OEM International AB (the Company) applies the Swedish Code of Corporate Governance (the Code) in accordance with the NASDAQ OMX Stockholm’s rules for issuers. The Code is aimed at creating good prerequisites for an active and conscientious owner role and constitutes an element in the self-regulation of Swedish enterprise. It is based on the principle “comply or explain”, which means that it is not a deviation from the Code to deviate from one or more regulations where there is a justification for this and it is explained. OEM International has noted a deviation from the rules of the Code concerning the Nomination Committee. The deviation is explained in detail below under Nomination Committee.
DIVISION OF RESPONSIBILITIES
The purpose of corporate governance is to create a clear division of roles and responsibilities between the owners, the Board of Directors and the executive management. Corporate governance in OEM is based on the Swedish Companies Act and other acts and regulations, the rules applicable to companies listed on the stock exchange, the Articles of Association of the Company, the internal governing instruments of the Board of Directors, the Swedish Code of Corporate Governance and other internal guidelines or regulations.
OEM International AB is a public company and was listed on the Stockholm Stock Exchange in December 1983. OEM International AB had 2,494 shareholders at the end of 2010. The ten largest shareholders controlled 68 % of the share capital and 89% of the voting rights at year-end. The following shareholders have, directly or indirectly, shareholdings representing at least one-tenth of the number of voting rights for all shares in the Company: Orvaus AB with 28.9 %, Hans and Siv Franzén with 21.4 %, Agne and Inger Svenberg with 19.2 % and AB Traction with 11.2 %.
ARTICLES OF ASSOCIATION
The Articles of Association stipulate that OEM International AB is a public company whose business is to “engage in sales of automatic components and carry on any and all activities compatible therewith”. The share capital amounts to SEK 38,615,015 and the number of shares to 23,169,309 divided into 4,767,096 Class A shares with 10 voting rights each and 18,402,213 Class B shares with one voting right each. The Company’s Board of Directors is to consist of not less than four and not more than seven members. The Company is to have at least one auditor appointed by the Annual General Meeting and a deputy auditor if the elected auditor is not an auditing firm. Notice to attend Annual General Meetings and Extraordinary General Meetings, whose agenda includes amendments to the Articles of Association, is to be given not earlier than six and not later than four weeks prior to the date of the Meeting. Notice to attend Extraordinary General Meetings called for other purposes is to be given no later than two weeks prior to the meeting. Notice is to be given through an announcement in the Swedish Official Gazette (the Post and Domestic Times) and in Svenska Dagbladet. No limitation to the number of voting rights for represented shares applies to voting at the General Meeting. There is a pre-emptive clause regarding the A Class shares and a priority clause in connection with cash issue or set-off. The currently applicable Articles of Association are the Articles adopted at the 2007 Annual General Meeting; see the Company’s website, www.oem.se, under the About OEM/Group order heading.
ANNUAL GENERAL MEETING
The Annual General Meeting is the highest decision-making body in OEM International AB where the shareholders exercise their voting rights. The Annual General Meeting passes resolutions concerning the adoption of the Statement of Comprehensive Income for the Group, the Statement of Financial Position for the Group and the Income Statement and Balance Sheet for the Parent Company, distribution of dividends, election of Board of Directors and, where applicable, election of auditors, remuneration of Board Members and other senior executives, remuneration of auditors and other issues in accordance with the Swedish Companies Act and the Articles of Association of the Company. The Annual General Meeting is to be held in the municipality of Tranås, within six months of the end of the financial year. All shareholders entered in the share register prior to the meeting who have registered their participation are entitled to participate and vote for their total shareholding. In order to be able to exercise their voting rights at the Annual General Meeting, shareholders who have registered their shares in the name of an authorised agent must temporarily re-register their shares in their own name in accordance with what follows from the notice to the Annual General Meeting. Shareholders can be represented by agents. Minutes of proceedings of the sessions are available at the Company’s website, www.oem.se, under the Governance/Annual general meeting heading. Shareholders who represented 56.3 % of the share capital and 84.7 % of the voting rights took part in the 2010 Annual General Meeting held on 26 April 2010. Jan Svensson was elected Chairman of the Annual General Meeting. The ANNUAL ACCOUNTS and the Auditors’ Report were presented at the Meeting. In connection therewith, the Chairman of the Board submitted information about the work of the Board of Directors and reported on the cooperation with the auditors. The Company’s Managing Director and CEO, Jörgen Zahlin, commented on the Group’s operations, the financial year 2009, the development during the first quarter of 2010 and addressed the conditions facing the Group in the future. The auditor submitted the Auditors’ Report and an oral account of the work during the year.
