The Board

Main role and duties of the Board

The Board of Directors holds supreme authority between shareholders’ meetings. It shall ensure that the Company’s organisation and operations are in a good state. It shall promote the development and long-term performance of the Company and supervise its operations

  1. The main roles of the Board are as follows:
    • To hold supreme authority between shareholders’ meetings, promote the development and long-term performance of the Company and supervise its operations. The Board shall regularly assess the performance of the Company’s executive directors and how the Company’s policies are implemented.
    • To take the initiative, together with the CEO,Here and elsewhere in the Guidelines, this refers to the Managing Director/Chief Executive Officer recruited by the Board, but not to department heads or division managers. in formulating policies and setting goals and risk parameters for the Company, both in the short and long term.
    • To establish an active system of internal controls. This means, among other things, that the arrangement of the internal controls system shall be formalised, documented and its functionality verified regularly.
    • To ensure that the Company’s operations are in conformity with existing laws and regulations.
    • To administer the recruitment and dismissal of the Company’s CEO.

Size and composition of the Board

The Board must be of a size and composition that enables it to execute its duties efficiently and with integrity.

  1. The composition of the Board shall take into account the operation and policies of the Company, its stage of development and other relevant factors in its operations and environment. The Board shall display diversity and breadth in qualifications, experience and knowledge and the goal shall be for gender distribution to be as equal as possible.Cf. Article 63(1) of the PUBLC Act and Article 39(1) of the PRILC Act.

    Company boards are meant to provide managers with support and encouragement and ensure, as far as possible, that the organisation and operations of the Company are in a good state. It is important for the Board to consist of individuals with the necessary knowledge and experience to execute their duties diligently. It is just as important to make efforts to achieve reasonable breadth of knowledge, talent and capabilities and ensure that important components are not lacking. This, in turn, will ensure that the greatest possible benefit from a multi-member board.

  2. Only oneThis refers to a board consisting of five members. Board member can be a Director of the Company, a member of its executive board or its subsidiaries’.

    The PUBLC Act allows for company mangers to serve on the Board as long as they do not constitute a majority of the Board. The Guidelines therefore recommend stricter limits on the number of executive managers on the board than the relevant legislation does. This is because one of the most important duties of the Board is to monitor the day-to-day running of the Company and the Company’s managers. If company managers make up 40% of the Board, e.g. if two out of five Board members are executive managers of the company, this reduces its capacity to carry out its supervisory duties over managers.

Independent Directors

To help the Board work for the interests of the Company and all of its shareholders, Directors shall be independent from the Company, its executive managers and major shareholders.

  1. The majority of Directors shall be independent of the Company and its day-to-day managers.

    One of the most important duties of the Board is to monitor those who are responsible for the Company’s day-to-day operations. If a Director is connected with the Company in any manner that may give cause to question whether their own interests could affect their decision-making towards the Company and its executive managers, this reduces their ability to carry out their supervisory role over managers.

  2. A Director is not independent of the Company and its day-to-day managers:
    1. if he/she is or has been an employee of the Company, or a company closely related to the CompanyIf the company controls at least 10% of the total share capital or weight of votes in another company, the latter shall be deemed to ‘closely related’. If the Company controls 50% or more of the total share capital or weight of votes in another company, then it shall be considered to have indirect control of the latter company’s shares in other companies. in the three years prior to the commencement of Board membership;
    2. if he/she receives or has received substantial payments from the Company,An assessment of such payments should be conducted to ascertain whether or they are of a considerable amount, for both the Company and the individual Director, e.g. if it a large portion of their gross income. a company closely related to the Company or its day-to-day managers, apart from a Director’s fee, e.g. as a consultant or contractor, in the three years prior to commencement of Board membership.
    3. if he/she is in, or has in the past year been in, significant business with the Company or closely related companies, e.g. as a customer, supplier or partner, or if he/she has other significant business interests in the Company, whether personally or through another company;
    4. if he/she is one of the day-to-day managers of another company in which one of the Directors is a day-to-day manager;
    5. if he/she is or has been, in the past three years prior to taking a seat on the Board, a partner of the external auditor of the Company or a closely related company, or an employee who has taken part in the external audit of the Company;
    6. if he/she has close family tiesThis refers to Article 3(1)(2) of the Administrative Act (Act No 37/1993), i.e. if the Director in question is or has been the spouse of or related in a direct or indirect line to an individual or similarly joined by means of adoption. with any of the Company’s day-to-day managers or any other persons mentioned above, and that person is in direct or indirect business with the Company to such an extent that the director could not be considered independent.

