Capital and share structure
FLSmidth & Co. A/S is listed on NASDAQ OMX Nordic Exchange Copenhagen. No special rights are attached to any share and there are no restrictions on the transferability of the shares. At the end of 2011, FLSmidth had about 56,800 registered shareholders, and no single shareholder had reported an investment exceeding 5%. For further details regarding shareholders, please see pages 80-82 of the Annual Report.
Management structure
According to general practice in Denmark, FLSmidth & Co. A/S maintains a clear division of responsibility and separation between the Board of Directors and the Executive Management. Tasks and responsibilities are defined at an overall level via rules of procedure for the Board of Directors and rules of procedure for the Executive Management. In addition, terms of reference apply to the Board committees.
The Executive Management is responsible for the day-to-day business of the Company, and the Board of Directors oversees the Executive Management and handles overall managerial issues of a strategic nature. The Chairman is the Board of Directors’ primary liaison with the Executive Management.
The Board of Directors
Composition of the Board of Directors
The Board of Directors is elected at the Annual General Meeting apart from those Board members who are elected pursuant to the provisions of the Danish Companies Act on employee representation.
Board members elected at the Annual General Meeting constitute not less than five and not more than eight members, currently six members, in order to maintain a small, competent and quorate Board. The members of the Board elected at the Annual General Meeting retire at each Annual General Meeting. Re-election may take place.
Pursuant to the provisions of the Danish Companies Act regarding employee representation, the Group’s employees are represented on the Board by currently three members, a Group representative and two company representatives, who are elected for four years at a time. The last election took place in 2009.
Immediately after the Annual General Meeting the Board of Directors elects from its own number a Chairman and a Vice Chairman. A job and task description outlining the duties and responsibilities of the Chairman and the Vice Chairman has been drawn up.
Board meetings are called and held in accordance with the Board rules of procedure and its yearly plan plus from time to time when necessary. In principle between six and eight ordinary Board meetings are held every year. To enhance Board meeting efficiency, the Board chairmanship or the Chairman hold a planning meeting with the Executive Management prior to each Board meeting.
In 2011, six Board meetings took place and the most important issues dealt with were a new group strategy, product strategy, company acquisitions, management evaluation and compliance.
Composition of the Board
To achieve a highly informed debate with the Executive Management, a Board membership profile reflecting substantial managerial experience from internationally operating industrial companies is aimed at.
At least one member of the Board must have CFO experience from a major listed company, and all other members must have CEO experience from a major internationally operating and preferably listed company.
The composition of the Board of Directors reflects that all members elected at the Annual General Meeting hold competencies in acquisition and sale of companies, financing and stock market issues, international contracts and accounting. In addition, it is preferable that a majority of the Board members have a background in construction contracting and possess technical expertise on process plants and process technology, including preferably the cement and/or minerals industry.
All members of the Board elected at the Annual General Meeting, apart from the Vice Chairman, Mr Jens S. Stephensen, are independent as defined by the Committee on Corporate Governance, which is an independent Danish body that promotes corporate governance in Danish companies.
Pursuant to the rules of procedure of the Board of Directors, a Board member must retire at the first Annual General Meeting which is held after the member has passed the age of 70. This means that the Vice Chairman, Mr Jens S. Stephensen, will not stand for reelection at the coming Annual General Meeting 2012.
As part of its yearly plan, the Board of Directors performs a yearly self-evaluation to evaluate the contribution, engagement and competencies of its individual members. The Chairman is responsible for the evaluation and sends out questionnaires to each member of the Board of Directors. The result of the questionnaire is discussed at a subsequent Board meeting.
Please go to pages 70-72 of the Annual Report for an overall summary of the individual Board members and their respective competencies.
Compensation of the Board
The Board of Directors’ total compensation consists of an annual cash payment which is recommended by the Board and adopted by the Annual General Meeting. The compensation of the members of the Board does not include pension contribution. No retention nor severance programmes exist for members of the Board of Directors.
Until now, the Board of Directors has considered it most relevant and expedient for the shareholders to comply with the rules of the Danish Companies Act and general practice, according to which the compensation of the Board is disclosed and approved together with the annual report at the close of the year. Information concerning the total remuneration of the Board of Directors appears from the consolidated financial statements note 43. In future, a proposal for compen of the Board of Directors for the current financial year will be submitted for approval at the Annual General Meeting. At the coming Annual General Meeting a proposal will be submitted for Board remuneration for both 2011 and 2012.
