Corporate Governance

Each section starts by setting out the OMX’s overall considerations concerning the relevant topic numbered I-VIII. In each of the eight numbered areas the OMX’s specific recommendations are described followed by Lundbeck’s reply.

 

The shareholders, the owners of the companies and society have a joint interest in the companies always being capable of adjusting to changing demands, which allows the companies to continue to be competitive and continue to create value. Good corporate governance implies that the board and the management understand that interaction between the management and the shareholders is of vital importance to the company. As owners of the company, the shareholders can actively exercise their rights and use their influence resulting in the management protecting the interests of the shareholders as best as possible, and ensuring efficient deployment of the company’s funds both in the short as well as the long term.

Therefore, good corporate governance depends on appropriate frameworks which encourage the shareholders to enter into a dialogue with the management of the company and each other. This can be encouraged through a strengthening of the AGM’s role as a forum for communication and decisions.

i. Exercise of ownership and communication
The Committee recommends that the companies contribute to improving the communication between the company and the shareholders, and between the individual shareholders in the company via the use of e.g. information technology.

Our website – www.lundbeck.com - gives our shareholders access to vast amounts of information about our company. Conference calls held after the presentation of full-year and interim reports are webcast on the Internet to anyone interested, and the presentations are freely available at the company’s website.
All registered shareholders automatically receive notices of general meetings and can register for the meetings by fax or letter to the company or via the company’s website. Finally, Lundbeck webcasts its annual general meeting on the Internet with simultaneous interpretation into English for the benefit of the company’s large group of foreign shareholders.

ii. Capital and share structures
The Committee recommends that the supervisory board, at appropriate intervals, assess whether the company’s capital and share structures continue to be in the interests of the shareholders and the company and that the supervisory board account for this assessment in the company’s annual report.

The Supervisory Board of H. Lundbeck A/S analyses the company’s need for capital on an ongoing basis, including an assessment of the company’s capital structure from time to time.

There is no universal answer to the question of what the optimum capital structure is for a specific company because the relationship between equity and interest-bearing debt relies on the specific characteristics that apply within the particular industry in which the business operates and, by extension, the operating and financial risk. However, companies in the pharmaceutical industry are often particularly well funded, which may be explained by the extended development projects and risks associated with research activities.

The Supervisory Board of Lundbeck pursues the policy that equity beyond the level which, based on a conservative estimate, would be considered sufficient to support the underlying business, should be distributed to the shareholders. The distribution to our shareholders take place through annual dividends and appropriate share buybacks, the most recent one being the board-approved programme of up to DKK 6 billion until the Annual General Meeting for the 2007 financial year.

In the years ahead, the Supervisory Board intends to pay dividends of 25-35% of the profit after tax, thereby aligning the company’s dividend policy to that of its peers in the pharmaceutical industry. The aim of maintaining stable flow of dividend payments is accompanied by an intention to buy back shares to let our shareholders benefit from Lundbeck’s ability to generate a high and stable cash flow. The Supervisory Board believes that such share buybacks can be effected without any impact on the company’s solvency and credit rating.

iii. Preparation for the general meeting, including notice of meeting and proxy
The Committee recommends that the general meeting be called at sufficient notice to enable the shareholders to prepare for the meeting and consider the business to be transacted at the general meeting that the notice of meeting, including the agenda, be drawn up in such a way as to give the shareholders a satisfactory picture of the business covered by the items on the agenda and that proxies given to a company’s supervisory board, as far as possible, include the position of the shareholders regarding each item on the agenda.

General meetings are convened by the company giving not less than one week’s notice and not more than four weeks’ notice. The company aims to ensure that all notifications of general meetings and agendas are clear and unambiguous, stating all relevant details for the shareholders to be able to form an adequate impression of the points to be discussed.Shareholders who give proxy to the Supervisory Board are given the opportunity to state their position on each item on the agenda.

iv. The duties of the supervisory board and the rights of the shareholders in the event of takeover bids
In connection with a public takeover bid, the Committee recommends that in such situations, the supervisory board does not, without the acceptance of the general meeting or on its own, attempt to counter a takeover bid by making decisions which in reality prevent the shareholders from deciding on the takeover bid.

