Norwegian code of practice for corporate governance

We follow the Norwegian Code of Practice for Corporate Governance of October 2010.

The table below shows specific information related to the Norwegian code of practice on corporate governance and should be seen in context with the general corporate governance report given in Hydro's Annual Report 2011. A link to the report can be found in the right-hand column.

All page numbers and notes to the consolidated financial statements refer to the annual report.

	Corporate governance topic	Comments	References
1	Statement of Corporate Governance	Hydro follows the Norwegian Code of Practice for Corporate Governance of 2010 including all its recommendations. The Hydro Way represents our framework for leadership, organization and culture and is the foundation for our governance system, including our code of conduct. Hydro's code of conduct has been approved by the board of directors, which also oversees that Hydro has appropriate corporate directives for HSE and corporate responsibility.	Learn more about The Hydro Way

2	Hydro's business	Hydro is a global supplier of aluminium with businesses throughout the entire value chain, from extraction of bauxite to production of rolled and extruded aluminium products and building systems. The company has 23,000 employees in over 40 countries, around 4,000 of whom are based in Norway. With more than 100 years of experience in producing renewable energy, technology development and innovative cooperation, Hydro aims to strengthen the viability of the customers we serve and the communities in which we operate.	Hydro's articles of association
		The company's stated business objectives are to engage in industry, commerce and transport, to utilize energy resources and raw materials, and to engage in other activities connected with these objectives. Its business activities may also be conducted through participation in or in cooperation with other enterprises.

3	Equity and dividends	Hydro's equity capital is appropriate to the company's objectives, strategy and risk profile.	Page 115
		Hydro's dividend policy is to pay out an average of 30 percent of net earnings over time.
		The board of directors may obtain authorization from the general meeting of shareholders to buy back Hydro shares in the market.	Share buyback
		When the general meeting considers whether or not to authorize the board of directors to carry out share capital increases for multiple purposes, each purpose must be considered separately by the meeting. Such authorization will be limited in time, and will last no longer than until the date of the next general meeting of shareholders. Authorization granted to the board is restricted to specific purposes. One example of this is the Vale transaction, where the board of directors was authorized to issue consideration shares to Vale.
		See also item 4.

4	Equal treatment of shareholders.	Hydro has one share class.	Page 115
		Transactions are generally carried out through stock exchanges. Buy-backs of own shares are carried out at market prices.
		Transactions involving own shares are normally executed on the stock exchange. Buybacks of own shares are executed at the current market rate.
		Shareholders who are registered in the Norwegian Central Securities Depository (VPS) may vote in person or by proxy. Invitations are sent to the shareholders or to the bank/broker where the shareholder's securities account is held.
		Sales of shares to employees are conducted at a discount to market value. See also item 6.	Note 11
		Contact between the board and the investors is normally conducted via the management. Under special circumstances the board, represented by the chair, may conduct dialog directly with investors.
		On February 28, 2011 the agreement to take over the majority of Vale's aluminium business in Brazil was concluded. Vale received a consideration totaling USD 1.1 billion in cash and new Hydro shares equivalent to a 22 percent share in the company's outstanding share capital. To partly finance the transaction, support the company’s investment class credit rating and capacity to implement future projects, Hydro completed a fully subscribed rights issue of NOK 10 billion in July 2010. Information on the consequences of the issue for existing and new shareholders was made public in June and July 2010 in press releases, in the rights issue prospectus, in the memorandum that was prepared in connection with Hydro's takeover of the majority of Vale S.A.'s bauxite, alumina and aluminium activities in Brazil and at the extraordinary general meeting. See also items 8 and 9.

