AB SKF : Corporate Governance Report 2021

Corporate Governance Report

SKF Annual Report 2021 139

Corp or at e Governance Report

Introduction

SKF Care defines the Group's approach to securing sustainable, positive development over the short, medium and long term. SKF applies the principles of sound corporate governance as an instrument for increased competitiveness and to promote confidence in SKF among all stakeholders. Among other things, this means that the company maintains an efficient organizational structure with clear areas of responsibility and clear rules for delegation, that the financial, environmental and social reporting is transparent and that the company in all respects maintains good corporate citizenship.

The corporate governance principles applied by SKF are based on Swedish law, in particular the Swedish Companies Act and the Swedish Annual Accounts Act, and the regulatory system of NASDAQ Stockholm AB (Stockholm Stock Exchange).

Information under the Annual Accounts Act Chapter 6, § 6,

sections­ 3-4, are found at page 46 of the Administration Report for the Group in the Annual Report 2021.

Swedish Code of Corporate Governance

The Swedish Code of Corporate Governance (the "Code") was originally introduced on 1 July 2005. The Code has been revised several times since the introduction and the applicable Code is available at the website of the Swedish Corporate Governance Board, www.corporategovernanceboard.se.

It is considered good stock exchange practice for Swedish companies whose shares are traded on a regulated market to apply the Code. SKF applies the Code, and this Corporate Governance Report has been prepared in accordance with the Code and the Swedish Annual Accounts Act. Furthermore, SKF has provided information on the company's website in line with the Code requirements. The Annual General Meeting in 2021 was also held in accordance with the Code rules. The auditor of the company has read and performed a statutory examination of the Corporate Governance Report.

General information about how the company is managed

The shareholders' meeting is the company's highest decision-making body. The Annual General Meeting of shareholders shall be held within six months after the end of the financial year. At the Annual General Meeting the shareholders exercise their voting rights for e.g. the composition of the Board of Directors, adoption of principles of remuneration for Group Management and election of external auditors. SKF has issued A and B shares. An A share entitles the shareholder to one vote and a B share to one-tenth of a vote.

The Board of Directors has a responsibility for the company's organisation and for the oversight of the management of the compa- ny's affairs and is, together with the President and Group Manage­ ment defining and continuously monitoring SKF's vision, mission, values and drivers. The Chairman of the Board of Directors shall direct the work of the Board and monitor that the Board of Directors fulfils its obligations. The Board annually adopts written rules of procedure for its internal work and written instructions. For more details on the rules of procedures and the written instructions, see below under the heading "Activities of the Board of Directors".

The President of the company, who is also the Chief Executive Officer, is appointed by the Board of Directors and handles the day- to-day management of the company's business in accordance with the guidelines and instructions from the Board. The approval of the Board is, for example, required in relation to investments and acquisitions above certain amounts, as well as for the appointment of certain senior managers. The President is supported by Group Management.

As per 31 December 2021, SKF was organized in the following business areas; Industrial Sales Americas, Industrial Sales Europe, Middle East and Africa, Industrial Sales Asia, Automotive,­ SKF Technology and Industrial Technologies. The responsibility for end-

to-end procurement, manufacturing­and logistics is combined into Bearing Operations. Further, there are three Group staff units;

1				6
Shareholders through
Nomination Committee			External auditors
	shareholders' meeting

3			2			4
Remuneration Committee		Board of Directors	Audit Committee
			5			7
			President and CEO		Internal audit
			Group Management
		Group staff units			Sales/Operations

140 SKF Annual Report 2021

Group Finance, IT, ­Marketing & Communication, Group People Experience and Group Legal, Reinsurance, Brand Protection and Real Estate & Facility Management, see pages 148-149 in the Annual Report 2021. Each Group staff unit had its own defined area of responsibility and the task to define strategic directions and fundamental requirements within its area. The Director of Sustainability, reported directly to the Chief Executive Officer and had the task to assure that all relevant aspects of sustainability are addressed and integrated into operations and activities throughout the Group. Policies and instructions are in place to ensure that ­matters of ­certain importance­ are referred to the President and/or the Board of Directors.

1 Nomination Committee

At the Annual General Meeting of AB SKF it was resolved that the company shall have a Nomination Committee formed by one representative of each of the four major shareholders with regard to the number of votes held as well as the Chairman of the Board. When constituting the Nomination Committee, the shareholdings per the last banking day in August each year would determine which shareholders are the largest with regard to the number of votes held. The names of the four shareholder representatives were to be published as soon as they had been elected, however not later than six months before the next Annual General Meeting. The Nomination Committee shall remain in office until a new Nomination Committee has been appointed.

