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Statement of Corporate Governance |
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Hydro follows the Norwegian Code of Practice for Corporate Governance of 2012. The Hydro Way represents our framework for leadership, organization and culture and is the foundation for our governance system, including our code of conduct. Hydro's code of conduct has been approved by the board of directors, which also oversees that Hydro has appropriate corporate directives for, among other things, risk management, HSE and corporate responsibility. |
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Learn more about The Hydro Way |
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2
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Hydro's business |
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Hydro is a global supplier of aluminium with businesses throughout the entire value chain, from extraction of bauxite to production of rolled and extruded aluminium products and building systems. The company has 22,000 employees in more than 40 countries, around 4,000 of whom are based in Norway. With more than 100 years of experience in producing renewable energy, technology development and innovative cooperation, Hydro aims to strengthen the viability of the customers we serve and the communities in which we operate.
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Hydro's articles of association
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The company's stated business objectives 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. Its business activities may also be conducted through participation in or in cooperation with other enterprises. |
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3
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Equity and dividends |
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In the opinion of the board of directors, Hydro's equity capital is appropriate to the company's objectives, strategy and risk profile. |
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Learn more about Hydro's equity and dividend policy. |
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Hydro's dividend policy is to pay out an average of 30 percent of net earnings over time.
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The board of directors may obtain authorization from the general meeting of shareholders to buy back Hydro shares in the market. In such cases, the board will normally request that the shares be acquired in the open market, and that the authority lasts no longer than until the next general meeting. Such authority was not given in 2012. |
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When the general meeting of shareholders considers whether or not to authorize the board of directors to carry out share capital increases for multiple purposes, each purpose must be considered separately by the meeting. Such authorization will be limited in time, and will last no longer than until the date of the next general meeting. Authorization granted to the board of directors is restricted to specific purposes. One example of this is the Vale transaction in 2011, where the board was authorized to issue consideration shares to Vale. |
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See also item 4. |
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4
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Equal treatment of shareholders.
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Hydro has one share class. All the shares have the same rights. |
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Learn more about the Hydro share |
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Transactions involving own shares are normally executed on the stock exchange. Buybacks of own shares are executed at the current market rate.
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Shareholders who are registered in the Norwegian Central Securities Depository (VPS) may vote in person or by proxy. Invitations are sent to the shareholders or to the bank/broker where the shareholder's securities account is held.
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Sales of shares to employees are conducted at a discount to market value. See also item 6. |
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Note 11 to the consolidated finacial statements |
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Contact between the board of directors and the investors is normally conducted via the management. Under special circumstances the board, represented by the chairperson, may conduct dialog directly with investors. |
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On February 28, 2011 the agreement to take over the majority of Vale's aluminium business in Brazil was concluded. Vale received a consideration totaling USD 1.1 billion in cash and new Hydro shares equivalent to a 22 percent share of the company's outstanding share capital. To partly finance the transaction, support the company's investment class credit rating and capacity to implement future projects, Hydro completed a fully subscribed rights issue of NOK 10 billion in July 2010. Also in July 2010, information on the consequences of the issue for existing and new shareholders was made public in press releases, in the rights issue prospectus, in the memorandum that was prepared in connection with Hydro's takeover of the majority of Vale S.A.'s bauxite, alumina and aluminium activities in Brazil and at the extraordinary general meeting. See also items 8 and 9. |
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Transactions with related parties |
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Hydro's code of conduct contains guidelines for, among other things, how any conflicts of interest that may arise should be dealt with. The code applies to all of Hydro's board members and employees. It is the opinion of the board of directors that there were no material transactions between the group and its shareholders, board members, management or related parties in 2012. |
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Hydro's code of conduct |
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Regulation of share issues and pre-emptive rights are described in the Articles of Associations.
