The Tasks of the Board of Directors

Lundbeck’s Board of Directors is responsible for approving the corporate strategy, setting goals for Executive Management, and for ensuring that members of Executive Management and other senior managers have the right qualifications. The Board of Directors also evaluates management performance and management remuneration. Furthermore, the Board of Directors has the overall responsibility for ensuring that adequate internal and external controls are in place, and for identifying and addressing any relevant risks. This responsibility is defined in the Danish Companies Act and stipulated in the rules of procedures for the Board of Directors. The Board of Directors regularly evaluates the business, our financial strategies and policies, and ensures that day-to-day management is carried out in accordance with such policies.

Executive Management reports to the Board of Directors on an ongoing basis regarding:

• Follow-up on approved strategic activities
• Key risks, including risks associated with patenting, research and development (R&D), regulatory, commercial and financial issues
• Recommendation for approval of large-scale investments and transactions which are of an unusual nature or size for Lundbeck
• Financial reporting, including follow-up on budgets, estimates, interim financial statements and annual reports
• Matters such as internal controls in the financial reporting procedures, special financial and accounting issues, evaluation of financial reporting and other financial information
• Processing of final audit book comments from the independent auditors
• Feedback from investor meetings to provide shareholders’ view on Lundbeck.

In 2019 the focus of the Board of Directors was on securing implementation of the corporate strategy that was presented in February. In particular, the Board of Directors was heavily involved in assessing external opportunities that could support the strategic imperative of ‘Rebuilding the pipeline’. This work let to two acquisitions during the year; the acquisition of Abide Therapeutics, Inc. in March and the acquisition of Alder Biopharmaceuticals, Inc. in October. As a consequence, the number of Board meetings in 2019 was higher than in previous years with 11 meetings including a two-day strategy seminar with the Executive Management team.

Another key activity for the Board of Directors in 2019 was to expand the Executive Management with three new members and thereby adding competencies to support the implementation of the corporate strategy. In February, Johan Luthman took over the position as EVP Research & Development. In April and September, two new Executive Management positions were created with Keld Flintholm Jørgensen starting as EVP Corporate Strategy & Business Development, and Elise Hauge as EVP People & Communication.

Lundbeck’s Board of Directors consists of six external directors elected by the shareholders at the Annual General Meeting, and three members elected by our Danish employees. Members elected at the Annual General Meeting are up for re-election every year, while the members elected by our employees are up for re-election every four years. In 2019, Lars Rasmussen was re-elected as Chairman and Lene Skole-Sørensen re-elected as Deputy Chairman. In 2019 the Remuneration Committee was expanded to a Remuneration & Nomination Committee, and Jeffrey Berkowitz was added as member of the Committee. No changes to the members of the Board.

Lundbeck promotes and encourages equal opportunities and diversity. Our goals regarding equal opportunities and diversity at Board of Directors level were reached in 2015. According to the goal setting, at least one of the six members elected by the shareholders should be of the underrepresented gender (women). These goals were established in 2013 and should be reached within a four-year period, to allow for continuity of the board. In terms of the 2018 board composition, there is one female board member elected by the shareholders and one elected by Lundbeck’s employees.

Lundbeck has a two-tier board structure consisting of the Board of Directors and Executive Management. No board member is a member of Lundbeck’s Executive Management. Nasdaq Copenhagen recommends that at least half of a company’s board members should be independent. The issue of board member independence is particularly relevant for Lundbeck, which has a single principal shareholder, the Lundbeck Foundation, holding 70% of the shares. Based on the guidance from Nasdaq Copenhagen, four of the six board members elected at the Annual General Meeting are independent, while two members, due to their close affiliation with the Foundation, are not. The Foundation does not nominate the chairman of Lundbeck’s Board of Directors, but only recommends members for the position of deputy chairman and two ordinary board members.

Every year, Lundbeck’s Board of Directors and Executive Management conduct a board evaluation. In 2019, the annual evaluation of the Board of Directors was performed by an independent external consultancy firm. The evaluation consisted of a bespoke online questionnaire where board members and the executive management participated anonymously followed up by individual personal interviews with each board member and each member of the executive management.

The evaluation looked into the board’s contribution, composition, cooperation with executive management, the chairman’s leadership of the board of directors, the work in the committees and the committee structure, and the organization and quality of the material submitted to the board of directors. Each board member was also evaluated anonymously by other board members and the executive management on their individual contribution. Additionally, the evaluation included desk-research analysis, hereunder an analysis on how time has been spent at the board meetings, the composition of the board and a board composition benchmarking.

The overall conclusion of the evaluation is that the board is a well performing board.

