1 Implementation and reporting on corporate governance
Implementation and reporting
The Board of Directors (the “Board”) of Electromagnetic Geoservices ASA (“EMGS” or “the Company”) has the ultimate responsibility for ensuring that the Company practices good corporate governance. The Company, through its Board and executive management, carries out a thorough review and evaluation of its principles for corporate governance on an annual basis.
EMGS is a Norwegian public limited liability company and is listed on the Oslo Stock Exchange (Oslo Børs). The Norwegian Accounting Act includes provisions on corporate governance at Section 3-3b which impose a duty on the Company to issue an annual report on its principles and practice for corporate governance. These provisions also stipulate minimum requirements for the content of this report.
The Norwegian Corporate Governance Board (NCGB) has issued the Norwegian Code of Practice for Corporate Governance (the “Code”). Adherence to the Code is based on the “comply or explain” principle, which means that a Company must comply with the recommendations of the Code or explain why it has chosen an alternative approach to specific recommendations. The Code imposes more comprehensive requirements than the Accounting Act.
The Oslo Stock Exchange requires listed companies to provide a report on the company’s corporate governance in its Board of directors’ report in the annual report or in a document that is referred to in the Board of directors’ report. The report must cover every section of the Code of Practice. The rules on the Continuing Obligations of listed companies are available at www.oslobors.no.
EMGS adheres to the current Code, issued on 30 October 2014. The Company provides a report in its annual report including its principles for corporate governance, as well as how the Company has adhered to the Code in that year.
EMGS’ objective is to comply with all sections of the Code, but the Company may deviate from principles in the Code if required for special purposes. Deviations will be explained in the relevant sections.
The following sets out how the Code is accommodated through the financial year 2015.
Values and guidelines for business ethics and corporate social responsibility
Confidence in EMGS as a company and in its business activities is essential for the Company’s continuing competitiveness.
EMGS is committed to openness about its systems and procedures for the management of the Company.
The Board has high priority on implementing high standards of corporate governance and this is therefore reflected in the Company’s corporate documents.
EMGS has a set of clearly defined core values: Integrity, Commitment, Innovation and Quality. The values are operationalised in EMGS’ daily work.
The Board has established a set of policies, among others on ethics, corporate social responsibility (see separate report in Annual Report), health, safety and environment, drug, smoking and alcohol, as well as on quality. The Code of Conduct reflects these policies. The policies and standards are evaluated at least once a year and updated accordingly. The Company has adopted a program for corporate social responsibility including an anti-corruption compliance programme incorporating mandatory training of all employees.
EMGS’ website provides more information about the Company’s business activities , policies and standards.
EMGS is the market leader in electromagnetic (EM) imaging. Pursuant to Section 3 of the Company’s Articles of Association, the Company’s purpose is as follows:
“The Company's activity is to engage, by itself or through proprietary interests in other companies, in the prospecting for hydrocarbon deposits in connection with the exploration, development and production of hydrocarbons.”
The Company has clear objectives and strategies for its business within the scope of the definition of the business purpose in its Articles of Association.
The Board of Directors’ report in the Company’s annual report includes a description of the Company’s objectives and principal strategies according to the business activities clause from the Articles of Association. The Articles are available at the Company’s homepage, www.emgs.com.
3 Equity and dividends
As of 31 December 2015, the Company’s equity is deemed to be satisfactory by the Board based on a going concern evaluation. The Company’s equity position is subject to continuing evaluation to ensure that it corresponds to the applicable regulations and the Articles of Association.
As of 31 December 2015, the EMGS Group had an equity of USD 78 million, representing an equity ratio of 47%.
The Company’s objective is to generate a long term return for its shareholders through dividends and increases in the share price that is at least in line with the return available on similar investment opportunities of comparable risk. Currently, the Company is investing in opportunitites for growth and does therefore not intend to pay dividends. The Board will establish a clear dividend policy when relevant.
Authorisations to increase share capital and to acquire own shares
At the Annual General Meeting (AGM) held in 2015, the Board was authorised to increase the share capital by up to NOK 4,994,138 through one or more share issues equal to an issuance of up to 19,976,552 new shares each with a par value of NOK 0.25. Further details are set out in the resolution by the AGM that states, among others, that the authorisation will be utilised in connection with potential acquisitions of companies or businesses within the oil and energy sector, including the oil service sector, and/or to finance general corporate purposes. The authorisation is valid until 30 June 2016.
