Norwegian code of practice for (provisional) CORPORATE GOVERNANCE

Transcription

1 Norwegian code of practice for (provisional) CORPORATE GOVERNANCE produced by a working group appointed by Norwegian Shareholders Association Institutional Investor Forum Norwegian Financial Services Association Norwegian Society of Financial Analysts Confederation of Norwegian Business and Industry Association of Norwegian Pension Funds Oslo Børs Norwegian Mutual Fund Association 11 December

2 Foreword This document presents a provisional Norwegian code of practice for corporate governance. The code of practice has been prepared by a working group representing: Norwegian Shareholders Association (Knut Traaseth) Institutional Investor Forum 1 (Arild Orgland) Norwegian Financial Services Association 2 (Stein Sjølie) Norwegian Society of Financial Analysts (Ludvik Sandnes) Confederation of Norwegian Business and Industry 2 (Ingebjørg Harto) Association of Norwegian Pension Funds (Håkon Persen) Oslo Børs (Catharina Hellerud) Norwegian Mutual Fund Association (Lasse Ruud). The working group appointed Harald Elgaaen (independent adviser) as the group s co-ordinator. Cecilie Ask, a solicitor at the law firm Arntzen de Besche, assisted the group by reviewing the code of practice in relation to current legislation. The working group wishes to encourage a wide discussion of the provisional code, and particularly asks that members of the boards of listed companies give the code careful consideration. Any comments from companies or other interested parties should be sent to Oslo Børs, attn. Henning Dokset (henning.dokset@oslobors.no), no later than 30 May The working group hopes to publish a final version of the Norwegian code of practice no later than 30 October While the code of practice presented here is provisional, companies are nonetheless encouraged to implement its recommendations as soon as possible. It should be noted that the working group responsible for producing the provisional code of practice was appointed by a broad range of relevant institutions. The introduction of a Norwegian code of practice for corporate governance brings Norway into line with other European countries that either have, or are about to introduce, a national code of practice. The European Union has recommended that member states should establish their own national codes of practice based on their particular national considerations. It is intended that the use of a single Norwegian code of practice will replace other codes of practice and recommendations previously issued by various Norwegian organisations. The working group has based its deliberations on the existing recommendations previously issued by the Institutional Investor Forum, the Norwegian State, the 1 The members of the Institutional Investor Forum are Alfred Berg Industrifinans, Avanse Forvaltning, DnB Investor, Gjensidige NOR Spareforsikring, Folketrygdfondet, KLP, Nordea Fondene, Odin Forvaltning, Sparebank 1 Gruppen, the Ministry of Trade and Industry (Department of Ownership), Statoil Kapitalforvaltning, Storebrand, Vital Forsikring, 2 The Norwegian Financial Services Association and the Confederation of Norwegian Business and Industry also represent the Næringslivets Aksjemarkedsutvalg. These two organisations are members of the Næringslivets Aksjemarkedsutvalg together with the Federation of Norwegian Commercial and Service Enterprises and the Norwegian Shipowners Association. 2

