The following constitutes TDC's statutory reporting on corporate governance in accordance with Section 107 b of the Danish Financial Statements Act.
TDC's internal control and risk management systems for financial reporting are planned to provide assurance that internal and external financial statements are prepared in accordance with the international Financial Reporting Standards (IFRS) as adopted by the European Union and additional Danish disclosure requirements for annual reports of listed companies, and assurance that true and fair financial statements without material misstatements and irregularities are presented.
Internal control and risk management systems are updated regularly and are designed to detect and eliminate errors and inconsistencies in the financial statements. Due to an inherent risk of misappropriation of assets, unexpected losses, etc., the established internal control and risk management systems provide only reasonable and not absolute assurance that material misstatements and irregularities in the financial reporting will be detected and corrected.
The Board of Directors has set up an Audit Committee mainly to assist the Board of Directors in monitoring financial reporting and the efficiency of TDC's internal control and risk management systems.
The Audit Committee has a supervising responsibility and reports to the entire Board of Directors.
The Executive Committee is responsible for keeping efficient internal control and risk management systems in connection with financial reporting. Powers and responsibilities are defined in policies and procedures.
The Board of Directors and the Executive Committee define policies and procedures in significant areas concerning the financial reporting process. Relevant responsible functions define other guidelines and control, and supervise that policies and procedures are applied, including required separation of incompatible functions.
The Audit Committee has assessed and concluded that the existing control environment within TDC is adequate and that there is no basis for establishing an internal audit. The Audit Committee has reported this to the entire Board of Directors.
The Board of Directors and the Executive Committee continuously assess the risks incumbent on TDC, including risks that affect financial reporting. The risk of errors for items in the financial statements based on estimates and complex processes is relatively higher than for other items.
The section 'Critical accounting estimates and judgements' in the Consolidated Financial Statements includes a description of the most significant identified risks concerning financial reporting. Such matters are subject to specific review and evaluation by the Audit Committee and the Board of Directors.
Control activities are based on risk assessments. The purpose of the activities is to ensure that policies, procedures, guidelines, manuals, etc. are complied with, and that any errors and inconsistencies are prevented, detected and corrected on a timely basis. The control activities are an integral part of TDC's accounting and financial reporting procedure and cover, e.g. authorisation, approval, reconciliation, performance analyses, performance assessment and fulfilment of agreed targets (Key Performance Indicators, etc.), control of IT applications and general IT control.
TDC keeps and maintains information and communication systems to ensure correct financial reporting. The accounting manual and other reporting instructions, including budgeting and monthly closing procedures, are updated regularly and when required. These and other policies, procedures and descriptions of business procedures concerning financial reporting are available for relevant employees.
Changes in procedures, etc. are reported and explained to the business lines in the relevant forums.
Information systems are designed to regularly identify, collect and communicate relevant information at relevant levels in compliance with the prescribed confidentiality for listed companies.
TDC uses an extensive financial control system to monitor performance, which facilitates detection and correction of any errors and irregularities in the financial reporting at an early stage, including weaknesses found in the internal control system and non-compliance with policies and procedures.
The Group reporting process covers budget reporting and monthly reporting of actual results, including variance reports with regular estimates for the year. In addition to the Income Statements, Balance Sheets and Statements of Cash Flow, notes and supplementary financial and operational data and analyses are also part of the financial reporting.
The detailed reports from all Group companies are analysed and monitored at Group and business line levels as well as at relevant management levels in the organisation. The auditors elected by the Annual General Meeting report any significant weaknesses in the internal control systems in long-form audit reports to the Board of Directors in connection with the financial reporting process. Less material matters are reported in management letters to the Executive Committee. The Audit Committee follows up on weaknesses in internal controls detected and reported by the auditors elected by the Annual General Meeting to assure that such are corrected.
As a company listed on NASDAQ OMX Copenhagen, TDC A/S must account for its approach to the recommendations from the Committee on Corporate Governance in its Annual Report based on a 'comply or explain' principle.
In 2005, the Nørby Committee recommendations on corporate governance from 2001 were revised by what was then called the Copenhagen Stock Exchange Committee on Corporate Governance. In 2008, the recommendations were revised again, this time by the Committee on Corporate Governance - a continuation of the Copenhagen Stock Exchange Committee, but no longer under the auspices of this stock exchange.
In April 2010, the Committee on Corporate Governance published new and revised recommendations. TDC A/S' review of the recommendations on corporate governance is made available to the public on the TDC Investor relations website, tdc.com/investor.
TDC complies with the majority of the recommendations. Of the 78 numbered recommendations, divided into nine main categories, TDC fully complies with 67 recommendations, whereas eleven are not complied with. TDC's non-compliance is further described below. Further information on TDC's compliance is presented in the above-mentioned corporate governance review. The complete recommendations are available at the Committee on Corporate Governance's website, www.corporategovernance.dk as well as on the TDC Investor relations website.
TDC has a majority shareholder that holds more than 50% of the outstanding shares as well as a series of minority shareholders. Because of the ownership structure, the Board of Directors cannot establish in advance how to act in case of a takeover bid. The Board will consider the interests of both the company and the shareholders in case of a takeover bid. Thus, the Board of Directors does not comply with recommendations 1.4.1 and 1.4.2 on the duties of the Board of Directors and the rights of the shareholders in the event of a takeover bid.
TDC complies with all other recommendations on the role of the shareholders and their interaction with the Management of the Company.