The 2010 Annual General Meeting decided:
• to adopt a dividend of SEK 2.00 per share
• to elect Lars-Åke Rydh, Ulf Barkman, Hans Franzén, Jerker Löfgren, Agne Svenberg and Petter Stillström as members of the Board of Directors
• to elect Lars-Åke Rydh as Chairman of the Board of Directors
• to adopt the proposal of the Nomination Committee that the Nomination Committee should be made up of representatives of not less than three and no more than four of the largest shareholders and that the Chairman of the Board should act as Chairman of the Nomination Committee
• to adopt the proposal of the Board of Directors that OEM International AB should put into practice remuneration for senior executives that, in the main, will consist of a fixed and a variable part. The remuneration should be market-based and the variable part may not amount to more than 58 % of the basic pay. The Company’s management shall have marketbased pension contribution terms, which are premium-based and may amount, at a maximum, to the arrangement with Alecta’s ITP 1 solution.
• to adopt the proposal of the Board of Directors that the Company may not issue more than 1,800,000 new Class B shares in connection with any corporate acquisition
• to adopt the proposal of the Board of Directors to repurchase not more than 10 % of the Company’s shares.
The 2011 Annual General Meeting will be held on 3 May 2011 in Tranås.
At the Annual General Meeting held on 26 April 2010 it was decided that the Nomination Committee should consist of one representative for each of the three or four largest shareholders in the Company, as well as the Chairman of the Board, unless the latter is a member of the Board in the capacity of a owner representative. If a shareholder does not exercise its right to appoint a member, the next largest shareholder in terms of voting rights is entitled to appoint a member in the Nomination Committee. The names of the members and the names of the shareholders they represent will be announced no later than six months before the 2011 Annual General Meeting and will be based on the known voting rights immediately prior to the announcement. The Nomination Committee’s term will run until such time that a new Nomination Committee has been appointed. The Chairman of the Board will serve as the chairman of the Nomination Committee. If significant changes occur in the ownership of the company, after the Nomination Committee has been appointed, the composition of the Nomination Committee shall also be changed in accordance with the principles above. Shareholders who have appointed members in the Nomination Committee will be entitled to relieve such members and appoint new ones, as well as appoint a new member if the member appointed by the shareholder chooses to withdraw from the Nomination Committee. Changes to the composition of the Nomination Committee are to be announced as soon as they have been made. The composition of the Nomination Committee was announced in a press release on 27 October 2010 and is available on OEM’s website, www.oem.se, under the Bolagsstyrning/Valberedning heading.
The Nomination Committee shall prepare proposals for the following issues and present them for adoption to the 2011 Annual General Meeting:
• proposal for a chairman for the Meeting
• proposal for members of the Board of Directors
• proposal for Chairman of the Board of Directors
• proposal for remuneration of the Board of Directors
• proposal for remuneration for any committee work
• proposal for auditors’ fees
• proposal for a resolution concerning the Nomination Committee
In connection with its assignment, the Nomination Committee will also carry out the tasks that, pursuant to the Swedish Code of Corporate Governance, are the responsibility of the Nomination Committee and, where necessary, will be entitled to burden the company with reasonable expenses, e.g. for external consultants that are deemed by the Nomination Committee to be necessary so that the Nomination Committee can perform its tasks.
The Nomination Committee prior to the 2011 Annual General Meeting consists of:
• Lars-Åke Rydh, Chairman of the Board and also Chairman of the Nomination Committee
• Jerker Löfgren, Orvaus AB
• Hans Franzén
• Agne Svenberg
• Bengt Stillström, AB Traction
The Nomination Committee held a minuted meeting where it acquainted itself with the assessment of the work of the Board of Directors during the past year and it discussed the composition of the Board of Directors. The Nomination Committee’s proposals to the Annual General Meeting will be presented in the notice to the Annual General Meeting and on the Company’s website. The composition of the Nomination Committee above deviates from the regulations of the Code, which stipulate that the majority of the members should be members of the Board, that not more than one of the Board Members on the Committee may be dependent on large shareholders and that a Board Member should not be a Chairman of the Nomination Committee. It is deemed that it is reasonable that a company of this size has a Nomination Committee that represents the major shareholders and that some of these even act as Board Members.