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Hydro's Articles of Association |
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State ownership |
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As of December 31, 2012 the Norwegian state, represented by the Ministry of Trade and Industry, owned 34.26 percent of Hydro's issued shares. Hydro holds regular meetings with the Ministry, where topics discussed include Hydro's economic and strategic development, corporate social responsibility, and the Norwegian State's expectations regarding results and returns on investments. These meetings are comparable to what is customary between a private company and its principal shareholders. The meetings comply with the provisions specified in Norwegian company and securities legislation, not least with respect to equal treatment of shareholders. As a shareholder, the Norwegian state does not usually have access to more information than what is available to other shareholders. If state participation is imperative and the government must seek approval from the Norwegian parliament (Stortinget), it may be necessary to provide the Ministry with insider information. In such cases, the state is subject to the general rules that apply to the handling of such information. |
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Hydro's major shareholders |
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5
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Freely negotiable shares
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The Hydro share is freely negotiable. It is among the most traded shares on the Oslo Stock Exchange and is subject to efficient pricing. |
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The Hydro share |
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As of December 31, 2012 the Norwegian state, represented by the Ministry of Trade and Industry, owned 34.26 percent of Hydro's shares, while the Government Pension Fund Norway owned 3.89 percent. |
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Under the transaction with Hydro, Vale received 22 percent of Hydro's outstanding shares. At the same time, Norwegian state ownership, represented by the Ministry of Trade and Industry, was reduced from 43.73 percent to 34.3 percent. Under the agreement between Hydro and Vale, Vale may not increase its ownership interest in Hydro beyond 22 percent. Furthermore, Vale must retain its shares in Hydro for at least two years after the transaction is completed, and must not sell shares constituting more than 10 percent of Hydro's issued shares to any individual buyer or group. |
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6
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General meeting of shareholders |
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Notice of a general meeting of shareholders with supporting information is normally published on www.hydro.com approximately four weeks in advance, and is sent to the shareholders at least three weeks before the meeting is held. |
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Learn more about the general meeting of shareholders |
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Notice of a general meeting of shareholders provides information on the procedures which shareholders must observe in order to participate in and vote at the meetings. Such notice also details:
• the procedure for representation by proxy, including the use of a form of proxy
• the right of shareholders to propose resolutions for consideration by the general meeting of shareholders.
• the website where the notice of the meeting and other supporting documents will be made available |
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The following information is available at www.hydro.com:
• information on the right of shareholders to propose matters for consideration by the general meeting of shareholders
• how to make proposals for resolutions for consideration by the general meeting or how to comment on matters for which no resolution is proposed
• form of proxy |
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Our aim is that resolution proposals and supporting information that are distributed are sufficiently detailed and comprehensive to enable shareholders to reach decisions on the matters to be considered at the meeting. |
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The notification deadline for shareholders wishing to attend the general meeting of shareholders is maximum five days prior to the meeting. |
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Shares registered in a nominee account must be re-registered in the Norwegian Central Securities Depository at least five working days before the general meeting of shareholders in order to obtain voting rights. |
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Shareholders who are unable to attend in person may vote by proxy. Hydro will nominate a person who will be available to vote on behalf of shareholders as their proxy. |
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The general meeting of shareholders votes for each candidate nominated for election to the company's corporate assembly and nomination committee. |
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To the extent possible, the form of proxy will facilitate separate voting instructions for each matter to be considered by the meeting and for each of the candidates nominated for election. It is possible to vote electronically in advance. |
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The general meeting of shareholders is chaired by the chair of the corporate assembly or, in his or her absence, by the deputy chair. |
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The chairperson of the board of directors, the nomination committee representative and the auditor attend the general meeting. |
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Deviation: See the top of this page. |
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| 7 |
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Nomination committee
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In accordance with Hydro's articles of association, the company must appoint a nomination committee. This committee comprises four members who are either shareholders or shareholder representatives. The committee's chair and members are appointed by the general meeting of shareholders. At least two, including the chair, must be elected from among the representatives in the corporate assembly elected by the shareholders. |
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Hydro's Articles of Association
More information about Hydro's nomination committee
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The general meeting of shareholders established in 2011 guidelines for the nomination committee. The general meeting determines the remuneration of the committee. All shareholders may propose candidates for the nomination committee at any time. In order to be considered at the next ordinary election, proposals must be submitted by the end of January in the election year. |
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Nominations can be submitted electronically |
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The recommendations of the nomination committee include details on the candidates' background and independence.