Lundbeck does not have any form of anti-takeover measures in the form of voting restrictions or other types of ownership limitations. If a specific takeover bid is made, the Supervisory Board will consider such a bid individually with due consideration to the Danish Public Companies Act and the Rules of Ethics of the OMX as well as the guidelines already discussed and adopted by the Supervisory Board.

 

It is essential for a company’s prosperity and future possibilities that the company have a good relationship with its stakeholders. Stakeholders are everyone directly affected by the company’s decisions and business. Thus, it is desirable that the company’s management run and develop the company with due consideration of its stakeholders, and that the management provide an incentive for dialogue with these stakeholders. Successful interaction between the company and its stakeholders implies openness and mutual respect.

i. The company’s policy in relation to the stakeholders
The Committee recommends that the supervisory board adopt a policy on the company’s relationship with its stakeholders.

Lundbeck has an integrated corporate vision, mission and set of values that reflect the company’s business concept, objectives and fundamental management principles. In addition, the company has specific policies defining guidelines for investor relations, human resources, animal ethics and welfare, and health, safety and the environment.

ii. The role of the stakeholders and their interests
The Committee recommends that the supervisory board ensure that the interests and roles of the stakeholders are respected in accordance with the company’s policy on such issues.

The Supervisory Board believes that the interests of the company, and thus also of its shareholders, are best safeguarded by maintaining an open, constructive and ongoing dialogue between the company and all its stakeholders. Lundbeck maintains a regular contact with its major stakeholders, including investors, employees, neighbours, organisations and authorities.

 

To a varying extent, it is necessary to provide shareholders, including potential shareholders, and other stakeholders with information about the company. Understanding and relating to the company depend on the amount of information and the quality of information published or provided by the company.

Openness and transparency are essential conditions for ensuring that the company’s shareholders and other stakeholders are able to regularly evaluate and relate to the company and its prospects and so to contribute to constructive interaction with the company.

i. Information and publication of information
The Committee recommends that the supervisory board adopt an information and communication policy.

Lundbeck has adopted an information and communication policy.

The Committee recommends that information be published in both Danish and English, and, if necessary, in any other relevant languages; this also applies to the company’s website, which must display identical information in these languages.

Lundbeck complies with this recommendation.

ii. Investor relations
The Committee recommends that the supervisory board lays the groundwork for an ongoing dialogue between the company and the company’s shareholders and potential shareholders.

The company holds more than 300 investor meetings each year. After the publication of each full-year and interim report, Lundbeck holds a conference call, which is open to the public via the company’s website. The presentation is also posted on the company’s website.
The company has an informative website targeting investors, including a section on corporate governance.

iii. Annual report and supplementary information
The Committee recommends that the supervisory board consider to what extent generally accepted accounting standards other than those required, such as US-GAAP, shall be applied as a supplement to the annual report if trade conditions or other circumstances make this relevant in relation to the information needs of the recipients, including the need for comparability.

The company’s annual report is presented in accordance with relevant Danish legislation. The company has presented its financial statements in accordance with IAS/IFRS since 1997.
The company has found that it is not relevant at the present time to consider using other standards such as US GAAP.

In connection with the preparation of the annual report, the Committee recommends that the supervisory board decide whether it is expedient that the company publishes details of a non-financial nature, even in instances where this is not required by any applicable legislation or standards.

The company’s annual report includes sections on health, safety and the environment as well as development and maintenance of intellectual capital.

iv. Quarterly reports
The Committee recommends that companies publish quarterly reports.

Lundbeck complies with this recommendation.

