Implementation and reporting on corporate governance

Pt. 1:

On 5 July 2010, the Norwegian Ministry of Culture issued the document "Retningslinjer for eierstyring av selskaper mv. under departementets område" (Guidelines for the corporate governance of companies under the remit of the Ministry of Culture).

This document, combined with separate instructions issued to the Board and CEO, explain role demarcation between the company's owners, the Board and management.

In accordance with the Ministry's corporate governance guidelines, the role of the owner shall be exercised in compliance with the Norwegian state's principles governing good ownership practice. Chapter 2 of the guidelines contains joint regulations and requirements related to the Ministry's governance and safeguarding of transversal considerations (social responsibility) that apply to limited companies in which the Ministry has ownership interests. Chapter 3 sets out special factors for consideration concerning the Ministry's governance and control of an individual company or group of companies on the basis of the political context of the sector in which they operate. In the case of Norsk Tipping the relevant special factors are set out in Chapter 3.3.

In addition to the principles set out in the guidelines related to corporate governance, Section 6 of the company's Articles of Association stipulate that the Ministry, in its role as owner, shall be entitled to issue direct instructions to the company by letter outside the ambit of the general meeting.

Norsk Tipping has established an integrated quality assurance system made up of the company’s governance documents. The system includes a code of ethics that sets out principles that underpin the handling of ethical dilemmas, a description of actions linked to legislation and regulations, employee impartiality, communication with external stakeholders, the working environment, the notification of blameworthy circumstances, duty of non-disclosure, the holding of external offices, participation in Norsk Tipping's gaming and information-related activities, IT services and social media. The entire quality assurance system, including its policies, guidelines and procedures, are available to all employees via the company's intranet system.

Responsible gaming is a key company prerequisite. For this reason, the quality assurance system contains a separate policy focusing on this issue. The policy document contains nine principles that constitute the foundation for Norsk Tipping's work to promote responsible gaming at all levels of the organisation. The main items of the policy are available on the company's website.

The complete document "Norsk Tippings etiske retningslinjer og selskapets etiske retningslinjer for leverandører og samarbeidspartnere" (Norsk Tipping's code of ethics and ethical guidelines for suppliers and business partners) is available on the company's website.

Business

Pt. 2:

The company’s Articles of Association were amended most recently on 6 April 2017, when it was decided that the Board shall present the General Meeting with a statement concerning executive pay, in compliance with the Norwegian government’s state ownership guidelines.

The relevant article sets out the following corporate business objectives:

“The company shall, in accordance with gaming regulations stipulated by the Ministry, operate and promote responsible, state-regulated, gaming while also working to counteract the negative impacts of gambling, and at the same time by means of efficient corporate administration ensure that as much of the profits as possible from gaming activities are donated to causes set out in Section 10 of the Norwegian Gaming Act (pengespilloven)." (Section 2, subsection 2)

“The company's business activities shall be linked to the promotion of gaming directed at Norwegian citizens or persons resident in Norway" (Section 4, subsection 1)
Norsk Tipping has a tripartite function within Norwegian society:

To provide responsible gaming
To provide attractive gaming
To generate profits to support good causes

In May 2017, the government issued White Paper No. 12 (2016–2017) “Alt å vinne – Ein ansvarleg og aktiv pengespelpolitikk” (Everything to gain – a responsible and active gaming policy) for debate and approval by parliament. The document contained an assessment of how a responsible and active gaming policy should be implemented going forward. The White Paper was approved, with five requests, and the government decided to continue with the current gaming policy model by which both Norsk Tipping and the horse race betting company Norsk Rikstoto will continue to retain their respective monopolies.

It states clearly in the White Paper that the main objective of the government's gaming policy is to safeguard responsible gaming, and that the principle of responsible gaming shall take precedence over commercial considerations. At the same time, a policy promoting responsible gaming presumes that the regulated companies offer attractive products with the ability to engage players, and in doing so divert them from unregulated gaming organisations that offer products in less responsible settings.

In autumn 2017, the Board passed a revised strategy for following up the contents of the White Paper and the company’s objective, stated in its Articles of Association, that it is Norsk Tipping’s ambition to become a world-leader in the field of responsible gaming.

The emphasis on responsible gaming has been, and continues to be, the most important principle underlying the company’s activities. Even though gaming may be a problem for some individuals, for most others it represents a source of entertainment and excitement in their everyday lives. The profits from gaming are an important source of funding for sports facilities and the Norwegian voluntary sector, both in the form of allocations via the fixed distribution formula called Tippenøkkelen and from the Grassroots Share (Grasrotandelen). The company shall carry out its business activities in such a way that it meets the environmental, ethical, commercial, legislative and social expectations that society has of such an organisation, in accordance with the regulations stipulated by the regulatory authorities. The current shift of the company's sales from kiosks and shops to digital media is contributing towards a reduction in the need for printed material.

