Corporate governance

This section, which will be presented to the Annual General Meeting of Shareholders (‘AGM’) of 2010, provides a broad outline of Gemalto’s corporate governance structure, its implementation during 2009, and its compliance with the amended Dutch corporate governance code dated December 10, 2008.

General

Gemalto N.V. (‘Gemalto N.V.’ or the ‘Company’) is the parent company of the Gemalto group (‘Gemalto’ or the ‘Group’). The Company was incorporated in the Netherlands as a private company with limited liability on December 10, 2002. The Company was formerly named Axalto Holding N.V. and changed its name on June 2, 2006 in connection with the combination with Gemplus International S.A. (‘Gemplus’), hereinafter the ‘Combination’. The Company’s shares have been listed on Eurolist by Euronext Paris S.A. (formerly named Premier Marché) (Euronext NL0000400653) since 2004. The corporate seat of the Company is Amsterdam, the Netherlands, and its registered office address is Barbara Strozzilaan 382, 1083 HN, Amsterdam, the Netherlands. The Company is registered with the trade register in Amsterdam, the Netherlands under No. 27.25.50.26.

The Company is required to comply with, inter alia, Dutch law, Dutch corporate governance rules, Dutch AFM rules, French AMF rules and Euronext Paris Stock Exchange rules and related regulations, insofar as applicable to the Company.

Compliance with the Dutch corporate governance code

The Board is responsible for Gemalto’s corporate governance structure and for compliance with the amended Dutch corporate governance code dated December 10, 2008, as applicable during the 2009 financial year. The Company complies with the principles and best practice provisions of the Dutch corporate governance code with the exception of the below listed best practice provisions. These deviations are explained in the relevant paragraphs of the Annual Report.

The Corporate Governance Code can be found on www.commissiecorporategovernance.nl.

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Board of Directors

One-tier Board

The Company has a one-tier Board, comprising one Executive Board member, the CEO, and a majority of Non-executive Board members. The Board has ultimate responsibility for the management, general affairs, direction and performance of the business as a whole. The tasks and functions of the Board, as described in the Articles of Association and the Board charter, include the duties recommended in the Dutch corporate governance code.

The CEO conducts the day-to-day management. The CEO does not require the approval or consent of the Board for any decisions in respect of day-to-day management. The duties and powers of the Board include those matters specified in the Articles of Association. The Board may delegate powers regarding matters that fall outside the area of the day-to-day management to the CEO and consequently these matters do not require a resolution of the Board.

The Articles of Association and the Board charter, as updated in 2009, are published on Gemalto’s web site.

Meetings of the Board

The Board meets at least four times per year, including a meeting on the corporate strategy and the main risks of the business, the result of the assessment of the design and effectiveness of the internal risk management and control systems, as well as any significant changes in such matters. The Board discusses at least once a year the evaluation of the performance of the Board and the Board committees, and of the CEO and the individual Non-executive Board members. The Non-executive Board members meet regularly, at least once a year, in the absence of the CEO and members of the management.

Operational and financial objectives and strategy

During 2009, the Board discussed the parameters to be used for measuring performance, adopted Gemalto’s 2010-2013 Development Plan and the operational and financial objectives of Gemalto for 2010.

Strategy

The Board discussed at several meetings Gemalto’s strategic plans and their implementation, reviewed the development of business activities and various investment opportunities. For more information on the Company’s strategy, please refer to ‘Our strategy’.

Operational and financial objectives — budget

The Board sets the framework and key objectives of the budget, which includes the operational and financial objectives of Gemalto. Budgets are constructed bottom-up, assessed by the Board and adjusted top-down where necessary to meet Gemalto’s objectives. The budget for 2009 was approved by the Board at the December 2008 Board meeting. The budget for 2010 was approved by the Board at the December 2009 Board meeting.

Corporate Social Responsibility

The Board is responsible for the corporate social responsibility issues that are relevant to Gemalto. For more information, please refer to ‘Sustainability’.

Internal risk management and control systems

Gemalto maintains operational and financial risk management systems and procedures and has monitoring and reporting systems and procedures.

Among those procedures, Gemalto has a code of ethics, updated in 2009, which provides guidelines for the conduct of all employees with respect to internal controls, financial disclosures, accountability, business practices and legal principles.

The Board has established a whistle-blower procedure for the receipt, retention and treatment of complaints received by Gemalto regarding suspected financial irregularities. Departing from the Dutch corporate governance code, to be in line with EU and French rules regarding data protection, suspected irregularities of a general or operational nature are not covered by the whistle-blower code, but shall be reported internally to the relevant manager.