	Transactions with close associates	Hydro's code of conduct contains guidelines for how any conflicts of interest that may arise should be dealt with. The code applies to all board of directors members and Hydro employees. It is the opinion of the board of directors that there were no material transactions between the group and its shareholders, board members, officers or close associates of such parties in 2011.	Hydro's code of conduct
		Regulation of share issues and pre-emptive rights are described in the Articles of Associations.	Hydro's Articles of Association
			Read more about major shareholders at page 117
	State ownership	As of December 31, 2011, the Norwegian state, represented by the Ministry of Trade and Industry, owned 34.3 percent of Hydro's issued shares. Hydro holds regular meetings with the Ministry, where topics discussed include Hydro’s economic development, strategic development, corporate social responsibility, and the Norwegian State's expectations regarding results and returns on investments. These meetings are comparable to what is customary between a private company and its principal shareholders. The meetings comply with the provisions specified in company and securities legislation, not least with respect to equal treatment of shareholders. As a shareholder, the Norwegian state does not usually have access to more information than what is available to other shareholders. If state participation is imperative and the government must seek approval from the Norwegian parliament (Stortinget), it may be necessary to provide the Ministry with insider information. In such cases, the state is subject to the general rules that apply to the handling of such information.	The Norwegian state ownership

5	Freely negotiable shares	The Hydro share is freely negotiable. They are among the most traded shares on the Oslo Stock Exchange and are subject to efficient pricing.	The Hydro share
		As of 31 December 2011, the Norwegian state, represented by the Ministry of Trade and Industry owned 34.3 percent of Hydro's issued shares. The Government Pension Fund Norway owned 4.2 percent.	Hydro's shareholders
		Under the transaction with Hydro, Vale received 22 percent of Hydro's outstanding shares. At the same time, Norwegian state ownership, represented by the Ministry of Trade and Industry, was reduced from 43.7 percent to 34.3 percent. Under the agreement between Hydro and Vale, Vale may not increase its ownership interest in Hydro beyond 22 percent. Furthermore, Vale must retain its shares in Hydro for at least two years after the transaction is completed, and must not sell shares constituting more than 10 percent of Hydro's issued shares to any individual buyer or group.

6	General meeting	The notice of a general meeting of shareholders is normally published on www.hydro.com approximately four weeks in advance, and is sent to the shareholders at least three weeks before the meetings are held.	Read more about the general meeting
		Notice of general meetings provides information on the procedures which shareholders must observe in order to participate in and vote at the meetings. Notices also detail: • the procedure for representation by proxy, including the use of a form of proxy • the right of shareholders to propose resolutions for consideration by the general meeting • the website where the notice of the meeting and other supporting documents will be made available
		The following information is available at www.hydro.com: • information on the right of shareholders to propose matters for consideration by the general meeting • how to make proposals for resolutions for consideration by the general meeting or how to comment on matters for which no resolution is proposed • form of proxy
		Our aim is that the resolution proposals and supporting information that are distributed are sufficiently detailed and comprehensive to enable shareholders to reach decisions on the matters to be considered at the meeting.
		The notification deadline for shareholders wishing to attend the general meeting is five days prior to the meeting.
		Shares registered in a nominee account must be re-registered in the Norwegian Central Securities Depository no later than the fifth business day before the general meeting in order to obtain voting rights.
		Shareholders who are unable to attend in person may vote by proxy. Hydro will nominate a person who will be available to vote on behalf of shareholders as their proxy.
		To the extent possible, the form of proxy will facilitate separate voting instructions for each matter to be considered by the meeting and for each of the candidates nominated for election.
		On 5 May 2011 the general meeting resolved that the possibility to cast advance votes electronically may be given.
		The general meeting is chaired by the chair of the corporate assembly or, in his or her absence, by the deputy chair.
		The chairperson of the board of directors, nomination committee representative(s) and the external auditor attend the Annual General Meeting.
		Deviation: The board of directors and the nomination committee are represented at the general meeting of shareholders, but all members are not necessarily present.