      The ways described above in which a Director may be considered not independent are not exhaustive. It remains up to the Board to assess other factors where the interests of specific Directors, large shareholders and the Company itself might collide, whether in fact actually or in appearance. The Board might, for instance, consider whether the Director has been considered independent for more than seven consecutive years or if individuals or companies related to the Director are in such a relationship with the Company as is mentioned above.

      The abovementioned criteria for independence should not be interpreted in such a manner as to hinder necessary diversity and breadth amongst Board members. If a particular Director does not meet the listed conditions but is nevertheless considered extremely competent for the work due to his/her experience, education or other reason, the Company’s corporate governance statement shall indicate how the Board intends to prevent any conflicts of interest which may arise in their work as a Director of the Board.

  3. At least twoThis refers to a board consisting of five members. of the Directors that are independent of the Company and its day-to-day managers shall also be independent of the Company’s major shareholders.A ‘major shareholder’ is any individual or legal entity who controls at least 10% of the total share capital or weight of votes in the Company, alone or in cooperation with associated parties.

    The recommendation that that two Board members shall be independent from major shareholders aims to support the Board in operating for the benefit of the Company and all of its shareholders. Although the recommendation will likely result in reducing the influence of major shareholders, it does allow for the majority of the Board members to be related to major shareholders in one way or another. The recommendation therefore simultaneously supports active ownership and the protection of minority shareholders.

  4. When determining whether a Director is independent of the Company’s major shareholders,A major shareholder is anyone who has at least 10% of the total shares or voting rights in the Company, alone or in cooperation with related parties. a general assessment shall be made of all direct and indirect relations with the relevant shareholder. The standards set out in Section 2.3.2 may, for example, be considered when assessing whether a Director can be regarded as being independent from the Company’s major shareholders. A Director is not independent of the Company’s major shareholders in the following circumstances:
    1. If he/she has direct or indirect control of the Company or is a board member or an employee of a company that has control of the Company.
    2. If he/she owns a significant share in the Company or is a board member or an employee of a company that owns a significant share in the Company.

      As for independence towards the Company, these recommendations on independence towards major shareholders are not meant to prevent the best possible composition of the Board in respect of the operations of the Company. If there are instances where a certain Director does not fulfil the aforementioned requirements but is perceived as very competent for the job based on their experience, education or other factors, the Company’s corporate governance statement shall indicate how the Board intends to prevent conflicts of interests that may arise in their work as Director.

  5. The Board shall evaluate whether its members are at any given time independent of the Company and its major shareholders. The Board shall also evaluate the independence of potential Board members before the Company’s AGM – if a Nomination Committee has not been appointed – and its conclusions shall be made available to shareholders.
  6. Directors of the Board shall provide all relevant information to facilitate the assessment of their independence and give notification of any changes to their circumstances which might affect whether they could be considered independent. They shall provide at least the following information:
    • Date of birth, education, chief occupation and professional experience.
    • Date of first election to the Board.
    • Other commissions of trust, e.g. membership on boards of other companies.
    • Shares in the Company, whether direct ownership or through associated parties.
    • Information on work carried out for the Company.
    • Connections with the Company’s main clients and competitors and major shareholders in the Company.
    • Other connections with the Company as described above, if applicable, as well as the evaluations of the Board and the Nomination Committee on whether the Director is considered independent.

Cooperation, communications and setting goals

The Board must seek to engage in regular discussions on how it intends to discharge its duties, the areas on which it will focus, what communication and procedural rules will be upheld and what the main goals of the Board are.

