technology and dedication”. The values that support this vision are: Determined, Innovative, Collaborative and Reliable. These values are important for developing a healthy, strong corporate culture and thereby for providing a platform for good corporate governance. Further information about our values can be found on the Group’s website at www.kongsberg.no and in the Group’s Annual and Sustainability Report for 2014.
Ethics and corporate social responsibility
The Group’s current ethical guidelines were approved by the Board of Directors in February 2015. They are based largely on international initiatives and guidelines related to social responsibility which the Group has endorsed, including the UN Global Compact, the OECD Guidelines for Multinational Enterprises and the ILO Conventions. The guidelines include the topics of human rights, worker’s rights, climate and environment, corruption, our relations with customers, supplier and market representatives, legal competence and confidentiality. They apply to the Group’s directors, managers, employees, all contracted personnel, consultants, agents and lobbyists and others who act on behalf of KONGSBERG. See the detailed description in the Annual and Sustainability Report.
The Group’s policy for sustainability and corporate social responsibility is adopted by the Board. The policy is an integral part of the Group’s strategic processes and is discussed in more detail in the Group’s Annual and Sustainability Report and on the Group’s website.
Kongsberg Gruppen ASA is a company whose object is to engage in technological and industrial activities in the maritime, defence and related sectors. The company may participate in and own other companies. The above-mentioned is stated in Section 3 of KONGSBERG’s Articles of Association. The Articles of Association are available here.
The Group’s objectives and main strategies are described in the Group’s Annual and Sustainability Report.
3. Share capital and dividends
At 31 December 2015, the Group’s equity came to MNOK 6,127 (MNOK 6,282), which is equivalent to 32 (31) per cent of total assets. The Board considers this satisfactory. At any given time, the company’s need for financial strength is considered in the light of its objectives, strategy and risk profile.
The Board decided on a dividend policy that stipulates that dividends shall over time amount to between 40 and 50 per cent of the company’s ordinary profit for the year after tax.
In determining the size of the dividends, account will be taken of expected future capital requirements. The dividend policy was made effective from the 2013 financial year. The General Meeting approves the annual dividend, based on the Board’s recommendation. The proposal is the ceiling for what the General Meeting can approve.
A dividend of NOK 9.25 per share was paid for 2014, consisting of NOK 4.25 per share as ordinary dividend and NOK 5.00 per share as an extraordinary dividend. The Board proposes to the General Meeting a dividend for the accounting year 2015 of NOK 4.25 per share. The dividend represents 50 per cent of the ordinary annual results before
impairment, and 68.2 per cent of ordinary results.
The Board has not been authorised to issue shares.
Purchase of treasury shares
The General Meeting can authorise the Board to acquire up to 10 per cent of its own shares. At the Annual General Meeting on 7 May 2015, the Board was given authorisation to acquire treasury shares up to a value of MNOK 7.5. This is equivalent to five per cent of the share capital. The authorisation can be used several times and applies up until the next Annual General Meeting, but not later than 30 June 2016. The Board’s acquisition of treasure shares pursuant to this authorisation can be exercised only between a minimum price of NOK 25 and a maximum NOK 300 per share. At 31 December 2015, the Group owned a total of 15,971 (26,674) treasury shares.
The shares were purchased for the employee share programme and in connection with the company’s long-term incentive (LTI) arrangement, but can also be sold on the
market. The shares included in the Group’s employee share programme are offered to all employees at a discount (20 per cent), and they are subject to a one-year lock-in period from the date of acquisition. The LTI scheme is discussed in Note 27 and Item 12 of this report.
4. Equal treatment of shareholders and transactions between related parties
Class of shares
The Group’s shares are all Class A shares. All shares carry the same rights in the company. At general meetings, each share carries one vote. The nominal amount per share is NOK 1.25. The Articles of Association place no restrictions on voting rights.
Trading in treasury shares
The Board’s mandate to acquire treasure shares is based on the assumption that acquisitions will take place in the market. Acquired shares may be disposed of in the market, as payment for acquisitions, and through share schemes for the Group’s employees.
