Billerud’s corporate governance in 2010

This report on corporate governance in the Billerud Group for 2010 has been organised in accordance with regulations in the Swedish Code on Corporate Governance, which took effect 1 July 2005 and was most recently revised effective 1 February 2010. The Code was introduced at Billerud in spring 2005. The Swedish Annual Accounts Act now requires a corporate governance report.

In 2010, Billerud complied with the Swedish Code of Corporate Governance in all respects except for the following. Item 2.1.2 concerns the composition of the Board of Directors, the reason for non-compliance being that the 2010 AGM resolved that the chairman of the nomination committee shall be the Board member representing the largest shareholder in number of shares. Michael M.F. Kaufmann represents the largest shareholder and is therefore chairman of the nomination committee. He is also a Board member and Deputy chairman of the Board. Other exceptions to the Code were item 6.2 concerning the Chairman of the Board and item 9.3 concerning remuneration of senior management. The latter two items are not applicable to the Billerud Group.

Ownership structure and shares

At year-end 2010, the total number of shareholders was 120 733, compared to 122 192 at the previous year-end. The proportion of foreign ownership increased, to 44.0% (43.1), excluding shares that Billerud bought back (1 720 314). Other groups of shareholders consist of private individuals in Sweden, 38.5% (37.9), and legal entities in Sweden, 17.5% (19.0). Further details about the Company’s shares, shareholders and the like are presented in the 2010 Annual Report, under “The Billerud share”, and on the Company’s website.

Shareholder meetings and related matters

2010 Annual General Meeting

The 2010 Annual General Meeting (AGM) took place on 4 May 2010 at Nalen, Regeringsgatan 74, Stockholm. Among other matters, the AGM voted to re-elect the existing Board: Ingvar Petersson, Gunilla Jönson, Michael M.F. Kaufmann, Per Lundberg, Ewald Nageler, Yngve Stade and Meg Tivéus.

Rules for shareholders’ meetings

Under the Companies Act, the shareholders’ meeting is the Company’s ultimate decision-making body. Shareholders exercise their voting rights at the meeting. All shareholders entered in the share register on the record date who have notified the Company in time are entitled to participate in the meeting and vote their total holdings of shares. Resolutions are usually passed at a shareholders’ meeting by simple majority except in those cases when the Companies Act stipulates a higher proportion of votes cast and shares represented at the meeting. Resolutions passed at a shareholders’ meeting are made public after the meeting in a press release, and the minutes of the meeting are published on the Company’s website. The meeting decides on matters such as whether to adopt the Company’s annual accounts, how to appropriate the Company’s profit/loss and whether to discharge the members of the Board and the CEO from liability for the year. The Annual General Meeting also elects members of the Board and auditors and votes on the establishment of a nomination committee, fees for the Board of Directors and auditors and guidelines for determining the salaries and other remuneration for the CEO and Group management. The AGM shall be held in Stockholm within six months from the end of the financial year. Notice of the AGM will be published as an advertisement in Post och Inrikes Tidningar and an announcement in Svenska Dagbladet and be posted on the Company’s website. Information about Billerud’s major shareholders is provided under “The Billerud share” in the Directors’ report.

2011 Annual General Meeting

The 2011 AGM will take place on 4 May 2011 at 3 pm at Hotel Rival, Mariatorget 3, Stockholm. Billerud’s website contains information about how to register to attend the AGM and how to submit a matter to be dealt with by the AGM.

Nomination committee for the 2011 AGM

Pursuant to a decision by Billerud AB’s AGM held 4 May 2010, the Chairman of the Board contacted the largest shareholders, after which a nomination committee was appointed. On 1 November 2010, the nomination committee for the 2011 AGM was announced.

No separate remuneration was paid to the chairman or any other members of the nomination committee.

Ahead of the 2011 AGM, the nomination committee held four meetings (with minutes taken), keeping in contact in between meetings by phone and e-mail. Shareholders have been welcome to submit proposals and opinions to the nomination committee by e-mail or mail. On Billerud’s website, a section for the nomination committee in the corporate governance area provides information to shareholders who wish to communicate with the committee.

