WHAT WE MEAN BY THE TERM
The term corporate “governance basically” refers to the distribution of roles between the shareholders, board of directors and managers of the company, and the principles and methods by which its business is managed and controlled. Good corporate governance ensures that the company promotes the best -interests of its owners and other stakeholders.
WHY CORPORATE GOVERNANCE CONCERNS US
For VPS good corporate governance is a way of showing that the company takes its relationship with its stakeholders seriously. VPS believes that good corporate governance should maximise the trust of, and good relations with, all stakeholders affected by the business. The processes between the company’s governing bodies, recruitment to these bodies, their composition and the guidelines established for their activity are a matter of transparency at VPS.
A revised corporate governance recommendation was presented on 8 December by NUES (Norwegian Committee on Corporate Governance). The Board performs an annual review of the VPS’s business activity, and evaluates the company’s compliance with the principles of good corporate governance. The Board’s aim is that the company should abide by the principles of the “Norwegian Recommendation on Corporate Governance”. A description of VPS’s compliance with the recommendation of December 2005 follows below, and deviations from the recommendation are explained separately.
OPERATIONS
The mission of the VPS Group is to carry on registration of financial instruments and other naturally -related operations. The business requires a licence, and the Securities Register Act sets limits for what business VPS can engage in. The company’s mission is set forth in section 4 of the Articles of Association. The articles are available at www.vps.no. The company’s objectives and key strategies are described in the Annual Report page 3, 5 and 6.
COMPANY CAPITAL AND DIVIDENDS
As of 31 December 2005 the company’s equity capital amounted to NOK 263 million, or 81.5 per cent of the total capital. The Board considers the company’s equity capital to be adequate in relation to the business engaged in. The company is required by law to contract insurance or to put up another guarantee in favour of third parties. The guarantee must be at least NOK 500 million. VPS has taken out liability (errors and omissions) insurance of NOK 1 billion. Under the terms of its securities registration licence, VPS is required to keep Kredittilsynet (Norway’s Financial Supervisory Authority) continuously informed of the company’s capital base.
VPS’s dividend policy is to distribute at least half of the company’s profit as dividends. The dividend policy has stood firm since the company was privatised in 2003. There are no plans to authorise the Board of Directors to increase the company’s capital or to buy the company’s own shares, nor has the issue ever arisen.
EQUAL TREATMENT OF SHAREHOLDERS AND TRANSACTIONS WITH CLOSE ASSOCIATES
VPS has one class of shares. The Securities Register Act prohibits anyone from owning shares representing more than 10 per cent of the company’s share capital or votes. The Ministry of Finance has however utilised its power to grant dispensation from the ownership restrictions, and has authorised DnB NOR Bank ASA to hold 16.54 per cent of the shares. The rules restricting voting rights have not been waived. The dispensation applies for three years as from 2 July 2004. Where stock in excess of 10 per cent is concerned, DnB NOR Bank ASA’s rights in the company are confined to receiving dividends, and to exercising a preemptive right in the event of an increase of capital. Hence DnB NOR Bank ASA is barred from exercising voting rights in respect of the shares covered by the dispensation. The Board does not consider that the dispen-sation implies differential treatment of shareholders under the corporate governance rules, since the dispen-sation from statutory provisions is necessarily a matter between the shareholder in question and the Ministry of Finance. The company is not itself entitled to grant dispensation from the ownership restriction rules.
No significant transactions took place in 2005 between the company and its shareholders, board members, senior employees or their close associates. The Board has established strict guidelines for elected officers’ and employees’ trading in financial instruments.
In December 2005 the Board adopted revised guidelines on employees’ and elected officers’ competency, which clarify the reporting obligation. Several board members are employed by shareholders with stakes in VPS approaching the Securities Register Act’s upper limit of 10 per cent. The chairman of the Board is -employed at DnB NOR Bank ASA, which has dispensation to own 16.5 per cent of VPS’s shares for up to three years as from 2 July 2004. Moreover, several major shareholders are substantial customers of VPS ASA, DnB NOR Bank ASA being the largest. The Board is aware that shareholder and customer relationships create special challenges in terms of consistent and reliable case-handling, and is of the opinion that the Board has thus far dealt with its business in keeping with adopted rules and guidelines, and in a manner that does not provide a basis for criticism of case-handling procedures or that is likely to impair confidence in the Board or the company.
