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Rethink Tomorrow

Corporate governance

Chairman’s introduction

Proactive and transparent corporate governance promotes sustainable business behavior and long-term value creation. In 2016, Novozymes’ Board of Directors focused on getting the company in better shape to meet current challenges and leverage future opportunities.

The microbial space

Novozymes makes its biggest impact through partnerships. One of our key partnerships is The BioAg Alliance, which we formed three years ago together with Monsanto. The results of The BioAg Alliance have been impressive so far, and its potential continues to grow. The Board therefore continues to prioritize The BioAg Alliance and the microbialRelating to or caused by microorganisms. space.

 

In September 2016, Bayer AG announced its intention to acquire Monsanto Co. to create an agribusiness covering seeds, traits, crop protection and biologicals. The transaction is subject to customary closing conditions, including the receipt of required regulatory approvals. Closing is expected by the end of 2017. The Board acknowledges that The BioAg Alliance is exposed to risks, as described in the Risk management section. Although it is still too early to determine how the acquisition may potentially impact The BioAg Alliance, the Board believes that this could be very positive.

 

Novozymes also entered into new ventures in microbials and acquired Organobalance GmbH, a German company that researches and develops microbial solutions. A number of board members were involved in the acquisition process at different levels. 

 

Reshaping the company for future growth

At the beginning of the year, big decisions had to be made to reprioritize the company’s efforts. The Board fully supported the decision to restructure the Executive Leadership Team and reorganize the company. The result was three new commercial divisions: Household Care & Technical, Agriculture & BioenergyBioenergy comes in the form of liquid fuels, electricity, heat and steam, and is produced from primary crops or biomass such as sugarcane, grains, agricultural residues, algae and household waste. In liquid forms, it is typically used to replace gasoline and diesel in transportation. and Food & Beverages – each responsible for sales, marketing and technical services as well as application development and a strong focus on customers.

 

With the restructuring, we welcomed two new members to the Executive Leadership Team: Tina Sejersgård Fanø and Anders Lund. The Board was especially pleased to see this demonstration of well-functioning succession planning, as the two have grown their careers within Novozymes and have a strong track record and extensive knowledge about the company. 

 

Ongoing strategic review process

As in previous years, the Board conducted reviews of Novozymes’ business and the mid- and long-term strategies for its main business areas. We held a number of deep-dive sessions on specific industry strategies, to identify exactly how we can help Novozymes achieve its targets. We also looked at Novozymes’ competitive advantages and how we can help fortify and utilize what sets the company apart from its competitors. The Board discussed current challenges in the Bioenergy industry that continued to impact Group sales over the year. Another area of focus was the processed oils industry. The Board was presented with the opportunities this industry offers Novozymes and was a sounding board to determine the strategy going forward.

New Nomination and Remuneration Committee
We closely monitor corporate governance trends, guidelines and regulations, and regularly update our management systems to ensure openness and transparency. In 2016, the Board reviewed its committee structure and decided to set up a new Nomination and Remuneration Committee in 2017 consisting of three board members.

 

Investing in Novozymes’ long-term future 

During the year, the Board approved further stages of the project to establish a new innovation campus in Lyngby, Denmark, to secure the long-term future of the business. The ground-breaking ceremony took place on November 8. Ready for use in 2019, this will be a great place for Novozymes and Zymers to work on more biological solutions and invite stakeholders into the inspiring world of biotechnology!

 

Henrik Gürtler

Chairman of the Board of Directors

Novozymes A/S

 

 

Board of Directors: Composition and responsibilities

In accordance with Danish legislation, Novozymes has a two-tier management system comprising the Board of Directors and the Executive Leadership Team, with no individual being a member of both. The division of responsibilities between the Board of Directors and the Executive Leadership Team is clearly outlined and described in the Rules of Procedure for the Board of Directors and the Rules of Procedure for the Executive Leadership Team, available at novozymes.com.

Novozymes’ Articles of Association require the Board of Directors to have four to eight members elected at the Annual Shareholders’ Meeting. Currently, the Board has six members.

They are elected for one year at a time and cannot be elected or re-elected after reaching the age of 70.

 

Nominations are based on an evaluation of factors such as competencies, diversity, independence and prior performance.

The Board of Directors also includes three employee-elected members, who serve four-year terms. The Board of Directors is accountable to the company’s shareholders for the management of the company. The composition of the Board of Directors must therefore be such that the combined competencies of the Board enable it to inspire, guide and oversee the company’s development, and diligently address and resolve the issues and challenges faced by the company at any time.