In a press release on 8 September 2021, it was announced that a Nomination Committee consisting of the following representatives of the shareholders, besides the Chairman of the Board, had been appointed in preparation of the Annual General Meeting 2022:

• Marcus Wallenberg, FAM

• Anders Algotsson, AFA Försäkring

• Anders Jonsson, Skandia

• Joachim Spetz, Swedbank Robur Fonder

The Nomination Committee is to furnish proposals in the following matters to be presented to, and resolved by, the Annual General Meeting in 2022:

• proposal for Chairman of the Annual General Meeting

• proposal for Board of Directors

• proposal for Chairman of the Board of Directors

• proposal for fee to the Board of Directors

• to the extent deemed necessary, proposal for new instructions for the Nomination Committee.

The proposals of the Nomination Committee were published in ­connection with the notice to the Annual General Meeting 2022.

2 The Board of Directors

Composition and remuneration of the Board

The Board shall, in addition to specially appointed members and deputies, according to the Articles of Association of SKF, comprise a minimum of five and a maximum of twelve Board members, with a maximum of five deputies. The Board members are elected each year at the Annual General Meeting for the period up to the end of the next Annual General Meeting.

The Nomination Committee proposes decisions to the Annual General Meeting regarding electoral and remuneration issues, including proposals for the composition and remuneration of the Board. As reflected in the Nomination Committee's statement regarding the composition of the proposed Board and the proposed remuneration presented to the Annual General Meeting 2021, the Nomination Committee has applied the provisions in the Code as diversity policy. The objectives of the diversity policy is for the Board to have a composition appropriate to the company's operations, phase of development and other relevant circumstances; that the Board members elected by the shareholders' meeting collectively are to exhibit diversity and breadth of qualifications, experience and background; and that the company is to strive for gender balance on the Board. The Annual General Meeting 2021 resolved to appoint Board members in accordance with the Nomination Committee's proposal.

Eight Board members, including the Chairman, were elected at AB SKF's Annual General Meeting held in the spring of 2021. Alrik Danielson and Ronnie Leten resigned from the Board. In addition, the ­employees have appointed two Board members and two deputy Board members. No Board member, except for the President,

is included in the management of the company.

Information on the composition and remuneration of the Board members decided upon by the Annual General Meeting 2021 can­ be found in the Annual Report 2021, Consolidated Financial State- ments, Note 23.

Independence requirements

The Board of Directors has been considered to comply with the requirements regarding independence of the Code. The table below shows the Board member's independence according to the requirements of the Code in relation to the company and major shareholders.

Name of the Board	Independence	Independence
in relation­	to the	in relation­	to the
members­	elected by the	company/senior	major shareholders
Annual General Meeting	management	of the company
Hans Stråberg		•		•
Hock Goh		•		•
Barb Samardzich		•		•
Colleen Repplier		•		•
Geert Follens		•		•
Håkan Buskhe		•
Susanna Schneeberger		•		•
Rickard Gustafson				•

SKF Annual Report 2021 141

Corp or at e Governance Report

1				6
Shareholders through
Nomination Committee			External auditors
	shareholders' meeting

3			2			4
Remuneration Committee		Board of Directors	Audit Committee
			5			7
			President and CEO		Internal audit
			Group Management
		Group staff units			Sales/Operations

Activities of the Board of Directors

The Board held nine meetings in 2021. The Board members were present at the Board meetings as described in the table below.

Name of the Board member	Presence/Total
number of meetings
Hans Stråberg (chairman)	9/9
Hock Goh	9/9
Alrik Danielson (resigned in March 2021)	2/3
Ronnie Leten (resigned in March 2021)	3/3
Barb Samardzich	9/9
Colleen Repplier	9/9
Geert Follens	9/9
Håkan Buskhe	9/9
Susanna Schneeberger	9/9
Rickard Gustafson (elected in March 2021)	6/6
Jonny Hilbert	9/9
Zarko Djurovic	9/9
Thomas Eliasson (appointed in March 2021)	6/6
Steve Norrman (appointed in October 2021)	2/2
Kennet Carlsson (resigned in October 2021)	7/7
Claes Palm (resigned in March 2021)	3/3

The Board adopts written rules of procedure annually for its ­internal work. These rules prescribe i.a.:

• the number of Board meetings and when they are to be held,

• the items normally included in the Board agenda, and

• the presentation to the Board of reports from the external auditors.

The Board has also issued written instructions on:

• when and how information required for the Board's assessment of the company's and the Group's financial position shall be ­collected and reported to the Board, and

• the allocation of the tasks between the Board and the President.

Issues dealt with by the Board in 2021 include i.a. appoinment of new CEO, market outlook and the impacts of the COVID-19 pan- demic, financial reporting, capital structure, acquisitions and divestments of companies, the strategic direction and business plan of the Group and management issues.

The Board continuously evaluates economic, environmental and social aspects for the Group's performance and reviews specific issues such as accident rates, greenhouse gas emissions and Code of Conduct adherence.

Each new Board member has to go through a general introduction training about the SKF Group. The Board visits on a regular basis different SKF sites in order to enhance knowledge about the SKF Group, subject to COVID-19-related restrictions and recommen­ dations.

3 Remuneration Committee

The Board of AB SKF has in accordance with the principles in

the Code established a Remuneration Committee consisting of the

Chairman of the Board, Hans Stråberg as chairman, and the Board members Håkan Buskhe and Colleen Repplier.

