Corporate governance

1. CORPORATE GOVERNANCE REPORT

Sparebanken Møre complies with the Norwegian Code of Practice for Corporate Governance of 2018 where this is applicable to savings banks that have issued equity certificates. The Bank also complies with the Guidelines on Internal Governance GL 11/2017 issued by the European Banking Authority (EBA).

The Norwegian Financial Institutions Act lays down regulations for savings banks that have issued equity certificates. In some cases, these result in deviations from the Norwegian Public Limited Companies Act and the Code of Practice not applying in full. Such deviations from the Code of Practice are described in the relevant points below. Nevertheless, there are no material deviations between the Code of Practice and how this is complied with in Sparebanken Møre.

Deviations from the Code of Practice: None

2. OPERATIONS

Sparebanken Møre was formed on 1 April 1985 by the merger of a number of banks in Møre og Romsdal. In subsequent years, more banks in Møre og Romsdal have joined Sparebanken Møre. The banking history of the merged savings banks can be traced back to 1843. 

Sparebanken Møre’s articles of association specify the types of business the Bank may conduct. The purpose of Sparebanken Møre is to perform business and services normal or natural for savings banks to perform, within the framework of the applicable legislation and licences that have been granted at any given time. The Bank may provide investment services and associated services in accordance with the provisions of the Norwegian Securities Trading Act. The complete text of its articles of association can be found on the Group’s website.
 
The Group is a full-service provider of financial products and services within the areas of financing, deposits and other forms of investments, payment transfers, financial advisory services, asset management, insurance and real estate brokerage. 

The Board of Sparebanken Møre ensures that the Group carries out a comprehensive strategy process every year that defines its objectives, strategies and risk profile. The current strategy document, “Møre 2022”, was adopted by the Board in August 2018 and the implementation of the work relating to the initiatives that were adopted in this plan is already well under way. See the detailed description in section 9 below.

The targets and strategies comply with the framework laid down by the business provision of Sparebanken Møre's articles of association. 

Sparebanken Møre wants to maintain its position as Møre og Romsdal’s number one bank for retail customers, as well as for small and medium-sized businesses. Sparebanken Møre also wants to be an attractive partner for larger companies and the public sector. 

Efforts are made on maintaining a healthy financial structure, strong capital and high profitability.

Its financial performance targets are presented in Sparebanken Møre’s annual report and Sparebanken Møre’s Pillar 3 document, which are available from the Bank’s website. During the year, information and guidance are given to the market and other stakeholders via stock exchange notices and accounts presentations concerning the Bank’s strategic objectives and developments in relation to these objectives.  

The Board has adopted both a code of ethics and guidelines for corporate social responsibility based on the Group’s core values: “Committed, Close, and Sound”. These core values must be reflected in all of the points of contact Sparebanken Møre has with the market, customers and other stakeholders. A more detailed description of the guidelines and core values can be found on the Group's website. See the Board of Directors' Report 2018 for a more detailed account of Sparebank Møre’s fulfilment of its corporate social responsibilities. 

Deviations from the Code of Practice: None

3. COMPANY CAPITAL AND DIVIDENDS

The composition of Sparebanken Møre’s capital is determined on the basis of a number of considerations. The most important of these considerations are the Group's size, Møre og Romsdal's internationally-oriented industry and commerce, a stable market for long-term funding when required, and the goals of the long-term strategy document. 

In its annual evaluation of its management and control systems, which includes capital adequacy assessments (known as ICAAP), the Board focuses heavily on ensuring that its primary capital is suited to the Group's goals, strategies, risk profiles and regulatory requirements. The Bank’s capital situation is continuously monitored throughout the year via internal calculations and reporting. 

The Group's capital adequacy ratio at the end of 2018 exceeded the regulatory and internal minimum requirements for capital. Primary capital amounts to 19.6 per cent, Tier 1 capital 17.6 per cent and Common Equity Tier 1 capital stands 16.0 per cent.

Sparebanken Møre’s dividend policy was changed on 18 October 2017. The dividend policy has been published and made available on the Group's website. The dividend policy is as follows: 

“Sparebanken Møre's aim is to achieve financial results providing a good and stable return on the Bank’s equity. The results should ensure that the owners of the equity receive a competitive long-term return in the form of cash dividends and capital appreciation on their equity. 

