AB SKF : Corporate Governance Report 2020

Corporate Governance Report

Introduction

SKF Care defines the Group's approach to securing sustainable, positive development over the short, medium and long term. SKF applies the principles of sound corporate governance as an instru-ment for increased competitiveness and to promote confidence in SKF among all stakeholders. Among other things, this means that the company maintains an efficient organizational structure with clear areas of responsibility and clear rules for delegation, that the financial, environmental and social reporting is transparent and that the company in all respects maintains good corporate citizenship.

The corporate governance principles applied by SKF are based on Swedish law, in particular the Swedish Companies Act and the Swedish Annual Accounts Act, and the regulatory system of NASDAQ Stockholm AB (Stockholm Stock Exchange).

Information under the Annual Accounts Act Chapter 6, § 6, sections 3-4, are found at page 52 of the Administration Report for the Group in the Annual Report 2020.

Swedish Code of Corporate Governance

The Swedish Code of Corporate Governance (the "Code") was origi-nally introduced on 1 July, 2005. The Code has been revised several times since the introduction and the applicable Code is available at the website of the Swedish Corporate Governance Board,www.corporategovernanceboard.se.

It is considered good stock exchange practice for Swedish com-panies whose shares are traded on a regulated market to apply the Code. SKF applies the Code, and this Corporate Governance Report has been prepared in accordance with the Code and the Swedish Annual Accounts Act. Furthermore, SKF has provided information on the company's website in line with the Code requirements. The Annual General Meeting in 2020 was also held in accordance with the Code rules. The auditor of the company has read and performed a statutory examination of the Corporate Governance Report.

General information about how the company is managed

The shareholders' meeting is the company's highest decision-making body. The Annual General Meeting of shareholders shall be held within six months after the end of the financial year. At the Annual General Meeting the shareholders exercise their voting rights for e.g. the composition of the Board of Directors, adoption of principles of remuneration for Group Management and election of external auditors. SKF has issued A and B shares. An A share entitles the shareholder to one vote and a B share to one-tenth of a vote.

The Board of Directors has a responsibility for the company's organisation and for the oversight of the management of the compa-ny's affairs and is, together with the President and Group Manage-ment defining and continuously monitoring SKF's vision, mission, values and drivers. The Chairman of the Board of Directors shall direct the work of the Board and monitor that the Board of Direc-tors fulfils its obligations. The Board annually adopts written rules of procedure for its internal work and written instructions. For more details on the rules of procedures and the written instructions, see below under the heading "Activities of the Board of Directors".

The President of the company, who is also the Chief Executive Officer, is appointed by the Board of Directors and handles the day-to-day management of the company's business in accordance with the guidelines and instructions from the Board. The approval of the Board is, for example, required in relation to investments and acquisitions above certain amounts, as well as for the appointment of certain senior managers. The President is supported by Group Management.

SKF is organized in the following business areas; Industrial Sales Americas, Industrial Sales Europe, Middle East and Africa, Industrial Sales Asia, Automotive, SKF Technology and Industrial Technologies. The responsibility for end-to-end procurement, manufacturing and logistics is combined into Bearing Operations. Further, there are three Group staff units; Group Finance, IT,

Shareholders through	External auditors
shareholders' meeting

Audit Committee

Marketing & Communication, Group Human Resources and Group Legal, Reinsurance, Brand Protection and Real Estate & Facility Management, see pages 150-151 in the Annual Report 2020. Each Group staff unit has its own defined area of responsibility and the task to define strategic directions and fundamental requirements within its area. The Director of Group Sustainability, reports, from 4 February 2020, directly to the Chief Executive Officer and has the task to assure that all relevant aspects of sustainability are addressed and integrated into operations and activities throughout the Group. Policies and instructions are in place to ensure that matters of certain importance are referred to the President and/or the Board of Directors.

Nomination Committee

At the Annual General Meeting of AB SKF held in the spring

2020, it was resolved that the company shall have a Nomination Committee formed by one representative of each of the four major shareholders with regard to the number of votes held as well as the Chairman of the Board. When constituting the Nomination Committee, the shareholdings per the last banking day in August each year would determine which shareholders are the largest with regard to the number of votes held. The names of the four share-holder representatives were to be published as soon as they had been elected, however not later than six months before the next Annual General Meeting. The Nomination Committee shall remain in office until a new Nomination Committee has been appointed.

In a press release on 25 September 2020, it was announced that a Nomination Committee consisting of the following representatives of the shareholders, besides the Chairman of the Board, had been appointed in preparation of the Annual General Meeting 2021:

• • Marcus Wallenberg, FAM

• • Anders Jonsson, Skandia

• • Anders Algotsson, AFA Försäkring

• • Evert Carlsson, Swedbank Robur Fonder

The Nomination Committee is to furnish proposals in the following matters to be presented to, and resolved by, the Annual General Meeting in 2021:

• • proposal for Chairman of the Annual General Meeting

• • proposal for Board of Directors

• • proposal for Chairman of the Board of Directors

• • proposal for fee to the Board of Directors

• • proposal for fee to the auditor

• • proposal for auditor

• • to the extent deemed necessary, proposal for new instructions for the Nomination Committee.

