Norwegian code of practice for corporate governance

Hydro follows the Norwegian Code of Practice for Corporate Governance of 2010 and complies with all recommendations.

The following matrix refers to relevant descriptions of the various topics.

	Corporate governance topic	Comments	References
1	Implementation and reporting on Corporate Governance	Hydro follows the Norwegian Code of Practice for Corporate Governance of 2009 including all its recommendations. The Hydro Way represents our framework for leadership, organization and culture and is the foundation for our governance system, including our code of conduct.	Policies and tools

2	Hydro business	The objectives of the company are to engage in industry, commerce and transport, to utilize energy resources and raw materials, and to engage in other activities connected with these objectives. Activities may also proceed through participation in or in co-operation with other enterprises.	Hydro's articles of association Hydro's strategy is described at page 21 in the Annual report 2010

3	Equity and dividends	Hydro's equity capital is appropriate to the company's objectives, strategy and risk profile.	Page 107 in the Annual report 2010
		Hydro's dividend policy is to pay out on average payout 30 percent of net earnings.
		Mandate for buyback of Hydro shares may be granted to the board of directors by the general meeting of shareholders. If the general meeting is to consider mandates to the board for the issue of shares for different purposes, each purpose should be considered separately by the meeting. The mandates should be limited in time to no later than the date of the next annual general meeting.	Share buyback
		See also item 4.

4	Equal treatment of shareholders.	Hydro has one share class.	The Hydro Share
		Transactions are generally carried out through stock exchanges. Buy-backs of own shares are carried out at market prices.
		Shareholders registered in VPS, the Norwegian Registry of Securities, can vote in person or by proxy. Invitations are sent to shareholders or to the shareholder's security deposit bank.
		Employee share allocations are granted at a discount to market value. see also item 6.	Note 11 to the consolidated financial statements
		The board usually deals with investors through the administration. Under special circumstances the board represented by the chairperson may have direct dialogue as appropriate. On 28 May 2011, Hydro took over the majority of Vale's aluminium business in Brazil. Vale received a total consideration comprising USD 1.1 billion in cash and new Hydro shares equivalent to 22 percent ownership of Hydro's outstanding shares. To partly finance the transaction, support the company’s investment grade rating and capacity to implement future projects, Hydro completed a fully underwritten rights issue of NOK 10 billion in July 2010. The consequences for existing shareholders and new shareholders through the rights issue were given in the relevant press releases, in the rights issue prospectus and in the information memorandum in connection with Hydro’s takeover of the majority of Vale S.A.’s bauxite, alumina and aluminium business in Brazil, and in the extraordinary general meeting. See also item 8 and 9.
	Transactions with close associates	Hydro’s Code of Conduct includes guidelines for handling possible conflicts of interest. The code is valid to all board members and Hydro employees. It is the assessment of the board that during 2010 there have been no material transactions between the group and shareholders, directors, officers or close associates of any such parties.	Code of conduct
		Regulation of share issues and pre-emptive rights are described in the Articles of Associations.
	The Norwegian State as an owner	The Norwegian state represented by the Ministry of Trade and Industry owned 43.73 percent of Hydro's issued shares as of 31 December 2010. Following closing of the Vale transaction 28 February, 2011, the Norwegian state owns about 34.3 percent. Hydro has regular meetings with the Ministry. Topics discussed include Hydro’s economic development, strategic development, CSR, and the State's expectations regarding investment performance and return. These meetings are comparable to what is customary between a private company and its principal shareholders. The meetings comply with the provisions specified in company and securities legislation, not least with a view to equal treatment of shareholders. As a shareholder, the State does not usually have access to more information than what is available to other shareholders. If the State's participation is imperative and the Government must obtain an authorization from the Norwegian parliament (Stortinget), it may be necessary to give the Ministry insider information. In such cases, the State is subject to the general rules that apply to dealing with such information.	The Norwegian State's ownership principles

