Cover Sheet For all handiness Course code: FEAD17 Course name: Corporate Governance (Group assignment of block III)
Title of the work:
Corporate Governance in “Sandvik”
The date: 2011-03-28 Name of student:
Family name Afshari Vafa Saleem Wasinwasukul
Given name T-number Behrouz 820916-T630 Hammad 840930-T697 Mingkhwun 880224-T169
Name of the teacher: Prof. Bo Enquest & Dr. Samuel Petros Sebhatu
Filled out by the examiner First return: _________ Second return: __________ Third return: __________ Passed: __________ Received points: __________ Grade: __________ Examiner: ________________
Corporate Governance in “Sandvik”
Table of Contents
Chapter 1: Introduction ............................................................................................................. 3 Chapter 2: Sandvik in figures .................................................................................................... 4 2.1 Sandvik’s brief history .................................................................................................... 4 2.2 Ownership structure......................................................................................................... 5 2.3 Sandvik’s share................................................................................................................ 6 Chapter 3: business concepts and strategies in Sandvik............................................................ 7 Chapter 4: Corporate Governance in Sandvik......................................................................... 10 4.1 Ownership structure....................................................................................................... 11 4.2 Shareholder meetings .................................................................................................... 11 4.3 The board of directors ................................................................................................... 12 4.3.1 Procedural Guidelines ............................................................................................ 12 4.3.2 Evaluation of the board’s work and the President .................................................. 12 4.3.3 Independence.......................................................................................................... 13 4.4 Nomination Committee ................................................................................................. 13 4.5 Remuneration Committee.............................................................................................. 13 4.6 Audit Committee ........................................................................................................... 14 4.7 The external auditor....................................................................................................... 14 4.8 Operational Management .............................................................................................. 14 4.9 Internal control and risk management ........................................................................... 15 4.10 Integration of acquired companies .............................................................................. 15 Chapter 5: Corporate Responsibility in Sandvik ..................................................................... 16 5.1 Corporate Environmental Responsibility in Sandvik .................................................... 17 5.2 Corporate Social Responsibility in Sandvik.................................................................. 19 5.2.1 Employees .............................................................................................................. 19 5.2.2 Community involvement ........................................................................................ 20 Chapter 6: proposal context of Corporate Governance in Sandvik ......................................... 21 6.1 Theoretical aspects of corporate governance in context of Sandvik ............................. 21 6.2 footprints of Swedish style in corporate governing....................................................... 22
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6.3 The role of Institutional investors in Sandvik ............................................................... 22 6.4 Board diversity in Sandvik ............................................................................................ 23 6.5 Sandvik as a socially responsible investment................................................................ 23 Chapter 7: Conclusion ............................................................................................................. 24 Appendix A ............................................................................................................................. 25 References ............................................................................................................................... 26
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Corporate Governance in “Sandvik” Chapter 1: Introduction
Sandvik is an engineering group with advanced products and high technology based in Sandviken, Sweden. The group is well-positioned (leader) in areas where it works. Sandvik's business activities are present in over 130 countries. Expertise in materials technology and knowledge in the client process are the forces operating from Sandvik. Sandvik has global leadership positions in three major areas: ? ? ? Sandvik Tooling group: mainly work in tool industry and tooling systems for metal cutting. Sandvik Mining and Construction group: works in areas like equipment, tools and services for mining and construction. Sandvik Materials Technology group: involves to the development of products in advanced stainless materials, special alloys, metallic resistance materials and CE-Ramic and treatment systems.
Furthermore, Seco Tools, an independent company, is also a member of the group. In 2010, the Group had 47,000 employees and sales of approximately 83 billion SEK. Sandvik’s operations are based on unique expertise in materials technology and comprehensive insight into customer processes. In the following of this report, we will introduce Sandvik by more detailed information from stakeholders point of view in the chapter two. In this chapter, we will try to create a transparent picture from Sandvik for finding of corporate governance and corporate responsibility’s footprints. Chapter three is where that fundamental values and business concepts of Sandvik are discussed. It is expected that the strategy map of Sandvik should show to us where is the position of corporate responsibility and corporate governance issues in context of decision making in Sandvik. In chapter four, we will use our created insight about Sandvik from previous chapters and clarify the Sandvik practices in corporate governance area. We will trace the Swedish corporate governance code and some relevant guidelines in the case of Sandvik. Finding of interrelationships between different aspect of Sandvik values and strategies with corporate governance concepts will be our other task in this chapter. In chapter five, we will discuss about one of the most challengeable issues in modern business, corporate responsibility. However, this phenomenon is widespread, but in
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the case of Sandvik, we will limitedly consider some branch of it, like corporate environmental responsibilities and corporate social responsibilities. Of course, our focus will be more on CSR. In chapter six, based on cited arguments, reflections and interpretations in previous chapters, we will attempt to build “a contextual based corporate governance” for Sandvik. We aware that our insight about different aspects of Sandvik’s business maybe is not complete and this fact will affect on our final outputs, but it is expected that our attempt lead to an outline for “corporate governance” which can handle responsibility issues. Eventually in the last chapter, a conclusion from different steps of this case study present. We targeted that our arguments should help us in the creation of a proposal structure that can cover different aspects of CG issues. Although already we know our collected data for such a comprehensive thinking approach is so low, but we will try to create a bridge between our theoretical knowledge and real fact in Sandvik.
Chapter 2: Sandvik in figures
Since foundation of “Sandvik” in Sandviken of Sweden in 1862, the business philosophy has been largely the same through the years: Sandvik shall be the leader in selected areas. Products are based on high value content and are developed in close cooperation with customers. Sandvik’s goal is actively improving the customers’ productivity and, simultaneously, their profitability. As a principle, Sandvik believe its products and services should provide maximum value to customers in terms of performance, quality, speed, safety, flexibility and total economy. In the following of this chapter, with stakeholder perspective in mind different aspects of Sandvik’s business are described1.
2.1 Sandvik’s brief history
Göran Fredrik Göransson founded Sandvik Corporation in 1862. He was a pioneer in his genre as it was the first in the world to succeed in using the Bessemer method for steel production on industrial scale. He focused on quality and high value-added investments in R & D, close contact with customers and exports. This strategy has remained unchanged over the years.
1
The source of all figures, tables and facts are presented in this chapter are Sandvik’s WebPages. Page 4 of 26
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Sandvik registered at the Stockholm Stock Exchange in 1901. During the 1960s, a global investment program was carried out at the main factory in Sandviken and consequently the name of company was changed from Sandvikens Jernverk AB to Sandvik AB in 1972. In 1984, a decentralized organization program was introduced, with a parent company, discrete business units, regional companies and service companies. In addition to the organic growth, Sandvik's expansion has also involved a series of company acquisitions over the years. In 1999, officially Sandvik's operations were concentrated on three core areas: Tooling, Mining and Construction and Specialty Steels. The last mentioned business area changed name to Materials Technology on 1 January 2003.
2.2 Ownership structure
Sandvik is a listed company on the Nasdaq OMX Nordic Exchange Stockholm and is one of the Stockholm Stock Exchange's oldest companies, with a listing dating back to 1901. The Sandvik share can be traded in the US in the form of ADRs (American Depositary Receipts). Industrivärden AB (11.7%), Swedbank Robur Funds (5.0%) and Handelsbanken Pension plans Foundation (4.0%) introduce the main composition of ownership in Sandvik at 31 December 2010 but still there are some other owners with more than one percentage interest in company. It seems the authority of firm controlling is well distributed between shareholders. Following list is Sandvik’s ten largest shareholders and their shares percentages since five year ago. Table 1: Ownership structure shareholders 2010 Industrivärden AB 11.7 Swedbank Robur Funds 5.0 Handelsbanken’s Pension plans Foundation 4.0 Alecta Pension Insurance 3.4 Omnibus Account W FD OM80 3.0 AMF Pension Insurance 2.0 Lundbergföretagen AB LE 2.0 SSB CL Omnibus ACV OM03 (0 PCT) Pension Fund 1.8 Nordea Investment Funds 1.8 Handelsbanken Funds 1.7
2009 11.4 4.7 4.0 2.5 2.5 1.8 1.2 1.0 0.4 1.9
2008 11.5 3.4 4.0 3.4 1.3 1.2 0.6 1.4
2007 11.5 2.3 4.0 3.1 1.5 1.1 0.9 2.1
2006 11.0 2.4 3.8 2.9 1.8 0.6 1.4 2.0
Other important aspect of above-mentioned composition of shareholders is the approximately equal contribution of different institutional investors in ownership
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level that can significantly help to implementation of acceptable level of corporate governance and corporate social responsibility in Sandvik. In future chapters will talk more about this evidence.
2.3 Sandvik’s share
It is indisputable fact that Sandvik with 141.41 billion SEK market capital (in 2011.03.25), is the one of the most important companies in the Nordic countries and , many financial analysts continually trace its price changes. Sandvik, during the past ten years, has acquired about 40 companies in 20 countries and in terms of market n capitalization; Sandvik was ranked the eighth largest company on the OMXS in 2009 2009. From 2001 to 2011, the market share of Sandvik has increased by approximately 40 to 120, representing an increase of three times. However, from end of 2008 to middle of rom 2009, the market share of Sandvik had a significant drop. So apart from this period, h the market share of Sandvik has been constantly growing. Following chart shows the position of Sandvik share price in comparison with its andvik main competitors (SKF and Atlas Copco) and of course with general and sector index course of market. Graphs show on average that the trend of Sandvik’s share price has been hs more correlated to the sector index and its fluctuation has been more tolerable than Atlas Copco but not SKF. The lower part of graph is related to daily change of elated Sandvik price during last ten years ago. As we can see, during financial crises (late of 2008 and early of 2009) the price of share has had the most fluctuation in comparison to other times. Figure 1: relative comparison of Sandvik share price
Sandvik OMXS MSCI Europe Machinery Atlas Copco SKF B
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Since the objective of this report is not going to financial analyses, the more financial information and ratios of Sandvik like is presented in appendix A.
Chapter 3: business concepts and strategies in Sandvik
Sandvik stresses on customer values that it promises to provide to become customer’s first choice. Sandvik seeks to provide products, service, and supports with more reliable and cost-effectiveness to customers helping them reduce costs and increase efficiency. In order to do so, Sandvik products and services are marketed with the close cooperation of its worldwide customers, using its numerous distributors and agents, resulting in short term deliveries for customers. (70% of all Sandvik’s sales are delivered within a week from the order.) Core values of Sandvik are strong corporate governance culture, with open mind, fair play, and team spirit. These are value drivers that Sandvik established to achieve its long term and short-term goals in business. ? ? ? Open mind: Sandvik tries to find new and innovative ways for operation and improvement by encouraging all perspectives on operations. Fair play: Sandvik operates under sustainable way. Team spirit: Sandvik uses teamwork in operating business ensuring participation of employees. The interactions includes both geography and culture aspect.
