Meko : Corporate Governance Report 2021

CORPORATE GOVERNANCE REPORT

Mekonomen Group consists of around 200 companies that primarily conduct business in Denmark, Norway, Poland and Sweden, as well as minor operations in Finland The Parent Company of the Group is the Swedish public limited liability company Mekonomen AB, whose shares are listed on the Nasdaq Stockholm.

Principles for corporate governance

The Group's corporate governance concerns how the operations are governed, managed and controlled in order to create value for the company's shareholders and other stakeholders. The aim of corporate governance is to create the conditions for active and responsible company bodies, to clarify roles and segregation of responsibilities and to ensure true and fair reporting and information.

Both internal and external regulations are used as

a foundation­ for the governance of the Group.

External regulations	Internal regulations
Swedish Companies Act	Articles of Association
Annual Accounts Act	Board's and committees'
	rules of procedure
Other relevant laws	Board's instruction for
	the President
Nasdaq Stockholm AB's Rule book for issuers	Code of Conduct and
	Core Values
Swedish Corporate Governance Code	Policies, guidelines and
(the Code)	instructions
EU Market Abuse Regulation (MAR)

Application of the Swedish Corporate	Deviation from the Code (rule 2:4):
Governance Code	According to the Code, a Board member shall not be
The Group applied the Swedish Corporate	the Nomination Committee's chairman.
Governance­	Code ("the Code") with the following­
deviation in 2021:	Explanation:
		Chairman of the Board Robert M. Hanser is also the
		chairman of the Nomination Committee as it is a
		natural­	choice considering the ownership structure
		of Mekonomen.

Overall Corporate Governance Model

1. Nomination Committee

1. Remuneration Committee
2. Audit Committee
3. Internal audit

1. Shareholders
2. Annual General Meeting

13External auditor

4   Board of Directors

8   President & Group

Management Team

9   Sustainability governance

10 Investment Committee

11 Risk Management and

Compliance Committee

12 Internal control for financial reporting

Mekonomen Group Annual Report 2021

43

CORPORATE GOVERNANCE REPORT

  Shareholders

The Mekonomen share has been listed on the Nasdaq Stockholm, Mid Cap segment since 29 May 2000. On 31 December 2021, share capital amounted to SEK 141 M, represented by 56,416,622 shares. At year-end, Mekonomen AB had 93,250 treasury shares. Treasury shares do not entitle the holder to dividends or votes. The total market value for the company on 31 December 2021 amounted to SEK 8.9 billion, based on the closing price of SEK

1. All shares (excluding treasury shares) provide the same vot- ing rights and equal rights to the company's profit and capital. The company's Articles of Association do not include any restrictions on how many votes each shareholder can cast at a General Meeting.
   The number of shareholders on 31 December 2021 was 11,676 (11,728). On the same date, the ten largest shareholders controlled

1. per cent (60.0) of the capital and voting rights and foreign own- ers accounted for 46.6 per cent (41.4) of the capital and voting rights.
   Shareholders which directly or indirectly represent at least one- tenth of the voting rights for all shares in Mekonomen are LKQ Corporation and subsidiaries, whose shareholding on 31 December 2021 amounted to 26.6 per cent (26.6). For further information on Mekonomen's shares and shareholders, see page 30.

  General Meeting

The General Meeting of shareholders is the company's highest governing body, at which every shareholder is entitled to partici- pate. The General Meeting is to be held within six months of the close of the financial year. The General Meeting approves the income statement and balance sheet, the appropriation of the com- pany's earnings, decides on discharge from liability, elects the Board of Directors and auditors, and approves fees, addresses other statutory matters as well as making decisions pertaining to proposals from the Board and shareholders. The company announces the date and location of the General Meeting as soon as the Board has made its decision, but not later than in connection with the third-quarter report. Information pertaining to the location and time is available on the company's website. Shareholders that are registered in Euroclear's shareholders register on the record date and have registered participation in adequate time are entitled to participate in the Annual General Meeting and vote according to their shareholdings. All information concerning the company's meet- ings, such as registration, entitlement for items to be entered in the convening notice and the minutes is available on the company's web- site, www.mekonomen.com.

