The Code of Practice is intended to strengthen confidence in listed Companies, among shareholders, the capital market and other interested parties. It is important that Companies builds good relationships with society as a whole, and particularly with the stakeholder groups that are affected by their business activities. Companies should therefore pay careful attention to establishing guidelines for their activities that take into account these issues.
This Code of Practice is principally intended for companies that are required by the Norwegian Accounting Act to provide a report on their policies and practices for corporate governance. This mainly relates to companies whose shares are listed on regulated markets in Norway.
This Code of Practice addresses 15 major topics, with a separate section for each topic as follows:
IMPLEMENTATION AND REPORTING ON CORPORATE GOVERNANCE:
The Board of Directors must ensure that the company implements sound corporate governance. The Board of Directors must provide a report on the company’s corporate governance in the directors' report or in a document that is referred to in the directors' report. The report on the company's corporate governance must cover every section of the Code of Practice. If the company does not fully comply with this Code of Practice, the company must provide an explanation of the reason for the deviation and what solution it has selected.
The board of directors should define the company’s basic corporate values and formulate ethical guidelines for Corporate Social Responsibility in accordance with these values.
The company’s business should be clearly defined in its articles of association. The company should have clear objectives and strategies for its business within the scope of the definition of its business in its articles of association.
The annual report should include the business activities clause from the articles of association and describe the company’s objectives and principal strategies.
- EQUITY AND DIVIDENDS:
The company should have an equity capital at a level appropriate to its objectives, strategy and risk profile. The board of directors should establish a clear and predictable dividend policy as the basis for the proposals on dividend payments that it makes to the general meeting. The dividend policy should be disclosed.
The background to any proposal for the board of directors to be given a mandate to approve the distribution of dividends should be explained.
EQUAL TREATMENT OF SHAREHOLDERS AND TRANSACTIONS WITH CLOSE ASSOCIATES:
The Company should only have one class of shares. Any decision to waive the pre-emption rights of existing shareholders to subscribe for shares in the event of an increase in share capital should be justified. Where the board of directors resolves to carry out an increase in share capital and waive the pre-emption rights of existing shareholders on the basis of a mandate granted to the board, the justification should be publicly disclosed in a stock exchange announcement issued in connection with the increase in share capital.
Any transactions the Company carries out in its own shares should be carried out either through the stock exchange or at prevailing stock exchange prices if carried out in any other way. If there is limited liquidity in the company’s shares, the company should consider other ways to ensure equal treatment of all shareholders.
The company should operate guidelines to ensure that members of the Board of Directors and executive personnel notify the board if they have any material direct or indirect interest in any transaction entered into by the company.
FREELY NEGOTIABLE SHARES:
The Company’s shares must, in principle, be freely negotiable. Therefore, no form of restriction on negotiability should be included in a company’s articles of association.
The Board of Directors should take steps to ensure that as many shareholders as possible may exercise their rights by participating in general meetings of the company, and that general meetings are an effective forum for the views of shareholders and the board.
Such steps should include:
- notice calling the meeting and the supportive information on the resolutions to be considered at the general meeting, including the recommendations of the nomination committee, to be made available on the company’s website no later than 21 days prior to the date of the general meeting;
- ensuring 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;
- setting any deadline for shareholders to give notice of their intention to attend the meeting as close to the date of the meeting as possible;
- the board of directors and the person chairing the meeting making appropriate arrangements for the general meeting to vote separately on each candidate nominated for election to the company's corporate bodies;
- ensuring that the members of the board of directors and the nomination committee and the auditor are present at the general meeting;
- making arrangements to ensure an independent chairman for the general meeting
- shareholders who cannot attend the meeting in person should be given the opportunity to vote.
The Company should have a nomination committee, and the general meeting should elect the chairperson and members of the nomination committee and should determine the committee's remuneration.
The nomination committee should have contact with shareholders, the board of directors and the company’s executive personnel as part of its work on proposing candidates for election to the board.
The majority of the committee should be independent of the board of directors and the executive personnel. At least one member of the nomination committee should not be a member of the corporate assembly, committee of representatives or the board. Not more than one member of the nomination committee should be a member of the board of directors, and any such member should not offer himself for re-election to the board. The nomination committee should not include the company’s chief executive or any other executive personnel.
The nomination committee’s duties are to propose candidates for election to the corporate assembly and the Board of Directors and to propose the fees to be paid to members of these bodies.
The nomination committee should justify its recommendations. The company should provide information on the membership of the committee and provide suitable arrangements for shareholders to submit proposals to the committee for candidates for election.
CORPORATE ASSEMBLY AND BOARD OF DIRECTORS: COMPOSITION AND INDEPENDENCE:
Where a company has a corporate assembly, the composition of the corporate assembly should be determined with a view to ensuring that it represents a broad cross-section of the company’s shareholders.
The composition of the board of directors should ensure that the board can attend to the common interests of all shareholders and meets the company’s need for expertise, capacity and diversity.
Attention should be paid to ensuring that the board can function effectively as a collegiate body. The composition of the board of directors should ensure that it can operate independently of any special interests.
The majority of the shareholder-elected members of the board should be independent of the company’s executive personnel and material business contacts. At least two of the members of the board elected by shareholders should be independent of the company’s main shareholder(s).
The annual report should provide information to illustrate the expertise of the members of the board of directors, and information on their record of attendance at board meetings. In addition, the annual report should identify which members are considered to be independent. Members of the board of directors should be encouraged to own shares in the company.