Sandvik’s long-term and consistent strategy is also based on the interaction between some of its strength factors, which are: advanced and broad R&D activities, highly value added products, own manufacturing, direct sales to customers, its own market channels and effective logistics systems, financial strength and finally a strong corporate culture. Another Sandvik’s important business strategy is offering value-added for customers. It is mainly focused on maintaining “its unique expertise in materials technology” and “extensive insight into customer processes”. The Sandvik Group’s strategy is based on a unique business philosophy that involves to the interaction of different factors presented in the figure below. Sandvik has created a positive cycle, which it leads to a spiral of success.
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Figure 2: Sandvik business philosophy
Broad and advanced R&D Sandvik recognizes the importance of R&D process as an obligation to take for achieving long term and continuous growth. The most key point of R&D department of Sandvik is to decrease the cost of production while improve the products’ performance. R&D has been integrated in production with a number of employees integrated working close to customers to gain cooperation. Sandvik invests about 3 billion SEK each year on R&D (which corresponds to 3% of the Group’s total sales). Besides, Sandvik also emphasizes on efficiency, the integration of R&D and production leads to better efficiency in production and possibility of continuous improvement along with the ability to launch new products continuously, leading to gain competitive advantage for Sandvik. Another way to improve efficiency that Sandvik come up with is the well-managed logistics. Advanced logistics of Sandvik well managed ensures the reliable supplies and customer service. Sandvik has small number of large warehouses located in the large market areas ensuring the better distribution system. Extensive added value Sandvik is aiming to develop products with a high degree of added value, in order to be the leaders in the battle for customers and make a difference among competitors by providing the best products on the market. roviding
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Production supported by IT The Group’s IT development, besides playing a central role in Sandvik’s continued business development, supports the whole production process. There is interplay between product development, in-house developed production and process technology that guarantees the highest quality, availability and cost-effectiveness in the production process, also helping in the creation of a good environment. Sandvik is taking advantage of the synergies existing between it’s different operating areas and markets, in terms of R&D, production, marketing, administration and logistics. Strong global corporate culture and transparent corporate governance The transparent corporate governance and sustainable development are also strategies for Sandvik. The transparent corporate governance with clear responsibilities and role of all stakeholders including board of directors, shareholders, and management can increase the reliability of Sandvik along with increasing shareholder value. Sandvik gives priority to the sustainable development issue for optimal resources used and considering ethical practice. Sandvik’s code of conduct concerns environment, safety, health, and social responsibility. It is applicable for every employee in the organization. Sandvik’s code of conducts is aligned with the management system enhancing continuous improvement on financial, social and environmental aspects. Sandvik also prepares the code of conducts for its suppliers, ensuring that they will share the same values. Sandvik has qualified and experienced employees working together globally which leads to the strong corporate governance culture. As the employees of Sandvik, they are opened to new ideas, change and improvements. Every employee of Sandvik shares common values to accomplish the goals of Sandvik. Financial strength Financial strength is an important factor for Sandvik, leading to independent action and decision in operating business. Financial strength is achieved by the successful of long-term strategy of Sandvik businesses. Profitable growth Sandvik has strong financial growth and profitable growth according to the market shares, which are increasing continuously. According to the disclosure in annual report, which is required to expose the financial information on financial issue, it is increase the confidence of customers towards Sandvik. Sandvik status is outstanding compared to its competitors with the growth in sales and profits. According to
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Sandvik’s long-term strategy of profitable growth, the group’s financial goals in average per year are as follow. The Sales growth is 8%, excluding the acquisition. The goal is based on: the new products, increasing in market shares in existing and new market, and the new market area with high possibility of growth. The return on capital is 25% for the current operations; dividend of earning per share in percentage should be at least 50%. Finally, the debt to equity ratio is between 0.7 and 1.0. Apart from the financial goals, Sandvik also has more goals concerning in different aspects such as customerfocus goals, social goals, and environmental goals. Environment and ethics According to CSR issue, which is a global concern issue nowadays, Sandvik has realized the importance of ethics and environmental responsibility issue at all level of operations. Sandvik tries to utilize the use of resources and encourages the high ethical manners among its employees, suppliers, and all stakeholders. Broad network of marketing and distribution channels In addition to the close or direct contact with customers by Sandvik’s own employees, it also recruits some distributors and agents in large number, along with the secondary channel like e trading. According to the integration of various channels and close cooperation with the customers, 70% of Sandvik Group’s sales are delivered within a week since the order is placed. Direct sales to end-customer to ensure maximum customer value Another important element in marketing and customer orientation of Sandvik is the direct sales and contact with customers. Sandvik needs to ensure the optimal solutions are made and offered to the customers. Sandvik by its 6,000 salespersons around the world, can keep contact with its customers continuously and closely. Acquisition strategy also is a part of long-term growth strategy of Sandvik. Sandvik has strongly implemented acquisition since 1997. It is to find possibility of taking acquisition leading to strength, preferred profit, and increasing market shares and entry of new markets.
Chapter 4: Corporate Governance in Sandvik
CG of Sandvik is conducted according to Corporate Governance Code of Sweden, the Stock Exchange, internal guidelines and regulations. It is based upon the applicable
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legislation. The objective of conducting corporate governance is to comprehensively identify roles and responsibilities of owners, board and executive management, containing control and management system. It is also link to the risk management and remuneration for executives. Sandvik also operates according to internal guidelines based on OECD’s guidelines to create sustainable professional behavior, which is the responsibility of managers to ensure the compliance. The core competency of Sandvik is that it has established the strong spirit and culture within the organization globally. Effective corporate governance evaluates a company profile in the eyes of shareholders and investors, results in better investment. In the globalized world, it is almost necessary for the companies to follow the corporate governance codes. Following to see how Sandvik has successfully implemented Swedish corporate governance codes and other relevant guidelines.
4.1 Ownership structure
Needed information in this area in previous chapter is presented. However here we should add, Sandvik had about 109,000 shareholders at 31 December 2009 and Industrivärden AB is the largest owner with about 11.7% of the share capital. There are nine other shareholders between 1.7 and 5 percentage shares. Foreign investors, according to SIX Ägarservice, owned approximately 33%. Based on above information it seems that distribution of ownership power in Sandvik is balance and acceptable numbers of institutional investors are involved to controlling of this company. This fact will help to implementation of higher level of corporate governance and responsibilities. Shareholders are the backbone of the company, the Swedish company act have provided protection for the rights of the shareholders. According to the corporate governance report of Sandvik, they have provided the same right to their shareholders as the company act talks about. To remove the gap between shareholders and company there has been so much information sharing with investors and shareholders.
4.2 Shareholder meetings
The annual general meeting is where shareholders use their right of vote and take actions about their concern in the company. There is the annual general meeting in Sandvik where shareholders use their right of vote about dividends, election of board members and appointment of auditors, remuneration of board members and auditors,
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and any other matter related to the company. Shareholder meeting is conducted according to the guidelines of Swedish CG codes.
4.3 The board of directors
To comply with Swedish corporate governance codes, which states board members, must not belong to the management of the company. In Sandvik, the board consists of eight members. They have added two members and two deputies in addition. The major shareholders select four board members and other four are selected independent from the shareholders and the company. In 2009, Georg Ehrnrooth, Clas Åke Hedström, Fredrik Lundberg, Hanne de Mora, Egil Myklebust, Anders Nyrén, Lars Pettersson and Simon Thompson were elected in compliance with the nomination committee. Anders Nyrén is Chairman of the Board and Olof Faxander President and Chief Executive Officer of Sandvik AB. These board members have high profile of experience for working for other companies. For example, Anders Nyrén has MBA degree and B.Sc. in economic. He is president and Chief Executive Officer of Industrivärden AB since 2001, Executive Vice President and CFO of Skanska AB 1997–2001, various executive positions within Wilhelm Becker AB, STC Scandinavian Trading Co AB, STC Venture AB, OM International, Securum AB and Nordbanken 1979–1997. His current board assignments: Chairman of Association of Exchange-listed Companies and the Association for Good Practices on the Securities Market, Vice Chairman of Svenska Handelsbanken AB, Director of Ericsson AB, Industrivärden, SCA, SSAB, Volvo and Ernströmgruppen. His own or closely related person Shares in Sandvik are 4,500.
4.3.1 Procedural Guidelines
The guidelines and instructions should be updated every year, based upon the evaluation of performance of the board. Board will meet and establish goals and strategies on operating business including financial issue.
4.3.2 Evaluation of the board’s work and the President
A Systematic structure has been developed to make sure the board’s performance meets the requirements at individual level. The evaluation of the work of the Board and its need for experience and expertise covers each individual member. The evaluation is carried out at plenary meeting. The Chairman will announce the evaluation result to Nomination Committee. Furthermore, the Board continually evaluates the performance and competence of the President and CEO and Group Executive Management.
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4.3.3 Independence
Anders Nyrén (Chairman) and Fredrik Lundberg (board director) are not independent in relation to major shareholders as defined in the Code. The remaining four members elected at the Annual General Meeting were all independent in relation to Sandvik and major shareholders. Accordingly, the composition of the Board complies with the requirements in the Code that a minimum of two of those members that are independent in relation to the company and its management shall also be independent in relation to major shareholders. the members that are independent in relation to the company and major shareholders have the required experience of serving public listed companies.
4.4 Nomination Committee
In Sandvik, the nomination committee is responsible for the election of board of directors; as mentioned before, in Sandvik the four largest shareholders elect each member for the board members. Nomination committee also is responsible for the selection of auditors (not external and independent auditors), fee for the board members and Chairman. Task of nomination committee are proposals concerning the Chairman of the Meeting, number of Board members, remuneration of Board members, auditors and Chairman of the Board, concerning number of auditors and appointment of auditors, the method of appointment of the nomination and upcoming annual general meeting.
4.5 Remuneration Committee
The responsibility of remuneration committee is to prepare the related issue involving the remuneration of president and other board and senior executives according to the guidelines on the annual general meeting. The proposal of remuneration from the committee to the board contains remuneration principles, the distribution between the fixed and variable salary, the pension and severance pay, and other benefits offering to senior executive management. According to the proposal of the Remuneration Committee, Board has to decide President and CEO’s remuneration, and then the president decides other senior executives’ remuneration. All are carried out according to the Swedish Corporate governance codes. The Remuneration Committee meets two times a year discussing about the allocation of remuneration, to propose a proposal to the board for decision-making. The fixed salary is based on each individual’s performance and responsibility and market-rate in order to be competitive. The fixed salary will be reviewed every year. The annual variable depends on the successful of goals set each year, which are related to the revenues and those measurable goals for each individual.
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According to the policy of Sandvik the annual variable cannot be more than 50-75% of the fixed salary. The long-term variable salary also depends on those measurable goals from the board connected to the profitability, growth and capital efficiency of the company in three-year period. The long-term variable salary should not be more than 45-50% of fixed salary.
4.6 Audit Committee
For Sandvik, the Audit Committee’s areas of responsibilities are financial reporting, arranging the plan, scope, and follow-up for external audit and internal audit. Audit Committee also has to cover the businesses’ execution systems and processes of risk management, along with legal issues, taxation and accounting, financial operation and pension terms. In 2009, the committee held five meetings at which the company’s external auditors and representatives of the company’s management were present.