 

The supervisory board is responsible for safeguarding the interests of the shareholders with care and due consideration of the other stakeholders. As concerns the managerial division of tasks between the supervisory board and the executive board, the supervisory board is assigned with, and responsible for, undertaking the overall management of the company as well as establishing guidelines for and supervising the executive board’s work. One important management task is to develop and establish appropriate strategies for the company. It is essential that the supervisory board ensure ongoing development of and follow-up on the necessary strategies in collaboration with the executive board.

i. The overall tasks and responsibilities of the supervisory board
The Committee recommends that the supervisory board discuss and establish its most important tasks related to the overall strategic management as well as the financial and managerial supervision of the company and regularly evaluate the executive board’s work.

Lundbeck complies with this recommendation.

ii. The tasks of the chairman’s
The Committee recommends that the company prepare a work and task description specifying the tasks, duties and responsibilities of the chairman, and of the deputy chairman, if required.

It is the duty of the chairman to provide for a good and trustful collaborative setting that ensures that the Supervisory Board as a whole performs the tasks assigned to it and that the individual board members perform their duties satisfactorily. Board meetings are held with a frequency that allows for swift reaction, and extraordinary board meetings can quickly be convened with participation over the telephone or in a video conference. Throughout the years, the Supervisory Board has elected a deputy chairman who chairs the meeting in the chairman’s absence. Decisions are made by all members of the Supervisory Board. Neither the audit nor the remuneration committee have responsibilities that are independent of the Supervisory Board and the work of the committees serves to assist the Supervisory Board in its duties. The duties of the chairman and deputy chairman are set out in a description of tasks and duties.

The Committee recommends that the chairman ensure that the special knowledge and competence of each individual member of the supervisory board are used in the best possible manner in the supervisory board’s work to the benefit of the company.

In connection with the ongoing evaluation of the work of the Supervisory Board, the chairman is kept up-to-date about each individual member’s know-how and skills to the benefit of the combined board efforts.

The Committee recommends that the company appoint a deputy chairman, who must be able to act in the chairman’s absence and also to act as an effective sounding board for the chairman.

Lundbeck complies with this recommendation.

iii. Procedures
The Committee recommends that the procedures always match the needs of the individual company and that all the members of the supervisory board review the procedures at least once a year for this purpose.

At least once every year, the Supervisory Board assesses the need for any changes.

iv. Information from the executive board to the supervisory board
The Committee recommends that the supervisory board establish procedures for how the executive board reports to the supervisory board and for any other communication between the supervisory board and the executive board with a view to ensuring that such information about the company’s business as required by the supervisory board is regularly provided to the supervisory board.

Communications between the Executive Management and the Supervisory Board are regulated in the rules of procedure for the Executive Management. These procedures stipulate what matters the Executive Management should report to the Supervisory Board, and how often to report such matters. In addition, meetings are held on a regular basis between the chairman or deputy chairman of the Supervisory Board and the Executive Management with a view to continuously optimising communications and collaboration.

 

It is essential that the supervisory board be composed in such a way as to allow it to perform its managerial tasks, including the strategic tasks of the company, in an effective and forward-looking manner and, at the same time, to act as a constructive and qualified sounding board for the members of the executive board. It is also essential that the members of the supervisory board always act independently of special interests. The supervisory board must regularly ensure that its composition and its procedures reflect the demands made by the company’s current situation and circumstances.

i. Recruitment and election of supervisory board members
The Committee recommends that the supervisory board ensure a formal, thorough and transparent process for selection and nomination of candidates with a view to ensuring a board composition that provides the competence needed to enable the supervisory board to perform its tasks in the best possible manner.

The goal of the Supervisory Board is for the individual board members to complement each other with respect to international experience and qualifications, as this is the best way to be a qualified sounding board for the Executive Management.
The Supervisory Board’s proposals for new members are always accompanied by a thorough description of the candidate and the candidate’s CV.

Moreover, at the annual general meeting the chairman of the Supervisory Board reviews the recruitment criteria on which the board has based its recommendation for the shareholders in general meeting.

ii. Training and introduction for members of the supervisory board
The Committee recommends that new members joining the supervisory board be given an introduction to the company and that the chairman, in collaboration with each individual supervisory board member, decide whether it is necessary to offer the member in question relevant supplementary training.

