Corporate governance report

Sandvik's Annual General Meeting 2017 was held at the Göransson Arena, Sandviken, Sweden.

Sandvik AB has its head office in Stockholm and is the Parent Company of the Sandvik Group, with subsidiaries in more than 60 countries. The Group has about 43,000 employees and sales in more than 150 countries. Sandvik AB is a public company with its shares listed on Nasdaq Stockholm (the “Stockholm Stock Exchange”)

Corporate governance within Sandvik is based on external rules such as the Swedish Companies Act, the Stockholm Stock Exchange’s Rule Book for Issuers, the Swedish Code of Corporate Governance (the "Code") and other relevant laws and regulations. The Code is available from corporategovernance­board.se. In 2017 Sandvik applied the Code without deviating from any of its regulations.

The Sandvik Way

Sandvik's corporate governance framework, The Sandvik Way, implements these external rules and also sets out the internal rules and principles for governance that apply specifically within Sandvik. It is based on four levels, as set forth in the model below, and describes how common ways of working have been implemented throughout the entire organization.

Oversight and Direction

This level outlines how the Group is led and governed from the top. The Board of Directors, elected by the Shareholders' Meeting, sets the strategic direction for the Group. The President carries this out through the Group Executive Management whose members manage and oversee the operations of the Group. The main operational responsibility in the Group lies with the business areas and product areas, with Group functions responsible for functional policies and processes supporting the business. This level is the main focus of this Corporate Governance Report.

Culture and Enabling Structure

This level sets out the requirements and ambitions underpinning our operations. Our business philosophy is shaped by our Vision to excel, guided by our Core Values (Customer Focus, Innovation, Fair Play and Passion to Win), translated into the behaviors we outline in our Code of Conduct and motivated through the qualities outlined in Sandvik's Leadership Model.

Operational System

The operational system in The Sandvik Way is at the core of how we work on a day-to-day basis in the Sandvik Group. It contains information and ways of working for the whole Sandvik Group related to strategic planning, risk management, internal controls and compliance, as well as Sandvik’s monitoring activities, including performance tracking and compliance self-assessment for the business units. This is also where our group-wide policies and procedures are collected.

Business Area Governance

Whereas the three top levels of The Sandvik Way set the group-wide way of working that applies across all of the business areas, product areas and Group functions, the business areas and product areas have their own tailored governance systems based on The Sandvik Way.

Ownership structure

As of 31 December 2017 Sandvik’s share capital amounted to 1,505,263,107.60 SEK represented by 1,254,385,923 shares. According to the share register, Sandvik had about 103,000 shareholders as of 31 December 2017. AB Industrivärden was the largest owner with about 11.8 percent of the share capital. Of the total share capital at year-end, 37 percent was owned by investors outside Sweden.

Ten largest shareholders, 31 December 2017, %

AB Industrivärden 11.8
Alecta Pension Insurance 6.1
AMF Insurance and Funds 2.7
Handelsbanken Pension 2.6
Swedbank Robur Funds 2.5
L E Lundbergföretagen AB 2.4
SEB Investment Management 1.9
JP Morgan Chase* 1.8
Fourth Swedish National Pension Fund 1.4
Nordea Investment Funds 1.4

Source: Euroclear
* Shares held in trust

Shareholders' meeting

The General Meeting of Shareholders is the highest decision-­making body. At the Annual General Meeting, the shareholders are given the possibility to exercise their voting rights in relation to, for example, the Annual Report, dividends, election of the Board and appointment of auditor, and other matters stipulated in the Companies Act, the Articles of Association and, where applicable, the Code.

All shareholders who have been entered in the share register and have informed the company of their attendance within the time limit stated in the notice of the General Meeting are entitled to participate at Sandvik’s General Meetings and vote according to the number of shares held. Shareholders are also entitled to be represented by a proxy at the General Meeting.

All shares in Sandvik carry equal voting rights, namely one vote per share.