4.7 The external auditor
As the Swedish corporate governance codes oblige the companies to have an independent auditor to ensure transparency. In annual general meeting of Sandvik, the external auditors for the company are appointed who are independent from the company, whom are obliged to present the audit report to shareholders and recommendations to shareholder financial statements. The auditing report is continuously reported to business companies and other entities to ensure transparency. Auditing is conducted accordance with the Swedish company act and general auditing standards. From the year 2008 to 2010, a three-year period Sandvik has reelected KPMG AB, the audit firm as the external auditor at the General Meeting. Caj Nackstad is in charged as the auditor. The progress of audits is required to be reported regularly to the management of business areas, companies, executive management, the Audit Committee and the Sandvik’s Board. The audit report provides recommendations for shareholders to base their resolution on the approval of income statements and balance sheets of the group and the main company. Audit’s activities include the monitoring of compliance with Articles of Association, the Companies Act, the Annual Accounts Act, IFRS, and the Stock Exchange’s disclosure standards in the annual report, along with related issues on items in balance sheet, financial control and accounting.
4.8 Operational Management
There are three businesses areas for Sandvik. Each business area has the president, who reports directly to Sandvik’s CEO. They are also responsible for activities in
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their areas. At each month, the executive managements will meet for the financial development, project development, strategic, leadership and competence sourcing issues. Sandvik has created group functions IT, communications, legal, taxes, patents and trademarks, business analysis, internal control, investor relations, and financial, etc. The group functions together with group executive management, business areas, cooperate with group-wide strategic areas for examples, research and development, IT, finance, purchasing, and environment. For countries that Sandvik has a branch, there will be a country manager who responsible for representing and communicating Sandvik to the public, and ensure the compliance to the Group-wide guidelines.
4.9 Internal control and risk management
It is the board’s responsibility to make sure the effective management and internal control are achieved. According to Sandvik’s operation guidelines in the power of Sandvik, it contains the group’s business concept, strategies, objectives and value, job descriptions and organization structure, guidelines and instruction, administrative procedures, code of conduct of Sandvik. The risk management program of Sandvik is complied with ERM model. The program has been incorporated with the strategic and operational management: daily planning, control and monitoring. The objective of risk management is to ensure the utilization of opportunities in best potential way, and to decrease the risk.
4.10 Integration of acquired companies
Sandvik has acquired around 50 companies within ten years, indicating that one the possible growth channels of Sanvik is from acquisitions. Three steps will carry out the acquisition and integration. The important issues on integration are analyzed and arranged in the beginning stage of acquisition. After conducted the acquisition, planning and implementation of integration will be arranged. Last stage the acquired company will be combined with Sandvik’s administrative procedures and trained on Sandvik’s regulations, instructions. The values of Sandvik will also be transferred at this stage. Moreover, the financial report will be consolidated with Sandvik. It is important for Sandvik to be able to accomplish to acquisition and integration of new companies with its current operations. There are considerations on human resource, management issue that should be flexible to Sandvik’s core values, which are open mind, team spirit and fair play. The core values of Sandvik are discussed in the business strategy part. Finally we should mentioned that according to the Swedish corporate governance codes Sandvik has provided all the information on its website including annual report
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and corporate governance report and regularly updating steering documents such as policies for the shareholder and general public. This high level of information transparency from different aspects significantly can help any shareholders that are familiar with internal processes in Sandvik.
Chapter 5: Corporate Responsibility in Sandvik
Sandvik as a global company is located in over 60 countries with varying laws, cultures, values and traditions. However, they try to respect public concerns about the impact of their activities and in consist of Sandvik long-term strategy for profitable growth, they try to contributing to sustainable development by honoring Sandvik social and environmental responsibility and conducting business in an ethical manner. In fact, sustainability and business ethics are integral elements of Sandvik business plans and its decision-making procedures. Factual good business ethics means practicing sound corporate governance and formulating clear policy statements for employees. In November 2004, the Sandvik Board decided to revitalize its Code of Conduct. During 2004 Sandvik start to training of its employees in sustainability and business ethics. At the end of 2009, about 35000 employees in the Group trained on Sandvik’s Code of Conduct. The Code of Conduct, which is part of Sandvik’s common platform, is based on the OECD Guidelines for Multinational Enterprises, the UN’s Universal Declaration of Human Rights and the ILO's Declaration on Fundamental Principles and Rights at Work. Some independent organizations that are carry about corporate sustainability and responsibility issues has recognized Sandvik’s efforts in this way. For example, Dow Jones Sustainability World Index (DJSI World) which covers 10% of the biggest 2500 companies in Dow Jones Global Total Stock Market Index, assesses their economic, environmental and social criteria, has selected Sandvik for 3rd year as a member of DJSI World and as a member of pan European Dow Jones STOXX Sustainability Index (DJSI STOXX). Alternatively, FTSE4Good Index series, which is designed to analyze performance of corporation around the world, in respect to globally recognized corporate responsibility standards has accepted Sandvik as a member of FTSE4Good Index in 2011 for conducting sustainable business around the world. Ethibel Excellence Investment Register is an Independent consultant for socially responsible investing. Sandvik has been monitored for its CSR profile, it has been confirmed that until December 2010 Sandvik has been on their monitoring list to ensure ethical investing.
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5.1 Corporate Environmental Responsibility in Sandvik
One of the hot issue in the modern world, changing environment has been causing problems around the whether it has been food security, floods, extreme weather its destroying economies around the world. For Sandvik environmental responsibility is very important since it is a Swedish company, Swedes are more concern about environment. It is a cultural thing in Sweden. For sustainable business, environmental responsibility is a core issue to deal with. Sandvik has plants where various steel goods are manufacture. Before reducing its environmental impact, Sandvik has started to review its raw material for manufacturing of different goods, which can reduce environment impact of its operation. One the thing they did is to reduce the use of contents like nickel, which is substitute by nitrogen and manganese, and scrap metal, which has high nickel contents are used for the manufacturing. The following table shows Sandvik usage of raw material for its production. Table 2: Raw material consumption 2009 2008 2007 2006 Consumption of metallic raw materials (thousand metric tons) Of which recovered (%) 252 78 350 79 399 78 405 78
Recycling is one of the aspect through which Sandvik has tried to reduce its impact on the environment due to their operations. 70% raw material is steel scrap for Sandvik. One of the biggest environmental problems is air pollution. Sandvik has been working to reduce its emission into air and water. In Sandvik plants the gases containing dusts smelting plants are cleaned in a very good way before being emitted to the air. It has more striker emission policy than local authorities, which surely display their concern about environment. Sandvik has been reducing its consumption of fossil fuel to reduce its emission. Following is the chart and table show 4 years energy usage and 5 years chart of emission, which shows a goal for reduction of emission for 2012. Table 3: Energy use Use of energy (TJ) of which fossil fuels (TJ) Direct energy of which electricity (TJ) Indirect energy 2009 7,500 2,900 4,600 2008 8,900 3,400 5,500 2007 8,800 3,400 5,400 2006 8,100 3,000 5,100
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Figure 3: energy usage in relation to sales volume
An alternative way of reducing energy usage to reduce environment impact of its operations Sandvik has been reducing its energy usage to battle carbon emission into air by reducing its traveling of employees and flow of goods, they have commenced to report CO2 emissions to greenhouse gas protocol. Another environmental problem is water pollution. Sandvik has been looking for the alternative ways to reduce the pollution into its wastewater. Following is the table, which shows water usage by Sandvik for 4 years. Table 4: Water consumption Water consumption (thousands m3) of which purchased freshwater (thousands m3) of which groundwater (thousands m3) of which harvested surface water (thousands m3) 2009 7,100 3,200 600 3 300 3,300 2008 6,600 3,600 500 2 500 2,500 2007 6,800 3,500 500 2 800 2,800 2006 6,800 3,300 500 3 000 3,000
At Sandvik plants, chemicals are destroyed accordance concerning environmental friendly methods. One the chemical that is used for production in few Sandvik plants is trichloroethylene. For which Sandvik is thinking to replace it with alternative. Water is a very valuable resource and there are many places in the world where fresh water is not available. Sandvik has used efficiency in using of water in its operations. Sandvik has decreased using of water by 10% in its operations in recent years, and expect to reduce it further in coming years. Sandvik has been planning to reduce its usage of energy; it has good statistics until 2008 because of the change in energy prices and currency exchange rates. Sandvik expect to reduce its energy usage by 10% in relation to its sale volume despite decrease in production energy saving policy is continued.
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5.2 Corporate Social Responsibility in Sandvik
Being an international enterprise has direct relationship with augment of the importance of corporate social responsibility. Because, there are great public concerns about the impact of companies’ activities. Respect for human and labor rights is essential. Sandvik implement the same corporate policies, expressed in its Code of Conduct, at all units and strive to develop equal standards. Furthermore, Sandvik practically try to follow relevant procedures to evaluate and select major suppliers and subcontractors on their ability to meet the requirements of its Code of Conduct. Sandvik’s social goals are to provide working conditions that stimulate employees to perform effectively assume responsibility and continue to develop in their personal and professional careers. Sandvik is committed that always equal opportunities are provided for employees.
5.2.1 Employees
Employees are the major asset of a company, having a qualified workforce in a company makes it more efficient in their performance. Sandvik has a diverse workforce; since 77% of its employees are outside of Sweden consist of 60 countries. Sandvik is giving equal opportunities to all individual which qualifies to standards of Sandvik no discrimination based age, race, color, national origin, religion, gender, disability or any other thing protected law. A new policy has been adopted which states that there must be at least one applicant for the managerial post. Providing a better working environment makes the workforce to work efficient. To ensure better working environment Sandvik has been focusing on safety policy at their plants. It has ensured safety policy at work internationally. During production, there are harmful chemicals, which can endanger employees. Sandvik has ensured to destroy those chemical or handle them in way, which is better for the environment and the employees. Despite different health safety due to different countries, Sandvik ensure equal safety policy in every country. During 2009, no health injury reported at Sandvik plants. At Sandvik plants there are about 5 accidents per million due to its handling of acids and other chemicals. Sandvik has ensured to warn about different harmful things on the work such as labels and safety instruction of harmful chemical container. Sandvik has proposed to reduce injuries at work by 50% until 2012.
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5.2.2 Community involvement
Community involvement is one of areas Sandvik has been focusing from their beginning. Since it focuses on the sustainable business, Sandvik has engaged with community in different ways to make things better for them. There are many programs Sandvik has initiated to benefit the local communities around the world. One of the programs Sandvik initiated is in health sector, Zambia that is one of the world poorest countries. The most of the youth of this country is infected with HIV and AIDS which is affecting the workforce of the country because so many young people are sick. Sandvik has started a program to provide free anti retroviral drugs to the people of Zambia. 500 of Sandvik employees have suffered because of such health situation in Zambia. Therefore, they decided to provide assistance to the patients of HIV and AIDS. Another Program initiated by Sandvik in Brazil to uplift the life of the rural areas of Brazil where Sandvik is involved in mining. According to the program the teenagers who are inexperienced are given opportunity for a first job, Sandvik hires them when they turn 18, it has been a positive thing in those areas until now. This program has benefited 20 young employees until now. Another program Sandvik has initiated in Sweden to train and employee the unemployed Swedish technicians in Australia. It has been working with Swedish county labor boards. This program has not only benefited Swedish unemployed technicians as well as the Sandvik, which was lacking qualified technician in Australia for its mining industry. Sandvik has been involved in providing quality education to the poor rural areas kids of Pune. Where the children are living in the house own by Sandvik and getting qualified education in good school, which is financed by Sandvik. Sandvik is sponsoring different cultural and recreational activities around the world where Sandvik has been involved in business. Therefore, the local and the employees of the Sandvik have recreational places in reach, since some places where Sandvik is operating are remote areas. One of the best things about Sandvik is that they have never been involved in sponsoring national or global operations, neither their support to the political nor any other groups. Most of their support goes to the children and youth by sponsoring cultural and sport events.
