Corporate Governance Report

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Board of Directors
4. Board of Directors
 

Duties
The Board of Directors is ultimately responsible for Volvo’s organization and management of the company’s operations. The Board is responsible for the Group’s long-term development and strategy, for regularly controlling and evaluating the Group’s operations and for the other duties set forth in the Swedish Companies Act.

Composition
During the period January 1, 2013 to December 31, 2013, AB Volvo’s Board 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.

The Annual General Meeting 2013 reelected the previous year’s Board Members and the Chairman of the Board. 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 21, 2014, and the year they were elected on the Volvo Board, is presented in the “Board of Directors” section on pages 98-99.

Independence requirements
The Board of Directors of AB Volvo must meet independence requirements pursuant to the Code entailing that only one person from the company’s management may be a member of the Board, that a majority of the Board members elected by the General Meeting shall be independent of the company and the company management and that at least two of the Board members elected by the General Meeting who are independent of the company and the company’s management shall also be independent of the company’s major shareholders. Prior to the Annual General Meeting 2013, the Election Committee presented the following assessment concerning independence of the Board members elected by the Annual General Meeting 2013.

Peter Bijur, Jean-Baptiste Duzan, Hanne de Mora, Carl-Henric Svanberg, Ravi Venkatesan, Lars Westerberg and Ying Yeh were all considered independent of the company and the company management as well as of the company’s major shareholders.

Olof Persson, as AB Volvo’s President and CEO of the Volvo Group, was considered independent of the company’s major shareholders but not of the company and the company management.

Since AB Industrivärden, prior to the Annual General Meeting 2013, controlled more than 10 percent of the votes in the company, Anders Nyrén, due to his capacity as President and CEO of AB Industrivärden, was not considered independent in relation to one of the company’s major shareholders.

Work procedures
Every year, the Board adopts work procedures for the Board’s work. The work procedures contain rules pertaining to the distribution of work between the Board members, the number of Board meetings, matters to be addressed at regular meetings of the Board and duties incumbent on the Chairman.

In accordance with the work procedures, Volvo’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 verify that the Board’s resolutions are implemented. 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 Board’s work in 2013
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, regular contact is maintained between the Chairman of the Board and the CEO in order to discuss on-going business and to ensure that the resolutions taken by the Board are executed.

In 2013, there were nine regular meetings and one statutory meeting. The attendance of Board members at these meetings is presented in the table on page 97.

In the beginning of 2013, AB Volvo signed an agreement with the Chinese vehicle manufacturer Dongfeng Motor Group Company Limited (DFG) to acquire 45 percent of a new subsidiary of DFG, Dongfeng Commercial Vehicles (DFCV). The acquisition will include the major part of DFG’s medium- and heavy-duty commercial vehicles business. The completion of the transaction is subject to certain conditions including the approvals of concerned authorities. In January 2014,  the National Development and Reform Commission in China gave its approval of the establishment. Yet, additional authority approvals are to be obtained, and completion of the transaction is expected to take place mid 2014. The agreement with DFG has been preeceded by discussions and decisions by the AB Volvo Board, and the Board sees the cooperation with DFG as a possibility to strengthen the Volvo Group's  position, both in and outside China. The cooperation within DFCV is therefore an important step towards the Group's vision to become the world leader in sustainable transport solutions. 

The Volvo Group continued the renewal of its truck products ranges during 2013. Volvo Trucks launched several new products in addition to the new Volvo FH which was launched in 2012. Renault Trucks renewed its total product range, and is now offering a completely new range of vehicles for Long Distance, Construction and Distribution applications. In August, UD Trucks launched Quester, a new heavy-duty truck range developed specifically for growth markets. The launch of Quester is an important step in the Volvo Group's strategy to increase sales in fast growing markets across for example Asia Pacific. VE Commercial Vehicles Ltd., a joint-venture between the Volvo Group and Eicher Motors Ltd, launched the Pro Series, a new range of trucks and buses developed specifically for India and other selected growth markets. The renewal of the different truck products ranges was the result of long-term development projects that have been discussed and decided upon by the AB Volvo Board.

During 2013 the Board further devoted time to matters related to the strategies applicable to the 2013–2015 period established for the Volvo Group’s trucks business and other Business Areas. The Group-wide efficiency program announced in September 2013 which encompasses both reduction of white collar employees and consultants and efficiency enhancements in the global industrial system is part of the implementation of the strategies.

During the fall of 2013, the Board of Directors visited  the Group's businesses in China and also plants within DFCV's businesses in China. 

In the end of 2013, the Volvo Group decided to sell Volvo Rents, the Group's North American rental business for construction equipment, to the US private equity firm Platinum Equity. The transaction was completed on January 31, 2014 and has been preceeded by discussions within the Board of Directors. The divesture is part of the Group's strategic effort to focus on the core business. In the end of 2013, the Volvo Group also agreed to acquire the off-highway hauler business of the Terex Corporation with the purpose of improving Volvo Construction Equipment's penetration in the core earthmoving segment and extend its presence in light mining. This was also a strategic transaction that offers Volvo Construction Equipment considerable scope for growth, and it has been preceeded by discussions within the Board of Directors.