2017 Annual General Meeting

Shareholders representing 49.52 percent of the share capital and votes attended the Annual General Meeting held on 27 April 2017 in Sandviken, Sweden. Sven Unger, attorney-at-law, was elected to chair the meeting. Resolutions passed at the General Meeting included the following:

  • Dividend of 2.75 SEK per share
  • Election of Marika Fredriksson as new member of the Board and re-election of Board members Jennifer Allerton, Claes Boustedt, Johan Karlström, Johan Molin, Björn Rosengren, Helena Stjernholm and Lars Westerberg. Re-election of Johan Molin as Chairman of the Board.
  • Guidelines for remuneration of senior executives
  • A long-term incentive program in the form of a performance share program for about 350 senior executives and key employees in the Group
  • Re-election of KPMG AB as auditor

For additional information about the Annual General Meeting, including the minutes, refer to home.sandvik.

2018 Annual General Meeting

The next Annual General Meeting will be held on 27 April 2018 in Sandviken, Sweden. More information is available at home.sandvik.

Nomination Committee

The Nomination Committee is a preparatory body that prepares proposals for, among other things, the election of the Board of Directors, the Chairman of the Board and auditors as well as fees for adoption at the General Meeting. The Annual General Meeting has adopted an instruction for the Nomination Committee, which includes a procedure for appointing the Nomination Committee, valid until a General Meeting resolves on a change. In accordance with this instruction, the Nomination Committee should consist of representatives of the four largest shareholders, in terms of the number of votes, on the final business day in August plus the Chairman of the Board (convener).

Nomination Committee for 2018 AGM

For the 2018 Annual General Meeting, the Nomination Committee consists of Fredrik Lundberg, Chairman (Industrivärden), Kaj Thorén (Alecta), Pär Boman (Handelsbanken Pension), Anders Oscarsson (AMF Insurance and Funds) and Johan Molin (Sandvik’s Chairman of the Board).

Up to the date of the Annual General Meeting, the Nomination Committee met on three occasions. Through Sandvik’s Chairman of the Board, the Nomination Committee was informed of the results of the Board’s own evaluation. The Committee also met with Sandvik's President to review the company’s operations, stage of development and overall strategy. The Nomination Committee discussed the general criteria that Board members should fulfill, including the independence requirement, and reviewed the number of Board assignments that each Board member has in other companies. The Nomination Committee applied rule 4.1 of the Code as the diversity policy. This rule states that the Board shall have an appropriate composition in view of the company’s operations, phase of development and other relevant circumstances, display diversity and breadth in terms of qualifications, experience and background of the Board members elected by the General Meeting and that the company shall strive for gender balance.

Nomination Committee's tasks ahead of the 2018 Annual General Meeting

  • Proposal concerning the Chairman of the Meeting
  • Proposal concerning the number of Board members
  • Proposal concerning remuneration of each Board member
  • Proposal concerning the Board and Chairman of the Board
  • Proposal concerning auditor and remuneration of the auditor
  • If deemed necessary, proposal for changes to the Nomination Committee's instruction concerning the procedure for appointment of the Nomination Committee for the forthcoming Annual General Meeting and its assignment

Board of Directors

The Board of Directors is responsible for the company’s organization and the management of the company’s business. The Board is required to continuously monitor the company’s and the Group’s financial position.

The Board is to ensure that the company’s organization is designed in a way that ensures that the financial statements, the management of assets and the company’s financial condition in general are controlled in a satisfactory manner.

The President is appointed by the Board and is responsible for the daily operations pursuant to guidelines and instructions issued by the Board. The distribution of responsibilities between the Board and the President is laid down in the Board’s Procedural Guidelines which are reviewed and adopted each year. The review is based on such aspects as the Board’s evaluation of the individual and collective work that the Board performs.

In addition to financial reporting and the monitoring and follow-up of daily operations and profit trend, Board meetings address the goals and strategies for the operations, significant acquisitions and investments, as well as matters relating to the capital structure. Senior executives report business plans and strategic issues to the Board on an ongoing basis.

Composition

As of 31 December 2017 Sandvik’s Board consisted of eight members elected by the Annual General Meeting.

The Nomination Committee communicated before the 2017 Annual General Meeting that the Nomination Committee had applied rule 4.1 of the Code as the diversity policy. The current Board composition is the result of the work of the Nomination Committee prior to that General Meeting. The Board consists of members with experiences from different geographic areas and different industry sectors and, excluding the President, 42 percent of the Board members elected by the General Meeting are women.

Pursuant to Swedish legislation, trade unions are entitled to representation on the Board and they have appointed two members and two deputies.