Gemalto has a policy on the ownership of, and transactions in Gemalto securities. The code of ethics, the whistle-blower code and the policy on the ownership of and transactions in Gemalto securities are published on Gemalto’s web site.

For more details on the internal risk management and control systems, please refer to ‘Internal risk management and control systems’. The statement of the Board in accordance with best practice provision II.1.5 of the Dutch corporate governance code can be found in ‘Board compliance statement’.

Composition of the Board — (term of) appointment

At the 2007 AGM, the maximum number of Board members was set at eleven to allow the Board to determine from time to time its optimal size. The Board currently consists of ten Board members: nine Non-executive Board members and one Executive Board member, the CEO.

Executive and Non-executive Board members are appointed by the General Meeting of Shareholders (‘General Meeting’), whether or not on the binding or non-binding proposal of the Board. If the Board has not made a proposal for appointment, the General Meeting can appoint a candidate by absolute majority of the votes cast in a meeting at which at least one-third of the issued share capital is represented. If the Board has made a non-binding proposal for appointment, the General Meeting can appoint a candidate by absolute majority of the votes cast without a quorum required. If the Board has made a binding proposal, the General Meeting may override the binding nature of such proposal by an absolute majority representing at least one-third of the issued share capital. If the majority has been met, but the quorum not, a second meeting is held at which no quorum is required. So far the Board has not made use of the option to make a binding nomination.

Board members are appointed for a maximum term of four years and may be reappointed, although Non-executive Board members may only be reappointed twice. The Non-executive Board members appoint the Executive Board member as the CEO and can at any time revoke such appointment. If the appointment as CEO of the Executive Board member is revoked, his powers and duties shall be carried out by an ‘Acting CEO’, temporarily appointed by the Non-executive Board members, whether or not from among their midst. The Board appoints one of its Non-executive Board members as Chairman of the Board.

Absent proposal of the Board, the General Meeting may suspend or dismiss Board members only by an absolute majority of votes cast representing at least one-fourth of the Company’s issued share capital. If the quorum is not met, a second meeting can be held at which no quorum is required. If the Board has made a proposal to suspend or dismiss a Board member, a quorum is not required. If Dutch law so permits, the Executive Board member may also be suspended by the Board.

The profile setting out the desired expertise and background of the Non-executive Board members was updated by the Board in October 2009 and is published on Gemalto’s web site. With respect to diversity among Non-executive Board members, the objective pursued is to have a variation of age, gender, expertise, social background and nationality. The present composition of the Board differs from the intended situation, as all Board members were appointed prior to the introduction of this objective. In as much as possible, a balance shall be strived for to achieve the above mentioned variation. At least one of the Non-executive Board members can be regarded as a financial expert within the meaning of best practice III.3.2 of the Dutch corporate governance code.

Although the appointment of a former Executive Board member as Chairman of a one-tier Board is not in line with the Dutch corporate governance code, after Mr. A. Mandl’s reappointment by the 2007 AGM as Non-executive Board member as of December 2, 2007, for a first term ending at the end of the 2011 AGM, the Board appointed Mr. A. Mandl as Non-executive Chairman of the Board, as of December 2, 2007. The Board is pleased to be able to capitalize further on the knowledge and experience of Mr. A. Mandl within the Group, which is of particular added value for Gemalto and its stakeholders.

At the 2009 AGM, Messrs. K. Atkinson, D. Bonderman and J. Ormerod were reappointed as Non-executive Board members for a second term ending at the end of the 2013 AGM and Mr. J. Fritz was reappointed as Non-executive Board member for a second term ending at the end of the 2012 AGM. Further to the demise of Mr. J. de Wit, Non-executive Board member, on May 28, 2008, there was one vacancy at the Board. In view hereof, the 2009 AGM appointed Mr. B. Alexander as Non-executive Board member for a first term ending at the end of the 2013 AGM.

At the AGM of May 19, 2010, Mr. D. Bonderman will resign from his position as Non-executive Board member. In view hereof there is one vacancy to be filled on the Board. The Board resolved to propose to the AGM of May 19, 2010, the appointment of Mr. Ph. Alfroid as Non-executive Board member for a first term ending at the end of the AGM to be held in 2014.

In 2009 the Board adopted a new reappointment schedule, published on Gemalto’s web site, in order to avoid, as far as possible, a situation in which many Board members retire at the same time.