7	Nomination committee	In accordance with Hydro's Articles of Association, the company must appoint a nomination committee. This committee comprises four members who are either shareholders or shareholder representatives. The committee's chairperson and members are appointed by the general meeting of shareholders. At least two, including the chairperson, must be elected from among the representatives in the corporate assembly elected by the shareholders.	Hydro's Articles of Association
		The shareholders may propose candidates for the board of directors , the corporate assembly and the nomination committee.	Read more about the nomination committee's mandate and members
		The general meeting of shareholders has established guidelines for the nomination committee (May 5, 2011). The general meeting also determines the remuneration of the committee. All shareholders may submit proposals to the nomination committee of candidates to the corpo at any time. In order to be considered at the next ordinary election, proposals must be submitted by the end of January in the election year.	Nominations may be submitted electronically via hydro.com/governance
		The recommendations of the nomination committee include details on the candidates' background and independence.
		All members of the nomination committee are independent of Hydro's board of directors, Chief Executive Officer and other executive management.
		As the largest shareholder, the Norwegian state is represented on the nomination committee by Mette I. Wikborg, Director General of the Ownership Department, on behalf of the Ministry of Trade and Industry.

8	Corporate assembly and board of directors: Composition and independence	All board directors, members of the board committees and members of the corporate assembly are independent of the company's executive management and material business relationships. Lars Tronsgård, a member of the corporate assembly, is an employee of the Government Pension Fund Norway. Tito Botelho Martins Jr., who is Chief Financial Officer in Vale S.A., sits on Hydro's board of directors.	Members of the corporate assembly Vale S.A. and the Government Pension Fund Norway are significant shareholders in Hydro
		Two thirds of the corporate assembly and its deputies are elected by the general meeting of shareholders. The nomination committee nominates candidates with a view to broad representation by the company's shareholders and other relevant stakeholders with competence in, for example, technology, finance, and corporate social responsibility.
		The corporate assembly elects the board directors, including its chairperson and deputy chairperson.	Current composition of the board of directors
		In compliance with Hydro's articles of association, the board consists of between 9 and 11 members. These are elected for a period of two years. The upper age limit for members of the board of directors and the corporate assembly is 70.	Articles of association
		The nomination committee aims to achieve a board composition whereby the members complement each other professionally and the board of directors is able to function as a corporate body.
		As from 28 February 2011, Vale is represented on Hydro's board of directors. This decision was approved by Hydro's general meeting of shareholders and corporate assembly. On the same date, Tito Martins Jr. was appointed as a 10th member of Hydro's board of directors.
		As of 31 December 2011, seven of the board's directors own a total of 118,715 shares. Hydro has no share purchase program for members of the board of directors, with the exception of employee representatives, who are entitled to buy shares through the employee share purchase scheme. All share purchase transactions are conducted in compliance with the Securities Trading Act. Vale owns 447,834,465 shares in Hydro.

9	The work of the board of directors	The board of directors has established procedures for its own work and for the executive management, with particular emphasis on clear internal division of responsibilities whereby the board has responsibility for supervising and administrating the company and the executive management has responsibility for the general operation of the Group.	The board of director's mandate See also page 130-131
		If the chairperson of the board of directors is or has been actively engaged in a given case, another board member will normally lead discussions concerning that particular case.
		The board of directors has an annual work plan, with particular emphasis on objectives, strategy and implementation.
		Since 2001 Hydro has had an audit committee and a compensation committee.	The audit committee
		The board of directors conducts an annual self-assessment of its work, competence and cooperation with management and a separate assessment of the chairperson. Both assessments are submitted to the nomination committee, which in turn assesses the board of directors' composition, competence and performance.	The compensation committee

10	Risk management and internal control	The board of directors ensures that the company has sound internal controls and appropriate risk management systems through, for example, an annual review of the key risk areas and the company's internal controls. Internal audit reports directly to the board of directors, but is for administrative purposes placed under the purview of the Chief Financial Officer.	A review of Hydro'smain risks can be found at page 107
		Hydro's internal control system includes all parts of our corporate directives, including our code of conduct and HSE and corporate social corporate responsibility requirements. The annual report contains a more detailed description of the company's internal controls and risk management systems related to financial reporting.