The Board members are presented on Board of Directors.

Independence

Helena Stjernholm is not regarded as independent in relation to major shareholders in the company and Björn Rosengren is not regarded as independent in relation to the company and its executive management. The other six Board members elected by the General Meeting are all independent in relation to Sandvik and its executive management, as well as the company's major shareholders. Accordingly, the composition of the Board complies with the independence requirements of the Code.

Board proceedings during 2017

During the year, the Board held 13 meetings. The Board addressed strategic issues. The executive managements of all business areas presented their goals and strategies. The Board also addressed matters related to IT, human resources, such as incentive programs, environment, health and safety, and issues concerning investments and the review of previously made investments, as well as acquisitions and divestments, such as the sale of the Sandvik Process Systems and Hyperion businesses. The Remuneration and Audit Committees submitted reports from their respective meetings and the minutes from these minutes were made available to the Board members. In the autumn of 2017 the Board visited the Sandvik site in Fairlawn, US.

Remuneration of the Board

As resolved at the 2017 Annual General Meeting, the fee to the Chairman of the Board is 2,200,000 SEK and the fee to each of the non-executive Board members elected by the General Meeting is 630,000 SEK.

In addition, 275,000 SEK was paid to the Chairman of the Audit Committee and 150,000 SEK to each of the other Committee members, in total 575,000 SEK. The Chairman of the Remuneration Committee was paid 125,000 SEK and each of the other Committee members 100,000 SEK, in total 325,000 SEK.

For more detailed information on remuneration of the Board members, see Note 3.5.

Evaluation of the work of the Board

To ensure the quality of the work of the Board and to identify the possible need for further expertise and experience, the work of the Board and its members is evaluated annually. In 2017 the evaluation, which was led by the Chairman of the Board, was carried out by way of each Board member responding to an online questionnaire. The Chairman also held separate evaluation meetings with all Board members. The compiled results were presented to the Board. The Chairman of the Board also presented the results of the evaluations at a meeting with the Nomination Committee.

Composition of the Board AS OF 31 december 2017

NameFunctionIndependent in acc. with the CodeShareholding, number1 31 Dec 2017ElectedAudit CommitteeRemuneration Committee
Jennifer Allerton Member Yes 10,000 2015
Thomas Andersson Deputy2 612 2012
Claes Boustedt Member Yes 20,000 2015 Chairman
Marika Fredriksson Member Yes 2,500 2017
Johan Karlström Member Yes 5,000 2011 Member
Tomas Kärnström Member2 2,889 2006
Thomas Lilja Member2 3,560 2016
Mats W Lundberg Deputy2 0 2015
Johan Molin Chairman Yes 260,0003 2015 Chairman
Björn Rosengren Member No 95,216 2016
Helena Stjernholm Member No 04 2016 Member
Lars Westerberg Member Yes 180,000 2010 Member Member

1) Pertains to own and closely related persons' shareholdings in Sandvik AB.
2) Employee representatives (both members and deputy members participate in Board meetings). Thomas Lilja (member) and Mats W Lundberg (deputy) represent Unionen/Ledarna/Swedish Association of Graduate Engineers. Tomas Kärnström (member) and Thomas Andersson (deputy) represent IF Metall.
3) In addition 1,000,000 call options in Sandvik AB.
4) Acquired 5,000 shares on 12 February 2018.

Board Committees

The tasks of the Committees and their work procedures are stipulated in written instructions issued by the Board. The Committees’ primary task is to prepare issues and present them to the Board for resolution.

Remuneration Committee

During 2017 the members of the Remuneration Committee were the Chairman of the Board Johan Molin (Chairman of the Committee), Johan Karlström and Lars Westerberg. The tasks of the Remuneration Committee are, among others, those prescribed by the Code, which include preparing proposals regarding guidelines for remuneration of senior executives and long-term incentive programs for senior executives.

Based on the recommendations of the Remuneration Committee, the Board decides the remuneration and terms of employment for the President, who in turn decides on the remuneration to be paid to the Group Executive Management in consultation with the Remuneration Committee.

For guidelines, remuneration and other benefits payable to the Group Executive Management, refer to Proposal regarding guidelines for the remuneration of senior executives on Summary, Group total and Note 3.5.

