INTRODUCTION
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 under the headings Nomination Committee and Audit 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 instru-ments of the Board of Directors, the Swedish Code of Corporate Governance and other internal guidelines or regulations.
SHAREHOLDERS
OEM International AB is a public company and was listed on the Stockholm Stock Exchange in December 1983. OEM International AB had 2,350 shareholders at the end of 2012. The ten largest shareholders controlled 71% 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 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.
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 governance 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 municipality of Tranås, within six months of the end of the financial year. All share-holders 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 viewing on the company's website, www.oem.se (see under The company/Corporate governance/Corporate governance report).
Shareholders who represented 56.8% of the share capital and 77.3% of the voting rights took part in the Annual General Meeting. Lars-Åke Rydh was appointed to chair the Annual General Meeting. The Annual Report 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 2011, the development during the first quarter of 2012 and addressed the conditions facing the Group in the future.
The auditor submitted the Auditors' Report and a verbal account of the work during the year.
The 2012 Annual General Meeting decided:
• to adopt a dividend of SEK 3.50 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 shall be based on the market rate and the vari-able part shall be capped at 58% of base salary. Pension terms for the company's management shall be based on a standard market rate and will be capped at 30% of base salary.
• 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 a maximum of 10% of the Company's shares.
The 2013 Annual General Meeting will be held on 22 April 2013
in Tranås.
NOMINATION COMMITTEE
At the Annual General Meeting held on 26 April, 2012, 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 com-pany’s largest shareholders and the Chairman of the Board, unless he/she is a member as a shareholder 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 will be announced no later than six months before the 2013 Annual General Meeting and will be based on the known voting rights immediately prior to the announce-ment. 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 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 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 22 October, 2012. The composition of the Nomination Committee is available for viewing on OEM's website, www.oem.se (see under The company/Corporate governance/ Nomination Committee).
The Nomination Committee shall prepare proposals for the following issues and present them for adoption to the 2013 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 2013 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 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 considered reasonable for a company of this size to have a Nomination Committee that represents the largest shareholders and that some of these also serve 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 2012 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. 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 current duties of 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 2012 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 governing instruments. It is the Chairman's task to ensure that the Board continu-ously updates and deepens its knowledge about the Company and re-ceives 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, financial matters.
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 Report to the Annual General Meeting.
THE BOARD'S WORK
In accordance with the adopted rules of procedure, the Board of Direc-tors holds at least six ordinary meetings per year plus an inaugural meeting after the Annual General Meeting and whenever necessitated by the situation.
During 2012, 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 Jerker Löfgren and Agne Svenberg, who were absent 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 has covered a range of matters, including issues concerning the strategic development of the Group, operating activities, the trend in earnings and profits, business combina-tions, disposal of companies and properties, the organisation and the Group's financial position.
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. The 2012 Annual General Meeting approved the proposal that fees of SEK 325,000 be paid to the Chairman of the Board and SEK 175,000 to each of the Board members elected at the Meeting, for the period until the 2013 An-nual General Meeting. The total remuneration of Board members, in accordance with the approval of the Annual General Meeting, is thus SEK 1,200,000. Board members may be able to invoice the remu-neration 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 remuneration 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.
REMUNERATION COMMITTEE
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-level salaries and other employ-ment terms shall apply for the Group's executive team. In addition
to base salary, the Group's executive team may also receive variable remuneration, which is capped at 58% of base salary. The amount
of the variable remuneration is unchanged compared to 2011. Senior executives in the OEM Group are to have defined contribution pension schemes, based on the market rate and capped at 30% of base salary. The pension scheme level has increased by approximately 4% since 2011 as the arrangement for 2011 corresponded to an Alecta ITP 1 plan. All share-related incentive schemes are to be decided by the Annual General Meeting. At present, there are no similar incentive schemes. The period of notice may not exceed 24 months and involves the obligation to work during the period of notice.
The Remuneration Committee met once in the year to review and approve the above policy proposals.
Guidelines for the remuneration of senior executives will be proposed for adoption at the 2013 Annual General Meeting and are presented on page 7 of this report.
AUDIT COMMITTEE
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 convened on four occasions and has met with an external auditor on three of them. The Board and the Audit Committee have held a review meeting with and received a report from the company's external auditor in connection with the Board meeting in February 2013 at which the Board approved the annual financial statements. 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.
MANAGING DIRECTOR AND GROUP EXECUTIVE TEAM
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 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 leads the work of the Group's executive team and makes decisions in consultation with members of the Group's executive team. In 2012, OEM's executive team members were Jörgen Zahlin, 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 Managing Director and the Group's executive team are presented on page 56 of the Annual Report and on the company's website (see under The company/Group executive team).
AUDITORS
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 company management teams, the Group's executive team, 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 required to continually assess their independence before deciding whether to undertake an engagement to provide consulting services.
The shareholders are presented with an Auditors' Report and other statements, which constitute a recommendation to shareholders
on various matters for decision by the Annual General Meeting.
The Auditors' Report contains proposals concerning the approval
of the parent company's income statement and balance sheet and the Group's statement of comprehensive income and statement of financial position, appropriation of the parent company's profit and discharge from liability for the members of the Board and the CEO.
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.
At the 2012 Annual General Meeting, KPMG AB was re-appointed as auditors of the company until the conclusion of the 2013 Annual General Meeting. Chartered Accountant Kjell Bidenäs has been the principal auditor since the 2009 Annual General Meeting. KPMG performs the audit in OEM International AB and the majority of the subsidiaries. Kjell Bidenäs' other clients include Byggnads AB Karlsson & Wingesjö, Väderstad-Verken AB and Freudenberg Household Products AB.
INTERNAL CONTROL AND RISK MANAGEMENT REGARDING FINANCIAL REPORTING FOR THE 2012 FINANCIAL YEAR
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.
CONTROL ENVIRONMENT
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 in-clude 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.
RISK ASSESSMENT
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.
CONTROL ACTIVITIES
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 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-to-date 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 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 system with regard to financial reporting by conducting its own analyses, asking questions and examining the work of the controllers.
INTERNAL AUDIT
The Company and the Group have a relatively simple legal and operat-ing structure and clearly-defined 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.