Upon being elected to the company’s Supervisory Board, each new board member is given a thorough introduction to the company and its business area. This introduction includes discussions with the chairman of the Supervisory Board, the Executive Management and other key employees, enabling the new board member to quickly gain the necessary insight into company-specific issues.

iii. The number of supervisory board members
The Commission recommends that the supervisory board have only so many members as to allow a constructive debate and an effective decision-making process that enables all the members of the supervisory board to play an active role and so that the size of the supervisory board allows the competence and experience of the supervisory board members to match the requirements of the company. The Commission recommends that at regular intervals, the supervisory board considers whether the number of supervisory board members is appropriate in relation to the requirements of the company.

The Company’s Supervisory Board consists of six external directors elected by the shareholders in general meeting and three members elected by the company’s Danish employees. The Supervisory Board believes that its current size is appropriate, both in relation to the company’s requirements and the Supervisory Board’s assignments and skills.

iv. The independence of the supervisory board
In order for the supervisory board members to act independently of special interests, the Committee recommends that at least half of the supervisory board members elected by the general meeting be independent persons.

Lundbeck complies with this recommendation as more than half of the members elected by the shareholders are independent.

The Committee recommends that least once a year, the supervisory board list the names of the members of the supervisory board who are not regarded as independent persons and also disclose whether new candidates for the supervisory board are considered independent persons and state the grounds for such consideration.

Henceforth, the company’s annual report will disclose which of the board members elected by the shareholders, if any, are not independent, and the notice convening the annual general meeting will also describe whether any new board candidates are considered to be independent.

The Committee recommends that the members of the executive board of a company not be members of the supervisory board of the same company.

Lundbeck complies with this recommendation as none of the members of the company’s Executive Management are also members of the Supervisory Board.

The Committee recommends that the annual report contain the following information about supervisory board members:

• occupation of the individual supervisory board member.
• other managerial positions or directorships held by the supervisory board member in Danish and foreign companies as well as demanding organisational tasks performed by that individual.
• number of shares, options and warrants held by the supervisory board member in the company and group enterprises as well as changes in the member’s portfolio of the mentioned securities having taken place during the financial year.

The company’s annual report sets out information about each board member, their positions, other directorships and the board's combined holding of shares in the company.

v. Supervisory board members elected by the staff
The Committee recommends that the individual company consider the need to explain the system of staff-elected supervisory board members in the company’s annual report or on its website.

Pursuant to the relevant rules of the Danish Public Companies Act, the company’s Danish employees elect a number of members to the Supervisory Board. According to these rules, the number of employee representatives must equal half the number of members elected by the shareholders at the annual general meeting.
The election is held by secret ballot. Eligible candidates must have been employed with Lundbeck during the last 12 months prior to the election date. The election period is four years, and employees who leave the company during the election period must retire from the Supervisory Board.
Board members elected by the employees have the same rights, duties and responsibilities and receive the same remuneration as members elected by the shareholders at the annual general meeting.

vi. Meeting frequency
The Committee recommends that the supervisory board meet at regular intervals according to a predetermined meeting and work schedule or when meetings are deemed necessary or appropriate as required by the company and that the annual meeting frequency be published in the annual report.

The company’s Supervisory Board meets at least six times a year in scheduled ordinary meetings, to which should be added any extraordinary meetings convened and one annual two-day strategy seminar. The frequency of ordinary board meetings is disclosed in the annual report.

vii. Time allocated to supervisory board work and the number of directorships
The Committee recommends that a supervisory board member who is also a member of the executive board of an active company hold not more than three ordinary directorships or one chairmanship and one ordinary directorship in companies not forming part of the group unless in exceptional circumstances.

Lundbeck complies with the recommendation, but the Supervisory Board basically believes that the number of directorships each member is able to hold should be subject to an individual assessment, and that the time required to fulfil the duties of each directorship varies.

viii. Retirement age
The Committee recommends that the company agree on a retirement age for members of the supervisory board and that the annual report contain information about the age of the individual members of the supervisory board.

