Corp Gov Code

THE CORPORATE GOVERNANCE CODE FOR SME

CORPRT publishes the Corporate Governance Code for small and medium-sized enterprises (CGC-SME) based on a collaboration between research and best practices in the business community. The CGC specifies the minimum responsibilities that, in addition to law, are incumbent on every board of directors.

1. Role Awareness
Board members with multiple roles in the company's overall decision-making chain (ownership, board and management) shall not mix these roles. In the board meeting, they shall limit themselves to practicing the board role and make the rest of the board aware of any dilemmas that may arise through other roles in the company.

2. The Board's Responsibility for Company Culture
The board is responsible for the company's culture. The board is therefore responsible for what it knows, but also for aspects of the business that the board is not aware of. The board's role is to actively contribute to defining, communicating and monitoring the company's culture so that the entire organization continuously improves. The company's work on culture must be documented in the annual report.

3. Board Member Impartiality
If there exists a risk of conflict of interest, board members shall consult with the rest of the board and the chairman. If it is concluded that there is a conflict of interest, the board member shall refrain from participating in case preparations and in the board's considerations. When assessing impartiality, board members shall pay particular attention to cases where they receive information and insight that can be used for their own and/or related parties' benefit. The same applies in significant cases where they have special interests as owner, supplier, customer, advisor/consultant, or employee of the company.

4. Cyber Security
Digital security is a social responsibility and digital threats pose a significant risk to Norwegian society and Norwegian businesses. The board must facilitate protection against digital threats, gain an understanding of the threat landscape and ensure that the company works with acceptable risk. The board itself must demonstrate curiosity and courage in its dialog about digital security.

5. Privacy Data
As a key part of risk management, the board must ensure that the company has defined what personal data is processed about employees, customers and users, and which systems contain such information. The board must ensure that agreements with external parties that process personal data are established, that data access is governed by need, that personal data does not go astray. A system for detecting violations must be in place.

TOPICS UNDER DEVELOPMENT

PHASE 4: TOPICS UP FOR CONSULTATION

Provide your input on drafts that are available to [email protected]:

Culture for Speaking Up
The Board of Directors must safeguard shareholder values by acquiring knowledge about whistleblowing as a mechanism for preventing and uncovering misconduct in the company. The Board of Directors must ensure an open culture of expression, routines for responsible and competent handling of received whistleblowing, as well as protection of whistleblowers and other affected parties. The board must ensure that the work is documented.

Disciplinary Group
Christensen, Trudi
Eriksen, Birthe Marie (Chair)
Kimer, Line
Kolflaath, Hanne
Sigurgeirsdóttir, Álfrún
Settevik, Ole Morten
Tangnes, Jon Anders

2023-10-19_culture-for-speaking-up_v1-2.pdf
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PHASE 3: TOPICS IN PROCESS

The working group has been set up and has begun the process of preparing a draft for consultation:

Politically Elected Board Members
Politicians are first and foremost advocates - that is what the people elected them to be. The guidelines should therefore be formulated on the basis of the "Ombudsman" role. Politicians should not take on roles that could compromise their independence. Politically elected directors must understand their role, which is to work in the best interests of the company. This can be particularly challenging for politically elected board members because there may be changing "owners". A clear mandate from the community or county is critical. In cases where the municipality or county has an ownership policy that was established when there was a different political majority, this means that politically elected board members must be prepared to implement measures that are in the best interest of the company, but which go against their own political beliefs and outdated policy guidelines. In companies owned by several municipalities/counties, the board will need to act professionally and present a united front to the outside world.

Disciplinary Group
Aase, Bjørge
Five, Hedda Foss (Chair)
Tjomsland, Tore
Wold, Knut-Einar

PHASE 2: WORKING GROUPS UNDER ESTABLISHMENT

Key people in business and research are invited. Are you someone who wants to contribute, or do you know someone who should be involved?

Diversity
Diversity is not only a question of gender, but also of age, education, experience, orientation, background and perspective. Quotas to influence board composition can be an effective tool for increasing diversity. Quotas should be firmly rooted in the company's values and culture. Quotas should be a temporary solution. The goal should be to create a board that is diverse because of its own merits. Quotas should not be at the expense of competence. Qualified candidates from all groups should be considered, regardless of gender, age or other background.

Silence and Violence in the Boardroom
Research shows that board members in conflict can have strong opinions. To the extent that they seek to force their opinions on others (silence) or withdraw (silence), the exchange of information and collaboration weakens, and crucial decision-making is penalized. Board members have a particular responsibility to continue constructive dialog despite relational challenges. Orderly behavior, protocol and other best practices associated with good board work are important, but even more important is solving the problems that may affect psychological safety and prevent honest conversations.