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Corporate Governance in “Sandvik” Chapter 6: proposal context of Corporate Governance in Sandvik
Before starting to study about corporate governance and responsibility issues in a real case, we were care about selecting a real responsible company. We tried to find an enterprise that practically involve to different aspects of corporate accountabilities and responsibilities with well-organized value drivers and strategies with respect to good practices in corporate governance. Based on our practices in the first assignment, we assumed that information transparency and its public availability is one of the primary criteria for such a responsible company in global business. After investigation about different companies, we find that Sandvik really can be a suitable case for studding about different dimensions of CG and CSR. This company clearly has accepted its duties in front of shareholders, society and environment that it works there. Based on our finding, Sandvik perform a high level of commitment to responsibilities to different types of Stakeholders and variety independent sustainability ranking organizations and confirmed reports create a rescannable assurance in this perspective. Fortunately, these characteristics of Sandvik helped us to better creation of kind of dialectic between imperial findings and theoretical knowledge. In the following of this chapter, we will build our conceptual framework by relevant theories.
6.1 Theoretical aspects of corporate governance in context of Sandvik
The main theories that in recent years have affected the development of corporate governance are agency theory, transaction cost economics, stakeholders theory and stewardship theory (Mallin, 2010). However, it seems the soundest of them are principal agent theory and stakeholder theory. From principal agent theory perspective, we expect the boards of Sandvik as the agency of ALL shareholders to be self-interest and therefore they will try to achieve their own profits rather than the shareholders. Because of information asymmetry between managers and shareholders, this phenomenon may be a threat for the companies' owners or all stakeholders. In this context, corporate governance will be a disincentive mechanism for Sandvik that tries to fill above mentioned gap between managers and shareholders. In fact this system want create a well-organized system of accountability for both accountees (shareholders) and accountables (managers). Nevertheless, in current business environment, this system should be able to create a transparent business from different aspects that attend to responsibilities in front of all participants or “stakeholders” in company.
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For covering of this landscape, it seems the stakeholders theory is more applicable since it pay equal attention to all groups that directly or indirectly are involve to company’s activities. For example in the case of Sandvik, we find that this company has special attention to equality from different aspects between all employees and augment opportunities are same. Alternatively, as mentioned in previous chapter, Sandvik is involved to social activities and reduction of environmental effects of its activities. All these factual evidences support our issue that Sandvik tries to recognize the rights of different stakeholders and provide their needed information.
6.2 footprints of Swedish style in corporate governing
Although Sandvik is a global company and sales its production to 130 countries, but it is founded in a socialism country “Sweden”. Effects of Swedish style of corporate governing From 150 years ago until now, is easily traceable in Sandvik. Sandvik historically is a value based company and has needed capacities for developing discussions like corporate social and environmental responsibilities. All of these traditions are based on Swedish culture and point of view to human rights and environment-friendly. After studding on the case of Sandvik, we find many similarities between Sandvik business behaviors and daily Swedish social life style. For example, information transparency from different aspects is a fundamental principle in Sweden and any exemption is not acceptable. Sandvik also is concern for this real fact of Sweden society and it has recognized its responsibilities to wide range of stakeholders. Our investigations, presented in previous chapters, show a high level of commitment to social and environmental concerns in Sandvik.
6.3 The role of Institutional investors in Sandvik
Who are institutional investors and why they are such important in corporate governance issues. These groups of shareholders are permanent participants of financial markets that their investment strategy is more long term and generally follow sustainable businesses. These groups of shareholders have practical authorities and enough knowledge for monitoring and controlling of corporate governance and responsibilities. These investors themselves continually monitored by public interest and most of the times are reliable financial foundations. For example in the case of Sandvik, all first ten shareholders of company are institutional investors, mostly related to Swedish banks’ funds. Any individual shareholders do not have absolute power in governing of firm and there is power balance in the board. These investors publically are trusted by people.
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6.4 Board diversity in Sandvik
“It may be argued that board diversity [in terms of gender and nationality] enables different perspectives to be taken on various issues given that men and women may approach issues from different viewpoints and may have different behavioral patterns as well; similarly individuals from different ethnic backgrounds may bring additional cultural insights to the board room.” (Mallin, 2010, p178) In the case of Sandvik, Hanne de Mora (director of Sandvik AB) and Alicia del Carmen Espinosa (employees’ representative) are female members of the board. However, despite of existence of evidences for positive effects of board diversity (Ibid, p178), the proportion of women on board of Sandvik is quite small. Unfortunately, we could not find information regard to nationality of board’s members, since as we said before, 33 percent of shares is belong to foreign investors.
6.5 Sandvik as a socially responsible investment
Corporate governance and corporate social responsibility have become hard to distinguish in the global economic. Their convergence in the face of regulatory, business, and social changes in transnational markets has created an argument between potential and limitations of corporate accountability mechanisms. (Gill, 2008, p477) if fact, after Enron scandals, corporate governance has moved from traditional focus on agency conflicts to issues of ethics, accountability, transparency. Furthermore, corporate social responsibility (CSR) has increasingly focused on corporate governance as a tool for incorporating social and environmental concerns into the business decision-making process, benefiting not only financial investors but also employees, consumers, and communities (Ibid, p452). However, how we can develop a theoretical context for CSR practices in the case of Sandvik. Maybe the approach of Enquist et al (2006) in the case of Swedbank can be a practical answer to this question. In that case, they build their analytical framework based on neoinstitutional and stakeholder theory. In context of stakeholder theory, Enquist et al by presenting an argument on the role of CSR in different equity strategies conclude that in the shareholder approach, making a profit is the only relevant objective. Therefore, this strategy faces to CSR as relevant only insofar as it contributes to the creation of long-term value for the owners of the business. Thus, here, CSR is a mean, not a goal (Enquist et al, 2006, p191). Alternatively they introduce “the social-harmony strategy”, in contrast, takes a “communitarian-oriented” perspective. This point of view insists on the balance of answering to needs of all stakeholders and ethics must not separate from business. In
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this strategy, CSR has completely different role that is supported by corporate governance issues. As we can see CSR plays different roles in these strategies. The neo institutional theory offers guides to thinking about corporate responsibility, and brings into question the goal of maximizing profits or returns on capital. In this way, new generation of institutional theory discuss about issues of social concern and does so without accepting conventional models of organization or the unreflective premises of management (Selznick, 1996, p272). In the case of Sandvik, above-mentioned theoretical approach reliably is traceable. In the webpage of Sandvik, annual reports of this company are available from 1987. However, reports concerning sustainable business issues generally and CSR specifically are added to annual reports in recent years. This shifting shows an obvious transition to accountability in front of broader audiences (stakeholders) that include society. This movement has many another supportive evidences that insist on the changing of corporate governing procedures in Sandvik from 2007.
Chapter 7: Conclusion
Based on finding of this report Sandvik has been looking into stakeholders demand and concern in its operations whether it is social or environmental concern. It has been taking its entire stakeholders together to ensure desirable results. As a multinational company, Sandvik is committed to ensure sustainable business operations taking into account ethical and environmental aspects of their business operations. In 2004, board decided to review their codes of conduct and in 2007 Sandvik officially reported environmental and social aspect of its activities In this case study, particularly we focused on finding of corporate social and environmental responsibility, corporate governance footprints in Sandvik and creation of a bridge between whatever theoretically should be existed, and whatever, empirically we find. In interpretations and reflections of what we face to them, we used some experienced theories by others like neo institutional theory and stakeholder theory. Furthermore, we considered Sandvik from principal agent theory perspective. Based on our overall results, it seems that Sandvik is a committed company about corporate governance and corporate social responsibility issues. Our gathered and analyzed information confirm that Sandvik core strategies are based on accountability and responsibility in front of all stakeholders. Facts approximately follow theoretical framework for corporate governance.
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Corporate Governance in “Sandvik” Appendix A
Sandvik Group in figures Invoiced sales, SEK M Change, % of which organic, % of which structural, % of which currency, % Operating profit, SEK M as % of invoicing Profit after financial items, SEK M as % of invoicing Consolidated net profit for the year, SEK M Shareholders’ equity, SEK M Equity ratio, % Net debt/equity ratio, multiple Rate of capital turnover, % Cash and cash equivalents, SEK M Return on shareholders’ equity, % Return on capital employed, % Investments in property, plant and equipment, SEK M Total investments, SEK M Cash flow from operations, SEK M Cash flow, SEK M Number of employees, 31 December 2010 82 654 15 17 1 -2 11 029 13 9 412 11 6 943 33 813 38 0.7 92 4 783 22.1 17.4 3 378 4 493 12 149 - 2 642 47 064 2009 71 937 -22 -30 0 10 -1 412 -2 -3 472 -5 -2 596 29 957 33 1.0 73 7 506 -7.9 -1.3 4 006 6 161 11 792 2 471 44 355 2008 92 654 7 5 2 0 12 794 14 10 577 11 7 836 36 725 36 0.9 101 4 998 24.8 19.9 6 634 7 766 9 335 2 764 50 028 2007 86 338 19 18 3 -2 14 394 17 12 997 15 9 594 29 823 35 1.0 112 2 006 34.4 27.0 4 811 9 480 5 076 179 47 123
The business areas in figures Sales 2010 SEK M Sandvik Tooling 23 893 Sandvik Mining and Construction 35 182 Sandvik Materials Technology 17 703 Seco Tools 5 838 Group activities 38 Group total 82 654
Earnings 2010 SEK M % of invoice. 4 296 18.0 4 665 13.3 1 540 8.7 1 098 18.8 -570 11 029 13.3
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Corporate Governance in “Sandvik” References
? Enquist, B, M. Johnson and P. Skålén (2006) Adoption of Corporate Social Responsibility – Incorporating a Stakeholder Perspective, Qualitative Research in Accounting and Management, Vol. 3, No. 3, pp. 188-207 Gill, A. (2008) Corporate Governance as Social Responsibility: A Research Agenda, Berkley Journal of International Law, Vol. 26:2 pp. 453-478 Mallin,C.A. (2010) Corporate Governance Oxford Press, third edition Selznick, P. (1996) Institutionalism "Old" and "New", Administrative Science Quarterly, Vol. 41 Issue 2, pp.270-277. www.Sandvik.com
? ? ? ?
