Corporate Governance Guidelines
General principles, implementation and reporting on Corporate Governance
Magseis ASA (“Magseis, the “Group” and/or the”Company”) believes that good and sound corporate governance creates shareholder value and reduces risks. Thus, the Group has made a strong commitment to develop high standards of Corporate Governance.
The Group has complied, and will continue to comply, with the Norwegian Code of Practice for Corporate Governance (the “Corporate Governance Code”), last revised on 30 October 2014, and available on the Norwegian Corporate Governance Board’s web site www.nues.no. The principles are also in accordance with section 3-3b of the Norwegian Accounting Act, which can be found at: https://lovdata.no/dokument/NL/lov/1998-07-17-56.
The Corporate Governance Code is based on the “comply or explain” principle. In the event that the Company deviates from the requirements of the Corporate Governance Code, the Company will provide a justification for the deviation.
Magseis considers the development of high Corporate Governance standards as a continuous process and will continue to focus on improving the level of Corporate Governance. The Board of Directors has the overall responsibility for implementation of sound Corporate Governance principles within the Group.
Purpose and background
Good corporate governance is characterised by open, responsible communication and cooperation among the Company’s shareholders, Board of Directors and executive management, in the context of both short- and long-term value creation perspectives. The Board of Directors wants the Company’s shareholders, employees, customers, suppliers, financial associates, and governmental bodies, as well as society in general, to be confident and trust that Magseis is governed in a satisfactory manner.
The Board of Directors and the nomination committee have procedures in place to ensure that the Board of Directors is sufficiently independent in the execution of its duties. Corporate Governance deals with questions and principles related to the distribution of roles between governing bodies, as well as their respective areas of responsibility and authority. Sufficient attention must be given to the formulation of these roles and functions, in order to secure ample control, but at the same time to encourage innovation and entrepreneurship.
The purpose of this policy is to regulate the division of roles between the shareholders, the Board of Directors and executive management. Through the efficient use of the Company’s resources this will help to ensure the greatest possible value creation over time in interests of all shareholders, employees and other stakeholders.
Business of Magseis
The vision of Magseis is to reduce Ocean Bottom Seismic (OBS) costs to a level where it increases the addressable market and becomes a widely used tool, not only for field development, but also for exploration. This is reflected in Article 3 of the Company’s Articles of Association, which reads:
“The Company’s business activities include development of geophysical equipment and methods, generation, marketing and sale of exclusive and non-exclusive geophysical exploration and other thereto naturally related activities”.
The annual report will include the Group’s core purpose from the Articles of Association, in order to provide predictability to the shareholders and the capital markets.
The Group’s core purpose is to significantly reduce the costs of OBS operations and broaden the scope where OBS can be used. Magseis wants to be the customers’ first choice within field development and the exploration industry. In fulfilling this purpose, Magseis will create long-term value for its customers and shareholders.
Equity and dividends
The Group’s equity as per 31 December 2017 amounts to USD 95.0 million, 76.9% of the Group’s total assets. This is considered adequate relative to the Company’s financial objectives, overall strategy and risk profile. On a continuous basis, Magseis evaluates the available alternatives to ensure adequate liquidity for its prioritised project activities and to provide the required long-term financial strength and flexibility. To achieve its ambitious long-term growth objectives, it is likely that Magseis will need to raise additional capital in the years to come.
The Group is currently in a growth phase and has not yet distributed any dividends. As per 31 December 2017, the Company has no distributable equity and the Board of Directors will not propose a dividend for 2017 to the Annual General Meeting. Magseis will over time develop and disclose a dividend policy including an appropriate pay-out to its shareholders.
The Board has proposed to the general meeting that a general mandate to issue new shares is granted to the Board with a limitation of up to 20% of the registered share capital of Magseis. The Group is accordingly not fully compliant with the code which recommends that all mandates shall be limited to defined purposes. In light of the current growth plans for the Group, it is the view of the Board that it needs to have the sufficient flexibility in order to act swiftly on strategic opportunities to further develop the Group and increase shareholder value. It is therefore the view of the Board that this deviation from the Code is justifiable in the common interests of the Group and the shareholders of Magseis.