3 Norwegian Mutual Fund Association, the Norwegian Society of Financial Analysts and the Næringslivets Aksjemarkedsutvalg. In addition the working group has considered a number of international reports and codes of practice, including the EU Commission s proposals (the Jaap Winter group s Report of November 2002 and the Commission s response to this report in May 2003), the OECD s Principles of Corporate Governance, the corporate governance policy issued by the Swedish Shareholders Association, the Nørby Commission (Denmark), the Combined Code (Great Britain) and the draft Dutch corporate governance code. The group has also had access through the Norwegian Institute of Public Accountants to the European auditors association Discussion paper on the financial reporting and auditing aspects of corporate governance. The situation in the USA differs quite considerably in many respects from Norway and Europe, but the group has reviewed the corporate governance rules that apply to companies listed on the New York Stock Exchange. Norwegian legislation already includes a number of rules on the exercise of good corporate governance. The code of practice is intended to supplement the existing provisions of Norwegian legislation, including the Public Limited Liability Companies Act, the Accounting Act and the Securities Trading Act as well as stock exchange legislation and regulations. The code of practice also incorporates, to some extent, the material content of the relevant legislation. In order to avoid unnecessary duplication of matters dealt with by legislation, the relevant provisions of statute and regulations are provided in footnotes to the code. The code of practice is intended to provided guidance rather than lay down detailed provisions, and it is therefore assumed that the code will provide the basis for more detailed provisions when put into practice at the company level. No specific measures are proposed to monitor how individual companies follow the code of practice. Companies will be expected to offer an explanation to shareholders and the market if they choose not to follow the code of practice. The question of monitoring is a theme which forms an obvious part of the broader discussion that it is hoped will follow the publication of this provisional code of practice. Contents Introduction 1. Code of practice on corporate governance 2. Business activities 3. Equal treatment 4. Freely negotiable shares 5. Equity capital 6. Dividends 7. General meetings 8. Corporate assembly and board of directors: composition and independence 9. Nomination committee 10. The work of the board of directors 11. Remuneration of the board 12. Remuneration of senior employees 13. Information and communications 14. Take-overs 15. Auditor 3

4 Introduction This code of practice is intended to contribute to maximising value creation by companies in the best interests of shareholders, employees and other stakeholders as well as the broader interests of society as a whole. Listed companies manage a significant proportion of the country s assets and generate a major part of value creation. It is therefore in the interests of society as a whole that companies are directed and controlled in an appropriate and satisfactory manner. The introduction of the code of practice will help to strengthen confidence in Norwegian companies and the Norwegian stock market. Such confidence is crucial for the continuing supply of risk capital to the Norwegian corporate sector. Listed Norwegian companies also depend on foreign investors for share capital. There is considerable international competition to attract the interest of such investors, and it is therefore essential that Norwegian companies and the Norwegian stock market as a whole should be seen as attractive in relation to the investment opportunities offered in other countries stock markets. It is also essential for a company and its owners that the company enjoys a good relationship with society as a whole, and particularly with the stakeholder groups that are affected by its business. Companies should therefore pay careful attention to establishing guidelines for their activities that take into account these issues. This code of practice is principally intended for companies whose shares are listed on a stock exchange or authorised marketplace in Norway. The code also applies to savings banks with listed primary capital certificates to the extent that it is appropriate. 3 Unlisted companies with broadly held ownership whose shares are the subject of regular trading might also find the code of practice appropriate for their circumstances. 3 The code of practice also applies to foreign companies with a primary listing on a Norwegian stock exchange or authorised marketplace to the extent that the provisions of the code do not conflict with the legislation of the company s national jurisdiction. It is assumed that foreign companies with a secondary listing on a Norwegian stock exchange or authorised marketplace will adhere to the guidelines for corporate governance that apply to the stock exchange or authorised marketplace on which the company maintains its primary listing. Such companies should in any case provide information in the annual report on the guidelines that apply. If there are no such guidelines, or if the company does not follow its national guidelines, the provisions of this code of practice will apply to the extent that it does not conflict with the legislation of the company s national jurisdiction. 4