It is the company's aim that the General Meeting be a consummate body for shareholders, in accordance with the intentions of the Swedish Companies Act, which is why the objective is usually that the Board in its entirety, the representative of the Nomination Committee, the President and CEO, and other members of the Group Management Team shall always be present at the Meeting. With regard to participation in the 2022 Annual General Meeting, in addition to the opportunity to participate physically, shareholders will be able to choose to participate by postal voting.

Annual General Meeting 2021

The Annual General Meeting was held in Stockholm on 7 May 2021. The complete minutes of the Annual General Meeting are available on the company's website at mekonomen.com. Due to covid-19, the 2021 Annual General Meeting was held solely through postal voting. In brief, the Annual General Meeting resolved:

• to adopt the income statement and balance sheet, the consoli- dated income statement and the consolidated balance sheet,
• to pay a dividend of SEK 0 per share to shareholders,
• to discharge the members of the Board and the President from liability,
• that the number of members of the Board elected by the Annual General Meeting be seven with no deputy members,
• to pay total Board fees of SEK 3,035,000, of which SEK 650,000 relates to fees to the Chairman of the Board and SEK 420,000 relates to the Executive Vice Chairman, and also SEK 315,000 relates to fees to each of the other Board members elected by the Annual General Meeting who are not employed by the Group. Total board fees also include fees to members of the Board's committees, paid as follows: SEK 125,000 to the
  Chairman­ of the Audit Committee, SEK 55,000 to each of the other members of the Audit Committee, SEK 50,000 to the Chairman of the Remuneration Committee and SEK 25,000 to each of the other members of the Remuneration Committee,
• to re-elect the Board members Eivor Andersson, Kenny Bräck, Joseph M. Holsten, Magnus Håkansson and Helena Skåntorp,
• to elect Robert M. Hanser and Michael Løve as Board members,
• to elect Robert M. Hanser as the Chairman of the Board,
• to re-elect the auditing firm of PricewaterhouseCoopers AB as the company's auditor for the period until the 2022 Annual General Meeting,
• to adopt the Board's proposals for guidelines regarding remune­ ration of senior executives
• to adopt the Board's proposal to establish a long-term incentive programme (LTIP 2021) and in conjunction with this to authorize the Board to decide on acquisition of own shares and transfer of own shares,
• to adopt authorization for the Board, for the period until the next Annual General Meeting, on one or more occasions, with or without preferential rights for shareholders, to make decisions on new share issues of not more than 5,641,662 shares
• to amend the Articles of Association with the aim of making postal voting possible for the shareholders.

  Nomination Committee

In accordance with the guidelines established at the Annual General Meeting on 7 May 2021, Mekonomen Group has established a Nomination Committee comprising four members. The largest shareholders of the company were contacted by the company's Board based on the list of registered shareholders on 31 August 2021 as provided by Euroclear Sweden AB.

The Nomination Committee for the 2022 Annual General Meeting consists of Robert M. Hanser appointed by LKQ Corpo- ration, Thomas Wuolikainen appointed by Fjärde AP-Fonden, Kristian Åkesson appointed by Didner & Gerge Fonder AB and Caroline Sjösten appointed by Swedbank Robur Fonder AB.

In accordance with the guidelines, Robert M. Hanser has been appointed the Chairman of the Nomination Committee (deviation from the Code rule 2:4). Mekonomen's Board member, Helena Skåntorp, was co-opted to the Nomination Committee. Fees are not paid to members of the Nomination Committee.

In accordance with the Swedish Corporate Governance Code, the Nomination Committee is to have at least three members, one of whom is to be appointed Chairman. The majority of these members are to be independent in relation to the company and company management and at least one of the Nomination Com-

44 Mekonomen Group Annual Report 2021

mittee members is to be independent in relation to the company's largest shareholders in terms of the number of votes. Mekonomen Group's Nomination Committee comprises four members, all of whom are deemed to be independent in relation to the company and company management. Mekonomen Group's Nomination Committee also meets other independence requirements.