BOARD OF DIRECTORS
COMPOSITION OF THE BOARD OF DIRECTORS
Pursuant to the Articles of Association of the Company, the Board of Directors should consist of not less than 4 and not more than 7 members elected by the Annual General Meeting for the period until the end of the next Annual General Meeting. Since the 2010 Annual General Meeting, the Board has consisted of the following members, all of them elected by the Annual General Meeting: Lars-Åke Rydh (Chairman), Ulf Barkman, Hans Franzén, Jerker Löfgren, Petter Stillström and Agne Svenberg. A presentation of the members of the Board is available on page 54 in the ANNUAL ACCOUNTS for 2010 and on the Company’s website, under the About OEM/Board of Directors heading. All Board Members are independent with regard to the Company and the Company’s management. Of the members who are independent with regard to the Company and the Company’s management, Ulf Barkman and Lars-Åke Rydh are also independent with regard to the Company’s major shareholders. A presentation of the mandates the Board Members currently hold is available on page 54 of the ANNUAL ACCOUNTS for 2010.
CHAIRMAN OF THE BOARD
The task of the Chairman of the Board, Lars-Åke Rydh, who was newly elected at the 2010 Annual General Meeting, is to ensure that the work of the Board of Directors is carried out efficiently and that the Board performs its tasks pursuant to the Swedish Companies Act, any other acts and regulations, the rules applicable to companies listed on the stock exchange (including the Code) and the Board’s internal governing instruments. It is the Chairman’s task to ensure that the Board continuously updates and deepens its knowledge about the Company and receives satisfactory data and decision-making information for its work, to establish the agenda for the meetings of the Board in consultation with the Managing Director, to verify that the decisions of the Board are implemented and ensure that the work of the Board is assessed annually. The Chairman of the Board represents the Company in ownership issues
TASKS OF THE BOARD OF DIRECTORS
Each year, the Board establishes written rules of procedure that regulate the Board’s work and its mutual division of responsibilities, including its committees, the decision-making procedure in the Board, the Board’s meeting procedure and the Chairman’s work tasks. The Board has also issued an instruction for the Managing Director, which regulates his work tasks and reporting obligation to the Board of Directors. In addition, the Board has adopted policies on, for example, currency policy. The Board monitors the work of the Managing Director through continuous follow-up of the operations during the year and it is responsible for ensuring that the organisation and guidelines for management of the Company’s matters are appropriately structured and that there is satisfactory internal control. The Board is also responsible for the development and follow-up of the Company’s strategies, decisions concerning acquisition and sale of operations, major investments and recruitments and remuneration of the Managing Director and other senior executives in accordance with the guidelines that have been adopted by the Annual General Meeting. The Board of Directors and the Managing Director present the ANNUAL ACCOUNTS to the Annual General Meeting.
THE BOARD’S WORK
In accordance with the adopted rules of procedure, the Board of Directors holds at least five ordinary meetings per year plus an inaugural meeting after the Annual General Meeting and whenever called for by the situation. During 2010, the Board had a total of eight meetings, including the inaugural meeting. All Board Members have participated in all Board meetings with the exception of Petter Stillström who did not take part on one occasion. All resolutions have been passed unanimously by the Board of Directors. The Company’s Financial Director is the secretary of the Board. Other Company employees take part in the meetings of the Board in connection with the presentation of specific issues or if it is otherwise deemed appropriate. The work of the Board during the year comprises, among other things, questions concerning the strategic development of the Group, the ongoing business activity, the development in results and profitability, corporate acquisitions, disposal of companies and properties, the financial position of the organisation and the Group. The work of the Board is subject to an annual assessment.
REMUNERATION OF THE BOARD
The remuneration of the members of the Board elected by the Annual General Meeting is decided by the Meeting in accordance with the proposal of the Nomination Committee. In accordance with the resolution of the 2010 Annual General Meeting, the remuneration of each of the Board’s members elected by the Meeting and the Chairman amounts to SEK 150,000 and SEK 225,000, respectively, effective until the 2011 Annual General Meeting. The total remuneration in accordance with the resolution of the Annual General Meeting thereby amounts to SEK 975,000. No additional remuneration has been paid to any Board Member.
