Update resolved by the board of directors of IDEX ASA on 4 December 2015.
This statement outlines the position of IDEX ASA (“IDEX” or “the Company”) in relation to the recommendations contained in the Norwegian Code of Practice for Corporate Governance dated 30 October 2014 (“the Code”). The Code is publicly available at www.nues.no and from Oslo Børs. In the following, the board of directors will address each recommendation of the Code and identify any areas where the Company does not fully comply with the recommendations and explain the underlying reasons for the deviations and any compensating measures where applicable.
1. Implementation and reporting on corporate governance
IDEX seeks to create sustained shareholder value. The Company makes every effort to comply with the wording and intent of the laws, rules and regulations in the countries and markets where it operates. IDEX is not aware of being or having been in breach of any such statutory laws, rules or regulations. The Company pays due respect to the norms of the various stakeholders in the business. In addition to the shareholders, the Company considers its employees, the Company’s business partners, the society in general and the authorities as stakeholders. IDEX is committed to maintain a high standard of corporate governance, be a good corporate citizen and demonstrate integrity and high ethical standards in all its business dealings.
The board considers that in the present organisation the board and the management have adequate monitoring and control systems in place to ensure insight in and control over the activities.
The board has resolved ethical guidelines which apply to all employees, consultants and contractors as well as the elected board members. The ethical guidelines also incorporate the Company’s guidelines on corporate social responsibility.
2. IDEX’s business
In the articles of association, the Company’s business is defined as “The objective of the Company is to deliver computer-based identification systems and other related activities.”
The Company’s business goals and key strategies are stated in a business plan adopted by the board. The plan is reviewed and revised as and when appropriate. The business goals and key strategies are presented in the annual report.
3. Equity and dividends
The board is aware of and acknowledges the equity requirements and duty of action in connection with loss of equity, as set out in the Norwegian Public Limited Companies Act.
In the past, the Company has on several occasions been in need of raising equity to fund its activities. All significant share issues or pricate placements have each been resolved by the shareholders at extraordinary general meetings. The board has proposed to the general meeting only reasonable open authorisations for share issues and moderate incentive schemes. Such board authorisations have explicitly stated the type and purposes of transactions in which the authorisations may be applied. Proposed authorisations to issue shares have been considered and voted separately by each type and purpose. The board authorisations to issue shares have been valid until the next annual general meeting, as recommended by the Code. The proposals have been approved by the shareholders.
The Company has not had in place any authorisation to the board to acquire own shares. As and when such authorisation should be adopted, the board will propose that the length of the authorisation be limited to a period ending at the next annual general meeting of shareholders.
IDEX has not as yet declared or paid any dividends on its shares. The Company does not anticipate paying any cash dividends on its shares in the next few years. IDEX intends to retain future earnings, if any, to finance operations and the expansion of its business. Any future decision to pay dividends will be based on a dividend policy to be instituted in due course, which policy will reflect the Company’s financial condition, results of operation and capital requirements.
4. Equal treatment of shareholders and transactions with close associates
The Company places great emphasis on ensuring equal treatment of its shareholders. The Company has one class of shares. There are no trading restrictions or limitations relating only to non-residents of Norway under the articles of association of the Company. Each share carries one vote. There are no restrictions on voting rights of the shares.
In the authorisations to issue new shares where the shareholders resolve to waive the preemptive rights of existing shareholders, the rationale for doing so shall be included as part of the decision material presented to the general 2 IDEX ASA Corporate governance review 2015 meeting. If and when such transactions are conducted, the justification will also be included in the announcements to the market.
All related-party transactions, whether completed, in effect or future, have been and will be carried out on arm’s length basis. Any not immaterial future related-party transactions shall be subject to an independent third-party valuation unless the transaction by law requires shareholder approval. The Company takes legal and financial advice on these matters when relevant.
There are no clauses in the articles of association about trading in the Company’s own shares, nor has the general meeting issued any such authorisations.
Members of the board and the management are obliged to notify the board if they have any material direct or indirect interest in any transaction contemplated or entered into by the Company.
5. Freely negotiable shares
All shares are freely assignable. The articles of association do not contain any restrictions on the shares.