The Board

Composition

The articles of association stipulate that the Board of Directors of Billerud AB contain at least six members and at most 10 members, with at most six deputies. Board members are appointed for one year at a time. The Company’s CEO is not a member of the Board. All but two members of the Board elected by the AGM are independent of the Company, Group management and major shareholders. Michael M. F. Kaufmann is the CEO and Ewald Nageler the CFO of the parent company of Frapag Beteiligungsholding AG, Billerud AB’s largest shareholder, and are thus not independent of the Company’s major shareholders, as defined by the Swedish Code of Corporate Governance and the regulations of NASDAQ OMX Stockholm AB. The Board also includes two members and two deputies appointed by the trade unions in accordance with the law on board representation for employees in the private sector. These four Board members are employees and thus not independent of the Company.

In 2010, the Board’s external secretary was Wilhelm Lüning, of the legal firm Advokatfirman Cederquist.

All Board members have completed NASDAQ OMX Stockholm AB’s training for board members and senior executives in listed companies.

Organisation of the work of the Board

The work of the Board follows written rules of procedure and a meeting schedule, to ensure that the Board receives comprehensive information and that all Company activities concerning the Board are dealt with. The rules of procedure prescribe the information to be supplied to the Board, among other things, and are available on the Company’s website, as are the instructions for Billerud’s CEO.

The Board has also established a number of general policies for the Company’s activities. These policies are revised as necessary. They include policies on corporate governance, finance and communications and a single policy covering quality, the environment and the community. The latter policy covers Billerud’s approach to ethical business conduct and the environment.

Work of the Board in 2010

During 2010 the Board held 11 meetings, of which one was per capsulam, in addition to the meeting following election. One meeting is mainly devoted to strategy and one to finance issues. The Chairman leads the work of the Board, monitors the business in dialogue with the CEO and is responsible for the other Board members receiving the information and documentation necessary for discussions and decisions. During 2010 the work of the Board focused on managing, in addition to ordinary agenda items:

• January/February: Annual financial statements, year-end report, audit
• March: AGM agenda, financing
• April/May: AGM, interim report, investments, audits and financing
• June: mill visit, review of corporate governance, legal issues relating to competition and financing
• September: strategy, investments
• October: interim report
• December: financing including finance policy, issues regarding the annual financial statements, budget for 2011, audit, sustainability report and evaluation of the work of the Board and CEO

In 2010, extra emphasis was placed on the continued development of new products and customer concepts in close cooperation with end customers, growth, sustainability issues as well as cost savings and wood supply.

During the year, mill managers and other senior management have also made presentations about and discussed their areas of responsibility with the Board. Minutes are taken at all Board meetings and distributed to Board members in compliance with the Swedish Code of Corporate Governance.

Assessment

Billerud has routines for assessing the work of the Chairman and members of the Board each year. For 2010, the Board of Directors was assessed by an external party who took into account economic, social and environmental aspects. The external party reported the results to the Board and the nomination committee. The assessment serves as input for an action plan for improvement as well as background for the nomination committee’s work as they assemble a Board.

The Board also continually evaluates the work of the CEO. Once a year an assessment is made of the CEO without the CEO being present.

Corporate Governance at Billerud

Board committees

The Board currently has two committees: the audit committee, established in 2004, and the compensation committee, established in 2001. The Board appoints the members of these committees.

Audit committee

The Board is ultimately responsible for ensuring that satisfactory controls are in place for risk management, accounting, financial reporting and similar issues. To support the Board in its supervisory role, an audit committee was established in 2004.

The chief task of the committee is to contribute to policies adopted for financial reporting and internal control and to ensure compliance with those policies as well as to maintain an appropriate relationship with the Company’s auditors as per the Board of Directors’ instructions to the audit committee. The audit committee is a preparatory body and part of the Board. The audit committee continually reports the results of its work, in the form of observations, recommendations and proposed resolutions and corrective actions, to the Board, which must make any decisions that result from the committee’s work. Further, the committee shall monitor the Company’s accounting policies, risk management and internal control. Finally, the committee shall organise the election of the auditors and their fees. Minutes are kept of the meetings of the audit committee and provided to the Board. The rules of procedure for the audit committee are presented in full on the Company’s website. The audit committee consists of four members: Per Lundberg (chair), Ingvar Petersson, Kurt Lindvall and Meg Tivéus. All members except one are independent of the Company. Kurt Lindvall is a Billerud employee and thus not independent of the Company. During 2010, the secretary of the audit committee was Wilhelm Lüning, of the legal firm Advokatfirman Cederquist.