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The nomination committee ensures that due attention is paid to the interests of the shareholder community and the company's requirements for competence, capacity and diversity. The nomination committee also takes account of relevant statutory requirements regarding the composition of the company's governing bodies. |
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All members of the nomination committee are independent of Hydro's board of directors, Chief Executive Officer and other executive management. |
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8
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Corporate assembly and board of directors: composition and independence |
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All board directors, members of the board committees and members of the corporate assembly are independent of the company's executive management and material business relationships. One member of the corporate assembly and one member of the board of directors are dependent of major Hydro shareholders: Lars Tronsgård, who is an employee of the Government Pension Fund Norway, is a member of the corporate assembly, while Pedro Jose Rodrigues, who is global director of Mergers and Acquisitions in Vale S.A., is a member of the board of directors. |
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Members of the corporate assembly
The current composition of the board of directors and information about their independence
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Two thirds of the corporate assembly and its deputies are elected by the general meeting of shareholders. The nomination committee nominates candidates with a view to obtain a broad representation by the company's shareholders and other relevant stakeholders with competence in, for example, technology, finance, and corporate social responsibility. |
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Vale S.A. and the Government Pension Fund Norway are significant shareholders in Hydro.
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The corporate assembly elects the board directors, including its chair and deputy chair. |
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In compliance with the company's articles of association, the board of directors consists of between nine and 11 members. These are elected for a period of two years. The upper age limit for members of the board and the corporate assembly is 70. |
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Articles of association |
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The nomination committee aims to achieve a board composition whereby the members complement each other professionally and the board of directors is able to function as a corporate body. |
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Since February 28, 2011 Vale has had a representative on Hydro's board. This decision was approved by Hydro's general meeting of shareholders and corporate assembly. |
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As of December 31, 2012, seven of the board's directors own a total of 106,015 shares. Hydro has no share purchase program for board members, with the exception of employee representatives, who are entitled to buy shares through the employee share purchase scheme. All share purchase transactions are conducted in compliance with the Securities Trading Act. Vale owns 447,834,465 shares in Hydro. |
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9
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The work of the board of directors |
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The board of directors has established procedures for its own work and that of the company's management, with particular emphasis on clear internal division of responsibilities whereby the board has responsibility for supervising and administrating the company and the company's management has responsibility for the general operation of the group. |
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The board of director's mandate
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If the chairperson of the board is or has been actively involved in a given case, for example in negotiations on mergers, acquisitions etc., another board director will normally lead discussions concerning that particular case. |
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The board of directors has an annual work plan, with particular emphasis on objectives, strategy and implementation. |
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Since 2001, Hydro has had an audit committee and a compensation committee. The audit committee consists of three shareholder-elected and one employee-elected board member. The shareholder-elected members are all independent of the company. In the opinion of the board of directors, the audit committee meets the Norwegian requirements regarding independence and competence. |
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The audit committee |
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The board of directors conducts an annual self-assessment of its work, competence and cooperation with management and a separate assessment of the chairperson of the board. Both assessments are submitted to the nomination committee, which in turn assesses the board's composition and competence. |
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The compensation committee |
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10
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Risk management and internal controls |
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The board of directors ensures that the company has sound internal controls and appropriate risk management systems through, for example, an annual review of the key risk areas and the company's internal controls. Internal audit corporate reports directly to the board of directors, but is for administrative purposes placed under the purview of the chief financial officer. |
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A review of Hydro'smain risks can be found at page 123 in Hydro's annual report 20120 |
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Hydro's internal control system includes all parts of our corporate directives, including our code of conduct and HSE and corporate social responsibility requirements. The annual report contains a more detailed description of the company's internal controls and risk management systems related to financial reporting. |
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11
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Remuneration of the Board of Directors |
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The board directors elected by the shareholders perform no duties for the company other than their board duties. |
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All aspects of remuneration of the board of directors are described in note 44 to the consolidated financial statements. |
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Remuneration is determined by the corporate assembly, based on the recommendation of the nomination committee. The nomination committee recommends compensation with the intention that it should reflect the board's responsibility, competence and time commitment as well as the company's complexity and global activities compared with the general level of directors' fees in Norway. Remuneration of the board of directors is based neither on performance nor on shares. |
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Hydro's Articles of Association |
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12
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Remuneration of the executive management |
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The board of directors has established guidelines for remuneration of members of the executive management. These guidelines are communicated to the general meeting of shareholders and included in the annual report. The guidelines for determining remuneration of the executive management are based on the main principles for Hydro's remuneration policy, which is that Hydro shall pay its employees a total compensation package that is competitive, but not among the highest, and in line with good industry standards locally. Where appropriate, compensation packages should also include a performance-based component, and the basic salary should reflect individual performance. |
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The board's guidelines for management remuneration are described in Note 10 to the consolidated financial statements
All aspects of remuneration for executive management are described in note 11 to the consolidated financial statements.
