Vattenfall Management System

Governing business ethics

Vattenfall’s core values are Openness, Accountability
and Effectiveness.

Vattenfall’s joint-Group Code of Conduct and company philosophy stipulate that all employees shall adhere to and work in accordance with Vattenfall’s core values, policies and instructions. The stipulations of the Code of Conduct are concretised in other parts of the management system, such as instructions for general legal and business ethics principles, and competition matters. Further information on guiding business ethics is provided in Vattenfall’s CSR Report.

In 2008 and 2009, the Vattenfall Code of Conduct was updated. As a first step, a Code of Conduct for suppliers was adopted by the Executive Group Management. In connection with the updating, a Group-wide “whistleblowing function” is being established, where employees, consultants, contractors and suppliers can turn to regarding violations of applicable laws, etc. This system is fully operating in the German organisation, and implementation is currently being completed in other parts of Vattenfall’s organisation.

General information on the Vattenfall Management System (VMS)

The Group is governed with a focus on value creation and long-term overarching goals and requirements for the Business Groups and Business Units. The Business Groups propose short-term goals for each Business Unit, which are subsequently approved by the CEO and the Executive Group Management (EGM).

To ensure that Vattenfall develops in the intended direction and lives up to ethical and legal requirements, the CEO has established the Vattenfall Management System (VMS – previously called the Group Management System). Integrated with the VMS is an Environmental Management System. The VMS is available to all employees on the Group’s intranet.

The VMS consists of a number of building blocks and is documented in governing documents, consisting of Group policies, instructions, directives and other documents. The Group policies describe the intentions for action on matters of major importance for the Group, while Group instructions provide more detailed and operative control, and lay down binding rules.

The Group’s management processes for strategic planning, business planning and follow-up are central governance tools for the Executive Group Management. The Group functions are responsible for proposing, developing and following up Group policies and instructions. The Group’s Quality function is charged with co-ordinating the management system and is assisted in this work by a committee that is tasked with establishing adherence and improvements to the VMS.

Governing documents at the Group level are submitted to the EGM for approval. Certain central documents are also approved by Vattenfall AB’s board.

All activities within Vattenfall are obligated to comply with the management system’s governing documents.

Implementation and follow up of the VMS

Special routines are in place to ensure that the Group’s management systems are also applied by subsidiaries.

With respect to subsidiaries in the Nordic countries, this is done in part through special owner statements at Annual General Meetings with the purpose that the management systems shall also apply for the respective subsidiaries within the framework of applicable laws, etcetera.

With respect to the German subsidiaries, since June 2008 a special agreement (Beherrschungsvertrag) has been in place between Vattenfall AB and the German holding company, Vattenfall Europe AG. Under this agreement, the board (Vorstand) of the holding company puts itself under Vattenfall AB’s control, and Vattenfall AB has the right to issue directives regarding governance. Vattenfall AB has issued such a directive specifying that the holding company shall comply with the VMS. It is then the duty of the board of the holding company to ensure that the VMS is implemented in its original structure by the entire holding company and in other German subsidiaries.

Instructions in the VMS shall contain follow-up points. In 2008 such points began to be introduced at the Group level. The Quality function responsible for handling the VMS documents is responsible for ensuring that such follow-up takes place. Internal Audit is responsible for reviewing follow-up routines and for reviewing and evaluating compliance with the Group’s management systems.

Organisation and processes

Vattenfall’s organisational model is based on the value chain for electricity – generation, transmission, distribution and sales, and for heat – production, distribution and sales. Reporting and follow-up of the business activities are conducted with full transparency in accounting, control, profitability and value creation.

In terms of governance, Vattenfall’s operations are broken down into three categories:

• Business activities are handled by Business Groups and their Business Units.
• Functions that support their respective management teams.
• Shared Service units, which provide and develop services that support the Business Units and other users’ efforts to optimise their business activities.

Shared Service activities operate at both the Group (Group Shared Services) and Business Group levels.

A number of important governance processes have been established. Each process is managed by a process owner, usually a member of the EGM, who is responsible for developing the process. At present, the following Group processes exist: Strategy and business planning, Reporting and follow-up,
Risk management, Mergers & Acquisitions, Investments, Communications, Management planning and Capacity management.

The strategy and business planning process culminates in yearly strategy and business plans. This process includes the analysis, evaluation and assessment of strategic issues with decisions made by the EGM on selection, formulation and priorities. Strategy planning includes the Group’s long-term operations as well as its financial performance.

Each year a five-year strategic plan is drafted for decision by Vattenfall’s board. Based on the directives of the strategic plan,
the Business Groups and Business Units draw up three-year business plans that are ultimately approved by the EGM. The investment plans for the following calendar year are adopted
by the Board.