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established at General Meetings.
The Board of Directors is responsible for ensuring that the Group’s organization is appropriate for its purpose, and conducts ongoing evaluations of the Company’s procedures and of the guidelines for the management and investment of Company funds. The Board also safeguards the Company’s financial accounting and internal control and the quality of its financial reporting through the system for internal control that is described in detail in the section entitled “Report on internal control” on page 85.
Working procedures for the Board of Directors
The working procedures for the Board of Directors are established annually at the statutory meeting. The working procedures include instructions relating to the role of the Chairman of the Board, the division of responsibilities between the Board of Directors and the President and guidelines for financial reporting to the Board. The working procedures also stipulate that the Company must have an Audit Committee and a Compensation Committee.
Activities of the Board of Directors during 2006
The number of Board meetings during 2006 was seven, of which six were scheduled meetings and one an extraordinary meeting held by means of correspondence. Of the ordinary meetings, six were in Stockholm and one in Richmond, Virginia, USA.
The Board of Directors sitting at the end of 2006 held its 2006 statutory meeting on the same day as the Annual General Meeting, whereby decisions were made concerning the working procedures for the Board and instructions for the Compensation and Audit Committees. In addition, customary decisions were made concerning the election of the secretary (general counsel Bo Aulin) and authorized signatories. Members of the Compensation Committee and Audit Committee were also appointed.
In addition to reviewing the business in relation to the budget and strategic plan and strengthening the Company’s internal control systems, the Board devoted considerable time to considering the Company’s strategic orientation, structural issues, external issues, follow-up of acquisitions, distribution of surplus funds and structures for incentives and benefits.
In conjunction with the Board’s meeting in August, visits were made to the Group’s production facilities in Owensboro (Kentucky, USA) and Santiago (Dominican Republic).
All of the meetings held during the year followed an approved agenda. Prior to each meeting, an agenda plan and documents relevant to every point on the agenda were sent to the Board. Bo Aulin, the Company’s general counsel and also Board secretary, and Chief Financial Officer Lars Dahlgren attended all of the Board meetings held during the year. The Company’s auditor attended the Board meeting in February to present the audit report and observations from the audit.
Chairman of the Board
The Chairman of the Board is responsible, in all essential respects, for organizing and directing the Board’s work and for ensuring that the Board fulfills its obligations. Through regular contact with the President, the Chairman of the Board monitors the Company’s operations and development and ascertains that the Board of Directors continuously receives the information required for upholding the quality of the Board’s work and that this work is performed in compliance with the Swedish Companies Act. The Chairman’s other responsibilities include forwarding the owners’ opinions to the Board of Directors.
The Chairman of the Board during 2006 was Bernt Magnusson, who has announced that he will not stand for re-election at the 2007 Annual General Meeting.
Audit Committee
The Audit Committee is appointed annually by the Board of Directors. Members during 2006 were Jan Blomberg (member and also chairman until April 20), Meg Tivéus (chairman as of April 20), Andrew Cripps (as of April 20), Karsten Slotte and Kersti Strandqvist.
Although the Committee’s work is primarily of a preparatory and advisory nature, the Board of Directors may in special cases delegate decision-making authority to the Committee. The Committee is responsible for overseeing procedures for accounting and financial reporting as well as for overseeing the auditing of the Group’s accounting records. Its reviews focus on the quality and correctness of the Group’s financial accounting and the associated reporting, work on internal financial controls within the Group, the auditors’ work, their qualifications and independence, the Group’s compliance with the stipulations of applicable statutes and other rules and regulations and, as required, transactions between the Group and related parties. The Audit Committee is also responsible for approving any consultancy services performed by the auditors in addition to their audits. The Audit Committee also discusses other important issues relating to the Company’s financial reporting and reports its observations to the Board.
In addition to supervising the Company’s accounting records, financial reporting and auditing, the Committee devoted special attention during 2006 to the Company’s internal control over financial reporting.
The chairman of the Committee kept the Board of Directors informed on an ongoing basis of the work and decisions of the Committee throughout the year.
The Committee must meet at least six times a year. The number of meetings during 2006 was six. The Company’s auditors participated in all of the meetings of the Audit Committee during 2006 and, in connection with two of these meetings, also met with the Committee without the presence of Company representatives.
Compensation Committee
