The aim of corporate governance is to ensure that Statnett fulfils its social responsibilities by clearly defining the distribution of roles between the owner, Board of Directors and the administration, and set the framework for desired conduct in the company. Below follows the Board of Directors' annual report on compliance with the Norwegian Code of Practice for Corporate Governance (www.nues.no). Deviations from the Code of Practice are explained.
1. Corporate governance
Statnett is a state enterprise, established under the Act relating to state-owned enterprises and owned by the Norwegian state through the Ministry of Petroleum and Energy (MPE). The Minister's administration of ownership is exercised under constitutional and parliamentary responsibility. The enterprise is independent and is wholly responsible for its obligations.
Good corporate governance is a precondition for stable value creation over time. The enterprise's fundamental governing principles help us meet the requirements and expectations laid down by our owner, employees, customers, suppliers, lenders and others stakeholders.
Statnett's governing bodies establish the framework for the enterprise's activities. These comprise constitutional principles related to the public ownership, the Norwegian State's corporate governance principles, as well as articles of association and decisions adopted by the Enterprise General Meeting.
Along with the instructions to the Board of Directors, instructions to the President and CEO, this framework constitutes the key governing documentation in Statnett. The Board of Directors and the President and CEO establish the framework for the enterprise's activities in order to meet the adopted objectives.
Statnett's corporate management framework consists of four levels of documented guidelines:
Level 1: Guidelines adopted by the Board of Directors, referred to as management policies. These relate to our value base, ethical guidelines, governance, management and control as well as asset management.
Level 2: Function policies stipulate common principles including guidelines for decisions and conduct.
Level 3: Description of Statnett's main processes, their sequence, deliveries, roles and responsibilities, taking into account common function policy principles and instructions requirements.
Level 4: Guidelines of an operational nature such as procedures, instructions, checklists and manuals.
Statnett focusses on quality management and continuous improvement, and is certified according to PAS 55 (quality standard for asset management) and ISO 9001 (quality management) and 14001 (environmental management).
Statnett has a function in the government's sector policy. Section 2 of Statnett's articles of association stipulates that ”Statnett SF is the Transmission System Operator in the Norwegian power system.” As System Operator, Statnett is responsible for ensuring that there is an instantaneous balance at all times between production and consumption of electric power in Norway. Our System Operator role is described in more detail in the Regulations relating to system operation.
Furthermore, Statnett's objects clause stipulates that ”the enterprise is responsible for ensuring efficient operations in a social economy perspective and for developing the main power grid. Statnett SF shall, alone or together with others, plan and design, build, own and operate transmission facilities. Statnett SF will execute the tasks assigned to the company pursuant to applicable laws, regulations and licences. Moreover, Statnett SF will adhere to commercial principles.” Statnett's articles of association are available on our web site.
Statnett has established the company's mission, values and main objectives:
Statnett will build the next generation main grid by 2030.
Statnett’s values are a long-term perspective, respect and community. These values provide the basis for everything we do, and set the standard for the daily conduct of our employees and the management.
Statnett's main objectives
Our main objectives describe what we wish to deliver:
Security of supply
Statnett shall maintain security of supply through a grid with satisfactory quality and capacity.
Statnett's services shall create value for customers and for Norwegian society at large.
Statnett shall facilitate the realisation of Norway's climate objectives.
Statnett has also formulated objectives for how we want to achieve our objectives:
- Statnett shall carry out its operations without personal injuries and with respect for our natural environment.
- Statnett shall be recognised as a customer-oriented organisation.
The enterprise's deliveries shall bear the mark of our values.
Statnett's strategy focusses on our core activities. To realise Statnett's objectives the following five target areas are important:
- Ensure safe and efficient operations
- Build a robust and environmentally-adapted main grid
- Secure a stable supply of electricity and promote value creation through interaction with the other Nordic countries and Europe
- Develop the next generation Statnett
- Secure acceptance and understanding for Statnett's social mandate
3. Share capital and dividend
At 31 December 2012, Statnett's equity was appropriately aligned with the company's current activities and risk profile. Statnett's strategy entails substantial investments. These are described in more detail in the 2011 Grid Development Plan and in the updated 2012 Investment Plan. In Proposition to the Storting No. 1 (2011-2012), the Norwegian state has, as the owner, stated that Statnett should have a financial position which enables the enterprise to carry out all socio-economically profitable grid investments. In order to realise the planned investments, Statnett needs to raise more equity in the next five years. The decision to increase the capital can only be made by the Enterprise General Meeting.
The Group's dividend policy is stipulated in the government budget. In Proposition to the Storting No. 1 (2011-2012), the Norwegian government has established a long-term dividend policy of 50 percent of the defined dividend basis up to and including the fiscal year 2015. The basis for the dividend is defined as the Group's net profit after tax, adjusted for changes in the balance for higher/lower revenue for the year after tax.