The Remuneration Committee prepares matters related to the

principles of remuneration for Group Management and employment conditions for the President. The principles of remuneration for

Group Management shall be submitted to the Board, which shall

submit a proposal for such remuneration principles to the Annual General Meeting for approval at least every fourth year. The

employment conditions for the President shall be approved by the Board.

The Remuneration Committee continuously monitors and evalu-

ates the SKF Group's remuneration package for Group Management.

Not later than three weeks prior to the Annual General Meeting the

Board submits on the company's website, in accordance with the

Swedish Companies Act and the principles in the Code, a remunera­ tion report.

The Remuneration Committee held five meetings in 2021. The

members of the committee were present at the meetings as follows:

Name of the Board member	Presence/
Total no. of meetings
Hans Stråberg (chairman)	5/5
Håkan Buskhe	5/5
Ronnie Leten (resigned in March 2021)	2/2
Colleen Repplier (elected in March 2021)	3/3

142 SKF Annual Report 2021

4 Audit Committee

The Board of AB SKF has in accordance with the principles

of the Swedish Companies Act and the Code appointed an Audit

Committee. The Audit Committee consists of the Board member Håkan Buskhe, as chairman, the Chairman of the Board, Hans Stråberg and the Board member Geert Follens.

The Audit Committee oversees and ensures the quality and

­reliability of the accounting and financial reporting processes and

reports, monitors the effectiveness of the Group's internal control

over financial reporting, audit and risk management processes and

the adequacy of the Group's controls for compliance with laws and

regulations. The Audit Committee also reviews and monitors the

work of external auditors as well as make preparations in relation to the nomination of external auditors.

The Audit Committee held six meetings in 2021. The members
of the committee were present at the meetings as follows:
Name of the Board member	Presence/Total
number of meetings­
Hans Stråberg	6/6
Håkan Buskhe (chairman)	6/6
Ronnie Leten (resigned in March 2021)	1/1
Geert Follens (elected in March 2021)	5/5

Assessment

The Board members assess the quality of the work of the Board through the completion of a questionnaire, which reflects the Group's values and drivers. The result is then discussed at a Board meeting. The Nomination Committee has been provided with the result of the assessment.

5	President and Chief Executive Officer
	Rickard Gustafson

Rickard Gustafson, President and CEO of AB SKF since June 2021 (succeeding Alrik Danielson).

Board member of AB SKF's Board since 2021. Born 1964.

Education and job experience

Master of science from the Institute of Technology at Linköping

University­ . His previous senior positions include president and CEO of the SAS Group, CEO of the insurance company Codan/Trygg- Hansa and several positions within General Electric.

Other assignments 


Board member of Telia Company and Confederation of Swedish Enterprise.

Shareholding (own and/or held by related parties) as of 31 December 2021

4,350 SKF B

Material shareholdings or other holdings

(own and/or held by related parties) in companies with which the company has important business relationships: 0

6	The auditor of the company
	The task of the auditor is to audit, on behalf of the shareholders,

the Annual Report and the accounting and also to audit the Board's and the President's management of the company.

The Annual General Meeting elects the auditor for a period of four years. At AB SKF's Annual General Meeting in the spring 2021, Deloitte AB (Deloitte) was elected as auditor for the time up to the closing of the Annual General Meeting in 2025, succeeding Price- waterhouseCoopers AB. Hans Warén is the auditor in charge.

Hans Warén has many years of experience as auditor in a number of other listed companies, and is currently the lead auditor for Axfood, Industrivärden and Trelleborg.

The auditor shall according to a resolution of the Annual General Meeting be remunerated in accordance with approved invoice. SKF has a procedure in place whereby all matters that are intended to be handled by the elected auditors are evaluated in relation to the independence requirements and are approved or, as the case may be, rejected, by the Audit Committee. Deloitte applies a similar procedure and issues annually, in addition thereto, a written statement to the Board stating that the audit firm is independent in ­relation to SKF.

Deloitte has during 2021 been involved in matters besides the audit assignment. These matters have primarily concerned tax ser- vices. The total fees for Deloitte's ­services besides auditing in 2021 amount to MSEK 10.

Financial reporting

The Board of Directors is responsible for documenting how the quality of the financial reporting is secured and how the company communicates with its auditor.

The Audit Committee assists the Board of Directors by preparatory work to secure the quality of the company's financial reporting. This is, for example, achieved through the Audit Committee's review of the financial information and the company's internal financial controls.

The Board of Directors had one meeting with the auditors in 2021 and has been provided with the audit and its result. Within the scope of its work, which includes reviewing the extent of the external audit and evaluating the performance of the external auditors, the Audit Committee met with the auditors in connection with four Audit Committee meetings. In addition to that, the auditors gave both the Audit Committee and the Board of Directors information in writing regarding matters including the planning and implementation of the audit and an assessment of the risk position of the company.

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