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 “comply or explain” rule, which means that non-compliance with a term of the Code is not a breach provided there is an acceptable reason that can be explained. OEM International has noted deviations from the rules of the Code concerning the Nomination Committee and the number of board members in the Audit Committee. These 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 legislation and regulations, the rules applicable to companies listed on the stock exchange, the Articles of Association of the company, the internal governing instruments of the Board of Directors, the Swedish Code of Corporate Governance and other internal guidelines and regulations.
Shareholders
OEM International AB is a public company and was listed on the Stockholm Stock Exchange in December 1983. OEM International AB had 2,462 shareholders at the end of 2014. The ten largest shareholders controlled 75% of the share capital and 91% 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 10.0%.
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 of annual general meetings and extraordinary general meetings convened for the purpose of amending Articles of Association must be issued between six and four weeks before the meeting. Notice of extraordinary general meetings convened for other purposes shall be issued 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. It must be announced in Svenska Dagbladet that notice has been issued.
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/Articles of Association).
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 Income for the Group, 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 business
in accordance with the Swedish Companies Act and the Articles of Association of the Company. The Annual General Meeting is to be held in the municipality of Tranås within six months of the end of the financial year. All shareholders entered in the share register prior to the meeting who have registered their participation are entitled to participate and vote for their total shareholding.
In order to be able to exercise their voting rights at the Annual General Meeting, shareholders who have registered their shares in the name of an authorised agent must temporarily re-register their shares in their own name in accordance with what follows from the notice to the Annual General Meeting. Shareholders can be represented by agents. Minutes of the Annual General Meeting are available for viewing on the company’s website, www.oem.se (see under The Company/Corporate Governance/Annual General Meeting).
Shareholders who represented 61.4% of the share capital and 86.4% of the voting rights took part in the 2014 Annual General Meeting held on 29 April 2014. 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 2013 financial year and developments during the first quarter of 2014 and gave his assessment of the future prospects and outlook for the Group. The auditor submitted the Auditors’ Report and an oral account of the work during the year.
The 2014 Annual General Meeting decided:
to adopt a dividend of SEK 4.00 per share
to implement an automatic redemption procedure to split each share into two shares (a 2:1 share split), one of which will be called a redemption share in the Euroclear system. Each redemption share was redeemed for SEK 10. The automatic redemption procedure included the following decisions:
(a) amendment of the Articles of Association as they relate to the limits for the number of shares;
(b) implementation of a share split;
(c) reduction of share capital through redemption of shares; and
(d) increase of share capital through a bonus issue
to elect Lars-Åke Rydh, Ulf Barkman, Hans Franzén, Jerker Löfgren,
Agne Svenberg and Petter Stillström as members of the Board of Directors
to elect Lars-Åke Rydh as Chairman of the Board of Directors
to adopt the proposal of the Nomination Committee that the Nomination Committee should be made up of representatives of not less than three and no more than four of the largest shareholders and that the Chairman of the Board should act as Chairman of the Nomination Committee
to adopt the proposal of the Board of Directors that remuneration received by senior executives from OEM International AB is mainly comprised of fixed and variable components. The remuneration shall be market-competitive and the variable amount shall be capped at 58% of base salary. The company’s management shall have market-competitive, premium-based pension schemes, capped at 30% of fixed remuneration.
to be allowed to issue up to 1,800,000 new Class B shares in connec-tion 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 2015 Annual General Meeting will be held on 23 April 2015 in Tranås.
Nomination Committee
At the Annual General Meeting held on 29 April, 2014, 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, unless he/she is a member as a shareholder representative. If a shareholder does not exercise his/her 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 2015 Annual General Meeting and shall be based on the known number of votes immediately before publication. The term of office of the Nomination Committee shall run until a new Nomination Committee is appointed. The Chairman of the Nomination Committee shall be the Chairman of the Board.