For more information on the individual Board members, please refer to ‘The Board and the management’.

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Board committees

The Board has formed an Audit committee, a Compensation committee, a Nomination and Governance committee and a Strategy and M&A committee from among the Non-executive Board members. The committees have as their main role to provide a focused analysis and preparation of the subjects within their respective areas of expertise and to report and make recommendations to the Board, subject to the overall responsibility of the Board. The committees do not have executive powers. The duties of each committee are described in their respective charters. Both the Nomination and Governance committee charter, as well as the Strategy and M&A committee charter, were updated in 2009.

Audit committee

The committee assists the Board with respect to the quality and integrity of Gemalto’s financial statements, overall internal risk management and control arrangements, compliance with legal and regulatory requirements, the performance, qualifications and independence of the external auditor, and the performance of the internal audit function. The committee consists of four Non-executive Board members and meets at least four times per year. One committee member is considered non-independent. At least one committee member is a financial expert within the meaning of best practice III.3.2 of the Dutch corporate governance code.

Compensation committee

The committee assists the Board with a proposal for a Remuneration Policy for the CEO and for the remuneration of the Non-executive Board members to be adopted by the General Meeting. The committee proposes the remuneration of the CEO within the limits of the Remuneration Policy. Furthermore, the committee oversees the general remuneration policy of Gemalto and discusses the grant of Awards, i.e. options, restricted share units and/or share appreciation rights, and the opportunity for eligible employees of Gemalto to purchase shares in the Company at a discount to the prevailing market price. The committee consists of three Non-executive Board members and meets at least three times per year. All committee members are considered independent.

Nomination and Governance committee

The committee assists the Board with respect to overseeing new candidates for service on the Board, as well as new members of the senior management of Gemalto. The committee reviews the corporate governance principles applicable to Gemalto and advises the Board on any changes to these principles as it deems appropriate. The committee consists of three Non-executive Board members and meets at least three times per year. One committee member is considered non-independent.

Strategy and M&A committee

The Strategy and M&A committee assists the Board with respect to Gemalto’s strategy and the major features of merger, acquisition and divestiture activities. The Strategy and M&A committee consists of four Non-executive Board members and meets at least twice per year. One committee member is considered non-independent.

Board mandates with third parties

With respect to the number and type of supervisory Board memberships that the Board members may hold, Executive and Non-executive Board members shall comply with the recommendations of the Dutch corporate governance code, as set out in best practice provisions II.1.8 and III.3.4 respectively.

Conflicts of interest

The Articles of Association state the conditions under which potential conflicts of interest exist and Gemalto has formalized rules to avoid conflicts of interests between Gemalto and Board members. For more information on these rules, please refer to article 17 of the Articles of Association.

The Company complied with best practice provisions II.3.2 through II.3.4 and III.6.1 to III.6.3 of the Dutch corporate governance code in relation to conflicts of interest.

For an overview of the related party transactions during 2009, please refer to note 32 of the consolidated financial statements.

Loans or guarantees

Gemalto does not grant personal loans, guarantees, or the like to Board members, and no such loans and guarantees, waivers of loans or guarantees were granted to the Board members in 2009, nor are outstanding as of December 31, 2009.

Indemnification of Board members

To the extent permitted by Dutch law, Board members shall be indemnified by the Company against expenses, such as the reasonable costs of defending claims, as formalized in article 19 of the Articles of Association. Under certain circumstances, such as a claim, issue or matter as to which a Board member has been held liable for gross negligence or willful misconduct in the performance of his duty to the Company, there will be no entitlement to this reimbursement. Gemalto has a liability insurance (Directors & Officers — D&O) for the Board members and corporate officers.

(Vice-) Chairman of the Board and Company Secretary

The Chairman ensures the proper functioning of the Board and the Board committees and acts as the main contact for shareholders regarding the functioning of the Board. The Chairman presides over Board meetings and General Meetings and is responsible for a proper conduct of business at meetings.

In case of the Chairman’s absence or inability to act, the committee chairmen will designate among themselves a vice-chairman, who will temporarily assume the position, in line with the recommendation of the Dutch corporate governance code.

The Board is assisted by a Company Secretary, also General Counsel and Central Officer of the Group. Mr. J-P. Charlet was appointed as Company Secretary by the Board in July 2005.

Senior management team

The CEO is supported by the senior management team that consists of ten Executive Vice-Presidents,including the Chief Financial Officer.

For an overview, please refer to ‘Members of the senior management’.