  1. The Board shall annually define its significant assignments, goals and strategy of the Company and make a plan for the execution of its duties.
  2. The Board’s work shall in general take place at Board meetings. In the event of communication between Board members and/or between Board members and the Company’s executive directors outside the board-room regarding decisions taken by the Board or the grounds for such decisions, this shall be disclosed at the next Board meeting.

    It is important for Board members to all possess the same information so that a critical discussion can take place in Board meetings. This is especially important when a new board is assembled or when a new Board member takes a seat on the board.

  3. All information necessary for Board members to form an informed opinion on matters shall be delivered to them in a timely manner before Board meetings.
  4. The Board shall convene regularly enough for it to be able to discharge its duties in an efficient manner.

    The Directors shall preferably agree on the number of meetings estimated for the year. This improves organisation of the Board’s work and implies that Directors also agree that they are able to execute their duties satisfactorily during that time.

The Board’s rules of procedure

The Board’s rules of procedure deal with the allocation of tasks among Directors and the relations between the Board, the Chairman of the Board and the CEO. The rules make it easier for shareholders to assess the working practices of the Board.

  1. The Board shall establish its own written rules of procedure further addressing the role and execution of the work of the Board.Cf. Article 70(5) of the PUBLC Act and Article 45(5) of the PRILC.
  2. The Board shall review and revise its working procedures annually.
  3. The Board’s rules of procedure shall at least cover the following:
    • Allocation of tasks among Directors.
    • Job description of the Board and the Chairman of the Board.
    • The division of responsibilities between the Board and the CEO, e.g. delegation of power to the CEO, i.e. what decisions should be considered to be unusual or major and therefore under the sole authority of the Board.Cf. Article 68(2) of the PUBLC Act and Article 44(2) of the PRILC.
    • The convening of Board meetings, their frequency, participants and the arrangement of meetings.
    • Communications between Directors, between Directors and day-to-day managers outside Board meetings, between the Board and shareholders and between the Board and the Company’s auditors.
    • Decision-making powers and voting among Directors.
    • Documents for Board meetings, Directors’ access to before and after Board meetings, and handling of meeting documents.
    • Minutes of Board meetings.
    • Board sub-committees, their duties and decision-making powers.
    • Procedures for accepting new Board members, concerning information and guidance in the workings of the Board and the Company.
    • Procedures for annual performance assessments.
    • Gathering and disclosing to the Board information from the CEO, the sub-committees and from independent experts.
    • Professional secrecy and confidentiality.
    • Ineligibility.
    • Links to other rules within the Company, such as guidelines on good corporate governance and other rules as applicable, e.g. from the Financial Supervisory Authority and Nasdaq Iceland.

Performance assessment

It is important that the Board regularly evaluates the performance of the Company. For that purpose, the Board shall evaluate its own work and the work of the CEO and the Company’s operations.

  1. The Board shall annually review and evaluate the development of the Company and whether this is consistent with its goals.
  2. The Board shall, under pre-determined arrangements, conduct an annual assessment of its work, size, composition and procedures. The Board shall seek ways to improve its workings in accordance with the findings of these assessments. The Board shall inform the Nomination Committee, if one has been appointed, of the results of these assessments.

    It shall be noted that the assessment also includes an evaluation of the work conducted by sub-committees of the Board and the contribution of the CEO to the work of the Board. The assessment shall include whether or not the Board has operated in accordance with its own rules of procedure. It shall be taken into account whether or not important company matters are adequately prepared and if sufficient time is provided for discussion. Additionally, the contribution of individual Board members shall be considered, as regards attending and participating in meetings. Evaluations of individual Board members should preferably be carried out in an anonymous manner. Such assessments could, for instance, be carried out by means of anonymous electronic survey administered by a third party.

  3. The Board shall annually evaluate the work of the Company’s CEO and the Company’s operations in general. Any Board member who is also one of the Company’s day-to-day managers shall not be present for the evaluation of the performance of the CEO. The Chairman of the Board shall present the results of the assessment to the CEO and discuss with them how to address weaknesses and/or further improve strengths.