The Board was also given authorisation to increase the share capital by up to NOK 2,000,000 equal to an issuance of up to 8,000,000 new shares each with a par value of NOK 0.25. Further details are set out in the resolution by the AGM that states that the authorisation will be utilised for fulfilling the Company’s obligations towards holders of options, should such options be exercised. All options are based on the Employee Option Programme. The authorisation is valid until 30 June 2016.
EMGS held an extraordinary general meeting on 26 November 2015. The extraordinary general meeting resolved to increase the share capital by NOK 278,000,000 through the issue of 1,112,000,000 new shares, each with a par value and issue price of NOK 0.25. The issues was done through a Rights Issue, which was fully underwritten by four of the Company’s shareholders. The Rights Issue was completed in December 2015 when the Company received the new equity. 78% of the subscription rights were used, while the remaining 22% were subscribed for by the underwriters, thus increasing these shareholders’ relative ownership.
Also, at the general meeting, the Board was authorised to acquire shares in the Company. The shares are to be acquired at market terms in a regulated market where the shares are traded. The shares are to be disposed of as part of consideration payable for transactions where shares is an alternative consideration including but not limited to acquisitions made by the Company, mergers, demergers or acquisitions involving the Company. The maximum number of shares which can be acquired is 9,988,277. The minimum amount which may be paid for each share acquired pursuant to this power of attorney is NOK 0.25, and the maximum amount is NOK 15.
As of 31 December 2015, the Board had not used any of the authorisations given.
4 Equal treatment of shareholders and transactions with close associates
Equal treatment of shareholders is a main principle for corporate governance in EMGS. The Company has only one class of shares, and any purchases or sales of own shares are carried out over the stock exchange.
The Articles of Association do not impose any restrictions on voting rights. All shares have equal rights.
Pursuant to the Norwegian Public Limited Liability Companies Act, existing shareholders have pre-emption rights in connection with share capital increases; however, this right can be waived. Any decision to waive the pre-emption right must be justified by the Board. Where the Board resolves to carry out an increase in the share capital and waive the pre-emption rights of the existing shareholders on the basis of a mandate granted to the Board, an explanation will normally be publicly disclosed in a stock exchange announcement issued in connection with the increase of the capital.
The Board of EMGS will waive the pre-emption of existing shareholders in connection with share capital increases following the Company’s obligations towards holders of options if and when such options are exercised.
The equity issue in December 2015 was completed through the issuance of subscription rights to all existing shareholders. 78% of the subscription rights were used, while the remaining 22% were subscribed for by four underwriters.
Transactions with close associates
In the event of any material transaction between the Company and its shareholders, a shareholder’s parent Company, members of the Board, members of the executive personnel or close associates of any such parties, the Board will, as a general rule, arrange for a valuation by an independent third party.
EMGS has implemented procedures for the Board, the board committees and the executive personnel to ensure that any conflicts of interest connected to agreements entered into by the Company are reported to the Board.
The Company has an agreement with Ocean Seismic de Mexico S.A. de C.V (Ocean Seismic), in which Mr. Bjarte Bruheim holds 16% of the shares. Mr. Bruheim has been the Chairman of the Board in EMGS and was the CEO of the Company from 7 January to 23 August 2015. Transactions between EMGS and Ocean Seismic are further described in note 33 to the annual accounts.
5 Freely negotiable shares
The shares in EMGS are freely negotiable and the Articles of Association do not contain any restrictions on negotiability.
EMGS is listed on the Oslo Stock Exchange, and the Company works actively to attract the interest of new shareholders. Liquidity in the Company’s shares is essential if the Company is to be viewed as an attractive investment and thus achieve a low cost of capital.
6 General meetings
General meetings are the Company’s ultimate corporate body. EMGS encourages all shareholders to participate in general meetings. The Board endeavours to organise the general meetings to ensure that as many shareholders as possible may exercise their rights by participating, and that such meetings are an effective forum for the views of shareholders and the Board.
Preparation for the Annual General Meeting (AGM)
The AGM is normally held in June each year, and in any case no later than 30 June, which is the latest date permitted by company law. The 2015 AGM was held on 9 June 2015. In addition, the Company held an extraordinary general meeting on 26 November 2015 where the main purpose of the meeting was to approve the proposed equity issue. The 2016 AGM is scheduled to be held on 9 June 2016.
The notices calling the general meetings are made available on the Company’s website and sent to shareholders no later than three weeks prior to the meeting.
