Corporate governance

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.

 

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

 

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 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.