5	Freely negotiable shares	The Hydro shares are freely negotiable. The stock is among the most traded stocks at Oslo Stock Exchange and subject to efficient pricing. The Norwegian state through the Ministry of Trade and Industry and Folketrygdfondet owns 49.9 percent of the shares as of December 31, 2010. As a part of the Vale transaction, Vale received 22 percent of Hydro's outstanding shares. At the same time, The Norwegian state's share represented through the Ministry of Trade and Industry was reduced from 43.73 percent to approximately 34.3 percent. According to the agreement between Hydro and Vale, Vale cannot increase its ownership in Hydro beyond 22 percent. Further, Vale will retain its shares in Hydro for at least two years after the transaction closes, and following the two-year period Vale shall not sell shares constituting more than 10 percent of Hydro's issued shares to any single buyer or group.	The Hydro share

6	General meetings	The notice of a general meeting of shareholders is normally available at hydro.com about four weeks prior to the meeting and sent to the shareholders minimum three weeks before the meeting.	Governance bodies
		Our aim is that the resolutions and supporting information distributed are sufficiently detailed and comprehensive to allow shareholders to form a view on all matters to be considered at the meeting.
		Deadline for shareholders to give notice of attendance in the meeting, is five working days before the meeting.
		Shareholders who cannot attend the meeting in person, can vote by proxy. Hydro will nominate a person who will be available to vote on behalf of shareholders as their proxy.
		Shares registered with a nominee account must be re-registered in the Norwegian Central Securities Depository before the general meeting in order to obtain voting rights.
		Hydro will propose to the general meeting of shareholders on May 5, 2011 to implement the possibility to cast votes electronically in advance of the meeting.
		To the extent possible the form for the appointment of a proxy will allow separate voting instructions to be given for each matter to be considered by the meeting and for each of the candidates nominated for election.
		The board of directors, the nomination committee and the auditor are present at the general meeting.
		The general meeting is presided over by the chairperson of the corporate assembly or, in his or her absence, by the deputy chairperson.
		The notice of the general meeting of shareholders provides information on the procedures shareholders must observe in order to participate in and vote at the general meeting. These include • the procedure for representation at the meeting through a proxy, including a form to appoint a proxy • the right for shareholders to propose resolutions in respect of matters to be dealt with by the general meeting of shareholders • the web pages where the notice of the meeting and other supporting documents will be made available	General meeting
		The following information is available at hydro.com: • information on the right of shareholders to propose matters to be considered by the general meeting of shareholders • how to make proposals for resolutions to be considered by the general meeting of shareholders, alternatively comments on matters where no resolution is proposed • a form for appointing a proxy
		The general meeting of shareholders votes separately for each candidate nominated for election to the company’s corporate assembly and nomination committee.
7	Nomination committee	The Nomination Committee consists of four members who shall be shareholders or shareholders’ representatives. They are appointed by the General Meeting of Shareholders. Minimum two including the chairperson are appointed among the sharholder elected members of the Corporate Assembly. The committees compensation is determined by the Corporate Assembly.	Articles of association Mandate of the nomination committee Governance bodies
		Shareholders may nominate candidates for the board of directors and the corporate assembly. A revised mandate for the nomination committe will be proposed to the general meeting of shareholders on May 5, 2011 and to the shareholder elected members of the corporate assembly.	Nominations for the corporate assembly and the board of directors

8	Corporate assembly and board of directors: Composition and independence	All board directors and members of the corporate assembly are independent of the executive management of Hydro and its main business connections. Lars Tronsgaard, who is a member of the corporate assembly, is representing Folketrygdfondet, owned by the Norwegian State.	Note 44 to the consolidated financial statements
		The corporate assembly elects both the chairperson and the deputy chairperson of the board.	Governance bodies
		Board members are elected for a period of two years. Vale has from 28 February, 2011 one representative in Hydro's board of directors. The decision has been approved by Hydro's general meeting of shareholders and corporate assembly. Tito Botelho Martins Jr, executive director, Base Metals, in Vale S.A. has been appointed new board member in Hydro and has joined the board of directors as a 10th board member.	Articles of association
		Six board members own a totality of 80,115 shares as of December 31, 2010. Hydro has no program for board members to aquire shares exept from the employee representatives who are entitled to acquire shares through the employee share purchase plan. All share transactions are conducted according to the Norwegian Securities Trading Act.	Note 11 and 44 to the consolidated financial statements

