Activities during the year

Annual General Meeting

Essity held its AGM in Stockholm on Thursday, April 12, 2018.

The AGM elected the company’s Board of Directors. Moreover, guidelines for determining the salary and other remuneration of the President and other senior executives were adopted, see chapter Remuneration, Management and Board of Directors and Note C3.

Nomination Committee

Under the Swedish Corporate Governance Code, a company listed on Nasdaq Stockholm shall have a nomination committee, the purpose of which is to make proposals to the AGM in respect of the election of the Chairman of the Meeting, Board of Directors, Chairman of the Board and auditor, remuneration of each Board Member (divided between the Chairman of the Board and other Board Members), remuneration of the auditor, and where applicable, proposals for amendments to the instruction for the Nomination Committee. At the 2017 AGM, the following instructions to the Nomination Committee were adopted to apply until further notice:

“The Nomination Committee is to comprise representatives of the four largest shareholders in terms of voting rights as per the shareholders’ register maintained by the company on the final banking day of August, as well as the Chairman of the Board, who also convenes the first meeting of the Nomination Committee. The member representing the largest shareholder in terms of votes is to be appointed as Chairman of the Nomination Committee. The Chairman of the Board shall not be Chairman of the Nomination Committee. If necessary, due to subsequent ownership changes, the Nomination Committee is entitled to call on one or two additional members from among the next largest shareholders in terms of voting rights. The total number of members shall be not more than seven. In the event that a member steps down from the Nomination Committee before the task is completed and the Nomination Committee decides it would be beneficial for a replacement to be appointed, such a replacement is to be appointed by the same shareholder or, if this shareholder is no longer among the largest shareholders in terms of voting rights, by the next largest shareholder in terms of voting rights. Changes to the composition of the Nomination Committee are to be disclosed immediately.

The composition of the Nomination Committee is to be announced by Essity no later than six months prior to the AGM. No remuneration is to be paid to the members of the Nomination Committee. Any expenses incurred during the work of the Nomination Committee are to be paid by Essity. The mandate period of the Nomination Committee extends until the composition of the next Nomination Committee is disclosed. The Nomination Committee is to submit proposals relating to the Chairman of the Meeting, the Board of Directors, the Chairman of the Board, Board fees for the Chairman of the Board and each of the other Board members, including remuneration for committee work, the company’s auditor and auditor’s fees, and to the extent deemed necessary, proposals for amendments to this instruction.”

In its work, the Nomination Committee is to consider the rules that apply to the independence of Board members, as well as the requirement of diversity and breadth with the endeavor to achieve an even gender distribution and that the selection shall be based on expertise and experience relevant to Essity.

Composition of the Nomination Committee for the 2019 AGM

The composition of the Nomination Committee for the 2019 AGM is as follows:

• Helena Stjernholm, AB Industrivärden, Chairman of the Nomination Committee
• Petter Johnsen, Norges Bank Investment Management
• Stefan Nilsson, Handelsbanken Pension Funds and others
• Marianne Nilsson, Swedbank Robur Funds
• Pär Boman, Chairman of the Board, Essity

All shareholders have had an opportunity to submit proposals to the Nomination Committee. The Nomination Committee’s proposal for the 2019 AGM is presented in the notice convening the AGM available on Essity’s website www.essity.com. The 2019 AGM will be held on Thursday, April 4, see chapter Information to shareholders.

The Nomination Committee was convened on four occasions prior to the 2019 AGM. The Chairman of the Board presented the Board evaluation and provided the Nomination Committee with information regarding Board and committee work during the year. When preparing proposals for the Board for the 2019 AGM, particular attention has been paid to the issues of diversity and an even gender distribution, and the Nomination Committee thus applied Item 4.1 of the Swedish Corporate Governance Code as its diversity policy. The aim was to retain gender balance on both the Board and the Board’s committees. When preparing its proposal for the election of auditors, the Nomination Committee also gave consideration to the recommendation of the Audit Committee.

Board of Directors

Essity’s Board of Directors comprises nine members elected by the AGM.

Ewa Björling, Pär Boman, Maija-Liisa Friman, Annemarie Gardshol, Magnus Groth, Bert Nordberg, Louise Svanberg, Lars Rebien Sørensen and Barbara Milian Thoralfsson were elected as Board members in 2018. Pär Boman was elected as the Chairman of the Board.

The independence of Board members is presented in the table above. Essity complies with the requirements of the Swedish Corporate Governance Code that stipulate that not more than one member elected by the AGM shall be a member of company management, that the majority of the members elected by the AGM shall be independent of the company and company management, and that not fewer than two of these shall also be independent of the company’s major shareholders. All of the AGM-elected Board members have experience of the requirements incumbent upon a listed company. Five of the Board members are women, corresponding to 55% of the total number of AGM-elected Board members. The employees have appointed Tina Elvingsson Engfors, Örjan Svensson and Niclas Thulin as representatives to the Board for the period until the 2019 AGM, and their deputies Niklas Engdahl, Martin Ericsson and Andreas Larsson.