During 2017 the Remuneration Committee held seven meetings. The increased number of meetings was mainly driven by the replacement of two members of the Group Executive Management during 2017.

Audit Committee

During 2017 the members of the Audit Committee were Claes Boustedt (Chairman of the Committee), Helena Stjernholm and Lars Westerberg. Areas addressed by the Audit Committee mainly related to:

  • Financial reporting
  • Effectiveness of the system of internal control
  • Planning, scope and follow-up of the internal and external audit for the year
  • The Group’s systematic processes for risk management, including legal disputes, IT, accounting procedures, taxation, treasury, finance operations and pension issues
  • The development and effectiveness of compliance processes and Speak Up, Sandvik's global whistleblowing system
  • Sandvik’s sustainable business strategy and materiality analysis
  • Preparation for election of new auditor

During 2017 the Audit Committee held six meetings at which Sandvik’s external auditor and representatives of the company’s management were present.

Attendance at Board and Committee meetings in 2017

MemberBoardAudit CommitteeRemuneration Committee
Total number of meetings 13 6 7
Jennifer Allerton 13
Thomas Andersson 13
Claes Boustedt 13 6
Marika Fredriksson1 7
Jürgen M Geissinger2 3
Johan Karlström 13 7
Tomas Kärnström 13
Thomas Lilja 13
Mats W Lundberg 13
Johan Molin 13 7
Björn Rosengren 13
Helena Stjernholm 13 6
Lars Westerberg 12 6 7

1) Elected new Board member at the Annual General Meeting 2017.
2) Left the Board in conjunction with the Annual General Meeting 2017.

President and Group Executive Management

The President is accountable for Group decision-making in all areas delegated by the Board. In order to ensure a full Group perspective in these matters, the President has appointed the Group Executive Management as an advisory forum, focusing on how to achieve Group targets, strategies, structure and organization. The Group Executive Management meets each month and its members are accountable for implementing the President's decisions.

In 2017 the Group Executive Management consisted of:

  • Björn Rosengren, President and CEO
  • Tomas Eliasson, Executive Vice President and CFO
  • Klas Forsström, President of Sandvik Machining Solutions, from 1 April 2017
  • Lars Engström, President of Sandvik Mining and Rock Technology
  • Göran Björkman, President of ­Sandvik Materials Technology, from 1 November 2017
  • Jessica Alm, Executive Vice President and Head of Group Communications
  • Johan Kerstell, Executive Vice President and Head of Human Resources
  • Åsa Thunman, Executive Vice President and General Counsel
  • Jonas Gustavsson, President of Sandvik Machining Solutions, until 31 March 2017
  • Petra Einarsson, President of ­Sandvik Materials Technology, until 31 October 2017

The President and other members of the Group Executive Management are presented further on Group Executive Management.

Business areas

The Sandvik organization model is based on a decentralized business model with three separate business areas – Sandvik Machining Solutions, Sandvik Mining and Rock Technology and Sandvik Materials Technology – based on distinct product offerings. Each business area has full responsibility and accountability for its respective business results.

Each of the three business areas is organized in a number of product areas based on product offering or brand. The product area is the highest operational level in the Sandvik organizational structure. Where the product area structure is based on the product offering, each product area is organized in business units representing defined parts of the product offering.

Visit home.sandvik for more detailed information relating to the Group’s business activities and product portfolios.

Group functions

There are currently four Group functions within Sandvik: Communications, Finance, HR and Legal. Group Functions specifically focus on setting the appropriate enabling structures and processes that are common for the Group or cover a specific area for which the Group is responsible.

External auditor

At the 2017 Annual General Meeting, the audit firm KPMG AB was re-elected auditor of Sandvik AB for the period until the 2018 Annual General Meeting. Joakim Thilstedt is the auditor-in-charge.

The auditors continuously audit and monitor the company’s general accounting and the execution by the Board and the President of their respective responsibilities.

The progress of the audit is reported regularly during the year to the management teams of individual companies and the business areas, to the Group Executive Management, the Audit Committee and to the Board. The auditor meets with the Board at least once a year without the President or any other member of the Group Executive Management attending.

The independence of the external auditor is guaranteed by a requirement that the Audit Committee pre-approves non-audit services to be provided by the auditors.