Equity and dividends

Pt. 3:

Norsk Tipping's share capital totals NOK 150,000, as stipulated in Section 5 of the Norwegian Gaming Act (lov om pengespill). The company also holds NOK 150 million in non-distributable equity. It pays out no dividends, but the profits from gaming activities shall be allocated pursuant to the provisions set out in Section 10 of the Gaming Act.

Equal treatment of shareholders and transactions with close associates

Pt. 4:

All shares in the company are owned by the Norwegian Ministry of Culture. For this reason, the code of practice relating to shareholders is not considered to be relevant to Norsk Tipping. The company owns 50% of the shares in Buypass AS. Transactions between Norsk Tipping and Buypass are based on agreements entered into pursuant to the Norwegian Public Sector Procurement Act (lov om offentlige anskaffelser). The issue of competitive tenders for services ensures that contracts between parties are entered into under market terms and conditions. The auditor is directed by the Ministry of Culture to pay close attention to ensuring that Norsk Tipping's commercial subsidiaries conduct themselves in compliance with standard market principles, and to prepare an annual report describing the relevant circumstances. No reports have been submitted of circumstances resulting from company activities that have required supplementary follow-up.

The company's code of ethics sets out principles and requirements that address employee impartiality, and which are intended to ensure that employees do not hold external offices that may be in conflict with the interests of the company or which compromise the integrity of the employee in question.

Freely negotiable shares

Pt. 5:

This item is not relevant to Norsk Tipping.

General meeting

Pt. 6:

The Norwegian Minister of Culture constitutes the company's general meeting. In accordance with Section 6 of the company's Articles of Association, a general meeting is held annually in connection with the company's annual meeting. In the case of a company for which the general meeting is constituted by a single individual, there are no protocols linked to notification and authorisations, or formal requirements regarding documents related to matters under consideration, prior to the general meeting. However, a notification of the meeting and relevant documents are distributed prior to the general meeting. Moreover, minutes are taken from the general meeting. The Office of the Auditor General of Norway, an external auditor, the company's Board and the CEO all attend the general meeting.

Norsk Tipping does not operate with an audit control committee.

The Gaming and Foundation Authority carries out audits to ensure that the company's gaming activities are conducted in compliance with legislation and gaming regulations, cf. Section 14 of the Norwegian Gaming Act. It also carries out an ongoing assessment of the company's marketing activities to ensure that these comply with the rules set out in the document "Retningslinjer for markedsføring av statlig kontrollerte pengespill" (Guidelines for the marketing of state-regulated gaming activities). The results of this assessment are reported to the owner twice a year and are usually published on the Gaming and Foundation Authority's website. The Authority has the status of a "directorate and auditing body" under the remit of the Ministry of Culture, and administers and regulates private lotteries and state-regulated gaming in Norway.

Nomination committee

Pt. 7:

The nomination committee is appointed by the company's sole owner and is made up of representatives from the Ministry of Culture.

Corporate assembly and Board of Directors: composition and independence

Pt. 8:

Norsk Tipping does not operate with a corporate assembly.

The Board and its composition are governed by Section 3 of the Articles of Association. The Board comprises six independent representatives appointed by the Ministry of Culture, together with two representatives from Norsk Tipping who are selected by, and from among, the company's employees. Furthermore, two independent deputy representatives are appointed, one of which has a permanent seat on the Board. A deputy is also nominated for each of the two employee representatives. The term 'independent representatives' is understood to mean that they are independent of influence from profit recipients. Board members are appointed for a period of two years.

In 2007, in order to highlight gender representation requirements, an amendment was made to the Articles of Association stipulating that gender representation on the Board should be in accordance with the provisions of Section 20-6, subsection 1, of the Norwegian Limited Liability Companies Act (aksjeloven). The corporate governance guidelines issued by the Ministry of Culture stipulate requirements regarding the composition of Boards in respect of members' expertise, capacity and diversity. Board members must be appointed from a broad base, and the composition of the Board shall meet the requirements stipulated in gender equality legislation. Furthermore, a Board must possess commercial/corporate economic expertise, expertise in public sector ownership and communication between the public and private sectors, socio-political expertise and general social awareness. Moreover, Board members should be socially-oriented and have a knowledge and awareness of the company's function in society.

Employees at Norsk Tipping have the opportunity to raise issues via the employee representatives. The CEO at Norsk Tipping attends Board meetings but has no voting entitlement.