Pursuant to the articles of association of H. Lundbeck A/S, a board member shall resign not later than at the Annual General Meeting in the calendar year in which the board member attains the age of 70. The annual report contains information about the age of the individual directors.

ix. Election period
The Committee recommends that members of the supervisory board be up for re-election every year at the general meeting and that the supervisory board in this connection makes special efforts to ensure the balance between replacement and continuity on the supervisory board as regards the chairmanship and the deputy chairmanship. The Committee recommends that the annual report state when the individual member of the supervisory board joined the board, whether the member of the supervisory board was re-elected and when the new election period expires.

Lundbeck’s annual report discloses the year in which each director was elected to the Supervisory Board. As the Supervisory Board’s directors elected by the shareholders in general meeting are elected for terms of one year at a time, the company does not disclose information about the expiry of the new election period.

x. Use of supervisory board committees
The Committee recommends that the supervisory board consider and decide whether to establish committees, including nomination, remuneration and audit committees. If the supervisory board appoints a committee, the Committee recommends that such appointment take place only in connection with matters relating to specific issues for the purpose of preparing decisions to be made by all the members of the supervisory board.

In 2004, the Supervisory Board resolved to set up an audit and a remuneration committee. Neither the audit nor the remuneration committee have responsibilities that are independent of the Supervisory Board. The work of the committees serves to assist the Supervisory Board in its duties.

In the event of appointment of a supervisory board committee, the Committee recommends the supervisory board draw up terms of reference for that committee setting out its responsibilities and powers.

Audit committee
In connection with the decision to set up an audit committee, the Supervisory Board has defined the duties of the audit committee: The duties of the audit committee are:

• to review the company’s financial reporting procedures, including the procedures for reviewing interim and annual reports
•  to evaluate the company’s financial reporting and other financial information published by the company, including information about related parties
• to review internal controls in relation to overall balance and transparency in the financial reporting; and
• to review the reports submitted by the auditors and to communicate with the auditors

By setting up an audit committee, the company encourages a closer dialogue with the company’s supreme management body concerning the type and scope of the auditors’ assignment for the company.

It is assumed that the audit committee will hold at least three ordinary meetings per year and that one of these meetings will not be attended by the company’s Executive Management.

Remuneration committee
The purpose of setting up a remuneration committee is to provide the members of the Supervisory Board with the best possible basis for making decisions concerning the total remuneration package provided to the members of the Executive Management. The objective of the committee is partly to ensure a consistently competitive remuneration of the members of the Executive Management, also in a regional perspective, partly to ensure a reasonable balance between remuneration and performance.

Furthermore, it is the duty of the committee to ensure than all option/warrant programmes set up for members of the Executive Management are competitive but also conform to best practice in similar companies and industries.

The Committee recommends that the company’s annual report describe important issues included in the terms of reference of the individual supervisory board committee and that the annual report list the names of the members of the individual supervisory board committee as well as the number of meetings of that committee held during the financial year.

Lundbeck complies with the recommendation
 

xi. Assessment of the work of the supervisory and executive boards
The Committee recommends that the supervisory board establish an assessment procedure that regularly and systematically evaluates the work, results and composition of the supervisory board as well as the work and results of the individual members, including the chairman, for the purpose of improving the supervisory board’s work and that the criteria of assessment are clearly defined.

The Supervisory Board has adopted a formal evaluation procedure to ensure systematic evaluation of the work of the Supervisory Board, including the chairman.

The Committee recommends that such assessment be made once a year, that the chairman of the supervisory board be in charge of this process, drawing on external support, if necessary, that the outcome be discussed by the entire supervisory board and that the supervisory board provide details of its procedures of self-assessment in the company’s annual report.

Lundbeck complies with the recommendation

The Committee recommends that the supervisory board assess the executive board’s work and results once year according to previously established explicit criteria.