Hydro's remuneration policy is also described in Hydro's People Policy
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The guidelines are also intended to contribute to long-term value creation for the company's shareholders. A ceiling has been set on performance-based compensation. The company has share-based long-term incentive programs, but no share option scheme for its executive management. |
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See also page 22 in Htydro's annual report 2012
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13
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Information and communication |
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Hydro has established guidelines for the company's reporting of financial and other information based on transparency and with regard to the requirement of equal treatment of all parties in the securities market. This also pertains to contact with shareholders outside of the general meeting. |
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Learn more on page, 131 and 141 in Hydro's annual report 2012 |
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A financial calendar is available in Hydro's annual report and on www.hydro.com |
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See the financial calendar where also information about the web casts can be found |
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Shareholder information is available on www.hydro.com. The financial statements and annual report are sent free of charge to shareholders on request. Notice of general meeting of shareholders is sent directly to shareholders unless they have consented to receive these documents electronically. All information sent to the shareholders is made available at hydro.com when distributed. Presentations of the quarterly reports as well as the annual shareholder meeting are simultaneously broadcasted through web casts. |
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Hydro has emergency plans that are regularly exercised. Rules for who can speak on behalf of the company are regulated through Hydro's Code of Conduct. |
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14
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Takeovers
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The board of directors will handle takeover bids in accordance with Norwegian law and the Norwegian Code of Practice for Corporate Governance. There are no defense mechanisms against acquisition offers 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. See also item 5. |
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Despite the restrictions described in item 5 to which Vale is subject, Vale may sell its shares in Hydro to a third party on the following conditions: The third party must make an unconditional offer for all the Hydro shares or the offer must be recommended by Hydro's board of directors, and the third party must own or become the owner of 50 percent of Hydro's shares during the bidding period before Vale may sell its shares to a third party. |
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Deviations: See top of this page. |
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15
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Auditor
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Every year the external auditor presents to the audit committee the main features of the plan for the audit of the company. |
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Learn more about the external auditor on page 94, 140, F72 and note 43 to the consolidated financial statements. |
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The external auditor participates in considering relevant matters at all meetings of the audit committee. The minutes from these meetings are distributed to all the board directors. This practice is in line with the EU audit directive. |
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Each year the auditor expresses its opinion on internal control procedures to the audit committee including identified weaknesses and proposals for improvement. |
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The auditor participates in board meetings where the company's financial statements are discussed. At these meetings the auditor will review material changes in the company's accounting policies, assess material accounting estimates and any other material matters on which the auditor and management may disagree, and identify weaknesses in and suggest improvements to the company's internal controls. |
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The board of directors and the audit committee at least annually hold meetings with the external auditor without members of the corporate management present. |
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Hydro places importance on independence and has clear guidelines regarding the use of services from external auditors. All use of services from an external auditor, including non-audit services, is subject to prior approval as defined by the audit committee. |
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Remuneration of the auditor is stated in the annual report. It is also included as a separate agenda item to be approved by the annual general meeting of shareholders. |
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On 4 May 2010, the general meeting of shareholders chose KPMG as new external auditor for the group with effect from the reporting period 2010. |
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