Transactions with related parties
The Board is not aware of any transactions in 2015 between the company and shareholders, directors, executive personnel or parties closely related to such individuals that could be described as material transactions. If such a situation were to arise, the Board would ensure that an independent valuation is made by a third party. For further information, see Note 29 (28) and Note 33 (34) to the consolidated financial statements for 2015.
Guidelines for directors and executives
The Corporate Code of Ethics discusses this topic under conflicts of interest under Item 1.6. Similarly, this applies to Item 8 of the Board’s instructions – independence and disqualification. Here, it is emphasised that the Board shall act independently of special interests. Independence in this context is defined as follows:
• Board members shall normally not receive any other remuneration than their directors’ fee and remuneration for work on Board committees. Any departure from this general rule requires the approval of the entire Board and shall be recorded in the minutes. When material transactions take place between the company and a director or the CEO, an independent valuation shall be obtained from a third party.
• Board members shall inform the Board about any relationships with or interests in KONGSBERG’s significant business associates or transactions.
• The director’s fee shall not be linked to the financial performance of the Group and options shall not be allocated to Board members.
• Cross relationships between directors, the CEO or other executives shall be avoided.
• Board members shall not have or represent significant business relations with the Group.
If a director is in doubt about his/her legal competence, the question shall be discussed by the entire Board. The conclusion on the question of disqualification shall be recorded in the minutes.
The Norwegian Government as customer and shareholder
The Norwegian Government has a stake of 50.001 per cent of KONGSBERG at the same time as it is a major account, particularly with regard to deliveries to the Norwegian Armed Forces. Relations with the Armed Forces are of a purely commercial nature and are not affected by the ownership structure.
The Group has quarterly meetings with the Norwegian state, as represented by the Ministry of Trade, Industry and Fisheries. The topics discussed at these meetings are first and foremost the Group’s financial development, and there are briefings on strategic questions related to KONGSBERG. The Government’s expectations regarding investment performance and yield are also communicated. These ‘one-on-one’ meetings with the Government are comparable to what is customary between a private company and its principal shareholders. The meetings comply with the provisions specified in company and securities legislation, not least with a view to equal treatment of shareholders. A meeting on corporate social responsibility is held once a year.
The requirement regarding equal treatment of the shareholders limits the possibilities for exchanging data between the company and the Ministry. As a shareholder, the Government does not usually have access to more information than what is available to other shareholders. However, that does not preclude discussions on matters of importance to society. Under certain circumstances, i.e. when Government participation is imperative and the Government must obtain an authorisation from the Storting (Norwegian parliament), from time to time, it will occasionally be necessary to give the Ministry insider information. In such cases, the Government is subject to the general rules for dealing with such information.
5. Freely negotiable
The shares are freely negotiable, with the exception of shares purchased by employees at discount, and shares allocated in connection with the company’s long-term incentive (LTI) scheme, see Items 3 and 12. The Articles of Association place no restrictions on negotiability.
6. General Meetings
Through the General Meeting, shareholders are ensured participation in the Group’s supreme governing body. The Articles of Association are adopted by this body. Shareholders representing at least 5 per cent of the shares can call for an extraordinary general meeting.
The Annual General Meeting is ordinarily held by 1 June each year. In 2016, the Annual General Meeting is scheduled to be held on 9 May.
• Notification is usually distributed 21 days in advance of the General Meeting at the latest. The relevant documents, including the Nominating Committee’s well-founded roster of nominees when new candidates are up for election or existing members are up for re-election, are available on the Group’s website.
• It is important that the documents contain all the information required for the shareholders to take a position on all items on the agenda. The company’s Articles of Association stipulate that the deadline for registration can expire no earlier than five days prior to the date of the General Meeting. Efforts are made to set the deadline as close to the meeting date as possible.
All shareholders registered in the Norwegian Central Securities Depository (VPS) receive the notice and are entitled to submit motions and to vote directly or by proxy. The Financial Calendar is published on the Group’s website.
