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 Interna¬tional has noted deviations from the rules of the Code concerning the Nomination Committee and the number of board members in the Audit Committee. The deviations are explained in detail below under the headings Nomination Committee and Audit Committee.
AREAS 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 regula¬tions, 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 2,457 shareholders at the end of 2011. The ten largest sharehold¬ers controlled 70% of the share capital and 90% 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 11.5%.
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 Meet¬ings called for other purposes shall be given no later than three weeks prior to the Meeting. Notification of the Annual General Meeting shall be through advertising in the “Post- och Inrikes Tidningar” newspaper as well as on the company’s website. The occurrence of the notifica¬tion shall be advertised 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 a cash or set-off issue. The current Articles of Association were adopted at the 2011 Annual General Meeting and can be viewed on the company’s website, www.oem.se (see under The company/Corporate governance/Corporate govern¬ance report).
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 municipal¬ity 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 the Annual General Meeting are available for view¬ing on the company’s website, www.oem.se (see under The company/Corporate governance/Corporate governance report).
Shareholders who represented 58.1% of the share capital and 85.3% of the voting rights took part in the 2011 Annual General Meeting held on 03.05.11. Lars-Åke Rydh was appointed to chair 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, com¬mented on the Group’s operations, the 2010 financial year and de¬velopments during the first quarter of 2011 and gave his assessment of the prospects and outlook for the Group in the future. The auditor submitted the Auditors’ Report and an oral account of the work during the year.
The 2011 Annual General Meeting decided:
• to adopt a dividend of SEK 3.00 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 Nomi¬nation 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 Interna¬tional AB should put into practice remuneration for senior execu¬tives 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 compa¬ny’s management shall have market-level defined contribution pen¬ sion terms that amount at most to the Alecta ITP 1 arrangement.
• to be allowed to issue up to 1,800,000 new Class B shares in con¬nection with business combinations, in line with the proposal of the Board of Directors.
• to adopt the proposal of the Board of Directors to repurchase not more than 10% of the Company’s shares.
• to change § 9 in the Articles of Association as follows:
– notice of annual general meetings and extraordinary general meetings convened for the purpose of amending Articles of As¬sociation must be issued between six and four weeks before the meeting. Notice to attend Extraordinary General Meetings called for other purposes shall be given no later than three weeks prior to the Meeting.
– notice of an annual general meeting shall be published in the “Post- och Inrikes Tidningar” newspaper and on the company’s website. The occurrence of the notification shall be advertised in Svenska Dagbladet.
The 2012 Annual General Meeting will be held on 26.04.12 in Tranås.
At the Annual General Meeting held on 3 May, 2011, it was decided that the Nomination Committee shall consist of one representative from each one of no less than three and no more than four of the company’s largest shareholders and the Chairman of the Board, un¬less this person is a member in his capacity as owner representative. If a shareholder does not exercise their 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 shall be published at least six months before the 2012 Annual General Meeting and shall be based on the known number of votes immediately before publica¬tion. The Nomination Committee’s term will run until such time that a new Nomination Committee has been appointed. The Chairman of the Nomination Committee shall be the Chairman of the Board.
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 to the Nomination Committee will be entitled to relieve such mem¬bers 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 Nomi¬nation Committee are to be announced as soon as they have been made. The composition of the Nomination Committee was published with the interim report on 24 October 2011. The composition of the Nomination Committee is available for viewing on OEM’s website, www.oem.se (see under The company/Corporate governance/Nomina¬tion Committee).
The Nomination Committee shall prepare proposals for the follow¬ing issues and present them for adoption to the 2012 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
• proposal for auditors’ fees
• proposal for decisions concerning the Nomination Committee
The Nomination Committee shall discharge its duties as required by the Swedish Code of Corporate Governance and may, if necessary, take independent professional advice at the company’s expense in the furtherance of its work.
The Nomination Committee prior to the 2012 Annual General Meet¬ing 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 acquaint¬ed 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 of 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.
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 2011 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 Still¬ström and Agne Svenberg. The members of the Board are presented on page 55 and on the company’s website (see under The company/The Board). 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. The mandates the Members of the Board are presented on page 55.
CHAIRMAN OF THE BOARD
It is the duty of the Chairman of the Board, Lars-Åke Rydh, who was re-elected at the 2011 Annual General Meeting, to ensure that the work of the Board is conducted efficiently and that the Board dis¬charges its duties as required by the Swedish Companies Act, other legislation and regulations, rules applicable to companies listed on the stock exchange (including the Code) and the Board’s internal govern¬ing 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 consul¬tation with the Managing Director, to verify that the decisions of the Board are implemented and ensure that the work of the Board is as¬sessed annually. The Chairman of the Board represents the Company in ownership issues
DUTIES OF THE BOARD
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 by regularly reviewing operations during the year. It is responsible for purposefully structuring the organisation, and the procedures and guidelines for the management of the company’s business. It is also responsible for ensuring that there is a satisfactory system of 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 WORK OF THE BOARD
In accordance with the adopted rules of procedure, the Board of Di¬rectors holds at least five ordinary meetings per year plus an inaugural meeting after the Annual General Meeting and whenever called for by the situation.
