Corporate Governance Report for Duni AB (publ)

Governance

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Duni AB is a Swedish limited public company which has been listed on NASDAQ OMX in Stockholm since November 14, 2007. Governance of Duni takes place through general meetings, the Board of Directors and the CEO, as well as Duni’s group management, in accordance with, among other things, the Swedish Companies Act, the Company’s Articles of Association and rules of procedure for the Board of Directors and the CEO. In light of Duni’s group structure, the composition of the boards of operational subsidiaries, often with representatives from group management, constitutes a further component in the governance of Duni.

Duni applies the Swedish Code of Corporate Governance. This corporate governance report does not constitute a part of the formal annual report and has not been reviewed by the Company’s auditors.

Swedish code of corporate governance

The Swedish Code of Corporate Governance (the “Code”) must be applied by all Swedish companies whose shares are admitted to trading on a regulated market in Sweden. Duni has undertaken vis-à-vis NASDAQ OMX Stockholm to comply with the Code. The Code is based on the principle “comply or explain”, entailing that a company which applies the Code may derogate from its provisions provided that each derogation can be explained in a satisfactory manner.

Duni applies the Code subject to a single derogation, namely that the Chairman of the Board, Anders Bülow, is also the Chairman of Duni’s Nomination Committee. Duni’s major shareholders have explained that the reason for the derogation is that the Chairman of the Board, Anders Bülow, is very suitable to preside over the work of the Nomination Committee in an efficient manner in order to achieve the best result for Duni’s shareholders.

Pursuant to the Code, the Company must, among other things, have a Nomination Committee, an Audit Committee and a Remuneration Committee. The Code also states how these committees are to be comprised.

Articles of association

The Articles of Association are adopted by the general meeting and contain certain mandatory information of a fundamental nature for the Company. The complete Articles of Association are available on Duni’s website, www.duni.com .

Duni’s Articles of Association provide, among other things, that the directors are elected each year at the annual general meeting for a term until the close of the next annual general meeting. All shares in Duni carry equal voting rights.

General meetings

The general meeting is the highest decision-making body at which the shareholders exercise their influence by voting on key issues, such as the adoption of the income statements and balance sheets, allocation of the Company’s profits, discharge from liability for the directors and the CEO, election of the Board of Directors and auditors, as well as remuneration to the Board of Directors and auditors.

Pursuant to the Swedish Companies Act, notice to attend Duni’s annual general meeting must be given not earlier than six weeks and not later than four weeks prior to the meeting. Notice shall be given through an announcement in Post och Inrikes Tidningar (The Official Gazette) and in Svenska Dagbladet . Duni has also chosen to publish the notice on the Company’s website and through an announcement in Sydsvenska Dagbladet .  In order to participate at the general meeting, a shareholder must notify the Company thereof not later than the date stated in the notice.

2009 Annual General Meeting

The annual general meeting of the shareholders of Duni was held in Malmö on May 6, 2009.

2010 Annual General Meeting

The next annual general meeting of the shareholders of Duni will be held at 3 pm on May 5, 2010 at Skånes Dansteater (Östra Varvsgatan 13 A) in Malmö.

Nomination Committee

The Chairman of the Board convenes a Nomination Committee. The Nomination Committee is a shareholder committee which is responsible for nominating the persons who, at the annual general meeting, are to be proposed for election to Duni’s Board of Directors.

The Nomination Committee provides proposals as regards the Chairman of the Board and other directors. It also produces proposals regarding board fees, including the allocation between the Chairman and other directors, as well as any remuneration for committee work. These proposals are presented at the annual general meeting and set forth in the notice and on the website prior to the annual general meeting

The intention is that the Nomination Committee shall be composed of representatives of at least three of Duni’s largest owners. Duni’s Nomination Committee comprises the following members:

The board of directors

The Board of Directors is the Company’s highest decision-making body after the general meeting. The Board’s overarching duties are to decide on the Company’s business focus, the Company’s resources and capital structure, as well as the Company’s organization and management of the Company’s affairs. The Board’s general obligations also include regular assessment of the Company’s financial position and approval of the Company’s business plan. The general obligations include decisions by the Board on overarching issues, for example the Company’s strategy, acquisitions, major investments, divestments, issuance of the annual report and interim reports. The Board appoints the CEO, who is responsible for the day-to-day managment in accordance with instructions issued by the Board.

The directors

The directors are elected each year by the annual general meeting for a term until the close of the next annual general meeting. Pursuant to the Articles of Association, the Board shall comprise no fewer than three and no more than twelve directors. In addition, there may be employee representatives.

Duni’s Board consists of five directors elected by the annual general meeting on May 6, 2009 and two employee representatives, plus one alternate. Duni’s CEO is not a member of the Board but, similarly to the CFO, regularly participates as a presenter at board meetings. The Chairman of the Board does not participate in the executive management of the Company.