The Nomination Committee's task is to present proposes to the Annual General Meeting concerning:

• number of Board members and deputy Board members,
• the election of the Chairman of the Board and other members of the company's Board of Directors,
• Board fees and any remuneration for committee work,
• the election and remuneration of auditors, and
• any changes to the instructions for the Nomination Committee.

2022 Annual General Meeting

The Annual General Meeting will be held on 20 May 2022 at Bygget Fest och Konferens, Norrlandsgatan 11, 111 43 Stockholm, Sweden. In addition to physical participation, participation can also take place through postal voting. Read more in the convening notice for the Annual General Meeting on www.mekonomen.com

Overview of all points on the Board's agenda in 2021*

In conjunction with its task, the Nominating Committee is to perform the duties incumbent on nomination committees in accordance with the Swedish Corporate Governance Code, and at the request of the Nomination Committee, the company is to provide human resources, such as a secretary function for the Committee, to facilitate its work. If necessary, the company is also to pay reasonable costs for external consultants deemed necessary by the Nomination Committee for it to perform its duties.

Mekonomen Group has not established any specific age limit for Board members or time limits pertaining to the length of time Board members may sit on the Board. Auditors are elected annually when the matter is submitted to the Annual General Meeting.

  Board of Directors

Size and composition

According to the Articles of Association, the Board of Directors is to comprise three to seven members and not more than three deputy members. The company's Articles of Association have no specific provisions relating to the appointment and discharge of Board members or amendments to the Articles of Association. The Board of Directors is to be elected annually at the Annual General Meeting. The Board of Directors shall consist of a well overall mix of the competencies that are important to govern the company's strategic work in a responsible and successful manner. Examples of such competencies include knowledge of retailing, the automotive

15 December

• Budget
• Internal control, risk and internal audit
• Evaluation of the Board's and the Presi- dent and CEO's work

	4		c	Ja			Q
					1
	Q	e	n
	D
28 October	v					F
	o					e
• Q3 2021 quarterly report	N					b
• External auditor manage-
ment audit and reporting	t						a
from the review
	c	BOARD OF		M
		r
	O	DIRECTORS'
24 September	S	ANNUAL		r
• Decision on strategy	CYCLE 2021
p		p
	e						A
• Governance-document
	A						y
19 August	u					a
					M
• Q2 2021 quarterly report	g
Q	J		n		2
	3
		ul		Ju			Q

16 June

• Strategy update

11 February

• Q4 2021, year-end report
• Dividends
• External auditors' report
• Risk analysis Q4
• Succession plan
• Financing issues

30 March

• Approval of the annual report
• Remuneration report
• Invitation to the AGM
• Proposals to the AGM
• Financing issues

6 & 7 May

(Board meeting and Statutory Board meeting)

• Q1 2021 quarterly report
• Board's rules of procedure and
  instructions­for the President
• Committees' rules of procedure
• Election of Vice Chairman
• Election of committee members
• Company signatories
• Policy update
• Financing issues
• Covid-19

• At each ordinary Board meeting, the Group's position and performance and the
  outlook­ for the future were discussed.

Mekonomen Group Annual Report 2021

45

CORPORATE GOVERNANCE REPORT

industry, corporate governance, compliance to rules and regula- tions, financing and financial analysis as well as remuneration issues. Previous Board experience is another important competency.

Board members

In the opinion of the Nomination Committee, the Board has a suitable composition considering the company's operations, financial position, stage of development and circumstances otherwise. An important starting point for the proposal of Board members was that the Board's composition should reflect and provide space for the different knowledge and experience that the company's strategic development and governance may demand. The company has a diversity policy for the Group that includes the company's Board and management. The company's diversity policy, which was prepared in accordance with the Code's rule 4.1, aims to achieve an even distribution of people in the company in terms of age, gender, education and professional background. The diversity policy forms the basis of the Nomination Committee's proposal to the Board at the 2022 Annual General Meeting.