The Ministry of Culture has instructed the Board that it should take decisions independently in accordance with universal commercial principles. The Board's instructions are stipulated by Royal Decree. The Board Chair and Deputy Chair are appointed by the Ministry of Culture. The Board Chair is not a member of the company's management. Board members receive a fixed annual fee that is not linked to the company's financial result. The size of the fee is specified in the notes accompanying the annual accounts.

The background and qualifications of each Board member are published in the company's annual report.

The work of the Board of Directors

Pt. 9:

Instructions issued to the Board by the Ministry of Culture, and the Ministry's document "Retningslinjer for eierstyring" (Guidelines for corporate governance), contain regulations governing the work that the Board carries out and its handling of matters arising. In accordance with instructions from the Ministry, the Board shall ensure that the registration and documentation of accounting information and asset administration are subject to responsible regulation, cf. Section 7, subsection 1, item 2 of the Norwegian Gaming Act, and carry out audits of the CEO's management of the company, cf. item 3. The Board sends the accounts and annual report to the Ministry of Culture for approval, cf. Section 7, subsection 2, of the Gaming Act. The Ministry shall also be briefed on issues of principle that are of key importance to the operation of the company. The Board considers and takes decisions regarding matters of corporate strategy, annual activity plans and budgets, and by means of these processes plays an active part in the governance and regulation of the company.

Consideration of matters by the Board is carried out in compliance with public sector regulations and the company's ethical guidelines on impartiality. The Board makes an annual assessment of its work, qualifications and working methods, and the assessment is used as a basis for any necessary changes and new initiatives. Minutes are taken of the Board's consideration of its own assessment.

The Board has issued instructions for the CEO. The CEO, in collaboration with the Board Chair, prepares matters for consideration by the Board. During the preparation and presentation of such matters, emphasis is placed on ensuring that the Board has an adequate basis on which to make its decisions.

The Board monitors the company by means of monthly activity status reports presented by management at ordinary Board meetings. The activity reports contain performance indicators of issues such as social responsibility, gaming revenues, customer growth, financial expenditures and results, as well as information regarding operations, corporate good name and internal matters. The reporting process is risk-based and includes current updates on the company's risk environment and a summary of risk mitigation measures. Minutes are recorded in cases of decisions taken in response to consideration of the activity reports.

A Deputy Chair is appointed to the Board whose role is to act as chair at meetings if the Board Chair is unable to lead the work of the Board.

Each year, the Board devotes at least one meeting to a consultation with the auditor. Company management do not attend this meeting. At its meeting of 2 October 2012, the Board at Norsk Tipping established an audit committee that was formally constituted on 1 November and which issued the document "Instruks for styrets revisjonsutvalg i Norsk Tipping AS" (Instructions to the Board's audit committee at Norsk Tipping AS).

The instructions state that the audit committee is a subsidiary committee reporting to the Board at Norsk Tipping, and that its objective is to prepare audit-related matters for consideration by the Board in relation to the company's financial reporting and control systems.

Risk management and internal control

Pt. 10:

The Board has overall responsibility for administering risk management activities. In order to delegate and achieve adequate levels of independence among decision-makers and personnel responsible for supervisory and reporting functions, three "lines of defence" have been established. This is an accredited model and is illustrated in the following:

The model also includes the participation of an external auditor and the Gaming and Foundation Authority. The objective here is to demonstrate the integrated nature of the structures established to safeguard independence between decision-makers and supervisory and reporting functions, in such a way that a “fourth line of defence” is rendered transparent. The external auditor provides the owner, the Board and executive management with affirmation of the adequacy of the company's risk management activities in relation to financial reporting. The Gaming and Foundation Authority provides affirmation of the adequacy of risk management activities in relation to gaming activities, cf. item 6 above.

The aim of the company's risk management and control policy is to contribute towards safeguarding the quality of internal and external reporting, and to ensure that operations are focused, efficient, customer-oriented and subject to continuous improvement. A risk-based approach enables the company's key risk areas to be identified. Internal control activities are managed by means of a separate policy containing relevant guidelines and procedures. Compliance and goal achievement are monitored systematically by means of non-conformance reporting, self-assessments, and internal and external audits. The results of this monitoring are reported to the Board and form the basis for the Board's review of the company's key risk areas and internal control measures. This system also includes requirements related to internal control procedures with the aim of ensuring reliable accounting and financial reporting practices.

Risk management is important to the company's goal achievement process and is an integral part of its business activities. As part of monthly reporting procedures, upgraded risk assessments are integrated to ensure that the Board and management team are focused on key future issues, including the maintenance of responsible gaming. Risk mitigation measures are set out in detail, together with deadlines for their completion.