The Compensation Committee is appointed annually by the Board of Directors. Members during 2006 were Bernt Magnusson (chairman), Jan Blomberg (until April 20), Conny Karlsson (as of April 20) and Arne Jurbrant.
Although the Committee’s work is primarily of a preparatory and advisory nature, the Board of Directors has granted it decision-making authority concerning certain matters in limited areas (such as matters involving compensation to the Group management, apart from the President) and may also delegate decision-making authority to the Committee in other special cases.
C O R P O R A T E G O V E R N A N C E R E P O R T
The Committee’s duties are primarily the following. The Committee must prepare and submit proposals to the Board regarding matters of principle involving the President’s salary, pension benefits, bonus, other compensation and terms of employment and make decisions regarding corresponding terms for other members of Group management. The Committee must also address other matters involving salaries and terms of employment that are of a principled character or that are otherwise of greater weight or can affect a wider circle within the Company – for example, regarding bonus programs, options programs and profit-sharing systems. In addition, the Committee must prepare the Board of Directors’ proposals regarding the principles for compensation and other terms of employment for Group management, which must then be submitted to the General Meeting for approval.
The Committee’s chairman kept the Board of Directors informed on an ongoing basis about the Committee’s work and decisions during the year.
The Committee shall meet as often as necessary but at least twice annually. The number of meetings during 2006 was eight, of which three were by telephone.
During 2006, the Committee devoted special attention to the establishment of variable compensation for 2005 to be paid in 2006, establishing the structure and target parameters for variable compensation to the President and other members of the Group management for 2006, as well as principles for future variable compensation, proposals to the Board concerning adjustments to the President’s salary for 2007 and determination of salaries for other members of the Group management for 2007. In addition, the Committee submitted a proposal to the Board, prior to the 2006 Annual General Meeting, to have the Company issue call options in respect of the 2005 options program and a proposal regarding options program for senior executives and key personnel of the Company for 2006. Before the Extraordinary General Meeting in December 2006, the Committee provided the Board with proposals to be submitted to the Meeting regarding options programs for senior executives and key personnel of the Company for 2007 and regarding new principles for compensation and other terms of employment for members of the Group management.
The Committee’s work regarding levels and structures for compensation to Group management was performed with the support of external expertise.
Evaluation of the work of the Board of Directors
The Board of Directors must ensure that its work is evaluated annually. During late 2005, the Board undertook an evaluation by means of answers to a questionnaire filled out by each director, which formed the basis of the Nominating Committee’s work and evaluation of the Board leading up to the 2006 Annual General Meeting. The questionnaire included judgments about the individual directors and the quality of the Board’s work in general.
The Nominating Committee appointed following the 2006 Annual General Meeting also performed an evaluation of the Board. The evaluation was performed by means of individual interviews with each and every Board member. In view of the evaluation performed by the Nominating Committee, the Board of Directors did not consider it necessary to undertake an evaluation of its own in 2006.
Independence of Board members
All of the Board members are independent in relation to the Company’s major shareholders. The President, Sven Hindrikes, in his capacity as a Company employee, is not independent in relation to the Company. Nor is the Chairman of the Board, Bernt Magnusson, independent in relation to the Company according to the Swedish Code of Corporate Governance, since he has been a member of the Board for more than 12 years. All other members are considered independent in relation to the Company.
Compensation to the Board of Directors
The Nominating Committee submits proposals to the General Meeting regarding compensation to the Board of Directors and the Meeting then votes on the matter.
Directors’ fees were paid during 2006 pursuant to the resolutions of the 2005 and 2006 Annual General Meetings and the Extraordinary General Meeting of December 4, 2006. No compensation for Directorship work was paid to Directors employed by Swedish Match.
Composition of the Board of Directors and committees and number of meetings and attendance during 2006
Audit Committe Compensation Committe Board of Directors
Total no. of meetings* 6 8 6*
Bernt Magnusson   8 6
Sven Hindrikes     6
Jan Blomberg (declined re-election in April 2006) 1 3 1
Andrew Cripps (newly elected in April 2006) 5   5
Tuve Johannesson (resigned in October 2006)     3
Arne Jurbrant   8 6
Conny Karlsson (newly elected in April 2006)   5 5
Karsten Slotte 6   5
Kersti Strandqvist 6   6
Meg Tivéus 6   6
Kenneth Ek     6
Eva Larsson     6
Joakim Lindström     6
Håkan Johansson     6
Eeva Kazemi Vala     6
Stig Karlsson (resigned in January 2006)      
* Excl. one held by means of correspondence.
C O R P O R A T E G O V E R N A N C E R E P O R T