5 1 CODE OF PRACTICE ON CORPORATE GOVERNANCE The company should have a code of practice on corporate governance, and this code of practice should be in accordance with the recommendations contained herein. 4 The company should identify its basic corporate values and formulate ethical guidelines in accordance with these values. The board should provide an account in the company s annual report 5 on how the company adheres to this code of practice. If the company follows a policy on corporate governance that differs materially from the recommendations of this code of practice, the annual report should provide an explanation of the reasons for this. 2 BUSINESS ACTIVITIES The company s business activities should be clearly defined in its articles of association. 6 The business objective clause in the company s articles of association should clearly delineate and specify the scope of the company s activities in greater detail than the minimum required by the Public Limited Liability Companies Act. This will give shareholders a clear frame of reference for the exercise of their influence on the company s overriding strategy and areas of activity. The company s articles of association should be included in the annual report. 3 EQUAL TREATMENT All shareholders should be treated equally. 7 The company should only have one class of shares. If the company currently operates with more than one class of shares it should seek to move to a single class of shares. If 4 This code of practice for corporate governance applies in addition to any other guidelines for the company s activities, cf. the Public Limited Liability Companies Act (Allmennaksjeloven - Asal. ) 6-12 and any formal instructions for executive management, cf. Asal The code recommends that a number of matters are included in the annual report. Companies will be free to decide whether to include this information in the annual accounts and notes to the accounts, the directors report or as a separate section elsewhere in the published annual report and accounts. 6 The company s business activities and the scope of the board s authority are subject to the business objective specified in its articles of association, cf. Asal All a company s shares carry equal rights unless the articles of association stipulate that there are different types of shares (several classes of shares), cf. Asal The principle of equal rights is also reflected in Asal on the pre-emption rights of shareholders and the restriction in 5-21 on a general meeting adopting any resolution which may give certain shareholders or other parties an unreasonable advantage at the expense of other shareholders or the company. See also the requirement in 23-8 of the Stock Exchange Regulations ( Børsforskriften ) that an issuer must not expose holders of its financial instruments to differential treatment that lacks a factual basis in the issuer s and the holders common interest. 5

6 the company does operate with A shares that convey voting rights and B shares with no voting rights, it is particularly important that the holders of A shares strive to protect the commercial interests and rights of all the company s shareholders. When carrying out transactions to increase its share capital, the company should take a cautious approach to making any exemption to the principle that all existing shareholders should also be entitled to subscribe for shares. Out of consideration for the principles of equal treatment and transparency, transactions the company carries out in its own shares 8 should take place either through the stock exchange or at the price quoted on the stock exchange. If there is little or no liquidity in the market for the company s shares, particular care should be taken to ensure that the requirement for equal treatment is fully satisfied. Particular care should be taken when transactions are carried out between companies in the same group 9 where any of the companies involved have minority shareholders This is also the case for transactions between the company and any party in which a commercial interest is held by any shareholders in the company 10, members of the board of directors, members of management or their close associates. Where such transactions are on a material scale, an independent third party should be engaged to evaluate the values involved. 4 FREELY NEGOTIABLE SHARES Shares in listed companies should be freely negotiable. 11 The company s articles of association should not impose any restrictions on the negotiability of the company s shares such as requirements for board approval, rules on share ownership or similar restrictions. Where any such restrictions do exist, this must be made clear in the company s annual report. 8 When a company carries out transactions in its own shares it must pay due attention to the rules on duty of disclosure, cf. the Stock Exchange Act ( Børsloven ) 5-7, cf. Børsforskriften 5-2, first paragraph, on the requirement for equal treatment of all shareholders, cf. Børsforskriften 23-8, on the prohibition of misuse of insider information, cf. Securities Trading Act (Verdipapirhandelloven - Vphl ) 2-1 on the prohibition of unreasonable business methods and of price manipulation, cf. Vphl 2-6 on notification requirements, cf. Vphl 3-1. See also Oslo Børs Circular No. 2/99 on transactions in own shares. 9 Asal. 3-9 stipulates that transactions between companies in the same group must be based on standard business terms and principles. 10 Asal. 3-8 stipulates that any agreement on the acquisition of assets, services or contributions from a shareholder (or a shareholder s close associate) in return for consideration from the company which involves more than 1/20 of the share capital must be approved by the general meeting. The board of directors must ensure that an account of the acquisition is prepared pursuant to the rules set out in Asal Shares may change owners by transfer or in some other way unless otherwise provided for by law, the company s articles of association or an agreement between the shareholders, cf. Asal If the articles of association contain provisions on a requirement for consent to a change of ownership or preemption rights for other shareholders, change of ownership is subject to the rules set out in Asal to Shares quoted on a stock exchange shall in principle be freely transferable, cf. Børsforskriften 2-4. If the company has been given a discretionary right to bar a share acquisition or to impose other trading restrictions, such right may only be exercised if there is sufficient cause to bar the acquisition or to impose other trading restrictions and such imposition does not cause disturbances in the market. 6

