Good corporate governance contributes to value creation

Statkraft's corporate governance will contribute to sustainable and permanent value creation in the Group. Efficient and transparent management and control of the activities will form the basis for creating long-term value for the owner, employees, other stakeholders and society in general, and will help engender confidence among stakeholders through predictability and credibility. Open and accessible communication will ensure that the company has a good relationship with society in general and the stakeholders who are affected by the company’s activities in particular.

Statement concerning Corporate Governance

Statkraft applies the Norwegian Code of Practice for Corporate Governance (NUES) within the framework established by the company's organisation and ownership. Non-compliances are attributable to the fact that Statkraft is not a publicly listed company and that the Norwegian state is the sole owner of the company, as well as restrictions contained in the Articles of Association. The non-compliances relate to non-discrimination of shareholders, tradability of shares, dividends, the annual general meeting, election committee and corporate assembly. Statkraft also complies with the Norwegian state's ten principles   for good corporate governance. The principles are based on how the state will act as an owner as well as what the state expects from the companies it owns.

See illustration of corporate governance in Statkraft (pdf)

A statement concerning follow-up of the items in the Norwegian Code of Practice for Corporate Governance is given below.

Corporate governance statement 

Statkraft's board of directors endorses the Norwegian Code of Practice for Corporate Governance.
The code has been applied to the extent permitted by the company's organisation and ownership. Non-compliances are attributable to the fact that Statkraft is not a publicly listed company and that the Norwegian state is the sole owner of the company, as well as restrictions contained in the Articles of Association.

Statkraft’s corporate governance principles establish the relationship between the company’s owner, board of directors and management.

Sustainable and responsible behaviour is a cornerstone for Statkraft and must be characteristic of Statkraft's activities in all markets where the company is present. Corporate Social Responsibility is the key to a successful, sustainable business. The company's basic ethical principles are described in Statkraft's code of conduct and set requirements for both its employees and business partners. Through clear requirements and consistent practices, we will build trust and loyalty among employees, business partners, customers and society in general.

Business

Statkraft’s Articles of Association state that: “The object of the Company is, alone, or through participation in or cooperation with other companies, to plan, design, construct and operate energy production facilities, undertake financial and physical energy trading, and operate businesses which are naturally associated therewith.

Statkraft AS is registered in Norway and its management structure is based on Norwegian company law. Statkraft is also subject to the Norwegian Securities Trading Act and stock exchange regulations associated with the company’s debt obligations. In addition, the company’s Articles of Association, vision, values, business principles, corporate responsibility policies and ethical guidelines govern the company’s business.

Share capital and dividend

In December 2010, the Storting adopted the government's proposal for new balancing of the national budget and to increase the contributed capital of Statkraft SF. NOK 70 will be paid for each share. This means that the total share contribution amounts NOK 14 billion, of which NOK 10 billion is shareholders' equity and NOK 4 billion is premium. The shareholder's equity has been raised to NOK 30 billion by raising the nominal value of the shares from NOK 100 to NOK 150. 

Section 4 of Statkraft AS' Articles of Association have been amended as follows:
”The company's shareholders' equity totals NOK 30 000 000 000, divided among 200 000 000 shares of NOK 150 each. The company's shares can only be owned by Statkraft SF.”

The board of directors focuses continuously on ensuring that the equity is adapted to the company's objectives, strategy and risk profile.

Capital increases are processed through the general meeting of Statkraft SF and the general meeting of shareholders in Statkraft AS. There is therefore no authority for the board to increase the capital.

Deviation from the recommendation. In its Ownership Report, Report no. 13 to the Storting (2006-2007), ,the Norwegian government states that the dividend from Statkraft will normally lie in the upper quartile. The government further states that it does not believe it necessary to introduce the Norwegian Companies’ Act’s normal regulations for determination of dividend from state-owned companies.

See Note 35 for further information on the company's equity.

