TeliaSonera
TeliaSonera Annual Report 2008 - Corporate Governance

Corporate Governance Report

Listen to page
 

Introduction

TeliaSonera has in the opinion of the Board of Directors followed the Swedish Code of Corporate Governance during 2008.

The corporate governance report, including the description of internal controls, does not form part of the official annual report and has not been audited.

This report starts with an overview of TeliaSonera's corporate governance model and Group-wide governance framework, followed by a description of the company's decision-making forums and processes. A description of the internal control over financial reporting concludes the report.

TeliaSonera's corporate governance model

TeliaSonera's corporate governance model is designed to ensure that operative results correspond to decisions made, and is structured to encourage all employees to strive, within set boundaries, towards the same goals, with a common clear understanding of direction, shared values, roles, responsibilities and authority to act.

The Shareholders' Meeting is the company's highest decision-making forum. Among other issues, the Shareholders' Meeting elects the members of the Board of Directors. The Board is responsible for the governance and its duties includes among other issues appointment and dismissal of the CEO, who is responsible for the company's business development.

Group-wide governance framework

The Group-wide governance framework comprises common direction and shared values, the management model and delegation of obligations and authority as well as the policies issued by Group functions.

Common direction and shared values

In order to provide a general guidance to all employees in the Group the following governance documents have been issued.

Corporate strategy

Our corporate strategy sets out the general direction of the Group, and defines our business concept.

TeliaSonera offers reliable, innovative and user-friendly services for transferring and packaging of voice, images, data, information, transactions and entertainment. TeliaSonera is present in the Nordic and Baltic countries, the emerging markets of Eurasia, including Russia and Turkey, and in Spain. TeliaSonera is also the leading European wholesale provider of quality cross-border voice, IP and capacity services, provided through wholly-owned international carrier network.

To create shareholder value through sustainable and improved profitability and cash flows, we will deliver our services in a cost effective and sustainable manner.

See section Corporate Strategy for more information.

Vision

Our vision, “Simplicity makes everything possible,” defines the way we look at our future.

Shared values

Our shared values, “Add value,” “Show respect” and “Make it happen,” focus on the behavior we want to promote.

Code of ethics

Our code of ethics sets out the ethical standards within which we act.

The common direction and shared values are decided by the Board of Directors.

Management model

The management model describes

The management model is decided by the Board of Directors.

Delegation of obligations and authority

Defines the obligations imposed on the heads of business areas, including the head of sales division Business Services, and corporate functions and within which limits they may make decisions.

The delegation is decided by the CEO, within limits set by the Board of Directors.

TeliaSonera's corporate governance model
Corporate governance model

Business targets

Describes yearly targets for the Group as a whole and for each business area and is directed to the heads of business areas and corporate functions.

The business targets for the Group are decided by the Board of Directors.

CEO's decision system

Sets out how decisions by the CEO are made in individual cases.

Policies issued by Group functions

The heads of Group functions shall secure that necessary corporate policies, instructions and guidelines are issued within their area of responsibility.

Business area-wide governance framework

The business area-wide governance framework shall be set within the boundaries of the Group wide framework. The business concept, vision, shared values and code of ethics are common for the entire Group.

Head office

The corporate head office assists the CEO in setting the framework for the activities of the business areas. The head office also provides the business areas with certain support regarding for example legal and communications issues.

Performance Management Model

A Performance Management Model is under implementation in TeliaSonera in order to maximize performance and in a structured way encourage all employees to strive towards the same goals. The model will:

Decision making forums

Shareholders' General Meeting

TeliaSonera is a Swedish, public, limited liability company and is governed by the Swedish Companies Act and the company's Articles of Association. According to the Companies Act, the Shareholders' General Meeting is the company's highest decision-making forum where the owners exercise their shareholder power.

The TeliaSonera share is listed on NASDAQ OMX Stockholm and NASDAQ OMX Helsinki. TeliaSonera has only one type of shares. Each TeliaSonera share represents one vote at the General Meeting of Shareholders. TeliaSonera had 651,816 shareholders at year-end 2008.