Dividends consist of cash dividends for equity certificate holders and dividends to the local communities. The proportion of profits allocated to dividends is adapted to the Bank’s capital strength. Unless the Bank’s capital strength dictates otherwise, it will be aimed at distributing about 50 per cent of the profit. 
Sparebanken Møre’s allocation of earnings shall ensure that all equity certificate holders are guaranteed equal treatment.” 
The General Meeting can authorise the Board to increase capital for specific purposes. On 21 March 2018, the General Meeting authorised the Board to increase equity certificate capital by up to NOK 98,869,500 if the situation warrants it. The authorisation is valid until the Annual General Meeting in 2019, although for no longer than 31 March 2019. The authorisation had not been exercised at the end of the year since there had been no need to do so.

The General Meeting can also authorise the Board to buy back its own equity certificates. On 21 March 2018, the General Meeting authorised the Board to acquire/establish collateral in its own equity certificates up to an amount of NOK 98.8 million. This authorisation is valid for up to 12 months.

Deviations from the Code of Practice: None

4. EQUAL TREATMENT OF EC-HOLDERS AND TRANSACTIONS WITH CLOSE ASSOCIATES

All equity certificate holders shall be treated equally and have the same opportunity to influence the Bank. 
All equity certificates have the same voting rights. 

Equity certificate holders shall have preferential rights when the equity share capital is increased, unless special circumstances indicate that these should be waived. Such waivers must be justified and the justification published as a stock exchange notice in connection with the capital increase. 

The Bank’s transactions involving its own equity certificates take place via the stock exchange. Equity certificates are bought back at the current market price. 

Should material transactions take place between the Sparebanken Møre Group and equity certificates holders, board members, senior executives or close associates of these, the Board shall ensure that a valuation is obtained from an independent third party, except for matters that have been discussed and voted on by the General Meeting.

An independent valuation must also be obtained in the event of transactions between companies in the same group where there are minority shareholders. Sparebanken Møre's subsidiaries are, as at 31 December 2018, all wholly owned by the Bank.

The articles of association were amended in 2018 to ensure equity certificate holders greater influence in decisions concerning the equity certificate capital. The amendments mean that further amendments to the articles of association concerning specified matters of significance for the equity certificate capital cannot be approved by the General Meeting without the agreement of a two-thirds majority of the votes of the general meeting members elected by equity certificate holders. An indication of which matters this concerns is provided in the articles of association, which are available on the Bank’s website.

Deviations from the Code of Practice: None

5. FREE TRADABILITY

Sparebanken Møre's equity certificates are listed on the Oslo Stock Exchange and are freely negotiable. The articles of association contain no restrictions concerning negotiability. 

Upon acquisition of a qualifying holding in a financial institution (10 per cent or more of the capital), the rules regarding permission from the Financial Supervisory Authority of Norway apply, cf. chapter 6 of the Norwegian Financial Institutions Act and section 9-10 of the Norwegian Securities Trading Act.

Deviations from the Code of Practice: None, with the exception of the special rules that follow from the Norwegian Financial Institutions Act regarding
the acquisition of qualifying holdings. 

6. GENERAL MEETING

Part of the equity of savings banks that have issued equity certificates is ownerless. As a result, different requirements apply with respect to the composition of the General Meeting in savings banks that have issued equity certificates than those that apply to public limited companies. The requirements follows from chapter 8 of the Norwegian Financial Institutions Act. Sparebanken Møre complies with the statutory requirements. Therefore, point 6 of the Code of Practice does not fully apply to savings banks.

The Bank’s supreme body is the General Meeting. Sparebanken Møre’s General Meeting has 44 members and 14 deputy members, of which: 17 members and four deputy members are elected by equity certificate holders; 13 members and four deputy members are elected by and from amongst the Bank’s customers; 11 members and four deputy members are elected by and from amongst the employees; and three members and two deputy members are elected by the General Meeting to represent local communities. 

The articles of association set out the composition requirements. An overview of the elected members is available on the Group's website. 

The members of the General Meeting are personally elected and cannot be represented by proxy. Elected deputy members attend in the event of absences.

Notices convening meetings and supporting documents for the General Meeting are made available on the Bank’s website at least 21 days before the meeting is scheduled to be held. Notices convening meetings and supporting documents are also published on the Oslo Stock Exchange and notice is also sent by email. Members of the General Meeting, or anyone else who, by law, must receive such documents, may nevertheless have the documents sent to them.
 
The General Meeting cannot make decisions on any matters other than those which are specifically listed in the notice convening the meeting. The supporting documents should be sufficiently accurate and comprehensive to enable members of the General Meeting to determine which matters should be considered. 

Members of the Board, the Nomination Committee and the external auditor participate in General Meetings. The Chairman of the Board and the CEO are duty bound to attend the General Meeting.