7 5 EQUITY CAPITAL The company should retain equity capital at a level appropriate to its objectives, strategy and risk profile. 12 If the company s equity capital becomes greater than is considered necessary for its business activities, surplus capital should be distributed to shareholders unless there are particular reasons to retain the higher level of equity capital. Mandates for the issue of new shares should be restricted to issues carried out for a defined purpose, and mandates should only be valid for the period to the company s next annual general meeting. This should also be the case for mandates for the company to buy back its own shares. 6 DIVIDENDS The board of directors should have a clear and consistent dividend policy that provides the basis for the proposals on dividend payments considered by the annual general meeting. 13 The annual report should contain a statement on the company s dividend policy. 7 GENERAL MEETINGS The board of directors should take steps to ensure that as many shareholders as possible participate in general meetings of the company. 14 The resolutions and supporting information circulated to shareholders prior to a general meeting should be sufficiently detailed and comprehensive to allow shareholders to form a view on all matters to be considered at the meeting. 12 Asal. 3-4 and 3-5 include provisions for companies to maintain a sound level of equity and to take appropriate action if their equity is lost. 13 Asal. 8-1 stipulates what may be distributed as dividend. The general meeting cannot adopt a resolution to distribute a higher amount of dividend than that recommended or approved by the board of directors, cf. Asal A shareholder is only entitled to exercise shareholder rights to attend a general meeting if the shareholding is registered in the register of shareholders or has been reported to the company and documented without this being prevented by any provisions in the articles of association on consent or pre-emption rights in respect of change of ownership, cf. Asal. 4-2, cf. 5-2 on participation through a proxy. Written and dated powers of attorney can be delivered by electronic means of communication if a satisfactory method is used to authenticate the sender. The notice convening a general meeting must be sent no later than two weeks before the meeting is to be held, unless the articles of association stipulate a longer deadline, cf. Asal The articles of association may stipulate that shareholders wishing to attend a general meeting must give the company prior notice thereof subject to a deadline that may not be set earlier than five days prior to the meeting, cf. Asal

8 Where shareholders are required to give advance notice of their intention to attend a general meeting, the deadline for such an advance notice should be as close to the date of the meeting as is practically possible. The board should take steps to ensure that shareholders unable to attend a meeting are able to cast their votes by appointing a proxy. The resolutions and supporting information for annual general meetings should be distributed to shareholders no later than two weeks before the date of the annual general meeting CORPORATE ASSEMBLY AND BOARD OF DIRECTORS: COMPOSITION AND INDEPENDENCE Criteria for the composition of the corporate assembly and board of directors should be laid down by the general meeting. The composition of the corporate assembly and board of directors should be determined with a view to ensuring broad representation for the company s shareholders. 16 The members of the board of directors should be selected in the light of an evaluation of the company s needs for expertise, capacity and balanced decision making. The composition of the board should be such that it can operate independently of any special interests. Elections to the board of directors should pay particular attention to ensuring that the board is capable of independently evaluating the company s activities and the conduct of its management. Attention should be paid to ensuring that the board can function effectively as a collegiate body. At least half of the members elected to the board by shareholders should be independent of the company s executive management and its main business connections. The company should produce an operational definition of independence and ensure full disclosure of any matters that might cast doubt on the independence of any 15 The notice convening the general meeting must state the business to be transacted at the meeting. Any proposed amendments to the articles of association must be reproduced in the notice, cf. Asal If the company has a corporate assembly, the corporate assembly is responsible for electing the members of the board of directors, cf. Asal Employees have the right to elect members to the board of directors pursuant to Asal At least half the members of the board of directors must be citizens of countries which are parties to the EEA agreement unless an exemption is granted by the Ministry, cf. Asal Members of the board of directors shall serve for a term of two years unless otherwise specified by the articles of association, cf. Asal In certain types of institution the corporate assembly is replaced by a board of representatives, cf. for example the Commercial Banking Act ( Forretningsbankloven ) 11 or the Insurance Activities Act ( Forsikringsvirksomhetsloven ) 5-4. In many respects the board of representatives performs the same role as the corporate assembly in other joint stock companies, especially in the election of members of the board of directors. 8