The Transparency Act / The OECD Guidelines for Multinational Enterprises
The board must know and understand all requirements. The board must monitor, prevent risks and manage negative consequences in the company's work on responsible business conduct. The board must ensure that the work on responsible business conduct is communicated to stakeholders, such as employees, customers, suppliers and authorities.

The Future-Minded Board Effort
The board has a responsibility to balance time spent reflecting on the past and looking ahead to ensure the sustainable development of the business. Too much emphasis on past events and results can lead to lost opportunities to be ahead of the curve.

PHASE 1: NOMINATED TOPICS

Participants and other networks have submitted the following suggestions:

Employee-Elected Board Members
Employee-elected board members have a duty to work in the best interests of the company, even when this is at the expense of the employees' interests. This can be difficult to manage, especially in situations where there is a conflict between these interests. This is reinforced by the fact that the employee-elected board member(s) has a duty of loyalty to the board. Employee-elected board members are often in a minority on the board, and they may therefore find it difficult to get their views accepted.

Board Member Compensation
Compensation of board members should be based on open and transparent dialog, and the board should be responsive to input from shareholders, employees and society in general. It should avoid excessive remuneration. Board members have an important responsibility and should be compensated for their work, but remuneration should not be so high that it sends the wrong signals. Board members often have different backgrounds and experience, and they may have different tasks and responsibilities. Board members can be compensated taking into account individual contributions.

The Board Nomination Committee
The nomination committee must have a clear understanding of the company's needs and objectives with a clear mandate from the general assembly. The mandate should define the committee's area of responsibility and the criteria to be used to assess candidates, taking into account the company's statutes, the nomination committee is responsible for nominating new board members. The nomination committee should be independent of the company's management. It should make decisions based on objective criteria, and not on personal relationships or interests. The members of the nomination committee should have the necessary expertise to assess candidates for board membership, both industry knowledge and board expertise. The nomination committee should be transparent in its work by making visible the processes for how candidates are assessed. It should provide feedback to candidates who are not nominated, as well as why they have nominated potential candidates.

Values, Ethics and Weltanshauung
The board must ensure that the company has a clearly defined value platform, as it may find itself in situations where it has to deal with conflicts between different values. The board must be willing to make difficult decisions that are consistent with these values. It can be challenging to convince others inside or outside the business of the importance of values, ethics and people, for example if the business is faced with a choice between making money or doing what is right.

Family-Owned Businesses
The board must balance the interests of the family and the company. In family-owned businesses, there is often an overlap between these interests. The board has a duty to work in the best interests of the business, even when this is at the expense of family interests. Whether a board member is a member of the family or not, the board must ensure that all stakeholders are represented. The board should have a good understanding of the family's interests and perspectives, as well as open and transparent communication between the board and the family. Strong emotions may arise and the board should be prepared to handle this in a professional manner.

The Board's Collaboration with the Entrepreneur
Many entrepreneurial businesses that attract external investors end up with a conflicted boardroom. The investors are in danger of taking unnecessary control over the business and perhaps also ownership. How should the board work to optimize the business in such situations? The board should consider questions such as: Is the entrepreneur worth more than the investors think, and if so, how to clarify this? Do investors overestimate their own abilities, and how can the board work actively to verify what is in the best interests of the business?

Board Members with Several Board Positions
Board members risk not being fully involved when they are spread too thin. This can lead to not contributing the required time and focus. Being on many boards can increase the risk of conflicts of interest. The board member may face the dilemma of choosing between loyalty to different businesses. Also, different industries have different requirements ("compliance") of laws and regulations. Directors of multiple boards must navigate this complexity and ensure that each individual business complies with its obligations.

Board members should also assess whether they have sufficient expertise in all the industries and businesses they comprise. Becoming superficial in your role and not contributing as many others could have done. When board members are part of boards of companies that do business with each other, a situation called "board interlocking" can arise. This can be problematic, particularly if it reduces business competition or leads to anti-competitive practices. "Too many board positions" can be considered irresponsible. This, in turn, can damage the board member's reputation and credibility, which in turn can affect the businesses. (Example: If one of the businesses in which a board member is involved gets into legal or reputational problems, this may have consequences for the board member's role on other boards.) Furthermore, board members with many positions may prevent diversity and varied representation on boards.

The Board's Handling of the CEO's Self-Interest
The board should manage the CEO's self-interest by establishing balanced incentive schemes that promote long-term goals and sustainable investments over short-term gains. By linking compensation to long-term performance and aligning goals with the company's strategic interests, the board can reduce the risk of short-term self-interest conflicting with the company's overall development. This ensures that the CEO works in line with the organization's overall long-term value creation.