The General Meeting shall elect a chair and deputy chair from among the members of the General Meeting not employed by the savings bank. General Meetings shall be chaired by the chair, or the deputy chair in the event of the chair's absence. 

Deviations from the Code of Practice: Point 6 of the Code of Practice does not fully apply to savings banks that have issued equity certificates and this entails a deviation.

7. NOMINATION COMMITTEES

The Bank’s articles of association set out provisions concerning nomination committees. The General Meeting has established instructions for the General Meeting’s Nomination Committee.

The General Meeting’s Nomination Committee is elected by the General Meeting and consists of four members elected from amongst the members of the General Meeting. The General Meeting shall elect the chair and deputy chair of the committee in separate elections. The General Meeting determines the committee's remuneration.

Both the Chairman of the Board and the CEO must be summoned to attend at least one meeting with the Nomination Committee. The Nomination Committee receives the Board’s evaluation of its own work.

The Nomination Committee includes representatives from all groups who are represented in the General Meeting. In addition, the members shall insofar as it is feasible reflect the geographical distribution within the municipalities in which the savings bank operates. The Nomination Committee is independent of the Board and other senior executives. Neither board members nor senior executives are members of the committee. Members of nomination committees are elected for two years at a time and no one may serve for more than six consecutive years.

The General Meeting’s Nomination Committee proposes candidates for local community members and deputy members of the General Meeting, the chair and deputy chair of the General Meeting, the Chairman, Deputy Chairman and other members and deputy members of the Board of Directors, as well as for the election of chair and members of the Nomination Committee. 

The reasons for the Nomination Committee’s recommendations must be stated. The recommendations of the General Meeting’s Nomination Committee are made available to the General Meeting at least 21 days before the elections are scheduled to be held by the General Meeting, see point 6. 

Equity certificate holders elect their own nomination committee, which is responsible for preparing the equity certificate holders’ election of members of the General Meeting. This committee has three members. Customer-elected members of the General Meeting elect their own nomination committee, which is responsible for preparing the customers’ elections of members of the General Meeting. This committee has four members. 

An overview of the members of the various nomination committees can be found on the Bank’s website.

Deviations from the Code of Practice: None

8. BOARD OF DIRECTORS, COMPOSITION AND INDEPENDENCE

The Board consists of eight members and four deputy members elected by the General Meeting. Two of the members are elected from the Bank’s employees. 

The emphasis when electing board members must be on qualifications, capacity, independence, diversity and the Board’s ability to function as a collegiate body. The Norwegian Financial Institutions Act requires institutions to assess the fitness and propriety of board members. The assessment must encompass qualifications, capacity, independence and suitability/character. The assessment of each board member must be reported to the Financial Supervisory Authority of Norway. 

The majority of board members must be independent of senior executives, important business associates and the largest owners of equity certificates. No senior executives are members of the Board.
The Chairman and Deputy Chairman of the Board are elected by the General Meeting through specific elections. 

All elected members are elected for terms of two years. Of the elected members, four are elected one year and the remaining four members are elected the following year. Members and deputy members who are up for election can be re-elected. An elected member of the Board cannot hold this position for a continuous period of more than 12 years, or hold this position for more than 20 years in total. 

The annual report contains further information about the board members’ attendance at board meetings and the number of equity certificates owned by each member. 

Deviations from the Code of Practice: None

9. THE WORK OF THE BOARD

The Board has established instructions for the Board and day-to-day management that clearly set out the internal division of responsibilities and duties.

The Chairman of the Board shall, by the end of May and in consultation with the CEO, set out a proposed annual plan for the Board’s work for the coming year with a particular emphasis on targets, strategy and implementation, including a meeting schedule and the main items on the agendas of board meetings for the next calendar.

The Board sets out Sparebanken Møre’s overall long-term financial targets. These are set forth in the Group's strategy document. The document is revised annually in a joint process involving the Board and the Bank’s executive management team. In this way, the Board ensures the Bank is managed in such a way that the overall agreed targets are met. 

Stricter rules regarding conflicts of interest apply in financial institutions than those that follow from the Norwegian Public Limited Companies Act. The Board has also established guidelines for conflicts of interest that are additional to the statutory requirements. The Board ensures that board members and senior executives disclose to the Bank of any material interests they may have in matters that will be considered by the Board. When considering important matters in which the Chairman of the Board is, or has been, actively engaged, the Board’s consideration shall be chaired by the Board’s Deputy Chairman or another board member.

The Board has elected an Audit Committee, a Risk Committee and a Remuneration Committee from amongst the Board’s members. The Audit Committee and the Risk Committee have three members, all of which are independent of the institution. The Remuneration Committee has four members, one of which is an employee-elected member.