11	Remuneration of the Board of Directors	The shareholder-elected members of th board of directors perform no duties for the company other than their board duties.	All aspects of remuneration of the board directors are described in Note 44
		Remuneration is determined by the Corporate Assembly on the recommendation of the nomination committee. The nomination committee recommends compensation with the intention that it should reflect the board's responsibility, competence and time commitment as well as the company's complexity and global activities compared with the general level of directors' fees in Norway. Remuneration of the board of directors is based neither on performance nor on shares.	Hydro's Articles of Association

12	Remuneration of the executive management	The board of directors has established guidelines for remuneration of members of the executive management. These guidelines are communicated to the general meeting of shareholders and included in the annual report. The guidelines for determining remuneration of the executive management are based on the main principles for Hydro's pay policy, which is that Hydro shall offer its employees an overall compensation package that is competitive and in line with good industry standards in the country in question. Where appropriate this package should include, in addition to the base salary, also a performance-based incentive that overall shall reflect individual performance. Determination of the level of the total compensation package will be first and foremost based on being competitive, but not a wage leader.	The board's guidelines for management remuneration are described in Note 10. All aspects of remuneration of executive management are described in Note 11. Hydro's remuneration policy is also described in Hydro's People Policy See also page 64
		The guidelines are also intended to contribute to long-term value creation for the company's shareholders. A ceiling has been set on performance-based compensation. The company has share-based long-term incentive programs, but no share option scheme for its executive management.	Learn more about performance-based compensation and long-term incentives in Notes 10 and 11

13	Information and communication	Hydro has established guidelines for the company's reporting of financial and other information based on transparency and with regard to the requirement of equal treatment of all parties in the securities market. This also pertains to contact with shareholders outside of the general meeting.	See also page 115 and 125
		A financial calendar is available at www.hydro.com	Financial calendar
		Shareholder information is available at www.hydro.com The Financial Statements and Annual Report are sent free of charge to shareholders on request. Notice of a general meeting of shareholders is sent directly to shareholders unless they have consented to receive these documents electronically.	The Hydro Share

14	Takeovers	The board of directors will handle takeover bids in accordance with Norwegian law and the Norwegian Code of Practice for Corporate Governance. No mechanisms to prevent takeover bids are contained in our Articles of Association or underlying steering documents, nor have we implemented any measures limiting opportunities to buy shares in the company. See also item 5.
		Despite the restrictions described in item 5 to which Vale is subject, Vale may sell its shares in Hydro to a third party on the following conditions: The third party must make an unconditional offer for all the Hydro shares or the offer must be recommended by Hydro's board of directors, and the third party must own or become the owner of 50 percent of Hydro's shares during the bidding period before Vale may sell its shares to a third party.
		Deviation: The board of directors has chosen not to prepare explicitly formulated general principles for handling takeover bids. The reason for this is that the Norwegian state, represented by the Ministry of Trade and Industry, owns 34.3 percent of the Hydro shares issuedd (as of 31.12.2011) and has clearly expressed a long-term ownership perspective in the company for the purpose of retaining its head office and research activities in Norway. Reference is given to e.g. the Active Ownership Report (Report to the Storting no. 13, 2010-2011).

15	Auditor	Every year the external auditor presents to the audit committee the main features of the plan for the audit of the company.	See also page 27 and F77
		The external auditor participates in considering relevant matters at all meetings of the Audit Committee. The minutes from these meetings are distributed to all member of the board of directors. This practice is in line with the EU Audit Directive.
		The external auditor expresses its opinion on internal control procedures in an annual management letter.
		The external auditor participates in board of directors' meetings where the company's financial statements are discussed. At these meetings the auditor will review material changes in the company's accounting policies, assess material accounting estimates and any other material matters on which the exteranl auditor and executive management may disagree, and identify weaknesses in and suggest improvements to the company's internal controls.
		Both the board of directors and the audit committee hold meetings with the external auditor without members of the corporate management present. The audit committee holds meetings with the management of Internal audit at least once a year without members of the executive management present.
		Hydro places importance on independence and has clear guidelines regarding the use of services from external auditors. All use of services from an external auditor, including non-audit services, are subject to prior approval as defined by the audit committee.	See also page 125
		Remuneration of the external auditor is stated in the annual report and approved the general meeting of shareholders	Note 43
		In 2010 the general meeting of shareholders chose KPMG as the new group external auditor with effect from reporting period 2010.

Updated: March 22, 2012

Tip a friend

Norwegian code of practice for corporate governance

From

Message

Contact

Your message has been sent