Chairman

The Chairman of the Board, Robert M. Hanser, is not employed by the company and does not have any assignments with the company beyond his chairmanship. It is the opinion of the Board that Robert M. Hanser ensures that the Board conducts its assignments efficiently and also fulfils its duties in accordance with applicable laws and regulations.

The Board's working procedures

The Board is responsible for the company's organization and management and is to also make decisions pertaining to strategic issues. During 2021, the Board held nine meetings (18), of which none (2) were independent. Minutes of the meetings have been kept by the Board secretary, which is the Group's Director of Legal Affairs and Sustainability or the CFO. For matters which present a risk of a conflict of interest, independent board meetings are held in which the Board members representing LKQ Cooperation do not participate or take part of the minutes.

In matters that risk involving conflicts of interest, independent board meetings are held where the board members representing LKQ Cooperation do not participate or take part in the minutes.

Relevant meeting documentation was sent to all members prior to each meeting, which were then held in accordance with the approved agenda. On occasions, other senior executives participated in Board Meetings in a reporting capacity, as necessary. No dissenting opinions to be recorded in the minutes were expressed­ at any of the meetings during the year. The Board ­meetings during the year addressed the fixed items of each meeting agenda, such

as the year-end financial statement including dividend proposal, interim reports, budgets, strategies, business situation, financial reporting, investments and market development.

Duties of the Board of Directors

The Board of Directors is responsible for ensuring that the company has good internal control to protect the owners' investment and the company's assets. In accordance with the requirements of the Code, the Board's aim was to devote particular attention to establishing overall goals for the operations and decide on strategies by which to achieve these goals and to continuously evaluate the operating management, with the aim of ensuring the company's governance, management and control. The Board is responsible for ensuring that suitable systems are in place for the monitoring and control of the company's operations and the risks to the company associated with its operations, that control is implemented of compliance with laws, internal guidelines and other regulations and that the provision of external information is open, objective and rele- vant. The Board of Directors address all interim reports and the Annual Report before they are published. The Audit Committee reports to the Board regarding matters concerning internal control, including matters for decision. Minutes from the Audit Committee meetings are available to the Board members. The tasks of the Board also include establishing necessary guidelines for the com- pany's conduct in society with the aim of securing its long-termvalue-creating ability.

There are written instructions that regulate the internal rules of procedure in the Board and the distribution of assignments between the Board and the President and CEO, and for the reporting process. The instructions are reviewed annually and are primarily: the rules of procedure for the Board's work, instructions for the President and authorization regulations.

The Board evaluates its work every year and it is the duty of the Chairman of the Board to ensure that evaluation is performed. In 2021, the Chairman organized a digital board evaluation with an external supplier for all Board members. The collective opinion based on the 2021 evaluation is that the Board's work functioned well during the year and that the Board fulfilled the Code's requirements regarding the Board's work.

Board Committees

The Board has established a Remuneration Committee and an Audit Committee. The Committees' work mainly comprises preparing issues and providing consultation, although the Board can delegate authority to make decisions in specific cases. The members and Chairmen of the Committees are appointed at the ­statutory Board meeting held directly after the election of Board members.

46 Mekonomen Group Annual Report 2021

Board remuneration and attendance1)

			Attendance	Attendance	Attendance
	Total remu­	Attendance	at Remu­
	at indepen­	at Audit	neration
	neration,	at Board	dent Board	Committee	Committee
	SEK	meetings	meetings	meetings	meetings
Robert M. Hanser
(newly elected)	730,000	6/6	-	2/2	2/2
Helena Skåntorp	545,000	9/9	-	4/4	-
Eivor Andersson	365,000	9/9	-	-	4/4
Kenny Bräck	315,000	9/9	-	-	-
Joseph M. Holsten	370,000	7/9	-	4/4	-
Magnus Håkansson	370,000	9/9	-	2/4	-
Michael Løve
(newly elected)	340,000	6/6	-	-	2/2

1. John S. Quinn withdrew from the Board in connection with the 2021 Annual General Meeting. John S. Quinn participated in three of three Board meeting up to the 2021 Annual General Meeting. In addition to this, he was a member of the Remuneration Committee where he participated­ in two of two meetings up to the 2021 Board meetings, and a member of the

Audit Committee where he participated in two of two meetings up to the 2021 Annual General

Meeting.