Norsk Tipping continues to work to facilitate an effective control environment with the aim of ensuring that the company is administered in compliance with relevant legislation, that its activities are grounded in sound mindsets, and that it operates with effective and transparent procedures. A set of values and management principles have been prepared as a basis for consolidating the company's role in society, which is to provide access to attractive and responsible gaming opportunities from which the profits go to support good causes.

The company has established a systematic procedure for evaluating whether its internal control procedures are stringent enough to prevent and detect financial irregularities. Selected processes are assessed at regular intervals on the basis of a high-level risk assessment. Norsk Tipping has put in place procedures to regulate and monitor gaming carried out by its sales agents and players. This is carried out both to ensure that gaming takes place within responsible limits, and to protect the company from criminal activity.

Internal audit

The company also operates with an internal audit unit that reports directly to the Board. Its objective is to assist the Board and management team in exercising effective corporate governance. The unit carries out assessments and contributes towards improving the governance and control measures that have been established in relation to corporate risk management, internal control and goal achievement. A risk assessment forms the basis of preparation of an annual audit plan. Both the annual audit plan and results of the audits are presented to the Board by the audit committee.

Furthermore, the company’s administration carries out quality audits with the aim of assessing compliance with the risk management and control system.

Security certification

Norsk Tipping is certified in accordance with requirements set out in the ISO/IEC 27001:2013 standard, the European Lotteries' "European Responsible Gaming Standard", and the World Lottery Association's Security Control Standard 2012. The last-named is a global gaming sector security standard that aims to ensure that certified companies operate with effective security measures linked to their lottery-specific processes. Internal security audits are conducted in accordance with requirements set out in the aforementioned standards, and DNV GL carries out annual assessments of Norsk Tipping in order to monitor its compliance with all relevant standards. In accordance with the security standard ISO/IEC 27001, Norsk Tipping has established an information security management system (ISMS) designed to ensure that management focuses on continuous improvement in security

Remuneration of the Board of Directors

Pt. 11:

Fees paid to Board members are independent of the company's financial results, and the amounts are determined by the Ministry of Culture. This information is accessible in the public domain via the notes to the company's annual accounts.

Remuneration of executive personnel

Pt. 12:

Remuneration paid to the CEO is set out in the notes to the annual accounts. In accordance with the Board's principles regarding executive pay, the CEO determines remuneration payments and other terms for the company's high-level managers.

No additional remuneration is paid to employee representatives who occupy seats on the Boards of companies that are wholly or partly owned by Norsk Tipping.

No employees receive performance-dependent payments in the form of option or bonus arrangements.

Information and communications

Pt. 13:

Even though there exists a statutory regulation exempting Norsk Tipping from the provisions of the Norwegian Freedom of Information Act (offentlighetsloven), the company has a duty to carry out its activities as openly and transparently as possible. The company has established separate guidelines that regulate how it practices openness and transparency, the aims of which are to ensure that the company meets, insofar as possible, public expectations regarding transparency in connection with its business activities.

The reporting of financial information by Norsk Tipping shall be open and transparent. As well as providing a description of the company's economic and financial status, it shall supply users with a relevant, detailed and reliable summary of the company's strategies, objectives and results.

Take-overs

Pt. 14:

This item is not relevant to Norsk Tipping.

Auditor

Pt. 15:

Auditing arrangements at Norsk Tipping entail a delegation of the relevant control activities. An appointed external auditor carries out an audit of the company's accounts, while the Office of the Auditor General conducts a corporate and administration audit. The external auditor is appointed by the Ministry of Culture on the basis of previous procurements pursuant to the Norwegian Public Sector Procurement Act (lov om offentlige anskaffelser).

Each year, this auditor presents an audit activity plan to the audit committee, together with a status report on the company's internal control procedures. The auditor attends the Board meeting at which the Board reviews the company's annual accounts, and is also present at the company's general meeting at which the annual accounts are presented for final approval. Following instructions issued to the audit committee, the auditor will attend at least one committee meeting each year at which the CEO and other high-level managers are not present. The auditor consults with the audit committee on matters related to implementation of the annual accounts audit. The Board does not have fixed guidelines regarding management's ability to employ the auditor in connection with services other than auditing. However, the Board is of the view that the auditor has not provided additional services of a type or scope that can justify raising issues regarding his or her ability to remain independent and objective. The auditor's fees are presented to the general meeting for approval. Fees and remuneration paid to the auditor are specified in the notes to the annual accounts.