Registration and proxies
Registration can be done by written notice, fax or online. The Board of Directors would like to make it possible for as many shareholders as possible to participate. Shareholders who are unable to attend the meeting are urged to authorize a proxy. A special proxy slip has been drawn up to facilitate the use of proxies on each individual item on the agenda. A person is appointed to vote as a proxy for the shareholders. Representatives of the Board, at least one member of the Nominating Committee and the auditor will attend the General Meeting. Management is represented by the Chief Executive Officer and the Chief Financial Officer, at the very least.
In 2015, the General Meeting was held on 7 May and 77.6 per cent (77.5) of the aggregate share capital was represented. A total of 99 (95) shareholders were present or represented by proxies.
Agenda and execution
The agenda is set by the Board, and the main items are specified in Article 8 of the Articles of Association. The same article stipulates that the Chair of the Board will chair the General Meeting. The CEO reviews the status of the Group.
All shareholders are entitled to have their questions dealt with at the General Meeting. Questions shall be submitted in writing to the Board a minimum of seven days prior to the deadline for sending the notification of the General Meeting. Please specify also the reason that there is a wish to have the question put on the agenda. The minutes from the General Meeting will be posted on the Group’s website.
7. Nominating Committee
Article 9 of the Group’s Articles of Association specifies that the Group shall have a Nominating Committee. The Committee’s work is regulated by special instructions adopted by the General Meeting. These instructions were last revised by the Annual General Meeting on 8 May 2007.
The Nominating Committee’s main responsibility is to submit a roster of nominees to the General Meeting for the shareholder-elected members of the Board of Directors and their deputies. The nominations shall be reasoned and recommend a nominee for the Chair of the Board separately. In the work on finding candidates for the Board, the Committee is in contact with relevant shareholders, board members and the CEO.
In addition, the Nominating Committee shall submit proposals for the remuneration of Board members and their deputies, and make an annual evaluation of the work of the Board.
The Nominating Committee consists of three members who shall be shareholders or representatives of shareholders. The General Meeting shall elect all members of the Nominating Committee, including the chair. The Nominating Committee itself proposes to the General Meeting a roster of nominees for the Committee. The term of office is two years. The Nominating Committee’s remuneration is approved by the General Meeting based on the Board’s recommendation.
The current Committee was elected by the Annual General Meeting on 9 May 2014 and consists of:
• Alexandra Morris, senior portfolio manager ODIN Forvaltning (re-elected)
• Morten S Bergesen, managing director in Havfonn AS (new)
• Morten Strømgren, department director in the Ministry of Trade, Industry and Fisheries (new)
• Morris was elected chair of the Committee.
None of the Committee’s members represents KONGSBERG’s management or Board. The majority of the members are considered to be independent of daily management and Board. Morten S Bergesen is the managing director of Havfonn AS, which owns a 26.02 per cent share in Arendals Fossekompani ASA. Morten S Bergesen is also a board member in Arendals Fossekompani ASA, where KONGSBERG’s director Morten Henriksen has a leading position. The Nominating Committee is considered to have a composition that reflects the common interests of the community of shareholders.
Information about the Nominating Committee, a slip for nominating candidates for the Board and the deadlines are available on the Group’s website at www.kongsberg.com.
8. Composition and independence of the Board of Directors
The Annual General Meeting in 1999 resolved to discontinue the Corporate Assembly. The reason was an agreement between the unions and the Group that increased the number of employee representatives on the Board from two to three.
Composition of the Board of Directors
The Board of Directors consists of eight members and currently has the following composition; Finn Jebsen (Chair), Anne-Lise Aukner (Deputy Chair), Irene Waage Basili, Roar Flåthen and Morten Henriksen. Magnar Hovde, Helge Lintvedt and Roar Marthiniussen are directors who have been elected by and from among the employees. Detailed information on the individual directors can be found here.
Participation in Board meetings and Board Committees in 2015:
|Participants in Meeting
| Finn Jebsen
(left the board in May 2015)
|Irene Waage Basili
(new from May 2015)
| Jarle Roth
(new from May 2015)
(left the board 2015)
(left the board 2015)
|Rune Sundt Larsen
(new from May 2015,
elected by employees)
It is important that the entire Board has the expertise required to deal with Board work and the Group’s main business activities.