The company announced in the Interim Report January-September 2008 that the Annual General Meeting (AGM) will be held on April 1, 2009, in Stockholm. Information about the shareholders' rights to have an issue addressed at the General Meeting and the deadline for when such a request must have been received by the company to ensure that it is included in the notice of the ordinary AGM can be found on the company's website.

Shareholders had the opportunity to register for the AGM 2008 in several ways, for example via the company's website.

The AGM 2008 was held on March 31, 2008, in Stockholm. A shareholders' information meeting was held in Helsinki the following day, which was attended by the company's management and parts of the Board.

The entire Board of Directors, members of the Leadership Team and the chief auditor attended the AGM 2008. After nomination by the Nomination Committee, attorney Sven Unger was elected chairman of the AGM 2008. Peter Rudman, representing Nordea Fonder, and Thomas Andersson, representing Handelsbanken Fonder, were appointed to approve the minutes. None of them were members of the Board or employees of the company.

The AGM was held in Swedish and simultaneously interpreted into Finnish and English due to the company's international ownership. Material for the meeting was available in Swedish, Finnish and English.

TeliaSonera also provided shareholders who could not attend the AGM the possibility to follow the meeting via the internet and vote by proxies arranged by TeliaSonera. The shareholders attending the AGM were given the opportunity to ask questions, comment and make proposals for decisions.

The minutes from the meeting are available on the company's website in Swedish, Finnish and English.

Nomination Committee

After the AGM 2008, TeliaSonera's Nomination Committee consists of representatives of the company's four largest shareholders at the time of the notice of the AGM and the Chairman of the Board. The AGM decided that the Nomination Committee should consist of Viktoria Aastrup, (the Swedish State), Markku Tapio (the Finnish State), KG Lindvall (Swedbank Robur Funds), Lennart Ribohn (SEB Funds) and the Chairman of the Board Tom von Weymarn.

The Nomination Committee shall in accordance with its instruction

The Nomination Committee has reported to the company that the Committee is following the guidelines in the Swedish Code of Corporate Governance and that it intends to report its activities at the AGM and on the company's website. Shareholders are welcome to send nomination proposals to the Nomination Committee. Proposals can be sent by email to “forslagtillstyrelseledamot@teliasonera.com”.

The Nomination Committee's proposals shall in accordance with the instruction be made public at the latest in connection with the notice of the AGM.

Board of Directors

The Board of Directors is responsible for the governance, choice of strategic direction as well as substance of external communication of the Group. In that role the board makes decisions on i.a.:

As of the AGM 2008, TeliaSonera's Board of Directors consists of seven members elected by the AGM, serving one-year terms, and three employee representatives from the Swedish operations. An additional Finnish employee representative is present at Board meetings, but without voting rights. The AGM 2008 re-elected Tom von Weymarn to serve as Chairman of the Board.

All members elected by the AGM in 2008 are considered to be independent in relation to the company and the shareholders. The guidelines for the work of the Board of Directors are set down in standing orders. The standing orders contain rules regarding the number of ordinary board meetings, the agenda items for ordinary board meetings, responsibilities within the Board, including the tasks of the Chairman of the Board, the division of responsibilities between the Board and the CEO and how work is to be carried out in committees.

To improve the efficiency of board work, the Board has appointed a Remuneration Committee and an Audit Committee.

The Remuneration Committee handles issues regarding salary and other remuneration to the CEO and Leadership Team and incentive programs that target a broader group of employees.

The Audit Committee reviews the company's external financial reporting, auditing, accounting and internal financial reporting processes, including reviewing of accounting principles that are important for the company. The Audit Committee also reviews the environment of internal control over financial reporting as well as over business operations. In addition, reviews cover the performance and independence of the company's auditors.

The Audit Committee held six meetings in 2008

The Board of Directors' committees prepare decisions for the Board.

The Remuneration Committee has the authority to approve remuneration to persons in TeliaSonera's Leadership Team. The Audit Committee – and in some cases its chairman – has the right to make decisions regarding the purchase of services from the company's auditors within the framework decided by the Board.