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Shares owned and rights to acquire shares

Board members, including the CEO, hold shares in the Company for the purpose of long-term investment and they are required to comply with the policy on the ownership of, and transactions in Gemalto securities, as posted on Gemalto’s web site.

Gemalto shares

Certain Board members are shareholders of the Company. On December 31, 2009, they jointly held 371,300 shares, of which Mr. O. Piou owned 367,000 shares.

At the beginning of 2009, Mr. O. Piou was holding 165,055 shares of the Company, having progressively acquired them since 2004 on the market. During 2009, Mr. O. Piou acquired 274,945 shares: 4,945 shares were acquired on the market, 150,000 shares were acquired through the exercise of options and 120,000 shares were acquired through the exchange of vested restricted share units (‘RSU’). Mr. O. Piou sold on the market 73,000 shares, in particular to finance a portion of the options exercise price.

Mr. G. Fink owned 2,800 shares resulting from the exchange of Gemplus shares following the voluntary public exchange offer for the shares of Gemplus (the ‘Offer’) and Mr. M. Soublin owned 1,500 shares purchased in 2004. During 2009, Mr. J. Ormerod deeded his 1,200 shares, resulting from the exchange of Gemplus shares following the Offer.

FCPE units

On December 31, 2009 Mr. O. Piou owned 3,548.16 units in a FCPE (Fonds Commun de Placement d’Entreprise), which units were purchased by his contribution to the Global Employee Share Purchase Plans in 2004, 2005 and 2008.

Restricted Share Units

On December 31, 2009, Mr. O. Piou held 185,000 RSU. 120,000 vested RSU were exchanged for shares in 2009.

Gemalto options

On December 31, 2009, Mr. O. Piou held 800,000 Gemalto options. He exercised 150,000 Gemalto options during 2009. On December 31, 2009, Mr. A. Mandl (through a company controlled by him) held 200,000 Gemalto options. He did not exercise Gemalto options during 2009.

Gemplus options

On December 31, 2009, the following Board members held Gemplus options: Mr. A. Mandl held 4,520,800 (through a company controlled by him), Mr. D. Bonderman held 11,302 and Mr. J. Fritz held 11,302. At a ratio of 25/2, those Gemplus options can be exercised for Gemplus shares that can be exchanged for Gemalto shares at the same 25/2 ratio, resulting in 361,664 Gemalto shares for Mr. A. Mandl, 904 Gemalto shares for Mr. D. Bonderman and 904 Gemalto shares for Mr. J. Fritz.

During 2009, Mr. A. Mandl exercised 2,291,600 Gemplus options, for which he received 2,291,600 Gemplus shares. Those Gemplus shares were exchanged for 183,328 Gemalto shares at the ratio of 25/2, which Gemalto shares he then sold.

Shares or other Financial Instruments in listed companies other than Gemalto N.V.

Board members are required to comply with regulations concerning the ownership of, and transactions in, securities in listed companies other than Gemalto N.V. This policy is published on Gemalto’s web site.

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Shareholders and General Meetings

Share capital and shares of the Company

The Company’s authorized share capital amounts to €150,000,000 and is divided into 150,000,000 ordinary shares, with a nominal value of €1 per share. As of December 31, 2009, the Company’s issued and paid-up share capital amounted to €88,015,844, consisting of 88,015,844 ordinary shares, of which 5,239,631 shares were held in treasury; as a consequence of which 82,776,213 shares were in circulation. During 2009, there were no movements in the issued share capital of the Company.

Based upon the authorization of the Board to repurchase shares in the Company’s share capital, which authorization was granted by the 2008 AGM and renewed by the 2009 AGM, shares were purchased during 2009 to provide liquidity in the secondary market and to have shares available for employees under the GEIP and the GESPP. As of December 31, 2009, 5,239,631 shares were held in treasury, acquired at an average price of €24.80 with a market value as of December 31, 2009 of €159,808,745.50. There are no voting rights attached to shares when held by the Company in treasury.

The Company has only issued ordinary shares, all of the same category, and all in registered form. No certificates representing shares have been issued. Shares are listed on Eurolist by Euronext Paris S.A. Company shares can be held in two ways:

  1. as registered shares, the shareholders being included in the Company’s shareholders register, kept by the Company’s registrar, Netherlands Management Company B.V.; or
  2. in an account with an account holder or intermediary through Euroclear France S.A., these shares then being included in the Company’s shareholders register in the name of Euroclear France S.A.