In addition, the directors need to have the capacity to carry out their duties. According to the Articles of Association, the Group shall have five to eight directors. The CEO is not a member of the Board of Directors.
The directors are elected for two-year terms and elect their own Chair. Finn Jebsen was elected Chair of the Board.
The Board’s independence
All shareholder-elected directors are considered autonomous and independent of the Group’s corporate executive management. The same applies relative to important business associates. Morten Henriksen has a leading position with Arendals Fossekompani ASA, which owned a 7.96 per cent stake in Kongsberg Gruppen ASA at year end. The Board of Directors is favourable to long-term shareholders being represented on the Board. It is important that there be no conflicts of interest between owners, the Board, management and the Company’s other stakeholders.
Among the shareholder-elected directors, there are three men and two women, i.e. 40 per cent women.
Election of the Board of Directors
The General Meeting elects the five shareholder-elected representatives to the Board. The Nominating Committee draws up a roster of shareholders’ nominees for the Board prior to the election. The roster of nominees is sent to the shareholders along with the notification of the General Meeting. Decisions on the composition of the Board take place by simple majority. The government currently owns some 50 per cent of the shares, and could, in principle, control the election of the shareholder-elected directors. Three of the directors are elected directly by and from among the Group’s employees.
The directors are elected for two-year terms and are eligible for re-election. All shareholder-elected directors will be up for election in 2015.
The directors’ shareholdings
At 31 December 2015, the shareholder-elected directors held the following portfolios of shares in the Group: Finn Jebsen, Chair of the Board, owns 20,000 (20,000) shares through his wholly-owned company Fateburet AS. The employee-elected directors had the following holdings of KONGSBERG shares at 31 December 2015: Roar Marthiniussen owned 5.529 (5,269) shares.
9. The Board’s work
The Board’s responsibilities
The Board of Directors bears the ultimate responsibility for managing the Group and for monitoring day-to-day administration and the Group’s business activities. This means that the Board is responsible for establishing control systems and for the Group operating in compliance with the adopted value platform and the Corporate Code of Ethics, as well as in accordance with the owners’ expectations of good corporate governance. First and foremost, the Board of Directors protects the interests of all shareholders, but it is also responsible for safeguarding the interests of the Group’s other stakeholders.
The Board’s main responsibilities are to contribute to corporate competitiveness, and to ensure that the Group develops and creates value. Further, the Board of Directors is to participate in the framing of and adopt the Group’s strategy, exercising the requisite control functions and ensuring that the Group is managed and organised in a satisfactory manner. The Board sets the objectives for financial structure and adopts the Group’s plans and budgets. The Board also handles items of major strategic or financial importance to the Group. In cases of a material nature in which the Chair and other Board members have been actively engaged, this will be disclosed in the proceedings and considered by the Board on a case-by-case basis. These tasks are not constant and the focus will depend on the Group’s needs at any given time. The Board hires the CEO, defines his or her work instructions and authority, and sets his or her wages.
Instructions for the Board of Directors
The Board’s instructions are subject to review every second year by the Board and are revised as needed. The current instructions were presented to the Board in February 2015. The instructions cover the following items: the notification of Board meetings, notification deadlines, administrative preparations, Board meetings, Board decisions, the keeping of minutes, the Board’s competency and items on the Board’s agenda, segregation of duties between the Board and the CEO, relations between subsidiaries and the parent company, independence and disqualification, main principles for the work of the Board in connection with a possible corporate takeover, confidentiality and professional secrecy, relations to legislation, the Articles of Association and instructions.
The Board of Directors can decide to depart from the instructions in individual cases.
Instructions for the CEO
There is a clear segregation of duties between the Board and executive management. The Chair is responsible for the Board’s work being conducted in an efficient, correct manner and in compliance with the Board’s responsibilities.
The CEO is responsible for the Group’s operational management. The Board has prepared special instructions for the CEO, which are reviewed every second year by the Board and revised as needed. The current instructions were presented to the Board in February 2014.