The directors are presented in greater detail in the Annual Report in the section entitled “Board of Directors”.

The Board’s work

The Board complies with a written instrument, namely the Board’s rules of procedure which are adopted annually at the initial board meeting. The rules of procedure state the allocation of work, where appropriate, between the directors and the frequency of board meetings. In addition, the rules of procedure, in instructions to the CEO, govern the Board’s obligations, quorum, and the allocation of responsibilities between the Board and the CEO, etc. The Board has also established two committtees from among its members, namely the Audit Committee and the Remuneration Committee, which are described in greater detail below.

Board meetings are held in accordance with a predetermined annual schedule. In addition to these meetings, further meetings may be arranged if unusually important events occur. During 2009 financial year, a total of 10 board meetings were held at which minutes were taken. Meetings have been held in connection with the adoption of the Group’s consolidated financial statements, interim reports, report of unaudited annual results, budget and strategy.

In addition to the Board meetings, the Chairman of the Board and the CEO maintain a regular dialogue concerning the management of the Company. As mentioned above, the allocation of work between the Board and the CEO is governed by the Board’s rules of procedure and instructions to the CEO. The CEO is responsible for the execution of the business plan and the ongoing management of the Company’s affairs, as well as the day-to-day business in the Company. Accordingly, without the Board’s authorization the CEO may take measures which are extraordinary in nature or of major significance for the Company’s operations, relative to the scope and nature of the Company’s operations, provided that a decision by the Board of Directors cannot be awaited without significant detriment to the Company. In such cases, the Board of Directors shall immediately be informed of any measures taken. The instructions to the CEO also govern the CEO’s responsibility for reporting to the Board of Directors.

The Board receives each month written information in the form of a monthly report containing follow-up of the Company’s sales, operating income and working capital trends. In addition, the material contains comments by the CEO and CFO, for example brief comments on the various markets. Those months in which board meetings are held, the monthly report is more extensive and includes, among other things, also balance sheets and cash flow.

Once per year, the entire Board undertakes a systematic evaluation of the senior executives. In this context, ‘senior executives’ include also certain second line managers, i.e. a broader group of employees than those defined as senior executives in other parts of the annual report. The management group is presented in greater detail in the section of the Annual Report entitled “Management”.

The main owners, the directors and the CEO conduct each year a detailed evaluation of the Board of Directors based on the adopted rules of procedure. The evaluation covers, among other things, the composition of the Board, individual directors as well as the Board’s work and routines.

The Code also contains rules regarding the independence of the directors and imposes the requirement that a majority of the directors must be independent of the Company and company management. A director is not considered to be independent in a number of situations, among others if the director

i) is the CEO of the Company or was the CEO during the past five years;
ii) receives from the Company or an affiliated company or from any member of company management, not insignificant compensation for advice or services over and above the Board appointment;
iii) has, or has had during the past year, extensive commercial relations or other extensive business dealings with the Company or an affiliated company; or
iv) has been a director of the Company for more than twelve years.

At least two of the directors who are independent of the Company and company management must also be independent in relation to all shareholders who control ten percent or more of the share capital or voting capital of the Company. Not more than one member of company management may be a member of the board.

Board attendance

The board's commitees

The Remuneration Committee prepares issues regarding remuneration to Duni’s senior executives based on guidelines for remuneration to senior executives adopted at the annual general meeting and also negotiates with the CEO regarding his remuneration. The Audit Committee prepares the Board’s work by reviewing guidelines for the Group’s risk management, governance and control, financial reporting and tax situation. In this work, the Audit Committee maintains regular contacts with the CFO and the auditors.

Remuneration Committee

The Remuneration Committee comprises three members: Magnus Yngen (Chairman), Anders Bülow, and Tommy Gustafsson. The Chairman of the Board may be the chairman of the Remuneration Committee. The other members of the Remuneration Committee must be independent of the Company and company management. The Remuneration Committee and its chairman shall be elected annually at the initial board meeting and shall comprise at least two of Duni’s directors, one of whom shall be the Chairman of the Board. The Remuneration Committee must meet at least three times per year. Duni’s CEO participates at the Remuneration Committee’s meetings, apart from when questions regarding his own remuneration are addressed.

Duni’s Remuneration Committee is responsible for preparing matters concerning remuneration and other benefits for company management. Decisions are thereafter taken by Duni’s Board of Directors. The Remuneration Committee also participates in the preparation of, and proposals for, the adoption of any share-related incentive programs at Duni.

Audit Committee

Duni has an Audit Committee comprising three members: Pia Rudengren (Chairman), Anders Bülow and Sanna Suvanto-Harsaae. The Audit Committee and its chairman are appointed annually at the initial board meeting and consist of at least three of Duni’s directors. Duni’s Group Accounting Manager serves as secretary to the committee. A majority of the members of the Audit Committee must be independent of the Company and company management. At least one member of the Audit Committee must be independent of the Company’s major shareholders. Executive directors may not be members of the Audit Committee. A member of the Committee must possess such skills and experience in accounting, auditing and/or risk management that he/she can perform the duties imposed on the Committee. Duni’s Board chooses the chairman of the Committee. The Company’s Audit Committee meets at least three times per year.