The Board has also adopted instructions for board committees describing the committees' duties and procedures.

The Remuneration Committee is discussed in more detail in point 12 of this report. 

Each year, the Board evaluates its own work and professional competence to see if improvements can be made. 

Deviations from the Code of Practice: None

10. RISK MANAGEMENT AND INTERNAL CONTROL

Sparebanken Møre uses a comprehensive risk management process as the basis for its internal control. In order to carry out comprehensive risk management within Sparebanken Møre, the global internal control standard COSO model is used.

The “Overall guidelines for management and control within Sparebanken Møre” states that, as a general rule, each manager in the Group must ensure that they possess adequate knowledge of all material risks within their area of responsibility, such that the risk can be managed in a financially and administratively prudent manner. 

The “Instructions for the Board of Directors of Sparebank Møre” defines the Board's role and the importance, form, content and implementation of the Board's work. This also includes risk management via both its management function and its supervisory function. Separate instructions have also been prepared for the Group’s Audit Committee and Risk Committee, along with separate instructions for the Remuneration Committee. 

The Board shall ensure that risk management and internal control processes within Sparebanken Møre are adequate and systematic, and that these processes have been established in compliance with laws and regulations, articles of association, instructions and external and internal guidelines. The Board establishes principles and guidelines for risk management and internal control for the various levels of activity pursuant to the risk bearing capacity of the Bank and the Group, and make sure that the strategies and guidelines are being communicated to the employees. The Board shall systematically and regularly assess strategies and guidelines for risk management. Furthermore, the Board shall monitor and periodically assess the effectiveness of the Group's overall management and control, including taking into account internal and external influencing factors. The latter point especially applies in the case of changes in economic cycles and macroeconomic general conditions. 

To ensure that Sparebanken Møre's risk management and internal control processes are carried out satisfactorily, the Board continually receives various types of reports throughout the year from Sparebanken Møre's control bodies, including the Risk Management Department and Compliance Department and internal and external auditors. The Board actively participates in the annual ICAAP via its implementation in the strategy document. The Board revises and approves all the Bank’s general risk management documents at least once a year. Every year during the fourth quarter, the CEO reports on the structure and efficiency of the Group's internal control. 

Both the Board's annual report and the annual financial statements otherwise contain further information about Sparebanken Møre's risk management and internal control. 

Deviations from the Code of Practice: None

11. REMUNERATION OF THE BOARD 

The remuneration of board members and members of the Board’s committees shall be determined by the General Meeting based on the recommendations of the Nomination Committee. 

The board members’ remuneration is not performance-related. Options are not issued to board members.

The general rule is that board members, or companies to which they are connected, should not undertake any tasks for Sparebanken Møre beyond their position on the Board. However, if they do, the entire Board must be informed. Fees for such services must be approved by the Board. If remuneration has been paid in addition to the ordinary board fee, such remuneration will be specified in notes in the annual report.
 
Deviations from the Code of Practice: None

12. REMUNERATION OF SENIOR EXECUTIVES

The Board revises the guidelines for the remuneration of senior executives every year. 

The guidelines are presented annually to the General Meeting each for an advisory vote. Guidelines regarding the allocation, etc. of equity certificates in the Bank are presented to the General Meeting for approval.

The Board's declaration regarding the remuneration of senior executives must be prepared as a separate supporting document for the General Meeting. 

Special rules set out in chapter 15 of the Norwegian Financial Institutions Act apply to remuneration schemes in financial institutions.  

The Board has elected a Remuneration Committee from amongst the board members.

The levels of remuneration in Sparebanken Møre should contribute to the Group's achieving its targets and encourage appropriate conduct. Furthermore, the levels of remuneration should act as a means of good management and control in relation to the Group’s risk, counter unwanted risk-taking and contribute to the avoidance of conflicts of interest.

The implementation of the remuneration scheme must be reviewed at least once a year by the internal auditor, who will submit a report on the review to the Board.

Sparebanken Møre has no established annual bonus scheme, although in years with good results and good target achievement, the Bank’s Board will consider giving a bonus to all of the Bank’s employees, including senior executives, with the exception of the CEO. The Board has approved a bonus for 2018.

In addition, each employee can receive a lump-sum supplement in addition to their salary based on that person’s achievement of their goals. As a general requirement, lump-sum remuneration of senior executives, employees with duties of material importance to the Bank’s risk exposure, and employees who perform control duties must be based on a combination of an assessment of the person concerned, the person’s business unit and the Bank as a whole. The starting point for determining variable lump-sum remuneration shall be the risk-based result. 