The Board of Directors receives monthly financial reports and comments on the Group’s economic and financial status. The reports are financial presentations that describe what has happened in the Group’s operative and administrative functions during the reporting period. In connection with reporting on operations, the individual units shall hold meetings to review operating activities. The financial report forms the basis for internal control and communication on status and necessary measures. Quarterly financial reports are reviewed at Board meetings, and these form the basis for external financial reporting.
Notice of meetings and discussion of items
The Board schedules regular Board meetings each year. Ordinarily, eight meetings are held each year. Additional meetings are held on an ad hoc basis. 10 (10) Board meetings
were held in 2015. The Board meetings had 94 (99) per cent attendance in 2015.
All directors receive regular information about the Group’s operational and financial progress well in advance of the scheduled Board meetings. The directors also receive monthly operations reports. The Company’s business plan, strategy and risk are regularly reviewed and evaluated by the Board. The directors are free to consult the Group’s senior executives as needed. The Board draws up and adopts an annual plan, including set topics for the Board meetings. Ordinarily, the CEO proposes the agenda for each individual Board meeting. The final agenda is decided in consultation between the CEO and the Chair of the Board.
Besides the directors, Board meetings are attended by the CEO, CFO, other EVPs as needed, and the General Counsel (secretary of the Board). Other participants are called in on an ad hoc basis.
The Board adopts decisions of material importance to the Group. These include approval of the annual and quarterly accounts, strategies and strategic plans, the approval of significant investments, the approval of significant contracts and the approval of substantial business acquisitions and disposals. New directors are briefed on the Group’s current strategy and historical factors related to the current situation.
Duty of confidentiality – communication between the Board and shareholders
The Board’s proceedings and minutes are in principle confidential unless the Board decides otherwise or there is obviously no need for such treatment. This ensues from the instructions to the Board of Directors.
The entire Board has completed a programme to gain insight into the Group’s business activities. In that connection, the Board makes excursions to different Group locations. The purpose of the excursions is to improve the Board’s insight into the commercial activities in the area.
The Board is bound by the rules regarding disqualification as they appear in Section 6-27 of the Public Limited Companies Act and in the instructions to the Board. In 2015, no directors were recused due to disqualification.
Use of Board Committees
The Board has two subcommittees, an Audit Committee and a Compensation Committee. Both committees prepare items for consideration by the Board. They are responsible only to the Board as a whole and their authority is limited to making recommendations to the Board.
The Board’s Audit Committee
The Audit Committee shall support the Board of Directors in its responsibilities related to financial reporting, audits, internal control and overall risk management. The Committee consists of two shareholder-elected directors and one employee-elected director. The CFO and the independent auditor usually attend the meetings. The CEO and the other directors are entitled to attend if they so desire. Six (seven) meetings were held in 2015.
Members: Morten Henriksen (chair), Jarle Roth and Helge Lintvedt. The terms of reference for the Audit Committee are published on the Group’s website at www.kongsberg.com.
The Board’s Compensation Committee
The committee shall prepare issues for Board discussion related to remuneration, management development and diversity. This includes, among others, discussion of issues associated with the remuneration for the CEO, and questions of principle relating to salary levels, bonus systems, pension schemes/terms, employment contracts, etc. for leading employees. The committee also prepares issues regarding ther conditions associated with remuneration that the committee will find is of particular significance to the company’s competitive position, profile, recruitment ability, reputation, etc.
In addition, the committee prepares for discussion of the Group’s management development plans, performance reviews and succession plan for managers, with particular emphasis on ensuring diversity. The Committee consists of the Chair of the Board, one shareholder-elected director and one employee-elected director. The CEO is entitled to participate in the Committee’s meetings if he/she so desires, except when his/her own situation is under discussion. Seven (two) meetings were held in 2015.
Members: Finn Jebsen (chair), Anne-Grete StrømErichsen and Roar Marthiniussen. The terms of reference for the Compensation Committee are published on the Group’s
website at www.kongsberg.com.