9 member of the board. Factors that are likely to ensure greater independence for members of the board may include ensuring that individual members: o Do not receive any remuneration from the company other than their regular fees as board members. o Have not been employed by the company in the recent past. o Are not entitled to any fees as a board member that are dependent on the company s performance. (This should also apply to other forms of remuneration such as options over shares in the company). o Do not have any cross-relationships with other members of the board or the company s chief executive. o Are not family relatives of the chief executive. o Do not have, or represent, material business relationships with the company. At least two of the members of the board elected by shareholders should be independent of the company s main shareholder(s). 17 The annual report should provide information to illustrate the expertise of the members of the board and identify which members are considered independent. The chief executive should only be a member of the board 18 if there are special reasons for this, and the work of the board should recognise the consequences of this for its working procedures. This should include making greater use of board committees to help ensure a more independent preparation of matters to be considered by the board, cf. Section 10. The term of office for members of the board should not be longer than two years NOMINATION COMMITTEE The company should have a nomination committee. The nomination committee should be elected by the general meeting. The nomination committee s duties should be to propose candidates for election to the corporate assembly and the board of directors and to propose the fees to be paid to members of these bodies. 17 Pursuant to Oslo Børs Circular No. 5/2001, at least 50% of the shareholder elected members of the board of companies newly admitted to listing on Oslo Børs must be independent of the company s management and its main business connections. This Circular also requires that at least two of the members of the board must be independent of the company s main shareholder(s). For this purpose a main shareholder is a shareholder that directly or indirectly owns 10% or more of the shares or votes in the company. 18 The chief executive cannot be elected as chairman of the board of directors, cf. Asal 6-1. However for certain types of institution it is a legal requirement that the chief executive is a member of the board of directors, cf. for example Forretningsbankloven Members of the board of directors shall serve for a term of two years, cf. Asal 6-6. The period of office may be fixed for a shorter or longer term in the articles association, but not for a term of more than four years. 9

10 The nomination committee should be part of the company s articles of association. 20 The members of the nomination committee should be selected to ensure broad representation of shareholder interests, as well as recognising the need for the committee to be independent of the executive management and the candidates for election. At least one member of the nomination committee should not be a member of either the corporate assembly or the board. Remuneration of the members of the nomination committee should be determined by the general meeting, taking into account the duties involved, the expertise represented by its members and the time they commit to the work of the committee. The general meeting should formally approve guidelines for the work of the nomination committee, including matters such as its contacts with different shareholder groups, members of the corporate assembly and board and with the executive management. The nomination committee should be responsible for considering the board s report on its own performance (see Section 10 on the work of the board). The nomination committee should circulate its recommendations no later than two weeks before an election is due to take place, cf. Section 7. The committee s recommendations should include information on the candidates in relation to the criteria laid down by the general meeting, cf. Section THE WORK OF THE BOARD OF DIRECTORS The board of directors should produce an annual plan for its work, with particular emphasis on objectives, strategy and implementation. 21 The board should ensure that the company has good management, and that the internal allocation of responsibility and duties is clearly defined. 22 The work of the board and executive management should be subject to formal instructions. The board is responsible for establishing a system of direction and control to ensure that the company s activities are conducted in accordance with its corporate values and ethical guidelines. The annual report should provide details of any board committees appointed Asal. does not regulate nomination committees, and the nomination committee is therefore a voluntary corporate body. However financial institutions are subject to specific rules on nomination committees. 21 Rules on the board of directors responsibility for the management of the company and its responsibility for supervising the company s activities are set out in Asal and Asal requires that in companies in which the employees are represented on the board of directors, the board of directors must adopt rules of procedure which lay down rules on the work and administrative procedures of the board of directors. 22 The board of directors shall ensure that the company s business activities are soundly organised and that its activities, accounts and asset management are subject to adequate control, cf. Asal The board of directors is a collegiate body that reaches decisions subject to the rules set out in Asal and subsequent. 10