According to the Company’s article 8 in the Articles of Association and provided that the shareholders may participate in general meetings electronically, ref. article 9 in the articles, the AGM may, with the majority required to amend the Articles of Association and with effect until the next AGM, decide that the notices calling Extraordinary General Meetings shall be sent no later than two weeks before the date of the meeting. This alternative has not been used in 2015.
Shareholders who wish to take part in a general meeting must give notice to the Company by the date stated in the notice of meeting, which date must be at least two business days before the general meeting.
Each share carries one vote in the Company's general meetings.
Article 10 of the Articles of Association stipulates that the supporting documents dealing with matters to be considered by the AGM can be made available on the Company’s website rather than being sent to shareholders. However, shareholders are still entitled to receive the documents by post upon request.
The notice calling the general meeting, a form for appointing a proxy, as well as detailed supporting information are disclosed on the Company’s website.
Resolutions and supporting information are sufficiently detailed and comprehensive to enable shareholders to form a view on matters on the agenda to be considered in the meeting. The Company will make appropriate arrangements for the general meeting to vote separately on each candidate nominated for the Company’s corporate bodies.
The date of the 2016 AGM is included in the Company’s financial calendar. As a routine, the financial calendar for the coming year is published no later than 31 December as a stock exchange announcement, and it is also made available on the Company’s website.
Participation in general meetings
Shareholders who do not attend the general meeting may be represented and exercise their voting rights through proxy. A person will be nominated to be available to vote as a proxy on behalf of shareholders. Proxy forms will enable the proxy holder to cast votes for each item on the agenda separately. The final deadline for shareholders to give notice of their intention to attend the meeting or to vote by proxy will be set in the notice for the meeting. According to article 9 of the Articles of Association, the Board may decide that the shareholders can participate in the general meeting by mean of an electronic aid, including that they may exercise their rights as shareholders electronically.
The Chairman of the Board, the CEO, the CFO and the auditor will be present at the AGM. Other board members will, if possible, attend the general meetings.
Agenda and conduct of the AGM
The Board decides the agenda for the AGM. The main agenda items are determined by the requirements of the Public Limited Liability Companies Act.
The Code stipulates that the Board should have arrangements to ensure an independent Chairman for the general meeting. The Company has evaluated the recommendation but decided that it was in the interest of the Company and the shareholders that the general meetings held in 2015 were chaired by the Chairman of the Board.
The AGM minutes are published by the issuance of a stock exchange announcement, and are also made available on the Company’s homepage.
7 Nomination committee
EMGS has a nomination committee elected by the AGM. According to article 11 in the Company’s Articles of Association, the committee shall consist of 2 to 3 members who shall be elected by the AGM for a period of 2 years, unless the AGM decides a shorter period.
As per 31 December 2015, the nomination committee consisted of 3 members;
- Kristian Siem (Chairperson)
- Frederik W. Mohn
- Lars Mohagen
None of the three members are independent of the Company’s major shareholders.
The nomination committee proposes candidates for election to the Board and for the remunderation of the members of the Board. Also, the committee proposes candidates for election to the nomination committee and suggest changes to the mandate or guidelines for the nomination committee.
EMGS’ nomination committee is in contact with shareholders, the Board and the Company’s executive management when searching for candidates for election to the Board.
The recommendation to the AGM relating to the election should be available in time to be sent with the notice calling the meeting, so that the shareholders have the opportunity to submit their views on the recommendation to the nomination committee ahead of the meeting. Further details are set out in article 11 of the Articles of Association and in the guidelines for the nomination committee, which were approved by the AGM in 2012.
8 Board: composition and independence
The composition of the Board
EMGS does not have a corporate assembly.
According to article 5 in the Company’s Articles of Association, the Board shall consist of 5–11 board members. At the end of 2015, EMGS’ Board had nine members, including three members elected by and among the employees. Four of the members are women.
The shareholder-elected members represent varied and broad experience from relevant industries and areas of speciality, and the members bring experiences from both Norwegian and international companies. Any proposal for the election of shareholder-elected board members are made with a view to ensure that the Board can attend to the shareholders’ common interest and the Company’s need for competence, capacity and diversity. Also, the Board should function well as a collegial body. The Chairman of the Board is elected by the general meeting.