6. General meetings
The general meeting of shareholders provides a forum for shareholders to raise issues with the board. To the maximum degree possible, all members of the board shall be present at the general meeting. The Company’s CEO and the auditor shall also be present at the general meeting. The shareholders elect a person to chair the general meeting. The board will arrange for an independent candidate if so requested by shareholders. Notice of a meeting of the shareholders shall be sent in a timely manner, and the Company shall issue the notice and documents for a general meeting, including the proxy form, no later than 21 days before the date of the general meeting. Foreign residents will receive the notice and any documents in English.
The general meeting has included in the articles of association of the Company that documents which deal with matters that are to be handled at the general meeting need not be sent to the Company’s shareholders if the documents timely have been made available on the Internet site of the Company.
The board endeavours to provide comprehensive information in relation to each agenda item in order to facilitate constructive discussions and informed resolutions at the meeting.
The notice will also provide information on the procedures shareholders must observe in order to participate in and vote at the general meeting. Shareholders who are unable to attend in person will be provided the option to vote by proxy in favour or against each of the board’s proposals. The notice shall contain a proxy form as well as information of the procedure for proxy representation. The company has not included electronic voting or advance votes in the articles of association because there are as yet no reliable systems or practices for such voting. At the meeting, votes shall be cast separately on each subject and for each office/candidate in the elections. Consequently, the proxy form shall to the extent possible, facilitate separate voting instructions on each subject and on each office/candidate in the elections. The notice, as well as the Company’s website, will set out that the shareholders have the right to propose resolutions in respect of matters to be dealt with at the general meeting.
7. Nomination committee
The nomination committee is implemented in the company’s articles of association. The mandate for the nomination committee has been resolved by the annual general meeting. The mandate is compliant to the current version of the Code. The annual general meeting elects the chairman and two committee members. No current board member or IDEX executive is a member of the nomination committee. The current chairman of the nomination committee was formerly a board member of the company.
The mandate states that the nomination committee shall comply with the relevant sections in the Code. The nomination committee shall prepare and present proposals to the annual general meeting in respect of the following matters:
• Propose candidates for election to the board of directors
• Propose the remuneration to be paid to the board members
• Propose candidates for election to the nomination committee
• Propose the remuneration to be paid to the nomination committee members
The nomination committee shall give a brief account of how it has carried out its work and shall substantiate its recommendations.
8. Corporate assembly and board of directors; composition and independence
IDEX does not have a corporate assembly because it is exempted from having a corporate assembly.
The board acknowledges the Code’s recommendation that the majority of the members of the board shall be independent of the Company’s management and material business contacts. All board members are required to make decisions objectively in the best interest of the Company, and the majority of independent directors is intended to ensure that sufficient independent advice and judgment is brought to bear. The majority of the current board meets the independence criteria of the Code. The board meets the statutory gender requirements for the board. The board’s attendance statistics is included in the presentation of the board members in the annual report
The articles of association state that there shall be from three to seven board members. The service period is not stated in the articles, hence the board members stand for election every two years.
The board considers that at this stage of IDEX’s development, it is beneficial for the Company and its shareholders that the board members are shareholders in the Company and encourages the members of the board to hold shares in the Company.
The board pays attention to ensure that ownership shall not in any way affect or interfere with proper performance of the fiduciary duties which the board members and the management owe the Company and all shareholders. As and when appropriate, the board takes independent advice in respect of its procedures, corporate governance and other compliance matters.
9. The work of the board of directors
The division of responsibility and duties between the board and the managing director is based on applicable laws and well-established practices, which have been formalized in writing through board instructions in accordance with the Norwegian Public Limited Companies Act. The board instructions also set out the number of scheduled board meetings per year and the procedures in connection with the board’s work and meetings.
The board instructions state that the board has the ultimate responsibility for the organization and planning of the Company, as well as a control and supervisory function, hereunder a duty to keep itself informed. The board shall appoint the managing director and determine his or her remuneration and also possibly give notice or dismiss the managing director. The board shall ensure that the organization of the accounting and funds management includes adequate control procedures. The board shall monitor and follow-up the status and development of company’s operational, financial and other results.