The proposals of the Nomination Committee were published in connection with the notice to the Annual General Meeting 2021.

The Board of Directors

Composition and remuneration of the Board

The Board shall, in addition to specially appointed members and deputies, according to the Articles of Association of SKF, comprise a minimum of five and a maximum of twelve Board members, with a maximum of five deputies. The Board members are elected each year at the Annual General Meeting for the period up to the end of the next Annual General Meeting.

The Nomination Committee proposes decisions to the Annual General Meeting regarding electoral and remuneration issues, including proposals for the composition and remuneration of the Board. As reflected in the Nomination Committee's statement regarding the composition of the proposed Board and the proposed remuneration presented to the Annual General Meeting 2020, the Nomination Committee has applied the provisions in the Code as diversity policy. The objectives of the diversity policy is for the Board to have a composition appropriate to the company's operations, phase of development and other relevant circumstances; that the Board members elected by the shareholders' meeting collectively are to exhibit diversity and breadth of qualifications, experience and background; and that the company is to strive for gender balance on the Board. The Annual General Meeting 2020 resolved to appoint Board members in accordance with the Nomination Committee's proposal.

Nine Board members, including the Chairman, were elected at AB SKF's Annual General Meeting held in the spring of 2020. Lars Wedenborn retired from the Board. In addition, the employees have appointed two Board members and two deputy Board members. No Board member, except for the President, is included in the management of the company.

Information on the composition and remuneration of the Board members decided upon by the Annual General Meeting 2020 can be found in the Annual Report 2020, Consolidated Financial State-ments, Note 23.

Independence requirements

The Board of Directors has been considered to comply with the requirements regarding independence of the Code. The table below shows the Board member's independence according to the require-ments of the Code in relation to the company and major shareholders.

Name of the Board members elected by the Annual General Meeting

Independence in relation to the company/senior management

Hans Stråberg Hock Goh

•

•

Alrik Danielson Ronnie Leten Barb Samardzich Colleen Repplier Geert Follens Håkan Buskhe Susanna Schneeberger

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•

•

•

•

•

Independence in relation to the major shareholders of the company

•

•

•

•

•

•

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Shareholders through	External auditors
shareholders' meeting

Audit Committee

Activities of the Board of Directors

The Board held ten meetings in 2020. The Board members were present at the Board meetings as described in the table below.

Presence/Total

Name of the Board member	number of meetings
Hans Stråberg (chairman)	10/10
Lars Wedenborn (resigned in March 2020)	2/2
Hock Goh	10/10
Alrik Danielson	8/10
Ronnie Leten	10/10
Barb Samardzich	10/10
Colleen Repplier	10/10
Geert Follens	10/10
Håkan Buskhe (elected in March 2020)	8/8
Susanna Schneeberger (elected in March 2020)	8/8
Jonny Hilbert	10/10
Zarko Djurovic	9/10
Kennet Carlsson	10/10
Claes Palm	10/10

The Board adopts written rules of procedure annually for its internal work. These rules prescribe i.a.:

• • the number of Board meetings and when they are to be held,

• • the items normally included in the Board agenda, and

• • the presentation to the Board of reports from the external auditors.

The Board has also issued written instructions on:

• • when and how information required for the Board's assessment of the company's and the Group's financial position shall be collected and reported to the Board, and

• • the allocation of the tasks between the Board and the President.

Issues dealt with by the Board in 2020 include i.a. market outlook and the impacts of the COvID-19 pandemic, financial reporting, capital structure, acquisitions and divestments of companies, the strategic direction and business plan of the Group and management issues as well as management of the search process for a new President and Chief Executive Officer.

The Board continuously evaluates economic, environmental and social aspects for the Group's performance and reviews specific issues such as accident rates, greenhouse gas emissions and Code of Conduct adherence.

Each new Board member has to go through a general introduction training about the SKF Group. The Board visits on a regular basis different SKF sites in order to enhance knowledge about the SKF Group.

Remuneration Committee

The Board of AB SKF has in accordance with the principles inthe Code established a Remuneration Committee consisting of the Chairman of the Board, Hans Stråberg as chairman, and the Board members Ronnie Leten and Håkan Buskhe.

The Remuneration Committee prepares matters related to the principles of remuneration for Group Management and employment conditions for the President. The principles of remuneration for Group Management shall be submitted to the Board, which shall submit a proposal for such remuneration principles to the Annual General Meeting for approval at least every fourth year. The employment conditions for the President shall be approved by the Board.

The Remuneration Committee continuously monitors and evalu-ates the SKF Group's remuneration package for Group Management. Not later than three weeks prior to the Annual General Meeting the Board submits on the company's website, in accordance with the Swedish Companies Act and the principles in the Code, a remuner-ation report.

The Remuneration Committee held three meetings in 2020. The members of the committee were present at the meetings as follows:

Name of the Board member	Total no. of meetings
Hans Stråberg (chairman)	3/3
Lars Wedenborn (resigned in March 2020)	1/1
Ronnie Leten	3/3
Håkan Buskhe (elected in March 2020)	2/2

Presence/