The Supervisory Board’s rules of procedure stipulate that the Supervisory Board must evaluate the work and results of the Executive Management in an ongoing process. In addition, such an evaluation forms a natural part of the regular meetings held by the chairman of the Supervisory Board and the Executive Management.

The Committee recommends that the executive board and the supervisory board establish a procedure to assess the collaboration between the two boards at an annual meeting between the CEO and the chairman of the supervisory board and that the outcome of such assessment be presented to the entire supervisory board.

The evaluation of the work and results of the Executive Management forms a natural part of the regular meetings held by the chairman of the Supervisory Board and the CEO. 

 

Competitive remuneration is a prerequisite for attracting and retaining competent members of the supervisory board and the executive board. The remuneration of the members of the two boards should be reasonable in relation to the tasks assigned and the responsibilities involved in performing these tasks.

Performance-related pay may result in conflicting interests between the shareholders and the management of the company and may cause the management to focus on increasing the company’s value creation.

It is essential that there be openness about all important issues regarding the principles and amounts of the total remuneration offered to the members of the supervisory board and the executive board.

i. Remuneration
The Committee recommends that the total remuneration (basic pay, bonus, price-related incentive schemes, pension schemes, severance pay and other benefits) be at a competitive and fair level, reflecting the independent performance and value creation in the company of the members of the executive board and the supervisory board.

The company pursues a policy of offering the company’s management remuneration equal to that offered by companies in Denmark and neighbouring regions and which ensures that Lundbeck is able to retain and attract competent management. The company’s remuneration policy is approved by the Supervisory Board and drawn up by the Remuneration Committee set up by the Supervisory Board.

ii. Remuneration policy
The Committee recommends that the supervisory board adopt a remuneration policy and that the company disclose the contents of such policy in its annual report.

Lundbeck complies with this recommendation.

The Committee recommends that the remuneration policy reflect the interests of the shareholders and the company, match the specific conditions of the company and be reasonable in relation to the tasks and responsibilities of the members of the executive board and the supervisory board and that it promotes long-term behaviour and is transparent and easy to understand.

The company pursues a policy of offering the company’s management remuneration equal to that offered by companies in Denmark and neighbouring regions and which ensures that Lundbeck is able to retain and attract competent management. The company’s remuneration policy is approved by the Supervisory Board and drawn up by the Remuneration Committee set up by the Supervisory Board.

Members of the company’s Supervisory Board receive a fixed remuneration and are not comprised by the company’s other bonus and incentive programmes.

The remuneration of the Executive Management and the company’s executives consists of a combination of a fixed salary, bonus and warrants. The Supervisory Board believes that this division of the remuneration into three components helps to ensure that the company’s management retains its focus on the company’s operations in the short term as well as the longer term strategies. This will in turn ensure that management endeavours to optimise shareholder value.

The Committee recommends that the remuneration policy include a statement explaining basic pay, the basis on which bonus is calculated, price-related incentive schemes, pension schemes and other benefits as well as the relationship between basic pay and such benefits.

The value of the Executive Management’s bonus programme must not exceed 3 months' salary. There are no unusual severance packages for members of the Executive Management.

The Committee recommends that the company’s remuneration policy reporting include a statement explaining how such policy was implemented in the past financial year, how such policy is implemented in the current financial year and how the company plans to implement it in the next financial year.

The annual report includes a statement explaining how the remuneration policy was implemented in previous financial years, how the policy is implemented in the current financial year and how the company plans to implement it in the next financial year.

The Committee recommends the company’s remuneration policy be mentioned in the statement given by the chairman at the company’s general meeting and that the remuneration of the supervisory board for the current financial year be presented for adoption at the general meeting when the annual report for the previous year is submitted for adoption.

At the company’s annual general meeting, the chairman addresses the company’s remuneration policy. The remuneration of the Supervisory Board appears from the company’s annual report and is approved each year at the company’s annual general meeting.

iii. Openness about remuneration
The Committee recommends that the annual report include information about the amounts of total remuneration of the individual members of the supervisory board and the executive board as well as other benefits of a material nature provided or granted to such members by the company or other companies within the same group.