Audit fees are paid continuously over the period in office on an approved current account basis. For detailed information on fees paid to the auditor, see Note 3.6.

Breach of the Stockholm Stock Exchange’s Rule Book

In December 2017 the Disciplinary Committee of the Stockholm Stock Exchange found that Sandvik had breached the Stockholm Stock Exchange’s Rule Book for Issuers (the "Rule Book”) and imposed a fine on Sandvik amounting to one annual fee, equivalent to an amount of SEK 3,105,000. The Disciplinary Committee found that Sandvik had contravened section 3.1 of the Rule Book by mistakenly publishing its interim report for the second quarter of 2017 on the company’s website before the report was disclosed in a correct manner as stipulated in the Rule Book.

Internal control of Financial Reporting

Sandvik’s finance organization manages a well-established financial reporting process aimed at ensuring a high level of internal control.

The internal control system aligns with the conceptual framework of COSO, which is based on five key components that jointly facilitate good internal control. The five components are Control Environment, Risk Assessment, Control Activities, Information and Communication and Monitoring and Follow-up. The application of the COSO framework is described below.

Control environment

The Sandvik Way regulates the governance of the Sandvik Group. It includes delegation of responsibilities, including signatory and authorization principles for decision making and cost approvals, and request and approval procedures in respect to investments and acquisitions, among other items.

The Sandvik Financial Reporting Policies and Procedures govern control over financial reporting. These documents contain detailed instructions regarding accounting policies and financial reporting procedures to be applied by all Sandvik reporting entities

A Sandvik Financial Internal Control Framework has been developed and includes key components such as; well-defined roles and responsibilities, internal control policy and the risk and control matrix which defines a mandatory minimum of control activities that contribute to the mitigation of risks to acceptable levels. The process of rolling-out the common framework to the Sandvik entities is well underway.

Risk assessment and risk management

The Enterprise Risk Management (ERM) process at Sandvik encompasses the area of financial reporting. Key risks noted in local assessments and observations made by Internal and External Audit are also taken into consideration to ensure that adequate controls exist to mitigate these risks.

Control activities

In each legal entity, the finance staff is responsible for accurate accounting and the closing of books. At Group level, Group Control manages the reporting process to ensure the completeness and accuracy of financial reporting and compliance with IFRS requirements. Both statutory and management reporting is conducted in close cooperation with product areas, business areas and specialist functions such as tax, treasury and legal to ensure the correct reporting of the income statement, balance sheet, equity and cash flow.

Controllers in the product and business areas perform analytical reviews and investigations, conduct business trend analyses and update forecasts. They investigate certain issues related to the financial information as and when needed. All business areas present their financial performance in written reports to the Group Executive Management on a monthly and quarterly basis.

Information and communication

Financial reports setting out the Group’s financial position and the earnings trend of operations are submitted regularly to Sandvik's Board. The Board deals with all quarterly interim reports as well as the Annual Report prior to publishing and monitors the audit of internal control and financial statements conducted by Internal Audit and the external auditors.

Quarterly interim reports are published externally and are supplemented by investor meetings attended by the Group Executive Management.

Monitoring and follow-up

Each legal entity manager and their respective finance organization is ultimately responsible for continuously monitoring the financial information of the various entities. The Audit Committee is to ensure that the company's financial reports are produced in accordance with legislation, applicable accounting standards and other requirements for listed companies. The Audit Committee prepares issues and presents them to the Board for resolution.

The external auditors review the third-quarter interim report and study the financial reports prepared for the other quarters. In conjunction with the close of the third quarter, the external auditors perform a more detailed examination of the level of internal control over the financial reporting as part of a hard-close audit, which includes an assessment of the Parent Company’s reporting and internal control over financial reporting in the business areas, subsidiaries and Group functions.

Internal audit

The Internal Audit function audits the corporate governance, internal control and risk-management procedures. Internal Audit is subordinated to the Audit Committee and the head of the unit reports to the Audit Committee.

Internal audits include, as a basis, the Group’s policies for corporate governance, risk management and internal control with regard to areas such as financial reporting, compliance with the Code of Conduct and IT. The outputs of the audits include action plans and programs for improvement.

Findings are reported to the Group Executive Management and the business area management and to the Audit Committee.