The Board’s self-evaluation
The Board has one extended meeting each year to evaluate the work done by the Board and the CEO. In this connection, the Board also holds its own activities up for comparison with the Norwegian Code of Practice for Corporate Governance. Individual performance interviews are conducted each year between the Chair of the Board and the other directors.
10. Risk management and internal control
The Board’s responsibilities and the purpose of internal control
KONGSBERG’s internal control and risk management system for financial reporting are based on the internationally recognised framework COSO.
The Group has established a decentralised management model featuring delegated responsibility for profits. As a result, the control function parallels the Group’s management model, and it is the individual unit’s responsibility to make sure that it has the capacity and expertise it requires to carry out responsible internal control.
A general management document has been adopted, describing how the requirements for internal control establish a framework for the units’ responsibilities.
Management prepares monthly financial reports that are sent to the directors.
In addition, quarterly financial reports are prepared for the financial market. When the Group’s quarterly financial reports are to be presented, the Audit Committee reviews the reports prior to the Board meeting. The auditor takes part in the Audit Committee’s meetings and meets with the entire Board in connection with the presentation of the interim annual financial statements, and when otherwise required.
The Board’s annual review and reporting
The annual review of the strategic plans of the Board forms the basis for the Board’s discussions and decisions throughout the year. Reviewing the Group’s risks is part of this annual review. In addition, quarterly reviews are made of the operative risks. HSE matters are reviewed by the Board on a quarterly basis.
The Board conducts an annual review of the Group’s key governance documents to ensure that these are updated and cover the relevant topics. Risk assessment and the status of the Group’s work on compliance and corporate social responsibility are reported to the Board annually.
The Group’s financial position and risks are thoroughly described in the Directors’ Report.
Compliance with values, ethics and corporate social responsibilities
At KONGSBERG, we emphasise that our values and Code of Ethics are to be an integral part of our operations. We expect our employees and partners to demonstrate high ethical standards and compliance with applicable rules and regulations.
In 2015, KONGSBERG continued our work on systematic development and follow-up of important areas for compliance with regulations, rules and internal guidelines. The Group placed emphasis on the anti-corruption programme; including training of own employees and business partners, compliance with corporate social responsibility in the supplier chain and implementation of routines for follow-up of human and worker’s rights. In 2014, we evaluated our anti-corruption programme using external advisers. The evaluation showed that we have a satisfactory programme with regard to internationally recognised statutes and framework. Some areas of improvement were identified in our programme, and adapted measures will be implemented. The Group has compliance functions at both a corporate level and in the business areas. In the same way as the financial reporting, the internal control was established in accordance with a decentralised management model. The KONGSBERG compliance programme is coordinated and monitored from a corporate level.
Routines have been established for notification and follow-up on any alleged misconduct.
The Group has an Ethics Committee whose purpose is to promote high ethical standards and good behaviour, and to ensure that KONGSBERG maintains a good reputation.
11. Remuneration of the Board of Directors
The Annual General Meeting approves the remuneration paid to the Board each year. The proposal for remuneration is made by the chair of the Nominating Committee. From the annual general meeting in 2015 until the next annual general meeting, the total remuneration to the Board members will amount to NOK 1,973,000 (NOK 1,906,000).
The remuneration breaks down as follows:
- Board Chairperson NOK 432,000 (NOK 419,000)
- Deputy Chair NOK 233,000 (NOK 230,000)
- Other Board members NOK 218,000 (NOK 209,500).
In addition, the members of the Audit Committee receive NOK 9,600 (NOK 9,300) per meeting, and a maximum of NOK 48,000 (NOK 46,500) per year. The Committee’s chair receives NOK 10,900 (NOK 10,600) per meeting, and a maximum of NOK 54,500 (NOK 53,000) per year. The members of the Compensation Committee receive NOK 8,900
(NOK 8,600) per meeting, and a maximum of NOK 44,500 (NOK 43,000) per year. The Committee’s chair receives NOK 10,100 (NOK 9,800) per meeting, and a maximum of NOK 50,500 (NOK 49,000) per year.
The directors’ fees are not contingent on financial performance, option programmes or the like. No remuneration has been paid allowance, apart from normal Board fees. None of the Board’s shareholder-elected directors works for the company outside of their directorships, and no-one has any agreement regarding a pension plan or severance pay from the company.