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established at General Meetings.
The Board of Directors is responsible for ensuring that the Group’s organization is appropriate for its purpose, and conducts ongoing evaluations of the Company’s procedures and of the guidelines for the management and investment of Company funds. The Board also safeguards the Company’s financial accounting and internal control and the quality of its financial reporting through the system for internal control that is described in detail in the section entitled “Report on internal control” on page 85.
 
Working procedures for the Board of Directors
The working procedures for the Board of Directors are established annually at the statutory meeting. The working procedures include instructions relating to the role of the Chairman of the Board, the division of responsibilities between the Board of Directors and the President and guidelines for financial reporting to the Board. The working procedures also stipulate that the Company must have an Audit Committee and a Compensation Committee.
 
Activities of the Board of Directors during 2006
The number of Board meetings during 2006 was seven, of which six were scheduled meetings and one an extraordinary meeting held by means of correspondence. Of the ordinary meetings, six were in Stockholm and one in Richmond, Virginia, USA.
The Board of Directors sitting at the end of 2006 held its 2006 statutory meeting on the same day as the Annual General Meeting, whereby decisions were made concerning the working procedures for the Board and instructions for the Compensation and Audit Committees. In addition, customary decisions were made concerning the election of the secretary (general counsel Bo Aulin) and authorized signatories. Members of the Compensation Committee and Audit Committee were also appointed.
In addition to reviewing the business in relation to the budget and strategic plan and strengthening the Company’s internal control systems, the Board devoted considerable time to considering the Company’s strategic orientation, structural issues, external issues, follow-up of acquisitions, distribution of surplus funds and structures for incentives and benefits.
In conjunction with the Board’s meeting in August, visits were made to the Group’s production facilities in Owensboro (Kentucky, USA) and Santiago (Dominican Republic).
All of the meetings held during the year followed an approved agenda. Prior to each meeting, an agenda plan and documents relevant to every point on the agenda were sent to the Board. Bo Aulin, the Company’s general counsel and also Board secretary, and Chief Financial Officer Lars Dahlgren attended all of the Board meetings held during the year. The Company’s auditor attended the Board meeting in February to present the audit report and observations from the audit.
 
Chairman of the Board
The Chairman of the Board is responsible, in all essential respects, for organizing and directing the Board’s work and for ensuring that the Board fulfills its obligations. Through regular contact with the President, the Chairman of the Board monitors the Company’s operations and development and ascertains that the Board of Directors continuously receives the information required for upholding the quality of the Board’s work and that this work is performed in compliance with the Swedish Companies Act. The Chairman’s other responsibilities include forwarding the owners’ opinions to the Board of Directors.
The Chairman of the Board during 2006 was Bernt Magnusson, who has announced that he will not stand for re-election at the 2007 Annual General Meeting.
 
Audit Committee
The Audit Committee is appointed annually by the Board of Directors. Members during 2006 were Jan Blomberg (member and also chairman until April 20), Meg Tivéus (chairman as of April 20), Andrew Cripps (as of April 20), Karsten Slotte and Kersti Strandqvist.
Although the Committee’s work is primarily of a preparatory and advisory nature, the Board of Directors may in special cases delegate decision-making authority to the Committee. The Committee is responsible for overseeing procedures for accounting and financial reporting as well as for overseeing the auditing of the Group’s accounting records. Its reviews focus on the quality and correctness of the Group’s financial accounting and the associated reporting, work on internal financial controls within the Group, the auditors’ work, their qualifications and independence, the Group’s compliance with the stipulations of applicable statutes and other rules and regulations and, as required, transactions between the Group and related parties. The Audit Committee is also responsible for approving any consultancy services performed by the auditors in addition to their audits. The Audit Committee also discusses other important issues relating to the Company’s financial reporting and reports its observations to the Board.
In addition to supervising the Company’s accounting records, financial reporting and auditing, the Committee devoted special attention during 2006 to the Company’s internal control over financial reporting.
The chairman of the Committee kept the Board of Directors informed on an ongoing basis of the work and decisions of the Committee throughout the year.
The Committee must meet at least six times a year. The number of meetings during 2006 was six. The Company’s auditors participated in all of the meetings of the Audit Committee during 2006 and, in connection with two of these meetings, also met with the Committee without the presence of Company representatives.
 