As of 31 December 2015, the Board consisted of the following:
• Eystein Eriksrud, Chairman
• Petteri Soininen
• Guro Høyaas Løken (independent)
• Johan Kr. Mikkelsen
• Mimi Berdal (independent)
• Anne Øian (independent)
• Adam Robinson, employee representative
• Christel Brønstad, employee representative
• Ole Martin Pedersen, employee representative
In addition, Stig Eide Sivertsen served as board member from 1 january until 24 august 2015 when he was, temporarily appointed as CEO of the Company. He was re-elected as board member at the extraordinary general meeting held on 26 November 2015 from the date when the new CEO started on 1 February 2016. Sivertsen is considered independent of executive management, business associations and major shareholders.
Board members are elected for a period of two years.
Independence of the Board
The Board does not include any members from the Company’s executive management.
Three of the six shareholder-elected board members are independent of the Company’s substantial business associations and major shareholders. The three members that are not considered independent are related to the Company’s largest shareholders.
9 The work of the Board
The Board’s duties and responsibilities
The Board has the ultimate responsibility for the management of the Company and for supervising its day-to-day management and activities in general. This includes developing the Company’s strategy and monitoring its implementation. In addition, the Board exercises supervision responsibilities to ensure that the Company manages its business and assets and carries out risk management in a prudent and satisfactory manner. The Board is responsible for the appointment of the CEO. The Board has an annual plan for its work.
Mandate for the Board
In accordance with the provisions of Norwegian company law, the terms of reference for the Board are set out in a formal mandate that includes specific rules and guidelines on the work of the Board and decision making. The Chairman of the Board is responsible for ensuring that the work of the Board is carried out in an effective and proper manner in accordance with legislation.
Mandate for the CEO
The Board issues a mandate for the work of the CEO. There is a clear division of responsibilities between the Board and the CEO. The CEO is responsible for the operational management of the Company.
The Board receives periodic reports on the Company’s commercial and financial status. The Company follows the timetable laid down by the Oslo Stock Exchange for the publication of interim and annual reports.
The Board holds regular meetings and a strategy meeting each year. Extraordinary Board meetings are held as and when required, to consider matters that cannot wait until the next regular meeting. In addition, the Board has appointed three sub-committees composed of board members to work on matters in these areas. The Board has established and stipulated instructions for these committes.
The audit committee is appointed by the Board. Its main responsibilities are to supervise the Company’s systems for internal control, to ensure that the auditor is independent and that the interim and annual accounts give a fair picture of the Company’s financial results and financial condition in accordance with generally accepted accounting practice. The audit committee has reviewed the procedures for risk management and financial controls in the major areas of the Company’s business activities.
The audit committee receives reports on the work of the external auditor and the results of the audit. Also, the audit committee meets regulary with the auditor where no member of the executive management is present.
As per 31 December 2015, the audit committee consisted of the following:
• Anne Øian, Chairman
• Eystein Eriksrud
• Guro Høyaas Løken
The compensation committee makes proposals to the Board on the employment terms, as well as conditions and total remuneration of the CEO and other executive personnel.
As per 31 December 2015, the compensation committee consisted of the following:
• Eystein Eriksrud, Chairman
• Petteri Soininen
• Johan Kr. Mikkelsen
• Mimi Berdal
A strategy committee was established by the Board on 11 February 2015. The committee shall contribute to the Company’s strategy development.
The committee consists of the following:
• Petteri Soininen, Chairman
• Eystein Eriksrud
• Johan Kr. Mikkelsen
The Board’s working methods and interactions are subject to annual revision.
10 Risk management and internal control
The Board ensures that the Company has sound risk management and an internal control system that is appropriate to its activities. The risk management and internal control systems in EMGS are based on its corporate values, ethics guidelines and principles for sustainability and corporate social responsibility (“CSR”). The Board reviews the Company’s internal control system and the main areas of risk annually.
EMGS’ management conducts day-to-day follow-up of financial management and reporting. Management reports to the audit committee who conduct a review of the quarterly and annual reports before publication. The audit committee assess the integrity of EMGS’ accounts. It also inquires into, on behalf of the Board, assess issues related to financial review and internal control, and the external audit of EMGS’ accounts. The Board ensures that EMGS is capable of producing reliable annual reports and that the external auditor’s recommendations are given thorough consideration.
A description of the Company’s financial risk management objectives and policies are included in note 3 to the financial accounts.
11 Remuneration for the Board
The AGM decides the remuneration paid to members of the Board annually. The nomination committee prepares proposals for the AGM regarding remuneration for Board members. The remuneration of the Board reflects the Board’s responsibility, expertise and time commitment, and the complexity of the Company’s activities.