Board activities

In 2018, the Board was convened 11 times. The Board has fixed working procedures that describe in detail which ordinary agenda items are to be addressed at the various Board meetings of the year. Recurring agenda items are finances, the market situation, investments and adoption of the financial reports. The Board also establishes and evaluates the company’s overall targets and strategy and decides on significant internal rules. Another key task is to continuously monitor the internal control of the compliance of the company and its employees with relevant internal and external rules, and that the company has well-functioning procedures for market disclosures. On a regular basis throughout the year, the Board has also dealt with reports from the Audit and Remuneration Committees and reports on strategy, market, internal audit, internal control and financial operations. The company’s auditor regularly present a report on its audit work and these issues are discussed by the Board. The Business Unit Presidents present their respective operations and current issues affecting them.

In 2018, the Board of Directors has — in addition to the customary work of the Board — focused on the integration of BSN medical and on issues within the scope of ongoing efficiency improvement and profitability programs, such as Cure or Kill and Tissue Roadmap. During the autumn, the Board of Directors also focused on strategy work and issues in connection with the cost-savings program presented by the company on September 28, in light of the market situation, raised raw material and energy costs and events in the business environment.

Evaluation of the Board’s work

The work of the Board, like that of the President and the Chairman, is evaluated annually using a systematic and structured process. The purpose of this work is to obtain a sound basis for the Board’s own development work and to provide the Nomination Committee with decision data for its nomination work. External expertise was used. The evaluation took the form of an anonymous questionnaire and interviews as well as group and individual discussions. The evaluation covers such areas as the Board’s methods of work, effectiveness, expertise and the year’s work. The Board was provided with feedback after the results were compiled. The Nomination Committee was also informed of the results of the evaluation.

Audit Committee

The Audit Committee comprises Chairman Barbara Milian Thoralfsson, Pär Boman and Bert Nordberg. The Audit Committee held six meetings during the year. In addition, members have also held meetings with internal audit, the auditors and the CFO, and held meetings with the auditors and CFOs of large partly-owned companies. In its monitoring of the financial reporting, the Committee dealt with relevant accounting issues, internal auditors’ reviews, auditing work, a review of various measurement issues, such as testing of impairment requirements for goodwill, and the preconditions for the year’s pension liability calculations. The Audit Committee also prepared a recommendation to be used by the Nomination Committee when deciding on its proposal to the AGM regarding the election of auditors.

Remuneration Committee

The Remuneration Committee comprises Chairman Pär Boman, Bert Nordberg and Louise Svanberg. The Remuneration Committee held four meetings in 2018. Activities mainly concerned remuneration and other employment terms and conditions for senior executives, and current remuneration structures and remuneration levels in the Group.

Internal audit

The basis of the work of the internal audit is a risk analysis conducted in cooperation with Essity’s management team. The risk analysis concludes in an audit plan, which is presented to the Audit Committee. In 2018, 117 audit projects were performed and reported at meetings with the Audit Committee.

Work in 2018 involved follow-up of the units’ progress with process-based control, follow-up of the efficiency in internal governance and control, and follow-up of compliance with Essity’s policies.

External auditor

The 2018 Annual General Meeting appointed the accounting firm of Ernst & Young AB as the company’s auditor for a mandate period of one year. The accounting firm notified the company that Hamish Mabon, Authorized Public Accountant, would be the auditor in charge. Hamish Mabon is also the auditor for Svenska Cellulosa Aktiebolaget SCA, Skanska AB, AB Tetra Pak and Husqvarna AB, among other companies. He owns no shares in the company.

In accordance with its formal work plan, the Board met with the auditors at two scheduled Board meetings in 2018. The auditor also attended each meeting of the Audit Committee. At these meetings, the auditor presented and received opinions on the focus and scope of the planned audit and delivered verbal audit and review reports. Furthermore, at the Board’s third scheduled autumn meeting, the auditor delivered an in-depth verbal report on the audit for the year. The working procedures specify a number of mandatory issues that must be addressed. These include matters of importance that have been a cause for concern or discussion during the audit, business routines and transactions where differences of opinion may exist regarding the choice of accounting methods. The auditor shall also disclose consultancy work conducted for Essity as well as other dependencies in relation to the company and its management. On each occasion, Board members have had an opportunity to ask the auditors questions. Certain parts of the detailed discussion on the accounts take place without representatives of company management being present.