The board instructions list inter alia the following responsibilities:
• Issue interim and annual financial statements and other statutory reports;
• Issue notice of the annual general meeting;
• Resolve the annual plan and budget, including capital expenditure budget;
• Resolve investment in and disposals of subsidiaries and associated companies, and in real estate;
• Resolve and issue guarantees and other commitments and the pledging of assets;
• Resolve customer related or revenue generating agreements as well as other agreements and activities
which are significant and would be expected to have a significant impact on the company’s results and financial position; and
• Determine whether legal proceedings should be commenced or settled.
The board instructions state that in situations when the chairman cannot or should not lead the work of the board, the longest-serving board member shall chair the board until an interim chairman has been elected by and among the board members present.
The board shall evaluate its performance and expertise annually. Moreover, the board will resolve an annual plan for its work, with particular emphasis on objectives, strategy and implementation.
With a compact board of five members and in view of the size of the Company, the board has not hitherto determined a need for sub-committees. The future need for any sub-committees is considered at least annually in connection with the annual review of the Company’s corporate governance.
IDEX is not obliged to have a separate audit committee and in view of the small number of board members, the board holds the opinion that the audit committee shall consist of all board members who are not also executives or have similar roles in the Company. The board instructions include instructions for the audit committee.
10. Risk management and internal control
The board has adopted rules and guidelines regarding, amongst other matters, risk management and internal control. The rules and guidelines duly take into account the extent and nature of the Company’s activities as well as the Company’s corporate values and ethical guidelines, including the corporate social responsibility. The board conducts an annual review of the Company’s most important areas of exposure to risk and its internal control arrangements, including the reporting procedures.
In view of the size of the Company and the number of board members, the board has chosen to elect the full board to constitute the audit committee. The audit committee policies and activities are compliant with the Norwegian Public Limited Companies Act.
IDEX issues interim financial reports each quarter and annual financial report according to the published financial calendar. The accounting policies are applied when preparing the reports, which satisfy the regulatory requirements. The board reviews monthly financial reports for each entity as well as the group, comparing actual results to budget. The size of the company’s operation and staff number necessarily leads to dependence on key individuals. However, the same factors also provide for transparency and inherent risk reduction. The subsidiary group in USA which was established in September 2013 is operationally integrated in the parent company, with legal and financial interaction being conducted on arm’s length terms.
IDEX’s activities and financials are controlled by the parent company. The audit committee regularly meets separately with the external auditor to review risk factors and measures, and any incidents and issues. The audit committee reviews all reports before resolution by the board. The board has resolved a financial manual, which sets out policies and procedures for financial management and reporting in the group. This manual provides instructions for financial planning, treasury, accounting and reporting. It is reviewed annually by the audit committee, and updated as and when appropriate. Due to the expanded number of staff in 2014 and 2015, the capacity of the financial and administrative functions has also been expanded, and thus enabled implementation of higher degree of segregation of duties. In entering the commercial, operational stage of its business, IDEX is currently implementing more comprehensive IT systems and also quality management systems and standardised operating procedures which will strengthen the business controls.
The board has adopted an insider manual with ancillary documents. The insider manual is intended to ensure that, among other things, trading in the Company’s shares by board members, executives and/or employees, including close relations to the aforementioned, are conducted in accordance with applicable laws and regulations.
11. Remuneration of the board of directors
A reasonable cash remuneration to the board members for their services from the annual general meeting in 2014 until the annual general meeting in 2015 was proposed to and resolved at the annual general meeting 2015. To lessen the cash outflow and stimulate shareholding among the board members, the annual general meeting granted an option for the board members to receive the remuneration partly or fully in kind in the form of shares. Three of the board members took up this option in 2015. Amount details are disclosed in the financial statements. The nomination committee shall propose board remuneration for the period between the annual general meetings of 2015 and 2016.
Advokatfirma Ræder DA, in which the IDEX chairman, Morten Opstad, is a partner, renders legal services to the Company. Generally, such services are largely undertaken by lawyers at Ræder other than Morten Opstad. In the cases where legal services provided by Ræder are carried out by Morten Opstad, such services, which are outside Morten Opstad’s duties as chairman, are billed by Ræder. The service fee to Ræder is disclosed in the financial statements.
