9. The work of the board of directors

The board of directors should produce an annual plan for its work, with particular emphasis on objectives, strategy and implementation.

The board of directors should issue instructions for its own work as well as for the executive management with particular emphasis on clear internal allocation of responsibilities and duties.

In order to ensure a more independent consideration of matters of a material character in which the chairman of the board is, or has been, personally involved, the board's consideration of such matters should be chaired by some other member of the board.

The Public Companies Act stipulates that large companies must have an audit committee. The entire board of directors should not act as the company’s audit committee. Smaller companies should give consideration to establishing an audit committee. In addition to the legal requirements on the composition of the audit committee etc., the majority of the members of the committee should be independent.

The board of directors should also consider appointing a remuneration committee in order to help ensure thorough and independent preparation of matters relating to compensation paid to the executive personnel. Membership of such a committee should be restricted to members of the board who are independent of the company’s executive personnel.

The board of directors should provide details in the annual report of any board committees appointed.

The board of directors should evaluate its performance and expertise annually.

Commentary:

The duties of the board of directors

The Public Companies Act stipulates that the board of directors has the ultimate responsibility for the management at the company and for supervising its day-to-day management and activities in general.

The board’s responsibility for the management of the company includes responsibility for ensuring that the activities are soundly organised, drawing up plans and budgets for the activities of the company, keeping itself informed of the company’s financial position and ensuring that its activities, accounts and asset management are subject to adequate control.

The board of directors should lead the company’s strategic planning, and make decisions that form the basis for the executive management to prepare for and implement investments and structural measures. The company’s strategy should be reviewed on a regular basis.

Instructions for the board of directors

Where a company’s board of directors includes members elected by and from among the employees, it is required by law to produce written instructions for the board with specific rules on the work of the board and its administrative procedures which determine what matters must be considered by the board. This Code of Practice states that companies should have such instructions whether or not employees are represented on the board.

Instructions for the executive management

Instructions for the executive management of the company should provide a detailed statement of the duties, responsibilities and delegated authorities of the chief executive pursuant to the rules laid down for the company’s activities. The chief executive has a particular responsibility to ensure that the board of directors receives accurate, relevant and timely information that is sufficient to allow it to carry out its duties.

Financial reporting

The board of directors’ duties and responsibilities for financial reporting are governed by legislation and regulations. When considering the company’s accounts, the board can ask that the chief executive and the finance director/head of accounting confirm to the board that the proposed annual accounts which the board is asked to adopt have been prepared in accordance with generally accepted accounting practice, that all the information included is in accordance with the actual situation of the company and that nothing of material importance has been omitted.

Chairman of the board of directors

The Public Companies Act stipulates that the principal duty of the chairman of the board of directors is to ensure that the board of directors operates well and carries out its duties. In addition, the chairman of the board of directors also has certain specific duties in respect of the general meeting.

Matters to be considered by the board are prepared by the chief executive in collaboration with the chairman, who chairs the meetings of the board. In practice, the chairman carries a particular responsibility for ensuring that the work of the board is well organised and that it functions effectively. The chairman should encourage the board to engage in open and constructive debate. The chairman should pay particular attention to the need for members of the board to have appropriate up-to-date professional understanding in order to facilitate high quality work by the board, and he or she should take whatever initiatives are necessary in this respect. This may include holding training programs for new members of the board and arranging for the board as a whole to be regularly updated on specialist matters relevant to the company’s activities.

In order to ensure an independent approach by the board of directors, some other member should take the chair when the board considers matters of a material nature in which the chairman has, or has had, an active involvement. Such matters might, for example, include negotiations on mergers, acquisitions etc. This recommendation applies even if the chair is not disqualified from participation pursuant to § 6-27 of the Public Companies Act.

Board committees

There is a clear international trend for more extensive use of board committees and for the board of directors to provide information on its use of committees, their mandates, membership and working processes. In many countries the prevalence of board committees reflects structures for managing and directing companies that differ appreciably from the Norwegian model.

Under Norwegian law, the members of the board of directors are jointly responsible for its decisions. Accordingly, where board committees are appointed, their role must be seen as preparing matters for final decision by the board as a whole. Material information that comes to the attention of board committees should also be communicated to the other members of the full board. If any member of the executive personnel is a member of the board, an audit committee and a remuneration committee should be established in order to ensure the greatest possible independence for the board’s deliberations, cf. Section 8.

It is a legal requirement for large companies that exceed certain defined thresholds to establish an audit committee. Companies should not make use of the opportunity provided in company legislation for the entire board of directors to operate as the company's audit committee. Smaller companies should also consider establishing an audit committee. The evaluation of the independence of members of the audit committee can be based on the criteria for independence set out in the section "Independence of the board of directors" at Section 8. In addition to satisfying the legal requirements, the majority of the members of the audit committee should be independent of the company. When making recommendations for nominations to the board of directors, the election committee should identify which members of the board of directors satisfy the requirements of independence and expertise in order to be members of the audit committee. Certain companies in the financial sector are subject to separate legal requirements in respect of the audit committee.