The Company has approved the establishment of a nomination committee and recommendation 5.1.2 is complied with concerning the independent Board members. The recommendation is not complied with today in relation to the non-independent Board members as a result of the ownership structure of TDC. Similarly, and for the same reason, recommendation 5.1.1. is not complied with. The majority shareholder of TDC selects and nominates candidates for TDC's Board of Directors and the candidates are elected solely on the basis of the majority shareholder's votes. TDC's ownership structure is the reason why TDC does not fully comply with the recommendation. The nomination of new independent candidates to the Board of Directors is based on a thorough process carried out by members of the Compensation Committee who also become members of the Nomination Committee, and it is ensured that the need for innovation and diversity is taken into account to the fullest possible extent. The recruitment and selection criteria for new independent members of the Board of Directors have been identified after discussions between the above Compensation Committee members and top management and with extensive assistance from external advisors regarding the range of skills necessary among the Board members to serve the Company's interests and assist Management going forward.
Further, TDC has adopted 'Operation Kædereaktion' ('Operation Chain Reaction') - an initiative devised by the Danish Ministry for Gender Equality to increase the number of female executives, including female board members. As a consequence, TDC monitors, evaluates and follows up on the development in the number of female Board members. At present, there are no female members of the Board of Directors.
The Company does not follow recommendation 5.2.2 as a result of the ownership structure of TDC. The Board of Directors evaluates the need for updating the skills and expertise of its members on an ongoing basis but no formal annual evaluation is carried out.
TDC's ownership structure affects the composition of the Board of Directors and is the reason why TDC does not comply with recommendation 5.4.1, stating that at least half of the members of the supreme governing body elected by the general meeting be independent.
TDC's ownership structure affects the composition of its Board and is also the reason why TDC does not comply with recommendation 5.10.2, which recommends that a majority of the members of a board committee be non-independent members.
The Board has formed a Compensation Committee. The Compensation Committee determines the remuneration and other employment terms for members of the Executive Committee and Board members, and annually approves the overall principals for the Group's bonus and other short- or long-term incentive or retention programmes. The Board of Directors considers it appropriate for the Compensation Committee to have this limited decision-making competence and has therefore chosen not to comply with recommendation 5.10.8.
The majority shareholder of TDC can elect the candidates that the majority shareholder nominates for TDC's Board of Directors based on the major shareholders' votes alone. As a result of TDC's ownership structure and its impact on the composition of the Board, the Board of Directors has not found it necessary to have formal procedures for evaluating the work of the Board of Directors. Once a year, the Board of Directors informally discusses its work and cooperation within the Board of Directors. Consequently, the Annual Report does not include information regarding the procedure for evaluation of the Board of Directors. Thus TDC does not comply with recommendation 5.11.1 and 5.11.2.
TDC complies with all other recommendations on the composition and organisation of the supreme governing body.
TDC shall present its revised remuneration policy for approval by the shareholders at the general meeting in March 2011. TDC's annual report includes details of the aggregated remuneration provided to the Board of Directors and to the Executive Committee, respectively. This information is considered adequate by the Company and the remuneration to the individual members will not be disclosed. Thus TDC does not comply with recommendation 6.2.3.
TDC complies with all other recommendations on the remuneration of members of governing bodies.
In 2008, the Danish Venture Capital and Private Equity Association (DVCA) published new guidelines for responsible ownership and good corporate governance in private equity funds in Denmark.
TDC A/S' majority shareholder, NTC Holding G.P. & Cie S.C.A, is ultimately controlled by investment funds, each of which is advised or managed, directly or indirectly, by Apax Partners Worldwide LLP, the Blackstone Group International Limited, Kohlberg Kravis Roberts & Co. L.P., Permira Advisers KB and Providence Equity Partners Limited. NTC Holding G.P. & Cie S.C.A has chosen to follow the DVCA guidelines.
TDC A/S is covered by the DVCA guidelines and complies with all DVCA guidelines of relevance to TDC. The shareholders, customers, employees and society are TDC's primary stakeholders. The entire Annual Report reflects how TDC's Management accommodates these stakeholders. Any other information requested by the DVCA guidelines has been included in the appropriate sections of the Annual Report. The guidelines are available at DVCA's website, www.dvca.dk.
TDC's Board of Directors has 13 members, nine elected by the Annual General Meeting and four elected by the employees. All members of the Board of Directors act in the interests of TDC. The members of the Board of Directors who are also partners of the equity funds, which ultimately control the controlling shareholder of TDC, do not represent these equity funds on the Board of Directors. In 2010, the Board of Directors held 16 meetings and one strategy session.
Currently, the Board of Directors has set up two committees - the Compensation Committee and the Audit Committee - and decided in principle to set up a nomination committee consisting of the same members as the Compensation Committee.
The Compensation Committee consists of Vagn Sørensen, Pierre Danon, Gustavo Schwed, Henrik Kraft and Lars Rasmussen. The Compensation Committee approves the compensation and other terms of employment for the members of the Group's Executive Committee. It also approves the framework of the Group's incentive programme and proposes to the Board the size of the Board of Directors' fee, which is approved at the General Meeting. The Compensation Committee held six meetings in 2010.
The Audit Committee consists of Søren Thorup Sørensen, Lawrence Guffey, Vagn Sørensen and Andrew Sillitoe. The Audit Committee assists the Board of Directors with activities including: (i) monitoring the financial reporting process, (ii) monitoring the efficiency of TDC's internal control system and any internal auditing and risk management systems, (iii) monitoring the statutory audit of the Annual Report, (iv) appointing TDC's independent auditors and monitoring and checking the independence of the auditors, including in particular the delivery of non-audit services to TDC. The Audit Committee held six meetings in 2010.Til top