In order to ensure the right competencies and promote diversity, the following targets have been set for the composition of the Board of Directors:
  • At least half of the shareholder-elected board members shall be independent as defined in the Danish Recommendations on Corporate Governance.
  • At least 40% of the shareholder-elected board members shall have substantial international experience from the management of large corporations or institutions headquartered outside of Denmark.
  • One-third or more of the shareholder-elected board members shall be female, and one-third or more of the shareholder-elected board members shall be male.

The first two targets were met in 2016. Unfortunately, it was not possible to meet the gender diversity target in 2016. However, the Board of Directors is dedicated to working toward achieving the full diversity target again in the near future. The required competencies are defined in a competency profile that specifies various personal characteristics, skills and experience. The individual competencies of the members of the Board of Directors are shown in the presentation of the Board of Directors and Executive Leadership Team. The Board’s main responsibilities are to:

  • Ensure the right management and organizational structure
  • Supervise financial, social and environmental performance and the Executive Leadership Team’s day-to-day management of the company
  • Decide the overall management and strategic development of the company

A year with the board

"The Board of Directors has decided to establish a Nomination and Remuneration Committee in 2017."

 

In accordance with the Articles of Association and the Rules of Procedure for the Board of Directors, the Board has a Chairmanship consisting of two members – the Chairman and the Vice Chairman – that is responsible for assisting the Board of Directors in matters concerning the Executive Leadership Team’s day-to-day management of the company and reporting back to the Board of Directors.

 

The Chairmanship is also responsible for planning and preparing meetings of the Board of Directors, preparing material for the nomination of candidates for election to the Board of Directors, and recommending the remuneration of the Board of Directors and the Executive Leadership Team.

 

The Board of Directors has decided to establish a Nomination and Remuneration Committee in 2017 to take over the matters relating to remuneration and nominations, which up to now have been carried out by the Chairmanship.

 

In addition, the Board of Directors has an Audit Committee that assists the Board of Directors in monitoring aspects relating to accounting, auditing, internal controls and financial reporting. Further information about the Audit Committee can be found at novozymes.com.

As part of the internal control system, all cases of identified fraud and all concerns raised are investigated and reported to the Audit Committee and the Board of Directors. 44 investigation cases were reported in 2016 of which 25 were substantiated fraud. Sanctions included dismissal of employees, reporting to the police and other disciplinary measures. Further information on fraud can be found in Note 8.3 to the Consolidated financial statements.

 

Charters and recommendations

In laying down the management principles for Novozymes, the Board of Directors has followed the Recommendations on Corporate Governance that form part of the disclosure requirements applicable to companies listed on Nasdaq Copenhagen. These recommendations are available at corporategovernance.dk. A detailed review of Novozymes’ position on all of the recommendations and a description of the internal control and risk management system relating to financial reporting can be found in the statutory report on corporate governance pursuant to section 107b of the Danish Financial Statements Act, at report2016.novozymes.com/governance/governancereport.

 

The recommendations require companies to explain any noncompliance. Novozymes follows 43 of the 47 recommendations, the exceptions being: 

 

  • Nomination and remuneration committees have not been set up. Instead, these responsibilities are laid down in the Charter for the Chairmanship (Recommendations 3.4.6 and 3.4.7). Note: As mentioned above, the Board of Directors has decided to establish a Nomination and Remuneration Committee in 2017, following which the company will be compliant
  • The remuneration policy for the Executive Leadership Team contains no specific clause pertaining to the repayment of variable remuneration components paid on the basis of misstated information, as Novozymes considers the rules in Danish law to be sufficient in such cases (Recommendation 4.1.2)
  • Due to the limitations imposed by the Novo Nordisk Foundation’s Articles of Association and Novozymes’ ownership structure, the Board of Directors reserves the right in certain circumstances to reject takeover bids without consulting shareholders (Recommendation 1.3.1)

 

Furthermore, under the Danish Financial Statements Act (sections 99a and 99b) it is mandatory for large companies to report on corporate responsibility and equal opportunities. As a member of the UN Global Compact, Novozymes prepares a Communication on Progress, which is available under Sustainability indices & data at report2016.novozymes.com/sustainability/ungc-cop. Together with the integrated financial, environmental and social reporting, the Communication on Progress meets both the requirements for reporting on corporate responsibility and equal opportunities, and the UN Global Compact’s advanced reporting criteria.

 

Novozymes also works within the parameters of Touch the World, a document outlining the company’s values and commitments, and has committed to principles derived from the UN Global Compact and the UN Convention on Biological Diversity.


Other Board-related information

The Board of Directors held seven meetings in 2016, with an overall attendance rate of 100%.

Any changes to the Articles of Association require that shareholders representing at least two-thirds of the total number of votes in the company are represented at the Shareholders’ Meeting, and that at least two-thirds of the votes cast, as well as two-thirds of the voting capital represented at the meeting, are in favor of the proposal to change the Articles of Association.

 

"The Board of Directors held seven meetings in 2016, with an overall attendance rate of 100%."