11 The board should evaluate its performance and expertise annually, and provide a report to the nomination committee on the conclusions of this evaluation. The instructions for the board of directors should include stipulations in respect of the preparation of papers for the board, duty of confidentiality considerations, guidelines for contact between members of the board and shareholders other than through the general meeting and evaluation of the board s performance. The instructions should also include a requirement that members of the board must give notice of any conflict of interest, and detail the board s procedures for dealing with such conflicts of interest. 24 The instructions for the board and the annual plan for the work of the board should be routinely reviewed and updated in the light of the company s circumstances. Instructions for the day-to-day management of the company should address the division of responsibility between the board and the chief executive and provide a more detailed statement of the duties, responsibilities and delegated authorities of the chief executive pursuant to the rules laid down for the company s activities. 25 The chairman of the board carries a particular responsibility for ensuring that the board functions in the best possible way in order that it carries out its duties in a satisfactory manner. 26 A deputy chairman should be elected who can take on this responsibility in the absence of the chairman. The deputy chairman must also take charge of the board s consideration of any matters where the chairman has a direct involvement, such as negotiations on mergers, acquisitions etc. In order to help ensure independent preparation 27 of matters relating to auditing and compensation, the board should consider appointing board committees. These committees should comprise only members of the board. The members of such committees who are not members of the board elected by employees must be members of the board who are independent of the company s management. Particular attention should be paid to ensuring that material information that comes to the attention of board committees should also be communicated to the other members of the full board. If the chief executive is a member of the board, an audit committee and a compensation committee must be established, cf. Section Asal sets out rules on excluding members of the board from discussion and decision on issues in which they have a personal interest. The board of directors must not take any action which may confer on certain shareholders or other parties an unfair advantage at the expense of other shareholders or the company, cf. Asal Asal provides that the board of directors may lay down instructions for the day-to-day management of the company. Day-to-day management does not cover matters which, in relation to the company s affairs, are of an extraordinary nature or of major importance, cf. Asal The chief executive must make a statement on the company s activities, position and profit/loss development to the board of directors at a meeting or in writing at least once a month, cf. Asal The chief executive prepares matters which are to be discussed with the board of directors in consultation with the chairman of the board, cf. Asal Asal provides that the chief executive prepares matters which are to be discussed with the board of directors in consultation with the chairman of the board. 27 Asal and 6-23 set out rules on the preparation of matters for the board and rules of procedure for the board. 11

12 The board should take care to ensure that the company has the expertise it requires, and should establish an appropriate remuneration policy to reflect this. 11 REMUNERATION OF THE BOARD The remuneration of the board should reflect the board s responsibility, expertise, time commitment and the complexity of the company s activities. 28 Board remuneration should not be linked to the company s earnings performance. Members of the board and/or companies with which they are associated should not normally take on specific assignments for the company in addition to the appointment as a member of the board. If they do nonetheless take on such assignments this must be disclosed to the full board. Information on such assignments and the fees paid must be included in the annual report. 29 As a general principle, all the members of the board should receive the same remuneration except for the chairman who will normally receive a higher fee to reflect a greater time commitment. It may be appropriate to pay additional remuneration to members of the board who are members of committees appointed by the board to reflect the additional work this represents. In exceptional circumstances differential remuneration may be appropriate if this is entirely necessary in order to attract members possessed of particular expertise that is of great importance to the company. As a general principle, the company should not grant share options to members of the board since this will weaken the board s independence. If options are nonetheless granted to members of the board, the guidelines for options set out in Section 12 on the remuneration of senior employees must be applied. Members of the board should be encouraged to own shares in the company. Consideration should be given to paying part of the board remuneration in the form of shares in the company. 28 Remuneration of the members of the board of directors is decided by the general meeting (or the corporate assembly where appropriate), cf. Asal Remuneration of the members of the board of directors for work related to their appointment is decided by the general meeting, cf. Asal Members of the board of directors must not receive any remuneration from parties other than the company in connection with their work for the company, cf. Asal Information on the remuneration of members of the board must be provided in the notes to the annual accounts, cf. the Accounting Act ( Regnskapsloven ) 7-31 and 7-32 as well as in any prospectus produced in respect of a public offer to subscribe for or purchase negotiable securities, cf. Børsforskriften 15-2 item