TeliaSonera's General Counsel Jan Henrik Ahrnell served as secretary at the Board's and its committees' meetings.

Work of the Board of Directors during 2008

The Board of Directors held nine ordinary meetings during 2008 as well as six extra meetings. In addition to following up on the day-to-day business of the Group, the Board of Directors paid special attention to:

The Board of Directors applied a systematic and structured evaluation of its internal work, also with the assistance of external consultants – Active Owner Partners AB. The result of this evaluation was reported to the Nomination Committee.

The CEO and Leadership Team

The CEO is responsible for the company's business development and leads and coordinates the day-to-day operations in accordance with the guidelines and instructions of the Board of Directors.

Headed by the CEO, the Leadership Team consists of 10 members: The CEO, CFO, General Counsel, Head of Group Human Resources, Head of Group Communications, Chief Information Officer, Presidents of the three business areas and the Head of the business sales division Business Services.

The Leadership Team holds meetings monthly. At these meetings, issues of strategic nature and Group-wide importance are reviewed. Business reviews with the business area heads are carried out quarterly.

Remuneration structure in TeliaSonera

According to the remuneration policy for the Leadership Team established by the AGM, TeliaSonera shall offer a competitive remuneration package. The salary consists of a base salary and a variable salary. The base salary follows the salary structure in each respective country while the objectives of the variable salary are established in a plan for each calendar year and are based on the Group's financial performance, the business unit's financial performance and individual performance objectives. The variable salary for members of the Leadership Team may be a maximum of 50 percent of the base salary.

There are currently no share or share price-related incentive programs at TeliaSonera.

The Board of Directors determines the base salary and other remuneration for the CEO. The Remuneration Committee approves, after proposals from the CEO, base salaries and other remuneration to members of the Leadership Team.

Lars Nyberg had an annual base salary of SEK 8,160,000. The CEO's variable salary may be a maximum of 50 percent of the base salary. In 2008 the outcome of Lars Nyberg's variable salary was SEK 3,100,800.

Internal controls over business operations and financial reporting

The Board of Directors is according to the Swedish Companies Act and the Swedish Code of Corporate Governance responsible for internal controls. During 2008 the Board has strived to further develop the company's internal controls over business operations and intends to continue developing these internal controls in 2009.

Internal controls over financial reporting is an integral part of TeliaSonera's corporate governance. It includes methods and procedures to safeguard the Group's assets, ensure and control the reliability and correctness of financial reporting in accordance with applicable legislation and guidelines, improve operational efficiency and control the level of risk in the business operations.

According to company policy adopted by the Board of Directors, the financial reporting of TeliaSonera shall be in line with high professional standards and be full, fair, accurate, punctual and understandable. TeliaSonera's policy for internal controls over financial reporting is based on the international COSO internal control framework.

The Board of Directors strives for a sufficient internal control environment within the Group. This environment should be stable and independent of external control requirements.

Control environment

On an annual basis the Board of Directors reviews the company's Code of ethics. The purpose of the code is, among other things, to further promote honest and ethical conduct, clear communication, compliance with applicable governmental rules, the prompt internal reporting of violations of the code, and accountability for adherence to the code.

Planning for the operations is based on annual operating plans and the follow-up is conducted in a monthly basis, complemented with rolling seven-quarter forecasts and quarterly business review meetings. The CEO sets goals for the operations based on the guidelines of the Board of Directors. To ensure performance, managers have annual targets for their particular operations.

Each unit of operations has a controller responsible for ensuring that the monthly and quarterly financial reporting follows policies and that the reports are delivered on time, sufficient internal controls exist and are performed, required reconciliations are properly done and larger business and financial risks are identified and reported.

TeliaSonera has a common system for all large wholly-owned units of operation for standardized control and reporting. TeliaSonera has also established a financial shared services unit that takes care of the standardized financial accounting processes across all large wholly-owned units.

Risk management

Risk management is an integral part of the Group's business control and monitoring. Risks that may pose a threat to achieving business objectives are identified, and measures to control these risks are introduced.