12. Remuneration of executive management
The Board has drawn up special guidelines for the determination of salaries and other remuneration to executive management. The CEO’s terms of employment are determined by the Board. Each year, the Board undertakes a thorough review of salary and other remuneration to the CEO. The evaluation is based on market surveys of comparable positions.
The structure of the incentive system for the other members of corporate executive management is determined by the Board and presented to the Annual General Meeting for information purposes. The terms are determined by the CEO in consultation with the Chair of the Board.
The Board’s attitude to executive management’s salaries is that they should be competitive and provide incentive, but not be at the very top end of the scale.
The incentive system consists of basic wages, bonuses, pensions, LTI, severance arrangements and other benefits in kind.
The guidelines for determining salaries and other remuneration to executive management are presented to the General Meeting. The guidelines are binding for the LTI arrangement and serve as a recommendation for the rest.
In 2006, the Board introduced a new bonus system for executive management. Performance-based compensation is linked to the performance trend, profit margin and nonfinancial goals. The payment of performance-based salary has a ceiling of 50 per cent of the basic salary. For a more detailed description of the system, see Note 28 (27) to consolidated financial statements for 2015. Altogether, the Group has approx. 90 (90) managers who are covered by an incentive plan that includes an element of individual performance.
Long-term incentive (LTI)
The Board of Directors decided in 2012 to introduce a long-term incentive (LTI) scheme as part of the regular remuneration for the CEO and other members of corporate executive management. The remuneration constitutes 25 per cent of annual base salary for the CEO and 15–20 per cent for other members of corporate executive management. The rationale is to be competitive with comparable companies. A more detailed description of the arrangement is provided in Note 28 (27) to the consolidated financial statements for 2015.
Remuneration to corporate executive management and the Board is described in Note 29 (28) to the consolidated financial statements for 2014.
13. Information and communications
The Annual Report and Accounts – interim reporting
The Group usually presents preliminary annual accounts in late February. Complete accounts, the Directors’ Report and the Annual Report are sent to shareholders and other stakeholders in March/April. Beyond this, the Group presents its accounts on a quarterly basis. The Financial Calendar is published on the Group’s website and in the Annual Report. The Group’s Report on Corporate Social Responsibility is published on the Group’s website (pdf version), along with other information on sustainability and corporate social responsibility, as well as in a limited number of paper copies. The report is verified by a third party.
All shareholders are treated equally as a matter of course.
Other market information
Open investor presentations are conducted in connection with the Group’s annual and quarterly reports. The CEO reviews the results and comments on markets and prospects for the future. The Group’s CFO also participates in these presentations, as do other members of corporate executive management from time to time.
The annual and quarterly reports are published on the Group’s website at the same time as the presentation of the results. The annual and mid-year results are also presented through webcasts. Beyond this, the Group conducts an ongoing dialogue with and makes presentations to analysts and investors.
Informing owners and investors about the Group’s progress and economic and financial status is considered to be of great importance. Attention is also devoted to ensuring that the equity market gets the same information at the same time. The prudence principle is applied to guarantee impartial distribution of information when communicating with shareholders and analysts.
The Group has a separate Investor Relations Directive, which includes sections on communication with investors and how price-sensitive information is to be treated. The Board of Directors has prepared special guidelines for the Group’s contact with shareholders outside the General Meeting.
There are no defence mechanisms against take-over bids in the Group’s Articles of Association, nor have other measures been implemented to limit the opportunity to acquire shares in the company. The Norwegian government owns 50.001 per cent of the shares. The marketability of these shares is subject to parliamentary discretion. The Board’s instructions contain an item that refers to the guiding principles for how the Board of Directors shall react in the event of any take-over bid. The Board of Directors is responsible for ensuring that KONGSBERG’s shareholders are treated equally and that operations are not disrupted unnecessarily.
Where a bid is made for the company, the Board of Directors shall draw up a statement containing a well-grounded evaluation of the bid and, if need be, provide an independent third-party assessment.