THE WORK OF THE BOARD OF DIRECTORS:
The board of directors should produce an annual plan for its work, with particular emphasis on objectives, strategy and implementation.
The board of directors should issue instructions for its own work as well as for the executive management with particular emphasis on clear internal allocation of responsibilities and duties.
In order to ensure more independent consideration of matters of a material character in which the chairman of the board is, or has been, personally involved, the board's consideration of such matters should be chaired by some other member of the board.
The Public Companies Act stipulates that large companies must have an audit committee. The entire Board of Directors should not act as the company’s audit committee. Smaller companies should give consideration to establishing an audit committee. In addition to the legal requirements on the composition of the audit committee etc., the majority of the members of the committee should be independent.
The board of directors should also consider appointing a remuneration committee in order to help ensure thorough and independent preparation of matters relating to compensation paid to the executive personnel. Membership of such a committee should be restricted to members of the board who are independent of the company’s executive personnel.
RISK MANAGEMENT AND INTERNAL CONTROL:
The board of directors must ensure that the Company has sound internal control and systems for risk management that are appropriate in relation to the extent and nature of the company’s activities. Internal control and the systems should also encompass the company’s corporate values, ethical guidelines and guidelines for corporate social responsibility. The board of directors should carry out an annual review of the company’s most important areas of exposure to risk and its internal control arrangements.
REMUNERATION OF THE BOARD OF DIRECTORS:
The remuneration of the board of directors should reflect the board’s responsibility, expertise, time commitment and the complexity of the company’s activities. The remuneration of the board of directors should not be linked to the company’s performance.
The company should not grant share options to members of its board. Members of the board of directors and/or companies with which they are associated should not take on specific assignments for the company in addition to their appointment as a member of the board. If they do nonetheless take on such assignments this should be disclosed to the full board.
The remuneration for such additional duties should be approved by the board. Any remuneration in addition to normal directors’ fees should be specifically identified in the annual report.
REMUNERATION OF EXECUTIVE PERSONNEL:
The board of directors is required by law to prepare guidelines for the remuneration of the executive personnel. These guidelines are communicated to the annual general meeting.
The board of director’s statement on the remuneration of executive personnel should be a separate appendix to the agenda for the general meeting. It should also be clear which aspects of the guidelines are advisory and which, if any, are binding. The general meeting should vote separately on each of these aspects of the guidelines. The guidelines for the remuneration of the executive personnel should set out the main principles applied in determining the salary and other remuneration of the executive personnel. The guidelines should help to ensure convergence of the financial interests of the executive personnel and the shareholders.
Performance-related remuneration of the executive personnel in the form of share options, bonus programmes or the like should be linked to value creation for shareholders or the company's earnings performance over time. Such arrangements, including share option arrangements, should incentivize performance and be based on quantifiable factors over which the employee in question can have influence. Performance related remuneration should be subject to an absolute limit.
INFORMATION AND COMMUNICATIONS:
The Board of Directors should 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. The company should publish an overview each year of the dates for major events such as its annual general meeting, publication of interim reports, public presentations, dividend payment date if appropriate etc.
All information distributed to the company’s shareholders should be published on the company’s web site at the same time as it is sent to shareholders. The board of directors should establish guidelines for the company’s contact with shareholders other than through general meetings.
The board of directors should establish guiding principles for how it will act in the event of a take-over bid. In a bid situation, the company’s board of directors and management have an independent responsibility to help ensure that shareholders are treated equally, and that the company’s business activities are not disrupted unnecessarily. The board has a particular responsibility to ensure that shareholders are given sufficient information and time to form a view of the offer.
If an offer is made for a company’s shares, the company’s board of directors should issue a statement making a recommendation as to whether shareholders should or should not accept the offer. The board’s statement on the offer should make it clear whether the views expressed are unanimous, and if this is not the case it should explain the basis on which specific members of the board have excluded themselves from the board’s statement. The board should arrange a valuation from an independent expert. The valuation should include an explanation, and should be made public no later than at the time of the public disclosure of the board’s statement. Any transaction that is in effect a disposal of the company’s activities should be decided by a general meeting, except in cases where such decisions are required by law to be decided by the corporate assembly.
The auditor should submit the main features of the plan for the audit of the company to the audit committee annually. The auditor should participate in meetings of the board of directors that deal with the annual accounts. At these meetings the auditor should review any material changes in the company’s accounting principles, comment on any material estimated accounting figures and report all material matters on which there has been disagreement between the auditor and the executive management of the company.
The auditor should at least once a year present to the audit committee a review of the company’s internal control procedures, including identified weaknesses and proposals for improvement. The board of directors should hold a meeting with the auditor at least once a year at which neither the chief executive nor any other member of the executive management is present.
The board of directors should establish guidelines in respect of the use of the auditor by the company’s executive management for services other than the audit. The board of directors must report the remuneration paid to the auditor at the annual general meeting, including details of the fee paid for audit work and any fees paid for other specific assignments.
Good corporate governance will strengthen confidence in companies and help to ensure the greatest possible value creation over time in the best interests of shareholders, employees and other stakeholders. Listed companies manage a significant proportion of the country’s assets, and generate a major part of value creation. It is therefore in the interests of society as a whole that companies are directed and controlled in an appropriate and satisfactory manner. Therefore this code will serve the purpose of the requirement.