FREE NEGOTIABILITY
The company’s shares are freely negotiable subject to the restrictions imposed by the legislation in force at any time. The law requires dispensation in order to own more than 10 per cent of the share capital of a securities depository. Beyond this, no restrictions on trading have been established in the Articles of Association.
ANNUAL GENERAL MEETING
An Ordinary General Meeting is called each year by the end of June, normally in April. Notice is sent out to the shareholders no later than two weeks prior to the meeting. The notice is accompanied by case documents, which are assumed to be sufficiently detailed to enable shareholders to take a position on the agenda items to be considered. Documents include the Election Committee’s reasoned recommendations regarding elections and remuneration. An Extraordinary General Meeting is called when the Board, the company’s auditor or shareholders representing at least one-twentieth of the share capital so request. VPS’s Articles of Association set no deadlines for notifying attendance at the Meeting. Shareholders may sign up and notify proxies electronically. The Annual General Meeting is attended by the Board members, Election Committee, Supervisory Committee and the auditor.
The agenda is set by the Board and distributed together with the notice of the meeting. The main agenda items are as stated in the Articles of Association. The meeting is opened by the chairman of the Board who asks those attending to nominate a chairperson. The minutes of the Annual General Meeting are published on www.vps.no as soon as they have been signed.
ELECTION COMMITTEE
The Articles of Association require the company to have an Election Committee comprising at least three -members. Neither the CEO nor other employees of the company may be members of the Election Committee. The committee operates under instructions adopted by the General Meeting. The seats on the committee are in practice distributed between VPS’s major shareholders. The names of current Election Committee members are available on the company’s web page at www.vps.no. The Election Committee wrote to all shareholders in 2005 identifying the company’s elected officers and explaining how to provide input to the Election Committee.
SUPERVISORY COMMITTEE
The Act relating to Registration of Financial Instruments requires a securities depository to have a supervisory committee with at least three members, elected by the General Meeting. The Supervisory Committee oversees the company’s compliance with laws, regulations and the terms of its licence, along with the Articles of Association and decisions reached by the company’s governing bodies, and evaluates security aspects of the company’s operations. Instructions to the Supervisory Committee are established by the General Meeting and require the Financial Supervisory Authority’s (FSA’s) approval. The Supervisory Committee reports on its -activities to the General Meeting and the FSA. (For further details of the Supervisory Committee’s purpose and work, see the Committee’s report on page 31.)
BOARD OF DIRECTORS – COMPOSITION AND INDEPENDENCE
The Board of Directors comprises nine members, two of which are elected by and from among the employees. Under established practice, members of VPS Holding ASA’s Board are also elected to the Board of VPS ASA.
The Securities Register Act requires a securities depository to have a board of at least five members. According to the company’s Articles of Association, the board shall have not less than five and not more than ten members, as decided by the General Meeting. The above Act states that the CEO cannot be a member of the Board. The Act also states that board members, the CEO or other persons participating in the actual management of the securities depository shall have relevant qualifications and professional experience, be of good repute and shall other-wise not have displayed untoward behaviour that gives grounds for presuming that the position or office will not be discharged in a proper manner. The securities depository is required to notify Kredittilsynet of any changes in the Board’s composition. The board members’ CVs and recently issued police certificates are submitted to Kredittilsynet when new elections are held.
The Annual General Meeting elects the shareholder-elected representatives to the Board. Elections to be carried out by the General Meeting are prepared by the Election Committee which, in accordance with its instructions, submits its recommendations to the Board chairman at least three weeks prior to the -General Meeting. The Election committee’s reasoned recommendation is circulated to the shareholders together with the notice of the General Meeting. The Committee gives an account of its recommendations at the General Meeting. In keeping with the Articles of Association, Board members are elected for a two-year term. The chairman of the Board is elected separately, for a one-year term. In line with established practice, the General Meeting also elects the Board’s deputy chairman for a one-year term. Two of the Board members are elected by and from among the employees. The employees’ voting constituency is such that all employees have a right to cast their vote.
The Election Committee and the incumbent Board consider that the Board is composed in such a way that it has the desired competence, capacity, representativity and diversity, and that its composition ensures that the company is operated in the best manner independently of various owner groupings’ particular wishes. The Board members’ competence etc is described in the Annual Report on page 6.