The Board met nine times during 2011, including the inaugural meeting.
All Board Members have attended all Board meetings, with the excep¬tion of Jerker Löfgren and Ulf Barkman at one meeting, and Agne Sven¬berg at two meetings. 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 profit¬ability, 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. Following the resolutions of the 2011 Annual General Meeting, the Board members elected at the Meeting shall each be paid SEK 175,000 and the Chairman of the Board SEK 325,000, effective to the 2012 Annual General Meeting. Accordingly, the total amount of remuneration in accordance with the resolutions of the Meeting is SEK 1,200,000. Board members may be able to invoice the remuneration through their companies if current tax legislation allows for invoicing and provided the company will not incur any expense. If a Board member invoices the Board remunera¬tion via his/her company, the remuneration shall be augmented by an amount equivalent to the statutory social contributions and value added tax.
The chairperson of the Audit Committee will receive remuneration of SEK 25,000. 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 proposals for policies for senior executives’ remuneration” and the application of these. 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 Commit¬tee passes a resolution on the remuneration of other members of the Group management. The Board is informed of the decisions of the Remuneration Committee. Market-based salaries and other employ¬ment 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 58% of the basic pay. The amount of the variable remuneration is unchanged compared to 2010. 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. The remuneration level is the same as for 2010. All share-related incentive schemes are to be decided by the Annual General Meeting. At present, there are no simi¬lar incentive schemes. The term of notice must not exceed 24 months and shall also include the obligation to work during the term of notice.
The Remuneration Committee has met once 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 2012 Annual General Meeting. More information can be found on page 7 of the Annual Report.
During the year, the Board has had a special audit committee consist¬ing of Chairman Ulf Barkman and Lars-Åke Rydh. The members of the committee are independent in relation to the company, the company’s management and in relation to the company’s major shareholders.
The Audit Committee shall, without it affecting the Board’s responsibilities and duties otherwise, monitor the financial report¬ing of the company, monitor the efficiency of the company’s internal control and risk management relating to the financial reporting, keep itself informed about the audit of the Annual Report and consolidated financial statements, scrutinise and monitor the impartiality and independence of the auditor and pay particular attention if the auditor provides the company with services other than auditing services. The Audit Committee evaluates the audit work that has been carried out and informs the company’s Nomination Committee of the results of the evaluation and assists the Nomination Committee in preparing proposals for auditors and remuneration of the auditors’ work.
The Audit Committee has met three times, each time with an ex¬ternal auditor. In connection with the adoption of the annual financial statements by the Board during the Board meeting in February 2012, the Board and the Audit Committee were consulted by and received a report from the company’s external auditor. On this occasion, the Board was also consulted by the Auditor in the absence of the Manag¬ing Director or anyone else from the Company’s management. The auditors’ reports have not led to any specific measures by the Board or the Audit Committee.
The composition of the above Audit Committee deviates from the regulations of the Code in that the Audit Committee consists of two members instead of three. It is considered reasonable for a company of this size to have an Audit Committee comprising two members, as the Board also meets with the auditor on one occasion.
CEO AND OTHER CORPORATE MANAGEMENT
The Managing Director, Jörgen Zahlin, manages the operations in accordance with the Swedish Companies Act, other acts and regula¬tions, 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 informa¬tion and basis for decisions prior to the Board meetings, in consulta¬tion 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 manage¬ment during 2011 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. The CEO and the members of the Board are presented on page 56 and on the company’s website (see under The company/Group management).
As required by the Articles of Association, the company must have at least one auditor appointed by the Annual General Meeting and, if the auditor is not an auditing firm, it must also have a deputy auditor. The company’s auditors work according to an audit plan and report their observations to the company’s management, the Group manage¬ment, the Audit Committee and the 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 and February. A review is conducted in 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 7. 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 recom¬mendation 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 Par¬ent 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 company’s auditors meet with the Audit Committee three times a year and once a year with the Board. 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 Inter-national AB and the majority of the subsidiaries. Kjell Bidenä’s other clients include Byggnads AB Karlsson & Wingesjö.
INTERNAL CONTROL AND RISK MANAGEMENT REGARDING
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 presentation in order to ensure the quality of the reporting. This requirement means that the financial reporting must be fit for its pur¬pose and appropriate and apply the applicable accounting rules, acts and regulations and any other requirements placed on listed compa¬nies. 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 currency policy, a reporting manual for economic and financial reporting and instructions for 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 revenue recognition, such as inventories and trade receivables.
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 integrity, competence and ability to create the environment that is required to achieve transpar¬ent 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, 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-to-date governing documents and instructions avail¬able 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 attend Audit Committee meetings three times a year and Board meetings once a year and present their ob¬servations of the company’s internal procedures and control systems. The members of the Board are then given an opportunity to ask ques-tions. 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 con¬trol function.
The Company and the Group have a relatively simple legal and operat¬ing structure and working steering and internal control systems. The Board continuously follows up the different Group companies’ assess¬ments 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.