Remuneration policy

The Company’s remuneration policy shall state the fundamental basis for the remuneration of the Company’s Directors and its managers and the Company’s policy regarding contracts with managers and Directors. The policy shall also state if and under what circumstances and to what extent it is permitted to remunerate managers and Directors in addition to their fixed salaries.Cf. Article 79A(2) of the PUBLC Act and Article 54A(2) of the PRILC.

  1. If the Company has appointed a Remuneration Committee, the Committee shall draft a remuneration policy for the Company in accordance with Section 5.4. Otherwise it shall be the responsibility of the Board.Pursuant to Article 79A(1) of the PUBLC Act and Article 54A(1) of the PRILC, boards of companies that have an obligation to vote for an Auditor under to the Annual Accounts Act shall approve the Company’s remuneration policy.
  2. The Board shall publish the Company’s remuneration policy in connection with its AGM, e.g. on its website, and the remuneration policy shall be approved at the AGM, with or without amendments. At the AGM, the terms pertaining to individual managers and Directors of the Company shall be made known, including wages, earned pension payments, other payments and benefits, as well as any changes to terms between years.
  3. All documents forming the basis for the remuneration policy shall be made accessible to shareholders no later than two weeks before the AGM. The documents shall be prepared in such a way that shareholders find it easy to form an opinion on the remuneration policy.
  4. At the AGM, special focus shall be placed on the total expenditure of the Company in respect of its remuneration policy and the meeting shall be informed about stock options that may thin out the value of shareholders’ stocks. The AGM shall be informed on the estimated cost of option plans and on the execution of the previously approved remuneration policy. This shall be done to enable shareholders to fully understand the structure of the employment terms of Board Directors, the CEO and other managers.
  5. If the Board departs from the remuneration policy, such departures shall be submitted to the Remuneration Committee for approval, if such Committee has been established. The reasons behind such departures shall be entered in the minutes of the Board in each case. Pursuant to Article 79A(3) of the PUBLC Act, the remuneration policy is binding for the Board as regards stocks options, buy-and-sell options, priority-buy options and other types of remuneration linked to shares in the Company or the development of their share price.
  6. If it is planned to give managers and other employees stock option rights, or any other form of remuneration other than fixed salaries, the main provisions of such contracts and/or plans shall be submitted to a shareholders’ meeting for approval. Such main provisions include: the total number of shares in the plan, the maximum length of option agreements, the period in which employees can exercise such rights, criteria for the determining the purchase price and terms, in the event of a loan.
  7. The Company’s remuneration policy shall contribute to the interests of the Directors and day-to-day managers being genuinely related to the long-term results of the Company. It shall also prevent the remuneration terms for managers from being such as to encourage excessive risk-taking.

    That may include the following:It should be noted that different rules and legislation on remuneration policy apply depending on the type of company.
    • Variable wages should be a reasonable proportion of overall wages. The remuneration policy should provide for maximum variable wages.
    • Variable wages should be linked to pre-determined and measureable goalsCf. Article 79A(2)(1) of the PUBLC Act and Article 54A(2)(1) of the PRILC Act. that reflect the Company’s actual growth and actual financial benefits in the long term for the Company and its shareholders.
    • Wages of Directors shall reflect their responsibility, expertise, experience and the time required to execute their duties.
    • Directors should not have any stock options, priority-buy options or buy-or-sell options on stock in the Company and should not receive any remuneration linked to shares in the Company or the development of share prices.Cf. Article 79A(2)(5) of the PUBLC Act and Article 54A(2)(5) of the PRILC Act.

Risk management and internal controls

Satisfactory risk management and internal controls are essential for the Board to execute its statutory duties. Satisfactory risk management and internal controls increase the likelihood that a company’s activities and operations are in an acceptable state, that legislation and regulations are being followed, that the annual accounts and decisions of the Board are based on correct and conclusive data.