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doc_593119414.pdf
Title of the work:
Corporate Governance in “Sandvik”
The date: 2011-03-28 Name of student:
Family name Afshari Vafa Saleem Wasinwasukul
Given name T-number Behrouz 820916-T630 Hammad 840930-T697 Mingkhwun 880224-T169
Name of the teacher: Prof. Bo Enquest & Dr. Samuel Petros Sebhatu
Filled out by the examiner First return: _________ Second return: __________ Third return: __________ Passed: __________ Received points: __________ Grade: __________ Examiner: ________________
Corporate Governance in “Sandvik”
Table of Contents
Chapter 1: Introduction ............................................................................................................. 3 Chapter 2: Sandvik in figures .................................................................................................... 4 2.1 Sandvik’s brief history .................................................................................................... 4 2.2 Ownership structure......................................................................................................... 5 2.3 Sandvik’s share................................................................................................................ 6 Chapter 3: business concepts and strategies in Sandvik............................................................ 7 Chapter 4: Corporate Governance in Sandvik......................................................................... 10 4.1 Ownership structure....................................................................................................... 11 4.2 Shareholder meetings .................................................................................................... 11 4.3 The board of directors ................................................................................................... 12 4.3.1 Procedural Guidelines ............................................................................................ 12 4.3.2 Evaluation of the board’s work and the President .................................................. 12 4.3.3 Independence.......................................................................................................... 13 4.4 Nomination Committee ................................................................................................. 13 4.5 Remuneration Committee.............................................................................................. 13 4.6 Audit Committee ........................................................................................................... 14 4.7 The external auditor....................................................................................................... 14 4.8 Operational Management .............................................................................................. 14 4.9 Internal control and risk management ........................................................................... 15 4.10 Integration of acquired companies .............................................................................. 15 Chapter 5: Corporate Responsibility in Sandvik ..................................................................... 16 5.1 Corporate Environmental Responsibility in Sandvik .................................................... 17 5.2 Corporate Social Responsibility in Sandvik.................................................................. 19 5.2.1 Employees .............................................................................................................. 19 5.2.2 Community involvement ........................................................................................ 20 Chapter 6: proposal context of Corporate Governance in Sandvik ......................................... 21 6.1 Theoretical aspects of corporate governance in context of Sandvik ............................. 21 6.2 footprints of Swedish style in corporate governing....................................................... 22
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6.3 The role of Institutional investors in Sandvik ............................................................... 22 6.4 Board diversity in Sandvik ............................................................................................ 23 6.5 Sandvik as a socially responsible investment................................................................ 23 Chapter 7: Conclusion ............................................................................................................. 24 Appendix A ............................................................................................................................. 25 References ............................................................................................................................... 26
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Corporate Governance in “Sandvik” Chapter 1: Introduction
Sandvik is an engineering group with advanced products and high technology based in Sandviken, Sweden. The group is well-positioned (leader) in areas where it works. Sandvik's business activities are present in over 130 countries. Expertise in materials technology and knowledge in the client process are the forces operating from Sandvik. Sandvik has global leadership positions in three major areas: ? ? ? Sandvik Tooling group: mainly work in tool industry and tooling systems for metal cutting. Sandvik Mining and Construction group: works in areas like equipment, tools and services for mining and construction. Sandvik Materials Technology group: involves to the development of products in advanced stainless materials, special alloys, metallic resistance materials and CE-Ramic and treatment systems.
Furthermore, Seco Tools, an independent company, is also a member of the group. In 2010, the Group had 47,000 employees and sales of approximately 83 billion SEK. Sandvik’s operations are based on unique expertise in materials technology and comprehensive insight into customer processes. In the following of this report, we will introduce Sandvik by more detailed information from stakeholders point of view in the chapter two. In this chapter, we will try to create a transparent picture from Sandvik for finding of corporate governance and corporate responsibility’s footprints. Chapter three is where that fundamental values and business concepts of Sandvik are discussed. It is expected that the strategy map of Sandvik should show to us where is the position of corporate responsibility and corporate governance issues in context of decision making in Sandvik. In chapter four, we will use our created insight about Sandvik from previous chapters and clarify the Sandvik practices in corporate governance area. We will trace the Swedish corporate governance code and some relevant guidelines in the case of Sandvik. Finding of interrelationships between different aspect of Sandvik values and strategies with corporate governance concepts will be our other task in this chapter. In chapter five, we will discuss about one of the most challengeable issues in modern business, corporate responsibility. However, this phenomenon is widespread, but in
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the case of Sandvik, we will limitedly consider some branch of it, like corporate environmental responsibilities and corporate social responsibilities. Of course, our focus will be more on CSR. In chapter six, based on cited arguments, reflections and interpretations in previous chapters, we will attempt to build “a contextual based corporate governance” for Sandvik. We aware that our insight about different aspects of Sandvik’s business maybe is not complete and this fact will affect on our final outputs, but it is expected that our attempt lead to an outline for “corporate governance” which can handle responsibility issues. Eventually in the last chapter, a conclusion from different steps of this case study present. We targeted that our arguments should help us in the creation of a proposal structure that can cover different aspects of CG issues. Although already we know our collected data for such a comprehensive thinking approach is so low, but we will try to create a bridge between our theoretical knowledge and real fact in Sandvik.
Chapter 2: Sandvik in figures
Since foundation of “Sandvik” in Sandviken of Sweden in 1862, the business philosophy has been largely the same through the years: Sandvik shall be the leader in selected areas. Products are based on high value content and are developed in close cooperation with customers. Sandvik’s goal is actively improving the customers’ productivity and, simultaneously, their profitability. As a principle, Sandvik believe its products and services should provide maximum value to customers in terms of performance, quality, speed, safety, flexibility and total economy. In the following of this chapter, with stakeholder perspective in mind different aspects of Sandvik’s business are described1.
2.1 Sandvik’s brief history
Göran Fredrik Göransson founded Sandvik Corporation in 1862. He was a pioneer in his genre as it was the first in the world to succeed in using the Bessemer method for steel production on industrial scale. He focused on quality and high value-added investments in R & D, close contact with customers and exports. This strategy has remained unchanged over the years.
1
The source of all figures, tables and facts are presented in this chapter are Sandvik’s WebPages. Page 4 of 26
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Sandvik registered at the Stockholm Stock Exchange in 1901. During the 1960s, a global investment program was carried out at the main factory in Sandviken and consequently the name of company was changed from Sandvikens Jernverk AB to Sandvik AB in 1972. In 1984, a decentralized organization program was introduced, with a parent company, discrete business units, regional companies and service companies. In addition to the organic growth, Sandvik's expansion has also involved a series of company acquisitions over the years. In 1999, officially Sandvik's operations were concentrated on three core areas: Tooling, Mining and Construction and Specialty Steels. The last mentioned business area changed name to Materials Technology on 1 January 2003.
2.2 Ownership structure
Sandvik is a listed company on the Nasdaq OMX Nordic Exchange Stockholm and is one of the Stockholm Stock Exchange's oldest companies, with a listing dating back to 1901. The Sandvik share can be traded in the US in the form of ADRs (American Depositary Receipts). Industrivärden AB (11.7%), Swedbank Robur Funds (5.0%) and Handelsbanken Pension plans Foundation (4.0%) introduce the main composition of ownership in Sandvik at 31 December 2010 but still there are some other owners with more than one percentage interest in company. It seems the authority of firm controlling is well distributed between shareholders. Following list is Sandvik’s ten largest shareholders and their shares percentages since five year ago. Table 1: Ownership structure shareholders 2010 Industrivärden AB 11.7 Swedbank Robur Funds 5.0 Handelsbanken’s Pension plans Foundation 4.0 Alecta Pension Insurance 3.4 Omnibus Account W FD OM80 3.0 AMF Pension Insurance 2.0 Lundbergföretagen AB LE 2.0 SSB CL Omnibus ACV OM03 (0 PCT) Pension Fund 1.8 Nordea Investment Funds 1.8 Handelsbanken Funds 1.7
2009 11.4 4.7 4.0 2.5 2.5 1.8 1.2 1.0 0.4 1.9
2008 11.5 3.4 4.0 3.4 1.3 1.2 0.6 1.4
2007 11.5 2.3 4.0 3.1 1.5 1.1 0.9 2.1
2006 11.0 2.4 3.8 2.9 1.8 0.6 1.4 2.0
Other important aspect of above-mentioned composition of shareholders is the approximately equal contribution of different institutional investors in ownership
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level that can significantly help to implementation of acceptable level of corporate governance and corporate social responsibility in Sandvik. In future chapters will talk more about this evidence.
2.3 Sandvik’s share
It is indisputable fact that Sandvik with 141.41 billion SEK market capital (in 2011.03.25), is the one of the most important companies in the Nordic countries and , many financial analysts continually trace its price changes. Sandvik, during the past ten years, has acquired about 40 companies in 20 countries and in terms of market n capitalization; Sandvik was ranked the eighth largest company on the OMXS in 2009 2009. From 2001 to 2011, the market share of Sandvik has increased by approximately 40 to 120, representing an increase of three times. However, from end of 2008 to middle of rom 2009, the market share of Sandvik had a significant drop. So apart from this period, h the market share of Sandvik has been constantly growing. Following chart shows the position of Sandvik share price in comparison with its andvik main competitors (SKF and Atlas Copco) and of course with general and sector index course of market. Graphs show on average that the trend of Sandvik’s share price has been hs more correlated to the sector index and its fluctuation has been more tolerable than Atlas Copco but not SKF. The lower part of graph is related to daily change of elated Sandvik price during last ten years ago. As we can see, during financial crises (late of 2008 and early of 2009) the price of share has had the most fluctuation in comparison to other times. Figure 1: relative comparison of Sandvik share price
Sandvik OMXS MSCI Europe Machinery Atlas Copco SKF B
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Since the objective of this report is not going to financial analyses, the more financial information and ratios of Sandvik like is presented in appendix A.
Chapter 3: business concepts and strategies in Sandvik
Sandvik stresses on customer values that it promises to provide to become customer’s first choice. Sandvik seeks to provide products, service, and supports with more reliable and cost-effectiveness to customers helping them reduce costs and increase efficiency. In order to do so, Sandvik products and services are marketed with the close cooperation of its worldwide customers, using its numerous distributors and agents, resulting in short term deliveries for customers. (70% of all Sandvik’s sales are delivered within a week from the order.) Core values of Sandvik are strong corporate governance culture, with open mind, fair play, and team spirit. These are value drivers that Sandvik established to achieve its long term and short-term goals in business. ? ? ? Open mind: Sandvik tries to find new and innovative ways for operation and improvement by encouraging all perspectives on operations. Fair play: Sandvik operates under sustainable way. Team spirit: Sandvik uses teamwork in operating business ensuring participation of employees. The interactions includes both geography and culture aspect.