The Board has appointed a Remuneration Committee, which consists of the Chairman, Lars-Åke Rydh, and Board Members Hans Franzén and Agne Svenberg. The Remuneration Committee prepares “the Board’s proposed policies for remuneration of senior executives”. The proposal is discussed by the Board and is subsequently presented to the Annual General Meeting for adoption. Based on the resolution of the Annual General Meeting, the Board decides on the remuneration of the Managing Director. Based on the proposal of the Managing Director, the Remuneration Committee passes a resolution on the remuneration of other members of the Group management. The Board receives information about the decisions of the Remuneration Committee. Market-based salaries and other employment terms are to apply to the Company’s management. In addition to a base salary, management can also receive variable remuneration, which can amount to a maximum of 58 % of the basic pay. Senior executives are to have defined contribution pension terms that are adjusted to market conditions and amount, at a maximum, to the arrangement with Alecta’s ITP 1 solution. All share-related incentive schemes are to be resolved by the Annual General Meeting. At present, there are no similar incentive schemes. The amount of the variable remuneration is unchanged compared to 2009. The period of notice may not exceed 24 months and involves the obligation to work during the period of notice. The guidelines are described in greater detail on page 33 in the ANNUAL ACCOUNTS. The Remuneration Committee has met twice during the year in order to pass resolutions on the above policy proposals. Proposals for guidelines for remuneration of senior executives will be presented for adoption to the 2011 Annual General Meeting.
The Board has not set up a special audit committee during the year but has performed the tasks that are the duty of the Audit Committee itself. The work of the Committee has been carried out as an integral part of the work of the Board during the Board’s ordinary meetings. In connection with the adoption of the annual financial statements by the Board during the Board meeting in February 2010, the Board and the Audit Committee were consulted by and received a report from the Company’s external auditors. On this occasion, the Board was also consulted by the Auditor in the absence of the Managing Director or anyone else from the Company’s management. In addition, the Board and the Audit Committee met the external Auditor in connection with the Board meeting in August in order to discuss the 2010 audit and the audit questions that were identified. In connection with this meeting, the Board also discussed identified business risks and other risks concerning the Group’s operations. The Board also ensures that the Company’s management directs the ongoing work for managing these risks. The auditors’ reports have not led to any specific measures from the Board. The Board evaluates the audit work that has been carried out and it informs the Company’s Nomination Committee of the result of the evaluation and assists the Nomination Committee with the preparation of proposals for auditors and remuneration of the auditors’ work.
CEO AND OTHER CORPORATE MANAGEMENT
The Managing Director, Jörgen Zahlin, manages the operations in accordance with the Swedish Companies Act, other acts and regulations, the rules applicable to companies listed on the stock exchange, the Articles of Association of the Company, the internal governing instruments of the Board of Directors and the goals and strategies set by the Board. The Managing Director prepares the necessary information and basis for decisions prior to the Board meetings, in consultation with the Chairman of the Board, presents the items and justifies proposals for resolutions. The Managing Director directs the work of the Group management and takes decisions in consultation with the others in the management. In addition to Jörgen Zahlin, the management during 2010 also consisted of Jan Cnattingius, Jens Kjellsson, Urban Malm, Patrick Nyström, Sven Rydell and Mikael Thörnkvist. The Group management holds regular business reviews under the leadership of the Managing Director. A more detailed presentation of the CEO and the Group management is available on page 55 in the Annua Report and on the Company’s website, under the About OEM/Management heading.
Pursuant to the Articles of Association, the Company is supposed to have at least one auditor appointed by the Annual General Meeting and a deputy auditor if the elected auditor is not an auditing firm. The Company’s auditors work pursuant to an audit plan and report their observations to the Company’s management, the Group management and OEM International’s Board of Directors both during the course of the audit and in connection with the adoption of the annual financial statements. Internal procedures and control systems are continuously reviewed during the year. A final review of the annual financial statements and the annual report is carried out in January or February. A review is carried out of the interim report for the third quarter. An account of the remuneration of the auditors, including the fees for consulting services, is presented in Note 6. The auditors are obliged to assess continuously their independence prior to decisions for provision of different consulting services. An account of the audit is reported to the shareholders in the form of an auditors’ report and other opinions, which constitute a recommendation to the shareholders prior to different decision points at the Annual General Assembly. The Auditors’ Report contains proposals for adoption of the Income Statement and Balance Sheet for the Parent Company and the Statement of Comprehensive Income and the Statement of Financial Position for the Group, the appropriation of the Company’s profit and the discharge of the members of the Board and the Managing Director from liability. The audit work includes such activities as an examination of compliance with the Articles of Association, the Swedish Companies Act and Annual Accounts Act, the International Financial Reporting Standards (IFRS), issues related to measurement of items recognised in the Statement of Financial Position /Balance Sheet for the Group/the Parent Company, follow-up of essential accounting processes and governance and financial control. The Board of Directors meets the Company’s auditors twice a year. The Company’s auditors also take part in the Annual General Meeting and they describe and give opinions on the audit work. The 2008 Annual General Meeting appointed KPMG AB auditor until the end of the 2012 Annual General Meeting. The Auditor-in-Charge since the 2009 Annual General Meeting has been Authorised Public Accountant Kjell Bidenäs. KPMG performs the audit in OEM International AB and the majority of the subsidiaries. Other of Kjell Bidenäs’ major assignments includes L E Lundbergföretagen AB and Returpack Svenska AB.