The Code recommends that remuneration of the Board should not be linked to the Company’s performance and, further, that the Company should not grant options to members of its Board. The employee representatives on the Board hold options, but these have been granted to them as employees of the Company, not as board members.
None of the shareholder-elected board members are engaged by the Company as other than board members.
Details on the remuneration to the Board can be found in notes to the financial statements of the Company.
The employee representatives do not receive any compensation for their services as board members.
12 Remuneration of the executive personnel
The Board determines salary and other remuneration systems for key management personnel pursuant to the provisions of the Norwegian Public Limited Liability Companies Act. The CEO’s employment conditions and remuneration are determined by the Board and are presented to the AGM. The Board annually evaluates salary and other remuneration for the CEO. Details on the remuneration to the Company’s executive personnel is included in notes to the financial statements of the Company.
The guidelines of the remuneration system for the executive personnel is determined by the Board and is presented to the general meeting through a declaration on principles for management remuneration, which is required by law. This declaration is also included in the Company’s annual report.
Performance-related remuneration of the executive personnel is linked to value creation for shareholders or the Company’s performance over time. The performance-related remuneration to the executive personnel is subject to an absolute limit.
The Board believes that the salary levels of executive personnel should be competitive.
13 Information and communications
EMGS maintains regular dialogue with analysts and investors. The Company considers it very important to inform shareholders and investors about the Company’s commercial and financial performance.
The Company strives to continuously publish all relevant information to the market in a timely, effective and non-discriminatory manner. All stock exchange announcements are made available both on the Company’s website and on the Oslo Stock Exchange news website at www.newsweb.no, and are also distributed to news agencies (via Hugin).
EMGS normally publishes its provisional annual accounts early February. The complete annual report and accounts are made available to shareholders no later than three weeks prior to the AGM and no later than by the end of April, as required by the Securities Trading Act (section 5-5 (1)).
Quarterly reports are normally published within six weeks following the end of the quarter, except for the report for the second quarter which is normally published around seven weeks following the end of the quarter.
The Company’s financial calendar for the coming year is published no later than 31 December in accordance with the rules of the Oslo Stock Exchange. The financial calendar is available on the Company’s website and on the Oslo Stock Exchange website.
EMGS holds open presentations in connection with the publication of its interim results. These presentations review the published results, market conditions and the Company’s future prospects. The presentations are given by the CEO and/ or the CFO, and are distributed by webcast so that anyone unable to attend can follow the presentation on the internet in real time or view it later. Quarterly reports, presentation material and webcasts are all available on the Company’s website.
Following the publication of the interim results, the CEO or the CFO meet with shareholders and potential investors.
Other market information
The Company has a policy identifying the positions entitled to speak on behalf of the Company on various subjects, in particular, who should communicate with the media, investors and investment bankers.
The Board endorses the recommendation of the Code for corporate governance on takeover bids. EMGS’ Articles of Association do not contain any restrictions, limitations or defence mechanisms on acquiring the Company’s shares.
In accordance with the Securities Trading Act and the Code, the Board has adopted guidelines for possible takeovers.
In the event of a takeover bid, the Board will, in accordance with its overall responsibility for corporate governance, act for the benefit of all Company shareholders. The Board will not seek to hinder or obstruct takeover bids for EMGS’ activities or shares, unless there are good reasons.
If an offer is made for EMGS’ shares, the Board will normally both make a recommendation on whether the shareholders should accept the offer and arrange a valuation from an independent expert.
The external auditor presents an annual plan to the audit committee covering the main features for carrying out the audit. The external auditor participates in all meetings of the audit committee, except for the meeting where the Company’s budget is discussed. In addition, the auditor participates in the Board meeting that approves the annual financial statements and other meetings on request. The external auditor presents the result of the audit to the audit committee and the Board in the meeting dealing with the annual financial statements, including presenting any material changes in the Company’s accounting principles and significant accounting estimates, and reporting any material matters on which there has been disagreement between the external auditor and EMGS’ executive management.
The external auditor annually presents internal control weaknesses and improvement opportunities to the audit committee and, when appropriate, to the Board. The Board holds a meeting with the auditor at least once a year where no member of the executive management is present.
The Board has adopted instructions as to the executive personnel’s access to the use of the external auditor for services other than auditing. The external auditor provides an overview of his remuneration divided into fee paid for audit work and any fees paid for other specific assignments, which are presented at the annual general meeting. This is also included in the annual report.
The external auditor has given the Board a written notification confirming that the requirements for independence are satisfied.