Corporate governance report
Swedish Match AB is a public Swedish limited liability company. The objective of the Company’s operations, in accordance with the Company’s Articles of Association, is to directly or indirectly conduct business relating to the development and manufacture of and trade in tobacco products, matches and lighters and to carry out other activities that are related to these businesses.
The Company and the Group is governed on the basis of the Company’s Articles of Association, the Swedish Companies Act, the listing agreement pertaining to listing of the Company’s shares on the Stockholm Stock Exchange, the Swedish Code of Corporate Governance and other applicable Swedish and foreign laws and regulations.
Because of a prior listing on the American NASDAQ stock exchange, Swedish Match is subject to the regulations of the Sarbanes Oxley Act for corporate governance and internal control regarding financial reporting. These regulations also entail an obligation to report to the U.S. Securities and Exchange Commission (SEC).
The reporting in question is extensive, costly and takes up significant resources. However, the SEC has issued a proposal for new rules on termination of registration with the SEC. The new rules would, if enacted, allow the Company to terminate its registration with the SEC.
The Swedish Code of Corporate Governance, which is incorporated as a section of the listing agreement with the Stockholm Stock Exchange, was applied by Swedish Match in 2006. The Company is not reporting any deviations from the Code for 2006, except with regard to the Board of Directors’ annual evaluation of its own work (see the section entitled “Evaluation of the work of the Board of Directors”, page 83). This Corporate governance report has been examined by the Company’s auditors, with the exception of the report on internal control.
The Articles of Association are available in their entirety on the Company’s website at www.swedishmatch.com.
General Meetings of Shareholders
A General Meeting constitutes the highest governing body in a limited liability company and shareholders’ rights to participate in resolutions regarding the Company’s affairs are exercised at General Meetings. The Company’s shareholders have been informed via the Company’s website at www.swedishmatch.com of their legal right to have issues dealt with at General Meetings. Each share entitles the holder to one vote at a General Meeting. Resolutions adopted by General Meetings are generally decided by a simple majority, although according to the Swedish Companies Act, certain matters are to be decided by a qualified majority.
The Annual General Meeting must be held within six months of the close of the fiscal year. At the Annual General Meeting, resolutions are adopted concerning such matters as dividends, approval of the annual report, discharge of the Board of Directors and the President from personal liability, election of members of the Board of Directors and, as applicable, auditors, compensation to the Board of Directors and auditors, principles to be followed for determining compensation to senior executives and other matters of importance to the Company.
The Annual General Meeting for 2006 was held on April 20 and an Extraordinary General Meeting was held on December 4. The minutes of these meetings are available on the Company’s website www.swedishmatch.com.
Nominating Committee
Up to the 2006 Annual General Meeting, the Nominating Committee consisted of the members appointed to the Committee at the 2005 Annual General Meeting. These were: Bernt Magnusson (convener), Marianne Nilsson (Robur), Pernilla Klein (Third AP Fund) and Joachim Spetz (Handelsbanken Funds), with Carl Rosen (Second AP Fund) as deputy. The Nominating Committee internally appointed Joachim Spetz to be its chairman. William N. Booth (Wellington Management Company) as well as Mads Eg Gensmann and Edoardo Mercadante (Parvus Asset Management) were co-opted to participate in some of the Nominating Committee’s meetings during this period.
Pursuant to a resolution adopted at the 2006 Annual General Meeting, the Nominating Committee must consist of five members. The Annual General Meeting resolved to empower the Chairman of the Board to contact the largest known shareholders in the Company in order of size and, until four representatives had been appointed, ask each of them to appoint a representative who, together with the Chairman of the Board, would constitute the Nominating Committee until the time of the appointment of a new Nominating Committee pursuant to the mandate of the following year’s Annual General Meeting. After the Chairman of the Board had contacted the Company’s largest shareholders, the Nominating Committee was constituted on June 8, 2006 with William N. Booth (Wellington Management Company), Mads Eg Gensmann (Parvus Asset Management), Michael Allison (Morgan Stanley), and Andy Brown (Cedar Rock Capital) as members, in addition to Chairman of the Board Bernt Magnusson. Of the members of the Nominating Committee, only Bernt Magnusson was also a Member of the Board. Mads Eg Gensmann served as chairman of the Nominating Committee. The Company’s general counsel, Bo Aulin, served as secretary to the Nominating Committee.
Pursuant to instructions established by the General Meeting, the Nominating Committee’s duties are to prepare and submit proposals to the General Meeting concerning the election of the chairman of the Annual General Meeting, the election of the Chairman and other Members of the Board, directors’ fees, divided among the fees to be paid to the Chairman of the Board and other Board members, and any fees for committee work, as well as, if applicable, the election of and fees to be paid to the auditors.
Proposals to the Nominating Committee can be submitted to the Nominating Committee’s secretary, Bo Aulin. As part of the process for nominating Board members prior to the 2006 Annual General Meeting, the Board ensured that its work during 2005 was evaluated and the Nominating Committee was informed of the results of the evaluation. The Nominating Committee appointed following the 2006 Annual General Meeting has also, through private interviews with each Board member, performed an evaluation of the Board. Since the appointment of the Company’s auditors covers the period up to and including the 2008 Annual General Meeting, the Nominating Committee has not had to address the question of choosing auditors this year. The Nominating Committee has, at both the 2006 Annual General Meeting and the 2006 Extraordinary General Meeting, proposed altered compensation for the Board (see the section entitled “Compensation to the Board of Directors” on page 83).
The Nominating Committee shall meet as often as necessary to discharge its duties, and at least once per year. During 2006, the Nominating Committee held four meetings prior to the Annual General Meeting and two meetings thereafter.
The 2006 Annual General Meeting decided that no fees be paid to the members of the Nominating Committee but that expenses of the Nominating Committee should be borne by the Company.
Board of Directors
Composition
According to the Articles of Association, the Company’s Board of Directors must consist of at least five and at most ten directors, apart from those persons who pursuant to law may be appointed according to other arrangements. At the end of 2006, Swedish Match’s Board of Directors consisted of eight members elected by the General Meeting plus three employee representatives and their two deputies.
In 2006, the Board of Directors consisted of the following directors elected by the General Meeting: Bernt Magnusson, Jan Blomberg (who served up until the 2006 Annual General Meeting), Sven Hindrikes, Tuve Johannesson (resigned as director on October 24, 2006), Arne Jurbrant, Karsten Slotte, Kersti Strandqvist, Meg Tivéus, Andrew Cripps and Conny Karlsson (the last two having been elected by the 2006 Annual General Meeting). The employee representatives on the Board for the year were Kenneth Ek, Eva Larsson and Joakim Lindström with Håkan Johansson, Eeva Kazemi Vala and Stig Karlsson (who resigned in January 2006) as deputies.
Meetings
The Board of Directors is called to one statutory and five ordinary meetings per year. Three of the ordinary meetings are coordinated with the dates of the financial information for the first and third quarters and of the year-end report. In addition, the Board meets in August/September and in December to discuss the strategic plan and the operational budget. The auditors participate in the Board meeting at which the annual accounts for the fiscal year are presented in order to communicate their observations from the audit. In addition to the ordinary Board meetings, the Board is called to additional meetings convened at the discretion of any director or of the President.
Responsibilities of the Board of Directors
The Board of Directors is primarily responsible for Swedish Match’s general and long-term strategies and goals, establishing the budget and business plans, reviewing and approving the financial accounts, establishing overall policies and making decisions regarding investments and divestments.
The Board of Directors appoints, and issues instructions for, the President and monitors his work. The Board also determines the President’s salary and other compensation within the framework of the principles
Consolidated Income Statement