4. Equal treatment of owners and transactions with closely related parties
Statnett SF is wholly-owned by the Norwegian State through the Ministry of Petroleum and Energy (MPE). Consequently, the enterprise has no need for guidelines for equal treatment of owners.
For major transactions between the enterprise and related parties, Statnett performs value assessments prepared by independent third parties in accordance with national regulatory requirements.
Statnett’s ethical guidelines stipulate that employees should report any doubt regarding competence or qualifications. The Ethics Ombudsperson function has been established as a whistle-blowing channel.
5. Freely negotiable
Statnett is a state enterprise without transferable ownership interests.
Figure: Overview of Statnett's management structure at the end of 2012. The formal reporting lines are shown as solid lines.
6. The Enterprise General Meeting
The Ministry of Petroleum and Energy is the enterprise’s supreme decision-making body through the Enterprise General Meeting.
The following issues are discussed and settled at the Enterprise General Meeting: Adoption of the enterprise’s profit and loss account and balance sheet, including application of profit or coverage of loss for the year, adoption of the Group's consolidated profit and loss account and balance sheet. In addition, any other matters are discussed pertaining to the General Meeting according to Norwegian laws and regulations, including election of the Statnett Board of Directors and stipulation of remuneration levels for board members and the board committee. The Board of Directors and the company's auditor attend the Enterprise General Meeting.
The Ministry's authority in the enterprise may not be exercised outside the Enterprise General Meeting. The General Meeting adopts Statnett’s articles of association, including Statnett’s objects clause which provides the framework for the operations that Statnett may undertake. An ordinary general meeting is held every year by the end of June.
7. Election committee
Statnett has no election committee. The MPE designate the enterprise's board members at the Enterprise General Meeting.
8. Corporate Assembly and Board of Directors: composition and independence
Statnett has no corporate assembly. The enterprise's Board of Directors shall consist of seven to nine members, in addition to any deputy members. Two, or possibly three members, and their deputy members are appointed by and from the enterprise’s employees according to the relevant rules laid down in Section 20 of the Act relating to state-owned enterprises and associated regulations. Pursuant to Section 21 of the Act relating to state-owned enterprises, board members are elected for a period of up to two years, but will remain in office until a new member has been elected even though the term of office has expired.
See the annual report for more information about each board member.
The Board of Directors had an attendance of 92.2 percent in 2012.
Pursuant to the Act relating to state-owned enterprises, the President and CEO cannot be a member of the board. With the exception of employee representatives, members of the Board of Directors are independent of the enterprise and the owner.
9. The work of the board of directors
The Board of Directors has overall responsibility for ensuring that Statnett’s operations are prudently managed. Instructions to the Board of Directors have been established stipulating that the Board must prepare an annual plan for its work which establishes the distribution of roles and responsibilities between the Board of Directors and the President and CEO and ensures that there is sufficient competency to handle issues discussed by the Board. The Board of Directors shall determine Statnett's strategy and ensure that Statnett is organised in a satisfactory manner. Furthermore, the Board of Directors adopts budgets and ensures satisfactory asset management, a good working environment and compliance with regulatory requirements, laws and regulations. Statnett's ethical guidelines stipulate that board members should report any issues that may affect their competence on their own initiative. The Board conducts an annual evaluation of its work and competence in order to ensure effective quality control of its work.
The Audit Committee
The Board of Directors has established an Audit Committee which will function as a preparatory body to the Board of Directors. The Board has approved instructions for the Audit Committee. The responsibilities of the Audit Committee include making preparations for the Board of Director’s follow-up of the financial reporting process, monitoring the systems for internal control and risk management and the enterprise’s internal audit process. Furthermore, the Audit Committee shall maintain continuous contact with the enterprise’s appointed auditor with regard to the audit of the enterprise, and assess and monitor the auditor’s independence according to the Audit and Auditors Act. See Note 14 in the annual financial statement for information about the auditor's fees.
The Board of Directors has appointed a Remuneration Committee to assist the Board of Directors with stipulating the President and CEO's terms and conditions of employment and help establish the main principles and framework for remuneration of the Statnett Group management. The Board has approved instructions for the Remuneration Committee. In accordance with Section 9 of the articles of association, the Board of Directors prepares a statement concerning remuneration to the President and CEO and the Group management in accordance with the provisions in the Public Limited Liability Companies Act, the Norwegian Accounting Act, and the Guidelines relating to state-owned companies. See also Note 14 in the financial statement.