13 12 REMUNERATION OF SENIOR EMPLOYEES The board should establish guidelines for the remuneration of senior employees. 30 These guidelines should be included in the annual report. Salary and other remuneration of the chief executive should be approved at a meeting of the board. The board should be informed of the salary and remuneration of other senior employees. Both the amount and structure of such remuneration should be designed to promote value creation by the company and contribute to shareholders and senior employees sharing a common interest. Share option agreements and other agreements on entitlement to shares should be approved in advance by the general meeting. The annual report should provide details of all elements of the chief executive s remuneration, together with composite figures for the remuneration of other senior employees. 31 Remuneration of senior employees should not be of such character or extent as may damage the company s reputation. If the chief executive and senior employees are entitled to variable remuneration in the form of bonus schemes etc., this should be linked to the value created for the company and shareholders over time. Remuneration should not be such as might encourage a short-term approach that could be damaging to the company s long-term interests. The criteria on which bonuses are awarded should not include factors that may have a material effect on the company s earnings but which are not influenced to any great extent by the actions of the recipients of the bonuses. Any proposal to award share options should include details of allocation criteria, the actual value of the option agreements, any accounting consequences for the company and the potential share dilution effect. Great care should be taken when awarding options or similar benefits to senior employees. Any share option program should contribute to creating a long-term common interest between senior employees and the company s shareholders, and the amounts involved should be in reasonable relation to the individuals fixed remuneration. 30 The Ministry of Justice has proposed in a discussion paper dated that the board should produce guidelines for fixing the salary and other benefits of the chief executive and other senior employees. The proposal envisages that such guidelines would require approval by the general meeting. 31 The chief executive is appointed by the board of directors and the board of directors determines his or her remuneration, cf. Asal The remuneration of the chief executive must be reported in the notes to the annual accounts, cf. Regnskapsloven 7-31 and 7-32, and also in any prospectus produced for a public invitation to subscribe for or purchase negotiable securities, cf. Børsforskriften 15-2, item

14 Any share option agreements should be combined with direct ownership of the underlying shares in order to make the interests of members of management more symmetrical with those of the company s other shareholders. The dates of issue and exercise of options should be spaced out over time, and any shares acquired through the exercise of options should be subject to a minimum period of ownership. The annual report should provide details of the chief executive s salary, employment benefits, bonus entitlement, option agreements, pension entitlement and any agreements for compensation on termination of employment. The account provided should set out the long-term cost implications for the company of the chief executive s total remuneration package. Similar information should be given for the total remuneration of other senior employees. The discounted current value of pension rights (including the assumptions on which the calculations are based) should be given for the chief executive alone and as a composite figure for other senior employees. If any particular events will trigger changes to pension rights or other benefits, the value of such changed entitlements should be disclosed. The criteria for the payment of any compensation on termination should also be disclosed. 13 INFORMATION AND COMMUNICATIONS The board should establish a policy on information based on openness and equal treatment of all shareholders. The information policy should ensure that the company s shareholders receive accurate, clear, relevant and timely information. 32 The company should have a contingency plan for information management in response to events of a particular character or of interest to the media. Provision should be made for dialogue between the board and shareholders. 33 The routine publication of information by the company should contribute to ensuring that shareholders and other investors are in a position to make well-founded decisions on the purchase and sale of shares in the company and thereby promote fair pricing of the company s share. The company should provide information on its major value drivers and risk factors. The board should have a policy on who is entitled to speak on behalf of the company on various subjects. Shareholders should receive an annual financial calendar setting out the dates for major events such as the annual general meeting, publication of interim reports, 32 See Børsforskriften Chapter 5, particularly 5-2 on the content of the information requirement and 5-4 on profit warnings. Oslo Børs Circular No. 4/2003 sets out guidelines for the management of information on companies future prospects. The Norwegian Society of Financial Analysts has issued recommended guidelines for additional information on value creation, dated November Representatives of listed companies must not pass information that is likely to affect the price of the company s shares to any unauthorised person, cf. Vphl 2-2. Further provisions are included on the management of such insider information. 14