The result of the evaluation showed that the board has actively participated in the strategy process and that the members articulate the strategy in a strong unified way. This is considered a key strength. All board members are regarded as engaged and committed. Additionally, members feel they can voice their opinions, ask questions, and that discussions at board meetings are conducted in a constructive, open and inclusive manner. The board meetings are perceived to be very well led by the Chairman, whose key strength is that of being an experienced former executive who is particularly valued for his ability to create a trusting and respectful atmosphere. The chairmanship is recognized for its high ethics, diligence, relevant questions and executive experience. The board and especially the chairmanship together with the leadership team, are particularly recognized for proving their worth in challenging times by managing a longer period with an interim CEO. The board interacts very well with the leadership team who is positively engaged at board meetings and welcomes discussions and challenges from the board.

Going forward and in order to take the board to the next level, the evaluation suggests focus on three areas: Board competencies, the chairmanship and committees, and the board agendas. The board has over the last years improved its competencies within the pharma area by recruiting two new board members with industry expertise. This has been valued and benefits both the company and its strategy. It is important to continuously secure capability in this areas as well as in having global R&D competencies. The collaboration between the relatively new CEO and the Chairmanship has over the past year been very close and with the CEO being well in place, it is now suggested that the chairmanship take a step back and focus more on their stewardship role. Similarly, with a new EVP of R&D in place, the functioning of the Scientific Committee has also improved. Focus on succession planning of the executive management team and general talent management will be important going forward and thus the board and the nomination committee will work closely with the newly hired EVP of People & Communication. Finally, the evaluation recommended that the board continues to finetune the strategic plan and ensures sufficient time on the agenda for strategic discussions and alignment in terms of key strategic actions.

The general procedure for the evaluation of the Board of Directors can be found here.

The procedure for selection and nomination of board candidates can be found here.

The Board of Directors analyses the company’s need for capital on an ongoing basis, including an assessment of the company’s capital structure.

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 Board of Directors 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 takes place through annual dividends and if appropriate share buyback programs.

The Chairman and Deputy Chairman ensure that the Board of Directors’ tasks and responsibilities are handled in a balanced and satisfactory manner. In addition to activities related to strategic, financial and operational supervision of Executive Management. In March 2016, the Board of Directors elected Lars Søren Rasmussen as Chairman and Lene Skole-Sørensen as Deputy Chairman, and they have annually been re-elected at the annual general meetings since then.     

The Board of Directors has set up three advisory committees: The Audit Committee, the Remuneration & Nomination Committee and the Scientific Committee. The three committees advise the Board on financial information and reporting, the company’s remuneration and nomination strategy including remuneration of Executive Management, and R&D, respectively. The Chairman of the Board of Directors is not Chairman of the Audit Committee.

The Audit Committee provides advice to the Board of Directors on internal and external controls in financial reporting procedures, special financial and accounting issues, evaluation of financial reporting and other financial information and risk management issues. 

• The Audit Committee provides advice on the basis of:
• Meetings with the Corporate Management Group and internal and independent auditors
• Management’s recommendation concerning accounting policies, accounting estimates, new accounting standards and significant single transactions
• Critical guidelines and policies for internal controls and financial reporting procedures
• Annual strategy, audit plans and review of status on audit procedures performed by Internal Audit
• Communication from independent auditors to the Board of Directors, including monitoring and control of auditors’ independence, review of audit planning and draft audit book comments
• Systematic review of the company’s risk exposure
• Cases received through the whistle-blower system

In March 2019, the Board of Directors re-elected Henrik Andersen as Chairman and Lars Søren Rasmussen and Lars Erik Holmqvist as members of the Audit Committee. The Chairman of the Board does not act as Chairman of the Audit Committee and more than half of the members are independent.

The Remuneration & Nomination Committee informs the Board of Directors of remuneration and nomination decisions regarding members of Executive Management. The Committee also advises on the company’s overall remuneration policy and prepares the remuneration report. Additionally, the Committee handles assignments related to recruitment and appointments to Lundbeck’s Board of Directors and to the senior management and annually assesses the composition and results of the Board, the Executive Management and the Committees.

In 2019, the previous Remuneration Committee was expanded to become the Remuneration & Nomination Committee and Jefferey Berkowitz was elected by the Board of Directors to join Lars Søren Rasmussen and Lene Skole-Sørensen in this Committee. Lars Søren Rasmussen as Chairman and Lene Skole-Sørensen were re-elected in March 2019. More than half of the members in the Remuneration & Nomination Committee are independent.  

Lundbeck’s Board of Directors has a Scientific Committee, the purpose of which is to advise the Board of Directors on support for strategic research and development.

In March 2019, the Board of Directors re-elected Jeremy Max Levin as Chairman and Lene Skole-Sørensen and Jeffrey Berkowitz as members of the Scientific Committee.

The charter for the Scientific Committee can be found here.