Annual General Meetings are called with approximately three weeks' notice, and the agenda is accompanied by proxy forms enabling the shareholder to vote specifically on each item.
The Annual General Meeting approves the Annual Report. The Annual General Meeting elects 4-10 directors, and the auditor. Proposals for resolution at the Annual General Meeting must be submitted in writing to the Board no later than 1 February of any given year. Risk management Executive Management is responsible for the risk management process, including risk identification, assessment of likelihood and potential impact and initiation of mitigating actions.
Major risks are systematically identified and regularly reported to Executive Management and the Board of Directors. The company's risk policy spells out that “we will manage risks to enable continued growth of our business and to protect our people, assets, earnings and reputation against material loss.”
Hence, risk management considers both financial and extra-financial risks and key risks are reported through one, integrated and systematic process.
Internal control
In 2005, one year ahead of requirements, Novo Nordisk completed the process of becoming compliant with the Sarbanes-Oxley Act section 404 that requires detailed documentation of how financial reporting processes are designed and operating. Novo Nordisk must ensure that there are no material weaknesses in the internal controls which could lead to a material misstatement in its financial reporting. The company's conclusion and the auditors' evaluation of these processes are included in its Form 20-F filing to the US Securities and Exchange Commission. Governance structure
Ownership and shares Novo Nordisk's share capital is divided between A shares and B shares. All A shares are held by Novo A/S, a private limited liability Danish company, fully owned by the Novo Nordisk Foundation which is a private self-governing institution. The B shares are traded on the stock exchanges in Copenhagen and London and in the form of American Depositary Receipts on the New York Stock Exchange. Each A share carries 10 votes, whereas each B share carries 1 vote. The A shares are not listed but are in principle transferable.
However, according to the Articles of Association of the Foundation the A shares cannot be divested by Novo A/S or the Foundation. There are no transferability restrictions on the B shares. In 2005 Novo A/S sold 2,139,118 of its B shares, thereby achieving its objective of reducing its ownership of Novo Nordisk A/S to a long-term target level, which is around the level at the time of the demerger of Novozymes in 2000.
The A shares represent 15.2% of the capital and 64.1% of the total number of votes in the company. In addition, Novo A/S holds 10.3 % of the capital as B shares. Holding 25.5% of the total share capital, Novo A/S controls 71% of the total number of votes.
Novo Nordisk is not aware of the existence of any agreements between shareholders on the exercise on votes or control. Novo Nordisk is of the opinion that the current ownership structure is appropriate and preferable for the long-term development of the company. A revocation of the current voting rights differentiation cannot be implemented as this would violate the Articles of Association of the Foundation as approved by the Danish authorities.
The Novo Nordisk Foundation may in connection with a capital increase in Novo Nordisk or a merger of Novo Nordisk with other companies waive its controlling interest in Novo Nordisk if it is necessary to uphold and develop the commercial and research activities of Novo Nordisk as an internationally competitive business. However, the Foundation shall strive to maintain material influence in Novo Nordisk through Novo A/S.
The Foundation supports Novo Nordisk in achieving its vision, ensuring competitive financial results and adhering to the Charter for Companies in the Novo Group. All strategic and operational matters are solely decided by the board and the management of Novo Nordisk. Overlapping board memberships ensure that the Foundation and Novo Nordisk share a common vision and strategy.
Management structure
Novo Nordisk has a two-tier board structure consisting of a Board of Directors and the Executive Management. The two bodies are separate, and no one serves as a member of both. With the exception of agenda items reserved for the Board's internal discussion, executives attend and may speak, without voting rights, at board meetings ensuring that the Board is sufficiently informed of the company's operations. The Executive Management also conveys information on major shareholders' views of Novo Nordisk.
Board of Directors
On behalf of shareholders, the Board of Directors actively contributes to developing the company and supervises Executive Management in its decisions and operations. Hence, the aim is to compose a board consisting of individuals whose particular knowledge and experience enables the Board to attend to the interests of shareholders, employees and other stakeholders. New board members receive an induction programme equalling two full days during their first year on the board and participate subsequently in educational activities on an as needed basis.
All directors regularly update and refresh their competences and knowledge, including issues related to sustainability and non-financial risks and opportunities. See more about the process for determining board expertise.
The Novo Nordisk Board of Directors currently has 11 members, eight of whom are elected by shareholders. Five of the current eight shareholder-elected board members are considered independent, as defined by the Danish Corporate Governance Recommendations, while three are former executives in Novo Nordisk and related to the majority shareholder through board or executive positions. According to Danish law another three Board members are elected by Novo Nordisk employees in Denmark among themselves. Directors elected by the employees serve for a four-year term as per the current legislation, with the same rights, duties and responsibilities as shareholder-elected directors. See the profiles of the current Board members.