Lundbeck does not comply with the recommendation with respect to the Executive Managament's remuneration.
The company does not disclose the remuneration paid to each individual member of the Executive Management but only the individual remuneration paid to the President & CEO and the combined remuneration paid to the other members of the company’s Executive Management.

The individual members of the Executive Management basically receive the same remuneration, and the Supervisory Board believes that disclosing the small differences in the overall remuneration that result from individual bonus schemes, etc. would not provide additional value.

In respect of defined-contribution pension schemes the Committee recommends that details be provided for contributions made or to be made by the company for an executive in the relevant financial year and for defined-benefit pension schemes that details be provided for changes in benefits saved for the individual during the relevant financial year.

Lundbeck does not comply with the recommendation
The Supervisory Board believes that disclosing the pension of each individual member of the Executive Management would not be relevant or provide additional value. All of the members of the Executive Management are comprised by a defined contribution pension scheme.

iv. Principles for establishing incentive schemes
The Committee recommends that as part of the company’s remuneration policy, the supervisory board lays down principles and guidelines governing the design of incentive schemes for the company’s executive board and supervisory board and that they reflect the interests of the shareholders and the company, match the specific conditions of the company and are reasonable in relation to the tasks and responsibilities of the members of the executive board and the supervisory board.

The Supervisory Board believes that the overall incentive programme for the company’s Executive Management and senior employees is both competitive and reasonable.
The company’s option plans have been implemented on a clear and transparent basis with the requirement that shareholders must be ensured a market conform value increase.

The Committee recommends that remuneration to the supervisory board not consist of share option schemes, but e.g. bonus schemes and shares at market price and that it be the general meeting that passes resolutions regarding incentive schemes for the supervisory board.
 The Supervisory Board of Lundbeck does not receive share options or other types of incentive programmes.

If the remuneration of the members of the executive board consists of share or subscription options, the Committee recommends that the schemes be set up as roll-over schemes (i.e. options are allocated and expire over a number of years) and that the redemption price be higher than the market price at the time of allocation.

The recommendation is not relevant because the Supervisory Board does not receive share options or other types of incentive programmes.

Moreover, the Committee recommends that the schemes be designed in a way that promotes long-term behaviour and are transparent and easy to understand (even for outsiders) and that valuation be made according to generally accepted methods.

The Supervisory Board believes that the programmes implemented promote long-term behaviour. All of the implemented programmes are valued according to Black Scholes.

v. Information about the introduction of incentive schemes
The Committee recommends that the notice convening a general meeting to consider the introduction of subscription options or any other share-based incentive scheme include an easy-to-understand statement for the shareholders explaining such decision and that the statement include information about the most important terms and conditions of the scheme and list the names of the members of the supervisory board and the executive board participating in the scheme

Lundbeck complies with the recommendation

vi. Severance schemes
The Committee recommends that information about the most important aspects of severance schemes be disclosed in the company’s annual report.

There are no unusual severance terms for the Executive Management of Lundbeck. 

 

Effective risk management is a prerequisite allowing the supervisory board to perform its tasks in the best possible way. Therefore, it is essential that the supervisory board arrange for appropriate risk management systems to be established and generally ensure that such systems meet the requirements of the company at any time.

The purpose of risk management is to:

• develop and maintain an understanding of the organisation of the company’s strategic and operational goals, including an identification of the critical success factors for achieving such goals.
• analyse the possibilities and challenges related to the implementation of the above goals as well as the risk of these goals not being met.
• analyse the most important activities launched by the company to identify the risks in this connection.
• determine the venture spirit of the company.

i. Identification of risks
The Committee recommends that the supervisory board and the executive board, when formulating the company’s strategy and overall goals, identify the greatest business risks involved in achieving such strategy and goals.