Equal treatment of shareholders and transactions with related parties

Deviation from the recommendation. All shares in Statkraft AS are owned by the state-owned enterprise Statkraft SF, which in turn is wholly owned by the Ministry of Trade and Industry. The Articles of Association of Statkraft SF and Statkraft AS ensure that transactions of material importance with respect to the objectives of the company or the nature of its business are referred to the state-owned enterprise, as the parent company. The current Norwegian government has resolved that Statkraft shall continue to be wholly state-owned and has expounded its principles for management of the state’s ownership in its Ownership Report.

The instructions to the board of Statkraft state that neither board members nor the CEO and President may participate in the processing or deciding of issues that are of substantial personal or financial interest to them or closely related parties. Any persons in such a situation must, on their own initiative, state any interest they or their closely related parties may have in the deciding of an issue.

The same follows from the Group's ethical rules.

Freely negotiable

Deviation from the recommendation. Statkraft AS is wholly state-owned through Statkraft SF, and the shares cannot be traded.

General meeting

Deviation from the recommendation. The shareholder exercises supreme authority over Statkraft AS through the annual general meeting. As the owner of all the shares, Statkraft SF will constitute the annual general meeting of Statkraft AS. In accordance with the Articles of Association of Statkraft SF, the corporate meeting of the enterprise, i.e. the Ministry of Trade and Industry, shall grant the authority to appear and vote at the annual general meeting of Statkraft AS.

The annual general meeting reviews and resolves business matters in accordance with Norwegian law, including approval of the annual financial statements and directors’ report, distribution of dividends, election of an auditor and approval of auditor’s fees. In addition, the annual general meeting appoints shareholder-elected members to the board and adopts amendments to the Articles of Association. The ordinary general meeting is held once a year by the end of June.

Election committee

Deviation from the recommendation. Statkraft AS has no election committee as the state is the sole owner and determines the composition of the board.

The corporate assembly and board of directors, composition and independence

Deviation from the recommendation. Statkraft AS has entered into an agreement with its employees’ trade unions stipulating that the company will not have a corporate assembly, pursuant to the exception provisions of the Norwegian Companies’ Act.

The board consists of seven to nine members, as determined by the annual general meeting, and the term of office is two years. Two or three members are elected by and from among the company’s employees in accordance with the regulations of the Norwegian Companies’ Act. The other members are elected by the annual general meeting. The current board has nine members. Of these members, three have been elected by the employees based on the agreement that the company will not have a corporate assembly. Four of the members of the board are women.

The Ministry of Trade and Industry reviews the composition of the board through an arrangement where the boards of Statkraft AS and Statkraft SF are identical. The objective is to achieve diversity in the board as regards expertise, industrial understanding, gender and geographical affiliation. Continuity is also sought on the board.

The board members are evaluated on the basis of their competence and independence, which excludes, for example, employees of the owner ministry or individuals with commercial interests in the industry from being board members. The board shall furthermore be independent of the company’s executive employees. The current challenges facing the company are taken into consideration in establishing the composition of the board.

The background and expertise of the individual board member can be found on Statkraft's web site (http://www.statkraft.no/om-statkraft/organisasjonen/styret/). Overview of the members' participation in board meetings can be found in Note xx of the annual report.

The work of the board of directors

The board has established instructions for the board of Statkraft AS that lay down guidelines for the board’s work and decision-making procedures. The board’s tasks are described in general by Norwegian company law and the company’s Articles of Association. The rules of procedure also define the tasks and obligations of the President and CEO in relation to the board. The board evaluates the work and expertise of the CEO annually. The board evaluates its own performance and expertise annually.

The board’s audit committee comprises four of the board’s members.   The Committee shall perform preparatory work in respect of the board’s administration and supervision tasks in the following areas:

• Quality in external financial reporting

• Internal control in connection with financial reporting and asset management

• The external auditor’s qualifications, the quality of external audits and the external auditor’s independence

• The Group auditors' qualifications and the quality of internal audit work

At least one member of the Audit Committee shall have experience in accounts management, financial management or auditing. The committee has meetings with the external auditor to review the quarterly reporting and otherwise as required.

