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Corporate governance shall ensure that Statnett is able to fulfil its social mission by clearly defining the distribution of roles between the owner, Board of Directors and the management and set the framework for desired conduct in the company. Below follows the Board of Directors' annual report on compliance with the Norwegian Code of Practice for Corporate Governance (www.nues.no). Deviations from the Code of Practice are explained.
1. Corporate governance
Statnett is a state enterprise, established under the Act relating to state-owned enterprises and owned by the Norwegian state through the Ministry of Petroleum and Energy (MPE). The Minister's administration of ownership is exercised under constitutional and parliamentary responsibility. The enterprise is independent and is wholly responsible for its obligations.
Good corporate governance is a precondition for stable value creation over time. The enterprise's fundamental governing principles help us meet the requirements and expectations laid down by our owner, employees, customers, suppliers, lenders and others stakeholders.
Statnett's governing bodies establish the framework for the enterprise's activities. These comprise constitutional principles related to the public ownership, the Norwegian State's corporate governance principles, as well as articles of association and decisions adopted by the Enterprise General Meeting.
Along with the instructions to the Board of Directors, instructions to the President and CEO and the mandate for the main grid User Council, this framework constitutes the key governing documentation in Statnett. The Board of Directors and the President and CEO establish the framework for the enterprise's activities in order to meet the adopted objectives.
Statnett's corporate management framework consists of four levels of documented guidelines:
Level 1: Guidelines adopted by the Board of Directors, referred to as management policies. These relate to our value base, ethical guidelines for employees and suppliers, policy for asset management, and the enterprise's policy for management, governance and control.
Level 2: Guidelines adopted by the President and CEO within areas that are relevant for major parts of Statnett, or areas that are of major importance for Statnett. These are referred to as function policies.
Level 3: Procedures and manuals which expand on and specify the governing policies. These are adopted by the executive vice president for the relevant function.
Level 4: Process descriptions in the quality system and supporting documentation.
Statnett focuses on quality management and continuous improvement, and is certified according to ISO 9001 (quality management) and ISO 14001 (environmental management).
2. Statnett's activities
Statnett is subject to a sector policy objective. Section 2 of Statnett's articles of association stipulates that ”Statnett SF is the Transmission System Operator in the Norwegian power system.” As System Operator, Statnett is responsible for ensuring that there is an instantaneous balance at all times between production and consumption of electric power in Norway. Our System Operator role is described in more detail in the Regulations relating to system operation responsibilities.
Furthermore, it is stipulated that ”the enterprise is responsible for ensuring efficient operations in a socio-economic perspective and for developing the main power grid. Statnett SF shall, alone or together with others, plan and design, build, own and operate transmission assets. Statnett SF will execute the tasks assigned to the company pursuant to applicable laws, regulations and licences. Moreover, Statnett SF will adhere to applicable commercial principles.” Statnett's articles of association are available on the enterprise’s web site.
Statnett has established the company's tasks, values and primary objectives:
Statnett will build the next generation main grid by 2030.
Statnett’s values are a long-term perspective, respect and community. These values provide the basis for everything we do, and set the standard for the daily conduct of employees and the management.
Statnett's main objectives
Our main objectives describe what we wish to deliver:
- Security of supply
Statnett shall maintain security of supply through a grid with satisfactory quality and capacity.
- Value creation
Statnett's services shall create value for customers and for Norwegian society at large.
Statnett shall facilitate the realisation of Norway's climate objectives.
Statnett's objectives for how to perform:
- Statnett shall carry out its operations without personal injuries and with respect for the natural environment
- Statnett shall be recognised as a customer-oriented organisation
- The enterprise's deliveries shall bear the mark of our values
Statnett's strategy proposes increased focus on core activities. To realise Statnett's objectives the following five target areas are important:
- Ensure safe and efficient operations
- Build a robust and environmentally-adapted main grid
- Secure a stable supply of electricity and promote value creation through interaction with the other Nordic countries and Europe
- Develop the next generation Statnett
- Secure acceptance and understanding for Statnett's social mission
3. Equity and dividend policy
At 31 December 2011, Statnett's equity was appropriately aligned with the company's current activities and risk profile. In order to realise Statnett's strategy, including significant investments as proposed in the Grid Development Plan (GDP), Statnett needs to raise more equity in the next five years. The Norwegian state as the owner has stated that Statnett should have a financial position which enables the enterprise to carry out all socio-economically profitable grid investments.