As a result of the uncertainty about the macroeconomic trend, the Board focused on monitoring the business environment in order to be prepared to adapt the operation to prevailing demand. The Board also continuously worked with leadership succession and leadership development issues.

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 for follow-up and control of the business and the 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. The Board also met with the company’s auditors at several occasions during 2013 and without the presence of management at one occasion. The Board continuously evaluates the performance of the CEO.

During 2013 the Board performed its yearly evaluation of the Board’s work.

The Board’s committees

5 Audit Committee

Duties
In December 2002, the Board established an Audit Committee primarily for the purpose of overseeing the accounting and financial reporting processes and the audit of the financial statements.

The Audit Committee is 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 the consolidated accounting. The Audit Committee also has the task of reviewing and overseeing the Group’s legal and taxation matters as well as compliance with laws and regulations that may have a material impact on the financial reporting. The Audit Committee also has the task of reviewing and overseeing the impartiality and independence of the company’s auditors. The Audit Committee is further responsible for evaluating the internal and external auditors’ work, providing the Election Committee with the results of the evaluation of the external auditors and to assist in preparing proposals for the election of auditors. In addition, the Audit Committee’s task is to establish guidelines specifying what other services, beyond auditing, the company may procure from the auditors. The Audit Committee shall also evaluate the quality, relevance and efficiency of the Group’s system for internal control over financial reporting, and with respect to the internal audit and risk management. Finally, the Audit Committee adopts guide­lines for transactions with companies and persons closely associated with Volvo.
 
Composition and work in 2013
At the statutory Board meeting following the Annual General Meeting 2013, the following Board members were appointed members of the Audit Committee:

  • Lars Westerberg,
  • Peter Bijur,
  • Jean-Baptiste Duzan

Lars Westerberg was appointed Chairman of the Audit Committee.

According to the Swedish Companies Act, the members of the Audit Committee may not be employees of the company and at least one member of the Audit Committee shall be independent and have accounting or auditing expertise. In addition, the Code stipulates that a majority of the members of the Audit Committee shall be independent of the company and the company management, and that at least one of the members who is independent of the company and the company management shall also be independent of the company’s major shareholders. The Election Committee’s assessment of independence prior to the Annual General Meeting 2013 is presented above under the “Independence requirements” section on pages 94-95. All members of the Audit Committee are highly familiar with accounting matters and the accounting standards that apply for an international Group such as the Volvo Group.

The Audit Committee met with the external auditors without the presence of management at four occasions during 2013 in connection with the Audit Committee meetings. The Audit Committee has also met with the Head of Corporate Audit at the meetings of the Audit Committee.

The Audit Committee and the external auditors have, among other tasks, discussed the external audit plan and risk management. The Audit Committee held eight regular meetings and two extraordinary meetings during 2013. The attendance of Board members at Committee meetings is presented in the table on page 97.

6 Remuneration Committee

Duties

In April 2003, the Board established a Remuneration Committee for the purpose of preparing and deciding on issues relating to remuneration to senior executives in the Group. The duties of the Committee include presenting recommendations for resolution by the Board regarding the terms and conditions of employment and remuneration for the President of AB Volvo, principles for remuneration, including pensions and severance payments, for other members of the Group Executive Team, and principles for variable salary systems, share-based incentive programs, pensions and severance payment for other senior executives in the Group.

The Remuneration Committee shall monitor and evaluate ongoing programs and programs concluded during the year covering variable remuneration for the executives, application of the policy for remuneration to senior executives on which the Annual General Meeting shall decide and the current remuneration structures and levels in the Group. The Board shall, not later than two weeks prior to the Annual General Meeting, submit a report on the results of the Remuneration Committee’s evaluation on the company’s website.

Composition and work in 2013
At the statutory Board meeting following the Annual General Meeting 2013, the following Board members were appointed members of the Remuneration Committee:

  • Carl-Henric Svanberg,
  • Anders Nyrén,
  • Ying Yeh

Carl-Henric Svanberg was appointed Chairman of the Remuneration Committee.

The Code sets the requirement that members of the Remuneration Committee, with the exception of the Board Chairman if being a member of the Remuneration Committee, shall be independent of the company and the company management. The Election committee’s assessment of independence prior to the Annual General Meeting 2013 is presented above under the “Independence requirements” section on pages 94-95.

The Remuneration Committee held four meetings during 2013. The attendance of Board members at Committee meetings is presented in the table to the right on this page.

Remuneration to Board members
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 4, 2013, approved fee payments to the Board, for the time until the end of the next Annual General Meeting, as follows.

Volvo’s Chairman should receive a fee of SEK 2,250,000 and each of the remaining members elected by the shareholders should receive a fee of SEK 750,000 with the exception of the President. The Chairman of the Audit Committee should receive a fee of SEK 300,000 and other members of the Audit Committee SEK 150,000 each. In addition, the Chairman of the Remuneration Committee should receive SEK 125,000 and other members of the Remuneration Committee SEK 100,000 each.