Equal treatment of shareholders and transactions with close associates
Magseis has only one class of shares, and all shares carry equal voting rights.
The shareholders of the Company have preferential rights to subscribe for new shares. If, and to the extent that the preferential right is set aside, either by the general meeting or by the Board of Directors on the basis of an authorisation, the reason for this will be disclosed by the Company. The explanation will be included as an appendix to the agenda of the General Meeting or in the stock exchange announcement of the increase in share capital.
Any trades in the Company’s own shares will be conducted over the trading platform of Oslo Axess at stock exchange prevailing prices. In respect of any related party agreements which are not immaterial, the Board of Directors will consider obtaining an independent valuation, unless the agreement shall be approved by the General Meeting in accordance with law. Magseis has implemented guidelines to ensure that Board members and members of the executive management notify the Board if they directly or indirectly hold a significant interest in respect of an agreement being made by the Company.
Freely negotiable shares
The Company’s shares are not subject to ownership restrictions pursuant to law, licensing conditions or the Articles of Association and all shares are freely negotiable, save to the extent restricted by foreign securities legislation imposed in connection with sale and offering of securities.
Through the Company’s General Meeting, the shareholders exercise the highest authority in the Group. General Meetings are held in accordance with the requirements set out in statutory Norwegian law and the recommendations of the Corporate Governance Code. All shareholders are entitled to submit items to the agenda, meet, speak and vote at General Meetings. The Annual General Meeting is held each year before the end of June. Extraordinary General Meetings may be called by the Board at any time.
The notice and supporting information, as well as an attendance- and proxy voting form, are convened by written notice to all shareholders with known addresses. Normally this will also be made available on the Company’s website www.magseis.com no later than 21 days prior to the date of the General Meeting. Shareholders who wish to receive the appendices may request the Group to mail such attachments free of charge. The Board will seek to ensure that the proposed resolutions and supporting information distributed in the calling notice for the meeting are sufficiently detailed and comprehensive to allow shareholders to form a view on all matters to be considered at the meeting.
Shareholders who are unable to be present at the meeting are encouraged to participate by proxy. A person who will be available to vote on behalf of shareholders as their proxy will be nominated. Proxy forms will allow the proxy-holder to cast votes for each item separately. A final deadline for shareholders to give notice of their intention to attend the meeting or vote by proxy will be set in the notice for the meeting. Such deadline will be set as close as possible to the date of the General Meeting, and under any circumstance in accordance with the principles of section 5-3 of the Public Limited Companies Act.
The Board of Directors, the CEO, the CFO, the Nomination committee and the auditor will under normal circumstances be present at the meeting in person. The Chairman for the meeting is independent. Notice, enclosures and protocol of meetings will be available on Magseis’ website.
The General Meeting elects the members of the Board of Directors (employee-elected Board members will be elected among employees), determines the remuneration of the members of the Board of Directors and approves the annual accounts. The General Meeting will normally vote separately on each candidate for election for the Board of Directors and any other corporate bodies to which members are elected by the General Meeting. Further the General Meeting decides other matters, which by law, separate proposal or according to the Group’s Articles of Association, are to be decided by the General Meeting.
The minutes from General Meetings will be posted on the Group’s Website as soon as possible after the General Meeting has been held. Information that a General Meeting has been held will be made public as soon as possible after the end of the meeting. Any deviation from the proposal by the Board of Directors will be set out in such announcement.
Magseis’ Nomination committee comprises of Roar Bekker (chairperson), Jon Hille Walle and Anders Farestveit. Both Roar Bekker and John Hille Walle are independent of the Board of Director and the Executive Management. Anders Farestveit is the largest shareholder and an observer in the Board of Directors. The requirement for having a Nomination committee and the committee’s duties are incorporated in the Company’s Articles of Association. The General Meeting elects the members of the committee and approves the Nomination committee guidelines and remuneration. The Nomination committee’s main tasks are to give the General Meeting its recommendations regarding:
(i) the election of Board members to be elected by the shareholders,
(ii) (ii) remuneration to the Board members,
(iii) (iii) the election of members of the nomination committee; and
(iv) (iv) the remuneration of the nomination committee.
The Nomination committee’s recommendations must be explained.