9	Board work and responsibilities	The board of directors has established rules of procedures for its own work as well as for the executive management with particular emphasis on clear internal allocation of responsibilities and duties.	The board of director's mandate
		The board of directors has an annual plan for its work with particular emphasis on objectives, strategy and implementation.	Board developments
		The Corporate Assembly elects both a chairperson and a deputy chairperson of the board.
		The Board's Audit Committee and Compensation Committee were both established in 2001.
		The board of directors conducts annually a self-assessment of its work, competence and cooperation with management and a separate assessment of the board's chairperson. The assessments are presented to the nomination committee.
		In addition, the nomination committee evaluates the competence of the board of directors. Hydro's internal control system includes all parts of our corporate directives, including our code of conduct, HSE and corporate responsibility requirements.	Nomination committee

10	Risk management and internal control	The board of directors ensures sound internal control and systems for risk management through e.g. an annual board of directors review of the most important risk factors and internal control. Internal Audit Corporate reports directly to the board of directors, but is administratively subject to the CFO.	Page 99 and 113-117 in the Annual Report 2010

11	Remuneration of the Board of Directors	The shareholder elected members of the Board have no assignment for the company other than the board work.	Note 44 to the consolidated financial statements
		The compensation is determined by the Corporate Assembly.

12	Remuneration of the executive management	The board of directors has established guidelines for the remuneration of the members of the executive management. These guidelines are communicated to the general meeting of shareholders and included in the annual report.	Articles of association Note 11 to the consolidated financial statements
13	Information and communication	Hydro has establish guidelines for the company’s reporting of financial and other information based on openness and taking into account the requirement for equal treatment of all participants in the securities market. This includes contact with shareholders other than through the shareholder meetings.	Shareholder information
		A financial calendar is available in the annual report and at hydro.com.	Financial calendar
		Shareholder information is published at hydro.com. "Financial Statements and Board of Directors' Report" is sent upon request and free of charge to shareholders. Notices of general meetings of shareholders are sent directly to shareholders unless they have consented to receive these documents electronically.

14	Take-overs	The board of directors will handle any potential take-over offers in accordance with Norwegian corporate law and the Norwegian Code of Corporate Governance. There are no defence mechanisms against take-over bids in our articles of association or in any underlying steering document. Neither have we implemented any measures to limit the opportunity to acquire shares in the company. The Norwegian state through the Ministry of Trade and Industry and Folketrygdfondet owns 49.9 percent of the shares as per December 31, 2010. See also item 5. Vale has agreed to certain restrictions with regard to their Hydro shares pursuant to a standstill and lock-up agreement entered into between Vale and Hydro. In the event of a take-over offer, and subject to the standstill and lock-up agreement, Vale can only accept such offer and transfer its Hydro shares if the offer (i) has either been recommended by the board of directors or declared unconditional in all respects and (ii) will result in the offeror holding more than 50 percent of the total shares in Hydro before or during the offer period.

15	Auditor	The external auditor annually submits the main features of the plan for the audit of the company to the Board Audit Committee.	Board audit committee
		The external auditor participates in relevant agenda items at all meetings in the Audit Committee. Minutes of these meetings are distributed to all Board members. This practice is in line with the EU Audit Directive.
		The external auditor presents their view on internal control procedures through the annual management letter.	Auditing
		The board audit committee meets at least annually with the external auditor and the head of Internal Audit without the presence of corporate management.
		Hydro emphasizes independence and has clear guidelines for use of services performed by the external auditor.
		All use of external auditors, including non-audit services, are subject to a pre-approval process defined by the board audit committee.	Page 117 in the Annual Report 2010
		Remuneration to auditor is disclosed in the annual report and approved by the general meeting of shareholders.	Note 43 to the consolidated financial statements
		The general meeting of shareholders elected on May 4, 2010 KPMG as the new group external auditor as from the accounting year 2010.

Updated: January 26, 2012

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Norwegian code of practice for corporate governance

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