Board committees
The Board of Directors has appointed three committees: the nomination, compensation and audit committees.
The nomination committee
The nomination committee consists of the Board chairmanship, which means the Chairman and the Vice Chairman, currently Mr Vagn O. Sørensen and Mr Jens S. Stephensen.
The chairmanship is elected each year by the entire Board at the initial Board meeting following the Annual General Meeting. The committee meets minimum three times every year.
The responsibilities of the nomination committee are to continuously evaluate the work and composition of the Board and the Executive Management and to initiate any changes.
The nomination committee bases its work on a profile description of the entire FLSmidth Board, including a profile of each Board member. The profile description is decided and updated by the Board of Directors.
In carrying out these duties, the nomination committee may choose to involve the compensation committee. The present nomination committee was appointed on 14 September 2011 and held two meetings in 2011. Its main activities have been to consider and recommend new candidates for Board membership.
The compensation committee
The compensation committee consists of up to four Board members, currently Mr Vagn O. Sørensen, Mr Jens S. Stephensen and Mr Torkil Bentzen.
The compensation committee is elected each year by the entire Board at the initial Board meeting following the Annual General Meeting. The committee meets minimum three times every year.
The purpose of the compensation committee is to determine the salary and other terms of employment for members of the Group Executive Management. Besides, once a year the compensation committee approves the overall principles of the Group’s bonus and other short- or long-term incentive or retention plans. The compensation committee also submits proposals to the Board for the size of the compensation of the Board and the Board committees.
Once every year the Chief Executive Officer and the rest of the Executive Management must inform the compensation committee about pay levels and performance evaluation for the Group Executive Management and managers reporting directly to the Group Executive Management.
The compensation committee met three times in 2011, and the committee’s main activities in 2011 were to consider and determine the Executive Management’s pay and incentive plans plus a general extension of the use of incentive plans in the company.
The audit committee
The audit committee consists of Mr Jesper Ovesen (Chairman), Mr Sten Jakobsson and Mr Vagn O. Sørensen who are all independent and have considerable insight and experience in financial matters and accounting and auditing in listed companies.
The committee was set up in its present form at the end of 2011, its functions having previously been undertaken by the entire Board of Directors. The audit committee meets at least three times per year.
The main tasks of the audit committee are to assist the Board of Directors in:
• monitoring the financial reporting process
• monitoring the efficiency of the company’s internal control system and any internal auditing and risk management systems
• monitoring the statutory audit of the annual report
• appointing the Company’s independent auditors and monitoring and checking the independence of the auditors, including, in particular, the delivery of non-audit services to the Company.
Besides, once a year the audit committee assesses the need for internal audit and submits recommendations for any steps considered necessary as a consequence of this.
So far, the audit committee and the Board of Directors have not considered it necessary to introduce internal audit in addition to the company’s Group Control and Project Control functions and the external auditor.
The audit committee is also authorised to perform other tasks in connection with financial, accounting and auditing matters plus risk management in the Group as considered relevant by the committee.
The Executive Management
Composition of the Management
The Group Executive Management consists of four members who hold overall responsibility for the day-to-day operations of the Group. As from 1 March 2012, Group Executive Management is increased from four to six persons as a consequence of the new strategy and Group structure. The Executive Management consists of experienced business executives who each bring with them insight and hands-on experience that match the needs, challenges and practical issues currently facing the Group.
Remuneration of the Executive Management
The Board has adopted a remuneration policy for the Executive Management that establishes a framework for variable salary components in order to support the company’s short- and long-term goals. The purpose is to ensure that the pay system does not lead to imprudence, short-term behaviour or unreasonable acceptance of risk on the part of the Executive Management.
The Board’s compensation committee considers from time to time the Executive Management’s overall pay conditions.
The total remuneration of the executive management consists of the following components:
• fixed salary (“gross salary”) including pension
• usual accessory benefits such as car, telephone, newspaper, etc.