Larry Ciaccia, who was elected board member at the annual general meeting on 12 May 2015, served on IDEX’s nomination committee 2014-2015, for which service the annual general meeting 2015 resolved the remuneration. Mr. Ciaccia has served on IDEX’s Strategy Advisory Committee (SAC) since January 2014 and continues his tenure on the SAC, for which he is remunerated separately. Mr. Ciaccia also provides consulting services to IDEX for a fixed fee annual fee. The fees to Mr. Ciaccia are disclosed in the financial statements.
Any board member performing work for the Company beyond the board duty shall ensure that such assignments do not in any way affect or interfere with proper performance of the fiduciary duties as a board member. Moreover, the board, without the participation of the interested member, shall approve the terms and conditions of such arrangements. Adequate information about the remuneration shall be disclosed in the annual financial statements.
12. Remuneration to the management
IDEX offers market-based compensation packages for the executives and employees in order to attract and retain the competence which the Company needs. The exercise price for any subscription rights is in line with the share price at IDEX ASA Corporate governance review 2015 5 the time of the grant. The subscription rights vest in tranches over four years unless a special vesting schedule is deemed appropriate by the board and resolved upon grant. No so-called golden parachutes are in effect, and postemployment pay will only apply in case the Company invokes contractual non-competition clauses.
The board shall determine the compensation of the CEO. The cash incentive remuneration per calendar year is limited to an amount or a percentage of annual base pay. It follows from the nature of the incentive subscription rights programme resolved by the annual general meeting that the limit does not apply to the possible gain on subscription rights. The board has adopted a policy for the CEO’s remuneration of the employees.
At the annual general meeting, the board will present to the shareholders a statement of remuneration to senior managers in a separate document attached to the notice of the annual general meeting. The statement shall clearly state which aspects of the guidelines are advisory and which are binding, and the general meeting will resolve the aspects separately. The resolution by the annual general meeting is binding to the extent it relates to share-based compensation, and advisory in other aspects.
13. Information and communications
The board places great emphasis on the relationship and communication with the shareholders. The primary channels for communication are the interim reports, the annual report and the associated financial statements. IDEX also issues other notices to shareholders when appropriate. The general meeting of shareholders provides a forum for shareholders to raise issues with the board. All reports and notices are issued and distributed according to the rules and practices at Oslo Axess marketplace of Oslo Børs. The Company publishes an annual financial calendar for the following year; setting forth the dates for major planned events such as its annual general meeting, publication of interim reports, any scheduled public presentations, any dividend payment date if applicable, etc. The reports and other pertinent information are also available on the Company’s website, Idex.no.
The board has adopted the following policies:
• Policy for reporting of financial and other information and investor relations;
• Policy for contact with shareholders outside general meetings; and
• Policy for information management in unusual situations attracting or likely to attract media or other external interest.
The financial reporting of IDEX is fully compliant with applicable laws and regulations. IDEX prepares and presents its annual financial reports in accordance with IFRS. The content of the interim reports are compliant with IFRS.
All reports are issued on the Oslo Axess marketplace of Oslo Børs (www.oslobors.no and www.newsweb.no). The reports and other pertinent information are also available at www.idex.no. The current information practices are adequate under current rules. IDEX complies with the Oslo Børs code of practice for IR information.
There are no takeover defence mechanisms in place. The board will endeavour that shareholder value is maximised and that all shareholders are treated equally. The board acknowledges its duty to not obstruct take-over bids and to not discourage or hinder competing bids. Any agreement with a bidder that acts to limit the company’s ability to arrange other bids should only be entered into where it is self-evident that such an agreement is in the common best interest of the company and its shareholders. The board will avoid compensation to a bidder whose bid does not complete, and limit such compensation to the costs the bidder has incurred in making the bid. The board shall otherwise ensure full compliance with section 14 of the Code.
IDEX’s auditor is fully independent of the Company. IDEX represents a minimal share of the auditor’s business. IDEX does not obtain business or tax planning advice from its auditor. The auditor may provide certain technical and clerical services in connection with the preparation of the annual tax return and other secondary reports, for which IDEX assumes full responsibility.
The board has established written guidelines to the CEO in respect of assignments to the auditor other than the statutory audit.
The board shall otherwise ensure full compliance with section 15 of the Code.