The evaluation shall specify how, for example, a take-over would affect long-term value creation at KONGSBERG.
If a bid is made for the Company’s shares, the Company will not limit others from presenting similar bids for the Company’s shares, unless this is clearly justified as being in the Company’s and shareholders’ common interest. In the event of a bid for the Company’s shares, the Company will publish the required disclosures pursuant to legislation and regulations for companies listed on the Oslo Stock Exchange.
The auditor’s relationship to the Board
The Group’s auditor is elected by the General Meeting. A summary of the main aspects of the work planned by the auditor shall be presented to the Audit Committee once a year.
The auditor is always present at the Board’s discussions of the preliminary annual accounts. At that meeting, the Board is briefed on the interim financial statements and any other issues of particular concern to the auditor, including any points of disagreement between the auditor and management. The auditor also participates in the meetings of the Audit Committee.
The Audit Committee arranges annual meetings with the auditor to review the report from the auditor that addresses the Group’s accounting policy, risk areas and internal control routines.
At least one meeting a year will be held between the auditor, the Audit Committee and the Board without the presence of the CEO or other members of executive management.
The auditor submits a written statement to the Board on compliance with the Statutory Audit Independence and Objectivity Requirements, cf. the Auditing and Auditors Act.
The Board of Directors has dealt with the guidelines for the business relationship between the auditor and the Group.
Ernst & Young is the Group auditor. Some smaller companies within the Group use other audit firms. In addition to ordinary auditing, the auditing company has provided consultancy services related to accounting. For further information, see Note 30 (29) to the consolidated financial statements.
At regular intervals, the Board of Directors evaluates whether the auditor exercises a satisfactory level of control and the auditor’s competitiveness otherwise.
16. Management and internal routines
This point is not covered by the Code of Practice.
Chief Executive Officer
The Board has adopted instructions for the CEO, cf. Item 9.
Corporate executive management
Corporate executive management currently consists of nine individuals. In addition to the CEO, corporate executive management consists of the CFO, the presidents of the four business areas (Kongsberg Maritime, Kongsberg Oil & Gas Technology, Kongsberg Defence Systems and Kongsberg Protech Systems), EVP Business Development, EVP Public Affairs, EVP Staffs. The CEO appoints members to corporate executive management.
Corporate executive management’s main responsibility is the operational management of the Group, where KONGSBERG’s overall situation is decisive for the decisions that are made. Corporate executive management’s other responsibilities include strategic development of the Group, the evaluation and development of the Group’s business areas and issues of principle importance to the Group. Corporate executive management evaluates its own work and working methods annually.
Corporate executive management meets regularly, and otherwise has regular contact on an operational basis.Corporate executive management conducts monthly follow-up of results and budgets with the various profit centres in the Group. The Group subscribes to the general principle of making binding commitments to agreed targets, so it practices a decentralised form of corporate governance that gives individual units considerable autonomy, accompanied by the responsibility that entails.
Executive Steering Group (ESG)
In 2013, the Group established an Executive Steering Group (ESG) for each business area. The aim is to improve routines for decision-making and follow-up, among other things, by transferring several important decisions related to the individual business area to the relevant business area’s ESG. The ESGs are chaired by the CEO. Other permanent members are the CFO and EVP Business Development and EVP Staff. Another two or three other EVPs from Corporate Executive Management attend, depending on the agenda. Participants in the ESGs include the head of the relevant business area as well as all or part of the relevant business area’s executive management.
Intra-Group Boards of Directors
The Group’s subsidiaries have their own Boards of Directors, which are comprised of internal managers and employees. The president of the holding company or a person authorised by the president will chair the Board of the subsidiary. Appointments of the Boards and the Board work in subsidiaries are handled pursuant to the Group’s principles for good corporate governance.
Guidelines for share trading
The company has stipulated in-house guidelines for trading in the company’s shares. These guidelines are updated regularly to maintain compliance with the legislation and regulations that apply at any given time. The Group has in-house guidelines for primary insiders, which require internal clearance by the CEO before primary insiders can buy or sell KONGSBERG shares.