The board’s compensation committee comprises the chair of the board and two other board members which make recommendations to the board with regard to the salary and other benefits paid to the President and CEO, as well as on matters of principle related to salary levels, bonus systems and pension terms, employment contracts and similar benefits for the company’s executive managers.   Under certain conditions this also applies to other Statkraft employees.

Risk management and internal control

Statkraft is exposed to risk in a number of areas and across its entire value chain. The management of risk is important for value creation. It is an integrated part of all business activities and is followed up within the respective unit by means of procedures for the monitoring and mitigation of risk. The Group's risk function monitors  Statkraft's total risk on the group level and reports regularly to the corporate management and board of directors.

The overall management system defines the Group's code of conduct and ensures a good control environment to fulfil the corporate management's objectives and intentions. Requirements related to internal control have been incorporated into the areas HSE, ethics, ICT, corporate social responsibility as well as accounting and financial reporting.
Statkraft works diligently to strengthen and systematise internal control over the Group's financial reporting. The system must contribute to reliable accounting information in monthly, quarterly and annual reports. The main elements of the system are risk assessment, control measures, self-evaluation, reporting and continuous exercise of control and compliance follow-up. Statkraft bases the work of internal control over financial reporting based on the COSO framework for internal control, published by the Committee of Sponsoring Organizations of the Treadway Commission.

Most of Statkraft’s quality control and environmental management systems are certified in accordance with the ISO 9001:2000 quality standard and the ISO 14001:2004 environmental standard. Internal audits are conducted according to an annual rolling plan, and external follow-up audits are performed in accordance with the relevant standards.

As part of the Group’s internal control system, Statkraft has established a corporate audit function to assist the board and management in making an independent and impartial evaluation of the Group’s key risk management and control procedures. Corporate Audit shall also contribute to ongoing quality improvement in internal management and control systems. The Head of Corporate Audit acts as notification body for unethical or illegal matters. The annual corporate audit report and auditing plan for the coming year is submitted to and approved by the board.

The main elements of the company's internal control and risk management are described in detail in Risk Management.

Board remuneration

The board's remuneration reflects the board's responsibilities, expertise, time spent and the complexity of the activities. The compensation is not related to the company's results.

Board remuneration is described in Note 36.

Remuneration to executive employees

The board’s compensation committee evaluates the salary of the President and CEO and the rest of the company’s senior management. The executive vice presidents have a bonus scheme that can pay up to a maximum of NOK 500 000 annually, based on defined criteria and achievement of results in their own areas of responsibility.

Remuneration to executive employees is described in Note 36.

Information and communication

The board has stipulated guidelines for reporting financial and other information.

Statkraft emphasises open and honest communications with all its stakeholders and places the greatest focus on the stakeholders who are directly affected by Statkraft’s business. The information the company provides to its owner, lenders and the financial markets in general shall provide sufficient details to permit an evaluation of the company’s underlying values and risk exposure. To ensure predictability, the owner and the financial markets shall be treated equally, and information shall be communicated in a timely manner. Statkraft’s financial reports must be transparent, and provide the reader with a broad, relevant and reliable overview of its strategies, targets and results, as well as its consolidated financial performance.

Takeovers

Deviation from the recommendation. The item is not relevant as the current government has stated that Statkraft will remain wholly owned by the state.

Auditor

The annual general meeting appoints the auditor based on the board’s proposal and approves the auditor’s fees. The auditor serves until a new auditor is appointed. The assignment as the appointed auditor is put up for tender at regular intervals, and the current auditor was reappointed following a tender process in 2010.

The board, represented by audit committee, holds meetings with the external auditor in connection with the processing of the annual financial statements and otherwise as required. The audit committee evaluates the external auditor’s independence and has established guidelines for the use of the external auditor for consultancy purposes. In accordance with the requirement to maintain the auditor’s independence, Statkraft will only make limited use of the external auditor for tasks other than statutory financial audits.

The auditor will present an annual written report to Statkraft’s audit committee as part of the ordinary audit. The board is advised of the main elements of this report.