Work in 2010

During 2010, the audit committee held six meetings, two of which were teleconferences. The table on pages 104-105 presenting members of the Board shows attendance by the committee members. During the year, the committee addressed various accounting issues, the audit plan for 2010, risk analysis, internal control and policy issues. The committee also met ahead of the publication of each interim report and the year-end report, when the members addressed accounting and reporting issues related to each publication. The chairman of the audit committee regularly reports to the Board on committee meetings. The Board’s work on internal control related to financial reporting is summarised in “Internal controls and risk management for financial reporting in 2010”.

Compensation committee

The 2010 AGM voted on guidelines for remuneration of senior executives; see note 24 in the 2010 annual report. The Board set up a compensation committee tasked with proposing a general policy for salaries, remuneration and other general employment terms within Billerud as well as approving the CEO’s proposal for salaries and remuneration for the senior management team within the framework of the policy. The committee also makes proposals to the Board, which decides on the salary and other remuneration for the CEO. The rules of procedure for the compensation committee are presented in full on the Company’s website. The members of the committee are Ingvar Petersson, (chairman), Per Lundberg and Yngve Stade. Cecilia Lundin, Senior Vice President Corporate Human Resources, was during 2010 the secretary but not a member of the committee.

Work in 2010

The committee held three meetings in 2010. Attendance of members of the committee is shown in the table presenting the Board on pages 104-105. In 2010, the committee considered the actual 2009 variable salaries, criteria for the 2010 variable salaries, criteria for the 2011 variable salaries for the senior management team and salary reviews for the senior management team in 2010. Further the committee addressed the outcome of LTIP 2007, the structure of LTIP 2010 and the graduate training programme.

The principles for remuneration to the CEO and other senior executives, as well as actual figures, are contained in note 24 of the 2010 annual report.

Auditors

Accounting firm is Ernst & Young AB, represented by authorised public accountant Lars Träff, managing auditor, for three years until the 2013 AGM.

Lars Träff

Born 1954. Authorised public accountant at Ernst & Young AB. Auditor of Billerud from 2009 until the financial year of 2012.

Public accountant for Boliden, Posten, Lantmännen, the ÅF Group, Scania and Öresund.

To ensure that the work of the Board and the audit committee is performed in a structured manner and to satisfy the Board’s information requirements, Billerud’s auditors met with the audit committee on three occasions and with the Board on one occasion in 2010.

CEO and senior management team

The CEO is appointed by the Board and is responsible for the ongoing management of the Company’s and Group’s business operations in accordance with instructions established by the Board. The CEO also chairs the senior management team and makes decisions in consultation with the other senior executives. The senior management team has seven members in addition to the CEO: the Chief Financial Officer (CFO), Senior Vice President Corporate Human Resources, Production Director, Technical Director and the three Business Area Directors. The senior management team normally meets once a week, alternate weeks in face-to-face meetings and in video- or teleconferences.

In 2010, the senior management team addressed issues concerning financing, crisis management, cost savings, wood supplies and wood prices, production, energy, markets and pricing, environmental issues and permits, investment, strategy and human resources. The executives also report on projects underway in their areas of responsibility. At each meeting, a situation report is presented for each unit in the Company and the current financial report is reviewed.

Billerud is divided into three business areas: Packaging & Speciality Paper, Packaging Boards and Market Pulp. These were chosen deliberately to sharpen our customer focus and clarify our offering for the market. Each business area is responsible for sales, marketing and development in its own product area. Each area is also accountable for its own profit, based on predetermined production costs. The Billerud mills are responsible for production and efficiency, which is the basis for their financial accountability. The senior management team has organised several Group-wide networks, each of which is convened and chaired by a member of the team or some other person who reports directly to the CEO.

The following committees were active in 2010:

All members of the senior management team have attended NASDAQ OMX Stockholm AB’s training for board members and senior executives of listed companies.

Principles for remuneration of senior executives

The 2010 AGM adopted the principle that remuneration and employment terms should be market-based. Satisfactory work shall be remunerated with a fixed salary.

In addition, variable remuneration may be offered as a reward for achieving fixed targets. For the complete resolution on principles for remuneration, see note 24 of the 2010 annual report. The Board’s proposal for guidelines in 2011 is presented in the Directors’ report.