Arja Taaveniku withdrew from the Board in connection with the 2021 Annual General Meeting. Arja Taaveniku participated in three of three Board meeting up to the 2021 Annual General Meeting. She was also a member of the Remuneration Committee where she participated in two of two meetings up to the 2021 Annual General Meeting.

  Remuneration Committee

The Remuneration Committee's tasks are documented in the rules of procedure for the Remuneration Committee, which are annually approved by the Board of Directors. The work of the Remuneration Committee is based on resolutions by the Annual General Meeting pertaining to guidelines for remuneration of senior executives.

• The committee discusses, decides on and presents recommen­ dations on the salaries, other employment terms and incentive programmes for company management. However, the Board in its entirety determines the remuneration and other employment terms for the President and CEO.
• An important matter for the committee during the year was to address the structure of the new remuneration report.

Until the 2021 Annual General Meeting the Remuneration Committee consisted of the Board members Eivor Andersson (Chair- man), John S. Quinn and Eivor Taaveniku. As of 7 May 2021 the Remuneration Committee consists of Eivor Andersson (Chairman), Robert M. Hanser and Michael Løve.

In 2021, the Remuneration Committee held four meetings. The respective member's participation is presented in the table on page

47. In addition, the company's President and CEO Pehr Oscarson was present at four meetings and the company's CFO was the committee's secretary during four meetings.

  Audit Committee

The Audit Committee's tasks are documented in the rules of procedure for the Audit Committee, which are annually approved by the Board of Directors. The committee monitors the effectiveness

of internal control with regard to the financial reporting presented by the management with any shortcomings and improvement measures.

• The Audit Committee monitors the financial reporting and ensures its reliability. They monitor the internal and external audit process, as well as the external auditor's impartiality and independence towards the company, including the extent to which the auditor provides the company services other than auditing.
• The Audit Committee's duties include a risk review regarding the Group's risks in terms of the market and competitors,
  operational­ risks and financial risks.
• With regard to financial reporting, the Audit Committee has a special responsibility to monitor the effectiveness of the com- pany's internal control.
• The Audit Committee annually evaluates its own work, as well as the work of the external and internal auditors. In addition, the Audit Committee recommends proposals on external auditors and the remuneration of the auditors for the upcoming year to the Nomination Committee.

Until the 2021 Annual General Meeting the Audit Committee ­consisted of Helena Skåntorp (Chair), John S. Quinn, Joseph M. Holsten and Magnus Håkansson. As of 7 May the Audit Committee consists of Helena Skåntorp (Chair), Robert M. Hanser, Joseph M. Holsten and Magnus Håkansson

• The Audit Committee held four meetings in 2021. The respective member's participation is presented in the table on page 47. The Group's external auditors, the CFO, the Head of Risk Manage- ment, Internal Control and Internal Audit as well as the Head of Accounting participated at the meetings. The Head of Accounting was the secretary of the committee.

  Internal audit

Internal Audit is an independent function that provides security for the Board and management. Internal Audit examines different ­processes and procedures, gives the Board and management

a ­balanced picture of the current situation and proposes improvement measures. This is done by evaluating and proposing improvement in such areas as risk management, compliance with policies and efficiency in the internal control over the financial reporting. The function works throughout the Group. The results of audits carried out are reported to the Audit Committee, the President and CEO and the CFO and information is provided to management in each business area and other units where relevant.

In 2020, the Board of Directors decided to choose EY as a new partner for internal audit, which continued in 2021. During the spring, they conducted an audit of the governance of strategy execution for MECA/Mekonomen in Sweden. In the autumn, an audit was conducted of the investment process. The Group's Head of Risk Internal Control and Internal Audit is responsible for internal audit, which in that function reports to the Chair of the Audit Committee.

Mekonomen Group Annual Report 2021

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