Choice of Form and Structure
The form and structure of a business balances considerations of liability, tax, ownership control, management requirements, growth opportunities and capital requirements, industry-specific considerations, social rights and bankruptcy protection. Above all, these considerations should be aligned with the long-term strategy of the business. Choosing the right structure can provide flexibility and financial security, support the company's growth and safeguard owners' finances and rights.

DEVELOPMENT OF UPCOMING TOPICS

Submit suggestions to [email protected]

Onboarding New Board Members
How to ensure that new board members understand the business and quickly become effective contributors? E.g. welcome package, information about the business including history, market position, competitors and industry trends, financial status and risk profile, the board and its work, strategy documents and annual reports. Contact information for key individuals. Further meetings with key people in the business, site visits, participation in workshops. Soft considerations: Psychological safety; time to ask questions. Evaluate the onboarding process by getting feedback from the new board member. Onboarding can be considered a continuous process.

https://omny.fm/shows/inside-the-strategy-room/188-leading-effectively-with-the-board
https://styreforeningen.no/courses/onboarding-av-nye-styremedlemmer-nettkurs-live
https://orgbrain.no/styrebloggen/ny-i-styret-hvordan-sikre-vellykket-onboarding-av-nye-styremedlemmer

Relationships with Competitors
From a board perspective, it is important to understand the different dimensions of the relationship between businesses and competitors. This is a complex area with both legal and strategic aspects. For example, collaboration: Research and development, joint purchasing, marketing, standardization and lobbying. To discuss about competition: Price, product differentiation, market share, innovation and customer satisfaction. Collaboration that provides socio-economic benefits. Strategic assessments: Reducing costs, increased rate of innovation, access to new markets and strengthened negotiation position. Industries with a certain degree of collaboration often have better earnings, for example through shared infrastructure, risk sharing and price stability. The board plays an important role in ensuring that the business complies with legislation and maximizes value creation for its shareholders.

https://konkurransetilsynet.no
https://lovdata.no/dokument/NL/lov/2004-03-05-12

Procurement Oversight
The Board of Directors has overall responsibility for ensuring that procurement is in line with strategy and objectives.

Develop procurement strategy: E.g. define goals and priorities for procurement, identify risks and measures to manage these, establish processes for supplier selection and contract negotiations. Monitor procurement activities? E.g. ensure that procurement is conducted in accordance with policies and procedures, evaluate supplier performance and identify areas for improvement, and keep abreast of emerging trends and risks in the procurement market. Safeguarding reputation: E.g. ensure that sourcing from suppliers is ethical and sustainable, avoid contracts with suppliers involved in controversial activities, and assess the risk of reputation loss by doing business with suppliers in unstable or banned countries. Geopolitical instability: E.g. war, sanctions and political upheavals can disrupt supply chains and lead to price increases (confer supply crisis and price increases on energy and raw materials). Ethical sustainability considerations: E.g. human rights violations, corruption and environmental pollution can damage a company's reputation (confer trading with suppliers in countries with low focus on human rights risks being boycotted by consumers). Economic fluctuations: E.g. currency fluctuations and inflation can lead to increased costs for the company (confer trading with suppliers in countries with high inflation risks seeing their profit margins reduced).

https://www.weforum.org/publications/global-risks-report-2023
https://www.imf.org/en/topics
https://www.ethicaltrade.org

Compliance
The Board of Directors shall contribute to good compliance with the policies and guidelines adopted by the company. This applies not only to compliance with laws and regulations, but also to all the ethical and business-related guidelines by which the company is governed. It is not enough for a board to decide on a company's policies and guidelines if these are not followed by the organization. There are several causal factors for poor compliance in a company, and the board can influence several of these. The management of Norwegian companies faces major challenges in 2024. Companies large and small will soon have to document compliance with a number of new requirements and rules. This will be in general areas such as ethical guidelines, privacy, sustainability, origin, security, etc. But it is also relevant within specific new laws, such as the Transparency Act.

In 2016, the Norwegian Tax Administration conducted a survey on tax compliance, among other things. Among other things, they found that complex systems increase the risk of making unconscious errors and lack of knowledge increases evasion - because people make mistakes. They also found that an increased risk of detection reduces tax evasion.

https://www.responsiblebusiness.no/etterlevelse
https://www.skatteetaten.no/globalassets/om-skatteetaten/analyse-og-rapporter/rapporter/nettpresentasjon-sero-2016_versjon-2.pdf
enaccess.nhh.no/nhh-xmlui/bitstream/handle/11250/3053118/masterthesis.pdf?sequence=1