The Board of Directors has appointed a project committee as of 1 January 2013. The project committee is to function as a preparatory body for the Board of Directors with regard to follow-up of Statnett's development projects based on a defined mandate. In particular, the project committee shall ensure sound governance of the development projects approved by the Board of Directors and follow up projects from when an investment decision in principle (BP2) has been made in Statnett's project model. The project committee will present its considerations to the Board of Directors, but will not make decisions on behalf of the Board. The committee will review the mandate annually and propose updates if necessary.
Main Grid User Council
In connection with the 2013 national budget negotiations, the Norwegian Parliament decided to disband the Main Grid User Council. On this background, it was decided at an extraordinary general meeting, held on 11 January 2013, to delete Section 8 of Statnett's articles of association. The Main Grid User Council was operative throughout 2012 and consisted of six members who were appointed by the Enterprise General Meeting and represented special interest organisations. The Main Grid User Council discussed matters pertaining to Statnett’s regulated monopoly and administrative tasks
10. Risk management and internal control
Statnett works systematically to review any risks associated with our activities. The Board of Directors receives a complete overview of the enterprise's risk profile twice a year. All development projects approved by the Board of Directors are reported to the Board meetings and include an updated risk profile for the individual project.
Internal control is an integral part of corporate governance. Statnett conducts business reviews every six months covering all areas of operation. The reviews include reviews of HSE results, score cards, finance and risk exposure. The Board of Directors reviews and assesses the enterprise's internal control procedures on an annual basis.
Statnett publishes quarterly financial reports. The external and internal reporting is reviewed by the Group management, the Audit Committee and the Board of Directors.
Internal control and financial reporting
Combined with the enterprise's organisation, management forums and reporting lines, Statnett's ethical guidelines and value base lay the foundation for a good internal control environment. A separate policy has been developed for accounting and financial reporting. Risk assessments of the most important processes related to financial reporting will be conducted as and when required. The Audit Committee, internal auditor and the Board monitor the enterprise's internal control systems.
Statnett's ethical guidelines cover areas that are important to ensure good business ethics in all aspects of our activities. The guidelines lay down specific and practical rules, and set standards for the conduct of all employees. Statnett has appointed an Ethics Ombudsperson who is responsible for ensuring compliance with the Norwegian Working Environment Act with respect to facilitating reporting of censurable conditions. Failure to comply with the ethical guidelines may result in sanctions, depending on the nature and scope of the breach. The ethical guidelines apply to board members, managers, employees, contractor personnel and any other party who acts on behalf of Statnett.
Ethical guidelines for contractors
Statnett puts particular emphasis on ensuring that our suppliers and partners comply with our ethical guidelines for suppliers. The suppliers’ obligation to comply with the ethical requirements is stipulated in the contracts we enter into with our suppliers. Inspections and audits are conducted in order to make sure that the requirements are fulfilled during execution of the contracts. The ethical guidelines for employees and contractors are available in their entirety on Statnett's web site.
11. Remuneration of the Board of Directors
See Note 14 in the financial statement for a detailed overview of Board remunerations.
12. Remuneration of executive employees
Statnett follows the guidelines that apply for executive pay in state enterprises. See Note 14 in the financial statement for a detailed overview of remuneration of executive employees.
13. Information and communication
Statnett is governed by the Public Enterprises Act (with a few exemptions), regulations relating to dissemination of information to the power market and safety and preparedness legislation. Statnett distributes financial and operational information in accordance with the regulatory requirements and practises transparency and openness.
Financial and operational information as well as the enterprise's financial calendar are available on Statnett's web site.
In addition to the dialogue with the owners which takes place at the Enterprise General Meeting, the owner also promotes communication between the Board of Directors and the owner outside the General Meeting. The purpose of the Owner’s Meeting is to provide an informal forum where the Board of Directors and the owner can exchange opinions and discuss issues of great financial or strategic importance to Statnett. The views expressed by the owner at the Owner’s Meeting provide input for Statnett’s administration and Board of Directors. Issues requiring owner approval must be discussed at the Enterprise’s General Meeting.
14. Company takeover
Statnett SF is a state enterprise. The sale of assets would entail a restructuring of the business organisation and a legal amendment which requires the consent of the Norwegian Parliament.
External auditors are appointed by the General Meeting and are independent of Statnett. The enterprise's external auditor for 2012 was Ernst & Young. The external auditor presents an annual work schedule to the Audit Committee. The external auditor attends meetings in the Audit Committee to discuss relevant issues. The auditor participates in the Board’s consideration of the annual accounts. The external auditor must attend one annual Board meeting where the management is not present. The Audit Committee evaluates and proposes an external auditor and is responsible for monitoring the auditor's independence. As an important part of the process of ensuring the auditor's independence, the Board of Directors has established guidelines relating to the enterprise's access to use the external auditor for assignments other than audits. Each year, the external auditor reviews the company's internal control together with the Audit Committee.
See Note 18 of the financial statement for information about the auditor's fees, divided between auditing and other consulting services.