A process exists to regularly identify risks that could lead to material misstatements of financial information.

The Group's security unit works with preventive security measures and crisis management to protect the Group's assets, IT systems, personnel and to safeguard telecom networks, services and customers from infringements and fraud.

Control activities

To mitigate risks, TeliaSonera performs control activities, both automated and manual, to ensure that necessary actions are taken to either prevent or detect material misstatements and to safeguard the assets of the company.

Processes are described in a common and structured way, and key controls that are critical in mitigating the financial reporting risks are identified and documented. Sufficient risk-based testing activities were performed during 2008 to assure that these key controls are functioning as intended. Remediation activities were taken to correct or improve controls where such activities were necessary.

Monitoring of control activities

The Board of Directors actively monitors the environment of internal control over financial reporting, specifically through the Audit Committee.

The Board of Directors receives monthly financial reports from the CEO.

The Board of Directors and its Audit Committee review all external financial reports before they are made public. The Audit Committee receives direct reports from the external and internal auditors and discusses and follows up their viewpoints. Both the external and internal auditors are represented at the meetings of the committee. At least once a year, the entire Board of Directors meets with the external auditors, in part without the presence of management.

The Board of Directors regularly receives risk reports compiled by management. Also the Audit Committee on a case by case basis reviews units such as for example Corporate Risk Management, Corporate Business Control and Corporate Finance and Treasury. The purpose of these evaluations is to increase the Board's understanding of major issues related to TeliaSonera's risk management and controls.

The Audit Committee addresses, among other issues, internal control environment, impairment valuations, interpretations of accounting principles of special importance for the Group, legal matters that could have a significant impact on the financial statements and evaluation of the auditors' performance.

TeliaSonera also has an internal disclosure committee that reports to the CEO and CFO and that exercises additional control over TeliaSonera's responsibilities regarding external financial reporting. This committee includes responsible persons from corporate control, the legal department and investor relations.

TeliaSonera has implemented a structured monitoring process, systematic testing activities of key controls, and periodic monitoring on the performance of internal controls at both the business area and the Group level. The Group level meetings regarding the monitoring of internal controls are chaired by the CFO and all finance officers responsible for the business areas participate as well as the responsible persons from corporate control, internal audit, legal department, IT units, corporate security and risk management. The Group level meetings are also attended by the external auditors.

The CFO regularly reports to the Audit Committee on the monitoring of internal controls. Both the Audit Committee and the Board of Directors have reviewed and discussed management's assessment of the company's internal controls, and have actively followed up the related improvement measures by management.

Internal controls over business operations

Management has identified a need to enlarge the internal control environment to comprise internal controls over business operations. The purpose of internal controls over business operations is to monitor performance metrics related to defined metric measurements and as a result promote well suited and efficient business operations.

Metric measurements focuses on removing mistakes, waste and defects from operations by the means of statistical analysis. It also focuses not only on removing problems but finding out and tackling the root causes of problems.

Internal audit

The Group has an internal audit function that reviews the Group's operations and makes proposals with a view to improve internal controls, streamline processes and increase efficiency. In order to obtain integrity in the metric measurements the internal audit function performs assurance of underlying data. The Head of Corporate Internal Audit reports to the CEO, who decides in consultation with the Audit Committee on the function's tasks and priorities.

The internal audit's tasks and priorities as well as findings are reported to and discussed on a regular basis at the Audit Committee meetings.

External auditors

At the AGM 2008 PricewaterhouseCoopers AB was re-elected as auditor until the end of the AGM 2011. Göran Tidström (born 1946) is the auditor in charge.

PricewaterhouseCoopers AB is engaged by the company's largest shareholder, the Swedish State, for both audit and advisory services. Current audit assignments include Svenska Spel and Samhall.

Göran Tidström is also an auditor of Meda, Trelleborg and Volvo. He is deputy president of the International Federation of Accountants, IFAC, and Chairman of the Board of the European Financial Reporting Advisory Group, EFRAG.