Compensation Committee
The Compensation Committee is appointed annually by the Board of Directors. Members during 2006 were Bernt Magnusson (chairman), Jan Blomberg (until April 20), Conny Karlsson (as of April 20) and Arne Jurbrant.

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Although the Committee’s work is primarily of a preparatory and advisory nature, the Board of Directors has granted it decision-making authority concerning certain matters in limited areas (such as matters involving compensation to the Group management, apart from the President) and may also delegate decision-making authority to the Committee in other special cases.
The Committee’s duties are primarily the following. The Committee must prepare and submit proposals to the Board regarding matters of principle involving the President’s salary, pension benefits, bonus, other compensation and terms of employment and make decisions regarding corresponding terms for other members of Group management. The Committee must also address other matters involving salaries and terms of employment that are of a principled character or that are otherwise of greater weight or can affect a wider circle within the Company – for example, regarding bonus programs, options programs and profit-sharing systems. In addition, the Committee must prepare the Board of Directors’ proposals regarding the principles for compensation and other terms of employment for Group management, which must then be submitted to the General Meeting for approval.
The Committee’s chairman kept the Board of Directors informed on an ongoing basis about the Committee’s work and decisions during the year.
The Committee shall meet as often as necessary but at least twice annually. The number of meetings during 2006 was eight, of which three were by telephone.
During 2006, the Committee devoted special attention to the establishment of variable compensation for 2005 to be paid in 2006, establishing the structure and target parameters for variable compensation to the President and other members of the Group management for 2006, as well as principles for future variable compensation, proposals to the Board concerning adjustments to the President’s salary for 2007 and determination of salaries for other members of the Group management for 2007. In addition, the Committee submitted a proposal to the Board, prior to the 2006 Annual General Meeting, to have the Company issue call options in respect of the 2005 options program and a proposal regarding options program for senior executives and key personnel of the Company for 2006. Before the Extraordinary General Meeting in December 2006, the Committee provided the Board with proposals to be submitted to the Meeting regarding options programs for senior executives and key personnel of the Company for 2007 and regarding new principles for compensation and other terms of employment for members of the Group management.
The Committee’s work regarding levels and structures for compensation to Group management was performed with the support of external expertise.
 
Evaluation of the work of the Board of Directors
The Board of Directors must ensure that its work is evaluated annually. During late 2005, the Board undertook an evaluation by means of answers to a questionnaire filled out by each director, which formed the basis of the Nominating Committee’s work and evaluation of the Board leading up to the 2006 Annual General Meeting. The questionnaire included judgments about the individual directors and the quality of the Board’s work in general.
The Nominating Committee appointed following the 2006 Annual General Meeting also performed an evaluation of the Board. The evaluation was performed by means of individual interviews with each and every Board member. In view of the evaluation performed by the Nominating Committee, the Board of Directors did not consider it necessary to undertake an evaluation of its own in 2006.
 
Independence of Board members
All of the Board members are independent in relation to the Company’s major shareholders. The President, Sven Hindrikes, in his capacity as a Company employee, is not independent in relation to the Company. Nor is the Chairman of the Board, Bernt Magnusson, independent in relation to the Company according to the Swedish Code of Corporate Governance, since he has been a member of the Board for more than 12 years. All other members are considered independent in relation to the Company.
 
Compensation to the Board of Directors
The Nominating Committee submits proposals to the General Meeting regarding compensation to the Board of Directors and the Meeting then votes on the matter.
Directors’ fees were paid during 2006 pursuant to the resolutions of the 2005 and 2006 Annual General Meetings and the Extraordinary General Meeting of December 4, 2006. No compensation for Directorship work was paid to Directors employed by Swedish Match.
 
Composition of the Board of Directors and committees and number of meetings and attendance during 2006
Audit Committe Compensation Committe Board of Directors
Total no. of meetings* 6 8 6*
Bernt Magnusson   8 6
Sven Hindrikes     6
Jan Blomberg (declined re-election in April 2006) 1 3 1
Andrew Cripps (newly elected in April 2006) 5   5
Tuve Johannesson (resigned in October 2006)     3
Arne Jurbrant   8 6
Conny Karlsson (newly elected in April 2006)   5 5
Karsten Slotte 6   5
Kersti Strandqvist 6   6
Meg Tivéus 6   6
Kenneth Ek     6
Eva Larsson     6
Joakim Lindström     6
Håkan Johansson     6
Eeva Kazemi Vala     6
Stig Karlsson (resigned in January 2006)      
* Excl. one held by means of correspondence.