AB SKF : Corporate Governance Report 2022

BACK TO STARTTHIS IS SKF

PRESIDENT'S

LETTERVALUE CREATION AND STRATEGYTHE BEARING

MARKET

Corporate Governance Report

RISKS AND THE SHAREFINANCIAL STATEMENTS

SUSTAINABILITY STATEMENTS

CORPORATE GOVERNANCE

GROUP DATAREMUNERATION

REPORT

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Introduction

website in line with the Code requirements. The Annual General Meeting in 2022 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.

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 main-tains 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 com-pany 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 pages 40-41 of the Administration Report for the Group in the Annual Report 2022.

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 Govern-ance 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

General information about how the company is managed

The shareholders' meeting is the company's high-est 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 remu-neration 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 company's affairs and is, together with the President and Group Manage-ment defining and continuously monitoring SKF's vision, mission, values and drivers. The Chair 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 manage-ment 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 acquisi-tions above certain amounts, as well as for the appointment of certain senior managers. The President is supported by Group Management.

SKF is organized in four industrial regions: Americas; Europe, Middle East & Africa (EMEA); India & Southeast Asia (ISEA) and China & North-east Asia (CNEA). There is one global Automotive business unit and additionally seven independent business units collectively referred to as Inde-pendent and Emerging Businesses. All of the above mentioned business areas are respectively accountable for their own operational and financial performance. Further, there is a lean central function consisting of five Group staff functions: Operations & Digital Transformation, Technology Development, Group Finance, Group Legal & Compliance and Group People Experience & Communication, see pages 140-141 in the AnnualReport 2022. The management of SKF's opera-tions is based on a decentralised operating model for the business areas achieving decision making close to the customer and the goal of serving customers with increased speed and responsive-ness, however within a set of frameworks ensur-ing compliance, risk management and synergies across the SKF Group by a lean corporate center. Group staff functions govern these defined frame-works being fundamental requirements for the management of the SKF Group. Within these frameworks, defined processes, policies and instructions are in place to manage risk, strategi-cally important matters, and ensure compliance. Furthermore, certain transactions/arrangements of high value or strategic importance are referred to the relevant decision-making bodies and ulti-mately the President and/or the Board of Directors.

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Nomination Committee

At the Annual General Meeting of AB SKFit was resolved that the company shall have a Nomination Committee formed by one represent-ative of each of the four major shareholders with regard to the number of votes held as well as the Chair 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 12 September 2022, it was announced that a Nomination Committee consist-ing of the following representatives of the share-holders, besides the Chair of the Board, had been appointed in preparation of the Annual General Meeting 2023:

• • Marcus Wallenberg, FAM

• • Christer Gardell, Cevian Capital

• • Anders Algotsson, AFA Försäkring

• • Anders Jonsson, Skandia

The Nomination Committee is to furnish proposals in the following matters to be presented to, and resolved by, the Annual General Meeting in 2023:

• • proposal for Chair of the Annual General Meeting

• • proposal for Board of Directors

• • proposal for Chair 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 a press release dated 10 February 2023 and in connection with the notice to the Annual General Meeting 2023.

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 Meet-ing 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 state-ment regarding the composition of the proposedBoard and the proposed remuneration presented to the Annual General Meeting 2022, the Nomina-tion Committee has applied the provisions in the Code as diversity policy. The objectives of the diversity policy is for the Board to have a composi-tion appropriate to the company's operations, phase of development and other relevant circum-stances; 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 2022 resolved to appoint Board members in accordance with the Nomination Committee's proposal.

Seven Board members, including the Chair, were elected at AB SKF's Annual General Meeting held in the spring of 2022. Barb Samardzich re-signed from the Board. In addition, the employees have appointed two Board members and two dep-uty Board members. No Board member, except for

Name of the Board members elected by the Annual General Meeting

the President, is included in the management of the company.

Information on the composition and remunera-tion of the Board members decided upon by the Annual General Meeting 2022 can be found in the Annual Report 2022, Consolidated Financial Statements, Note 23.