• cash bonus (up to 40% of the gross salary)
• share options (up to 25% of the gross salary)
Remuneration agreements for the Executive Management include a right for the company to demand full or partial repayment of variable pay components, which have been paid out based on information that is subsequently proved to be incorrect. Agreements regarding severance allowance shall not exceed two years’ pay.
In the opinion of the Board, a combination of fixed and performance-based pay to the Executive Management helps to ensure that the Company can attract and retain key persons whilst partially incentive-based pay also encourages the Executive Management to create value to the benefit of shareholders.
The incentive-based portion of the Executive Management’s remuneration is presented at the company’s Annual General Meeting pursuant to Section 139 of the Danish Companies Act, and the disclosure of it appears from the company’s articles of association.
The individual member of the Executive Management may receive a yearly bonus which shall not exceed 40% of the member’s gross salary for the year in question. The purpose of this cash bonus is to ensure fulfilment of the Company’s short-term goals. The payment and size of the bonus will therefore depend on the attainment of the goals that are agreed for one year at a time. The goals are primarily related to the fulfilment of the Company’s budgeted results or achievement of financial ratios or other measurable personal results of a financial or non-financial nature.
According to the remuneration policy members of the Executive Management may also be granted share options. The purpose of such options is to ensure value creation and fulfilment of the Company’s long-term goals. The granting of options may take place once a year, normally on presenting the Company’s half-yearly financial statements in August. For each year options may be granted up to a maximum net present value at the time of granting commensurate with 25% of the gross salary of the individual concerned at the grant date. In August 2011, members of the Executive Management were granted a total of 47,636 share options representing a total net present value of DKK 4.3m.
The net present value at the time of granting is calculated according to the Black & Scholes method. The Company will continuously cover the options granted through acquisition of treasury shares so that no capital increase is necessary to deliver the shares represented by the options granted. Options granted in accordance with the remuneration policy are normally exercisable not earlier than three years after being granted and will normally lapse if they have not been exercised six years after the grant date. The strike price must not be lower than the market price at the grant date. The strike price is adjusted for paid-out dividend. In connection with the latest granting of options to the Executive Management the share price was calculated as the average closing price during the first five days after the half-yearly report was presented.
Please go to notes 42 and 43 to the consolidated financial statements for information about the total remuneration of the Executive Management.
The Group CEO’s remuneration is disclosed separately, whereas the remuneration of the rest of the Executive Management is stated as one total sum.
Presentation of financial statements and internal controls
To ensure a high quality of the Group’s financial reporting, the Board of Directors and the Executive Management have adopted a number of policies, procedures and guidelines for presentation of the financial statements and internal controls which the subsidiaries and reporting entities must adhere to, including
• Continuous monitoring of goals and results achieved measured against approved budgets
• Continuous monitoring of projects including handling of risks and accounting for them
• Policies for use of IT, insurance, cash management, procurement, etc.
• Reporting instructions and reporting manual
• Finance manual
• Closing procedure manual
Responsibility for maintaining sufficient and effective internal controls and risk management in connection with financial reporting lies with the Executive Group Management.
The audit committee continuously monitors the process of financial reporting and the adequacy and effectiveness of the internal control systems established, including new accounting standards, accounting policies and accounting estimates. Besides, the audit committee monitors and checks the independence of the external auditor and monitors the planning, execution and conclusions of the external audit.
Encouragement of active ownership
The Board and the Executive Management value and encourage shareholders’ active participation in the company’s affairs through the channels and means available to them, notably the Company’s Annual General Meeting.
FLSmidth & Co. aims at maintaining seamless and efficient communication with its shareholders, for example through the internet. FLSmidth & Co. A/S provides information to shareholders in the form of interim reports, annual reports, company announcements and press releases, capital market days, general meetings, etc.
After the release of quarterly interim reports, investor meetings are held in Denmark and abroad, and teleconferences (live webcasts) are held during which questions can be put directly to members of the Executive Management.
In addition, investors have the possibility of directly contacting the Executive Management and the Board via the Company’s shareholder secretariat and Investor Relations department whose task it is to maintain an ongoing dialogue between the Company and its present and future prospective shareholders.
Shareholders can exert influence by participating in and voting at general meetings. Besides, a shareholder has the right to address the Board of Directors and the other shareholders who participate in the general meeting, either verbally at the meeting or in writing before the Annual General Meeting.