Should there be any significant changes in the company’s ownership structure after the appointment of the Nomination Committee, the composition of the Nomination Committee shall also be changed in line with the principles above. Shareholders who appointed a representative to be a member of the Nomination Committee shall be entitled to dismiss such a member and appoint a new one and also appoint a new represent-ative if the member appointed by the shareholder chooses to withdraw from the Nomination Committee. Changes to the composition of the Nomination Committee shall be published as soon as such changes are made. The composition of the Nomination Committee was published with the interim report on 21 October 2014. The composition of the Nomination Committee is available for viewing on OEM’s website, www.oem.se, under The company/Corporate governance/Nomination committee.
The Nomination Committee shall prepare proposals for the following items of business to be presented for resolution at the 2015 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 a resolution regarding 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 for the 2015 Annual General Meeting is composed 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 three minuted meetings at which it acquainted itself with the assessment of the work of the Board of Directors during the past year and 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 are 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 for a company of this size to have a Nomination Committee that is represented by the largest shareholders and that some of these also serve as Board Members.
Board of Directors
Composition of the Board of Directors
The Articles of Association require that the Board of Directors is to consist of not less than four and not more than seven members elected by the Annual General Meeting for the period until the end of the next Annual General Meeting. Since the 2014 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 83 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 in relation to the company and the company’s manage-ment, Ulf Barkman and Lars-Åke Rydh are also independent in relation to the company’s major shareholders. The current duties of the Members of the Board are presented on page 83.
Chairman of the Board
It is the duty of the Chairman of the Board, Lars-Åke Rydh, who was
re-elected at the 2014 Annual General Meeting, to ensure that the work of the Board is conducted efficiently and that the Board discharges 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 continuously updates and deepens its knowledge about the company and receives satisfactory data and decision-making information for its work, to establish the agenda for the meetings of the Board in consultation with the Managing Director, to verify that the decisions of the Board are implemented and ensure that the work of the Board is assessed annually. The Chairman of the Board represents the company in ownership issues.
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 duties. The Board has also issued an instruction for the Managing Director, which regulates his duties and reporting obligation to the Board of Directors. The Board has also adopted policies on financial and other 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, appointments and remuneration of the Managing Director and other senior executives as stated in the guidelines adopted by the Annual General Meeting. The Board of Directors and the Managing Director present the annual report to the Annual General Meeting.
Work of the Board
In accordance with the adopted rules of procedure, the Board of Directors holds at least six ordinary meetings per year plus an inaugural meeting after the Annual General Meeting and whenever necessitated by the situation.
During 2014, the Board had a total of eleven meetings, including the inaugural meeting.
The Board Members have participated in all Board meetings with the exception of Ulf Barkman and Petter Stillström, who were absent on one occasion. All resolutions have been passed unanimously by the Board of Directors.
The secretary of the Board is the company’s CFO. Other company employees take part in the meetings of the Board in connection with the presentation of specific issues or when 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, organisation, the Group’s financial position and funding of the Group’s capital structure.
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 2014 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 2015 Annual 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 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 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 Committee passes a resolution on the remuneration of other members of the Group management. The Board is informed of the decisions of the Remuneration Committee. Salaries and other terms of appointment for Group management shall be set at competitive levels. 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 2013. Senior executives in the OEM Group shall have market-competitive, premium-based pension schemes, capped at 30% of fixed remuneration. The pension scheme level is the same as for 2013. All share-related incentive schemes are to be decided by the Annual General Meeting. At present, there are no similar incentive schemes. The maximum term of notice is 24 months and shall also include the obligation to work during the term 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 2015 Annual General Meeting and are presented on page 59 of this report.
Audit Committee
During the year, the Board has had a special Audit Committee consisting 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 otherwise affecting the Board’s responsibilities and duties, monitor the financial reporting of the company, monitor the efficiency of the company’s internal control and risk manage-ment 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 2015 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 regulations, the rules applicable to companies listed on the stock exchange, the Articles of Association of the Company, the internal governing instruments of the Board of Directors and the goals and strategies set by the Board. The Managing Director prepares the necessary information and basis for decisions prior to the Board meetings, in consultation with the Chairman of the Board, presents the items and justifies proposals for resolutions. The Managing Director leads the work of the Group’s executive team and makes decisions in consultation with the members of the executive team. In 2014, OEM’s executive team members were Jörgen Zahlin, Jan Cnattingius, Jens Kjellsson, Urban Malm, Patrick Nyström, Sven Rydell, Fredrik Simonsson and Mikael Thörnkvist. Mikael Thörnkvist was a member until the end of August.