15 payment of any dividend, etc. Annual reports and presentations to investors should be made available over the internet. When publishing annual and interim reports the company should hold open presentations that are simultaneously broadcast over the internet. Information on the company should also be available to shareholders in English where this is appropriate in view of the composition of the company s shareholders. The board should be aware of matters of particular concern to shareholders. The board should therefore make it possible for shareholders to communicate their views both at general meetings and otherwise. 14 TAKE-OVERS The board should not seek to hinder or obstruct take-over bids for the company s activities or shares unless there are particular reasons for this. In the event of any possible take-over or restructuring situation the board must take particular care to protect shareholder value and the interests of all shareholders. Any transaction that is in effect a disposal of the company s activities should be put before a general meeting. 34 In the event of a take-over bid for the company s shares, the company s board should not exercise mandates or pass any resolutions that obstruct the take-over bid unless this is approved by the general meeting following announcement of the bid OECD Principles of Corporate Governance 1999, I B, state that shareholders have this right. 35 The obligation to make a mandatory offer applies to any party that through acquisition becomes the owner of shares representing more than 40% of the voting rights in a Norwegian company whose shares are quoted on a Norwegian stock exchange, cf. Vphl 4-1. A number of the provisions in Vphl Chapter 4, including the duty to produce an offer document, also apply to voluntary offers, i.e. offers that will give rise to the obligation to make a mandatory offer pursuant to 4-1 if the offer is accepted by the parties to whom it is made, cf. Vphl When any offer is made pursuant to Vphl. Chapter 4, the board is required to issue a statement on the offer, cf. Vphl This applies to both voluntary and mandatory offers. In the case of a mandatory offer, the company s freedom of action is restricted during the offer period, cf. Vphl

16 15 AUDITOR 36 The auditor should submit the main features of the plan for the audit of the company to the board annually. The board should receive annual written confirmation from the auditor that the requirements for independence and objectivity have been satisfied. 37 The auditor should participate in any meetings of the board that deal with the annual report and accounts. In addition the board should hold at least one other meeting a year at which the auditor is present in order to consider a report from the auditor expressing his or her opinion on the company s accounting principles, areas of risk, internal control procedures etc. 38 The board should establish guidelines in respect of the company s use of the auditor for consultancy services, including rules on who in the company is permitted to enter into agreements on such consultancy assignments. 39 The board must report the remuneration paid to the auditor at the annual general meeting, including details of the fee paid for statutory audit work and any fees paid for other specific assignments. 40 When considering the auditor s proposed plan for the audit of the company the board should pay particular attention to evaluating whether the auditor exercises a satisfactory control function to a sufficient degree. The board should make arrangements for the auditor to participate in all general meetings. 36 The auditor is elected by the general meeting, cf. Asal The auditor elected shall serve until another auditor has been elected, cf. Asal The auditor must attend the general meeting if the business which is to be transacted is of such a nature that his or her attendance must be regarded as necessary, cf. Asal The auditor is, in any case, entitled to participate in the general meeting, cf. Asal The Auditing and Auditors Act ( Revisorloven ), Chapter 4, sets out requirements for the independence and objectivity of the auditor. 38 Auditors are required to identify any errors or shortcomings in respect of the company s accounting and the management of its assets by means of an itemised letter addressed to the company s management (in the case of a joint stock company this will normally be the board of directors), cf. Revisorloven The Norwegian Banking, Insurance and Securities Commission ( Kredittilsynet ) has issued guidelines for auditors provision of advisory services to audit clients, cf. Circular No. 23/ The remuneration paid to the auditor must be approved by the general meeting, cf. Asal Regnskapsloven 7-31 requires that the notes to the annual accounts provide information on the remuneration paid to the auditor and a breakdown of this remuneration between the audit fee and fees for other services. 16