The Group's dividend policy is stipulated in the government budget. In Proposition to the Storting No.1 (2011-2012), the Norwegian government has established a long-term dividend policy of 50 percent of the defined dividend basis up to and including the fiscal year 2015. The basis for the dividend is defined as the Group's net profit after tax, adjusted for changes in the balance for higher/lower revenue for the year after tax.
The decision to increase capital can only be made by the Enterprise General Meeting.
4. Equal treatment of owners and transactions with closely related parties
Statnett SF is wholly-owned by the Norwegian State through the Ministry of Petroleum and Energy (MPE). Consequently, the enterprise has no need for its own guidelines for equal treatment of owners.
For major transactions between the enterprise and related parties, Statnett performs value assessments presented by independent third parties in accordance with national regulatory requirements.
In Statnett’s ethical guidelines it is requires that employees should report any doubt regarding their impartiality.
5. Freely negotiable
Statnett is a state enterprise without transferable ownership interests.
Figure: Overview of Statnett's management structure. The formal reporting lines are illustrated by solid lines.
The Enterprise General Meeting
The Ministry of Petroleum and Energy is the enterprise’s supreme decision-making body at the Enterprise General Meeting.
The following issues are discussed and settled at the Enterprise General Meeting: Adoption of the enterprise’s profit and loss account and balance sheet, including application of profit or coverage of loss for the year, adoption of the Group's consolidated profit and loss account and balance sheet. In addition, any other matters are discussed pertaining to the General Meeting according to Norwegian laws and regulations, including election of the Statnett Board of Directors and stipulation of remuneration levels for board members and the board committee. The Board of Directors and the company's auditor attend the Enterprise General Meeting.
The Ministry's authority in the enterprise may not be exercised outside the Enterprise General Meeting. The General Meeting adopts Statnett’s articles of association, including Statnett’s objects clause which provides the framework for the operations that Statnett may undertake. An ordinary general meeting is held every year by the end of June.
7. Election committee
Statnett has no election committee. The MPE designates the enterprise's board members at the Enterprise General Meeting.
8. Corporate assembly and Board of Directors, composition and independence
Statnett has no corporate assembly. The enterprise's Board of Directors shall consist of seven to nine members, in addition to any deputy members. The Enterprise General Meeting also designates a representative from the users og the main grid. Two, or possibly three members, and their deputy members are appointed by and from the enterprise’s employees according to the rules pertaining to this laid down in Section 20 of the Act relating to state-owned enterprises and associated regulations. Pursuant Section 21 of the Act relating to state-owned enterprises, board members are elected for a period of two years, but will remain in office until a new member has been elected even though his/her term of office has expired. Two representatives from the User Council attend as observers during the Board of Director's discussion of matters pertaining to Statnett’s regulated monopoly and administrative tasks.
See the annual report for more detailed information about each board member.
Pursuant to the Act relating to state-owned enterprises, the Board of Directors had an attendance record of 99 percent in 2011.
Pursuant to the Act relating to state-owned enterprises, the President and CEO cannot be a member of the board. With the exception of employee representatives, members of the Board of Directors are independent of the enterprise and the owner.
9. The work of the Board of Directors
The Board of Directors has the overall responsibility for ensuring that Statnett’s operations are prudently managed. Instructions to the Board of Directors have been established stipulating that the Board must prepare an annual plan for its work which establishes the distribution of roles and responsibilities between the Board of Directors and the President and CEO and ensures that there is sufficient competency to handle issues discussed by the Board. The Board of Directors shall determine Statnett's strategy and ensure that Statnett is organised in a satisfactory manner. Furthermore, the Board of Directors adopts budgets and ensures satisfactory asset management, a good working environment and that Statnett complies with regulatory requirements, laws and regulations. The Board conducts an annual evaluation of its work and competence in order to ensure effective quality of its work.
The Audit Committee
The Board of Directors has established an Audit Committee which will function as a preparatory body to the Board of Directors. The Board has approved instructions for the Audit Committee. The responsibilities of the Audit Committee include making preparations for the Board of Director’s follow-up of the financial reporting process, monitoring the systems for internal control and risk management and the enterprise’s internal audit process. Furthermore, the Audit Committee shall maintain continuous contact with the enterprise’s appointed auditor with regard to the audit of the enterprise, and assess and monitor the auditor’s independence according to the Audit and Auditors Act. See also Note 18 in the financial statement regarding Auditor’s fees.