  1. The Board shall define, at least once a year, the risk factors that the Company has to address, including their nature and extent. It shall also define remedial action to the risks in question.

    Risk management is a process of analysing and measuring the risk factors which could prevent the Company from achieving set goals. It also includes remedial action is taken to minimise the anticipated effects of such risk factors. To this end, the Board should assess on an annual basis aspects such as the Company’s finance, liquidity and equity and perform stress tests if appropriate.

  2. The Board shall ensure the existence of a satisfactory system of internal controls that is formal and documented. Internal controls shall provide reasonable certainty that the Company can attain its goals as regards:
    • success and efficiency in operations;
    • providing dependable and justified financial information to external parties;
    • complying with laws and regulations that apply to the business.

      Active internal control is a process made by the Board and day-to-day managers. Internal control is inter-linked with the Company’s operations and intended to facilitate the Board’s and day-to-day manager’s task of supervising its operations. The internal control system also formalises the manner in which the Company works towards its goals, distributes responsibility in its internal activities and explains the responsibility of the Board in such work.

  3. The Board shall regularly verify the effectiveness of internal controls and risk management. The Board may delegate the implementation of certain aspects of internal controls to parties within the Company. However, it should be done in such a manner that the Board is always informed of its progress. When responsibility for the implementation of control activities is delegated to particular sub-units or managers within the Company, this should be done formally so that there is no uncertainty as to where responsibility lies and how to respond to deviations.

Social responsibility and ethics

By setting a policy of corporate social responsibility, the Company contributes to a better economy and improved relations with invested parties. In this way, it also reinforces its operating basis with an improved perception of trust and credibility, increased risk awareness, happier employees and improved competitiveness.

  1. The Board shall set a policy for social responsibility for the Company and a written code of ethics for the Company’s Board members, its managers and employees.

    Corporate social responsibility addresses the Company’s responsibility for the effect that its operations have on people, the community and the environment. The Company shall set out its policy on its social responsibility and its interaction with invested parties and form practices to ensure compliance with that policy. Such a policy should address issues such as employee rights, human rights, regulatory compliance, environmental and climate issues, health and safety, social involvement and anti-corruption measures. The Board shall decide, in cooperation with employees and other possible invested parties, the standards of ethics on which the Company’s conduct is based.

Shareholder relations

The Board’s relations with shareholders should be based on honesty and be unambiguous and coordinated.

  1. All shareholders shall have the same access to information on the interests of the Company. Dissemination of information to shareholders shall therefore be limited to shareholders’ meetings or the dissemination of uniform information to all shareholders simultaneously.
  2. The Board shall establish an effective and accessible arrangement for communications between shareholders and the Board so that shareholders have an equal opportunity to express their opinions to the Board. Shareholders should thereby have the opportunity to explain their views on the Company’s operations to the Board and to ask the Board questions.
  3. The Board shall be notified of all proposals or questions from shareholders and it shall supervise the Company’s response.

Minutes of Board meetings

Board meeting minutes should give a comprehensive overview of meeting discussions, the documents presented for each agenda item, and the decisions made by the Board.

  1. Directors shall confirm the minutes with their signature.
  2. The following information shall be present in the minutes of the Board:KPMG. Managers Handbook, p. 56.
    • Name and national identification number of the Company.
    • Meeting place, date and time.
    • Number of the Board meeting.
    • Attendance at the meeting.
    • If and when third parties attend, e.g. the Company’s auditor, and when they exit the meeting.
    • Name of the Chair and Secretary of the meeting.
    • Agenda of the meeting.
    • Documents made available to Board members before the meeting or handed out or presented at the meeting. A copy shall be kept with the minutes.
    • Conclusion of each agenda item of the meeting, e.g. decisions made, items postponed, inquiries made during the meeting.
    • Whether and why a board member, the CEO or another person leaves the meeting during a discussion or decision-making of an agenda item and whether the relevant party had access to documentation related to the discussion or decision-making.
  3. Minutes of Board meetings shall be made accessible to all Board members as soon as possible.