Sandvik’s long-term and consistent strategy is also based on the interaction between some of its strength factors, which are: advanced and broad R&D activities, highly value added products, own manufacturing, direct sales to customers, its own market channels and effective logistics systems, financial strength and finally a strong corporate culture. Another Sandvik’s important business strategy is offering value-added for customers. It is mainly focused on maintaining “its unique expertise in materials technology” and “extensive insight into customer processes”. The Sandvik Group’s strategy is based on a unique business philosophy that involves to the interaction of different factors presented in the figure below. Sandvik has created a positive cycle, which it leads to a spiral of success.
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Figure 2: Sandvik business philosophy
Broad and advanced R&D Sandvik recognizes the importance of R&D process as an obligation to take for achieving long term and continuous growth. The most key point of R&D department of Sandvik is to decrease the cost of production while improve the products’ performance. R&D has been integrated in production with a number of employees integrated working close to customers to gain cooperation. Sandvik invests about 3 billion SEK each year on R&D (which corresponds to 3% of the Group’s total sales). Besides, Sandvik also emphasizes on efficiency, the integration of R&D and production leads to better efficiency in production and possibility of continuous improvement along with the ability to launch new products continuously, leading to gain competitive advantage for Sandvik. Another way to improve efficiency that Sandvik come up with is the well-managed logistics. Advanced logistics of Sandvik well managed ensures the reliable supplies and customer service. Sandvik has small number of large warehouses located in the large market areas ensuring the better distribution system. Extensive added value Sandvik is aiming to develop products with a high degree of added value, in order to be the leaders in the battle for customers and make a difference among competitors by providing the best products on the market. roviding
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Production supported by IT The Group’s IT development, besides playing a central role in Sandvik’s continued business development, supports the whole production process. There is interplay between product development, in-house developed production and process technology that guarantees the highest quality, availability and cost-effectiveness in the production process, also helping in the creation of a good environment. Sandvik is taking advantage of the synergies existing between it’s different operating areas and markets, in terms of R&D, production, marketing, administration and logistics. Strong global corporate culture and transparent corporate governance The transparent corporate governance and sustainable development are also strategies for Sandvik. The transparent corporate governance with clear responsibilities and role of all stakeholders including board of directors, shareholders, and management can increase the reliability of Sandvik along with increasing shareholder value. Sandvik gives priority to the sustainable development issue for optimal resources used and considering ethical practice. Sandvik’s code of conduct concerns environment, safety, health, and social responsibility. It is applicable for every employee in the organization. Sandvik’s code of conducts is aligned with the management system enhancing continuous improvement on financial, social and environmental aspects. Sandvik also prepares the code of conducts for its suppliers, ensuring that they will share the same values. Sandvik has qualified and experienced employees working together globally which leads to the strong corporate governance culture. As the employees of Sandvik, they are opened to new ideas, change and improvements. Every employee of Sandvik shares common values to accomplish the goals of Sandvik. Financial strength Financial strength is an important factor for Sandvik, leading to independent action and decision in operating business. Financial strength is achieved by the successful of long-term strategy of Sandvik businesses. Profitable growth Sandvik has strong financial growth and profitable growth according to the market shares, which are increasing continuously. According to the disclosure in annual report, which is required to expose the financial information on financial issue, it is increase the confidence of customers towards Sandvik. Sandvik status is outstanding compared to its competitors with the growth in sales and profits. According to
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Sandvik’s long-term strategy of profitable growth, the group’s financial goals in average per year are as follow. The Sales growth is 8%, excluding the acquisition. The goal is based on: the new products, increasing in market shares in existing and new market, and the new market area with high possibility of growth. The return on capital is 25% for the current operations; dividend of earning per share in percentage should be at least 50%. Finally, the debt to equity ratio is between 0.7 and 1.0. Apart from the financial goals, Sandvik also has more goals concerning in different aspects such as customerfocus goals, social goals, and environmental goals. Environment and ethics According to CSR issue, which is a global concern issue nowadays, Sandvik has realized the importance of ethics and environmental responsibility issue at all level of operations. Sandvik tries to utilize the use of resources and encourages the high ethical manners among its employees, suppliers, and all stakeholders. Broad network of marketing and distribution channels In addition to the close or direct contact with customers by Sandvik’s own employees, it also recruits some distributors and agents in large number, along with the secondary channel like e trading. According to the integration of various channels and close cooperation with the customers, 70% of Sandvik Group’s sales are delivered within a week since the order is placed. Direct sales to end-customer to ensure maximum customer value Another important element in marketing and customer orientation of Sandvik is the direct sales and contact with customers. Sandvik needs to ensure the optimal solutions are made and offered to the customers. Sandvik by its 6,000 salespersons around the world, can keep contact with its customers continuously and closely. Acquisition strategy also is a part of long-term growth strategy of Sandvik. Sandvik has strongly implemented acquisition since 1997. It is to find possibility of taking acquisition leading to strength, preferred profit, and increasing market shares and entry of new markets.
Chapter 4: Corporate Governance in Sandvik
CG of Sandvik is conducted according to Corporate Governance Code of Sweden, the Stock Exchange, internal guidelines and regulations. It is based upon the applicable
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legislation. The objective of conducting corporate governance is to comprehensively identify roles and responsibilities of owners, board and executive management, containing control and management system. It is also link to the risk management and remuneration for executives. Sandvik also operates according to internal guidelines based on OECD’s guidelines to create sustainable professional behavior, which is the responsibility of managers to ensure the compliance. The core competency of Sandvik is that it has established the strong spirit and culture within the organization globally. Effective corporate governance evaluates a company profile in the eyes of shareholders and investors, results in better investment. In the globalized world, it is almost necessary for the companies to follow the corporate governance codes. Following to see how Sandvik has successfully implemented Swedish corporate governance codes and other relevant guidelines.
4.1 Ownership structure
Needed information in this area in previous chapter is presented. However here we should add, Sandvik had about 109,000 shareholders at 31 December 2009 and Industrivärden AB is the largest owner with about 11.7% of the share capital. There are nine other shareholders between 1.7 and 5 percentage shares. Foreign investors, according to SIX Ägarservice, owned approximately 33%. Based on above information it seems that distribution of ownership power in Sandvik is balance and acceptable numbers of institutional investors are involved to controlling of this company. This fact will help to implementation of higher level of corporate governance and responsibilities. Shareholders are the backbone of the company, the Swedish company act have provided protection for the rights of the shareholders. According to the corporate governance report of Sandvik, they have provided the same right to their shareholders as the company act talks about. To remove the gap between shareholders and company there has been so much information sharing with investors and shareholders.
4.2 Shareholder meetings
The annual general meeting is where shareholders use their right of vote and take actions about their concern in the company. There is the annual general meeting in Sandvik where shareholders use their right of vote about dividends, election of board members and appointment of auditors, remuneration of board members and auditors,
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and any other matter related to the company. Shareholder meeting is conducted according to the guidelines of Swedish CG codes.
4.3 The board of directors
To comply with Swedish corporate governance codes, which states board members, must not belong to the management of the company. In Sandvik, the board consists of eight members. They have added two members and two deputies in addition. The major shareholders select four board members and other four are selected independent from the shareholders and the company. In 2009, Georg Ehrnrooth, Clas Åke Hedström, Fredrik Lundberg, Hanne de Mora, Egil Myklebust, Anders Nyrén, Lars Pettersson and Simon Thompson were elected in compliance with the nomination committee. Anders Nyrén is Chairman of the Board and Olof Faxander President and Chief Executive Officer of Sandvik AB. These board members have high profile of experience for working for other companies. For example, Anders Nyrén has MBA degree and B.Sc. in economic. He is president and Chief Executive Officer of Industrivärden AB since 2001, Executive Vice President and CFO of Skanska AB 1997–2001, various executive positions within Wilhelm Becker AB, STC Scandinavian Trading Co AB, STC Venture AB, OM International, Securum AB and Nordbanken 1979–1997. His current board assignments: Chairman of Association of Exchange-listed Companies and the Association for Good Practices on the Securities Market, Vice Chairman of Svenska Handelsbanken AB, Director of Ericsson AB, Industrivärden, SCA, SSAB, Volvo and Ernströmgruppen. His own or closely related person Shares in Sandvik are 4,500.
4.3.1 Procedural Guidelines
The guidelines and instructions should be updated every year, based upon the evaluation of performance of the board. Board will meet and establish goals and strategies on operating business including financial issue.
4.3.2 Evaluation of the board’s work and the President
A Systematic structure has been developed to make sure the board’s performance meets the requirements at individual level. The evaluation of the work of the Board and its need for experience and expertise covers each individual member. The evaluation is carried out at plenary meeting. The Chairman will announce the evaluation result to Nomination Committee. Furthermore, the Board continually evaluates the performance and competence of the President and CEO and Group Executive Management.
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4.3.3 Independence
Anders Nyrén (Chairman) and Fredrik Lundberg (board director) are not independent in relation to major shareholders as defined in the Code. The remaining four members elected at the Annual General Meeting were all independent in relation to Sandvik and major shareholders. Accordingly, the composition of the Board complies with the requirements in the Code that a minimum of two of those members that are independent in relation to the company and its management shall also be independent in relation to major shareholders. the members that are independent in relation to the company and major shareholders have the required experience of serving public listed companies.
4.4 Nomination Committee
In Sandvik, the nomination committee is responsible for the election of board of directors; as mentioned before, in Sandvik the four largest shareholders elect each member for the board members. Nomination committee also is responsible for the selection of auditors (not external and independent auditors), fee for the board members and Chairman. Task of nomination committee are proposals concerning the Chairman of the Meeting, number of Board members, remuneration of Board members, auditors and Chairman of the Board, concerning number of auditors and appointment of auditors, the method of appointment of the nomination and upcoming annual general meeting.
4.5 Remuneration Committee
The responsibility of remuneration committee is to prepare the related issue involving the remuneration of president and other board and senior executives according to the guidelines on the annual general meeting. The proposal of remuneration from the committee to the board contains remuneration principles, the distribution between the fixed and variable salary, the pension and severance pay, and other benefits offering to senior executive management. According to the proposal of the Remuneration Committee, Board has to decide President and CEO’s remuneration, and then the president decides other senior executives’ remuneration. All are carried out according to the Swedish Corporate governance codes. The Remuneration Committee meets two times a year discussing about the allocation of remuneration, to propose a proposal to the board for decision-making. The fixed salary is based on each individual’s performance and responsibility and market-rate in order to be competitive. The fixed salary will be reviewed every year. The annual variable depends on the successful of goals set each year, which are related to the revenues and those measurable goals for each individual.
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According to the policy of Sandvik the annual variable cannot be more than 50-75% of the fixed salary. The long-term variable salary also depends on those measurable goals from the board connected to the profitability, growth and capital efficiency of the company in three-year period. The long-term variable salary should not be more than 45-50% of fixed salary.
4.6 Audit Committee
For Sandvik, the Audit Committee’s areas of responsibilities are financial reporting, arranging the plan, scope, and follow-up for external audit and internal audit. Audit Committee also has to cover the businesses’ execution systems and processes of risk management, along with legal issues, taxation and accounting, financial operation and pension terms. In 2009, the committee held five meetings at which the company’s external auditors and representatives of the company’s management were present.