As long as all shareholder-elected Board members represent substantial shareholders in the company, the Board does not consider it is essential to actively encourage board members to personally own VPS shares. Neither the General Meeting nor the Election Committee has opted to encourage VPS Board members to personally acquire shares in the company. None of the board’s members privately own shares in VPS Holding ASA. The number of shares controlled by board members’ employers at 31 December 2005 is shown below:
|
Name
|
Employer
|
No. of shares
|
%
|
| Leif Teksum (Chair) |
DnB NOR Bank ASA
|
829 180
|
16.58
|
| Leiv Askvig (Dep. chair) |
Sundt AS
|
278 800
|
5.58
|
| Elin Sjødin Drange |
Sparebanken Vest
|
129 400
|
2.59
|
| Anne Johnsrud Hagen |
Norsk Hydro ASA
|
444 800*
|
8.90
|
| Ida Espolin Johnson |
Kommunal Landspensjonskasse
|
284 300
|
5.69
|
| Svein Støle |
Pareto AS
|
494 600
|
9.89
|
| Morten Nordby |
Verdipapirsentralen ASA
|
0
|
|
| Claes Unger |
Verdipapirsentralen ASA
|
0
|
|
|
Total
|
2 461 080
|
49,23
|
| *Shares owned by Norsk Hydros Pensjonskasse |
THE WORK OF THE BOARD
According to the Public Limited Companies Act the Board has the overarching responsibility for the management of the company and supervises the company’s day-to-day leadership and business activity. The Board, together with the President/CEO, ensures that the organisation and operation of the company are satisfactory. The Board bases all administrative procedures on the principal on equal treatment of, and accountability towards, all shareholders. The Board establishes an annual plan for its work. Each year the Board carries out a comprehensive -evaluation of the business, establishes a business plan for the two years ahead and sets goals and main activities for the coming year. Based on the adopted business plan, the Board establishes a budget for the coming year. The Board of VPS has not considered it appropriate to set up board committees. The Board appoints the President/CEO and has adopted instructions for that position.
The Board operates under instructions drawn up in conformity with section 6-23 of the Public Limited Companies Act. The Board’s instructions are reviewed annually. The instructions contain the following main points: Purpose, overarching principles for the work of the Board, the Board’s tasks, and administrative procedures.
The instructions to the President/CEO establish that this person is responsible for the day-to-day leadership of VPS Holding ASA and VPS ASA, and shall ensure that the business is run in accordance with public regulations, the Articles of Association and guidelines and orders issued by the General Meeting and the Board. The instructions also describe the President/CEO’s disclosure obligation vis-à-vis the Board in regard to the company’s development and other factors which may affect the company’s future. The instructions are -reviewed annually.
The requirements on the Board’s financial reporting are regulated in laws and regulations. Each month a report is submitted to the Board by the CEO. The report provides the Board with the information it needs to discharge its tasks in a proper manner. Each report describes the company’s business activity, position and profit performance.
The Board has established ethical guidelines for VPS which describe the employees’ duty to report irregula-rities and significant deviations from the ethical guidelines. The guidelines also make it clear that any attempt to suppress reporting of censurable circumstances, or to retaliate against an employee who has in a loyal manner drawn attention to censurable circumstances, will be severely dealt with.
In addition to the separate guidelines drawn up in regard to competency, the instructions to the Board establish that Board members shall assess their own competency in matters under consideration by the Board, and must alert the Board members at the earliest possible stage of circumstances which render or may render the person in question incompetent. Where a Board member is in doubt about his/her personal competency, the matter must be submitted to the Board for decision. Board members are also subject to a duty of confidentiality under section 8-1 of the Securities Register Act. The company’s administration is urged to come forward should a Board member be thought to be in a situation where he/she should not be involved in handling a particular item of business.
VPS is subject to statutory internal control rules, cf section 4-4 of the Securities Register Act and the Internal Control Regulations. The Board has established principles for internal control at VPS. Kredittilsynet and the Supervisory Committee at VPS ASA oversee the company’s compliance with the internal control regulations.
VPS has an internal audit function. The instructions to the internal auditor are established by the Board. The -internal audit function is responsible, on behalf of the Board of Directors, for ensuring that adequate and effective internal controls are in place and function as intended. Internal audit shall independently and objectively conduct reviews and give advice with a view to improvements that add value to the institution’s operations. To this end internal audit shall assess the extent to which risk assessment procedures contribute effectively and efficiently to strengthening the ability of VPS to achieve its goals. The outcome of the audit is reported on a regular basis to the Board with a copy going to the CEO, and the internal auditor attends Board meetings and meetings of the Supervisory Committee. The internal auditor meets the external auditors on a regular basis.
