Corporate governance

This section provides a broad outline of Gemalto’s corporate governance structure, its implementation during 2010, and its compliance with the Dutch corporate governance code.

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 Dutch corporate governance code, as applicable during the 2010 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 sections of the Annual Report.

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 functionsof 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.

For information on the Board meetings held and the activities performed by the Board during 2010, please refer to ‘Board meetings and activities during 2010’.

The Articles of Association and the Board charter are published on Gemalto’s web site.

Operational and financial objectives and strategy

During 2010, the Board discussed the parameters to be used for measuring performance and adopted the operational and financial objectives of Gemalto for 2011.

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’.

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 2010 was approved by the Board at the December 2009 Board meeting. The budget for 2011 was approved by the Board at the December 2010 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 ‘Our approach 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, which provides guidelines for the conduct of all employees with respect to internal controls, financial disclosures, accountability, business practices and legal principles.

Gemalto has 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, which was updated in 2010.

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 for subsequent four year periods. However, 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 the majority of Board members were appointed prior to the introduction of this objective. In as much as possible, the Company strives for a balance to achieve the above-mentioned variation. The Company believes that 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 2010 AGM, Mr. D. Bonderman resigned from his position as Non-executive Board member. In view hereof there was one vacancy to be filled on the Board. The 2010 AGM, upon proposal by the Board, appointed Mr. Ph. Alfroid as Non-executive Board member for a first term ending at the end of the AGM to be held in 2014.

At the 2011 AGM, the present term of Messrs. A. Mandl and M Soublin will end. The Board will propose to the 2011 AGM the reappointment of Mr. A. Mandl as Non-executive Board member for a second term and the reappointment of Mr. M. Soublin as Non-executive Board member for a third term, both terms ending at the end of the 2015 AGM.

In 2010 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 information on the members of the Board, please refer to ‘The Board’.

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.

For information on the committee meetings held and the activities performed by the committees during 2010, please refer to the respective committee reports in ‘Report of the Non-executive Board members’.

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 2010, 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 2010, nor are outstanding as of December 31, 2010.

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 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.

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 information on the members of the senior management team, please refer to ‘Members of the senior management’.

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, 2010, they jointly held 371,300 shares, of which Mr. O. Piou owned 367,000 shares. 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.

FCPE units

On December 31, 2010, Mr. O. Piou owned 4,233.51 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, 2008 and 2010.

Restricted Share Units

On December 31, 2010, Mr. O. Piou held a maximum of 250,000 RSU.

Gemalto share options

On December 31, 2010, Mr. O. Piou held 800,000 Gemalto share options, and Mr. A. Mandl (through a company controlled by him) held 200,000 Gemalto share options.

Gemplus share options

On December 31, 2010, the following Board members held Gemplus share options: Mr. A. Mandl held 4,520,800 (through a company controlled by him) and Mr. J. Fritz held 11,302. Those Gemplus share options can be exercized for Gemplus shares that can be exchanged for Gemalto shares at a ratio of 25/2, resulting in 361,664 Gemalto shares for Mr. A. Mandl and 904 Gemalto shares for Mr. J. Fritz.

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.

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, 2010, the Company’s issued and paid-up share capital amounted to €88,015,844, consisting of 88,015,844 ordinary shares, of which 4,884,596 shares were held in treasury; as a consequence of which 83,131,248 shares were in circulation. During 2010, there were no changes in the amount of 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 2009 AGM and renewed by the 2010 AGM, shares were purchased during 2010 with the objective to animate the secondary market, to grant shares to employees and to fund external growth. As of December 31, 2010, 4,884,596 shares were held in treasury, acquired at an average price of €27.03 with a market value as of December 31, 2010 of €155,549,959.62. 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:

  • in an account in a bank, a financial institution, an account holder or an intermediary, these shares then being included in the Company’s shareholders register in the name of Euroclear France S.A. (“Euroclear”); or
  • listed in the shareholder’s own name in the Company’s shareholders register.

AGM held in 2010

The AGM was held on May 19, 2010. 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 2010 AGM.

At the AGM the following items were dealt with, all as separate agenda items: the 2009 annual report, the corporate governance chapter in |the 2009 annual report, the adoption of the 2009 financial statements, the Company’s dividend policy and a proposal for a dividend in cash of €0.25 per share for the 2009 financial year, discharge of the CEO and of the Non-executive Board members for the fulfillment of their respective duties during the financial year 2009, appointment of a Non-executive Board member, 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 2010. 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:

  • To issue shares or grant rights to acquire shares in the Company, as well as to limit or exclude pre-emptive rights accruing to shareholders, as from March 18, 2009 for a period of five years up to and including March 17, 2014. The authorization relates to all shares that can be issued as allowed by the authorized share capital as expressed in the Articles of Association as they may provide from time to time (as of December 31, 2010, 61,984,156 shares remaining out of the 150,000,000 shares);
  • To acquire shares in the share capital of the Company up to the maximum of 10% of the issued share capital of the Company, within the limits of the Articles of Association and within a certain price range, up to and including November 18, 2011. On December 31, 2010, the Company’s issued and paid up share capital consisted of 88,015,844 shares, of which 4,884,596 shares were held in treasury, based on which on that date the authorization related to 83,131,248 shares;
  • To cancel a number of shares not exceeding 9,101,584 shares, which cancellation may be executed in one or more tranches and the number of shares that may be cancelled (whether or not in one tranche) shall be determined by the Board.

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. In 2010, the Company paid a dividend in cash of €0.25 per share for the 2009 financial year. With due observance of the dividend policy, the Company will propose to the 2011 AGM to distribute a dividend in cash of €0.28 per share in respect of the 2010 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 2010, the Company was notified by 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, 2010, the following disclosures were published on the web site of the AFM, as included in the table here below.

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 2010 AGM appointed PricewaterhouseCoopers Accountants N.V. as the Company’s external auditor for the financial year 2010. The Board will propose to the 2011 AGM to reappoint PricewaterhouseCoopers Accountants N.V. as the Company’s external auditor for the financial year 2011.

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.

Notification date Notifier Disclosure (% of capital)
Dec 30, 2010 FMR LLC
(held indirectly through Fidelity Management & Research Company, Pyramis Global Advisors Trust Company, Pyramis Global Advisors LLC)
10.72%
(9,439,128 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)
Sept 18, 2008 Gemalto N.V.
(4,884,596 shares (5.55%) were held in treasury by the Company as of Dec 31, 2010)
5.17%
(4,549,965 shares)

The Dutch corporate governance code can be found on www.commissiecorporategovernance.nl.