4.7 The external auditor
As the Swedish corporate governance codes oblige the companies to have an independent auditor to ensure transparency. In annual general meeting of Sandvik, the external auditors for the company are appointed who are independent from the company, whom are obliged to present the audit report to shareholders and recommendations to shareholder financial statements. The auditing report is continuously reported to business companies and other entities to ensure transparency. Auditing is conducted accordance with the Swedish company act and general auditing standards. From the year 2008 to 2010, a three-year period Sandvik has reelected KPMG AB, the audit firm as the external auditor at the General Meeting. Caj Nackstad is in charged as the auditor. The progress of audits is required to be reported regularly to the management of business areas, companies, executive management, the Audit Committee and the Sandvik’s Board. The audit report provides recommendations for shareholders to base their resolution on the approval of income statements and balance sheets of the group and the main company. Audit’s activities include the monitoring of compliance with Articles of Association, the Companies Act, the Annual Accounts Act, IFRS, and the Stock Exchange’s disclosure standards in the annual report, along with related issues on items in balance sheet, financial control and accounting.
4.8 Operational Management
There are three businesses areas for Sandvik. Each business area has the president, who reports directly to Sandvik’s CEO. They are also responsible for activities in
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their areas. At each month, the executive managements will meet for the financial development, project development, strategic, leadership and competence sourcing issues. Sandvik has created group functions IT, communications, legal, taxes, patents and trademarks, business analysis, internal control, investor relations, and financial, etc. The group functions together with group executive management, business areas, cooperate with group-wide strategic areas for examples, research and development, IT, finance, purchasing, and environment. For countries that Sandvik has a branch, there will be a country manager who responsible for representing and communicating Sandvik to the public, and ensure the compliance to the Group-wide guidelines.
4.9 Internal control and risk management
It is the board’s responsibility to make sure the effective management and internal control are achieved. According to Sandvik’s operation guidelines in the power of Sandvik, it contains the group’s business concept, strategies, objectives and value, job descriptions and organization structure, guidelines and instruction, administrative procedures, code of conduct of Sandvik. The risk management program of Sandvik is complied with ERM model. The program has been incorporated with the strategic and operational management: daily planning, control and monitoring. The objective of risk management is to ensure the utilization of opportunities in best potential way, and to decrease the risk.
4.10 Integration of acquired companies
Sandvik has acquired around 50 companies within ten years, indicating that one the possible growth channels of Sanvik is from acquisitions. Three steps will carry out the acquisition and integration. The important issues on integration are analyzed and arranged in the beginning stage of acquisition. After conducted the acquisition, planning and implementation of integration will be arranged. Last stage the acquired company will be combined with Sandvik’s administrative procedures and trained on Sandvik’s regulations, instructions. The values of Sandvik will also be transferred at this stage. Moreover, the financial report will be consolidated with Sandvik. It is important for Sandvik to be able to accomplish to acquisition and integration of new companies with its current operations. There are considerations on human resource, management issue that should be flexible to Sandvik’s core values, which are open mind, team spirit and fair play. The core values of Sandvik are discussed in the business strategy part. Finally we should mentioned that according to the Swedish corporate governance codes Sandvik has provided all the information on its website including annual report
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and corporate governance report and regularly updating steering documents such as policies for the shareholder and general public. This high level of information transparency from different aspects significantly can help any shareholders that are familiar with internal processes in Sandvik.
Chapter 5: Corporate Responsibility in Sandvik
Sandvik as a global company is located in over 60 countries with varying laws, cultures, values and traditions. However, they try to respect public concerns about the impact of their activities and in consist of Sandvik long-term strategy for profitable growth, they try to contributing to sustainable development by honoring Sandvik social and environmental responsibility and conducting business in an ethical manner. In fact, sustainability and business ethics are integral elements of Sandvik business plans and its decision-making procedures. Factual good business ethics means practicing sound corporate governance and formulating clear policy statements for employees. In November 2004, the Sandvik Board decided to revitalize its Code of Conduct. During 2004 Sandvik start to training of its employees in sustainability and business ethics. At the end of 2009, about 35000 employees in the Group trained on Sandvik’s Code of Conduct. The Code of Conduct, which is part of Sandvik’s common platform, is based on the OECD Guidelines for Multinational Enterprises, the UN’s Universal Declaration of Human Rights and the ILO's Declaration on Fundamental Principles and Rights at Work. Some independent organizations that are carry about corporate sustainability and responsibility issues has recognized Sandvik’s efforts in this way. For example, Dow Jones Sustainability World Index (DJSI World) which covers 10% of the biggest 2500 companies in Dow Jones Global Total Stock Market Index, assesses their economic, environmental and social criteria, has selected Sandvik for 3rd year as a member of DJSI World and as a member of pan European Dow Jones STOXX Sustainability Index (DJSI STOXX). Alternatively, FTSE4Good Index series, which is designed to analyze performance of corporation around the world, in respect to globally recognized corporate responsibility standards has accepted Sandvik as a member of FTSE4Good Index in 2011 for conducting sustainable business around the world. Ethibel Excellence Investment Register is an Independent consultant for socially responsible investing. Sandvik has been monitored for its CSR profile, it has been confirmed that until December 2010 Sandvik has been on their monitoring list to ensure ethical investing.
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5.1 Corporate Environmental Responsibility in Sandvik
One of the hot issue in the modern world, changing environment has been causing problems around the whether it has been food security, floods, extreme weather its destroying economies around the world. For Sandvik environmental responsibility is very important since it is a Swedish company, Swedes are more concern about environment. It is a cultural thing in Sweden. For sustainable business, environmental responsibility is a core issue to deal with. Sandvik has plants where various steel goods are manufacture. Before reducing its environmental impact, Sandvik has started to review its raw material for manufacturing of different goods, which can reduce environment impact of its operation. One the thing they did is to reduce the use of contents like nickel, which is substitute by nitrogen and manganese, and scrap metal, which has high nickel contents are used for the manufacturing. The following table shows Sandvik usage of raw material for its production. Table 2: Raw material consumption 2009 2008 2007 2006 Consumption of metallic raw materials (thousand metric tons) Of which recovered (%) 252 78 350 79 399 78 405 78
Recycling is one of the aspect through which Sandvik has tried to reduce its impact on the environment due to their operations. 70% raw material is steel scrap for Sandvik. One of the biggest environmental problems is air pollution. Sandvik has been working to reduce its emission into air and water. In Sandvik plants the gases containing dusts smelting plants are cleaned in a very good way before being emitted to the air. It has more striker emission policy than local authorities, which surely display their concern about environment. Sandvik has been reducing its consumption of fossil fuel to reduce its emission. Following is the chart and table show 4 years energy usage and 5 years chart of emission, which shows a goal for reduction of emission for 2012. Table 3: Energy use Use of energy (TJ) of which fossil fuels (TJ) Direct energy of which electricity (TJ) Indirect energy 2009 7,500 2,900 4,600 2008 8,900 3,400 5,500 2007 8,800 3,400 5,400 2006 8,100 3,000 5,100
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Figure 3: energy usage in relation to sales volume
An alternative way of reducing energy usage to reduce environment impact of its operations Sandvik has been reducing its energy usage to battle carbon emission into air by reducing its traveling of employees and flow of goods, they have commenced to report CO2 emissions to greenhouse gas protocol. Another environmental problem is water pollution. Sandvik has been looking for the alternative ways to reduce the pollution into its wastewater. Following is the table, which shows water usage by Sandvik for 4 years. Table 4: Water consumption Water consumption (thousands m3) of which purchased freshwater (thousands m3) of which groundwater (thousands m3) of which harvested surface water (thousands m3) 2009 7,100 3,200 600 3 300 3,300 2008 6,600 3,600 500 2 500 2,500 2007 6,800 3,500 500 2 800 2,800 2006 6,800 3,300 500 3 000 3,000
At Sandvik plants, chemicals are destroyed accordance concerning environmental friendly methods. One the chemical that is used for production in few Sandvik plants is trichloroethylene. For which Sandvik is thinking to replace it with alternative. Water is a very valuable resource and there are many places in the world where fresh water is not available. Sandvik has used efficiency in using of water in its operations. Sandvik has decreased using of water by 10% in its operations in recent years, and expect to reduce it further in coming years. Sandvik has been planning to reduce its usage of energy; it has good statistics until 2008 because of the change in energy prices and currency exchange rates. Sandvik expect to reduce its energy usage by 10% in relation to its sale volume despite decrease in production energy saving policy is continued.
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5.2 Corporate Social Responsibility in Sandvik
Being an international enterprise has direct relationship with augment of the importance of corporate social responsibility. Because, there are great public concerns about the impact of companies’ activities. Respect for human and labor rights is essential. Sandvik implement the same corporate policies, expressed in its Code of Conduct, at all units and strive to develop equal standards. Furthermore, Sandvik practically try to follow relevant procedures to evaluate and select major suppliers and subcontractors on their ability to meet the requirements of its Code of Conduct. Sandvik’s social goals are to provide working conditions that stimulate employees to perform effectively assume responsibility and continue to develop in their personal and professional careers. Sandvik is committed that always equal opportunities are provided for employees.
5.2.1 Employees
Employees are the major asset of a company, having a qualified workforce in a company makes it more efficient in their performance. Sandvik has a diverse workforce; since 77% of its employees are outside of Sweden consist of 60 countries. Sandvik is giving equal opportunities to all individual which qualifies to standards of Sandvik no discrimination based age, race, color, national origin, religion, gender, disability or any other thing protected law. A new policy has been adopted which states that there must be at least one applicant for the managerial post. Providing a better working environment makes the workforce to work efficient. To ensure better working environment Sandvik has been focusing on safety policy at their plants. It has ensured safety policy at work internationally. During production, there are harmful chemicals, which can endanger employees. Sandvik has ensured to destroy those chemical or handle them in way, which is better for the environment and the employees. Despite different health safety due to different countries, Sandvik ensure equal safety policy in every country. During 2009, no health injury reported at Sandvik plants. At Sandvik plants there are about 5 accidents per million due to its handling of acids and other chemicals. Sandvik has ensured to warn about different harmful things on the work such as labels and safety instruction of harmful chemical container. Sandvik has proposed to reduce injuries at work by 50% until 2012.
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5.2.2 Community involvement
Community involvement is one of areas Sandvik has been focusing from their beginning. Since it focuses on the sustainable business, Sandvik has engaged with community in different ways to make things better for them. There are many programs Sandvik has initiated to benefit the local communities around the world. One of the programs Sandvik initiated is in health sector, Zambia that is one of the world poorest countries. The most of the youth of this country is infected with HIV and AIDS which is affecting the workforce of the country because so many young people are sick. Sandvik has started a program to provide free anti retroviral drugs to the people of Zambia. 500 of Sandvik employees have suffered because of such health situation in Zambia. Therefore, they decided to provide assistance to the patients of HIV and AIDS. Another Program initiated by Sandvik in Brazil to uplift the life of the rural areas of Brazil where Sandvik is involved in mining. According to the program the teenagers who are inexperienced are given opportunity for a first job, Sandvik hires them when they turn 18, it has been a positive thing in those areas until now. This program has benefited 20 young employees until now. Another program Sandvik has initiated in Sweden to train and employee the unemployed Swedish technicians in Australia. It has been working with Swedish county labor boards. This program has not only benefited Swedish unemployed technicians as well as the Sandvik, which was lacking qualified technician in Australia for its mining industry. Sandvik has been involved in providing quality education to the poor rural areas kids of Pune. Where the children are living in the house own by Sandvik and getting qualified education in good school, which is financed by Sandvik. Sandvik is sponsoring different cultural and recreational activities around the world where Sandvik has been involved in business. Therefore, the local and the employees of the Sandvik have recreational places in reach, since some places where Sandvik is operating are remote areas. One of the best things about Sandvik is that they have never been involved in sponsoring national or global operations, neither their support to the political nor any other groups. Most of their support goes to the children and youth by sponsoring cultural and sport events.