For those senior executives and others mentioned above who are not in positions that are directly linked to result-generating units, greater emphasis is placed on achievement of the goals of the individual’s department/section in established managerial agreements, as regards results in relation to changes in working methods and the achievement of personal and case results. These assessments are based on results achieved over a two-year period. In the assessments, emphasis is also placed on Sparebanken Møre’s total return on equity capital over the previous two years, insofar as is possible. 

In the case of senior executives and others who work in result-generated units, the financial key figures defined in Sparebanken Møre’s balance scorecard and the fulfilment thereof over the previous two years is given greater emphasis than in the case of people who do not work in directly result-generating units. Attainment of the goals laid down for the individual and the department/section in established management agreements over and above the financial figures in the balance scorecard shall also be used for assessing these employees. The balance scorecard contains various indicators which are directly related to risk-related results. 

Ceilings have been set for both types of variable remuneration.

At least half of the general bonus paid to all employees is given in the form of Sparebanken Møre’s equity certificates. The allocation is given from Sparebanken Møre’s holdings of its own equity certificates corresponding to the market value at the time of settlement. The employee may not sell the equity certificates any earlier than one year after allocation (see below concerning specific rules for senior executives, etc.). 

Senior executives, etc. shall receive at least half of their general bonus in the form of equity certificates. These equity certificates cannot be sold by the individual any earlier than evenly distributed over a period of at least three years. 

In the event of a negative trend in the Bank’s results, or in the specific results of the business units of senior executives, etc., full or partial repayment of the variable remuneration received may be demanded in the three years following its receipt. Any severance fee upon termination of employment shall be adjusted in light of the results that have been achieved over time. Poor results shall not be rewarded. Senior executives, etc. shall not have agreements or insurance policies that provide security against the loss of performance-based remuneration. 

Deviations from the Code of Practice: None

13. INFORMATION AND COMMUNICATION

The Board has established guidelines for reporting of financial and other information. Sparebanken Møre complies with the IR recommendations issued by the Oslo Stock Exchange in March 2017.

The guidelines emphasise that correct, relevant and up-to-date information about the Group's performance and results should establish trust in relation to the investor market and fulfil the requirement for equal treatment of stakeholders in the securities market.

Through its annual and interim reports, the Bank seeks to achieve the required transparency regarding the most important factors relating to its development. This is done in order that all market participants may be able to form as correct a picture as possible of the Bank’s situation. The Bank gives special presentations in connection with the publication of Sparebanken Møre's annual and interim results. The reports and presentations are made available to the entire market via the Bank’s website, including webcast presentations, and by publication on the Oslo Stock Exchange. 

Annual and quarterly reports are available in English for Sparebanken Møre’s international contacts. The Bank’s major banking connections abroad are kept informed on a regular basis, partly through outreach in which Sparebanken Møre’s financial statements and development are among the topics discussed. 

A special investor relations plan regarding which investors to contact, and when and how, is drawn up each year. 

Guidelines have been established for the Bank’s contact with shareholders outside the General Meeting.

Information about the Bank’s equity certificates, dividend policy and financial calendar can be found in both annual reports and on the Bank’s website. 

Deviations from the Code of Practice: None

14. CORPORATE TAKEOVERS

Part of the equity of a savings bank that has issued equity certificates is ownerless. This means that Sparebanken Møre cannot be taken over by an acquisition. Structural changes require the consent of the authorities. Permission must be sought from the Financial Supervisory Authority of Norway for acquisitions of equity certificates that result in ownership stakes of more than 10 per cent of the equity share capital. 

Deviations from the Code of Practice: Point 14 of the Code of Practice does not apply to savings banks that have issued equity certificates and this entails a deviation. 

15. AUDITOR

The Audit Committee ensures that the auditor draws up a plan for the execution of the auditing work each year and that the auditor presents this plan to the Audit Committee.

The Board and the Audit Committee summon the auditor to attend meetings at which the financial statements are considered. 

At such meetings, the auditor reviews key aspects of the audit, including material situations about which the auditor and the management have disagreed. The auditor’s views on the Bank’s risk areas, internal control routines and accounting policies are also discussed. Besides this, the auditor will make the board members aware of any areas which would benefit from an improvement in overall quality levels, and present proposed improvements where they are required.

The Board’s annual plan includes an annual meeting with the auditor which the Bank’s executive management team does not attend. 
The Board has adopted guidelines for the general management’s access to use the auditor for non-audit services. 

Deviations from the Code of Practice: None