AGM held in 2009

The AGM was held on May 20, 2009. No shareholders exercised their right to place items on the agenda for the AGM. In accordance with the Articles of Association, a registration date for the exercise of voting rights was determined for the 2009 AGM.

At the AGM the following items were dealt with, all as separate agenda items: the 2008 annual report, the adoption of the 2008 financial statements, the Company’s dividend policy and the allocation of the 2008 results, (re-)appointment of Non-executive Board members, discharge of the CEO and of the Non-executive Board members for the fulfillment of their respective duties during the financial year 2008, renewal of the authorization of the Board to repurchase shares in the Company’s share capital and the reappointment of the external auditor for the year 2009. The minutes of the meeting are published on Gemalto’s web site.

All shares carry equal rights of voting at the General Meeting. Votes may be cast directly, or voting proxies or voting instructions may be issued to an independent third party prior to the General Meeting. Unless otherwise required by Dutch law or the Articles of Association, resolutions are adopted by an absolute majority of votes cast in a General Meeting where at least one-tenth of the issued share capital is represented.

A General Meeting shall be held in the Netherlands: in Amsterdam, The Hague, Haarlemmermeer (Schiphol-Airport), Utrecht or Rotterdam.

Authorizations to the Board

The Board has the following authorizations, as granted by the AGM:

Distribution of profits

The dividend policy of the Company was dealt with and explained as a separate item on the agenda for the first time at the 2005 AGM. The Company’s dividend policy is that the amount of dividends to be paid by the Company to its shareholders shall be determined by taking into consideration the Company’s capital requirements, return on capital, current and future rates of return and market practices, notably in its business sector, as regards the distribution of dividends. The Company did not pay a dividend in 2009 in respect of the 2008 financial year. With due observance of the dividend policy, the Company will propose to the 2010 AGM to distribute a dividend in cash of €0.25 per share in respect of the 2009 financial year.

Prior to the General Meeting’s authority to resolve upon the appropriation of the (remaining) result, the Board has the authority to reserve all or part of the profits made in a financial year. For more information on the distribution of profits or reserves, please refer to articles 32 to 35 of the Articles of Association.

Shareholders’ disclosures

During 2009, the Company received notifications from the Dutch market authorities (‘AFM’) that it had received disclosures of a substantial holding in the share capital of the Company, which disclosures are published on the web site of the AFM (www.afm.nl). As at December 31, 2009, the following disclosures were published on the web site of the AFM, as included in the table here below.

Notification date Notifier Disclosure
Oct 7, 2009 Pioneer Asset Management S.A.
(held indirectly through Pioneer Funds, Pioneer CIM and Pioneer Investments Global Portfolio SICAV)		 5% (4,402,510 shares)
May 28, 2009 TPG Advisors III Inc.
(held indirectly through TGP Giant LLC, TPG Partners III L.P., TPG GenPar III L.P. and TPG Parallel III L.P.)		 6.53% (5,744,448 shares)
May 28, 2009 Caisse des Dépôts et Consignations
(held indirectly through Fonds Stratégique d’Investissment (FSI) and CDC EVM)		 8.43% (7,418,500 shares)
Feb 18, 2009 FMR LLC 5.04% (4,432,311 shares)
Sept 18, 2008 Gemalto N.V.
(5,239,631 shares were held in treasury by the Company as of December 31, 2009)		 5.17%

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Specific provisions of the Articles of Association

Amendment of the Articles of Association, liquidation or (de-)merger

The General Meeting, upon the proposal of the Board, has the authority to amend the Articles of Association, to dissolve the Company, to legally merge, or to legally demerge, by resolutions adopted by a majority of at least two-thirds of the votes cast at such General Meeting at which at least one-third of the issued share capital is represented. Absent such quorum, a second meeting can be held at which no quorum is required.

Appointment of the external auditor

The Audit committee and Board review the functioning of the external auditor annually. Upon proposal of the Board, the 2009 AGM appointed PricewaterhouseCoopers Accountants N.V. as the Company’s external auditor for the financial year 2009. The Board will propose to the 2010 AGM to reappoint PricewaterhouseCoopers Accountants N.V. as the Company’s external auditor for the financial year 2010.

Quorum requirement

Unless otherwise provided by law or the Company’s Articles of Association of the Company, the General Meeting can only adopt resolutions with an absolute majority in a meeting at which at least 10% of the issued share capital is represented. Absent such quorum, a second meeting can be held at which no quorum is required.