News; Aug 16, 2002 CET

Strong culture creates shareholder value

»Swedish Match is a harmonious company. It has harmonious strength. It works. One of the reasons is the company’s culture, the strongest I know of in any company. One of the Board of Directors’ most important tasks actually is to ›set the tone‹ in the Company, to cultivate the culture, so that all employees are working together to produce and create value for the shareholders.«

So says the man who has been Chairman of Swedish Match’s Board of Directors for the past six years. He should know what he is talking about. As early as 1979 he was president of the match operations, the Group’s classic core business, based in Nyon, Switzerland. Bernt Magnusson was one of a young gang of Swedish Match managers who soon became presidents of a number of Sweden’s leading international companies.

And what does a strong corporate culture mean, viewed in a Board perspective? »Well, among other things, it means that corporate governance - the chain of control in the Group - functions with much less bureaucracy than in many other companies. Many management persons have been with the Company for a very long time, and the Board and I have been involved in the recruiting of many of them. Good corporate governance works better with confidence and trust than with a large control apparatus. At the same time, one should never hesitate to keep a tight hold on the reins.«

BERNT MAGNUSSON’S SELECTION of such key words as harmony, corporate culture, trust and »setting the tone« reveals an ideal perspective of corporate governance - the art of guiding and controlling a company. Most of what has been written about board-of-directors’ work recently is based on conflict conditions between different interests that have a stake in a company. The same approach characterizes legislation. Bernt Magnusson prefers to emphasize the strength in searching for, and building, a consensus. »It is clear that it has become much harder to work in boards of directors in recent years. Legislation has sharpened considerably following the comprehensive debate in the wake of the Cadbury report, the Greenbury Committee, the Hempel Committee and the most recent Turnbull report - all of which focused sharply on issues dealing with control and responsibility. The creation of value for shareholders is today very clearly the primary objective of boards of directors, a task for which Swedish Match has taken up the cudgels in Sweden, incidentally.«

ALL THIS, BERNT MAGNUSSON continues, is important and fine. When the system works, as it does in Swedish Match, the opportunity to place emphasis on supplementary expertise and values in board-of-directors’ work - rather than on »one-sided control - increases.

Is share price a good indicator of how a company is developing? Isn’t the »action« short-term?

»No. Over the short term share price can reflect both over-performance and under-performance. But over the long term it is a good gauge of value.« Swedish Match is wrestling with questions that are quite unusual for companies on the Stockholm Stock Exchange. These include the tobacco problem and the fact that the Company does not have a clear long-term owner. »As a result of the ownership situation, we do not have any direct ‘ownership instructions.’ This means that the Board is deeply concerned to take the initiative and have a good dialog with the principal owners. It may be assumed that some owners are more shortsighted, while others take a longer view - and this imposes demands on the Board to aim for balanced development of the Company. With the creation of long-term value for shareholders as the guiding principle, we formulate the Group’s objectives and strategies on which the owners take positions at meetings of shareholders. The Nominating Committee that is elected at the Annual General Meeting is also an important forum. It conducts discussions pertaining to the composition of the Board of Directors. This composition should be optimal in terms of future growth targets and strategies. The discussions also deal with the work of the Board and the Company’s development, as well as corporate-governance matters.«

THE OTHER SPECIFIC Swedish Match issue is the tobacco problem. Here, the Company has focused its unique expertise over the course of years. »In addition to access to legal expertise, the Board of Directors has to have knowledge and a strong feeling for society’s and public authorities’ attitudes toward the use of tobacco,« Bernt Magnusson says. »This applies not only in Stockholm and Brussels but also globally. The legal and social aspects of the tobacco problem are reported on and discussed at each Board meeting.« »But you can never ignore the importance of industrial expertise - and, in Swedish Match’s case, expertise with international dimensions - for an effective board of directors. In addition, I place great value on continuity, with board members who are not replaced too rapidly. The Group is in many respects a global distribution organization. We are therefore very pleased to have members with experience in both the tobacco industry and other industries with fastmoving consumer goods, as well as broad international experience.«

Are there any special tricks to conducting a «good« Board meeting?

»For me it is important that the president and chairman establish the ‘atmosphere’ of the meeting. There are many formalities connected with a board meeting. As a result, in their reports, the president and chairman must allow ›openings‹ for exchanges of opinion and discussion, and a focus on the important problems to be solved. The members of Swedish Match’s board are ›independent,‹ with strong integrity and views of their own, and this produces fruitful debate.« .

The Swedish Match Annual General Meeting in May elected two new Board members, Tuve Johannesson and Arne Jurbrant. They succeeded Arne Bennborn and Anders Lannebo, who declined re-election. The other Board members were re-elected unanimously.

b 1941. Chairman. Member since 1993.

b 1942. Member since 2002.

b 1939. Member since 1996.

b 1943. Member since 2002.

b 1952. Member since 1999.

b 1943. Member since 1999.

b 1934. Member since 1984.

Employee representatives

b 1953. Member since 1999.

b 1958. Member since 1999.

b 1965. Deputy member since 1999.