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 pages 84–85 of this document 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 6. The auditors are required to continually assess their independence before deciding whether to undertake an engagement to provide consulting services.
An account of the audit is reported to the shareholders in the form of an auditors’ report and other opinions, which constitute a recommendation to the shareholders on various items of business for resolution at the annual general meeting. The Auditors’ Report contains proposals for adoption of the Income Statement and Balance Sheet for the Parent Company and the Statement of Comprehensive Income and the Statement of Financial Position for the Group, the appropriation of the company’s profit and the discharge of the members of the Board and the Managing Director from liability.
The audit work includes such activities as an examination of compliance with the Articles of Association, the Swedish Companies Act and Annual Accounts Act, the International Financial Reporting Standards (IFRS), issues related to measurement of items recognised in the Statement of Financial Position/Balance Sheet for the Group/the Parent Company, follow-up of essential accounting processes and governance and financial control.
The company’s auditors meet with the Audit Committee three times a year and once a year with the Board. The company’s auditors also attend the Annual General Meeting to explain and give opinions on the audit work.
At the 2014 Annual General Meeting, KPMG AB was appointed as auditors of the company until the conclusion of the 2015 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 major clients include L E Lundbergföretagen AB
(publ) and Väderstad-Verken AB.
Internal control and risk management regarding financial reporting for the financial year 2014
As required by the Swedish Annual Accounts Act, the Board of Directors must annually submit a presentation of the most important elements of the company’s system for internal control and risk management with regard to its 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 purpose and appropriate and apply the applicable accounting rules, acts and regulations and any other requirements placed on listed companies. The Board of Directors is responsible for ensuring that there is an adequate system for internal control, which covers all essential risks of errors in financial reporting. OEM’s system for internal control comprises the control environment, risk assessment, control activities, information, communication and follow-up.
Control environment
OEM builds and organises its operations on decentralised profit and budget responsibilities. The basis for internal control in a decentralised organisation is a firmly-established process, aimed at defining goals and strategies for each organisation. Defined decision-making channels, pow-ers and responsibilities are communicated through internal instructions and through guidelines and policies adopted by the Board of Directors. These documents set out the division of responsibilities and duties between the Board of Directors and the Managing Director and within the operational activities. They also include a financial policy, a 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.
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 30 companies ensures 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, and inventories and trade receivables.
Control activities
OEM has established a number of control activities based on risk assessments that have been carried out. The activities are both preventive and ascertaining and include transaction-related checks, such as rules regarding authorisations and investments, and clear payment procedures, as well as analytical checks performed by the Group’s controller organisation and central financial function. There are also various 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 performance follow-up, which is carried out via the internal reporting system and which the Board of Directors analyses and comments on as part of its internal work. This involves comparing performance against set targets and previous results and reviewing a number of key ratios. Each company in the Group has an active Board whose chairperson is a member of the Group management. The Group management makes regular visits to the subsidiaries that are subject to financial follow-up.
Information and communication and follow-up
Internal information and external communications are regulated at an overall level by an information policy and other guidelines.
Relevant steering documents and instructions are 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 Board meeting. The members of the Board then have an opportunity to pose 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 observations of the company’s internal procedures and control systems. The members of the Board then have an opportunity to pose questions. Every year, the Board takes a position on significant risk areas and assesses the internal control.
Furthermore, OEM’s management continuously assesses the internal control regarding financial reporting, above all, through own analysis, by asking questions and taking part in the work of the control function.
Internal audit
The company and the Group have a relatively simple legal and operating structure and working steering and internal control systems. The Board continuously follows up the different Group companies’ assessments of internal control, among other things, through contacts with the company’s auditors. Against the backdrop of this, the Board has chosen not to have a special internal audit.