The term of service is two years unless otherwise decided by the General Meeting.
Corporate assembly and Board of Directors: Composition and independence
Magseis has not established a corporate assembly and is not required by law to do so.
The members of the Board of Directors are elected by the General Meeting. The Board of Directors has the overall responsibility for the management of the Group. This includes a responsibility to supervise and exercise control of the Group’s activities. The Company’s Articles provide that the Board of Directors shall have between 3 and 5 members. The proceedings and responsibilities of the Board of Directors are governed by a set of procedural rules. It is the Group’s intention that the members of the Board of Directors will be selected in the light of an evaluation of the Group’s needs for expertise, capacity and balanced decision making, together with the aim of ensuring that the Board of Directors can operate independently of any special interests and that the Board of Directors can function effectively as a collegial body.
The Directors are encouraged to hold shares in the Group. The Board of Directors believes that this promotes a common financial interest between the members of the Board of Directors and the shareholders of the Group. Pursuant to the Corporate Governance Code, the majority of the shareholder-elected members of the Board of Directors shall be independent of the Group’s executive management and its main business connections. At least two of the shareholder-elected members of the Board shall be independent of the Group’s main shareholders. Both Jan M. Drange, Gro G. Haatvedt and Bettina Bachmann are considered to be independent of the Group’s main shareholders. The majority of the shareholder-elected directors are accordingly independent of the Group’s executive management and main business connections.
The Board of Directors continuously evaluates conflict of interest and the members’ independence in each resolution. Currently, one executive consultant is a Director. The current members and observers of the Board of Directors possesses directly or indirectly 17 % of the outstanding shares. One of the directors, which is also one of the co-founders and is hired as an executive consultant, is the fourth largest shareholder with ownership of 6 % of the outstanding shares.
The term of service for members of the Board of Directors is two years unless the General Meeting decides otherwise. However, all directors are eligible for re-election.
The work of the Board of Directors
The Board of Directors meets a number of times during the year. The meetings include strategy meetings, financial reporting and additional meetings under special circumstances if necessary. During 2017, the Board of Directors held 16 meetings. The working methods for the Board of Directors are subject to open discussion.
Between meetings, the Chairman and CEO update the members of the Board of Directors on current matters. Each meeting of the Board of Directors includes a briefing by the CEO followed by a questions and answers session (Q&A). The meetings of the Board of Directors are focused on ensuring satisfactory procedures and corporate culture, promoting high ethical conduct and compliance with legal and regulatory requirements amongst all employees of the Group. The Board of Directors has adopted an annual plan which focuses on the strategic goals of the Group. The Board of Directors has furthermore established guidelines for the executive management with a clear division of responsibilities.
In cases where the Chairman of the Board is or has been actively involved, another member of the Board will be asked to lead the discussions.
Risk management and internal control
The Board of Directors, in conjunction with the executive management, evaluates the risks inherent in the operations of the Group on a continuous basis.
Most of these risks are relating to current operations as well as construction of the Group’s proprietary system, obtaining contractual counter-parties, retaining key staff and general financial risks. In addition, the following risks inherent in the business plan are monitored: commodity prices, exchange rates, competition, the political and regulatory environment, counter-party performance, and the potential growth of the business and the application of new technology. Every year the Board of Directors will carry out an annual review of the Company’s most important areas of exposure to risk.
The Board of Directors, working with the Finance Department and through the annual audit process, ensures that the Group has reliable internal control and systems for risk management. The Board of Directors is presented and shall approve the annual budget/forecast at the end of the preceding financial year or in the beginning of the commencing financial year. Thereafter, the Board is presented with regular updates and reports identifying material variations from the approved budget/forecast. Explanations are obtained for material variances. The Board of Directors is also presented with interim financial statements on a quarterly basis which they need to approve. The statements are reviewed together with the executive management.
Remuneration of the Board of Directors
In accordance with Norwegian law and the recommendations of the Code, the remuneration to the members of the Board of Directors is resolved at the Annual General Meeting. The remuneration of the Board of Directors is intended to reflect the responsibility and competence of the Board of Directors, as well as the time spent and complexity of the business of the Group. The remuneration of the Board of Directors is not contingent upon the results of operations. No options are afforded to the members of the Board of Directors.