When formulating the company’s strategy, the Supervisory Board and Executive Management identify the greatest business risks.

ii. Plan for risk management
The Committee recommends that the executive board prepare a plan for the company’s risk management on the basis of the risks identified and submit this plan to the supervisory board for approval, and that the executive board regularly report to the supervisory board to allow the latter to systematically follow the trends in significant risk areas.

To a company conducting research and international operations such as Lundbeck, avoiding risk is neither possible, nor is it a defined goal. Rather, one of our defined goals is to handle such risk by maintaining a reasonable balance between costs and benefits and the associated risk. Professional risk management requires clear communication channels, horizontal as well as vertical, and that practical routines and procedures are in place for day-to-day risk management.

Lundbeck takes a systematic approach to risk management. The Supervisory Board evaluates the company’s risk management process once a year. The company has identified the greatest risks, which are monitored in an ongoing process by management as well as the Supervisory Board.
iii. Openness about risk management
The Committee recommends that the company’s annual report include information about the company’s risk management activities.

The company’s risk management activities are disclosed in the annual report.

 

Ensuring a competent and independent audit is an essential part of the supervisory board’s work. The Committee recommends that the contractual basis and thus the framework of the auditor’s work be determined between the supervisory board and the executive board.

i. The supervisory board’s nomination of an auditor candidate
The Committee recommends that having consulted the executive board, the supervisory board make a specific and critical assessment of the auditor’s independence and competence, etc., to be used in connection with the nomination of a candidate at the general meeting.

The audit committee set up by the Supervisory Board makes a critical and specific assessment of the auditor’s independence and competence and presents this assessment to the members of the Supervisory Board, who will subsequently nominate an auditor candidate at the company’s general meeting.

ii. Agreement with the auditor
The Committee recommends that the auditor agreement and the auditor’s fee be agreed between the company’s supervisory board and the auditor.

The company’s audit committee negotiates the audit agreement, including fees to the auditors, and presents the agreement for approval by all members of the Supervisory Board.

iii. Non-audit services
The Committee recommends that every year, the supervisory board lay down the overall, general scope of the auditor’s provision of non-audit services with a view to ensuring the auditor’s independence, etc.

The company’s remuneration committee draws up the overall guidelines for the auditor’s non-audit services and presents the agreement for approval by all members of the Supervisory Board.

iv. Internal control systems
The Committee recommends that at least once a year, the supervisory board review and assess the internal control systems within the company as well as the management’s guidelines for and supervision of such systems and that the supervisory board consider the extent to which this function is able to assist the supervisory board in this work.

The audit committee reviews and assesses the internal control systems and the management’s guidelines for such systems and either recommends that the members of the Supervisory Board approve the systems or ensures that the any necessary improvements are made to the control system. The Supervisory Board has set up an internal audit function to assist the audit committee with this task.

v. Accounting policies and accounting estimates
When the supervisory board reviews the annual report (or a draft of it) together with the auditor, the Committee recommends that particular efforts be made to discuss the accounting policies applied in the most important areas as well as important accounting estimates and that the expediency of the accounting policies applied be assessed.

Each year, in connection with the review of the annual report, the audit committee discusses the accounting policies with the external auditor to identify the most significant areas and the expediency of the accounting policies applied. Based on these discussions, the audit committee reports back to the Supervisory Board.

vi. Result of the audit
The Committee recommends that the result of the audit be discussed at meetings with the supervisory board for the purpose of reviewing the auditor’s observations and opinion, possibly on the basis of the long-form audit report.

To close the year-end audit, the external auditors prepare a long-form audit report, which is presented to the audit committee for their review and discussion. At the subsequent board meeting, at which the financial statements are approved, the external auditors review the long-form audit report together with the members of the Supervisory Board.

vii. Audit committee
In companies with complex accounting and audit conditions, the Committee recommends that the supervisory board consider establishing an audit committee to assist the supervisory board in accounting and audit matters.

In 2004, the Supervisory Board of the company decided to set up an audit committee, which is a committee of experts whose job is to assist the Supervisory Board in its dealings with audit and accounting matters.