Independence requirements

The Nomination Committee has a responsibility to take independence into consideration in its proposal for Board of Directors. 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 inde-pendence according to the requirements of the Code in relation to the company and major share-holders.

Independence in relation to the company/senior management

Hans Stråberg

•

Hock Goh

•

Barb Samardzich (resigned in March 2022) Colleen Repplier

•

•

Geert Follens Håkan Buskhe Susanna Schneeberger Rickard Gustafson

•

•

•

Independence in relation to the major shareholders of the company

•

•

•

•

•

•

•

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Activities of the Board of Directors

The Board held ten meetings in 2022. The Board members were present at the Board meetings as described in the table below. 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.

Name of the board member

Issues dealt with by the Board in 2022 include i.a. market outlook and the impacts of the COVID-19 pandemic, issues related to the war in Ukraine, cash flow and investment analysis, financial reporting, capital structure, acquisitions and divestments of companies, the new strategic direction and new operating model, including material organizational changes 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 recommendations.

Hans Stråberg (chair) Hock Goh

Barb Samardzich (resigned in March 2022) Colleen Repplier

Geert Follens Håkan Buskhe Susanna Schneeberger Rickard Gustafson Jonny Hilbert Zarko Djurovic Thomas Eliasson Steve Norrman

Presence/Total number of meetings

10/10

8/10

3/10

9/10

10/10

10/10

10/10

10/10

10/10

9/10

10/10

10/10

Remuneration Committee

The Board of AB SKF has in accordance withthe principles in the Code established a Remuner-ation Committee consisting of the Chair of the Board, Hans Stråberg as chair, 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 evaluates the SKF Group's remuner-ation package for Group Management. Not later than three weeks prior to the Annual General Meeting the Board submits on the company's web-site, in accordance with the Swedish Companies Act and the principles in the Code, a remuneration report.

The Remuneration Committee held three meet-ings in 2022. The members of the committee were present at the meetings as follows:

Presence/Total
Name of the board member	number of meetings
Hans Stråberg (chair)	3/3
Håkan Buskhe	3/3
Colleen Repplier	3/3

Audit Committee

The Board of AB SKF has in accordance withthe principles of the Swedish Companies Act and the Code appointed an Audit Committee. The Audit Committee consists of the board member Håkan Buskhe, as chair, the Chair 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 finan-cial 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 con-trols 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 2022. The members of the committee were present at the meetings as follows:

Presence/Total
Name of the board member	number of meetings
Hans Stråberg	6/6
Håkan Buskhe (chair)	6/6
Geert Follens	6/6
Assessment

The board members assess the quality of the work of the Board through the completion of a question-naire and interviews, which reflect the Group's values and drivers including sustainability. The result is then discussed at a Board meeting. The Nomination Committee has been provided with the result of the assessment.

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President and Chief Executive Officer Rickard Gustafson

Rickard Gustafson, President and CEO of AB SKF since 2021. 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 2022

9,600 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

The auditor of the company

The task of the auditor is to audit, on behalfof 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. 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, Industri-värden 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 require-ments and are approved or, as the case may be, rejected, by the Audit Committee. Deloitte applies a similar procedure and issues annually, in addi-tion thereto, a written statement to the Audit Committee stating that the audit firm is inde-pendent in relation to SKF.

Deloitte has during 2022 been involved in mat-ters besides the audit assignment. These matters have primarily concerned tax services. The total fees for Deloitte's services besides auditing in 2022 amount to MSEK 4.

Financial reporting

The Board of Directors is responsible for docu-menting 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 qual-ity of the company's financial reporting. This is, for example, achieved through the Audit Commit-tee's review of the financial information and the company's internal financial controls.

The Board of Directors had one meeting with the auditors in 2022 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 audi-tors gave both the Audit Committee and the Board of Directors information in writing regarding mat-ters including the planning and implementation of the audit and an assessment of the risk position of the company.