In accordance with the Corporate Governance Code, members of the Board of Directors should not assume other tasks than the directorship for the Company in order to maintain independent. Jan B. Gateman, who is a member of the Board of Directors, is also SVP R&D for Magseis. Thus, the Company is not compliant with the Corporate Governance Code for historical reasons.
Remuneration of the executive personnel
The Group’s policy for management remuneration is that leading employees shall receive competitive salary to maintain stability in the executive management. The Group’s policy for remuneration of executive personnel is prepared by the Board of Directors and presented and approved at the Annual General Meeting. The Group shall offer a level of salary, which reflects the level of salary in equivalent companies in Norway and abroad. All executive personnel are included in the Group’s share option program which is linked to long-term results and achievements for the Group. Such options are incentivising performance and are based on quantifiable factors over which the employee in question has influence. The performance related options/remuneration is subject to an absolute limit.
Information and communications
Communication with shareholders, investors and analysts is a high priority for Magseis. The Group believes that objective and timely information to the market is a prerequisite for a fair valuation of the Group, and in turn, the generation of shareholder value. The Group continually seeks ways to enhance its communication with the investment community.
Each year the Company will publish an overview of the dates for major events such as: the Annual General Meeting, publication of interim reports and public presentations. All information distributed to the Company’s shareholders will be published on the Company’s webpage (www.magseis.com) at the same time as it’s sent to the shareholders.
The Company has established an audit committee which comprises Jan Grimnes and Jan M. Drange.
The Company has established an audit committee which comprises Jan P. Grimnes and Jan M. Drange.
The audit committee shall consist of members which fulfils the requirements of section 6-42 of the Public Companies Act. Moreover, the majority of the members should be independent of the Company. Currently one of the members of the audit committee fulfil the requirements of section 6-42 of the Norwegian Public Companies Act and one other member fulfil the requirement of being independent of the Company
The audit committee shall;
- Review interim and annual financial reports and processes,
- Monitor the systems for internal control and risk management,
- Maintain ongoing contact with the Company’s elected auditor regarding the audit of the annual financial statement, and;
- Assess and monitor the auditor’s independence, hereunder particularly to which extent other services provided by the auditor or the auditing Company, constitute a threat against the auditor’s independence.
The auditor should, at least once a year, review together with the audit committee, the Company’s internal control, hereunder identify weaknesses and provide suggestions for improvements.
The Articles of Association of Magseis do not contain any restrictions, limitations or defence mechanisms on acquisition of the Group’s shares. In accordance with the Securities Trading Act and the Corporate Governance Code, the Board has adopted guidelines for possible takeovers. In the event of an offer, the Board of Directors will not seek to hinder or obstruct takeover bids for Magseis’ activities or shares. Any agreement with the bidder that acts to limit the Group’s ability to arrange other bids for the Group’s shares will only be entered into where the Board of Directors believes it is in the common interest of the Group and its shareholders. Any transaction that is in effect a disposal of the Company’s activities should be decided by the General Meeting.
Information about agreements entered into between the Group and the bidder that are material to the market’s evaluation of the bid will be publicly disclosed no later than at the same time as the announcement that the bid will be made is published. The Board has the responsibility to ensure that the shareholders are treated equally.
If an offer is made for the shares of Magseis, the Board of Directors will make a recommendation on whether or not the shareholders should accept the offer. Normally the Board will arrange for a valuation from an independent expert.
Deloitte AS has been appointed as the auditor for the Company since June 2017. The Board will from time to time evaluate the audit arrangement for the Company.
The auditor participates in meetings of the Audit Committee and the Board of Directors that deal with the annual accounts. The auditor will present to the Board of Directors a report outlining the audit activities in the previous fiscal year and highlight the areas that caused the most attention or discussions with management, together with a plan for the work related to the Group’s audit. The Board meets with the Company´s auditor without management present at least once every year. The General Meeting is informed about the Group’s engagement and remuneration of the auditor. Further the General Meeting is informed about the fees paid to the auditor for services other than the annual audit and the details are given in notes to the Annual Report. The remuneration paid to the auditor needs approval by the General Meeting.