INTERNAL CONTROL AND RISK MANAGEMENT REGARDING FINANCIAL REPORTING FOR THE FINANCIAL YEAR 2010
Pursuant to the Swedish Annual Accounts Act, the Board of Directors must annually submit a description of the most important elements of the Company’s system for internal control and risk management regarding financial reporting. Pursuant to the Swedish Companies Act, the Board of Directors is responsible for internal control. This responsibility includes an annual assessment of the financial reporting submitted to the Board and placement of requirements to its contents and design in order to ensure the quality of the reporting. This requirement means that the financial reporting must be fit for its purpose and appropriate and apply the applicable accounting rules, acts and regulations and any other requirements placed on listed companies. The Board of Directors is responsible for ensuring that there is an adequate system for internal control, which covers all essential risks of errors in financial reporting. OEM’s system for internal control comprises control environment, risk assessment, control activities, information and communication, as well as follow-up.
OEM builds and organises its operations based on a decentralised profit and budget responsibility. The basis for internal control in a decentralised organisation is a well-established process aimed at defining goals and strategies for each organisation. Defined decision-making channels, powers and responsibilities are communicated by internal instructions and guidelines as well as policies as adopted by the Board of Directors. These documents clarify the division of responsibilities and work both between the Board of Directors and the Managing Director and within the operational activities. These also include a financial policy, a reporting manual for economic and financial reporting and instructions prior to each closing of the books. A Group-wide reporting system is used for the Group’s year-end procedures.
OEM has established procedures for handling risks that are deemed by the Board and the Company’s management to be essential for the internal control regarding financial reporting. The Group’s exposure to a number of different market and customer segments and the division of its operations into some 20 companies leads to a significant spread of risk. The risk assessment is carried out based on the Group’s Statement of Financial Position and Statement of Comprehensive Income in order to identify the risk for significant errors. The greatest risks for the OEM Group as a whole are related to reporting of revenue, such as inventory and accounts receivable.
Based on the risk assessments that have been carried out, OEM has determined a number of control activities. These are both of preventive and ascertaining nature. Examples of control activities are transaction-related checks such as rules regarding authorisations and investments and clear payment procedures, but also analytical checks, which are carried out by the Group’s controller organisation and central financial function. In addition, there are different control activities related to the management of the purchase, logistics and sales processes. Controllers and financial managers on all levels in the Group have a key role with regard to what applies to integrity, competence and ability to create the environment that is required in order to achieve transparent and fair financial reporting. An important overall control activity is the monthly result follow-up carried out via the internal reporting system, which is analysed and commented on in the internal work of the Board of Directors. The result follow-up comprises reconciliation with regard to set targets, previous results and follow-up of a number of key ratios. The respective companies in the Group have active Boards of Directors where the Chairman comes from the Group’s senior management. The Group management makes regular visits to the subsidiaries that are subject to financial follow-up.
INFORMATION AND COMMUNICATION AND FOLLOW-UP
The internal information and external communication are regulated at an overall level, among other things, by an information policy. There are up-todate governing documents and instructions available on the Group’s intranet. The Board of Directors receives comments from the Managing Director concerning the state of the business and the development of the operations on a monthly basis. The Board of Directors also deals with all quarterly financial statements, as well as the annual report prior to their publication. The financial situation is discussed at each meeting of the Board. The members of the Board are then given an opportunity to ask questions to the Company’s management.The Company’s auditors take part in the Board’s meeting twice a year and inform the Board about their observations of the Company’s internal procedures and control systems. The members of the Board are then given an opportunity to ask questions. Every year, the Board takes a position on significant risk areas and assesses the internal control. Furthermore, OEM’s management continuously assesses the internal control regarding financial reporting, above all, through own analysis, by asking questions and taking part in the work of the control function.
The Company and the Group have a relatively simple legal and operating structure and working steering and internal control systems. The Board continuously follows up the different Group companies’ assessments of internal control, among other things, through contacts with the Company’s auditors. Against the backdrop of this, the Board has chosen not to have a special internal revision.