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Corporate Governance in “Sandvik” Chapter 6: proposal context of Corporate Governance in Sandvik
Before starting to study about corporate governance and responsibility issues in a real case, we were care about selecting a real responsible company. We tried to find an enterprise that practically involve to different aspects of corporate accountabilities and responsibilities with well-organized value drivers and strategies with respect to good practices in corporate governance. Based on our practices in the first assignment, we assumed that information transparency and its public availability is one of the primary criteria for such a responsible company in global business. After investigation about different companies, we find that Sandvik really can be a suitable case for studding about different dimensions of CG and CSR. This company clearly has accepted its duties in front of shareholders, society and environment that it works there. Based on our finding, Sandvik perform a high level of commitment to responsibilities to different types of Stakeholders and variety independent sustainability ranking organizations and confirmed reports create a rescannable assurance in this perspective. Fortunately, these characteristics of Sandvik helped us to better creation of kind of dialectic between imperial findings and theoretical knowledge. In the following of this chapter, we will build our conceptual framework by relevant theories.
6.1 Theoretical aspects of corporate governance in context of Sandvik
The main theories that in recent years have affected the development of corporate governance are agency theory, transaction cost economics, stakeholders theory and stewardship theory (Mallin, 2010). However, it seems the soundest of them are principal agent theory and stakeholder theory. From principal agent theory perspective, we expect the boards of Sandvik as the agency of ALL shareholders to be self-interest and therefore they will try to achieve their own profits rather than the shareholders. Because of information asymmetry between managers and shareholders, this phenomenon may be a threat for the companies' owners or all stakeholders. In this context, corporate governance will be a disincentive mechanism for Sandvik that tries to fill above mentioned gap between managers and shareholders. In fact this system want create a well-organized system of accountability for both accountees (shareholders) and accountables (managers). Nevertheless, in current business environment, this system should be able to create a transparent business from different aspects that attend to responsibilities in front of all participants or “stakeholders” in company.
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For covering of this landscape, it seems the stakeholders theory is more applicable since it pay equal attention to all groups that directly or indirectly are involve to company’s activities. For example in the case of Sandvik, we find that this company has special attention to equality from different aspects between all employees and augment opportunities are same. Alternatively, as mentioned in previous chapter, Sandvik is involved to social activities and reduction of environmental effects of its activities. All these factual evidences support our issue that Sandvik tries to recognize the rights of different stakeholders and provide their needed information.
6.2 footprints of Swedish style in corporate governing
Although Sandvik is a global company and sales its production to 130 countries, but it is founded in a socialism country “Sweden”. Effects of Swedish style of corporate governing From 150 years ago until now, is easily traceable in Sandvik. Sandvik historically is a value based company and has needed capacities for developing discussions like corporate social and environmental responsibilities. All of these traditions are based on Swedish culture and point of view to human rights and environment-friendly. After studding on the case of Sandvik, we find many similarities between Sandvik business behaviors and daily Swedish social life style. For example, information transparency from different aspects is a fundamental principle in Sweden and any exemption is not acceptable. Sandvik also is concern for this real fact of Sweden society and it has recognized its responsibilities to wide range of stakeholders. Our investigations, presented in previous chapters, show a high level of commitment to social and environmental concerns in Sandvik.
6.3 The role of Institutional investors in Sandvik
Who are institutional investors and why they are such important in corporate governance issues. These groups of shareholders are permanent participants of financial markets that their investment strategy is more long term and generally follow sustainable businesses. These groups of shareholders have practical authorities and enough knowledge for monitoring and controlling of corporate governance and responsibilities. These investors themselves continually monitored by public interest and most of the times are reliable financial foundations. For example in the case of Sandvik, all first ten shareholders of company are institutional investors, mostly related to Swedish banks’ funds. Any individual shareholders do not have absolute power in governing of firm and there is power balance in the board. These investors publically are trusted by people.
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6.4 Board diversity in Sandvik
“It may be argued that board diversity [in terms of gender and nationality] enables different perspectives to be taken on various issues given that men and women may approach issues from different viewpoints and may have different behavioral patterns as well; similarly individuals from different ethnic backgrounds may bring additional cultural insights to the board room.” (Mallin, 2010, p178) In the case of Sandvik, Hanne de Mora (director of Sandvik AB) and Alicia del Carmen Espinosa (employees’ representative) are female members of the board. However, despite of existence of evidences for positive effects of board diversity (Ibid, p178), the proportion of women on board of Sandvik is quite small. Unfortunately, we could not find information regard to nationality of board’s members, since as we said before, 33 percent of shares is belong to foreign investors.
6.5 Sandvik as a socially responsible investment
Corporate governance and corporate social responsibility have become hard to distinguish in the global economic. Their convergence in the face of regulatory, business, and social changes in transnational markets has created an argument between potential and limitations of corporate accountability mechanisms. (Gill, 2008, p477) if fact, after Enron scandals, corporate governance has moved from traditional focus on agency conflicts to issues of ethics, accountability, transparency. Furthermore, corporate social responsibility (CSR) has increasingly focused on corporate governance as a tool for incorporating social and environmental concerns into the business decision-making process, benefiting not only financial investors but also employees, consumers, and communities (Ibid, p452). However, how we can develop a theoretical context for CSR practices in the case of Sandvik. Maybe the approach of Enquist et al (2006) in the case of Swedbank can be a practical answer to this question. In that case, they build their analytical framework based on neoinstitutional and stakeholder theory. In context of stakeholder theory, Enquist et al by presenting an argument on the role of CSR in different equity strategies conclude that in the shareholder approach, making a profit is the only relevant objective. Therefore, this strategy faces to CSR as relevant only insofar as it contributes to the creation of long-term value for the owners of the business. Thus, here, CSR is a mean, not a goal (Enquist et al, 2006, p191). Alternatively they introduce “the social-harmony strategy”, in contrast, takes a “communitarian-oriented” perspective. This point of view insists on the balance of answering to needs of all stakeholders and ethics must not separate from business. In
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this strategy, CSR has completely different role that is supported by corporate governance issues. As we can see CSR plays different roles in these strategies. The neo institutional theory offers guides to thinking about corporate responsibility, and brings into question the goal of maximizing profits or returns on capital. In this way, new generation of institutional theory discuss about issues of social concern and does so without accepting conventional models of organization or the unreflective premises of management (Selznick, 1996, p272). In the case of Sandvik, above-mentioned theoretical approach reliably is traceable. In the webpage of Sandvik, annual reports of this company are available from 1987. However, reports concerning sustainable business issues generally and CSR specifically are added to annual reports in recent years. This shifting shows an obvious transition to accountability in front of broader audiences (stakeholders) that include society. This movement has many another supportive evidences that insist on the changing of corporate governing procedures in Sandvik from 2007.
Chapter 7: Conclusion
Based on finding of this report Sandvik has been looking into stakeholders demand and concern in its operations whether it is social or environmental concern. It has been taking its entire stakeholders together to ensure desirable results. As a multinational company, Sandvik is committed to ensure sustainable business operations taking into account ethical and environmental aspects of their business operations. In 2004, board decided to review their codes of conduct and in 2007 Sandvik officially reported environmental and social aspect of its activities In this case study, particularly we focused on finding of corporate social and environmental responsibility, corporate governance footprints in Sandvik and creation of a bridge between whatever theoretically should be existed, and whatever, empirically we find. In interpretations and reflections of what we face to them, we used some experienced theories by others like neo institutional theory and stakeholder theory. Furthermore, we considered Sandvik from principal agent theory perspective. Based on our overall results, it seems that Sandvik is a committed company about corporate governance and corporate social responsibility issues. Our gathered and analyzed information confirm that Sandvik core strategies are based on accountability and responsibility in front of all stakeholders. Facts approximately follow theoretical framework for corporate governance.
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Corporate Governance in “Sandvik” Appendix A
Sandvik Group in figures Invoiced sales, SEK M Change, % of which organic, % of which structural, % of which currency, % Operating profit, SEK M as % of invoicing Profit after financial items, SEK M as % of invoicing Consolidated net profit for the year, SEK M Shareholders’ equity, SEK M Equity ratio, % Net debt/equity ratio, multiple Rate of capital turnover, % Cash and cash equivalents, SEK M Return on shareholders’ equity, % Return on capital employed, % Investments in property, plant and equipment, SEK M Total investments, SEK M Cash flow from operations, SEK M Cash flow, SEK M Number of employees, 31 December 2010 82 654 15 17 1 -2 11 029 13 9 412 11 6 943 33 813 38 0.7 92 4 783 22.1 17.4 3 378 4 493 12 149 - 2 642 47 064 2009 71 937 -22 -30 0 10 -1 412 -2 -3 472 -5 -2 596 29 957 33 1.0 73 7 506 -7.9 -1.3 4 006 6 161 11 792 2 471 44 355 2008 92 654 7 5 2 0 12 794 14 10 577 11 7 836 36 725 36 0.9 101 4 998 24.8 19.9 6 634 7 766 9 335 2 764 50 028 2007 86 338 19 18 3 -2 14 394 17 12 997 15 9 594 29 823 35 1.0 112 2 006 34.4 27.0 4 811 9 480 5 076 179 47 123
The business areas in figures Sales 2010 SEK M Sandvik Tooling 23 893 Sandvik Mining and Construction 35 182 Sandvik Materials Technology 17 703 Seco Tools 5 838 Group activities 38 Group total 82 654
Earnings 2010 SEK M % of invoice. 4 296 18.0 4 665 13.3 1 540 8.7 1 098 18.8 -570 11 029 13.3
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Corporate Governance in “Sandvik” References
? Enquist, B, M. Johnson and P. Skålén (2006) Adoption of Corporate Social Responsibility – Incorporating a Stakeholder Perspective, Qualitative Research in Accounting and Management, Vol. 3, No. 3, pp. 188-207 Gill, A. (2008) Corporate Governance as Social Responsibility: A Research Agenda, Berkley Journal of International Law, Vol. 26:2 pp. 453-478 Mallin,C.A. (2010) Corporate Governance Oxford Press, third edition Selznick, P. (1996) Institutionalism "Old" and "New", Administrative Science Quarterly, Vol. 41 Issue 2, pp.270-277. www.Sandvik.com
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Behrouz Afshari Vafa, Hammad Saleem & Mingkhwun Wasinwasukul
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