Duni’s Audit Committee is responsible for ensuring the quality of the Company’s financial and business reporting. The Audit Committee also evaluates Duni’s internal control processes and management of financial and operating risks.

The Committee meets regularly with the Company’s auditors in order to obtain information regarding the focus and scope of the external audit and to evaluate the work of the external auditors. The evaluation also covers the scope of any non-audit-related work performed by the auditors on behalf of Duni. When preparing a proposal regarding the election of auditors and compensation for audit work, the Nomination Committee is assisted by the Audit Committee.

CEO

Duni’s CEO is Fredrik von Oelreich (1961), MBA. The Board has adopted instructions regarding the work and role of the CEO. The CEO is responsible for the day-to-day management of the Company’s operations in accordance with guidelines issued by the Board of Directors. On December 31, 2009, Fredrik von Oelreich held 205,000 shares in Duni AB. No party closely related to the CEO has any significant shareholding in Duni AB. Fredrik von Oelreich has no ownership interests in companies with which Duni has significant commercial relations and holds no important appointments outside Duni. Further information regarding the CEO is provided in Note 13 in the Annual Report.  

Remuneration to the board

Fees and other remuneration to the Board, including the Chairman of the Board, are decided upon by the annual general meeting.

In accordance with a resolution adopted by the annual general meeting on May 6, 2009, the annual fee was set at a total of SEK 1.5 m, of which SEK 0.5 m is payable to the Chairman of the Board. In addition, a resolution was adopted regarding fees for committee work totaling SEK 0.3 m. The allocation of the remuneration among the members of the Board is shown in the table below:

Board remuneration for the period May 2009 – April 2010

Remuneration to senior executives

According to guidelines regarding remuneration to senior executives adopted by the annual general meeting on May 6, 2009, remuneration to the CEO and other members of the management group shall be on market terms and comprise fixed and variable salary, long-term share-related incentive programs, other benefits as well as pension. The variable salary shall never exceed the fixed salary. At present, there are no long-term incentive programs.

The table above shows the total gross remuneration paid to the managment group, include basic salaries, variable remuneration, pension payments and other benefits.
Duni’s CEO, Fredrik von Oelreich, receives an annual gross salary of CHF 598,740 and has a possibility to achieve a bonus equivalent to not more than 50% of his annual basic salary, based on predetermined targets for the Group. In addition, he is entitled to certain other employment benefits such as a company car. Both Duni and von Oelreich may terminate the agreement subject to six months’ written notice of termination. In addition, except in the event of termination by the Company due to negligence, von Oelreich is entitled to an amount equal to 12 times his monthly salary. Von Oelreich participates in a contribution-based pension plan to which Duni makes an annual contribution equal to 35% of his annual gross salary until termination of the agreement. Von Oelreich’s retirement age is 62.

Duni has not granted any loans, extended or issued any guarantees or provided any security to the benefit of Duni’s directors, senior executives or auditors. None of the directors, senior executives or auditors has entered into transactions with Duni, whether directly or indirectly through any affiliated company.

Financial reporting

The Company has an information policy pursuant to which the Company shall publish quarterly reports, a half-yearly report, a report of unaudited annual results and an annual report. In connection with the publication of earnings reports, the Company may arrange analyst meetings and meetings with the media to discuss the Company’s operations, earnings and financial position. The Board assesses and approves the content of the financial reporting based on monthly reports, management reports and discussions at board meetings, as well as opinions issued by the auditor.

Audit

The auditor shall review the Company’s annual report and bookkeeping as well as management by the Board of Directors and CEO. There shall also be a general review of Duni’s interim report for the third quarter. After each financial year, the auditor shall submit an auditor’s report to the general meeting. The general meeting appoints auditors for four years. At an extraordinary general meeting held on August 28, 2007, PricewaterhouseCoopers AB was elected auditor, with Bo Hjalmarsson as auditor-in-charge, for the next four years. The Company’s auditor reviews the annual accounts and the annual report as well as the Company’s ongoing operations and routines in order to express an opinion regarding the accounts and management by the Board of Directors and the CEO. The audit of the annual accounts and annual report is conducted in January-February. Other than Duni, Bo Hjalmarsson has no engagements in companies over which Duni’s major owners, directors or the CEO have a significant influence. Bo Hjalmarsson is an authorized public accountant and member of FAR SRS. Apart from the audit engagement, fees to PricewaterhouseCoopers AB for other engagements during 2009 totaled MSEK 6.0.

• Corporate governance report
• The Board’s description of internal control
• Board of directors
• Senior Executives