Arla Foods Annual Report 2020

Management Review Our Strategy Our Brands and Commercial Segments Our Responsibility Our Governance Our Performance Review Our Consolidated Financial Statements Our Consolidated Environmental, Social and Governance Data GOVERNANCE FRAMEWORK (CONTINUED) COOPERATIVE GOVERNANCE Arla's democratic structure gives decision-making authority to the Board of Directors (BOD) and to the Board of Representatives (BOR). Their primary tasks are to develop the ownership base, safeguard the cooperative democracy, embed decisions and develop leadership competencies amongst farmer owners, and set the overall strategic direction for Arla. Owners In 2020, 9,406 milk producers in Sweden, Denmark, Germany, the UK, Belgium, Netherlands and Luxemburg were the joint owners of Arla. Last year, the cooperative had 9,759 joint owners. The decline in the number of farmers is partly due to farmers who stopped producing milk, or sold their business to another member, and to a lesser extent due to famers resigning to supply another dairy company. This decline is in line with the trend seen in the whole dairy sector over a number of years. All cooperative owners have the opportunity to influence significant decisions. District councils Each year, cooperative owners convene for a local annual assembly in their respective countries to ensure the democratic influence of the cooperative owners in the owner countries. The members in the district elect members to represent their district on the BoR. Board of Representatives The BoR is the supreme decision-making body comprising 187 members, of whom 175 are cooperative owners, and 12 are employee represent- atives. Owner representatives are elected every other year in odd years. The democratic process leading up to elections is challenged in the online format, thus the BoR has decided to postpone the 2021 elections to 2022. The BoR makes decisions including appropriation of profit for the year and elects the BoD. The BoR meets at least twice a year. Board of Directors Appointed by the BoR, the BoD is responsible for strategic direction setting, monitoring the company's activities and asset management, maintaining the accounts satisfactorily and appointing the Executive Board. The BoD is also responsible for ensuring that Arla is managed in the best interest of the farmer owners and making decisions concerning the ownership structure. They also take care of other stakeholders' interests in the company: lenders, investors in bond instruments and employees, among others. The BoD consists of 15 elected farmer owners, three employee representatives and two external advisors. In the 2019 election cycle, four new elected members joined the BoD, and two external members were also appointed to ensure that the BoD's skill set covers all important areas for leading an international business. The composition of the elected members of the BoD reflects Arla's ownership structure across the countries. Area councils Arla has four area councils that are sub-committees of the BoD and consist of members of the BoD, as well as members of the BoR. The area councils are established in the four democratic areas: Sweden, Denmark, Central Europe and the UK to take care of matters of special interest to the farmer owners in each geographic area. CORPORATE GOVERNANCE Corporate governance in Arla is shared between the Executive Board and the Board of Directors (BOD). Together they define and ensure adherence to the company's strategic direction, organise and manage the company, supervise management and ensure compliance. Executive Board The Executive Board, appointed by the Board of Directors, is responsible for managing the company, ensuring the proper long-term growth of the company from a global perspective, driving the strategic direction, following up on targets for the year and defining company policies, while striving for a sustainable increase in company value. Further- more, the Executive Board ensures appropriate risk management and risk controlling, as well as compliance with statutory regulations and internal guidelines. The Executive Board is usually comprised of the CEO and another member of the Executive Management Team. From 1 February 2019, Chief Commercial Officer for Europe, Peter Giørtz-Carlsen was appointed to the Executive Board. Executive Management Team The Executive Management Team (EMT) is appointed by the Executive Board. The EMT is responsible for Arla's day-to-day business operations, preparing strategies and planning the future operating structure. The EMT consists of the Executive Board plus four functional experts and one commercial leader. The functional experts cover the management areas of Finance, IT and Legal (CFO), Marketing and Innovation (CMO), Human Resources (CHRO), and Supply Chain (CSO); while the commercial leader is responsible for our international commercial segment. The members of the EMT keep each other informed on all significant developments in their business area and align on all cross-function- al measures. Employees Arla has 20,020 full-time equivalents (FTE) globally, compared to 19,174 last year. Our employees are represented by three members in the BoD and 12 members in the BoR. 39 ARLA FOODS ANNUAL REPORT 2020

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