Any shareholder is entitled to ask for specific and relevant topics and proposals to be considered at the Annual General Meeting. In order to be discussed and/or considered at the Annual General Meeting resolutions proposed by the shareholders must be submitted in writing to the Board of Directors within the statutory time limits.
The current practice in FLSmidth is to attend the Annual General Meeting through physical attendance. Meanwhile, the General Meeting is transmitted live via the Company’s website. Shareholders may also attend by authorising by proxy the Board of Directors or other persons, or by submitting postal votes before the start of the general meeting. Together with the notice of the general meeting the Board of Directors sends out proxy forms that enable the shareholders to place their vote regarding each item on the agenda. Shareholders may also attend general meetings accompanied by a professional adviser.
Detailed information about holding, calling and attending general meetings is given in the Articles of Association available on the company’s website http://www.flsmidth.com/articlesofassociation.
Management principles in FLSmidth
The FLSmidth culture has always been characterised by the employees undertaking great and independent responsibility for assignments around the world. This means that employees and middle managers in FLSmidth experience a high level of freedom with responsibility and a high degree of trust and delegation.
Decentralised execution of assignments is supported by global policies, systems, manuals and processes that are continuously becoming more formalised in step with more demanding requirements being imposed both internally and externally.
In 2011, FLSmidth set up a new Corporate Governance & Compliance function to ensure that the Group’s policies and rules are always up-to-date in relation to relevant legislation and that the Group’s employees have been informed about the following policies and rules: code of conduct, anti-bribery and anti-corruption, anti-money laundering, competition legislation, export control, stock exchange legislation, insider rules, corporate law and filing of documents. In 2011, the Board of Directors received an update on the relevant policies and rules.
Compliance with recommendations for corporate governance
Pursuant to Section 4.3 of the rules for issuers of shares listed on NASDAQ OMX Copenhagen, Danish companies must explain in their annual report how they will address the recommendations of NASDAQ OMX Copenhagen for corporate governance based on the ‘comply or explain’ principle. Please follow the link below for a complete summary of FLSmidth’s position on each specific recommendation http://www.flsmidth.com/Compliance.
In the Board’s opinion FLSmidth complies will all the recommendations apart from 6.2.3 which is only partially fulfilled:
Recommendation 6.2.3: It is recommended that the total remuneration granted to each member of the supreme governing body and the executive management by the company and other consolidated companies should be disclosed in the annual financial statements and that the linkage with the remuneration policy should be explained.
FLSmidth’s explanation: The Company discloses the Group CEO’s remuneration separately, whereas the remuneration of the rest of the Executive Management is stated as one total sum. Only the total remuneration of the Board is disclosed.
In the Board’s opinion, shareholders have a right to know the Group CEO’s pay, whilst the remuneration of each of the other members of the Executive Management and the Board is not relevant for shareholders.
In its updated recommendations of August 2011 the Committee for Corporate Governance has focused on greater diversity in terms of more women and more persons with international experience joining Danish Boards of Directors. According to the Committee, the selection of candidates for Board membership should take into consideration the objective of diversity in the Board and at various management levels in the company.
The Board of Directors of FLSmidth continuously evaluates the diversity of the Board and the Executive Management as well as among managers and employees, and in future recommendations and appointments, diversity will deliberately be taken into account when considering the profiles and qualifications of potential candidates.
At the end of 2011, women accounted for 16% of the total workforce, whilst only 8% of all managers were female. The aim is that the number of female managers should in the long term to a higher degree reflect the proportion of women among all employees.
The Board has defined a short-term goal of the number of female managers accounting for at least 10% in 2014 and that when filling management vacancies in future, a female candidate must be among those in the run-up.
Due to the FLSmidth Group’s global presence in over 50 different countries the total workforce naturally reflects a multitude of cultures and nationalities.
The Board of Directors has set a long-term goal according to which global managers (top 100) should to a greater extent reflect the representation of nationalities among all employees and the geographical location of the Group’s technology centres in Denmark, Germany and USA. Today, Danes account for 38% of the total number of global managers (top 100), but only 12% of the total number of employees.
This statement of corporate governance pursuant to the Danish Financial Statements Act Section 107b is part of the Management’s Review in the 2011 Annual Report.
Corporate governance statement
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