During the period January 1, 2011 – December 31, 2011, AB Volvo’s Board of Directors consisted of nine members elected by the Annual General Meeting. In addition, the Board had three members and two deputy members appointed by employee organizations.
Leif Johansson, who was Volvo’s CEO until September 1, 2011, was also a Board member until September 1, 2011, when he was replaced on the Board by Olof Persson who also assumed the position of CEO.
During 2011, six regular meetings, one statutory meeting and five extraordinary meetings were held.
The Board has adopted work procedures for its activities that contain rules pertaining to the distribution of work between the Board members, the number of Board meetings, matters to be handled at regular meetings of the Board and duties incumbent on the Chairman. In accordance with these procedures, the Board’s Chairman shall organize and guide the Board’s work, be responsible for contacts with the owners regarding ownership matters and provide the owners’ viewpoints to the Board, ensure that the Board receives adequate information and decision documents for its work and ensure compliance with the Board’s decisions. In addition, the work procedures contain directives concerning the tasks of the Audit Committee and the Remuneration Committee respectively. The Board has also issued written instructions specifying how financial information should be reported to the Board, as well as defining the distribution of duties between the Board and the President.
The Annual General Meeting resolves on the fees to be paid to the Board members elected by the shareholders. The Annual General Meeting held on April 6, 2011, approved fee payments to the Board, for the time until the end of the next Annual General Meeting, as follows: Chairman of the Board should receive a fee of SEK 1,800,000 and each of the remaining members should receive a fee of SEK 600,000, with the exception of the President. In addition, the Chairman of the Audit Committee should receive SEK 300,000, the other members of the Audit Committee SEK 150,000 each and the members of the Remuneration Committee SEK 100,000 each.
In March 2011, the Board announced that it had resolved to appoint Olof Persson as the new President and CEO for Volvo as of September 1, 2011, to replace Leif Johansson when he would be stepping down. Olof Persson was previously the President of Volvo Construction Equipment since 2008. Prior to that, he was the President of Volvo Aero. The Board also resolved in September 2011 to introduce new financial targets for the Volvo Group to apply as of 2012, with the aim of annually measuring growth and profitability among the Group’s various operations and making comparisons with a number of selected competitors. As a result of the uncertainty about the macroeconomic trend, the Board specifically focused on monitoring the business environment in order to continuously adapt the company’s activities to the prevailing demand. The Board also focused on the trend for the Group’s operations and visited several of the Group’s facilities in the US in 2011, meeting management and customers.
The Board also reviewed the financial positions of AB Volvo and the Volvo Group on a regular basis and acted in order to ensure that there are efficient systems with regard to follow-up and control of the business and financial position of the Volvo Group. In connection therewith, the Audit Committee was responsible for preparing the Board’s work to assure the quality of the Group’s financial reporting by reviewing the interim reports, the Annual Report and consolidated accounting. In connection therewith, the Board met with the company’s auditors during 2011. The Board continuously evaluates the performance of the CEO.
During 2011, following preparation in the Remuneration Committee, the Board evaluated Volvo’s systems for variable remuneration to senior executives, where the performance targets were based on operating income and operating rolling cash flow for executives in the industrial operation. For executives in the customer-financing operation, the performance targets were related to operating income and return on equity. The Board has concluded that the outcome for 2011 has been satisfactory and consequently found that the existing system was well-functioning. Irrespective of this, the Board came to the conclusion that in future, the operating margin would be a better measure of the performance of the industrial operation than operating income. In view of the new financial targets for the Group presented by the Board in September 2011, the Board also believes that the new financial target pertaining to competitive comparison of operating margins should be reflected in the performance targets for variable remuneration for 2012, pertaining to executives in the industrial operation. According to the Board, the operating cash flow is still relevant as a measure of the performance of the industrial operation. The Board has also found that for the customer financing operation performance targets based on return on equity and operating income are still relevant.
Based on the above mentioned evaluation of the variable-remuneration systems, the Board resolved to introduce partly amended performance targets for variable remuneration to senior executives to apply for 2012 pertaining to most of the industrial operation. The new performance targets are based on the following parameters; (i) six months’ operating rolling cash flow, (ii) operating margin compared to last year and (iii) profitability measured on operating margin compared with competitors. For the customer financing operation, the Board resolved that the performance targets for variable remuneration will continue to focus on return on equity and operating income.
The Board’s work is mainly performed within the framework of formal Board meetings and through meetings in the respective committees of the Board. In addition, the Chairman of the Board maintains regular contact with the CEO in order to discuss on-going business and to ensure that the decisions taken by the Board are executed. An account of each Board member’s age, principal education, professional experience, assignments in the Company, other important board memberships, their own and related parties’ ownership of shares in Volvo as of February 23, 2012, and the year they were elected on the Volvo Board, is presented in the section Board of Directors and auditors.
During 2011, the Board performed its yearly evaluation of the Board’s work. The Chairman has informed the Election Committee on the result of the evaluation.