REMUNERATION TO THE BOARD OF DIRECTORS AND SENIOR EMPLOYEES
The Annual General Meeting fixes the Board’s remuneration each year based on a recommendation from the Election Committee. The remuneration is not performance-related, consisting only of the fee adopted for Board members. The chairman of the Board receives higher remuneration than the members of the Board. All remuneration to the Board is specified on page 19, note 3 of the Annual Report. Board members’ fees are specified in the minutes of the Ordinary General Meeting, which are available at www.vps.no.
The Board has adopted guidelines for fixed and variable remuneration to senior employees, and stipulates each year the CEO’s fixed and variable remuneration at a meeting. The guidelines for all remuneration are presented at the General Meeting, the first time in April 2006. The guidelines for remuneration to senior employees are to be found in the Annual Report on page 19, note 3. While the question of options schemes and allotment of shares to employees has not arisen at VPS, the company does operate a bonus scheme for all employees whose main rule is that, with a full bonus award, each employee receives a bonus equal to 10 per cent of basic salary.
INFORMATION AND COMMUNICATION
Each year VPS publishes a financial calendar along with information on the Annual General Meeting etc at www.vps.no. The time and date of the General Meeting are posted on the website as soon as they are decided, no later than at the turn of each year. Information sent to the shareholders is simultaneously posted on the company’s website.
Guidelines have been established for reporting financial information in order to ensure that market actors receive correct, clear, relevant and simultaneous information, and that the company continuously publishes information enabling shareholders and other investors to make well-informed decisions regarding the purchase or sale of -shares based on identical information. The guidelines state who is to make statements on behalf of the company in a variety of matters. The guidelines take a basis in the principles of openness, simultaneity and equal treatment.
The guidelines intend the company, as and when required, to consult shareholders in matters regarding the company’s operations and development. The Board considers that the company is in compliance with this -provision, and both the Board and the Administration give much emphasis to ensuring that no shareholder -receives information about the company which is not given simultaneously to all shareholders.
TAKEOVER
The Securities Register Act establishes that no-one may own shares representing more than 10 per cent of the share capital or the votes in the company. The Board has consequently not contemplated measures to prevent takeover, and VPS has never been in a takeover situation. No equity issue authority has been granted in favour of the Board.
The question has never arisen of transactions which in reality entail disposal of business. Any such matters will be submitted to the General Meeting for decision in accordance with section 4-6 of the Securities Register Act, which states that any decision to dispose of a significant portion of the licensable business must be reached by the General Meeting by the same majority as that required to amend the Articles of Association.
EXTERNAL AUDITOR
The external auditor attends Board meetings that deal with the annual accounts, and gives the Board an -account of his work and of particular risks attending the company. The auditor reviews the company’s internal financial control with the Board. The auditor attends the General Meeting.
Each year the auditor presents to the Board the main features of the plan for implementation of the audit process. This plan is viewed in conjunction with the internal auditor’s annual plan and tasks, so that the internal auditor can, in the event, assist the external auditor in discharging his tasks. The annual plan is reviewed and discussed with the Supervisory Committee. The Board holds an annual meeting with the external auditor at which the -Administration is not present.
The auditor’s remuneration, distributed on audit and non-audit services, is shown on page 19, note 4 of the Annual Report. Documentation to the General Meeting contains the Board’s detailed account of the Administration’s use of the external auditor for services other than ordinary audit.
Guidelines have been drawn up for the executive management’s right to utilise the external auditor for non--audit services, in accordance with the advisory services instructions, cf. the Auditors Act. The external auditor’s -additional tasks are reviewed and agreed upon with the Supervisory Committee.
|
|
MANAGEMENT GROUP
Back row, left to right:
Jan Hellstrøm, President and CEO,
Gunnar Haug, Excecutive Vice President, Head of Operations and Infrastructure,
Tom Kolvig, Excecutive Vice President, Head of Finance, Strategy, Legal affairs and Administration.
Front row, left to right:
Helene Midtskau, Excecutive Vice President, Head of Systems Development,
Sveinung Dyrdal, Excecutive Vice President, Head of VPS Securities Services,
Anne Ekeren Bjone, Excecutive Vice President, Head of VPS Clearing and Settlement |