 

The Annual Shareholders’ Meeting has authorized the Board of Directors to allow the company to acquire treasury stock on an ongoing basis, provided the nominal value of the company’s total holding of treasury stock does not exceed 10% of its share capital at any time, cf. section 198 of the Danish Companies Act.

 

The purchase price must not deviate by more than 10% from the price quoted on Nasdaq Copenhagen on the date of acquisition. This authorization applies until March 1, 2017. In addition, the Board of Directors has been authorized to increase the share capital. This authorization applies until March 2, 2018.

Each year, one of the responsibilities of the Board of Directors is to assess whether the capital and share structure of Novozymes is optimal. The Board of Directors remains

of the opinion that the share structure with A and B common stock is the best way to safeguard Novozymes’ long-term strategy and development to the benefit of the company’s shareholders and other stakeholders.

 

Regarding capital structure, Novozymes will continue to favor a conservative balance sheet, reflected by a target for net interest-bearing debtThe market value of interest-bearing liabilities (financial liabilities) less the market value of cash at bank and in hand and other easily convertible interest-bearing current assets. of 0-1x EBITDAEarnings before interest, tax, depreciation and amortization.. This target was met in 2016.

Novozymes is party to a number of partnership contracts that can be terminated by the other party in the event of significant changes to the ownership or control of Novozymes. A few contracts contain provisions that restrict Novozymes' licenses to use specific forms of technology in such situations.


Henrik Gürtler

Chairman of the Board of Directors

Novozymes A/S

Changes to the Board of Directors

After 17 years as Chairman of Novozymes’ Board of Directors, Mr. Henrik Gürtler has decided to not seek re-election to the Board at the Annual Shareholders' Meeting on February 22, 2017. The Board proposes the election of Mr. Jørgen Buhl Rasmussen as Chairman of the Board. Mr. Rasmussen has been a member of the Board since 2011 and Vice Chairman for the past year. The Board proposes Mr. Rasmussen as the new Chairman because of his in-depth knowledge of Novozymes, significant experience of leading global companies, and particular insight into businesses in emerging markets and consumer industries, most recently as the CEO of Carlsberg A/S.

The Board is proposing the election of Ms. Agnete Raaschou-Nielsen as Vice Chairman. Ms. Raaschou-Nielsen has also been a member of the Board since 2011. From 2014 to 2016 Ms. Raaschou-Nielsen was also Vice Chairman of the Board, and since 2011 she has been a member of the Audit Committee. Ms. Raaschou-Nielsen has extensive experience in strategic leadership, acquisition and divestment of companies as well as macroeconomics and protection of intellectual property rights.

In addition to the changes to the Chairmanship, the Board is proposing the election of two new members, Ms. Kim Stratton and Mr. Kasim Kutay.

Ms. Stratton is a member of the executive management of Shire, a global biotech company, where she is responsible for all commercial activities outside the US. The Board is proposing to elect Ms. Stratton because of her extensive international experience in technology companies that have created high growth with impressive earnings based on long-term investments in innovation. She has notable leadership experience from various commercial entities and has led organizations in both Switzerland, the US and the UK. The Board expects Ms. Stratton’s experience and global commercial perspective will strengthen Novozymes’ strategic agenda. Ms. Stratton is 54 years old and an Australian citizen.

Mr. Kutay is the CEO of Novo A/S, the main shareholder in Novozymes. Mr. Kutay has more than 25 years’ experience within the life science industry and banking, and brings notable international experience. The Board expects Mr. Kutay to strengthen the Board’s strategic and financial understanding when entering into partnerships and acquiring and divesting businesses. Mr. Kutay is 51 years old and a British citizen.

Innovation Campus ground breaking

On Nov. 8, 2016, Novozymes' CEO, Peder Holk Nielsen, and Lynby-Taarbæk Mayor, Sofia Osmani, broke ground at the company's new Innovation Campus in Lyngby, Denmark.

Tax strategy

Novozymes’ overall tax strategy and transfer-pricing policy support a positive tax contribution to society and governments in the countries in which Novozymes operates. Novozymes continuously works to fulfill its tax obligations in the countries where it operates. We seek to obtain a competitive tax level in a fair and responsible way, and with full regard to national and international laws and regulations. Besides taxes, our economic contributions include duties, VAT, employee taxes, employee pension and benefit programs, procurement from local vendors and job creation.

In 2016, Novozymes incurred corporate income taxes, and other taxes and duties that came to approximately DKK 1,425 million. In addition, Novozymes collected and withheld tax contributions on dividends and wages totaling approximately DKK 1,300 million. Novozymes’ total tax contribution therefore amounted to approximately DKK 2,725 million, compared with approximately DKK 2,700 million in 2015.