Shareholder-elected directors serve for a one-year term and can be re-elected at the general meeting. Directors must retire at the first general meeting after having reached the age of 70. The Board of Directors conducts an annual self-assessment, based on written questionnaires, to improve performance and the cooperation with Executive Management.
This process is directed by the chairmanship and is facilitated by an external consultant. The process evaluates the degree to which each director participates actively in Board meetings. This includes an assessment of whether the director is inspirational and contributes with independent judgement in key areas such as organisation, management, financial and operational strategy. Furthermore, it is assessed whether the environment supports open discussion at Board meetings. The Board continuously assesses, formally once a year, the performance of each executive, and the chairman conducts an annual interview with each.
Executive Management
The Executive Management is responsible for the company's daily operations. It consists of the president and CEO, and five other executives. Its responsibilities include organisation of the company and allocation of resources, strategies and policies, setting direction and ensuring timely information to the board and the stakeholders of Novo Nordisk. Executive Management meets at least once a month. The Board appoints Executive Management and determines their remuneration. The chairmanship reviews executives' performance.
As part of the Organisational Audit the chairmanship identifies successors to executives and presents candidates' names to the Board for approval. Remuneration Policy The Remuneration policy is designed to attract, retain and motivate board members and executives. Board members receive a fixed amount while the Chairmanship and the Audit Committee members receive a multiplier thereof. Board members are not offered stock options, warrants or participation in other incentive schemes.
Executive remuneration must be competitive and is evaluated against Danish and international benchmarks. It consists of a base salary, cash bonus, pensions, non-monetary benefits and a long-term incentive, and should align the interests of the executive with those of the shareholders. Assurance Compliance with codes and regulations as well as follow-up methodology specified by the Novo Nordisk Way of Management is supported by a range of internal procedures such as the Organisational Audit, Facilitation, Quality Management system, assurance and internal and external audits. The internal procedures are monitored, and potential deficiencies are reported upstream, with serious matters reported to executive management and the Audit Committee or the Board of Directors.
External audit
The annual report and the internal controls over financial reporting processes are audited by an external auditor elected by the Annual General Meeting. The auditor acts in the interest of the shareholders, as well as the public. The auditors report any significant findings regarding accounting matters and any significant internal control deficiencies via the Audit Committee to the Board and in the auditor's long-form report.
Internal audit
The internal audit function provides independent and objective assurance primarily within internal control and governance. To ensure that the function works independently of management, its charter, audit plan and budget is approved by the Audit Committee. The head of internal audit is appointed by and reports to the Audit Committee.
Facilitation
Facilitations are a method to evaluate how well the practices and understanding of the Novo Nordisk Way of Management are embedded in the organisation. The findings and identified corrective actions are part of the documentation that the CEO presents to the Board of Directors.
Quality audit
The commitment to quality is outlined in the Novo Nordisk Way of Management and the Quality Policy. Quality is defined as meeting the expectations and needs of customers and society. The quality management system, including audits, ensures continuous improvements and optimal use of internal standardisation.
Board of Directors' roles and responsibilities
The Board of Directors focuses on those activities that seek to effectively promote shareholders' interests and in such a way that the company achieves its objectives. The Board's corporate governance framework regulates its relationship with shareholders, the conduct of board affairs and the board's relationship with Executive Management and stakeholders. The Novo Nordisk Board of Directors currently has eleven members, eight of whom are elected by shareholders. The Board ordinarily meets seven times a year and ensures via a fixed annual calendar that it addresses the main tasks in a timely manner. In 2005 the Board met seven times and all board members attended all meetings.
Chairmanship
A chairman and a vice chairman elected by the board among it members form the chairmanship of the Board. They carry out administrative tasks, such as the planning of board meetings to ensure a balance between determination of strategy and supervision of the company. Other tasks include recommending the remuneration of directors and executives and suggesting candidates for election by the general meeting.
The chairmanship presents to the board a competency profile and proposal for defining board members' independence. Subsequently the chairmanship presents for the Board's approval an evaluation of each board member's competencies, independence and performance as well as a proposal for nomination of current and new board members.
Balance between replacement and continuity will be ensured when nominating candidates. Executive search has been contributing to identify directors that meet such criteria. Descriptions of the candidates' qualifications accompany the agenda of the general meeting.
Audit Committee
The Audit Committee has three members elected by the Board among its members. All members qualify as independent as defined by the US Securities and Exchange Commission (SEC) and two are considered financial experts. The Audit Committee assists the Board with the oversight of the external and internal auditors, the procedure for handling complaints regarding accounting, internal controls, auditing or financial reporting matters ('whistleblower function'), the accounting policies, and the systems of internal controls. In 2005 the Audit Committee held four meetings, in which all members participated. |