The Board of Directors has appointed a Remuneration Committee to assist the Board of Directors with stipulating the President and CEO's terms and conditions of employment and help establish the main principles and framework for remuneration of the Statnett Group management. The Board has approved instructions for the Remuneration Committee. In accordance with Section 9 of the articles of association, the Board of Directors prepares a statement concerning remuneration to the President and CEO and the Group management in accordance with the provisions in the Public Limited Liability Companies Act, the Norwegian Accounting Act, and the Guidelines relating to state-owned companies. See also Note 14 in the financial statement.
10. Main Grid User Council
The User Council for main grid users consists of six members appointed by the General Meeting and represents stakeholder organisations. The Main Grid User Council discusses matters which pertain to Statnett’s regulated monopoly and administrative tasks. Should the Board of Directors make a decision which conflicts with the recommendations of the User Council, the Council may, if the majority of the members so vote, submit the case to the owner for discussion at the General Meeting.
11. Risk management and internal control
Statnett works systematically to review any risks associated with our activities. The Board of Directors receives a complete overview of the enterprise's risk profile twice a year. All development projects approved by the Board of Directors are reported to the Board meetings and include an updated risk profile for the individual project.
Internal control is an integrated part of the risk management process and quality assurance system. Statnett conducts business reviews every six months covering all areas of operation. The reviews include HSE results, score cards, financial performance and risk exposure.
Statnett publishes quarterly financial reports. The external and internal reporting is reviewed by the Group management, the Audit Committee and the Board of Directors.
Internal control and financial reporting
Combined with the enterprise's organisation, management forums and reporting lines, Statnett's ethical guidelines and value base lay the foundation for a good internal control environment. A separate policy has been developed for accounting and financial reporting. Risk assessments of the most important processes related to financial reporting will be conducted as and when required. The Audit Committee, internal auditor and Board of Directors monitor the enterprise's internal control systems.
Internal ethical guidelines
Statnett's ethical guidelines cover areas that are important to ensure good business ethics in all aspects of our activities. The guidelines lay down specific and practical rules, and set standards for the conduct of all employees. Statnett has appointed an Ethics Ombudsman who is responsible for ensuring compliance with the Norwegian Working Environment Act with respect to facilitating reporting of censurable conditions. Failure to comply with the ethical guidelines may result in sanctions, depending on the nature and scope of the breach. The ethical guidelines apply to board members, managers, employees, contractor personnel and any other party who acts on behalf of Statnett.
Ethical guidelines for contractors
Statnett puts particular emphasis on ensuring that our suppliers and partners comply with our ethical guidelines for suppliers. The suppliers’ obligation to comply with the ethical requirements is stipulated in the contracts we enter into with our suppliers. Inspections and audits are conducted in order to make sure that the requirements are fulfilled during execution of the contracts. The ethical guidelines for employees and contractors are available in their entirety on Statnett's web site.
12. Board remuneration
See Note 14 in the financial statement for a detailed overview of Board remunerations.
13. Remuneration of executive employees
Statnett follows the guidelines that apply for executive pay in state enterprises. See Note 14 in the annual accounts for a detailed overview of remuneration of executive employees.
14. Information and communication
Statnett is governed by the Public Enterprises Act (with a few exemptions), regulations relating to dissemination of information to the power market and safety and preparedness legislation. Statnett distributes financial and operational information in accordance with the regulatory requirements and practises transparency and openness.
Financial and operational information is published on Statnett's web site.
In addition to the dialogue with the owners which takes place at the Enterprise General Meeting, the owner also promotes communication between the Board of Directors and the owner outside the General Meeting. The purpose of the Owner’s Meeting is to provide an informal forum where the Board of Directors and the owner can exchange opinions and discuss issues of great financial or strategic importance to Statnett. The views expressed by the owner at the Owner’s Meeting provide input for Statnett’s administration and Board of Directors. Issues requiring owner approval must be discussed at the Enterprise’s General Meeting.
15. Company takeover
Statnett SF is a state enterprise. The sale of assets would entail change of the company structure, requiring a legal amendment with consent of the Norwegian Parliament.
External auditors are appointed by the General Meeting and are independent of Statnett. The enterprise's external auditor for 2011 was Ernst & Young. The external auditor presents an annual work schedule to the Audit Committee. The external auditor attends meetings in the Audit Committee to discuss relevant issues. The external auditor must attend one annual Board meeting where the management is not present. The Audit Committee evaluates and proposes an external auditor and is responsible for monitoring the auditor's independence. As an important part of the process of securing the auditor's independence, the Board of Directors has established guidelines relating to the enterprise's access to use the external auditor for assignments other than audits. Each year, the external auditor reviews the company's internal control with the Audit Committee.
See Note 18 of the financial statement for information about the auditor's fees.