The duties of a remuneration committee will typically include:

preparing guidelines for the remuneration of the executive personnel and preparing for the board’s discussion of specific remuneration matters
preparing matters relating to other material employment issues in respect of the executive personnel.

Where board committees are appointed, the board of directors should issue specific instructions for their work. Board committees should have the ability to make use of resources available in the company or be able to seek advice and recommendations from sources outside of the company.

The board of directors’ evaluation of its own work

The board of directors’ evaluation of its own performance and expertise should include an evaluation of the composition of the board and the manner in which its members function, both individually and as a group, in relation to the objectives set out for its work. Such a report will be more comprehensive if it is not intended for publication. However such reports should be made available to the nomination committee. The board of directors should consider whether to use an external person to facilitate the evaluation of its own work.

Rules on the board of directors’ responsibility for the management of the company and its responsibility for supervising the company’s activities are set out principally in Asal. § 6-12 and § 6-13. Asal. § 6-23 requires that in companies in which some of the members of the board of directors are elected by and from among the employees, the board of directors must adopt rules of procedure which lay down rules on the work and administrative procedures of the board of directors. Asal. stipulates that the rules of procedure or ‘instructions’ should include rules on which matters must be decided by the board of directors and on the job description of the chief executive and his or her duty to report to the board of directors. The rules of procedure should also include rules for giving notice of meetings of the board and the conduct of board meetings.

The board of directors must ensure that the company’s business activities are soundly organised, must draw up plans and budgets for the company’s activities and must ensure that that its activities, accounts and asset management are subject to adequate control, cf. Asal. § 6-12.

The board of directors is a collegiate body that reaches decisions subject to the rules set out in Asal. § 6-19 and subsequent.

Asal. § 6-19 (3) stipulates that meetings of the board of directors shall be chaired by the chairman of the board. The chairman of the board therefore has a duty and right to participate in the board's consideration of matters save where the individual has a valid reason for absence or is disqualified from participation by a conflict of interest. Asal. § 6-27 sets out rules on excluding members of the board from discussion and decision on issues in which they have a personal interest. The board of directors must not take any action which may confer on certain shareholders or other parties an unfair advantage at the expense of other shareholders or the company, cf. Asal. § 6-28.

Asal. § 6-13 provides that the board of directors may lay down instructions for the day-to-day management of the company. Day-to-day management does not cover matters which, in relation to the company’s affairs, are of an extraordinary nature or of major importance, cf. Asal. 6-14. The chief executive must make a statement on the company’s activities, position and profit/loss development to the board of directors at a meeting or in writing at least once a month, cf. Asal. § 6-15. The chief executive prepares matters which are to be discussed with the board of directors in consultation with the chairman of the board, cf. Asal. § 6-21.

Asal. § 6-19 and § 6-23 set out rules on the preparation of matters for the board and rules of procedure for the board.

The Accounting Act stipulates at § 3-5 that the annual accounts must be signed by all members of the board of directors and the chief executive. The statements in the annual report and half-yearly reports must be signed by all members of the board of directors and the chief executive, cf. Vphl. § 5-5 and § 5-6, and Securities Trading Regulations § 5-2.

The provisions on the duty to establish an audit committee are set out in Asal. § 6-41 (1). Asal. § 6-42 (3) allows companies to stipulate in their articles of association that the entire board of directors shall operate as the audit committee, subject to the board satisfying the requirements set out in paragraph 2 of this provision at all times. Asal. § 6-41 (2) provides an exemption from the duty to establish an audit committee for companies that fall below certain thresholds. In such smaller companies, the board of directors carries out the duties of the audit committee required for larger companies. Where the chairman of the board is an employee of the company, he or she cannot participate in meetings of the board that carry out the duties of the audit committee. The Savings Banks Act (Sparebankloven) § 17c, the Commercial Banks Act (Forretningsbankloven) § 16a, the Financial Institutions Act (Finansieringsvirksomhetsloven) § 3-11a (for finance companies) and the Insurance Act (Forsikringsloven) § 5-10 impose their own requirements for the duty to establish an audit committee, with particular exemptions and rules for the election of members to the committee and its composition.

Asal. § 6-42 stipulates requirements for the election of the members of the audit committee, including their independence and expertise.

Asal. § 6-43 specifies the duties of the audit committee. The audit committee's statement on the proposal to elect the auditor must be put before the general meeting before the election takes place, cf. Asal. § 7-1 (1).

Oslo Børs Circular 4/2009 provides a summary of the rules and regulations that relate to audit committees.

The Norwegian Code of Practice for Corporate Governance